<PAGE>
As Filed With the Securities and Exchange Commission on December 30, 1998
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. 17 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 21 [x]
TOTAL RETURN U.S. TREASURY FUND, INC.
-------------------------------------
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, Maryland 21202
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
--------------
Edward J. Veilleux
One South Street
Baltimore, Maryland 21202
-------------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate
box)
___ immediately upon filing pursuant to paragraph (b)
___ on March 1, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
_X_ on March 1, 1999 pursuant to paragraph (a)(2) of Rule 485.
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS
TOTAL RETURN U.S. TREASURY FUND SHARES
(Class A and Class B)
(Classes of Total Return U.S. Treasury Fund, Inc.)
Prospectus & Application -- March 1, 1999
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks to achieve 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 offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") and Flag Investors Class B Shares ("Class B
Shares") of the Fund. These separate classes give you a choice as to sales
charge and fund expenses. (Refer to the section on sales charges and the
attached Application.)
TABLE OF CONTENTS
Page
----
Investment Summary.........................................................2
Fees and Expenses of the Fund..............................................4
Investment Program.........................................................5
The Fund's Net Asset Value.................................................6
How to Buy Shares..........................................................7
How to Redeem Shares.......................................................9
Telephone Transactions....................................................10
Sales Charges.............................................................10
How to Choose the Class That Is Right for You.............................14
Dividends and Taxes.......................................................15
Investment Advisor .......................................................16
Administrator.............................................................16
Financial Highlights......................................................17
Application..............................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks to achieve a high level of total return, with relative
stability of principal, and, secondarily, high 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. In selecting investments for the Fund, the Fund's
investment advisor will consider both the security's yield and its potential for
capital gains resulting from changes in interest rates.
Risk Profile
The Fund is best suited for investors who are seeking high total
return, but who also desire the safety of an investment in U.S. Treasury
Securities. The value of an investment in the Fund will vary from day-to-day
based on the prices of the U.S. Treasury Securities in the Fund's portfolio. The
prices of the U.S. Treasury Securities will respond to economic and market
factors, especially interest rate changes. In general, a change in interest
rates will cause an inverse change in the value of U.S. Treasury Securities. The
value of the Fund's shares can be expected to increase during periods of falling
interest rates and decrease during periods of rising interest rates. These price
fluctuations will generally be greater at times when the Fund's average maturity
is longer. Because U.S. Treasury Securities are among the safest fixed income
investments, their yields are generally lower than the yields available from
some other fixed income securities. An investment in the Fund is not a bank
deposit and is not insured by the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
2
<PAGE>
Class A Shares*
For years ended December 31,
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25%
21.69%
20%
16.62%
15% 13.48% 13.71%
10.62%
10%
6.15%
5% 4.38%
0.2%
0%
-4.01%
- -5%
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns would
be less than those shown.
During the 10-year period shown in the bar chart, the highest return for a
quarter was ____% (quarter ended _______________) and the lowest return for a
quarter was ____% (quarter ended _______________.
Average Annual Total Return (for periods ended December 31, 1998)
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
Intermediate Lehman Brothers Long-Term
Class A Shares(1) Treasury Index(2) Treasury Index(2) Treasury Index(2)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Past One Year.......... ___% ___% ___% ___%
Past Five Years........ ___% ___% ___% ___%
Past Ten Years......... ___% ___% ___% ___%
Since Inception........ ___%(8/10/88) ___%(3) ___%(3) ___%(3)
Lehman Brothers Lehman Brothers
Intermediate Lehman Brothers Long-Term
Class B Shares(1) Treasury Index(2) Treasury Index(2) Treasury Index(2)
--------------- --------------- --------------- ---------------
Past One Year.......... ___% ___% ___% ___%
Past Five Years........ ___% ___% ___% ___%
Past Ten Years......... ___% ___% ___% ___%
Since Inception........ ___%(6/20/96) ___%(4) ___%(4) ___%(4)
</TABLE>
3
<PAGE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Lehman Brothers Intermediate Treasury Index and the Lehman Brothers
Long-Term Treasury Index reflect the performance of U.S. Treasury
securities in their respective sectors. The Lehman Brothers Treasury Index
is more of a general index in that it reflects the performance of all
public obligations and does not focus on any one particular segment. The
Fund's investment advisor is not aware of any single index that is truly
representative of the Fund since its active maturity management policy
allows the advisor to adjust the weighted average maturity throughout each
U.S. Treasury sector. The indices are passive measurements of U.S. Treasury
Securities performance. They do not factor in the costs of buying, selling
and holding securities -- costs that are reflected in the Fund's results.
(3) For the period from 7/31/88 through 12/31/98.
(4) For the period from 6/30/96 through 12/31/98.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Initial Sales Deferred Sales
Charge Charge
Alternative Alternative
------------ ------------
<S> <C> <C>
Shareholder Transaction Expenses:
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price)....................................... 4.50%* None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, whichever is lower)
For purchases made before May 1, 1999............................... 0.50%* 2.00%**
For purchases made after May 1, 1999................................ 1.00%* 2.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends................. None None
Redemption Fee.............................................................. None None
Exchange Fee................................................................ None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets):
Management Fees............................................................. 0.27% 0.27%
Distribution and/or Service (12b-1) Fees.................................... 0.25% 0.35%
Other Expenses (including a 0.25% shareholder servicing fee for Class
B Shares) .......................................................... 0.33% 0.58%
----- -----
Total Annual Fund Operating Expenses........................................ 0.85% 1.20%
---- ----
</TABLE>
- ----------
* You will pay no sales charge on purchases of $1 million or more of Class A
Shares but, unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your shares. (See "Sales Charges -- Redemption Price.")
** Contingent deferred sales charges decline over time and reach zero after
five years. At that time, Class B Shares convert automatically to Class A
Shares. (See "Sales Charges" and "How to Choose the Class That Is Right for
You.")
4
<PAGE>
Example
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares................................... $533 $709 $900 $1,452
Class B Shares................................... $322 $481 $760 $1,269
You would pay the following expenses if you did not
redeem your shares:
Class A Shares................................... $533 $709 $900 $1,452
Class B Shares................................... $122 $381 $660 $1,269
</TABLE>
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on sales charges.) If you hold your shares
for a long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
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, high 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. The Advisor 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 Advisor will consider a
security's potential for capital gains resulting from possible changes in
interest rates when choosing the Fund's investments.
In selecting investments, the Advisor will be free to take full
advantage of the entire range of maturities offered by U.S. Treasury Securities.
At certain times, the average maturity
5
<PAGE>
of the U.S. Treasury Securities held by the Fund 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). The portfolio's average maturity will depend
on the Advisor's assessment of the relative yields available on securities of
different maturities and its expectations of future changes in interest rates.
In determining which direction interest rates are likely to move, the Advisor
relies on the forecast of its chairman, Edward S. Hyman. Mr. Hyman has been
rated a "first team" economist by the periodical "Institutional Investor" in
each of the last 19 years. He writes a variety of international and domestic
economic research reports that follow trends that may determine the direction of
interest rates. The Fund may also invest in repurchase agreements. With a
repurchase agreement, the Fund agrees to purchase U.S. Treasury Securities from
a bank or broker-dealer subject to an agreement that the bank or broker-dealer
will repurchase the securities at an established time and price.
An investment in the Fund entails risk. U.S. Treasury Securities are
subject to interest rate risk. The value of U.S. Treasury Securities changes as
interest rates fluctuate. This is especially true for securities with longer
maturities and for STRIPS (securities that do not pay interest currently but
which are purchased at a discount and are payable in full at maturity). The
value of the Fund's shares can be expected to increase during periods of falling
interest rates and decrease during periods of rising interest rates. The
magnitude of these fluctuations will generally be greater at times when the
Fund's average maturity is longer. There can be no assurance that the Advisor's
economic analysis will accurately predict interest rate trends or that the
portfolio strategies based on Mr. Hyman's economic analysis will be effective.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem either
class of shares, the amount you receive may be reduced by a sales charge. Read
the section on sales charges for details on how and when these charges may or
may not be imposed.
6
<PAGE>
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. It is calculated by
subtracting the liabilities attributable to a class from its proportionate share
of the Fund's assets and dividing the result by the outstanding shares of the
class. Because the different classes have different distribution or service
fees, their net asset values may differ from time to time.
In valuing the Fund's assets, its investments are priced at their market
value. When price quotes for a particular security are not readily available,
investments are priced at their "fair value" using procedures approved by the
Fund's Board of Directors.
You may buy or redeem shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy either class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment
may be as low as $1,000.
7
<PAGE>
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan,
your initial investment may be as low as $250. If you participate
in the monthly plan, your subsequent investments may be as low as
$100. If you participate in the quarterly plan, your subsequent
investments may be as low as $250. Refer to the section on the
Fund's Automatic Investing Plan for details.
o There is no minimum investment requirement for qualified
retirement plans such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in either class of shares. The amount you decide upon will
be withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in the class of
shares selected at that day's offering price. Either you or the Fund may
discontinue your participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Fund shares at net
asset value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares
through a Systematic Purchase Plan. Contact your securities dealer or servicing
agent for details.
8
<PAGE>
HOW TO REDEEM SHARES
You may redeem either class of the Fund's shares through your
securities dealer or servicing agent. Contact them for details on how to enter
your order and for information as to how you will be paid. If you have an
account with the Fund that is in your name, you may also redeem shares by
contacting the Transfer Agent by mail or (if you are redeeming less than
$50,000) by telephone. The Transfer Agent will mail your redemption check within
seven days after it receives your order in proper form. Refer to the section on
telephone transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number
of shares or dollar amount you wish to redeem. The letter must be
signed by all owners of the shares exactly as their names appear on the
account.
2) If you are redeeming more than $50,000, a guarantee of your signature
by a member of the Federal Deposit Insurance Corporation, a trust
company, broker, dealer, securities exchange or association, clearing
agency, savings association or (if authorized by state law) credit
union.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you by check, whether or not that is the payment option
you have selected.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund redemptions.
Contact your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
9
<PAGE>
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for shares in another
Flag Investors fund by calling the Transfer Agent on any Business Day between
the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically
entitled to telephone transaction privileges but you may specifically request
that no telephone redemptions or exchanges be accepted for your account. You may
make this election when you complete the Application Form or at any time
thereafter by completing and returning documentation supplied by the Transfer
Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that they reasonably believe to be genuine.
Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your shares in
certificate form, you may not exchange or redeem them by telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price which
is calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
10
<PAGE>
<TABLE>
<CAPTION>
Class A Sales Charge as % of
----------------------------
Offering Net Amount Class B
Amount of Purchase Price Invested Sales Charge
- ------------------------------------------------ ----------------- ---------------------- -------------------------
<S> <C> <C>
Less than $ 50,000 ............................ 4.50% 4.71% None
$ 50,000 - $ 99,999 .......................... 3.50% 3.63% None
$ 100,000 - $249,999 .......................... 2.50% 2.56% None
$ 250,000 - $499,999 .......................... 2.00% 2.04% None
$ 500,000 - $999,999 .......................... 1.50% 1.52% None
$1,000,000 and over ............................ None None None
- ------------------------------------------------ ----------------- ---------------------- -------------------------
</TABLE>
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares or when you buy any amount of Class B
Shares, you may pay a sales charge when you redeem your shares. Refer to the
section on sales charges on redemptions for details.
The sales charge you pay on your current purchase of Class A Shares may
be reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares
of this Fund or Class A shares of any other Flag Investors fund or if you
already have investments in Class A shares, you may combine the value of your
purchases with the value of your existing investments to determine whether you
qualify for a reduced sales charge. (For this purpose your existing investments
will be valued at the higher of cost or current value.) You may also combine
your purchases and investments with those of your spouse and your children under
the age of 21 for this purpose. You must be able to provide sufficient
information to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class
A Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying
a sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
11
<PAGE>
2) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
3) If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Advisor, the
Fund's administrator or a broker-dealer authorized to sell shares of the
Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. You may be charged an additional fee
by your securities dealer or servicing agent if you buy shares in this
manner.
Purchases by Exchange
You may exchange shares of any other Flag Investors fund with the same
sales charge structure for an equal dollar amount of Class A Shares, without
payment of the sales charges described above or any other charge. If you
exchange Class A shares of any Flag Investors fund with a lower sales charge
structure into Class A Shares, you will be charged the difference in sales
charges unless (with the exception of Flag Investors Cash Reserve Prime Class A
Shares) you have owned the shares for at least 24 months. You may enter both
your redemption and purchase orders on the same Business Day or, if you have
already redeemed the shares of the other fund, you may enter your purchase order
within 90 days of the redemption. The Fund may modify or terminate these offers
of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
12
<PAGE>
<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
--------------------------------------------------------------------------------------
Class A Sales Charge Class B Sales Charge
(as % of (as % of
-----------------------------------------------------
Years Since Purchase Cost or Value) Cost or Value)
- ------------------------------------------ -----------------------------------------------------
<S> <C> <C>
First .................................... 1.00%* 2.00%
Second ................................... 0.50%* 2.00%
Third .................................... None 1.00%
Fourth ................................... None 1.00%
Fifth .................................... None 1.00%
Thereafter ............................... None None
- ------------------------------------------ --------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if you bought
those shares at net asset value as part of an investment of $1 million or
more. For purchases of $1 million or more of Class A Shares made before May
1, 1999, you will pay a sales charge of 0.50% if you redeem them within the
first year of purchase instead of the 1.00% reflected in the above table.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
3) If you acquired the shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging your shares for shares of another Flag Investors fund
with the same sales charge structure.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
13
<PAGE>
3) If your redemption represents a distribution from a Systematic
Withdrawal Plan. This waiver applies only if the annual withdrawals
under your Plan are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as
a joint tenant with rights of survivorship, as a participant
in community property, or as a minor child under the Uniform
Gifts or Uniform Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities
dealer, servicing agent or the Transfer Agent that such
circumstances exist.
5) If you are redeeming Class A Shares, your original investment was at
least $3,000,000 and your securities dealer has agreed to return to the
Distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares five years after your purchase. This
conversion will be made on the basis of the relative net asset values of the
classes and will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy
your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares and,
except in the case of investments of $1,000,000 or more, no sales charge if you
redeem them.
If you choose Class B Shares, you will pay no sales charge when you buy
your shares but your annual expenses will be higher than Class A Shares. You
will pay a sales charge if you redeem your shares within five years of purchase,
but the amount of the charge declines the longer you hold your shares and, at
the end of five years, your shares convert to Class A Shares thus eliminating
the higher expenses.
In almost all cases, if you plan to purchase $250,000 or more of the
Fund shares, you will pay a lower aggregate sales charges and expenses by
purchasing Class A Shares.
14
<PAGE>
Your securities dealer is paid a commission when you buy your shares
and is paid a servicing fee for as long as you hold your shares. Your securities
dealer or servicing agent may receive different levels of compensation depending
upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allows the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder service. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Class B
Shares pay an annual distribution fee of 0.35% of average daily net assets and
an annual shareholder servicing fee of 0.25% of average daily net assets.
Because these fees are paid out of net assets on an on-going basis, they will,
over time, increase the cost of your investment and may cost you more than
paying other types of sales charges.
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 and to distribute taxable net capital gains on an annual
basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The federal income tax treatment of dividends and distributions is the same
whether or not you reinvest them. Dividends are taxed as ordinary income and
capital gains distributions are taxed at various rates based on how long the
Fund held the assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares of the Fund for shares of another fund is
a sale of Fund shares for tax purposes. More information about taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
15
<PAGE>
INVESTMENT ADVISOR
International Strategy & Investment Inc. ("ISI" or the "Advisor") is
the Fund's investment advisor. As of December 31, 1998, the Advisor had
approximately $ ___ million under management. ISI is also the investment advisor
to Managed Municipal Fund, Inc., North American Government Bond Fund, Inc. and
ISI Strategy Fund, Inc. These funds, together with the Fund, had approximately $
billion of net assets as of December 31, 1998.
As compensation for its services for the fiscal year ended October 31,
1998, ISI received from the Fund a fee equal to 0.27% of the Fund's average
daily net assets.
Portfolio Managers
The Fund's portfolio managers are Edward S. Hyman and R. Alan Medaugh
of ISI.
Mr. Hyman, Chairman of the Fund and ISI, 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 19 years.
Mr. Medaugh, President of the Fund and ISI, 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 to that 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.
ADMINISTRATOR
Investment Company Capital Corp. ("ICC") 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 Shares are distributed and oversight of the relationship
between the Fund and its other service providers. ICC is also the Fund's
transfer and dividend disbursing agent and provides accounting services to the
Fund.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements for the Class A and Class B Shares, are included
in the Statement of Additional Information, which is available upon request.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class A Shares Class B Shares
--------------------------------------------- ---------------------------------
For the Year Ended October 31, For the Year June 20, 1996(1)
Ended through
October 31, October 31,
------------------------------------------------- --------------------------------
1998 1997 1996 1995 1994 1998 1997 1996
------ -------- -------- -------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ........................... $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35 $10.03 $ 9.85 $10.00
-------- -------- -------- -------- -------- ------ ------ ------
Income from Investment Operations:
Net investment income............... 0.51 0.55 0.56 0.57 0.51 0.55 0.56 0.22
Net realized and unrealized gain/
(loss on investments ............ 0.71 0.30 (0.23) 1.04 (1.16) 0.65 0.23 (0.15)
-------- -------- -------- -------- -------- ------ ------ ------
Total from Investment Operations..... 1.22 0.85 0.33 1.61 (0.65) 1.20 0.79 0.07
Less Distributions:
Distributions from net investment
income and short-term gains...... (0.64) (0.55) (0.65) (0.64) (1.15) (0.61) (0.56) (0.22)
Tax return of capital distribution... -- (0.08) -- -- -- (0.05) (0.04) --
Distributions in excess of net
investment income ............... -- (0.01) (0.04) -- -- -- (0.01) --
Net realized long-term gains......... -- -- -- -- (0.28) -- -- --
Total distributions.................. (0.64) (0.64) (0.69) (0.64) (1.48) (0.61) (0.61) (0.22)
Net asset value at end of period .... $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22 $10.62 $10.03 $ 9.85
Total Return(2)......................... 12.50% 9.00% 3.44% 18.09% (6.22)% 12.29% 8.49% 6.37%
Ratios to Average Daily Net Assets:
Expenses............................. 0.85% 0.83% 0.81% 0.80% 0.77% 1.20% 1.18% 1.40%(3)
Net investment income................ 4.98% 5.62% 5.69% 5.94% 4.98% 4.59% 5.24% 5.45%(3)
Supplemental Data:
Net assets at end of period (000)..... $122,785 $122,229 $143,791 $164,206 $175,149 $3,888 $ 838 $ 123
ISI Class Shares..................... $171,336 $171,074 $193,486 $206,615 $200,309
Portfolio turnover rate.............. 179% 92% 199% 194% 68% 179% 92% 199%(3)
</TABLE>
- ---------------------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
17
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors Total Return U.S. Treasury Fund Shares"
and mail with this Application to:
For assistance in completing this Application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Total Return U.S. Treasury Fund Shares
To open an IRA account, please call 1-800-767-3524 for an IRA information kit.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the amount of
purchase.)
|_| Class A Shares (4.5% maximum initial sales charge) in the amount of
$__________________
|_| Class B Shares (2.0% maximum contingent deferred sales charge) in the
amount of $__________________
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 Minor's Date of Birth (Mo./Day/Yr.)
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 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, in an
aggregate amount at least equal to:
|_|$50,000 |_|$100,000 |_|$250,000 |_|$500,000 |_|$1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your
immediate family already own that qualify you for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional shares of the same class of the
Fund at no sales charge.
Income Dividends Capital Gains
|_| Reinvested in additional shares |_| Reinvested in additional shares
|_| Paid in cash |_| Paid in cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
<PAGE>
Automatic Investing Plan (Optional)
|_| I authorize you as Agent for the Automatic Investing Plan to automatically
invest $__________________ in Class A Shares or $__________________ in Class B
Shares for me, on a monthly or quarterly basis, on or about the 20th of each
month or if quarterly, the 20th of January, April, July and October, and to draw
a bank draft in payment of the investment against my checking account. (Bank
drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class
Subsequent Investments (check one):
|_| Monthly ($100 minimum per class) |_| Quarterly ($250 minimum per
Please attach a voided check.
_______________________________________________________________
Bank Name
_______________________________________________________________
Existing Flag Investors Fund Account No., if any
_______________________________________________________________
Depositor's Signature Date
_______________________________________________________________
Depositor's Signature (if joint acct., both must sign Date
Systematic Withdrawal Plan (Optional)
|_| Beginning the month of __________________, 19__ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $__________________ , from Class A Shares and/or $__________________
from Class B Shares that I own, payable to the account registration address as
shown above. (Participation requires minimum account value of $10,000 per
class.)
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 privilege
|_|Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record.
If you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: ___________________________ Bank Account No.: ___________________________
Address: ________________________ Bank Account Name: __________________________
________________________
- --------------------------------------------------------------------------------
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against your
ultimate U.S. tax liability.
<PAGE>
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as required
by federal law: (Please check applicable boxes)
|_| U.S. Citizen/Taxpayer:
|_| I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding because (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I
am no longer subject to backup withholding.
|_| If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS for a Tax ID Number, and
I understand that if I do not provide either number to the Transfer
Agent within 60 days of the date of this Application or if I fail to
furnish my correct Tax ID Number, I may be subject to a penalty and a
31% backup withholding on distributions and redemption proceeds.
(Please provide your Tax ID Number on IRS Form W- 9. You may request
such form by calling the Transfer Agent at 800-553-8080.)
|_| Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax purposes:
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
- --------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have
received a copy of the Fund's prospectus.
- --------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
_____________________________ ________________________________________________
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.: ____________________
A-2
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
(Class A and Class B Shares)
(Classes of Total Return U.S. Treasury Fund, Inc.)
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
717 Fifth Avenue
New York, New York 10022
Administrator Distributor
INVESTMENT COMPANY CAPITAL CORP. ICC DISTRIBUTORS, INC.
One South Street Two Portland Square
Baltimore, Maryland 21202 Portland, Maine 04101
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street University Square
Baltimore, Maryland 21202 117 Campus Drive
1-800-553-8080 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report, a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund and you may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-5040
- --------------------------------------------------------------------------------
TRPRS
<PAGE>
ISI
INTERNATIONAL STRATEGY & INVESTMENT INC.
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
This mutual fund (the "Fund") seeks to achieve 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 offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy Shares
through the Fund's Transfer Agent. (See "How to Buy Shares".) This Prospectus
describes the ISI class (the "Shares") of the Fund.
TABLE OF CONTENTS
Page
----
Investment Summary..........................................................2
Fees and Expenses of the Fund...............................................4
Investment Program..........................................................5
The Fund's Net Asset Value..................................................6
How to Buy Shares...........................................................7
How to Redeem Shares........................................................8
Telephone Transactions......................................................9
Sales Charges...............................................................9
Dividends and Taxes........................................................11
Investment Advisor.........................................................12
Administrator..............................................................13
Financial Highlights.......................................................14
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is March 1, 1999.
-1-
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks to achieve a high level of total return, with relative
stability of principal, and, secondarily, high 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. In selecting investments for the Fund, the Fund's
investment advisor will consider both the security's yield and its potential for
capital gains resulting from changes in interest rates.
Risk Profile
The Fund is best suited for investors who are seeking high total
return, but who also desire the safety of an investment in U.S. Treasury
Securities. The value of an investment in the Fund will vary from day-to-day
based on the prices of the U.S. Treasury Securities in the Fund's portfolio. The
prices of the U.S. Treasury Securities will respond to economic and market
factors, especially interest rate changes. In general, a change in interest
rates will cause an inverse change in the value of U.S. Treasury Securities. The
value of the Fund's shares can be expected to increase during periods of falling
interest rates and decrease during periods of rising interest rates. These price
fluctuations will generally be greater at times when the Fund's average maturity
is longer. Because U.S. Treasury Securities are among the safest fixed income
investments, their yields are generally lower than the yields available from
some other fixed income securities. An investment in the Fund is not a bank
deposit and is not insured by the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the Shares
both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. This is an historical record and does not necessarily
indicate how the Fund will perform in the future.
-2-
<PAGE>
ISI Shares*
For years ended December 31,
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25%
21.69%
20%
16.62%
15% 13.48% 13.71%
10.62%
10%
6.15%
5% 4.38%
0.2%
0%
-4.01%
- -5%
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns would
be less than those shown.
During the 10-year period shown in the bar chart, the highest return for a
quarter was ____% (quarter ended ____________) and the lowest return for a
quarter was _____% (quarter ended ____________).
Average Annual Total Return (for periods ended December 31, 1998)
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
Intermediate Lehman Brothers Long-Term
ISI Shares(1) Treasury Index(2) Treasury Index(2) Treasury Index(2)
------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Past One Year.......... ___% ___% ___% ___%
Past Five Years........ ___% ___% ___% ___%
Past Ten Years......... ___% ___% ___% ___%
Since Inception........ ___%(10/31/98) ___% ___% ___%
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Lehman Brothers Intermediate Treasury Index and the Lehman Brothers
Long-Term Treasury Index reflect the performance of U.S. Treasury
securities in their respective sectors. The Lehman Brothers Treasury Index
is more of a general index in that it reflects the performance of all
public obligations and does not focus on any one particular segment. The
Fund's investment advisor is not aware of any single index that is truly
representative of the Fund since its active maturity management policy
allows the advisor to adjust the weighted average maturity throughout each
U.S. Treasury sector. The indices are passive measurements of U.S. Treasury
Securities performance. They do not factor in the costs of buying, selling
and holding securities -- costs that are reflected in the Fund's results.
-3-
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering 4.45%
price)...............................................................................................
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................................... None
Maximum Deferred Sales Charge (Load)................................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................................... None
Redemption Fee ...................................................................................... None
Exchange Fee ........................................................................................ None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees ..................................................................................... 0.27%
Distribution and/or Service (12b-1) Fees............................................................. 0.25%
Other Expenses....................................................................................... 0.33%
----
Total Annual Fund Operating Expenses................................................................. 0.85%
====
</TABLE>
Example
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$528 $704 $895 $1,447
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on sales charges.) If you hold Shares for a
long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
-4-
<PAGE>
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, high 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. The Advisor 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 Advisor will consider a
security's potential for capital gains resulting from possible changes in
interest rates when choosing the Fund's investments.
In selecting investments, the Advisor will be free to take full
advantage of the entire range of maturities offered by U.S. Treasury Securities.
At certain times, the average maturity of the U.S. Treasury Securities held by
the Fund 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).
The portfolio's average maturity will depend on the Advisor's assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates. In determining which direction
interest rates are likely to move, the Advisor relies on the forecast of its
chairman, Edward S. Hyman. Mr. Hyman has been rated a "first team" economist by
the periodical "Institutional Investor" in each of the last 19 years. He writes
a variety of international and domestic economic research reports that follow
trends that may determine the direction of interest rates. The Fund may also
invest in repurchase agreements. With a repurchase agreement, the Fund agrees to
purchase U.S. Treasury Securities from a bank or broker-dealer subject to an
agreement that the bank or broker-dealer will repurchase the securities at an
established time and price.
An investment in the Fund entails risk. U.S. Treasury Securities are
subject to interest rate risk. The value of U.S. Treasury Securities changes as
interest rates fluctuate. This is especially true for securities with longer
maturities and for STRIPS (securities that do not pay interest currently but
which are purchased at a discount and are payable in full at maturity). The
value of the Fund's shares can be expected to increase during periods of falling
interest rates and decrease during periods of rising interest rates. The
magnitude of these fluctuations will generally be greater at times when the
Fund's average maturity is longer. There can be no assurance that the Advisor's
economic analysis will accurately predict interest rate trends or that the
portfolio strategies based on Mr. Hyman's economic analysis will be effective.
-5-
<PAGE>
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Shares, the price
you pay may be increased by a sales charge. Read the section on sales charges
for details on how and when this charge may or may not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. It is calculated by
subtracting the liabilities attributable to a class from its proportionate share
of the Fund's assets and dividing the result by the outstanding shares of the
class.
In valuing the Fund's assets its investments are priced at their market
value. When price quotes for a particular security are not readily available,
investments are priced at their "fair value" using procedures approved by the
Fund's Board of Directors.
You may buy or redeem Shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Shares.
-6-
<PAGE>
HOW TO BUY SHARES
You may buy Shares through your securities dealer or through any
financial institution that is authorized to act as a shareholder servicing
agent. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $5,000. Subsequent investments
must be at least $250. The following are exceptions to these minimums:
o If you are investing in an IRA account or a qualified retirement
plan, your initial investment may be as low as $1,000.
o If you are a participant in the Fund's Automatic Investing Plan,
your initial investment may be as low as $250. If you participate
in the monthly plan, your subsequent investments may be as low as
$100. If you participate in the quarterly plan, your subsequent
investments may be as low as $250. Refer to the section on the
Fund's Automatic Investing Plan for details.
Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the money is
received by the Transfer Agent, it will be invested in Shares at that day's
offering price. Either you or the Fund may discontinue your participation upon
30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other funds in the ISI family of funds. To
make either of these elections or to terminate automatic reinvestment, complete
the appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
-7-
<PAGE>
HOW TO REDEEM SHARES
You may redeem all or part of your investment through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If you have an account with the
Fund that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Shares:
1) A letter of instructions specifying your account number and the number
of Shares or dollar amount you wish to redeem. The letter must be
signed by all owners of the Shares exactly as their names appear on the
account.
2) If you are redeeming more than $50,000, a guarantee of your signature
by a member of the Federal Deposit Insurance Corporation, a trust
company, broker, dealer, securities exchange or association, clearing
agency, savings association or (if authorized by state law) credit
union.
3) Any stock certificates representing the Shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you by check, whether or not that is the payment option
you have selected.
If you redeem sufficient Shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice. The Fund reserves the right to redeem Shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may
arrange to have some of your Shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund redemptions.
Contact your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
-8-
<PAGE>
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for Shares in another
ISI fund by calling the Transfer Agent on any Business Day between the hours of
8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled to
telephone transaction privileges unless you specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that they reasonably believe to be genuine.
Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your Shares in
certificate form, you may not exchange or redeem them by telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price which
is calculated by adding any applicable sales charges to the net asset value per
share. The amount of any sales charge included in your purchase price will be
according to the following schedule:
<TABLE>
<CAPTION>
Sales Charge as % of
- -----------------------------------------------------------------------------------------------------------
Offering Net Amount
Amount of Purchase Price Invested
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000................................ 4.45% 4.66%
$ 50,000 - $ 99,999................................ 3.50% 3.63%
$ 100,000 - $ 249,999................................ 2.50% 2.56%
$ 250,000 - $ 499,999................................ 2.00% 2.04%
$ 500,000 - $ 999,999................................ 1.50% 1.52%
$1,000,000 - $1,999,999................................ 0.75% 0.76%
$2,000,000 - $2,999,999................................ 0.50% 0.50%
$3,000,000 - and over ............................. None None
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
The sales charge you pay on your current purchase of Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Shares of this
Fund or Shares of any other mutual fund in the ISI family of funds, you may
combine the value of your purchases with the value of your existing investments
to determine whether you qualify for a reduced sales charge. (For this purpose
your existing investments will be valued at the higher of cost or current
value.) You may also combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose. You must be able
to provide sufficient information to verify that you qualify for this right of
accumulation.
Letter of Intent. If you anticipate making additional purchases of
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the Shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Shares without paying a sales
charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of
Shares made within the last six months, provided that the amount you
are reinvesting is at least $5,000.
2) If you are exchanging an investment in another ISI fund for an
investment in this Fund (see "Purchases by Exchange" for a description
of the conditions).
3) If you are a current or retired Fund Director, a director, employee or
a member of the immediate family of an employee of any of the following
or their respective affiliates: the Fund's administrator, the Advisor
or a broker-dealer authorized to sell Shares of the Fund.
4) If you purchase Shares in a fiduciary or advisory account with a bank,
bank trust department, registered investment advisory company,
financial planner or securities dealer purchasing Shares on your
behalf. To qualify for this provision you must be paying an account
management fee for the fiduciary or advisory services. You may be
charged an additional fee by your securities dealer or servicing agent
if you buy shares in this manner.
5) If you pay for your purchase with the proceeds from a redemption of
shares of any other mutual fund on which you have paid a sales charge,
or from a sale of shares of any
-10-
<PAGE>
closed-end fund. In order to qualify for this provision, you must
purchase your Shares by February 28, 2000 and provide documentation of
your redemption or sale.
Purchases by Exchange
You may exchange shares of any other fund in the ISI family of funds
with the same sales charge structure for an equal dollar amount of Shares
without payment of the sales charges described above or any other charge. In
addition, you may exchange shares of any fund in the ISI family of funds with a
lower sales charge structure, or that were purchased through a special offer,
for an equal dollar amount of Shares if you have owned the shares you are
redeeming for at least 24 months. If you have owned them for less than 24
months, you will be charged the difference in sales charges. You may enter both
your redemption and purchase orders on the same Business Day or, if you have
already redeemed the shares of the other fund, you may enter your purchase order
within six months of the redemption, provided the amount of the purchase order
is a least $5,000. The Fund may modify or terminate these offers of exchange
upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The price you receive when you redeem shares will be the net asset
value per share.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows the Fund to
pay your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder service. Shares pay an
annual distribution fee equal to 0.25% of average daily net assets. Because
these fees are paid out of net assets on an on-going basis, they will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
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 and to distribute taxable net capital gains on an annual
basis.
-11-
<PAGE>
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The federal income tax treatment of dividends and distributions is the same
whether or not you reinvest them. Dividends are taxed as ordinary income and
capital gains distributions are taxed at various rates based on how long the
Fund held the assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem Shares of the Fund you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the Shares. An exchange of Shares of the Fund for Shares of another fund is
a sale of Fund Shares for tax purposes. More information about taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
INVESTMENT ADVISOR
International Strategy & Investment Inc. ("ISI" or the "Advisor") is
the Fund's investment advisor. As of December 31, 1998, the Advisor had
approximately $___ million under management. ISI is also the investment advisor
to ISI Strategy Fund, Inc., Managed Municipal Fund, Inc. and North American
Government Bond Fund, Inc. These funds, together with the Fund, had
approximately $___ billion in net assets as of December 31, 1998.
As compensation for its services for the fiscal year ended October 31,
1998, ISI received from the Fund a fee equal to 0.27% of the Fund's average
daily net assets.
Portfolio Managers
The Fund's portfolio managers are Edward S. Hyman and R. Alan Medaugh
of ISI.
Mr. Hyman, Chairman of the Fund and ISI 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 that 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 19 years.
Mr. Medaugh, President of the Fund and ISI, 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 to that, Senior Vice
President and bond portfolio manager at
-12-
<PAGE>
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.
ADMINISTRATOR
Investment Company Capital Corp. ("ICC") 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 Shares are distributed and oversight of the relationship
between the Fund and its other service providers. ICC is also the Fund's
transfer and dividend disbursing agent and provides accounting services to the
Fund.
-13-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended October 31,
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period............. $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income.............................. 0.51 0.55 0.56 0.57 0.51
Net realized and unrealized gain (loss) on investments 0.71 0.30 (0.23) 1.04 (1.16)
Total from Investment Operations................... 1.22 0.85 0.33 1.61 (0.65)
-------- -------- -------- -------- --------
Less Distributions:
Distributions from net investment income and short-term gains (0.64) (0.55) (0.65) (0.64) (1.15)
Tax return of capital distribution................. -- (0.08) -- -- (0.05)
Distributions in excess of net investment income... -- (0.01) (0.04) -- --
Distributions from net realized long-term gains.... -- -- -- -- (0.28)
-------- -------- -------- -------- --------
Total distributions................................ (0.64) (0.64) (0.69) (0.64) (1.48)
-------- -------- -------- -------- --------
Net asset value at end of period .................. $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22
======== ======== ======== ======== ========
Total Return(1)........................................ 12.50% 9.00% 3.44% 18.09% (6.22)%
Ratios to Average Daily Net Assets:
Expenses........................................... 0.85% 0.83% 0.81% 0.80% 0.77%
Net investment income.............................. 4.98% 5.62% 5.69% 5.94% 4.98%
Supplemental Data:
Net assets at end of period (000):
ISI Class Shares................................... $171,336 $171,074 $193,486 $206,615 $200,309
Flag Investors Class A Shares...................... $122,785 $122,229 $143,791 $164,206 $175,149
Portfolio turnover rate............................ 179% 92% 199% 194% 68%
</TABLE>
- ------------
(1) Total return excludes the effect of sales charge.
-14-
<PAGE>
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:
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.
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 Minor's Date of Birth (Mo./Day/Yr.)
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 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
___$50,000 ___$100,000 ___$250,000 ___$500,000 ___$1,000,000 ___$2,000,000 ___$3,000,000
</TABLE>
Right of Accumulation (Optional)
List the Account numbers of other ISI Funds that you or your immediate family
already own that qualify you for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Distribution Options
Please check appropriate boxes. There is no sales charge for reinvested
dividends. If none of the options are selected, all distributions will be
reinvested.
Income Dividends Capital Gains
|_| Reinvested in additional shares |_| Reinvested in additional shares
|_| Paid in cash |_| Paid in cash
Call (800) 882-8585 for information about reinvesting your dividends in other
funds in the ISI Family of Funds.
A-1
<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
Minimum Initial Investment: $250 per class
Subsequent Investments (check one):
|_| Monthly ($100 minimum) |_| Quarterly ($250 minimum)
Please attach a voided check.
_______________________________________________________________
Bank Name
_______________________________________________________________
Existing ISI Total Return U.S. Treasury Shares
Fund Account No., if any
_______________________________________________________________
Depositor's Signature Date
_______________________________________________________________
Depositor's Signature (if joint acct., both must sign Date
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>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against your
ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as required
by federal law: (Please check applicable boxes)
|_| U.S. Citizen/Taxpayer:
|_| I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
|_| If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject
to a penalty and a 31% backup withholding on distributions and
redemption proceeds. (Please provide either number on IRS Form W-9.
You may request such form by calling the Transfer Agent at
800-882-8585.)
|_|Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: ___________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal Revenue
Service.
- --------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have
received a copy of the Fund's prospectus.
- --------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
_____________________________ ________________________________________________
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.: ____________________
A-2
<PAGE>
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
(A Class of Total Return U.S. Tresury Fund, Inc.)
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
717 Fifth Avenue
New York, New York 10022
Distributor
INTERNATIONAL STRATEGY &
Administrator INVESTMENT GROUP INC.
INVESTMENT COMPANY CAPITAL CORP. 717 Fifth Avenue
One South Street New York, New York 10022
Baltimore, Maryland 21202 1-800-955-7175
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street University Square
Baltimore, Maryland 21202 117 Campus Drive
1-800-882-8585 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
ISI
TOTAL RETURN
U.S. TREASURY FUND
SHARES
(A Class of Total Return)
U.S. Treasury Fund, Inc.)
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report, a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI)
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. (Call 1-800-SEC-0330 to find out about the operation of the Public
Reference Room.) The Commission's Internet site at http://www.sec.gov has
reports and other information about the Fund and you may get copies of this
information by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800)
553-8080. For Fund information, call (800) 767-FLAG or your securities dealer or
servicing agent.
Investment Company Act File No. 811-5040
- --------------------------------------------------------------------------------
<PAGE>
ISI
TOTAL RETURN
U.S. TREASURY FUND
SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
A mutual fund with the investment objective of a high level of total return,
with relative stability of principal, and, secondarily, high current income
consistent with an investment in treasury securities issued by the U.S.
Treasury.
March 1, 1999
[PROSPECTUS]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------------------------
TOTAL RETURN U.S. TREASURY FUND, INC.
One South 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 SECURITIES
DEALER OR BY CALLING THE FUND AT (800) 767-FLAG (FOR THE FLAG
INVESTORS SHARES CLASSES) OR (800) 955-7175 (FOR THE ISI
SHARES CLASS).
Statement of Additional Information Dated: March 1, 1999
Relating to the Prospectuses of
ISI Total Return U.S. Treasury Fund Shares Dated: March 1, 1999
and
Flag Investors Total Return U.S. Treasury Fund Class A and Class B Shares
Dated: March 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
1. GENERAL INFORMATION AND HISTORY..................................1
2. INVESTMENT OBJECTIVES AND POLICIES...............................2
3. VALUATION OF SHARES AND REDEMPTION...............................4
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS.............5
5. MANAGEMENT OF THE FUND...........................................8
6. INVESTMENT ADVISORY AND OTHER SERVICES..........................13
7. ADMINISTRATION..................................................14
8. DISTRIBUTION OF FUND SHARES.....................................15
9. BROKERAGE.......................................................20
10. CAPITAL SHARES..................................................21
11. SEMI-ANNUAL REPORTS.............................................22
12. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES...............22
13. INDEPENDENT AUDITORS............................................23
14. LEGAL MATTERS...................................................23
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............23
16. PERFORMANCE AND YIELD COMPUTATIONS..............................23
17. FINANCIAL STATEMENTS............................................26
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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 information concerning the activities of the company
being considered for investment. The Fund currently offers three classes of
shares: Flag Investors Total Return U.S. Treasury Fund Class A Shares, (the
"Class A Shares"), Flag Investors Total Return U.S. Treasury Fund Class B Shares
(the "Class B Shares") (collectively, the "Flag Investors Shares") and ISI Total
Return U.S. Treasury Fund Shares (the "ISI Shares"). There are two separate
prospectuses for the Fund's shares: one for the Flag Investors Shares and one
for the ISI Shares. Each prospectus contains important information concerning
the classes of shares offered thereby and the Fund, and may be obtained without
charge from the Fund's distributors (the "Distributors") at (800) 767-FLAG (for
a prospectus for the Flag Investors Shares) or (800) 955-7175 (for a prospectus
for the ISI Shares), or from Participating Dealers that offer shares of the Fund
(the "Shares") to prospective investors. Prospectuses may also be obtained from
Shareholder Servicing Agents. As used herein the term "Prospectus" describes
information common to the prospectuses of the three classes of the Fund's
Shares currently being offered, 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 about 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. The Fund has offered the Flag
Investors Class B Shares since June 20, 1996.
For the period from November 9, 1992 through February 27, 1994, the
Fund offered another class of shares: Flag Investors Total Return U.S. Treasury
Fund Class D Shares (which were known at the time as Flag Investors Total Return
U.S. Treasury Fund Class B Shares). Such shares are no longer being offered.
Under a license agreement dated August 10, 1988 between the Fund and
Alex. Brown & Sons Incorporated (predecessor to BT Alex. Brown Incorporated),
Alex. Brown & Sons 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 is to achieve 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. 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.
Except as specifically identified under "Investment Restrictions," the
investment policies described in these documents 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"). 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 creditworthy 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 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 Fund's
investment advisor (the "Advisor"). The list of approved banks and
broker-dealers will be monitored regularly by 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
The Fund may make purchases of U.S. Treasury 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
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 the Fund makes the commitment to purchase or
sell securities on a when-issued basis, it will record the transaction and
thereafter reflect the value of such security purchased or, if a sale, the
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities,
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<PAGE>
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 securities
purchased on a when-issued basis.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal
limitations. The investment restrictions recited below 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. 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 the Fund's total assets are outstanding, the Fund will
not purchase securities;
2. 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);
3. 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);
4. 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;
5. Invest in real estate or mortgages on real estate;
6. Purchase or sell commodities or commodities contracts or
futures contracts;
7. Act as an underwriter of securities within the meaning of the
Federal securities laws;
8. Issue senior securities;
9. 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;
10. Effect short sales of securities;
11. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions);
12. Purchase participations or other interests in oil, gas or
other mineral exploration or development programs;
13. Purchase any securities of unseasoned issuers which have been
in operation directly or through predecessors for less than three
years;
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<PAGE>
14. Invest in shares of any other investment company registered
under the Investment Company Act;
15. 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 0.5% of the outstanding securities
of such issuer and together they own beneficially more than 5% of the
securities of such issuer;
16. Invest in companies for the purpose of exercising management
or control;
17. Invest in puts or calls or any combination thereof;
18. 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 investment restriction 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 including repurchase agreements with remaining
maturities in excess of seven days.
3. VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined daily as of the close of
the New York Stock Exchange, which is ordinarily 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 (or the days on which they are observed): New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business which is ordinarily 4:00 p.m. (Eastern Time). So long as a third party
receives an order prior to the Fund's close of business, the order is deemed to
have been received by the Fund and, accordingly, may receive the net asset value
computed at the close of business that day. These "late day" agreements are
intended to permit shareholders placing orders with third parties to place
orders up to the same time as other shareholders.
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 emergency exists
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<PAGE>
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" 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 income
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. 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. Investors are urged to consult with their tax advisor
regarding whether such exemption is available.
The following general discussion of certain 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. New legislation, as well as 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 intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a) derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, United States Government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect to any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets or 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities (other than United States Government securities or
securities of other RICs) of any one issuer or two or more issuers that the Fund
controls and which are engaged in the same, similar, or related trades or
business. For purposes of the 90% of gross income requirement described above,
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options or futures with respect
to stock or securities) may be excluded from income that qualifies under the 90%
requirement.
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<PAGE>
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net long-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
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 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.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
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 taxable to shareholders that are
individuals at a maximum rate of 20% 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. If any such gains are retained, the Fund will
pay federal income tax thereon, and, if the Fund makes an election, the
shareholders will include such undistributed gains in their income, will
increase their basis in Fund shares by the difference between the amount of such
includable gains and the tax deemed paid by such shareholder and will be able to
claim their share of the tax paid by the Fund as a refundable credit.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the 70% dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
the Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend, if it has been received from a
domestic corporation. Accordingly, it is not expected that any Fund
distributions will qualify for corporate dividends-received deduction.
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<PAGE>
Ordinarily, investors should include all dividends 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 and paid by the Fund in the year
in which dividends were declared.
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 taxed 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, any 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 twelve months, and otherwise will be short-term capital gain
or loss. For individuals, long-term capital gains are currently taxed at a
maximum rate of 20% and short-term capital gains are currently taxed at ordinary
income tax rates. However, 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). This loss disallowance rule will apply to Shares received through the
reinvestment of dividends during the 61-day period.
If the Fund fails to qualify as a regulated investment company for any
taxable year, 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 provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year.
In certain cases, the Fund will be required to withhold and remit to
the United States Treasury 31% of distributions paid to any shareholder who (1)
has failed to provide a correct tax identification number, (2) is subject to
backup withholding by the Internal Revenue Service for failure to report the
receipt of interest or dividend income properly, or (3) has failed to certify to
the Fund that such shareholder is not subject to backup withholding.
Excise Tax; Miscellaneous Considerations
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
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<PAGE>
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 advisors as to the consequences of federal, state and local tax rules
affecting an investment in the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The overall business and 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 executive officers, the Advisor, the Distributors and the Fund's
administrator. A majority of the directors of the Fund have no affiliation with
the Advisor, the Distributors or the Fund's administrator.
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 One South Street, Baltimore, Maryland 21202.
* EDWARD S. HYMAN, Chairman and Director (4/8/45)
International Strategy & Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Chairman, International Strategy & Investment
Inc. (registered investment advisor), and Chairman and President,
International Strategy & Investment Group Inc. (registered
investment advisor and registered broker-dealer), 1991-Present.
* RICHARD T. HALE, Vice Chairman and Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and
President, Investment Company Capital Corp. (registered investment
advisor) and Chartered Financial Analyst.
*TRUMAN T. SEMANS, Director (10/27/26)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company;
Director, Investment Company Capital Corp. (registered investment
advisor) and Virginia Hot Springs, Inc. (property management);
Formerly, Vice Chairman and Managing Director, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated).
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing
Director, CBC Capital (merchant banking), 1993-Present; Director,
Net.World (telecommunications) 1998- Present; Formerly, Senior Vice
President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993 and Director, The Arch Fund (registered
investment company).
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity
Investor and Capital Markets Consultant; Director, The Nevis Fund
-8-
<PAGE>
(registered investment company) and Circon Corp. (medical
instruments). Formerly, President and Chief Executive Officer, The
National Association of Securities Dealers, Inc. and The NASDAQ
Stock Market, Inc., 1987-1997; Chief Operating Officer of Alex.
Brown & Sons Incorporated (now BT Alex. Brown Incorporated)
1985-1987; General Partner, Alex. Brown & Sons Incorporated (now BT
Alex. Brown Incorporated) 1976-1985.
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 and 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 health care); Executive Vice Chairman and
Director, Central Carolina Bank & Trust (banking) and Director,
Victory Funds (registered investment companies). Formerly, Director,
AMBAC Treasurers Trust (registered investment company) and DP Mann
Holdings (insurance).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, Pennsylvania 19103-7017; President and
Chief Executive Officer, The Pew Charitable Trusts; Director and
Executive Vice President, The Glenmede Trust Company; Formerly,
Executive Director, The Pew Charitable Trusts.
CARL W. VOGT, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004- 2604. Senior Partner, Fulbright & Jaworski
L.L.P. (law); Director, Yellow Corporation (trucking) and American
Science & Engineering (x-ray detection equipment); Formerly,
Chairman and Member, National Transportation Safety Board; Director,
National Railroad Passenger Corporation (Amtrak) and Member,
Aviation System Capacity Advisory Committee (Federal Aviation
Administration).
R. ALAN MEDAUGH, President (8/20/43)
International Strategy & Investment Inc., 717 Fifth Avenue, New
York, New York 10022. President, International Strategy & Investment
Inc., 1991-Present.
NANCY LAZAR, Vice President (8/1/57)
International Strategy & Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Executive Vice President and Secretary,
International Strategy & Investment Inc., 1991- Present.
CARRIE L. BUTLER, Vice President (5/1/67)
International Strategy & Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Assistant Vice President, International
Strategy & Investment Inc., 1991-Present.
MARGARET M. BEELER, Assistant Vice President (3/1/67)
International Strategy & Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Assistant Vice President, International
Strategy & Investment Inc., May 1996- Present. Formerly, Marketing
Representative, U.S. Healthcare, Inc., 1995-1996; Sales Manager,
Donna Maione, Inc., 1994-1995; Sales Manager, Deborah Wiley
California, 1989-1994.
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KEITH C. REILLY, Assistant Vice President (6/2/66)
International Strategy & Investment Inc., 717 Fifth Avenue, New
York, New York 10022. Assistant Vice President, International
Strategy & Investment Inc., 1996-Present. Formerly, Select Private
Banking Officer, Assistant Manager, Chemical Bank, 1995- 1996;
Financial Consultant, Dreyfus Corporation, 1989-1995.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President,
Investment Company Capital Corp. (registered investment advisor),
1995-Present; Formerly, Vice President and Treasurer, The Delaware
Group of Funds (registered investment companies) and Vice President,
Delaware Management Company, Inc. (investments), 1980-1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP), 1988 -1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, 1996-Present;
Formerly, Manager and Foreign Markets Specialist, Putnam Investments
Inc. (registered investment companies), 1994-1996; Supervisor, Brown
Brothers Harriman & Co. (domestic and global custody), 1991-1994.
- -------------------------
* 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 or advised
by BT Alex. Brown Incorporated ("BT Alex. Brown") or any of its affiliates.
There are currently 12 funds in the Flag Investors/ISI Funds and BT Alex. Brown
Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Hyman serves as
Chairman of four funds in the Fund Complex. Mr. Hale serves as Chairman of three
funds and as a Director of seven other funds in the Fund Complex. Mr. Medaugh
serves as a Director and President of two funds and as President of two other
funds in the Fund Complex. Mr. Semans serves as Chairman of five funds and as a
Director of five other funds in the Fund Complex. Messrs. Cunnane, [Hardiman],
Levy, McDonald and Vogt serve as Directors of each fund in the Fund Complex. Ms.
Rimel serves as Director of 11 funds in the Fund Complex. Ms. Lazar and Ms.
Butler serve as Vice Presidents and Ms. Beeler and Mr. Reilly serve as Assistant
Vice Presidents of four funds in the Fund Complex. Mr. Finelli serves as
Treasurer, Ms. Olmert serves as Secretary and Mr. Liotta serves as Assistant
Secretary, for each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had
normal brokerage transactions with the Fund's administrator or its affiliates 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.
-10-
<PAGE>
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 the Advisor, the Distributors or the Fund's administrator may be considered
to have received remuneration indirectly. As compensation for his or her
services as director, each Director who is not an "interested person" of the
Fund (as defined in the Investment Company Act) (an "Independent Director")
receives an aggregate annual fee (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance at
Board and committee meetings) from all Flag Investors/ISI Funds and BT Alex.
Brown Cash Reserve Fund, Inc. for which he or she serves. In addition, the
Chairmen of the Fund Complex's Audit Committee and Executive Committee receive
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, 1998, Independent
Directors' fees attributable to the assets of the Fund totaled $12,979.
The following table shows aggregate compensation and retirement
benefits payable to each of the Fund's Directors by the Fund and Fund Complex,
respectively, and pension or retirement benefits accrued as part of Fund
expenses in the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------
Pension or Total Compensation From
Aggregate Compensation Retirement the Fund and Fund Complex
From the Fund for the Benefits Accrued Payable to Directors
Name of Person, Fiscal Year Ended as Part of Fund for the Fiscal Year Ended
Position October 31, 1998 Expenses October 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edward S. Hyman(1) $0 $0 $0
Chairman
Richard T. Halen(1) $0 $0 $0
Vice Chairman
Truman T. Semansn(1) $0 $0 $0
Director
James J. Cunnane $1,477(2) (3) $39,000 for service on 13(4)
Director Boards in the Fund Complex
Joseph R. Hardiman(5) $364 (3) $9,750 for service on 9(6)
Director Boards in the Fund Complex
John F. Kroeger(7) $1,855 (3) $49,000 for service on 13(4)
Director Boards in the Fund Complex
Louis E. Levy $1,565 (3) $44,000 for service on 13(4)
Director Boards in the Fund Complex
Eugene J. McDonald $1,477(2) (3) $39,000 for service on 13(4)
Director Boards in the Fund Complex
Rebecca W. Rimel $1,502(2) (3) $39,000 for service on 11(4,6)
Director Boards in the Fund Complex
Carl W. Vogt, Esq. $1,515(2) (3) $39,000 for service on 11(4,6)
Director Boards in the Fund Complex
</TABLE>
- ----------
(1) Denotes an individual who is an "interested person" as defined in the
Investment Company Act.
(2) Of the amounts payable to Messrs. Cunnane, McDonald and Vogt and Ms. Rimel,
$1,477, $1,477, $1,515, and $1,502 was deferred pursuant to a deferred
compensation plan.
(3) The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the fiscal year ended October 31, 1998 was approximately $26,806.
-11-
<PAGE>
(4) One of these funds ceased operations on July 29, 1998.
(5) Elected to the Fund's Board on September 27, 1998.
(6) Mr. Hardiman and Ms. Rimel receive, and Mr. Vogt received, proportionately
higher compensation from each fund for which they serve.
(7) Retired effective October 1, 1998.
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 six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she serves. The Retirement Plan is
unfunded and unvested. The Fund has two Participants, a Director who retired
effective December 31, 1994 and a Director who retired effective December 31,
1996, who have qualified for the Retirement Plan by serving thirteen and
fourteen years, respectively, as Directors in the Fund Complex and each of whom
will be paid a quarterly fee of $4,875 by the Fund Complex for the rest of his
life. Such fees are allocated to each fund in the Fund Complex based upon its
relative net assets.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1998 are as follows: for Mr. Cunnane, 4 years; for Mr. Levy, 4
years; for Mr. McDonald, 6 years; for Ms. Rimel, 3 years, for Mr. Vogt, 3 years;
and for Mr. Hardiman, 0 years.
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon
- ---------------- Retirement
------------------------------------------------------
Chairmen of Audit and Executive
Committees Other Participants
------------------------------- ------------------
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
Any Director who receives fees from the Fund is permitted to defer
50% to 100% of his or her annual compensation pursuant to a Deferred
Compensation Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms. Rimel have
each executed a Deferred Compensation Agreement. Currently, the deferring
Directors may select from among various Flag Investors Funds, BT Alex. Brown
Cash Reserve Fund, Inc. and BT International Equity Fund in which all or part of
their deferral account shall be deemed to be invested. Distributions from the
deferring Directors' deferral accounts will be paid in cash, in generally
quarterly installments over a period of ten years.
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
applies to the personal investing activities of the directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisor and the Distributors. As described below, the Code of Ethics imposes
additional restrictions on the Advisor'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.
-12-
<PAGE>
The Code of Ethics requires that any officer, director, or employee of
the Fund, International Strategy & Investment Group, Inc. or the Advisor,
preclear any personal securities investments (with certain exceptions, such as
non-volitional purchases or purchases that are part of an automatic dividend
reinvestment plan). The foregoing would apply to any officer, director or
employee of ICC Distributors, Inc. that is an access person. 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 special 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. Officers, directors and employees of the Advisor and the Distributors
may comply with codes instituted by those entities so long as they contain
similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
International Strategy & Investment Inc. ("ISI" or the "Advisor")
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 the investment advisor to Managed Municipal Fund, Inc.,
North American Government Bond Fund, Inc. and ISI Strategy Fund, Inc., open-end
management investment companies which, together with the Fund, had net assets of
approximately $___ million as of December 31, 1998.
Under the Investment Advisory Agreement, ISI: (a) formulates and
implements continuing programs for the purchases and sales of securities, (b)
determines what securities (and in what proportion) shall be 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 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 the
policies and control of the Fund's Board of Directors. The Advisor will 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 0.20%
$100,000,000 - $200,000,000 0.18%
$200,000,001 - $300,000,000 0.16%
$300,000,001 - $500,000,000 0.14%
$500,000,001 and over 0.12%
In addition, the Fund pays the Advisor 1.5% of the Fund's gross
income.
-13-
<PAGE>
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 Independent 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
29, 1998. 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. Advisory fees
paid by the Fund to ISI for the last three fiscal years were as follows:
Fiscal Year Ended October 31,
1998 1997 1996
---- ---- ----
$784,379 $848,963 $953,088
7. ADMINISTRATION
Investment Company Capital Corp. ("ICC"), One South 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 0.10%
$100,000,000 - $200,000,000 0.09%
$200,000,001 - $300,000,000 0.08%
$300,000,001 - $500,000,000 0.07%
$500,000,001 and over 0.06%
In addition, the Fund pays ICC 0.50% 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. Administration fees paid by the Fund to ICC
for the last three fiscal years were as follows:
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996
---- ---- ----
$349,575 $374,611 $419,655
-14-
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services".) ICC
is an indirect subsidiary of Bankers Trust Corporation.
8. DISTRIBUTION OF FUND SHARES
International Strategy & Investment Group Inc. ("ISI Group") serves as
distributor for the ISI Shares pursuant to a Distribution Agreement effective
April 1, 1997 ("ISI Distribution Agreement"). ICC Distributors Inc. ("ICC
Distributors") serves as distributor for the Flag Investors Shares pursuant to
an agreement effective August 31, 1997 ("Flag Distribution Agreement"). The
Distribution Agreements provide that ICC Distributors (in the case of the Flag
Investors Shares) or ISI Group (in the case of the ISI Shares) has the exclusive
right to distribute the related class of Shares either directly or through other
broker-dealers.
The ISI Distribution Agreement provides that ISI Group on behalf of
the ISI Shares, (i) will solicit and receive orders for the purchase of ISI
Shares (ii) 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 (iii) receive
requests for redemption and transmit such redemption requests to the Fund's
transfer agent as promptly as possible (iv) respond to inquiries from the Fund's
shareholders concerning the status of their accounts with the Fund; (v) provide
the Fund's Board of Directors for their review with quarterly reports required
by Rule 12b-1; (vi) maintain such accounts, books and records as may be required
by law or be deemed appropriate by the Fund's Board of Directors; and (vii) take
all actions deemed necessary to carry into effect the distribution of the
Shares. Pursuant to the ISI Distribution Agreement, ISI has not undertaken to
sell any specific number of ISI Shares. The ISI Distribution Agreement further
provides that, in connection with the distribution of Shares, ISI Group will be
responsible for all promotional expenses. The services by ISI Group to the Fund
are not exclusive, and ISI Group shall not be liable to the Fund or its
shareholders for any act or omission by ISI Group 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.
The Flag Distribution Agreement provides that ICC Distributors shall;
(i) use reasonable efforts to sell Flag Investors Shares upon the terms and
conditions contained in the Flag Distribution Agreement and the Fund's then
current Prospectus; (ii) use its best efforts to conform with the requirements
of all federal and state laws relating to the sale of the Flag Investors Shares;
(iii) adopt and follow procedures as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. and any
other applicable self-regulatory organization; (iv) perform its duties under the
supervision and in accordance with the directives of the Fund's Board of
Directors and the Fund's Articles of Incorporation and By-Laws; and (v) provide
the Fund's Board of Directors with a written report of the amounts expended in
connection with the Flag Distribution Agreement. Pursuant to the Flag
Distribution Agreement, ICC Distributors shall devote reasonable time and effort
to effect sales of Flag Investors Shares but shall not be obligated to sell any
specific number of Shares. The services of ICC Distributors are not exclusive
and ICC Distributors shall not be liable to the Fund or its shareholders for any
error of judgment or mistake of law, for any losses arising out of any
investment, or for any action or inaction of ICC Distributors in the absence of
bad faith, willful misfeasance or gross negligence in the performance of ICC
Distributors' duties or obligations under the Flag Distribution Agreement or by
reason of ICC Distributors' reckless disregard of its duties and obligations
under the Flag Distribution Agreement. The Flag Distribution Agreement further
provides that the Fund and ICC Distributors will mutually indemnify each other
for losses relating to disclosures in the Fund's registration statement.
The Distribution Agreements may be terminated at any time upon 60
days' written notice by the Fund, without penalty, by the vote of a majority of
the Fund's Independent Directors or by a vote of a majority of the Fund's
-15-
<PAGE>
outstanding Shares of the related class (as defined under "Capital Shares") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Flag Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect from year to year with respect to the Flag Investors classes of the Fund
provided that it is approved at least annually by (i) a vote of a majority of
the outstanding voting securities of the related class of the Fund or (ii) a
vote of a majority of the Fund's Board of Directors including a majority of the
Independent Directors and, with respect to each Flag Investors class of the Fund
for which there is a plan of distribution, so long as such plan of distribution
is approved at least annually by the Independent Directors in person at a
meeting called for the purpose of voting on such approval (see below). The ISI
Distribution Agreement has an initial term of two years and will remain in
effect from year to year provided that it is specifically approved (a) at least
annually by the Fund's Board of Directors and (b) by the affirmative vote of a
majority of the Independent Directors by votes cast in person at a meeting
specifically called for such purpose. Each Distribution Agreement, including the
form of Sub-Distribution Agreement, was most recently approved by the Board of
Directors, including a majority of the Independent Directors, on September 29,
1998.
ICC Distributors and ISI Group have entered into Sub-Distribution
Agreements with certain broker-dealers ("Participating Dealers") under which
such broker-dealers have agreed to process investor purchase and redemption
orders and respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Any Sub-Distribution Agreement may be
terminated in the same manner as the Distribution Agreements at any time and
shall automatically terminate in the event of an assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, including BT Alex. Brown and certain banks,
to act as Shareholder Servicing Agents, pursuant to which ICC Distributors and
ISI Group will allocate a portion of their respective distribution fees as
compensation for such financial institutions' ongoing shareholder services. The
Fund may also enter into Shareholder Servicing Agreements pursuant to which the
Distributors or the Fund's administrator or their respective affiliates will
provide compensation out of their own resources. Although banking laws and
regulations prohibit banks from distributing shares of open-end investment
companies such as the Fund, according to interpretations by 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.
As compensation for providing distribution and related administrative
services under the Distribution Agreements as described above, the Fund will pay
ICC Distributors for the Flag Investors Class A Shares and ISI Group for the ISI
Shares, on a monthly basis, an annual fee, equal to 0.25% of the average daily
net assets of the respective class of Shares. The Distributors expect to
allocate up to all of their fees to Participating Dealers and Shareholder
Servicing Agents. As compensation for providing distribution and related
administrative services for the Flag Investors Class B Shares, under the Flag
Distribution Agreement as described above, the Fund will pay ICC Distributors,
on a monthly basis, an annual fee equal to 0.35% of the Flag Investors Class B
Shares' average daily net assets. ICC Distributors expects to retain the entire
amount of the distribution fee as reimbursement for front-end payments to
Participating Dealers. In addition, with respect to the Flag Investors Class B
Shares, the Fund will pay ICC Distributors a shareholder servicing fee at an
annual rate of 0.25% of the average daily net assets of the Flag Investors Class
B Shares. (See the Prospectus). ICC Distributors expects to allocate most of its
shareholder servicing fee to Participating Dealers and Shareholder Servicing
Agents.
-16-
<PAGE>
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributors received fees
in the following amounts:
Fiscal Year Ended October 31,
Fee 1998 1997 1996
----- ---- ---- ----
Flag Investors Shares 12b-1 Fee $310,766(1) $322,511(3) $382,308(6)
Flag Investors Shareholder $ 5,079(1) $ 843(4) 30(6,7)
Servicing Fee (Class B Shares)
ISI Shares 12b-1 Fee $423,709(2) $455,938(5) $495,975(8)
- -------------
(1) Fees received by ICC Distributors, the Flag Investors Shares' distributor.
(2) Fees received by ISI Group, the ISI Shares' distributor.
(3) Of this amount, Alex. Brown, the Flag Investors Shares' distributor prior
to August 31, 1997, received $271,010 and ICC Distributors, the Flag
Investors Shares' distributor effective August 31, 1997, received $51,501.
(4) Of this amount, Alex. Brown, the Flag Investors Shares' distributor prior
to August 31, 1997, received $541 and ICC Distributors, the Flag Investors
Shares' distributor effective August 31, 1997, received $302.
(5) Of this amount, Armata, the ISI Shares' distributor prior to April 1, 1997,
received $192,508 and ISI Group, the ISI Shares' distributor effective
April 1, 1997, received $253,430.
(6) Fees received by Alex. Brown, the Flag Investors Shares' distributor for
the fiscal year ended October 31, 1996.
(7) For Flag Investors Class B Shares, amounts represent fees received for the
period from June 20, 1996 (commencement of offering of Flag Investors Class
B Shares) through October 31, 1996.
(8) Fees received by Armata, the ISI Shares' distributor.
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 ICC Distributors or ISI Group for distribution and other
shareholder servicing assistance as set forth in the related Distribution
Agreement, and ICC Distributors and ISI Group are authorized to make payments
out of their fees to Participating Dealers and Shareholder Servicing Agents. The
Plans will remain in effect from year to year thereafter 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 Independent Directors, by votes cast in
person at a meeting called for such purpose. The Plans were most recently
approved by the Fund's Board of Directors, including a majority of the
Independent Directors on September 29, 1998.
-17-
<PAGE>
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 without
penalty, by a vote of a majority of the Fund's Independent Directors or by a
vote of a majority of the outstanding Shares.
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 ICC Distributors or ISI Group
pursuant to the Distribution Agreements, to broker-dealers pursuant to any
Sub-Distribution Agreement 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 Independent Directors shall be
committed to the discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
or ISI Group, as appropriate, with respect to shares held by or on behalf of
customers of such entities. Payments under the Plans are made as described above
regardless of the distributor's actual cost of providing distribution services
and may be used to pay such distributor's overhead expenses. If the cost of
providing distribution services to the Fund in connection with the sale of the
Flag Investors Class A Shares or the ISI Shares is less than 0.25% of such
Shares' average daily net assets for any period or in connection with the sale
of the Flag Investors Class B Shares is less than 0.35% of the Flag Investors
Class B Shares' average daily net assets for any period, the unexpended portion
of the distribution fee may be retained by the distributor. The Plans do not
provide for any charges to the Fund for excess amounts expended by the
distributor and, if a Plan is terminated in accordance with its terms, the
obligation of the Fund to make payments to the distributor pursuant to the Plan
will cease and the Fund will not be required to make any payments past the date
the Distribution Agreement terminates with respect to that class. In return for
payments received pursuant to the Plans in the last three fiscal years,
respectively, the Fund's distributors, as appropriate, paid the
distribution-related expenses of the Fund including one or more of the
following: advertising expenses; printing and mailing of prospectuses to other
than current shareholders; compensation to dealers and sales personnel; and
interest, carrying or other financing charges.
For the last three fiscal years, the Flag Investors Shares'
distributor received the following commissions or contingent deferred sales
charges and from such commissions or sales charges, the distributor retained the
following amounts:
Fiscal Year Ended October 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- -------------------------- --------------------------
Class Received Retained Received Retained Received Retained
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors $73,776(1) $0 $40,869(2) $30,820(4) $113,136(6) $ 83,059(6)
Class A
Commissions
Flag Investors $536(1) $0 $ 13,172(3) $6,155(5) $ 1,420(6,7) $ 1,420(6,7)
Class B
Contingent
Deferred Sales
Charge
</TABLE>
- -------------
(1) By ICC Distributors, the Flag Investors Shares' distributor.
-18-
<PAGE>
(2) Of this amount, Alex. Brown, the Flag Investors Shares' distributor prior
to August 31, 1997, received $35,148 and ICC Distributors, the Flag
Investors Shares' distributor effective August 31, 1997, received $5,721.
(3) Of this amount, Alex. Brown, the Flag Investors Shares' distributor prior
to August 31, 1997, received $6,492 and ICC Distributors, the Flag
Investors Shares' distributor effective August 31, 1997, received $6,680.
(4) Of commissions received, Alex. Brown retained $30,820 and ICC Distributors
retained $0, respectively.
(5) Of sales charges received, Alex. Brown retained $6,155 and ICC Distributors
retained $0, respectively.
(6) By Alex. Brown, the Flag Investors Shares' distributor.
(7) For the period from June 20, 1996 (commencement of offering of Flag
Investors Class B Shares) through October 31, 1996.
For the last three fiscal years, the ISI Shares' distributor received
the following commissions and from such commissions the distributor retained the
following amounts:
Fiscal Year Ended October 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- -------------------------- --------------------------
Class Received Retained Received Retained Received Retained
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ISI Shares $207,284(1) $0 $177,642(2) $0 $360,356(3) $ 53,175(3)
Commissions
</TABLE>
- -------------
(1) By ISI Group, the ISI Shares' distributor.
(2) Of this amount, Armata, the ISI Shares' distributor prior to April 1, 1997,
received $97,081 and ISI Group, the ISI Shares' distributor effective April
1, 1997 received $80,561.
(3) By Armata, the ISI Shares' distributor.
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 Independent Directors and Independent 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
(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 ISI, ICC, ISI Group or ICC Distributors.
-19-
<PAGE>
9. BROKERAGE
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 broker-dealers that furnish statistical,
research or other information or services which the Advisor deems to be
beneficial to the Fund's investment program. 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. In over-the-counter transactions, the Advisor
will not pay any commission or other remuneration for research services. The
Advisor's policy is to pay a broker-dealer higher commissions for particular
transactions than might be charged if a different broker-dealer had been chosen
when, in the Advisor's opinion, this policy furthers the overall objective of
obtaining best price and execution. Subject to periodic review by the Fund's
Board of Directors, the Advisor is also authorized to pay broker-dealers higher
commissions on brokerage transactions for the Fund in order to secure research
and investment services described above. The allocation of orders among
broker-dealers and the commission rates paid by the Fund will be reviewed
periodically by the Board. The foregoing policy under which the Fund may pay
higher commissions to certain broker-dealers in the case of agency transactions,
does not apply to transactions effected on a principal basis.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through ISI Group. At the
time of such authorization, the Board adopted certain policies and procedures
incorporating the standards of Rule 17e-1 under the Investment Company Act which
requires that the commissions paid ISI Group must be "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time." Rule 17e-1 also contains
requirements for the review of such transactions by the Board of Directors and
requires the Advisor to furnish reports and to maintain records in connection
with such reviews. The ISI Shares Distribution Agreement does not provide for
any reduction in the distribution fee to be received by ISI Group from the Fund
as a result of profits from brokerage commissions on transactions of the Fund
effected through ISI Group.
The Advisor manages other investment accounts. It is possible
that, at times, identical securities will be acceptable for the Fund and one or
more of such other accounts; however, the position of each account in the
-20-
<PAGE>
securities of the same issuer may vary and the length of time that each account
may choose to hold its investment in such securities may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more of these accounts is considered
at or about the same time, transactions in such securities will be allocated
among the accounts in a manner deemed equitable by the Advisor. The Advisor may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution. Such
simultaneous transactions, however, could adversely affect the ability of the
Fund to obtain or dispose of the full amount of a security which it seeks to
purchase or sell.
For the fiscal years ended October 31, 1998, October 31, 1997 and
October 31, 1996, 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, 1998, the Fund held a 5.25% repurchase agreement issued by Goldman Sachs &
Co. valued at $2,319,000. Goldman Sachs & Co. is one of the Fund's "regular
brokers or dealers."
10. CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund may issue up
to 115 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 five 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 C 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 D Shares are no longer being offered. The Flag Investors Total Return U.S.
Treasury Fund Class C Shares have not been offered prior to the date of this
Statement of Additional Information. 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 or class will have an
undivided interest in the net assets of that series. For tax purposes, the
series will be treated as separate entities. Generally, each class of Shares
issued by a particular series will be identical to every other class and
expenses of the Fund (other than 12b-1 fees and any applicable service fees) are
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively will be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and, therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
The Fund's By-Laws provide that any director of the Fund may be
removed by the shareholders by a vote of a majority of the votes entitled to be
cast for the election of Directors. A meeting to consider the removal of any
Director or Directors of the Fund will be called by the Secretary of the Fund
upon the written request of the holders of at least one-tenth of the outstanding
Shares of the Fund entitled to vote at such meeting.
-21-
<PAGE>
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.
11. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors.
12. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company, 130 Liberty Street, New York, New York
10006 ("Bankers Trust") has been retained to act as custodian of the Fund's
investments. Bankers Trust receives such compensation from the Fund for its
services as Custodian as may be agreed to from time to time by Bankers Trust and
the Fund. For the fiscal year ended October 31, 1998, the Fund paid Bankers
Trust $52,536 as compensation for providing custody services. Investment Company
Capital Corp., One South Street, Baltimore, Maryland 21202 (telephone:
(800)882-8585) has been retained to act as the Fund's transfer and dividend
disbursing agent. As compensation for these services, ICC receives up to $20.17
per account per year plus reimbursement for out-of-pocket expenses incurred in
connection therewith. For the fiscal year ended October 31, 1998, such fees
totaled $209,357.
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 0.100%
$ 20,000,000 - $ 30,000,000 0.080%
$ 30,000,000 - $ 40,000,000 0.060%
$ 40,000,000 - $ 50,000,000 0.050%
$ 50,000,000 - $ 60,000,000 0.040%
$ 60,000,000 - $ 70,000,000 0.030%
$ 70,000,000 - $ 100,000,000 0.020%
$100,000,000 - $ 500,000,000 0.015%
$500,000,000 - $1,000,000,000 0.005%
over $1,000,000,000 0.001%
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, 1998, ICC received fees of $83,948.
-22-
<PAGE>
13. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by the
Fund's independent auditors, Deloitte & Touche LLP whose report thereon appears
elsewhere herein, and have been included herein in reliance upon the report of
such firm of accountants given on their authority as experts in accounting an
auditing. Deloitte & Touche LLP has offices at University Square, 117 Campus
Drive, Princeton, New Jersey 08540.
14. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following owned 5% or more of
the outstanding Shares of a class of the Fund, as of December 1, 1998.
<TABLE>
<CAPTION>
Owned of Beneficially Percentage of
Name and Address Record Owned Ownership
---------------- ------ ----- -----------------
<S> <C> <C> <C>
Donaldson Lufkin Jenrette X 9.28% of Class B Shares
Securities Corporation Inc
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
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.
16. 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 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:
P (1 + T)n = 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.
-23-
<PAGE>
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 the Fund (or a
series) commenced operations. In calculating the ending redeemable value for the
Flag Investors Class A Shares and the ISI Shares, the maximum sales load (4.50%
and 4.45%, respectively) 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. In calculating performance for the Flag Investors Class B Shares,
the applicable contingent deferred sales charge (2.0% for the one year period,
1.0% for the five-year period and no sales charge thereafter) is deducted from
the ending redeemable value 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.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 investment for the periods
ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
One-Year Period Ended Five-Year Period Ended Ten-Year Period Ended
October 31, 1998 October 31, 1998 October 31, 1998
---------------- ---------------- ----------------
Ending Ending Average Ending Average
Redeemable Total Redeemable Annual Total Redeemable Annual Total
Class Value Return Value Return Value Return
- ----- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors
Class A Shares
*August 10, 1988 $1,074 7.44% $1,341 6.05% $2,255 8.47%
ISI Shares
*October 31, 1988 $1,075 7.50% $1,342 6.06% $2,256 8.48%
</TABLE>
- -----------
* Inception Date
<TABLE>
<CAPTION>
One-Year Period
Ended October 31,1998 Since Inception
--------------------- ---------------
Ending Ending
Redeemable Redeemable Average Annual
Class Value Total Return Value Total Return
- ----- ----- ------------ ----- ------------
<S> <C> <C> <C> <C>
Flag Investors
Class B Shares
*July 20, 1996 $1,102 10.29% $1,285 11.22%
- -----------
</TABLE>
* Inception Date
-24-
<PAGE>
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. 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.
Yield Calculations
The yield based on the 30-day period ended October 31, 1998 was
4.34% for the Flag Investors Class A Shares, 4.35% for the ISI Shares and 4.21%
for the Flag Investors Class B 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 Class A Shares and 4.45% for the ISI Shares and a maximum
contingent deferred sales charge of 2.0% for the Flag Investors Class B Shares.
The Fund's net investment income per Share earned during the period is based on
the average daily number of Shares outstanding during the period entitled to
receive dividends and includes dividends and interest earned during the period
minus expenses accrued for the period, net of reimbursements.
Except as noted below, for the purpose of determining net
investment income earned during the period, interest earned on debt obligations
held by the Fund is calculated by computing the yield to maturity of each
obligation based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, based on the purchase
price (plus actual accrued interest), dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Fund. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.
-25-
<PAGE>
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.
The Fund's annual portfolio turnover rate may vary from year to
year, as well as within a year, depending on market conditions. The Fund's
portfolio turnover rate in fiscal year 1998 was 179% and in fiscal year 1997 was
92%. The Fund's portfolio turnover rate for the fiscal year ended October 31,
1998 increased as a result of changes in investment strategy.
17. FINANCIAL STATEMENTS
See next page.
-26-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
Par
Interest Rate Maturity Date (000) Value
- --------------------------------------------------------------------------------
U.S. Treasury Bonds - 73.5%
- --------------------------------------------------------------------------------
12.000% 8/15/13 $ 8,000 $ 12,351,248
11.750 11/15/14 36,000 56,604,384
8.875 2/15/19 33,000 47,143,602
8.125 8/15/19 23,750 31,806,451
7.875 2/15/21 45,750 60,361,406
8.125 8/15/21 7,900 10,708,205
-------------
Total U.S. Treasury Bonds
(Cost $212,025,123).............................. 218,975,296
-------------
- --------------------------------------------------------------------------------
U.S. Treasury Bill - 7.5%
- --------------------------------------------------------------------------------
4.170* 1/14/99 22,650 22,471,396
-------------
Total U.S. Treasury Bill
(Cost $22,471,395)............................... 22,471,396
-------------
- --------------------------------------------------------------------------------
Zero Coupon U.S. Treasury Bonds (S.T.R.I.P.S.) - 17.4%
- --------------------------------------------------------------------------------
5.630* 5/15/17 59,500 21,260,659
4.590* 2/15/99 31,000 30,599,263
-------------
Total Zero Coupon U.S. Treasury Bonds (S.T.R.I.P.S.)
(Cost $51,758,163)............................... 51,859,922
-------------
- --------------------------------------------------------------------------------
Repurchase Agreement - 0.8%
- --------------------------------------------------------------------------------
Goldman Sachs & Co., 5.25%
Dated 10/30/98, to be repurchased on 11/2/98,
collateralized by U.S. Treasury Bonds with
a market value of $2,366,300.
(Cost $2,319,000).................... 2,319 2,319,000
-------------
Total Investments in Securities -- 99.2%
(Cost $288, 573,681)**........................... 295,625,614
Other Assets in Excess of Liabilities -- 0.8%............. 2,383,429
-------------
Net Assets -- 100.0%...................................... 298,009,043
=============
-27-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($122,784,570 / 11,566,395 shares outstanding)................. $10.62
======
Flag Investors Class B Share
($3,888,092 / 365,906 shares outstanding)...................... $10.62
======
ISI Class Share
($171,336,381 / 16,120,920 shares outstanding)................. $10.62
======
Maximum Offering Price Per:
Flag Investors Class A Share
($10.62 / 0.955)............................................... $11.12
======
Flag Investors Class B Share...................................... $10.62
======
ISI Class Share
($10.62 / 0.9555).............................................. $11.11
======
- --------------------
** Yield as of October 31, 1998.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
-28-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
October 31,
- --------------------------------------------------------------------------------
1998
----
Investment Income:
Interest ................................................... $17,081,488
-----------
Expenses:
Investment advisory fee .................................... 784,379
Distribution fee ........................................... 739,554
Administration fee ......................................... 349,575
Transfer agent fee ......................................... 209,357
Professional fees .......................................... 109,444
Registration fees .......................................... 86,503
Accounting fee ............................................. 83,948
Custodian fee .............................................. 52,536
Printing and postage ....................................... 29,847
Miscellaneous .............................................. 48,135
-----------
Total expenses .................................... 2,493,278
-----------
Net investment income ......................................... 14,588,210
-----------
Realized and unrealized gain on investments:
Net realized gain from security transactions ............... 13,531,220
Change in unrealized appreciation/depreciation
of investments .......................................... 6,533,717
-----------
Net gain on investments .................................... 20,064,937
-----------
Net increase in net assets resulting from operations .......... $34,653,147
===========
See Notes to Financial Statements.
-29-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended October 31,
- -------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income.................................................. $ 14,588,210 $ 17,322,998
Net gain/(loss) from security transactions............................. 13,531,220 (2,143,673)
Change in unrealized appreciation/
depreciation on investments......................................... 6,533,717 10,567,788
------------- -------------
Net increase in net assets
resulting from operations.......................................... 34,653,147 25,747,113
------------- -------------
Dividends to Shareholders from:
Net investment income and short-term gains:
Flag Investors Class A Shares...................................... (7,541,487) (7,246,184)
Flag Investors Class B Shares....................................... (119,476) (17,762)
ISI Class Shares.................................................... (10,498,284) (10,059,052)
Tax return of capital distribution:
Flag Investors Class A Shares....................................... -- (1,040,753)
Flag Investors Class B Shares....................................... -- (2,606)
ISI Class Shares.................................................... -- (1,433,152)
Distributions in excess of net investment income:
Flag Investors Class A Shares....................................... -- (116,192)
Flag Investors Class B Shares....................................... -- (291)
ISI Class Shares................................................... -- (160,000)
------------- -------------
Total distributions.............................................. (18,159,247) (20,075,992)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares........................................... 34,205,451 15,601,057
Value of shares issued in
reinvestment of dividends........................................... 11,075,840 12,541,599
Cost of shares repurchased............................................. (57,907,621) (77,072,611)
------------- -------------
Decrease in net assets derived
from capital share transactions..................................... (12,626,330) (48,929,955)
------------- -------------
Total increase/(decrease) in net assets................................ 3,867,570 (43,258,834)
Net Assets:
Beginning of year...................................................... 294,141,473 337,400,307
------------- -------------
End of year............................................................ $298,009,043 $ 294,141,473
============= =============
</TABLE>
See Notes to Financial Statements.
-30-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class A and ISI Class Shares
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
For the Years Ended October 31,
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ................. $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ................................ 0.51 0.55 0.56 0.57 0.51
Net realized and unrealized gain/(loss) on investments 0.71 0.30 (0.23) 1.04 (1.16)
-------- -------- -------- -------- --------
Total from Investment Operations ..................... 1.22 0.85 0.33 1.61 (0.65)
Less Distributions:
Distributions from net investment income
and short-term gains .............................. (0.64) (0.55) (0.65) (0.64) (1.15)
Tax return of capital distribution ................... -- (0.08) -- -- (0.05)
Distributions in excess of net investment income ..... -- (0.01) (0.04) -- --
Net realized long-term gains ......................... -- -- -- -- (0.28)
-------- -------- -------- -------- --------
Total distributions .................................. (0.64) (0.64) (0.69) (0.64) (1.48)
-------- -------- -------- -------- --------
Net asset value at end of year ....................... $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22
======== ======== ========= ========= ========
Total Return (1) ........................................ 12.50% 9.00% 3.44% 18.09% (6.22)%
Ratios to Average Daily Net Assets:
Expenses ............................................. 0.85% 0.83% 0.81% 0.80% 0.77%
Net investment income ................................ 4.98% 5.62% 5.69% 5.94% 4.98%
Supplemental Data:
Net assets at end of year (000):
Flag Investors Class A Shares ..................... $122,785 $122,229 $143,791 $164,206 $175,149
ISI Class Shares .................................. $171,336 $171,074 $193,486 $206,615 $200,309
Portfolio turnover rate .............................. 179% 92% 199% 194% 68%
</TABLE>
- -----------
(1) Total return excludes the effect of sales charge.
See Notes to Financial Statements.
-31-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Financial Highlights -- Flag Investors Class B Shares (For a share outstanding
throughout each period)
<TABLE>
<CAPTION>
For the Period
June 20, 1996(1)
For the Years through
Ended October 31, October 31,
- ---------------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 10.03 $ 9.85 $ 10.00
------- ------- -------
Income from Investment Operations:
Net investment income ................. 0.55 0.56 0.22
Net realized and unrealized gain/(loss)
on investments ..................... 0.65 0.23 (0.15)
------- ------- -------
Total from Investment Operations ...... 1.20 0.79 0.07
Less Distributions:
Distributions from net investment
income and short-term gains ........ (0.61) (0.56) (0.22)
Tax return of capital distribution .... -- (0.04) --
Distributions in excess of net
investment income .................. -- (0.01) --
------- ------- -------
Total distributions ................... (0.61) (0.61) (0.22)
------- ------- -------
Net asset value at end of period ...... $ 10.62 $ 10.03 $ 9.85
======= ======= =======
Total Return (2) ......................... 12.29% 8.49% 6.37%
Ratios to Average Daily Net Assets:
Expenses .............................. 1.20% 1.18% 1.40%(3)
Net investment income ................. 4.59% 5.24% 5.45%(3)
Supplemental Data:
Net assets at end of period (000) ..... $ 3,888 $ 838 $ 123
Portfolio turnover rate ............... 179% 92% 199%(3)
</TABLE>
- -------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
See Notes to Financial Statements.
-32-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Total Return U.S. Treasury Fund, Inc. (the "Fund"), which was organized as
a Maryland Corporation on June 3, 1988 and commenced operations August 10, 1988,
is registered under the Investment Company Act of 1940 as a diversified,
open-end investment management company. It is designed to provide a high level
of total return with relative stability of principal as well as the secondary
objective of high current income consistent with an investment in securities
issued by the United States Treasury.
The Fund consists of three share classes: ISI Total Return U.S. Treasury
Fund Shares ("ISI Class Shares") and Flag Investors Total Return U.S. Treasury
Fund Class A Shares ("Flag Investors Class A Shares"), which both commenced
August 10, 1988, and Flag Investors Total Return U.S. Treasury Fund Class B
Shares ("Flag Investors Class B Shares"), which commenced June 20, 1996.
The ISI Class Shares have a 4.45% maximum front-end sales charge, the Flag
Investors Class A Shares have a 4.50% maximum front-end sales charge and the
Flag Investors Class B Shares have a 2.00% maximum contingent deferred sales
charge. The classes have different distribution fees.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. Under certain circumstances, it is necessary to reclassify prior year
information in order to conform to the current year's presentation. The Fund's
significant accounting policies are:
A. Security Valuation -- The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported for the
day by an independent pricing source. If there are no sales or the security is
not traded on a listed exchange, the Fund values the security at the average of
the last bid and asked prices in the over-the-counter market. When a market
quotation is not readily available, the Investment Advisor determines a fair
value using procedures that the Board of Directors establishes and monitors. The
Fund values short-term obligations with maturities of 60 days or less at
amortized cost.
-33-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
B. Repurchase Agreements -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement is a
short-term investment in which the Fund buys a debt security that the broker
agrees to repurchase at a set time and price. The third party, which is the
broker's custodial bank, holds the collateral in a separate account until the
repurchase agreement matures. The agreement ensures that the collateral's market
value, including any accrued interest, is sufficient if the broker defaults. The
Fund's access to the collateral may be delayed or limited if the broker defaults
and the value of the collateral declines or if the broker enters into an
insolvency proceeding.
C. Federal Income Taxes -- The Fund determines its distributions according
to income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and gains that
are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially all of
its taxable net investment income and net realized capital gains, it will be
exempt from most, if not all, federal income and excise taxes. As a result, the
Fund has made no provisions for federal income taxes.
D. Security Transactions, Investment Income, Distributions and Other -- The
Fund uses the trade date to account for security transactions and the specific
identification method for financial reporting and income tax purposes to
determine the gain or loss on investments sold or redeemed. Interest income is
recorded on an accrual basis and includes the pro rata scientific method for
amortization of premiums and accretion of discounts when appropriate. Income and
common expenses are allocated to each class based on its respective average net
assets. Class specific expenses are charged directly to each class. Dividends
from net investment income are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates. Distributions in excess of
net investment income are due to differing tax treatments of dividends declared.
-34-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and
Other Fees
International Strategy & Investment Inc. ("ISI") is the Fund's investment
advisor and Investment Company Capital Corp. ("ICC"), an indirect subsidiary of
Bankers Trust Corporation, is the Fund's administrator. As compensation for its
advisory services, the Fund pays ISI an annual fee based on the Fund's average
daily net assets. This fee is calculated daily and paid monthly at the following
annual rates: 0.20% of the first $100 million, 0.18% of the next $100 million,
0.16% of the next $100 million, 0.14% of the next $200 million and 0.12% of the
amount over $500 million. In addition, the Fund pays ISI 1.5% of the Fund's
gross income. At October 31, 1998, the Fund owed $67,196 of advisory fees.
As compensation for its administrative services, the Fund pays ICC an
annual fee based on the Fund's average daily net assets. This fee is calculated
daily and paid monthly at the following annual rates: 0.10% of the first $100
million, 0.09% of the next $100 million, 0.08% of the next $100 million, 0.07%
of the next $200 million and 0.06% of the amount over $500 million. In addition,
the Fund pays ICC 0.50% of the Fund's gross income. At October 31, 1998, the
Fund owed $30,087 of administration fees.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or administrator.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $83,948 for accounting services for the year ended
October 31, 1998. At October 31, 1998, the Fund owed $7,249 of accounting
services fees.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $209,357 for
transfer agent services for the year ended October 31, 1998. At October 31,
1998, the Fund owed $45,235 of transfer agent services fees.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. At October 31, 1998 the Fund owed $8,811 in custodian fees.
As compensation for providing distribution services for the ISI Class, the
Fund pays ISI Group Inc. ("ISI Group"), which is affiliated with ISI, an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the ISI Class' average daily net assets.
-35-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
As compensation for providing distribution services for the Flag Investors
classes, the Fund pays ICC Distributors, Inc. ("ICC Distributors"), an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the Flag Investors Class A Shares' average daily net
assets and 0.60% (including a 0.25% shareholder servicing fee) of the Flag
Investors Class B Shares' average daily net assets. For the year ended October
31, 1998, distribution fees aggregated $739,554, of which $423,709 was
attributable to the ISI Class Shares, $303,655 was attributable to the Flag
Investors Class A Shares and $12,190 was attributable to the Flag Investors
Class B Shares. At October 31, 1998, the Fund owed distribution fees amounting
to $65,271, of which $36,774 was attributable to the ISI Class Shares, $26,654
was attributable to the Flag Investors Class A Shares and $1,843 was
attributable to the Flag Investors Class B Shares.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
October 31, 1998 was $26,806, and the accrued liability was $61,879.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 99.5 million shares of $.001 par
value capital stock (44 million Flag Investors Class A, 44 million ISI Class, 5
million Flag Investors Class B and 6.5 million undesignated). Transactions in
shares of the Fund were as follows:
Flag Investors Class A Shares
------------------------------------
For the For the
Year Ended Year Ended
October 31, 1998 October 31, 1997
---------------- -----------------
Shares sold .............................. 1,422,232 490,187
Shares issued to shareholders on
reinvestment of dividends ............. 418,958 499,834
Shares redeemed .......................... (2,454,224) (3,438,672)
------------ -----------
Net decrease in shares outstanding ....... (613,034) (2,448,651)
============ ===========
Proceeds from sale of shares ............. $ 14,837,317 $ 4,746,207
Value of reinvested dividends ............ 4,289,957 4,867,694
Cost of shares redeemed .................. (25,308,085) (33,514,991)
------------ ------------
Net decrease from capital share
transactions .......................... $ (6,180,811) $(23,901,090)
============ ============
-36-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
NOTE 3--concluded
Flag Investors Class B Shares
------------------------------------
For the For the
Year Ended Year Ended
October 31, 1998 October 31, 1997
---------------- ----------------
Shares sold ............................. 313,798 85,484
Shares issued to shareholders on
reinvestment of dividends ............ 5,893 982
Shares redeemed ......................... (37,386) (15,359)
----------- -----------
Net increase in shares outstanding ...... 282,305 71,107
=========== ==========
Proceeds from sale of shares ............ $ 3,234,727 $ 833,099
Value of reinvested dividends ........... 60,838 9,591
Cost of shares redeemed ................. (385,163) (150,979)
----------- -----------
Net increase from capital share
transactions ......................... $ 2,910,402 $ 691,711
=========== ==========
ISI Class Shares
-------------------------------------
For the For the
Year Ended Year Ended
October 31, 1998 October 31, 1997
---------------- ----------------
Shares sold ............................. 1,567,913 1,028,342
Shares issued to shareholders on
reinvestment of dividends ............ 656,907 787,090
Shares redeemed ......................... (3,140,348) (4,455,189)
------------ ------------
Net decrease in shares outstanding ...... (915,528) (2,639,757)
============ ============
Proceeds from sale of shares ............ $ 16,133,407 $10,021,751
Value of reinvested dividends ........... 6,725,045 7,664,314
Cost of shares redeemed ................. (32,214,373) (43,406,641)
------------ ------------
Net decrease from capital share
transactions ......................... $ (9,355,921) $(25,720,576)
============ ============
-37-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $471,701,093 and sales of investment securities aggregated
$475,383,157 for the year ended October 31, 1998.
On October 31, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $7,059,925 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $7,992.
NOTE 5--Net Assets
On October 31, 1998, net assets consisted of:
Paid-in capital
Flag Investors Class A Shares ............................ $115,728,558
Flag Investors Class B Shares ............................ 3,720,993
ISI Class Shares ......................................... 165,252,861
Distributions in excess of net investment income ............ (1,490,713)
Accumulated net realized gain from security transactions .... 7,745,411
Unrealized appreciation of investments ...................... 7,051,933
-------------
$298,009,043
=============
NOTE 6--Federal Income Tax Information
Generally accepted accounting principles require that certain components of
net assets be reclassified to reflect permanent differences between financial
reporting and tax purposes. Accordingly, permanent book/tax differences related
to the tax treatment of short-term capital gains of $3,642,137 have been
reclassified from net investment income to the accumulated net realized gain
from security transactions. These reclassifications have no effect on net assets
or net asset values per share.
-38-
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Total Return U.S. Treasury Fund, Inc.:
We have audited the statement of net assets of the Total Return U.S.
Treasury Fund, Inc. as of October 31, 1998, 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 audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Total Return U.S.
Treasury Fund, Inc. as of October 31, 1998, 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
Princeton, New Jersey
November 30, 1998
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation incorporated by reference to Exhibit (1)(a) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097)
on February 26, 1996.
(2) Articles Supplementary to Registrant's Articles of Incorporation dated
December 18, 1991 incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February
26, 1996.
(3) Articles Supplementary to Registrant's Articles of Incorporation dated
December 15, 1993 incorporated by reference to Exhibit (1)(c) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February
26, 1996.
(4) Articles Supplementary to Registrant's Articles of Incorporation dated
December 31, 1994 incorporated by reference to Exhibit (1)(d) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February
26, 1996.
(5) Articles Supplementary to Registrant's Articles of Incorporation dated
October 23, 1998, filed herewith.
(b) By-Laws, as amended through December 18, 1996 incorporated by reference to
Exhibit (2) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-97-000364) on February 26, 1997.
(c) (1) Form of Specimen Certificate of Common Stock, $.001 par value with respect
to the Flag Investors Total Return U.S. Treasury Fund Class A Shares
incorporated by reference to Exhibit (1)(Articles of Incorporation) as
amended to date, to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996, and Exhibit 2 (By-Laws) as amended
to date, to Post-Effective Amendment No. 15 to such Registration
Statement, filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-000364) on February 26, 1997.
(2) Form of Specimen Certificate of Common Stock, $.001 par value with respect
to the ISI Total Return U.S. Treasury Fund Shares incorporated by
reference to Exhibit (1)(Articles of Incorporation) as amended to date, to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996, and Exhibit 2 (By-Laws) as amended
to date, to Post-Effective Amendment No. 15 to such Registration
Statement, filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-000364) on February 26, 1997.
(c) Form of Specimen Certificate of Common Stock, $.001 par value with respect
to the Flag Investors Total Return U.S. Treasury Fund Class B Shares
incorporated by reference to Exhibit (1)(Articles of Incorporation) as
amended to date, to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996, and Exhibit 2 (By-Laws) as amended
to date, to Post-Effective Amendment No. 15 to such Registration
Statement, filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-000364) on February 26, 1997.
(d) Investment Advisory Agreement dated April 1, 1991 between Registrant and
International Strategy & Investment Inc. incorporated by reference to Exhibit (5)
to Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(e) (1) Distribution Agreement dated as of August 31, 1997 between Registrant and
ICC Distributors, Inc. with respect to the Flag Investors Shares
incorporated by reference to Exhibit (6)(a) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000481) on February 26, 1998.
(2) Form of Participating Dealer Agreement between ICC Distributors, Inc. and
Participating Dealers with respect to the Flag Investors Shares
incorporated by reference to Exhibit (6)(b) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000481) on February 26, 1998.
(3) Form of Shareholder Servicing Agreement for the Flag Investors Shares
incorporated by reference to Exhibit (6)(c) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000481) on February 26, 1998.
(4) Distribution Agreement dated as of April 1, 1997 between Registrant and
International Strategy & Investment Group Inc, with respect to the ISI
Total Return U.S. Treasury Fund Shares incorporated by reference to
Exhibit (6)(d) to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(5) Form of Agency Distribution Agreement between International Strategy &
Investment Group Inc. and Participating Dealers with respect to the ISI
Total Return U.S. Treasury Fund Shares incorporated by reference to
Exhibit (6)(e) to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed
with the Securities and Exchange Commission via EDGAR (Accession
No. 950116-98-000481) on February 26, 1998.
(6) Form of Shareholder Servicing Agreement for the ISI Total Return U.S.
Treasury Fund Shares incorporated by reference to Exhibit (6)(f) to
Post-Effective Amendment No. 16 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-98-000481) on February
26, 1998.
(f) None.
(g) Custodian Agreement dated June 5, 1998, between Registrant and Bankers Trust
Company, filed herewith.
(h) Master Services Agreement dated as of January 1, 1994, between Registrant and
Investment Company Capital Corp., with Appendices for the provision of
Administration, Accounting and Transfer Agency Services incorporated by reference
to Exhibit (9)(a) to Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February 26,
1996.
(i) Opinion of Counsel incorporated by reference to Exhibit (10) to Post-Effective
Amendment No. 13 to Registrant's Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000097) on February 26, 1996.
(j) Consent of Deloitte & Touche LLP, filed herewith.
(k) None.
(l) Subscription Agreements between Registrant and Investors incorporated by reference
to Exhibit (13) to Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February 26,
1996.
(m) (1) Distribution Plan for the Flag Investors Total Return U.S. Treasury Fund
Class A Shares incorporated by reference to Exhibit (15)(a) to Post-
Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February
26, 1996.
(2) Distribution Plan for the ISI Total Return U.S. Treasury Fund Shares
incorporated by reference to Exhibit (15)(b) to Post-Effective Amendment
No. 13 to Registrant's Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000097) on February 26, 1996.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(3) Distribution Plan for the Flag Investors Total Return U.S. Treasury Fund
Class B Shares incorporated by reference to Exhibit (15)(c) to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on
Form N-1A (File No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000163) on March 26, 1996.
(4) Amended Distribution Plan for the Flag Investors Total Return U.S.
Treasury Fund Class A Shares incorporated by reference to Exhibit (15)(d)
to Post-Effective Amendment No. 16 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-98-000481) on February
26, 1998.
(5) Amended Distribution Plan for the ISI Total Return U.S. Treasury Fund
Shares incorporated by reference to Exhibit (15)(e) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000481) on February 26,
1998.
(6) Amended Distribution Plan for the Flag Investors Total Return Class B
Shares incorporated by reference to Exhibit (15)(f) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000481) on February 26,
1998.
(n) Financial Data Schedule, filed herewith.
(o) (1) Rule 18f-3 Plan incorporated by reference to Exhibit (18)(a) to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on
Form N-1A (File No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000163) on March 26, 1996.
(2) Amended Rule 18f-3 Plan, filed herewith.
(p) Powers of Attorney, filed herewith.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant.
Provide a list or diagram of all persons directly or
indirectly controlled by or under common control with the Registrant. For any
person controlled by another person, disclose the percentage of voting
securities owned by the immediately controlling person or other basis of that
person's control. For each company, also provide the state or sovereign power
under the law of which the company is organized.
None.
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<PAGE>
Item 25. 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 against any liability incurred in their
official 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-5
<PAGE>
Item 26. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment advisor and each
director, officer or partner of the investment advisor, is or has been engaged
within the last two fiscal years for his or her own account or in the capacity
of director, officer, employee, partner or trustee. (Disclose the name and
principal business address of any company for which a person listed above serves
in the capacity of director, officer, employee, partner or trustee, and the
nature of the relationship.)
During the past two fiscal years: Edward S. Hyman, Jr.,
Chairman of the Investment Advisor, served as Chairman, Chief Executive Officer
and a Director of International Strategy & Investment Group Inc., the
distributor for the Fund's ISI Total Return U.S. Treasury Fund Shares; R. Alan
Medaugh, President of the Investment Advisor, served as a Director of
International Strategy and Investment Group, Inc.; Nancy Lazar, Executive Vice
President and Secretary of the Investment Advisor, served as Executive Vice
President and a Director of International Strategy & Investment Group Inc.; and
Joel Fein, Chief Financial Officer of the Investment Advisor served as Chief
Financial Officer of International Strategy & Investment Group Inc.
Item 27. Principal Underwriters
(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor or
investment advisor.
ICC DISTRIBUTORS, INC.
ICC Distributors, Inc. acts as distributor for BT Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Communications Fund, Inc.
(formerly 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 Short-Intermediate Income
Fund, Inc. (formerly known as Flag Investors Intermediate-Term
Income Fund, Inc.), Flag Investors Value Builder Fund, Inc., Flag
Investors Real Estate Securities Fund, Inc. and Flag Investors
Equity Partners Fund, Inc., all registered open-end management
investment companies.
(b) Provide the information with respect to each director, officer or
partner of each principal underwriter named in answer to Item 21.
<TABLE>
<CAPTION>
Position and
Names and Principal Position and Offices Offices with
Business Address* with Principal Underwriter Registrant
- ----------------- -------------------------- ----------
<S> <C> <C>
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
</TABLE>
- ------------------------
* Two Portland Square
Portland, ME 04101
C-6
<PAGE>
(c) Not applicable.
INTERNATIONAL STRATEGY & INVESTMENT GROUP INC.
(a) International Strategy & Investment Group Inc. also acts as
distributor for ISI Managed Municipal Fund Shares (a class of
Managed Municipal Fund, Inc.), ISI North American Government
Bond Fund Shares (a class of North American Government Bond
Fund, Inc.) and ISI Strategy Fund Shares (a class of ISI
Strategy Fund, Inc.), registered open-end investment
companies.
(b)
<TABLE>
<CAPTION>
Names and Principal Position and Offices Position and Offices
Business Address** with Principal Underwriter with Registrant
- ------------------ -------------------------- ---------------
<S> <C> <C>
Edward S. Hyman Chairman, Chief Executive Chairman and Director
Officer and Director
R. Alan Medaugh Director President
Nancy Lazar Executive Vice President and Vice President
Director
Joel Fein Chief Financial Officer None
</TABLE>
- ---------------
** 717 Fifth Avenue
New York, New York 10022
(c) Not applicable.
Item 28. Location of Accounts and Records
State the name and address of each person maintaining principal
possession of 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] thereunder.
Investment Company Capital Corp. ("ICC"), One South Street,
Baltimore, Maryland 21202, Registrant's administrator, transfer agent, dividend
disbursing agent and accounting services provider, maintains physical possession
of each such account, book or other document of the Fund, except for those
maintained by Registrant's investment advisor, International Strategy &
Investment Inc. ("ISI"), 717 Fifth Avenue, New York, New York 10022, by the
distributor for Registrant's ISI Shares, International Strategy & Investment
Group Inc., 717 Fifth Avenue, New York, New York 10022, by the distributor for
Registrant's Flag Investors Shares, ICC Distributors, Inc., Two Portland Square,
Portland, Maine 04101, or by the Registrant's custodian, Bankers Trust Company,
130 Liberty Street, New York, New York 10006.
C-7
<PAGE>
In particular, with respect to the records required by Rule
31a-1(b)(1), ISI and ICC each maintains physical possession of all journals
containing itemized daily records of all purchases and sales of securities,
including sales and redemptions of Fund securities, and Bankers Trust Company
maintains physical possession of all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by the custodian
or transfer-agent), all receipts and disbursements of cash, and all other debts
and credits.
Item 29. Management Services
Provide a summary of the substantive provisions of any management
related service contract not discussed in part A or Part B of this Form
disclosing the parties to the contract and the total amount paid and by whom,
for the Registrant's last three fiscal years.
See Exhibit g.
Item 30. 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
Investors Shares) or (800) 955-7175 (for ISI Shares).
C-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 17 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 29th day of December, 1998.
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:
* Chairman and Director December 29, 1998
- -------------------------- ---------------
Edward S. Hyman, Jr. Date
* Director December 29, 1998
- -------------------------- ---------------
James J. Cunnane Date
* Director December 29, 1998
- -------------------------- ---------------
Richard T. Hale Date
* Director December 29, 1998
- -------------------------- ---------------
Joseph R. Hardiman Date
* Director December 29, 1998
- -------------------------- ---------------
Louis E. Levy Date
* Director December 29, 1998
- -------------------------- ---------------
Eugene J. McDonald Date
* Director December 29, 1998
- -------------------------- ---------------
Rebecca W. Rimel Date
* Director December 29, 1998
- -------------------------- ---------------
Truman T. Semans Date
* Director December 29, 1998
- -------------------------- ---------------
Carl W. Vogt Date
/s/ R. Alan Medaugh President December 29, 1998
- -------------------------- ---------------
R. Alan Medaugh Date
/s/ Joseph A. Finelli Chief Financial December 29, 1998
- -------------------------- and Accounting ---------------
Joseph A. Finelli Officer Date
*By: /s/Amy M. Olmert
--------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Description
- ------ -----------
(a) (1) Articles of Incorporation incorporated by
reference to Exhibit (1)(a) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
(2) Articles Supplementary to Registrant's Articles of
Incorporation dated December 18, 1991 incorporated
by reference to Exhibit (1)(b) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
(3) Articles Supplementary to Registrant's Articles of
Incorporation dated December 15, 1993 incorporated
by reference to Exhibit (1)(c) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
(4) Articles Supplementary to Registrant's Articles of
Incorporation dated December 31, 1994 incorporated
by reference to Exhibit (1)(d) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
EX-99.B (5) Articles Supplementary to Registrant's Articles of
Incorporation dated October 23, 1998, filed
herewith.
(b) By-Laws, as amended through December 18, 1996 incorporated
by reference to Exhibit (2) to Post-Effective Amendment
No. 15 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 950116-97-000364) on February 26, 1997.
(c) (1) Form of Specimen Certificate of Common Stock,
$.001 par value with respect to the Flag Investors
Total Return U.S. Treasury Fund Class A Shares
incorporated by reference to Exhibit (1)(Articles
of Incorporation) as amended to date, to Post-
Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996, and
Exhibit 2 (By-Laws) as amended to date, to
Post-Effective Amendment No. 15 to such
Registration Statement, filed with the Securities
<PAGE>
and Exchange Commission via EDGAR (Accession No.
950116-97-000364) on February 26, 1997.
(2) Form of Specimen Certificate of Common Stock,
$.001 par value with respect to the ISI Total
Return U.S. Treasury Fund Shares incorporated by
reference to Exhibit (1)(Articles of
Incorporation) as amended to date, to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996, and
Exhibit 2 (By-Laws) as amended to date, to
Post-Effective Amendment No. 15 to such
Registration Statement, filed with the Securities
and Exchange Commission via EDGAR (Accession No.
950116-97-000364) on February 26, 1997.
(3) Form of Specimen Certificate of Common Stock,
$.001 par value with respect to the Flag Investors
Total Return U.S. Treasury Fund Class B Shares
incorporated by reference to Exhibit (1)(Articles
of Incorporation) as amended to date, to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996, and
Exhibit 2 (By-Laws) as amended to date, to
Post-Effective Amendment No. 15 to such
Registration Statement, filed with the Securities
and Exchange Commission via EDGAR (Accession No.
950116-97-000364) on February 26, 1997.
(d) Investment Advisory Agreement dated April 1, 1991 between
Registrant and International Strategy & Investment Inc.
incorporated by reference to Exhibit (5) to Post-Effective
Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 950116-96-000097) on February 26, 1996.
(e) (1) Distribution Agreement dated as of August 31, 1997
between Registrant and ICC Distributors, Inc. with
respect to the Flag Investors Shares incorporated
by reference to Exhibit (6)(a) to Post-Effective
Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-
000481) on February 26, 1998.
(2) Form of Participating Dealer Agreement between ICC
Distributors, Inc. and Participating Dealers with
respect to the Flag Investors Shares incorporated
by reference to Exhibit (6)(b) to Post-Effective
Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-
000481) on February 26, 1998.
(3) Form of Shareholder Servicing Agreement for
the Flag Investors Shares incorporated by
reference to Exhibit (6)(c) to Post-Effective
Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
<PAGE>
(4) Distribution Agreement dated as of April 1, 1997
between Registrant and International Strategy &
Investment Group Inc, with respect to the ISI
Total Return U.S. Treasury Fund Shares
incorporated by reference to Exhibit (6)(d) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(5) Form of Agency Distribution Agreement between
International Strategy & Investment Group Inc. and
Participating Dealers with respect to the ISI
Total Return U.S. Treasury Fund Shares
incorporated by reference to Exhibit (6)(e) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(6) Form of Shareholder Servicing Agreement for the
ISI Total Return U.S. Treasury Fund Shares
incorporated by reference to Exhibit (6)(f) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(f) None.
EX-99.B (g) Custodian Agreement dated June 5, 1998, between
Registrant and Bankers Trust Company, filed herewith.
(h) Master Services Agreement dated as of January 1, 1994,
between Registrant and Investment Company Capital Corp.,
with Appendices for the provision of Administration,
Accounting and Transfer Agency Services incorporated by
reference to Exhibit (9)(a) to Post-Effective Amendment
No. 13 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
(i) Opinion of Counsel incorporated by reference to Exhibit
(10) to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116- 96-000097) on
February 26, 1996.
EX-99.B (j) Consent of Deloitte & Touche LLP, filed herewith.
(k) None.
(l) Subscription Agreements between Registrant and Investors
incorporated by reference to Exhibit (13) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on
February 26, 1996.
<PAGE>
(m) (1) Distribution Plan for the Flag Investors Total
Return U.S. Treasury Fund Class A Shares
incorporated by reference to Exhibit (15)(a) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
(2) Distribution Plan for the ISI Total Return U.S.
Treasury Fund Shares incorporated by reference to
Exhibit (15)(b) to Post-Effective Amendment No. 13
to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000097) on February 26,
1996.
(3) Distribution Plan for the Flag Investors Total
Return U.S. Treasury Fund Class B Shares
incorporated by reference to Exhibit (15)(c) to
Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (File No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-000163) on March 26, 1996.
(4) Amended Distribution Plan for the Flag Investors
Total Return U.S. Treasury Fund Class A Shares
incorporated by reference to Exhibit (15)(d) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-12179), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(5) Amended Distribution Plan for the ISI Total Return
U.S. Treasury Fund Shares incorporated by
reference to Exhibit (15)(e) to Post-Effective
Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(6) Amended Distribution Plan for the Flag Investors
Total Return Class B Shares incorporated by
reference to Exhibit (15)(f) to Post-Effective
Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
EX-99.B (n) Financial Data Schedule, filed herewith.
(o) (1) Rule 18f-3 Plan incorporated by reference to
Exhibit (18)(a) to Post-Effective Amendment No. 14
to Registrant's Registration Statement on Form
N-1A (File No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000163) on March 26,
1996.
EX-99.B (2) Amended Rule 18f-3 Plan, filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
<PAGE>
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 a new class of shares and increasing the total number of
authorized shares of capital stock which the Corporation has the authority to
issue to one hundred fifteen million (115,000,000) shares of Common Stock, par
value $.001 per share, having an aggregate par value of one hundred fifteen
thousand dollars ($115,000.00), all of which are designated 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"), fifteen million (15,000,000) shares
are designated "Flag Investors Total Return U.S. Treasury Fund Class C Shares"
(the "Class C 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 C
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 one hundred thousand dollars
($100,000.00), of which forty-four million (44,000,000) 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", forty-four million (44,000,000) shares were designated
"ISI Total Return U.S. Treasury Fund Shares", five hundred thousand (500,000)
shares were designated "Flag Investors Total Return U.S. Treasury Fund Class D
Shares" and six million, five hundred thousand (6,500,000) 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 its President and its
corporate seal to be affixed and attested by its Secretary on this 23rd day of
October, 1998.
[CORPORATE SEAL]
TOTAL RETURN U.S. TREASURY FUND, INC.
By: /s/R. Alan Medaugh
------------------
R. Alan Medaugh
President
Attest: /s/Amy M. Olmert
----------------
Amy M. Olmert
Secretary
The undersigned, 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/R. Alan Medaugh
------------------
R. Alan Medaugh
President
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and TOTAL RETURN U.S. TREASURY FUND, INC. (the "Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For purposes
of this Agreement, "delivery" of Property shall include the acquisition of a
security entitlement (as that term is defined in the New York Uniform Commercial
Code ("UCC")) with respect thereto. Without limitation, such Property shall
include stocks and other equity interests of every type, evidences of
indebtedness, other instruments representing same or rights or obligations to
receive, purchase, deliver or sell same and other non-cash investment property
of the Customer ("Securities") and cash from any source and in any currency
("Cash"), provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept as Property any property of a Customer that the
Custodian considers not to be appropriate or in proper form for deposit for any
reason. The Custodian shall not be responsible for any property of the Customer
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Property at Custodian and Subcustodian Locations.
Pursuant to Instructions, the Customer shall direct the Custodian to (a) settle
Securities transactions and maintain cash in the country or other jurisdiction
in which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are acquired
and (b) maintain Cash and Cash equivalents in such countries in amounts
reasonably necessary to effect the Customer's transactions in such Securities.
Instructions to settle Securities transactions in any country shall be deemed to
authorize the holding of such Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the Account any Property received therefor by the Custodian or a
Subcustodian and to give, and authorize others to give, instructions relative
thereto. The Custodian may deliver securities of the same class in place of
those deposited in the Account.
- 1 -
<PAGE>
The Custodian shall hold, keep safe and protect as custodian for
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions, except that until
the Custodian receives Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation to the extent that the Custodian or
Subcustodian is actually aware of such opportunities and hold
the cash received in the Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
the Account, endeavor to receive Instructions, provided that
if such Instructions are not received in time for the
Custodian to take timely action, no action shall be taken with
respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for the Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in the Account by any
governmental authority. In the event there is insufficient
Cash available in the
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Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the
Customer, at its option, may deposit additional Cash in the
Account or take steps to have sufficient Cash available. The
Customer agrees, when and if requested by the Custodian and
required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information,
executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to maintain the Property in the Account directly in one
of its U.S. branches or indirectly through custody accounts which have been
established by the Custodian with the following other securities intermediaries:
(a) one of its U.S. branches or another U.S. bank or trust company or branch
thereof located in the U.S. which is itself qualified under the Investment
Company Act of 1940, as amended ("1940 Act"), to act as custodian (individually,
a "U.S. Subcustodian"), or a U.S. securities depository or clearing agency or
system in which the Custodian or a U.S. Subcustodian participates (individually,
a "U.S. Securities System") or (b) one of its non-U.S. branches or
majority-owned non-U.S. subsidiaries, a non-U.S. branch or majority-owned
subsidiary of a U.S. bank or a non-U.S. bank or trust company, acting as
custodian (individually, a "non-U.S. Subcustodian"; U.S. Subcustodians and
non-U.S. Subcustodians, collectively, "Subcustodians"), or a non-U.S. depository
or clearing agency or system in which the Custodian or any Subcustodian
participates (individually, a "non-U.S. Securities System"; U.S. Securities
System and non-U.S. Securities System, collectively, "Securities System"),
provided that in each case in which a U.S. Subcustodian or U.S. Securities
System is employed, each such Subcustodian or Securities System shall have been
approved by Instructions; provided further that in each case in which a non-U.S.
Subcustodian or non-U.S. Securities System is employed, (a) such Subcustodian or
Securities System either is (i) a "qualified U.S. bank" as defined by Rule 17f-5
under the 1940 Act ("Rule 17f-5") or (ii) an "eligible foreign custodian"
within the meaning of Rule 17f-5 or such Subcustodian or Securities System is
the subject of an order granted by the U.S. Securities and Exchange Commission
("SEC") exempting such agent or the subcustody arrangements thereto from all or
part of the provisions of Rule 17f-5 and (b) the agreement between the Custodian
and such non-U.S. Subcustodian has been approved by Instructions; it being
understood that the Custodian shall have no liability or responsibility for
determining whether the approval of any Subcustodian or Securities System has
been proper under the 1940 Act or any rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
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addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S. Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a
Subcustodian with respect to maintaining Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities so
maintained will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of such
Subcustodian or its creditors except a claim for payment in
accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial
ownership of such Securities will be freely transferable
without the payment of money or value other than for safe
custody or administration and expenses related thereto; and
(iv) adequate records will be maintained identifying the
Property maintained pursuant to such agreement as belonging to
the Custodian, on behalf of its customers and (v) to the
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extent permitted by applicable law, officers of or auditors
employed by, or other representatives of or designated by,
the Custodian, including the independent public accountants
of or designated by, the Customer be given access to the
books and records of such Subcustodian relating to its
actions under its agreement pertaining to any Property held
by it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such
persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the Account
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required by
its agreement with the Custodian to, identify on its books
such Property as being maintained for the account of the
Custodian or Subcustodian for its customers.
(b) Any Property maintained through a Securities System for the
account of the Custodian or a Subcustodian will be subject
only to the instructions of the Custodian or such
Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
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8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The Custodian
shall keep accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the Account. All accounts, books and
records of the Custodian relating thereto shall be open to inspection and audit
at all reasonable times during normal business hours by any person designated by
the Customer. All such accounts shall be maintained and preserved in the form
reasonably requested by the Customer. The Custodian will supply to the
Customer from time to time, as mutually agreed upon, a statement in respect to
any Property in the Account maintained by the Custodian or by a Subcustodian. In
the absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct with respect to
all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Property,
including Property deposited and/or maintained in a securities system or with a
Subcustodian. Such report shall be of sufficient scope and in sufficient detail
as may reasonably be required by the Customer and as may reasonably be obtained
by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market values
of Securities in the Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
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9. Holding of Securities, Nominees, etc. Securities in the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through a Subcustodian or
which are eligible for deposit in a Securities System as provided above may be
maintained with the Subcustodian or the Securities System in an account for the
Custodian's or Subcustodian's customers, unless prohibited by law, rule, or
regulation. The Custodian or Subcustodian, as the case may be, may combine
certificates representing Securities held in the Account with certificates of
the same issue held by it as fiduciary or as a custodian. In the event that any
Securities in the name of the Custodian or its nominee or held by a Subcustodian
and registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of Security in
any manner the Custodian deems to be fair and equitable. Securities maintained
with a Securities System shall be maintained subject to the rules of that
Securities System governing the rights and obligations among the Securities
System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") or (iii) as may otherwise be agreed upon between the
Custodian and the Customer. The liability and responsibility of the Custodian in
connection with the Proxy Service referred to in (ii) of the immediately
preceding sentence and in connection with any additional services which the
Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in the
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the Customer.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for the Account and delivery of Securities
out of the Account may be effected in accordance with the customary or
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established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined below and provided to the
Customer by the Custodian, the Custodian may, at its sole option, reverse such
credits or debits to the Account in the event that the transaction does not
settle, or the income is not received in a timely manner, and the Customer
agrees to hold the Custodian harmless from any losses which may result
therefrom.
The applicable Service Standards shall be defined as the Global Guide,
the Policies and Standards Manual, and any other documents issued by the
Custodian from time to time specifying the procedures for communicating with the
Customer, the terms of any additional services to be provided to the Customer,
and such other matters as may be agreed between the Customer and the Custodian
from time to time.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any Instructions to settle the
purchase of any securities for the Account, unless there are sufficient
immediately available funds in the relevant currency in the Account, provided
that, if, after all expenses, debits and withdrawals of Cash in the relevant
currency ("Debits") applicable to the Account have been made and if after all
Conditional Credits, as defined below, applicable to the Account have been made
final entries as set forth in (c) below, the amount of immediately available
funds in the relevant currency in such Account is at least equal to the
aggregate purchase price of all Securities for which the Custodian has received
Instructions to settle on that date ("Settlement Date"), the Custodian, upon
settlement, shall credit the Securities to the Account by making a final entry
on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable to
the Account have been made, there remains outstanding any Conditional Credit (as
defined below) applicable to the Account or the amount of immediately available
funds in a given currency in such Account are less than the aggregate purchase
price in such currency of all securities for which the Custodian has received
Instructions to settle on the Settlement Date, the Custodian, upon settlement,
may provisionally credit the Securities to the Account by making a conditional
entry on its books and records ("Conditional Credit"), pending receipt of
sufficient immediately available funds in the relevant currency in the Account.
(c) If, within a reasonable time after the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds in the relevant currency at least equal to the
aggregate purchase price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are deposited into the Account, the
Custodian shall make the Conditional Credit a final entry on its books and
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records. In such case, the Customer shall be liable to the Custodian only for
late charges at a rate which the Custodian customarily charges for similar
extensions of credit.
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account, or (ii) any Proceeding shall
occur, the Custodian may sell such of the Securities subject to the Conditional
Credit as it selects in its sole discretion and shall apply the net proceeds of
such sale to cover such Debit, including related late charges, and any remaining
proceeds shall be credited to the Account. If such proceeds are insufficient to
satisfy such debt in full, the Customer shall continue to be liable to the
Custodian for any shortfall. The Custodian shall make the Conditional Credit a
final entry on its books as to the Securities not required to be sold to satisfy
such Debit. Pending payment in full by the Customer of the purchase price for
Securities subject to a Conditional Credit, and the Custodian's making a
Conditional Credit a final entry on its books, and unless consented to by the
Custodian, the Customer shall have no right to give further Instructions in
respect of Securities subject to a Conditional Credit. The Custodian shall have
the sole discretion to determine which Securities shall be deemed to have been
paid for by the Customer out of funds available in the Account. Any such
Conditional Credit may be reversed (and any corresponding Debit shall be
canceled) by the Custodian unless and until the Custodian makes a final entry on
its books crediting such Securities to the Account. The term "Proceeding" shall
mean any insolvency, bankruptcy, receivership, reorganization or similar
proceeding relating to the Customer, whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally use the Account
to facilitate the purchase of securities without sufficient funds in the Account
(which funds shall not include the expected proceeds of the sale of the
purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
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(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed or in order
to satisfy requirements for additional or substitute collateral.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Portfolio's investment advisor and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission or of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
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(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 21.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian in accordance with Section 22 below (i) in writing
(including, without limitation, facsimile transmission) or by tested telex
signed or given by such one or more person or persons as the Customer shall have
from time to time authorized in writing to give the particular class of
Instructions in question and whose name and (if applicable) signature and office
address have been filed with the Custodian, or (ii) which have been transmitted
electronically through an electronic on-line service and communications system
offered by the Custodian or other electronic instruction system acceptable to
the Custodian, or (iii) a telephonic or oral communication by one or more
persons as the Customer shall have from time to time authorized to give the
particular class of Instructions in question and whose name has been filed with
the Custodian; or (iv) upon receipt of such other form of instructions as the
Customer may from time to time authorize in writing and which the Custodian has
agreed in writing to accept. Instructions in the form of oral communications
shall be confirmed by the Customer by tested telex or writing in the manner set
forth in clause (i) above, but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral instructions
prior to the Custodian's receipt of such confirmation. Instructions may relate
to specific transactions or to types or classes of transactions, and may be in
the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in the Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
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pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in the Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian or hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian
- 12 -
<PAGE>
and its nominees, for any loss, damage or expense suffered or incurred by the
Custodian or its nominees arising out of any violation of any investment
restriction or other restriction or limitation applicable to the Customer
pursuant to any contract or any law or regulation. The provisions of this
Section shall survive termination of this Agreement.
18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit B. Such fees will not be abated by, nor shall the Custodian be required
to account for, any profits or commissions received by the Custodian in
connection with its provision of custody services under this Agreement. The
Customer hereby agrees to hold the Custodian harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expense related
thereto, which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder of Property
in the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the Account for any
amount payable to the Custodian under this Agreement, including but not limited
to amounts payable pursuant to Section 13 and pursuant to indemnities granted by
the Customer under this Agreement. The provisions of this Section shall survive
the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. Such standard of care shall not be
affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If notice of termination is given by the Custodian,
the Customer shall, within ninety (90) days following the giving of such notice,
deliver to the Custodian
- 13 -
<PAGE>
a written notice specifying the names of the persons to whom the Custodian shall
deliver the Securities in the Account and to whom the Cash in the Account shall
be paid. In either case, the Custodian will deliver such Property to the persons
so specified, after deducting therefrom any amounts which the Custodian
determines to be owed to it hereunder. In addition, the Custodian may in its
discretion withhold from such delivery such Property as may be necessary to
settle transactions pending at the time of such delivery. The Customer grants to
the Custodian a lien and right of setoff against the Account and all Property
held therein from time to time in the full amount of the foregoing obligations.
If within ninety (90) days following the giving of a notice of termination by
the Custodian, the Custodian does not receive from the Customer a written notice
specifying the names of the persons to whom the Custodian shall deliver the
Securities in the Account and to whom the Cash in the Account shall be paid, the
Custodian, at its election, may deliver such Securities and pay such Cash to a
bank or trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions of this Agreement, or may continue to
hold such Securities and Cash until a written notice as aforesaid is delivered
to the Custodian, provided that the Custodian's obligations shall be limited to
safekeeping.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall be
entitled to use available Cash in the Account, and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to take such other actions or
exercise such other options, powers and rights as the Custodian now or hereafter
has as a secured creditor under the New York UCC or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of fees,
expenses and other charges to the Account as herein provided, is not prohibited
by law or any governing documents or contracts to which it is subject;
(ii) the terms of this Agreement do not violate any obligation by
which it is bound, whether arising by contract, operation of law or otherwise;
- 14 -
<PAGE>
(iii) this Agreement has been duly authorized by appropriate action
and when executed and delivered will be binding upon it in accordance with its
terms; and
(iv) it will deliver to the Custodian a duly executed Secretary's
Certificate in the form of Exhibit D attached hereto or such other evidence of
such authorization as the Custodian may reasonably require, whether by way of a
certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation by
which it is bound, whether arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate action
and when executed and delivered will be binding upon it in accordance with its
terms;
(iii) it will deliver to the Customer such evidence of such
authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a) of
the 1940 Act and warrants that it will remain so qualified or upon ceasing to be
so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. Publicity. Customer shall furnish to Custodian in accordance with
Section 22 above, prior to any distribution thereof, copies of any material
prepared for distribution to any persons who are not parties hereto that refer
in any way to the Custodian. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonably objects in writing within
ten (10) business days of receipt thereof (or such other time as may be mutually
agreed) after receipt thereof. The provisions of this Section shall survive the
termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
- 15 -
<PAGE>
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation. The
provisions of this Section shall survive the termination of this Agreement.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
31. Entire Agreement. This Agreement together with any Exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
33. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
- 16 -
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
TOTAL RETURN
U.S. TREASURY FUND, INC.
By: /s/Amy M. Olmert
----------------
Name: Amy M. Olmert
Title: Secretary
BANKERS TRUST COMPANY
By: /s/Richard Fogarty
------------------
Name: Richard Fogarty
Title: Vice President
- 17 -
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Total Return U.S. Treasury Fund, Inc..
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the applicable Service Standards.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security is
held, the Custodian will as soon as practicable after receipt of
the original meeting agenda by a Subcustodian provide an English
translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
<PAGE>
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account unless other
arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit A will be deemed to be automatically
amended to include or delete such countries as the case may be.
- 2 -
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Total Return U.S. Treasury Fund, Inc..
BANKERS TRUST CUSTODY FEE SCHEDULE
FOR
BT ALEX. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS)
Effective October 1, 1997
CUSTODY FEES
1. DOMESTIC SAFEKEEPING FEES
ANNUAL ASSET FEE (BY FUND- EXCEPT CASH RESERVE)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
ANNUAL ASSET FEE (CASH RESERVE FUND)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
2. DOMESTIC TRANSACTION FEES
================================================================================
TRANSACTION TYPE $USD
- --------------------------------------------------------------------------------
AUTOMATED DEPOSITORY: DTC/PTC/FED 10.00
- --------------------------------------------------------------------------------
MANUAL DEPOSITORY: DTC/PTC/ FED 15.00
- --------------------------------------------------------------------------------
PHYSICAL AUTOMATED 15.00
- --------------------------------------------------------------------------------
PHYSICAL MANUAL 20.00
- --------------------------------------------------------------------------------
P&I PAYMENTS 5.00
- --------------------------------------------------------------------------------
REDEMPTIONS 10.00
- --------------------------------------------------------------------------------
REORGANIZATIONS Included in safekeeping charge
================================================================================
<PAGE>
3. GLOBAL SAFEKEEPING AND ASSET FEES
================================================================================
Receive and
Annual Deliver
Country Asset Fee Transactions
================================================================================
Argentina 35 Basis Points $100
- --------------------------------------------------------------------------------
Australia 3 Basis Points $50
- --------------------------------------------------------------------------------
Austria 5 Basis Points $75
- --------------------------------------------------------------------------------
Bangladesh 40 Basis Points $150
- --------------------------------------------------------------------------------
Belgium 4 Basis Points $60
- --------------------------------------------------------------------------------
Botswana 50 Basis Points $150
- --------------------------------------------------------------------------------
Brazil 30 Basis Points $70
- --------------------------------------------------------------------------------
Canada 2 Basis Points $20
- --------------------------------------------------------------------------------
Cedel/Euroclear 3 Basis Points $20
- --------------------------------------------------------------------------------
Chile 30 Basis Points $80
- --------------------------------------------------------------------------------
China 30 Basis Points $75
- --------------------------------------------------------------------------------
Columbia 35 Basis Points $100
- --------------------------------------------------------------------------------
Czech Republic 20 Basis Points $70
- --------------------------------------------------------------------------------
Denmark 4 Basis Points $50
- --------------------------------------------------------------------------------
Ecuador 45 Basis Points $100
- --------------------------------------------------------------------------------
Egypt 45 Basis Points $80
- --------------------------------------------------------------------------------
Finland 10 Basis Points $75
- --------------------------------------------------------------------------------
France 5 Basis Points $50
- --------------------------------------------------------------------------------
Germany 3 Basis Points $30
- --------------------------------------------------------------------------------
Ghana 50 Basis Points $150
- --------------------------------------------------------------------------------
Greece 35 Basis Points $120
- --------------------------------------------------------------------------------
Hong Kong 5 Basis Points $30
- --------------------------------------------------------------------------------
Hungary 45 Basis Points $150
- --------------------------------------------------------------------------------
India (Physical) 60 Basis Points $200
- --------------------------------------------------------------------------------
India (Dematerialized) 25 Basis Points $140
- --------------------------------------------------------------------------------
Indonesia 8 Basis Points $35
- --------------------------------------------------------------------------------
Ireland 5 Basis Points $50
- --------------------------------------------------------------------------------
Israel 40 Basis Points $50
- --------------------------------------------------------------------------------
Italy 3 Basis Points $50
- --------------------------------------------------------------------------------
Japan 3 Basis Points $35
- --------------------------------------------------------------------------------
Jordan 30 Basis Points $100
- --------------------------------------------------------------------------------
Kenya 50 Basis Points $150
- --------------------------------------------------------------------------------
Luxembourg 4 Basis Points $60
- --------------------------------------------------------------------------------
Malaysia 7 Basis Points $50
================================================================================
- 2 -
<PAGE>
================================================================================
Receive and
Annual Deliver
Country Asset Fee Transactions
================================================================================
Mauritius 50 Basis Points $140
- --------------------------------------------------------------------------------
Mexico 5 Basis Points $30
- --------------------------------------------------------------------------------
Morocco 30 Basis Points $130
- --------------------------------------------------------------------------------
Netherlands 4 Basis Points $45
- --------------------------------------------------------------------------------
New Zealand 4 Basis Points $50
- --------------------------------------------------------------------------------
Norway 5 Basis Points $50
- --------------------------------------------------------------------------------
Pakistan 30 Basis Points $150
- --------------------------------------------------------------------------------
Peru 50 Basis Points $100
- --------------------------------------------------------------------------------
Philippines 8 Basis Points $30
- --------------------------------------------------------------------------------
Poland 45 Basis Points $100
- --------------------------------------------------------------------------------
Portugal 4 Basis Points $75
- --------------------------------------------------------------------------------
Russia 50 Basis Points $300
- --------------------------------------------------------------------------------
Singapore 7 Basis Points $50
- --------------------------------------------------------------------------------
Slovakia 25 Basis Points $100
- --------------------------------------------------------------------------------
South Africa 5 Basis Points $30
- --------------------------------------------------------------------------------
South Korea 15 Basis Points $50
- --------------------------------------------------------------------------------
Spain 6 Basis Points $50
- --------------------------------------------------------------------------------
Sri Lanka 12 Basis Points $60
- --------------------------------------------------------------------------------
Sweden 4 Basis Points $50
- --------------------------------------------------------------------------------
Switzerland 3 Basis Points $50
- --------------------------------------------------------------------------------
Taiwan 15 Basis Points $100
- --------------------------------------------------------------------------------
Thailand 7 Basis Points $100
- --------------------------------------------------------------------------------
Tunisia 45 Basis Points $50
- --------------------------------------------------------------------------------
Turkey 15 Basis Points $50
- --------------------------------------------------------------------------------
United Kingdom 2 Basis Points $15
- --------------------------------------------------------------------------------
Venezuela 35 Basis Points $100
- --------------------------------------------------------------------------------
Zambia 50 Basis Points $150
- --------------------------------------------------------------------------------
Zimbabwe 50 Basis Points $150
================================================================================
4. DDA RELATED CHARGES
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
- 3 -
<PAGE>
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
Overdraft Rate: Prime + 1.00%
NOTES
o Market Values will be provided by the Fund Accountant at
month-end to determine monthly assets for billing purposes.
o A manual transaction is an instruction that is received in
writing, i.e. facsimile
o The standard Global Custody Service includes: asset
safekeeping, trade settlement, income collection, corporate
action processing including proxy voting and tax reclaims
where appropriate.
- 4 -
<PAGE>
o Third party FX transactions and other cash movements with no
associated security transaction (e.g. free payments/receipts)
are charged at $10 per U.S. wire and $25 per non-U.S. wire. No
fee is levied for FX transactions executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
- 5 -
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Total Return U.S. Treasury Fund, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in the Account in
the countries specified in the applicable Service Standards. Terms used herein
as defined terms shall unless otherwise defined have the meanings ascribed to
them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
<PAGE>
EXHIBIT D
[Name of Entity]
Certificate of the Secretary
I, ___________________________________________[Name of
Secretary], hereby certify that I am the Secretary of [Name of Entity], a
______________________[type of entity] organized under the laws of
________________________[jurisdiction] (the "Customer"), and as such I am duly
authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents, and
all amendments thereto, have been filed with the appropriate governmental
officials of _____________________[jurisdiction], the Customer continues to be
in existence and is in good standing, and no action has been taken to repeal
such organizational documents, the same being in full force and effect on the
date hereof.
2. Organizational Documents. The Customer's [name of
organizational documents - i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf
of the Customer, which resolutions (i) have not in any way been revoked or
rescinded, (ii) have been in full force and effect since their adoption, to and
including the date hereof, and are now in full force and effect, and (iii) are
the only corporate proceedings of the Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust Company
as Custodian of assets delivered to it by the Customer and enter into a certain
custody agreement with Bankers Trust Company (the "Agreement") setting forth the
terms and conditions of such appointment, and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
(a) execute said Agreement in such form as the officers executing the same have
approved, such approval to be conclusively evidenced by their execution and
delivery thereof, and (b) execute any instructions in connection with the
Agreement, in conformity with the requirements of the Customer's [name of
organizational documents], and other pertinent documents to which the Customer
may be bound.
4. Incumbency. The following named individuals are duly
elected (or appointed), qualified and acting officers of the Customer holding
those offices set forth opposite their respective names as of the date hereof,
each having full authority, acting individually, to bind the Customer, as a
legal matter, with respect to all matters pertaining to the Agreement, and to
execute and deliver said Agreement on behalf of the Customer, and the signatures
set forth opposite the respective names and titles of said officers are their
true, authentic signatures:
- 2 -
<PAGE>
Name Title Signature
---- ----- ---------
______________________ ______________________ ______________________
______________________ ______________________ ______________________
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day
of _______________[Date], 1997.
By: ________________________________________
Name: ________________________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is the
duly elected Secretary of the Customer and that the signature above is his/her
genuine signature.
By: ________________________________________
Name: ________________________________________
Title: ________________________________________
- 3 -
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian") and
TOTAL RETURN U.S. TREASURY FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services
to the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as
follows:
1. Until the Custodian receives Instructions to the contrary,
the Custodian will hold all Cash received for the Account in deposit accounts
maintained with Subcustodians for the benefit of the Custodian's clients, will
credit to the Account interest on such Cash at rates and times the Custodian
shall from time to time determine and will receive compensation therefor out of
any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform
the Customer with respect to one or more currencies, the Custodian will sweep
Cash in such currencies to deposit accounts maintained with one or more
Subcustodians until the Custodian notifies the Customer otherwise or receives
Instructions to the contrary.
3. The Customer acknowledges that it has received and reviewed
the current policies of the Custodian regarding cash management services, which
are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum are
used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of the
date of the Agreement.
BANKERS TRUST COMPANY
By: /s/Richard Fogarty
-------------------
TOTAL RETURN
U.S. TREASURY FUND, INC.
By: /s/Amy M. Olmert
-------------------
- 4 -
<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a rate
paid by the London branch of Bankers Trust Company or the local subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is based on a
specific market benchmark (such as Effective Fed Funds) and is
calculated by taking an average of the benchmark rate and subtracting a
spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S. Dollar. Over
time we will be considering additional currencies to include in this
category.
o Operationally, most balances in Benchmark Rate Currencies are swept
overnight into deposits at the London branch of Bankers Trust Company.
Where you have selected a short-term investment fund, your U.S. Dollar
balances in the U.S. will be swept overnight in accordance with your
instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is based on the
rate paid by the London branch or the local subcustodian on overnight
deposits in the currency. In either case, interest is calculated by
using the overnight rate (which will be the actual overnight, a weekly
average, or monthly average rate, depending on the currency) and
subtracting a spread. (See Schedule A)
o Currencies that are part of the sweep program will earn interest based
on the base rate, which will be the higher of the rate offered by the
London branch of Bankers Trust Company or the local subcustodian.
o Currencies that are not part of the sweep program will generally earn
interest based on the rate paid by the local subcustodian. We may at
times be able to sweep certain currency balances into deposits of
Bankers Trust Company's London branch in order to be able to earn a
higher rate for you. On those days, any such currency will be treated
as part of the
<PAGE>
sweep program, and you will earn interest on all of your balances in
that currency at the higher rate for that day.
o Currently, there are 39 Base Rate Currencies, 21 of which are included
in our sweep program to the London branch.
o Operationally, most balances in Base Rate Currencies that are part of
our sweep program are swept overnight into deposits at the London
branch, while balances in Base Rate Currencies that are not part of our
sweep program remain with the local subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in spreads and
updates to the cash management program. These program updates also will
be available through Global Custody Flash Notices.
o You earn interest at the calculated rate on your entire contractual
balance without any action on your part and without any minimum balance
requirements. This is the case regardless of whether we are able to
invest your balances at or near the applicable benchmark or base rate
and regardless of whether your contractual balance may exceed your
actual balance.
o Our program generally requires that overnight balances in each currency
remain with (or are swept to) a subcustodian we designate for that
currency. Nevertheless, we pay our stated rate of interest on any
balances that, because of transactions in your account, are held
overnight with an alternate subcustodian if we receive interest on that
currency from that subcustodian. If the alternate subcustodian does not
pay interest, however, these balances are excluded from our program.
o The minimum rate paid is 0.50%, except for the Japanese Yen (for which
it is 0.05%) and the Singapore Dollar (for which it is 0.25%). Please
note that this is also subject to change as appropriate for any
currency.
o You will have continuous access through Globe*View, BTWorld, or
Globe*Link or other agreed electronic on-line system to the interest
rate earned during the previous "rate averaging period". Because we may
use weekly or monthly average rates to calculate the interest you earn,
we do not know the actual interest rate until the weekly or monthly
period is completed.
o For swept currencies, from time to time we may not be able to sweep the
full amount of your balances to the London branch because of
operational constraints or because your balance on a contractual basis
temporarily exceeds your actual balance. You will, however,
- 2 -
<PAGE>
always receive credit for interest based on your entire contractual
balance. To the extent you would have earned a lower rate on balances
not swept, we will make up the difference. To the extent that actual
balances are higher than contractually posted balances due to purchase
fails or otherwise, we will retain the interest earned as compensation.
o The effective rate we pay on overnight balances will generally differ
from the effective rate we receive (whether from the London branch or
the local subcustodian). Any difference between the effective rate we
receive and the effective rate we pay (which may be positive or
negative, but is generally positive) is kept by us and covers our fee
for running the cash management program and the related costs we
absorb.
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal course
of business in any currency. Should they occur in any currency, your account
will be charged a fee to settle transactions in advance of receipt of funds. If
the overdraft is not promptly cured (and in any event upon the expiration of 30
days) after the investment manager has been notified of the outstanding
overdraft, the account's home currency will be used to cure the overdraft and
the associated foreign exchange will be done by Bankers Trust at market rates.
(Other currencies may be utilized to the extent the home currency is
insufficient.) Investment managers that have not cured overdrafts within such
period will be deemed to have directed such foreign exchange transaction.
Accounts subject to ERISA will be deemed to have engaged in the transaction
under the authority of the class exemptions available to qualified professional
asset managers and in-house investment managers. To the extent that the
overdraft is less than the U.S. dollar equivalent of $50,000, Bankers Trust's
foreign exchange desk will bundle the transaction with other small amounts for
other clients.
- 3 -
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
- 4 -
<PAGE>
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
Swedish Krona* Base Rate less 200
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100(1)
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason. We
will notify you periodically in writing of changes in spreads and updates to the
cash management program. These program updates also will be available through
Global Custody Flash Notices.
(1) Not applicable if U.S. Dollars are swept to a short-term investment fund.
- 5 -
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Total Return U.S. Treasury Fund, Inc.
We consent to the use in Post-Effective Amendment No. 17 to the Registration
Statement No. 33-12179 of our report dated November 30, 1998, appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectuses, which also is part of such Registration
Statement.
/s/DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> TOTAL RETURN U.S. TREASURY FUND - FLAG A
<CIK> 0000811160
<NAME> TOTAL RETURN U.S. TREASURY FUND - FLAG A
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 288,573,681
<INVESTMENTS-AT-VALUE> 295,625,614
<RECEIVABLES> 4,385,634
<ASSETS-OTHER> 103,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 300,115,183
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,106,139
<TOTAL-LIABILITIES> 2,106,139
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,728,558
<SHARES-COMMON-STOCK> 11,566,395
<SHARES-COMMON-PRIOR> 12,179,428
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,490,713
<ACCUMULATED-NET-GAINS> 7,745,411
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,051,933
<NET-ASSETS> 122,784,570
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,081,488
<OTHER-INCOME> 0
<EXPENSES-NET> 2,493,278
<NET-INVESTMENT-INCOME> 14,588,210
<REALIZED-GAINS-CURRENT> 9,889,084
<APPREC-INCREASE-CURRENT> 6,533,717
<NET-CHANGE-FROM-OPS> 34,653,147
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,541,487
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,422,232
<NUMBER-OF-SHARES-REDEEMED> 2,454,224
<SHARES-REINVESTED> 418,957
<NET-CHANGE-IN-ASSETS> 3,867,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,143,673)
<OVERDISTRIB-NII-PRIOR> 1,561,813
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 784,379
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,493,278
<AVERAGE-NET-ASSETS> 121,531,191
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.71
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> TOTAL RETURN U.S. TREASURY FUND - FLAG B
<CIK> 0000811160
<NAME> TOTAL RETURN U.S. TREASURY FUND - FLAG B
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 288,573,681
<INVESTMENTS-AT-VALUE> 295,625,614
<RECEIVABLES> 4,385,634
<ASSETS-OTHER> 103,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 300,115,183
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,106,139
<TOTAL-LIABILITIES> 2,106,139
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,720,993
<SHARES-COMMON-STOCK> 365,906
<SHARES-COMMON-PRIOR> 83,601
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,490,713
<ACCUMULATED-NET-GAINS> 7,745,411
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,051,933
<NET-ASSETS> 3,888,092
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,081,488
<OTHER-INCOME> 0
<EXPENSES-NET> 2,493,278
<NET-INVESTMENT-INCOME> 14,588,210
<REALIZED-GAINS-CURRENT> 9,889,084
<APPREC-INCREASE-CURRENT> 6,533,717
<NET-CHANGE-FROM-OPS> 34,653,147
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 119,476
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 313,797
<NUMBER-OF-SHARES-REDEEMED> 37,386
<SHARES-REINVESTED> 5,893
<NET-CHANGE-IN-ASSETS> 3,867,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,143,673)
<OVERDISTRIB-NII-PRIOR> 1,561,813
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 784,379
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,493,278
<AVERAGE-NET-ASSETS> 2,039,057
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.65
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> TOTAL RETURN U.S. TREASURY FUND - ISI
<CIK> 0000811160
<NAME> TOTAL RETURN U.S. TREASURY FUND - ISI
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 288,573,681
<INVESTMENTS-AT-VALUE> 295,625,614
<RECEIVABLES> 4,385,634
<ASSETS-OTHER> 103,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 300,115,183
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,106,139
<TOTAL-LIABILITIES> 2,106,139
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 165,252,861
<SHARES-COMMON-STOCK> 16,120,920
<SHARES-COMMON-PRIOR> 17,036,448
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,490,713
<ACCUMULATED-NET-GAINS> 7,745,411
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,051,933
<NET-ASSETS> 171,336,381
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,081,488
<OTHER-INCOME> 0
<EXPENSES-NET> 2,493,278
<NET-INVESTMENT-INCOME> 14,588,210
<REALIZED-GAINS-CURRENT> 9,889,084
<APPREC-INCREASE-CURRENT> 6,533,717
<NET-CHANGE-FROM-OPS> 34,653,147
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,498,284
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,567,913
<NUMBER-OF-SHARES-REDEEMED> 3,140,348
<SHARES-REINVESTED> 656,907
<NET-CHANGE-IN-ASSETS> 3,867,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,143,673)
<OVERDISTRIB-NII-PRIOR> 1,561,813
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 784,379
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,493,278
<AVERAGE-NET-ASSETS> 169,429,861
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.71
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Total Return U.S. Treasury Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B, Flag Investors Class C
and ISI Class Shares
Adopted December 13, 1995
Amended through August 4, 1997
With Exhibits through September 28, 1998
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, Flag Investors Class C 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 been offered since June 20, 1996. The Flag Investors Class C 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
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. 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 Bylaws,
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
<PAGE>
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 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>
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.
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.
Approved: November 4, 1992
Resolutions of Board Renaming Flag Investors Class of Shares
and Creating Flag Investors Class B 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";
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:
<PAGE>
<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 each of the foregoing
Funds be, and each of them hereby is, authorized and directed to file articles
supplementary to the relevant 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>
Approved: September 22, 1992
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.
Approved: August 4, 1997
Resolutions of Board Approving
New Distribution Agreement with ICC Distributors, Inc.
RESOLVED, that ICC Distributors, Inc. ("ICC ") be, and it hereby is,
appointed distributor for all classes of Alex. Brown Cash Reserve Fund, Inc.,
Flag Investors Telephone Income Fund, Inc., Flag Investors International Fund,
Inc., Flag Investors Emerging Growth Fund, Inc., Flag Investors
Short-Intermediate 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.,
and for the Flag Investors classes of each of Managed Municipal Fund, Inc. and
Total Return U.S. Treasury Fund, Inc., such appointment to be effective upon the
consummation of the merger of Alex. Brown Incorporated with and into a
subsidiary of Bankers Trust New York Corporation (the "Merger"), or at such
other time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with
respect to all shares except the Flag Investors Shares be, and the same hereby
is, approved in substantially the form presented to this meeting and that the
appropriate officers of the Fund be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or 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
between Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Total Return U.S. Treasury Fund, Inc. (for Flag Investors
Shares), Managed Municipal Fund, Inc. (for the Flag Investors Shares), Flag
Investors Short-Intermediate 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
Partner Fund, Inc., and ICC Distributors, Inc. be, and the same hereby is,
approved in substantially the form presented to this meeting and that the
appropriate officers of the Funds be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body.
<PAGE>
Approved: August 4, 1997
Resolutions of Board Approving New
Plans of Distribution for Flag Investors Class A Shares and
Flag Investors Class B Shares
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class A Shares of Total Return U.S. Treasury Fund, Inc. be, and hereby
is, amended to reflect the change in distributor effected at this meeting, such
amendment to be effective upon the consummation of the Merger, or such other
time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class B Shares of said Fund be, and hereby is, amended to reflect the
change in distributor effected at this meeting, such amendment to be effective
upon the consummation of the Merger, or such other time as the proper officers
of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans; and
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
Approved: March 27, 1998
Approval of Restated Distribution Agreements and Forms
of Sub-Distribution and Shareholder Servicing Agreements
RESOLVED, that the proposed Restated Distribution Agreement
between Total Return U.S. Treasury Fund, Inc. and ICC Distributors, Inc. for the
Flag Investors classes of the Fund's shares, be, and the same hereby is,
approved in substantially the form presented to this meeting and that the
apprpriate officers of the Fund be, and they hereby are, authorized and directed
to enter into and execute such Distribution Agreement with such modifications as
said officers shall deem necessary or appropriate or as may be required to
conform with the requirements of any applicable statute, regulation or
regulatory body.
RESOLVED, that the proposed form of Sub-Distribution Agreement
for the Flag Investors Family of Funds be, and hereby is, approved in
substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proposed form of Shareholder
Servicing Agreement for the Flag Investors Family of Funds be, and the same
hereby is, approved in substantially the form submitted to this meeting.
FURTHER RESOLVED, that the proper officers of Total Return
U.S. Treasury Fund, Inc. be, and they hereby are, authorized and directed in the
name and on behalf of their respective Funds, to take all necessary or
appropriate actions to effect the purposes of the foregoing resolutions.
<PAGE>
Date Approved: September 28, 1998
Establishment of Flag Investors Class C
Shares, Authorization to Increase Authorized
Amounts, Designate New Shares, File Articles Supplementary
to the Fund's Articles of Incorporation and Take Other Necessary or
Appropriate Action
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Total Return U.S. Treasury Fund, Inc. is authorized to
issue be, and hereby is, increased from one hundred million (100,000,000)
shares, having the aggregate par value of one hundred thousand dollars
($100,000), to one hundred fifteen million (115,000,000) shares, having the
aggregate par value of one hundred fifteen thousand dollars ($115,000), and that
from such amount, fifteen million (15,000,000) authorized and unissued shares
be, and they hereby are, designated and classified as the "Flag Investors Total
Return U.S. Treasury Fund Class C Shares" (the "Flag Investors Class C Shares");
FURTHER RESOLVED, that the proper officers of Flag Investors Total
Return U.S. Treasury Fund, Inc. be, and each of them hereby is, authorized and
directed to execute and file Articles Supplementary to the Fund's Articles of
Incorporation to effectuate the increase in authorized shares and to designate
and classify the Flag Investors Class C Shares;
FURTHER RESOLVED, that the proper officers of Flag Investors Total
Return U.S. Treasury Fund, Inc. be, and they hereby are, authorized and directed
in the name and on behalf of the Fund to file with the Securities and Exchange
Commission a supplement to the Fund's prospectus and to take all other actions
and make all other filings that the officer so acting may deem necessary or
appropriate in connection with the establishment of the Flag Investors Class C
Shares, the taking of any such action to establish conclusively such officer's
authority therefor and the approval and ratification thereof by the Fund; and
FURTHER RESOLVED, that any and all actions heretofore or hereafter
taken by such officer or officers within the terms of the foregoing resolutions
be, and they hereby are, ratified and confirmed as the authorized act and deed
of Total Return U.S. Treasury Fund, Inc.
<PAGE>
Total Return U.S. Treasury Fund, Inc.
18f-3 Plan Exhibits
1. Registrant's Articles of Incorporation filed as Exhibit (1)(a) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No.0000950116-96-000097) on February 26, 1996 is
herein incorporated by reference.
2. Registrant's Articles Supplementary filed as Exhibits (1)(b), (1)(c) and
(1)(d), respectively, to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR (Accession No.0000950116-96-000097)
on February 26, 1996 are herein incorporated by reference.
3. Registrant's Articles Supplementary filed as Exhibit (a)(5) to this
Post-Effective Amendment No. 17 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed herewith and is herein incorporated by
reference.
4. Registrant's By-Laws are filed as Exhibit (2) to Post-Effective Amendment No.
15 to Registrant's Registration Statement on Form N-1A (Registration No.
33-12179) filed with the Securities and Exchange Commission via EDGAR (Accession
No. 0000950116-97-000364) on February 26, 1997 and are herein incorporated by
reference.
5. Registrant's Distribution Agreement dated as of August 31, 1997 between
Registrant and ICC Distributors Inc. filed as Exhibit (6)(a) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000481) on February 26, 1998 and is herein
incorporated by reference.
6. Registrant's Distribution Plan with respect to Flag Investors Total Return
U.S. Treasury Fund Class A Shares filed as Exhibit (15)(d) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179) filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000481) on February 26, 1998 and is herein
incorporated by reference.
7. Registrant's Distribution Plan with respect to Flag Investors Total Return
U.S. Treasury Fund Class B Shares filed as Exhibit (15)(f) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000481) on February 26, 1998 and is herein
incorporated by reference.
8. Registrant's Distribution Agreement dated April 1, 1997 between Registrant
and International Strategy & Investment Group, Inc. with respect to ISI Total
Return U.S. Treasury Fund Shares filed as Exhibit (6)(d) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000481) on February 26, 1998 and is herein
incorporated by reference.
9. Registrant's Distribution Plan with respect to ISI Total Return U.S. Treasury
Fund Shares filed as Exhibit (15)(e) to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998 and is herein incorporated by reference.
10. Registrant's Form of Sub-Distribution Agreement between ICC Distributors
Inc. and Participating Dealers is filed as Exhibit (6)(e) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No.33-12179) filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000481) on February 26, 1998 and is herein
incorporated by reference.
<PAGE>
11. Registrant's Prospectus with respect to Flag Investors Total Return U.S.
Treasury Fund Class A and Class B Shares is filed as part of this Registration
Statement on Form N-1A (Registration No. 33-12179) and, as amended from time to
time, is herein incorporated by reference.
12. Registrant's Prospectus with respect to ISI Total Return U.S. Treasury Fund
Shares is filed as part of this Registration Statement on Form N-1A
(Registration No. 33-12179) and, as amended from time to time, is herein
incorporated by reference.
<PAGE>
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,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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: December 29, 1998
-----------------
<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,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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: December 29, 1998
-----------------
<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,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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: December 29, 1998
-----------------
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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 R. Hardiman
---------------------
Joseph R. Hardiman
Date: December 29, 1998
-----------------
<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,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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: December 29, 1998
-----------------
<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,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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: December 29, 1998
-----------------
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
R. Alan Medaugh, and Amy M. Olmert, 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 any 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/Truman T. Semans
-------------------
Truman T. Semans
Date: December 29, 1998
-----------------
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
R. Alan Medaugh, and Amy M. Olmert, and each of them singly, her 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 her
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 any 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 her hand and seal
as of the date set forth below.
/s/Rebecca W. Rimel
-------------------
Rebecca W. Rimel
Date: December 29, 1998
-----------------
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux, R. Alan
Medaugh, and Amy M. Olmert, 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 any 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/Carl W. Vogt
---------------
Carl W. Vogt
Date: December 29, 1998
-----------------
