<PAGE> 1
Supplement dated May 22, 1995
to
Prospectus dated July 29, 1994
of
ISI NORTH AMERICAN GOVERNMENT BOND FUND SHARES
(A Class of North American Government Bond Fund, Inc.)
The Prospectus dated July 29, 1994 of ISI North American Government Bond
Fund Shares (A Class of North American Government Bond Fund, Inc.) is hereby
amended and supplemented by the following:
The Section entitled "How to Invest in the Fund - Purchases by Exchange"
is amended and supplemented as follows:
Until July 31, 1995, shareholders of any other mutual fund who have paid
a sales charge on their shares of such funds, and shareholders of any closed-end
fund, may exchange shares of such funds for an equal dollar amount of Shares by
submitting to Armata or a Participating Dealer, the proceeds of the redemption
or sale of shares of such funds, together with evidence of the payment of a
sales charge (for mutual funds only) and the source of such proceeds. Shares
issued pursuant to this offer will not be subject to the sales charges described
above or any other charge.
<PAGE> 2
ISI NORTH AMERICAN
GOVERNMENT BOND FUND SHARES
(A Class of North American
Government Bond Fund, Inc.)
717 Fifth Avenue
New York, New York 10022
For information call (800) 955-7175
North American Government Bond Fund, Inc. (the "Fund") is designed to
provide a high level of current income, consistent with prudent investment
risk, by investing primarily in a portfolio of fixed-income securities issued
or guaranteed by the governments of the United States, Canada and Mexico.
Shares of the ISI class of the Fund ("Shares") are available through
Armata Financial Corp. as well as Participating Dealers and Shareholder
Servicing Agents. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing, and should be retained for future
reference. A Statement of Additional Information dated July 29, 1994 has been
filed with the Securities and Exchange Commission (the "SEC") and is hereby
incorporated by reference. It is available upon request and without charge by
contacting the Fund at the above address and telephone.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 29, 1994.
<PAGE> 3
1. FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases .............. 3.00%
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None
Redemption Fees ........................................ None
Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average net assets)
Management Fees (net of fee waivers) ................... .27%*
12b-1 Fees ............................................. .40%
Asset Based Sales Charge ....... .15%
Service Fee .................... .25%
Other Expenses (net of fee waivers) .................... .58%*
----
Total Fund Operating Expenses (net of fee waivers) ..... 1.25%*
- ------------
*The Advisor and the Administrator have voluntarily agreed to waive
proportionate amounts of their respective fees through the fiscal year
ending March 31, 1995 so that the Fund's Total Operating Expenses do not
exceed 1.25% of the Fund's average net assets. Absent fee waivers,
Management Fees would be .40%, Other Expenses (including administrative
service fees) would be .64% and Total Fund Operating Expenses would be
1.44%, respectively, of the Fund's average net assets.
Example:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:* $42 $69 $99 $186
</TABLE>
- ------------
*Absent fee waivers, expenses for the 1, 3, 5 and 10 year periods would be
$44, $75, $109 and $210, respectively.
The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly or indirectly. A
person who purchases Shares through a financial institution may be charged
separate fees by the financial institution. The Expenses and Example
appearing in the table above are based on the Fund's expenses for the fiscal
year ended March 31, 1994 which, net of fee waivers, were 1.25% of the Fund's
average net assets. (For more complete descriptions of the various costs and
expenses, see "How to Invest in the Fund -- Offering Price", "Investment
Advisor", "Administrator" and "Distributor.") The rules of the SEC require
that the maximum sales charge (in the Shares' case, 3.00% of the offering
price) be reflected in the above table. However, certain investors may
qualify for reduced sales charges. (See "How to Invest in the Fund --
Offering Price.") Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more in total sales charges than the
equivalent of the maximum front-end sales charges permitted by the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
2
<PAGE> 4
2. FINANCIAL HIGHLIGHTS
The Fund has offered the Shares since January 15, 1993. The Financial
Highlights included in this table are a part of the Fund's financial
statements for the periods indicated which have been audited by Coopers &
Lybrand, independent accountants. The financial statements for the fiscal
year ended March 31, 1994 and the report thereon of Coopers & Lybrand are
included in the Statement of Additional Information. Additional performance
information is contained in the Fund's Annual Report for the fiscal year
ended March 31, 1994, which can be obtained at no charge by calling the Fund
at (800) 955-7175.
(For a Share outstanding throughout each period)
For the Period
For the Year January 15, 1993*
Ended through
March 31, 1994 March 31, 1993
--------------- -----------------
Per Share Operating
Performance:
Net asset value at
beginning of period ...... $ 10.14 $ 10.00
----- -----
Income from Investment
Operations:
Net investment income .... 0.89 0.10
Net realized and
unrealized gain/(loss)
on investments ......... (0.58) 0.12
----- -----
Total from Investment
Operations ............. 0.31 0.22
Less Distributions:
Dividends from net
investment income and
short-term gains ....... (0.92) (.08)
----- -----
Net asset value at end of
period ................... $ 9.53 $ 10.14
==== =====
Total Return** ............ 2.77% 2.18%
Ratios to Average Net
Assets:
Expenses .................. 1.25%(2) 1.25%(1,2)
Net investment income ..... 7.04%(3) 7.62%(1,3)
Supplemental Data:
Net assets at end of period $93,621,641 $40,936,959
Number of shares
outstanding at end of
period ................... 9,825,741 4,038,604
Portfolio turnover rate ... 219.45% 103.71%
- ------
* Commencement of Operations.
** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
3
<PAGE> 5
1 Annualized.
2 Without the waiver of advisory and administration fees, the ratio of
expenses to average net assets would have been 1.44% and 2.19% (annualized)
for the periods ended March 31, 1994 and March 31, 1993, respectively.
3 Without the waiver of advisory and administration fees, the ratio of net
investment income to average net assets would have been 6.85% and 6.68%
(annualized) for the periods ended March 31, 1994 and March 31, 1993,
respectively.
3. INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The investment objective of the Fund is to provide a high level of current
income, consistent with prudent investment risk. This objective is
fundamental and may not be changed without shareholder approval. There is no
assurance that the Fund will be able to achieve its investment objective.
The Fund seeks to achieve its investment objective by investing under normal
circumstances at least 65% of its total assets in the following bonds and
debentures: (i) U.S. Treasury Securities (including Treasury bills, Treasury
notes, Treasury bonds and Separate Trading of Registered Interest and
Principal of Securities ("STRIPS")), which securities are direct obligations
of the United States government (see "United States Government Securities"
below); and (ii) bonds or debentures issued or guaranteed by the Canadian and
Mexican governments or their subdivisions, agencies or instrumentalities
("Government Securities") and denominated either in U.S. dollars or in the
local foreign currency. The Fund will invest no more than 25% of its total
assets in Canadian Government Securities (see "Canadian Government
Securities" below) and no more than 25% of its total assets in Mexican
Government Securities (see "Mexican Government Securities" below).
In addition, the Fund will invest no more than 33% of its total assets in
securities denominated or payable in each of Canadian dollars and Mexican
pesos. Subject to the foregoing currency denomination limits, the Fund may
invest in bankers acceptances and certificates of deposit denominated or
payable in the local foreign currency and issued by one of the five most
highly capitalized banks in Canada or Mexico.
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<PAGE> 6
Subject to the foregoing guidelines, International Strategy and Investment
Inc. ("ISI" or the "Advisor") will invest the Fund's assets and allocate
investments from time to time among U.S., Canadian and Mexican Government
Securities, based on its assessment of which fixed-income securities best
enable the Fund to achieve its investment objective of seeking a high level
of current income, consistent with prudent investment risk. Subject to the
limitations described above, the percentage of assets invested in a
particular country or denominated in a particular currency, as well as the
average maturity of the securities held in the Fund's portfolio, will vary in
accordance with the Advisor's analysis of market conditions, relative yields,
and changes in general economic and political conditions in the United
States, Canada and Mexico, and the Advisor's expectations regarding interest
rate changes and changes in currency exchange rates among the U.S. dollar,
the Canadian dollar and the Mexican peso. Based on the Advisor's analysis of
such factors, it is possible that, from time to time, none of the Fund's
assets will be invested in Canada or Mexico or denominated or payable in
Canadian dollars or Mexican pesos.
Under normal circumstances, the dollar weighted expected average maturity of
the Fund's portfolio will vary depending on the Advisor's assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates. It is currently anticipated
that during periods of stable interest rates, the Fund's portfolio will have
a dollar weighted expected average maturity of approximately ten years; and
during periods of declining interest rates, the Fund's portfolio will have a
dollar weighted expected average maturity of between fifteen and twenty-five
years. ISI may shorten the dollar weighted average maturity substantially for
temporary, defensive purposes, such as, when ISI believes interest rates are
or will be increasing substantially. There can be no assurance that the
Advisor's economic analyses will accurately predict interest rate movements
or that the portfolio strategies based upon such analyses will be effective.
Under normal circumstances, the Canadian Government Securities held in the
Fund's portfolio will be rated, at the time of purchase, Aa or higher by
Moody's Investors Service, Inc. ("Moody's") or AA or higher by Standard &
Poor's Corporation ("S&P") or, if not rated, determined to be of comparable
quality by the Advisor under criteria approved by the Fund's Board of
Directors. Except as provided below, the Mexican Government Securities in
which the Fund may invest will be rated Baa or higher by Moody's or BBB or
higher by S&P or, if not rated, determined to be of comparable quality by the
Advisor under criteria approved by the Fund's Board of Directors. Where
deemed appropriate by the Advisor, the Fund may invest up to 10% of its total
assets (measured at the time of the investment) in Mexican Government
Securities or in fixed-income securities issued by governments of other
countries in Latin America or elsewhere (and denominated in either U.S.
dollars or the local foreign currency), which securities are rated Ba by
Moody's or BB by S&P, or if not rated, determined to be of comparable quality
by the Advisor under criteria approved by the Fund's Board of Directors. If a
fixed-income security held by the Fund is rated BBB or Baa and is
subsequently downgraded by a rating agency, such securities will be included
in the Fund's below investment grade holdings for purposes of the foregoing
10% limit. In addition, the Fund will retain such security in its portfolio
only until the Advisor determines that it is practicable to sell the security
without undue market or tax consequences to the Fund. Moreover, in the event
that such downgraded securities constitute 5% or more of the Fund's total
assets, the Advisor will seek to sell immediately sufficient securities to
reduce the total to below 5%.
Securities rated either Baa by Moody's or BBB by S&P have speculative
characteristics and, therefore, changes in economic conditions or other
circumstances are more likely to weaken their capacity to make principal and
interest payments than would be the case with investments in securities with
higher credit ratings.
Securities rated Ba or BB are considered to be below investment grade
securities and are known as "junk bonds." They are considered to be
speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The future of such below investment
grade securities cannot be considered well assured and the issuer's ability
to make timely payments of principal and interest may be subject to material
5
<PAGE> 7
contingencies. Investing in higher yield, high risk, lower rated bonds entails
substantially greater risk than investing in investment grade bonds including
not only credit risk, but potentially greater market volatility and lower
liquidity. Yields and market values of these securities will fluctuate over
time, reflecting changing interest rates and the market's perception of credit
quality and the outlook for economic growth. When economic conditions appear to
be deteriorating, lower rated securities may decline in value, regardless of
prevailing interest rates. Accordingly, adverse economic developments, including
a recession or a substantial period of rising interest rates, may disrupt the
high yield securities market, affecting both the value and liquidity of such
securities. The market prices of these securities may fluctuate more than those
of higher rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates. An
economic downturn could adversely affect the ability of issuers of such
securities to make payments of principal and interest to a greater extent than
issuers of higher rated securities might be affected. A description of
fixed-income security ratings is contained in the Appendix to the Statement of
Additional Information. During the fiscal year ended March 31, 1994 the Fund
held no junk bonds.
The Fund may also invest in repurchase agreements with respect to U.S.
Treasury Securities, Canadian Treasury Securities and Mexican Treasury
Securities and in commercial paper rated Prime-1 by Moody's or A-1 by S&P, or
if not rated, determined to be of comparable quality by the Advisor under
criteria approved by the Fund's Board of Directors. For temporary, defensive
purposes, the Fund may invest up to 100% of its assets in such instruments.
Investment of all or a substantial portion of the Fund's assets in such
instruments may cause a decrease in the Fund's yield.
Although the Fund reserves the right to invest up to 35% of its total assets
in fixed-income securities which are issued or guaranteed by the governments
of countries located in Latin America (other than Mexico) or other foreign
countries, or any of their political subdivisions, agencies,
instrumentalities and authorities, the Fund has no current intention to make
such investments during the coming year. Any investment in such fixed-income
securities would be rated, at the time of purchase, Baa or higher by Moody's
or BBB or higher by S&P, or if not rated, determined to be of comparable
quality by the Advisor under criteria approved by the Fund's Board of
Directors, except that the Fund may invest in such fixed-income securities
rated at the time of purchase, Ba by Moody's or BB by S&P, or determined to
be of comparable quality by the Advisor under criteria approved by the Fund's
Board of Directors, subject to the limitation of 10% of the Fund's total
assets discussed above.
The Fund may also engage in certain other investment practices, including
practices to protect against fluctuations in foreign currencies, which
practices are described more fully under the heading "Other Investment
Policies" below.
UNITED STATES GOVERNMENT SECURITIES
The Fund will invest in U.S. Treasury obligations (including Treasury bills,
Treasury notes, Treasury bonds and STRIPS) which are issued by the U.S.
government and backed by the full faith and credit of the United States and
which differ only in their interest rates, maturities and times of issuance.
STRIPS are U.S. Treasury Securities which trade at a yield to maturity higher
than do comparable maturity U. S. Treasury obligations. STRIPS do not pay
interest currently, but are purchased at a discount and are payable in full
at maturity. However, the value of STRIPS may be subject to greater market
fluctuations including yield, from changing interest rates prior to maturity
than the value of other U.S. Treasury Securities of comparable maturities
that bear interest currently. Because STRIPS do not pay current income, the
Fund will not invest in them to a significant extent.
CANADIAN GOVERNMENT SECURITIES
Canadian Government Securities include securities issued or guaranteed by the
Government of Canada, any of its provinces (Alberta, British Columbia,
Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward
Island, Quebec and Saskatchewan) or by their respective political
subdivisions, agencies and instrumentalities, which securities have been
rated Aa or higher by Moody's or AA or higher by S&P, or if unrated, are
determined to be of comparable quality by the Advisor under criteria approved
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<PAGE> 8
by the Fund's Board of Directors. These securities may be denominated or payable
in U.S. dollars or Canadian dollars.
Canadian Government Securities in which the Fund may invest include
Government of Canada bonds and Government of Canada Treasury bills. The Bank
of Canada, acting on behalf of the Canadian federal government, is
responsible for the distribution of Treasury bills and federal bond issues.
Government of Canada Treasury bills are debt obligations with maturities of
less than one year. Government of Canada issues of bonds frequently consist
of several different bonds with various maturity dates representing different
segments of the yield curve with maturities ranging from one to 25 years.
All Canadian provinces have outstanding bond issues and several provinces
also guarantee bond issues of provincial authorities, agencies and provincial
Crown corporations. Each new issue yield is based upon a spread from an
outstanding Government of Canada issue of comparable term and coupon. Spreads
in the marketplace are determined by various factors, including the relative
supply and the rating assigned by the rating agencies. Most provinces also
issue treasury bills.
Many municipalities and municipal financial authorities in Canada raise funds
through the bond market in order to finance capital expenditures. Unlike U.S.
municipal securities, which have special tax status, Canadian municipal
securities have the same tax status as other Canadian Government Securities
and trade similarly to such securities. The Canadian municipal market may be
less liquid than the provincial bond market.
Currently, Government of Canada long-term fixed-income securities
denominated or payable in Canadian dollars have been rated AAA by S&P, and
Government of Canada long-term fixed-income securities denominated or payable
in U.S. dollars have been rated AA+ by S&P.
MEXICAN GOVERNMENT SECURITIES
Mexican Government Securities in which the Fund may invest include those
securities which are issued or guaranteed in full by the Mexican federal
government or its instrumentalities and which securities are rated Baa or
higher by Moody's or BBB or higher by S&P, or if unrated, are determined to
be of comparable quality by the Advisor under criteria approved by the Fund's
Board of Directors. These securities may be denominated or payable in Mexican
pesos or U.S. dollars.
The debt market in Mexico began to develop rapidly after the promulgation of
the Securities Market Law in 1975. Since 1975, the government has authorized
a range of Mexican government issued debt securities, all of which are traded
on the Mexican Stock Exchange. In addition, a variety of other special
purpose bonds are issued by, and backed by the full faith and credit of, the
Mexican federal government. Government of Mexico securities denominated and
payable in the Mexican peso include: (i) Cetes, book-entry securities sold
directly by the Mexican government on a discount basis and with maturities
ranging from seven to 364 days; (ii) Bondes, long-term development bonds with
a minimum term of 364 days issued directly by the Mexican government; and
(iii) Adjustabonos, adjustable bonds (face amount adjusted quarterly based on
quarterly inflation rate) with a minimum three-year term issued directly by
the Mexican government.
The Fund may also invest up to 10% of its assets in dollar-denominated,
collateralized "Brady Bonds" which are securities created through the
exchange of existing commercial bank loans to the Mexican government for new
bonds under a debt restructuring plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady. The Brady Bonds in which the Fund may invest
may be fixed rate or floating rate bonds which are collateralized in full as
to principal by U.S. Treasury zero coupon bonds having the same maturity as
the bonds, and on which the first 18-months of interest coupon payments are
collateralized by funds (cash or securities) held in escrow by an agent for
the bondholders.
On November 4, 1992, S&P assigned an "implied" AA- rating to long-term
fixed-income securities (i.e., bondes and adjustabonos) issued by the Mexican
government denominated in Mexican pesos. Long-term fixed-income securities
issued by the Mexican government denominated in U.S. dollars have been rated
BB+ by S&P. An "implied rating" may be assigned by a rating agency to
long-term or short-term fixed-income securities issued by the government of
a particular country in situations where the rating agency has not been
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<PAGE> 9
requested to assign a rating to the sovereign debt. Long-term fixed-income
securities issued by private sector entities in the same country may be rated by
the rating agency, but no rating will exceed the "implied" rating assigned to
similar maturity fixed-income securities issued by the government of such
country.
RISK FACTORS
Currency Risks. A change in the value of a foreign currency relative to the
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's assets denominated in that currency. Accordingly, the value of the
assets of the Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange
control regulations. In addition, the Fund may incur costs in connection with
conversions between various currencies. In an attempt to protect against
uncertainty in the level of future foreign exchange rates, the Fund is
authorized to and may occasionally use forward foreign currency exchange
contracts and futures contracts and may purchase and write (sell) options on
foreign currencies. (See "Other Investment Policies -- Forward Foreign
Currency Exchange Contracts.") The Fund may use such forward contracts and
options when, for example, it enters into a contract for the purchase or sale
of a security denominated in a foreign currency, and the Fund desires to
"lock in" the U.S. dollar price of the security. Also, when the Advisor
believes that the currency of a particular foreign country may suffer a
substantial movement against the U.S. dollar, the Fund may enter into forward
contracts and options approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. (See "Other
Investment Policies -- Futures Contracts and Options.")
Risks Of International Investing. Investments in foreign securities will
occasion risks relating to political and economic developments abroad,
including the possibility of expropriations or confiscatory taxation,
limitations on the use or transfer of Fund assets and any effects of foreign
social, economic or political instability. Foreign securities are not subject
to the regulatory requirements applicable to U.S. securities and, therefore,
there may be less publicly available information about such securities.
Moreover, foreign securities are not subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to
U.S. securities.
Securities of foreign issuers, including foreign governments, may be less
liquid than comparable securities of U.S. issuers and, therefore, their price
changes may be more volatile. Furthermore, foreign exchanges and
broker-dealers are generally subject to less government and exchange scrutiny
and regulation than their United States counterparts. Brokerage commissions,
dealer concessions and other transaction costs may be higher on foreign
markets, including markets for foreign government securities, than in the
United States. In addition, differences in clearance and settlement
procedures on foreign markets may occasion delays in settlements of Fund
trades effected in such markets. Inability to dispose of portfolio securities
due to settlement delays could result in losses to the Fund due to subsequent
declines in value of such securities and the inability of the Fund to make
intended security purchases due to settlement problems could result in a
failure of the Fund to make potentially advantageous investments.
Canada. The Canadian government debt securities market is significantly
smaller than the U.S. debt securities market. Although continued growth is
anticipated, it is less well developed and less liquid than its U.S.
counterpart. The Canadian economy has experienced little or no growth during
each of the past several years, and gross domestic product (on an inflation
adjusted basis) has shown little to no growth or declined during such years.
Continued lack of economic growth could affect the Advisor's determination of
the appropriate allocation of the Fund's investments within Canada and among
the United States, Canada and Mexico.
Mexico. Because the Fund intends to invest in Mexican Government Securities,
investors in the Fund should be aware of certain special considerations
associated with investing in debt obligations of the Mexican government.
The Mexican government has exercised and continues to exercise a significant
influence over many aspects of the private sector in Mexico. Mexican
government actions concerning the economy could have a significant effect on
market conditions and prices and yields of Mexican Government Securities.
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<PAGE> 10
Mexico is currently the second largest debtor nation (among developing
countries) to commercial banks and foreign governments.
The value of the Fund's portfolio investments may be affected by changes in
oil prices, interest rates, taxation and other political or economic
developments in Mexico, including recent rates of inflation which have
exceeded the rates of inflation in the U.S. and Canada. The Fund can provide
no assurance that future developments in the Mexican economy will not impair
its investment flexibility, operations or ability to achieve its investment
objective.
In September, 1982, Mexico imposed foreign exchange controls and maintained a
dual foreign exchange rate system, with a "controlled" rate and a "free
market" rate. Under economic policy initiatives implemented since December
1987, the Mexican government introduced a schedule of gradual devaluation of
the controlled rate which initially amounted to an average depreciation of
the Mexican peso against the U.S. dollar of one Mexican peso per day. The
extended initiatives include an adjustment in the scheduled devaluation rate
of the Mexican peso against the U.S. dollar. In November, 1991, Mexico
abolished the controlled rate and now maintains only the free exchange rate.
The Fund's net asset value and its computation and distribution of income to
its shareholders will be adversely affected by continued reductions in the
value of the Mexican peso relative to the U.S. dollar because all Fund assets
must be converted to U.S. dollars prior to any distributions to shareholders.
NAFTA. The North American Free Trade Agreement ("NAFTA") became effective on
January 1, 1994. In accordance with NAFTA, the United States, Canada and
Mexico have agreed to eliminate their respective internal tariffs within a
period of fifteen years. (See the Statement of Additional Information.)
Non-Diversified Status. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and as such is not limited by the Investment
Company Act in the proportion of its assets that it may invest in the
obligations of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
(See "Dividends, Distributions and Taxes.") In order to qualify under
Subchapter M of the Code, among other requirements, the Fund will limit its
investments so that at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will be invested
in the securities of a single issuer (other than U.S. government securities)
and (ii) with respect to 50% of the market value of its total assets not more
than 5% will be invested in the securities of a single issuer (other than
U.S. government securities). To the extent that a relatively high percentage
of the Fund's assets may be invested in the obligations of a limited number
of issuers, the Fund's portfolio securities may be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company. The limitations described in
this paragraph are not fundamental policies and may be revised to the extent
applicable federal income tax requirements are revised.
Securities issued or guaranteed by foreign governments, their political
subdivisions, agencies and instrumentalities are not treated like U.S.
government securities for purposes of the diversification tests described in
the preceding paragraph, but instead are subject to these tests in the same
manner as the securities of non-governmental issuers. In this regard,
securities issued or guaranteed by a foreign government, its political
subdivisions, agencies or instrumentalities may in certain circumstances not
be treated as issued by a single issuer for purposes of these diversification
tests. Thus, in order to meet the diversification tests and thereby maintain
its status as a regulated investment company, the Fund may be required to
diversify its portfolio of Canadian Government Securities and Mexican
Government Securities in a manner which would not be necessary if the Fund
limited its investments to U.S. government securities.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund may also engage in certain other investment practices described more
fully below.
Repurchase Agreements. The Fund may agree to purchase U.S. Treasury
Securities, Canadian Treasury Securities or Mexican Treasury Securities from
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<PAGE> 11
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Repurchase agreements related to Canadian or Mexican Treasury
Securities will be of a duration of no more than one day. The collateral for
such repurchase agreements will be held by the Fund's custodian or a duly
appointed sub-custodian. The Fund will enter into repurchase agreements only
with banks and broker-dealers that have been determined to be creditworthy by
the Fund's Board of Directors under criteria established with the assistance
of the Advisor. The seller under a repurchase agreement would 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. There are several additional risks related to repurchase
agreements with respect to treasury securities issued by foreign governments.
First, although the Fund will only enter into repurchase agreements
collateralized by Canadian or Mexican Treasury securities that initially have
a value at least equal to the repurchase price, under certain circumstances
it might be possible that the value of the collateral being held with respect
to any such repurchase agreement would be reduced to such an extent that the
agreement would be undercollateralized. Second, in the event of default or
bankruptcy of the selling institution, enforcement of the Fund's rights would
be subject to additional difficulties and delays due to legal considerations
applicable in such foreign country.
Currency and Interest Rate Hedging Transactions. To hedge against adverse
price movements in the currencies in which securities held in the Fund's
portfolio are denominated (as well as the denominated currencies of the
securities it might wish to purchase) the Fund may engage in transactions in
forward foreign currency contracts, options on currencies, and futures
contracts and options on futures contracts on currencies. (See "Risk Factors
- -- Currency Risks.") The Fund will not engage in any such transactions if the
consummation of such transactions would obligate the Fund to deliver an
amount of foreign currency in excess of the value of the Fund's securities
and other assets denominated in that currency.
Forward Foreign Currency Exchange Contracts. A forward foreign currency
exchange contract ("forward contract") involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time of the contract. The Fund may enter into forward contracts as a hedge
against fluctuations in future foreign exchange rates. Currently, only a
limited market exists for hedging transactions relating to the Mexican
peso.
If deemed appropriate by the Advisor, the Fund will enter into forward
contracts to "lock in" the price of a security in the denominated foreign
currency. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the Fund will be able to
protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar or other currency which is being
used for the security purchase and the foreign currency in which the security
is denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received. In
addition, the Fund may enter into forward contracts with respect to
currencies in which certain of its portfolio securities are denominated and
on which options have been written. (See "Futures Contracts and Options"
below.)
Futures Contracts and Options. The Fund may purchase and sell futures
contracts on debt securities and indices of debt securities (i.e., interest
rate futures contracts) as a hedge against or to minimize adverse principal
fluctuations resulting from anticipated interest rate changes. The Fund may
also purchase and sell currency futures contracts as a hedge to protect
against anticipated changes in currency rates or as an efficient means to
adjust its exposure to the currency market. The Fund may also write (sell)
covered call options on futures contracts, purchase put and call options on
futures contracts and may enter into closing transactions with respect to
such options on futures contracts purchased or sold. The Fund may also
10
<PAGE> 12
write covered put options on futures contracts and may enter into closing
transactions with respect to such options on futures contracts. When the Fund
purchases a futures contract, or writes a put option or purchases a call
option thereon, an amount of cash and liquid assets will be deposited in a
segregated account with the Fund's custodian so that the segregated amount,
plus the amount of initial margin deposits held in the account of its broker,
equals the market value of the futures contract, thereby ensuring that the
use of the futures contract is unleveraged. The Fund will not enter into
futures contracts for speculation and will only enter into futures contracts
that are traded on a recognized futures exchange. The Fund will not enter
into futures contracts or options thereon if immediately thereafter the sum
of the amounts of initial margin deposits on the Fund's open futures
contracts and premiums paid for unexpired options on futures contracts would
exceed 5% of the value of the Fund's total assets; provided, however, that in
the case of an option that is "in-the-money" the amount may be excluded in
calculating the 5% limitation.
The use of futures contracts by the Fund entails certain risks, including but
not limited to the following: no assurance that futures contracts
transactions can be offset at favorable prices; possible reduction of the
Fund's income due to the use of hedging; possible reduction in value of both
the security or currency hedged and the hedging instrument; possible lack of
liquidity due to daily limits on price fluctuations; imperfect correlation
between the contract and the security or currency being hedged; failure to
qualify as a Regulated Investment Company under Subchapter M of the Code; and
potential losses in excess of the amount initially invested in futures
contracts themselves. If the expectations of the Advisor regarding movements
in securities prices, interest rates or exchange rates are incorrect, the
Fund might have experienced better investment results without hedging. The
use of futures contracts and options on futures contracts requires special
skills in addition to those needed to select portfolio securities.
Purchase of When-Issued Securities. From time to time, in the ordinary course
of business, the Fund may purchase securities, at the current market value of
the securities, on a forward commitment or "when issued" basis. When such
transactions are negotiated, the price is fixed at the time of the
commitment, 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 or other high quality liquid debt
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 liquid debt securities will be added to the account when
necessary. While the Fund will purchase securities on a forward commitment or
"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. The securities so purchased or sold are subject to market
fluctuation and no interest accrues to the purchaser during this period. At
the time of delivery of the securities, their value may be more or less than
the purchase or sale price.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are at all times
secured by cash or money market instruments, which are maintained in a
segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities. As
with any extensions of credit, there are risks of delay in recovery and in
some cases even loss of rights in the collateral should the borrower of the
securities fail financially. In determining whether to lend securities to a
particular borrower, the Advisor (subject to review by the Fund's Board of
Directors) will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will not lend portfolio securities
in excess of 20% of the value of its total assets. The Board of Directors
will monitor the Fund's lending of portfolio securities.
4. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions listed below are matters of
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<PAGE> 13
fundamental policy, and as such, may not be changed without the affirmative vote
of a majority of the outstanding shares. The Fund may not:
1) Invest 25% or more of the value of its total assets in securities of
issuers in any one industry (for these purposes, the United States
government, its agencies and instrumentalities are not considered to be an
industry); and
2) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of
the value of the total assets of the Fund at the time of such borrowing,
provided that, while borrowings by the Fund equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase securities
for investment.
The Fund's investment program is subject to other investment restrictions
which are set forth in the Fund's Statement of Additional Information.
5. HOW TO INVEST IN THE FUND
Shares may be purchased from Armata Financial Corp. ("Armata"), P.O. Box 515,
Baltimore, Maryland 21203, through any securities dealer which has entered
into a dealer agreement with Armata ("Participating Dealers") or through any
financial institution which has entered into a shareholder servicing
agreement with the Fund ("Shareholder Servicing Agents").
Except as provided below, the minimum initial investment is $5,000 and each
subsequent investment must be at least $250. The minimum initial investment
in Shares for qualified retirement plans and IRAs is $1,000 and each
subsequent investment must be at least $250. The Fund reserves the right to
suspend the sale of Shares at any time at the discretion of Armata. Orders
for purchases of Shares are accepted on any day on which the New York Stock
Exchange is open for business ("Business Day"). Purchase orders for Shares
will be executed at a per Share purchase price equal to the net asset value
next determined after receipt of the purchase order plus any applicable sales
charge (the "Offering Price") on the date such net asset value is determined
(the "Purchase Date"). Payment of the purchase price for Shares is due no
later than five Business Days from the Purchase Date. Armata may, in its sole
discretion, refuse to accept any purchase order.
The net asset value per Share is determined once daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) on each
Business Day. Net asset value per Share is calculated by valuing all assets
held by the Fund, deducting liabilities, and dividing the resulting amount by
the number of then outstanding Shares. Securities are valued on the basis of
their last sale price (or in the absence of recorded sales, at the average of
readily available closing bid and asked prices). Securities or other assets
for which market quotations are not readily available are valued at their
fair value as determined in good faith by the Advisor under procedures
established from time to time and monitored by the Fund's Board of Directors.
Debt obligations with maturities of 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Fund's Board of
Directors.
OFFERING PRICE
Shares may be purchased from Armata, Participating Dealers or Shareholder
Servicing Agents at the Offering Price, which includes a sales charge which
is calculated as a percentage of the Offering Price and decreases as the
amount of purchase increases as shown below.
<TABLE>
<CAPTION>
Sales
Sales Charge as Dealer
Charge as Percentage Retention
Percentage of Net as Percentage
of Offering Amount of Offering
Amount of Purchase Price Invested Price*
--------------------------- --------------- -------------- -----------------
<S> <C> <C> <C>
Less than $ 100,000 ...... 3.00% 3.09% 2.75%
$100,000 - $ 249,999 ..... 2.50% 2.56% 2.25%
$250,000 - $ 499,999 ..... 2.00% 2.04% 1.75%
$500,000 - $ 999,999 ..... 1.50% 1.52% 1.25%
$1,000,000 - $1,999,999 ... 0.75% 0.76% 0.75%
$2,000,000 - $2,999,999 ... 0.50% 0.50% 0.50%
$3,000,000 and over ....... none none none
</TABLE>
- ------------
*Armata may from time to time reallow to Participating Dealers up to 100% of
the sales charge included in the Offering Price of Shares. Participating
Dealers who receive 90% or more of such reallowance may be deemed to be
underwriters under the Securities Act of 1993.
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<PAGE> 14
A shareholder who purchases additional Shares may obtain reduced sales
charges as set forth in the table above through a right of accumulation. In
addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Shares and purchases of
shares of other mutual funds in the ISI family of funds. The applicable sales
charge will be determined based on the total of (a) the investor's current
purchase plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of all Shares and of all shares of such other
mutual funds in the ISI family of funds held by the shareholder. To obtain a
reduced sales charge through a right of accumulation, the shareholder must
provide Armata, either directly or through a Participating Dealer or
Shareholder Servicing Agent, as applicable, with sufficient information to
verify that the shareholder has such a right. The right of accumulation may
be amended or terminated at any time as to subsequent purchases. The term
"purchase" refers to an individual purchase by a single purchaser, or to
concurrent purchases which will be aggregated by a purchaser, the purchaser's
spouse and their children under the age of 21 years purchasing Shares for
their own account.
Clients of registered investment advisors, banks or bank trust departments
may qualify for reduced sales charges through the right of accumulation if
the Shares are offered to such clients by Armata or a Participating Dealer
unaffiliated with any such registered investment advisor, bank or bank trust
department. For purposes of determining the amount of applicable sales
charges, purchases made by such clients may be aggregated with the purchases
of other clients of the same registered investment advisor, bank or bank
trust department.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent, which states the investor's intention
to invest not less than $100,000 within a 13-month period in Shares. Each
purchase of Shares under a Letter of Intent will be made at the Offering
Price applicable at the time of such purchase to the full amount indicated on
the Letter of Intent. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Letter of Intent is 5% of the full amount. Shares
purchased with the first 5% of the full amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the Shares actually purchased if the full
amount indicated is not invested. Such escrowed Shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. When the full
amount indicated has been purchased, the escrowed Shares will be released. To
the extent that an investor purchases more than the dollar amount indicated
on the Letter of Intent and qualifies for a further reduction in sales
charge, the sales charge will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in sales charge will be used
to purchase additional Shares at the then current Offering Price applicable
to the aggregate amount of all purchases in the 13-month period. An investor
who wishes to enter into a Letter of Intent in conjunction with an investment
in Shares may do so by completing the appropriate section of the Application
Form attached to this Prospectus.
The Fund may sell Shares at net asset value (without sales charge) to the
following: (i) current or retired Directors of the Fund, directors and
employees of ISI, the Fund's administrator and their respective affiliates,
and employees of Participating Dealers; (ii) investors who have redeemed
Shares, or shares of any other mutual fund in the ISI family of funds that
has equal or higher sales charges, in an amount that is not more than the
total redemption proceeds provided that the purchase is within six months
after the redemption and the amount of the purchase is at least $5,000; (iii)
clients of banks or broker-dealers who have paid an account management fee to
such entities, provided the bank has entered into a Shareholder Servicing
Agreement with the Fund or the broker-dealer has entered into a Participating
Dealer Agreement with Armata; and (iv) clients of registered investment
advisors who have paid an account management fee to such entities.
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other mutual funds in the ISI family of funds that have
similar or higher sales charges may exchange their shares of those funds for
an equal dollar amount of Shares. Shares issued pursuant to this offer will
13
<PAGE> 15
not be subject to the sales charges described above. The net asset value of
shares purchased and redeemed in an exchange request received on a Business Day
will be determined on the same day, provided that the exchange request is
received prior to 4:00 p.m. (Eastern Time). Exchange requests received after
4:00 p.m. (Eastern Time) will be effected on the next Business Day.
The shares of such funds purchased by exchange will be offered in compliance
with all applicable state securities laws. Investors should receive and read
the applicable prospectus prior to tendering shares for exchange. The Fund
may modify or terminate these offers of exchange at any time, and will
provide shareholders with 60 days' written notice prior to any such
modification or termination. The exchange privilege with respect to other ISI
funds may also be exercised by telephone. (See "Telephone Transactions"
below.)
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Shares regularly by means of an Automatic Investing
Plan with a pre-authorized check drawn on their checking accounts. Under this
plan, the shareholder may elect to have a specified amount invested monthly
or quarterly in Shares. The amount specified by the shareholder will be
withdrawn from the shareholder's checking account using the pre-authorized
check. This amount will be invested in Shares at the applicable Offering
Price determined on the date the amount is available for investment.
Participation in the Automatic Investing Plan may be discontinued by either
the Fund or the shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investing Plan may
do so by completing the appropriate section of the Application Form attached
to this Prospectus.
6. HOW TO REDEEM SHARES
Any or all of a shareholder's investments may be redeemed on any Business Day
by transmitting a redemption order through Armata, a Participating Dealer, or
a Shareholder Servicing Agent or by regular or express mail to the Fund's
transfer agent (the "Transfer Agent"). Shareholders may also redeem Shares by
telephone (in amounts up to $10,000). (See "Telephone Transactions" below.) A
redemption order is effected at the net asset value per Share next determined
after receipt of the order (or, if stock certificates have been issued for
the Shares to be redeemed, after the tender of the stock certificates for
redemption). Payment for redeemed Shares will be made by check and will
ordinarily be mailed within seven days after receipt of a duly authorized
telephone redemption request or of a redemption order fully completed and, as
applicable, accompanied by the documents described below:
1) A letter of instructions, specifying the shareholder's account number with
Armata or a Participating Dealer, if applicable, and the number of Shares
or dollar amount to be redeemed, signed by all owners of the Shares in the
exact names in which their account is maintained;
2) For redemptions in excess of $10,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or associaiton, clearing agency, or savings
association;
3) If Shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for Shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Shares will be paid on the
next dividend payable date. If all of the Shares in a shareholder's account
have been redeemed on a dividend payable date, the dividend will be remitted
by check to the shareholder.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 as a result of redemptions
upon 60 days' written notice.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Shares having a value of $10,000 or more may arrange to
have a portion of their Shares redeemed monthly or quarterly under the
14
<PAGE> 16
Fund's Systematic Withdrawal Plan. Such payments are drawn from income
dividends, and, to the extent necessary, from Share redemptions (which would
be a return of principal and, if reflecting a gain, would be taxable). If
redemptions continue, a shareholder's account may eventually be exhausted.
Because Share purchases include a sales charge that will not be recovered at
the time of redemption, a shareholder should not have a withdrawal plan in
effect at the same time he is making recurring purchases of Shares. A
shareholder who wishes to enroll in the Systematic Withdrawal Plan may do so
by completing the appropriate section of the Application Form attached to
this Prospectus.
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other ISI
funds, or redeem shares in amounts up to $10,000, by notifying the Transfer
Agent by telephone at (800) 882-8585 on any Business Day between the hours of
8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its
address listed under "Custodian, Transfer Agent, Accounting Services."
Telephone transaction privileges are automatic. Shareholders may specifically
request that no telephone redemptions or exchanges be accepted for their
accounts. This election may be made on the Application Form or at any time
thereafter by completing and returning appropriate documentation supplied by
the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected
at the net asset value as next determined on the following Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring the investor to provide certain personal identification
information at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional
written instructions of such transaction requests. Neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund -- Purchases by Exchange" and "How
to Redeem Shares.")
8. DIVIDENDS AND TAXES
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income (including net short-term capital gains) in the
form of monthly dividends but such dividends are not guaranteed. The Fund may
distribute to shareholders any net capital gains (net long-term capital gains
less net short-term capital losses) on an annual basis or, alternatively, may
elect to retain net capital gains and pay tax thereon.
Unless the shareholder elects otherwise, all income dividends (consisting of
dividend and interest income and the excess, if any, of net short-term
capital gains over net long-term capital losses) and net capital gains
distributions, if any, will be reinvested in additional Shares at the then
net asset value per Share on the payment date. Shareholders may elect to have
income dividends or capital gains paid in cash. Shareholders wishing to
change their election must give written notice to the Transfer Agent (see
"Custodian, Transfer Agent, Accounting Services" below) either directly or
through Armata, a Participating Dealer or a Shareholder Servicing Agent at
least five days before the next date on which dividends or distributions will
be paid.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the shareholders,
and the discussion here is not intended as a substitute for careful tax
planning. The following summary is based on current tax laws and regulations,
15
<PAGE> 17
which may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information concerning
taxes.
The Fund has been and intends to continue to be taxed as a regulated
investment company under Subchapter M of the Code. So long as the Fund
qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders. Foreign source income received by the
Fund may, however, be subject to foreign withholding and other foreign taxes.
Shareholders, unless otherwise exempt, will generally pay income or capital
gains taxes on the amounts so distributed. Reinvested dividends will be taxed
as if they had been distributed on the reinvestment date.
Distributions from the Fund out of net capital gains (net long-term capital
gains less net short-term capital losses), if any, are treated by the
shareholders as long-term capital gains, regardless of the length of time the
shareholder has held the Shares. All other income distributions are taxed to
the shareholders as ordinary income, whether received in cash or in
additional Shares. Fund distributions generally will not be eligible for the
corporate dividends received deduction.
Ordinarily, shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in of the year in which the dividends were
declared.
The Fund intends to make sufficient distributions of its ordinary income and
capital gains net income prior to the end of each calendar year to avoid
liability for federal excise tax.
Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year. Shareholders are urged to
consult with their tax advisors concerning the application of state and local
taxes to investments in the Fund, which may differ from the federal income
tax consequences described above. For example, under certain specified
circumstances, state income tax laws may exempt from taxation distributions
of a regulated investment company to the extent that such distributions are
derived from interest on federal obligations. Shareholders are urged to
consult with their tax advisors regarding whether, and under what conditions
such exemption is available.
9. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributor, administrator, custodian
and transfer agent. The day to day operations of the Fund are delegated to
the Fund's officers, to Armata, as distributor of the Shares, to the Fund's
administrator, and to the Advisor. Two directors and all of the officers of
the Fund are officers or employees of Armata, ISI or the Fund's
administrator. The other directors of the Fund have no affiliation with
Armata, ISI or the Fund's administrator.
The Fund's Directors and officers are as follows:
*Edward S. Hyman ......... Chairman
*Richard T. Hale ......... Vice Chairman
Alonzo G. Decker, Jr. ... Director
N. Bruce Hannay ......... Director
John F. Kroeger ......... Director
Louis E. Levy ........... Director
Eugene J. McDonald ...... Director
Harry Woolf ............. Director
R. Alan Medaugh ......... President
Edward J. Veilleux ...... Vice President
Gary V. Fearnow ......... Vice President
Nancy Lazar ............. Vice President
Brian C. Nelson ......... Vice President and Secretary
Kathleen Simonson ....... Vice President
Diana M. Ellis .......... Treasurer
Carrie L. Butler ........ Assistant Vice President
Laurie D. DePrine ....... Assistant Secretary
- ------------
* Messrs. Hyman and Hale are "interested persons" of the Fund within the
meaning of Section 2(a)(19) under the Investment Company Act.
10. INVESTMENT ADVISOR
ISI, a registered investment advisor, serves as investment advisor to the
Fund pursuant to an Investment Advisory Agreement dated as of December 15,
1992 (the "Investment Advisory Agreement"). ISI employs Messrs. Edward S.
Hyman and R. Alan Medaugh.
16
<PAGE> 18
Due to their stock ownership, Messrs. Hyman and Medaugh may be deemed to be
controlling persons of ISI. As of June 30, 1994, the Advisor had
approximately $1 billion in fixed-income securities under management for
clients both within and outside of the United States. The Advisor also acts
as investment advisor to Total Return U.S. Treasury Fund, Inc. and Managed
Municipal Fund, Inc., both of which funds are U.S. open-end investment
companies with approximately $550 million in aggregate net assets as of June
30, 1994.
Pursuant to the terms of the Investment Advisory Agreement the Advisor is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates under
standards established and periodically reviewed by the Board of Directors. In
general, purchases and sales of securities by the Fund will usually be
principal transactions, and therefore the Fund will not incur substantial
brokerage commission expense. However, the Advisor's primary consideration in
effecting securities transactions will be to obtain best price and execution.
To the extent that the execution and prices of more than one dealer are
comparable, the Advisor may, in its discretion, effect transactions with
dealers that furnish statistical or other information or services that may
benefit the Fund's investment program.
The Advisor and the Administrator have agreed, on a voluntary basis, to waive
a proportionate amount of their fees to the extent required so that the
Fund's total operating expenses do not exceed 1.25% of the Fund's average net
assets. (See "Fee Table.") Furthermore, the Advisor has agreed to reduce its
aggregate fees attributable to the Fund or make payments to the Fund, if
necessary, to the extent required to satisfy any expense limitations imposed
by any securities laws or regulations thereunder of any state in which the
Shares are qualified for sale. As compensation for its services for the
fiscal year ended March 31, 1994, the Advisor received from the Fund a fee
(net of fee waivers) equal to .27% of the Fund's average daily net assets.
The address of the Advisor is 717 Fifth Avenue, New York, New York 10022,
telephone (800) 955-7175.
PORTFOLIO MANAGERS
Edward S. Hyman, Chairman of the Fund and ISI, and R. Alan Medaugh, President
of the Fund and ISI, have shared direct portfolio management responsibility
for the Fund since its inception. Mr. Hyman is responsible for developing the
economic analysis upon which the Fund's selection of investments is based.
(See "Investment Objective, Policies and Risk Factors.") Before joining ISI,
Mr. Hyman was a vice chairman and member of the Board of C.J. Lawrence Inc.
and prior thereto, an economic consultant at Data Resources. He writes two
international economic reports: Weekly International Highlights and the
monthly International Economic Review. He also writes three weekly domestic
reports: Weekly Economic Data, Weekly Money Report and Econometric Estimates.
Mr. Hyman also writes a monthly domestic report, The Month's Best Charts. In
addition, he and his staff compile a Daily Economic Fax. These international
and domestic reports are sent to ISI's private institutional clients in the
United States and overseas. The periodical Institutional Investor, which
rates analysts and economists on an annual basis, has rated Mr. Hyman as its
"first team" economist, which is its highest rating, in each of the last
fourteen years.
Mr. Medaugh is responsible for day to day portfolio management. Prior to
joining ISI, Mr. Medaugh was Managing Director of C.J. Lawrence Fixed Income
Management and prior thereto Senior Vice President and bond portfolio manager
at Fiduciary Trust International. While at Fiduciary Trust International, Mr.
Medaugh led their Fixed-Income Department which managed $5 billion of
international fixed income portfolios for institutional clients. Mr. Medaugh
also had prior experience as a bond portfolio manager at both Putnam
Management Company and Fidelity Management and Research.
11. ADMINISTRATOR
Investment Company Capital Corp. ("ICC" or the "Administrator") 135 East
Baltimore Street, Baltimore, Maryland 21202, provides administration services
to the Fund. ICC is a wholly-owned subsidiary of Alex. Brown and an affiliate
of Armata.
ICC supervises the day to day operations of the Fund, including the
preparation of registration statements, proxy materials, shareholder reports,
compliance with all requirements of securities laws in the states in
17
<PAGE> 19
which the Shares are distributed and oversight of the relationship between the
Fund and its other service providers.
For its services, ICC is entitled to receive an annual fee, calculated daily
and paid monthly, in an amount equal to .20% of the Fund's average net
assets. ICC and the Advisor have agreed, on a voluntary basis, to waive a
proportionate amount of their fees, to the extent required so that the Fund's
total operating expenses do not exceed 1.25% of the Fund's average net
assets. (See "Fee Table.") For the period from January 1, 1994 through March
31, 1994, ICC received an annualized fee (net of fee waivers) equal to .14%
of the Fund's average net assets. Prior to January 1, 1994, Alex. Brown
provided these services to the Fund and for the period from April 1, 1993
through December 31, 1993 received an annualized fee (net of fee waivers)
equal to .14% of the Fund's average net assets. ICC is also the Fund's
transfer and dividend disbursing agent. (See "Custodian, Transfer Agent,
Accounting Services.")
12. DISTRIBUTOR
Armata Financial Corp. acts as distributor of the Shares. Armata is a
broker-dealer that was formed in 1983 and is an affiliate of the
Administrator. Pursuant to a Distribution Agreement and a Plan of
Distribution (the "Plan") adopted pursuant to Rule 12b-1 under the Investment
Company Act, for the fiscal year ended March 31, 1994, Armata received a fee
equal to .40% of the average daily net assets invested in Shares. Armata
expects to allocate on a proportional basis most of its annual distribution
fee to its investment representatives or up to all of its fee to
Participating Dealers as compensation for their ongoing shareholder services,
including processing purchase and redemption requests and responding to
shareholder inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Armata may allocate all or a portion of
its distribution fee as compensation for such financial institutions' ongoing
shareholder services (e.g., processing purchases and redemptions, maintaining
shareholder account records and communicating with shareholders). Such
financial institutions may impose separate fees in connection with these
services and investors should review this Prospectus in conjunction with any
such institution's fee. Amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Armata under
the Plan.
Payments under the Plan are made as described above regardless of Armata's
actual cost of providing distribution services and may be used to pay
Armata's overhead expenses. If the cost of providing distribution services to
the Fund in connection with the sale of the Shares is less than .40% of the
average daily net assets invested in Shares for any period, Armata may retain
the unexpended portion of the distribution fee as profit. Armata or its
associated persons will from time to time and from its own resources pay or
allow additional discounts or promotional incentives in the form of cash or
other compensation (including merchandise and travel) to Participating
Dealers.
The address of Armata is 135 East Baltimore Street, Baltimore, Maryland
21202.
13. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), a national banking association
with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Barclay's
International, 75 Wall Street, New York, New York 10265, has been retained to
serve as the Fund's custodian with respect to its foreign investments.
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore,
Maryland 21202, telephone (800) 882-8585, is the Fund's transfer and dividend
disbursing agent. TSSG, Inc., One Exchange Place, Boston, Massachusetts
02109, provides accounting services to the Fund. For the period from April 1,
1993 through June 30, 1993, the Administrator provided accounting services to
the Fund and received from the Fund an annualized fee equal to .10% of the
Fund's average net assets.
14. PERFORMANCE INFORMATION
From time to time, the Fund may quote total return and yield data in
advertisements or in reports to shareholders. Both total return and yield
18
<PAGE> 20
data will be computed according to the standardized calculations required by the
SEC to provide consistency and comparability in investment company advertising.
The yield of the Fund will be determined by dividing the net investment
income earned by the Fund during a 30 day period by the maximum offering
price per Share on the last day of the period and annualizing the result on a
semi-annual basis.
Advertisements or reports citing performance data will show the average
annual total return, net of the Fund's sales charge, over one, five and ten
year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such return quotations will be
computed by finding average annual compounded rates of return over such
periods that would equate an assumed initial investment of $1,000 to the
ending redeemable value, net of all sales loads and other fees, according to
the required standardized calculation. The Fund's total return for a given
period is based upon changes in the Fund's net asset value and the Fund's
yield for the period. If the Fund compares its performance to other funds or
to relevant indices, the Fund's performance will be stated in the same terms
in which such comparative data and indices are stated, which is normally
total return rather than yield. For these purposes, the performance of the
Fund, as well as the performance of such investment companies or indices, may
not reflect sales charges, which, if reflected, would reduce performance
results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc. and CDA Investment Technologies, Inc., independent
services which monitor the performance of mutual funds. The performance of
the Fund may also be compared to the Shearson Lehman Government Corporate
Bond Index (or any of its sub-indices), the return on 90 day U.S. Treasury
bills, the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average. The Fund may also use total return performance data as reported in
the following national publications which monitor the performance of mutual
funds: Money Magazine, Forbes, Business Week, Barron's, Investor's Daily,
IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Yield quotations and performance comparisons may be useful as a basis for
comparing the Fund with other investment alternatives. However, shareholders
should realize that the Fund's current yield and any statement of performance
will fluctuate from time to time and are not necessarily representative of
the Fund's future performance. Yield and performance data should also be
considered in light of the risks associated with the Fund's investment
objective and policies.
The Fund currently anticipates that its portfolio turnover rate will not
exceed 200% in the fiscal year ending March 31, 1995. A high level of
portfolio turnover may generate relatively high transaction costs and may
increase the amount of taxes payable by the Fund's shareholders. For the
fiscal year ended March 31, 1994, the Fund's portfolio turnover rate was
219.45%. However, the Fund paid no brokerage commissions during such period.
15. GENERAL INFORMATION
CAPITAL SHARES
The Fund was incorporated under the laws of the State of Maryland on October
20, 1992, and is authorized to issue 25 million shares of capital stock with
a par value of $.001 per share. Shares of the Fund have equal rights with
respect to voting. Voting rights are not cumulative, so the holders of more
than 50% of the outstanding Shares voting together for election of Directors
may elect all the members of the Board of Directors of the Fund. The fiscal
year end of the Fund is March 31. In the event of liquidation or dissolution
of the Fund, each Share is entitled to its portion of the Fund's assets after
all debts and expenses have been paid. The Board of Directors of the Fund is
authorized to establish additional series and classes of shares of capital
stock. Each series would evidence interests in a separate portfolio of
securities, and each class would evidence separate classes of each series of
the Fund. The Board has no present intention of establishing any additional
series or classes of the Fund.
ANNUAL MEETINGS
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders will be held under certain circumstances.
Shareholders of the Fund reserve the right, under certain circumstances, to
19
<PAGE> 21
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
REPORTS
The Fund furnishes shareholders with quarterly reports containing information
about the Fund and its operations, including a list of investments held in
the Fund's portfolio. The annual financial statements are audited by the
Fund's independent accountants, Coopers & Lybrand.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the
Transfer Agent at (800) 882-8585, Armata, ISI, a Participating Dealer or
Shareholder Servicing Agent, as appropriate.
20
<PAGE> 22
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<PAGE> 23
ISI NORTH AMERICAN GOVERNMENT BOND FUND SHARES
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "ISI North American Government Bond Fund Shares" and
mail with this application to:
ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent at
(800) 882-8585.
To open an IRA account, call ISI at (800) 955-7175 to request an application.
Except as provided below the minimum initial purchase is $5,000 and each
subsequent purchase requires a $250 minimum. The Fund reserves the right not
to accept checks for more than $50,000 that are not certified or bank checks.
- -----------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
INDIVIDUAL OR JOINT TENANT
- -----------------------------------------------------------------------------
First Name Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
- -----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- -----------------------------------------------------------------------------
Tax ID Number
- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- -----------------------------------------------------------------------------
Existing Account No., if any
GIFTS TO MINORS
- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -----------------------------------------------------------------------------
Minor's Name (only one)
- -----------------------------------------------------------------------------
Social Security Number of Minor
under the ______________________ Uniform Gifts to Minors Act
State of Residence
YOUR MAILING ADDRESS
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone
_____________________________________________________________________________
STATEMENT OF INTENTION (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. I intend to invest over a 13-month period in shares
of ISI North American Government Bond Fund Shares in an aggregate amount at
least equal to:
__$100,000 __$250,000 __$500,000 __$1,000,000 __$2,000,000 __$3,000,000
_____________________________________________________________________________
<PAGE> 24
RIGHT OF ACCUMULATION (OPTIONAL)
[ ] I already own shares of the Fund(s) set forth below to be applied for a
reduced sales charge. List the Account numbers of other Funds that you or
your immediate family (spouse and children under 21) already own that qualify
for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
<PAGE> 25
DISTRIBUTION OPTIONS
Please check appropriate boxes. There is no sales charge for reinvested
dividends. If none of the options are elected, all distributions will be
reinvested.
Income Dividends
[ ] Reinvested in additional shares
[ ] Paid in Cash
Capital Gains
[ ] Reinvested in additional shares
[ ] Paid in Cash
_____________________________________________________________________________
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for Automatic Investing 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: $5,000
Subsequent Investment (check one): Please attach a voided check.
[ ] Monthly ($250 minimum)
[ ] Quarterly ($250 minimum)
- -----------------------------------------------------------------------------
Bank Name
- -----------------------------------------------------------------------------
Existing ISI North American Government Bond Fund Account No., if any
- -----------------------------------------------------------------------------
Depositor's Signature Date
- -----------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
_____________________________________________________________________________
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] I authorize that beginning the month of ___________, 19__, please send me
checks on a monthly or quarterly basis, as shown below, in the amount of
$______ payable to the account registration address as shown above.
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 $10,000) and telephone exchange privileges (with respect
to other ISI funds) unless I mark one or both of the boxes below.
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: _____________________ Bank Account No: ____________________
Address: _____________________ Bank Account Name: ____________________
_____________________
_____________________________________________________________________________
<PAGE> 26
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated July 29, 1994. Under
penalties of perjury, I certify (1) that the number shown on this form is my
correct taxpayer identification number and (2) that I am not subject to
backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me that I am no
longer subject to backup withholding. (Strike out the language in (2) if it
is not correct.)
If a non-resident alien, please indicate country of residence: _________________
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
_______________________ ____________________________________________________
Signature Date Signature (if a joint acct., both must sign) Date
_____________________________________________________________________________
FOR DEALER USE ONLY
Dealer's Name: ____________________ Dealer Code: __________________________
Dealer's Address:____________________ Branch Code: __________________________
____________________
Representative: ____________________ Rep. No. __________________________
<PAGE> 27
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<PAGE> 28
ISI
NORTH AMERICAN
GOVERNMENT BOND
FUND SHARES
(A Class of North American
Government Bond Fund, Inc.)
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund or Armata. This
Prospectus does not constitute an offering by the Fund or Armata in any
jurisdiction in which such offering may not lawfully be made.
TABLE OF CONTENTS
PAGE
----
1. Fee Table ........................ 2
2. Financial Highlights ............. 3
3. Investment Objective, Policies
and Risk Factors .................. 4
4. Investment Restrictions .......... 11
5. How to Invest in the Fund ........ 12
6. How to Redeem Shares ............. 14
7. Telephone Transactions ........... 15
8. Dividends and Taxes .............. 15
9. Management of the Fund ........... 16
10. Investment Advisor ............... 16
11. Administrator .................... 17
12. Distributor ...................... 18
13. Custodian, Transfer Agent,
Accounting Services ............... 18
14. Performance Information .......... 18
15. General Information .............. 19
ISI
INTERNATIONAL STRATEGY AND INVESTMENT
ISI
NORTH AMERICAN
GOVERNMENT BOND
FUND SHARES
(A Class of North American
Government Bond Fund, Inc.)
An open-end mutual fund designed to provide a high level of current
income, consistent with prudent investment risk, by investing primarily in a
portfolio consisting of fixed-income securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
JULY 29, 1994
PROSPECTUS
