<PAGE>
As Filed With the Securities and Exchange Commission on February 26, 1996
Registration No. 33-12179
811-5040
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 13 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 17 [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
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on March 1, 1996 pursuant to paragraph (b)
_____ 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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
Shares of 9,251,185 $10.57 $100(1)
Common Stock shares
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Registrant has calculated the maximum aggregate offering price pursuant to
Rule 24e-2 under the Investment Company Act of 1940 (the "1940 Act") for
its fiscal year ended October 31, 1995. Registrant had actual aggregate
redemptions of 9,223,749 shares for its fiscal year ended October 31,
1995. Because of credits for prior net redemptions, Registrant has used no
available redemptions for reductions pursuant to Rule 24f-2(c) under the
1940 Act and has previously used no available redemptions for reductions
pursuant to Rule 24e-2(a) of the 1940 Act during the current year.
Registrant elects to use redemptions in the aggregate amount of 9,223,749
shares for reductions in its current amendment.
- ------------------------------------------------------------------------------
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 SHARES CLASSES
February 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
- -------- -----------------
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 CLASS A SHARES
(A Class 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.
Flag Investors Class A Shares of the Fund ("Class A Shares") are available
through Alex. Brown & Sons Incorporated, as well as Participating Dealers and
Shareholder Servicing Agents. (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 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.
===============================================================================
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 CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
The date of this Prospectus is March 1, 1996
<PAGE>
FLAG INVESTORS
TOTAL RETURN U.S. TREASURY FUND
CLASS A SHARES
(A Class 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 ............................. 14
7. Telephone Transactions ........................... 15
8. Dividends and Taxes .............................. 16
9. Management of the Fund ........................... 18
10. Investment Advisor ............................... 18
11. Administrator .................................... 20
12. Distributor ...................................... 20
13. Custodian, Transfer Agent, Accounting Services ... 21
14. Performance Information .......................... 21
15. General Information .............................. 23
- ----------------------------------------------------------------------------
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:
(as a percentage of offering price)
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases .............. 4.50%*
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None*
- ---------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
- ---------------------------------------------------------------------------
Management Fees ........................................ .27%
12b-1 Fees ............................................. .25%
Other Expenses ......................................... .28%
Total Fund Operating Expenses .......................... .80%
- ---------------------------------------------------------------------------
* 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 -- Offering Price.")
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>
$53 $70 $88 $144
- ---------------------------------------------------------------------------------
</TABLE>
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 Class A Shares 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 -- Offering Price", "Investment Advisor", "Administrator"
and "Distributor.") The rules of the SEC require that the maximum sales
charge (in the Class A Shares' case, 4.50% of the offering price) be
reflected in the above table. However, certain investors may qualify for
2
<PAGE>
reduced sales charges. (See "How to Invest in the Fund -- Offering Price.")
The Expenses and Example 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%. 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.
3
<PAGE>
<TABLE>
<CAPTION>
(For a Class A Share outstanding throughout each period) August 10,
- ------------------------------------------------------------------------------ 1988
(commence-
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
<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
6
<PAGE>
securities of different 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 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"). Class A Shares 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.
The minimum initial investment 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,
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 Class A Shares at any
time at the discretion of Alex. Brown and the Fund's Advisor. Orders for
purchases of Class A Shares are accepted on any day on which the New York
Stock Exchange is open for business ("Business Day"). Purchase orders for
Class A 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
9
<PAGE>
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
Class A Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price, which includes a sales
charge which is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases, as shown below:
<TABLE>
<CAPTION>
Sales Charge
as Percentage of Dealer
------------------------------ Retention
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- ---------------------- ------------ -------------- -------------------
<S> <C> <C> <C>
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*
</TABLE>
- ------
* 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.
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 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
10
<PAGE>
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.
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.
11
<PAGE>
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.
.............................................................................
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. Except as
provided below, Class A Shares issued pursuant to this offer will not be
subject to the sales charges described above or any other charge.
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.
When a shareholder acquires Class A 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 period of the Class A 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. 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.
12
<PAGE>
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). 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 Class A 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 Class A Shares. The amount specified
will be withdrawn from the shareholder's checking account using the
pre-authorized check and will be invested in Class A Shares 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.
.............................................................................
DIVIDEND REINVESTMENT PLAN
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Class A Shares. 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.
13
<PAGE>
Alternately, shareholders may have their distributions invested in Class A
shares of other funds in the Flag Investors family of funds or in shares of the
Intermediate 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
Class A Shares 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 Class A 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 Class A 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 Class A Shares or
dollar amount to be redeemed, signed by all owners of the Class A 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;
3) If Class A Shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for Class
A Shares to be redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
14
<PAGE>
Dividends payable up to the date of the redemption of Class A Shares will
be paid on the next dividend payable date. If all of the Class A 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 having a value of $10,000 or more may
arrange to have a portion of their Class A 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 Class A 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 Class A Shares 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 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.
15
<PAGE>
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. Class A 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 Class A Shares
at net asset value. Shareholders may elect to have income dividends or
capital gains distributions paid in cash. Shareholders wishing 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
16
<PAGE>
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 Class A 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.
The sale, exchange or redemption of Class A 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
17
<PAGE>
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 Class
A Shares, 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
*Richard T. Hale Vice Chairman
*W. James Price Vice Chairman
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Harry Woolf Director
R. Alan Medaugh President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Nancy Lazar Vice President
Brian C. Nelson Vice President and Secretary
Carrie L. Butler Vice President
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").
- ------------------------------------------------------------------------------
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 December 31, 1995, 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
$198 million in aggregate net assets as of December 31, 1995.
18
<PAGE>
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
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.
19
<PAGE>
- -----------------------------------------------------------------------------
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. 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 a Distribution Plan for the Class A Shares pursuant
to Rule 12b-1 under the 1940 Act (the "Plan"). As compensation for its
services 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. Alex.
Brown expects to allocate on a proportional basis most of its annual
distribution fee to its investment representatives or up to all of its fee to
Participating Dealers as compensation for their ongoing shareholder services,
including processing purchase and redemption requests and responding to
shareholder inquiries.
20
<PAGE>
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 may 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. Amounts allocated to
Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to Alex. Brown under the Plan.
Payments under the Plan 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 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.
- -----------------------------------------------------------------------------
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.
21
<PAGE>
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 sales charge, 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 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 Class A Shares may
be purchased, although not included in calculations of performance, will reduce
performance results.
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
22
<PAGE>
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 turnove 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.")
- ----------------------------------------------------------------------------
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." 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 Shares. All classes of the
Fund share a common investment objective, portfolio and advisory fee, but the
classes may have different distribution expenses and sales charges and,
accordingly, performance may differ.
23
<PAGE>
...........................................................................
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.
...........................................................................
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,
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.
24
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND CLASS A SHARES
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Total Return U.S. Treasury Fund Class A
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 Class A 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 enclose a check for $______ payable to "Flag Investors Total Return
U.S. Treasury Fund Class A Shares" for the purchase of Flag Investors
Total Return U.S. Treasury Fund Class A Shares.
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. Each subsequent purchase requires a $100 minimum,
except that the minimum subsequent purchase under the Fund's Automatic
Investing Plan is $250 for quarterly purchases and $100 for monthly
purchases. The Fund reserves the right not to accept checks for more than
$50,000 that are not certified or bank checks.
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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
MAILING ADDRESS
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
<PAGE>
- -----------------------------------------------------------------------------
LETTER OF INTENT (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 (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
--------- ----------- ------------ ------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional Class A Shares of the Fund at
no sales charge.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
<PAGE>
- -----------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $________ 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
Subsequent Investments (check one):
[ ] Monthly ($100 minimum) Please attach a voided check.
[ ] Quarterly ($250 minimum)
- -----------------------------------------------------------------------------
Bank Name
- -----------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any
- -----------------------------------------------------------------------------
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 $______,
from Class A 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:__________________________________ Bank Account No:___________________
Address:_______________________________ Bank Account Name:_________________
________________________________
- -----------------------------------------------------------------------------
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated March 1, 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
<PAGE>
(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
February 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>
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
717 Fifth Avenue
New York, New York 10022
For information call (800) 955-7175
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 an 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 ISI class of the Fund ("Shares") are available through Armata
Financial Corp. as well as Participating Dealers and Shareholder Servicing
Agents. (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, has been filed with the
Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference. It is available upon request and without charge by contacting the
Fund at the above address or telephone number.
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 CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 1, 1996
<PAGE>
1. FEE TABLE
Shareholder Transaction Expenses:
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases .............. 4.45%
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees ........................................ .27%
12b-1 Fees ............................................. .25%
Other Expenses ......................................... .28%
---------
Total Fund Operating Expenses .......................... .80%
Example:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
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: ...................... $52 $69 $88 $143
</TABLE>
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 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
- -- Offering Price", "Investment Advisor", "Administrator" and "Distributor.")
The rules of the SEC require that the maximum sales charge (in the Shares' case,
4.45% of the offering price) be reflected in the above table. However, certain
investors may qualify for reduced sales charges. (See "How to Invest in the Fund
- -- Offering Price.") The Expenses and Example 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%. Due to the continuous nature of Rule 12b-1 fees,
long-term shareholders of the Fund 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 is available at no cost by calling
the Fund at (800) 955-7175.
2
<PAGE>
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
August 10, 1988
For the Year Ended October 31, (commencement of
-------------------------------------------------------------------------------- operations) through
1995 1994 1993 1992 1991 1990 1989 October 31, 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)* (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%(1)
Net investment income ..... 5.94% 4.98% 5.21% 5.65% 6.88% 7.40% 7.51% 5.80%(1)
Supplemental Data:
Net assets at end of
period (000):
ISI Class Shares ......... $206,615 $200,309 $232,103 $207,518 $168,128 $131,872 $89,943 $22,597
Flag Investors Class A
Shares ................. $164,206 $175,149 $224,790 $250,210 $237,688 $198,556 $135,523 $55,757
Portfolio turnover rate ... 194% 68% 249% 191% 141% 79% 184% 72%
</TABLE>
- ------
* Distributions to shareholders include $0.05 per share return of capital.
** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
(1) Annualized.
3
<PAGE>
3. INVESTMENT PROGRAM
INVESTMENT OBJECTIVES, 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 objective 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
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 U.S.
Treasury 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 Shares.
Conversely, during periods of rising interest rates, the value of the 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.
4
<PAGE>
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 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 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 equalling 5% or more of the Fund's 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.
5. HOW TO INVEST IN THE FUND
Shares may be purchased from Armata Financial Corp. ("Armata"), P.O. Box 515,
Baltimore, Maryland 21203, through any securities dealer which has entered into
a dealer agreement with Armata ("Participating Dealers") or through any
financial institution which has entered into a shareholder servicing agreement
with the Fund ("Shareholder Servicing Agents"). Shares 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. As used herein, the
"Fund" refers to Total Return U.S. Treasury Fund, Inc., whereas references to
the "Shares" shall mean shares of the Fund's ISI Total Return U.S. Treasury Fund
Shares which is a class of shares of the Fund.
The minimum initial investment is $5,000, except that the minimum initial
investment for qualified retirement plans and IRA's is $1,000 and the minimum
initial investment for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent investment must be at least $250, except that the minimum
subsequent investment for participants in the Fund's Automatic Investing Plan is
$100 for monthly investments and $250 for quarterly investments. (See "Purchases
Through Automatic Investing Plan" below.) The Fund reserves the right to suspend
the sale of Shares at any time at the discretion of Armata. Orders for purchases
of Shares 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 Armata or a Participating Dealer or Shareholder
Servicing Agent must be in accordance with such entity's payment procedures.
Armata 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
5
<PAGE>
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 Armata, Participating Dealers or Shareholder
Servicing Agents at the Offering Price, which includes a sales charge which is
calculated as a percentage of the Offering Price and decreases as the amount of
purchase increases as shown below.
Sales Sales
Charge as Charge as Dealer
Percentage Percentage Retention
of of Net as Percentage
Offering Amount of Offering
Amount of Purchase Price Invested Price*
------------------ ---------- ---------- -------------
Less than $ 50,000 ... 4.45% 4.66% 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 - $1,999,999 ... 0.75% 0.76% 0.75%
$2,000,000 - $2,999,999 ... 0.50% 0.50% 0.50%
$3,000,000 and over ...... None None None
- ------
* Armata may from time to time reallow to Participating Dealers up to 100% of
the sales charge included in the Offering Price of Shares. Dealers that
receive a reallowance of 100% of the sales charge may be considered
underwriters for purposes of the federal securities laws.
A shareholder who purchases additional 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 Shares and purchases of shares of other mutual
funds in the ISI family of funds. The applicable sales charge will be determined
based on the total of (a) the investor's current purchase plus (b) an amount
equal to the then current net asset value or cost, whichever is higher, of all
Shares and of all shares of such other mutual funds in the ISI family of funds
held by the shareholder. To obtain the reduced sales charge through a right of
accumulation, the shareholder must provide Armata, 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
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 Shares. Each purchase of 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. 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 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 Shares may do so by completing the appropriate section of
the Application Form attached to this Prospectus.
The Fund may sell 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 Shares on behalf of
their fiduciary and advisory clients, provided such clients have paid an account
management fee for these services; (ii) investors who have redeemed Shares, or
shares of any other mutual fund in the ISI family of funds that have similar
sales charges, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within six months after the redemption and the
amount of the purchase is at least $5,000; and (iii) current or retired
Directors of the Fund, directors and employees (and their immediate families) of
ISI, the Fund's administrator, and their respective affiliates, and employees
6
<PAGE>
of Participating Dealers. In addition, investors who have redeemed shares of
funds in the ISI family of funds that have lower sales charges may purchase
Shares at net asset value in an amount that is not more than the total
redemption proceeds, provided that they held the shares of such funds for more
than 24 months prior to the redemption, the purchase is within six months after
the redemption and the amount of the purchase is at least $5,000.
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the SEC,
shareholders of other mutual funds in the ISI family of funds that have similar
sales charges may exchange their shares of those funds for an equal dollar
amount of 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 funds in the ISI family of funds that have lower sales charges may exchange
into other funds in the family upon payment of the difference in sales charges,
except that the exchange will be made at net asset value if the shares have been
held for at least 24 months. 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). Exchange requests received after 4:00 p.m. (Eastern Time) will
be effected on the next Business Day.
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.
Until February 28, 1997, shareholders of any other mutual fund who have paid a
sales charge on their shares of such fund, and shareholders of any closed-end
fund, may exchange shares of such funds for an equal dollar amount of Shares by
submitting to Armata or a Participating Dealer, the proceeds of the redemption
or sale of shares of such funds, together with evidence of the payment of a
sales charge (for mutual funds only) and the source of such proceeds. Shares
issued pursuant to this offer will not be subject to the sales charges described
above or any other charge.
The Fund may modify or terminate these offers of exchange at any time and will
provide shareholders with 60 days' written notice prior to any such modification
or termination. The exchange privilege with respect to other ISI funds may also
be exercised by telephone. (See "Telephone Transactions" below.)
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase 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 Shares. The minimum initial investment is $250. Each subsequent
investment must be at least $100 for monthly investments and $250 for quarterly
investments. The amount specified by the shareholder will be withdrawn from the
shareholder's checking account using the pre-authorized check. This amount will
be invested in Shares at the applicable Offering Price determined on the date
the amount is available for investment. Participation in the Automatic Investing
Plan may be discontinued by either 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.
DIVIDEND REINVESTMENT PLAN
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Shares. A shareholder
who wishes to enroll in the Dividend Reinvestment Plan should check the
appropriate box on the Application Form or call (800) 882-8585 for additional
information.
Alternately, shareholders may have their distributions invested in shares of
other funds in the ISI family of funds. Shareholders who are interested in this
option should call (800) 882-8585 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 Armata, 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 by telephone
(in amounts up to $50,000). (See "Telephone Transactions" below.) A redemption
order is effected at the net asset value per Share next determined after receipt
of the order (or, if stock certificates have been issued for the Shares to be
7
<PAGE>
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
Armata or 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;
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 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 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. 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 ISI
funds, or redeem Shares (in amounts up to $50,000), by notifying the Transfer
Agent by telephone at (800) 882-8585 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 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 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 written 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,
8
<PAGE>
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 (including net short-term capital gains) in the
form of monthly dividends. 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 Shares at net asset
value. Shareholders may elect to have income dividends or capital gains
distributions paid in cash. Shareholders wishing 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 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 dividends 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 shareholder 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 consequences 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.
The sale, exchange or redemption of 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
9
<PAGE>
its investment advisor, distributor, administrator, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
officers, to Armata as distributor of the Shares, to the Advisor and to the
Fund's administrator. Three directors and all of the officers of the Fund are
officers or employees of Armata, ISI or the Fund's administrator. The other
Directors of the Fund have no affiliation with Armata, ISI or the Fund's
administrator.
The Fund's Directors and officers are as follows:
*Edward S. Hyman Chairman
*Richard T. Hale Vice Chairman
*W. James Price Vice Chairman
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Harry Woolf Director
R. Alan Medaugh President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Nancy Lazar Vice President
Brian C. Nelson Vice President and Secretary
Carrie L. Butler Vice President
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").
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 December 31, 1995, 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 investment companies with approximately $198 million
in net assets as of December 31, 1995.
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,
telephone (800) 955-7175.
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 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
10
<PAGE>
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, provides administration services to the Fund. ICC is a
wholly-owned subsidiary of Alex. Brown and an affiliate of Armata.
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 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
Armata Financial Corp. acts as distributor of the Shares pursuant to a
Distribution Agreement and related Plan of Distribution (the "Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act. Armata is a broker-dealer that was
formed in 1983 and is an affiliate of ICC. As compensation for its service for
the fiscal year ended October 31, 1995, Armata received a fee equal to .25% of
the Shares' average daily net assets. Armata expects to allocate on a
proportional basis most of its annual distribution fee to its investment
representatives or up to all of its fee to Participating Dealers as compensation
for their ongoing shareholder services, including processing purchase and
redemption requests and responding to shareholder inquiries.
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 Armata may 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. Amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Armata under the
Plan.
Payments under the Plan are made as described above regardless of Armata's
actual cost of providing distribution services and may be used to pay Armata's
overhead expenses. If the cost of providing distribution services to the Fund in
connection with the sale of the Shares is less than .25% of the average daily
net assets invested in Shares for any period, Armata may retain the unexpended
portion of the distribution fee. Armata or its associated persons 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.
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) 882-8585), 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 sales charge, over one, five and ten year
periodsor, if such periods have not yet elapsed, shorter periods corresponding
11
<PAGE>
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 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.
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.")
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 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 "ISI Total
Return U.S. Treasury Fund 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, "Flag Investors Total
Return U.S. Treasury Fund Class A Shares." Shares of that class are sold through
broker-dealers and have similar 12b-1 fees and front-end sales charges as the
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 Shares. All classes of the Fund share a common investment objective,
portfolio and advisory fee, but the classes may have different distribution
expenses and sales charges and, accordingly, performance may differ.
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
12
<PAGE>
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.
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, 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 the Transfer
Agent at (800) 882-8585, Armata, ISI, a Participating Dealer or Shareholder
Servicing Agent, as appropriate.
13
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ISI TOTAL RETURN U.S. TREASURY FUND SHARES
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "ISI Total Return U.S. Treasury Fund Shares" and mail
with this application to:
Armata Financial Corp./ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent at
(800) 882-8585.
To open an IRA account, call ISI at (800) 955-7175 to request an application.
The minimum initial purchase is $5,000, except that the minimum initial
purchase for qualified retirement plans or IRA's is $1,000 and the minimum
initial purchase for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent purchase requires a $250 minimum, except that the
minimum subsequent purchase under the Fund's Automatic Investing Plan is $100
for monthly purchases and $250 for quarterly purchases. 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)
INDIVIDUAL OR JOINT TENANT
- -----------------------------------------------------------------------------
First Name Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
- ----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- -----------------------------------------------------------------------------
Tax ID Number
- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- --------------------------------
Existing Account No., if any
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
MAILING ADDRESS
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
<PAGE>
- -----------------------------------------------------------------------------
STATEMENT OF INTENTION (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. I intend to invest over a 13-month period in shares
of ISI Total Return U.S. Treasury Fund Shares in an aggregate amount at least
equal to:
______$50,000 ______$100,000 ______$250,000 ______$500,000 ______$1,000,000
______$2,000,000 ______$3,000,000
- ------------------------------------------------------------------------------
RIGHT OF ACCUMULATION (OPTIONAL)
[ ] I already own shares of the ISI Fund(s) set forth below to be applied for
a reduced sales charge. List the Account numbers of other ISI 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. There is no sales charge for reinvested
dividends. If none of the options is selected, all distributions will be
reinvested.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
Call (800) 882-8585 for information about reinvesting your dividends in other
funds in the ISI Family of Funds.
- ------------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $______ 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
Subsequent Investments (check one):
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum) Please attach a voided check.
- -----------------------------------------------------------------------------
Bank Name
- -----------------------------------------------------------------------------
Existing ISI Total Return U.S. Treasury Fund Account No., if any
- -----------------------------------------------------------------------------
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 $______, from 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 ISI 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 address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: Bank Account No:
----------------------------- -----------------
Address: Bank Account Name:
----------------------------- -----------------
<PAGE>
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SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated March 1, 1996. Under
penalties of perjury, I certify (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. (Strike out the language in (2) if it is not correct.)
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 a joint acct., both must sign) Date
- ----------------------------------------------------------------------------
FOR DEALER USE ONLY
Dealer's Name: Dealer Code:
---------------------------- ------------------
Dealer's Address: Branch Code:
---------------------------- ------------------
----------------------------
Representative: Rep. No.
---------------------------- ------------------
<PAGE>
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
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 Armata. This Prospectus does not
constitute an offering by the Fund or Armata 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.
TABLE OF CONTENTS
PAGE
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1. Fee Table ........................................................ 2
2. Financial Highlights ............................................. 2
3. Investment Program ............................................... 4
4. Investment Restrictions .......................................... 5
5. How to Invest in the Fund ........................................ 5
6. How to Redeem Shares ............................................. 7
7. Telephone Transactions ........................................... 8
8. Dividends and Taxes .............................................. 9
9. Management of the Fund ........................................... 9
10. Investment Advisor ............................................... 10
11. Administrator .................................................... 11
12. Distributor ...................................................... 11
13. Custodian, Transfer Agent,
Accounting Services ............................................... 11
14. Performance Information .......................................... 11
15. General Information .............................................. 12
<PAGE>
ISI
International Strategy and Investment
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
An open-end mutual fund seeking a high level of total return, with relative
stability of principal and, secondarily, high current income consistent with an
investment in securities issued by the United States Treasury ("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.
MARCH 1, 1996
PROSPECTUS
<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
Relating to the Prospectuses Dated: March 1, 1996
of
Flag Investors Total Return U.S. Treasury Fund Class A Shares
and
ISI Total Return U.S. Treasury Fund Shares
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<C> <C>
1. General Information and History......................................................... 1
2. Investment Objectives and Policies...................................................... 1
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............................................................. 14
9. Portfolio Transactions.................................................................. 17
10. Capital Shares.......................................................................... 18
11. Reports.. .............................................................................. 19
12. Custodian, Transfer Agent and
Accounting Services................................................................... 19
13. Independent Auditors.................................................................... 20
14. Control Persons and Principal Holders of
Securities............................................................................ 20
15. Performance and Yield Computations...................................................... 20
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 two classes of shares: Flag Investors Total Return U.S. Treasury Fund
Class A Shares, (the "Flag Investors Shares Class") and ISI Total Return U.S.
Treasury Fund Shares (the "ISI Shares Class"). There are two separate
prospectuses for the Fund's shares: one for the Flag Investors Shares Class
and one for the ISI Shares Class. 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 Class) or from Armata
Financial Corp. ("Armata"), P.O. Box 515, Baltimore, Maryland 21203 (for a
prospectus for the ISI Shares Class), 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 two 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 B Shares. Shares of that class were renamed the Flag
Investors Total Return U.S. Treasury Fund Class D Shares and 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.
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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
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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;
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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
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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
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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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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
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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 natural
resources company), 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 (mutual fund).
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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.
-9-
<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 (mutual
funds).
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 (mutual funds), December 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds (mutual
funds) 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, Vice President
of one fund and as a Director of 10 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.
-10-
<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.
-11-
<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
-12-
<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
-13-
<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.
-14-
<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 Flag Investors Total Return U.S. Treasury Fund Class A
Shares Distribution Agreement provides that Alex. Brown has the exclusive
right to distribute the Flag Investors Total Return U.S. Treasury Fund Class A
Shares either directly or through other broker-dealers. The ISI Total Return
U.S. Treasury Fund Shares Distribution Agreement provides that Armata has the
exclusive right to distribute ISI Total Return U.S. Treasury Fund 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 and the ISI Total Return U.S. Treasury Fund
Shares 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 Flag Investors Shares and Armata for the ISI Class 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 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. For the fiscal
years ended October 31, 1995, October 31, 1994 and October 31, 1993, Alex.
Brown (for services performed for the Flag Investors 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 $12,195 for printing and
-15-
<PAGE>
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 Class of the Fund's 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 (known at the time as the Flag Investors Class B 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
Distribution Agreements, and Alex. Brown and Armata are authorized to make
payments out of their fees to their investment representatives, to
Participating Dealers and to Shareholder Servicing Agents. Payments to
Participating Dealers and Shareholder Servicing Agents, if applicable, may not
exceed fees payable to the distributor of the respective class of the Fund's
Shares under the Plans.
The Distribution Agreements, forms of Sub-Distribution
Agreements and the 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 the Plans or the Distribution
Agreements or any Sub-Distribution Agreement) on September 25, 1995. 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.
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 and 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.
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.
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 and the Flag
Investors Total Return U.S. Treasury Fund Class D Shares are not currently
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) 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.
-19-
<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 Class and (800) 882-8585 for the ISI Shares Class) 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.
-20-
<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 February 8, 1996, to Fund management's knowledge, the
following persons owned of record or beneficially 5% or more of the Fund's
outstanding Shares.
Flag Investors Shares
Alex. Brown & Sons Incorporated 73.50%*
135 East Baltimore Street
Baltimore, MD 21202
- ------------
*Alex Brown owned beneficially less than 1% of such share.
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
-21-
<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 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 Flag Investors 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 Flag Investors 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 Flag Investors 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 Flag Investors 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
-22-
<PAGE>
hypothetical $10,000 investment in Flag Investors 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 Flag Investors or ISI Shares
was $19,198 resulting in an average annual total return for such Shares equal
to 9.4%.
Yield Calculations
The yield based on the 30 day period ended October 31, 1995
was 5.33% for the Flag Investors Shares and 5.34% for the ISI Shares, computed
in the manner discussed below. 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 Flag Investors Total Return U.S.
Treasury Fund Class A Shares and a maximum sales charge of 4.45% for the ISI
Total Return U.S. Treasury Fund 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.
-23-
<PAGE>
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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>
[LOGO]
<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.
[LOGO]
<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.
[LOGO]
<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.
[LOGO]
<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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<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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<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>
[LOGO]
<PAGE>
[LOGO]
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>
<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>
[LOGO]
<PAGE>
[LOGO]
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]
<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:
- Independent Auditors' Report
- 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)1 Articles of Incorporation.
(b)1 Articles Supplementary dated December 18, 1991.
(c)1 Articles Supplementary to Registrant's Articles of
Incorporation dated December 15, 1993.
(d)1 Articles Supplementary.
(2)1 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)1 Investment Advisory Agreement dated April 1, 1991 between
Registrant and International Strategy and Investment Inc.
(6)1 (a) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Total Return U.S. Treasury Fund Class A
Shares.
(b) 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) Form of Registrant's Shareholder Servicing Agreement
between the Fund and Shareholder Servicing Agents.
(d) Distribution Agreement dated November 30, 1990 between
Registrant and Armata Financial Corp. with respect to
ISI Total Return U.S. Treasury Fund Shares.
(e) Participating Dealer Agreement between Armata
Financial Corp. and Participating Dealers with
respect to ISI Total Return U.S. Treasury Fund
Shares.
(7) None.
(8)1 Custodian Agreement between Registrant and Provident
National Bank of Philadelphia.
(9) (a)1 Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for
the provision of Administration, Accounting and
Transfer Agency Services.
(9) (b) License Agreement between Registrant and Alex. Brown
Incorporated.
(10)1 Opinion of Counsel.
(11)1 Consent of Deloitte & Touche LLP.
(12) None.
(13)1 Subscription Agreements.
(14) None.
C-2
<PAGE>
(15) (a)1 Plan of Distribution of Registrant for its Flag
Investors Total Return U.S. Treasury Fund Class A
Shares.
(b)1 Plan of Distribution of Registrant for its ISI Total
Return U.S. Treasury Fund Shares.
(16)1 Schedule of Computation of Performance Quotations
(unaudited).
(18)1 Rule 18f-3 Plan.
(24)1 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.
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 January 11, 1996.
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock
Flag Investors Total Return U.S.
Treasury Fund Shares - Class A 3,231
ISI Total Return U.S. Treasury Fund Shares 5,504
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 De Florio, Assistant Vice President of the Investment
Advisor, served as Assistant Vice President of the Registrant since March 1995.
Prior thereto, Ms. De Florio 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 Chief Executive Officer, Director None
Mayo A. Shattuck III President, Director None
Benjamin Howell Griswold, IV Chairman, Director None
Beverly L. Wright Chief Financial Officer and Treasurer None
Robert F. Price Secretary and General Counsel None
</TABLE>
- ---------------
* 135 East Baltimore Street, Baltimore, Maryland 21202
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>
- ---------------------
* 135 East Baltimore Street, Baltimore, Maryland 21202
(c) Not applicable.
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 certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 13 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment 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 23rd day of February 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 February 23, 1996
- ------------------------- -----------------
Edward S. Hyman, Jr. Date
*/s/ Richard T. Hale Director February 23, 1996
- ------------------------- -----------------
Richard T. Hale Date
*/s/ W. James Price Director February 23, 1996
- ------------------------ -----------------
W. James Price Date
*/s/ James J. Cunnane Director February 23, 1996
- ------------------------ -----------------
James J. Cunnane Date
*/s/ John F. Kroeger Director February 23, 1996
- ------------------------ -----------------
John F. Kroeger Date
*/s/ Louis E. Levy Director February 23, 1996
- ------------------------ -----------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director February 23, 1996
- ------------------------ -----------------
Eugene J. McDonald Date
*/s/ Harry Woolf Director February 23, 1996
- ------------------------ -----------------
Harry Woolf Date
/s/ R. Alan Medaugh President February 23, 1996
- ------------------------ -----------------
R. Alan Medaugh Date
/s/ Joseph A. Finelli Chief Financial February 23, 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
- ------- -----------
EX-99.B (1) (a) Registrant's Articles of Incorporation, filed
herewith.
EX-99.B (1) (b) Registrant's Articles Supplementary dated December
18, 1991, filed herewith.
EX-99.B (1) (c) Registrant's Articles Supplementary dated December
15, 1993, filed herewith.
EX-99.B (1) (d) Registrant's Articles Supplementary, filed
herewith.
EX-99.B (2) Registrant's By-Laws, filed herewith.
(3) None.
(4) (a) Specimen Certificate of Common Stock, $.001 par
value with respect to Registrant's Flag Investors
Total Return U.S. Treasury Fund Class A Shares is
hereby 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.
(b) Specimen Certificate of Common Stock, $.001 par
value with respect to Registrant's ISI Total
Return U.S. Treasury Fund Shares is hereby
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.
(c) 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) is hereby
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.
EX-99.B (5) Investment Advisory Agreement dated April 1, 1991
between Registrant and International Strategy and
Investment Inc., filed herewith.
<PAGE>
EX-99.B (6) (a) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Total Return U.S. Treasury Fund Class A
Shares, filed herewith.
EX-99.B (6) (b) 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, filed herewith.
EX-99.B (6) (c) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents, filed
herewith.
EX-99.B (6) (d) Distribution Agreement dated November 30, 1990
between Registrant and Armata Financial Corp. with
respect to ISI Total Return U.S. Treasury Fund Shares,
filed herewith.
EX-99.B (6) (e) Form of Participating Dealer Agreement between
Armata Financial Corp. and Participating Dealers with
respect to ISI Total Return U.S. Treasury Fund Shares,
filed herewith.
(7) None.
EX-99.B (8) Custodian Agreement between Registrant and Provident
National Bank, filed herewith.
EX-99.B (9) (a) Master Services Agreement between
Registrant and Investment Company Capital Corp.,
with Appendices for the provision of
Administration, Accounting and Transfer Agency
Services, filed herewith.
EX-99.B (9) (b) License Agreement between Registrant and Alex.
Brown Incorporated, filed herewith.
EX-99.B (10) Opinion of Counsel, filed herewith.
EX-99.B (11) Consent of Deloitte & Touche LLP, filed herewith.
(12) None.
EX-99.B (13) Subscription Agreements between Registrant and Investors,
filed herewith.
(14) None.
EX-99.B (15) (a) Registrant's Distribution Plan for its Flag Investors
Total Return U.S. Treasury Fund Class A Shares, filed
herewith.
<PAGE>
EX-99.B (15) (b) Registrant's Distribution Plan for its ISI Class
of Shares, filed herewith.
EX-99.B (16) Schedule of Computation of Performance Quotations
(unaudited), filed herewith.
EX-99.B (18) Rule 18f-3 Plan, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
<PAGE>
EX-99.B(1)(a)
ARTICLES OF INCORPORATION
OF
TOTAL RETURN U.S. TREASURY FUND, INC.
* * * *
ARTICLE I
THE UNDERSIGNED, Edward J. Veilleux, whose post office address
is 135 East Baltimore Street, Baltimore, Maryland, 21202, being at least
eighteen years of age, does hereby act as an incorporator, under and by virtue
of the General Laws of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corporation.
ARTICLE II
The name of the Corporation is:
TOTAL RETURN U.S. TREASURY FUND, INC.
ARTICLE III
The purpose for which the Corporation is formed is to act as
an open-end management investment company under the Investment Company Act of
1940, as amended, (the "1940 Act").
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in securities and
other investments including assets in cash.
(2) To issue and sell shares of its capital stock in such
amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by law.
(3) To redeem, purchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by the Charter of the
Corporation.
<PAGE>
(4) To enter into a written contract or contracts with any
person or persons providing for a delegation of the management of all or part of
this Corporation's securities portfolio(s) and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors. Any such contract or contracts may be made
with any person even though such person may be an officer, other employee,
director or shareholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
shareholder may be interested.
(5) To enter into a written contract or contracts appointing
one or more underwriters, distributors or agents for the sale of the shares of
the Corporation on such terms and conditions as the Board of Directors of this
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director or shareholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
shareholder may be interested.
(6) To enter into a written contract or contracts employing
such custodian or custodians for the safekeeping of the property of the
Corporation and of its shares, such dividend disbursing agent or agents, and
such transfer agent or agents and registrar or registrars for its shares, and
such agent or agents for accounting and other administrative services on such
terms and conditions as the Board of Directors of this Corporation may deem
reasonable and proper for the conduct of the affairs of the Corporation, and to
pay the fees and disbursements of such custodians, dividend disbursing agents,
transfer agents, registrars and accounting and administrative services agents
out of the income and/or any other property of the Corporation. Notwithstanding
any other provisions of the Charter or the By-Laws of the Corporation, the Board
of Directors may cause any or all of the property of the Corporation to be
transferred to, or to be acquired and held in the name of, a custodian so
appointed or any nominee or nominees of this Corporation or nominee or nominees
of such custodian satisfactory to the Board of Directors.
(7) To employ the same person, partnership (general or
limited), association, trust or corporation in any multiple capacity under
Sections (4), (5) and (6) of this Article, who may receive compensation from the
Corporation in as many capacities in which such person, partnership (general or
limited), association, trust or corporation shall serve the Corporation.
<PAGE>
(8) To do any and all such further acts or things and to
exercise any and all such further powers or rights as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of the purposes stated in Article III
hereof.
The Corporation shall be authorized to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of the
Corporation in the State of Maryland is c/o Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland 21202. The name of the resident agent
of the Corporation in this State is Edward J. Veilleux, a citizen of this State,
who resides there and the post office address of the resident agent is 135 East
Baltimore Street, Baltimore, Maryland 21202.
ARTICLE VI
(1) The total number of shares of capital stock which the
Corporation shall have the authority to issue is Fifty Million (50,000,000)
shares, of the par value of 1 mil ($.001) per share and of the aggregate par
value of ten thousand dollars ($50,000.00), all of which shares are designated
Common Stock. Unless otherwise prohibited by law, so long as the Corporation is
registered as an open-end investment company under the 1940 Act, the Board of
Directors shall have the power and authority, without the approval of the
holders of any outstanding shares, to increase or decrease the number of shares
of capital stock, or the number of shares of capital stock of any class or
series, that the Corporation has authority to issue.
(2) Any fractional share shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
(3) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the Charter and the By-Laws
of the Corporation. All shares issued pursuant to this Charter for which the
price or consideration fixed thereon shall have been paid shall be deemed to be
fully paid and non-assessable.
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(4) The Board of Directors shall have authority to classify
and reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock; provided that the Board of Directors shall not classify or reclassify any
of such shares into any class or series of stock which is prior to any class or
series of capital stock then outstanding with respect to rights upon the
liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the general assets of, the Corporation, except that there may be
variations so fixed and determined among different series and classes as to
investment objectives, purchase price, right of redemption, special rights as to
dividends, and in liquidation, with respect to assets belonging to a particular
series or class, voting powers and conversion rights. Subject to the provisions
of Section 15 of this Article VI and applicable law, the power of the Board of
Directors to classify or reclassify any of the shares of capital stock shall
include, without limitation, authority to classify or reclassify any such stock
into a class or classes of capital stock and to divide and classify shares of
any class into one or more series of such class, by determining, fixing or
altering one or more of the following:
(A) The distinctive designation of such class or
series and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of such class
or series, the number of shares of any class or series may be decreased
by the Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such
class or series may be increased by the Board of Directors in
connection with any such classification or reclassification, and any
shares of any class or series which have been redeemed, purchased or
otherwise acquired by the Corporation shall remain part of the
authorized capital stock and be subject to classification and
reclassification as provided herein.
(B) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends shall be
payable on shares of such class or series.
(C) Whether or not shares of such class or series
shall have voting rights in addition to any general voting rights
provided by law and the Charter of the Corporation and, if so, the
terms of such additional voting rights.
(D) The rights of the holders of shares of such class
or series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the Corporation.
<PAGE>
(E) Any other rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the
Corporation.
(5) The Board of Directors shall have authority to issue from
time to time shares of capital stock, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable, subject to such
limitations as may be set forth in the Charter or the By-Laws of the Corporation
or in the Maryland General Corporation Law.
(6) Shares of Common Stock of the Corporation shall have the
following preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption:
(A) Assets Belonging to a Class. All consideration
received by the Corporation for the issue or sale of stock of any class
of Common Stock, together with all assets in which such consideration
is invested and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class of shares of Common Stock with respect
to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors,
and shall be so handled upon the books of account of the Corporation.
Such consideration, assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of
such proceeds in whatever form, are herein referred to as "assets
belonging to" such class. Any assets, income, earnings, profits, and
proceeds thereof, funds or payments which are not readily attributable
to any particular class shall be allocable among any one or more of the
classes in such manner and on such basis as the Board of Directors, in
its sole discretion, shall deem fair and equitable.
(B) Liabilities Belonging to a Class. The assets
belonging to any class of Common Stock shall be charged with the
liabilities in respect of such class, and shall also be charged with
such class's share of the general liabilities of the Corporation
determined as hereinafter provided. The determination of the Board of
Directors shall be conclusive as to the amount of such liabilities,
including the amount of accrued expenses and reserves; as to any
allocation of the same to a given class; and as to whether the same are
allocable to one or more classes. The liabilities so allocated to a
class are herein referred to as "liabilities belonging to" such class.
Any liabilities which are not readily attributable to any particular
class shall be allocable among any one or more of the classes in such
manner and on such basis as the Board of Directors, in its sole
discretion, shall deem fair and equitable.
<PAGE>
(C) Dividends and Distributions. Shares of each class
of Common Stock shall be entitled to such dividends and distributions,
in stock or in cash or both, as may be declared from time to time by
the Board of Directors, acting in its sole discretion, with respect to
such class, provided, however, that dividends and distributions on
shares of a class of Common Stock shall be paid only out of the
lawfully available "assets belonging to such class" as such phrase is
defined in Section 6(A) of this Article VI.
(D) Liquidating Dividends and Distributions. In the
event of the liquidation or dissolution of the Corporation,
stockholders of each class of Common Stock shall be entitled to
receive, as a class, out of the assets of the Corporation available for
distribution to shareholders, but other than general assets not
belonging to any particular class of stock, the assets belonging to
such class; and the assets so distributable to the stockholders of any
class of Common Stock shall be distributed among such stockholders in
proportion to the number of shares of such class held by them and
recorded on the books of the Corporation. In the event that there are
any general assets not belonging to any particular class of stock and
available for distribution, such distribution shall be made to the
holders of stock of all classes of Common Stock in proportion to the
asset value of the respective classes of Common Stock determined as
hereinafter provided.
(E) Voting. Each shareholder of each class of Common
Stock shall be entitled to one vote for each share of Common Stock,
irrespective of the class then standing in his name on the books of the
Corporation, and on any matter submitted to a vote of stockholders, all
shares of Common Stock then issued and outstanding and entitled to vote
shall be voted in the aggregate and not by class except that: (i) when
expressly required by law, shares of Common Stock shall be voted by
individual class and (ii) only shares of Common Stock of the respective
class or classes affected by a matter shall be entitled to vote on such
matter. At all meetings of the stockholders, the holders of one-third
of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for
the transaction of any business, except as otherwise provided by
statute or by the Charter. In the absence of a quorum no business may
be transacted, except that the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote may adjourn
the meeting from time to time, without notice other than announcement
at the meeting except as otherwise required by the By-Laws, until the
<PAGE>
holders of the requisite amount of shares of stock shall be so present.
At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the
meeting as originally called. The absence from any meeting, in person
or by proxy, of holders of the number of shares of stock of the
Corporation in excess of a majority thereof which may be required by
the laws of the State of Maryland, the 1940 Act, or other applicable
statute, the Charter, or the By-Laws, for action upon any given matter
shall not prevent action at such meeting upon any other matter or
matters which may properly come before the meeting, if there shall be
present at the meeting, in person or by proxy, holders of the number of
shares of stock of the Corporation required for action in respect of
such other matter or matters.
(F) Redemption. Upon the qualification of the
Corporation as an open-end investment company or at such other time as
the Board of Directors may determine is appropriate, and to the extent
the Corporation has funds or other property legally available therefor,
each holder of shares of Common Stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the
shares of Common Stock of the Corporation standing in the name of such
holder on the books of the Corporation, and all shares of Common Stock
issued by the Corporation shall be subject to redemption by the
Corporation, at the redemption price of such shares as in effect from
time to time as may be determined by the Board of Directors of the
Corporation in accordance with the provisions hereof, subject to the
right of the Board of Directors of the Corporation to suspend the right
of redemption of shares of Common Stock of the Corporation or postpone
the date of payment of such redemption price in accordance with
provisions of applicable law. Without limiting the generality of the
foregoing, the Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares owned by any
holder of Common Stock of the Corporation (i) if such redemption is, in
the opinion of the Board of Directors of the Corporation, desirable in
order to prevent the Corporation from being deemed a "personal holding
company" within the meaning of the Internal Revenue Code of 1986, as
amended, (ii) if the value of such shares, in the account maintained by
the Corporation or its transfer agent for any class of Common Stock is
less than $500.00 (Five Hundred Dollars) provided, however, that each
shareholder shall be notified that the value of his account is less
than $500.00 and allowed sixty (60) days to make additional purchases
of shares before such redemption is processed by the Corporation, or
(iii) if the net income with respect to any particular class of Common
Stock should be negative or it should otherwise be appropriate to carry
out the Corporation's responsibilities under the 1940 Act, in each case
<PAGE>
subject to such further terms and conditions as the Board of Directors
of the Corporation may from time to time adopt. The redemption price of
shares of Common Stock of the Corporation shall, except as otherwise
provided in this Section 6(F), be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to
time in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by resolution
of the Board of Directors of the Corporation. Payment of the redemption
price shall be made in cash by the Corporation at such time and in such
manner as may be determined from time to time by the Board of Directors
of the Corporation unless, in the opinion of the Board of Directors,
which shall be conclusive, conditions exist which make payment wholly
in cash unwise or undesirable; in such event the Corporation may make
payment wholly or partly by securities or other property included in
the assets belonging or allocable to the class of the shares redemption
of which is being sought, the value of which shall be determined as
provided herein.
(G) Conversion or Exchange. Each holder of any class
of Common Stock of the Corporation, who surrenders his share
certificate in good delivery form to the Corporation or, if the shares
in question are not represented by certificates, who delivers to the
Corporation a written request in good order signed by the shareholder,
shall, subject to such procedures as may be established by the Board of
Directors, be entitled to convert or exchange the shares in question on
the basis hereinafter set forth, into shares of stock of any other
class of the Corporation. The Corporation shall determine the net asset
value, as provided herein, of the shares to be converted and may deduct
therefrom a conversion or exchange cost, in an amount determined within
the discretion of the Board of Directors. Within five (5) business days
after such surrender and payment of any conversion or exchange cost,
the Corporation shall issue to the shareholder such number of shares of
stock of the class desired as, taken at the net asset value thereof
determined as provided herein in the same manner and at the same time
as that of the shares surrendered, shall equal the net asset value of
the shares surrendered, less any conversion or exchange cost as
aforesaid. Any amount representing a fraction of a share may be paid in
cash at the option of the Corporation. Any conversion or exchange cost
may be paid and/or assigned by the Corporation to the underwriter
and/or to any other agency, as it may elect.
(H) Restrictions on Transferability. If, in the
opinion of the Board of Directors of the Corporation, concentration in
the ownership of shares of Common Stock might cause the Corporation to
be deemed a personal holding company within the meaning of the Internal
Revenue Code, as now or hereafter in force, the Corporation may at any
time and from time to time refuse to give effect on the books of the
Corporation to any transfer or transfers of any share or shares of
Common Stock in an effort to prevent such personal holding company
status.
<PAGE>
ARTICLE VII
(1) The number of directors of the Corporation shall be six
(6), which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than three (3) except for any period during
which shares of the Corporation are held by less than three stockholders. The
name of the director who shall act until the directors are elected by the
Corporation's shareholder or until his successor is duly elected and qualifies
is:
Edward J. Veilleux
(2) No holder of stock of the Corporation shall, as such
holder, have any preemptive right to purchase or subscribe for any shares of the
capital stock of the Corporation or any other security of the Corporation which
it may issue or sell (whether out of the number of shares authorized by the
Charter, or out of any shares of the capital stock of the Corporation acquired
by it after the issue thereof, or otherwise) other than such right, if any, as
the Board of Directors, in its discretion, may determine.
ARTICLE VIII
Section 1. Directors, Officers, etc. The Corporation shall
indemnify each of its Directors and officers (including persons who serve at the
Corporation's request as directors, officers or trustees of another organization
in which the Corporation has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") 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 Covered 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, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Covered Person except with
respect to any matter as to which such Covered Person shall have been finally
adjudicated in any such actions, 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
<PAGE>
omission was unlawful, or (b) to be liable to the Corporation or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's Office. Termination of any proceeding by conviction or a plea of nolo
contenders 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 Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or penalties), shall be
paid from time to time by the Corporation in advance of the final disposition of
any such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to the Corporation if it
is ultimately determined that indemnification of such expenses is not authorized
under this Article, provided, however, that such Covered 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 Covered Person will be found entitled to
indemnification under this Article.
Section 2. Disposition Without Adjudication. As to any matter
disposed of (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by any other body before which
the proceeding was brought, that such Covered Person either (a) acted in bad
faith or with active and deliberate dishonesty of the Corporation or, in the
case of any criminal proceeding, that the director had reasonable cause to
believe that the act or omission was unlawful (b) is liable to the Corporation
or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, indemnification shall be provided if (i) approved as in the best
interest of the Corporation, by at least 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) upon a determination, based
upon a review of readily available facts at a meeting called for the purpose of
reviewing such indemnification that such Covered Person did not act in bad faith
or with active and deliberate dishonesty and is not liable to the Corporation or
its Shareholders by reasons of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties; involved in the conduct of his or her
office, or (ii) there has been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available facts to the effect that
such Covered Person appears not to have acted in bad faith or with active and
deliberate dishonesty and that such indemnification would not protect such
<PAGE>
Covered Person against any liability to the Corporation to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have acted in bad faith or
with active and deliberate dishonesty or to have been liable to the Corporation
or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office, or in the case of any criminal proceeding, that a
director had reasonable cause to believe that an act or omission was unlawful.
Section 3. Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's heirs, executors and
administrators and a "disinterested Director" is a Director who is not an
"interested person" of the Corporation as defined in Section 2(a)(19) of the
1940 Act, (or who has been exempted from being an "interested person" by any
rule, regulation or order of the Commission) and against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Corporation, other than Directors or officers, and other persons may be
entitled by contract or otherwise under law, nor the power of the Corporation to
purchase and maintain liability insurance on behalf of any such person;
provided, however, that the Corporation shall not purchase or maintain any such
liability insurance in contravention of applicable law, including without
limitation the 1940 Act.
<PAGE>
ARTICLE IX
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting practices by or
pursuant to the direction of the Board of Directors, as to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income of
the Corporation from dividends and interest for any period or amounts at any
time legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or, as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the value of any security owned by the Corporation or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of securities on "margin", a sale of
securities "short", or an underwriting of the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of the Charter of the Corporation
shall be effective to (i) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the 1940 Act, or of any valid rule,
regulation or order of the Securities and Exchange Commission thereunder or (ii)
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE X
The duration of this Corporation shall be perpetual.
ARTICLE XI
(1) The Corporation reserves the right from time to time to
make any amendments to its Charter which may now or hereafter be authorized by
law, including any amendments changing the terms or contract rights, as
expressly set forth in its Charter, of any of its outstanding stock by
<PAGE>
classification, reclassification or otherwise, but no such amendment which
changes such terms or contract rights of any of its outstanding stock shall be
valid unless such amendment shall have been authorized by not less than a
majority of the aggregate number of the votes entitled to be cast thereon by a
vote at a meeting or by the unanimous written consent as provided in the
Corporation's By-Laws.
(2) Notwithstanding any provision of the General Laws of the
State of Maryland requiring any action to be taken or authorized by the
affirmative vote of a greater proportion than the majority of the total number
of shares of any class of stock of the Corporation, such action shall be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding of that class of
stock entitled to vote thereon, except as otherwise provided in the Charter.
(3) So long as permitted by Maryland law, the books of the
Corporation may be kept outside of the State of Maryland at such place or places
as may be designated from time to time by the Board of Directors or in the
By-Laws of the Corporation.
(4) In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Maryland, the Board of Directors is
expressly authorized:
(A) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by the By-Laws to the
stockholders, and except as otherwise required by the 1940 Act.
(B) From time to time to determine whether and to
what extent and at what times and places and under what conditions and
regulations the books and accounts of the Corporation, or any of them
other than the stock ledger, shall be open to the inspection of the
stockholders, and no shareholder shall have any right to inspect any
account or book or document of the Corporation, except as conferred by
law or authorized by resolution of the Board of Directors or of the
stockholders.
(C) Without the assent or vote of the stockholders,
to authorize the issuance from time to time of shares of the stock of
any class of the Corporation, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable.
(D) Without the assent or vote of the stockholders,
to authorize and issue obligations of the Corporation, secured and
unsecured, as the Board of Directors may determine, and to authorize
and cause to be executed mortgages and liens upon the property of the
Corporation, real and personal.
<PAGE>
(E) Notwithstanding anything in this Charter to the
contrary, to establish in its absolute discretion the basis or method
for determining the value of the assets belonging to any class, and the
net asset value of each share of any class of the Corporation for
purposes of sales, redemptions, repurchases of shares or otherwise.
(F) To determine in accordance with generally
accepted accounting principles and practices what constitutes net
profits, earnings, surplus or net assets in excess of capital, and to
determine what accounting periods shall be used by the Corporation for
any purpose, whether annual or any other period, including daily; to
set apart out of any funds of the Corporation such reserves for such
purposes as it shall determine and to abolish the same; to declare and
pay any dividends and distributions in cash, securities or other
property from surplus or any funds legally available therefor, at such
intervals (which may be as frequently as daily) or on such other
periodic basis, as it shall determine; to declare such dividends or
distributions by means of a formula or other method of determination,
at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for
dividends or any other distributions on any basis, including dales
occurring less frequently than the effectiveness of declarations
thereof; and to provide for the payment of declared dividends on a date
earlier or later than the specified payment date in the case of
stockholders of the Corporation redeeming their entire ownership of
shares of any class of the Corporation.
(G) In addition to the powers and authorities granted
herein and by statute expressly conferred upon it, the Board of
Directors is authorized to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of Maryland law, this Charter
and the By-Laws of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of TOTAL
RETURN U.S. TREASURY, INC. hereby executes the foregoing Charter and
acknowledges the same to be his act on the 31st day of May, 1988.
/s/ Edward J. Veilleux
----------------------
Edward J. Veilleux
Incorporator
WITNESS:
/s/ Brian C. Nelson
- -------------------
<PAGE>
EX-99.B.(1)(b)
TOTAL RETURN U.S. TREASURY FUND, INC.
ARTICLES SUPPLEMENTARY
TOTAL RETURN U.S. TREASURY FUND, INC. having its principal office in the
City of Baltimore, certifies that:
FIRST: The total number of shares of capital stock
which the Corporation shall have the authority to issue is one
hundred (100) million shares, of the par value of 1 mil
($.001) per share and of the aggregate par value of one
hundred thousand dollars ($100,000), all of which shares are
designated Common Stock. Unless otherwise prohibited by law,
so long as the corporation is registered as an open-end
investment company under the 1940 Act, the Board of Directors
of the Corporation shall have the power and authority, without
the approval of the holders of any outstanding shares, to
increase or decrease the number of shares of capital stock of
any class or series that the Corporation has authority to
issue.
SECOND: Immediately before the increase the
corporation was authorized to issue fifty (50) million shares,
of the par value of 1 mil ($.001) per share and of the
aggregate par value of fifty thousand dollars ($50,000), all
of which shares were designated Common Stock. As increased,
the Corporation is authorized to issue a total of one hundred
(100) million shares of Common Stock, par value $.001, having
an aggregate par value of $100,000.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940,
as amended.
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 18th
day of December, 1991. The Vice-President of the Corporation who signed these
Articles Supplementary acknowledges them to be the act of the Corporation and
states under the penalties for perjury that to the best of his knowledge,
information and belief the matters and facts relating to approval hereof are
true in all material respects.
[CORPORATE SEAL]
TOTAL RETURN U.S. TREASURY FUND, INC.
By: /s/ Edward J. Veilleux
---------------------------
Vice-President
Attest: /s/ Brian C. Nelson
-------------------
Secretary
<PAGE>
EX-99.B(1)(c)
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 classifying and designating the Corporation's previously
unclassified 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 million (40,000,000) 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 million (40,000,000) shares are designated "ISI Total
Return U.S. Treasury Fund Shares" (the "ISI Shares"), and fifteen
million (15,000,000) shares remain undesignated.
SECOND: Immediately before the designation and classification
of the Class A Shares, Class B Shares and ISI 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 one
hundred million (100,000,000) shares were designated Common Stock in
the Corporation's Articles of Incorporation, but which, out of
authorized but unissued shares, had been designated (i) Total Return
U.S. Treasury Fund Shares and renamed Flag Investors Total Return U.S.
Treasury Fund Class A Shares; (ii) Flag Investors Total Return U.S.
Treasury Fund Class B Shares; and (iii) C.J. Lawrence Total Return U.S.
Treasury Fund Shares and renamed ISI Total Return U.S. Treasury Fund
Shares, respectively, by the Corporation's Board of Directors as
authorized in the Corporation's Articles of Incorporation.
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 15th day of December 1993.
[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>
EX-99.B(1)(d)
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>
EX-99.B(2)
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.
<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
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.
-4-
<PAGE>
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 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
-5-
<PAGE>
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,
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
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<PAGE>
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.
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<PAGE>
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
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:
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<PAGE>
(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
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
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<PAGE>
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.
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<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.
-11-
<PAGE>
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;
(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.
-12-
<PAGE>
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
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.
-13-
<PAGE>
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.
-14-
<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 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.
-15-
<PAGE>
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.
-16-
<PAGE>
EX-99.B(5)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day
of April, 1991 by and between TOTAL RETURN U.S. TREASURY FUND INC., a Maryland
corporation (the "Fund"), and INTERNATIONAL STRATEGY & INVESTMENT INC., a
Delaware corporation (the "Advisor"), with respect to the following recital of
fact:
R E C I T A L
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 Advisor is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment adviser; and
WHEREAS, the Fund and the Advisor desire to enter an agreement
to provide investment advisory services for the Fund on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Advisor to manage
the Fund's affairs and supervise all aspects of the Fund's operations, including
the investment and reinvestment of the cash, securities or other properties
comprising the Fund's assets (the "Portfolio"), subject at all times to the
policies and control of the Fund's Board of Directors. The Advisor hereby
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 the Advisor
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", the By-Laws and the Articles of Incorporation
are sometimes collectively referred to herein as the "Charter");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor 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 Securities and Exchange Commission (the
"SEC") on June 6, 1988 relating to the shares of the Fund, and all amendments
thereto; and
(e) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are herein called
"Prospectus").
<PAGE>
The Fund will furnish the Advisor 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 of Investment Advisor. The Advisor shall give the
Fund the benefit of its best judgment, efforts and facilities in rendering its
services as Advisor. In carrying out its obligations under paragraph 1 hereof,
the Advisor shall:
(a) formulate and implement continuing programs for the
purchases and sales of securities consistent with the Prospectus and regularly
report thereon to the Fund's Board of Directors; and
(b) determine what securities shall be represented in the
Portfolio and in what proportion and regularly report them to the Fund's Board
of Directors; and
(c) provide the Board of Directors of the Fund on a regular
basis with financial reports with respect to the Portfolio, investments and
analyses of the Fund's operations and the operations of comparable investment
companies; and
(d) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Portfolio
of the Fund, and whether concerning the individual issuers whose securities are
included in the Portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion in the
Portfolio; and
(e) take, on behalf of the Fund, all actions which appear
to the Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities; and
(f) maintain such books and records, in cooperation with
the Fund's administrator and the Fund's distributors, as may be required by law
or deemed advisable by the Board of Directors.
4. Portfolio Transactions. The Advisor shall be responsible
for decisions to buy and sell securities for the Portfolio, selection of
broker-dealers and negotiation of commission rates. Portfolio securities may be
purchased or sold by the Fund in principal transactions. The Advisor may also
purchase securities from underwriters at prices which include a commission paid
by the issuer to the underwriter. The purchase price paid to dealers serving as
market makers may include a spread between the bid and asked prices.
The Advisor's primary consideration in effecting a security
transaction shall be to obtain the best net price and the most favorable
execution of the order. To the extent that the execution and prices offered by
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 which the Advisor deems to be beneficial to the
Portfolio'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; forecasts and interpretations with
respect to the U.S. money market fixed income markets; information on federal,
state, local and foreign political developments; portfolio management
strategies; performance information on securities, indices and investment
<PAGE>
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 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. The Advisor is of the opinion that the
material received is beneficial in supplementing its research and analysis; and
therefore, it may benefit the Fund and the Portfolio by improving the quality of
the Advisor's investment advice. The advisory fee paid by the Fund shall not be
reduced because the Advisor receives such services as the Advisor must evaluate
information received as a result of such services, receipt of such services and
thus does not reduce the Advisor's workload.
5. Control by Board of Directors. Any management or
supervisory activities undertaken by the Advisor pursuant to this Agreement, as
well as any other activities undertaken by the Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any directives of the Board of
Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended; and
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act; and
(c) the provisions of the Fund's Charter; and
(d) any other applicable provisions of state and federal
law and applicable rules of any registered national securities organization.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall furnish, at its expense and without
cost to the Fund (except as provided in paragraph 8 hereof), the services of
such officers and employees as may be required by the Fund for the proper
conduct of its affairs; travel expenses of employees and officers of the
Advisor; office space, equipment, research services and supplies; expenses of
maintaining accounts, books, and records, except to the extent such services are
provided by a third party pursuant to a contract with the Fund.
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Advisor; the charges and expenses of any registrar, any custodian 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, 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 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 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 members 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
<PAGE>
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; 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. The Advisor 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 the Advisor'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 the
Advisor of any Fund expense that the Advisor is not required to pay or assume
under this Agreement shall not relieve the Advisor of any of its obligations to
the Fund nor obligate the Advisor 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 the Advisor, the Fund shall pay to the Advisor as
compensation a percentage of the Fund's average daily net assets which will vary
as follows based on the amount of the net assets of the Fund.
Average Daily Net Assets Advisory Fee
------------------------ ------------
(as a percentage
of net assets)
Less than 100,000,000 .20%
100,000,000-200,000,000 .18%
200,000,001-300,000,000 .16%
300,000,001-400,000,000 .14%
500,000,001 and above .12%
The Fund shall also pay the Advisor 1.5% of the Fund's gross
interest income.
Except as hereinafter set forth, 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 calculation of the fees as set
forth above. Payment of the Advisor's compensation for the preceding month shall
be made as promptly as possible after completion of the computations
contemplated by this paragraph 9.
10. Non-Exclusivity. The services of the Advisor to the Fund
are not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory and other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or directors of the Fund, and
that officers or directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor 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.
<PAGE>
11. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall continue in force and
effect until the earlier of the date that is one hundred twenty days after the
date hereof or approval by the shareholders of the Fund of a new investment
advisory agreement between the Fund and the Advisor and thereafter from year to
year, 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 parties to this Agreement or "interested persons" (as defined in
Section 2(a)(19) of the 1940 Act) of a party to this Agreement (other than as
directors of the Fund), by votes cast in person at a meeting specifically called
for such purpose.
12. 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 or (ii) by vote of a
majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act) or (iii) by the Advisor. The notice provided for
herein may be waived by either party. This Agreement shall automatically
terminate in the event of its assignment (as defined in Section 2(a)(4) of the
1940 Act.)
13. Liability. In the performance of its duties hereunder, the
Advisor 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 the Advisor shall not be liable
for any act or omission which does not constitute willful misfeasance, bad faith
or gross negligence on the part of the Advisor or its officers, directors or
employees, or reckless disregard by the Advisor of its duties under this
Agreement.
14. 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 the
Fund for this purpose shall be 135 East Baltimore Street, Baltimore, Maryland
21202, and the address of the Advisor shall be 717 Fifth Avenue, New York, NY
10022.
15. 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/ Sharon H. Marhaush By: /s/ Edward J. Veilleux
---------------------- ----------------------
Vice President
INTERNATIONAL STRATEGY & INVESTMENT INC.
Attest: /s/ Joel P. Fein By: /s/ R. Alan Medaugh
------------------- ------------------------
<PAGE>
EX-99.B(6)(a)
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:
<PAGE>
(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
(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:
<PAGE>
(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;
(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:
<PAGE>
(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
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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>
EX-99.B(6)(b)
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.
<PAGE>
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
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.
-2-
<PAGE>
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.
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.
-3-
<PAGE>
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>
EX-99.B(6)(c)
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SHAREHOLDER SERVICING AGREEMENT
_________________, 19__
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
with you concerning the provision of support services to your clients and
customers ("Customers") who may from time to time beneficially own shares of our
common stock ("Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. (a) You agree to provide the following services to
Customers who may from time to time beneficially own Shares: (i) aggregating and
processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii) processing
dividend payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. You hereby
represent that such fees are not unreasonable or excessive. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you in accordance with the Customer's
instructions ("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records
required by law relating to transactions in Shares and, upon our request,
promptly make such of these records available to us as we may reasonably request
in connection with our operations, and (ii) promptly notify us if you experience
any difficulty in maintaining the records described in the foregoing clauses in
an accurate and complete manner.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be a part of the space, equipment
and facilities currently used in your business, or any personnel employed by
you) as may be reasonably necessary or beneficial in order to provide the
aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees,
agents or assignees are authorized to make any representations concerning us or
Shares except those contained in our then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE>
Section 4. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect. You may, upon prior written notice
to us, delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all of your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees, agents or assignees
regarding your responsibilities hereunder or the purchase, redemption, transfer
or registration of Shares by or on behalf of Customers. You and your employees
will, upon request, be available during normal business hours to consult with us
or our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will cause our distributor pay to you, and you
will accept as full payment therefor, a fee (as we may determine from time to
time in writing) computed as a percentage of the average daily net assets of the
Customers' Shares held of record by you from time to time, which fee will be
computed daily and payable no less often than annually. For purposes of
determining the fees payable under this Section 5, the average daily net assets
of the Customers' Shares will be computed in the manner specified in our
registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. The fee rate stated above may be prospectively
increased or decreased by us or by our distributor, at any time upon notice to
you. Further, we may, in our discretion and without notice, suspend or withdraw
the sale of Shares, including the sale of such shares to you for the account of
any Customer or Customers.
Section 6. You will furnish us or our designees with such
information relating to your performance under this Agreement as we or they may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
shall otherwise cooperate with us and our designees (including, without
limitation, any auditors designated by us), in connection with the preparation
of reports to our Board of Directors concerning this Agreement and the monies
paid or payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
Section 7. We may enter into other similar services agreements
with any other person or persons without your consent.
Section 8. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the event
of its assignment, as that term is defined in the Investment Company Act of
1940, as amended.
Section 9. This Agreement will be construed in accordance with
the laws of the State of Maryland.
Section 10. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device, if to us at the address below, and if to you,
at the address specified by you after your signature below:
Flag Investors Family of Funds
135 East Baltimore Street
Baltimore, Maryland 21202
Attention: Edward J. Veilleux
-2-
<PAGE>
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to us, at the address set forth in Section 10 above.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
Date: By:
-------------- ------------------------------
Authorized Officer
Confirmed and Accepted:
Firm Name:
-----------------------
By:
------------------------------
Address:
-------------------------
-------------------------
-------------------------
Date: ---------------------------
-3-
<PAGE>
EX-99.B(6)(d)
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:
<PAGE>
(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;
(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;
-2-
<PAGE>
(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.
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;
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<PAGE>
(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
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<PAGE>
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;
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
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<PAGE>
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:
(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.
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<PAGE>
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.
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<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
------------------- ------------------------------------
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<PAGE>
EX-99.B(6)(e)
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.
<PAGE>
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
(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.
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<PAGE>
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
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:
-----------------------
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<PAGE>
EX-99.B(8)
CUSTODIAN AGREEMENT
THIS AGREEMENT is made as of August 8, 1988 by and between
TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland corporation (the "Fund"), and
PROVIDENT NATIONAL BANK, a national banking association ("Provident").
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 desires to retain Provident to serve as the Fund's
custodian and Provident is willing to serve as the Fund's custodian;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Provident to act as
custodian of the portfolio securities, cash and other property belonging to the
Fund for the period and on the terms set forth in this Agreement. Provident
accepts such appointment and agrees to furnish the services herein set forth.
Provident agrees to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. The Fund may from time to time
issue separate series, classes or classify and reclassify shares of such series
or class. Provident shall identify to each such series or class Property
belonging to such series or class and in such reports, confirmations and notices
to the Fund called for under this Agreement shall identify the series or class
to which such report, confirmation or notice pertains.
2. Delivery of Documents. The Fund has furnished Provident
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of Provident as custodian of the portfolio
securities, cash and other property belonging to the Fund and approving this
Agreement;
<PAGE>
(b) Appendix A identifying and containing the signatures of
the Fund's officers and/or other persons authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Articles of Incorporation filed with the
Secretary of the State of Maryland on June 3, 1988 and all amendments thereto;
(d) 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");
(e) The Investment Advisory Agreement between C.J.
Lawrence, Morgan Grenfell Inc. (the "Advisor") and the Fund dated as of
_______________, 1988 (the "Advisory Agreement");
(f) The Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated dated as of ______________________ , 1988 (the "Flag
Investors Class Distribution Agreement");
(g) The Distribution Agreement among the Fund, Alex. Brown
& Sons Incorporated and C.J. Lawrence, Morgan Grenfell Inc. dated as of
______________, 1988 for distribution of the Fund's National Class of Shares
(the "C.J. Lawrence Class Distribution Agreement");
(h) The Transfer Agency Agreement between Provident
Financial Processing Corporation and the Fund dated as of _______________, 1988
(the "Transfer Agency Agreement");
(i) 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 ("SEC") on _____________, 1988;
(j) The Fund's most recent Registration Statement on Form
N-1A under the Securities Act of 1933, as amended ("the 1933 Act") (File No.
33-12179) and under the 19410 Act as filed with the SEC on ____________, 1988
relating to shares of the Fund's Shares of Capital Stock ("Shares"), and all
amendments thereto; and
(k) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are herein called
the "Prospectus"). The Fund will furnish Provident from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
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<PAGE>
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the
term "Authorized Person" means any of the officers of the Fund and any other
person, whether or not any such person is an officer or employee of the Fund,
duly authorized by the Board of Directors of the Fund to give Oral and Written
Instructions on behalf of the Fund and listed on the Certificate annexed hereto
as Appendix A or any amendment thereto as may be received by Provident from time
to time.
(b) "Book-Entry System". As used in this Agreement, the
term "Book-Entry System" means the Federal Reserve Treasury book-entry system
for United States and federal agency securities, its successor or successors and
its nominee or, nominees and any book-entry system maintained by a clearing
agency registered with the SEC under Section 17A of the Securities Exchange Act
of 1934 (the "1934 Act").
(c) "Oral Instructions". As used in this Agreement, the
term "Oral Instructions" means oral instructions actually received by Provident
from an Authorized Person or from a person reasonably believed by Provident to
be an Authorized Person. The Fund agrees to deliver to Provident, at the time
and in the manner specified in Paragraph 8(b) of this Agreement, Written
Instructions confirming Oral Instructions.
(d) "Property". The term "Property", as used in this
Agreement, means:
(i) any and all securities; and other property which the
Fund may from time to time deposit, or cause to be deposited,
with Provident or which Provident may from time to time hold
for the Fund;
(ii) all income in respect of any of such securities or
other property;
(iii) all proceeds of the sale of any of such securities or
other property; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by Provident from time to time from or
on behalf of the Fund.
(e) "Written Instructions". As used in this Agreement, the
term "Written Instructions" means written instructions delivered by hand, mail,
tested telegram, cable, telex or facsimile sending device, and received, by
Provident and signed by an Authorized Person.
-3-
<PAGE>
4. Delivery and Registration of the Property. The Fund will
deliver or cause to be delivered to Provident all securities and all moneys
owned by it, including cash received for the issuance of its Shares, at any time
during the period of this Agreement. Provident will not be responsible for such
securities and such moneys until actually received by it. All securities
delivered to Provident (other than in bearer form) shall be registered in the
name of the Fund or in the name of a nominee of the Fund or in the name of any
nominee of Provident (with or without indication of fiduciary status), or in the
name of any subcustodian or any nominee of any such subcustodian appointed
pursuant to Paragraph 6 hereof or shall be properly endorsed and in form for
transfer satisfactory to Provident.
5. Receipt and Disbursement of Money.
(a) Provident shall open and maintain a separate custodial
account or accounts in the name of the Fund, subject only to draft or order by
Provident acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Fund. Provident shall make payments of cash to,
or for the account of, the Fund from such cash only (i) for the purchase of
securities for the Fund's portfolio as provided in Paragraph 13 hereof; (ii)
upon receipt of Written Instructions, for the payment of interest, dividends,
taxes, administration, distribution, advisory or management fees or expenses
which are to be borne by the Fund under the terms of this Agreement, the
Advisory Agreement, the Transfer Agency Agreement and the Distribution
Agreement; (iii) upon receipt of Written Instructions, for payments in
connection with the conversion, exchange or surrender of securities owned or
subscribed to by the Fund and held by or to be delivered to Provident; (iv) to a
subcustodian pursuant to Paragraph 6 hereof; (v) for the redemption of Fund
Shares; or (vi) upon receipt of Written Instructions, for other proper Fund
purposes. No payment pursuant to (i) above shall be made unless Provident has
received a copy of the broker's or dealer's confirmation or the payee's invoice,
as appropriate.
(b) Provident is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the account of the Fund.
6. Receipt of Securities.
(a) Except as provided by Paragraph 7 hereof, Provident
shall hold and physically segregate in a separate account, identifiable at all
times from those of any other persons, firms, or corporations, all securities
and non-cash property received by it for the account of the Fund. All such
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<PAGE>
securities and non-cash property are to be held or disposed of by Provident for
the Fund pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution of the Fund's Board of
Directors authorizing the transaction, Provident shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose
of any such securities and investments except in accordance with the express
terms provided for in this Agreement. In no case may any Director, officer,
employee or agent of the Fund withdraw any securities. In connection with its
duties under this Paragraph 6, Provident may, at its own expense, enter into
subcustodian agreements with other banks or trust companies for the receipt of
certain securities and cash to be held by Provident for the account of the Fund
pursuant to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than one million dollars ($1,000,000) for a Provident
subsidiary or affiliate, or of not less than twenty million dollars
($20,000,000) if such bank or trust company is not a Provident subsidiary or
affiliate and that in either case such bank or trust company agrees with
Provident to comply with all relevant provisions of the 1940 Act and applicable
rules and regulations thereunder. Provident shall remain responsible for the
performance of all of its duties under this Agreement and shall hold the Fund
harmless from the acts and omissions of any bank or trust company that it might
choose pursuant to this Paragraph 6.
(b) Promptly after the close of business each day,
Provident shall furnish the Fund with confirmations and a summary of all
transfers to or from the account of the Fund during said day. Where securities
are transferred to an account of the Fund established pursuant to Paragraph 7
hereof, Provident shall also by book-entry or otherwise identify as belonging to
the Fund the quantity of securities in a fungible bulk of securities registered
in the name of Provident (or its nominee) or shown in Provident's account on the
books of the Book-Entry System. At least monthly and from time to time,
Provident shall furnish the Fund with a detailed statement of the Property held
for the Fund under this Agreement.
7. Use of Book-Entry System. The Fund shall deliver to
Provident certified resolutions of the Board of Directors of the Fund approving,
authorizing and instructing Provident on a continuous and on-going basis until
instructed to the contrary by Oral or Written Instructions actually received by
Provident (a) to deposit in the Book-Entry System all securities belonging to
the Fund eligible for deposit therein and (b) to utilize the Book-Entry System
to the extent possible in connection with settlements of purchases and sales of
securities by the Fund, and deliveries and returns of securities loaned, subject
-5-
<PAGE>
to repurchase agreements or used as collateral in connection with borrowings.
Without limiting the generality of such use, it is agreed that the following
provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from any assets and cash
controlled by Provident in other than a fiduciary or custodian capacity but may
be commingled with other assets held in such capacities. Provident will pay out
money only upon receipt of securities and will deliver securities only upon the
receipt of money.
(b) All books and records maintained by Provident which
relate to the Fund's participation in the Book-Entry System will at all times
during Provident's regular business hours be open to the inspection of the
Fund's duly authorized employees or agents, and the Fund will be furnished with
all information in respect of the services rendered to it as it may require.
(c) Provident will provide the Fund with copies of any
report obtained by Provident on the system of internal accounting control of the
Book-Entry System promptly after receipt of such a report by Provident.
Provident will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
8. Instructions Consistent with Declaration etc.
(a) Unless otherwise provided in this Agreement, Provident
shall act only upon Oral and Written Instructions. Although Provident may know
of the provisions of the Articles of Incorporation and By-Laws of the Fund,
Provident may assume that any Oral or Written Instructions received hereunder
are not in any way inconsistent with any provisions of such Articles of
Incorporation or By-Laws or any vote, resolution or proceeding of the
Shareholders, or of the Board of Directors, or of any committee thereof.
(b) Provident shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by Provident
pursuant to this Agreement. The Fund agrees to forward to Provident Written
Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by Provident by the close of business of the same day
that such Oral Instructions are given to Provident. The Fund agrees that the
fact that such confirming Written Instructions are not received by Provident
shall in no way affect the validity of the transactions or enforceability of the
transactions authorized by the Fund by giving Oral Instructions. The Fund agrees
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that Provident shall incur no liability to the Fund in acting upon Oral
Instructions given to Provident hereunder concerning such transactions provided
such instructions reasonably appear to have been received from an Authorized
Person.
9. Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, Provident is authorized to take the following
actions:
(a) Collection of Income and Other Payments. Provident
shall:
(i) collect and receive for the account of the Fund,
all income and other payments and distributions, including
(without limitation) stock dividends, rights, option premiums
and similar items, included or to be included in the Property,
and promptly advise the Fund of such receipt and shall credit
such income, as collected, to the Fund's custodian account;
(ii) endorse and deposit for collection, in the name of
the Fund, checks, drafts, or other orders for the payment of
money on the same day as received;
(iii) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's portfolio
securities as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities
issued with respect to any portfolio securities belonging to
the Fund held by Provident hereunder;
(iv) present for payment and collect the amount payable
upon all securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date such
securities become payable; and
(v) take any action which may be necessary and proper
in connection with the collection and receipt of such income
and other payments and the endorsement for collection of
checks, drafts, and other negotiable instruments.
(b) Miscellaneous Transactions. Provident is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor in the following cases:
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(i) for examination by a broker selling for the account
of the Fund in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary
securities for definitive securities; and
(iii) for transfer of securities into the name of the
Fund or Provident or nominee of either, or for exchange of
securities for a different number of bonds, certificates, or
other evidence, representing the same aggregate face amount or
number of units bearing the same interest rate, maturity date
and call provisions, if any; provided that, in any such case,
the new securities are to be delivered to Provident.
10. Transactions Requiring Instructions. Upon receipt of Oral
or Written Instructions and not otherwise, Provident, directly or through the
use of the Book-Entry System, shall:
(a) execute and deliver to such persons as may be
designated in such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the authority of the Fund as
owner of any securities may be exercised;
(b) deliver any securities held for the Fund against
receipt of other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
(c) deliver any securities held for the Fund to any
protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of
the Fund and take such other steps as shall be stated in said Oral or Written
Instructions to be for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of the
Fund;
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<PAGE>
(e) release securities belonging to the Fund to any
bank or trust company for the purpose of pledge or hypothecation to secure any
loan incurred by the Fund; provided, however, that securities shall be released
only upon payment to Provident of the monies borrowed, except that in cases
where additional collateral is required to secure a borrowing already made,
subject to proper prior authorization, further securities may be released for
that purpose; and repay such loan upon redelivery to it of the securities
pledged or hypothecated therefor and upon surrender of the note or notes
evidencing the loan; and
(f) release and deliver securities owned by the Fund
in connection with any repurchase agreement entered into on behalf of the Fund,
but only on receipt of payment therefor; and pay out moneys of the Fund in
connection with such repurchase agreements, but only upon the delivery of the
securities; and
(g) otherwise transfer, exchange or deliver securities
in accordance with Oral or Written Instructions.
11. Segregated Accounts.
Provident shall upon receipt of Written or Oral Instructions
establish and maintain a segregated account or accounts on its records for and
on behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities in the Book-Entry System (i) for the
purposes of compliance by the Fund with the procedures required by a securities
or option exchange, providing such complies with the Investment Company Act and
Release No. 10666 or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (ii) for other proper corporate purposes,
but only, in the case of clause (ii), upon receipt of, Written Instructions.
12. Dividends and Distributions. The Fund shall furnish
Provident with appropriate evidence of action by the Fund's Board of Directors
declaring and authorizing the payment of any dividends and distributions. Upon
receipt by Provident of Written Instructions with respect to dividends and
distributions declared by the Fund's Board of Directors and payable to
shareholders who are entitled to receive cash for fractional shares and those
who have elected in the proper manner to receive their distributions on
dividends in cash, and in conformance with procedures mutually agreed upon by
Provident, the Fund, and the Fund's transfer agent, Provident shall pay to the
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Fund's transfer agent, as agent for the shareholders, an amount equal to the
amount indicated in said Written Instructions as payable by the Fund to such
shareholders for distribution in cash by the transfer agent to such
shareholders. In lieu of paying the Fund's transfer agent cash dividends and
distributions, Provident may arrange for the direct payment of cash dividends
and distributions to shareholders by Provident in accordance with such
procedures and controls as are mutually agreed upon from time to time by and
among the Fund, Provident and the Fund's transfer agent.
13. Purchases of Securities. Promptly after each decision to
purchase securities by the Advisor, the Fund, through the Advisor, shall deliver
to Provident Oral Instructions specifying with respect to each such purchase:
(a) the name of the issuer and the title of the securities, (b) the number of
shares or the principal amount purchased and accrued interest, if any, (c) the
date of purchase and settlement, (d) the purchase price per unit, (e) the total
amount payable upon such purchase and (f) the name of the person from whom or
the broker through whom the purchase was made. Provident shall upon receipt of
securities purchased by or for the Fund pay out of the moneys held for the
account of the Fund the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral Instructions.
14. Sales of Securities. Promptly after each decision to sell
securities by the Advisor or exercise of an option written by the Fund, the
Fund, through the Advisor, shall deliver to Provident Oral Instructions,
specifying with respect to each such sale: (a) the name of the issuer and the
title of the security, (b) the number of shares or principal amount sold, and
accrued interest, if any, (c) the date of sale, (d) the sale price per unit, (e)
the total amount payable to the Fund upon such sale and (f) the name of the
broker through whom or the person to whom the sale was made. Provident shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms; to the total amount payable as set
forth in such Oral Instructions. Subject to the foregoing, Provident may accept
payment in such form as shall be satisfactory to it, and may deliver securities
and arrange for payment in accordance with the customs prevailing among dealers
in securities.
15. Records. The books and records pertaining to the Fund
which are in the possession of Provident shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act
and other applicable securities laws and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
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times during Provident's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by Provident to
the Fund or the Fund's authorized representative at the Fund's expense.
16. Reports.
(a) Provident shall furnish the Fund the following
reports:
(1) such periodic and special reports as the Fund may
reasonably request;
(2) a monthly statement summarizing all transactions
and entries for the account of the Fund;
(3) a monthly report of portfolio securities belonging
to the Fund showing the adjusted average cost of each issue
and the market value at the end of such month;
(4) a monthly report of the cash account of the Fund
showing disbursements;
(5) the reports to be furnished to the Fund pursuant
to Rule 17f-4; and
(6) such other information as may be agreed upon from
time to time between the Fund and Provident.
(b) Provident shall transmit promptly to the Fund any
proxy statement, proxy materials, notice of a call or conversation similar
communications received by it as Custodian of the Property.
17. Cooperation With Accountants. Provident shall cooperate
with the Fund's independent public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required from time to time by the
Fund.
18. Confidentiality. Provident agrees on behalf of itself and
its employees to treat confidentially all records and other information relative
to the Fund and its prior, present, or potential Shareholders, except, after
prior notification to and approval in writing by the Fund, which approval shall
not be reasonably withheld and may not be withheld where Provident may be
exposed to civil or criminal contempt proceedings for failure to comply, when
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<PAGE>
requested to divulge such information by duly constituted authorities, or when
so requested by the Fund.
19. Right to Receive Advice.
(a) Advice of Fund. If Provident shall be in doubt as to
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund directions or advice, including Oral or Written Instructions where
appropriate.
(b) Advice of Counsel. If Provident shall be in doubt as
to any question of law involved in any action to be taken or omitted by
Provident, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the Advisor, the Fund or Provident, at the
option of Provident).
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by Provident
pursuant to subparagraph (a) of this paragraph and advice received by Provident
pursuant to subparagraph (b) of this paragraph, Provident shall be entitled to
rely on and follow the advice received pursuant to the latter provision alone.
(d) Protection of Provident. Provident shall be protected
in any action or inaction which it takes in reliance on any directions, advice
or Oral or Written Instructions received pursuant to subparagraphs (a) or (b) of
this paragraph which Provident, after receipt of any such directions, advice or
Oral or Written Instructions, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. However,
nothing in this paragraph shall be construed as imposing upon Provident any
obligation (i) to seek such directions, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions when received, unless, under the terms of another provision of this
Agreement, the same is a condition to Provident's properly taking or omitting to
take such action. Nothing in this subsection shall excuse Provident when an
action or omission on the part of Provident constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by Provident of any duties or
obligations under this Agreement.
20. Compliance with Governmental Rules and Regulations. The
Fund assumes full responsibility for insuring that the Fund complies with all
applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act, and any
laws, rules and regulations of governmental authorities having jurisdiction.
21. Compensation. During the term of this Agreement, the Fund
will pay to Provident no fees.
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22. Indemnification. The Fund, as sole owner of the Property,
agrees to indemnify and hold harmless Provident and its nominees from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the 1934 Act, the 1940 Act,
and any state and foreign securities and blue sky laws, all as or to be amended
from time to time) and expenses, including (without limitation) attorneys' fees
and disbursements, arising directly or indirectly (a) from the fact that
securities included in the Property are registered in the name of any such
nominee or (b) without limiting the generality of the foregoing clause (a) from
any action or thing which Provident takes or does or omits to take or do (i) at
the request or on the direction of or in reliance on the advice of the Fund or
(ii) upon Oral or Written Instructions, provided, that neither Provident nor any
of its nominees shall be indemnified against any liability to the Fund or to its
Shareholders (or any expenses incident to such liability) arising out of
Provident's or such nominee's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or responsibilities under this
Agreement. In the event of any advance of cash for any purpose made by Provident
resulting from Oral or Written Instructions of the Fund, or in the event that
Provident or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its choice, its nominee's own
negligent action, negligent failure to act or willful misconduct, any Property
at any time held for the account of the Fund shall be security therefor.
23. Responsibility of Provident. Provident shall be under no
duty to take any action on behalf of the Fund except as specifically set forth
herein or as may be specifically agreed to by Provident in writing. In the
performance of its duties hereunder, Provident shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy and completeness of all services
performed under this Agreement. Provident shall be responsible for its own
negligent failure to perform its duties under this Agreement, but to the extent
that duties, obligations and responsibilities are not expressly set forth in
this Agreement, Provident shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith or gross negligence on the part of
Provident or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, Provident in connection with its duties under
this Agreement shall not be under any duty or obligation to inquire into and
shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
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<PAGE>
instrument which conforms to the applicable requirements of this Agreement, if
any, and which Provident reasonably believes to be genuine; (b) the validity or
invalidity of the issuance of any securities included or to be included in the
Property, the legality or illegality of the purchase of such securities, or the
propriety or impropriety of the amount paid therefor; (c) the legality or
illegality of the sale (or exchange) of any Property or the propriety or
impropriety of the amount for which such Property is sold (or exchanged); or (d)
delays or errors or loss of data occurring by reason of circumstances beyond
Provident's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply, nor shall Provident be under any
duty or obligation to ascertain whether any Property at any time delivered to or
held by Provident may properly be held by or for the Fund.
24. Collections. All collections of monies or other property
in respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by Provident) shall be at the sole risk of the
Fund. In any case in which Provident does not receive any payment due the Fund
within a reasonable time after Provident has made proper demands for the same,
it shall so notify the Fund in writing, including copies of all demand letters,
any written responses thereto, and memoranda of all oral responses thereto and
to telephonic demands, and await instructions from the Fund. Provident shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. Provident shall also notify the Fund as soon as
reasonably practicable whenever income due on securities is not collected in due
course.
25. Duration and Termination. This Agreement shall continue
until termination by the Fund or by Provident in either case on sixty (60) days'
written notice. Upon any termination of this Agreement, pending appointment of a
successor to Provident or vote of the Shareholders of the Fund to dissolve or to
function without a custodian of its cash, securities or other property,
Provident shall not deliver cash, securities or other property of the Fund to
the Fund, but may deliver them to a bank or trust company of its own selection,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report of not less than twenty million dollars ($20,000,000) as a
custodian for the Fund to be held under terms similar to those of this
Agreement, provided, however, that Provident shall not be required to make any
such delivery or payment until full payment shall have been made by the Fund of
all liabilities constituting a charge on or against the properties of the Fund
then held by Provident or on or against Provident and until full payment shall
have been made to Provident of all of its fees, compensation, costs and
expenses.
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<PAGE>
26. Notices. All notices and other communications, including
Written Instructions (collectively referred to as "Notice" or "Notices" in this
paragraph), hereunder shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notices shall be addressed (a) if to
Provident at Provident's address, 17th & Chestnut Streets, Philadelphia, PA
19103 marked for the attention of the Custodian Services Department (or its
successor); (b) if to the Fund, at the address of the Fund; or (c) if to neither
of the foregoing, at such other address as shall have been notified to the
sender of any such Notice or other communication. If the location of the sender
of a Notice and the address of the addressee thereof are, at the time of
sending, more than 100 miles apart, the Notice may be sent by first-class mail,
in which case it shall be deemed to have been given five days after it is sent,
or if sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately, and, if the location of the
sender of a Notice and the address of the addressee thereof are, at the time of
sending, not more than 100 miles apart, the Notice may be sent by first-class
mail, in which case it shall be deemed to have been given three days after it is
sent, or if sent by messenger, it shall be deemed to have been given on the day
it is delivered, or if sent by confirming telegram, cable, telex or facsimile
sending device, it shall be deemed to have been given immediately. All postage,
cable, telegram, telex and facsimile sending device charges arising from the
sending of a Notice hereunder shall be paid by the sender.
27. Further Actions. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
28. Amendments. This Agreement or any part hereof may be
changed or waived only by an instrument in writing signed by the party against
which enforcement of such change or waiver is sought.
29. Delegation. On thirty (30) days' prior written notice to
the Fund, Provident may assign its rights and delegate its duties hereunder to
any wholly-owned direct or indirect subsidiary of PNC Financial Corp, provided
that Provident and such delegate shall promptly provide such information as the
Fund may request, and respond to such questions as the Fund may ask, relative to
the delegation, including (without limitation) the capabilities of the delegate.
30. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties hereto, and supersedes all
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prior agreements and understandings relating to the subject matter hereof,
provided that the parties hereto may embody in one or more separate documents
their agreement, if any, with respect to delegated and/or Oral Instructions. The
captions in this Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
[SEAL] TOTAL RETURN U.S. TREASURY
FUND, INC.
Attest: /s/ Brian C. Nelson By: /s/ Edward J. Veilleux
------------------- -----------------------
[SEAL] PROVIDENT NATIONAL BANK
Attest: /s/ Seener Alridge By: /s/ APlambeck
------------------- ------------------------
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EX-99.B(9)(a)
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of the first day of January, 1994
by and between TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland corporation
(the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation
("ICC").
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 desires to retain ICC to provide certain
services on behalf of the Fund, as set forth in the Appendices to this
Agreement, and ICC is willing so to serve.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints ICC to perform such
services and to serve such functions on behalf of the Fund as set forth in the
Appendices to this Agreement, on the terms set forth in this Agreement and the
Appendices hereto. ICC accepts such appointment and agrees to furnish such
services and serve such functions. The Fund may have currently outstanding one
or more series or classes of its shares of common stock, par value $.001 per
share ("Shares") and may from time to time hereafter issue separate series or
classes of its Shares or classify and reclassify Shares of any series or class,
and the appointment effected hereby shall constitute appointment for the
provision of services with respect to all existing series and classes and any
additional series and classes unless the parties shall otherwise agree in
writing.
2. Delivery of Documents. The Fund has furnished ICC with
copies properly certified or authenticated of the following documents and will
furnish ICC from time to time with copies, properly certified or authenticated,
of all amendments of or supplements thereto, if any:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of ICC to act in such capacities on behalf of the
Fund as set forth in the Appendices to this Agreement, and the entering into of
this Agreement by the Fund;
(b) The Fund's Articles of Incorporation and all
amendments thereto (the "Charter") and the Fund's By-Laws and all amendments
thereto (the "By-Laws");
(c) The Fund's most recent Registration Statement on
Form N-1A under the Securities Act of 1933, as amended (the "1933 Act") and
under the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") relating to the Shares; and
(d) Copies of the Fund's most recent prospectus or
prospectuses, including amendments and supplements thereto (collectively, the
"Prospectus").
<PAGE>
3. Services to be Provided; Fees. During the term of this
Agreement, ICC shall perform the services and act in such capacities on behalf
of the Fund as set forth herein and in the Appendices to this Agreement. For the
services performed by ICC for the Fund, the Fund will compensate ICC in such
amounts as may be agreed to from time to time by the parties in writing.
4. Records. The books and records pertaining to the Fund which
are in the possession of ICC shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during ICC's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by ICC to the Fund
or the Fund's authorized representative at the Fund's expense.
5. Cooperation With Accountants. In addition to any obligations
set forth in an Appendix hereto, ICC shall cooperate with the Fund's independent
accountants and shall take all reasonable actions in the performance of its
obligations under this Agreement to ensure that the necessary information is
made available to such accountants for the expression of such accountants'
opinion of the Fund's financial statements or otherwise, as such may be required
by the Fund from time to time.
6. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the Fund complies with all
applicable requirements of the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction. ICC undertakes to comply with all
applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act, the
Commodities Exchange Act (if applicable), and all laws, rules and regulations of
governmental authorities having jurisdiction with respect to the performance by
ICC of its duties under this Agreement, including the Appendices hereto.
7. Expenses.
(a) ICC shall bear all expenses of its employees and
overhead incurred in connection with its duties under this Agreement and shall
pay all salaries and fees of the Fund's directors and officers who are employees
of ICC.
(b) 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, administrator and distributor; 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 members who are
"interested persons" of the Fund (as defined in 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 Shares; charges and expenses of legal counsel, including
counsel to the directors of the Fund who are not "interested persons" of the
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<PAGE>
Fund (as defined in 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; 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. Liability; Indemnification. Neither ICC nor any of its
officers, directors or employees shall be liable for any error of judgment or
for any loss suffered by the Fund in connection with the matters to which this
Agreement, including the Appendices hereto, relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its or their part in
the performance of, or from reckless disregard by it or them of, its or their
obligations and duties under this Agreement. The Fund agrees to indemnify and
hold harmless ICC and its nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
arising under the 1933 Act, the 1934 Act, the 1940 Act, and any state and
foreign securities and blue sky laws, all as currently in existence or as
amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which ICC takes or does or omits to take or do at the request or
on the direction of or in reliance on the advice of the Fund; provided, that
neither ICC nor any of its nominees shall be indemnified against any liability
to the Fund or to its shareholders (or any expenses incident to such liability)
arising out of ICC's own willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under this Agreement.
Notwithstanding anything else in this Agreement or any Appendix hereto to the
contrary, ICC shall have no liability to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer as a
consequence of ICC's performance of the services provided in this Agreement or
any Appendix hereto.
9. Responsibility of ICC. ICC shall be under no duty to take
any action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by ICC in writing. In the performance of its
duties hereunder, ICC 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 services provided for under this Agreement, but ICC shall not be
liable for any act or omission which does not constitute willful misfeasance,
bad faith or gross negligence on the part of ICC or reckless disregard by ICC of
its duties under this Agreement. Notwithstanding anything in this Agreement to
the contrary, ICC shall have no liability to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of ICC's performance of the services provided hereunder.
10. Non-Exclusivity. The services of ICC to the Fund are not to
be deemed exclusive and ICC shall be free to render accounting 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
ICC 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 ICC to
the extent permitted by law; and that directors, officers and employees of ICC
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.
-3-
<PAGE>
11. Notice. Any notice or other communication required
to be given pursuant to this Agreement shall be deemed duly given if
delivered or mailed by registered mail, postage prepaid, to the Fund at
135 E. Baltimore Street, Baltimore, MD 21202, Attention: B. Nelson, or to ICC
at 135 E. Baltimore Street, Baltimore, Maryland 21202, Attention:
Mr. Edward J. Veilleux.
12. Miscellaneous.
(a) This Agreement shall become effective as of the
date first above written and shall remain in force until terminated. This
Agreement, or any Appendix hereto, may be terminated at any time without the
payment of any penalty, by either party hereto on sixty (60) days' written
notice to the other party.
(b) This Agreement shall be construed in accordance
with the laws of the State of Maryland.
(c) If any provisions of this Agreement shall be held
or made invalid in whole or in part, the other provisions of this Agreement
shall remain in force. Invalid provisions shall, in accordance with the intent
and purpose of this Agreement, be replaced by mutual consent of the parties with
such valid provisions which in their economic effect come as close as legally
possible to such invalid provisions.
(d) Except as otherwise specified in the Appendices
hereto, ICC shall be entitled to rely on any notice or communication believed by
it to be genuine and correct and to have been sent to it by or on behalf of the
Fund.
(e) ICC agrees on behalf of itself and its employees
to treat confidentially all records and other information relative to the Fund
and its prior, present, or potential shareholders, except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where ICC may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.
(f) Any part of this Agreement or any Appendix
attached hereto may be changed or waived only by an instrument in writing signed
by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the day and year first above written.
TOTAL RETURN U.S. TREASURY FUND, INC.
By: /s/ Brian C. Nelson
-----------------------------------
Title: Vice President and Secretary
INVESTMENT COMPANY CAPITAL CORP.
By: /s/ Edward J. Veilleux
-----------------------------------
Title: President
-4-
<PAGE>
Appendix I
TRANSFER AGENCY SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
TOTAL RETURN U.S. TREASURY FUND, INC. and INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of February 28, 1994 (the "Master Services
Agreement") between Total Return U.S. Treasury Fund, Inc. and Investment Company
Capital Corp. Defined terms not otherwise defined herein shall have the meaning
set forth in the Master Services Agreement.
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is fully authorized by
the Fund's Board of Directors, to give Oral and Written Instructions on behalf
of the Fund. Such persons are listed in the Certificate attached hereto.
(b) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by ICC from an Authorized Person or from a
person reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and received by
ICC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall
act only upon Oral and Written Instructions. ICC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person (or from
a person reasonably believed by ICC to be an Authorized Person) pursuant to this
Agreement. ICC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of the Fund's
Articles of Incorporation, the Master Services Agreement, or any Appendix
attached thereto, or of any vote, resolution or proceeding of the Fund's Board
of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions
confirming Oral Instructions so that ICC receives the Written Instructions by
the close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by ICC shall
in no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. The Fund further agrees that ICC shall
incur no liability to the Fund in acting upon Oral or Written Instructions
provided such instructions reasonably appear to have been received from an
Authorized Person.
If ICC is in doubt as to any action it should or should not
take, ICC may request directions or advice, including Oral or Written
Instructions, from the Fund. ICC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which ICC believes,
in good faith, to be consistent with those directions, advice or Oral of Written
Instructions. Notwithstanding the foregoing, ICC shall have no obligation (i) to
seek such directions, advice or Oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral or Written Instructions unless,
under the terms of other provisions of this Appendix, the same is a condition of
ICC's properly taking or not taking such action.
<PAGE>
3. Description of Services.
(a) General Services To be Provided. ICC shall provide to the
Fund the following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders, if necessary, to complete or
correct information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in
conjunction with proxy solicitations; solicit
and tabulate proxies; receive and tabulate proxy
cards for meetings of the Fund's shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct shareholder
use, plus customer liaison staff for on-line
inquiry response;
(ix) Mail duplicate confirmation to broker-dealers of
their clients' activity, whether executed through
the broker-dealer or directly with ICC;
(x) Provide periodic shareholder lists and statistics
to the Fund;
(xi) Provide detail for underwriter/broker
confirmations;
(xii) Mail periodic year-end tax and statement
information;
(xiii) Provide timely notification to investment
advisor, accounting agent, and custodian of Fund
activity; and
(xiv) Perform other participating broker-dealer
shareholder services as may be agreed upon from
time to time.
(b) Purchase of Shares. ICC shall issue and credit an account
of an investor, in the manner described in the Prospectus, once it receives: (i)
a purchase order; (ii) proper information to establish a shareholder account;
and (iii) confirmation of receipt by, or crediting of funds for such order to,
the Fund's custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares
only in accordance with the provisions of the Prospectus and each shareholder's
individual directions. Shares shall be redeemed at such time as the shareholder
tenders his or her shares and directs the method of redemption in accordance
with the terms set forth in the Prospectus. If securities are received in proper
form, Shares shall be redeemed before the funds are provided to ICC. When the
Fund provides ICC with funds, redemption proceeds will be wired (if requested)
or a redemption check issued. All redemption checks shall be drawn to the
recordholder unless third party payment authorizations have been signed by the
recordholder and delivered to ICC.
<PAGE>
(d) Dividends and Distributions. Upon receipt of certified
resolutions of the Fund's Board of Directors authorizing the declaration and
payment of dividends and distributions, ICC shall issue the dividends and
distributions in shares, or, upon shareholder election, pay such dividends and
distributions in cash. Such issuance or payment shall be made after deduction
and payment of the required amount of funds to be withheld in accordance with
any applicable tax laws or other laws, rules or regulations. The Fund's
shareholders shall receive tax forms and other information, or permissible
substitute notice, relating to dividends and distributions, paid by the Fund as
are required to be filed and mailed by applicable law, rule or regulation. ICC
shall maintain and file with the IRS and other appropriate taxing authorities
reports relating to all dividends and distributions paid by the Fund to its
shareholders as required by tax or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the
Prospectus, ICC shall arrange for the following services, in accordance with the
applicable terms set forth in the Prospectus: (i) the issuance of Shares
obtained through any pre-authorized check plan and direct purchases through
broker wire orders, checks and applications; (ii) exchanges of shares of any
fund for Shares of the Fund with which the Fund has exchange privileges; (iii)
automatic redemption from an account where that shareholder participates in an
automatic redemption plan; and (iv) redemption of Shares from an account with a
check writing privilege.
(f) Communications to Shareholders. Upon timely Written
Instructions, ICC shall mail all communications by the Fund to its shareholders,
including, reports to shareholders, confirmations of purchases and sales of
Shares, monthly or quarterly statements, dividend and distribution notices, and
proxy material.
(g) Records. ICC shall maintain records of the accounts for
each shareholder showing the following information: (i) name, address and U.S.
Tax Identification or Social Security number; (ii) number and class of Shares
held and number and class of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations; (iii) historical
information regarding the account of each shareholder, including dividends and
distributions paid and the date and price for all transactions on a
shareholder's account; (iv) any stop or restraining order placed against a
shareholder's account; (v) any correspondence relating to the current
maintenance of a shareholder's account; (vi) information with respect to
withholdings; and (vii) any information required in order for ICC to perform any
calculations contemplated or required by this Appendix or the Master Services
Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued upon: (i) the
shareholder's pledge of a lost instrument bond or such other appropriate
indemnity bond issued by a surety company approved by ICC; and (ii) completion
of a release and indemnification agreement signed by the shareholder to protect
ICC.
(i) Shareholder Inspection of Stock Records. Upon requests
from Fund shareholders to inspect stock records, ICC will notify the Fund and
the Fund shall deliver Oral or Written Instructions granting or denying each
such request. Unless ICC has acted contrary to the Fund's Instructions, the Fund
agrees to release ICC from any liability for refusal or permission for a
particular shareholder to inspect the Fund's shareholder records.
<PAGE>
(j) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, ICC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by the
number of shares surrendered by the Fund.
(k) Telephone Transactions. In accordance with the terms of
the Prospectus, ICC shall act upon shareholder requests made by telephone for
redemption or exchange of ISI shares; provided that (i) the shareholder has
authorized telephone transactions on the Fund's Account Application or otherwise
in writing, (ii) if the request is a redemption, the amount to be redeemed does
not exceed $10,000 and (iii) ICC has complied with the identification and other
security procedures required by the Fund in connection with telephone
transactions.
4. Fees. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third
party all or any part of its obligations under this Appendix; provided that any
such subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
<PAGE>
Appendix II
ACCOUNTING SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
TOTAL RETURN U.S. TREASURY FUND, INC. and INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of
the Master Services Agreement dated as of January 1, 1994 (the "Master Services
Agreement") between TOTAL RETURN U.S. TREASURY FUND, INC. and INVESTMENT
COMPANY CAPITAL CORP. Defined terms not otherwise defined herein shall have the
meaning set forth in the Master Services Agreement.
1. Accounting Services to be Provided. ICC will perform the following
accounting functions if required:
(a) Journalize investment, capital share and income and
expense;
(b) Verify investment buy/sell trade tickets when received
from the Fund's investment advisor and transmit trades to the Fund's custodian
for proper settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain tax lots for each security;
(e) Reconcile cash and investment balances with the custodian,
and provide the Fund's investment advisor with the beginning cash balance
available for investment purposes;
(f) Update the cash availability throughout the day as
required by the Fund's investment advisor;
(g) Post to and prepare the Fund's Statement of Net Assets and
Liabilities and the Statement of Operations;
(h) Calculate various contractual expenses (e.g., advisor and
custody fees);
(i) Monitor the expense accruals and notify Fund management of
any proposed adjustments;
(j) Control all disbursements from the Fund and authorize such
disbursements upon written instructions from the President or any other officer
of the Fund or the investment advisor;
(k) Calculate capital gains and losses;
(l) Determine the Fund's net income;
(m) Obtain security market quotes from independent pricing
services approved by the investment advisor, or if such quotes are unavailable,
then obtain such prices from the investment advisor, and in either case
calculate the market value of portfolio investments;
(n) Transmit or mail a copy of the daily portfolio valuation
to the Fund's investment advisor;
(o) Compute the Fund's net asset value;
<PAGE>
(p) As appropriate, compute the yields, total return, expense
ratios, portfolio turnover rate;
(q) Prepare a monthly financial statement, which will include
the following items:
* Schedule of Investments;
* Statement of Net Assets and Liabilities;
* Statement of Operations;
* Statement of Changes in Net Assets;
* Cash Statement;
* Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
* Federal and State Tax Returns;
* Excise Tax Returns;
* Annual, Semi-Annual and Quarterly Shareholder Reports;
* Rules 24 (e)-2 and 24 (f)-2 Notices;
* Annual and Semi-Annual Reports on Form N-SAR;
* Monthly and Quarterly Statistical Data Information
Reports Sent to Performance Tracking Companies;
(s) Assist in the Blue Sky and Federal registration and
compliance process;
(t) Assist in the review of registration statements; and
(u) Assist in monitoring compliance with Sub-Chapter M of the
Internal Revenue Code.
2. Records. ICC shall keep the following records: (a) all books and records
with respect to the Fund's books of account; and (b) records of the Fund's
securities transactions.
3. Liaison With Accountants. In addition to ICC's obligations relating to the
Fund's independent accountants set forth in the Master Services Agreement,
ICC shall act as liaison with the Fund's independent accountants and shall
provide account analyses, fiscal year summaries, and other audit related
schedules.
4. Compensation. For services performed by ICC pursuant to this Appendix, the
Fund will pay to ICC compensation for such services as the parties may
agree to from time to time in writing.
<PAGE>
Appendix III
ADMINISTRATIVE SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
TOTAL RETURN U.S. TREASURY FUND, INC. and INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of the Master Services
Agreement dated as of January 1, 1994 (the "Master Services Agreement") between
TOTAL RETURN U.S. TREASURY FUND, INC. and INVESTMENT COMPANY CAPITAL CORP.
Defined terms not otherwise defined herein shall have the meaning set forth in
the Master Services Agreement.
1. Services to be Provided. ICC will perform the following services on an
ongoing basis.
(a) supervise and manage all aspects of the Fund's operations, other
than portfolio management and distribution;
(b) provide the Fund with such executive, administrative, clerical and
bookkeeping services as are deemed advisable by the Fund's Board of Directors;
(c) provide the Fund with, or obtain, adequate office space and all
necessary equipment and services, including telephone service, heat, utilities,
stationery supplies and similar items for any offices as are deemed advisable by
the Fund's Board of Directors;
(d) arrange, but not pay for, the periodic updating of Prospectuses and
supplements thereto, proxy material, tax returns, reports to the Fund's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities;
(e) supervise the operations of the Fund's transfer and
dividend-disbursing agent; and
(f) provide the Fund with such administrative and clerical services for
the maintenance of certain shareholder records as are deemed advisable by the
Fund's Board of Directors.
2. Fees. For the service performed by ICC for the Fund pursuant to this
Appendix, the Fund will pay to ICC compensation for such services as the
parties may agree to from time to time in writing.
<PAGE>
EX-99.B(9)(b)
LICENSE AGREEMENT
THIS LICENSE AGREEMENT made as of the 15th day of June, 1988,
by and between ALEX. BROWN INCORPORATED, a Maryland corporation ("Licensor"),
and TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland Corporation ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor has a proprietary interest in the name "Flag
Investors" and in the logo used on the Licensee's prospectus (the "Flag Logo"),
which interests are recognized by Licensee; and
WHEREAS, Licensor wishes to permit use of the name "Flag
Investors" and the Flag Logo by Licensee for he Fund's Flag Investors Total
Return U.S. Treasury Fund Shares of its capital stock (the "Shares"), subject to
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing and of other
good and valuable consideration, it is hereby understood and agreed as follows:
1. Licensee acknowledges that it adopted its corporate name
and logo through the permission of Licensor which consents to the non-exclusive
use by the Licensee of the name "Flag Investors Total Return U.S. Treasury Fund
Shares: and the Flag Logo only so long as Alex. Brown & Sons Incorporated serves
as the Licensee's distributor for the Shares.
2. Licensee recognizes that its right to use the name "Flag
Investors" and the Flag Logo is non-exclusive and that Licensor may from time to
time permit other entities, including entities engaged in the same or similar
business as the Licensee, to use the name "Flag Investors" and the Flag Logo.
3. Licensee covenants and agrees to protect, exonerate,
defend, indemnify and hold harmless Licensor, its partners, agents, officers and
employees from and against any and all costs, losses, claims, damages or
liabilities, joint or several, including all legal expenses, which may arise or
have arisen out of Licensee's use of misuse of the name "Flag Investors" or the
Flag Logo or out of any breach of or failure to comply with this Agreement.
<PAGE>
4. Licensee shall not distribute or circulate any prospectus,
proxy statement, sales literature, promotional material or other printed matter
required to be filed with the Securities and Exchange Commission under Section
24(b) of the Investment Company Act of 1940 which contains any reference to or
uses the name "Flag Investors" or the Flag Logo without the prior approval of
Alex. Brown Incorporated and shall submit all such materials in draft form,
allowing sufficient time for review by Licensor and its counsel prior to any
deadline for printing.
5. If Alex. Brown & Sons Incorporated or any successor to its
business shall cease to serve as Licensee's distributor, Licensee:
(a) As promptly as practicable, will take all necessary
trustee or shareholder action to cause its Articles of
Incorporation to be amended to accomplish a change of the
trust's name and change of logo;
(b) Within 90 days after the termination of this agreement or
such similar contractual arrangement, shall cease to use
in any other manner, including but not limited to use in
any prospectus, sales literature or promotional material,
the name "Flag Investors" or any name, mark of logotype
derived from it or similar to it or indicating that the
Fund is advised, administered or distributed by or
otherwise associated with Licensor or Alex. Brown & Sons
Incorporated.
6. This Agreement shall be binding upon the parties hereto and
their respective successors and assigns, including any successors to the
business now or thereafter conducted by them.
IN WITNESS WHEREOF, Licensor has caused this Agreement to be
executed by a partner, and the Licensee has caused this Agreement to be executed
by its President and its seal affixed hereto and attested by its Secretary as of
the day and year first herein written.
WITNESS ALEX. BROWN INCORPORATED
/s/ Brian C. Nelson /s/ Benjamin N. Griswald
- ----------------------- -----------------------------
ATTEST: TOTAL RETURN U.S. TREASURY
FUND, INC.
/s/ Brian C. Nelson /s/ Edward J. Veilleux
- ----------------------- -----------------------------
Vice President
<PAGE>
EX-99.B(10)
[ LETTERHEAD OF BALLARD, SPAHR, ANDREWS & INGERSOLL ]
August 3, 1988
Total Return U.S. Treasury Fund, Inc.
135 East Baltimore Street
Baltimore, MD 21202
Gentlemen:
We have acted as counsel to you in connection with the
organization of Total Return U.S. Treasury Fund, Inc. (the "Fund") and with the
proposed offering of shares of common stock of the Fund, par value $.001 per
share (the "Shares").
Having prepared the Articles of Incorporation and By-Laws of
the Fund, and having assisted in the preparation of the Registration Statement
on Form N-1A relating to the offering of the Shares and other related documents,
we are of the opinion that:
1. The Fund is a Maryland corporation, validly organized and
in good standing under the laws of that state authorized to issue up to
50,000,000 shares of its common stock, par value $.001 per share.
2. Upon the effectiveness of your Registration Statement on
Form N-1A under the Securities Act of 1933, as amended and the Investment
Company Act of 1940, as amended, covering an indefinite number of Shares
(Registration No. 33-12179) you will, in jurisdictions where the Shares are
qualified for sale, be authorized to make a public offering of Shares pursuant
to the terms of the offering, as the offering is described in the effective
prospectus relating to the Shares, and the Shares, when so issued in the
offering, will be validly issued, fully paid and non-assessable.
We have not reviewed the securities laws of any state or
territory in connection with the proposed offering of Shares, and we express no
opinion as to the legality of any offer of sale of Shares under any such state
or territorial securities laws.
<PAGE>
Total Return U.S. Treasury Fund, Inc.
August 3, 1988
Page 2
This opinion is intended only for your use in connection with
the offering of Shares, and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit
10 to the Registration Statement on Form N-1A to be filed with the Securities
and Exchange Commission.
Very truly yours,
/s/ Ballard, Spahr, Andrews & Ingersoll
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Total Return U.S. Treasury Fund, Inc.
We consent to the use in Post-Effective Amendment No. 13 to the 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 references to us under the captions "Financial Highlights"
and "General Information-Reports" appearing in the Prospectuses, which are also
a part of such Registration Statement, and under the caption "Independent
Auditors" appearing in the Statement of Additional Information.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 23, 1996
<PAGE>
EX-99.B(13)
TOTAL RETURN U.S. TREASURY FUND, INC.
SUBSCRIPTION AGREEMENT
For and in consideration of the mutual agreements herein
contained, C.J. Lawrence, Morgan Grenfell Inc. ("C.J. Lawrence"), hereby agrees
to purchase from Total Return U.S. Treasury Fund, Inc., a Maryland corporation,
(the "Fund") and the Fund agrees to sell 10,000 shares of the Fund's C.J.
Lawrence Total Return U.S. Treasury Fund Shares, without par value at a price of
$10.00 per share, (the "Shares") upon the terms and conditions set forth herein.
C.J. Lawrence agrees to purchase such Shares and to pay the
full consideration therefor to the Fund upon demand.
C.J. Lawrence hereby confirms to the Fund its representations
that it is purchasing such Shares for investment purposes, with no present
intention of redeeming or reselling any portion thereof, and its agreement that
in the event it should dispose of any of such Shares, such transaction will be
affected by redeeming such Shares through the Fund. In the event that C.J.
Lawrence redeems any of the Shares within five years of the date on which the
Fund commences operations it will reimburse the fund for any unamortized costs
of the Fund's organization in the same proportion as the number of Shares to be
redeemed bears to the number of Shares purchased hereby.
C.J. LAWRENCE, MORGAN GRENFELL INC.
By: /s/ Edward J. Hyman, Jr.
-------------------------------
Title: Vice Chairman
Dated: As of Aug. 2 , 1988
---------------
Subscription Accepted:
TOTAL RETURN U.S. TREASURY FUND, INC.
By: /s/ R. Alan Medaugh
----------------------------------
Title: President
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
SUBSCRIPTION AGREEMENT
For and in consideration of the mutual agreements herein
contained, Alex. Brown Incorporated ("Alex. Brown") hereby agrees to purchase
from Total Return U. S. Treasury Fund, Inc., a Maryland corporation, (the
"Fund") and the Fund agrees to sell 5,000 shares of the Fund's Flag Investors
Total Return U.S. Treasury Fund Shares, par value $.001 per share, at a price of
$10.00 per share, (the "Shares") upon the terms and conditions set forth herein
and as part of a public offering pursuant to the terms and conditions of the
Fund's Registration Statement.
Alex. Brown agrees to purchase such Shares and to pay the full
consideration therefor to the Fund upon demand.
Alex. Brown hereby confirms to the Fund its representations
that it is purchasing such Shares for investment purposes, with no present
intention of redeeming or reselling any portion thereof, and its agreement that
in the event it should dispose of any of such Shares, such transaction will be
effected by redeeming such Shares through the Fund. In the event that Alex.
Brown redeems any of the Shares within five years of the date on which the Fund
commences operations it will reimburse the Fund for any unamortized costs of the
Fund's organization in the same proportion as the number of Shares to be
redeemed bears to the number of Shares purchased hereby.
ALEX. BROWN INCORPORATED
BY: /s/ Beverly Wright
-------------------------
TITLE: CFO
----------------------
Dated: As of August 2 , 1988
---------------------
Subscription Accepted:
TOTAL RETURN U.S. TREASURY FUND, INC.
BY: /s/ Brian C. Nelson
-----------------------------------
TITLE: /s/ Vice President & Secretary
---------------------------------
<PAGE>
EX-99.B(15)(a)
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.
<PAGE>
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 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>
EX-99.B(15)(b)
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
<PAGE>
preparing, printing and mailing 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; 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>
EX-99.B(16)
Schedule of Computation of Performance Quotations
(a) Average Annual Total Return Pursuant to SEC Rules
(i) Three Month ERV
n
Using the formula: P (1 + T) = Three Month ERV
Where: P = $1,000 = initial payment
T = average annual total return
n = 3 = 0.250 = number of years
--
12
Three Month ERV = $984.63 = ending redeemable
value at the end of the three month period of a
hypothetical $1,000 payment made at the beginning
of the three month period
Solve for: T
0.250
1,000 (1 + T) = 984.63
0.250
(1 + T) = 984.63 = .98463
-------
1,000
0.250
1 + T = .98463 = 9.399
T = .9399 - 1 = -.0601
T = -6.01% = average annual total return
(b) Aggregate Total Return Pursuant to SEC Rules
(i) Three Month ERV
Using the formula: P (1 + T) = Three Month ERV
Where: P = $1,000 = initial payment
T = aggregate total return
Three Month ERV = $984.63 = ending redeemable
value at the end of the three month period of a
hypothetical $1,000 payment made at the beginning
of the three month period
<PAGE>
Solve for: T
1,000 (1 + T) = 984.63
1 + T = 984.63 = .98463
-------
1,000
T = .98463 - 1 = -.01537
T = -1.54% = aggregate total return
(c) Total Return Pursuant to First Non-Standardized Computation
(i) Three Month ERV
Using the formula: P (1 + T) = Three Month ERV
Where: P = $10,000 = initial investment
T = aggregate total return
Three Month ERV = $10,310 = ending redeemable
value at the end of the three month period of a
hypothetical $10,000 investment made at the
beginning of the three month period
Solve for: T
10,000 (1 + T) = 10,310
1 + T = 10,310 = 1.031
-------
10,000
T = 1.031 - 1 = .031
T = 3.10% = aggregate total return
n
Using the formula: P (1 + T) = Three Month ERV
Where: P = $10,000 = initial investment
T = average annual total return
n = 3 = 0.250 = number of years
--
12
Three Month ERV = $10,310 = ending redeemable
value
<PAGE>
Solve for: T
0.250
10,000 (1 + T) = 10,310
0.250
(1 + T) = 10,310 = 1.031
------
10,000
0.250
1 + T = 1.031 = 1.1299
T = 1.1299 - 1 = .1299
T = 12.99% = average annual total return
(d) Total Return Pursuant to Second Non-Standardized
Computation:
(i) Three Month ERV
Using the formula:
Three Month ERV = Ending NAV + Dividends + Capital
Gains
Where: Three Month ERV = ending redeemable value at the
end of the three month period of a hypothetical
$10,000 investment made at the beginning of the
three month period
Ending NAV = $10,310.23 = net asset value at the
end of the three month period
Dividends = $.07 = dividends distributed during
the three month period
Capital Gains = $0 = capital gains distributed
during the three month period
Solve for: Three Month ERV
Three Month ERV = $10,310.23 + $.07 + $0 =
$10,310.30
Three Month ERV = $10,310.30 = ending redeemable
value
<PAGE>
Using the formula: P (1 + T) = Three Month ERV
Where: P = $10,000 = initial investment
T = aggregate total return
Three Month ERV = $10,310.30 = ending redeemable
value at the end of the three month period of a
hypothetical $10,000 investment made at the
beginning of the three month period
Solve for: T
10,000 (1 + T) = 10,310.30
1 + T = 10,310.30 = 1.03103
---------
10,000
T = 1.03103 - 1 = .03103
T = 3.10% = aggregate total return
n
Using the formula: P (1 + T) = Three Month ERV
Where: P = $10,000 = initial investment
T = average annual total return
n = 3 = 0.250 = number of years
--
12
Three Month ERV = $10,310.30 = ending redeemable
value
Solve for: T
0.250
10,000 (1 + T) = 10,310.30
0.257
(1 + T) = 10,310.30 = 1.03103
---------
10,000
0.250
1 + T = 1.03103 = 1.1300
T = 1.130 - 1 = .1300
T = 13.00% = average annual total return
<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 have not yet been offered.
(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 Funds 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.
RESOLVED, that the Distribution Agreement between the Fund Inc. and
Alex. Brown & Sons Incorporated for the Class B Shares be, and the same hereby
is, approved;
FURTHER RESOLVED, that at such time as the Fund offers the Class B
Shares, the Plan of Distribution presented at this meeting shall govern the
payment of 12b-1 fees by that class;
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.
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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
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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 HEREWITH
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
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 4th day of November, 1992, 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, 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 Alex. Brown as the exclusive
distributor of 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:
<PAGE>
(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 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;
(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 Securities and Exchange Commission (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 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 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 which solicitations are then being made. In carrying
out its obligations hereunder, Alex. Brown 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.
<PAGE>
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 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.
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;
(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 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;
(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
<PAGE>
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;
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 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 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 .60% 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 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. 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
<PAGE>
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.
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 officers or directors of
Alex. Brown may serve as officers or directors of the Fund, and that officers or
directors of the Fund may serve as officers or directors of Alex. Brown to the
extent permitted by law; and that officers, or directors 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 (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 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 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 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 Alex. Brown
are as follows:
If to Alex. Brown:
Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, MD 21202
<PAGE>
If to the Fund:
Total Return U.S. Treasury Fund, Inc.
717 Fifth Avenue
New York, New York 10022
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/ Sue Powell By /s/ Brian C. Nelson
------------------------- ---------------------------------
Vice President and Secretary
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:/s/ MTPage By /s/ Richard T. Hale
------------------------- ---------------------------------
<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
<PAGE>
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.
<PAGE>
EX-99.B(24)
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
-----------------------
James J. Cunnane
Date: February 24, 1995
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
----------------------
Joseph A. Finelli
Date: February 23, 1996
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
----------------------
Richard T. Hale
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Edward S. Hyman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Edward S. Hyman
-----------------------
Edward S. Hyman
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
------------------------
John F. Kroeger
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
-------------------------
Eugene J. McDonald
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, R. Alan Medaugh, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ R. Alan Medaugh
-----------------------
R. Alan Medaugh
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, W. James Price, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ W. James Price
-----------------------
W. James Price
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Brian
C. Nelson, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Total Return U.S. Treasury Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Harry Woolf
-----------------------
Harry Woolf
Date: February 24, 1994
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
----------------------
Louis E. Levy
Date: February 24, 1995
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