<PAGE>
As Filed With the Securities and Exchange Commission on March 26, 1996
Registration No. 33-12179
811-5040
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 14 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 18 [x]
TOTAL RETURN U.S. TREASURY FUND, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, Maryland 21202
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
--------------
Edward J. Veilleux
135 East Baltimore Street
Baltimore, Maryland 21202
---------------------------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
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It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
_____ on [Date] pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on [Date] pursuant to paragraph (a) of Rule 485.
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Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for the fiscal year ended October 31,
1995 was filed with the Commission on December 20, 1995.
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND
CLASS A AND CLASS B SHARES
March 26, 1996
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- --------
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Financial Highlights
Item 4. General Description of Registrant................................ Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund........................................... Management of the Fund;
Investment Advisor;
Administrator;
Distributor; Custodian,
Transfer Agent,
Accounting Services
Item 5A. Management's Discussion of Fund Performance...................... *
Item 6. Capital Stock and Other Securities............................... Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............................. How to Invest in
the Fund; Distributor
Item 8. Redemption or Repurchase......................................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................................ **
- ---------------
* Information required by Item 5A is contained in Registrant's
1995 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not
applicable.
<PAGE>
Part B - Information Required in a Statement of Additional Information
- --------
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information
and History
Item 13. Investment Objectives and Policies............................... Investment Objectives
and Policies
Item 14. Management of the Fund........................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities.............. Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services........................... Investment Advisory and
Other Services;
Custodian, Transfer
Agent, Accounting
Services; Independent
Auditors
Item 17. Brokerage Allocation............................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities............................... Capital Shares;
Reports
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.......................................................... Valuation of Shares
and Redemption
Item 20. Tax Status....................................................... Federal Tax Treatment
of Dividends and
Distributions
Item 21. Underwriters..................................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data.................................. Performance and Yield
Computations
Item 23. Financial Statements............................................. Financial Statements
Part C - Other Information
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Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
LOGO
FLAG INVESTORS
TOTAL RETURN U.S. TREASURY FUND SHARES
(Class A and Class B)
(Classes of Total Return U.S. Treasury Fund, Inc.)
Total Return U.S. Treasury Fund, Inc. (the "Fund") is designed to provide:
1) A high level of total return with relative stability of principal.
2) High current income, consistent with investment in securities issued by
the United States Treasury ("U.S. Treasury Securities").
The Fund will invest only in U.S. Treasury Securities and in repurchase
agreements fully collateralized by U.S. Treasury Securities.
Shares of the Flag Investors classes of the Fund are available through Alex.
Brown & Sons Incorporated, as well as Participating Dealers and Shareholder
Servicing Agents. This Prospectus relates to Flag Investors Class A Shares
("Class A Shares") and Flag Investors Class B Shares ("Class B Shares") of the
Fund. The separate classes provide investors with alternatives as to sales load
and Fund expenses. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing, and should be retained for future reference. A
Statement of Additional Information dated March 1, 1996, as amended through
___________, 1996, has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated herein by reference. It is available upon
request and without charge by calling the Fund at (800) 767-FLAG.
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THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
The date of this Prospectus is _________, 1996
<PAGE>
FLAG INVESTORS
TOTAL RETURN U.S. TREASURY FUND SHARES
Class A and Class B
(Classes of Total Return U.S. Treasury Fund, Inc.)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
-----------------
Page
1. Fee Table ........................................ 2
2. Financial Highlights ............................. 3
3. Investment Program ............................... 6
4. Investment Restrictions .......................... 8
5. How to Invest in the Fund ........................ 9
6. How to Redeem Shares ............................. 16
7. Telephone Transactions ........................... 17
8. Dividends and Taxes .............................. 18
9. Management of the Fund ........................... 20
10. Investment Advisor ............................... 20
11. Administrator .................................... 22
12. Distributor ...................................... 22
13. Custodian, Transfer Agent, Accounting Services ... 23
14. Performance Information .......................... 24
15. General Information .............................. 26
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information
must not be relied upon as having been authorized by the Fund or Alex.
Brown. This Prospectus does not constitute an offering by the Fund or Alex.
Brown in any jurisdiction in which such offering may not lawfully be made.
Shares may be offered only to residents of those states in which such
shares are eligible for purchase.
- --------------------------------------------------------------------------------
1
<PAGE>
================================================================================
1. Fee Table
...............................................................................
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ...................... 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) ............................................. None* 2.00%**
- ---------------------------------------------------------------------------------------------
Annual Fund Operating Expenses:
(as a percentage of average net assets)
- ---------------------------------------------------------------------------------------------
Management Fees ..................................... .27% .27%
12b-1 Fees .......................................... .25% .35%
Other Expenses (including a .25% shareholder
servicing fee for Class B Shares) ................. .28% .53%***
--- ----
Total Fund Operating Expenses ....................... .80% 1.15%
=== ====
- ---------------------------------------------------------------------------------------------
</TABLE>
*Purchases of $1 million or more are not subject to an initial sales
charge, however, a contingent deferred sales charge of .50% may be imposed
on such purchases. (See "How to Invest in the Fund -- Class A Shares.")
**A declining contingent deferred sales charge will be imposed on
redemptions of Class B Shares made within five years of purchase. Class B
Shares will automatically convert to Class A Shares five years after
purchase. (See "How to Invest in the Fund -- Class B Shares.")
***A portion of the shareholder servicing fee is allocated to member firms of
the National Association of Securities Dealers, Inc. and qualified banks
for continued personal service by such members to investors in Class B
Shares, such as responding to shareholder inquiries, quoting net asset
values, providing current marketing materials and attending to other
shareholder matters.
EXAMPLE:
<TABLE>
<CAPTION>
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at
the end of each time period: 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares .................... $53 $70 $88 $144
Class B Shares .................... $32 $47 $65 $128*
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
You would pay the following expenses
on the same investment, assuming no
redemption:* 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares .................... $12 $37 $65 $128*
- ------------------------------------------------------------------------------------
</TABLE>
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of five years. Therefore, the expense figures assume five years of
Class B expenses and five years of Class A expenses.
2
<PAGE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
Management Fees paid by the Fund are based in part on the net assets of the Fund
and in part on gross income, which fees are reflected as a percentage of average
net assets. A person who purchases shares of either class through a financial
institution may be charged separate fees by the financial institution. (For more
complete descriptions of the various costs and expenses, see "How to Invest in
the Fund", "Investment Advisor", "Administrator" and "Distributor.") The
Expenses and Example for the Class A Shares appearing in the table above are
based on the Fund's expenses (.80%) for the fiscal year ended October 31, 1995
and are based on average daily net assets of approximately $365 million and a
gross income level of 6.74%. The Expenses and Example for the Class B Shares,
which have not been offered prior to the date of this Prospectus, are based on
those for the Class A Shares plus the incremental 12b-1 and service fee costs.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, certain investors may qualify for reduced sales
charges. (See "How to Invest in the Fund -- Class A Shares.") Due to the
continuous nature of Rule 12b-1 fees, long-term shareholders may pay more
than the equivalent of the maximum front-end sales charges permitted by the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc. The foregoing table has not been audited by Deloitte & Touche LLP, the
Fund's independent auditors.
================================================================================
2. Financial Highlights
The Fund was organized as a corporation under the laws of the State of
Maryland on June 3, 1988 and commenced operations on August 10, 1988. The
financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended October 31, 1995 and the independent
auditors' report thereon of Deloitte & Touche LLP are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended October 31,
1995, which can be obtained at no charge by calling the Fund at (800)
767-FLAG. The Fund did not offer the Class B Shares prior to the date of this
Prospectus. Accordingly, no financial information is given.
3
<PAGE>
(For a Class A Share outstanding throughout each period)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 10,
1988
(comence-
ment of
operations)
For the Year Ended October 31, through
------------------------------------------------------------------------ October 31,
1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period $9.22 $11.35 $10.47 $10.41 $9.76 $10.55 $10.24 $10.00
--------- --------- ---------- ---------- --------- --------- --------- --------
Income from Investment Operations:
Net investment income 0.57 0.51 0.62 0.76 0.70 0.73 0.71 0.10
Net realized and unrealized
gain/(loss) on investments 1.04 (1.16) 1.12 0.05 0.79 (0.60) 0.44 0.21
--------- --------- ---------- ---------- --------- --------- --------- --------
Total from Investment Operations 1.61 (0.65) 1.74 0.81 1.49 0.13 1.15 0.31
Less Distributions:
Dividends from net investment income
and short-term gains (0.64) (1.20) (0.79) (0.70) (0.84) (0.92) (0.84) (0.07)
Distributions from net realized
long-term gains -- (0.28) (0.07) (0.05) -- -- -- --
--------- --------- ---------- ---------- --------- --------- --------- --------
Total distributions (0.64) (1.48)(1) (0.86) (0.75) (0.84) (0.92) (0.84) (0.07)
--------- --------- ---------- ---------- --------- --------- --------- --------
Net asset value at end of period $10.19 $9.22 $11.35 $10.47 $10.41 $9.76 $10.55 $10.24
========= ========= ========== ========== ========= ========= ========= ========
Total Return** 18.09% (6.22)% 17.33% 8.96% 15.89% 1.43% 11.87% 3.10%
Ratios to Average Net Assets:
Expenses 0.80% 0.77% 0.77% 0.77% 0.87% 0.89% 0.97% 1.12%*
Net investment income 5.94% 4.98% 5.21% 5.65% 6.88% 7.40% 7.51% 5.80%*
Supplemental Data:
Net assets at end of period (000):
Flag Investors Class A Shares $164,206 $175,149 $224,790 $250,210 $237,688 $198,556 $135,523 $55,757
ISI Class Shares $206,615 $200,309 $232,103 $207,518 $168,128 $131,872 $89,943 $22,597
Portfolio turnover rate 194% 68% 249% 191% 141% 79% 184% 72%
</TABLE>
- ------
* Annualized.
** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
(1) Distributions to shareholders include $0.05 per share return of capital.
4-5
<PAGE>
===============================================================================
3. Investment Program
...............................................................................
INVESTMENT OBJECTIVE, POLICIES
AND RISK CONSIDERATIONS
The Fund's investment objective is to seek a high level of total return,
with relative stability of principal, and, secondarily, to seek a high level
of current income consistent with an investment in U.S. Treasury Securities.
The Fund will invest only in U.S. Treasury Securities and in repurchase
agreements fully collateralized by U.S. Treasury Securities. U.S. Treasury
Securities include Treasury bills, Treasury notes, Treasury bonds and
Separate Trading of Registered Interest and Principal of Securities
("STRIPS"). All such obligations are direct obligations of the United States
Government and are supported by the full faith and credit of the United
States. STRIPS are U.S. Treasury Securities which do not pay interest
currently, but which are purchased at a discount and are payable in full at
maturity. The value of STRIPS may be subject to greater market fluctuations
from changing interest rates prior to maturity than the value of other U.S.
Treasury Securities of comparable maturities that bear interest currently.
The Fund's investment objectives may be changed only by the affirmative vote
of a majority of the outstanding shares of all classes of the Fund. There can
be no assurance that the Fund's investment objective will be met.
The Fund may enter into forward commitments for the purchase of U.S.
Treasury Securities and, as noted, may enter into repurchase agreements
collateralized by U.S. Treasury Securities with commercial banks and
registered broker-dealers. These investment practices, which may involve
certain special risks, are described below.
...............................................................................
SELECTION OF INVESTMENTS
The Fund's investment advisor is International Strategy and Investment Inc.
("ISI" or the "Advisor" -- see "Investment Advisor"). ISI buys and sells
securities for the Fund's portfolio with a view toward, first, a high level of
total return with relative stability of principal and, second, high current
income. Therefore, in addition to yield, the potential for capital gains and
appreciation resulting from possible changes in interest rates will be a
consideration in selecting investments. ISI will be free to take full advantage
of the entire range of maturities offered by U.S. Treasury Securities and may
adjust the average maturity of the Fund's portfolio from time to time, depending
on its assessment of the relative yields available on securities of different
6
<PAGE>
maturities and its expectations of future changes in interest rates. Thus, at
certain times the average maturity of the portfolio may be relatively short
(from under one year to five years, for example) and at other times may be
relatively long (over 10 years, for example). In determining which direction
interest rates are likely to move, the Advisor relies on the economic analysis
made by its chairman, Edward S. Hyman. There can be no assurance that such
economic analysis will accurately predict interest rate trends or that the
portfolio strategies based on Mr. Hyman's economic analysis will be effective.
...............................................................................
SPECIAL RISK CONSIDERATIONS
U.S. Treasury Securities are considered among the safest of fixed- income
investments. Because of this added safety, the yields available from these
securities are generally lower than the yields available from corporate debt
securities. As with other debt securities, the value of U.S. Treasury
Securities changes as interest rates fluctuate. Changes in the value of
portfolio securities will not affect interest income from those securities
but will be reflected in the Fund's net asset value. Thus, a decrease in
interest rates will generally result in an increase in the value of the
Fund's shares. Conversely, during periods of rising interest rates, the value
of the Fund's shares will generally decline. The magnitude of these
fluctuations will generally be greater at times when the Fund's average
maturity is longer.
...............................................................................
REPURCHASE AGREEMENTS
The Fund may agree to purchase U.S. Treasury Securities from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. The
Fund will enter into repurchase agreements only with banks and broker-
dealers that have been determined to be creditworthy by the Fund's Board of
Directors under criteria established with the assistance of the Advisor.
Default by the seller may, however, expose the Fund to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying obligations. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund may be delayed or
limited in its ability to sell the collateral.
...............................................................................
PURCHASE OF WHEN-ISSUED SECURITIES
From time to time, in the ordinary course of business, the Fund may make
purchases of U.S. Treasury Securities, at the current market value of
7
<PAGE>
the securities, on a when-issued basis. When such transactions are
negotiated, the yield to maturity is fixed. The coupon interest rate on such
U.S. Treasury Securities is fixed at the next succeeding U.S. Treasury
auction date, thereby determining the price to be paid by the Fund. Delivery
and payment will take place after the date of the auction. A segregated
account of the Fund, consisting of cash, cash equivalents or U.S. Treasury
Securities equal at all times to the amount of the when-issued commitments
will be established and maintained by the Fund at the Fund's custodian.
Additional cash or U.S. Treasury Securities will be added to the account when
necessary. While the Fund will purchase securities on a when-issued basis
only with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable to limit the
effects of adverse market action. The securities so purchased or sold are
subject to market fluctuation and no interest accrues to the purchaser during
this period. At the time of delivery of the securities, their value may be
more or less than the purchase or sale price. The Fund will ordinarily invest
no more than 40% of its net assets at any time in U.S. Treasury Securities
purchased on a when-issued basis.
================================================================================
4.Investment Restrictions
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations.
1) As a matter of fundamental policy, the Fund will not borrow money except
as a temporary measure for extraordinary or emergency purposes and then
only from banks and in an amount not exceeding 10% of the value of the
total assets of the Fund at the time of such borrowing, provided that,
while borrowings by the Fund equaling 5% or more of its total assets are
outstanding, the Fund will not purchase securities for investment. This
restriction may not be changed without the affirmative vote of a majority
of the outstanding shares of the Fund.
2) Additionally, the Fund will not invest more than 10% of the value of its
net assets in repurchase agreements with remaining maturities in excess of
seven days and other illiquid securities. This restriction may be changed
by a majority vote of the Board of Directors.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
8
<PAGE>
================================================================================
5. How to Invest in the Fund
Class A Shares and Class B Shares may be purchased from Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202 ("Alex.
Brown"), through any securities dealer which has entered into a dealer
agreement with Alex. Brown ("Participating Dealers") or through any financial
institution which has entered into a shareholder servicing agreement with the
Fund ("Shareholder Servicing Agents"). Shares of either class may also be
purchased by completing the Application Form attached to this Prospectus and
returning it, together with payment of the purchase price (including any
applicable front-end sales charge), to the address shown on the Application
Form. Participating Dealers or Shareholder Servicing Agents and their
investment representatives may receive different levels of compensation
depending on which class of shares they sell.
The Class A and Class B alternatives permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and
other circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the combination of sales
charge and distribution fee on Class A Shares is more favorable than the
combination of distribution/service fees and contingent deferred sales charge
on Class B Shares. In almost all cases, investors planning to purchase
$250,000 or more of Fund shares will pay lower aggregate charges and expenses
by purchasing Class A Shares. Accordingly, the Fund will not accept purchases
for Class B Shares in excess of $250,000 per account. (See "Fee Table.")
The minimum initial investment in shares of either class is $2,000, except
that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Fund's Automatic Investing Plan is $250. Each subsequent
investment must be at least $100 per class, except that the minimum
subsequent investment under the Fund's Automatic Investing Plan is $250 for
quarterly investments and $100 for monthly investments. (See "Purchases
Through Automatic Investing Plan" below.) There is no minimum investment
requirement for qualified retirement plans (i.e., 401(k) plans or pension and
profit sharing plans). IRA accounts are, however, subject to the $2,000
minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts.
The Fund reserves the right to suspend the sale of shares at any time at the
discretion of Alex. Brown and the Fund's Advisor. Orders for purchases of shares
9
<PAGE>
are accepted on any day on which the New York Stock Exchange is open for
business ("Business Day"). Purchase orders for shares will be executed at a per
share purchase price equal to the net asset value next determined after receipt
of the purchase order plus any applicable front-end sales charge (the "Offering
Price") on the date such net asset value is determined (the "Purchase Date").
Purchases made by mail must be accompanied by payment of the Offering Price.
Purchases made through Alex. Brown or a Participating Dealer or Shareholder
Servicing Agent must be in accordance with such entity's payment procedures.
Alex. Brown may, in its sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing all assets held by the Fund, deducting all liabilities, including
liabilities attributable to that specific class, and dividing the resulting
amount by the number of then outstanding shares of the class. Securities are
valued on the basis of their last sale price (or in the absence of recorded
sales, at the average of readily available closing bid and asked prices).
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Advisor under procedures established from time to time and monitored by the
Fund's Board of Directors. Debt obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined
by the Directors.
...............................................................................
OFFERING PRICE
Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price, which for Class A Shares
includes a sales charge which is calculated as a percentage of the Offering
Price and for Class B Shares is net asset value.
...............................................................................
CLASS A SHARES
The sales charge on Class A Shares, which decreases as the amount of the
purchase increases, is shown below:
Sales Charge
as Percentage of Dealer
------------------------------ Retention
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- ------------------ ------------ -------------- -----------------
Less than $ 50,000 ..... 4.50% 4.71% 4.00%
$ 50,000 - $ 99,999 ..... 3.50% 3.63% 3.00%
$ 100,000 - $249,999 .... 2.50% 2.56% 2.00%
$ 250,000 - $499,999 .... 2.00% 2.04% 1.50%
$ 500,000 - $999,999 .... 1.50% 1.52% 1.25%
$1,000,000 and over ...... None* None* None*
- ------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The distributor may make payments to dealers in
the amount of .50% of the Offering Price.
10
<PAGE>
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of accumulation.
In addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Class A Shares and purchases of
shares of other Flag Investors funds with the same sales charge and purchases of
Flag Investors shares of Flag Investors Intermediate-Term Income Fund, Inc. and
Flag Investors Maryland Intermediate Tax Free Income Fund, Inc. (the
"Intermediate Funds"). The applicable sales charge will be determined based on
the total of (a) the shareholder's current purchase plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of all Class A
Shares and of all Flag Investors shares described above and any Flag Investors
Class D shares held by the shareholder. To obtain the reduced sales charge
through a right of accumulation, the shareholder must provide Alex. Brown,
either directly or through a Participating Dealer or Shareholder Servicing
Agent, as applicable, with sufficient information to verify that the shareholder
has such a right. The Fund may amend or terminate this right of accumulation at
any time as to subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases which will be aggregated, by a
purchaser, the purchaser's spouse and their children under the age of 21
years purchasing Class A Shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the
Offering Price applicable at the time of such purchase to the full amount
indicated on the Letter of Intent. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The
minimum initial investment under a Letter of Intent is 5% of the full amount.
Class A Shares purchased with the first 5% of the full amount will be held in
escrow (while remaining registered in the name of the investor) to secure
payment of the higher sales charge applicable to the Class A Shares actually
purchased if the full amount indicated is not invested. Such escrowed shares
will be involuntarily redeemed to pay the additional sales charge, if
necessary. When the full amount indicated has been purchased, the escrowed
shares will be released. An investor who wishes to enter into a Letter of
Intent in conjunction with an investment in Class A Shares may do so by
completing the appropriate section of the Application Form attached to this
Prospectus.
11
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No sales charge will be payable at the time of purchase on investments of
$1 million or more of Class A Shares. However, a contingent deferred sales
charge may be imposed on such investments in the event of a redemption within
24 months following the purchase, at the rate of .50% on the lesser of the
value of the Class A Shares redeemed or the total cost of such shares. No
contingent deferred sales charge will be imposed on purchases of $3 million
or more of Class A Shares redeemed within 24 months of purchase if the
Participating Dealer and Alex. Brown have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales
charge is payable, and, if so, the amount of the charge, it is assumed that
Class A Shares not subject to such charge are the first redeemed followed by
other Class A Shares held for the longest period of time.
The Fund may sell Class A Shares at net asset value (without sales charge)
to the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing Class A
Shares on behalf of their fiduciary and advisory clients, provided such
clients have paid an account management fee for these services (investors may
be charged a fee if they effect transactions in Fund shares through a broker
or agent); (ii) qualified retirement plans; (iii) participants in a Flag
Investors fund payroll savings plan program; (iv) investors who have redeemed
Class A Shares, or shares of any other mutual fund in the Flag Investors
family of funds with the same sales charges, or who have redeemed shares of
the Intermediate Funds which they had held for at least 24 months prior to
redemption, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within 90 days after the redemption; and (v)
current or retired Directors of the Fund, and directors and employees (and
their immediate families) of Alex. Brown, ISI and Participating Dealers and
their respective affiliates.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
...............................................................................
CLASS B SHARES
No sales charge will be payable at the time of purchase of Class B Shares.
However, a contingent deferred sales charge will be imposed on certain Class B
Shares redeemed within five years of purchase. The charge is assessed on an
12
<PAGE>
amount equal to the lesser of the then-current market value of the Class B
Shares redeemed or the total cost of such shares. Accordingly, the contingent
deferred sales charge will not be applied to dollar amounts representing an
increase in the net asset values above the initial purchase price of the shares
being redeemed. In addition, no charge is assessed on redemptions of Class B
Shares derived from reinvestment of dividends or capital gains distributions.
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first
of any Class B Shares in the shareholder's account that represent invested
dividends and distributions and second of Class B Shares held the longest
during the [five] year period. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
payment for the purchase of Class B Shares until the redemption of such
shares (the "holding period"). For purposes of determining this holding
period, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates
of the contingent deferred sales charge.
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar amount
Payment was Made subject to charge)
- -----------------------------------------------------------------
First ................ 2.0%
Second ............... 2.0%
Third ................ 1.0%
Fourth ............... 1.0%
Fifth ................ 1.0%
Thereafter ........... None*
- -----------------------------------------------------------------
*As described more fully below, Class B Shares automatically convert to
Class A Shares five years after the beginning of the calendar month in
which the purchase order is accepted.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Class B Shares (i) following the
death or initial determination of disability (as defined in the Internal Revenue
Code of 1986, as amended) of a shareholder; or (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has attained
the age of 70 1/2. The waiver with respect to (i) above is only applicable in
cases where the shareholder account is registered (a) in the name of an
individual person, (b) as a joint tenancy with rights of survivorship, (c) as
community property or (d) in the name of a minor child under the Uniform Gifts
or Uniform Transfers to Minors Act. A shareholder, or his or her representative,
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<PAGE>
must notify the Fund's transfer agent (the "Transfer Agent") prior to the time
of redemption if such circumstances exist and the shareholder is eligible for
this waiver. For information on the imposition and waiver of the contingent
deferred sales charge, contact the Transfer Agent at (800) 553-8080.
Automatic Conversion to Class A Shares.Five years after the beginning of
the calendar month in which the purchase order for Class B Shares is
accepted, such Class B Shares will automatically convert to Class A Shares
and will no longer be subject to the higher distribution and service fees.
Such conversion will be on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or other charge.
The conversion is not a taxable event to the shareholder.
For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in the shareholder's account
will be considered to be held in a separate sub-account. Each time any Class
B Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares.
Class B Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
================================================================================
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their Class A
shares of those funds for an equal dollar amount of Class A Shares. Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge. In addition, shareholders of the
Intermediate Funds may exchange into Class A Shares upon payment of the
difference in sales charges, as applicable, except that the exchange will be
made at net asset value if the shares of such funds have been held for more
than 24 months. Shareholders of Flag Investors Cash Reserve Prime Class A
Shares may exchange into Class A Shares upon payment of the difference in
sales charges, as applicable, or into Class B Shares at net asset value,
subject thereafter to any applicable contingent deferred sales charge.
When a shareholder acquires Fund shares through an exchange from another fund
in the Flag Investors family of funds, the Fund will combine the period for
which the original shares were held prior to the exchange with the holding
14
<PAGE>
period of the shares acquired in the exchange for purposes of determining what,
if any, contingent deferred sales charge is applicable upon a redemption of any
such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time, or the close of the New York Stock Exchange, whichever is earlier).
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.
Shareholders of any mutual fund not affiliated with the Fund who have paid
a sales charge may exchange shares of such fund for an equal dollar amount of
Class A Shares by submitting to Alex. Brown or a Participating Dealer the
proceeds of the redemption of such shares, together with evidence of the
payment of a sales charge and the source of such proceeds. Class A Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.) The exchange
privilege may be exercised only in those states where the class of shares of
such other funds may legally be sold. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange. The Fund may
modify or terminate this offer of exchange at any time upon 60 days' prior
written notice to shareholders.
...............................................................................
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase either Class A Shares or Class B Shares
regularly by means of an Automatic Investing Plan with a pre-authorized check
drawn on their checking accounts. Under this plan, the shareholder may elect
to have a specified amount invested monthly or quarterly in either Class A
Shares or Class B Shares. The amount specified will be withdrawn from the
shareholder's checking account using the pre-authorized check and will be
invested in the class of shares selected by the shareholder at the applicable
Offering Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued either by
the Fund or the shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investing Plan may
do so by completing the appropriate section of the Application Form attached
to this Prospectus.
15
<PAGE>
...............................................................................
PURCHASES THROUGH DIVIDEND REINVESTMENT PLAN
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Fund shares of the
same class. A shareholder who wishes to enroll in the Dividend Reinvestment
Plan should check the appropriate box on the Application Form or call (800)
553-8080 for additional information.
Alternately, shareholders may have their distributions invested in shares
of other funds in the Flag Investors family of funds. Shareholders who are
interested in this option should call (800) 553-8080 for additional
information.
Reinvestments of distributions will be effected without a sales charge.
================================================================================
6. How to Redeem Shares
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent"). Shareholders may also redeem
shares of either class by telephone (in amounts up to $50,000). (See
"Telephone Transactions" below.) A redemption order is effected at the net
asset value per share (reduced by any applicable contingent deferred sales
charge) next determined after receipt of the order (or, if stock certificates
have been issued for the shares to be redeemed, after the tender of the stock
certificates for redemption). Redemption orders received after 4:00 p.m.
(Eastern Time) will be effected at the net asset value next determined on the
following Business Day. Payment for redeemed shares will be made by check and
will be mailed within seven days after receipt of a duly authorized telephone
redemption request or of a redemption order fully completed and, as
applicable, accompanied by the documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount to be redeemed, signed by all owners of the shares in the exact
names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
16
<PAGE>
3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of the redemption of shares will be paid
on the next dividend payable date. If all of the shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' notice.
...............................................................................
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Class A Shares or Class B Shares having a value of
$10,000 or more may arrange to have a portion of their shares redeemed
monthly or quarterly under the Fund's Systematic Withdrawal Plan. Such
payments are drawn from income dividends, and to the extent necessary, from
share redemptions (which would be a return of principal and, if reflecting a
gain, would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because share purchases include a sales charge that
will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of shares. In addition, Class B Shares may be subject to a
contingent deferred sales charge upon redemption. (See "How to Invest in the
Fund -- Class B Shares.") A shareholder who wishes to enroll in the
Systematic Withdrawal Plan may do so by completing the appropriate section of
the Application Form attached to this Prospectus.
================================================================================
7. Telephone Transactions
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem shares of either class in amounts up to
$50,000, by notifying the Transfer Agent by telephone at (800) 553-8080 on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time)
or by regular or express mail at its address listed under "Custodian,
Transfer Agent, Accounting Services." Telephone transaction privileges are
automatic. Shareholders may specifically request that no telephone
17
<PAGE>
redemptions or exchanges be accepted for their accounts. This election may be
made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred
sales charge on redemptions) as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund -- Purchases by Exchange" and "How
to Redeem Shares.")
================================================================================
8. Dividends and Taxes
...............................................................................
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of dividends that are declared
daily and paid monthly. The Fund may distribute to shareholders any net
capital gains on an annual basis or, alternatively, may elect to retain net
capital gains and pay tax thereon.
Unless the shareholder elects otherwise, all dividends and net capital
gains distributions, if any, will be reinvested in additional Fund shares of
the same class at net asset value. Shareholders may elect to have income
dividends or capital gains distributions paid in cash. Shareholders wishing
18
<PAGE>
to change their election must give written notice to the Transfer Agent (see
"Custodian, Transfer Agent, Accounting Services"), either directly or through
their Participating Dealer or Shareholder Servicing Agent, at least five days
before the next date on which dividends or distributions will be paid.
...............................................................................
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information concerning
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, will generally pay federal income or
capital gains taxes on the amounts so distributed. Reinvested distributions
will be taxed as if they had been distributed on the reinvestment date.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, are
treated by the shareholder as long-term capital gains regardless of the
length of time the shareholder has held the shares. All other income
distributions are taxed to the shareholders as ordinary income. Fund
distributions generally will not be eligible for the corporate dividends
received deduction. Shareholders will be advised annually as to the federal
income tax status of distributions made during the year.
Ordinarily, shareholders will include all dividends declared by the Fund
as income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
19
<PAGE>
The sale, exchange or redemption of Fund shares is a taxable event for the
shareholder.
The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
Shareholders are urged to consult with their tax advisors concerning the
application of state and local taxes to investments in the Fund, which may
differ from the federal income tax consequences described above. For example,
under certain specified circumstances, state income tax laws may exempt from
taxation distributions of a regulated investment company to the extent that such
distributions are derived from interest on federal obligations. Shareholders are
urged to consult with their tax advisors regarding whether, and under what
conditions such exemption is available.
================================================================================
9. Management of the Fund
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributors, administrator,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's officers, to Alex. Brown, as distributor of the Flag
Investors classes, to the Advisor and to the Fund's administrator. Three
directors and all of the officers of the Fund are officers or employees of
Alex. Brown, ISI, or the Fund's administrator. The other directors of the
Fund have no affiliation with Alex. Brown, ISI, or the Fund's administrator.
The Fund's Directors and officers are as follows:
*Edward S. Hyman Chairman R. Alan Medaugh President
*Richard T. Hale Vice Chairman Edward J. Veilleux Vice President
*W. James Price Vice Chairman Gary V. Fearnow Vice President
James J. Cunnane Director Nancy Lazar Vice President
John F. Kroeger Director Brian C. Nelson Vice President and
Louis E. Levy Director Secretary
Eugene J. McDonald Director Carrie L. Butler Vice President
Harry Woolf Director Joseph A. Finelli Treasurer
Denice De Florio Assistant Vice
President
Laurie D. DePrine Assistant Secretary
- ------
*Messrs. Hyman, Hale and Price are "interested persons" of the Fund within
the meaning of Section 2(a)(19) under the Investment Company Act of 1940, as
amended (the "1940 Act").
20
<PAGE>
================================================================================
10. Investment Advisor
ISI, a registered investment advisor, serves as investment advisor to the
Fund pursuant to an investment advisory agreement dated as of April 1, 1991
(the "Investment Advisory Agreement"). ISI employs Messrs. Edward S. Hyman
and R. Alan Medaugh. Due to their stock ownership, Messrs. Hyman and Medaugh
may be deemed to be controlling persons of ISI. As of February 29, 1996, the
Advisor had approximately $1 billion under management. The Advisor also acts
as investment advisor to Managed Municipal Fund, Inc. and North American
Government Bond Fund, Inc., open-end management investment companies with
approximately $19.5 million in aggregate net assets as of February 29, 1996.
Pursuant to the terms of the Investment Advisory Agreement, as
compensation for its services for the fiscal year ended October 31, 1995, the
Advisor received an annual fee equal to .27% of the Fund's average daily net
assets. The Advisor's fee is based in part upon a varying percentage of the
Fund's average daily net assets and in part upon a percentage (1.5%) of the
Fund's gross income.
The address of the Advisor is 717 Fifth Avenue, New York, New York 10022.
...............................................................................
PORTFOLIO MANAGERS
Edward S. Hyman, Chairman of the Fund and ISI, and R. Alan Medaugh,
President of the Fund and ISI, have shared direct portfolio management
responsibility for the Fund since its inception. Mr. Hyman is responsible for
developing the economic analysis upon which the Fund's selection of
investments is based. (See "Investment Program.") Before joining ISI, Mr.
Hyman was a vice chairman and member of the Board of C.J. Lawrence Inc. and
prior thereto, an economic consultant at Data Resources. He writes a variety
of international and domestic economic research reports which follow trends
that may determine the direction of interest rates. These international and
domestic reports are sent to ISI's private institutional clients in the
United States and overseas. The periodical Institutional Investor, which
rates analysts and economists on an annual basis, has rated Mr. Hyman as its
"first team" economist, which is its highest rating, in each of the last
sixteen years.
Mr. Medaugh is responsible for day to day portfolio management. Prior to
joining ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
21
<PAGE>
Management and prior thereto Senior Vice President and bond portfolio manager at
Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
================================================================================
11. Administrator
Investment Company Capital Corp. ("ICC"), 135 East Baltimore Street,
Baltimore, Maryland 21202, a wholly-owned subsidiary of Alex. Brown, provides
administration services to the Fund. ICC supervises the day-to-day operations
of the Fund, including the preparation of registration statements, proxy
materials, shareholder reports, compliance with all requirements of
securities laws in the states in which the Fund's shares are distributed and
oversight of the relationship between the Fund and its other service
providers. As compensation for these services for the fiscal year ended
October 31, 1995, ICC received a fee equal to .12% of the Fund's average
daily net assets. ICC's fee is based in part upon a varying percentage of the
Fund's average daily net assets and in part upon a percentage (.50%) of the
Fund's gross income.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
================================================================================
12. Distributor
Alex. Brown acts as distributor of the Class A Shares and the Class B
Shares. Alex. Brown is an investment banking firm which offers a broad range
of investment services to individual, institutional, corporate and municipal
clients. It is a wholly-owned subsidiary of Alex. Brown Incorporated which
has engaged directly and through subsidiaries and affiliates in the
investment business since 1800. Alex. Brown is a member of the New York Stock
Exchange and other leading securities exchanges. Headquartered in Baltimore,
Maryland, Alex. Brown has offices throughout the United States and, through
subsidiaries, maintains offices in London, England, Geneva, Switzerland and
Tokyo, Japan.
The Fund has adopted two separate Distribution Agreements and related Plans
of Distribution, one with respect to the Class A Shares and one with respect to
the Class B Shares pursuant to Rule 12b-1 under the 1940 Act (the "Plans''). In
addition, the Fund may enter into Shareholder Servicing Agreements with certain
22
<PAGE>
financial institutions, such as banks, to act as Shareholder Servicing Agents,
pursuant to which Alex. Brown will allocate a portion of its distribution fee as
compensation for such financial institutions' ongoing shareholder services. Such
financial institutions may impose separate fees in connection with these
services and investors should review this Prospectus in conjunction with any
such institution's fee schedule. In addition, financial institutions may be
required to register as dealers pursuant to state securities laws. Amounts
allocated to Participating Dealers and Shareholder Servicing Agents may not
exceed amounts payable to Alex. Brown under the Plans with respect to shares
held by or on behalf of customers of such entities.
As compensation for providing distribution services for the Class A Shares
for the fiscal year ended October 31, 1995, Alex. Brown received a fee equal
to .25% of the Class A Shares' average daily net assets.
Under the Class B Plan, Alex. Brown will receive an annual distribution
fee, paid monthly, equal to .35% of the Class B Shares' average daily net
assets. In addition, Alex. Brown will receive an annual shareholder servicing
fee, paid monthly, equal to .25% of the Class B Shares' average daily net
assets. The distribution fee will be used to compensate Alex. Brown for its
services and expenses in distributing the Class B Shares. The shareholder
servicing fee will be used to compensate Alex. Brown, Participating Dealers
and Shareholder Servicing Agents for services provided and expenses incurred
in maintaining shareholder accounts, responding to shareholder inquiries and
providing information on their investments.
Payments under the Plans are made as described above regardless of Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is
less than .25% of the average daily net assets invested in Class A Shares or
in connection with the sale of the Class B Shares is less than .35% of the
average daily net assets invested in Class B Shares for any period, the
unexpended portion of the distribution fee may be retained by Alex. Brown.
Alex. Brown will from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Participating Dealers.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
23
<PAGE>
================================================================================
13. Custodian, Transfer Agent,
Accounting Services
PNC Bank, National Association ("PNC Bank"), a national banking
association with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Investment
Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080) is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services to the Fund for the fiscal year ended October
31, 1995, ICC received a fee equal to .03% of the Fund's average daily net
assets. (See the Statement of Additional Information.) ICC also serves as the
Fund's administrator.
================================================================================
14. Performance Information
From time to time, the Fund may quote total return and yield data in
advertisements or in reports to shareholders. Both total return and yield
data will be computed according to the standardized calculations required by
the SEC to provide consistency and comparability in investment company
advertising.
The yield of the Fund will be determined by dividing the net investment
income earned by the Fund during a 30 day period by the maximum offering
price per share on the last day of the period and annualizing the result on a
semi-annual basis.
Advertisements or reports citing performance data will show the average
annual total return, net of the Fund's maximum sales charge imposed on Class A
Shares or including the contingent deferred sales charge imposed on Class B
Shares redeemed at the end of the specific period covered by the total return
figure, over one, five and ten year periods or, if such periods have not yet
elapsed, shorter periods corresponding to the life of the Fund. Such return
quotations will be computed by finding average annual compounded rates of return
over such periods that would equate an assumed initial investment of $1,000 to
the ending redeemable value, net of all sales loads and other fees, according to
the required standardized calculation. The Fund's total return for a given
period is based upon changes in the Fund's net asset value and the Fund's yield
for the period. If the Fund compares its performance to other funds or to
relevant indices, its performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield. For these purposes, the performance of the Fund, as well as the
24
<PAGE>
performance of such investment companies or indices, may not reflect sales
charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index (or any of its sub-indices), the Consumer Price Index,
Ryan U.S. Treasury Index, the return on 90 day U.S. Treasury bills, the Standard
& Poor's 500 Stock Index and the Dow Jones Industrial Average. The Fund may also
use total return performance data as reported in the following national
financial and industry publications that monitor the performance of mutual
funds: Money Magazine, Forbes, Business Week, Barron's, Investor's Daily,
IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Yield quotations and performance comparisons may be useful as a basis for
comparing the Fund with other investment alternatives. However, shareholders
should realize that the Fund's current yield will fluctuate from time to time
and is not necessarily representative of the Fund's future performance. Yield
and performance data should also be considered in light of the risks associated
with the Fund's investment objective and policies. Any fees charged by banks
with respect to customer accounts through which shares may be purchased,
although not included in calculations of performance, will reduce performance
results.
Although expenses for Class B Shares may be higher than those for Class A
Shares, the performance of Class B Shares may be higher than the performance of
Class A Shares after giving effect to the impact of the sales charges and
distribution/service fees applicable to each class of shares.
The Fund's annual portfolio turnover rate (the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the portfolio during the year, excluding securities with maturities of one year
or less) may vary from year to year, as well as within a year, depending on
market conditions. For the fiscal years ended October 31, 1995 and October 31,
1994, the Fund's portfolio turnover rate was 194% and 68%, respectively. In late
1994 the Advisor decided, in light of then current market conditions, that the
maturity of the Fund's portfolio should be lengthened to take advantage of an
ISI forecasted declining interest rate trend. The Fund's portfolio turnover rate
for the fiscal year ended October 31, 1995 increased as a result of this change
in investment strategy. A high level of portfolio turnover may generate
relatively high transaction costs and may increase the amount of taxes payable
by the Fund's shareholders. (See "Dividends and Taxes.")
25
<PAGE>
================================================================================
15. General Information
...............................................................................
CAPITAL SHARES
The Fund was incorporated under the laws of the State of Maryland on June
3, 1988, and is authorized to issue 100 million shares of capital stock with
a par value of $.001 per share. Shares of the Fund have equal rights with
respect to voting. Voting rights are not cumulative, so the holders of more
than 50% of the outstanding shares of capital stock voting together for
election of Directors may elect all the members of the Board of Directors of
the Fund. In the event of liquidation or dissolution of the Fund, each share
is entitled to its portion of the Fund's assets after all debts and expenses
have been paid. The fiscal year end of the Fund is October 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests
in a separate portfolio of securities, and separate classes of each series of
the Fund. The shares offered by this Prospectus have been designated "Flag
Investors Total Return U.S. Treasury Fund Class A Shares" and "Flag Investors
Total Return U.S. Treasury Fund Class B Shares." The Board has no present
intention of establishing any additional series of the Fund but the Fund does
have another class of shares in addition to the shares offered hereby, "ISI
Total Return U.S. Treasury Fund Shares." Shares of that class are sold
through broker-dealers and have similar 12b-1 fees and front-end sales
charges as the Class A Shares. Different classes of the Fund may be offered
to certain investors and holders of such shares may be entitled to certain
exchange privileges not offered to Class A or Class B Shares. All classes of
the Fund share a common investment objective, portfolio of investments and
advisory fee, but the classes may have different sales load structures,
distribution/service fees or other expenses and, accordingly, the net asset
value per share of classes may differ at times.
...............................................................................
ANNUAL MEETINGS
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders will be held under certain circumstances.
Shareholders of the Fund reserve the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the
Fund will assist with shareholder communications in connection with the
meeting.
26
<PAGE>
...............................................................................
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors, Deloitte
& Touche LLP.
...............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
...............................................................................
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact Alex.
Brown at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
27
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
NEW ACCOUNT APPLICATION
- ----------------------------------------------------------------------------
Make check payable to "Flag Investors Total Return U.S. Treasury Fund Shares"
and mail with this application to:
Alex Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419426
Kansas City, MO 64141-6426
Attn: Flag Investors Total Return U.S. Treasury Fund Shares
For assistance in completing this application please call:
1-800-553-8080 8:30 a.m. to 5:30 p.m., Eastern Time, Monday-Friday.
To open an IRA account, call 1-800-767-3524 to request an IRA
application.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below: Please check the applicable box and indicate amount of
purchase.
[ ] Class A Shares (4.5% maximum initial sales charge) in the amount of
$______
[ ] Class B Shares (2.0% maximum contingent deferred sales charge) in
the amount of $______
The minimum initial purchase is $2,000, except that the minimum initial
purchase for shareholders of any other Flag Investors Fund or class is $500
and the minimum initial purchase for participants in the Fund's Automatic
Investing Plan is $250 per class. Each subsequent purchase requires a $100
minimum per class, except that the minimum subsequent purchase under the
Fund's Automatic Investing Plan is $250 for quarterly purchases and $100 for
monthly purchases. The maximum investment in Class B shares is $250,000 per
account. The Fund reserves the right not to accept checks for more than
$50,000 that are not certified or bank checks.
- --------------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any: _____________________________________________
INDIVIDUAL OR JOINT TENANT
_____________________________________________________________________________
First Name Initial Last Name
_____________________________________________________________________________
Social Security Number
_____________________________________________________________________________
Joint Tenant Initial Last Name
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
_____________________________________________________________________________
Name of Corporation, Trust or Partnership
______________________________________________________________________________
Tax ID Number Date of Trust
______________________________________________________________________________
Name of Trustees (If to be included in the Registration)
______________________________________________________________________________
For the Benefit of
GIFTS TO MINORS
______________________________________________________________________________
Custodian's Name (only one allowed by law)
______________________________________________________________________________
Minor's Name (only one)
______________________________________________________________________________
Social Security Number of Minor
under the ___________________Uniform Gifts to Minors Act
State of Residence
<PAGE>
MAILING ADDRESS
______________________________________________________________________________
Street
______________________________________________________________________________
City State Zip
(____)________________________________________________________________________
Daytime Phone
- --------------------------------------------------------------------------------
LETTER OF INTENT -- CLASS A SHARES ONLY (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Flag Investors Total Return U.S. Treasury
Fund Class A Shares, as shown below, in an aggregate amount at least equal
to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
- --------------------------------------------------------------------------------
RIGHT OF ACCUMULATION -- CLASS A SHARES ONLY (OPTIONAL)
[ ] I already own shares of the Flag Investors Fund(s) (except Class B
shares) set forth below to be applied for a reduced sales charge. List the
Account numbers of other Flag Investors Funds that you or your immediate
family (spouse and children under 21) already own that qualify for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
<PAGE>
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional shares of the same class of
the Fund at no sales charge.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $______ in Class A Shares or $______ in Class B Shares
for me, on a monthly or quarterly basis, on or about the 20th of each month
or if quarterly, the 20th of January, April, July and October, and to draw a
bank draft in payment of the investment against my checking account. (Bank
drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class
Subsequent Investments (check one):
[ ] Monthly ($100 minimum per class)
[ ] Quarterly ($250 minimum per class)
____________________________________________________________________________
Bank Name
____________________________________________________________________________
Existing Flag Investors Fund Account No., if any
Please attach a voided check.
____________________________________________________________________________
Depositor's Signature Date
____________________________________________________________________________
Depositor's Signature Date (if joint acct., both must sign)
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of ____________, 19__ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $______, from Class A Shares and/or $______, from Class B Shares
that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July, and October)
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/we do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the addess of record. If
you would prefer redemptions mailed to a pre- designated bank account, please
provide the following information:
Bank: ____________________________________________________________
Address: ____________________________________________________________
____________________________________________________________
Bank Account No:____________________________________________________________
Bank Account Name: _________________________________________________________
- -----------------------------------------------------------------------------
<PAGE>
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated ____________, 1996. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:__________________
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
_______________________________________________________________________________
Signature Date
_______________________________________________________________________________
Signature (if joint acct., both must sign) Date
For Dealer Use Only
Dealer's Name: ___________________ Dealer Code: ________________________
Dealer's Address:___________________ Branch Code: ________________________
_________________________________________
Representative: ___________________ Rep. No. ____________________________
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
March 26, 1996
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Financial Highlights
Item 4. General Description of Registrant................................ Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund........................................... Management of the Fund;
Investment Advisor;
Administrator;
Distributor; Custodian,
Transfer Agent,
Accounting Services
Item 5A. Management's Discussion of Fund Performance...................... *
Item 6. Capital Stock and Other Securities............................... Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............................. How to Invest in
the Fund; Distributor
Item 8. Redemption or Repurchase......................................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................................ **
- ---------------
* Information required by Item 5A is contained in Registrant's
1995 Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not
applicable.
<PAGE>
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information
and History
Item 13. Investment Objectives and Policies............................... Investment Objectives
and Policies
Item 14. Management of the Fund........................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities.............. Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services........................... Investment Advisory and
Other Services;
Custodian, Transfer
Agent, Accounting
Services; Independent
Auditors
Item 17. Brokerage Allocation............................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities............................... Capital Shares;
Reports
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.......................................................... Valuation of Shares
and Redemption
Item 20. Tax Status....................................................... Federal Tax Treatment
of Dividends and
Distributions
Item 21. Underwriters..................................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data.................................. Performance and Yield
Computations
Item 23. Financial Statements............................................. Financial Statements
</TABLE>
Part C - Other Information
- ------
Part C contains the information required by the items
contained therein under the items set forth in the form.
<PAGE>
The prospectus dated March 1, 1996 relating to the ISI Shares of Total Return
U.S. Treasury Fund, Inc. (the "Fund"), filed with the Securities and Exchange
Commission via EDGAR on February 26, 1996 as part of Post-Effective Amendment
No. 13 to the Fund's Registration Statement on Form N-1A (File No. 33-12179)
under Rule 485(b) under the Securities Act of 1933, as amended (the "1933 Act")
(Accession No. 0000950116-96-000097), and in final form under Rule 497(c) under
the 1933 Act via EDGAR on March 6, 1996 (Accession No. 0000950116-96-000131) is
incorporated herein by reference as if set forth in its entirety.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------------------------
TOTAL RETURN U.S. TREASURY FUND, INC.
135 East Baltimore Street
Baltimore, Maryland 21202
----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH A
PROSPECTUS FOR THE APPLICABLE CLASS, WHICH MAY BE OBTAINED
FROM YOUR PARTICIPATING DEALER OR BY WRITING OR CALLING
EITHER ALEX. BROWN & SONS INCORPORATED, 135 EAST BALTIMORE
ST., BALTIMORE, MARYLAND 21202, (800) 767-FLAG (FOR THE FLAG
INVESTORS SHARES CLASS) OR ARMATA FINANCIAL CORP., P.O. BOX
515, BALTIMORE, MARYLAND 21203, (410) 727-1700 (FOR THE ISI
SHARES CLASS).
Statement of Additional Information Dated: March 1, 1996, as amended
through ________________________, 1996
Relating to the Prospectuses of
ISI Total Return U.S. Treasury Fund Shares Dated: March 1, 1996
and
Flag Investors Total Return U.S. Treasury Fund Class A
and Class B Shares Dated: ____________________, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<C> <C>
1. General Information and History......................................................... 1
2. Investment Objectives and Policies...................................................... 2
3. Valuation of Shares and Redemption...................................................... 4
4. Federal Tax Treatment of Dividends and
Distributions......................................................................... 5
5. Management of the Fund.................................................................. 8
6. Investment Advisory and Other Services.................................................. 12
7. Administration.......................................................................... 14
8. Distribution of Fund Shares............................................................. 15
9. Portfolio Transactions.................................................................. 18
10. Capital Shares.......................................................................... 19
11. Reports.. .............................................................................. 20
12. Custodian, Transfer Agent and
Accounting Services................................................................... 20
13. Independent Auditors.................................................................... 21
14. Control Persons and Principal Holders of
Securities............................................................................ 21
15. Performance and Yield Computations...................................................... 21
16. Financial Statements ................................................................... 23
</TABLE>
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Total Return U.S. Treasury Fund, Inc. (the "Fund") is an
open-end management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information concerning the activities
of the company being considered for investment. The Fund currently offers three
classes of shares: Flag Investors Total Return U.S. Treasury Fund Class A
Shares, (the "Class A Shares"), Flag Investors Total Return U.S. Treasury Fund
Class B Shares (the "Class B Shares") (collectively, the "Flag Investors
Shares") and ISI Total Return U.S. Treasury Fund Shares (the "ISI Shares").
There are two separate prospectuses for the Fund's shares: one for the Flag
Investors Shares and one for the ISI Shares. Each prospectus contains important
information concerning the classes of shares offered thereby and the Fund, and
may be obtained without charge from Alex. Brown & Sons Incorporated ("Alex.
Brown"), 135 East Baltimore Street, Baltimore, Maryland 21202, (800) 767-FLAG
(for a prospectus for the Flag Investors Shares) or from Armata Financial Corp.
("Armata"), P.O. Box 515, Baltimore, Maryland 21203 (for a prospectus for the
ISI Shares), or from Participating Dealers that offer shares of the respective
classes of the Fund (the "Shares") to prospective investors. Prospectuses may
also be obtained from Shareholder Servicing Agents. As used herein the term
"Prospectus" describes information common to the prospectuses of the three
classes of the Fund's Shares, unless the term "Prospectus" is modified by the
appropriate class designation. As used herein, the "Fund" refers to Total Return
U.S. Treasury Fund, Inc. and specific references to any class of the Fund's
Shares will be made using the name of such class. Some of the information
required to be in this Statement of Additional Information is also included in
the Fund's current Prospectuses. To avoid unnecessary repetition, references are
made to related sections of the Prospectuses. In addition, the Prospectuses and
this Statement of Additional Information omit certain information respecting the
Fund and its business that is contained in the Registration Statement respecting
the Fund and its Shares filed with the SEC. Copies of the Registration Statement
as filed, including such omitted items, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of
Maryland on June 3, 1988. The Fund filed a registration statement with the SEC
registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and commenced operations on August 10, 1988.
For the period from November 9, 1992 through February 27,
1994, the Fund offered another class of shares: Flag Investors Total Return U.S.
Treasury Fund Class D Shares (which were known at the time as Flag Investors
Total Return U.S. Treasury Fund Class B Shares). Such shares are no longer being
offered.
Under a license agreement dated August 10, 1988 between the
Fund and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the
Fund the "Flag Investors" name and logo, but retains rights to that name and
logo, including the right to permit other investment companies to use them.
-1-
<PAGE>
2. INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund's investment objective and its general investment
policies are described in the Prospectus. Additional investment restrictions
are set forth below. This Statement of Additional Information also describes
other investment practices in which the Fund may engage. These include
entering into repurchase agreements and purchasing securities for future
delivery.
Except as described below under "Investment Restrictions of
the Fund", the investment policies described in the Prospectus and in this
Statement of Additional Information are not fundamental, and the Directors may
change such policies without an affirmative vote of a majority of the Fund's
outstanding Shares (as defined under "Capital Shares" below). The Fund's
investment objective is fundamental, however, and may not be changed without
such a vote.
Repurchase Agreements
The Fund may agree to purchase securities issued by the
United States Treasury ("U.S. Treasury Securities") from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. Such
repurchase agreements will be fully collateralized. The Fund's procedures
regarding repurchase agreements are discussed in greater detail in the Fund's
Prospectuses. The collateral for these repurchase agreements will be held by
the Fund's custodian or by a duly appointed sub-custodian. The Fund will enter
into repurchase agreements only with banks and broker-dealers that have been
determined to be creditworthy by the Fund's Board of Directors under criteria
established with the assistance of the Advisor. The list of approved banks and
broker-dealers will be monitored regularly by the Fund's investment advisor,
International Strategy and Investment Inc. ("ISI" or the "Advisor") and
reviewed at least quarterly by the Fund's Board of Directors. The seller under
a repurchase agreement may be required to maintain the value of the securities
subject to the repurchase agreement at not less than the repurchase price.
Default by the seller would, however, expose the Fund to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying obligations. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund may be delayed or limited
in its ability to sell the collateral.
When-Issued Securities
From time to time, in the ordinary course of business, the
Fund may make purchases of U.S. Treasury Securities, at the current market
value of the securities, on a when-issued basis. When such transactions are
negotiated, the yield to maturity is fixed. The coupon interest rate on such
U.S. Treasury Securities is fixed at the time of the U.S. Treasury auction
date therefore determining the price to be paid by the Fund, but delivery and
payment will take place after the date of the commitment. A segregated account
of the Fund, consisting of cash, cash equivalents or U.S. Treasury Securities
equal at all times to the amount of the when-issued commitments will be
established and maintained by the Fund at the Fund's custodian. Additional
cash or U.S. Treasury Securities will be added to the account when necessary.
While the Fund will purchase securities on a forward commitment basis only
with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable to limit the
effects of adverse market action. The securities so purchased or sold are
subject to market fluctuation and no interest accrues to the purchaser during
this period. At the time the Fund makes the commitment to purchase or sell
securities on a forward commitment basis, it will record the transaction and
thereafter reflect the value of such security purchased or, if a sale, the
-2-
<PAGE>
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities, their value may be more or less than the purchase
or sale price.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as
Federal and state regulatory limitations. The investment restrictions recited
below are in addition to those described in the Fund's Prospectus, and are
matters of fundamental policy and may not be changed without the affirmative
vote of a majority of the outstanding Shares. The percentage limitations
contained in these restrictions apply at the time of purchase of securities.
Accordingly, the Fund will not:
1. Invest 25% or more of the value of its total assets in
any one industry (U.S. Treasury Securities are not considered to
represent an industry);
2. Invest more than 5% of its total assets in the securities
of any single issuer (the U.S. Government is not considered an issuer
for this purpose);
3. Invest in the securities of any single issuer if, as a
result, the Fund would hold more than 10% of the voting securities of
such issuer;
4. Invest in real estate or mortgages on real estate;
5. Purchase or sell commodities or commodities contracts or
futures contracts;
6. Act as an underwriter of securities within the meaning of
the Federal securities laws;
7. Issue senior securities;
8. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements in
accordance with its investment objectives and policies;
9. Effect short sales of securities;
10. Purchase securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of
transactions);
11. Purchase participations or other interests in oil, gas
or other mineral exploration or development programs;
12. Purchase any securities of unseasoned issuers which have
been in operation directly or through predecessors for less than
three years;
13. Invest in shares of any other investment company
registered under the Investment Company Act;
14. Purchase or retain the securities of any issuer, if to
the knowledge of the Fund, any officer or Director of the Fund or its
Advisor owns beneficially more than .5% of the outstanding securities
of such issuer and together they own beneficially more than 5% of the
securities of such issuer;
-3-
<PAGE>
15. Invest in companies for the purpose of exercising
management or control;
16. Invest in puts or calls or any combination thereof;
17. Purchase warrants, if by reason of such purchase more
than 5% of its net assets (taken at market value) will be invested in
warrants, valued at the lower of cost or market. Included within this
amount, but not to exceed 2% of the value of the Fund's net assets,
may be warrants which are not listed on the New York or American
Stock Exchange. Warrants acquired by the Fund in units or attached to
securities will be deemed to be without value and therefore not
included within the preceding limitations.
The following are investment restrictions that may be
changed by a vote of the majority of the Fund's Board of Directors. The Fund
will not:
1. Invest more than 10% of the value of its net assets in
illiquid securities (as defined under federal and state securities
laws);
2. Invest in real estate limited partnerships;
3. Invest in oil, gas or mineral leases.
3. VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined once daily as of
4:00 p.m. (Eastern Time) each day on which the New York Stock Exchange is open
for business ("Business Day"). The New York Stock Exchange is open for
business on all weekdays except for the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For the purpose of determining the price at which Shares are
redeemed, the net asset value per Share is calculated by valuing all
securities held by the Fund, deducting the Fund's actual and accrued
liabilities (including liability for dividends declared), and dividing the
resulting amount by the number of then outstanding Shares. To determine the
net asset value per Share of any class, the net asset value calculated as
described above will be further adjusted to reflect the pro rata portion of
income and expenses attributable to that class. For this purpose, securities
are valued on the basis of their last sale price (or, in the absence of
recorded sales, at the average of readily available closing bid and asked
prices). Securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
by the Advisor under procedures established and monitored by the Board of
Directors. Debt obligations with maturities of 60 days or less will be valued
at amortized cost, which constitutes fair value as determined by the
Directors.
Redemption
The Fund may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
-4-
<PAGE>
emergency exists as determined by the SEC so that valuation of the net assets
of the Fund is not reasonably practicable.
Under normal circumstances, the Fund will redeem Shares by
check as described in the Prospectus. However, if the Board of Directors
determines that it would be in the best interests of the remaining
shareholders of the Fund to make payment of the redemption price in whole or
in part by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash, in conformity with applicable rules of
the SEC, the Fund will make such distributions in kind. If Shares are redeemed
in kind, the redeeming shareholder will incur brokerage costs in later
converting the assets into cash. The method of valuing portfolio securities is
described under Valuation of Shares, and such valuation will be made as of the
same time the redemption price is determined. The Fund, however, has elected
to be governed by Rule 18f-1 under the Investment Company Act pursuant to
which the Fund is obligated to redeem Shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional
federal tax considerations generally affecting the Fund and its shareholders
that are not described in the Fund's Prospectus. No attempt is made to present
a detailed explanation of the tax treatment of the Fund or its shareholders,
and the discussion here and in the Fund's Prospectus is not intended as a
substitute for careful tax planning.
The following general discussion of federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Qualification as Regulated Investment Company
The Fund has been and expects to continue to be taxed as a
regulated investment company ("RIC") under Subchapter M of the Code. As a RIC,
the Fund is exempt from federal income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gains over net
long-term capital losses) for the year (the "Distribution Requirement") and
satisfies certain other requirements of the Code that are described below.
Distributions of investment company taxable income made during the taxable
year or, under certain specified circumstances, within 12 months after the
close of the taxable year, will satisfy the Distribution Requirement. The
Distribution Requirement for any year may be waived if a RIC establishes to
the satisfaction of the Internal Revenue Service that it is unable to satisfy
the Distribution Requirement by reason of distributions previously made for
the purpose of avoiding liability for federal excise tax (discussed below).
The Fund may make investments in securities (such as STRIPS)
that bear "original issue discount" or "acquisition discount" (collectively,
"OID Securities"). The holder of such securities is deemed to have received
interest income even though no cash payments have been received. Accordingly,
OID Securities may not produce sufficient current cash receipts to match the
-5-
<PAGE>
amount of distributable net investment income the Fund must distribute to
satisfy the Distribution Requirement. In some cases, the Fund may have to
borrow money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement,
in order to qualify as a RIC the Fund must, generally, (1) derive at least 90%
of its gross income from dividends, interest, certain payments with respect to
securities, loans and gains from the sale or other disposition of stock or
securities, or from other income derived with respect to its business of
investing in stock or securities, and (2) derive less than 30% of its gross
income from, among other things, gains on the sale or other disposition of
stock or securities (as defined in section 2(a)(36) of the Investment Company
Act) held for less than three months (the "Short-Short Gain Test").
Finally, at the close of each quarter of its taxable year,
at least 50% of the value of the Fund's assets must consist of cash and cash
items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has not
invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses (the "Asset Diversification Test"). The Fund will not lose its
status as a RIC if it fails to meet the Asset Diversification Test solely as a
result of a fluctuation in value of portfolio assets not attributable to a
purchase. The Fund may curtail its investment in certain securities where the
application thereto of the Asset Diversification Test is uncertain.
Fund Distributions
The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income, regardless
of whether such distributions are paid in cash or are reinvested in Shares.
The Fund may either retain or distribute to shareholders the
excess, if any, of net long-term capital gains over net short-term capital
losses ("net capital gains") for each taxable year. If such gains are
distributed as a capital gains distribution, they are treated by shareholders
as long-term capital gains, regardless of the length of time the shareholder
has held Shares, whether or not such gains were recognized by the Fund prior
to the date on which a shareholder acquired Shares and whether or not the
distribution was paid in cash or reinvested in Shares. The aggregate amount of
distributions designated by the Fund as capital gains distributions may not
exceed the net capital gains of the Fund for any taxable year, determined by
excluding any net capital losses and net long-term capital losses attributable
to transactions occurring after October 31 of such year and by treating any
such net capital losses or net long-term capital losses as if they arose on
the first day of the following taxable year. Conversely, if the Fund elects to
retain its net capital gains, it will be taxed thereon (except to the extent
of any available capital loss carryovers) at the applicable corporate tax
rate. In such event, it is expected that the Fund also will elect to have
shareholders treated as having received a distribution of such gains, with the
result that they will be required to report such gains on their returns as
long-term capital gains, will receive a refundable tax credit for their
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<PAGE>
allocable share of capital gains tax paid by the Fund on the gains, and will
increase the tax basis for their Shares by an amount equal to 65 percent of
the deemed distribution.
Investors should be careful to consider the tax implications
of buying Shares of the Fund just prior to the ex-dividend date of an ordinary
income dividend or capital gains distribution. The price of Shares purchased
at that time may reflect the amount of the forthcoming ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend or distribution received even though the
dividend or capital gains distribution was earned by the Fund before the
shareholder purchased the Shares.
Generally, gain or loss on the sale of Shares will be
capital gain or loss, which will be long-term capital gain or loss if the
Shares have been held for more than one year and otherwise will be short-term
capital gain or loss. However, investors should be aware that any loss
realized upon the sale, exchange or redemption of Shares held for six months
or less will be treated as a long-term capital loss to the extent any capital
gains distributions have been paid with respect to such Shares (or any
undistributed net capital gains of the Fund with respect to such Shares have
been included in determining the shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). Investors
should particularly note that this loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
If for any taxable year the Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and such distributions will be taxable to shareholders as
ordinary dividends to the extent of the Fund's current and accumulated
earnings and profits. Such distributions will be eligible for the dividends
received deduction in the case of corporate shareholders.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of distributions paid to any
shareholder (1) who has provided either an incorrect tax identification number
or no number at all, (2) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend
income properly, or (3) who has failed to certify to the Fund that he is not
subject to backup withholding.
Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute in each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the one-year period ending on October 31 of such
calendar year. The excise tax is imposed on the undistributed part of this
required distribution. In addition, the balance of such income must be
distributed during the next calendar year to avoid liability for the excise
tax in that year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable
year ending in such calendar year. For purposes of the excise tax, a regulated
investment company must reduce its capital gain net income by the amount of
any net ordinary loss for the calendar year (but only to the extent the
capital gain net income for the one-year period ending on October 31 exceeds
the net capital gains for such period). Because the Fund intends to distribute
all of its income currently (or to retain, at most, its "net capital gains"
and pay tax thereon), the Fund does not anticipate incurring any liability for
-7-
<PAGE>
this excise tax. However, investors should note that the Fund may, in certain
circumstances, be required to liquidate portfolio investments in order to make
sufficient distributions to avoid excise tax liability, and, in addition, that
the liquidation of investments in such circumstances may affect the ability of
the Fund to satisfy the Short-Short Gain Test.
Rules of state and local taxation of dividend and capital
gains distributions from regulated investment companies often differ from the
rules for Federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of federal, state and local
tax rules affecting an investment in the Fund.
5. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are the
responsibility of the Board of Directors. The Board approves all significant
agreements between the Fund and persons or companies furnishing services to
the Fund, including the Fund's agreements with its investment advisor,
distributors, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's officers, to Investment Company Capital Corp.
("ICC"), acting as the Fund's administrator, to Alex. Brown and Armata acting
as the Fund's distributors, and to ISI, as the Fund's Advisor. Three directors
and all of the officers of the Fund are directors, officers or employees of
ICC, Alex. Brown, Armata or ISI. The other directors of the Fund have no
affiliation with ICC, Alex. Brown, Armata or ISI.
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is 135 East Baltimore Street, Baltimore,
Maryland 21202.
*EDWARD S. HYMAN, Chairman and Director (4/8/45)
International Strategy and Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Chairman, International Strategy and
Investment Inc., 1991-Present; Formerly, Vice Chairman and Member
of the Board of Directors, C.J. Lawrence Inc. (money manager),
1972-1991.
*RICHARD T. HALE, Vice Chairman and Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Chartered
Financial Analyst.
*W. JAMES PRICE, Vice Chairman and Director (10/6/24)
6885 North Ocean Boulevard, Apartment #306, Ocean Ridge, Florida
33435-3342. Director, Boca Research, Inc. (computer peripherals).
Managing Director Emeritus, Alex. Brown & Sons Incorporated;
Formerly, Director, CSX Corporation (transportation), and PHH
Corporation (business services).
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice President and Chief Financial Officer,
General Dynamics Corporation (defense), 1989-1993, and Director,
The Arch Fund (registered investment company).
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<PAGE>
JOHN F. KROEGER, Director (8/11/24)
P.O. Box 464, 24875 Swan Road - Martingham, St. Michaels, Maryland
21663. Director/Trustee, AIM Funds (registered investment
companies); Formerly, Consultant, Wendell & Stockel Associates,
Inc. (consulting firm); General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (finance and banking); Chairman of the
Quality Control Inquiry Committee, American Institute of Certified
Public Accountants; Formerly, Trustee, Merrill Lynch Funds for
Institutions, 1991-1993; Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992; Partner, KPMG
Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management
Company (investments); Executive Vice President, Duke University
(education, research and healthcare).
HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New
Jersey 08540. Professor-at-Large Emeritus, Institute for Advanced
Study; Director, ATL and Spacelabs Medical Corp. (medical
equipment) and Family Health International (non-profit research
and education); Trustee, Reed College (education); Director,
Research America (non-profit medical research); Formerly, Trustee,
Rockefeller Foundation; and Director, Merrill Lynch Cluster C
Funds (registered investment companies).
R. ALAN MEDAUGH, President (8/20/43)
International Strategy and Investment Inc., 717 Fifth Avenue, New
York, New York 10022. President, International Strategy and
Investment Inc.; Formerly Managing Director, C.J. Lawrence Fixed
Income Management (money manager).
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; President, Investment
Company Capital Corp. (registered investment advisor); Vice
President, Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated; Manager,
Special Products Department, Alex. Brown & Sons Incorporated.
NANCY LAZAR, Vice President (8/1/57)
International Strategy and Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Executive Vice President and Secretary,
International Strategy and Investment Inc., 1991-Present;
Formerly, Vice President, C.J. Lawrence Inc. (money manager),
1981-1991.
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<PAGE>
BRIAN C. NELSON, Vice President and Secretary (7/31/59)
Vice President, Alex. Brown & Sons Incorporated, Investment
Company Capital Corp. (registered investment advisor) and Armata
Financial Corp. (registered broker-dealer); Assistant Secretary,
The Glenmede Fund, Inc. and The Glenmede Portfolios (registered
investment companies).
CARRIE L. BUTLER, Vice President (5/1/67)
International Strategy and Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Vice President, International Strategy and
Investment Inc.; Formerly, Mutual Fund Sales Assistant, C.J.
Lawrence Fixed Income Management (money manager), 1989-1991.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September
1995-Present; Treasurer, The Glenmede Fund, Inc. and The Glenmede
Portfolios (registered investment companies), December 1995-Present;
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company, Inc., 1980-August 1995.
DENICE DE FLORIO, Assistant Vice President (4/23/69)
International Strategy and Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Assistant Vice President, International
Strategy and Investment Inc., March 1995-Present; Formerly,
Assistant Portfolio Manager, Smith Barney's Municipal Money Market
Funds and Taxable Money Market Funds, February 1993-February 1995
and Portfolio Administrator, Offitbank, September 1991-February
1995.
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present; Formerly, Student, 1989-1991.
- -------------------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered,
advised or distributed by Alex. Brown, Armata or ISI or by any of their
respective affiliates. There are currently 12 funds in the Flag Investors/ISI
Funds and Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex").
Mr. Hyman serves as a Director of three funds in the Fund Complex. Mr. Hale
serves as President and Director of one fund and as a Director of each of the
other funds in the Fund Complex. Mr. Medaugh serves as a Director and President
of one fund and as President of two other funds in the Fund Complex. Mr. Price
serves as a Director of seven funds in the Fund Complex. Messrs. Cunnane,
Kroeger, Levy, McDonald and Woolf serve as Directors of each fund in the Fund
Complex. Ms. Lazar and Ms. Butler serve as Vice Presidents and Ms. De Florio
serves as an Assistant Vice President of three funds in the Fund Complex. Mr.
Veilleux serves as Executive Vice President of one fund and as Vice President of
each of the other funds in the Fund Complex. Mr. Nelson serves as Vice President
and Secretary, Mr. Finelli serves as Treasurer and Ms. DePrine serves as
Assistant Secretary, respectively, for each of the funds in the Fund Complex.
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<PAGE>
Some of the Directors of the Fund are customers of, and have
had normal brokerage transactions with, Alex. Brown or Armata in the ordinary
course of business. All such transactions were made on substantially the same
terms as those prevailing at the time for comparable transactions with
unrelated persons. Additional transactions may be expected to take place in
the future.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of ICC, Alex. Brown, Armata or ISI may be considered to have
received remuneration indirectly. As compensation for his services as
director, each Director who is not an "interested person" of the Fund (as
defined in the Investment Company Act) (a "Non-Interested Director") receives
an aggregate annual fee (plus reimbursement for reasonable out-of-pocket
expenses incurred in connection with his attendance at Board and committee
meetings) from all Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund,
Inc. for which he serves. In addition, the Chairman of the Fund Complex's
Audit Committee receives an aggregate annual fee from the Fund Complex.
Payment of such fees and expenses is allocated among all such funds described
above in direct proportion to their relative net assets. For the fiscal year
ended October 31, 1995, Non-Interested Directors' fees attributable to the
assets of the Fund totalled $24,011. The following table shows aggregate
compensation paid to each of the Fund's Directors by the Fund and the Fund
Complex, respectively.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Compensation From Total Compensation From the Fund
Name of Person, the Fund for the Fiscal Year and Fund Complex Paid to Directors for
Position Ended October 31, 1995 the Fiscal Year Ended October 31, 1995
- -------- ---------------------- --------------------------------------
<S> <C> <C>
*Edward S. Hyman, Chairman $0 $0
*Richard T. Hale, Vice Chairman $0 $0
*W. James Price, Vice Chairman $0 $0
James J. Cunnane, Director $2,529(1) $29,250 for service on 13
boards in the Fund Complex(2)
N. Bruce Hannay, Director ** $3,475(1) $39,000 for service on 13
boards in the Fund Complex(2)
John F. Kroeger, Director $3,822(1) $42,900 for service on 13
boards in the Fund Complex(2)
Louis E. Levy, Director $3,475(1) $39,000 for service on 13
boards in the Fund Complex(2)
Eugene J. McDonald, Director $3,475(1) $39,000 for service on 13
boards in the Fund Complex(2)
Harry Woolf, Director $3,475(1) $39,000 for service on 13
boards in the Fund Complex(2)
</TABLE>
- -------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired, effective January 31, 1996.
(1) Of the amounts paid to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald
and Woolf, $2,529, $2,564, $0, $0, $3,475 and $3,475, respectively, was
deferred pursuant to a deferred compensation plan.
(2) One of these funds ceased operations on May 17, 1995.
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<PAGE>
The Fund Complex has adopted a Retirement Plan (the
"Retirement Plan") for Directors who are not employees of the Fund, the Fund's
Advisor or their respective affiliates (the "Participants"). After completion
of five years of service, each Participant will be entitled to receive an
annual retirement benefit equal to a percentage of the fee earned by him in
his last year of service. Upon retirement, each Participant will receive
annually 10% of such fee for each year that he served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by
him in his last year of service. The fee will be paid quarterly, for life, by
each Fund for which he serves. The Retirement Plan is unfunded and unvested.
Messrs. Kroeger and Woolf have qualified but have not yet received benefits.
The Fund has two Participants, a Director who retired effective December 31,
1994 and a Director who retired effective January 31, 1996, each of whom has
qualified for the Retirement Plan and will be paid a quarterly fee of $4,875
by the Fund Complex for the rest of his life. Such fee is allocated to each
fund in the Fund Complex based upon the relative net assets of such fund to
the Fund Complex.
Beginning in December, 1994, any Director who receives fees
from the Fund is permitted to defer a minimum of 50%, or up to all, of his
annual compensation pursuant to a Deferred Compensation Plan.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of
Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Code of
Ethics significantly restricts the personal investing activities of all
employees of the Advisor and the directors and officers of the Fund's
distributors. As described below, the Code of Ethics imposes additional, more
onerous, restrictions on the Fund's investment personnel, including the
portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of the
Advisor, any director or officer of the Fund's distributors, and all
Non-Interested Directors, preclear any personal securities investments (with
limited exceptions, such as non-volitional purchases or purchases which are
part of an automatic dividend reinvestment plan). The preclearance requirement
and associated procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. The substantive
restrictions applicable to investment personnel include a ban on acquiring any
securities in an initial public offering, a prohibition from profiting on
short-term trading in securities and preclearance of the acquisition of
securities in private placements. Furthermore, the Code of Ethics provides for
trading "blackout periods" that prohibit trading by investment personnel and
certain other employees within periods of trading by the Fund in the same
security.
6. INVESTMENT ADVISORY AND OTHER SERVICES
ISI serves as the Fund's investment advisor pursuant to an
investment advisory agreement dated as of April 1, 1991 (the "Advisory
Agreement"). ISI is a registered investment advisor that was formed in
January, 1991. ISI employs Messrs. Edward S. Hyman, the Fund's Chairman, and
R. Alan Medaugh, the Fund's President. ISI is also investment advisor to
Managed Municipal Fund, Inc. and North American Government Bond Fund, Inc.
As described in the Fund's Prospectus, the Advisor (a)
formulates and implements continuing programs for the purchases and sales of
securities, (b) determines what securities (and in what proportion) shall be
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<PAGE>
represented in the Fund's portfolio, (c) provides the Fund's Board of
Directors with regular financial reports and analyses with respect to the
Fund's portfolio investments and operations, and the operations of comparable
investment companies, (d) obtains and evaluates pertinent information about
economic, statistical and financial information pertinent to the Fund, (e)
takes, on behalf of the Fund, all actions which appear to the Advisor
necessary to carry into effect its purchase and sale programs. Any investment
program undertaken by the Advisor will at all times be subject to policies and
control of the Fund's Board of Directors. The Advisor shall not be liable to
the Fund or its shareholders for any act or omission by the Advisor or any
losses sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Pursuant to the terms of the Advisory Agreement, as
compensation for its services, the Advisor receives an annual fee, paid
monthly, of a percentage of the average daily net assets of the Fund which
varies as follows:
Incremental
Advisory Fee
(as a percentage of
Average Daily Net Assets Average Daily Net Assets)
------------------------ -------------------------
Less than $100,000,000 .20%
$100,000,000 - $200,000,000 .18%
$200,000,001 - $300,000,000 .16%
$300,000,001 - $500,000,000 .14%
$500,000,001 and over .12%
In addition, the Fund pays the Advisor 1.5% of the Fund's
gross income.
The Advisor has agreed to reduce its aggregate fees
attributable to the Fund on a monthly basis for any fiscal year, to the extent
required, so that the amount of the ordinary expenses of the Fund (excluding
brokerage commissions, interest, taxes and extraordinary expenses such as
legal claims, liabilities, litigation costs and indemnification related
thereto) paid or incurred by the Fund for such fiscal year does not exceed the
expense limitations applicable to the Fund imposed by the securities laws or
regulations of the states in which the Shares are registered or qualified for
sale as such limitations may be raised or lowered from time to time.
Currently, the most restrictive of such expense limitations requires the
Advisor to reduce its fees to the extent required so that ordinary expenses of
the Fund (excluding brokerage commissions, interest, taxes and extraordinary
expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) do not exceed 2.5% of the first $30 million
of the Fund's average daily net assets, 2.0% of the next $70 million of the
Fund's average daily net assets and 1.5% of the Fund's average daily net
assets in excess of $100 million. In addition, if required to do so by any
applicable state securities laws or regulations, the Advisor will reimburse
the Fund to the extent required to prevent the expense limitations of any
state law or regulation from being exceeded. Expenses incurred pursuant to the
Plans (see "Distribution of Fund Shares" below) would not come within state
expense limitation requirements.
The Advisor is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. Because purchases and sales of securities by the Fund will
usually be principal transactions, the Fund will incur little, if any,
brokerage commission expense. The Advisor's primary consideration in effecting
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<PAGE>
securities transactions will be to obtain best price and execution. To the
extent that the execution and prices of more than one dealer are comparable,
the Advisor may, in its discretion, effect transactions with dealers that
furnish statistical research or other information or services that may benefit
the Fund's investment program.
The Investment Advisory Agreement will continue in effect
from year to year after its initial two year term if such continuance is
specifically approved (a) at least annually by the Fund's Board of Directors
or by a vote of a majority of the outstanding Shares and (b) by the
affirmative vote of a majority of the Non-Interested Directors by votes cast
in person at a meeting called for such purpose. The Investment Advisory
Agreement was most recently approved by the Fund's Board of Directors in the
foregoing manner on September 25, 1995. The Fund or the Advisor may terminate
the Investment Advisory Agreement on sixty days' written notice without
penalty. The Investment Advisory Agreement will terminate automatically in the
event of assignment. For the fiscal years ended October 31, 1995, October 31,
1994 and October 31, 1993, the Fund paid fees to ISI of $999,452, $1,056,633
and $1,162,324, respectively.
7. ADMINISTRATION
Investment Company Capital Corp., 135 East Baltimore Street,
Baltimore, Maryland 21202, provides administration services to the Fund. Such
services include: monitoring the Fund's regulatory compliance, supervising all
aspects of the Fund's service providers, arranging, but not paying for, the
printing and mailing of prospectuses, proxy materials and shareholder reports,
preparing and filing all documents required by the securities laws of any
state in which the Shares are sold, establishing the Fund's budgets,
monitoring the Fund's distribution plans, preparing the Fund's financial
information and shareholder reports, calculating dividend and distribution
payments and arranging for the preparation of state and federal tax returns.
The Fund compensates ICC by paying it a percentage of the
Fund's average daily net assets which varies as follows:
Incremental
Administration Fee
(as a percentage of
Average Daily Net Assets Average Daily Net Assets)
------------------------ -------------------------
Less than $100,000,000 .10%
$100,000,000 - $200,000,000 .09%
$200,000,001 - $300,000,000 .08%
$300,000,001 - $500,000,000 .07%
$500,000,001 and over .06%
In addition, the Fund pays ICC .50% of the Fund's annual
gross income.
The services of ICC to the Fund are not exclusive and ICC is
free to render similar services to others. For the fiscal year ended October
31, 1995 and for the period from January 1, 1994 through October 31, 1994, ICC
received administration fees of $438,267 and $386,768. Prior to January 1,
1994, Alex. Brown served as the Fund's administrator. For the period from
November 1, 1993 through December 31, 1993 and for the fiscal year ended
October 31, 1993, Alex. Brown received an administration fee from the Fund of
$82,018 and $513,355, respectively.
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<PAGE>
ICC also serves as the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. (See
"Custodian, Transfer Agent and Accounting Services".) ICC is a wholly-owned
subsidiary of Alex. Brown and an affiliate of Armata.
8. DISTRIBUTION OF FUND SHARES
The Distribution Agreements provide that Alex. Brown (in the
case of the Flag Investors Shares) or Armata (in the case of the ISI Shares) has
the exclusive right to distribute the related class of Shares either directly or
through other broker-dealers. Armata, a Maryland corporation, is a broker-dealer
that was formed in 1983 and is an affiliate of ICC and Alex. Brown. (The Flag
Investors Total Return U.S. Treasury Fund Class A Shares Distribution Agreement
(the "Class A Distribution Agreement"), the Flag Investors Total Return U.S.
Treasury Fund Class B Shares Distribution Agreement (the "Class B Distribution
Agreement") and the ISI Total Return U.S. Treasury Fund Shares Distribution
Agreement (the "ISI Distribution Agreement") are herein collectively called the
"Distribution Agreements.")
The Distribution Agreements further provide that Alex. Brown
or Armata on behalf of the relevant class, will: solicit and receive orders
for the purchase of Shares; accept or reject such orders on behalf of the Fund
in accordance with the Fund's currently effective prospectus and transmit such
orders as are accepted to the Fund's transfer agent as promptly as possible;
receive requests for redemption and transmit such redemption requests to the
Fund's transfer agent as promptly as possible; respond to inquiries from the
Fund's shareholders concerning the status of their accounts with the Fund;
provide the Fund's Board of Directors for their review with quarterly reports
required by Rule 12b-1; maintain such accounts, books and records as may be
required by law or be deemed appropriate by the Fund's Board of Directors; and
take all actions deemed necessary to carry into effect the distribution of the
Shares. Alex. Brown and Armata have not undertaken to sell any specific number
of Shares. The Distribution Agreements further provide that, in connection
with the distribution of Shares, Alex. Brown or Armata will be responsible for
all of their respective promotional expenses. The services by Alex. Brown and
Armata to the Fund are not exclusive, and Alex. Brown and Armata shall not be
liable to the Fund or its shareholders for any act or omission by Alex. Brown
or Armata or any losses sustained by the Fund or its shareholders except in
the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
As compensation for providing distribution and related
administrative services as described above, the Fund will pay Alex. Brown for
the Class A Shares and Armata for the ISI Shares, on a monthly basis, an annual
fee, equal to .25% of the average daily net assets of the respective class of
Shares. Alex. Brown and Armata expect to allocate on a proportional basis a
substantial portion of their respective annual fees to their investment
representatives or up to all of their fees to broker-dealers who enter into
Sub-Distribution Agreements with Alex. Brown or Armata ("Participating Dealers")
under which such broker-dealers have agreed to process investor purchase and
redemption orders and respond to inquiries from Fund shareholders concerning the
status of their accounts and the operations of the Fund.
As compensation for providing distribution and related
administrative services for the Class B Shares, as described above, the Fund
will pay Alex. Brown, on a monthly basis, an annual fee equal to .35% of the
Class B Shares' average daily net assets. Alex. Brown expects to retain the
entire amount of the distribution fee as reimbursement for front-end payments to
its investment representatives and to Participating Dealers.
In addition, with respect to the Class B Shares, the Fund will
pay Alex. Brown a shareholder servicing fee at an annual rate of .25% of the
average daily net assets of the Class B Shares. (See the Prospectus.) Alex.
Brown expects to allocate most of its shareholder servicing fee to its
investment representatives or to Participating Dealers.
For the fiscal years ended October 31, 1995, October 31, 1994
and October 31, 1993, Alex. Brown (for services performed as distributor for the
Class A Shares) received from the Fund aggregate 12b-1 fees in the amount of
$411,117, $485,928 and $582,520, respectively and paid from such fees
approximately $362,959, $410,280 and $383,983, respectively to its investment
representatives as compensation and $44,701, $40,041, and $49,530, respectively
to Participating Dealers as compensation. In addition, for the fiscal year ended
October 31, 1995, Alex. Brown incurred expenses of $0 for advertising and
-15-
<PAGE>
$12,195 for printing and mailing of prospectuses to prospective investors. For
the fiscal years ended October 31, 1995, October 31, 1994 and October 31, 1993,
Armata (for services performed as distributor for the ISI Shares) received from
the Fund aggregate 12b-1 fees of $501,139, $544,678 and $549,662, respectively
and paid from such fees $483,565, $517,078 and $546,159, respectively, to
Participating Dealers as compensation. From amounts received from the Fund
during such periods, Armata paid no fees to its investment representatives. In
addition, for the fiscal year ended October 31, 1995, Armata incurred expenses
of $7,020 for advertising and $6,253 for printing and mailing prospectuses to
prospective investors. For the period from November 9, 1992 through February 27,
1994, Alex. Brown was also distributor for the Flag Investors Class D Shares
pursuant to the Plan of Distribution in effect for such class. For distribution
services for such shares for the periods from November 1, 1993 through October
20, 1994 and from November 9, 1992 through October 31, 1993, Alex. Brown
received from the Fund aggregate 12b-1 fees of $9,735 and $6,282, respectively.
From amounts received from the Fund during such periods, Alex. Brown paid no
fees to its investment representatives or to Participating Dealers.
Pursuant to Rule 12b-1 under the Investment Company Act,
which provides that investment companies may pay distribution expenses,
directly or indirectly, only pursuant to a plan adopted by the investment
company's board of directors and approved by its shareholders, the Fund has
adopted a Plan of Distribution for each of its classes of Shares (the
"Plans"). Under the Plans, the Fund pays a fee to Alex. Brown or Armata for
distribution and other shareholder servicing assistance as set forth in the
related Distribution Agreement, and Alex. Brown and Armata are authorized to
make payments out of their fees to their investment representatives and to
Participating Dealers.
Each of the Distribution Agreements has an initial term of two
years. The Distribution Agreements and the Plans will remain in effect from year
to year as specifically approved (a) at least annually by the Fund's Board of
Directors and (b) by the affirmative vote of a majority of the Non-Interested
Directors, by votes cast in person at a meeting called for such purpose. The
Class A and ISI Distribution Agreements, forms of Sub-Distribution Agreements
and the related Plans were most recently approved by the Fund's Board of
Directors, including a majority of the Non-Interested Directors (who have no
direct or indirect financial interest in such Plans or Distribution Agreements
or any Sub-Distribution Agreement) on September 25, 1995. The Class B
Distribution Agreement, including the Plan and Form of Sub-Distribution
Agreement, were approved by the Fund's Board of Directors, including a majority
of the Non-Interested Directors, on March 18, 1996 and by the sole shareholder
of the class on ____________ __, 1996.
In approving the Plans, the Directors concluded, in the
exercise of reasonable business judgment, that there was a reasonable
likelihood that the Plans would benefit the Fund and its shareholders. The
Plans will be renewed only if the Directors make a similar determination in
each subsequent year. The Plans may not be amended to increase materially the
fee to be paid pursuant to the Distribution Agreements without the approval of
the shareholders of the respective classes of the Fund. The Plans may be
terminated at any time, and the Distribution Agreements may be terminated at
any time upon 60 days' notice, without penalty, by a vote of a majority of the
Fund's Non-Interested Directors or by a vote of a majority of the outstanding
Shares. Any Sub-Distribution Agreement may be terminated in the same manner at
any time. The Distribution Agreements and any Sub-Distribution Agreement shall
automatically terminate in the event of assignment.
During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plans to Alex. Brown or Armata
pursuant to the Distribution Agreements, to Participating Dealers pursuant to
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<PAGE>
Sub-Distribution Agreements and to Shareholder Servicing Agents pursuant to
Shareholder Servicing Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Non-Interested Directors
shall be committed to the discretion of the Non-Interested Directors then in
office.
In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown and Armata will
allocate a portion of their respective distribution fees as compensation for
such financial institutions' ongoing shareholder services. Although banking
laws and regulations prohibit banks from distributing shares of open-end
investment companies such as the Fund, according to interpretations from
various bank regulatory authorities, financial institutions are not prohibited
from acting in other capacities for investment companies, such as the
shareholder servicing capacities described above. Should future legislative,
judicial or administrative action prohibit or restrict the activities of the
Shareholder Servicing Agents in connection with the Shareholder Servicing
Agreements, the Fund may be required to alter materially or discontinue its
arrangements with the Shareholder Servicing Agents. Such financial
institutions may impose separate fees in connection with these services and
investors should review the applicable Prospectus and this Statement of
Additional Information in conjunction with any such institution's fee
schedule. In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
Under the Plans, amounts allocated to Participating Dealers
and Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown
or Armata, as appropriate, with respect to shares held by or on behalf of
customers of such entities. Payments under the Plans are made as described above
regardless of the distributor's actual cost of providing distribution services
and may be used to pay such distributor's overhead expenses. If the cost of
providing distribution services to the Fund in connection with the sale of the
Class A Shares or the ISI Shares is less than .25% of such Shares' average daily
net assets for any period or in connection with the sale of the Class B Shares
is less than .35% of the Class B Shares' average daily net assets for any
period, the unexpended portion of the distribution fee may be retained by the
distributor. The Plans do not provide for any charges to the Fund for excess
amounts expended by the distributor and, if a Plan is terminated in accordance
with its terms, the obligation of the Fund to make payments to the distributor
pursuant to the Plan will cease and the Fund will not be required to make any
payments past the date the related Distribution Agreement terminates.
For the fiscal years ended October 31, 1995, October 31, 1994
and October 31, 1993, Alex. Brown received sales commissions on the Flag
Investors Class A Shares of $971,034, $310,376 and $538,275 and from such
amounts retained $177,202, $281,454 and $387,481 in each such year,
respectively. For the fiscal years ended October 31, 1995, October 31, 1994 and
October 31, 1993, Armata received sales commissions on the ISI Class Shares of
$635,954, $426,023 and $1,067,706 and from such amounts retained $53,363,
$57,564 and $189,792 in each such year, respectively. The Fund did not offer the
Class B Shares prior to the date of this Statement of Additional Information.
Except as described elsewhere, the Fund pays or causes to be
paid all continuing expenses of the Fund, including, without limitation:
investment advisory, administration and distribution fees; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund
for the safekeeping of cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions, if any, chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and corporate fees payable
by the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all
costs and expenses in connection with the maintenance of registration of the
Fund and its Shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs
and expenses of printing, including typesetting and distributing prospectuses
of the Fund and supplements thereto to the shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Non-Interested Directors and Non-Interested members of any advisory board or
committee; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in Shares or in cash; charges and expenses
of any outside service used for pricing of the Shares; fees and expenses of
legal counsel or independent auditors, in connection with any matter relating
to the Fund; membership dues of industry associations; interest payable on
Fund borrowings; postage; insurance premiums on property or personnel
-17-
<PAGE>
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise
explicitly assumed by Alex. Brown, ICC or Armata.
9. PORTFOLIO TRANSACTIONS
The Advisor is responsible for decisions to buy and sell
securities for the Fund, selection of broker-dealers and negotiation of
commission rates. Since purchases and sales of portfolio securities by the
Fund are usually principal transactions, the Fund incurs little or no
brokerage commissions. Portfolio securities are normally purchased directly
from the issuer or from a market maker for the securities. The purchase price
paid to broker-dealers serving as market makers usually includes a mark-up
over the bid to the broker-dealer based on the spread between the bid and
asked price for the security. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter.
The Advisor's primary consideration in effecting security
transactions is to obtain, on an overall basis, the best net price and the
most favorable execution of orders. To the extent that the execution and
prices offered by more than one broker-dealer are comparable, the Advisor may,
in its discretion, effect transactions with dealers that furnish statistical,
research or other information or services which the Advisor deems to be
beneficial to the Fund's investment program. Such research services supplement
the Advisor's own research. Research services may include the following:
statistical and background information on the U.S. economy, industry groups
and individual companies; forecasts and interpretations with respect to the
U.S. money markets; information on federal, state, local and foreign political
developments; portfolio management strategies; performance information on
securities, indices and investment accounts; information concerning prices of
securities; the providing of equipment used to communicate research
information; and the providing of access to consultants who supply research
information. Certain research services furnished by broker-dealers may be
useful to the Advisor with clients other than the Fund. Similarly, any
research services received by the Advisor through placement of portfolio
transactions of other clients may be of value to the Advisor in fulfilling its
obligations to the Fund. No specific value can be determined for research and
statistical services furnished without cost to the Advisor by a broker-dealer.
The Advisor is of the opinion that because the material must be analyzed and
reviewed by its staff, its receipt does not tend to reduce expenses, but may
be beneficial in supplementing the Advisor's research and analysis. Therefore,
it may tend to benefit the Fund by improving the quality of the Advisor's
investment advice.
For the fiscal years ended October 31, 1995, October 31,
1994 and October 31, 1993, no brokerage commissions were paid by the Fund.
The Fund is required to identify any securities of its
"regular brokers or dealers" (as such term is defined in the Investment
Company Act) which the Fund has acquired during its most recent fiscal year.
As of October 31, 1995, the Fund held a 5.75% repurchase agreement issued by
Goldman Sachs & Co. valued at $25,240,000. Goldman Sachs & Co. is one of the
Fund's "regular brokers or dealers."
-18-
<PAGE>
10. CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund may
issue up to 100 million Shares of its capital stock with a par value of $.001
per Share.
The Fund's Articles of Incorporation provide for the
establishment of separate series and separate classes of Shares by the Directors
at any time without shareholder approval. The Fund currently has one Series and
the Board has designated four classes of Shares: Flag Investors Total Return
U.S. Treasury Fund Class A Shares (formerly known as the Flag Investors Total
Return U.S. Treasury Fund Shares), Flag Investors Total Return U.S. Treasury
Fund Class B Shares, Flag Investors Total Return U.S. Treasury Fund Class D
Shares and ISI Total Return U.S. Treasury Fund Shares. The Flag Investors Total
Return U.S. Treasury Fund Class B Shares have not been offered prior to the date
of this Statement of Additional Information. The Flag Investors Total Return
U.S. Treasury Fund Class D Shares are no longer being offered. All Shares of the
Fund regardless of class have equal rights with respect to voting, except that
with respect to any matter affecting the rights of the holders of a particular
series or class, the holders of each series will vote separately. Any such
series will be a separately managed portfolio and shareholders of each series
will have an undivided interest in the net assets of that series. For tax
purposes, the series will be treated as separate entities. Generally, each class
of Shares issued by a particular series will be identical to every other class
and expenses of the Fund (other than 12b-1 fees and any applicable service fees)
are prorated between all classes of a series based upon the relative net assets
of each class. Any matters affecting any class exclusively will be voted on by
the holders of such class.
Shareholders of the Fund do not have cumulative voting
rights, and, therefore, the holders of more than 50% of the outstanding Shares
voting together for election of Directors may elect all the members of the
Board of Directors of the Fund. In such event, the remaining holders cannot
elect any members of the Board of Directors of the Fund.
The Fund's By-laws provide that any director of the Fund may
be removed by the shareholders by a vote of a majority of the votes entitled
to be cast for the election of Directors. A meeting to consider the removal of
any Director or Directors of the Fund will be called by the Secretary of the
Fund upon the written request of the holders of at least one-tenth of the
outstanding Shares of the Fund entitled to vote at such meeting.
There are no preemptive, conversion or exchange rights
applicable to any of the Shares. The Fund's issued and outstanding Shares are
fully paid and non-assessable. In the event of liquidation or dissolution of
the Fund, each Share is entitled to its portion of the Fund's assets (or the
assets allocated to a separate series of Shares if there is more than one
series) after all debts and expenses have been paid.
As used in this Statement of Additional Information, the
term "majority of the outstanding Shares" means the vote of the lesser of (i)
67% or more of the Shares present at a meeting, if the holders of more than
50% of the outstanding Shares are present or represented by proxy, or (ii)
more than 50% of the outstanding Shares.
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<PAGE>
11. REPORTS
The Fund furnishes shareholders with semi-annual and annual
reports containing information about the Fund and its operations, including a
list of investments held in the Fund's portfolio and financial statements. The
annual financial statements are audited by the Fund's independent auditors.
12. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, a subsidiary of PNC Bank
Corp., has been retained to act as custodian of the Fund's investments. PNC Bank
receives such compensation from the Fund for its services as custodian as may be
agreed to from time to time by PNC Bank and the Fund. Investment Company Capital
Corp., 135 East Baltimore Street, Baltimore, Maryland 21202 (telephone: (800)
553-8080 for the Flag Investors Shares and (800) 882-8585 for the ISI Shares)
has been retained to act as the Fund's transfer and dividend disbursing agent.
As compensation for these services, ICC receives up to $15.17 per account per
year plus reimbursement for out-of-pocket expenses incurred in connection
therewith. For the fiscal year ended October 31, 1995, such fees totalled
$204,806.
ICC also provides accounting services to the Fund. As
compensation for these services, ICC is entitled to receive an annual fee,
calculated daily and paid monthly, as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of
accounting services: express delivery service, independent pricing and
storage. As compensation for providing accounting services for the fiscal year
ended October 31, 1995, ICC received fees of $94,737.
ICC also serves as the Fund's administrator.
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<PAGE>
13. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by
the Fund's independent auditors, Deloitte & Touche LLP. Deloitte & Touche LLP
has offices at 2 Hilton Court, P.O. Box 319, Parsippany, New Jersey 07054.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 19, 1996, to Fund management's knowledge, the
following persons owned of record or beneficially 5% or more of the Fund's
outstanding Shares.
Class A Shares
Alex. Brown & Sons Incorporated 61.41%*
135 East Baltimore Street
Baltimore, MD 21202
- ------------
* As of such date, to Fund management's knowledge, Alex. Brown owned
beneficially less than 1% of such shares.
As of such date, to Fund management's knowledge, Directors
and officers as a group owned less than 1% of the Fund's total outstanding
Shares of either class.
15. PERFORMANCE AND YIELD COMPUTATIONS
For purposes of quoting and comparing the performance of the
Fund to that of other open-end diversified management investment companies and
to stock or other relevant indices in advertisements or in certain reports to
shareholders, performance generally will be stated both in terms of total
return and in terms of yield. However, the Fund may also from time to time
state the performance of the Fund solely in terms of total return.
Total Return Calculation
The total return quotations, under the rules of the SEC,
must be calculated according to the following formula:
n
P (1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1,
5 or 10 year periods (or fractional portion thereof)of a
hypothetical $1,000 payment made at the beginning of the 1,
5 or 10 year periods.
Under the foregoing formula, the time periods used in
advertising will be based on rolling calendar quarters updated to the last day
of the most recent quarter prior to submission of the advertising for
publication, and will cover one, five and ten year periods or a shorter period
dating from the effectiveness of the Fund's registration statement or the date
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<PAGE>
the Fund (or a series) commenced operations (provided such date is subsequent to
the date the registration statement became effective). During its first year of
operation the Fund may, in lieu of annualizing its total return, use an
aggregate total return calculated in the same manner. In calculating the ending
redeemable value, the maximum sales load (for the Class A Shares 4.50%, for the
ISI Shares 4.45% and for the Class B Shares 2.00% for the one year period, 1.00%
for the five year period and no sales charge thereafter) is deducted from the
initial $1,000 payment and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. "T" in the formula above
is calculated by finding the average annual compounded rate of return over the
period that would equate an assumed initial payment of $1,000 to the ending
redeemable value. Any sales loads that might in the future be made applicable at
the time to reinvestments would be included as would any recurring account
charges that might be imposed by the Fund.
The Fund may also from time to time include in such
advertising total return figures that are not calculated according to the
formula set forth above in order to compare more accurately the Fund's
performance with other measures of investment return. For example, in
comparing the Fund's total return with data published by Lipper Analytical
Services, Inc., the Fund calculates its aggregate and average annual total
return for the specified periods of time by assuming the investment of $10,000
in Shares and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date. For this alternative computation,
the Fund assumes that the $10,000 invested in Shares is net of all sales
charges (as distinguished from the computation required by the SEC where the
$1,000 payment is reduced by sales charges before being invested in Shares).
The Fund will, however, disclose the maximum sales charges and will also
disclose that the performance data do not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted. Such
alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules, and all
advertisements containing performance data will include a legend disclosing
that such performance data represent past performance and that the investment
return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
Calculated according to SEC rules for the one year period
ended September 30, 1995, the ending redeemable value of a hypothetical $1,000
payment for each of the Class A Shares and the ISI Shares was $1,103 and $1,104,
respectively, resulting in a total return for such Shares equal to 10.34% and
10.40%, respectively. For the five year period ended September 30, 1995, the
ending redeemable value of a hypothetical $1,000 payment for each of the Class A
Shares and the ISI Shares was $1,566 and $1,567, respectively, resulting in a
total return for such Shares equal to 9.39% and 9.40%, respectively. For the
period from August 10, 1988 (commencement of operations) through the end of the
Fund's most recent calendar quarter on September 30, 1995, the ending redeemable
value of a hypothetical $1,000 payment for each of the Class A Shares and the
ISI Shares was $1,795 and $1,796, respectively, resulting in an average annual
total return for such Shares equal to 8.54% and 8.56%, respectively.
Calculated according to the alternative computation which
assumes no sales charges and reinvestment of all distributions, for the one
year period ended October 31, 1995, the ending redeemable value of a
hypothetical $10,000 investment in the Class A Shares or ISI Shares was
$11,810 resulting in a total return for such Shares equal to 18.11%. For the
five year period ended October 31, 1995, the ending redeemable value of a
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<PAGE>
hypothetical $10,000 investment in Class A Shares or ISI Shares was $16,410,
resulting in a total return for such Shares equal to 10.4%. For the period
from August 10, 1988 (commencement of operations) through the end of the
Fund's most recent fiscal year on October 31, 1995, the ending redeemable
value of a hypothetical $10,000 investment in the Class A Shares or ISI Shares
was $19,198 resulting in an average annual total return for such Shares equal
to 9.4%.
The Class B Shares were not offered prior to the date of this
Statement of Additional Information.
Yield Calculations
The yield based on the 30 day period ended October 31, 1995
was 5.33% for the Class A Shares and 5.34% for the ISI Shares, computed in the
manner discussed below. The Class B Shares were not offered prior to the date of
this Statement of Additional Information. The yield of the Fund is calculated by
dividing the net investment income per Share earned by the Fund during a 30-day
(or one month) period by the maximum offering price per share on the last day of
the period and analyzing the result on a semiannual basis by adding one to the
quotient, raising the sum to the power of six, subtracting one from the result
and then doubling the difference. The Fund's yield calculations assume a maximum
sales charge of 4.50% for the Class A Shares, 4.45% for the ISI Shares and 2.0%
for the Class B Shares. The Fund's net investment income per Share earned during
the period is based on the average daily number of Shares outstanding during the
period entitled to receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of reimbursements.
Except as noted below, for the purpose of determining net
investment income earned during the period, interest earned on debt
obligations held by the Fund is calculated by computing the yield to maturity
of each obligation based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day of
each month, or, with respect to obligations purchased during the month, based
on the purchase price (plus actual accrued interest), dividing the result by
360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income
on the obligation for each day of the subsequent month that the obligation is
held by the Fund. For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a call provision is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date.
Undeclared earned income will be subtracted from the net
asset value per share. Undeclared earned income is net investment income
which, at the end of the base period, has not been declared as a dividend, but
is reasonably expected to be and is declared as a dividend shortly thereafter.
16. FINANCIAL STATEMENTS.
See next page.
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<PAGE>
[LOGO]
TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1995
<TABLE>
<CAPTION>
PAR VALUE
INTEREST RATE MATURITY DATE (000) (NOTE A)
<S> <C> <C> <C>
- -------------------------------------------------------------------------
U.S. TREASURY BONDS - 55.4%
10.375% 11/15/09 $ 12,500 $ 16,099,612
9.250 2/15/16 65,000 85,840,625
7.250 5/15/16 30,000 32,868,750
8.875 2/15/19 45,000 58,099,230
8.500 2/15/20 10,000 12,495,310
-------------
TOTAL U.S. TREASURY BONDS
(Cost $203,503,896)................................... 205,403,527
-------------
U.S. TREASURY NOTES - 35.1%
7.875 7/31/96 46,700 47,458,875
5.750 8/15/03 83,700 82,509,870
-------------
TOTAL U.S. TREASURY NOTES
(Cost $130,668,720)................................... 129,968,745
-------------
ZERO COUPON U.S. TREASURY BONDS (S.T.R.I.P.S.) - 1.3%
S.T.R.I.P.S. (Principal Only)
6.572%* 8/15/17 20,500 4,939,209
-------------
TOTAL U.S. TREASURY STRIPS
(Cost $4,671,341)..................................... 4,939,209
-------------
REPURCHASE AGREEMENTS - 6.8%
GOLDMAN SACHS & CO., 5.75%
Dated 10/31/95, to be repurchased on 11/1/95,
collateralized by U.S. Treasury Bonds with a
market value of $25,745,920
(Cost $25,240,000)........................... 25,240 25,240,000
-------------
</TABLE>
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-24-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (CONCLUDED) October 31, 1995
<TABLE>
<CAPTION>
VALUE
(NOTE A)
<S> <C> <C>
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES - 98.6%
(Cost $364,083,957)**...................................................... $ 365,551,481
OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 1.4%............................ 5,269,210
-------------
NET ASSETS - 100.0%.......................................................... $ 370,820,691
-------------
-------------
NET ASSET VALUE AND REDEMPTION PRICE PER:
FLAG INVESTORS CLASS A SHARE
($164,205,925 DIVIDED BY 16,119,600 shares outstanding)................. $10.19
ISI CLASS SHARE
($206,614,766 DIVIDED BY 20,277,563 shares outstanding)................. $10.19
MAXIMUM OFFERING PRICE PER:
FLAG INVESTORS CLASS A SHARE
($10.19 DIVIDED BY .955)................................................ $10.67
ISI CLASS SHARE
($10.19 DIVIDED BY .9555)............................................... $10.66
- --------------------------------------------------------------------------------------------
</TABLE>
*Yield as of October 31, 1995.
**Also aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
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-25-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE A):
Interest................................................................................... $ 24,592,183
------------
EXPENSES:
Investment advisory fee (Note B)........................................................... 999,452
Distribution fee (Note B).................................................................. 912,256
Administration fees (Note B)............................................................... 438,267
Transfer agent fees (Note B)............................................................... 204,806
Accounting fee (Note B).................................................................... 94,737
Printing and postage....................................................................... 61,802
Custodian fees............................................................................. 58,167
Legal...................................................................................... 47,433
Directors' fees............................................................................ 24,011
Audit...................................................................................... 23,976
Miscellaneous.............................................................................. 19,007
Insurance.................................................................................. 15,959
Registration fees.......................................................................... 9,815
------------
Total expenses........................................................................... 2,909,688
------------
Net investment income...................................................................... 21,682,495
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions............................................... 2,796,088
Change in unrealized appreciation/(depreciation) of investments............................ 36,191,069
------------
Net gain on investments.................................................................... 38,987,157
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................................... $ 60,669,652
------------
------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
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-26-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
-----------------------------------
<S> <C> <C>
1995 1994
- -----------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................. $ 21,682,495 $ 20,608,620
Net gain from security transactions............................... 2,796,088 2,694,502
Change in unrealized appreciation/(depreciation) of investments... 36,191,069 (50,587,386)
--------------- ------------------
Net increase/(decrease) in net assets resulting from operations... 60,669,652 (27,284,264)
--------------- ------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income:
Flag Investors Class A Shares................................... (9,785,285) (9,667,725)
Flag Investors Class B Shares................................... -- (69,473)
ISI Class Shares................................................ (11,897,210) (10,871,422)
Net realized short-term gains:
Flag Investors Class A Shares................................... (1,162,209) (3,322,794)
Flag Investors Class B Shares................................... -- (48,182)
ISI Class Shares................................................ (1,385,249) (3,643,272)
Net realized long-term gains:
Flag Investors Class A Shares................................... -- (16,299,585)
Flag Investors Class B Shares................................... -- (138,210)
ISI Class Shares................................................ -- (16,877,555)
--------------- ------------------
Total distributions............................................... (24,229,953) (60,938,218)
--------------- ------------------
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares...................................... 31,613,586 53,031,045
Value of shares issued in reinvestment of dividends............... 15,133,836 39,758,572
Cost of shares repurchased........................................ (87,824,419) (87,607,047)
--------------- ------------------
Increase/(decrease) in net assets derived from
capital share transactions...................................... (41,076,997) 5,182,570
--------------- ------------------
Total decrease in net assets...................................... (4,637,298) (83,039,912)
NET ASSETS:
Beginning of period............................................... 375,457,989 458,497,901
--------------- ------------------
End of period..................................................... $ 370,820,691 $ 375,457,989
--------------- ------------------
--------------- ------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
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-27-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year................. $ 9.22 $ 11.35 $ 10.47 $ 10.41 $ 9.76
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.57 0.51 0.62 0.76 0.70
Net realized and unrealized gain/(loss)
on investments..................................... 1.04 (1.16) 1.12 0.05 0.79
----------- ----------- ----------- ----------- -----------
Total from Investment Operations..................... 1.61 (0.65) 1.74 0.81 1.49
LESS DISTRIBUTIONS:
Dividends from net investment income
and short-term gains............................... (0.64) (1.20) (0.79) (0.70) (0.84)
Distributions from net realized
long-term gains.................................... -- (0.28) (0.07) (0.05) --
----------- ----------- ----------- ----------- -----------
Total distributions.................................. (0.64) (1.48)* (0.86) (0.75) (0.84)
----------- ----------- ----------- ----------- -----------
Net asset value at end of year....................... $ 10.19 $ 9.22 $ 11.35 $ 10.47 $ 10.41
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN........................................... 18.09% (6.22)% 17.33% 8.96% 15.89%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 0.80% 0.77% 0.77% 0.77% 0.87%
Net investment income................................ 5.94% 4.98% 5.21% 5.65% 6.88%
SUPPLEMENTAL DATA:
Net assets at end of year (000):
Flag Investors Class A Shares...................... $164,206 $175,149 $224,790 $250,210 $237,688
ISI Class Shares................................... $206,615 $200,309 $232,103 $207,518 $168,128
Portfolio turnover rate.............................. 194% 68% 249% 191% 141%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Distributions to shareholders include $.05 per share return of capital.
See accompanying Notes to Financial Statements.
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-28-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
A. SIGNIFICANT ACCOUNTING POLICIES -- Total Return
U.S. Treasury Fund, Inc. (the "Fund") was organized as a Maryland Corporation
on June 3, 1988 and commenced operations on August 10, 1988. The Fund is
registered under the Investment Company Act of 1940 as a diversified,
open-end management investment company. At October 31, 1995, the Fund
consisted of two classes of shares: ISI Total Return U.S. Treasury Fund ("ISI
Class") and Flag Investors Total Return U.S. Treasury Fund Class A Shares
("Flag Investors Class A"). The Flag Investors Class A and the ISI Class
Shares each have different sales loads. As of March 1, 1994, the previously
offered Flag Investors Total Return U.S. Treasury Fund Class B Shares ("Flag
Investors Class B") were no longer offered. All Class B Shares not exchanged
into Class A Shares or previously redeemed were redeemed as of October 20,
1994. Significant accounting policies are as follows:
SECURITY VALUATION -- Portfolio securities that are listed on a national
securities exchange are valued on the basis of their last sale price or, in
the absence of recorded sales, at the average of readily available closing
bid and asked prices. Securities or other assets for which market quotations
are not readily available are valued at their fair value so determined in
good faith by the Investment Advisor under procedures established and
monitored by the Board of Directors. Short-term obligations with maturities
of 60 days or less are valued at amortized cost which approximates market.
REPURCHASE AGREEMENTS -- The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller, under a repurchase agreement, will be
required on a daily basis to maintain the value of the securities subject to
the agreement at not less than the repurchase price. The agreement is
conditioned upon the collateral being deposited under the Federal Reserve
book-entry system.
FEDERAL INCOME TAXES -- No provision is made for federal income taxes as it
is the Fund's intention to continue to qualify as a regulated investment
company and to make requisite distributions to shareholders that will be
sufficient to relieve it from all or substantially all federal income and
excise taxes. The Fund's policy is to distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
OTHER -- Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis and includes, when
applicable, the pro rata amortization of premiums and accretion of discounts.
B. INVESTMENT ADVISORY FEE, TRANSACTIONS WITH
AFFILIATES AND OTHER FEES -- International Strategy & Investment Inc. ("ISI")
serves as the Fund's investment advisor and Investment Company Capital Corp.
("ICC"), a subsidiary of Alex. Brown & Sons Incorporated ("Alex. Brown"),
serves as the Fund's administrator. As compensation for its advisory
services, ISI receives from the Fund an annual fee, calculated daily and paid
monthly, at the annual rate of .20% of the first $100 million of the Fund's
average daily net assets; .18% of the Fund's average daily net assets in
excess of $100 million but not exceeding $200 million; .16% of the Fund's
average daily net assets in excess of $200 million but not exceeding $300
million; .14% of the Fund's average daily net assets in excess of $300
million but not exceeding $500 million; and .12% of the Fund's average daily
net assets in excess of $500 million. In addition, the Fund pays the
investment advisor 1.5% of the Fund's gross income.
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-29-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (CONTINUED)
As compensation for its administrative services, ICC receives from the Fund
an annual fee, calculated daily and paid monthly, at the annual rate of .10%
of the first $100 million of the Fund's average daily net assets; .09% of the
Fund's average daily net assets in excess of $100 million but not exceeding
$200 million; .08% of the Fund's average daily net assets in excess of $200
million but not exceeding $300 million; .07% of the Fund's average daily net
assets in excess of $300 million but not exceeding $500 million; and .06% of
the Fund's average daily net assets in excess of $500 million. In addition,
the Fund pays the administrator .50% of the Fund's gross income.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, based on the Fund's average
daily net assets. ICC received $94,737 for accounting services for the year
ended October 31, 1995.
As compensation for its transfer agent services, ICC receives from the Fund a
per account fee, calculated and paid monthly. ICC received $204,806 for
transfer agent services for the year ended October 31, 1995.
As compensation for providing distribution services, Armata Financial Corp.,
an affiliate of Alex. Brown, receives from the Fund an annual fee, calculated
daily and paid monthly, at an annual rate equal to .25% of the average daily
net assets of the ISI Class Shares. Alex. Brown receives from the Fund an
annual fee, calculated daily and paid monthly, at the annual rate of .25% of
the average daily net assets of the Flag Investors Class A Shares. For the
year ended October 31, 1995, distribution fees aggregated $912,256, of which
$501,139 and $411,117 were allocated to the ISI Class and Flag Investors
Class A Shares, respectively.
C. CAPITAL SHARE TRANSACTIONS -- At October 31,
1995, there were 100 million shares of $.001 par value common stock
authorized. Transactions of the Fund were as follows:
<TABLE>
<CAPTION>
Flag Investors Class A Shares
------------------------------
<S> <C> <C>
For the Year Ended October 31,
------------------------------
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Shares sold............... 726,425 1,644,765
Shares issued to
shareholders on
reinvestment of
dividends............... 653,526 1,794,890
Shares redeemed........... (4,262,626) (4,249,405)
-------------- --------------
Net decrease in shares
outstanding............. (2,882,675) (809,750)
-------------- --------------
-------------- --------------
Proceeds from sale of
shares.................. $ 7,023,050 $ 16,544,622
Reinvested dividends...... 6,240,023 18,068,172
Net asset value of shares
redeemed................ (40,514,349) (41,772,070)
-------------- --------------
Net decrease from capital
share transactions...... $ (27,251,276) $ (7,159,276)
-------------- --------------
-------------- --------------
</TABLE>
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-30-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (CONCLUDED)
<TABLE>
<CAPTION>
ISI Class Shares
------------------------------
<S> <C> <C>
For the Year Ended October 31,
------------------------------
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Shares sold................. 2,579,624 3,572,802
Shares issued to
shareholders on
reinvestment of
dividends................. 929,740 2,141,783
Shares redeemed............. (4,961,123) (4,441,121)
-------------- --------------
Net increase/(decrease) in
shares outstanding........ (1,451,759) 1,273,464
-------------- --------------
-------------- --------------
Proceeds from sale of
shares.................... $ 24,590,536 $ 35,603,196
Reinvested dividends........ 8,893,813 21,518,947
Net asset value of shares
redeemed.................. (47,310,070) (43,262,704)
-------------- --------------
Net increase/(decrease) from
capital share
transactions.............. $ (13,825,721) $ 13,859,439
-------------- --------------
-------------- --------------
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Flag Investors Class B
Shares
---------------------------
<S> <C>
For the Period Nov. 1, 1993
to Oct. 20, 1994*
---------------------------
Shares sold.................... 83,459
Shares issued to shareholders
on reinvestment of
dividends.................... 16,938
Shares redeemed................ (242,301)
-------------
Net decrease in shares
outstanding.................. (141,904)
-------------
-------------
Proceeds from sale of shares... $ 883,227
Reinvested dividends........... 171,453
Net asset value of shares
redeemed..................... (2,572,273)
-------------
Net decrease from capital share
transactions................. $ (1,517,593)
-------------
-------------
- ------------------------------------------------------------
* Final redemption date.
</TABLE>
D. INVESTMENT TRANSACTIONS -- Purchases and sales
of investment securities, other than short-term obligations, aggregated
$658,047,217 and $650,979,192, respectively, for the year ended October 31,
1995.
At October 31, 1995, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost was
$2,786,291 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value was $1,318,767.
E. NET ASSETS -- At October 31, 1995, net assets
consisted of:
<TABLE>
<S> <C>
Paid-in Capital:
Flag Investors
Class A Shares.......... $ 161,528,337
ISI Class Shares.......... 207,576,200
Accumulated net realized
gain from security
transactions.............. 248,630
Unrealized appreciation of
investments............... 1,467,524
-------------
$ 370,820,691
-------------
-------------
</TABLE>
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-32-
<PAGE>
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TOTAL RETURN U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders,
Total Return U.S. Treasury Fund, Inc.:
We have audited the accompanying statement of net assets of Total Return
U.S. Treasury Fund, Inc. as of October 31, 1995, the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year 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 audit 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 at October
31, 1995 by correspondence with the custodian. 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 represent
fairly, in all material respects, the financial position of Total Return U.S.
Treasury Fund, Inc. as of October 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
December 6, 1995
[LOGO]
-33-
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits
---------------------------------
List all financial statements and exhibits filed as part of
the Registration Statement.
(a) Financial statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the fiscal years ended
October 31, 1995, October 31, 1994, October 31, 1993,
October 31, 1992, October 31, 1991, October 31, 1990
and October 31, 1989 and for the period from August
10, 1988 (commencement of operations) through October
31, 1988
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of October 31, 1995
- Statement of Operations for the fiscal year ended
October 31, 1995
- Statements of Changes in Net Assets for the fiscal
years ended October 31, 1995 and October 31, 1994
- Financial Highlights for the fiscal years ended
October 31, 1995, October 31, 1994, October 31, 1993,
October 31, 1992 and October 31, 1991
- Notes to Financial Statements
(3) All required financial statements are included in parts A
and B hereof. All other financial statements and schedules
are inapplicable.
(b) Exhibits:
(1) (a)4 Articles of Incorporation.
(b)4 Articles Supplementary dated December 18, 1991.
(c)4 Articles Supplementary to Registrant's Articles of
Incorporation dated December 15, 1993.
(d)4 Articles Supplementary.
(2)4 By-Laws.
(3) None.
(4) (a)2 Specimen Certificate of Common Stock, $.001 par value
with respect to Registrant's Flag Investors Total
Return U.S. Treasury Fund Class A Shares.
C-1
<PAGE>
(b)3 Specimen Certificate of Common Stock, $.001 par value
with respect to Registrant's ISI Total Return U.S.
Treasury Fund Shares.
(c)3 Specimen Certificate of Common Stock, $.001 par value
with respect to Registrant's Flag Investors Total
Return U.S. Treasury Fund Class B Shares (later
renamed Class D Shares).
(5)4 Investment Advisory Agreement dated April 1, 1991 between
Registrant and International Strategy and Investment Inc.
(6) (a)4 Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Total Return U.S. Treasury Fund Class A
Shares.
(b)4 Registrant's Participating Dealer Agreement between
Alex. Brown & Sons Incorporated and Participating
Dealers with respect to Flag Investors Total Return
U.S. Treasury Fund Shares.
(c)4 Form of Registrant's Shareholder Servicing Agreement
between the Fund and Shareholder Servicing Agents.
(d)4 Distribution Agreement dated November 30, 1990 between
Registrant and Armata Financial Corp. with respect to
ISI Total Return U.S. Treasury Fund Shares.
(e)4 Participating Dealer Agreement between Armata
Financial Corp. and Participating Dealers with
respect to ISI Total Return U.S. Treasury Fund
Shares.
(f)1 Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Total Return U.S. Treasury Fund Class B
Shares.
(7) None.
(8)4 Custodian Agreement between Registrant and Provident
National Bank of Philadelphia.
(9) (a)4 Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for
the provision of Administration, Accounting and
Transfer Agency Services.
(b)4 License Agreement between Registrant and Alex. Brown
Incorporated.
(10)4 Opinion of Counsel.
(11)1 Consent of Deloitte & Touche LLP.
(12) None.
(13)4 Subscription Agreements.
(14) None.
C-2
<PAGE>
(15) (a)4 Plan of Distribution of Registrant for its Flag
Investors Total Return U.S. Treasury Fund Class A
Shares.
(b)4 Plan of Distribution of Registrant for its ISI Total
Return U.S. Treasury Fund Shares.
(c)1 Plan of Distribution of Registrant for its Flag
Investors Total Return U.S. Treasury Fund Class B
Shares.
(16)4 Schedule of Computation of Performance Quotations
(unaudited).
(18)1 Rule 18f-3 Plan.
(24)4 Powers of Attorney.
(27)1 Financial Data Schedule.
- -----------------------
1 Filed herewith.
2 Incorporated by reference to Pre-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission on
August 4, 1988.
3 Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission on
February 23, 1994.
4 Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission via
EDGAR on February 26, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant.
The following information is given as of March 19, 1996.
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock
Flag Investors Total Return U.S.
Treasury Fund Shares - Class A 3,159
ISI Total Return U.S. Treasury Fund Shares 5,453
C-3
<PAGE>
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Under the terms of the Fund's Articles of Incorporation, the Registrant
may indemnify each of its Directors and officers (including persons who serve at
the Registrant's request as directors, officers or trustees of another
organization in which the corporation has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any such indemnified
person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or legislative body except with respect to any matter as to which such person
shall have been finally adjudicated in any such action, suit or other proceeding
where (a) the act or omission of the director was material to the cause of
action adjudicated; the act or omission was committed in bad faith or was the
result of active and deliberate dishonesty; the director actually received an
improper personal benefit in money, property, or services or in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or omission was unlawful, or (b) to be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
office. Termination of any proceeding by conviction or a plea of nolo contendere
or its equivalent, or an entry of an order of probation prior to judgment
creates a rebuttable presumption that the director did not meet the standard of
conduct. No such presumption results from the termination of any proceeding by
judgment, order or settlement. Expenses, including counsel fees so incurred by
any such person (but excluding amounts paid in satisfaction of judgment, in
compromise or as fines or penalties), shall be paid from time to time by the
Registrant in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay amounts so paid to the Fund if it is ultimately determined that
indemnification of such expenses is not authorized under the Articles of
Incorporation, provided, however, that such person shall have affirmed that he
in good faith believes that he has met the standard of conduct necessary for
indemnification and shall have provided a written undertaking to repay the
amount if it is ultimately determined that the standard of conduct has not been
met and either a majority of the Directors acting on the matter who are not
parties to such action (provided that at least two of such Directors then in
office act on the matter), or independent legal counsel in a written opinion,
shall have determined, based upon a review of readily available facts that there
is reason to believe that such person will be found entitled to indemnification
under the Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. In the absence of a determination by a court
of competent jurisdiction, the determinations that indemnification against such
liabilities is proper, and advances can be made, are made by a majority of a
quorum of the disinterested, non-party directors of the Fund, or an independent
legal counsel in a written opinion, based on review of readily available facts.
C-4
<PAGE>
Item 28. Business and Other Connections of Investment Advisor.
-----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
During the past two fiscal years: Edward S. Hyman, Jr., Chairman of the
Investment Advisor, served as Chairman and a Member of the Board of Directors of
the Registrant; R. Alan Medaugh, President of the Investment Advisor, served as
President of the Registrant; Nancy Lazar, Executive Vice President and Secretary
of the Investment Advisor, served as a Vice President of the Registrant; Carrie
L. Butler, Vice President of the Investment Advisor, served as Vice President
(since March 1995) and as an Assistant Vice President (from 1991 - 1995) of the
Registrant; and Denice DeFlorio, Assistant Vice President of the Investment
Advisor, served as Assistant Vice President of the Registrant since March 1995.
Prior thereto, Ms. DeFlorio served as Assistant Portfolio Manager, Smith
Barney's Municipal Money Market Funds and Taxable Money Market Funds.
Item 29. Principal Underwriters
----------------------
ALEX. BROWN
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex.
Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag
Investors Emerging Growth Fund, Inc., the Flag Investors Shares
Class of Managed Municipal Fund, Inc., Flag Investors
Intermediate-Term Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc., Flag Investors Real Estate Securities Fund, Inc. and
Flag Investors Equity Partners Fund, Inc., all registered open-end
management investment companies.
(b)
<TABLE>
<CAPTION>
Position and
Names and Principal Position with Offices Offices with
Business Address* and Principal Underwriter Registrant
------------------- ------------------------- ------------
<S> <C> <C>
Alvin B. Krongard Chairman, Chief Executive Officer, Director None
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial Officer and Treasurer None
Robert F. Price Secretary and General Counsel None
</TABLE>
C-5
<PAGE>
(c) Not applicable.
ARMATA FINANCIAL CORP.
- ----------------------
(a) Armata Financial Corp. also acts as distributor for the ISI
Managed Municipal Fund Shares, a class of Managed Municipal Fund,
Inc., and North American Government Bond Fund, Inc., registered
open-end investment companies.
<TABLE>
<CAPTION>
(b)
Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
------------------- -------------------------- --------------------
<S> <C> <C>
Jack S. Griswold Chairman and Director None
F. Barton Harvey, Jr. Director None
John M. Prugh President and Director None
E. Robert Kent, Jr. Director None
Peter E. Bancroft Secretary None
Timothy M. Gisriel Treasurer None
</TABLE>
(c) Not applicable.
- ---------------------
* 135 East Baltimore Street, Baltimore, Maryland 21202
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Investment Company Capital Corp., 135 E. Baltimore Street,
Baltimore, Maryland 21202, Registrant's administrator and transfer and
dividend disbursing agent, maintains physical possession of each such
account, book or other document of the Fund, except for those
maintained by the Registrant's investment advisor, International
Strategy and Investment Inc., 717 Fifth Avenue, New York, New York
10022 or by the Registrant's custodian, PNC Bank, 100 South Broad
Street, Philadelphia, Pennsylvania 19103.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any management
related service contract not discussed in part A or Part B of this Form (because
the contract was not believed to be of interest to a purchaser of securities of
the Registrant) under which services are provided to the Registrant, indicating
the parties to the contract, the total dollars paid and by whom, for the last
three fiscal years.
See Exhibit 8.
C-6
<PAGE>
Item 32. Undertakings
------------
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not applicable.
(b) Not applicable.
(c) A copy of the Registrant's latest annual report to
shareholders is available upon request, without charge by
contacting the Registrant at (800) 767-3524 (for Flag Shares)
or (800) 955-7175 (for ISI Shares).
C-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment No. 14 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 25th day of March 1996.
TOTAL RETURN U.S. TREASURY
FUND, INC.
By: /s/ R. Alan Medaugh
--------------------------------
R. Alan Medaugh,
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities on the date(s) indicated:
*/s/ Edward S. Hyman, Jr. Director March 25, 1996
- ------------------------- -----------------
Edward S. Hyman, Jr. Date
*/s/ Richard T. Hale Director March 25, 1996
- ------------------------- -----------------
Richard T. Hale Date
*/s/ W. James Price Director March 25, 1996
- ------------------------ -----------------
W. James Price Date
*/s/ James J. Cunnane Director March 25, 1996
- ------------------------ -----------------
James J. Cunnane Date
*/s/ John F. Kroeger Director March 25, 1996
- ------------------------ -----------------
John F. Kroeger Date
*/s/ Louis E. Levy Director March 25, 1996
- ------------------------ -----------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director March 25, 1996
- ------------------------ -----------------
Eugene J. McDonald Date
*/s/ Harry Woolf Director March 25, 1996
- ------------------------ -----------------
Harry Woolf Date
/s/ R. Alan Medaugh President March 25, 1996
- ------------------------ -----------------
R. Alan Medaugh Date
/s/ Joseph A. Finelli Chief Financial March 25, 1996
- ------------------------ and Accounting -----------------
Joseph A. Finelli Officer Date
* By: /s/ Brian C. Nelson
- ------------------------
Brian C. Nelson
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Description
- ------- -----------
(1) (a)4 Registrant's Articles of Incorporation.
(1) (b)4 Registrant's Articles Supplementary dated December
18, 1991.
(1) (c)4 Registrant's Articles Supplementary dated December
15, 1993.
(1) (d)4 Registrant's Articles Supplementary.
(2)4 Registrant's By-Laws.
(3) None.
(4) (a)2 Specimen Certificate of Common Stock, $.001 par
value with respect to Registrant's Flag Investors
Total Return U.S. Treasury Fund Class A Shares.
(4) (b)3 Specimen Certificate of Common Stock, $.001 par
value with respect to Registrant's ISI Total
Return U.S. Treasury Fund Shares.
(4) (c)3 Specimen Certificate of Common Stock, $.001 par
value with respect to Registrant's Flag Investors
Total Return U.S. Treasury Fund Class B Shares
(later renamed Class D Shares).
(5)4 Investment Advisory Agreement dated April 1, 1991
between Registrant and International Strategy and
Investment Inc.
<PAGE>
(6) (a)4 Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Total Return U.S. Treasury Fund Class A
Shares.
(6) (b)4 Registrant's Participating Dealer Agreement between
Alex. Brown & Sons Incorporated and Participating
Dealers with respect to Flag Investors Total Return U.S.
Treasury Fund Shares.
(6) (c)4 Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents.
(6) (d)4 Distribution Agreement dated November 30, 1990
between Registrant and Armata Financial Corp. with
respect to ISI Total Return U.S. Treasury Fund Shares.
(6) (e)4 Form of Participating Dealer Agreement between
Armata Financial Corp. and Participating Dealers with
respect to ISI Total Return U.S. Treasury Fund Shares.
EX-99.B (6) (f)1 Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Total Return U.S. Treasury Fund Class B Shares.
(7) None.
(8)4 Custodian Agreement between Registrant and Provident
National Bank (now known as PNC Bank).
(9) (a)4 Master Services Agreement between
Registrant and Investment Company Capital Corp.,
with Appendices for the provision of
Administration, Accounting and Transfer Agency
Services.
(9) (b)4 License Agreement between Registrant and Alex.
Brown Incorporated.
(10)4 Opinion of Counsel.
EX-99.B (11)1 Consent of Deloitte & Touche LLP.
(12) None.
(13)4 Subscription Agreements between Registrant and Investors.
(14) None.
(15) (a)4 Registrant's Distribution Plan for its Flag Investors
Total Return U.S. Treasury Fund Class A Shares.
<PAGE>
(15) (b)4 Registrant's Distribution Plan for its ISI Class
of Shares.
EX-99.B (15) (c)1 Registrant's Distribution Plan for its Flag
Investors Total Return U.S. Treasury Fund Class B
Shares.
(16)4 Schedule of Computation of Performance Quotations
(unaudited).
EX-99.B (18)1 Rule 18f-3 Plan.
(24)4 Powers of Attorney.
EX-27 1 Financial Data Schedule.
- ----------
1 Filed herewith.
2 Incorporated by reference to Pre-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission on
August 4, 1988.
3 Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission on
February 23, 1994.
4 Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission via EDGAR on
February 26, 1996.
<PAGE>
Modified Class B Shares
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the ____ day of ___________, 19___, by and
between TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors
Class B Shares (the "Shares") and Alex. Brown wishes to become the distributor
of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund
may from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution
of such additional series and classes unless the parties shall otherwise agree
in writing. Alex. Brown accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on June 3, 1988 and all amendments thereto (the
"Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on June 6, 1988;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-12179) and
under the 1940 Act as filed with the SEC on June 6, 1988 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex.
Brown does not undertake to sell all or any specific portion of the Shares.
The Fund shall not sell any of the Shares except through Alex. Brown and
securities dealers who have valid Sub-Distribution Agreements with Alex.
Brown. Notwithstanding the provisions of the foregoing sentence, the Fund may
issue its Shares at their net asset value to any shareholder of the Fund
purchasing such Shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of
the Fund. The Board of Directors may agree, on behalf of the Fund, to
amendments to this Agreement, provided that the Fund must obtain prior
approval of the shareholders of the Fund to any amendment which would result
in a material increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
<PAGE>
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without
cost to the Fund, the services of personnel to the extent that such services
are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional
or sales literature used by Alex. Brown or furnished by Alex. Brown to
purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and corporate fees payable by the Fund to Federal, State or
other governmental agencies; the cost and expense of engraving or printing of
stock certificates representing Shares; all costs and expenses in connection
with maintenance of registration of the Fund and the Shares with the SEC and
various states and other jurisdictions (including filing fees and legal fees
and disbursements of counsel) except as provided in subparagraph (a) above,
the expenses of printing, including typesetting, and distributing prospectuses
of the Fund and supplements thereto to the Fund's shareholders; all expenses
of shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors who are not "interested persons" of the Fund (as defined
in the 1940 Act) or members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in Shares or in cash; charges and expenses of any outside
service used for pricing of the Shares; charges and expenses of legal counsel,
including counsel to the Directors who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be
under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .35% of the average daily net assets of the shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
<PAGE>
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee (as
such term is defined in the NASD Rules of Fair Practice) equal to .25% of the
average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives
for opening accounts, processing investor letters of transmittals and
applications and withdrawal and redemption orders, responding to inquiries
from Fund shareholders concerning the status of their accounts and the
operations of the Fund, and communicating with the Fund and its transfer agent
on behalf of the Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the
agreement attached hereto as Exhibit "A". For processing Fund shareholders'
redemption orders, responding to the inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund and
communicating with the Fund, its transfer agent and Alex. Brown, Alex. Brown
may pay each such Participating Dealer an amount not to exceed that portion of
the compensation paid to Alex. Brown hereunder that is attributable to
accounts of Fund shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund are not
to be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage
in other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or
from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for
an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities (as defined in the 1940
Act), and
(b) by the affirmative vote of a majority of the Directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and
do not have a financial interest in the operation of this Agreement, by votes
cast in person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time, on
sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The
notice provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
<PAGE>
16. Liability. In the performance of its duties hereunder, Alex.
Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of Alex. Brown or reckless disregard by Alex.
Brown of its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of
both Alex. Brown and the Fund for this purpose shall be 135 East Baltimore
Street, Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers as of the day and
year first above written.
[SEAL] TOTAL RETURN U.S. TREASURY FUND, INC.
Attest:__________________ By _____________________________________
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:__________________ By _____________________________________
Title:
<PAGE>
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are
open-end investment companies registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Funds offer their shares
("Shares") to the public in accordance with the terms and conditions contained
in the Prospectus of each Fund. The term "Prospectus" used herein refers to
the prospectus on file with the Securities and Exchange Commission which is
part of the registration statement of each Fund under the Securities Act of
1933 (the "Securities Act"). In connection with the foregoing you may serve as
a participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit
to the Funds such orders and all additional material, including any
certificates for Shares, as may be required to complete the redemption and
(iii) to assist shareholders with the foregoing and other matters relating to
their investments in each Fund, in each case subject to the terms and
conditions set forth in the Prospectus of each Fund. You are to review each
Share purchase or redemption order submitted through you or with your
assistance for completeness and accuracy. You further agree to undertake from
time to time certain shareholder servicing activities for customers of yours
who have purchased Shares and who use your facilities to communicate with the
Funds or to effect redemptions or additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee
(as we may determine from time to time in writing) computed as a percentage of
the average daily net assets maintained with each Fund during the preceding
period by shareholders who purchase their shares through you or with your
<PAGE>
assistance, provided that said assets are at least $250,000 for each Fund for
which you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of
the Funds. We agree to furnish to you as many copies of each Prospectus,
annual and interim reports and proxy solicitation materials as you may
reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered
under, or are not exempt from, the applicable registration or licensing
requirements of such jurisdiction. You agree that in performing the services
under this Agreement, you at all times will comply with the Rules of Fair
Practice of the NASD, including, without limitation, the provisions of Section
26 of such Rules. You agree that you will not combine customer orders to reach
breakpoints in commissions for any purposes whatsoever unless authorized by
the then current Prospectus in respect of Shares of a particular class or by
us in writing. You also agree that you will place orders immediately upon
their receipt and will not withhold any order so as to profit therefrom. In
determining the amount payable to you hereunder, we reserve the right to
exclude any sales which we reasonably determine are not made in accordance
with the terms of the Prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as
to the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer
Shares to your customers only in those states where such Shares have been
registered, qualified, or an exemption is available. We assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction. We will file with the Department of State in New York a State
Notice and a Further State Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for
the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law
to be kept by you relating to transactions in Shares and, upon request by any
Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by it
hereunder. In carrying out your obligations, you agree to act in good faith
and without negligence. Nothing contained in this Agreement is intended to
operate as a waiver by the Distributor or you of compliance with any provision
of the Investment Company Act, the Securities Act, the Securities Exchange Act
-2-
<PAGE>
of 1934, as amended, or the rules and regulations promulgated by the
Securities and Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members
of the Board of Directors or Trustees of such Fund who are not "interested
persons" (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed
to you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
-3-
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Total Return U.S. Treasury Fund, Inc.
We consent to the use in Post-Effective Amendment No. 14 to Registration
Statement No. 33-12179 of our report dated December 6, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial
Highlights" appearing in the Prospectus, which also is a part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 21, 1996
<PAGE>
Modified Class B Shares
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class B Shares (the "Shares") of Total
Return U.S. Treasury Fund, Inc. (the "Fund"). Other capitalized terms herein
have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments
made to it under the Distribution Agreement and to make payments on behalf of
the Fund to Shareholder Servicing Agents under Shareholder Servicing
Agreements.
(b) Alex. Brown may make payments in any amount, provided
that the total amount of all payments made during a fiscal year of the Fund do
not exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown
under the Distribution Agreement with respect to distribution of the Shares
which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .35% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other
investments, provided that expenses relating to such advertising and sales
material will be allocated among such other investment companies or
investments in an equitable manner, and any sales personnel so paid are not
required to devote their time solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown
as distributor for the Shares is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor
and Alex. Brown, the fees of the Fund's administrator; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all
costs and expenses in connection with maintenance of registration of the Fund
and its shares with the Securities and Exchange Commission and various states
and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting, and distributing prospectuses and statements of additional
information of the Fund supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing, printing
and mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors or Director members of any advisory board or committee;
all expenses incident to the payment of any dividend, distribution, withdrawal
or redemption, whether in shares or in cash; charges and expenses of any
outside service used for pricing of the Fund's shares; charges and expenses of
<PAGE>
legal counsel, including counsel to the Directors of the Fund who are not
interested persons (as defined in the 1940 Act) of the Fund and of independent
certified public accountants, in connection with any matter relating to the
Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other
charges and costs of the Fund's operation unless otherwise explicitly provided
herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its
regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board
shall review, the following: (i) the amounts of all payments under the Plan,
the identity of the recipients of each such payment; (ii) the basis on which
the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to
year only so long as such continuance is specifically approved at least
annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as
defined in the 1940 Act), cast in person at a meeting called for the purpose
of voting on such continuance. This Plan may be terminated at any time by a
vote of a majority of the Directors who are not interested persons (as defined
in the 1940 Act) or by the vote of the holders of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan may not
be amended to increase materially the amount of payments to be made without
shareholder approval, as set forth in (ii) above, and all amendments must be
approved in the manner set forth under (i) above.
<PAGE>
Total Return U.S. Treasury Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and ISI Class
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Total Return U.S. Treasury
Fund, Inc. (the "Fund"), including a majority of the Directors of the Fund who
are not "interested persons" of the Fund (the "Independent Directors") pursuant
to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A Shares, Flag Investors Class B
Shares and ISI Shares) and future classes of Fund shares. The Flag Investors
Class A Shares and the ISI Shares have been offered since the Fund's inception
on August 10, 1988. The Flag Investors Class B Shares are expected to be
offered in the near future. (A fourth class of the Fund's shares
(the Flag Investors Class D Shares) are no longer being offered.)
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
<PAGE>
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and By-Laws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
<PAGE>
Expenses")1; and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be allocated
as follows: (i) distribution and shareholder servicing payments associated with
any Rule 12b-1 Plan or servicing agreement, if any, relating to each respective
class of shares (including any costs relating to implementing such plans or any
amendment thereto) will be borne exclusively by that class; (ii) any incremental
transfer agency fees relating to a particular class will be borne exclusively by
that class; and (iii) Class Expenses relating to a particular class will be
borne exclusively by that class.
The methodology and procedures for calculating the net asset value and
dividends and distributions of the various classes of shares of the Fund and the
proper allocation of income and expenses among the various classes of shares of
the Fund are required to comply with the Fund's internal control structure
pursuant to applicable auditing standards, including Statement on Auditing
Standards No. 55, and to be reviewed as part of the independent accountants'
review of such internal control structure. The independent accountants' report
on the Fund's system of internal controls required by Form N-SAR, Item 77B, is
not required to refer expressly to the procedures for calculating the classes'
net asset values.
- --------
1 Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
EXHIBIT A
Approved: June 1988
Resolutions of Board Creating
Flag Investors Class of Shares and
ISI Class of Shares (formerly known as C.J. Lawrence Class of Shares)
RESOLVED, that the Fund establish the Flag Investors Class of its
shares and that the shares of such class represent undivided interests in the
net assets of the Fund.
FURTHER RESOLVED, that the Fund establish the C.J. Lawrence Class of
its shares and that the shares of such class represent undivided interests in
the net assets of the Fund.
FURTHER RESOLVED, that the shares of all classes of the Fund's shares
all have equal voting rights except with respect to any matter affecting the
rights of the holders of a particular class of shares, in which case the holders
of each class would vote separately.
FURTHER RESOLVED, that the shares of all classes of the Fund's shares
shall have equal rights upon the liquidation, dissolution or winding up of the
affairs of the Fund.
RESOLVED, that the Chairman of the Board and President of the Fund, or
the designee of either of them, be, and hereby is, authorized and directed to do
any and all such lawful acts as may be necessary or appropriate to perform and
carry out the preceding resolutions.
RESOLVED, that the proposed Distribution Agreement, in substantially
the form presented to this meeting, between the Fund and Alex. Brown & Sons
Incorporated for distribution of the Fund's Flag Investors Class of Shares be,
and the same hereby is, approved, and that the appropriate officers of the Fund
be, and they hereby are, authorized and directed to enter into and execute the
Flag Investors Class Distribution Agreement with such modifications as the
officers executing the Flag Investors Class Distribution Agreement shall deem
appropriate or as may be required to conform with the requirements of any
applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Distribution Agreement, in
substantially the form presented to this meeting, among the Fund, Alex. Brown &
Sons Incorporated and C.J. Lawrence, Morgan Grenfell Inc. for distribution of
the Fund's C.J. Lawrence Class of Shares be, and the same hereby is, approved,
and that the appropriate officers be, and they hereby are, authorized and
directed to enter into and execute the C.J. Lawrence Distribution Agreement
with such modifications as the officers executing the C.J. Lawrence Class
Distribution Agreement shall deem appropriate or as may be required to conform
with requirements of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plans of Distribution (the "Plans")
are determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the Plans be, and the same hereby are, approved.
<PAGE>
Approved: September 19, 1990
Resolution of Board Approving
New Distribution Agreement
With Armata Financial Corp.
RESOLVED, that the proposed Distribution Agreement, in substantially
the form presented to this meeting, between the Fund and Armata Financial Corp.,
for distribution of the Fund's C.J. Lawrence Class of Shares be, and the same
hereby is, approved and that the appropriate officers be, and they hereby are,
authorized and directed to enter into and execute the C.J. Lawrence Class
Distribution Agreement with such modifications as the officers executing the
C.J. Lawrence Class Distribution Agreement shall deem appropriate or as may be
required to conform with the requirements of any applicable statute, regulation
or regulatory body.
<PAGE>
Approved: November 4, 1992
Resolutions of Board Renaming Flag Investors Class of Shares
WHEREAS, the Board of Directors of Total Return U.S. Treasury Fund,
Inc. has previously designated two classes of the Fund's shares: Flag Investors
Total Return U.S. Treasury Fund Shares and ISI Total Return U.S. Treasury Fund
Shares;
NOW THEREFORE BE IT RESOLVED, that Flag Investors Total Return U.S.
Treasury Fund Shares be, and they hereby are, further classified and designated
as "Flag Investors Class A Shares";
<PAGE>
Approved: September 22, 1994
Resolutions of Board Creating Flag Investors Class B Shares
FURTHER RESOLVED, that an additional class of shares of Total Return
U.S. Treasury Fund, Inc. (the "Fund") be, and hereby is, classified and
designated as the "Flag Investors Class B Shares" (the "Class B Shares") and
that unissued shares of common stock, par value $.001 per share of the Fund be,
and the same hereby are, reclassified as follows:
<TABLE>
<CAPTION>
==================================================================================================================================
Total # Shares Class A Class B Class D ISI Unclassified
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
100,000,000 44,000,000 5,000,000 500,000 44,000,000 6,500,000
==================================================================================================================================
</TABLE>
FURTHER RESOLVED, that the proper officers of the Fund be, and each
of them hereby is, authorized and directed to file articles supplementary to
the Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
Approved March 18, 1996
Approval of Distribution Agreement and Plan of Distribution
RESOLVED, that the Distribution Agreement between Total Return U.S.
Treasury Fund, Inc. (the "Fund") and Alex. Brown & Sons Incorporated for the
Flag Investors Class B Shares (the "Class B Shares") of the Fund be, and the
same hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
<PAGE>
BY-LAWS
OF
TOTAL RETURN U.S. TREASURY FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Stockholder Meetings. The Corporation may, but shall not be
required to, hold a regular meeting of stockholders in any year in which the
Corporation is not required, under the Investment Company Act of 1940, as
amended, (the "1940 Act") to submit for stockholder approval (i) the election of
director(s), (ii) any contract with an investment adviser or principal
underwriter (as such terms are defined in the 1940 Act) that the Corporation
enters into or any renewal or amendment thereof, or (iii) the selection of the
Corporation's independent public accountants. If stockholder approval is
required for any of the purposes in (i) through (iii) above, the regular meeting
shall be held, at which stockholders shall vote on the proposal necessitating
such meeting and shall transact any other business as may properly be brought
before the meeting. Regular meetings of stockholders, if any, shall be held on
such day during the month of June and at such time as shall be designated by the
Board of Directors and stated in the notice of the meeting.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Charter may be called for any purpose
or purposes by a majority of the Board of Directors or the President, and shall
be called by the President or Secretary on the written request of the
stockholders as provided by the Maryland General Corporation Law. Such request
shall state the purpose or purposes of the proposed meeting and the matters
proposed to be acted on at it; provided, however, that unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and any
special meeting of the stockholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
<PAGE>
Section 4. Notice of Meetings; Waiver of Notice; Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the stockholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
stockholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. A meeting of stockholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
(c) At least five (5) days prior to each meeting of stockholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of stockholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
stockholder.
Section 5. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the stockholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in his name on the record of stockholders
of the Corporation as of the record date determined pursuant to Section 8 of
Article VII hereof or if such record date shall not have been so fixed, then at
the later of (i) the close of business on the day on which notice of the meeting
is mailed or (ii) the thirtieth (30) day before the meeting. In all elections
for directors, each share of stock may be voted for as many individuals as there
are directors to be elected and for whose election the share is entitled to be
voted.
(b) Each stockholder entitled to vote at any meeting of stockholders
may authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or these By-Laws, any corporate
action to be taken by vote of the stockholders shall be authorized by a majority
of the total votes cast at a meeting of stockholders at which a quorum is
present by the holders of shares present in person or represented by proxy and
entitled to vote on such action, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
(c) If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
<PAGE>
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 8. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute any action required to be taken at any regular or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
stockholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter,
the business and affairs of the Corporation shall be managed under the direction
of the Board of Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by law or by the Charter or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
Section 3. Election and Term of Directors. Directors. shall be elected
by majority vote of a quorum cast by written ballot at the regular meeting of
stockholders, if any, or at a special meeting held for that purpose. The term of
office of each director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
<PAGE>
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. The stockholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a director.
A majority of the remaining directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number of directors; provided however, that no vacancies shall be filled by
action of the remaining directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the directors then holding office shall have
been elected by the stockholders of the Corporation. In the event that at any
time there is a vacancy in any office of a director which vacancy may not be
filled by the remaining directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his successor is elected and qualifies. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director.
Section 7. Regular Meetings. Regular meetings of the Board may be held
with notice at such times and places as may be determined by the Board of
Directors.
Section 8. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any director who shall, either before or after the
meeting, sign a written Waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than three
members, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
<PAGE>
the Charter, these By-Laws, the 1940 Act or other applicable statute, the act of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board; provided, however, that the approval of any
contract with an investment adviser or principal underwriter, as such terms are
defined in the 1940 Act, which the Corporation enters into or any renewal or
amendment thereof, the approval of the fidelity bond required by the 1940 Act,
and the selection of the Corporation's independent public accountants shall each
require the affirmative vote of a majority of the directors who are not
interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint
one of its members as Chairman of the Board who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
director chosen by a majority of the directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time.
Section 16. Compensation. Any director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the directors may from
time to time determine.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
<PAGE>
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the stockholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by resolution
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this
Article.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board
shall have power or authority to:
(a) recommend to stockholders any action requiring
authorization of stockholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment
adviser or principal underwriter, as such terms are defined in the 1940 Act, or
take any other action required to be taken by the Board of Directors by the 1940
Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital
stock of the Corporation; and
(e) approve any merger or share exchange which does not
require stockholder approval.
Section 4. General. One-third, but not less than two members, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence of disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
<PAGE>
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
<PAGE>
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to
the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
<PAGE>
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
stockholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been stockholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
<PAGE>
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may have one
or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of stockholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost Stolen, Destroyed or Mutilated Certificates. The holder
of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the respective offices
of the Transfer Agents of the Corporation's capital stock.
<PAGE>
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of December in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc:. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws, and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
<PAGE>
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the stockholders in accordance with the
provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the stockholders or at any special meeting of the stockholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
<PAGE>
FOR ARTICLES OF INCORPORATION AS AMENDED AND SUPPLEMENTED
TO DATE SEE EXHIBITS EX-99.B(1)(a) THROUGH EX-99.B(1)(d)
TO THIS REGISTRATION STATEMENT, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION VIA EDGAR ON FEBRUARY 26, 1996
AS PART OF POST-EFFECTIVE AMENDMENT NO. 13
TOTAL RETURN U.S. TREASURY FUND, INC.
ARTICLES SUPPLEMENTARY
TOTAL RETURN U.S. TREASURY FUND, INC. (the "Corporation") having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law has adopted a resolution
designating the Corporation's classified one hundred million (100,000,000)
shares of Common Stock, par value $.001 per share, having an aggregate value of
$100,000.00, as follows: forty-four million (44,000,000) shares are designated
"Flag Investors Total Return U.S. Treasury Fund Class A Shares" (the "Class A
Shares"), five million (5,000,000) shares are designated "Flag Investors Total
Return U.S. Treasury Fund Class B Shares" (the "Class B Shares"), forty-four
million (44,000,000) shares are designated "ISI Total Return U.S. Treasury Fund
Shares" (the "ISI Shares"), five hundred thousand (500,000) shares are
designated "Flag Investors Total Return U.S. Treasury Fund Class D Shares" (the
"Class D Shares") and six million, five hundred thousand (6,500,000) shares
remain undesignated.
SECOND: Immediately before the designation of the Class D Shares
pursuant to these Articles Supplementary, the Corporation was authorized to
issue one hundred million (100,000,000) shares of Common Stock, par value $.001
per share, having an aggregate par value of $100,000.00, of which forty million
(40,000,000) shares were designated "Flag Investors Total Return U.S. Treasury
Fund Class A Shares", five million (5,000,000) shares were designated "Flag
Investors Total Return U.S. Treasury Fund Class B Shares" and renamed "Flag
Investors Total Return U.S. Treasury Fund Class D Shares" by the Corporation's
Board of Directors as authorized in the Corporation's Articles of Incorporation,
forty million (40,000,000) shares were designated "ISI Total Return U.S.
Treasury Fund Shares" and fifteen million (15,000,000) shares remained
undesignated.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Total Return U.S. Treasury Fund, Inc. has caused
these Articles Supplementary to be executed by one of its Vice Presidents and
its corporate seal to be affixed and attested by its Secretary on this 31st day
of December, 1994.
[CORPORATE SEAL]
TOTAL RETURN U.S. TREASURY FUND, INC.
By: /s/ Edward J. Veilleux
-------------------------------
Vice President
Attest: /s/ Brian C. Nelson
----------------------------
Secretary
The undersigned, Vice President of TOTAL RETURN U.S. TREASURY FUND,
INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Edward J. Veilleux
-------------------------------
Edward J. Veilleux
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY
FUND SHARES DISTRIBUTION AGREEMENT
TOTAL RETURN U.S. TREASURY FUND. INC.
AGREEMENT made as of the 15th day of June, 1988 by and between TOTAL
RETURN U.S. TREASURY FUND, INC., a Maryland Corporation (the "Fund") and ALEX.
BROWN & SONS INCORPORATED, a Maryland corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of Flag Investors Total Return U.S. Treasury Fund Shares, (the
"Shares"), a class of the Fund's shares, and Alex. Brown wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 5 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund hereby appoints Alex. Brown as Distributor for
the Shares for the period and on the terms set forth in this Agreement. Alex.
Brown accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on June 3, 1988 and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-12179) and
under the 1940 Act as filed with the SEC on June 6, 1988 relating to the shares
of the Fund and all amendments thereto; and
<PAGE>
(e) The Fund's most recent prospectus (such prospectus and all
amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. In carrying out its obligations hereunder. Alex.
Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary
to carry into effect the distribution of the Shares; and,
(c) provide the Board of Directors of the fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence:
(a) the fund may issue Shares at their net asset value to any
shareholder of the Fund purchasing such Shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders; and
(b) Alex. Brown may, but shall not be obligated to purchase
Shares that have been tendered for redemption and resell them in accordance with
the terms of the Prospectus.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree on behalf of the Fund, to amendments to
the Agreement, provided that any such amendment that would provide for a
material increase in the amount expended by the Fund, must be approved by Fund
Shareholders before becoming effective.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement. Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation of the
Fund;
(d) the provisions of the By-Laws of the Fund;
<PAGE>
(e) the rules and regulations of the National Association of
Securities Dealers ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and Federal law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out its obligations under this Agreement.
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing.
(c) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's Advisor; the charges and expenses of any registrar, any custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to federal, state or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares of the Fund; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the Securities and
Exchange Commission and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); except as provided in
subparagraph (a) above, the expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or members of any advisory board or
committee other than such Directors or members who are "interested persons"
within the meaning of Section 2(a)(19) of the Investment Company Act of 1940;
all expenses incident to the payment of any dividend, distribution, withdrawal
or redemption, whether in Shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who art not interested
persons (as defined in the Investment Company Act of 1940, as amended) of the
Fund, and of independent accountants, in connection with any matter relating to
the Fund, membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and directors of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to legal claims and liabilities and
litigation costs and any indemnification related thereto) and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the rest of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
<PAGE>
Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund nor obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .25% of the average daily net assets of the Fund allocable to the
Shares. Except as hereinafter set forth, continuing compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Participating Dealer Agreements. Alex. Brown may enter into
participating dealer agreements (the "Participating Dealer Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as Participating
Dealers in connection with the proposed offering. All Participating Dealer
Agreements shall be in substantially the form of the agreement attached hereto
an Exhibit "A". For processing Fund shareholders' redemption orders, responding
to the inquiries from Fund shareholders concerning the status of their accounts
and the operations of the Fund and communicating with the Fund, its transfer
agent and Alex. Brown, Alex. Brown may pay each such Participating Dealer an
amount not to exceed that portion of the compensation paid to Alex. Brown
hereunder that is attributable to accounts of Fund shareholders who are
customers of such Participating Dealers.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that employees or partners of
Alex. Brown may serve as officers or directors of the Fund, and that officers or
directors of the Fund may serve as employees or partners of Alex. Brown to the
extent permitted by law; and that employees and partners of Alex. Brown are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers or directors
of any other firm or corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who
are not interested persons of the Fund and who do not have a financial interest
in the operation of this Agreement, by votes cast in person at a meeting
specifically called for such purpose.
<PAGE>
14. Termination. This Agreement may be terminated at any time on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not interested persons of the Fund and who do not have a
financial interest in the operation of this Agreement, (iii) by vote of a
majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or (iv) by Alex. Brown. The notice provided for
herein may be waived by either party. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for this purpose
having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] TOTAL RETURN U.S. TREASURY FUND, INC.
Attest: /s/ Brenda L. Bowers By /s/ Brian C. Nelson
-------------------- -----------------------------------
Vice President and Secretary
ALEX BROWN & SONS INCORPORATED
[SEAL]
Attest: /s/ Brenda L. Bowers By /s/ Edward J. Veilleux
-------------------- -----------------------------------
<PAGE>
FORM OF PARTICIPATING DEALER AGREEMENT
_________________________, 198__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as Distributor (the "Distributor") of the Total Return U.S.
Treasury Fund, Inc., a Maryland corporation (the "Fund") for its Flag Investors
Class of Shares (the "Flag Investors Shares"). The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Fund is offering the Flag Investors
Shares to the public in accordance with the terms and conditions contained in
the Prospectus of the Fund. (The term "Prospectus" as used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement under the Securities Act of 1933 (the "Securities
Act")). In connection with the foregoing you may serve as a participating dealer
(and, therefore, accept orders for the purchase or redemption of Flag Investors
Shares, respond to shareholder inquiries and perform other related functions) on
the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and are authorized to (i) accept orders for the purchase of Flag
Investors Shares, and transmit to the Fund such orders and the payment made
therefore, (ii) accept orders for the redemption of Flag Investors Shares, and
transmit to the Fund such orders and all additional material, including any Flag
Investors Share certificates, as may be required to complete the redemption, and
(iii) assist shareholders with the foregoing and other matters relating to their
investments in the Fund, in each case subject to the terms and conditions set
forth in the Prospectus. You are to review each Flag Investors Share purchase or
redemption order submitted through you or with your assistance for completeness
and accuracy. You further agree to undertake from time to time certain
shareholder servicing activities for customers of yours who have purchased
shares and who use your facilities to communicate with the fund or to effect
redemptions or additional purchases of the Flag Investors Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Fund or the Flag Investors Shares except those
contained in the Prospectus and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to the Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for your services hereunder, the
Distributor will pay you (i) applicable sales commissions as set forth in the
Prospectus of the Fund and (ii) a shareholder processing and servicing fee
computed at an annual rate of .25% of average daily net assets maintained by
your customers in Shareholder accounts in the Fund, provided that said assets
are at least $250,000. Shareholders must be listed as your customers in the
records of the Fund for you to receive compensation for amounts held in the
accounts of such Shareholders. You will look solely to the Distributor for
payment hereunder and the Fund shall have no direct responsibility for any
compensation. Payments due hereunder shall be made no less frequently than
annually. Sales commissions are subject to change without notice by us and will
comply with any changes in regulatory requirements. You agree that you will not
combine customer orders to reach breakpoints in sales commissions for any
purposes whatsoever unless authorized by the then current Prospectus or by us in
writing. In determining the amounts payable to you hereunder, we reserve the
<PAGE>
right to exclude any sales which we reasonably determine are not made in
accordance with the terms of the Prospectus and the provisions of this
Agreement.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Flag Investors Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus to purchasers whose Flag
Investors Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Fund. We agree to furnish to you as many copies of the Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. You agree that
you will not offer Flag Investors Shares to persons in any jurisdiction in which
you may not lawfully ask such offer due to the fact that you have not registered
under, or are not exempt from, the applicable registration or licensing
requirements of such jurisdiction.
6. Customer Fees. You represent, (a) that you will provide a schedule
of fees charged by you to persons who purchase Flag Investors Shares from you to
all such persons, and (b) that the compensation paid to you under Section 5 of
this Agreement, together with any other compensation paid to you by persons who
purchase Flag Investors Shares from you will not be excessive or unreasonable
under the laws and instruments governing your relationship with such persons.
7. Blue Sky. The Fund has registered an indefinite number of Flag
Investors Shares under the Securities Act. The Fund intends to register or
qualify in all states where registration or qualification is required, with the
exception of _______________. Upon application to us, we will inform you as to
the states or other jurisdictions in which we believe the Flag Investors Shares
have been qualified for sale under, or are exempt from the requirements of the
respective securities laws of such states, but we assume no responsibility or
obligation as to your right to sell Flag Investors Shares in any jurisdiction.
We will file with the Department of State in New York a Further State Notice
with respect to the Flag Investors Shares, if necessary.
8. Authority of Fund. The Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of the Flag Investors Shares, including the right not to accept any
order for the purchase of Flag Investors Shares.
9. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Flag Investors Shares and upon
request by the Fund, promptly make such of these records available to the Fund
as the Fund may reasonably request in connection with its operations, and (ii)
promptly notify the Fund if you experience any difficulty in maintaining the
records described in the foregoing clauses in an accurate and complete manner.
10. Liability. The Distributor shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by it
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
<PAGE>
11. Termination. This agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment, as defined in the
Investment Company Act. This agreement may also be terminated at any time
without penalty by the vote of a majority of the members of the Board of
Directors of the Fund who are not "interested persons" (as such phrase is
defined in the Investment Company Act), and have no direct or indirect financial
interest in the operation of the Participating Dealer Agreement between the Fund
and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
12. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS
INCORPORATED
______________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: _______________________
By: ______________________________
Address: _________________________
Date: ___________________________
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 30th day of November, 1990, by and between
TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland corporation (the "Fund"), and
ARMATA FINANCIAL CORP., a Maryland corporation ("AFC").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and
WHEREAS, the Fund wishes to appoint AFC as the exclusive distributor of
the class of shares of the Fund known as the ISI Total Return U.S. Treasury Fund
Shares (the "Shares") and AFC wishes to become the distributor of the Shares;
and
WHEREAS, the compensation to AFC hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the 1940 Act (the "Plan") allowing
the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises, and of other good and
valuable consideration by each of the parties hereto to the other party paid,
and of the agreements, covenants and obligations herein contained, the parties
hereto agree as follows:
1. Appointment. The Fund appoints AFC as the exclusive distributor of
the Shares for the period and on the terms set forth in this Agreement. AFC
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. The Fund has furnished AFC with copies,
properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on June 3, 1988 and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors authorizing
the appointment of AFC as the Fund's Distributor of the Shares and approving
this Agreement;
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on June 6, 1988;
<PAGE>
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-12179) and
under the 1940 Act as filed with the SEC on June 6, 1988 relating to the Fund
and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish AFC from time to time with copies, properly
certified or authenticated, of all amendments or supplements to the foregoing,
if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. AFC agrees that all solicitations for
subscriptions for Shares shall be made in accordance with Fund's Articles of
Incorporation and By-Laws, and its then current Registration Statement,
Prospectus and Statement of Additional Information, and shall not at any time or
in any manner violate any provisions of the laws of the United States or of any
state or other jurisdiction in which solicitations are then being made. In
carrying out its obligations hereunder, AFC shall undertake the following
actions and responsibilities:
(a) receive orders for purchase of Shares, accept or reject
such orders on behalf of the Fund in accordance with the currently effective
Prospectus for the Shares and the Fund's Statement of Additional Information and
transmit such orders as are so accepted to the Fund's transfer agent as promptly
as possible;
(b) receive requests for redemption from holders of Shares and
transmit such redemption requests to the Fund's transfer agent as promptly as
possible;
(c) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(d) provide to the Fund's Treasurer, at least quarterly, a
written report of the amounts expended in connection with all distribution
services rendered pursuant to this Agreement, including an explanation of the
purposes for which such expenditures were made; and
(e) take, on behalf of the Fund, all actions which appear to
the Fund necessary to carry into effect the distribution of the Shares and
perform such other administrative duties with respect to the Shares as the
Fund's Board of Directors may require.
4. Distribution of Shares. AFC shall be the exclusive distributor of
the Shares. It is mutually understood and agreed that AFC does not undertake to
sell all or any specific portion of the Shares. The Fund shall not sell any of
the Shares except through AFC and securities dealers who have valid Agency
Distribution Agreements with AFC. Notwithstanding the provisions of the
foregoing sentence the Fund may issue its Shares at their net asset value to any
shareholder of the Fund purchasing such Shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by AFC pursuant to this Agreement, as well as any other activities
undertaken by AFC on behalf of the Fund pursuant hereto, shall at all times be
subject to any directives of the Board of Directors of the Fund. The Board of
Directors may agree, on behalf of the Fund, to amendments to this Agreement,
provided that any such amendment that would provide for a material increase in
the amount expended by the Fund must be approved by the shareholders of the Fund
before becoming effective.
<PAGE>
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, AFC shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation of the
Fund;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of state and federal law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and AFC as follows:
(a) AFC shall furnish, at its expense and without cost to the
Fund, the services of personnel to the extent that such services are required to
carry out their obligations under this Agreement;
(b) AFC shall bear the expenses of any promotional or sales
literature used by AFC or furnished by AFC to purchasers or dealers in
connection with the public offering of the Shares and the expenses of
advertising in connection with such public offering;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar, any
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and its shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); the expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of directors or members of any advisory board or
committee other than such directors or member who are "interested persons" of
the Fund (as defined in Section 2(a)(19) of the 1940 Act); all expenses incident
to the payment of any dividend, distribution, withdrawal or redemption, whether
in Shares or in cash; charges and expenses of any outside service used for
pricing of the Fund's Shares; charges and expenses of legal counsel, including
counsel to the directors of the Fund who are not "interested persons" of the
Fund (as defined in Section 2(a)(19) of the 1940 Act), and of independent
accountants, in connection with any matter relating to the Fund; a portion of
membership dues of industry associations; interest payable on Fund borrowings;
<PAGE>
postage; insurance premiums on property or personnel (including officers and
directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. AFC may, but shall be under no duty
to, perform services on behalf of the Fund which are not required by this
Agreement upon the request of the Fund's Board of Directors. Such services will
be performed on behalf of the Fund and AFC's charges in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by AFC of any Fund expense that
AFC is not required to pay or assume under this Agreement shall not relieve AFC
of any of its obligations to the Fund or obligate AFC to pay or assume any
similar Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by AFC, the Fund shall pay to AFC, compensation at the annual rate of
.25% of the average daily net assets of the Shares of the Fund. Except as
hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month compensation for the
part of the month during which this Agreement is in effect shall be prorated in
a manner consistent with the calculations of the fees as set forth above.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that AFC may compensate its investment representatives for opening
accounts, processing investor letters of transmittals and applications and
withdrawal and redemption orders, responding to inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund, and
communicating with the Fund and its transfer agent on behalf of the Fund
shareholders.
11. Agency Distribution Agreements. AFC may enter into agency
distribution agreements (the "Agency Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a transmitting
broker in connection with the proposed offering. All Agency Distribution
Agreements shall be in substantially the form of the agreement attached hereto
as Exhibit "A". For processing Fund shareholders' redemption orders, responding
to the inquiries from Fund shareholders concerning the status of their accounts
and the operations of the Fund and communicating with the Fund, its transfer
agent and AFC, AFC may pay each such transmitting broker an amount not to exceed
that portion of the compensation paid to AFC hereunder that is attributable to
accounts of Fund shareholders who are customers of such transmitting broker.
12. Non-Exclusivity. The services of AFC to the Fund are not to be
deemed exclusive and AFC shall be free to render distribution or other services
to others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers or directors of AFC may
serve as officers or directors of the Fund, and that officers or directors of
the Fund may serve as officers or directors of AFC to the extent permitted by
law; and that officers or directors of AFC are not prohibited from engaging in
any other business activity or from rendering services to any other person, or
from serving as partners, officers or directors of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who
are not "interested persons" of the Fund (as defined in Section 2(a)(19) of the
1940 Act) and who do not have a financial interest in the operation of this
Agreement, by votes cast in person at a meeting specifically called for such
purpose.
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in Section
2(a)(19) of the 1940 Act) and who do not have a financial interest in the
operation of this Agreement, (iii) by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act)
or (iv) by AFC. The notice provided for herein may be waived by each party. This
Agreement shall automatically terminate in the event of its assignment as
defined in Section 2(a)(4) of the 1940 Act.
15. Liability. In the performance of its duties hereunder, AFC shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts within reasonable limits in performing all services provided for
under this Agreement, but shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith or gross negligence on the part of
AFC or reckless disregard by AFC of its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other parties at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, the addresses of the Fund and AFC are as
follows:
If to AFC:
Armata Financial Corp.
135 East Baltimore Street
Baltimore, Maryland 21202
If to the Fund:
Total Return U.S. Treasury Fund, Inc.
1290 Avenue of the Americas
New York, New York 10104
17. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] TOTAL RETURN U.S. TREASURY FUND, INC.
Attest:/s/ David C. Volley By/s/ Brian C. Nelson
------------------- -----------------------------------
Vice President and Secretary
[SEAL] ARMATA FINANCIAL CORP.
Attest:/s/ David C. Volley By/s/ Edward J. Veilleux
------------------- -----------------------------------
<PAGE>
Exhibit A
ISI FAMILY OF FUNDS
717 Fifth Avenue
New York, New York 10022
AGENCY DISTRIBUTION AGREEMENT
______________________, 19__
Gentlemen:
Armata Financial Corp. ("Armata"), a Maryland corporation, serves as
distributor (the "Distributor") of the ISI Family of Mutual Funds (collectively,
the "Funds", individually a "Fund"). The Funds are open-end investment companies
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). The Funds offer their shares ("Shares") to the public in
accordance with the terms and conditions contained in the Prospectus of each
Fund. The term "Prospectus" used herein refers to the prospectus on file with
the Securities and Exchange Commission which is part of the registration
statement of each Fund under the Securities Act of 1933 (the "Securities Act").
In connection with the foregoing you may serve as a participating dealer (and,
therefore, accept orders for the purchase or redemption of Shares, respond to
shareholder inquiries and perform other related functions) on the following
terms and conditions:
1. Transmitting Broker. You are hereby designated a Transmitting Broker
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material including any certificates for Shares, as may
be required to complete the redemption and (iii) to assist shareholders with the
foregoing and other matters relating to their investments in each Fund, in each
case subject to the terms and conditions set forth in the Prospectus of each
Fund. You are to review each Share purchase or option order submitted through
you or with your assistance for completeness and accuracy. You further agree to
undertake from time to time certain shareholder servicing activities for
customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and servicing fee
<PAGE>
(as we may determine from time to time in writing) computed as a percentage of
the average daily net assets maintained with each Fund during the preceding
period by shareholders who purchase their shares through you or with your
assistance, provided that said assets are at $250,000 for each Fund for which
you are to be compensated and provided that in an all cases your name is
transmitted with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our request
copies of any amended Prospectus of the relevant Fund to purchasers whose Shares
you are holding as record owner and to deliver to such persons copies of the
annual and interim reports and proxy solicitation materials of the Funds. We
agree to furnish to you as many copies of each Prospectus, annual and interim
reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations assumed by them hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
<PAGE>
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the Agreement of a majority of the outstanding
voting securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ARMATA FINANCIAL CORP.
_______________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: _______________________
By: _______________________________
Address: __________________________
Date: _____________________________
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS CLASS B SHARES
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the ____ day of ___________, 19___, by and
between TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors
Class B Shares (the "Shares") and Alex. Brown wishes to become the distributor
of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund
may from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution
of such additional series and classes unless the parties shall otherwise agree
in writing. Alex. Brown accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on June 3, 1988 and all amendments thereto (the
"Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on June 6, 1988;
<PAGE>
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-12179) and
under the 1940 Act as filed with the SEC on June 6, 1988 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex.
Brown does not undertake to sell all or any specific portion of the Shares.
The Fund shall not sell any of the Shares except through Alex. Brown and
securities dealers who have valid Sub-Distribution Agreements with Alex.
Brown. Notwithstanding the provisions of the foregoing sentence, the Fund may
issue its Shares at their net asset value to any shareholder of the Fund
purchasing such Shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of
the Fund. The Board of Directors may agree, on behalf of the Fund, to
amendments to this Agreement, provided that the Fund must obtain prior
approval of the shareholders of the Fund to any amendment which would result
in a material increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
<PAGE>
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without
cost to the Fund, the services of personnel to the extent that such services
are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional
or sales literature used by Alex. Brown or furnished by Alex. Brown to
purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and corporate fees payable by the Fund to Federal, State or
other governmental agencies; the cost and expense of engraving or printing of
stock certificates representing Shares; all costs and expenses in connection
with maintenance of registration of the Fund and the Shares with the SEC and
various states and other jurisdictions (including filing fees and legal fees
and disbursements of counsel) except as provided in subparagraph (a) above,
the expenses of printing, including typesetting, and distributing prospectuses
of the Fund and supplements thereto to the Fund's shareholders; all expenses
of shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors who are not "interested persons" of the Fund (as defined
in the 1940 Act) or members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in Shares or in cash; charges and expenses of any outside
service used for pricing of the Shares; charges and expenses of legal counsel,
including counsel to the Directors who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be
under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .35% of the average daily net assets of the shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
<PAGE>
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee (as
such term is defined in the NASD Rules of Fair Practice) equal to .25% of the
average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives
for opening accounts, processing investor letters of transmittals and
applications and withdrawal and redemption orders, responding to inquiries
from Fund shareholders concerning the status of their accounts and the
operations of the Fund, and communicating with the Fund and its transfer agent
on behalf of the Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the
agreement attached hereto as Exhibit "A". For processing Fund shareholders'
redemption orders, responding to the inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund and
communicating with the Fund, its transfer agent and Alex. Brown, Alex. Brown
may pay each such Participating Dealer an amount not to exceed that portion of
the compensation paid to Alex. Brown hereunder that is attributable to
accounts of Fund shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund are not
to be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage
in other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or
from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for
an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities (as defined in the 1940
Act), and
(b) by the affirmative vote of a majority of the Directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and
do not have a financial interest in the operation of this Agreement, by votes
cast in person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time, on
sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The
notice provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
<PAGE>
16. Liability. In the performance of its duties hereunder, Alex.
Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of Alex. Brown or reckless disregard by Alex.
Brown of its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of
both Alex. Brown and the Fund for this purpose shall be 135 East Baltimore
Street, Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers as of the day and
year first above written.
[SEAL] TOTAL RETURN U.S. TREASURY FUND, INC.
Attest:__________________ By _____________________________________
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:__________________ By _____________________________________
Title:
<PAGE>
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are
open-end investment companies registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Funds offer their shares
("Shares") to the public in accordance with the terms and conditions contained
in the Prospectus of each Fund. The term "Prospectus" used herein refers to
the prospectus on file with the Securities and Exchange Commission which is
part of the registration statement of each Fund under the Securities Act of
1933 (the "Securities Act"). In connection with the foregoing you may serve as
a participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit
to the Funds such orders and all additional material, including any
certificates for Shares, as may be required to complete the redemption and
(iii) to assist shareholders with the foregoing and other matters relating to
their investments in each Fund, in each case subject to the terms and
conditions set forth in the Prospectus of each Fund. You are to review each
Share purchase or redemption order submitted through you or with your
assistance for completeness and accuracy. You further agree to undertake from
time to time certain shareholder servicing activities for customers of yours
who have purchased Shares and who use your facilities to communicate with the
Funds or to effect redemptions or additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee
(as we may determine from time to time in writing) computed as a percentage of
the average daily net assets maintained with each Fund during the preceding
period by shareholders who purchase their shares through you or with your
assistance, provided that said assets are at least $250,000 for each Fund for
which you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
<PAGE>
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of
the Funds. We agree to furnish to you as many copies of each Prospectus,
annual and interim reports and proxy solicitation materials as you may
reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered
under, or are not exempt from, the applicable registration or licensing
requirements of such jurisdiction. You agree that in performing the services
under this Agreement, you at all times will comply with the Rules of Fair
Practice of the NASD, including, without limitation, the provisions of Section
26 of such Rules. You agree that you will not combine customer orders to reach
breakpoints in commissions for any purposes whatsoever unless authorized by
the then current Prospectus in respect of Shares of a particular class or by
us in writing. You also agree that you will place orders immediately upon
their receipt and will not withhold any order so as to profit therefrom. In
determining the amount payable to you hereunder, we reserve the right to
exclude any sales which we reasonably determine are not made in accordance
with the terms of the Prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as
to the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer
Shares to your customers only in those states where such Shares have been
registered, qualified, or an exemption is available. We assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction. We will file with the Department of State in New York a State
Notice and a Further State Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for
the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law
to be kept by you relating to transactions in Shares and, upon request by any
Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by it
hereunder. In carrying out your obligations, you agree to act in good faith
and without negligence. Nothing contained in this Agreement is intended to
operate as a waiver by the Distributor or you of compliance with any provision
of the Investment Company Act, the Securities Act, the Securities Exchange Act
-2-
<PAGE>
of 1934, as amended, or the rules and regulations promulgated by the
Securities and Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members
of the Board of Directors or Trustees of such Fund who are not "interested
persons" (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed
to you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
FLAG INVESTORS
TOTAL RETURN U.S. TREASURY FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act") of
Total Return U.S. Treasury Fund, Inc. (the "Fund") for the Flag Investors Class
of the Fund's Shares (the "Shares"). Other capitalized terms herein have the
meaning given to them in the Fund's prospectus.
2. Payments Authorized. Alex. Brown is authorized, pursuant to the
Plan, to make payments to any Participating Dealer under a Sub-Distribution
Agreement, to accept payments made to them under the Distribution Agreements and
to make payments on behalf of the Fund to Shareholder Servicing Agents under
Shareholder Services Agreements as follows:
(a) as reimbursement for direct expenses incurred in the
course of distributing Fund shares or providing administrative
assistance to the Fund or its shareholders; and
(b) at a rate specified in the Flag Investors Class
Distribution Agreement between the Fund and Alex. Brown (the
"Distribution Agreement") in any Sub-Distribution Agreement, and in any
Shareholder Servicing Agreement.
Alex. Brown may make payments in any amount, provided that (i) the
total amount of all payments made during a fiscal year of the Fund (whether made
under (a) and/or (b) above) do not exceed, in any fiscal year of the Fund, the
amount paid to Alex. Brown under the Distribution Agreement which is an annual
fee, calculated on an average daily net basis and paid monthly, equal to .25% of
the first $100 million of the net assets of the Flag Investors Class Shares; and
(ii) a majority of the Fund's Non-Interested Directors may at any time decrease
or limit the aggregate amount of all payments or decrease or limit the amount
payable to any recipient.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement subject to the
limitations of Section 2 hereto, to purchase advertising for Flag Investors
Class Shares, to pay for sales literature and other promotional material, and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of the Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any salesmen so paid are not required to devote their time solely to
the sale of the Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement the Fund assumes certain expenses, which Alex. Brown as Distributor
and Administrator is authorized to pay or cause to be paid on its behalf and
such payments shall not be included in the limitations contained in this Plan.
These expenses include (i) investment advisory fees; (ii) charges or expenses of
any registrar or custodian; (iii) fees and expenses of the Fund's transfer
agent, brokerage commissions; (iv) taxes; (v) the costs of the preparation,
printing and mailing of all required reports and notices to shareholders,
irrespective of whether such reports or notices contain or are accompanied by
<PAGE>
material intended to result in the sale of shares of the Fund or other funds or
other investments; (vi) the costs of preparing, printing and mailing of all
prospectuses to shareholders; (vii) the costs of preparing, printing and mailing
of any proxy statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale of the
Shares; (viii) all legal and accounting fees relating to the preparation of any
such reports, prospectuses, proxies and proxy statements; (ix) all fees and
expenses relating to the qualification on of the Fund and its shares under the
securities or "Blue Sky" laws of any jurisdiction; (x) all fees under the Act
and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of the Shares;
(xi) a portion of or all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of whether some of its
activities are designed to provide sales assistance (xii) all costs of preparing
and mailing confirmations of shares sold or redeemed or share certificates, and
reports of share balances; and (xiii) all costs of responding to telephone or
mail inquiries of shareholders.
5. Other Distribution Resources. The Board acknowledges that Alex.
Brown and Participating Dealers may expend their own resources separate and
apart from amounts payable under the Plan to support the Fund's distribution
effort. Alex. Brown will report on any such expenditures as part of their
regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of the
Non-Interested Directors, cast in person at a meeting called for the purpose of
voting on this Plan; and (ii) by a vote of holders of at least a "majority" (as
defined in the Act) of the outstanding voting securities of the Fund. This Plan
shall, unless terminated as hereinafter provided, continue in effect until
_______________, 1988, and from year to year thereafter only so long as such
continuance is specifically approved at least annually by the Fund's Board of
Directors and its Non-Interested Directors cast in person at a meeting called
for the purpose of voting on such continuance. This Plan may be terminated at
any time by a vote of a majority of the Non-Interested Directors or by the vote
of the holders of a "majority" (as defined in the Act) of the outstanding voting
securities of the Fund. This Plan may not be amended to increase materially the
amount of payments to be made without shareholder approval, as set forth in (ii)
above, and all amendments must be approved in the manner set forth under (i)
above.
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the ISI Total Return U.S. Treasury Fund Shares (the
"Shares") of Total Return U.S. Treasury Fund, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The distributor for the shares (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the distribution agreement between the Distributor and the Fund with
respect to the Shares (the "Distribution Agreement") and to make payments on
behalf of the Fund to Shareholder Servicing Agents under Shareholder Services
Agreements.
(b) The Distributor may make payments in any amount, provided
that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to
the Distributor under the Distribution Agreement which is an annual
fee, calculated on an average daily net basis and paid monthly, equal
to .25% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of the Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which the Distributor is
authorized to pay or cause to be paid on its behalf and such payments shall not
be included in the limitations contained in this Plan. These expenses include
the fees of the Fund's investment advisor; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any transfer, dividend
or account agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable to the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing Shares; all costs and expenses in connection with maintenance of
registration to the Fund and its Shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees and
legal fees and disbursements of counsel); the costs and expenses of printing,
including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders,
fees and travel expenses of directors or director members of any advisory board
<PAGE>
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's Shares;
charges and expenses of legal counsel, including counsel to the directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of independent certified public accountants, in connection with any matter
relating to the Fund; a portion of membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided therein.
5. Other Distribution Resources. The Distributor and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. The Distributor will
report to the Board of Directors on any such expenditures as part of their
regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor shall report
in writing at least quarterly to the Fund's Board of Directors, and the Board
shall review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons at a meeting called for
the purpose of voting on this Plan; and (ii) by a vote of holders of at least a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act). This Plan shall, unless terminated as hereinafter provided, continue in
effect until and from year to year thereafter only so long as such continuance
is specifically approved at least annually by the Fund's Board of Directors and
by the vote of a majority of the Directors of the Fund who are not interested
persons of the Fund (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on such continuance. This Plan may be
terminated at any time by a vote of a majority of the Directors who are not
interested persons of the Fund (as defined in the 1940 Act) or by the vote of
the holders of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act). This Plan may not be amended to increase materially
the amount of payments to be made without shareholder approval, as set forth in
(ii) above, and all amendments must be approved in the manner set forth under
(i) above.
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class B Shares (the "Shares") of Total
Return U.S. Treasury Fund, Inc. (the "Fund"). Other capitalized terms herein
have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments
made to it under the Distribution Agreement and to make payments on behalf of
the Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement with respect to distribution of the Shares which is an
annual fee, calculated on an average daily net basis and paid monthly, equal to
.75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown as distributor
for the Shares is authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's investment advisor and Alex. Brown, the
fees of the Fund's administrator; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection with
maintenance of registration of the Fund and its shares with the Securities and
Exchange Commission and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's shares;
charges and expenses of legal counsel, including counsel to the Directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of independent certified public accountants, in connection with any matter
relating to the Fund; membership dues of industry associations; interest payable
on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000811160
<NAME> TOTAL RETURN U.S. TREASURY FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 364083957
<INVESTMENTS-AT-VALUE> 365551481
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<REALIZED-GAINS-CURRENT> 2796088
<APPREC-INCREASE-CURRENT> 36191069
<NET-CHANGE-FROM-OPS> 60669652
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21682495
<DISTRIBUTIONS-OF-GAINS> 2547458
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3306049
<NUMBER-OF-SHARES-REDEEMED> 9223749
<SHARES-REINVESTED> 1583266
<NET-CHANGE-IN-ASSETS> (4637298)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5746)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 999452
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2909688
<AVERAGE-NET-ASSETS> 364905991
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> 1.04
<PER-SHARE-DIVIDEND> .64
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
