<PAGE>
As Filed With the Securities and Exchange Commission on February 29, 2000
Registration Nos. 33-12179/ 811-5040
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 18 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 22 [X]
TOTAL RETURN U.S. TREASURY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
535 Madison Avenue, 30th Floor
New York, New York 10022
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux Copy to: Richard W. Grant, Esq.
One South Street Morgan, Lewis & Bockius LLP
Baltimore, MD 21202 1701 Market Street
(Name and address of agent for service) Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
____ immediately upon filing pursuant to paragraph (b)
_X__ on March 1, 2000, pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)
____ 75 days after filing pursuant to paragraph (a)
____ on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
[LOGO OMITTED]
Total Return U.S. Treasury Fund
Class A Shares (A Class of Total Return U.S. Treasury Fund, Inc.)
Prospectus & Application
March 1, 2000
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
[LOGO OMITTED]
This mutual fund (the "Fund") seeks to achieve a high level of total return,
with relative stability of principal and, secondarily, high current income
consistent with an investment in securities issued by the United States Treasury
("U.S. Treasury Securities").
The Fund offers shares through securities dealers and financial institutions
that act as shareholder servicing agents. You may also buy shares through the
Fund's Transfer Agent. This Prospectus describes Flag Investors Class A Shares
("Class A Shares") of the Fund.
TABLE OF CONTENTS
Investment Summary .............................................1
Fees and Expenses of the Fund ..................................2
Investment Program .............................................3
The Fund's Net Asset Value .....................................3
How to Buy Shares ..............................................4
How to Redeem Shares ...........................................5
Telephone Transactions .........................................5
Sales Charges ..................................................6
Dividends and Taxes ............................................7
Investment Advisor .............................................8
Administrator ..................................................8
Financial Highlights ...........................................9
Application ..................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
<PAGE>
INVESTMENT SUMMARY
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Objectives and Strategies
The Fund seeks to achieve a high level of total return, with relative
stability of principal, and, secondarily, high current income consistent with an
investment in U.S. Treasury Securities. The Fund will invest only in U.S.
Treasury Securities and in repurchase agreements fully collateralized by U.S.
Treasury Securities. In selecting investments for the Fund, the Fund's
investment advisor (the "Advisor") may take full advantage of the entire range
of maturities offered by U.S. Treasury Securities. The Advisor will consider
both the security's yield and its potential for capital gains resulting from
changes in interest rates.
Risk Profile
The Fund may be suited for you if you are seeking high total return, but
you also desire the safety of an investment in U.S. Treasury Securities.
The value of an investment in the Fund will vary from day to day based on
the prices of the U.S. Treasury Securities in the Fund's portfolio. The prices
of the U.S. Treasury Securities will respond to economic and market factors,
especially interest rate changes. In general, a change in interest rates will
cause an inverse change in the value of U.S. Treasury Securities.
Interest Rate Risk. The value of the Fund's shares can be expected to
increase during periods of falling interest rates and decrease during periods of
rising interest rates.
Maturity Risk. Longer-term securities are generally more volatile (i.e.,
experience greater price fluctuations), so the average maturity or duration of
these securities affects risk. Therefore, these price fluctuations will
generally be greater at times when the Fund's average maturity is longer.
Style Risk. The success of the Fund's investment approach will depend on
the Advisor's ability to determine which direction interest rates are likely to
move.
Because U.S. Treasury Securities are among the safest fixed income
investments, their yields are generally lower than the yields available from
some other fixed income securities. If you invest in the Fund, you could lose
money. An investment in the Fund is not a bank deposit and is not guaranteed by
the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year by year and as an average over different periods of time. The different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record, and do not
necessarily indicate how the Fund will perform in the future.
<TABLE>
<CAPTION>
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Class A Shares*
For years ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25.00%
21.69%
20.00%
16.62%
15.00%
13.71% 10.62% 10.80%
10.00%
6.15%
5.00% 4.38%
-4.01% 0.20% -5.67%
0%---------------------------------------------------------------------------------------
-5.00%
- -10.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns would be less
than those shown.
During the 10-year period shown in the bar chart, the highest return for a
quarter was 7.78% (quarter ended 6/30/95) and the lowest return for a quarter
was (4.71)% (quarter ended 3/31/96).
1
<PAGE>
Average Annual Total Return (for periods ended December 31, 1999)
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
Intermediate Lehman Brothers Long-Term
Class A Shares(1) Treasury Index(2) Treasury Index(2) Treasury Index(2)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Past One Year ........... (9.92)% 0.40% (2.53)% (8.74)%
Past Five Years ......... 6.13% 6.91% 11.04% 9.14%
Past Ten Years .......... 6.62% 7.23% 7.56% 8.64%
</TABLE>
- -----------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Lehman Brothers Intermediate Treasury Index and the Lehman Brothers
Long-Term Treasury Index reflect the performance of U.S. Treasury Securities
in their respective sectors. The Lehman Brothers Treasury Index is more of a
general index in that it reflects the performance of all public obligations
and does not focus on any one particular segment. These indices are passive
measurements of U.S. Treasury Securities' performance. They do not factor in
the costs of buying, selling and holding securities -- costs that are
reflected in the Fund's results.
FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and
hold Class A Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) ................................ 4.50%(1)
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds,
whichever is lower) ................................................ 0.50%(1)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ......... None
Redemption Fee ...................................................... None
Exchange Fee ........................................................ None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees ..................................................... 0.27%
Distribution and/or Service (12b-1) Fees ............................ 0.25%
Other Expenses ...................................................... 0.29%
-----
Total Annual Fund Operating Expenses ................................ 0.81%
=====
</TABLE>
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(1) You will pay no sales charge on purchases of $1 million or more of Class A
Shares, but unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your Class A Shares. (See "Sales Charges -- Redemption Price.")
2
<PAGE>
Example:
This Example is intended to help you compare the cost of investing in the
Class A Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Class A Shares for the time
periods indicated and then redeem all of your Class A Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Class A Shares .......... $529 $697 $879 $1,407
Federal regulations require that the Example reflect the maximum sales
charge. However, you may qualify for reduced sales charges or no sales charge at
all. (Refer to the section on sales charges.) If you hold your shares for a long
time, the combination of the initial sales charge you paid and the recurring
12b-1 fees may exceed the maximum sales charges permitted by the Conduct Rules
of the National Association of Securities Dealers, Inc.
INVESTMENT PROGRAM
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Investment Objective, Policies and
Risk Considerations
The Fund's investment objective is to seek a high level of total return,
with relative stability of principal, and, secondarily, high current income
consistent with an investment in U.S. Treasury Securities.
The Fund will invest only in U.S. Treasury Securities and in repurchase
agreements fully collateralized by U.S. Treasury Securities. The Advisor buys
and sells securities for the Fund's portfolio with a view toward, first, a high
level of total return with relative stability of principal and, second, high
current income. Therefore, in selecting investments, the Advisor will consider
both yield and a security's potential for capital gains resulting from possible
changes in interest rates.
When choosing the Fund's investments, the Advisor may take full advantage
of the entire range of maturities offered by U.S. Treasury Securities. At
certain times, the average maturity of the U.S. Treasury Securities held by the
Fund may be relatively short (from under one year to five years, for example)
and at other times may be relatively long (over 10 years, for example). The
portfolio's average maturity will depend on the Advisor's assessment of both the
relative yields available on securities of different maturities and the future
changes in interest rates. In determining which direction interest rates are
likely to move, the Advisor relies on the forecast of its chairman, Edward S.
Hyman. Mr. Hyman has been rated a "first team" economist by the periodical
Institutional Investor in each of the last 20 years. He writes a variety of
international and domestic economic research reports that follow trends that may
determine the direction of interest rates. The Fund also may invest in
repurchase agreements. With a repurchase agreement, the Fund agrees to purchase
U.S. Treasury Securities from a bank or broker-dealer subject to an agreement
that the bank or broker-dealer will repurchase the securities at an established
time and price.
An investment in the Fund entails risk. U.S. Treasury Securities are
subject to interest rate risk. The value of U.S. Treasury Securities changes as
interest rates fluctuate. This is especially true for securities with longer
maturities. The value of the Fund's shares can be expected to increase during
periods of falling interest rates and decrease during periods of rising interest
rates. The magnitude of these fluctuations will generally be greater at times
when the Fund's average maturity is longer. There can be no assurance that the
Advisor's economic analysis will accurately predict interest rate trends or that
the portfolio strategies based on Mr. Hyman's economic analysis will be
effective. The Fund may engage in frequent trading of securities to achieve its
investment objective. Higher portfolio turnover may cause the Fund to incur
additional transaction costs.
THE FUND'S NET ASSET VALUE
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The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem Class A
Shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
3
<PAGE>
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. The primary trading markets
for the Fund may close early on the day before a holiday. On such occasions the
Fund also may close early. You may call the Transfer Agent at 1-800-553-8080 to
determine whether the Fund will close early before a particular holiday. The net
asset value per share of a class is calculated by subtracting the liabilities
attributable to a class from its proportionate share of the Fund's assets and
dividing the result by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their market
value. When price quotes for a particular security are not readily available, it
is priced at its "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is deter-mined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Class A Shares.
HOW TO BUY SHARES
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You may buy Class A Shares through your securities dealer or through any
financial institution that is authorized to act as a shareholder servicing
agent. Contact them for details on how to enter and pay for your order. You may
also buy Class A Shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may be
as low as $1,000.
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. Your subsequent investments
may be as low as $100 if you participate in the monthly plan or $250 if
you participate in the quarterly plan. Refer to the section on the
Fund's Automatic Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in Class A Shares through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent or the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Class A Shares. The amount you decide upon will be
withdrawn from your checking account using a pre-authorized check. Upon receipt
by the Transfer Agent, your money will be invested in Class A Shares at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Class A Shares at
net asset value. You may elect to receive your distributions in cash or to have
your distributions invested in Class A shares of other Flag Investors funds. To
make either of these elections or to terminate automatic reinvestment, complete
the appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You also may purchase Class A Shares through a
Systematic Purchase Plan. Contact your securities dealer or servicing agent for
details.
4
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem Class A Shares through your securities dealer or servicing
agent. Contact them for details on how to enter your order and for information
as to how you will be paid. If you have an account with the Fund that is in your
name, you also may redeem Class A Shares by contacting the Transfer Agent by
mail or (if you are redeeming less than $50,000) by telephone. The Transfer
Agent will mail your redemption check within seven days after it receives your
order in proper form. Refer to the section on telephone transactions for more
information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Class A Shares:
1) A letter of instructions specifying your account number and the number of
Class A Shares or dollar amount you wish to redeem. All owners of the
shares must sign the letter exactly as their names appear on the account.
2) A guarantee of your signature if you are redeeming shares worth more than
$50,000. You can obtain a signature guarantee from most banks or securities
dealers.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you by check whether or not that is the payment option
you have selected.
If you redeem sufficient shares to reduce your investment to $500 or less,
the Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange
to have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPH0NE TRANSACTIONS
- --------------------------------------------------------------------------------
If your Class A Shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for Class A shares in
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 7:00 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that it 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 contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your shares in certificate form,
you may not exchange or redeem them by telephone.
5
<PAGE>
SALES CHARGES
- --------------------------------------------------------------------------------
Purchase Price
The price you pay to buy Class A Shares is the offering price, which is
calculated by adding any applicable sales charges to the Class A Shares' net
asset value per share. The amount of any sales charge included in your purchase
price is based on the following schedule:
Sales Charge
as % of
--------------------------------
Net Amount
Amount of Purchase Offering Price Invested
- ---------------------------------------------------------------
Less than $ 50,000......... 4.50% 4.71%
$50,000 - $ 99,999........... 3.50% 3.63%
$100,000 - $249,999.......... 2.50% 2.56%
$250,000 - $499,999.......... 2.00% 2.04%
$500,000 - $999,999.......... 1.50% 1.52%
$1,000,000 and over.......... None None
- ---------------------------------------------------------------
Although you do not pay an initial sales charge when you invest $1,000,000
or more in Class A Shares, you may pay a sales charge when you redeem your Class
A Shares. Refer to the section on redemption price for details. Your securities
dealer may be paid a commission at the time of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the following circumstances:
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. Each time you make a purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the Class A Shares you own will be redeemed to
pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
2) If you are exchanging an investment in Class A shares of another Flag
Investors fund for an investment in Class A Shares (see "Purchases by
Exchange" for a description of the conditions).
3) If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Advisor, the
Fund's administrator or a broker-dealer authorized to sell shares of the
Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. Your securities dealer or servicing
agent may charge you an additional fee if you buy shares in this
manner.
Purchases by Exchange
You may exchange Class A shares of any other Flag Investors fund for an
equal dollar amount of Class A Shares, without payment of the sales charges
described above or any other charge up to four times a year. You may not
<PAGE>
exchange Class A shares of a Flag Investors money market fund unless you
acquired those shares through a prior exchange. 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
6
<PAGE>
your purchase order within 90 days of the redemption. The Fund may modify or
terminate these offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
You will pay a sales charge when you redeem Class A Shares within 24
months of purchase only if your shares were purchased at net asset value because
they were part of an investment of $1 million or more. The amount of any sales
charge deducted from your redemption price will be determined according to the
following schedule:
Sales Charge as a Percentage of the
Dollar Amount Subject to Charge
Years Since Purchase (as % of Cost or Value)
- ----------------------------------------------------------------
First ................ 0.50%
Second ............... 0.50%
Thereafter ........... None
- ----------------------------------------------------------------
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
3) If you acquired your shares through an exchange of Class A shares of
another Flag Investors fund, the period of time you held the original
shares will be combined with the period of time you held the shares being
redeemed to determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
Waiver of Sales Charge. You may redeem Class A Shares within 24 months of
purchase without paying a sales charge under any of the following circumstances:
1) If you are exchanging your Class A Shares for Class A shares of another
Flag Investors fund.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan
are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property, or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
5) If your original investment was at least $3,000,000 and your securities
dealer has agreed to return to the Fund's distributor any payments received
when you bought your shares.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows it to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of Class A Shares and for shareholder service. Class A Shares pay an
annual distribution fee equal to 0.25% of average daily net assets. Because
these fees are paid out of net assets on an on-going basis, they will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of dividends that are declared
daily and paid monthly and to distribute taxable net capital gains on an annual
basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive are subject to federal, state
and local
7
<PAGE>
taxation, depending on your tax situation. The tax treatment of dividends and
distributions is the same whether or not you reinvest them. The Fund will tell
you annually how to treat dividends and distributions. Each sale or exchange of
the Fund's shares is generally a taxable event.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
International Strategy & Investment Inc. ("ISI" or the "Advisor") is the
Fund's investment advisor. ISI is also the investment advisor to Managed
Municipal Fund, Inc., North American Government Bond Fund, Inc. and ISI
Strategy Fund, Inc. These funds, together with the Fund, had approximately $447
million of net assets as of December 31, 1999.
As compensation for its services for the fiscal year ended October 31,
1999, ISI received from the Fund a fee equal to 0.27% of the Fund's average
daily net assets.
Portfolio Managers
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh,
President of ISI and the Fund, have shared direct portfolio management
responsibility for the Fund since its inception. Mr. Hyman and Mr. Medaugh
founded ISI in 1991.
Mr. Hyman is responsible for developing the economic analysis upon which
the Fund's selection of investments is based. (See "Investment Program.") Prior
to starting ISI, Mr. Hyman was a vice chairman and member of the Board of C.J.
Lawrence Inc. and before that, an economic consultant at Data Resources. He
writes a variety of international and domestic economic research reports that
follow trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis, has rated Mr.
Hyman as a "first team" economist, which is its highest rating, in each of the
last 20 years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
starting ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and before that, Senior Vice President and bond portfolio manager at
Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department, which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
ADMINISTRATOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC") provides administration services
to the Fund. ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which the
Fund's shares are distributed and oversight of the relationship between the Fund
and its other service providers. ICC is also the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund.
8
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, is included in the Fund's Annual Report, which
is available upon request.
(For a Class A Share outstanding throughout each year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended October 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ......... $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income ........................ 0.64 0.51 0.55 0.56 0.57
Net realized and unrealized gain/(loss)
on investments ............................. (1.03) 0.71 0.30 (0.23) 1.04
-------- -------- -------- -------- --------
Total from Investment Operations ............. (0.39) 1.22 0.85 0.33 1.61
-------- -------- -------- -------- --------
Less Distributions:
Distributions from net investment
income and short-term gains ................ (0.71) (0.64) (0.55) (0.65) (0.64)
Tax return of capital distribution ........... -- -- (0.08) -- --
Distribution in excess of net investment
income ..................................... -- -- (0.01) (0.04) --
Net realized long-term gains ................. (0.17) -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......................... (0.88) (0.64) (0.64) (0.69) (0.64)
-------- -------- -------- -------- --------
Net asset value at end of year ............... $ 9.35 $ 10.62 $ 10.04 $ 9.83 $ 10.19
======== ======== ======== ======== ========
Total Return(1) ............................... (3.82)% 12.50% 9.00% 3.44% 18.09%
Ratios to Average Daily Net Assets:
Expenses ..................................... 0.81% 0.85% 0.83% 0.81% 0.80%
Net investment income ........................ 4.68% 4.98% 5.62% 5.69% 5.94%
Supplemental Data:
Net assets at end of year (000):
Flag Investors Class A Shares ................ $114,886 $122,785 $122,229 $143,791 $164,206
ISI Class Shares ............................. $151,532 $171,336 $171,074 $193,486 $206,615
Portfolio turnover rate ...................... 77% 179% 92% 199% 194%
</TABLE>
- -----------
(1) Total return excludes the effect of sales charge.
9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
FLAG INVESTORS TOTAL RETURN U.S. TREASURY FUND CLASS A SHARES
NEW ACCOUNT APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Make check payable to "Flag Investors Total Return U.S. For assistance in completing this Application please call:
Treasury Fund Shares" and mail with this Application to: 1-800-553-8080, Monday through Friday, 8:30 a.m. to 7:00 p.m.
Flag Investors Funds (Eastern Time).
P.O. Box 219663
Kansas City, MO 64121-9663 To open an IRA account, please call 1-800-767-3524 for an IRA
Attn: Flag Investors Total Return U.S. Treasury Fund information kit.
Class A Shares
I enclose a check for $______ payable to "Flag Investors Total Return U.S. Treasury Fund Class A Shares" for the purchase of Flag
Investors Total Return U.S. Treasury Fund Class A Shares.
Your Account Registration (Please Print)
Existing Account No., if any___________________________
Individual or Joint Tenant Gift to Minors
_______________________________________________________ _____________________________________________________________________
First Name Initial Last Name Custodian's Name (only one allowed by law)
_______________________________________________________ _____________________________________________________________________
Social Security Number Minor's Name (only one)
_______________________________________________________ _______________________________ ____________________________________
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
under the ____________________Uniform Gifts to Minors Act
(State of Residence)
Corporations, Trusts, Partnerships, etc. Mailing Address
_______________________________________________________ _____________________________________________________________________
Name of Corporation, Trust or Partnership Street
_______________________________________________________ _____________________________________________________________________
Tax ID Number Date of Trust City State Zip
_______________________________________________________ ( )____________________________________________________________
Name of Trustees (If to be included in the Registration) Daytime Phone
_______________________________________________________
For the Benefit of
Letter of Intent (Optional)
/ / I intend to invest at least the amount indicated below in Class A Shares of Total Return U.S. Treasury Fund, Inc. I
understand that if I satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to
the applicable level of reduced sales charges on my purchases.
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your immediate family already own that qualify you for
reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
Distribution Options
Please check 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.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 commer-cial 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 Flag Investors Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
Systematic Withdrawal Plan (Optional)
/ / Beginning the month of______________, 20__ please send me checks on a monthly or quarterly basis, as indicated below, in
the amount of (complete as applicable) $______________, from Class A Shares that I own, payable to the account registration
address as shown above. (Participation requires minimum account value of $10,000.)
Frequency (check one): / / Monthly / / Quarterly (January, April, July, and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges (for amounts up to $50,000) and telephone
exchange privileges (with respect to other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/we do not want: / / Telephone redemption privileges / / Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If you would prefer redemptions mailed to a
predesignated bank account, please provide the following information:
Bank:__________________________________________ Bank Account No.:_________________________________________________
Address:__________________________________________ Bank Account Name:_________________________________________________
__________________________________________
Signature and Taxpayer Certification
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains distributions
and redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to provide the
information and/or certifications required below. This backup withholding is not an additional tax, and any amounts withheld
may be credited against your ultimate U.S. tax liability.
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 acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
______________________________________________ _________________________________________________________________
Signature Date Signature (if joint acct., both must sign) Date
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------
For Dealer Use Only
- ----------------------
Dealer's Name: _________________________________________________ Dealer Code: _____________________________________________
Dealer's Address:_________________________________________________ Branch Code: _____________________________________________
_________________________________________________
Representative: _________________________________________________ Rep. No.: _____________________________________________
</TABLE>
A-2
<PAGE>
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
535 Madison Avenue
30th Floor
New York, New York 10022
Administrator
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
Custodian
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006
Distributor
ICC DISTRIBUTORS, INC.
Two Portland Square
Portland, Maine 04101
Independent Auditors
DELOITTE & TOUCHE LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
<PAGE>
[GRAPHIC OMITTED]
Flag Investors Funds o P.O. Box 515 o Baltimore, MD 21203 o (800) 767-FLAG
www.flaginvestors.com
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion
of market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-202-942-8090 to find out about the operation of the Public Reference
Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-5040 TRPRS (3/00)
<PAGE>
ISI TOTAL RETURN U.S. TREASURY FUND SHARES
(A Class of Total Return U.S. Treasury Fund, Inc.)
535 Madison Avenue
30th Floor
New York, New York 10022
For information call (800) 955-7175
This mutual fund (the "Fund") seeks to achieve a high level of total
return, with relative stability of principal, and, secondarily, high current
income consistent with an investment in securities issued by the United States
Treasury ("U.S. Treasury Securities").
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. (See "How to Buy Shares.") This Prospectus
describes the ISI class (the "Shares") of the Fund.
TABLE OF CONTENTS
Page
----
Investment Summary ................................................... 1
Fees and Expenses of the Fund ........................................ 2
Investment Program ................................................... 3
The Fund's Net Asset Value ........................................... 3
How to Buy Shares .................................................... 4
How to Redeem Shares ................................................. 4
Telephone Transactions ............................................... 5
Sales Charges ........................................................ 5
Dividends and Taxes .................................................. 6
Investment Advisor ................................................... 7
Administrator ........................................................ 7
Financial Highlights ................................................. 8
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
The date of this Prospectus is March 1, 2000
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks to achieve a high level of total return, with relative
stability of principal, and, secondarily, high current income consistent with an
investment in U.S. Treasury Securities. The Fund will invest only in U.S.
Treasury Securities and in repurchase agreements fully collateralized by U.S.
Treasury Securities. In selecting investments for the Fund, the Fund's
investment advisor (the "Advisor") may take full advantage of the entire range
of maturities offered by U.S. Treasury Securities. The Advisor will consider
both the security's yield and its potential for capital gains resulting from
changes in interest rates.
Risk Profile
The Fund may be suited for you if you are seeking high total return, but
you also desire the safety of an investment in U.S. Treasury Securities.
The value of an investment in the Fund will vary from day to day based on
the prices of the U.S. Treasury Securities in the Fund's portfolio. The prices
of the U.S. Treasury Securities will respond to economic and market factors,
especially interest rate changes. In general, a change in interest rates will
cause an inverse change in the value of U.S. Treasury Securities.
Interest Rate Risk. The value of the Fund's shares can be expected to
increase during periods of falling interest rates and decrease during periods of
rising interest rates.
Maturity Risk. Longer-term securities are generally more volatile (i.e.,
experience greater price fluctuations), so the average maturity or duration of
these securities affects risk. Therefore, these price fluctuations will
generally be greater at times when the Fund's average maturity is longer.
Style Risk. The success of the Fund's investment approach will depend on
the Advisor's ability to determine which direction interest rates are likely to
move.
Because U.S. Treasury Securities are among the safest fixed income
investments, their yields are gener-ally lower than the yields available from
some other fixed income securities.
If you invest in the Fund, you could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
Fund Performance
The following bar chart and table show the performance of the Shares both
year by year and as an average over different periods of time. The different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record, and do not
necessarily indicate how the Fund will perform in the future.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ISI Shares*
For years ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25.00%
21.69%
20.00%
16.62%
15.00%
13.71% 10.62% 10.80%
10.00%
6.15%
5.00%
4.38% 0.20%
0%-----------------------------------------------------------------------------------------
-4.01% -5.67%
-5.00%
- -10.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown.
During the 10-year period shown in the bar chart, the highest return for a
quarter was 7.78% (quarter ended 6/30/95) and the lowest return for a quarter
was (4.71)% (quarter ended 3/31/96).
1
<PAGE>
Average Annual Total Return (for periods ended December 31, 1999)
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
Intermediate Lehman Brothers Long-Term
ISI Shares(1) Treasury Index(2) Treasury Index(2) Treasury Index(2)
------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Past One Year ........... (9.87)% 0.40% (2.53)% (8.74)%
Past Five Years ......... 6.14% 6.91% 11.04% 9.14%
Past Ten Years .......... 6.63% 7.23% 7.56% 8.64%
</TABLE>
- ------------------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Lehman Brothers Intermediate Treasury Index and the Lehman Brothers
Long-Term Treasury Index reflect the performance of U.S. Treasury
Securities in their respective sectors. The Lehman Brothers Treasury Index
is more of a general index in that it reflects the performance of all
public obligations and does not focus on any one particular segment. These
indices are passive measurements of U.S. Treasury Securities' performance.
They do not factor in the costs of buying, selling and holding securities
-- costs that are reflected in the Fund's results.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses: (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.45%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ......................... None
Maximum Deferred Sales Charge (Load) ................................................ None
Redemption Fee ...................................................................... None
Exchange Fee ........................................................................ None
Annual Fund Operating Expenses: (expenses that are deducted from Fund assets)
Management Fees ..................................................................... 0.27%
Distribution and/or Service (12b-1) Fees ............................................ 0.25%
Other Expenses ...................................................................... 0.29%
----
Total Annual Fund Operating Expenses ................................................ 0.81%
====
</TABLE>
Example:
This Example is intended to help you compare the cost of investing in
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Shares for the time periods
indicated and then redeem all of your Shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
- -------- --------- --------- ---------
$524 $692 $875 $1,402
Federal regulations require that the Example reflect the maximum sales
charge. However, you may qualify for reduced sales charges or no sales charge at
all. (Refer to the section on sales charges.) If you hold Shares for a long
time, the combination of the initial sales charge you paid and the recurring
12b-1 fees may exceed the maximum sales charges permitted by the Conduct Rules
of the National Association of Securities Dealers, Inc.
2
<PAGE>
INVESTMENT PROGRAM
Investment Objective, Policies and
Risk Considerations
The Fund's investment objective is to seek a high level of total return,
with relative stability of principal, and, secondarily, high current income
consistent with an investment in U.S. Treasury Securities.
The Fund will invest only in U.S. Treasury Securities and in repurchase
agreements fully collateralized by U.S. Treasury Securities. The Advisor buys
and sells securities for the Fund's portfolio with a view toward, first, a high
level of total return with relative stability of principal and, second, high
current income. Therefore, in selecting investments, the Advisor will consider
both yield and a security's potential for capital gains resulting from possible
changes in interest rates.
When choosing the Fund's investments, the Advisor may take full advantage
of the entire range of maturities offered by U.S. Treasury Securities. At
certain times, the average maturity of the U.S. Treasury Securities held by the
Fund may be relatively short (from under one year to five years, for example)
and at other times may be relatively long (over 10 years, for example). The
portfolio's average maturity will depend on the Advisor's assessment of both the
relative yields available on securities of different maturities and the future
changes in interest rates. In determining which direction interest rates are
likely to move, the Advisor relies on the forecast of its chairman, Edward S.
Hyman. Mr. Hyman has been rated a "first team" economist by the periodical
Institutional Investor in each of the last 20 years. He writes a variety of
international and domestic economic research reports that follow trends that may
determine the direction of interest rates. The Fund also may invest in
repurchase agreements. With a repurchase agreement, the Fund agrees to purchase
U.S. Treasury Securities from a bank or broker-dealer subject to an agreement
that the bank or broker-dealer will repurchase the securities at an established
time and price.
An investment in the Fund entails risk. U.S. Treasury Securities are
subject to interest rate risk. The value of U.S. Treasury Securities changes as
interest rates fluctuate. This is especially true for securities with longer
maturities. The value of the Fund's shares can be expected to increase during
periods of falling interest rates and decrease during periods of rising interest
rates. The magnitude of these fluctuations will generally be greater at times
when the Fund's average maturity is longer. There can be no assurance that the
Advisor's economic analysis will accurately predict interest rate trends or that
the portfolio strategies based on Mr. Hyman's economic analysis will be
effective. The Fund may engage in frequent trading of securities to achieve its
investment objective. Higher portfolio turnover may cause the Fund to incur
additional transaction costs.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Shares, the price
you pay may be increased by a sales charge. Read the section on sales charges
for details on how and when this charge may or may not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. The primary trading markets
for the Fund may close early on the day before a holiday. On such occasions the
Fund also may close early. You may call the Transfer Agent at 1-800-882-8585 to
determine whether the Fund will close early before a particular holiday. The net
asset value per share of a class is calculated by subtracting the liabilities
attributable to a class from its proportionate share of the Fund's assets and
dividing the result by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their market
value. When price quotes for a particular security are not readily available, it
is priced at its "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem Shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Shares.
3
<PAGE>
HOW TO BUY SHARES
You may buy Shares through your securities dealer or through any financial
institution that is authorized to act as a shareholder servicing agent. Contact
them for details on how to enter and pay for your order. You may also buy Shares
by sending your check (along with a completed Application Form) directly to the
Fund. The Application Form, which includes instructions, is attached to this
Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $5,000. Subsequent investments
must be at least $250. The following are exceptions to these minimums:
o If you are investing in an IRA account or a qualified retirement plan,
your initial investment may be as low as $1,000.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. Your subsequent investments may
be as low as $100 if you participate in the monthly plan or $250 if you
participate in the quarterly plan. Refer to the section on the Fund's
Automatic Investing Plan for details.
Investing Regularly
You may make regular investments in the Fund through either of the
following methods. If you wish to enroll in either of these programs or if you
need any additional information, complete the appropriate section of the
attached Application Form or contact your securities dealer, your servicing
agent or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. Upon receipt by the
Transfer Agent, your money will be invested in Shares at that day's offering
price. Either you or the Fund may discontinue your participation upon 30 days'
notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other funds in the ISI family of funds. To
make either of these elections or to terminate automatic reinvestment, complete
the appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
HOW TO REDEEM SHARES
You may redeem all or part of your investment through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If you have an account with the
Fund that is in your name, you also may redeem Shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Shares:
1) A letter of instructions specifying your account number and the number of
Shares or dollar amount you wish to redeem. All owners of the Shares must
sign the letter exactly as their names appear on the account.
2) A guarantee of your signature if you are redeeming Shares worth more than
$50,000. You can obtain a signature guarantee from most banks or
securities dealers.
3) Any stock certificates representing the Shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on Shares you redeem will be paid on the next
dividend payable date. If you have
4
<PAGE>
redeemed all of your Shares by that time, the dividend will be paid to you by
check whether or not that is the payment option you have selected.
If you redeem sufficient Shares to reduce your investment to $500 or less,
the Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem Shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange
to have some of your Shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your Shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $50,000 or exchange them for shares in another ISI fund
by calling the Transfer Agent on any Business Day between the hours of 8:30 a.m.
and 5:30 p.m. (Eastern Time). You are automatically entitled to telephone
transaction privileges unless you specifically request that no telephone
redemptions or exchanges be accepted for your account. You may make this
election when you complete the Application Form or at any time thereafter by
completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that it 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 contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your Shares in certificate form,
you may not exchange or redeem them by telephone.
SALES CHARGES
Purchase Price
The price you pay to buy Shares is the offering price, which is calculated
by adding any applicable sales charges to the net asset value per share. The
amount of any sales charge included in your purchase price is based on the
following schedule:
Sales Charge as % of
----------------------
Net
Offering Amount
Amount of Purchase Price Invested
- -------------------------------- ---------- ---------
Less than $ 50,000......... 4.45% 4.66%
$ 50,000 - $ 99,999......... 3.50% 3.63%
$ 100,000 - $ 249,999......... 2.50% 2.56%
$ 250,000 - $ 499,999......... 2.00% 2.04%
$ 500,000 - $ 999,999......... 1.50% 1.52%
$1,000,000 - $1,999,999......... 0.75% 0.76%
$2,000,000 - $2,999,999......... 0.50% 0.50%
$3,000,000 and over............. None None
The sales charge you pay on your current purchase of Shares may be reduced
under the following circumstances:
Rights of Accumulation. If you are purchasing additional Shares of this
Fund or shares of any other mutual fund in the ISI family of funds, you may
combine the value of your purchases with the value of your existing investments
to determine whether you qualify for a reduced sales charge. (For this purpose
your existing investments will be valued at the higher of cost or current
value.) You may also combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose. You must be able
to provide sufficient information to verify that you qualify for this right of
accumulation.
Letter of Intent. If you anticipate making additional purchases of Shares
over the next 13 months, you may combine the value of your current purchase with
the value of your anticipated purchases to determine whether you qualify for a
reduced sales charge. You will be required to sign a letter of intent specifying
the total value of your anticipated purchases and to initially purchase at least
5% of the total. Each time you make a purchase during the period, you will pay
the sales charge applicable to their combined value. If, at the end of the
13-month period, the total value of your purchases is less than the amount you
indicated, you will be required to
5
<PAGE>
pay the difference between the sales charges you paid and the sales charges
applicable to the amount you actually did purchase. Some of the Shares you own
will be redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Shares without paying a sales
charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of
Shares made within the last six months, provided that the amount you are
reinvesting is at least $5,000.
2) If you are exchanging an investment in another ISI fund for an investment
in this Fund (see "Purchases by Exchange" for a description of the
conditions).
3) If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's administrator, the Advisor or a
broker-dealer authorized to sell Shares.
4) If you purchase Shares in a fiduciary or advisory account with a bank, bank
trust department, registered investment advisory company, financial planner
or securities dealer purchasing Shares on your behalf. To qualify for this
provision you must be paying an account management fee for the fiduciary or
advisory services. Your securities dealer or servicing agent may charge you
an additional fee if you buy Shares in this manner.
5) If you pay for your purchase with the proceeds from a redemption of shares
of any other mutual fund on which you have paid a sales charge, or from a
sale of shares of any closed-end fund. In order to qualify for this
provision, you must purchase your Shares by February 28, 2001 and provide
documentation of your redemption or sale.
Purchases by Exchange
You may exchange shares of any other fund in the ISI family of funds with
the same sales charge structure for an equal dollar amount of Shares without
payment of the sales charges described above or any other charge. In addition,
you may exchange shares of any fund in the ISI family of funds with a lower
sales charge structure, or that were purchased through a special offer, for an
equal dollar amount of Shares if you have owned the shares you are redeeming for
at least 24 months. If you have owned them for less than 24 months, you will be
charged the difference in sales charges. You may enter both your redemption and
purchase orders on the same Business Day or, if you have already redeemed the
shares of the other fund, you may enter your purchase order within six months of
the redemption, provided the amount of the purchase order is at least $5,000.
The Fund may modify or terminate these offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your Shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The price you receive when you redeem Shares will be the net asset value
per share.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows it to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of Shares and for shareholder service. Shares pay an annual
distribution fee equal to 0.25% of average daily net assets. Because these fees
are paid out of net assets on an on-going basis, they will, over time, increase
the cost of your investment and may cost you more than paying other types of
sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of dividends that are declared
daily and paid monthly and to distribute taxable net capital gains on an annual
basis.
Taxes
The following summary is based on current tax laws, which may change.
6
<PAGE>
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive are subject to federal, state
and local taxation, depending on your tax situation. The tax treatment of
dividends and distributions is the same whether or not you reinvest them. The
Fund will tell you annually how to treat dividends and distributions. Each sale
or exchange of the Fund's shares is generally a taxable event.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR
International Strategy & Investment Inc. ("ISI" or the "Advisor") is the
Fund's investment advisor. ISI is also the investment advisor to ISI Strategy
Fund, Inc., Managed Municipal Fund, Inc. and North American Government Bond
Fund, Inc. These funds, together with the Fund, had approximately $447 million
in net assets as of December 31, 1999.
As compensation for its services for the fiscal year ended October 31,
1999, ISI received from the Fund a fee equal to 0.27% of the Fund's average
daily net assets.
Portfolio Managers
Edward S. Hyman, Chairman of ISI and the Fund, and R. Alan Medaugh,
President of ISI and the Fund, have shared direct portfolio management
responsibility for the Fund since its inception. Mr. Hyman and Mr. Medaugh
founded ISI in 1991.
Mr. Hyman is responsible for developing the economic analysis upon which
the Fund's selection of investments is based. (See "Investment Program.") Prior
to starting ISI, Mr. Hyman was a vice chairman and member of the Board of C.J.
Lawrence Inc. and before that, an economic consultant at Data Resources. He
writes a variety of international and domestic economic research reports that
follow trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis, has rated Mr.
Hyman as a "first team" economist, which is its highest rating, in each of the
last 20 years.
Mr. Medaugh is responsible for day-to-day portfolio management. Prior to
starting ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and before that, Senior Vice President and bond portfolio manager at
Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department, which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam Management
Company and Fidelity Management and Research.
ADMINISTRATOR
Investment Company Capital Corp. ("ICC") provides administration services
to the Fund. ICC supervises the day-to-day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in which the
Shares are distributed and oversight of the relationship between the Fund and
its other service providers. ICC is also the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, is included in the Fund's Annual Report, which
is available upon request.
(For a Share outstanding throughout each year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ......... $ 10.62 $ 10.04 $ 9.83 $ 10.19 $ 9.22
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ........................ 0.64 0.51 0.55 0.56 0.57
Net realized and unrealized gain/(loss) on
investments ................................ (1.03) 0.71 0.30 (0.23) 1.04
------- ------- ------- ------- -------
Total from Investment Operations ............. (0.39) 1.22 0.85 0.33 1.61
------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment income
and short-term gains ....................... (0.71) (0.64) (0.55) (0.65) (0.64)
Tax return of capital distribution ........... -- -- (0.08) -- --
Distributions in excess of net investment
income ..................................... -- -- (0.01) (0.04) --
Net realized long-term gains ................. (0.17) -- -- -- --
------- ------- ------- ------- -------
Total distributions .......................... (0.88) (0.64) (0.64) (0.69) (0.64)
------- ------- -------- -------- --------
Net asset value at end of year ............... $ 9.35 $ 10.62 $ 10.04 $ 9.83 $ 10.19
======= ======= ======== ======== ========
Total Return(1)................................ (3.82)% 12.50% 9.00% 3.44% 18.09%
Ratios to Average Daily Net Assets:
Expenses ..................................... 0.81% 0.85% 0.83% 0.81% 0.80%
Net investment income ........................ 4.68% 4.98% 5.62% 5.69% 5.94%
Supplemental Data:
Net assets at end of year (000):
ISI Class Shares ........................... $151,532 $171,336 $171,074 $193,486 $206,615
Flag Investors Class A Shares .............. $114,886 $122,785 $122,229 $143,791 $164,206
Portfolio turnover rate .................... 77% 179% 92% 199% 194%
</TABLE>
- -----------
(1) Total return excludes the effect of sales charge.
8
<PAGE>
<TABLE>
<CAPTION>
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 219426
Kansas City, MO 64121-9426
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.
<S> <C>
Your Account Registration (Please Print)
-------------------------------------
Existing Account No., if any
- -------------------------------------------------------------- -----------------------------------------------------------------
Individual or Joint Tenant Gifts to Minors
- -------------------------------------------------------------- -----------------------------------------------------------------
- -------------------------------------------------------------- -----------------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- -------------------------------------------------------------- -----------------------------------------------------------------
Social Security Number Minor's Name (only one)
- -------------------------------------------------------------- -----------------------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
- -------------------------------------------------------------- -----------------------------------------------------------------
Social Security Number Minor's Date of Birth (Mo./Day/Yr.)
under the __________________ Uniform Gifts to Minors Act
State of Residence
- -------------------------------------------------------------- -----------------------------------------------------------------
Corporations, Trusts, Partnerships, etc. Mailing Address
- -------------------------------------------------------------- -----------------------------------------------------------------
- -------------------------------------------------------------- -----------------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- -------------------------------------------------------------- -----------------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- -------------------------------------------------------------- -----------------------------------------------------------------
Name of Trustees (If to be included in the Registration) Daytime Phone
- --------------------------------------------------------------
Existing Account No., if any
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Intention (Optional)
<S> <C>
[_] I intend to invest at least the amount indicated below in ISI Shares of Total Return U.S. Treasury Fund, Inc. I understand that
if I satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to the applicable level of
reduced sales charges on my purchases.
___ $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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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.
<S> <C> <C>
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 Fund Depositor's Signature Date
Account No., if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[_] Beginning the month of ____________ , 20____ , 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:
----------------------------------------------- ----------------------------------------------
-----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature and Taxpayer Certification
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains
distributions and redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to
provide the information and/or certifications required below. This backup withholding is not an additional tax, and any
amounts withheld may be credited against your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that the information on this Application is
complete and correct and that as required by federal law: (Please check applicable boxes)
[_] U.S. Citizen/Taxpayer:
[_] I certify that (1) the number shown above on this form is the correct Social Security Number or Tax ID Number
and (2) I am not subject to any backup withholding either because (a) I am exempt from backup withholding, or (b)
I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
[_] If no Tax ID Number or Social Security Number has been provided above, I have applied, or intend to apply, to
the IRS or the Social Security Administration for a Tax ID Number or a Social Security Number, and I understand that
if I do not provide either number to the Transfer Agent within 60 days of the date of this Application or if I fail
to furnish my correct Social Security Number or Tax ID Number, I may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-882-8585.)
[_] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: _________________________________________________________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as
defined by the Internal Revenue Service.
- ------------------------------------------------------------------------------------------------------------------------------------
I acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required
to avoid backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- ------------------------------------------------------------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: Dealer Code:
---------------------------------------------- ------------------------------------------------------
Dealer's Address: Branch Code:
------------------------------------------- ------------------------------------------------------
-------------------------------------------
Representative: Rep. No.:
------------------------------------------- ------------------------------------------------------
</TABLE>
<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.
535 Madison Avenue
30th Floor
New York, New York 10022
1-800-955-7175
Administrator Distributor
INVESTMENT COMPANY CAPITAL CORP. ISI GROUP
One South Street 535 Madison Avenue
Baltimore, Maryland 21202 30th Floor
New York, New York 10022
1-800-955-7175
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street Princeton Forrestal Village
Baltimore, Maryland 21202 116-300 Village Boulevard
1-800-882-8585 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
You may obtain the following additional information about the Fund, free
of charge, from your securities dealer or servicing agent or by calling (800)
955-7175:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion
of market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI)
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. (Call 1-202-942-8090 to find out about the operation of the Public
Reference Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
For other shareholder inquiries, contact the Transfer Agent at (800)
882-8585. For Fund information, call (800) 955-7175 or your securities dealer or
servicing agent.
Investment Company Act File No. 811-5040
<PAGE>
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
TOTAL RETURN
U.S. TREASURY
FUND SHARES
(A Class of Total Return
U.S. Treasury Fund, Inc.)
A mutual fund with the investment objective of a high level of total
return, with relative stability of principal, and, secondarily, high current
income consistent with an investment in securities issued by the United States
Treasury.
March 1, 2000
[GRAPHIC OMITTED]
<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, WHICH MAY BE OBTAINED FROM YOUR SECURITIES
DEALER OR SHAREHOLDER SERVICING AGENT OR BY CALLING THE
FUND AT (800) 767-FLAG (FOR THE FLAG INVESTORS SHARES) OR
(800) 955-7175 (FOR THE ISI SHARES).
The Fund's financial statements for the fiscal year ended
October 31, 1999, and the report of independent auditors
are included in the Fund's annual report and incorporated
by reference into this Statement of Additional
Information.
Statement of Additional Information Dated: March 1, 2000
Relating to the Prospectuses of
ISI Total Return U.S. Treasury Fund Shares
and
Flag Investors Total Return U.S. Treasury Fund Class A Shares
1
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION AND HISTORY................................................3
INVESTMENT OBJECTIVES AND POLICIES.............................................4
VALUATION OF SHARES AND REDEMPTION.............................................6
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS...........................6
MANAGEMENT OF THE FUND.........................................................9
INVESTMENT ADVISORY AND OTHER SERVICES........................................15
ADMINISTRATION................................................................16
DISTRIBUTION OF FUND SHARES...................................................17
BROKERAGE ............................................................22
CAPITAL SHARES................................................................24
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES.............................24
INDEPENDENT AUDITORS..........................................................25
LEGAL MATTERS.................................................................25
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................25
PERFORMANCE AND YIELD COMPUTATIONS............................................26
FINANCIAL STATEMENTS..........................................................28
2
<PAGE>
GENERAL INFORMATION AND HISTORY
Total Return U.S. Treasury Fund, Inc. (the "Fund") is an open-end
management investment company. Under the rules and regulations of the Securities
and Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with information concerning the activities of the company
being considered for investment. The Fund currently offers two classes of
shares:
o Flag Investors Total Return U.S. Treasury Fund Class A Shares, (the "Flag
Investors Class A Shares") and
o 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 Class A Shares and one for the ISI Shares. Each prospectus
contains important information concerning the class of shares offered thereby
and the Fund, and may be obtained without charge from the Fund's distributors
(the "Distributors") at (800) 767-FLAG (for a prospectus for the Flag Investors
Class A Shares) or (800) 955-7175 (for a prospectus for the ISI Shares), or from
Participating Dealers that offer shares of the Fund (the "Shares") to
prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. As used herein the term "Prospectus" describes information
common to the prospectuses of the two classes of the Fund's Shares currently
being offered, unless the term "Prospectus" is modified by the appropriate class
designation. As used herein, the "Fund" refers to Total Return U.S. Treasury
Fund, Inc. and specific references to any class of the Fund's Shares will be
made using the name of such class. Some of the information required to be in
this Statement of Additional Information is also included in the Fund's current
Prospectuses. To avoid unnecessary repetition, references are made to related
sections of the Prospectuses. In addition, the Prospectuses and this Statement
of Additional Information omit certain information about the Fund and its
business that is contained in the Registration Statement respecting the Fund and
its Shares filed with the SEC. Copies of the Registration Statement as filed,
including such omitted items, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
June 3, 1988. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act") and its Shares under
the Securities Act of 1933, as amended (the "1933 Act"), and began operations on
August 10, 1988.
The Fund no longer offers the following classes 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),
which were offered from November 9, 1992 through February 27, 1994, and Flag
Investors Total Return U.S. Treasury Fund Class B Shares, which were offered
from June 20, 1996 through April 29, 1999.
Under a license agreement dated August 10, 1988 between the Fund and
Alex. Brown & Sons Incorporated (predecessor to DB Alex. Brown LLC (formerly BT
Alex. Brown Incorporated)), Alex. Brown & Sons Incorporated licenses to the Fund
the "Flag Investors" name and logo, but retains rights to that name and logo,
including the right to permit other investment companies to use them.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek to achieve a high level of
total return with relative stability of principal and, secondarily, high current
income consistent with an investment in securities issued by the United States
Treasury ("U.S. Treasury Securities"). The Fund'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.
3
<PAGE>
Except as specifically identified under "Investment Restrictions," the
investment policies described in these documents are not fundamental, and the
Directors may change such policies without an affirmative vote of a majority of
the Fund's outstanding Shares (as defined under "Capital Shares"). The Fund's
investment objective is fundamental, however, and may not be changed without
such a vote.
STRIPS
The Fund may purchase STRIPS, which are U.S. Treasury Securities that
do not pay interest currently but which are purchased at a discount and are
payable in full at maturity. As with other debt securities, the value of STRIPS
varies inversely with changes in interest rates. These price fluctuations may be
greater with STRIPS than with other types of debt securities.
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. Such repurchase agreements will be fully collateralized. The collateral
for these repurchase agreements will be held by the Fund's custodian or by a
duly appointed sub-custodian. The Fund will enter into repurchase agreements
only with banks and broker-dealers which are judged creditworthy by the Fund's
investment advisor (the "Advisor"). The list of approved banks and
broker-dealers will be monitored regularly by the Advisor. The seller under a
repurchase agreement may be required to maintain the value of the securities
subject to the repurchase agreement at not less than the repurchase price.
Default by the seller would, however, expose the Fund to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying obligations. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund may be delayed or limited
in its ability to sell the collateral.
When-Issued Securities
The Fund may make purchases of U.S. Treasury Securities on a
when-issued basis. When such transactions are negotiated, the yield to maturity
is fixed. The coupon interest rate on such U.S. Treasury Securities is fixed at
the time of the U.S. Treasury auction date therefore determining the price to be
paid by the Fund, but delivery and payment will take place after the date of the
commitment. A segregated account of the Fund, consisting of cash, cash
equivalents or U.S. Treasury Securities equal at all times to the amount of the
when-issued commitments will be established and maintained by the Fund at the
Fund's custodian. Additional cash or U.S. Treasury Securities will be added to
the account when necessary. While the Fund will purchase securities on a
when-issued basis only with the intention of acquiring the securities, the Fund
may sell the securities before the settlement date if it is deemed advisable to
limit the effects of adverse market action. The securities so purchased or sold
are subject to market fluctuation and no interest accrues to the purchaser
during this period. At the time the Fund makes the commitment to purchase or
sell securities on a when-issued basis, it will record the transaction and
thereafter reflect the value of such security purchased or, if a sale, the
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities, their value may be more or less than the purchase or
sale price. The Fund will ordinarily invest no more than 40% of its net assets
at any time in securities purchased on a when-issued basis.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. The percentage limitations contained in
these restrictions apply at the time of purchase of securities. Accordingly, the
Fund will not:
4
<PAGE>
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 1940
Act;
15. Purchase or retain the securities of any issuer, if to the knowledge of the
Fund, any officer or Director of the Fund or its Advisor owns beneficially
more than 0.5% of the outstanding securities of such issuer and together
they own beneficially more than 5% of the securities of such issuer;
16. Invest in companies for the purpose of exercising management or control;
17. Invest in puts or calls or any combination thereof;
18. Purchase warrants, if by reason of such purchase more than 5% of its net
assets (taken at market value) will be invested in warrants, valued at the
lower of cost or market. Included within this amount, but not to exceed 2%
of the value of the Fund's net assets, may be warrants which are not listed
on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities will
be deemed to be without value and therefore not included within the preceding
limitations.
The following investment restriction may be changed by a vote of the
majority of the Fund's Board of Directors. The Fund will not:
1. Invest more than 10% of the value of its net assets in illiquid securities
including repurchase agreements with remaining maturities in excess of seven
days.
5
<PAGE>
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 (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays (or the days on which they are observed): New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business. 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
investors.
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 the remaining shareholders of the Fund to
make payment of the redemption price in whole or in part by a distribution in
kind of readily marketable securities from the portfolio of the Fund in lieu of
cash, in conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation" and such
valuation will be made as of the same time the redemption price is determined.
The Fund, however, has elected to be governed by Rule 18f-1 under the
1940 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.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning. For example, under certain specified circumstances, state
income tax laws may exempt from taxation distributions of a regulated investment
company to the extent that such distributions are derived from interest on
federal obligations. Investors are urged to consult with their tax advisor
regarding whether such exemption is available.
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
6
<PAGE>
Qualification as Regulated Investment Company
The Fund intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a) derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, United States Government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect to any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets or 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities (other than United States Government securities or
securities of other RICs) of any one issuer or two or more issuers that the Fund
controls and which are engaged in the same, similar, or related trades or
business. For purposes of the 90% of gross income requirement described above,
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options or futures with respect
to stock or securities) may be excluded from income that qualifies under the 90%
requirement.
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net long-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
The Fund may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Fund must distribute to satisfy the
Distribution Requirement. In some cases, the Fund may have to borrow money or
dispose of other investments in order to make sufficient cash distributions to
satisfy the Distribution Requirement.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
Fund Distributions
The Fund anticipates that it will distribute substantially all of its
net investment 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 to the extent of the Fund's earnings
and profits.
The Fund may either retain or distribute to shareholders the excess, if
any, of net long-term capital gains over net short-term capital losses ("net
capital gains") for each taxable year. If such gains are distributed as a
capital gains distribution, they are taxable to shareholders that are
individuals at a maximum rate of 20% regardless of the length of time the
shareholder has held Shares, whether or not such gains were recognized by the
Fund prior to the date on which a shareholder acquired Shares and whether or not
the distribution was paid in cash or reinvested in Shares. The aggregate amount
of distributions designated by the Fund as capital gains distributions may not
exceed the net capital gains of the Fund for any taxable year, determined by
excluding any net capital losses and net long-term capital losses attributable
to transactions occurring after October 31 of such year and by treating any such
net capital losses or net long-term capital losses as if they arose on the first
day of the following taxable year. If any such gains are retained, the Fund will
pay federal income tax thereon, and, if the Fund makes an election, the
7
<PAGE>
shareholders will include such undistributed gains in their income, will
increase their basis in Fund shares by the difference between the amount of such
includable gains and the tax deemed paid by such shareholder and will be able to
claim their share of the tax paid by the Fund as a refundable credit.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
the Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend, if it has been received from a
domestic corporation. Accordingly, it is not expected that any Fund
distributions will qualify for corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in December of one year, but paid in January of the following year, will be
deemed for tax purposes to have been received and paid by the Fund in the year
in which dividends were declared.
Investors should be careful to consider the tax implications of buying
Shares of the Fund just prior to the ex-dividend date of an ordinary income
dividend or capital gains distribution. The price of Shares purchased at that
time may reflect the amount of the forthcoming ordinary income dividend or
capital gains distribution. Those purchasing just prior to an ordinary income
dividend or capital gains distribution will be taxed on the entire amount of the
dividend or distribution received even though the dividend or capital gains
distribution was earned by the Fund before the shareholder purchased the Shares.
Generally, any gain or loss on the sale of Shares will be a capital
gain or loss, which will be a long-term capital gain or loss if the Shares have
been held for more than twelve months, and otherwise will be a 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 the Fund fails to qualify as a regulated investment company for any
taxable year, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable to shareholders as ordinary dividends to the
extent of the Fund's current and accumulated earnings and profits. Such
distributions will be eligible for the dividends-received deduction in the case
of corporate shareholders.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year.
In certain cases, the Fund will be required to withhold and remit to
the United States Treasury 31% of distributions paid to any shareholder who (1)
has failed to provide a correct tax identification number, (2) is subject to
backup withholding by the Internal Revenue Service for failure to report the
receipt of interest or dividend income properly, or (3) has failed to certify to
the Fund that such shareholder is not subject to backup withholding.
Excise Tax; Miscellaneous Considerations
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
8
<PAGE>
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisors as to the consequences of federal, state and local tax rules
affecting an investment in the Fund.
MANAGEMENT OF THE FUND
Directors and Officers
The Fund's Board of Directors manages its overall business and affairs.
The Board approves all significant agreements between the Fund and persons or
companies furnishing services to the Fund, including the Fund's agreements with
its investment advisor, distributors, administrator, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
executive officers, the Advisor, the Distributors and the Fund's administrator.
A majority of the Directors of the Fund have no affiliation with the Advisor,
the Distributors or the Fund's administrator.
The Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during the last five years are
set forth below. Unless otherwise indicated, the address of each executive
officer is 535 Madison Avenue, 30th Floor, New York, New York 10022.
*EDWARD S. HYMAN, Chairman and Director (4/8/45)
Chairman, International Strategy & Investment Inc. (registered
investment advisor), and Chairman and President, International Strategy
& Investment Group Inc. (registered investment advisor and registered
broker-dealer) 1991-Present.
R. ALAN MEDAUGH, President (8/20/43)
President, International Strategy & Investment Inc. (registered
investment advisor) 1991-Present.
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, Wit Capital Group (registered
broker-dealer), The Nevis Fund and Flag Investors Family of Funds
(registered investment companies). Formerly, Director, Circon Corp.
(medical instruments), 1998-1999; President and Chief Executive
Officer, The National Association of Securities Dealers, Inc. and The
NASDAQ Stock Market, Inc., 1987-1997; Chief Operating Officer of Alex.
Brown & Sons Incorporated (now DB Alex. Brown LLC), 1985-1987; and
General Partner, Alex. Brown & Sons Incorporated (now DB Alex. Brown
LLC), 1976-1985.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products), Household
International (banking and finance) and Flag Investors Family of Funds
(registered investment companies). Formerly, Chairman of the Quality
Control Inquiry Committee and American Institute of Certified Public
Accountants, 1992-1998; 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.
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);
President (interim), Williams College; President, Flag Investors Family
of Funds (registered investment companies); 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); Member, Aviation System Capacity Advisory
Committee (Federal Aviation Administration) and Director, Flag
Investors Family of Funds (registered investment companies).
8
<PAGE>
NANCY LAZAR, Vice President (8/1/57)
Executive Vice President and Secretary, International Strategy &
Investment Inc. (registered investment advisor) 1991-Present.
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy & Investment Inc.
(registered investment advisor) 1991-Present.
MARGARET M. BEELER, Assistant Vice President (3/1/67)
Assistant Vice President, International Strategy & Investment Inc.,
1996-Present. Formerly, Marketing Representative, U.S. Healthcare,
Inc., 1995-1996; Sales Manager, Donna Maione, Inc., 1994-1995 and
Deborah Wiley California, 1989-1994.
KEITH C. REILLY, Assistant Vice President (6/2/66)
Assistant Vice President, International Strategy & Investment Inc.,
1996-Present. Formerly, Select Private Banking Officer, Assistant
Manager, Chemical Bank, 1995-1996 and Financial Consultant, Dreyfus
Corporation, 1989-1995.
SUZANNE H. UGHETTA, Assistant Vice President (6/25/59)
Fund Administrator, International Strategy & Investment Inc.,
1999-Present. Formerly, Registered representative, Merrill Lynch &
Company, 1981-1988.
CHARLES A. RIZZO, Treasurer (8/5/57)
One South Street, Baltimore, Maryland 21202. Vice President, Deutsche
Asset Management since 1999; and Vice President, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1998-1999. Formerly, Senior
Manager, PricewaterhouseCoopers LLP, 1993-1998.
FELICIA A. EMRY, Secretary (12/19/69)
One South Street, Baltimore, Maryland 21202. Assistant Vice President,
Deutsche Asset Management, since 1999. Formerly, Associate, Hogan &
Hartson L.L.P., 1997-1999 and Associate, Winston & Strawn, 1994-1997.
AMY M. OLMERT, Assistant Secretary (5/14/63)
One South Street, Baltimore, Maryland 21202. Vice President, Deutsche
Asset Management since 1999; and Vice President, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1997-1999. Formerly, Senior
Manager, PricewaterhouseCoopers LLP, 1992-1997.
DANIEL O. HIRSCH, Assistant Secretary (3/27/54)
One South Street, Baltimore, Maryland 21202. Director, Deutsche Asset
Management since 1999. Principal, BT Alex. Brown Incorporated (now DB
Alex. Brown LLC), 1998-1999. Formerly, Assistant General Counsel,
United States Securities and Exchange Commission, 1993-1998.
* A Director who is an "interested person" as defined in the 1940 Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies advised by ISI or its affiliates.
There are currently four funds in the ISI fund complex (the "Fund Complex").
Each of the Directors and officers of the Fund serves in the same capacity for
each of the other funds in the Fund Complex. Prior to September 28, 1999, the
Fund Complex included eight funds in the Flag Investors Funds/Deutsche Banc
Alex. Brown Cash Reserve Fund, Inc. fund complex.
10
<PAGE>
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with the Fund's administrator or its affiliates in the
ordinary course of business. All such transactions were made on substantially
the same terms as those prevailing at the time for comparable transactions with
unrelated persons. Additional transactions may be expected to take place in the
future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of the Advisor, the Distributors or the Fund's administrator may be considered
to have received remuneration indirectly. As compensation for his or her
services as director, each Director who is not an "interested person" of the
Fund (as defined in the 1940 Act) (an "Independent Director") receives an
aggregate annual fee (plus reimbursement for reasonable out-of-pocket expenses
incurred in connection with his or her attendance at Board and committee
meetings) from all funds in the Fund Complex for which he or she serves. 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, 1999, Independent Directors' fees attributable to the assets of the
Fund totaled $10,486.
The following table shows aggregate compensation and retirement
benefits payable to each of the Fund's Directors by the Fund, the Fund Complex
and the Flag Investors Funds Family of Funds, and pension or retirement benefits
accrued as part of Fund expenses in the fiscal year ended October 31, 1999. The
Fund and the Fund Complex no longer provide a retirement plan or a deferred
compensation plan for the Directors.
11
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Pension or Retirement Total Compensation From the
From the Fund Payable to Benefits Accrued As Fund, Fund Complex and Flag
Directors for the Fiscal Year Part of Fund Expenses Investors Funds Family of Funds
Ended October 31, 1999 Payable to Directors for the Fiscal Year Ended
October 31, 19991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edward S. Hyman, Chairman 2 $0 $0 $0
R. Alan Medaugh, President $0 $0 $0
Richard T. Hale, Vice Chairman 3 $0 $0 $0
James J. Cunnane, Director 3 $1,1754 5 $39,000 for service on 12
Boards in the Fund Complex
Joseph R. Hardiman, Director $1,207 $0 $39,000 for service on 12
Boards in the Fund Complex
Louis E. Levy, Director $1,476 5 $49,000 for service on 12
Boards in the Fund Complex
Eugene J. McDonald, Director 3 $1,4764 5 $49,000 for service on 12
Boards in the Fund Complex
Rebecca W. Rimel, Director 3 $1,1854 5 $39,000 for service on 11 6
Boards in the Fund Complex
Carl W. Vogt, Esq., Director $1,1884 5 $39,000 for service on 12
Boards in the Fund Complex
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 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.
- ----------
(1) Prior to September 28, 1999, the Fund Complex included eight funds in the
Flag Investors Funds Family of Funds.
(2) A Director who is an "interested person" as defined in the 1940 Act.
(3) Resigned effective September 28, 1999.
(4) Of the amounts payable to Messrs. Cunnane, McDonald and Vogt and Ms. Rimel,
$1,175, $1,476, $1,188 , and $1,185, respectively, was deferred pursuant to
a deferred compensation plan.
(5) The Flag Investors Funds Family of Funds has adopted a retirement plan for
eligible Directors. The actuarially computed pension expense allocated to
the Fund for the fiscal year ended October 31, 1999, was approximately
$35,727. The Fund and the Fund Complex no longer provide a retirement plan
or a deferred compensation plan for the Directors.
(6) Ms. Rimel received proportionately higher compensation from each fund for
which she served as Director.
12
<PAGE>
The Code of Ethics requires that any officer, director, or employee of
the Fund, International Strategy & Investment Group, Inc. or the Advisor,
preclear any personal securities investments (with certain exceptions, such as
non-volitional purchases or purchases that are part of an automatic dividend
reinvestment plan). The foregoing would apply to any officer, director or
employee of ICC Distributors, Inc. that is an access person. The preclearance
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. The substantive
restrictions applicable to investment personnel include a ban on acquiring any
securities in an initial public offering, a prohibition from profiting on
short-term trading in securities and special preclearance of the acquisition of
securities in private placements. Furthermore, the Code of Ethics provides for
trading "blackout periods" that prohibit trading by investment personnel and
certain other employees within periods of trading by the Fund in the same
security. Officers, directors and employees of the Advisor and the Distributors
may comply with codes instituted by those entities so long as they contain
similar requirements and restrictions.
INVESTMENT ADVISORY AND OTHER SERVICES
International Strategy & Investment Inc. ("ISI" or the "Advisor")
serves as the Fund's investment advisor pursuant to an investment advisory
agreement dated as of April 1, 1991 (the "Advisory Agreement"). ISI is a
registered investment advisor that was formed in January, 1991. ISI employs
Messrs. Edward S. Hyman, the Fund's Chairman, and R. Alan Medaugh, the Fund's
President. ISI is also the investment advisor to Managed Municipal Fund, Inc.,
North American Government Bond Fund, Inc. and ISI Strategy Fund, Inc., open-end
management investment companies which, together with the Fund, had net assets of
approximately $447 million as of December 31, 1999.
Under the Advisory Agreement, ISI: (a) formulates and implements
continuing programs for the purchases and sales of securities, (b) determines
what securities (and in what proportion) shall be represented in the Fund's
portfolio, (c) provides the Fund's Board of Directors with regular financial
reports and analyses with respect to the Fund's portfolio investments and
operations, and the operations of comparable investment companies, (d) obtains
and evaluates economic, statistical and financial information pertinent to the
Fund, (e) takes, on behalf of the Fund, all actions which appear to the Advisor
necessary to carry into effect its purchase and sale programs. Any investment
program undertaken by the Advisor will at all times be subject to the policies
and control of the Fund's Board of Directors. The Advisor will not be liable to
the Fund or its shareholders for any act or omission by the Advisor or any
losses sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
13
<PAGE>
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)
---------------------------------------------
Less than $100,000,000 0.20%
$100,000,001 - $200,000,000 0.18%
$200,000,001 - $300,000,000 0.16%
$300,000,001 - $500,000,000 0.14%
$500,000,001 and over 0.12%
In addition, the Fund pays the Advisor 1.5% of the Fund's gross income.
The 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 Advisory Agreement was most recently approved by the Fund's Board
of Directors in the foregoing manner on September 28, 1999. The Fund or the
Advisor may terminate the Advisory Agreement on 60 days' written notice without
penalty. The 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:
Years Ended October 31,
1999 1998 1997
---- ---- ----
$753,740 $784,379 $ 848,963
ADMINISTRATION
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore,
Maryland 21202, provides administration services to the Fund. Such services
include: monitoring the Fund's regulatory compliance, supervising all aspects of
the Fund's service providers, arranging, but not paying for, the printing and
mailing of prospectuses, proxy materials and shareholder reports, preparing and
filing all documents required by the securities laws of any state in which the
Shares are sold, establishing the Fund's budgets, monitoring the Fund's
distribution plans, preparing the Fund's financial information and shareholder
reports, calculating dividend and distribution payments and arranging for the
preparation of state and federal tax returns.
14
<PAGE>
Prior to June 1, 1999, the Fund compensated ICC by paying it a
percentage of the Fund's average daily net assets which varied as follows:
Average Daily Net Assets Incremental Administration Fee
------------------------- (as a percentage of Average Daily Net Assets)
---------------------------------------------
Less than $100,000,000 0.10%
$100,000,000 - $200,000,000 0.09%
$200,000,001 - $300,000,000 0.08%
$300,000,001 - $500,000,000 0.07%
$500,000,001 and over 0.06%
Pursuant to the terms of the Administration Agreement, ICC receives an
annual fee, paid monthly, of a percentage of the average daily net assets of the
Fund Complex which varies as follows:
Average Daily Net Assets Incremental Administration Fee
- ------------------------ (as a percentage of Average Daily Net Assets)
---------------------------------------------
$0 - $75,000,000 0.20%
$75,000,001 - $150,000,000 0.15%
$150,000,001 - $225,000,000 0.10%
$225,000,001 - $500,000,000 0.05%
$500,000,001 and over 0.03%
ICC's fee is allocated among the funds in the Fund Complex according to
their relative net assets.
In addition, the Fund paid ICC 0.50% of the Fund's annual gross income.
The services of ICC to the Fund are not exclusive and ICC is free to
render similar services to others. Administration fees paid by the Fund to ICC
for the last three fiscal years were as follows:
Years Ended October 31,
1999 1998 1997
---- ---- ----
$311,100 $349,575 $ 374,611
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 Deutsche Bank AG.
DISTRIBUTION OF FUND SHARES
International Strategy & Investment Group Inc. ("ISI Group") serves as
distributor for the ISI Shares pursuant to a Distribution Agreement effective
April 1, 1997 ("ISI Distribution Agreement"). ICC Distributors Inc. ("ICC
Distributors") serves as distributor for the Flag Investors Class A Shares
15
<PAGE>
pursuant to an agreement effective August 31, 1997 ("Flag Distribution
Agreement"). The Distribution Agreements provide that ICC Distributors (in the
case of the Flag Investors Class A Shares) or ISI Group (in the case of the ISI
Shares) has the exclusive right to distribute the related class of Shares either
directly or through other broker-dealers.
The ISI Distribution Agreement provides that ISI Group on behalf of the
ISI Shares, (i) will solicit and receive orders for the purchase of ISI Shares
(ii) accept or reject such orders on behalf of the Fund in accordance with the
Fund's currently effective prospectus and transmit such orders as are accepted
to the Fund's transfer agent as promptly as possible (iii) receive requests for
redemption and transmit such redemption requests to the Fund's transfer agent as
promptly as possible (iv) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; (v) provide the Fund's
Board of Directors for their review with quarterly reports required by Rule
12b-1; (vi) maintain such accounts, books and records as may be required by law
or be deemed appropriate by the Fund's Board of Directors; and (vii) take all
actions deemed necessary to carry into effect the distribution of the Shares.
Pursuant to the ISI Distribution Agreement, ISI has not undertaken to
sell any specific number of ISI Shares. The ISI Distribution Agreement further
provides that, in connection with the distribution of Shares, ISI Group will be
responsible for all promotional expenses. The services by ISI Group to the Fund
are not exclusive, and ISI Group shall not be liable to the Fund or its
shareholders for any act or omission by ISI Group or any losses sustained by the
Fund or its shareholders except in the case of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty.
The Flag Distribution Agreement provides that ICC Distributors shall;
(i) use reasonable efforts to sell Flag Investors Class A 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 Class A
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 Class A 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 Shares") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Flag Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect from year to year with respect to the Flag Investors class 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 the 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
16
<PAGE>
majority of the Independent Directors by votes cast in person at a meeting
specifically called for such purpose. Each Distribution Agreement, including the
form of Sub-Distribution Agreement, was most recently approved by the Board of
Directors, including a majority of the Independent Directors, on September 28,
1999.
ICC Distributors and ISI Group have entered into Sub-Distribution
Agreements with certain broker-dealers ("Participating Dealers") under which
such broker-dealers have agreed to process investor purchase and redemption
orders and respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Any Sub-Distribution Agreement may be
terminated in the same manner as the Distribution Agreements at any time and
shall automatically terminate in the event of an assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, including DB Alex. Brown and certain banks,
to act as Shareholder Servicing Agents, pursuant to which ICC Distributors and
ISI Group will allocate a portion of their respective distribution fees as
compensation for such financial institutions' ongoing shareholder services. The
Fund may also enter into Shareholder Servicing Agreements pursuant to which the
Distributors or the Fund's administrator or their respective affiliates will
provide compensation out of their own resources. Such financial institutions may
impose separate fees in connection with these services and investors should
review the applicable Prospectus and this Statement of Additional Information in
conjunction with any such institution's fee schedule. State securities laws may
require banks and financial institutions to register as dealers.
As compensation for providing distribution and related administrative
services under the Distribution Agreements as described above, the Fund will pay
ICC Distributors for the Flag Investors Class A Shares and ISI Group for the ISI
Shares, on a monthly basis, an annual fee, equal to 0.25% of the average daily
net assets of the respective class of Shares. The Distributors expect to
allocate up to all of their fees to Participating Dealers and Shareholder
Servicing Agents.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributors received fees
in the following amounts:
<TABLE>
<CAPTION>
For the Fiscal Year Ended October 31
------------------------------------
Fee 1999 1998 1997
--- ---- ---- ----
<S> <C> <C> <C>
Flag Investors Class A Shares 12b-1 Fee $305,548(1) $310,766(1) $322,511(2)
Flag Investors Shareholder Servicing
Fee (Class B Shares) Fee $16,157(1,3) $5,079(1) $843(2)
ISI Shares 12b-1 Fee $403,641(4) $423,709(4) $455,938(5)
</TABLE>
- ----------
(1) Fees received by ICC Distributors.
(2) Of this amount, DB Alex. Brown LLC, the distributor prior to August 31,
1997, received $271,010 (for the A Shares) and $541 (for the B Shares) and
ICC Distributors, the distributor effective August 31, 1997, received
$51,501 (for the A Shares) and $302 (for the B Shares).
(3) The B Shares were converted to A Shares on May 14, 1999.
(4) Fees received by ISI Group.
(5) Of this amount, Armata, the distributor prior to April 1, 1997, received
$192,508 and ISI Group, the distributor effective April 1, 1997, received
$253,430.
17
<PAGE>
Pursuant to Rule 12b-1 under the 1940 Act, which provides that
investment companies may pay distribution expenses, directly or indirectly, only
pursuant to a plan adopted by the investment company's board of directors and
approved by its shareholders, the Fund has adopted a Plan of Distribution for
each of its classes of Shares (the "Plans"). Under the Plans, the Fund pays a
fee to ICC Distributors or ISI Group for distribution and other shareholder
servicing assistance as set forth in the related Distribution Agreement, and ICC
Distributors and ISI Group are authorized to make payments out of their fees to
Participating Dealers and Shareholder Servicing Agents. The Plans will remain in
effect from year to year thereafter as specifically approved (a) at least
annually by the Fund's Board of Directors and (b) by the affirmative vote of a
majority of the Independent Directors, by votes cast in person at a meeting
called for such purpose. The Plans were most recently approved by the Fund's
Board of Directors, including a majority of the Independent Directors on
September 27, 1999.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreements without the approval of the shareholders of the
respective classes of the Fund. The Plans may be terminated at any time without
penalty, by a vote of a majority of the Fund's Independent Directors or by a
vote of a majority of the outstanding Shares.
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plans to ICC Distributors or ISI Group pursuant to
the Distribution Agreements, to broker-dealers pursuant to any Sub-Distribution
Agreement and to Shareholder Servicing Agents pursuant to Shareholder Servicing
Agreements. Such reports shall be made by the persons authorized to make such
payments. In addition, during the continuance of the Plans, the selection and
nomination of the Fund's Independent Directors shall be committed to the
discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
or ISI Group, as appropriate, with respect to shares held by or on behalf of
customers of such entities. Payments under the Plans are made as described above
regardless of the distributor's actual cost of providing distribution services
and may be used to pay such distributor's overhead expenses. If the cost of
providing distribution services to the Fund in connection with the sale of the
Flag Investors Class A Shares or the ISI Shares is less than 0.25% of such
Shares' average daily net assets for any period, 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.
18
<PAGE>
For the last three fiscal years, the Flag Investors Class A Shares'
distributor and the ISI 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,
-----------------------------
1999 1998 1997
---- ---- ----
Class Received Retained Received Retained Received Retained
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors Class A
Shares Commissions $ 83,577(1) $0 $ 73,776(1) $0 $ 40,869(2) $ 30,820(3)
ISI Shares Commissions $ 123,761(4) $0 $ 207,28415 $0 $ 177,642(5)
</TABLE>
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.
- -----------------
(1) By ICC Distributors.
(2) Of this amount, DB Alex. Brown LLC, the distributor prior to August 31,
1997, received $35,148 and ICC Distributors, the distributor effective
August 31, 1997, received $5,721.
(3) Of commissions received, DB Alex. Brown LLC retained $30,820 and ICC
Distributors retained $0, respectively.
(4) By ISI Group.
(5) Of this amount, Armata, the distributor prior to April 1, 1997, received
$97,081 and ISI Group, the distributor effective April 1, 1997 received
$80,561.
19
<PAGE>
BROKERAGE
The Advisor is responsible for decisions to buy and sell securities for
the Fund, selection of broker-dealers and negotiation of commission rates.
Since purchases and sales of portfolio securities by the Fund are
usually principal transactions, the Fund incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
broker-dealers serving as market makers usually includes a mark-up over the bid
to the broker-dealer based on the spread between the bid and asked price for the
security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter.
The Advisor's primary consideration in effecting security transactions
is to obtain, on an overall basis, the best net price and the most favorable
execution of orders. To the extent that the execution and prices offered by more
than one broker-dealer are comparable, the Advisor may, in its discretion,
effect transactions with broker-dealers that furnish statistical, research or
other information or services which the Advisor deems to be beneficial to the
Fund's investment program. Certain research services furnished by broker-dealers
may be useful to the Advisor with clients other than the Fund.
Similarly, any research services received by the Advisor through
placement of portfolio transactions of other clients may be of value to the
Advisor in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to the
Advisor by a broker-dealer. The Advisor is of the opinion that because the
material must be analyzed and reviewed by its staff, its receipt does not tend
to reduce expenses, but may be beneficial in supplementing the Advisor's
research and analysis. Therefore, it may tend to benefit the Fund by improving
the quality of the Advisor's investment advice. In over-the-counter
transactions, the Advisor will not pay any commission or other remuneration for
research services. The Advisor's policy is to pay a broker-dealer higher
commissions for particular transactions than might be charged if a different
broker-dealer had been chosen when, in the Advisor's opinion, this policy
furthers the overall objective of obtaining best price and execution. Subject to
periodic review by the Fund's Board of Directors, the Advisor is also authorized
to pay broker-dealers higher commissions on brokerage transactions for the Fund
in order to secure research and investment services described above. The
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board. The foregoing policy under
which the Fund may pay higher commissions to certain broker-dealers in the case
of agency transactions, does not apply to transactions effected on a principal
basis.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through ISI Group. At the
time of such authorization, the Board adopted certain policies and procedures
incorporating the standards of Rule 17e-1 under the 1940 Act which requires that
the commissions paid ISI Group must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." Rule 17e-1 also contains requirements for
the review of such transactions by the Board of Directors and requires the
Advisor to furnish reports and to maintain records in connection with such
reviews. The ISI Shares Distribution Agreement does not provide for any
reduction in the distribution fee to be received by ISI Group from the Fund as a
result of profits from brokerage commissions on transactions of the Fund
effected through ISI Group.
The Advisor manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. The Advisor may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. Such simultaneous transactions, however,
could adversely affect the ability of the Fund to obtain or dispose of the full
amount of a security which it seeks to purchase or sell.
20
<PAGE>
For the fiscal years ended October 31, 1999, October 31, 1998 and
October 31, 1997, 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 1940 Act) which the Fund has
acquired during its most recent fiscal year. As of October 31, 1999, the Fund
held the following repurchase agreements issued by "regular brokers or dealers"
of the Fund.
Broker or Dealer Value %
Goldman Sachs & Co. $21,380,000 5.10%
J.P. Morgan Securities Inc. $21,380,000 5.10%
Morgan Stanley & Co. $21,380,000 5.16%
CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund may issue up to
115 million Shares of its capital stock with a par value of $.001 per Share.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated five classes of Shares: Flag Investors Total Return U.S. Treasury
Fund Class A Shares, Flag Investors Total Return U.S. Treasury Fund Class B
Shares, Flag Investors Total Return U.S. Treasury Fund Class C Shares, Flag
Investors Total Return U.S. Treasury Fund Class D Shares and ISI Total Return
U.S. Treasury Fund Shares. The Flag Investors Total Return U.S. Treasury Fund
Class B and Class D Shares are no longer being offered. The Flag Investors Total
Return U.S. Treasury Fund Class C Shares have not yet been 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 or class will have an undivided interest in the net assets of that
series. For tax purposes, the series will be treated as separate entities.
Generally, each class of Shares issued by a particular series will be identical
to every other class and expenses of the Fund (other than 12b-1 fees and any
applicable service fees) are prorated between all classes of a series based upon
the relative net assets of each class. Any matters affecting any class
exclusively will be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
The Fund's By-Laws provide that any director of the Fund may be removed
by the shareholders by a vote of a majority of the votes entitled to be cast for
the election of Directors. A meeting to consider the removal of any Director or
Directors of the Fund will be called by the Secretary of the Fund upon the
written request of the holders of at least one-tenth of the outstanding Shares
of the Fund entitled to vote at such meeting.
There are no preemptive, conversion or exchange rights applicable to
any of the Shares. The Fund's issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets allocated
to a separate series of Shares if there is more than one series) after all debts
and expenses have been paid.
21
<PAGE>
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.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company, 130 Liberty Street, New York, New York 10006
("Bankers Trust") has been retained to act as custodian of the Fund's
investments. Bankers Trust receives such compensation from the Fund for its
services as Custodian as may be agreed to from time to time by Bankers Trust and
the Fund. For the fiscal year ended October 31, 1999, the Fund paid Bankers
Trust $56,382 as compensation for providing custody services. Investment Company
Capital Corp., One South Street, Baltimore, Maryland 21202 (telephone:
(800)882-8585) has been retained to act as the Fund's transfer and dividend
disbursing agent. As compensation for these services, ICC receives up to $20.17
per account per year plus reimbursement for out-of-pocket expenses incurred in
connection therewith. For the fiscal year ended October 31, 1999, such fees
totaled $159,452.
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 Daily Net Assets Incremental Fee
- ------------------------ ---------------
0 - $10,000,000 $13,000 (fixed fee)
$10,000,000 - $20,000,000 0.100%
$20,000,000 - $30,000,000 0.080%
$30,000,000 - $40,000,000 0.060%
$40,000,000 - $50,000,000 0.050%
$50,000,000 - $60,000,000 0.040%
$60,000,000 - $70,000,000 0.030%
$70,000,000 - $100,000,000 0.020%
$100,000,000 - $500,000,000 0.015%
$500,000,000 - $1,000,000,000 0.005%
over $1,000,000,000 0.001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services: express delivery service, independent pricing and storage. As
compensation for providing accounting services for the fiscal year ended October
31, 1999, ICC received fees of $82,957.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village
Boulevard, Princeton, New Jersey 08540, are independent auditors to the Fund.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
22
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, as of January 28, 2000, no shareholder
owned beneficially or of record 5% or more of the outstanding Shares of a class
of the Fund.
In addition, to Fund management's knowledge, as of January 28, 2000,
Directors and officers as a group owned less than 1% of total outstanding Shares
of a class of the Fund.
PERFORMANCE AND YIELD COMPUTATIONS
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated both in terms of total return and in
terms of yield. However, the Fund may also from time to time state the
performance of the Fund solely in terms of total return.
Total Return Calculation
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1-, 5- or 10-year periods.
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) began operations. In calculating the ending redeemable value for the
Flag Investors Class A Shares and the ISI Shares, the maximum sales load (4.50%
and 4.45%, respectively) is deducted from the initial $1,000 payment and all
dividends and distributions by the Fund are assumed to have been reinvested at
net asset value as described in the prospectus on the reinvestment dates during
the period.
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, 1999 were as follows:
23
<PAGE>
<TABLE>
<CAPTION>
One-Year Period Five-Year Period Ten-Year Period
--------------- ---------------- ---------------
Ended October 31, 1999 Ended October 31, 1999 Ended October 31, 1999
---------------------- ---------------------- ----------------------
Ending Average Annual Ending Average Annual Ending Average Annual
------- --------------- ------- --------------- ------- --------------
Class Redeemable Value Total Return Redeemable Value Total Return Redeemable Value Total Return
- ----- ---------------- ------------ ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Flag Investors
Class A Shares-
8/10/88* $919 (8.15)% $1,376 6.59% $1,940 6.85%
ISI Shares -
10/31/88* $919 (8.10)% $1,377 6.60% $1,940 6.85%
</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, 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, 1999 was 5.20%
for the Flag Investors Class A Shares and 5.20% for the ISI Shares, computed in
the manner discussed below.
The yield of the Fund is calculated by dividing the net investment
income per Share earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share on the last day of the period and analyzing the
result on a semiannual basis by adding one to the quotient, raising the sum to
the power of six, subtracting one from the result and then doubling the
difference. The Fund's yield calculations assume a maximum sales charge of 4.50%
for the Flag Investors Class A Shares and 4.45% for the ISI 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.
24
<PAGE>
Undeclared earned income will be subtracted from the net asset value
per share. Undeclared earned income is net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate may vary from year to year,
as well as within a year, depending on market conditions. The Fund's portfolio
turnover rates in the fiscal years ended October 31, 1999, 1998 and 1997 were
77%, 179% and 92%, respectively. The Fund's portfolio turnover rate for the
fiscal year ended October 31, 1998 increased as a result of changes in
investment strategy.
FINANCIAL STATEMENTS
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 financial statements for the Fund for the period ended October 31,
1999, are incorporated herein by reference to the Fund's Annual Report dated
October 31, 1999. A copy of the Fund's Annual Report must accompany this
Statement of Additional Information. The Fund's independent auditors audit the
annual financial statements.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation incorporated by reference to Exhibit (1)(a)
to Post-Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(2) Articles Supplementary to Registrant's Articles of Incorporation
dated December 18, 1991 incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(3) Articles Supplementary to Registrant's Articles of Incorporation
dated December 15, 1993 incorporated by reference to Exhibit (1)(c) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(4) Articles Supplementary to Registrant's Articles of Incorporation
dated December 31, 1994 incorporated by reference to Exhibit (1)(d) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(5) Articles Supplementary to Registrant's Articles of Incorporation
dated October 23, 1998, incorporated by reference to Post-Effective Amendment
No. 17 to Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-002534) on December 30, 1998.
(b) (1) By-Laws, as amended through July 28, 1999, filed herewith.
(c) (1) Form of Specimen Certificate of Common Stock, $.001 par value with
respect to the Flag Investors Total Return U.S. Treasury Fund Class A Shares
incorporated by reference to Exhibit (1)(Articles of Incorporation) as amended
to date, to Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-12179), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February
26, 1996, and Exhibit 2 (By-Laws) as amended to date, to Post-Effective
Amendment No. 15 to such Registration Statement, filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-97-000364) on February 26,
1997.
(2) Form of Specimen Certificate of Common Stock, $.001 par value with
respect to the ISI Total Return U.S. Treasury Fund Shares incorporated by
reference to Exhibit (1)(Articles of Incorporation) as amended to date, to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996, and
Exhibit 2 (By-Laws) as amended to date, to Post-Effective Amendment No. 15 to
such Registration Statement, filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-97-000364) on February 26, 1997.
(c) Form of Specimen Certificate of Common Stock, $.001 par value with respect
to the Flag Investors Total Return U.S. Treasury Fund Class B Shares
incorporated by reference to Exhibit (1)(Articles of Incorporation) as amended
to date, to Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-12179), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 950116-96-000097) on February
26, 1996, and Exhibit 2 (By-Laws) as amended to date, to Post-Effective
Amendment No. 15 to such Registration Statement, filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-97-000364) on February 26,
1997.
<PAGE>
(d) Investment Advisory Agreement dated April 1, 1991 between Registrant and
International Strategy & Investment Inc. incorporated by reference to Exhibit
(5) to Post-Effective Amendment No. 13 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(e) (1) Distribution Agreement dated as of August 31, 1997 between Registrant
and ICC Distributors, Inc. with respect to the Flag Investors Shares
incorporated by reference to Exhibit (6)(a) to Post-Effective Amendment No. 16
to Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(2) Form of Participating Dealer Agreement between ICC Distributors, Inc.
and Participating Dealers with respect to the Flag Investors Shares incorporated
by reference to Exhibit (6)(b) to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(3) Form of Shareholder Servicing Agreement for the Flag Investors Shares
incorporated by reference to Exhibit (6)(c) to Post-Effective Amendment No. 16
to Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000481) on February 26, 1998.
(4) Distribution Agreement dated as of April 1, 1997 between Registrant
and International Strategy & Investment Group Inc, with respect to the ISI Total
Return U.S. Treasury Fund Shares incorporated by reference to Exhibit (6)(d) to
Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000481) on February 26, 1998.
(5) Form of Agency Distribution Agreement between International Strategy
& Investment Group Inc. and Participating Dealers with respect to the ISI Total
Return U.S. Treasury Fund Shares incorporated by reference to Exhibit (6)(e) to
Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000481) on February 26, 1998.
(6) Form of Shareholder Servicing Agreement for the ISI Total Return U.S.
Treasury Fund Shares incorporated by reference to Exhibit (6)(f) to
Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000481) on February 26, 1998.
(f) None.
(g) Custodian Agreement dated June 5, 1998, between Registrant and Bankers Trust
Company, incorporated by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-002534) on December 30, 1998.
(h) Master Services Agreement dated as of January 1, 1994, between Registrant
and Investment Company Capital Corp., with Appendices for the provision of
Administration, Accounting and Transfer Agency Services incorporated by
reference to Exhibit (9)(a) to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96-000097) on
February 26, 1996.
(i) Opinion of Counsel, filed herewith.
<PAGE>
(j) Consent of Deloitte & Touche LLP, filed herewith.
(k) None.
(l) Subscription Agreements between Registrant and Investors incorporated by
reference to Exhibit (13) to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-12179), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96-000097) on
February 26, 1996.
(m) (1) Distribution Plan for the Flag Investors Total Return U.S. Treasury
Fund Class A Shares incorporated by reference to Exhibit (15)(a) to
Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000097) on February 26, 1996.
(2) Distribution Plan for the ISI Total Return U.S. Treasury Fund Shares
incorporated by reference to Exhibit (15)(b) to Post-Effective Amendment No. 13
to Registrant's Registration Statement on Form N-1A (Registration No. 33-12179),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-96-000097) on February 26, 1996.
(3) Distribution Plan for the Flag Investors Total Return U.S. Treasury
Fund Class B Shares incorporated by reference to Exhibit (15)(c) to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form
N-1A (File No. 33-12179), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000163) on March 26, 1996.
(4) Amended Distribution Plan for the Flag Investors Total Return U.S.
Treasury Fund Class A Shares incorporated by reference to Exhibit (15)(d) to
Post-Effective Amendment No. 16 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-12179), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000481) on February 26, 1998.
(5) Amended Distribution Plan for the ISI Total Return U.S. Treasury Fund
Shares incorporated by reference to Exhibit (15)(e) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000481) on February 26, 1998.
(6) Amended Distribution Plan for the Flag Investors Total Return Class B
Shares incorporated by reference to Exhibit (15)(f) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on Form N-1A (Registration No.
33-12179), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000481) on February 26, 1998.
(n) Financial Data Schedule, not applicable.
(o) (1) Rule 18f-3 Plan incorporated by reference to Exhibit (18)(a) to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form
N-1A (File No. 33-12179), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000163) on March 26, 1996.
(2) Amended Rule 18f-3 Plan, incorporated by reference to Post-Effective
Amendment No. 17 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-12179), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-002534) on December 30, 1998. (p) Code of
Ethics, not applicable.
(q) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
<PAGE>
Item 25. Indemnification.
Under the terms of the Fund's Articles of Incorporation, the Registrant
may indemnify each of its Directors and officers (including persons who serve at
the Registrant's request as directors, officers or trustees of another
organization in which the corporation has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any such indemnified
person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or legislative body except with respect to any matter as to which such person
shall have been finally adjudicated in any such action, suit or other proceeding
where (a) the act or omission of the director was material to the cause of
action adjudicated; the act or omission was committed in bad faith or was the
result of active and deliberate dishonesty; the director actually received an
improper personal benefit in money, property, or services or in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or omission was unlawful, or (b) to be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
office. Termination of any proceeding by conviction or a plea of nolo contendere
or its equivalent, or an entry of an order of probation prior to judgment
creates a rebuttable presumption that the director did not meet the standard of
conduct. No such presumption results from the termination of any proceeding by
judgment, order or settlement. Expenses, including counsel fees so incurred by
any such person (but excluding amounts paid in satisfaction of judgment, in
compromise or as fines or penalties), shall be paid from time to time by the
Registrant in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay amounts so paid to the Fund if it is ultimately determined that
indemnification of such expenses is not authorized under the Articles of
Incorporation, provided, however, that such person shall have affirmed that he
in good faith believes that he has met the standard of conduct necessary for
indemnification and shall have provided a written undertaking to repay the
amount if it is ultimately determined that the standard of conduct has not been
met and either a majority of the Directors acting on the matter who are not
parties to such action (provided that at least two of such Directors then in
office act on the matter), or independent legal counsel in a written opinion,
shall have determined, based upon a review of readily available facts that there
is reason to believe that such person will be found entitled to indemnification
under the Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. In the absence of a determination by a court
of competent jurisdiction, the determinations that indemnification against such
liabilities is proper, and advances can be made, are made by a majority of a
quorum of the disinterested, non-party directors of the Fund, or an independent
legal counsel in a written opinion, based on review of readily available facts.
<PAGE>
Item 26. Business and Other Connections of Investment Advisor.
During the past two fiscal years: Edward S. Hyman, Jr., Chairman of the
Investment Advisor, served as Chairman, Chief Executive Officer and a Director
of International Strategy & Investment Group Inc., the distributor for the
Fund's ISI Total Return U.S. Treasury Fund Shares; R. Alan Medaugh, President of
the Investment Advisor, served as a Director of International Strategy &
Investment Group Inc.; Nancy Lazar, Executive Vice President and Secretary of
the Investment Advisor, served as Executive Vice President and a Director of
International Strategy & Investment Group, Inc.; and Joel Fein, Chief Financial
Officer of the Investment Advisor served as Chief Financial Officer of
International Strategy & Investment Group Inc.
Item 27. Principal Underwriters.
ICC DISTRIBUTORS, INC.
(a) ICC Distributors, Inc., the distributor for shares of the Flag
Investors Total Return U.S. Treasury Fund Shares of Total Return U.S.
Treasury Fund, Inc., acts as principal underwriter for the following
open-end investment companies: BT Advisor Funds, BT Institutional
Funds, BT Pyramid Mutual Funds, Cash Management Portfolio, Intermediate
Tax Free Portfolio, NY Tax Free Money Portfolio, Treasury Money
Portfolio, International Equity Portfolio, Equity 500 Index Portfolio,
Capital Appreciation Portfolio, Asset Management Portfolio, BT
Investment Portfolios, Deutsche Banc Alex. Brown Cash Reserve Fund,
Inc., Flag Investors Communications Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., the Flag Investors Managed Municipal Fund Shares of
Managed Municipal Fund, Inc., Flag Investors Short-Intermediate Income
Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors
Real Estate Securities Fund, Inc., Flag Investors Equity Partners Fund,
Inc., Flag Investors International Fund, Inc., Flag Investors Funds,
Inc. (formerly known as Deutsche Funds, Inc.), Flag Investors
Portfolios Trust (formerly known as Deutsche Portfolios), Morgan
Grenfell Funds, Glenmede Fund, Inc. and Glenmede Portfolios.
(b) Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
John Y. Keffer President None
Ronald H. Hirsch Treasurer None
Nanette K. Chern Chief Compliance Officer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Frederick Skillin Assistant Treasurer None
Marc D. Keffer Assistant Secretary None
- -----
* Two Portland Square
Portland, ME 04101
<PAGE>
(c) Not applicable.
INTERNATIONAL STRATEGY & INVESTMENT GROUP INC.
(a) International Strategy & Investment Group Inc., the distributor for ISI
Total Return U.S. Treasury Fund Shares (a class of Total Return U.S.
Treasury Fund, 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.
<TABLE>
<CAPTION>
(b) Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
<S> <C> <C>
Edward S. Hyman Chairman, Chief Chairman and Director
Executive Officer and Director
R. Alan Medaugh Director President and Director
Nancy Lazar Executive Vice President Vice President and Director
Joel Fein Chief Financial Officer None
</TABLE>
- -------------
* 535 Madison Avenue, 30th Floor
New York, New York 10022
(c) Not applicable.
Item 28. Location of Accounts and Records.
Investment Company Capital Corp. ("ICC"), the Registrant's
administrator, transfer agent, dividend disbursing agent and accounting services
provider, One South Street, Baltimore, Maryland 21202, maintains physical
possession of each such account, book or other document of the Fund, except for
those accounts, books and documents maintained by the Registrant's investment
advisor, International Strategy & Investment Inc. ("ISI"), 535 Madison Avenue,
30th Floor, New York, New York 10022, by the distributor of the Flag Investors
Shares, ICC Distributors, Inc. Two Portland Square, Portland, Maine 04101, by
the distributor for the ISI Managed Municipal Fund Shares, International
Strategy & Investment Group Inc., 717 Fifth Avenue, New York, New York 10022,
and 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 maintained physical possession of all journals
containing itemized daily records of all purchases and sales of securities,
including sales and redemptions of Fund securities, and Bankers Trust Company
maintains physical possession of all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by the custodian
or transfer-agent), all receipts and disbursements of cash, and all other debts
and credits.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 18 to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933, as amended, and has duly caused this Registration Statement to be signed
on its behalf by the undersigned thereto duly authorized in the City of
Baltimore, in the State of Maryland, on the 29th day of February, 2000.
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
Edward S. Hyman February 29, 2000
President
R. Alan Medaugh February 29, 2000
* Director
Joseph R. Hardiman February 29, 2000
* Director
Louis E. Levy February 29, 2000
* Director
Carl W. Vogt, Esq. February 29, 2000
* Chief Financial and Accounting Officer
Charles A. Rizzo February 29, 2000
By: /s/ Amy M. Olmert
---------------- February 29, 2000
Amy M. Olmert, Attorney-In-Fact
<PAGE>
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch
are authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's President pursuant to a properly executed power of
attorney.
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch
are authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's Chief Financial Officer pursuant to a properly
executed power of attorney.
<PAGE>
As Amended Through
July 28, 1999
BY-LAWS
OF
TOTAL RETURN U.S. TREASURY FUND, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Stockholder Meetings. The Corporation may, but shall not be
required to, hold a regular meeting of stockholders in any year in which the
Corporation is not required, under the Investment Company Act of 1940, as
amended, (the "1940 Act") to submit for stockholder approval (i) the election of
director(s), (ii) any contract with an investment adviser or principal
underwriter (as such terms are defined in the 1940 Act) that the Corporation
enters into or any renewal or amendment thereof, or (iii) the selection of the
Corporation's independent public accountants. If stockholder approval is
required for any of the purposes in (i) through (iii) above, the regular meeting
shall be held, at which stockholders shall vote on the proposal necessitating
such meeting and shall transact any other business as may properly be brought
before the meeting. Regular meetings of stockholders, if any, shall be held on
such day during the month of June and at such time as shall be designated by the
Board of Directors and stated in the notice of the meeting.
<PAGE>
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Charter may be called for any purpose
or purposes by a majority of the Board of Directors or the President, and shall
be called by the President or Secretary on the written request of the
stockholders as provided by the Maryland General Corporation Law. Such request
shall state the purpose or purposes of the proposed meeting and the matters
proposed to be acted on at it; provided, however, that unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and any
special meeting of the stockholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the stockholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
stockholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. A meeting of stockholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
(c) At least five (5) days prior to each meeting of stockholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of stockholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
stockholder.
<PAGE>
Section 5. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the stockholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in his name on the record of stockholders
of the Corporation as of the record date determined pursuant to Section 8 of
Article VII hereof or if such record date shall not have been so fixed, then at
the later of (i) the close of business on the day on which notice of the meeting
is mailed or (ii) the thirtieth (30) day before the meeting. In all elections
for directors, each share of stock may be voted for as many individuals as there
are directors to be elected and for whose election the share is entitled to be
voted.
(b) Each shareholder entitled to vote at any meeting of
shareholders may authorize another person or persons to act as proxy for the
shareholder by (1) a written authorization signed by such shareholder or the
shareholder's authorized agent; or (2) by telephone, a telegram, cablegram,
datagram or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where such proxy states that it is irrevocable and where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
the Charter of the Corporation or these By-Laws, any corporate action to be
taken by vote of the shareholders shall be authorized by a majority of the total
votes cast at a meeting of shareholders at which a quorum is present by the
holders of shares present in person or represented by proxy and entitled to vote
on such action, except that a plurality of all the votes cast at a meeting at
which a quorum is present is sufficient to elect a director.
(c) If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
<PAGE>
Section 7. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 8. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute any action required to be taken at any regular or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
stockholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. Except as otherwise provided in the Charter,
the business and affairs of the Corporation shall be managed under the direction
of the Board of Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by law or by the Charter or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
<PAGE>
Section 3. Election and Term of Directors. Directors. shall be elected
by plurality vote of a quorum cast by written ballot at the regular meeting of
stockholders, if any, or at a special meeting held for that purpose. The term of
office of each director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. The stockholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a director.
A majority of the remaining directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number of directors; provided however, that no vacancies shall be filled by
action of the remaining directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the directors then holding office shall have
been elected by the stockholders of the Corporation. In the event that at any
time there is a vacancy in any office of a director which vacancy may not be
filled by the remaining directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his successor is elected and qualifies. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director.
Section 7. Regular Meetings. Regular meetings of the Board may be held
with notice at such times and places as may be determined by the Board of
Directors.
<PAGE>
Section 8. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any director who shall, either before or after the
meeting, sign a written Waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than three
members, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter, these By-Laws, the 1940 Act or other applicable statute, the act of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board; provided, however, that the approval of any
contract with an investment adviser or principal underwriter, as such terms are
defined in the 1940 Act, which the Corporation enters into or any renewal or
amendment thereof, the approval of the fidelity bond required by the 1940 Act,
and the selection of the Corporation's independent public accountants shall each
require the affirmative vote of a majority of the directors who are not
interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint
one of its members as Chairman of the Board who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
<PAGE>
Section 13. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
director chosen by a majority of the directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time.
Section 16. Compensation. Any director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the directors may from
time to time determine.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the stockholders of
the Corporation in accordance with the provisions of the 1940 Act.
<PAGE>
ARTICLE IV
Committees
----------
Section 1. Committees of the Board. The Board may, by resolution
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this
Article.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board
shall have power or authority to:
(a) recommend to stockholders any action requiring
authorization of stockholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment
adviser or principal underwriter, as such terms are defined in the 1940 Act, or
take any other action required to be taken by the Board of Directors by the 1940
Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital
stock of the Corporation; and
(e) approve any merger or share exchange which does not
require stockholder approval.
Section 4. General. One-third, but not less than two members, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence of disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
<PAGE>
All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
<PAGE>
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
stockholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
<PAGE>
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to
the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
<PAGE>
(e) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
stockholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been stockholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
<PAGE>
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may have one
or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of stockholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost Stolen, Destroyed or Mutilated Certificates. The holder
of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
<PAGE>
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the respective offices
of the Transfer Agents of the Corporation's capital stock.
ARTICLE VII
Seal
----
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of December in each year.
ARTICLE IX
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
<PAGE>
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc:. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws, and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the stockholders in accordance with the
provisions of the 1940 Act.
ARTICLE XII
Annual Statements
-----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
<PAGE>
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Amendments
----------
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the stockholders or at any special meeting of the stockholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
<PAGE>
1701 Market Street MORGAN, LEWIS
Philadelphia, PA 19103 & BOCKIUS L L P
(215)963-5000 C O U N S E L O R S A T L A W
Fax: (215)963-5299
February 10, 2000
Total Return U.S. Treasury Fund, Inc.
One South Street
Baltimore, Maryland 21202
Re: Opinion of Counsel regarding Post-Effective Amendment No. 18 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 33-12179)
Ladies and Gentlemen:
We have acted as counsel to Total Return U.S. Treasury Fund, Inc. (the
"Fund") a Maryland corporation, in connection with the above-referenced
Registration Statement which relates to the Fund's shares of common stock, par
value $.001 per share (the "Shares"). This opinion is being delivered to you in
connection with the Fund's filing of Post-Effective Amendment No. 18 to the
Registration Statement (the "Amendment") to be filed with the Securities and
Exchange Commission pursuant to Rule 485(b) under the Securities Act of 1933.
With your permission, all assumptions and statements of reliance herein have
been made without any independent investigation or verification on our part,
except to the extent otherwise expressly stated, and we express no opinion with
respect to the subject matter or accuracy of such assumptions or items relied
upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the State of Maryland to the existence and good
standing of the Fund dated February 9, 2000;
(b) the Articles of Incorporation of the Fund and all amendments and
supplements thereto (the "Articles of Incorporation");
(c) a certificate executed by Felicia A. Emry, the Secretary of the
Fund, certifying as to the Fund's Articles of Incorporation and
By-Laws and certain resolutions adopted by the Board of Directors
of the Fund authorizing the issuance of the shares; and
<PAGE>
(d) a printer's proof of the Amendment.
In our capacity as counsel to the Fund, we have examined the originals,
or certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of
the opinion that the Shares, when issued and sold in accordance with the
Articles of Incorporation and By-Laws, and for the consideration described in
the Registration Statement, will be legally issued, fully paid and nonassessable
under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
-------------------------------
Morgan, Lewis & Bockius LLP
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
Secretary's Certificate
I, Felicia A. Emry, Secretary of Total Return U.S. Treasury Fund, Inc.,
a Maryland corporation (the "Fund"), hereby certify that each of (1) the Fund's
Articles of Incorporation as amended and supplemented through October 23, 1998;
(2) the Fund's By-Laws, as amended to date; and (3) the actions of the Board of
Directors of the Fund in authorizing the issuance of the shares of the Fund,
have not been further amended, modified or rescinded, and that such Articles of
Incorporation, By-Laws, and votes otherwise continue in full force and effect as
of the date hereof.
IN WITNESS WHEREOF, I hereunto sign my name this 8th day of February,
2000.
/s/ Felicia A. Emry
---------------------
Felicia A. Emry
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective
Amendment No. 18 to the Registration Statement No. 33-12179 of our report dated
December 3, 1999 appearing in the Total Return U.S. Treasury Fund, Inc. Annual
Report for the year ended October 31, 1999, which is also incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the headings "Financial Highlights" in the Prospectus and "Independent
Auditors" in the State of Additional Information, both of which are parts of
such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
- ---------------------
February 25, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, 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/ Edward S. Hyman
-------------------
Edward S. Hyman
Date: January 14, 2000
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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/ Joseph R. Hardiman
----------------------
Joseph R. Hardiman
Date: January 14, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, 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: January 14, 2000
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, R. Alan Medaugh, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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/ R. Alan Medaugh
-------------------
R. Alan Medaugh
Date: January 14, 2000
<PAGE>
TOTAL RETURN U.S. TREASURY FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles A. Rizzo, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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 Treasurer 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/ Charles A. Rizzo
--------------------
Charles A. Rizzo
Date: January 14, 2000
<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, Amy M.
Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Total Return U.S. Treasury Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
----------------
Carl W. Vogt
Date: January 14, 2000
