<PAGE>
As Filed With the Securities and Exchange Commission on February 25, 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. 16 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 20 [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
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [Date] pursuant to paragraph (a)(2) of Rule 485.
- --------------------------------------------------------------------------------
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND
CLASS A AND CLASS B SHARES
February 25, 1998
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
Part A - Information Required in a Prospectus
- ------
<S> <C> <C>
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Financial Highlights
Item 4. General Description of Registrant................................ Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund........................................... Management of the Fund;
Investment Advisor;
Administrator; Distributor;
Custodian, Transfer
Agent and Accounting
Services
Item 5A. Management's Discussion of Fund Performance...................... *
Item 6. Capital Stock and Other Securities............................... Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............................. How to Invest in the
Fund; Distributor
Item 8. Redemption or Repurchase......................................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................................ **
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B - Information Required in a Statement of Additional Information
- ------
<S> <C> <C>
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information and
History
Item 13. Investment Objectives and Policies............................... Investment Objectives
and Policies
Item 14. Management of the Fund........................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities.............. Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services........................... Investment Advisory and
Other Services;
Custodian, Transfer
Agent and Accounting
Services; Independent
Auditors
Item 17. Brokerage Allocation............................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities............................... Capital Shares; Semi-
Annual Reports
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.......................................................... Valuation of Shares and
Redemption
Item 20. Tax Status....................................................... Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters..................................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data.................................. Performance and Yield
Computations
Item 23. Financial Statements............................................. Financial Statements
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
[GRAPHIC OMITTED]
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, 1998
- --------------------------------------------------------------------------------
Total Return U.S. Treasury Fund, Inc. (the "Fund") is designed to provide:
1) A high level of total return with relative stability of principal.
2) High current income, consistent with an investment in securities issued
by the United States Treasury ("U.S. Treasury Securities").
The Fund will invest only in U.S. Treasury Securities and in repurchase
agreements fully collateralized by U.S. Treasury Securities.
Shares of the Flag Investors classes of the Fund are available through your
securities dealer or the Fund's transfer agent. This Prospectus relates to
Flag Investors Class A Shares ("Class A Shares") and Flag Investors Class B
Shares ("Class B Shares") of the Fund. The separate classes provide you with
alternatives as to sales load and Fund expenses. (See "How to Invest in the
Fund.")
This Prospectus sets forth basic information that you should know about the
Fund prior to investing. You should retain it for future reference. A
Statement of Additional Information dated March 1, 1998 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
TABLE OF CONTENTS
Fee Table ......................... 1
Financial Highlights .............. 2
Investment Program ................ 5
Investment Restrictions ........... 6
How to Invest in the Fund ......... 6
How to Redeem Shares .............. 9
Telephone Transactions ............ 10
Dividends and Taxes ............... 10
Management of the Fund ............ 11
Investment Advisor ................ 11
Administrator ..................... 12
Distributor ....................... 12
Custodian, Transfer Agent and
Accounting Services ............ 13
Performance Information ........... 13
General Information ............... 14
Application ....................... A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
Shareholder Transaction Expenses: ---------------- ---------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) . 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends .......................... None None
Maximum Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower) ............................ 0.50%* 2.00%**
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees ............................................................... 0.28% 0.28%
12b-1 Fees .................................................................... 0.25% 0.35%
Other Expenses (including a 0.25% shareholder servicing fee for Class B Shares) 0.30% 0.55%***
----------- ----------
Total Fund Operating Expenses ................................................. 0.83% 1.18%
=========== ==========
</TABLE>
- -----------
* If you purchase $1 million or more of Class A Shares, you will not have to
pay an initial sales charge. You may, however, be required to pay a
contingent deferred sales charge when you redeem your shares. (See "How
to Invest in the Fund -- Class A Shares.")
** You will be required to pay a contingent deferred sales charge if you
redeem Class B Shares within five years of purchase. The amount of the
charge declines in relation to the time you hold your shares. Class B
Shares will automatically convert to Class A Shares five years after
purchase. (See "How to Invest in the Fund -- Class B Shares.")
*** A portion of the shareholder servicing fee is allocated to your securities
dealer and qualified banks for services provided and expenses incurred in
maintaining your account, responding to your inquiries and providing you
with information about your investment.
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
Class A Shares ................................ $53 $70 $89 $ 143
Class B Shares ................................ $32 $47 $75 $ 120*
You would pay the following expenses on the same
investment, assuming no redemption:*
Class B Shares ................................ $12 $37 $65 $ 120*
- -----------
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of five years. Therefore, the expense figures assume five years of Class
B expenses and five years of Class A expenses.
</TABLE>
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and
expenses that you will bear directly or indirectly when you invest in the
Fund. The Management Fees paid by the Fund are based in part on the net assets
of the Fund and in part on gross income, which fees are reflected as a
percentage of average daily net assets. If you purchase shares of either class
through a financial institution, you may be charged separate fees by the
financial institution.
The rules of the SEC require that the maximum sales charge be reflected
in the above table. However, you may qualify for reduced sales charges or no
sales charge at all. (See "How to Invest in the Fund -- Class A Shares.") Due
to the continuous nature of Rule 12b-1 fees, you may pay more than the
equivalent of the maximum sales charges permitted by the Conduct
Rules of the National Association of Securities Dealers, Inc. if you hold your
shares for a long time. The above table has not been audited by Deloitte &
Touche LLP, the Fund's independent auditors.
1
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in these tables are a part of the
Fund's financial statements for the periods indicated and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended October 31, 1997 and the independent
auditors' report thereon of Deloitte & Touche LLP are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended October 31,
1997, which can be obtained at no charge by calling the Fund at (800)
767-FLAG.
(For a Class A Share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................... $ 9.83 $ 10.19
--------- ---------
Income from Investment Operations:
Net investment income .................................... 0.55 0.56
Net realized and unrealized gain/(loss) on
investments ............................................ 0.30 (0.23)
--------- ----------
Total from Investment Operations ......................... 0.85 0.33
Less Distributions:
Distributions from net investment income and
short-term gains ....................................... (0.55) (0.65)
Tax return of capital distribution ....................... (0.08) --
Distributions in excess of net investment income ......... (0.01) (0.04)
Distributions from net realized long-term gains .......... -- --
---------- ----------
Total distributions ...................................... (0.64) (0.69)
---------- ----------
Net asset value at end of period ......................... $ 10.04 $ 9.83
========== ==========
Total Return(2)............................................ 9.00% 3.44%
Ratios to Average Daily Net Assets:
Expenses ................................................. 0.83% 0.81%
Net investment income .................................... 5.62% 5.69%
Supplemental Data:
Net assets at end of period (000):
Flag Investors Class A Shares .......................... $ 122,229 $ 143,791
ISI Class Shares ....................................... $ 171,074 $ 193,486
Flag Investors Class B Shares .......................... $ 838 $ 123
Portfolio turnover rate .................................. 92% 199%
</TABLE>
- -----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
2
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
August 10,
1988(1)
For the Year Ended October 31, through
- ------------------------------------------------------------------------------------------------------------- October 31,
1995 1994 1993 1992 1991 1990 1989 1988
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.22 $ 11.35 $ 10.47 $ 10.41 $ 9.76 $ 10.55 $ 10.24 $ 10.00
--------- --------- --------- --------- --------- --------- --------- --------
0.57 0.51 0.62 0.76 0.70 0.73 0.71 0.10
1.04 (1.16) 1.12 0.05 0.79 (0.60) 0.44 0.21
---------- --------- --------- --------- --------- ---------- --------- --------
1.61 (0.65) 1.74 0.81 1.49 0.13 1.15 0.31
(0.64) (1.15) (0.79) (0.70) (0.84) (0.92) (0.84) (0.07)
-- (0.05) -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- (0.28) (0.07) (0.05) -- -- -- --
---------- --------- ---------- ---------- ---------- ---------- ---------- --------
(0.64) (1.48) (0.86) (0.75) (0.84) (0.92) (0.84) (0.07)
---------- --------- ---------- ---------- ---------- ---------- ---------- --------
$ 10.19 $ 9.22 $ 11.35 $ 10.47 $ 10.41 $ 9.76 $ 10.55 $ 10.24
========== ========= ========== ========== ========== ========== ========== ========
18.09% (6.22)% 17.33% 8.96% 15.89% 1.43% 11.87% 3.10%
0.80% 0.77% 0.77% 0.77% 0.87% 0.89% 0.97% 1.12%(3)
5.94% 4.98% 5.21% 5.65% 6.88% 7.40% 7.51% 5.80%(3)
$ 164,206 $ 175,149 $ 224,790 $ 250,210 $ 237,688 $ 198,556 $ 135,523 $ 55,757
$ 206,615 $ 200,309 $ 232,103 $ 207,518 $ 168,128 $ 131,872 $ 89,943 $ 22,597
-- -- -- -- -- -- -- --
194% 68% 249% 191% 141% 79% 184% 72%
</TABLE>
3
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------
(For a Class B Share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Year Ended June 20, 1996(1)
October 31, 1997 through October 31, 1996
------------------ -------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................... $ 9.85 $ 10.00
------- -------
Income from Investment Operations:
Net investment income .................................... 0.56 0.22
Net realized and unrealized gain/(loss) on
investments ............................................ 0.23 (0.15)
------- -------
Total from Investment Operations ......................... 0.79 0.07
Less Distributions:
Distributions from net investment income and
short-term gains ....................................... (0.56) (0.22)
Tax return of capital distribution ....................... (0.04) --
Distributions in excess of net investment income ......... (0.01) --
-------- -------
Total distributions ...................................... (0.61) (0.22)
-------- -------
Net asset value at end of period ......................... $ 10.03 $ 9.85
======== =======
Total Return(2)............................................ 8.49% 6.37%
Ratios to Average Daily Net Assets:
Expenses ................................................. 1.18% 1.40%(3)
Net investment income .................................... 5.24% 5.45%(3)
Supplemental Data:
Net assets at end of period (000) ........................ $ 838 $ 123
Portfolio turnover rate .................................. 92% 199%(3)
</TABLE>
- -----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
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, to seek 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. U.S. Treasury Securities are direct
obligations of the United States Government and are supported by the full faith
and credit of the United States. There can be no assurance that the Fund's
investment objective will be met.
Selection of Investments
The Fund's investment advisor (the "Advisor" -- see "Investment
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 potential for capital gains and appreciation resulting from possible
changes in interest rates will be a consideration in selecting investments.
The Advisor will be free to take full advantage of the entire range of
maturities offered by U.S. Treasury Securities and may adjust the average
maturity of the Fund's portfolio from time to time, depending on its
assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates. Thus, at
certain times the average maturity of the portfolio may be relatively short
(from under one year to five years, for example) and at other times may be
relatively long (over 10 years, for example). In determining which direction
interest rates are likely to move, the Advisor relies on the economic analysis
made by its chairman, Edward S. Hyman. There can be no assurance that such
economic analysis will accurately predict interest rate trends or that the
portfolio strategies based on Mr. Hyman's economic analysis will be effective.
Risk Considerations
U.S. Treasury Securities are considered among the safest of fixed-income
investments. Because of this added safety, the yields available from these
securities are generally lower than the yields available from corporate debt
securities. As with other debt securities, the value of U.S. Treasury
Securities changes as interest rates fluctuate. This is especially true for
securities with longer maturities and for STRIPS (securities that don't pay
interest currently but which are purchased at a discount and are payable in
full at maturity). Changes in the value of portfolio securities will not
affect interest income from those securities but will be reflected in the
Fund's net asset value. Thus, a decrease in interest rates will generally
result in an increase in the value of the Fund's shares. Conversely, during
periods of rising interest rates, the value of the Fund's shares will
generally decline. The magnitude of these fluctuations will generally be
greater at times when the Fund's average maturity is longer.
Investments in Repurchase Agreements
The Fund may agree to purchase 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. Default by or bankruptcy proceedings with respect to the seller
may, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations.
Purchase of When-Issued Securities
From time to time, in the ordinary course of business, the Fund may make
purchases of U.S. Treasury Securities, at the current market value of the
securities, on a when-issued basis. A segregated account of the Fund,
consisting of cash or liquid 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. 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 to limit the effects of adverse
market action. The value of when-issued securities is subject to market
fluctuation and no interest accrues to the purchaser during this period. The
Fund will ordinarily invest no more than 40% of its net assets at any time in
when-issued securities.
5
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund will not 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. This restriction may be changed by a majority vote of
the Board of Directors.
The Fund is subject to further investment restrictions that are set
forth in the Statement of Additional Information.
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
You may purchase Class A Shares and Class B Shares through your
securities dealer or through any financial institution that is authorized to
service shareholder accounts ("Shareholder Servicing Agents"). You may also
purchase shares of either class by completing the Application Form attached to
this Prospectus and returning it, together with payment of the purchase price,
to the address shown on the Application Form.
The Class A and Class B alternatives permit you to choose the method of
purchasing shares that is best for you given the amount of your purchase, the
length of time you expect to hold your shares, and other circumstances. You
should consider whether, during the anticipated life of your investment in the
Fund, the combination of sales charge and distribution fee on Class A Shares
is more favorable than the combination of distribution/service fees and
contingent deferred sales charge on Class B Shares. In almost all cases, if
you plan to purchase $250,000 or more of Fund shares you will pay lower
aggregate charges and expenses by purchasing Class A Shares. (See "Fee
Table.") Your securities dealer or Shareholder Servicing Agent and their
investment representatives may receive different levels of compensation
depending on which class of shares you buy.
Your initial investment in either class 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.
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. Subsequent
investments may be as low as $100 if made monthly, but must be $250
if done quarterly. (See "Purchases Through Automatic Investing Plan"
below.)
o There is no minimum investment requirement for qualified retirement
plans (i.e., 401(k) plans or pension and profit sharing plans).
You may purchase shares on any day on which the New York Stock Exchange
is open for business (a "Business Day"). Your purchase order will be executed
at a per share purchase price equal to the net asset value next determined
after it is received plus any applicable front-end sales charge (the "Offering
Price"). If your purchase is made by mail, it must be accompanied by payment
of the Offering Price. Purchases made through your securities dealer or
Shareholder Servicing Agent must be in accordance with their payment
procedures.
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.
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), on each
Business Day. Net asset value per share of a class is calculated by valuing
its share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given
their market value which is normally based on current prices but which may be
determined according to "fair value" procedures approved by the Fund's Board
of Directors. Because the classes of shares have different distribution/
service fees, the net asset value per share of the classes differs at times.
Offering Price
Your share purchase is made at the Offering Price, which for Class A
Shares includes a sales charge which is calculated as a percentage of the
Offering Price and for Class B Shares is net asset value.
Class A Shares
The sales charge on Class A Shares, which decreases as the amount of the
purchase increases, is shown in the following table:
6
<PAGE>
<TABLE>
<CAPTION>
Sales Charge
as Percentage of Dealer
------------------------- Compensation
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 ......... 4.50% 4.71% 4.00%
$ 50,000 - $ 99,999 ......... 3.50% 3.63% 3.00%
$ 100,000 - $249,999 ......... 2.50% 2.56% 2.00%
$ 250,000 - $499,999 ......... 2.00% 2.04% 1.50%
$ 500,000 - $999,999 ......... 1.50% 1.52% 1.25%
$1,000,000 and over ........... None* None* None*
</TABLE>
- --------------------------------------------------------------------------------
* If you purchase $1 million or more of Class A Shares, you will not have to
pay an initial sales charge. You may, however, be subject to a contingent
deferred sales charge when you redeem your shares. (See below.) The Fund's
distributor may make payments to your securities dealer or Shareholder
Servicing Agent in an amount up to 0.50% of the Offering Price.
You may obtain reduced sales charges as set forth in the table above by
accumulating purchase orders for, and existing investments in, Class A Shares
of this Fund and Class A or Class D shares of any other Flag Investors fund.
The applicable sales charge will be determined based on the total value of
your current purchases plus the value of your existing investments. (For this
purpose existing investments will be valued at the higher of cost or current
value.) You may combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose.
To obtain the reduced sales charge through this right of accumulation,
you must provide your securities dealer or Shareholder Servicing Agent with
sufficient information to verify that you have such a right. The Fund may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
You may also obtain the reduced sales charges shown above by executing a
written Letter of Intent that states your intention to invest at least $50,000
within a 13-month period in Class A Shares. Each purchase of Class A Shares
under a Letter of Intent will be made at the Offering Price applicable at the
time of such purchase to the full amount indicated on the Letter of Intent. A
Letter of Intent does not require that you purchase the full amount indicated.
The minimum initial investment under a Letter of Intent is 5% of the full
amount. Class A Shares purchased with the first 5% of the full amount will be
held in escrow (while remaining registered in your name) to secure payment of
the higher sales charge applicable to the Class A Shares actually purchased if
you do not purchase the full amount. Such escrowed shares will be redeemed to
pay the additional sales charge, if necessary. When the full amount indicated
has been purchased, the escrowed shares will be released. If you wish to enter
into a Letter of Intent in conjunction with an investment in Class A Shares, you
may do so by completing the appropriate section of the Application Form attached
to this Prospectus.
You will not be charged a sales charge on purchases of $1 million or
more of Class A Shares. You may, however, be required to pay a contingent
deferred sales charge if you redeem the purchased shares within 24 months. The
charge will be made at the rate of 0.50% on the lesser of the value of the
Class A Shares redeemed or the total cost of such shares. No contingent
deferred sales charge will be imposed on purchases of $3 million or more if
your securities dealer has agreed to return to the Fund's distributor (the
"Distributor") any payments received on the sale of such shares. In
determining whether a contingent deferred sales charge is payable and, if so,
the amount of the charge, it is assumed that Class A Shares not subject to
such charge are the first redeemed followed by other Class A Shares held for
the longest period of time.
<PAGE>
You may purchase Class A Shares at net asset value (without sales
charge) under any of the following circumstances:
1) If you are purchasing shares in any of the following types of accounts:
(i) 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 broker or agent if you purchase shares in this manner;
(ii) A qualified retirement plan;
(iii) A Flag Investors fund payroll savings plan program.
2) If you are reinvesting some or all of the proceeds of a redemption of
Class A Shares made within the last 90 days.
3) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a full
description of the conditions).
4) If you are a current or retired Director of the Fund, a director, an
employee or a member of the immediate family of an employee of any of the
following or their respective affiliates: the Distributor, the Advisor,
the Fund's administrator, and any broker-dealer authorized to sell Class
A Shares.
7
<PAGE>
You may also purchase Class A Shares through a Systematic Purchase Plan.
Contact your securities dealer or Shareholder Servicing Agent for details.
Class B Shares
You will not be charged a sales charge at the time of purchase of Class
B Shares. However, you will be charged a contingent deferred sales charge on
certain Class B Shares redeemed within five years of your purchase. The charge
is assessed on an amount equal to the lesser of the then-current market value
of the Class B Shares redeemed or the total cost of such shares. No charge is
assessed on redemptions of Class B Shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the contingent deferred sales charge is
applicable to a redemption, the calculation is made in the manner that results
in the lowest possible rate. Therefore, it is assumed that first, you have
redeemed any Class B Shares in your account that represent reinvested
dividends and distributions and second, the Class B Shares you held the
longest during the five-year period. The amount of the contingent deferred
sales charge, if any, will vary depending on the number of years since you
purchased the shares (the "holding period"). For purposes of determining this
holding period, all purchases during a month are aggregated and deemed to have
been made on the first day of the month. The following table sets forth the
rates of the contingent deferred sales charge.
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar
Payment was Made amount subject to charge)
- -----------------------------------------------------------
First ............... 2.0%
Second .............. 2.0%
Third ............... 1.0%
Fourth .............. 1.0%
Fifth ............... 1.0%
Thereafter .......... None*
- --------------------------------------------------------------------------------
*As described more fully below, Class B Shares automatically convert to Class
A Shares five years after the beginning of the calendar month of your
purchase.
Waiver of Contingent Deferred Sales Charge. The contingent deferred
sales charge will be waived: (i) following your death or initial determination
of disability (as defined in the Internal Revenue Code of 1986, as amended);
or (ii) to the extent that the redemption represents a minimum required
distribution from your individual retirement account or other retirement plan.
The waiver with respect to (i) above is only applicable in cases where your
account is registered (a) in your individual name, (b) as a joint tenancy with
rights of survivorship, (c) as community property or (d) in the name of a
minor child under the Uniform Gifts or Uniform Transfers to Minors Act. You,
or your representative, must notify the Fund's transfer agent (the "Transfer
Agent") prior to the time of redemption if such circumstances exist and you
are eligible for this waiver. For information on the imposition and waiver of
the contingent deferred sales charge, contact the Transfer Agent.
Automatic Conversion to Class A Shares. Five years after the beginning
of the calendar month of your purchase, Class B Shares will automatically
convert to Class A Shares and will no longer be subject to the higher
distribution and service fees. Such conversion will be on the basis of the
relative net asset values of the two classes, without the imposition of any
sales charge. The conversion is not a taxable event to you.
For purposes of conversion to Class A Shares, shares received as
dividends and other distributions paid on Class B Shares in your account will
be considered to be held in a separate sub-account. Each time any Class B
Shares in your account convert to Class A Shares, an equal pro rata portion of
the Class B Shares in the sub-account will also convert to Class A Shares.
You may also purchase Class B Shares through a Systematic Purchase Plan.
Contact your securities dealer or Shareholder Servicing Agent for details.
<PAGE>
Purchases by Exchange
You may exchange Class A 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. In
addition, you may exchange Class A shares of any Flag Investors fund with a
lower sales charge (with the exception of Flag Investors Cash Reserve Prime
Class A Shares) for an equal dollar amount of Class A 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 may exchange them for Class A Shares if you pay 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 90 days of the
redemption.
When you acquire Fund shares through an exchange from another fund in the
Flag Investors family of funds, the period for which the original shares were
held prior to the exchange will be combined with the holding period of the
shares acquired in the exchange for purposes of determining what, if any,
contingent deferred sales charge is applicable when those shares are redeemed.
8
<PAGE>
The net asset value of shares purchased and redeemed in an exchange
request received on the same Business Day will be determined on that day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time) or the close of the New York Stock Exchange, whichever is earlier.
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.
You may exercise this exchange privilege by telephone. (See "Telephone
Transactions" below.)
The Fund may modify or terminate this offer of exchange at any time upon
60 days' prior written notice.
Purchases Through Automatic Investing Plan
You may elect to have a specified amount invested monthly or quarterly
in either Class A Shares or Class B Shares. The amount specified will be
withdrawn from your checking account using a pre-authorized check and will be
invested in the class of shares selected, at the applicable Offering Price
determined on the date the amount is available for investment. Participation
in the Automatic Investing Plan may be discontinued either by you or the Fund
upon 30 days' prior written notice to the other party. If you wish to enroll
in the Automatic Investing Plan or if you wish to obtain additional
information, complete the appropriate section of the Application Form attached
to this Prospectus.
Purchases Through Dividend Reinvestment
Unless you elect otherwise, all income dividends and capital gains
distributions will be reinvested in additional Fund shares of the same class at
net asset value. You may elect to receive your distributions in cash or to
terminate automatic reinvestment by completing the appropriate section of the
attached Application Form or by giving written notice to the Transfer Agent at
the address listed on the inside back cover of this Prospectus, either directly
or through your securities dealer or Shareholder Servicing Agent, at least five
days before the next date on which dividends or distributions will be paid.
You may also have your distributions invested in shares of other funds
in the Flag Investors family of funds. Call your securities dealer or the
Transfer Agent for additional information.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem all or part of your investment on any Business Day
through your securities dealer, your Shareholder Servicing Agent or the
Transfer Agent. You may redeem up to $50,000 of either class by telephone.
(See "Telephone Transactions" below.) A redemption order is effected at the
net asset value per share (reduced by any applicable contingent deferred sales
charge) next determined after receipt of your order (or, if stock certificates
have been issued for the shares to be redeemed, after you tender the stock
certificates for redemption). Redemption orders received after 4:00 p.m.
(Eastern Time) or the close of the New York Stock Exchange, whichever is
earlier, will be effected at the net asset value next determined on the
following Business Day. You will be paid for redeemed shares by check which
will be mailed within seven days after your redemption order is received in
proper form.
<PAGE>
The Transfer Agent, your securities dealer or your Shareholder Servicing
Agent may require the following documents in order to redeem your shares:
1) A letter of instructions, specifying your account number and the number
of shares or dollar amount to be redeemed, signed by all owners of the
shares in the exact names in which the account is maintained;
2) For redemptions in excess of $50,000, a guarantee of your signature by a
member of the Federal Deposit Insurance Corporation, a trust company,
broker, dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency, or savings association;
3) If shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for
shares to be redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of the redemption of shares will be
paid on the next dividend payable date. If all of the shares in your account
have been redeemed on a dividend payable date, the dividend will be remitted
to you by check.
The Fund has the power under its Articles of Incorporation to redeem
your account upon 60 days' notice if its value falls below $500 due to your
redemptions.
Systematic Withdrawal Plan
If you hold Class A Shares or Class B Shares having a value of $10,000
or more you may arrange to have a portion of your shares redeemed monthly or
quarterly under the Fund's Systematic Withdrawal Plan. Such payments are drawn
from income dividends, and
9
<PAGE>
to the extent necessary, from share redemptions (which would be a return of
principal and, if reflecting a gain, would be taxable). If redemptions
continue, your account may eventually be exhausted. Because Class A Share
purchases include a sales charge that you will not recover at the time of
redemption, you should not have a withdrawal plan in effect at the same time
you are making recurring purchases. In addition, you may be subject to a
contingent deferred sales charge upon redemption of Class B Shares. (See "How
to Invest in the Fund -- Class B Shares.") If you wish to participate in the
Fund's Systematic Withdrawal Plan, complete the appropriate section of the
Application Form attached to this Prospectus.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
You may redeem shares of either class in amounts up to $50,000 or
exchange shares in any amount, by notifying the Transfer Agent by telephone on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time).
Telephone transaction privileges are automatic unless you specifically request
that no telephone redemptions or exchanges be accepted for your account. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value (less any applicable contingent deferred sales
charge on redemptions) next determined on the following Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring you to provide certain personal identification
information at the time your account is opened and prior to effecting each
transaction requested by telephone. You may be required to provide additional
telecopied instructions. If these procedures are employed, neither the Fund
nor the Transfer Agent will be responsible for any loss, liability, cost or
expense for following instructions received by telephone that either of them
reasonably believes to be genuine. Your telephone transaction request will be
recorded.
During periods of extreme economic or market changes, you may experience
difficulty in effecting telephone transactions. In such event, requests should
be made by mail. Shares held in certificate form may not be exchanged or
redeemed by telephone. (See "How to Invest in the Fund -- Purchases by Exchange"
and "How to Redeem Shares.")
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of dividends that are declared
daily and paid monthly. The Fund may distribute to shareholders any net
capital gains on an annual basis or, alternatively, may elect to retain net
capital gains and pay tax thereon.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences
affecting the Fund and its shareholders is based on current tax laws and
regulations, which may be changed by legislative, judicial, or administrative
action. No attempt has been made to present a detailed explanation of the
federal, state or local tax treatment of the Fund or the shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders. Unless
you are otherwise exempt, you will be generally subject to federal income or
capital gains taxes on the amounts so distributed to you. Reinvested
distributions will be taxed as if they had been distributed on the
reinvestment date.
You will be taxed on distributions from the Fund out of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, as gains from the sale or exchange of a capital asset held for
more than one year regardless of the length of time you have held the shares.
You will be taxed on all other
10
<PAGE>
income distributions as ordinary income. Fund distributions generally will not
be eligible for the corporate dividends received deduction. You will be
advised annually as to the federal income tax status of distributions made
during the year.
Ordinarily, you 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 by you and paid by the Fund in
the year in which the dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Fund shares is a taxable event for
you.
You are urged to consult with your tax advisor concerning the
application of state and local taxes to investments in the Fund, which may
differ from the federal income tax consequences described above. For example,
under certain specified circumstances, state income tax laws may exempt from
taxation distributions of a regulated investment company to the extent that
such distributions are derived from interest on federal obligations. You are
urged to consult with your tax advisor regarding whether, and under what
conditions such exemption is available.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributors, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to its distributors, to the Advisor and to the
Fund's administrator. A majority of the Directors of the Fund have no
affiliation with the Distributor, the Advisor or the Fund's administrator.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
International Strategy & Investment Inc. ("ISI" or the "Advisor"), a
registered investment advisor, serves as investment advisor to the Fund
pursuant to an investment advisory agreement dated as of April 1, 1991 (the
"Investment Advisory Agreement"). ISI employs Messrs. Edward S. Hyman and R.
Alan Medaugh. Due to their stock ownership, Messrs. Hyman and Medaugh may be
deemed to be controlling persons of ISI. As of December 31, 1997, the Advisor
had approximately $510 million under management. The Advisor also acts as
investment advisor to Managed Municipal Fund, Inc., North American Government
Bond Fund, Inc. and ISI Strategy Fund, Inc., open-end management investment
companies with approximately $180 million in aggregate net assets as of
December 31, 1997.
As compensation for its services for the fiscal year ended October 31,
1997, the Advisor received an annual fee equal to 0.28% of the Fund's average
daily net assets. The Advisor's fee is based in part upon a varying percentage
of the Fund's average daily net assets and in part upon a percentage (1.50%) of
the Fund's gross income.
Portfolio Managers
Edward S. Hyman, Chairman of the Fund and ISI, and R. Alan Medaugh,
President of the Fund and ISI, have shared direct portfolio management
responsibility for the Fund since its inception. Mr. Hyman is responsible for
developing the economic analysis upon which the Fund's selection of
investments is based. (See "Investment Program.") Before joining ISI, Mr.
Hyman was a vice chairman and member of the Board of C.J. Lawrence Inc. and
prior thereto, an economic consultant at Data Resources. He writes a variety
of international and domestic economic research reports which follow trends
that may determine the direction of interest rates. These international and
domestic reports are sent to ISI's private institutional clients in the United
States and overseas. The periodical Institutional Investor, which rates
analysts and economists on an annual basis, has rated Mr. Hyman as its "first
team" economist, which is its highest rating, in each of the last eighteen
years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
joining ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
11
<PAGE>
Management and prior thereto Senior Vice President and bond portfolio manager
at Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
ADMINISTRATOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of
Bankers Trust New York Corporation, provides administration services to the
Fund. ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which the
Fund's shares are distributed and oversight of the relationship between the
Fund and its other service providers. As compensation for these services for
the fiscal year ended October 31, 1997, ICC received a fee equal to 0.12% of
the Fund's average daily net assets. ICC's fee is based in part upon a varying
percentage of the Fund's average daily net assets and in part upon a
percentage (0.50%) of the Fund's gross income.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Transfer Agent and Accounting
Services.")
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor of the Class A Shares and the Class B Shares since
August 31, 1997. ICC Distributors is a registered broker-dealer that offers
distribution services to a variety of registered investment companies
including other funds in the Flag Investors family of funds and BT Alex. Brown
Cash Reserve Fund, Inc. ICC Distributors is not affiliated with the Fund's
administrator.
The Fund has adopted two separate Plans of Distribution, one with
respect to the Class A Shares and one with respect to the Class B Shares (the
"Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, including certain banks and BT Alex.
Brown Incorporated, to provide shareholder services, pursuant to which the
Distributor may allocate on a proportional basis up to all of its distribution
fee as compensation for such financial institutions' ongoing shareholder
services. Such financial institutions may charge you separately for these
services.
As compensation for providing distribution services for the Class A
Shares for the period from August 31, 1997 through October 31, 1997, the
Distributor received a fee equal to 0.25% (annualized) of the Class A Shares'
average daily net assets. As compensation for providing distribution and
shareholder servicing for the Class B Shares for the period from August 31,
1997 through October 31, 1997, the Distributor received a fee equal to 0.35%
(annualized) of the Class B Shares' average daily net assets and a shareholder
servicing fee equal to 0.25% (annualized) of the Class B Shares' average daily
net assets. The distribution fee is used to compensate the Distributor for its
services and expenses in distributing the Class B Shares. The shareholder
servicing fee is used to compensate the Distributor, securities dealers and
Shareholder Servicing Agents for services provided and expenses incurred in
maintaining your account, responding to your inquiries and providing you with
information on your investment.
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 the Distributor's overhead expenses. If the cost of providing distribution
services is less than the payments received, the Distributor may retain the
unexpended portion of the distribution fee. The Distributor or the Fund's
administrator, and their respective affiliates, may make payments from their
own resources to securities dealers or Shareholder Servicing Agents. Payments by
the Distributor will include additional discounts or promotional incentives in
the form of cash or other compensation (including merchandise or travel).
12
<PAGE>
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended
October 31, 1997, ICC received a fee equal to 0.03% of the Fund's average
daily net assets. Bankers Trust Company, a subsidiary of Bankers Trust New
York Corporation, acts as custodian of the Funds' assets. (See the Statement
of Additional Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may quote total return and yield data in
advertisements or in reports to shareholders. Both total return and yield data
will be computed according to the standardized calculations required by the
SEC to provide consistency and comparability in investment company
advertising.
The yield of the Fund will be determined by dividing the net investment
income earned by the Fund during a 30-day period by the maximum offering price
per share on the last day of the period and annualizing the result on a
semi-annual basis.
Advertisements or reports citing performance data will show the average
annual total return, net of the Fund's maximum sales charge imposed on Class A
Shares or including the contingent deferred sales charge imposed on Class B
Shares redeemed at the end of the specific period covered by the total return
figure, over one-, five- and ten-year periods or, if such periods have not yet
elapsed, shorter periods corresponding to the life of the Fund. Such return
quotations will be computed by finding average annual compounded rates of
return over such periods that would equate an assumed initial investment of
$1,000 to the ending redeemable value, net of all sales loads and other fees,
according to the required standardized calculation. The Fund's total return
for a given period is based upon changes in the Fund's net asset value and the
Fund's yield for the period. If the Fund compares its performance to other
funds or to relevant indices, its performance will be stated in the same terms
in which such comparative data and indices are stated, which is normally total
return rather than yield. For these purposes, the performance of the Fund, as
well as the performance of such investment companies or indices, may not
reflect sales charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index (or any of its sub-indices), the Consumer Price Index,
Ryan U.S. Treasury Index, the return on 90-day U.S. Treasury bills, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Yield quotations and performance comparisons may be useful as a basis
for comparing the Fund with other investment alternatives. The Fund's current
yield will fluctuate from time to time and is not necessarily representative
of the Fund's future performance. Yield and performance data should also be
considered in light of the risks associated with the Fund's investment
objective and policies. Any fees charged by your bank with respect to the
account through which your shares may be purchased, although not included in
calculations of performance, will reduce your performance results.
13
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Capital Shares
The Fund is an open-end, diversified management investment company
organized under the laws of the State of Maryland on June 3, 1988, and is
authorized to issue 100 million shares of capital stock with a par value of
$.001 per share. Shares of the Fund have equal rights with respect to voting.
Voting rights are not cumulative, so the holders of more than 50% of the
outstanding shares of capital stock voting together for election of Directors
may elect all the members of the Board of Directors of the Fund. In the event
of liquidation or dissolution of the Fund, each share is entitled to its
portion of the Fund's assets after all debts and expenses have been paid. The
fiscal year-end of the Fund is October 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests in
a separate portfolio of securities, and separate classes of each series of the
Fund. The shares offered by this Prospectus have been designated "Flag
Investors Total Return U.S. Treasury Fund Class A Shares" and "Flag Investors
Total Return U.S. Treasury Fund Class B Shares." The Board has no present
intention of establishing any additional series of the Fund but the Fund does
have another class of shares in addition to the shares offered hereby, "ISI
Total Return U.S. Treasury Fund Shares." Shares of that class are sold through
broker-dealers. Different classes of the Fund may be offered to certain
investors and holders of such shares may be entitled to certain exchange
privileges not offered to Class A or Class B Shares. All classes of the Fund
share a common investment objective, portfolio of investments and advisory
fee, but the classes may have different sales load structures, distribution/
service fees or other expenses and, accordingly, the net asset value per
share of classes may differ at times.
Annual Meetings
Unless required by Maryland law the Fund does not expect to hold annual
meetings of shareholders but special meetings of shareholders will be held
under certain circumstances. However, shareholders of the Fund reserve the
right, under certain circumstances, to request that a meeting of shareholders
be held for the purpose of considering the removal of a Director from office,
and if such a request is made, the Fund will assist with shareholder
communications in connection with the meeting.
Reports
You will be furnished with semi-annual reports containing information
about the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent auditors, Deloitte & Touche LLP.
Shareholder Inquiries
If you have questions concerning your shares, you should contact the Fund
at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or your securities
dealer or Shareholder Servicing Agent.
14
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
(Class A and Class B)
(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 P.O. Box 7558
Baltimore, Maryland 21202 Portland, Maine 04101
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street 117 Campus Drive
Baltimore, Maryland 21202 Princeton, New Jersey 08540
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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:
Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flat Investors Total Return U.S. Treasury Fund Shares
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).
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
under the _____________________ Uniform Gifts to Minors Act
State of Residence
Mailing Address
- --------------------------------------
Street
- --------------------------------------
City State Zip
( )
- --------------------------------------
Daytime Phone
<PAGE>
Letter of Intent -- Class A Shares only (Optional)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Flag Investors Total Return U.S. Treasury
Fund Class A Shares, as shown below, in an aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
Right of Accumulation -- Class A Shares only (Optional)
List the Account numbers of other Flag Investors Funds that you or your
immediate family already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution Options
Please check the 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 class)
Please attach a voided check.
- ---------------------------------- -----------------------------------------
Bank Name Depositor's Signature Date
- ---------------------------------- -----------------------------------------
Existing Flag Investors Fund Depositor's Signature Date
Account No., if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of__________________, 19__ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $____________ from Class A Shares and/or $____________ from Class B
Shares that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000 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 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 800-553-8080.)
[ ] 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 have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be effected
as described in the Fund's current prospectus (see "Telephone Transactions"). I
also acknowledge that I may bear the risk of loss in the event of fraudulent
use of such privileges. If I do not want telephone redemption or exchange
privileges, I have so indicated on this Application.
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>
TOTAL RETURN U.S. TREASURY FUND, INC.
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
February 25, 1998
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
Part A - Information Required in a Prospectus
- ------
<S> <C> <C>
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Financial Highlights
Item 4. General Description of Registrant................................ Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund........................................... Management of the Fund;
Investment Advisor;
Administrator; Distributor;
Custodian, Transfer
Agent, and Accounting
Services
Item 5A. Management's Discussion of Fund Performance...................... *
Item 6. Capital Stock and Other Securities............................... Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............................. How to Invest in the
Fund; Distributor
Item 8. Redemption or Repurchase......................................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................................ **
</TABLE>
- ---------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B - Information Required in a Statement of Additional Information
- ------
<S> <C> <C>
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information and
History
Item 13. Investment Objectives and Policies............................... Investment Objectives
and Policies
Item 14. Management of the Fund........................................... Management of the Fund
Item 15. Control Persons and Principal Holders of Securities.............. Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services........................... Investment Advisory and
Other Services;
Custodian, Transfer
Agent and Accounting
Services; Independent
Auditors
Item 17. Brokerage Allocation............................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities............................... Capital Shares; Semi-
Annual Reports
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered...................................... Valuation of Shares and
Redemption
Item 20. Tax Status....................................................... Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters..................................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data.................................. Performance and Yield
Computations
Item 23. Financial Statements............................................. Financial Statements
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
717 Fifth Avenue
New York, New York 10022
For information call (800) 955-7175
Total Return U.S. Treasury Fund, Inc. (the "Fund") is designed to provide:
1) A high level of total return with relative stability of principal.
2) High current income, consistent with an investment in securities
issued by the United States Treasury ("U.S. Treasury Securities").
The Fund will invest only in U.S. Treasury Securities and in repurchase
agreements fully collateralized by U.S. Treasury Securities.
Shares of the ISI class of the Fund ("Shares") are available through
International Strategy & Investment Group Inc. (the "Distributor"), as well as
your securities dealer or shareholder servicing agent. (See "How to Invest in
the Fund.")
This Prospectus sets forth basic information that you should know about
the Fund prior to investing. You should retain it for future reference. A
Statement of Additional Information dated March 1, 1998, has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by contacting
the Fund at the above address or telephone number.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 1, 1998.
<PAGE>
1. Fee Table
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 4.45%
Maximum Sales Charge Imposed on Reinvested Dividends ......................... None
Maximum Deferred Sales Charge ................................................ None
Annual Fund Operating Expenses: (as a percentage of average daily net assets)
Management Fees .............................................................. 0.28%
12b-1 Fees ................................................................... 0.25%
Other Expenses ............................................................... 0.30%
----
Total Fund Operating Expenses ................................................ 0.83%
====
</TABLE>
Example:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period: $53 $70 $89 $142
</TABLE>
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and expenses
that you will bear directly or indirectly when you invest in Shares. The
Management Fees paid by the Fund are based in part on the net assets of the
Fund and in part on gross income, which fees are reflected as a percentage of
average daily net assets. If you purchase Shares through a financial
institution, you may be charged separate fees by the financial institution. The
rules of the SEC require that the maximum sales charge (in the Shares' case,
4.45% of the offering price) be reflected in the above table. However, you may
qualify for reduced sales charges or no sales charge at all. (See "How to
Invest in the Fund -- Offering Price.") Due to the continuous nature of Rule
12b-1 fees, you may pay more than the equivalent of the maximum front-end
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. if you hold your Shares for a long time. The above
table has not been audited by Deloitte & Touche LLP, the Fund's independent
auditors.
2. Financial Highlights
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended October 31, 1997 and the independent
auditors' report thereon of Deloitte & Touche LLP are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended October 31,
1997, which is available at no cost by calling the Fund at (800) 955-7175.
2
<PAGE>
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended October 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Per-
formance:
Net asset value at beginning
of period ................... $ 9.83 $ 10.19 $ 9.22 $ 11.35 $ 10.47
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income ....... 0.55 0.56 0.57 0.51 0.62
Net realized and unreal-
ized gain/(loss) on
investments ................ 0.30 (0.23) 1.04 (1.16) 1.12
-------- -------- -------- -------- --------
Total from Investment
Operations ................. 0.85 0.33 1.61 (0.65) 1.74
-------- -------- -------- -------- --------
Less Distributions:
Distributions from net
investment income and
short-term gains ........... (0.55) (0.65) (0.64) (1.15) (0.79)
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) (0.07)
-------- -------- -------- -------- --------
Total Distributions ......... (0.64) (0.69) (0.64) (1.48) (0.86)
-------- -------- -------- -------- --------
Net asset value at end of
period ..................... $ 10.04 $ 9.83 $ 10.19 $ 9.22 $ 11.35
======== ======== ======== ======== ========
Total Return(2)............... 9.00% 3.44% 18.09% (6.22)% 17.33%
Ratios to Average Daily
Net Assets:
Expenses .................... 0.83% 0.81% 0.80% 0.77% 0.77%
Net investment income ....... 5.62% 5.69% 5.94% 4.98% 5.21%
Supplemental Data:
Net assets at end of
period (000):
ISI Class Shares ........... $171,074 $193,486 $206,615 $200,309 $232,103
Flag Investors Class A
Shares .................... $122,229 $143,791 $164,206 $175,149 $224,790
Portfolio turnover rate ..... 92% 199% 194% 68% 249%
</TABLE>
- ------------------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended October 31, August 10, 1988(1)
------------------------------------------------------ through
1992 1991 1990 1989 October 31, 1988
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Per-
formance:
Net asset value at beginning
of period ................... $ 10.41 $ 9.76 $ 10.55 $ 10.24 $10.00
-------- -------- -------- -------- -------
Income from Investment
Operations:
Net investment income ....... 0.76 0.70 0.73 0.71 0.10
Net realized and unreal-
ized gain/(loss) on
investments ................ 0.05 0.79 ( 0.60) 0.44 0.21
-------- -------- -------- -------- -------
Total from Investment
Operations ................. 0.81 1.49 0.13 1.15 0.31
-------- -------- -------- -------- -------
Less Distributions:
Distributions from net
investment income and
short-term gains ........... (0.70) (0.84) (0.92) (0.84) (0.07)
Tax return of capital
distribution ............... -- -- -- -- --
Distributions in excess of
net investment
income...................... -- -- -- -- --
Distributions from net
realized long-term
gains ...................... (0.05) -- -- -- --
-------- -------- -------- -------- -------
Total Distributions ......... (0.75) (0.84) (0.92) (0.84) (0.07)
-------- -------- -------- -------- -------
Net asset value at end of
period ..................... $ 10.47 $ 10.41 $ 9.76 $ 10.55 $ 10.24
======== ======== ======== ======== =======
Total Return(2) .............. 8.96% 15.89% 1.43% 11.87% 3.10%
Ratios to Average Daily
Net Assets:
Expenses .................... 0.77% 0.87% 0.89% 0.97% 1.12%(3)
Net investment income ....... 5.65% 6.88% 7.40% 7.51% 5.80%(3)
Supplemental Data:
Net assets at end of
period (000):
ISI Class Shares ........... $207,518 $168,128 $131,872 $ 89,943 $22,597
Flag Investors Class A
Shares .................... $250,210 $237,688 $198,556 $135,523 $55,757
Portfolio turnover rate ..... 191% 141% 79% 184% 72%
</TABLE>
- ------------------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
3. Investment Program
Investment Objective, Policies and
Risk Considerations
The Fund's investment objective is to seek a high level of total return, with
relative stability of principal, and, secondarily, to seek 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. U.S. Treasury Securities are direct
obligations of the United States Government and are supported by the full faith
and credit of the United States. There can be no assurance that the Fund's
investment objective will be met.
Selection of Investments
The Fund's investment advisor (the "Advisor" -- see "Investment 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 potential for
capital gains and appreciation resulting from
3
<PAGE>
possible changes in interest rates will be a consideration in selecting
investments. The Advisor will be free to take full advantage of the entire
range of maturities offered by U.S. Treasury Securities and may adjust the
average maturity of the Fund's portfolio from time to time, depending on its
assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates. Thus, at
certain times the average maturity of the portfolio may be relatively short
(from under one year to five years, for example) and at other times may be
relatively long (over 10 years, for example). In determining which direction
interest rates are likely to move, the Advisor relies on the economic analysis
made by its chairman, Edward S. Hyman. There can be no assurance that such
economic analysis will accurately predict interest rate trends or that the
portfolio strategies based on Mr. Hyman's economic analysis will be effective.
Risk Considerations
U.S. Treasury Securities are considered among the safest of fixed-income
investments. Because of this added safety, the yields available from these
securities are generally lower than the yields available from corporate debt
securities. As with other debt securities, the value of U.S. Treasury
Securities changes as interest rates fluctuate. This is especially true for
securities with longer maturities and for STRIPS (securities that don't pay
interest currently but which are purchased at a discount and are payable in
full at maturity). Changes in the value of portfolio securities will not
affect interest income from those securities but will be reflected in the
Fund's net asset value. Thus, a decrease in interest rates will generally
result in an increase in the value of the Shares. Conversely, during periods
of rising interest rates, the value of the Shares will generally decline. The
magnitude of these fluctuations will generally be greater at times when the
Fund's average maturity is longer.
Investments in Repurchase Agreements
The Fund may agree to purchase 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. Default by, or bankruptcy proceedings with respect to, the seller may,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.
Purchase of When-Issued Securities
From time to time, in the ordinary course of business, the Fund may make
purchases of U.S. Treasury Securities, at the current market value of the
securities, on a when-issued basis. A segregated account of the Fund, consisting
of cash or liquid 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. 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 to limit the effects of adverse market action. The
value of when-issued securities is subject to market fluctuation and no interest
accrues to the purchaser during this period. The Fund will ordinarily invest no
more than 40% of its net assets at any time in when-issued securities.
4. Investment Restrictions
The Fund will not 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. This restriction may be changed by a majority vote of
the Board of Directors.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
5. How to Invest in the Fund
You may purchase Shares through your securities dealer or through any
financial institution that is authorized to service shareholder accounts
("Shareholder Servicing Agents"). You may also purchase Shares by completing
the Application Form attached to this Prospectus and returning it, together
with payment of the purchase price, to the address shown on the Application
Form. As used herein, the "Fund" refers to Total Return U.S. Treasury Fund,
Inc., whereas references to the "Shares" shall mean shares of the Fund's ISI
Total Return U.S. Treasury Fund Shares which is a class of shares of the Fund.
Your initial investment must be at least $5,000, except that the minimum
initial investment for qualified retirement plans and IRA's is $1,000 and the
minimum initial investment for participants in the Fund's Automatic Investing
Plan is $250. Each subsequent investment must be at least
4
<PAGE>
$250, except that the minimum subsequent investment for participants in the
Fund's Automatic Investing Plan is $100 for monthly investments and $250 for
quarterly investments. (See "Purchases Through Automatic Investing Plan"
below.) You may purchase Shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). Your purchase order will be
executed at a per share purchase price equal to the net asset value next
determined after it is received plus any applicable front-end sales charge
(the "Offering Price"). If your purchase is made by mail, it must be
accompanied by payment of the Offering Price. Purchases made through your
securities dealer or Shareholder Servicing Agent must be in accordance with
their payment procedures. 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.
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), on each
Business Day. Net asset value per share of a class is calculated by valuing
its share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given
their market value which is normally based on current prices but which may be
determined according to "fair value" procedures approved by the Fund's Board
of Directors.
Offering Price
Your Share purchase is made at the Offering Price, which includes a sales
charge which is calculated as a percentage of the Offering Price and decreases
as the amount of purchase increases as shown below:
Sales Sales
Charge as Charge as Dealer
Percentage Percentage Compensation
of of Net as Percentage
Offering Amount of Offering
Amount of Purchase Price Invested Price*
- ----------------------------- ------------ ------------ --------------
Less than $ 50,000 4.45% 4.66% 4.00%
$ 50,000 - $ 99,999 3.50% 3.63% 3.00%
$ 100,000 - $ 249,999 2.50% 2.56% 2.00%
$ 250,000 - $ 499,999 2.00% 2.04% 1.50%
$ 500,000 - $ 999,999 1.50% 1.52% 1.25%
$1,000,000 - $1,999,999 0.75% 0.76% 0.75%
$2,000,000 - $2,999,999 0.50% 0.50% 0.50%
$3,000,000 and over.......... None None None
<PAGE>
- ------------------------
* The Distributor may make payments of up to 100% of the sales charge to your
securities dealer. Dealers that receive a reallowance of 100% of the sales
charge may be considered underwriters for purposes of the federal
securities laws.
You may obtain reduced sales charges as set forth in the table above by
accumulating purchase orders for, and existing investments in, Shares of this
Fund and any other fund in the ISI family of funds. The applicable sales
charge will be determined based on the total value of your current purchases
plus the value of your existing investments. (For this purpose existing
investments will be valued at the higher of cost or current value.) You may
combine your purchases and investments with those of your spouse and your
children under the age of 21 for this purpose.
To obtain the reduced sales charge through this right of accumulation, you
must provide your securities dealer or Shareholder Servicing Agent with
sufficient information to verify that you have such a right. The Fund may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
You may also obtain the reduced sales charges shown above by executing a written
Letter of Intent that states your intention to invest at least $50,000 within a
13-month period in Shares. Each purchase of Shares under a Letter of Intent will
be made at the Offering Price applicable at the time of such purchase to the
full amount indicated on the Letter of Intent. A Letter of Intent does not
require that you purchase the full amount indicated. The minimum initial
investment under a Letter of Intent is 5% of the full amount. Shares purchased
with the first 5% of the full amount will be held in escrow (while remaining
registered in your name) to secure payment of the higher sales charge applicable
to the Shares actually purchased if you do not purchase the full amount. Such
escrowed Shares will be redeemed to pay the additional sales charge, if
necessary. When the full amount indicated has been purchased, the escrowed
Shares will be released. If you wish to enter into a Letter of Intent in
conjunction with an investment in Shares, you may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
You may purchase Shares at net asset value (without sales charge) under the
following circumstances:
1) If you are purchasing Shares in a fiduciary or advisory account with a bank,
bank trust department, registered
5
<PAGE>
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 broker or agent if
you purchase Shares in this manner.
2) 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.
3) If you are exchanging an investment in another ISI fund for an investment
in this Fund (see "Purchases by Exchange" for a full description of the
conditions).
4) If you are a current or retired Director of the Fund, a director,
employee or a member of the immediate family of an employee of any of the
following or their respective affiliates: the Advisor, the Fund's
administrator, and any broker-dealer authorized to sell Shares.
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 may exchange them
for Shares if you pay 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 at
least $5,000.
The net asset value of shares purchased and redeemed in an exchange request
received on the same Business Day will be determined on that day, provided
that the exchange request is received prior to 4:00 p.m. (Eastern Time), or
the close of the New York Stock Exchange, whichever is earlier. Exchange
requests received after 4:00 p.m. (Eastern Time) will be effected on the next
Business Day.
Until February 28, 1999, you may exchange shares of any other mutual fund on
which you have paid a sales charge or shares of any closed-end fund, for an
equal dollar amount of Shares by submitting to the Distributor or your
securities dealer, the proceeds of the redemption or sale of shares of such
funds, together with evidence of the payment of a sales charge (for mutual
funds only) and the source of such proceeds. Shares issued pursuant to this
offer will not be subject to the sales charges described above or any other
charge.
You may exercise the exchange privilege with respect to other ISI funds by
telephone. (See "Telephone Transactions" below.) The Fund may modify or
terminate these offers of exchange at any time upon 60 days' written notice.
Purchases Through Automatic Investing Plan
You may elect to have a specified amount invested monthly or quarterly in
Shares. The amount specified will be withdrawn from your checking account using
a pre-authorized check and will be invested in Shares at the applicable Offering
Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued either by you
or the Fund upon 30 days' prior written notice to the other party. If you wish
to enroll in the Automatic Investing Plan or if you wish to obtain additional
information, complete the appropriate section of the Application Form attached
to this Prospectus.
<PAGE>
Purchases Through Dividend Reinvestment
Unless you elect otherwise, all income dividends 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 terminate automatic
reinvestment by completing the appropriate section of the attached Application
Form or by giving written notice to the Fund's transfer agent (the "Transfer
Agent") at the address listed on the inside back cover of this Prospectus
either directly or through your securities dealer or Shareholder Servicing
Agent, at least five days before the next date on which dividends or
distributions will be paid.
You may also have your distributions invested in shares of other funds in the
ISI family of funds. Call your securities dealer or the Transfer Agent for
additional information.
6. How to Redeem Shares
You may redeem all or part of your investment on any Business Day through your
securities dealer, your Shareholder Servicing Agent or the Transfer Agent. You
may
6
<PAGE>
redeem up to $50,000 worth of Shares by telephone. (See "Telephone
Transactions" below.) A redemption order is effected at the net asset value
per share next determined after receipt of your order (or, if stock
certificates have been issued for the Shares to be redeemed, after you tender
the stock certificates for redemption). Redemption orders received after 4:00
p.m. (Eastern Time) or the close of the New York Stock Exchange, whichever is
earlier, will be effected at the net asset value next determined on the
following Business Day. You will be paid for redeemed Shares by check which
will be mailed within seven days after your redemption order is received in
proper form.
The Transfer Agent, your securities dealer or your Shareholder Servicing Agent
may require the following documents in order to redeem your Shares:
1) A letter of instructions, specifying your account number and the number
of Shares or dollar amount to be redeemed, signed by all owners of the
Shares in the exact names in which the account is maintained;
2) For redemptions in excess of $50,000, a guarantee of your signature by a
member of the Federal Deposit Insurance Corporation, a trust company,
broker, dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency, or savings association;
3) If Shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for
Shares to be redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Shares will be paid on the
next dividend payable date. If all of the Shares in your account have been
redeemed on a dividend payable date, the dividend will be remitted to you by
check.
The Fund has the power under its Articles of Incorporation to redeem your
account upon 60 days' notice if its value falls below $500 due to your
redemptions.
Systematic Withdrawal Plan
If you hold Shares having a value of $10,000 or more you may arrange to have a
portion of your Shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Such payments are drawn from income dividends,
and, to the extent necessary, from Share redemptions (which would be a return
of principal and, if reflecting a gain, would be taxable). If redemptions
continue, your account may eventually be exhausted. Because Share purchases
include a sales charge that you will not recover at the time of redemption,
you should not have a withdrawal plan in effect at the same time you are
making recurring purchases. If you wish to participate in the Systematic
Withdrawal Plan, complete the appropriate section of the Application Form
attached to this Prospectus.
7. Telephone Transactions
You may redeem Shares in amounts up to $50,000 or exchange Shares in any
amount, by notifying the Transfer Agent by telephone on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). Telephone
transaction privileges are automatic unless you specifically request that no
telephone redemptions or exchanges be accepted for your account. This election
may be made on the Application Form or at any time thereafter by completing
and returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected
at the net asset value next determined on the following Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring you to provide certain personal identification information
at the time your account is opened and prior to effecting each transaction
requested by telephone. You may be required to provide additional telecopied
written instructions. If these procedures are employed, neither the Fund nor
the Transfer Agent will be responsible for any loss, liability, cost or
expense for following instructions received by telephone that either of them
reasonably believes to be genuine. Your telephone transaction request will be
recorded.
During periods of extreme economic or market changes, you may experience
difficulty in effecting telephone transactions. In such event, requests should
be made by mail. Shares held in certificate form may not be
7
<PAGE>
exchanged or redemed by telephone. (See "How to Invest in the Fund -- Purchases
by Exchange" and "How to Redeem Shares.")
8. Dividends and Taxes
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income (including net short-term capital gains) in the
form of dividends that are declared daily and paid monthly. The Fund may
distribute to shareholders any net capital gains on an annual basis or,
alternatively, may elect to retain net capital gains and pay tax thereon.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences affecting the
Fund and its shareholders is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. No attempt
has been made to present a detailed explanation of the federal, state or local
tax treatment of the Fund or the shareholders, and the discussion here is not
intended as a substitute for careful tax planning.
The Statement of Additional Information sets forth further information
concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders. Unless
you are otherwise exempt, you will be generally subject to federal income or
capital gains taxes on the amounts so distributed. Reinvested dividends will
be taxed as if they had been distributed on the reinvestment date.
You will be taxed on distributions from the Fund out of net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, as gains from the sale or exchange of a capital asset held for more than
one year regardless of the length of time you have held the Shares. You will
be taxed on all other income distributions as ordinary income. Fund
distributions generally will not be eligible for the corporate dividends
received deduction. You will be advised annually as to the federal income tax
status of distributions made during the year.
Ordinarily, you 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 by you and paid by the Fund in the year in
which the dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange or redemption of Shares is a taxable event for you.
You are urged to consult with your tax advisor concerning the application of
state and local taxes to investments in the Fund, which may differ from the
federal income tax consequences described above. For example, under certain
specified circumstances, state income tax laws may exempt from taxation
distributions of a regulated investment company to the extent that such
distributions are derived from interest on federal obligations. You are urged
to consult with your tax advisor regarding whether, and under what conditions
such exemption is available.
<PAGE>
9. Management of the Fund
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributors, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to its distributors, to the Advisor and to the
Fund's administrator. A majority of the Directors of the Fund have no
affiliation with the Distributor, the Advisor or the Fund's administrator.
The Fund's Directors and officers are as follows:
Edward S. Hyman Chairman
Richard T. Hale Vice Chairman
Truman T. Semans Director
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Rebecca W. Rimel Director
Carl W. Vogt, Esq. Director
R. Alan Medaugh President
Nancy Lazar Vice President
Carrie L. Butler Vice President
Margaret M. Beeler Assistant Vice President
Keith C. Reilly Assistant Vice President
Joseph A. Finelli Treasurer
Amy M. Olmert Secretary
Scott J. Liotta Assistant Secretary
8
<PAGE>
10. Investment Advisor
International Strategy & Investment Inc. ("ISI" or the "Advisor"), a registered
investment advisor, serves as investment advisor to the Fund pursuant to an
investment advisory agreement dated as of April 1, 1991 (the "Investment
Advisory Agreement"). ISI employs Messrs. Edward S. Hyman and R. Alan Medaugh.
Due to their stock ownership, Messrs. Hyman and Medaugh may be deemed to be
controlling persons of ISI. As of December 31, 1997, the Advisor had
approximately $510 million under management. The Advisor also acts as investment
advisor to Managed Municipal Fund, Inc., North American Government Bond Fund,
Inc. and ISI Strategy Fund, Inc., open-end management investment companies with
approximately $180 million in aggregate net assets as of December 31, 1997.
As compensation for its services for the fiscal year ended October 31, 1997, the
Advisor received an annual fee equal to 0.28% of the Fund's average daily net
assets. The Advisor's fee is based in part upon a varying percentage of the
Fund's average daily net assets and in part upon a percentage (1.5%) of the
Fund's gross income.
Portfolio Managers
Edward S. Hyman, Chairman of the Fund and ISI, and R. Alan Medaugh, President
of the Fund and ISI, have shared direct portfolio management responsibility
for the Fund since its inception. Mr. Hyman is responsible for developing the
economic analysis upon which the Fund's selection of investments is based.
(See "Investment Program.") Before joining ISI, Mr. Hyman was a vice chairman
and member of the Board of C.J. Lawrence Inc. and prior thereto, an economic
consultant at Data Resources. He writes a variety of international and
domestic economic research reports which follow trends that may determine the
direction of interest rates. These international and domestic reports are sent
to ISI's private institutional clients in the United States and overseas. The
periodical Institutional Investor, which rates analysts and economists on an
annual basis, has rated Mr. Hyman as its "first team" economist, which is its
highest rating, in each of the last eighteen years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
joining ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and prior thereto Senior Vice President and bond portfolio manager
at Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
11. Administrator
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust New York Corporation, 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. As compensation for these services for the fiscal
year ended October 31, 1997, ICC received a fee equal to 0.12% of the Fund's
average daily net assets. ICC's fee is based in part upon a varying percentage
of the Fund's average daily net assets and in part upon a percentage (0.50%)
of the Fund's gross income.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Transfer Agent and Accounting
Services.")
12. Distributor
International Strategy & Investment Group Inc. ("ISI Group" or the
"Distributor") has served as distributor of the Shares since April 1, 1997
pursuant to a Distribution Agreement and related Plan of Distribution (the
"Plan") adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. ISI Group is a broker-dealer that was formed in 1991 and is
an affiliate of the Advisor. ISI Group employs Mr. Edward S. Hyman and Ms.
Nancy Lazar. Due to their stock ownership, Mr. Hyman and Ms. Lazar may be
deemed to be controlling persons of ISI Group. As compensation for its
services for the period from April 1, 1997 through October 31, 1997, the
Distributor received a fee equal to 0.25% (annualized) of the Shares' average
daily net assets. The Distributor may allocate on a proportional basis up to
all of its fee to selected securities
9
<PAGE>
dealers as compensation for their ongoing shareholder services, including
processing redemption and sale requests and responding to your inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks to provide shareholder services,
pursuant to which the Distributor may allocate on a proportional basis
up to all of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
charge you separately for these services.
Payments under the Plan are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used
to pay the Distributor's overhead expenses. If the cost of providing
distribution services for the Shares is less than the payments received, the
Distributor may retain the unexpended portion of the distribution fee. The
Distributor or its associated persons will from time to time and from its own
resources pay or allow additional discounts or promotional incentives in the
form of cash or other compensation (including merchandise or travel).
13. Custodian, Transfer Agent and Accounting Services
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended
October 31, 1997, ICC received a fee equal to 0.03% of the Fund's average
daily net assets. Bankers Trust Company, a subsidiary of Bankers Trust New
York Corporation, acts as custodian of the Fund's assets. (See the Statement
of Additional Information.)
14. Performance Information
From time to time, the Fund may quote total return and yield data in
advertisements or in reports to shareholders. Both total return and yield data
will be computed according to the standardized calculations required by the
SEC to provide consistency and comparability in investment company
advertising.
The yield of the Fund will be determined by dividing the net investment income
earned by the Fund during a 30-day period by the maximum offering price per
Share on the last day of the period and annualizing the result on a
semi-annual basis.
Advertisements or reports citing performance data will show the average annual
total return, net of the Fund's sales charge, over one-, five- and ten-year
periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such return quotations will be computed
by finding average annual compounded rates of return over such periods that
would equate an assumed initial investment of $1,000 to the ending redeemable
value, net of all sales loads and other fees, according to the required
standardized calculation. The Fund's total return for a given period is based
upon changes in the Fund's net asset value and the Fund's yield for the
period. If the Fund compares its performance to other funds or to relevant
indices, its performance will be stated in the same terms in which such
comparative data and indices are stated, which is normally total return rather
than yield. For these purposes, the performance of the Fund, as well as the
performance of such investment companies or indices, may not reflect sales
charges, which, if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index (or any of its sub-indices), the Consumer Price Index,
Ryan U.S. Treasury Index, the return on 90-day U.S. Treasury bills, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The
Fund may also use total return performance data as reported in the following
national financial and industry publications that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Yield quotations and performance comparisons may be useful as a basis for
comparing the Fund with other investment alternatives. The Fund's current yield
will fluctuate from time to time and is not necessarily representative of the
Fund's future performance. Yield and performance data should also be considered
in light of the risks associated with the Fund's investment objective and
policies. Any fees charged by your bank with respect to the account through
which your Shares may be purchased, although not included in calculations of
performance, will reduce your performance results.
10
<PAGE>
15. General Information
Capital Shares
The Fund is an open-end, diversified management investment company organized
under the laws of the State of Maryland on June 3, 1988, and is authorized to
issue 100 million shares of capital stock with a par value of $.001 per share.
Shares of the Fund have equal rights with respect to voting. Voting rights are
not cumulative, so the holders of more than 50% of the outstanding shares of
capital stock voting together for election of Directors may elect all the
members of the Board of Directors of the Fund. In the event of liquidation or
dissolution of the Fund, each share is entitled to its portion of the Fund's
assets after all debts and expenses have been paid. The fiscal year-end of the
Fund is October 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests in
a separate portfolio of securities, and separate classes of each series of the
Fund. The shares offered by this Prospectus have been designated "ISI Total
Return U.S. Treasury Fund Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund does have two
other classes of shares in addition to the shares offered hereby, "Flag
Investors Total Return U.S. Treasury Fund Class A Shares" and "Flag Investors
Total Return U.S. Treasury Fund Class B Shares." Shares of those classes are
sold through broker-dealers. Different classes of the Fund may be offered to
certain investors and holders of such shares may be entitled to certain
exchange privileges not offered to Shares. All classes of the Fund share a
common investment objective, portfolio and advisory fee, but the classes may
have different distribution expenses and sales charges and, accordingly,
performance may differ.
Annual Meetings
Unless required by Maryland law, the Fund does not expect to hold annual
meetings of shareholders but special meetings of shareholders will be held
under certain circumstances. Shareholders of the Fund reserve the right, under
certain circumstances, to request that a meeting of shareholders be held for
the purpose of considering the removal of a Director from office, and if such
a request is made, the Fund will assist with shareholder communications in
connection with the meeting.
Reports
You will be furnished with semi-annual reports containing information about
the Fund and its operations, including a list of investments held in the
Fund's portfolio and financial statements. The annual financial statements are
audited by the Fund's independent auditors, Deloitte & Touche LLP.
Shareholder Inquiries
If you have questions concerning your Shares, you should contact the Transfer
Agent at (800) 882-8585, the Fund at (800) 955-7175, or your securities dealer
or Shareholder Servicing Agent.
11
<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)
-------------------------------------
Existing Account No., if any
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)
Gifts to Minors
- --------------------------------------
Custodian's Name (only one allowed by law)
- --------------------------------------
Minor's Name (only one)
- --------------------------------------
Social Security Number of Minor
under the ------------ Uniform Gifts to Minors Act
State of Residence
Mailing Address
- --------------------------------------
Street
- --------------------------------------
City State Zip
( )
- --------------------------------------
Daytime Phone
<PAGE>
Statement of Intention (Optional)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. I intend to invest over a 13-month period in shares of
ISI Total Return U.S. Treasury Fund Shares in an aggregate amount at least
equal to:
____$50,000 ____$100,000 ____$250,000 ____$500,000 ____$1,000,000
____$2,000,000 ____$3,000,000
Right of Accumulation (Optional)
List the Account numbers of other ISI Funds that you or your immediate family
already own that qualify for this purchase.
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.
<PAGE>
Automatic Investing Plan (Optional)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_____________ for me, on a monthly or quarterly basis, on or about the
20th of each month or if quarterly, the 20th of January, April, July and
October, and to draw a bank draft in payment of the investment against my
checking account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one): [ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
Please attach a voided check.
- ------------------------------------- -------------------------------------
Bank Name Depositor's Signature Date
- ------------------------------------- -------------------------------------
Existing ISI Total Return U.S. Treasury Depositor's Signature Date
Fund Account No., if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of ______________________ , 19__, please send me
checks on a monthly or quarterly basis, as indicated below, in the amount of
$_____________________, from shares that I own, payable to the account
registration address as shown above. (Participation requires minimum account
value of $10,000.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April, July
and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other ISI Funds) unless I mark one or both of the boxes below.
No, I/We do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: ________________________ Bank Account No.: ______________________
Address: _________________________ Bank Account Name: _____________________
_________________________
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 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 have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be
effected as described in the Fund's current prospectus (see "Telephone
Transactions"). I also acknowledge that I may bear the risk of loss in the
event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
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 a joint Date
account, both must sign)
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: ____________________________ Dealer Code:______________________
Dealer's Address: __________________________ Branch Code:______________________
__________________________
Representative: ___________________________ Rep. No.__________________________
<PAGE>
ISI TOTAL RETURN U.S TREASURY FUND SHARES
(A Class of Total Return U.S. Treasury Fund, Inc.)
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
717 Fifth Avenue
New York, New York 10022
1-800-955-7175
Administrator Distributor
INVESTMENT COMPANY CAPITAL CORP. INTERNATIONAL STRATEGY &
One South Street INVESTMENT GROUP INC.
Baltimore, Maryland 21202 717 Fifth Avenue
New York, New York 10022
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street 117 Campus Drive
Baltimore, Maryland 21202 Princeton, New Jersey 08540
1-800-882-8585
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
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.)
TABLE OF CONTENTS
Page
----
1. Fee Table ......................... 2
2. Financial Highlights .............. 2
3. Investment Program ................ 3
4. Investment Restrictions ........... 4
5. How to Invest in the Fund ......... 4
6. How to Redeem Shares .............. 6
7. Telephone Transactions ............ 7
8. Dividends and Taxes ............... 8
9. Management of the Fund ............ 8
10. Investment Advisor ................ 9
11. Administrator ..................... 9
12. Distributor ....................... 9
13. Custodian, Transfer Agent and
Accounting Services .............. 10
14. Performance Information ........... 10
15. General Information ............... 11
[GRAPHIC OMITTED]
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
An open-end mutual fund seeking a high level of total return, with
relative stability of principal and, secondarily, high current income,
consistent with an investment in securities issued by the United States
Treasury ("U.S. Treasury Securities"). The Fund will invest only in U.S.
Treasury Securities and in repurchase agreements fully collateralized by U.S.
Treasury Securities.
March 1, 1998
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
PARTICIPATING DEALER OR SHAREHOLDER SERVICING AGENT 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, 1998
Relating to the Prospectuses of
ISI Total Return U.S. Treasury Fund Shares Dated: March 1, 1998
and
Flag Investors Total Return U.S. Treasury Fund Class A and Class B Shares
Dated: March 1, 1998
<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...................................... 7
6. Investment Advisory and Other Services...................... 13
7. Administration.............................................. 14
8. Distribution of Fund Shares................................. 15
9. Portfolio Transactions...................................... 19
10. Capital Shares.............................................. 20
11. Semi-Annual Reports......................................... 21
12. Custodian, Transfer Agent and
Accounting Services....................................... 21
13. Independent Auditors........................................ 21
14. Control Persons and Principal Holders of
Securities................................................ 22
15. Performance and Yield Computations.......................... 22
16. Financial Statements ....................................... 24
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Total Return U.S. Treasury Fund, Inc. (the "Fund") is an open-end
management investment company. Under the rules and regulations of the Securities
and Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. The Fund currently offers three classes
of shares: Flag Investors Total Return U.S. Treasury Fund Class A Shares, (the
"Flag Investors Class A Shares"), Flag Investors Total Return U.S. Treasury Fund
Class B Shares (the "Flag Investors 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 by calling 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 respective classes of the Fund
(the "Shares") to prospective investors. Prospectuses may also be obtained from
Shareholder Servicing Agents. As used herein the term "Prospectus" describes
information common to the prospectuses of the three classes of the Fund's
Shares, unless the term "Prospectus" is modified by the appropriate class
designation. As used herein, the "Fund" refers to Total Return U.S. Treasury
Fund, Inc. and specific references to any class of the Fund's Shares will be
made using the name of such class. Some of the information required to be in
this Statement of Additional Information is also included in the Fund's current
Prospectuses. To avoid unnecessary repetition, references are made to related
sections of the Prospectuses. In addition, the Prospectuses and this Statement
of Additional Information omit certain information respecting the Fund and its
business that is contained in the Registration Statement respecting the Fund and
its Shares filed with the SEC. Copies of the Registration Statement as filed,
including such omitted items, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
June 3, 1988. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
its Shares under the Securities Act of 1933, as amended (the "Securities Act"),
and commenced operations on August 10, 1988. 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 Incorporated (now BT Alex. Brown Incorporated), BT Alex. Brown
Incorporated licenses to the Fund the "Flag Investors" name and logo, but
retains rights to that name and logo, including the right to permit other
investment companies to use them.
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<PAGE>
2. INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund's investment objective and its general investment policies are
described in the Prospectus. Additional investment restrictions are set forth
below. This Statement of Additional Information also describes other investment
practices in which the Fund may engage.
Except as specifically identified under "Investment Restrictions" in
the Prospectus and in this Statement of Additional Information, the investment
policies described in these documents are not fundamental, and the Directors may
change such policies without shareholder approval. The Fund's investment
objective is fundamental, however, and may not be changed without shareholder
approval.
Repurchase Agreements
The Fund may agree to purchase securities issued by the United States
Treasury ("U.S. Treasury Securities") from financial institutions, such as banks
and broker-dealers, subject to the seller's agreement to repurchase the
securities at an established time and price. Such repurchase agreements will be
fully collateralized. The Fund's procedures regarding repurchase agreements are
discussed in greater detail in the Fund's Prospectuses. The collateral for these
repurchase agreements will be held by the Fund's custodian or by a duly
appointed sub-custodian. The Fund will enter into repurchase agreements only
with banks and broker-dealers that have been determined to be creditworthy by
the Fund's Board of Directors under criteria established with the assistance of
the Advisor. The list of approved banks and broker-dealers will be monitored
regularly by the Fund's investment advisor (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, at the current
market value of the securities, on a when-issued basis. When such transactions
are negotiated, the yield to maturity is fixed. The coupon interest rate on such
U.S. Treasury Securities is fixed at the time of the U.S. Treasury auction date
therefore determining the price to be paid by the Fund, but delivery and payment
will take place after the date of the commitment. A segregated account of the
Fund, consisting of cash, cash equivalents or U.S. Treasury Securities equal at
all times to the amount of the when-issued commitments will be established and
maintained by the Fund at the Fund's custodian. Additional cash or U.S. Treasury
Securities will be added to the account when necessary. While the Fund will
purchase securities on a 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, their value may be more
or less than the purchase or sale price.
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<PAGE>
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal regulatory
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectus, and are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the outstanding
Shares. The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Accordingly, the Fund will not:
1. 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;
14. Invest in shares of any other investment company registered
under the Investment Company Act;
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<PAGE>
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 .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.
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: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Pursuant to an interpretation adopted by the staff of the SEC, 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
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
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<PAGE>
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 "How to Invest" in each Prospectus and such valuation will be
made as of the same time the redemption price is determined. The Fund, however,
has elected to be governed by Rule 18f-1 under the Investment Company Act
pursuant to which the Fund is obligated to redeem Shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
The following general discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Qualification as Regulated Investment Company
The Fund has been and expects to continue to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Code. As a RIC, the Fund is
exempt from federal income tax on its net investment income and capital gains
which it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (net investment income and the excess
of net short-term capital gains over net long-term capital losses) for the year
(the "Distribution Requirement") and satisfies certain other requirements of the
Code that are described below. Distributions of investment company taxable
income made during the taxable year or, under certain specified circumstances,
within 12 months after the close of the taxable year, will satisfy the
Distribution Requirement. The Distribution Requirement for any year may be
waived if a RIC establishes to the satisfaction of the Internal Revenue Service
that it is unable to satisfy the Distribution Requirement by reason of
distributions previously made for the purpose of avoiding liability for federal
excise tax (discussed below).
The Fund may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Fund must distribute to satisfy the
Distribution Requirement. In some cases, the Fund may have to borrow money or
dispose of other investments in order to make sufficient cash distributions to
satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, in order
to qualify as a RIC the Fund must, generally, derive at least 90% of its gross
income from dividends, interest, certain
-5-
<PAGE>
payments with respect to securities, loans and gains from the sale or other
disposition of stock or securities, or from other income derived with respect to
its business of investing in stock or securities.
Finally, at the close of each quarter of its taxable year, at least 50%
of the value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Fund has not invested more than 5%
of the value of its total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses (the "Asset
Diversification Test"). The Fund will not lose its status as a RIC if it fails
to meet the Asset Diversification Test solely as a result of a fluctuation in
value of portfolio assets not attributable to a purchase. The Fund may curtail
its investment in certain securities where the application thereto of the Asset
Diversification Test is uncertain.
Fund Distributions
The Fund anticipates that it will distribute substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are reinvested in Shares.
The Fund may either retain or distribute to shareholders the excess, if
any, of net long-term capital gains over net short-term capital losses ("net
capital gains") for each taxable year. If such gains are distributed as a
capital gains distribution, they are treated by shareholders as gain or loss
from the sale of a capital asset held for more than one year, regardless of the
length of time the shareholder has held Shares, whether or not such gains were
recognized by the Fund prior to the date on which a shareholder acquired Shares
and whether or not the distribution was paid in cash or reinvested in Shares.
The aggregate amount of distributions designated by the Fund as capital gains
distributions may not exceed the net capital gains of the Fund for any taxable
year, determined by excluding any net capital losses and net long-term capital
losses attributable to transactions occurring after October 31 of such year and
by treating any such net capital losses or net long-term capital losses as if
they arose on the first day of the following taxable year. Conversely, if the
Fund elects to retain its net capital gains, it will be taxed thereon (except to
the extent of any available capital loss carryovers) at the applicable corporate
tax rate. In such event, it is expected that the Fund also will elect to have
shareholders treated as having received a distribution of such gains, with the
result that they will be required to report such gains on their returns as
long-term capital gains, will receive a refundable tax credit for their
allocable share of capital gains tax paid by the Fund on the gains, and will
increase the tax basis for their Shares by an amount equal to 65 percent of the
deemed distribution.
Investors should be careful to consider the tax implications of buying
Shares just prior to the ex-dividend date of an ordinary income dividend or
capital gains distribution. The price of Shares purchased at that time may
reflect the amount of the forthcoming ordinary income dividend or capital gains
distribution. Those purchasing just prior to an ordinary income dividend or
capital gains distribution will be taxable on the entire amount of the dividend
or distribution received even though the dividend or capital gains distribution
was earned by the Fund before the shareholder purchased the Shares.
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<PAGE>
Generally, gain or loss on the sale of Shares will be capital gain or
loss, which will be long-term capital gain or loss if the Shares have been held
for more than eighteen months, mid-term capital gain or loss if the Shares have
been held for more than twelve but not more than eighteen months, and otherwise
will be short-term capital gain or loss. 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 for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable to shareholders as ordinary dividends to the
extent of the Fund's current and accumulated earnings and profits. Such
distributions will be eligible for the dividends received deduction in the case
of corporate shareholders.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of distributions paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that he is not subject to backup withholding.
Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute in each calendar year an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
excise tax is imposed on the undistributed part of this required distribution.
In addition, the balance of such income must be distributed during the next
calendar year to avoid liability for the excise tax in that year. For the
foregoing purposes, a company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year. For purposes of the excise tax, a regulated investment company must reduce
its capital gain net income by the amount of any net ordinary loss for the
calendar year (but only to the extent the capital gain net income for the
one-year period ending on October 31 exceeds the net capital gains for such
period). Because the Fund intends to distribute all of its income currently (or
to retain, at most, its "net capital gains" and pay tax thereon), the Fund does
not anticipate incurring any liability for this excise tax. However, the Fund
may, in certain circumstances, be required to liquidate portfolio investments in
order to make sufficient distributions to avoid excise tax liability.
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.
-7-
<PAGE>
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during the last five years are
set forth below. Unless otherwise indicated, the address of each Director and
executive officer is 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), Chairman, ISI Inc. (investments) 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)
Managing Director Emeritus, BT Alex. Brown Incorporated; Formerly, Vice
Chairman, Alex. Brown Incorporated (now BT Alex. Brown Incorporated);
Vice Chairman, Alex. Brown Capital Advisory & Trust Company and
Director, Investment Company Capital Corp. (registered investment
advisor).
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice President and Chief Financial Officer, General
Dynamics Corporation (defense), 1989-1993 and Director, The Arch Fund
(registered investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies); Formerly, Consultant, Wendell
& Stockel Associates, Inc. (consulting firm) and General Manager, Shell
Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (finance and banking); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992 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 healthcare); Director, Central Bank & Trust
(banking), Key Funds (registered investment companies) and DP Mann
Holdings (insurance); Formerly, Director, AMBAC Treasurers Trust
(registered investment company).
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<PAGE>
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 and 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.
KEITH C. REILLY, Assistant Vice President (6/22/66)
International Strategy & Investment Inc., 717 Fifth Avenue, New York,
New York 10022. Assistant Vice President, International Strategy &
Investment Inc., May 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),
September 1995-Present; Formerly, Vice President and Treasurer, The
Delaware Group of Funds (registered investment companies) and Vice
President, Delaware Management Company, Inc. (investments), 1980-August
1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, June 1997-Present.
Formerly, Senior Manager, Coopers & Lybrand L.L.P., September 1988 -
June 1997.
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<PAGE>
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994-July
1996; Supervisor, Brown Brothers Harriman & Co. (domestic and global
custody), August 1991-April 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 by any of its affiliates.
There are currently 13 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 four
funds and as a Director of eight 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 six other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy
and McDonald serve as Directors of each fund in the Fund Complex. Ms. Rimel and
Mr. Vogt serve as Directors 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, respectively, 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 BT Alex. Brown in the ordinary course of
business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of the Advisor, the Distributors or the Fund's administrator may be considered
to have received remuneration indirectly. As compensation for 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 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 Chairman of the Fund Complex's Audit Committee
receives an aggregate annual fee from the Fund Complex. Payment of such fees and
expenses is allocated among all such funds described above in direct proportion
to their relative net assets. For the fiscal year ended October 31, 1997,
Independent Directors' fees attributable to the assets of the Fund totalled
$11,972. The following table shows aggregate compensation payable to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the fiscal year ended
October 31, 1997.
-10-
<PAGE>
<TABLE>
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, 1997 Expenses October 31, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edward S. Hyman(1) $0 $0 $0
Chairman
Richard T. Hale(1) $0 $0 $0
Vice Chairman
W. James Price(1,2) $0 $0 $0
Vice Chairman
Charles W. Cole, Jr.(1,3) $0 $0 $0
Director
Truman T. Semans(1) $0 $0 $0
Director
James J. Cunnane $1,993(4) (5) $39,000 for service on 13
Director Boards in the Fund Complex
John F. Kroeger $2,504(4) (5) $49,000 for service on 13
Director Boards in the Fund Complex
Louis E. Levy $1,993(4) (5) $39,000 for service on 13
Director Boards in the Fund Complex
Eugene J. McDonald $1,993(4) (5) $39,000 for service on 13
Director Boards in the Fund Complex
Rebecca W. Rimel $1,451(4) (5) $39,000 for service on 11(6)
Director Boards in the Fund Complex
Carl W. Vogt, Esq. $1,466(4) (5) $39,000 for service on 11(6)
Director Boards in the Fund Complex
Harry Woolf(2) $ 574(4) (5) $ 9,750 for service on 12
Director Boards in the Fund Complex
</TABLE>
- ----------
(1) Denotes an individual who is an "interested person" as defined in the
Investment Company Act.
(2) Retired effective December 31, 1996. Mr. Woolf was appointed President
of certain funds in the Fund Complex effective September 1, 1997. For
serving as President, Mr. Woolf receives compensation from such funds
in addition to his retirement benefits.
(3) Resigned effective September 1, 1997.
(4) Of the amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald,
Vogt and Woolf and Ms. Rimel, $1,993, $0, $0, $1,933, $1,466, $574 and
$1,451 was deferred pursuant to a deferred compensation plan.
(5) 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, 1997 was approximately
$19,142.
(6) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve.
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. Mr. Kroeger has qualified but has not received benefits.
The Fund has two Participants, a Director who retired effective December 31,
1994 and a Director who retired effective December 31, 1996, each of whom has
qualified for the Retirement Plan by serving thirteen and fourteen years,
respectively, and who will be paid a quarterly fee of $4,875 by the Fund
-11-
<PAGE>
Complex for the rest of his life. Such fees are allocated to each fund in the
Fund Complex based upon the relative net assets of such fund to the Fund
Complex.
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, 1997 are as follows: for Mr. Cunnane, 3 years; for Mr. Kroeger, 15
years; for Mr. Levy, 3 years; for Mr. McDonald, 5 years; for Ms. Rimel, 2 years
and for Mr. Vogt, 2 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
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
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, 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 and BT
Alex. Brown Cash Reserve Fund, Inc. 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 equal 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.
The Code of Ethics requires that any officer, director, or employee of
the Fund, the Distributors or the Advisor, preclear any personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases which are part of an automatic dividend reinvestment plan). The
foregoing also would apply to any officer, director or employee of ICC
Distributors 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.
-12-
<PAGE>
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 investment advisor to Managed Municipal Fund, Inc., North
American Government Bond Fund, Inc. and ISI Strategy Fund, Inc.
The Advisor (a) formulates and implements continuing programs for the
purchases and sales of securities, (b) determines what securities (and in what
proportion) shall be represented in the Fund's portfolio, (c) provides the
Fund's Board of Directors with regular financial reports and analyses with
respect to the Fund's portfolio investments and operations, and the operations
of comparable investment companies, (d) obtains and evaluates pertinent
information about economic, statistical and financial information pertinent to
the Fund, (e) takes, on behalf of the Fund, all actions which appear to the
Advisor necessary to carry into effect its purchase and sale programs. Any
investment program undertaken by the Advisor will at all times be subject to
policies and control of the Fund's Board of Directors. The Advisor 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 .20%
$100,000,000 - $200,000,000 .18%
$200,000,001 - $300,000,000 .16%
$300,000,001 - $500,000,000 .14%
$500,000,001 and over .12%
In addition, the Fund pays the Advisor 1.5% of the Fund's gross
income.
The Advisor is responsible for decisions to buy and sell securities
for the Fund, for broker-dealer selection, and for negotiation of commission
rates under standards established and periodically reviewed by the Board of
Directors. Because purchases and sales of securities by the Fund will usually be
principal transactions, the Fund will incur little, if any, brokerage commission
expense. The Advisor's primary consideration in effecting securities
transactions will be to obtain best price and execution. To the extent that the
execution and prices of more than one dealer are comparable, the Advisor may, in
its discretion, effect transactions with dealers that furnish statistical
research or other information or services that may benefit the Fund's investment
program.
The Investment Advisory Agreement will continue in effect from year to
year after its initial two year term if such continuance is specifically
approved (a) at least annually by the Fund's Board of Directors or by a vote of
a majority of the outstanding Shares and (b) by the affirmative vote of a
majority of the 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
16, 1997. The Fund or the Advisor may terminate the Investment Advisory
Agreement on sixty days' written notice without penalty. The Investment
-13-
<PAGE>
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,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
$ 848,963 $ 953,088 $ 999,452
- --------------------------------------------------------------------------------
7. ADMINISTRATION
Investment Company Capital Corp. provides administration services to
the Fund. Such services include: monitoring the Fund's regulatory compliance,
supervising all aspects of the Fund's service providers, arranging, but not
paying for, the printing and mailing of prospectuses, proxy materials and
shareholder reports, preparing and filing all documents required by the
securities laws of any state in which the Shares are sold, establishing the
Fund's budgets, monitoring the Fund's distribution plans, preparing the Fund's
financial information and shareholder reports, calculating dividend and
distribution payments and arranging for the preparation of state and federal tax
returns.
The Fund compensates ICC by paying it a percentage of the Fund's
average daily net assets which varies as follows:
Incremental
Administration Fee
(as a percentage of
Average Daily Net Assets Average Daily Net Assets)
- ------------------------ -------------------------
Less than $100,000,000 .10%
$100,000,000 - $200,000,000 .09%
$200,000,001 - $300,000,000 .08%
$300,000,001 - $500,000,000 .07%
$500,000,001 and over .06%
In addition, the Fund pays ICC .50% of the Fund's annual gross income.
The services of ICC to the Fund are not exclusive and ICC is free to
render similar services to others. Administration fees paid by the Fund to ICC
for the last three fiscal years were as follows:
- --------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
$ 374,611 $ 419,655 $ 438,267
- --------------------------------------------------------------------------------
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 New York Corporation.
-14-
<PAGE>
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"). Prior to April 1, 1997, Armata
Financial Corp. served as distributor for the ISI Shares for the same rate of
compensation and on substantially the same terms and conditions as ISI Group.
ICC Distributors Inc. ("ICC Distributors") serves as distributor for the Flag
Investors Shares pursuant to an agreement effective August 31, 1997 ("Flag
Distribution Agreement"). Prior to August 31, 1997, Alex. Brown & Sons
Incorporated ("Alex. Brown") served as distributor for the Flag Investors Shares
for the same rate of compensation and on substantially the same terms and
conditions as ICC Distributors. 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 the 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
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the
-15-
<PAGE>
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. The Flag Distribution Agreement, including
the form of Sub-Distribution Agreement, was initially approved by the Board of
Directors, including a majority of the Independent Directors, on August 4, 1997.
The ISI 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 16, 1997.
ICC Distributors and ISI Group have entered into Sub-Distribution
Agreements with Participating Dealers ("Participating Dealers") under which such
Participating 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, such as 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 its own resources for ongoing shareholder services.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Fund, according to interpretations
from various bank regulatory authorities, financial institutions are not
prohibited from acting in other capacities for investment companies, such as the
shareholder servicing capacities described above. Should future legislative,
judicial or administrative action prohibit or restrict the activities of the
Shareholder Servicing Agents in connection with the Shareholder Servicing
Agreements, the Fund may be required to alter materially or discontinue its
arrangements with the Shareholder Servicing Agents.
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 .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 .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 .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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
---------------------------------------------------------------------------------
Class 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Shares 12b-1 Fee $322,511(1) $382,308(4) $411,117(4)
- -----------------------------------------------------------------------------------------------------------------------------------
Flag Investors Shareholder $ 843 (2) $ 30(4,5) N/A
Servicing Fee (Class B Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
ISI Shares 12b-1 Fee $445,938(3) $495,975(6) $501,139(6)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) 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.
(2) 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.
(3) 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.
(4) Fees received by Alex. Brown, the Flag Investors Shares' distributor
for the fiscal years ended October 31, 1996 and 1995.
(5) 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.
(6) Fees received by Armata, the ISI Shares' distributor for the fiscal
years ended October 31, 1996 and October 31 1995.
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
Distribution Plans will remain in effect from year to year as specifically
approved (a) at least annually by the Fund's Board of Directors and (b) by the
affirmative vote of a majority of the 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 16, 1997.
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 Participating Dealers pursuant to
Sub-Distribution Agreements and to Shareholder Servicing Agents pursuant to
Shareholder Servicing Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Independent Directors shall be
committed to the discretion of the Independent Directors then in office.
-17-
<PAGE>
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 .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 .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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------------------------------
Class Received Retained Received Retained Received Retained
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors $ 47,134(1) $ 41,335(3) $113,136(5) $ 83,059(5) $209,203(5) $177,202(5)
Class A
Commissions
- -----------------------------------------------------------------------------------------------------------------------------------
Flag Investors $ 13,173(2) $ 12,836(4) $ 1,420(5,6) $ 1,420(5,6) N/A N/A
Class B
Contingent
Deferred Sales
Charge
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Of this amount, Alex. Brown, the Flag Investors Shares' distributor
prior to August 31, 1997, received ________ and ICC Distributors, the
Flag Investors Shares' distributor effective August 31, 1997, received
_________.
(2) Of this amount, Alex. Brown, the Flag Investors Shares' distributor
prior to August 31, 1997, received ________ and ICC Distributors, the
Flag Investors Shares' distributor effective August 31, 1997, received
_________.
(3) Of commissions received, Alex. Brown retained _____________ and ICC
Distributors retained ______, respectively.
(4) Of sales charges received, Alex. Brown retained _____________ and ICC
Distributors retained ______, respectively.
(5) By Alex. Brown, the Flag Investors Shares' distributor for the fiscal
years ended October 31, 1996 and October 31, 1995.
(6) 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:
-18-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------------------------------------
Class Received Retained Received Retained Received Retained
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ISI Shares $ 229,983(1) $ 48,994(2) $360,356(3) $ 53,175(3) $635,954(3) $53,363(3)
Commissions
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Of this amount, Armata, the ISI Shares' distributor prior to April 1,
1997, received ________ and ISI Group, the ISI Shares' distributor
effective April 1, 1997 received _________.
(2) Of commissions received, Armata retained ________ and ISI Group
retained ______, respectively.
(3) By Armata, the ISI Shares' distributor for the fiscal years ended
October 31, 1996 and October 31, 1995.
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.
9. PORTFOLIO TRANSACTIONS
The Advisor is responsible for decisions to buy and sell securities for
the Fund, selection of broker-dealers and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Fund are usually principal
transactions, the Fund incurs little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to broker-dealers serving as
market makers usually includes a mark-up over the bid to the broker-dealer based
on the spread between the bid and asked price for the security. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter.
The Advisor's primary consideration in effecting security transactions
is to obtain, on an overall basis, the best net price and the most favorable
execution of orders. To the extent that the execution and prices offered by more
than one broker-dealer are comparable, the Advisor may, in its discretion,
effect transactions with dealers that furnish statistical, research or other
information or services which the Advisor deems to be beneficial to the Fund's
investment program. Such research services supplement the Advisor's own
research. Research services may include the following: statistical and
background information on the U.S. economy, industry groups and individual
companies; forecasts and interpretations with respect to the U.S. money markets;
information on federal, state, local and foreign political developments;
portfolio management strategies; performance information on securities, indices
and investment accounts; information concerning prices of securities; the
providing of equipment used to communicate research
-19-
<PAGE>
information; and the providing of access to consultants who supply research
information. Certain research services furnished by broker-dealers may be useful
to the Advisor with clients other than the Fund. Similarly, any research
services received by the Advisor through placement of portfolio transactions of
other clients may be of value to the Advisor in fulfilling its obligations to
the Fund. No specific value can be determined for research and statistical
services furnished without cost to the Advisor by a broker-dealer. The Advisor
is of the opinion that because the material must be analyzed and reviewed by its
staff, its receipt does not tend to reduce expenses, but may be beneficial in
supplementing the Advisor's research and analysis. Therefore, it may tend to
benefit the Fund by improving the quality of the Advisor's investment advice.
For the fiscal years ended October 31, 1997, October 31, 1996 and
October 31, 1995, 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, 1997,
the Fund held a 5.60% repurchase agreement issued by Goldman Sachs & Co. valued
at $37,041,000. 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
100 million Shares of its capital stock with a par value of $.001 per Share.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated four classes of Shares: Flag Investors Total Return U.S. Treasury
Fund Class A Shares (formerly known as the Flag Investors Total Return U.S.
Treasury Fund Shares), Flag Investors Total Return U.S. Treasury Fund Class B
Shares, Flag Investors Total Return U.S. Treasury Fund Class D Shares and ISI
Total Return U.S. Treasury Fund Shares. The Flag Investors Total Return U.S.
Treasury Fund Class D Shares are no longer being offered. All Shares of the Fund
regardless of class have equal rights with respect to voting, except that with
respect to any matter affecting the rights of the holders of a particular series
or class, the holders of each series will vote separately. Any such series will
be a separately managed portfolio and shareholders of each series will have an
undivided interest in the net assets of that series. For tax purposes, the
series will be treated as separate entities. Generally, each class of Shares
issued by a particular series will be identical to every other class and
expenses of the Fund (other than 12b-1 fees and any applicable service fees) are
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively will be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
The Fund's By-laws provide that any director of the Fund may be removed
by the shareholders by a vote of a majority of the votes entitled to be cast for
the election of Directors. A meeting to consider the removal of any Director or
Directors of the Fund will be called by the Secretary of the Fund upon the
written request of the holders of at least one-tenth of the outstanding Shares
of the Fund entitled to vote at such meeting.
There are no preemptive, conversion or exchange rights applicable to
any of the Shares. The Fund's issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or
-20-
<PAGE>
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
Effective September 22, 1997, Bankers Trust Company ("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 period from
September 22, 1997 through October 31, 1997, Bankers Trust accrued custodian
fees of $4,576. Investment Company Capital Corp. has been retained to act as the
Fund's transfer and dividend disbursing agent. As compensation for these
services, ICC receives up to $15.17 per account per year plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended October 31, 1997, such fees totalled $208,105.
ICC also provides accounting services to the Fund. As compensation for
these services, ICC is entitled to receive an annual fee, calculated daily and
paid monthly, as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services: express delivery service, independent pricing and storage. As
compensation for providing accounting services for the fiscal year ended October
31, 1997, ICC received fees of $86,088.
13. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by the Fund's
independent auditors, Deloitte & Touche LLP. Deloitte & Touche LLP has offices
at University Square, 117 Campus Drive, Princeton, Jersey 08540.
-21-
<PAGE>
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, no shareholders owned beneficially 5%
or more of the Fund's outstanding Shares, as of February 2, 1998.
As of such date, to Fund management's knowledge, Directors and officers
as a group owned less than 1% of the Fund's total outstanding Shares of either
class.
15. PERFORMANCE AND YIELD COMPUTATIONS
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance generally will be stated both in terms of total return
and in terms of yield. However, the Fund may also from time to time state the
performance of the Fund solely in terms of total return.
Total Return Calculation
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P (1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5 or 10
year periods (or fractional portion thereof)of a
hypothetical $1,000 payment made at the beginning of the 1,
5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's registration statement or the date the Fund (or a series)
commenced operations (provided such date is subsequent to the date the
registration statement became effective). 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.
-22-
<PAGE>
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, 1997 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
One-Year Period Ended Five-Year Period Ended
October 31, 1997 October 31, 1997 Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Ending Annual Ending Annual Ending Annual
Redeemable Total Redeemable Total Redeemable Total
Class Value Return Value Return Value Return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors
Class A Shares $1,040.98 4.09% $1,399.22 6.95% $2,066.96 8.19%
*August 10, 1988
- ------------------------------------------------------------------------------------------------------------------------------------
Flag Investors
Class B Shares $1,064.86 6.49% N/A N/A $1,133.96 5.46%
*June 20, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
ISI Shares
*August 10, 1988 $1,041.54 4.15% $1,399.94 6.96% $2,068.14 8.20%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
* Inception Date
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, 1997 was 5.31%
for the Flag Investors Class A Shares, 5.32% for the ISI Shares and 5.22% 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
-23-
<PAGE>
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.
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 (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding securities with maturities of one
year or less) may vary from year to year, as well as within a year, depending on
market conditions. The Fund's portfolio turnover rate in fiscal year 1997 was
92% and in fiscal year 1996 was 199%. The high portfolio turnover in 1996
resulted from a decision by the Advisor to lengthen the maturity of the Fund's
portfolio to take advantage of an ISI forecasted declining interest rate trend.
16. FINANCIAL STATEMENTS.
See next page.
-24-
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS OCTOBER 31, 1997
Par Value
Interest Rate Maturity Date (000) (Note 1)
- --------------------------------------------------------------------------------
U.S. TREASURY BONDS - 71.7%
12.000% 8/15/13 $35,900 $ 52,537,424
11.750 11/15/14 36,000 53,184,384
7.500 11/15/16 37,000 42,255,147
8.875 8/15/17 1,000 1,300,000
9.000 11/15/18 14,750 19,513,793
8.875 2/15/19 10,000 13,085,940
8.750 8/15/20 22,250 29,025,815
------------
Total U.S. Treasury Bonds
(Cost $210,613,472) 210,902,503
------------
U.S. TREASURY NOTES - 5.2%
6.375 9/30/01 15,000 15,314,070
------------
Total U.S. Treasury Notes
(Cost $15,119,028) 15,314,070
------------
ZERO COUPON U.S. TREASURY BONDS (S.T.R.I.P.S.) - 9.8%
5.520* 8/15/98 30,000 28,735,290
------------
Total U.S. Treasury S.T.R.I.P.S.
(Cost $28,701,146) 28,735,290
------------
REPURCHASE AGREEMENTS - 12.6%
Goldman Sachs & Co., 5.60%
Dated 10/31/97, to repurchased on 11/3/97,
collateralized by U.S. Treasury
Bonds with a market value of $37,782,559.
(Cost $37,041,000) 37,041 37,041,000
------------
Total Investments in Securities - 99.3%
(Cost $291,474,646)** 291,992,863
Other Assets in Excess of Liabilities, Net - 0.7% 2,148,610
------------
NET ASSETS - 100.0% $294,141,473
============
- 25 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per:
Flag Investors Class A Share
($122,228,931 / 12,179,428 shares outstanding) $10.04
======
Flag Investors Class B Share
($838,393 / 83,601 shares outstanding) $10.03
======
ISI Class Share
($171,074,149 / 17,036,448 shares outstanding) $10.04
======
Maximum Offering Price Per:
Flag Investors Class A Share
($10.40 / 0.955) $10.51
======
Flag Investors Class B Share $10.03
======
ISI Class Share
($10.04 / 0.9555) $10.51
======
- ----------
* Yield as of October 31, 1997.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
- 26 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
October 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Interest $19,868,979
-----------
Expenses:
Investment advisory fee (Note 2) 848,963
Distribution fee (Note 2) 769,292
Administration fee (Note 2) 374,611
Transfer agent fee (Note 2) 208,105
Accounting fee (Note 2) 86,088
Printing and postage 63,992
Legal 44,942
Custodian fee (Note 2) 41,752
Miscellaneous 29,139
Audit 23,999
Directors' fees 22,602
Registration fees 20,765
Insurance 11,731
-----------
Total expenses 2,545,981
-----------
Net investment income 17,322,998
-----------
Realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions (2,143,673)
Change in unrealized appreciation or depreciation
of investments 10,567,788
-----------
Net gain on investments 8,424,115
-----------
Net increase in net assets resulting from operations $25,747,113
===========
See Notes to Financial Statements.
- 27 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended October 31,
- --------------------------------------------------------------------------------
1997 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 17,322,998 $ 19,964,042
Net gain/(loss) from security transactions (2,143,673) 3,072,425
Change in unrealized appreciation
or depreciation on investments 10,567,788 (11,517,095)
------------ ------------
Net increase in net assets
resulting from operations 25,747,113 11,519,372
------------ ------------
Dividends to Shareholders from (Note 1):
Net investment income and short-term gains:
Flag Investors Class A Shares (7,246,184) (10,138,099)
Flag Investors Class B Shares (17,762) (685)
ISI Class Shares (10,059,052) (13,146,313)
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) (561,610)
Flag Investors Class B Shares (291) (8)
ISI Class Shares (160,000) (723,712)
----------- -----------
Total distributions (20,075,992) (24,570,427)
----------- -----------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 15,601,057 29,511,549
Value of shares issued in
reinvestment of dividends 12,541,599 14,241,221
Cost of shares repurchased (77,072,611) (64,122,099)
----------- -----------
Decrease in net assets derived
from capital share transactions (48,929,955) (20,369,329)
----------- -----------
Total decrease in net assets (43,258,834) (33,420,384)
Net Assets:
Beginning of year 337,400,307 370,820,691
------------ ------------
End of year $294,141,473 $337,400,307
============ ============
See Notes to Financial Statements.
- 28 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--FLAG INVESTORS CLASS A AND ISI CLASS SHARES
(For a share outstanding throughout each year)
For the Year Ended
October 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of year $ 9.83
------
Income from Investment Operations:
Net investment income 0.55
Net realized and unrealized gain/(loss) on investments 0.30
------
Total from Investment Operations 0.85
Less Distributions (Note 1):
Distributions from net investment income
and short-term gains (0.55)
Tax return of capital distribution (0.08)
Distributions in excess of net investment income (0.01)
Distributions from net realized long-term gains --
-------
Total distributions (0.64)
-------
Net asset value at end of year $ 10.04
=======
Total Return(1) 9.00%
Ratios to Average Daily Net Assets:
Expenses 0.83%
Net investment income 5.62%
Supplemental Data:
Net assets at end of year (000):
Flag Investors Class A Shares $122,229
ISI Class Shares $171,074
Portfolio turnover rate 92%
- ----------
(1) Total return excludes the effect of sales charge.
- 29 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 10.19 $ 9.22 $ 11.35 $ 10.47
------- ------ ------- -------
Income from Investment Operations:
Net investment income 0.56 0.57 0.51 0.62
Net realized and unrealized gain/(loss) on investments (0.23) 1.04 (1.16) 1.12
------- ------ ------- -------
Total from Investment Operations 0.33 1.61 (0.65) 1.74
Less Distributions (Note 1):
Distributions from net investment income
and short-term gains (0.65) (0.64) (1.15) (0.79)
Tax return of capital distribution -- -- (0.05) --
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized long-term gains -- -- (0.28) (0.07)
------ ------- ------ -------
Total distributions (0.69) (0.64) (1.48) (0.86)
------ ------- ------ -------
Net asset value at end of year $ 9.83 $ 10.19 $ 9.22 $ 11.35
====== ======= ====== =======
Total Return(1) 3.44% 18.09% (6.22)% 17.33%
Ratios to Average Daily Net Assets:
Expenses 0.81% 0.80% 0.77% 0.77%
Net investment income 5.69% 5.94% 4.98% 5.21%
Supplemental Data:
Net assets at end of year (000):
Flag Investors Class A Shares $143,791 $164,206 $175,149 $224,790
ISI Class Shares $193,486 $206,615 $200,309 $232,103
Portfolio turnover rate 199% 194% 68% 249%
</TABLE>
See Notes to Financial Statements.
- 30 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--FLAG INVESTORS CLASS B SHARES
(For a share outstanding throughout each period)
For the For the Period
Year Ended June 20, 1996(1)
October 31, through October 31,
- --------------------------------------------------------------------------------
1997 1996
Per Share Operating Performance:
Net asset value at beginning of period $ 9.85 $10.00
------ ------
Income from Investment Operations:
Net investment income 0.56 0.22
Net realized and unrealized gain/(loss)
on investments 0.23 (0.15)
------ ------
Total from Investment Operations 0.79 0.07
Less Distributions:
Distributions from net investment income
and short-term gains (0.56) (0.22)
Tax return of capital distribution (0.04) --
Distributions in excess of net investment
income (0.01) --
------ ------
Total distributions (0.61) (0.22)
------ ------
Net asset value at end of period $10.03 $ 9.85
====== ======
Total Return(2) 8.49% 6.37%
Ratios to Average Daily Net Assets:
Expenses 1.18% 1.40%(3)
Net investment income 5.24% 5.45%(3)
Supplemental Data:
Net assets at end of period (000) $ 838 $ 123
Portfolio turnover rate 92% 199%(3)
- -------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
- 31 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
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") and Flag Investors Total Return U.S. Treasury Fund
Class A Shares ("Flag Investors Class A"), which both commenced August 10, 1988,
and Flag Investors Total Return U.S. Treasury Fund Class B Shares ("Flag
Investors Class B"), 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 each 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 unavailable, 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.
- 32 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
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 cost of 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.
- 33 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
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 New York 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.
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.
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 $86,088 for accounting services for the year ended
October 31, 1997.
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 $208,105 for
transfer agent services for the year ended October 31, 1997.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997, PNCBank served as the Fund's custodian.
From September 22, 1997 to October 31, 1997, the Fund accrued $4,576 in custody
expenses.
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. Prior to
April 1, 1997, Armata Financial Corp. served as the distributor for the ISI
Class for the same compensation and on substantially the same terms and
conditions as ISI Group.
- 34 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
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"), a member of
the Forum Financial Group of companies, 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. Prior to September 1, 1997, Alex. Brown & Sons Incorporated served
as the distributor for the Flag Investors classes for the same compensation and
on substantially the same terms and conditions as ICCDistributors. For the year
ended October 31, 1997, distribution fees aggregated $769,292, of which $455,938
was attributable to the ISI Class Shares, $321,332 was attributable to the Flag
Investors Class A Shares and $2,022 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, 1997 was $19,142, and the accrued liability was $55,193.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 100 million shares of $.001 par value
capital stock (44 million Flag Investors Class A, 44 million ISI Class, 5
million Flag Investors Class B, 500,000 Flag Investors Class D 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, 1997 October 31, 1996
---------------- ----------------
Shares sold 490,187 914,108
Shares issued to shareholders on
reinvestment of dividends 499,834 580,880
Shares redeemed (3,438,672) (2,986,509)
------------ ------------
Net decrease in shares outstanding (2,448,651) (1,491,521)
============ ============
Proceeds from sale of shares $ 4,746,207 $ 8,996,345
Value of reinvested dividends 4,867,694 5,722,783
Cost of shares redeemed (33,514,991) (29,396,253)
------------ ------------
Net decrease from capital share
transactions $(23,901,090) $(14,677,125)
============ ============
- 35 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Flag Investors Class B Shares
----------------------------------
For the Period
For the June 20, 1996*
Year Ended through
October 31, 1997 October 31, 1996
---------------- ----------------
Shares sold 85,484 12,460
Shares issued to shareholders on
reinvestment of dividends 982 34
Shares redeemed (15,359) --
--------- --------
Net increase in shares outstanding 77,107 12,494
========= ========
Proceeds from sale of shares $ 833,099 $121,164
Value of reinvested dividends 9,591 322
Cost of shares redeemed (150,979) --
--------- --------
Net increase from capital share
transactions $ 691,711 $121,486
========= ========
- ------------
*Commencement of operations.
ISI Class Shares
----------------------------------
For the For the
Year Ended Year Ended
October 31, 1997 October 31, 1996
---------------- ----------------
Shares sold 1,028,342 2,043,599
Shares issued to shareholders on
reinvestment of dividends 787,090 865,140
Shares redeemed (4,455,189) (3,510,096)
------------ ------------
Net decrease in shares outstanding (2,639,757) (601,357)
============ ============
Proceeds from sale of shares $ 10,021,751 $ 20,394,040
Value of reinvested dividends 7,664,314 8,518,116
Cost of shares redeemed (43,406,641) (34,725,846)
------------ ------------
Net decrease from capital share
transactions $(25,720,576) $ (5,813,690)
============ ============
- 36 -
<PAGE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $256,600,289 and sales of investment securities aggregated
$338,535,804 for the year ended October 31, 1997.
On October 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $2,251,650 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $1,733,433.
NOTE 5--Net Assets
On October 31, 1997, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $121,909,369
Flag Investors Class B Shares 810,591
ISI Class Shares 174,608,782
Distributions in excess of net investment income (1,561,813)
Accumulated net realized loss from security transactions (2,143,673)
Unrealized appreciation of investments 518,217
------------
$294,141,473
============
NOTE 6--Tax Capital Loss Carryforward
On October 31, 1997, there was a tax capital loss carryforward of
$2,143,673, which expires in 2005. This carryforward will be used to offset any
future net capital gains.
- 37 -
<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, 1997, and the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 by correspondence with the custodian and broker. 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, 1997, 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 21, 1997
- 38 -
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the fiscal years ended
October 31, 1997, October 31, 1996, October 31,
1995, October 31, 1994, October 31, 1993, October
31, 1992, October 31, 1991, October 31, 1990 and
October 31, 1989 and for the period from August
10, 1988 (commencement of operations) through
October 31, 1988
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of October 31, 1997
- Statement of Operations for the fiscal year ended
October 31, 1997
- Statements of Changes in Net Assets for the fiscal
years ended October 31, 1997 and October 31, 1996
- Financial Highlights for the fiscal years ended
October 31, 1997, October 31, 1996, October 31,
1995, October 31, 1994 and October 31, 1993
- Notes to Financial Statements
(3) All required financial statements are included in
parts A and B hereof. All other financial statements
and schedules are inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation.(1)
(b) Articles Supplementary to Registrant's
Articles of Incorporation dated December 18,
1991.(1)
(c) Articles Supplementary to Registrant's
Articles of Incorporation dated December 15,
1993.(1)
(d) Articles Supplementary to Registrant's
Articles of Incorporation dated December 31,
1994.(1)
(2) By-Laws, as amended through December 18, 1996.(2)
(3) None.
(4) (a) 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.(3)
(b) Form of Specimen Certificate of Common
Stock, $.001 par value with respect to the
ISI Total Return U.S. Treasury Fund
Shares.(3)
C-1
<PAGE>
(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.(3)
(5) Investment Advisory Agreement dated April 1, 1991
between Registrant and International Strategy &
Investment Inc.(1)
(6) (a) Distribution Agreement dated as of August
31, 1997 between Registrant and ICC
Distributors, Inc. with respect to the Flag
Investors Shares, filed herewith.
(b) Form of Participating Dealer Agreement
between ICC Distributors, Inc. and
Participating Dealers with respect to the
Flag Investors Shares, filed herewith.
(c) Form of Shareholder Servicing Agreement for
the Flag Investors Shares, filed herewith.
(d) 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, filed
herewith.
(e) 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, filed herewith.
(f) Form of Shareholder Servicing Agreement for
the ISI Total Return U.S. Treasury Fund
Shares, filed herewith.
(7) None.
(8) Form of Custodian Agreement dated as of between
Registrant and Bankers Trust Company, filed
herewith.
(9) (a) 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.(1)
(10) Opinion of Counsel.(1)
(11) Consent of Deloitte & Touche LLP, filed herewith.
(12) None.
(13) Subscription Agreements between Registrant and
Investors.(1)
(14) None.
(15) (a) Distribution Plan for the Flag Investors Total
Return U.S. Treasury Fund Class A Shares.(1)
(b) Distribution Plan for the ISI Total Return
U.S. Treasury Fund Shares.(1)
C-2
<PAGE>
(c) Distribution Plan for the Flag Investors Total
Return U.S. Treasury Fund Class B Shares.(4)
(d) Amended Distribution Plan for the Flag
Investors Total Return U.S. Treasury Fund
Class A Shares, filed herewith.
(e) Amended Distribution Plan for the ISI Total
Return U.S. Treasury Fund Shares, filed
herewith.
(f) Amended Distribution Plan for the Flag
Investors Total Return Class B Shares, filed
herewith.
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
(18) (a) Rule 18f-3 Plan.(4)
(b) Amended Rule 18f-3 Plan, filed herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, filed herewith.
- --------------------
(1) Incorporated by reference to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with
the Securities and Exchange Commission via EDGAR on February 26, 1996.
(2) Incorporated by reference 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 on February 26,1997.
(3) Incorporated herein by reference to Exhibit 1 (Articles of Incorporation) as
amended to date, filed as part of Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-12179)
filed with the Securities and Exchange Commission via EDGAR on February 26,
1996, and Exhibit 2 (By-laws) as amended to date, filed as part of Post-
Effective Amendment No. 15 to such Registration Statement, filed with the
Securities and Exchange Commission via EDGAR on February 26, 1997.
(4) Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with
the Securities and Exchange Commission via EDGAR on March 26, 1996.
C-3
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of February 2, 1998.
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock
Flag Investors Total Return U.S.
Treasury Fund Shares - Class A 2,455
Flag Investors Total Return U.S.
Treasury Fund Shares - Class B 46
ISI Total Return U.S. Treasury Fund Shares 433
Item 27. Indemnification
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability which
may be incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Under the terms of the Fund's Articles of Incorporation, the
Registrant may indemnify each of its Directors and officers (including persons
who serve at the Registrant's request as directors, officers or trustees of
another organization in which the corporation has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any such indemnified
person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or legislative body except with respect to any matter as to which such person
shall have been finally adjudicated in any such action, suit or other proceeding
where (a) the act or omission of the director was material to the cause of
action adjudicated; the act or omission was committed in bad faith or was the
result of active and deliberate dishonesty; the director actually received an
improper personal benefit in money, property, or services or in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or omission was unlawful, or (b) to be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
office. Termination of any proceeding by conviction or a plea of nolo contendere
or its equivalent, or an
C-4
<PAGE>
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.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of
a substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
During the past two fiscal years: Edward S. Hyman, Jr., Chairman
of the Investment Advisor, served as Chairman, Chief Executive Officer and a
Director of International Strategy & Investment Group Inc., the distribution 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.
C-5
<PAGE>
Item 29. Principal Underwriters
ICC DISTRIBUTORS, INC.
(a) ICC Distributors, Inc. acts as distributor for BT Alex.
Brown Cash Reserve Fund, Inc., Flag Investors Telephone
Income Fund, Inc., Flag Investors International Fund, Inc.,
Flag Investors Emerging Growth Fund, Inc., the Flag
Investors Shares Class of Managed Municipal Fund, Inc.,
Flag Investors Short-Intermediate Income Fund, Inc.
(formerly known as Flag Investors Intermediate-Term Income
Fund, Inc.), Flag Investors Value Builder Fund, Inc., Flag
Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc. and Flag
Investors Equity Partners Fund, Inc., all registered
open-end management investment companies.
(b)
<TABLE>
<CAPTION>
Position and
Names and Principal Position and Offices Offices with
Business Address* with Principal Underwriter Registrant
- ----------------- -------------------------- ----------
<S> <C> <C>
John Y. Keefer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Richard C. Butt 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) 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.
C-6
<PAGE>
(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 30. Location of Accounts and Records
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Investment Company Capital Corp. ("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.
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 transfer-agent), all
receipts and disbursements of cash, and all other debts and credits.
C-7
<PAGE>
Item 31. Management Services
Furnish a summary of the substantive provisions of any management
related service contract not discussed in part A or Part B of this Form (because
the contract was not believed to be of interest to a purchaser of securities of
the Registrant) under which services are provided to the Registrant, indicating
the parties to the contract, the total dollars paid and by whom, for the last
three fiscal years.
See Exhibit 8.
Item 32. Undertakings
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not applicable.
(b) Not applicable.
(c) A copy of the Registrant's latest annual report to
shareholders is available upon request, without charge by
contacting the Registrant at (800) 767-3524 (for Flag
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 certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereto duly authorized in the City of Baltimore, in the State of
Maryland, on the 25th day of February, 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 February 25, 1998
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Edward S. Hyman, Jr. Date
* Director February 25, 1998
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James J. Cunnane Date
* Director February 25, 1998
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Richard T. Hale Date
* Director February 25, 1998
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John F. Kroeger Date
* Director February 25, 1998
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Louis E. Levy Date
* Director February 25, 1998
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Eugene J. McDonald Date
* Director February 25, 1998
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Rebecca W. Rimel Date
* Director February 25, 1998
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Truman T. Semans Date
* Director February 25, 1998
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Carl W. Vogt Date
/s/ R. Alan Medaugh President February 25, 1998
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R. Alan Medaugh Date
February 25, 1998
/s/ Joseph A. Finelli Chief Financial ---------------------
- --------------------- and Accounting Date
Joseph A. Finelli Officer
*By: /s/Amy M. Olmert
-------------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Description
- ------ -----------
(1) (a) Articles of Incorporation.(1)
(b) Articles Supplementary to Registrant's Articles of
Incorporation dated December 18, 1991.(1)
(c) Articles Supplementary to Registrant's Articles of
Incorporation dated December 15, 1993.(1)
(d) Articles Supplementary to Registrant's Articles of
Incorporation dated December 31, 1994.(1)
(2) By-Laws, as amended through December 18, 1996.(2)
(3) None.
(4) (a) 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.(3)
(b) Form of Specimen Certificate of Common Stock,
$.001 par value with respect to the ISI Total
Return U.S. Treasury Fund Shares. (3)
(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.(3)
(5) Investment Advisory Agreement dated April 1, 1991 between
Registrant and International Strategy & Investment Inc.(1)
EX-99.B (6) (a) Distribution Agreement dated as of August 31, 1997
between Registrant and ICC Distributors, Inc. with
respect to the Flag Investors Shares, filed
herewith.
EX-99.B (b) Form of Participating Dealer Agreement between ICC
Distributors, Inc. and Participating Dealers with
respect to the Flag Investors Shares, filed
herewith.
EX-99.B (c) Form of Shareholder Servicing Agreement for the
Flag Investors Shares, filed herewith.
EX-99.B (d) 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, filed
herewith.
<PAGE>
EX-99.B (e) Form of Agency Distribution Agreement between
International Strategy and Investment Group Inc.
and Participating Dealers with respect to the ISI
Total Return U.S. Treasury Fund Shares, filed
herewith.
EX-99.B (f) Form of Shareholder Servicing Agreement for the
ISI Total Return U.S. Treasury Fund Shares, filed
herewith.
(7) None.
EX-99.B (8) Form of Custodian Agreement between Registrant and Bankers
Trust Company, filed herewith.
(9) (a) Master Services Agreement dated as of , 1997
between Registrant and Investment Company Capital
Corp., with Appendices for the provision of
Administration, Accounting and Transfer Agency
Services.(1)
(10) Opinion of Counsel.(1)
EX-99.B (11) Consent of Deloitte & Touche LLP, filed herewith.
(12) None.
(13) Subscription Agreements between Registrant and
Investors.(1)
(14) None.
(15) (a) Distribution Plan for the Flag Investors Total
Return U.S. Treasury Fund Class A Shares.(1)
(b) Distribution Plan for the ISI Class of Shares.(1)
(c) Distribution Plan for the Flag Investors Total
Return U.S. Treasury Fund Class B Shares.(4)
EX-99.B (d) Amended Distribution Plan for the Flag Investors
Total Return U.S. Treasury Fund Class A Shares,
filed herewith.
EX-99.B (e) Amended Distribution Plan for the ISI Total Return
U.S. Treasury Fund Shares, filed herewith.
EX-99.B (f) Amended Distribution Plan for the Flag Investors
Total Return U.S. Treasury Fund Class B Shares,
filed herewith.
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
<PAGE>
(18) (a) Rule 18f-3 Plan.(4)
EX-99.B (b) Amended Rule 18f-3 Plan, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 (27) Financial Data Schedule, filed herewith.
- ---------------------
(1) Incorporated by reference to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with
the Securities and Exchange Commission via EDGAR on February 26, 1996.
(2) Incorporated by reference 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 on February 26,1997.
(3) Incorporated herein by reference to Exhibit 1 (Articles of Incorporation) as
amended to date, filed as part of Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-12179)
filed with the Securities and Exchange Commission via EDGAR on February 26,
1996, and Exhibit 2 (By-laws) as amended to date, filed as part of
Post-Effective Amendment No. 15 to such Registration Statement filed with
the Securities and Exchange Commission via EDGAR on February 26, 1997.
(4) Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with
the Securities and Exchange Commission via EDGAR on March 26, 1996.
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of August, 1997, by and between Total
Return U.S. Treasury Fund, Inc., with its principal office and place of business
at One South Street, Baltimore, Maryland 21202 (the "Fund"), and ICC
Distributors, Inc., a Delaware corporation with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Distributor").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
may issue its shares of common stock (the "Shares") in separate series and
classes and continuously offers for sale its Shares to the public; and
WHEREAS, the Distributor is registered under the Securities Exchange
Act of 1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the
business of selling shares of registered investment companies either directly to
purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Section 16, being herein referred to as a "Series," and collectively as the
"Series") and the Fund offers shares of one or more classes (each such class
together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the Shares of each
Series and Class thereof to the public and the Distributor is willing to provide
those services on the terms and conditions set forth in this Agreement in order
to promote the growth of the Fund and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws (collectively,
as amended from time to time, "Organic Documents"), the Fund's Notification of
Registration filed with the U.S. Securities and Exchange Commission ("SEC")
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act,
the Fund's Registration Statement and all amendments thereto filed with the SEC
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the 1940 Act (the "Registration Statement") and its current Prospectuses and
Statements of Additional Information (collectively, as currently in effect and
as amended or supplemented, the "Prospectus") and shall
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<PAGE>
promptly furnish the Distributor with all amendments of or supplements to the
foregoing, each properly certified or authenticated. In addition, the Fund shall
furnish the Distributor with properly certified or authenticated copies of all
documents, notices and reports filed with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(b) The Fund hereby appoints the Distributor as its principal
underwriter and distributor to sell its Shares to the public and hereby agrees
during the term of this Agreement to sell its Shares to the Distributor upon the
terms and conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as its principal underwriter and distributor except that the rights given
under this Agreement to the Distributor shall not apply to Shares issued in
connection with the merger, consolidation or reorganization of any other
investment company with the Fund; the Fund's acquisition by purchase or
otherwise of all or substantially all of the assets or stock of any other
investment company; or the reinvestment in Shares by the Fund's shareholders of
dividends or other distributions or any other offering by the Fund of securities
to its shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the
Shares needed to fill unconditional orders for unsold Shares of the Fund as
shall then be effectively registered under the Securities Act placed with the
Distributor by investors or securities dealers or depository institutions or
other financial intermediaries acting as agent for their customers or on their
own behalf. Alternatively, the Distributor may act as the Fund's agent, to
offer, and to solicit offers to subscribe to, unsold Shares of the Fund as shall
then be effectively registered under the Securities Act. The Distributor will
promptly forward all orders and subscriptions for Shares of the Fund. The price
which the Distributor shall pay for Shares purchased by it from the Fund shall
be the net asset value, determined as set forth in Section 3(c) hereof, used in
determining the public offering price on which the orders are based. The price
at which the Distributor shall offer and sell Shares to investors shall be the
public offering price, as set forth in Section 3(b) hereof. The Distributor may
sell Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Fund reserves the right to sell its Shares directly to investors
through subscriptions received by the Fund, but no such direct sales shall
affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Fund, i.e., the price
per Share at which the Distributor or selected dealers or selected agents (each
as defined in Section 11 hereof) may sell Shares to the public or to those
persons eligible to invest in Shares as described in the
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<PAGE>
Fund's Prospectus, shall be the public offering price determined in accordance
with the then currently effective Prospectus of the Fund or Class thereof under
the Securities Act, relating to such Shares, but not to exceed the net asset
value at which the Distributor, when acting as principal, is to purchase such
Shares, plus, in the case of Shares for which an initial sales charge is
assessed, an initial charge equal to a specified percentage or percentages of
the public offering price of the Shares as set forth in the current Prospectus
relating to the Shares. In the case of Shares for which an initial sales charge
may be assessed, Shares may be sold to certain classes of persons at reduced
sales charges or without any sales charge as from time to time set forth in the
current Prospectus relating to the Shares. The Fund will advise the Distributor
of the net asset value per Share at each time as the net asset value per Share
shall have been determined by the Fund.
(c) The net asset value per Share of each Series or Class thereof shall
be determined by the Fund, or an agent of the Fund, as of the close of the New
York Stock Exchange or such other time as set forth in the applicable Prospectus
on the Fund business day in accordance with the method set forth in the
Prospectus and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of
any Class at any time in the absolute discretion of the Board, and upon notice
of such suspension the Distributor shall cease to offer Shares of the Fund or
Classes thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the
Distributor by the Fund, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions for
Shares obtained by the Distributor as agent shall be directed to the Fund for
acceptance and shall not be binding until accepted by the Fund. Any order or
subscription may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or confirm orders
or subscriptions for the purchase of Shares. The Fund (or its agent) will
confirm orders and subscriptions upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment thereof, will
issue such Shares in certificated or uncertificated form pursuant to the
instructions of the Distributor. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for
redemption at any time, and the Fund agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Fund's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Fund shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(b) hereof
less, in the case of Shares for which a deferred sales charge is assessed, a
deferred sales charge equal to a specified percentage or percentages of the net
asset value of those Shares as from time to time set forth in the Prospectus
relating to those Shares or their cost, whichever is less. Shares for which a
deferred sales charge may be assessed and that have been outstanding for a
specified period of
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<PAGE>
time may be redeemed without payment of a deferred sales charge as from time to
time set forth in the Prospectus relating to those Shares.
(b) The Fund or its designated agent shall pay (i) the total amount of
the redemption price consisting of the redemption price less any applicable
deferred sales charge to the redeeming shareholder or its agent and (ii) except
as may be otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times
when the New York Stock Exchange is closed for any reason other than its
customary weekend or holiday closings, when trading thereon is restricted, when
an emergency exists as a result of which disposal by the Fund of securities
owned by the Fund is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
during any other period when the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the
Fund upon the terms and conditions contained herein and in the then current
Prospectus. The Distributor shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of the Distributor to the Fund hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
(b) In selling Shares of the Fund, the Distributor shall use its best
efforts in all material respects duly to conform with the requirements of all
federal and state laws relating to the sale of the Shares. None of the
Distributor, any selected dealer, any selected agent or any other person is
authorized by the Fund to give any information or to make any representations
other than as is contained in the Fund's Prospectus or any advertising materials
or sales literature specifically approved in writing by the Fund or its agents.
(c) The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers or selected agents, the
collection of amounts payable by investors and selected dealers or selected
agents on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the
supervision of and in accordance with the directives of the Board. The
Distributor will perform its duties hereunder in accordance with the Fund's
Organic Documents and Prospectuses and with the instructions and
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<PAGE>
directions of the Board and will conform to and comply with the requirements of
the 1940 Act, the Securities Act and other applicable laws.
(e) The Distributor shall provide the Board with a written report of
the amounts expended in connection with this Agreement as requested by the
Board.
(f) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware and it is duly
qualified to on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its Articles of
Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iv) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(v) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Distributor, enforceable
against the Distributor in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of
creditors and secured parties;
(vi) It is registered under the 1934 Act with the SEC as a
broker-dealer, it is a member in good standing of the NASD, it will
abide by the rules and regulations of the NASD, and it will notify
the Fund if its membership in the NASD is terminated or suspended;
and
(vii) The performance by the Distributor of its obligations
hereunder does not and will not contravene any provision of its
Articles of Incorporation.
(g) Notwithstanding anything in this Agreement, including the
Appendices, to the contrary, the Distributor makes no warranty or representation
as to the number of selected dealers or selected agents with which it has
entered into agreements in accordance with Section 11 hereof, as to the
availability of any Shares to be sold through any selected dealer, selected
agent or other intermediary or as to any other matter not specifically set forth
herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Fund business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements,
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<PAGE>
documents and other papers or information which the Distributor may reasonably
request for use in connection with the distribution of Shares. The Fund shall
make available to the Distributor the number of copies of its Prospectuses as
the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, subject to the approval of
its Board and any required approval of its shareholders, all action necessary to
fix the number of authorized Shares (if such number is not limited) and to
register the Shares under the Securities Act, to the end that there will be
available for sale the number of Shares as reasonably may be expected to be sold
pursuant to this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Fund, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such registration or qualification.
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland;
(ii) It is empowered under applicable laws and by its Organic
Documents to enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have been
taken to authorize it to enter into and perform its duties under
this Agreement;
(iv) It is registered as an open-end management investment company
with the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully paid
and non-assessable;
(vi) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Fund, enforceable
against the Fund in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of
creditors and secured parties;
(vii) The performance by the Fund of its obligations hereunder does
not and will not contravene any provision of its Articles of
Incorporation.
(viii) The Fund's Registration Statement is currently effective and
will remain effective with respect to all Shares of the Fund's
Series and Classes thereof being offered for sale;
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<PAGE>
(ix) It will use its best efforts to ensure that its Registration
Statement and Prospectuses have been or will be, as the case may
be, carefully prepared in conformity with the requirements of the
Securities Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its
Registration Statement and Prospectuses contain or will contain all
statements required to be stated therein in accordance with the
Securities Act and the rules and regulations thereunder, (B) all
statements of fact contained or to be contained in the Registration
Statement or Prospectuses are or will be true and correct at the
time indicated or on the effective date as the case may be and (C)
neither the Registration Statement nor any Prospectus, when they
shall become effective or be authorized for use, will include an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares;
(xi) It will from time to time file such amendment or amendments to
its Registration Statement and Prospectuses as, in the light of
then-current and then-prospective developments, shall, in the
opinion of its counsel, be necessary in order to have the
Registration Statement and Prospectuses at all times contain all
material facts required to be stated therein or necessary to make
any statements therein not misleading to a purchaser of Shares
("Required Amendments");
(xii) It shall not file any amendment to its Registration
Statement or Prospectuses without giving the Distributor reasonable
advance notice thereof (which shall be at least three Fund business
days); provided, however, that nothing contained in this Agreement
shall in any way limit the Fund's right to file at any time such
amendments to its Registration Statement or Prospectuses, of
whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional; and
(xiii) It will use its best efforts to ensure that (A) any
amendment to its Registration Statement or Prospectuses hereafter
filed will, when it becomes effective, contain all statements
required to be stated therein in accordance with the 1940 Act and
the rules and regulations thereunder, (B) all statements of fact
contained in the Registration Statement or Prospectuses will, when
it becomes effective, be true and correct at the time indicated or
on the effective date as the case may be and (C) no such amendment,
when it becomes effective, will include an untrue statement of a
material fact or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading to a purchaser of the Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in
rendering services to the Fund under this Agreement but shall be under no duty
to take any action except as specifically set forth herein or as may be
specifically agreed to by the Distributor in writing. The Distributor shall not
be liable to the Fund or any of the Fund's shareholders for any error of
judgment or mistake of law, for any loss arising out of any investment, or for
any action or inaction of the
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<PAGE>
Distributor in the absence of bad faith, willful misfeasance or gross negligence
in the performance of the Distributor's duties or obligations under this
Agreement or by reason of the Distributor's reckless disregard of its duties and
obligations under this Agreement
(b) The Distributor shall not be liable to the Fund for any action
taken or failure to act in good faith reliance upon:
(i) the advice of the Fund or of counsel, who may be counsel to the
Fund or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and which
it reasonably believes in good faith was transmitted by the person
or persons authorized by the Board to give such oral instruction
(the Distributor shall have no duty or obligation to make any
inquiry or effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any resolution
of the Board, and the Distributor may rely upon the genuineness of
any such document or copy thereof reasonably believed in good faith
by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other document reasonably believed in
good faith by the Distributor to be genuine and to have been signed
or presented by the Fund or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Distributor's employees), fire, mechanical breakdowns, flood or catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply. In addition, to the extent the Distributor's
obligations hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the performance
of the Distributor's duties caused, directly or indirectly, by the failure or
delay of such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
-8-
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of section 15 of the Securities Act or section 20
of the 1934 Act ("Distributor Indemnitees") free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, under the securities laws of the various States or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Fund's Registration Statement or
Prospectuses, arising out of or based upon any alleged omission to state a
material fact required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, or arising out of or based upon
any filing made with the regulatory authorities of any State unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Fund in connection with the preparation
of the Registration Statement, exhibits to the Registration Statement or filings
made with the regulatory authorities of any State by or on behalf of the
Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Fund shall indemnify and hold each Distributor Indemnitee free and
harmless from and against any Distributor Claim; provided, that the term
Distributor Claim for purposes of this sentence shall mean any Distributor Claim
related to the matters for which the Distributor has requested amendment to the
Fund's Registration Statement and for which the Fund has not filed a Required
Amendment, regardless of with respect to such matters whether any statement in
or omission from the Registration Statement was made in reliance upon, or in
conformity with, information furnished to the Fund by or on behalf of the
Distributor.
(b) The Fund may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Fund and
approved by the Distributor, which approval shall not be withheld unreasonably.
The Fund shall advise the Distributor that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Fund assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Fund does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Fund or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Fund, the Fund will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel that person retains. A Distributor Indemnitee shall
not settle or confess any claim without the prior written consent of the Fund,
which consent shall not be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Fund and its
several officers and directors (collectively, the "Fund Indemnitees"), free and
harmless from and against any and
-9-
<PAGE>
all claims, demands, actions, suits, judgments, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith), but only to the extent that such claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges,
reasonable counsel fees and other expenses result from, arise out of or are
based upon:
(i) any alleged untrue statement of a material fact contained in
the Fund's Registration Statement or Prospectus or any alleged
omission of a material fact required to be stated or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Fund in writing in connection with the
preparation of the Registration Statement or Prospectus by or on
behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sale
representatives that does not conform to the standard of care set
forth in Section 7 of this Agreement (collectively, "Fund Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Fund Claim and may retain counsel of good standing chosen by the
Distributor and approved by the Fund, which approval shall not be withheld
unreasonably. The Distributor shall advise the Fund that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Distributor assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Distributor does not assume the
defense of any such suit, or if the Fund does not approve of counsel chosen by
the Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to the
Distributor, the Distributor will reimburse any Fund Indemnitee named as
defendant in such suit for the reasonable fees and expenses of any counsel that
person retains. A Fund Indemnitee shall not settle or confess any claim without
the prior written consent of the Distributor, which consent shall not be
unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Fund or the
Distributor receiving notice of any action brought against a Distributor
Indemnitee or Fund Indemnitee, respectively, by the person against whom such
action is brought within twenty (20) days after the summons or other first legal
process is served. Such notice shall refer to the person or persons against whom
the action is brought. The failure to provide such notice shall not relieve the
party entitled to such notice of any liability that it may have to any
Distributor Indemnitee or Fund Indemnitee except to the extent that the ability
of the party entitled to such notice to defend such action has been materially
adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the
-10-
<PAGE>
sale and redemption of any Shares made pursuant to subscriptions obtained by the
Distributor. The indemnification provisions of this Section will inure
exclusively to the benefit of each person that may be a Distributor Indemnitee
or Fund Indemnitee at any time and their respective successors and assigns (it
being intended that such persons be deemed to be third party beneficiaries under
this Agreement).
(g) The Distributor agrees promptly to notify the Fund of the
commencement of any litigation or proceeding of which it becomes aware arising
out of or in any way connected with the issuance or sale of Shares. The Fund
agrees promptly to notify the Distributor of the commencement of any litigation
or proceeding of which it becomes aware arising out of or in any way connected
with the issuance or sale of its Shares.
(h) Nothing contained herein shall require the Fund to take any action
contrary to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Fund nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement, except if required by any applicable statute
or regulation.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Fund or the security holders of the
Fund to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request
by the SEC for amendments to the Fund's Registration Statement or Prospectus or
for additional information; (ii) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the Fund's Registration Statement or
any Prospectus or the initiation of any proceedings for that purpose; (iii) of
the happening of any material event which makes untrue any statement made in the
Fund's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Fund's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with
the distribution of Shares of the Fund and each Class thereof, the Distributor
shall receive: (i) any applicable sales charge assessed upon investors in
connection with the purchase of Shares; (ii) from the Fund, any applicable
contingent deferred sales charge ("CDSC") assessed upon investors in connection
with the redemption of Shares; (iii) from the Fund, the distribution service
fees with respect to
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<PAGE>
the Shares of those Classes as designated in Appendix A for which a plan under
Rule 12b-1 under the 1940 Act (a "Plan") is effective (the "Distribution Fee");
and (iv) from the Fund, the shareholder service fees with respect to the Shares
of those Classes as designated in Appendix A (the "Service Fee"). The
Distribution Fee and Service Fee shall be accrued daily by each applicable Fund
or Class thereof and shall be paid monthly as promptly as possible after the
last day of each calendar month but in any event on or before the fifth (5th)
Fund business day after month-end, at the rate or in the amounts set forth in
Appendix A and, as applicable, the Plan(s). The Fund grants and transfers to the
Distributor a general unperfected lien and security interest in any and all
securities and other assets of the Fund now or hereafter maintained in an
account at the Fund's custodian on behalf of the Fund to secure any Distribution
Fees and Service Fees owed the Distributor by the Fund under this Agreement.
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a), the Distributor shall
be entitled to no compensation or reimbursement of expenses for the services
provided by the Distributor pursuant to this Agreement. The Distributor may
receive compensation from the Fund's investment advisors, other service
providers or their respective affiliates (collectively, the "Advisor") for its
services hereunder or for additional services all as may be agreed to between
the Advisor and the Distributor. Notwithstanding anything in this Agreement to
the contrary, to the extent the Distributor receives compensation from the
Advisor that is disclosed to the Board, the Fund will indemnify, defend and hold
each Distributor Indemnitees free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) related in any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for
payment of all its expenses, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of the Registration
Statement and Prospectuses (including but not limited to the expense of setting
in type the Registration Statement and Prospectuses and printing sufficient
quantities for internal compliance, regulatory purposes and for distribution to
current shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration
of its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue
-12-
<PAGE>
registration or qualification. The Distributor shall pay all expenses relating
to the Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto. Shares of each Series or Class
thereof shall be resold by selected dealers or selected agents only at the
public offering price(s) set forth in the Prospectus relating to the Shares. The
Distributor shall offer and sell Shares of the Fund only to such selected
dealers as are members in good standing of the NASD. The Distributor shall have
the right to enter into shareholder servicing agreements with financial
intermediaries of its choice; provided, that all such agreements shall be in
substantially the form of agreement as set forth in Appendix C hereto.
(b) The Distributor will supervise the Fund's relationship with
selected dealers and agents and may make payments to those selected dealers and
agents in such amounts as the Distributor may determine from time to time in its
sole discretion. The amount of payments to selected dealers and agents by the
Distributor may be reviewed by the Board from time to time; provided, however,
that no payment by the Distributor to any selected dealer or agent with respect
to a Share shall exceed the amount of payments made to the Distributor hereunder
with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information
related to the Fund as proprietary information of the Fund and, on behalf of
itself and its employees, to keep confidential all such information, except that
the Distributor may:
(i) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment
company industry to companies that track or report price,
performance or other information regarding investment companies;
and
(iii) release such other information as approved in writing by the
Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably believes
that it may be exposed to civil or
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<PAGE>
criminal legal proceedings for failure to comply, when requested to release any
information by duly constituted authorities or when so requested by the Fund.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series
or class listed in Appendix A on the later of (i) August 31, 1997 or (ii) the
date on which the Fund's Registration Statement relating to Shares of the Fund
becomes effective. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series
Fund for a period of one year from its effectiveness and thereafter shall
continue in effect with respect to the Series until terminated; provided, that
continuance is specifically approved at least annually (i) by the Board or by a
vote of a majority of the outstanding voting securities of the Fund and (ii) by
a vote of a majority of Directors of the Fund (I) who are not parties to this
Agreement or interested persons of any such party (other than as Directors of
the Fund) and (II) with respect to each Class of a Series for which there is an
effective Plan, who do not have any direct or indirect financial interest in any
such Plan applicable to the Class or in any agreements related to the Plan, cast
in person at a meeting called for the purpose of voting on such approval.
(c) This Agreement may be terminated at any time with respect to a
Series, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Series or, with respect to
each Class for which there is an effective Plan, a majority of Directors of the
Fund who do not have any direct or indirect financial interest in any such Plan
or in any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Fund.
(d) This Agreement shall automatically terminate upon its assignment
and upon the termination of the Distributor's membership in the NASD.
(e) If the Fund does not file a Required Amendment within fifteen days
following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 shall survive
any termination of this Agreement with respect to a Series or Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the Distributor
to the Fund or the Fund to the Distributor shall be deemed sufficiently given if
personally delivered or sent by telegram, facsimile or registered, certified or
overnight mail, postage prepaid, addressed by the party giving such notice to
the other party at the last address furnished by the other party to the party
giving such notice, and unless and until changed pursuant to the foregoing
provisions
-14-
<PAGE>
hereof each such notice shall be addressed to the Fund or the Distributor, as
the case may be, at their respective principal places of business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Fund, or
affiliated persons of the Fund to engage in any other business or to devote time
and attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, trust, firm, individual or association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Series
and Classes under this Agreement upon approval of this Agreement by the Fund
with respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund shall
not be liable to the Distributor for consequential damages under any provision
of this Agreement except that Distributor Claims, as that term is used in
Section 8(a), shall include consequential damages related to, arising out of or
based upon any filing made with the regulatory authorities of any State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Fund.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the
Distributor and the Fund and supersedes any prior agreement with respect to the
subject matter hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
-15-
<PAGE>
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to
those Series and Classes of the Fund and the Distributor shall look solely to
the Fund to satisfy any liability of a Series or Class thereof to the
Distributor.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
TOTAL RETURN U.S. TREASURY
FUND, INC.
By: _________________________
Name:
Secretary
ICC DISTRIBUTORS, INC.
By: _________________________
John Y. Keffer
President
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<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
DISTRIBUTION AGREEMENT
Appendix A
as of August 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Distribution Service
Series Class Fee Fee
- ---------------------------------------------------------------------------------------------------------------------
Total Return U.S. Treasury Fund, Inc. Flag Investors Class A 0.25% ----
Flag Investors Class B 0.35% 0.25%
- -------------------------------------------------- --------------------------------- ------------------ ------------------
</TABLE>
- A1 -
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share
-B1-
<PAGE>
purchase or redemption order submitted through you or with your assistance for
completeness and accuracy. You further agree to undertake from time to time
certain shareholder servicing activities for customers of yours who have
purchased Shares and who use your facilities to communicate with the Funds or to
effect redemptions or additional purchases of the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
-B2-
<PAGE>
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment, as defined in the
Investment Company Act. This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as such phrase is defined in the Investment Company Act) and who have no direct
or indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
-B3-
<PAGE>
11. Communications. All communications other than this agreement and
those pertaining to this agreement should be sent to the address listed below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
___________________________
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
Confirmed and accepted:
Firm Name: ____________________________________________________________
By: ____________________________________________________________
Signature
____________________________________________________________
Printed Name and Title
Date: _________________________________________________________________
Address: ______________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Clears Through: _______________________________________________________
Phone No.: ____________________________________________________________
-B4-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may
from time to time beneficially own Shares: (i) aggregating and processing
purchase and redemption requests for Shares from Customers and placing net
purchase and redemption orders with our distributor; (ii) processing dividend
payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. You hereby
represent that such fees are not unreasonable or excessive. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you
-C1-
<PAGE>
in accordance with the Customer's instructions ("Customers' Shares") and the
Customer may exercise all rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be
an independent contractor and will have no authority to act as agent for us in
any matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will cause our distributor to pay you, and you will accept as
full payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
-C2-
<PAGE>
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws
of the State of Maryland.
Section 10. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
-C3-
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ______________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name: __________________________________
By: _________________________________________
Name: _______________________________________
Address: ____________________________________
_____________________________________________
_____________________________________________
Date: _______________________________________
- C4 -
<PAGE>
Ex-99.B(6)(b)
TOTAL RETURN U.S. TREASURY FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed
<PAGE>
information as the Distributor may subsequently prepare. No person is authorized
to distribute any sales material relating to any Fund without the prior written
approval of the Distributor.
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
<PAGE>
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
<PAGE>
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
<PAGE>
Ex-99.B(6)(c)
TOTAL RETURN U.S. TREASURY FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (vi) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii) providing such other
similar services as we may reasonably request to the extent you are permitted to
do so under applicable statutes, rules or regulations. You will provide to
Customers a schedule of any fees that you may charge directly to them for such
services. You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer will be
the beneficial owner of Shares purchased and held by you in accordance with the
Customer's instructions ("Customers' Shares") and the Customer may exercise all
rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may
<PAGE>
reasonably request in connection with our operations, and (ii) promptly notify
us if you experience any difficulty in maintaining the records described in the
foregoing clauses in an accurate and complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors
<PAGE>
concerning this Agreement and the monies paid or payable by us pursuant hereto,
as well as any other reports or filings that may be required by law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: _______________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:
By:
Name:
Address:
Date:
<PAGE>
EX-99.B(6)(d)
TOTAL RETURN U.S. TREASURY FUND, INC.
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 1st day of April, 1997, by and
between TOTAL RETURN U.S. TREASURY FUND, INC., a Maryland corporation (the
"Fund"), and INTERNATIONAL STRATEGY & INVESTMENT GROUP INC., a Delaware
corporation ("ISI").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and
WHEREAS, the Fund wishes to appoint ISI as the exclusive
distributor of the class of shares of the Fund known as the ISI Total Return
U.S. Treasury Fund Shares (the "Shares") and ISI wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to ISI hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the 1940 Act (the "Plan") allowing
the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints ISI as the exclusive
distributor of the Shares for the period and on the terms set forth in this
Agreement. ISI accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished ISI with
copies, properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on June 3, 1988 and all amendments thereto (the
"Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors
authorizing the appointment of ISI as the distributor of the Shares and
approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on
<PAGE>
June 6, 1988;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-12179) and
under the 1940 Act as filed with the SEC on June 6, 1988 relating to the Fund
and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish ISI from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. ISI agrees that all solicitations
for subscriptions for Shares shall be made in accordance with the Fund's
Articles of Incorporation and By-Laws, and its then current Registration
Statement, Prospectus and Statement of Additional Information, and shall not at
any time or in any manner violate any provisions of the laws of the United
States or of any state or other jurisdiction in which solicitations are then
being made. In carrying out its obligations hereunder, ISI shall undertake the
following actions and responsibilities:
(a) receive orders for the purchase of Shares, accept or
reject such orders on behalf of the Fund in accordance with the currently
effective Prospectus for the Shares and the Fund's Statement of Additional
Information and transmit such orders as are so accepted to the Fund's transfer
agent as promptly as possible;
(b) receive requests for redemption from holders of Shares
and transmit such redemption requests to the Fund's transfer agent as promptly
as possible;
(c) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(d) provide to the Fund's Treasurer, at least quarterly, a
written report of the amounts expended in connection with all distribution
services rendered pursuant to this Agreement, including an explanation of the
purposes for which such expenditures were made; and
(e) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares and perform such
other administrative duties with respect to the Shares as the Fund's Board of
Directors may require.
4. Distribution of Shares. ISI shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that ISI does
not undertake to sell all or any specific portion of the Shares. The Fund shall
not sell any of the Shares except through ISI and securities dealers who have
valid Agency Distribution Agreements with ISI. Notwithstanding the provisions of
the foregoing sentence the Fund may issue its Shares at their net asset value to
any shareholder of the Fund purchasing such Shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by ISI pursuant to this Agreement, as well as any other activities
undertaken by ISI on behalf of the Fund pursuant hereto, shall at all times be
subject to any directives of the Board of Directors of the Fund. The Board of
Directors may agree, on behalf of the Fund, to amendments to this Agreement,
provided that the Fund must obtain prior approval of the shareholders of the
Fund to any amendment which would result in a material increase in the amount
expended by the Fund.
-2-
<PAGE>
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, ISI shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of federal and state
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and ISI as follows:
(a) ISI shall furnish, at its expense and without cost to
the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) ISI shall bear the expenses of any promotional or sales
literature used by ISI or furnished by ISI to purchasers or dealers in
connection with the public offering of the Shares, the expenses of advertising
in connection with such public offering and all legal expenses in connection
with the foregoing; and
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor and administrator; the charges and expenses of any
registrar, any custodian or depositary appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any stock transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and corporate fees payable by the Fund to federal,
state or other governmental agencies; the cost and expense of engraving or
printing of stock certificates representing Shares; all costs and expenses in
connection with maintenance of registration of the Fund and the Shares with the
SEC and various states and other jurisdictions (including filing fees and legal
fees and disbursements of counsel) except as provided in subparagraph (a) above;
the expenses of printing, including typesetting, and distributing prospectuses
of the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or members of any advisory board or committee; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
Shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's Shares; charges and expenses of legal counsel, including counsel
to the directors who are not "interested persons" of the Fund (as defined in the
1940 Act), and of independent accountants, in connection with any matter
relating to the Fund; a portion of membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
-3-
<PAGE>
8. Delegation of Responsibilities. ISI may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and ISI's charges in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by ISI of any Fund expense that
ISI is not required to pay or assume under this Agreement shall not relieve ISI
of any of its obligations to the Fund or obligate ISI to pay or assume any
similar Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by ISI, the Fund shall pay to ISI, compensation at the annual
rate of .25% of the average daily net assets invested in the Shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
compensation for the part of the month during which this Agreement is in effect
shall be prorated in a manner consistent with the calculations of the fees as
set forth above.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that ISI may compensate its investment representatives for opening
accounts, processing investor letters of transmittal and applications and
withdrawal and redemption orders, responding to inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund, and
communicating with the Fund and its transfer agent on behalf of the Fund
shareholders.
11. Agency Distribution Agreements. ISI may enter into agency
distribution agreements (the "Agency Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a transmitting
broker in connection with the proposed offering. All Agency Distribution
Agreements shall be in substantially the form of the agreement attached hereto
as Exhibit "A". For processing Fund shareholders' redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund and communicating with the Fund, its transfer agent
and ISI, ISI may pay each such transmitting broker an amount not to exceed that
portion of the compensation paid to ISI hereunder that is attributable to
accounts of Fund shareholders who are customers of such transmitting broker.
12. Non-Exclusivity. The services of ISI to the Fund are not
to be deemed exclusive and ISI shall be free to render distribution or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that directors, officers or employees of
ISI may serve as directors or officers of the Fund, and that directors or
officers of the Fund may serve as directors, officers and employees of ISI to
the extent permitted by law; and that directors, officers and employees of ISI
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, directors
or officers of any other firm or corporation, including other investment
companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act), and
(b) by the affirmative vote of a majority of the directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and do
not have a financial interest in the operation of this Agreement, by votes cast
in person at a meeting specifically called for such purpose.
-4-
<PAGE>
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and who do not have a financial interest in the
operation of this Agreement, (iii) by vote of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act) or (iv) by ISI. The
notice provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment as defined in the 1940
Act.
15. Liability. In the performance of its duties hereunder, ISI
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of ISI or reckless disregard by ISI of its duties under
this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that for this purpose
the address of the Fund and ISI shall be 717 Fifth Avenue, New York, New York
10022.
17. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] TOTAL RETURN U.S. TREASURY FUND, INC.
Attest: /s/ Scott J. Liotta By: /s/ R. Alan Medaugh
-------------------- --------------------
Name: Scott J. Liotta Name: R. Alan Medaugh
Title: President
[SEAL] INTERNATIONAL STRATEGY &
INVESTMENT GROUP INC.
Attest: /s/ Nancy Lazar By /s/ Edward S. Hyman
------------------- ---------------------
Name: Nancy Lazar Name: Edward S. Hyman
Title: Chairman
-----------------
-5-
<PAGE>
Exhibit A
ISI FAMILY OF FUNDS
717 Fifth Avenue
New York, New York 10022
AGENCY DISTRIBUTION AGREEMENT
_______________________, 19___
Gentlemen:
International Strategy & Investment Group Inc.
("ISI"), a Delaware corporation, serves as distributor (the "Distributor") of
the ISI Family of Mutual Funds (collectively, the "Funds", individually a
"Fund"). The Funds are open-end investment companies registered under the
"Investment Company Act of 1940, as amended (the "Investment Company Act"). The
Funds offer their shares ("Shares") to the public in accordance with the terms
and conditions contained in the Prospectus of each Fund. The term "Prospectus"
used herein refers to the prospectus on file with the Securities and Exchange
Commission which is part of the registration statement of each Fund under the
Securities Act of 1933 (the "Securities Act"). In connection with the foregoing
you may serve as a participating dealer (and, therefore, accept orders for the
purchase or redemption of Shares, respond to shareholder inquiries and perform
other related functions) on the following terms and conditions:
1. Transmitting Broker. You are hereby designated as
a Broker and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and payment made therefore, (ii)
to accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized
to make any representations concerning the Funds or the Shares except those
contained in the Prospectus of each Fund and in such printed information as the
Distributor may subsequently prepare. No person is authorized to distribute any
sales material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services,
you will look solely to the Distributor, and you acknowledge that the Funds
shall have no direct responsibility for any compensation. In addition to any
sales charge payable to you by your customer pursuant to a Prospectus, the
Distributor will pay you no less often than annually a shareholder processing
and service fee (as we may determine from time to time in writing) computed as a
percentage of the average daily net assets maintained with each Fund during the
preceding period by shareholders who purchase their shares through you or with
your assistance, provided that said assets are at least $250,000 for each Fund
for which you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
-1-
<PAGE>
4. Prospectus and Reports. You agree to comply with
the provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"). Your expulsion or suspension from the NASD will automatically
terminate this Agreement on the effective date of such expulsion or suspension.
You agree that you will not offer Shares to persons in any jurisdiction in which
you may not lawfully make such offer due to the fact that you have not
registered under, or are not exempt from, the applicable registration or
licensing requirements of such jurisdiction. You agree that in performing the
services under this Agreement, you at all times will comply with the Rules of
Fair Practice of the NASD including, without limitation, the provisions of
Section 26 of such Rules. You agree that you will not combine customer orders to
reach breakpoints in commissions for any purposes whatsoever unless authorized
by the then current Prospectus in respect of Shares of a particular class or by
us in writing. You also agree that you will place orders immediately upon their
receipt and will not withhold any order so as to profit therefrom. In
determining the amount payable to you hereunder, we reserve the right to exclude
any sales which we reasonably determine are not made in accordance with the
terms of the Prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite
number of Shares under the Securities Act. The Funds intend to comply with
applicable state laws. We will notify you of the states or other jurisdictions
in which the Shares may be sold. You agree that you will offer Shares to your
customers only in those states where there has been compliance with state laws
applicable to the sale of such Shares. We assume no responsibility or obligation
as to your right to sell Shares in any jurisdiction. We will file with the
Department of State in New York a State Notice and a Further State Notice with
respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have
full authority to take such action as it deems advisable in respect of all
matters pertaining to the offering of its Shares, including the right not to
accept any order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records
required by law to be kept by you relating to transactions in Shares and, upon
request by any Fund, promptly make such of these records available to the Fund
as the Fund may reasonably request in connection with its operations and (ii)
promptly notify the Fund if you experience any difficulty in maintaining the
records described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by them hereunder. In carrying out your obligations, you agree to act in
good faith and without negligence. Nothing contained in this Agreement is
intended to operate as a waiver by the Distributor or you of compliance with any
provision of the Investment Company Act, the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated by
the Securities and Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by
either party, without penalty, upon ten days' notice to the other party and
shall automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
-2-
<PAGE>
11. Communications. All communications to us should
be sent to the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us one copy of this
agreement.
INTERNATIONAL STRATEGY & INVESTMENT GROUP
INC.
_________________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name:_____________________________
By:____________________________________
Address:_______________________________
Date:__________________________________
-3-
<PAGE>
EX-99.B(6)(e)
ISI FAMILY OF FUNDS
717 Fifth Avenue
New York, New York 10022
AGENCY DISTRIBUTION AGREEMENT
_______________________, 19___
Gentlemen:
International Strategy & Investment Group Inc. ("ISI"), a
Delaware corporation, serves as distributor (the "Distributor") of the ISI
Family of Mutual Funds (collectively, the "Funds", individually a "Fund"). The
Funds are open-end investment companies registered under the "Investment Company
Act of 1940, as amended (the "Investment Company Act"). The Funds offer their
shares ("Shares") to the public in accordance with the terms and conditions
contained in the Prospectus of each Fund. The term "Prospectus" used herein
refers to the prospectus on file with the Securities and Exchange Commission
which is part of the registration statement of each Fund under the Securities
Act of 1933 (the "Securities Act"). In connection with the foregoing you may
serve as a participating dealer (and, therefore, accept orders for the purchase
or redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Transmitting Broker. You are hereby designated as a Broker
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and payment made therefore, (ii) to accept
orders for the redemption of Shares and to transmit to the Funds such orders and
all additional material, including any certificates for Shares, as may be
required to complete the redemption and (iii) to assist shareholders with the
foregoing and other matters relating to their investments in each Fund, in each
case subject to the terms and conditions set forth in the Prospectus of each
Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make
any representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are
<PAGE>
holding as record owner and to deliver to such persons copies of the annual and
interim reports and proxy solicitation materials of the Funds. We agree to
furnish to you as many copies of each Prospectus, annual and interim reports and
proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to comply with applicable
state laws. We will notify you of the states or other jurisdictions in which the
Shares may be sold. You agree that you will offer Shares to your customers only
in those states where there has been compliance with state laws applicable to
the sale of such Shares. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required
by law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to
you except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to
the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one copy of this agreement.
<PAGE>
INTERNATIONAL STRATEGY & INVESTMENT
GROUP INC.
__________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name:____________________________
By:___________________________________
Address:______________________________
Date:_________________________________
<PAGE>
EX-99.B(6)(f)
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
FORM OF
SHAREHOLDER SERVICING AGREEMENT
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
with you concerning the provision of support services to your clients and
customers ("Customers") who may from time to time beneficially own shares of our
shares of common stock ("Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. (a) You agree to provide the following services to
Customers who may from time to time beneficially own Shares: (i) aggregating and
processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii) processing
dividend payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you in accordance with the Customer's
instructions ("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records
required by law relating to transactions in Shares and, upon our request,
promptly make such of these records available to us as we may reasonably request
in connection with our operations, and (ii) promptly notify us if you experience
any difficulty in maintaining the records described in the foregoing clauses in
an accurate and complete manner.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees,
agents or assigns are authorized to make any representations concerning us or
Shares except those contained in our then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE>
Section 4. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect. You may, upon prior written notice
to us, delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all of your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees, agents or assigns regarding
your responsibilities hereunder or the purchase, redemption, transfer or
registration of Shares by or on behalf of Customers. You and your employees
will, upon request, be available during normal business hours to consult with us
or our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will cause our distributor pay to you, and you
will accept as full payment therefor, a fee at the annual rate of ___ of 1% of
the average daily net asset value of the Customers' Shares held of record by you
from time to time, which fee will be computed daily and payable ______. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Customers' Shares will be computed in the manner
specified in our registration statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively increased or decreased by us or by our distributor, at any time
upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of Shares, including the sale of such shares to you
for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such
information relating to your performance under this Agreement as we or they may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
shall otherwise cooperate with us and our designees (including, without
limitation, any auditors designated by us), in connection with the preparation
of reports to our Board of Directors concerning this Agreement and the monies
paid or payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
Section 7. We may enter into other similar services agreements
with any other person or persons without your consent.
Section 8. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the event
of its assignment, as that term is defined in the Investment Company Act of
1940, as amended.
Section 9. This Agreement will be construed in accordance with
the laws of the State of Maryland.
Section 10. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device, if to us at the address below, and if to you,
at the address specified by you after your signature below:
Total Return U.S. Treasury Fund, Inc.
717 Fifth Avenue
New York, New York 10022
Attention: R. Alan Medaugh
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to us, at the address set forth in Section 10 above.
Very truly yours,
-2-
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
Date:__________________ By:____________________________________
Authorized Officer
Accepted and Agreed to:
_________________________________
Date:___________________ By:____________________________________
Authorized Officer
Address:_________________________
_________________________
_________________________
-3-
<PAGE>
EX-99.B(8)
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT dated as of___________________, 199__ between BANKERS TRUST
TRUST COMPANY (the "Custodian") and TOTAL RETURN U.S. TREASURY FUND, INC. (the
"Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios 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 each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. 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
noncash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash 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 Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio,
1
<PAGE>
the Customer shall, by Instructions (as herein defined in Section 14),
specifically indicate which Portfolio such Property belongs or if such Property
belongs to more than one Portfolio shall allocate such Property to the
appropriate Portfolio. The Custodian shall allocate such Property to the
Accounts in accordance with the Instructions; provided that the Custodian shall
have the right, in its sole discretion, to refuse to accept any Property that is
not in proper form for deposit for any reason. The Customer on behalf of each
Portfolio, 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 appropriate 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.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), 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 appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed 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 such 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
an 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 an 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
2
<PAGE>
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 an 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 such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
governmental authority. In the event there is insufficient
Cash available in such 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 such 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 hold the Property in each Account in custody accounts
which have been established by the Custodian with (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
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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
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 Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities 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 Trustees 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 nominal 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 an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by 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 non-U.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not 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
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related thereto, (iii) beneficial ownership of such Securities be freely
transferable without the payment of money or value other than for safe custody
or administration and expenses related thereto, (iv) adequate records will be
maintained identifying the Property held pursuant to such Agreement as belonging
to the Custodian, on behalf of its customers and (v) to the 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(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books
such Property as being held for the account of the Custodian
or Subcustodian for its customers.
(b) Any Property held in 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.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a
Subcustodian or in a Securities System as authorized herein,
shall be clearly recorded on the Custodian's books as
belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian
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shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions for each
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 an Account held 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 N1-A
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 Cash and Securities, including Cash and
Securities 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 hard copy
various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such
service shall include market values of Securities in an
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 an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by 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 an 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.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any 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 B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (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 an
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 a Portfolio.
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 an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
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
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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, an Account, on a contractual basis, as outlined in
the Global Guide provided to the Customer by the Custodian, the Custodian may,
at its sole option, reverse such credits or debits to the appropriate 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.
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 of 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 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 from 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 records. In such case, the Customer shall be
liable to the Custodian only for late
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<PAGE>
charges at a rate which the Custodian customary charges for
similar extensions of credit.
(d) If, within a reasonable time from 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 not deposited into the
Account, the Customer authorizes the Custodian, as agent, to
sell the securities and credit the Account with the proceeds
of such sale. In such case, the Customer shall be liable to
the Custodian for any deficiencies, out-of-pocket costs and
expenses associated with the sale of the securities, including
but not limited to, shortfalls in the sales proceeds and the
Custodian is hereby authorized to sell such other securities
to the extent necessary to satisfy such shortfalls with the
net proceeds of such sales.
(e) The Customer agrees that it will not 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 with 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.
(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.
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(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, on behalf of a Portfolio, the
Custodian 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 and 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.
(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 20.
(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 at its address set forth in 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
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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 night 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 each 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
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
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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 an 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 each 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; 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 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 or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
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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 C. 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 an 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 such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable 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 an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. 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.
(a) Termination of Entire Agreement. 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 each Account and to
whom the Cash in such 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 a written notice specifying the names
of the persons to whom the Custodian shall deliver the
Securities in each Account and to whom the Cash in such
Account shall be paid. In either case, the Custodian will
deliver such Securities and Cash to the persons so specified,
after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 13, 18, and 24. In
addition, the Custodian may in its discretion withhold from
such delivery such Cash and Securities as may be necessary
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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
each Account and to whom the Cash in such 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.
(b) Termination as to One or More Portfolios. This Agreement may
be terminated by the Customer or the Custodian as to one or
more Portfolios (but less than all of the Portfolios) by
delivery of an amended Exhibit A deleting such Portfolios, in
which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery,
or such earlier time as mutually agreed. The execution and
delivery of an amended Exhibit A which deletes one or more
Portfolios shall constitute a termination of this Agreement
only with respect to such deleted Portfolio(s), shall be
governed by the preceding provisions of Section 21 as to the
identification of a successor custodian and the delivery of
Cash and Securities of the Portfolio(s) so deleted to such
successor custodian and shall not affect the obligations of
the Custodian and the Customer hereunder with respect to the
other Portfolios set forth in Exhibit A, as amended from time
to time.
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 answer back.
23. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
24. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations;
14
<PAGE>
provided that, if there is more than one Account and the obligations secured
pursuant to this Section can be allocated to a specific Account or the Portfolio
related to such Account, such security interest and right of setoff will be
limited to Property held for that Account only and its related Portfolio. Should
the Customer fail to pay promptly any amounts owed hereunder, Custodian shall be
entitled to use available Cash in the Account or applicable Account, as the case
may be, and to dispose of Securities in the Account or such applicable Account
as is necessary. In any such case and without limiting the foregoing, Custodian
shall be entitled to take such other action(s) or exercise such other options,
powers and rights as Custodian now or hereafter has as a secured creditor under
the New York Uniform Commercial Code or any other applicable law.
25. 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 any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian a duly
executed Secretary's Certificate in the form of Exhibit E 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 the Custodian 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 the Custodian in accordance with
its terms;
(iii) the Custodian 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
15
<PAGE>
(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.
26. 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.
27. Publicity. Customer shall furnish to Custodian at its office
referred to in 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.
[28. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.]
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
29. 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.
30. 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
16
<PAGE>
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.
31. 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.
32. 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.
33. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
34. 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.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
[NAME OF CUSTOMER]
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
17
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________,199__ between Bankers
Trust Company and _______________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above- referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of:
[NAME OF CUSTOMER]
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of ________________, 199__ between
Bankers Trust Company and __________________.
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 Global Guide]. 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 then 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.
<PAGE>
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.
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 wall 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 containing
such Securities 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
Global Guide. The Custodian will notify the Customer as
<PAGE>
to the inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit B will be deemed to be
automatically amended to include or delete such countries as the case may be.
Dated as of [NAME OF CUSTOMER]
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ________________.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C 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.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ______________.
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 any Account.
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,
<PAGE>
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.
Dated as of [NAME OF CUSTOMER]
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT E
[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 "Company"), and as such I am duly authorized to, and do hereby, certify
that:
1. Organizational Documents. The Company's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of [jurisdiction], the Company 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. By-Laws. The Company's By-Laws have been duly adopted and no action
has been taken to repeal such By-Laws, the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of the
Company, 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 Company now in force relating to or affecting the
matters referred to therein, including, without limitation, confirming that the
Company is duly authorized to enter into a certain custody agreement with
Bankers Trust Company (the "Agreement"), and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
execute said Agreement on behalf of the Company, in conformity with the
requirements of the Company's organizational documents, Bylaws, and other
pertinent documents to which the Company may be bound.
4. Incumbency. The following named individuals are duly elected (or
appointed), qualified, and acting officers of the Company holding those offices
set forth opposite their respective names as of the date hereof, each having
full authority, acting individually, to bind the Company as a legal matter, with
respect to all matters pertaining to the Agreement, and to execute and deliver
said Agreement on behalf of the Company, and the signatures set forth opposite
the respective names and titles of said officers are their true, authentic
signatures:
Name Title Signature
[Name] [Position] ---------------------------------
[Name] [Position] ---------------------------------
[Name] [Position] ---------------------------------
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
[Date], 19__.
By:________________________________________
Name:______________________________________
Title: Secretary
I, [Name of Confirming Officer], [Title] of the Company, hereby certify
that on this ___ day of [Date], 19__, [Name of Secretary] is the duly elected
Secretary of the Company and that the signature above is his genuine signature.
By:________________________________________
Name:______________________________________
Title:_____________________________________
<PAGE>
EX-99.B(11)
INDEPENDENT AUDITORS' CONSENT
Total Return U.S. Treasury Fund, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment No. 16
to the Registration Statement No. 33-12179 of Total Return U.S. Treasury Fund,
Inc. of our report dated November 21, 1997, 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 are a part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
_________________________
DELOITTE & TOUCHE LLP
Princeton, NJ
February 23, 1998
<PAGE>
EX-99.B(15)(d)
Amended
August 4, 1997
TOTAL RETURN U.S. TREASURY FUND, INC.
Flag Investors Class A Shares
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in Rule
12b-1 (the "Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act") for the Flag Investors Class A Shares (the "Shares") of Total Return
U.S. Treasury Fund, Inc. (the "Fund"). Other capitalized terms herein have the
meaning given to them in the Fund's prospectus.
2. Payments Authorized. The Fund's distributor (the "Distributor") is
authorized, pursuant to the Plan, to make payments to any Participating Dealer
under a Sub-Distribution Agreement, to accept payments made to them under the
Distribution Agreement and to make payments on behalf of the Fund to Shareholder
Servicing Agents under Shareholder Services Agreements as follows:
(a) as reimbursement for direct expenses incurred in the course of
distributing Fund shares or providing administrative assistance to the Fund
or its shareholders; and
(b) at a rate specified in the Flag Investors Class Distribution
Agreement between the Fund and the Distributor (the "Distribution
Agreement") in any Sub-Distribution Agreement, and in any Shareholder
Servicing Agreement.
The Distributor may make payments in any amount, provided that (i) the
total amount of all payments made during a fiscal year of the Fund (whether made
under (a) and/or (b) above) do not exceed, in any fiscal year of the Fund, the
amount paid to the Distributor under the Distribution Agreement which is an
annual fee, calculated on an average daily net basis and paid monthly, equal to
.25% of the average daily net assets of the Shares of the Fund; and (ii) a
majority of the Fund's Non-Interested Directors may at any time decrease or
limit the aggregate amount of all payments or decrease or limit the amount
payable to any recipient.
3. Expenses Authorized. The Distributor is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement subject to the
limitations of Section 2 hereto, to purchase advertising for Flag Investors
Class Shares, to pay for sales literature and other promotional material, and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of the Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any salesmen so paid are not required to devote their time solely to
the sale of the Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement the Fund assumes certain expenses, which the Distributor is authorized
to pay or cause to be paid on its behalf and such payments shall not be included
in the limitations contained in this Plan. These expenses include (i) investment
advisory fees; (ii) charges or expenses of any registrar or custodian; (iii)
fees and expenses of the Fund's transfer agent, brokerage commissions; (iv)
taxes; (v) the costs of the preparation, printing and mailing of all required
reports and notices to shareholders, irrespective of whether such reports or
notices contain or are accompanied by
<PAGE>
material intended to result in the sale of shares of the Fund or other funds or
other investments; (vi) the costs of preparing, printing and mailing of all
prospectuses to shareholders; (vii) the costs of preparing, printing and mailing
of any proxy statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale of the
Shares; (viii) all legal and accounting fees relating to the preparation of any
such reports, prospectuses, proxies and proxy statements; (ix) all fees and
expenses relating to the qualification on of the Fund and its shares under the
securities or "Blue Sky" laws of any jurisdiction; (x) all fees under the Act
and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of the Shares;
(xi) a portion of or all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of whether some of its
activities are designed to provide sales assistance (xii) all costs of preparing
and mailing confirmations of shares sold or redeemed or share certificates, and
reports of share balances; and (xiii) all costs of responding to telephone or
mail inquiries of shareholders.
5. Other Distribution Resources. The Board acknowledges that the
Distributor and Participating Dealers may expend their own resources separate
and apart from amounts payable under the Plan to support the Fund's distribution
effort. The Distributor will report on any such expenditures as part of their
regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a) This Plan
has been approved by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan.
This Plan shall, unless terminated as hereinafter provided, continue in effect
from year to year only so long as such continuance is specifically approved at
least annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on such continuance.
(b) This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act)
or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the amount of
payments to be made without the approval by a vote of the holders of at
least a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act), and all amendments must be approved by the Board of
Directors in the manner set forth under (a) above.
<PAGE>
EX-99.B(15)(e)
TOTAL RETURN U.S. TREASURY FUND, INC.
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the ISI Total Return U.S. Treasury Fund Shares
(the "Shares") of Total Return U.S. Treasury Fund, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The distributor for the shares
(the "Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the distribution agreement between the Distributor and the Fund with
respect to the Shares (the "Distribution Agreement") and to make payments on
behalf of the Fund to Shareholder Servicing Agents under Shareholder Servicing
Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement which is an annual fee, calculated
on an average daily net basis and paid monthly, equal to .25% of the average
daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of the Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include the fees of the Fund's investment advisor; the charges and expenses of
any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or account agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable to the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with
maintenance of registration to the Fund and its Shares with the Securities and
Exchange Commission and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders,
fees and travel expenses of directors or director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's Shares;
charges and expenses of legal counsel, including counsel to the directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of independent certified public accountants, in
<PAGE>
connection with any matter relating to the Fund; a portion of membership dues of
industry associations; interest payable on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and directors) of the Fund
which inure to its benefit; extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided therein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of their regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons at a meeting
called for the purpose of voting on this Plan; and (ii) by a vote of holders of
at least a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan shall, unless terminated as hereinafter provided,
continue in effect until and from year to year thereafter only so long as such
continuance is specifically approved at least annually by the Fund's Board of
Directors and by the vote of a majority of the Directors of the Fund who are not
interested persons of the Fund (as defined in the 1940 Act), cast in person at a
meeting called for the purpose of voting on such continuance. This Plan may be
terminated at any time by a vote of a majority of the Directors who are not
interested persons of the Fund (as defined in the 1940 Act) or by the vote of
the holders of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act). This Plan may not be amended to increase materially
the amount of payments to be made without shareholder approval, as set forth in
(ii) above, and all amendments must be approved in the manner set forth under
(i) above.
<PAGE>
EX-99.B(15)(f)
Amended
August 4, 1997
TOTAL RETURN U.S. TREASURY FUND, INC.
Flag Investors Class B Shares
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Total Return U.S. Treasury Fund, Inc. (the "Fund"). Other capitalized terms
herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .35% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's investment advisor and the Distributor, the fees
of the Fund's administrator; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection with
maintenance of registration of the Fund and its shares with the Securities and
Exchange Commission and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members
<PAGE>
of any advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a)
This Plan has been approved by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan. This Plan shall, unless terminated as hereinafter provided, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a vote of a
majority of the Directors who are not interested persons (as defined in the 1940
Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the
amount of payments to be made without the approval by a vote of the holders of
at least a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act), and all amendments must be approved by the Board of Directors in
the manner set forth under (a) above.
<PAGE>
EX-99.B(18)(b)
Total Return U.S. Treasury Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and ISI Class Shares
Adopted December 13, 1995
Amended through August 4, 1997
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Total Return U.S. Treasury
Fund, Inc. (the "Fund"), including a majority of the Directors of the Fund who
are not "interested persons" of the Fund (the "Independent Directors") pursuant
to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for three classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A Shares, Flag Investors Class B
Shares and ISI Shares) and future classes of Fund shares. The Flag Investors
Class A Shares and the ISI Shares have been offered since the Fund's inception
on August 10, 1988. The Flag Investors Class B Shares have not yet been offered.
(A fourth class of the Fund's shares (the Flag Investors Class D Shares) are no
longer being offered.)
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
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 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
<PAGE>
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:
<TABLE>
<CAPTION>
==========================================================================================================================
Total # Shares Class A Class B Class D ISI Unclassified
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100,000,000 44,000,000 5,000,000 500,000 44,000,000 6,500,000
==========================================================================================================================
</TABLE>
<PAGE>
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.
Approved: August 4, 1997
<PAGE>
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.
<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 to Articles of Incorporation filed as
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.0000950116-96-000097) on
February 26, 1996 is herein incorporated by reference.
3. 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.
4. Registrant's Distribution Agreement dated as of August 31, 1997 between
Registrant and ICC Distributors Inc. with respect to Flag Investors Shares filed
as Exhibit (6)(a) to this Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed herewith
and is herein incorporated by reference.
5. Registrant's Distribution Plan with respect to Flag Investors Total Return
U.S. Treasury Fund Class A Shares filed as Exhibit (15)(d) to this
Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed herewith and is herein incorporated by
reference.
6. Registrant's Distribution Agreement dated August 31, 1997 between Registrant
and ICC Distributors Inc. with respect to Flag Investors Shares filed as Exhibit
(6)(a) to this Post-Effective Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-12179), filed herewith 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 this
Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed herewith 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 this Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed herewith 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 this Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed herewith 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 this Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form N-1A
(Registration No.33-12179) filed herewith and is herein incorporated by
reference.
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.
<PAGE>
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>
EX-99.B(24)
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
--------------------------
James J. Cunnane
Date: February 25, 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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
--------------------------
Richard T. Hale
Date: February 25, 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 either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Edward S. Hyman
--------------------------
Edward S. Hyman
Date: February 25, 1998
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
--------------------------
John F. Kroeger
Date: February 25, 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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
-------------------------
Louis E. Levy
Date: February 25, 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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
--------------------------
Eugene J. McDonald
Date: February 25, 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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------------
Truman T. Semans
Date: February 25, 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, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
--------------------------
Rebecca W. Rimel
Date: February 25, 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 either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
--------------------------
Carl W. Vogt
Date: February 25, 1998
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<ARTICLE> 6
<CIK> 0000811160
<NAME> FLAG INVESTORS
<SERIES>
<NUMBER> 001
<NAME> TOTAL RETURN U.S. TREASURY FUND FLAG A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 291,474,646
<INVESTMENTS-AT-VALUE> 291,992,863
<RECEIVABLES> 5,567,291
<ASSETS-OTHER> 140,159
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 297,700,313
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,558,840
<TOTAL-LIABILITIES> 3,558,840
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,909,369
<SHARES-COMMON-STOCK> 12,179,428
<SHARES-COMMON-PRIOR> 14,628,079
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,561,813
<ACCUMULATED-NET-GAINS> (2,143,673)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518,217
<NET-ASSETS> 122,228,931
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,868,979
<OTHER-INCOME> 0
<EXPENSES-NET> 2,545,981
<NET-INVESTMENT-INCOME> 17,322,998
<REALIZED-GAINS-CURRENT> (2,143,673)
<APPREC-INCREASE-CURRENT> 10,567,788
<NET-CHANGE-FROM-OPS> 25,747,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,246,184
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1,156,945
<NUMBER-OF-SHARES-SOLD> 490,187
<NUMBER-OF-SHARES-REDEEMED> 3,438,672
<SHARES-REINVESTED> 499,834
<NET-CHANGE-IN-ASSETS> 43,258,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,285,330
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 848,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,545,981
<AVERAGE-NET-ASSETS> 128,866,581
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.08
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811160
<NAME> FLAG INVESTORS
<SERIES>
<NUMBER> 002
<NAME> TOTAL RETURN U.S. TREASURY FUND FLAG B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 291,474,646
<INVESTMENTS-AT-VALUE> 291,992,863
<RECEIVABLES> 5,567,291
<ASSETS-OTHER> 140,159
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 297,700,313
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,558,840
<TOTAL-LIABILITIES> 3,558,840
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 810,591
<SHARES-COMMON-STOCK> 83,601
<SHARES-COMMON-PRIOR> 12,494
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,561,813
<ACCUMULATED-NET-GAINS> (2,143,673)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518,217
<NET-ASSETS> 838,393
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,868,979
<OTHER-INCOME> 0
<EXPENSES-NET> 2,545,981
<NET-INVESTMENT-INCOME> 17,322,998
<REALIZED-GAINS-CURRENT> (2,143,873)
<APPREC-INCREASE-CURRENT> 10,567,788
<NET-CHANGE-FROM-OPS> 25,747,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,762
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2,897
<NUMBER-OF-SHARES-SOLD> 85,484
<NUMBER-OF-SHARES-REDEEMED> 15,359
<SHARES-REINVESTED> 982
<NET-CHANGE-IN-ASSETS> (43,258,834)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,285,330
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 848,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,545,981
<AVERAGE-NET-ASSETS> 338,898
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.05
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811160
<NAME> FLAG INVESTORS
<SERIES>
<NUMBER> 003
<NAME> TOTAL RETURN U.S. TREASURY FUND FLAG ISI
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 291,474,646
<INVESTMENTS-AT-VALUE> 291,992,863
<RECEIVABLES> 5,567,291
<ASSETS-OTHER> 140,159
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 297,700,313
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,558,840
<TOTAL-LIABILITIES> 3,558,840
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174,608,782
<SHARES-COMMON-STOCK> 17,036,448
<SHARES-COMMON-PRIOR> 19,676,205
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,561,813
<ACCUMULATED-NET-GAINS> (2,143,673)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518,217
<NET-ASSETS> 171,074
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,868,979
<OTHER-INCOME> 0
<EXPENSES-NET> 2,545,981
<NET-INVESTMENT-INCOME> 17,322,998
<REALIZED-GAINS-CURRENT> (2,143,673)
<APPREC-INCREASE-CURRENT> 10,567,788
<NET-CHANGE-FROM-OPS> 25,747,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,059,052
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1,593,152
<NUMBER-OF-SHARES-SOLD> 1,028,342
<NUMBER-OF-SHARES-REDEEMED> 4,455,189
<SHARES-REINVESTED> 787,090
<NET-CHANGE-IN-ASSETS> (43,258,834)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,285,330
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 848,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,545,981
<AVERAGE-NET-ASSETS> 178,842,129
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> 0.56
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<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
