<PAGE>
As Filed With the Securities and Exchange Commission on July 26, 1995
Registration No. 33-53598
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 4 [X]
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
717 Fifth Avenue
New York, New York 10022
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 446-5600
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Edward J. Veilleux
135 East Baltimore Street
Baltimore, MD 21202
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(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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X on August 1, 1995 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on [Date] pursuant to paragraph (a) or rule 485
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price(1) Registration Fee
Share of Common Stock 2,048,106 shares $8.65 per share -- (1) $100
</TABLE>
(1) Registrant has calculated the maximum aggregate offering price pursuant to
Rule 24e-2 under the Investment Company Act of 1940 (the "1940 Act") for
fiscal year ended March 31, 1995. Registrant had actual aggregate
redemptions of 2,858,167 shares for its fiscal year ended March 31, 1995;
has used 843,587 of available redemptions for reductions pursuant to
Rule 24f-2(c) under the 1940 Act and has previously used no available
redemptions for reductions pursuant to Rule 24e-2(a) of the 1940 Act
during the current year. Registrant elects to use redemptions in the
aggregate amount of 2,014,580 shares for reductions in its current
amendment.
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Registrant has elected to maintain registration of an indefinite number of
shares of its Common Stock, $.001 par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed its Rule 24f-2 notice for its
fiscal year ended March 31, 1995, on May 26, 1995.
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
July 26, 1995
Cross Reference Sheet
Items Required by Form N-1A
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<TABLE>
<CAPTION>
Part A Information Required in Prospectus Registration Statement Heading
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<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Objective and
Policies;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor;
Distributor; Custodian, Transfer
Agent, Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Fund
Item 8. Redemption or Repurchase How to Redeem Shares
Item 9. Pending Legal Proceedings **
Part B Information Required in a Statement
- ------ of Additional Information
-----------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objective,
Policies and Risk
Considerations
</TABLE>
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* Information required by Item 5A is contained in the Registrant's 1995 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Holders Control Persons and
of Securities Principal Holders of
Securities
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent,
Accounting Services
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Shares;
Quarterly Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C Other Information
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Part C contains the information required by the items contained
therein under the items set forth in the form.
</TABLE>
<PAGE>
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 August 1, 1995 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.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 1, 1995.
<PAGE>
1. FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases ......................................... 3.00%
Maximum Sales Charge Imposed on Reinvested Dividends .............................. None
Deferred Sales Charge ............................................................. 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%*
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Total Fund Operating Expenses (net of fee waivers) ................................ 1.25%*
</TABLE>
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*The Advisor and the Administrator have voluntarily agreed to waive
proportionate amounts of their respective 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. Absent fee waivers, Management Fees would be .40%, Other
Expenses (including administration fees) would be .65% and Total Fund Operating
Expenses would be 1.45%, respectively, of the Fund's average net
assets.
Example:
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<CAPTION>
1 year 3 years 5 years 10 years
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<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>
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*The example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
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, 1995 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>
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 L.L.P., independent accountants. The financial statements for the
fiscal year ended March 31, 1995 and the report thereon of Coopers & Lybrand
L.L.P. 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, 1995, which can be obtained at no charge by
calling the Fund at (800) 955-7175.
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year
Ended For the Period
March 31, January 15, 1993*
----------------------------- through
1995 1994 March 31, 1993
-------------- ------------ ------------------
<S> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period.. $ 9.53 $ 10.14 $ 10.00
------- ------- -------
Income from Investment
Operations:
Net investment income . 0.63 0.89 0.10
Net realized and
unrealized
gain/(loss) on
investments ........ (1.38) (0.58) 0.12
------- ------- -------
Total from Investment
Operations ......... (0.75) 0.31 0.22
Less Distributions:
Dividends from net
investment income
and short-term
gains .............. (0.45) (0.92) (.08)
Return of capital-tax (0.27) -- --
------- ------- --------
Total distributions ... (0.72) (0.92) (0.08)
Net asset value at end
of period .......... $ 8.06 $ 9.53 $ 10.14
======= ======= =======
Total Return** .......... (8.31)% 2.77% 2.18%
Ratios to Average Net
Assets:
Expenses .............. 1.25%(2) 1.25%(2) 1.25%(1)(2)
Net investment income . 7.04%(3) 7.04%(3) 7.62%(1)(3)
Supplemental Data:
Net assets at end of
period (000) ....... $66,292 $93,622 $40,937
Portfolio turnover rate 104% 219% 104%
</TABLE>
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* Commencement of Operations.
** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
(1) Annualized.
(2) Without the waiver of advisory and administration fees, the ratio of
expenses to average net assets would have been 1.45%, 1.44% and 2.19%
(annualized) for the years ended March 31, 1995, March 31, 1994, and for
the period ended 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 6.84%, 6.85% and
6.68% (annualized) for the years ended March 31, 1995, March 31, 1994 and
for the period ended March 31, 1993, respectively.
<PAGE>
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.
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
3
<PAGE>
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 Ratings
Group ("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, in the case of long-term securities, 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, or in the
case of short-term securities, Prime-3 or higher by Moody's or A-3 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. 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 Baa or BBB, in the case of a long-term security, or Prime-3 or
A-3 in the case of a short-term security 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
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
4
<PAGE>
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, 1995 the Fund held no below investment grade 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
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.
5
<PAGE>
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 (i) in the
case of long-term securities, 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, or (ii) in the case of
short-term securities, Prime-3 or higher by Moody's or A-3 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) Ajustabonos, 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 the former U.S. Secretary
of the Treasury. 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 March 22, 1995, S&P downgraded the ratings assigned to long-term
fixed-income securities (i.e., bondes and ajustabonos) and short-term debt
securities (i.e., cetes) issued by the Mexican government denominated in Mexican
pesos from A to BBB+ and from A-1 to A-2, respectively. On February 10, 1995,
S&P downgraded the rating assigned to long-term fixed-income securities
issued by the Mexican government denominated in U.S. dollars from BB+ to BB.
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
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.")
6
<PAGE>
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. Recently, Canadian real economic growth has picked up after
several years of marginal performance. A return to marginal 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.
Canadian dollars are fully exchangeable into U.S. dollars without foreign
exchange controls or other legal restriction. Since the major developed
country currencies were permitted to float freely against one another, the
range of fluctuation in the U.S. dollar/Canadian dollar exchange rate has
been narrower than the range of fluctuation between the U.S. dollar and most
other major currencies. For the period from January 15, 1993 (inception of
the Fund) through June 30, 1995, the Canadian dollar decreased in value
compared to the U.S. dollar by approximately 7%. Recently, however, Canada
has experienced a strengthening of its currency and in the year ended June
30, 1995, the Canadian dollar has increased in value compared to the U.S.
dollar by approximately 1%. The range of fluctuation that occurred in the
past is not necessarily indicative of the range of fluctuation that will
occur in the future. Future rates of exchange cannot be predicted.
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.
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 political and social problems and
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.
While in recent years the Mexican economy has experienced improvement in a
number of areas, including growth in domestic product and a substantial
reduction in the rate of inflation and in public sector financial deficit,
beginning in 1994, Mexico has experienced an economic crisis that led to the
devaluation of the Mexican peso in December 1994. Much of the past
improvement in the Mexican economy has been attributable to a series of
economic policy initiatives by the Mexican government over the past decade,
which seek to modernize and reform the Mexican economy, control inflation,
reduce the financial deficit, increase public revenues through the reform of
the tax system, establish a competitive and stable currency exchange rate,
liberalize trade restrictions and increase investment and productivity, while
7
<PAGE>
reducing the government's role in the economy. In this regard, the Mexican
government has been proceeding with a program for privatizing certain state
owned enterprises, developing and modernizing the securities markets, increasing
investment in the private sector and permitting increased levels of foreign
investment. The adoption by Canada, the United States and Mexico of the North
American Free Trade Agreement could also contribute to the growth of the Mexican
economy.
Relative high rates of interest, inflation, unemployment and, most recently,
the economic crisis that led to the devaluation of the Mexican peso beginning
in December 1994 continue to affect the Mexican economy adversely. Mexico is
currently the second largest debtor nation (among developing countries) to
commercial banks and foreign governments. The successful implementation of
the economic policy initiatives and the growth of the Mexican economy involve
significant structural changes to the Mexican economy and will necessitate
continued economic and fiscal discipline. In addition, as a condition to
receiving assistance from the United States, other countries and certain
international agencies to stabilize the Mexican economy, the Mexican
government has agreed to adhere to a program of strict economic reform. An
important aspect of Mexico's economic policy is the ability of the government
to be successful in its continuing efforts to control its financial deficit,
finance its current account deficit, further reduce inflation and stabilize
the Mexican peso. There is no assurance that Mexico's economic policy
initiatives will be successful or that succeeding administrations will
continue these initiatives.
In 1982, Mexico imposed foreign exchange controls and maintained a dual
foreign exchange rate system, with a "controlled" rate and a "free market"
rate. In November, 1991, Mexico abolished the controlled rate and now
maintains only the free exchange rate. Under economic policy initiatives
implemented since December 1987, the Mexican government introduced a schedule
of gradual devaluations of the Mexican peso against the U.S. dollar. These
gradual devaluations continued until December, 1994. On December 22, 1994 the
Mexican government announced that it would permit the Mexican peso to float
against other currencies, resulting in a continued decline against the U.S.
dollar. 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. (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
8
<PAGE>
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
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
9
<PAGE>
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 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
fundamental policy, and as such, may not be changed without the affirmative
vote of a majority of the outstanding shares. The Fund may not:
10
<PAGE>
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"). Shares may also be
purchased directly from the Fund by completing the Application Form attached
to this Prospectus and returning it, together with payment of the purchase
price plus any applicable front-end sales charge, to the Fund at the address
shown on the Application Form.
The minimum initial investment is $5,000, except that the minimum initial
investment for qualified retirement plans and IRAs is $1,000 and the minimum
initial investment for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent investment must be at least $250, except that the
minimum subsequent investment for participants in the Fund's Automatic
Investing Plan is $100 for monthly investments and $250 for quarterly
investments. (See "Purchases Through Automatic Investing Plan" below.). The
Fund reserves the right to suspend the sale of Shares at any time at the
discretion of Armata. Orders for purchases of Shares are accepted on any day
on which the New York Stock Exchange is open for business ("Business Day").
Purchase orders for Shares will be executed at a per Share purchase price
equal to the net asset value next determined after receipt of the purchase
order plus any applicable sales charge (the "Offering Price") on the date
such net asset value is determined (the "Purchase Date"). Purchases made
directly from the Fund must be accompanied by payment of the Offering Price.
Purchases made through Armata or a Participating Dealer or Shareholder
Servicing Agent must be in accordance with such entity's payment procedures.
Armata may, in its sole discretion, refuse to accept any purchase order.
The net asset value per Share is determined once daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) on each
Business Day. Net asset value per Share 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.
11
<PAGE>
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.
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. An
investor who wishes to enter into a Letter of Intent in conjunction with an
investment in Shares may do so by completing the appropriate section of the
Application Form attached to this Prospectus.
The Fund may sell Shares at net asset value (without sales charge) to the
following: (i) banks, bank trust departments, registered investment advisory
companies, financial planners and broker-dealers purchasing Shares on behalf
of their fiduciary and advisory clients, provided such clients have paid an
account management fee for these services; (ii) investors who have redeemed
Shares, or shares of any other mutual fund in the ISI family of funds that
has similar 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; and
(iii) current or retired Directors of the Fund, directors and employees (and
their immediate families) of ISI, the Fund's administrator and their
respective affiliates, and employees of Participating Dealers.
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
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.
Until February 28, 1996, shareholders of any other mutual fund who have paid
a sales charge on their shares of such fund, and shareholders of any
closed-end fund, may exchange shares of such funds for an equal dollar amount
of Shares by submitting to Armata or a Participating Dealer the proceeds of
the redemtion or sale of shares of such funds, together with evidence of the
payment of a sales charge (for mutual funds only) and the source of such
proceeds. Shares issued pursuant to this offer will not be subject to the
sales charges described above or any other charge.
The exchange privilege may be exercised only in those states where the class
of shares of such other funds may legally be sold. Investors should receive
and read the applicable prospectus prior to tendering shares for exchange.
The Fund may modify or terminate 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
12
<PAGE>
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 $50,000). (See "Telephone Transactions" below.) A
redemption order is effected at the net asset value per Share next determined
after receipt of the order (or, if stock certificates have been issued for
the Shares to be 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 $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If Shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for Shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Shares will be paid on the
next dividend payable date. If all of the Shares in a shareholder's account
have been redeemed on a dividend payable date, the dividend will be remitted
by check to the shareholder.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 as a result of redemptions
upon 60 days' 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 Fund's
Systematic Withdrawal Plan. Such payments are drawn from income dividends,
and, to the extent necessary, from Share redemptions (which would be a return
of principal and, if reflecting a gain, would be taxable). If redemptions
continue, a shareholder's account may eventually be exhausted. Because Share
purchases include a sales charge that will not be recovered at the time of
redemption, a shareholder should not have a withdrawal plan in effect at the
same time he is making recurring purchases of Shares. A shareholder who
wishes to enroll in the Systematic Withdrawal Plan may do so by completing
the appropriate section of the Application Form attached to this Prospectus.
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other ISI
funds, or redeem shares in amounts up to $50,000, by notifying the Transfer
Agent by telephone at (800) 882-8585 on any Business Day between the hours of
13
<PAGE>
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. The Fund or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
telephone instructions if either of them does not employ these procedures.
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,
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. 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
14
<PAGE>
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.
The 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:
<TABLE>
<CAPTION>
<S> <C>
*Edward S. Hyman Chairman
*Richard T. Hale Vice Chairman
James J. Cunnane Director
N. Bruce Hannay Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
*Rebecca W. Rimel 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
Diana M. Ellis Treasurer
Carrie L. Butler Assistant Vice President
Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
* Messrs. Hyman and Hale are, and Ms. Rimel may be, "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. Due to their stock ownership, Messrs. Hyman and
Medaugh may be deemed to be controlling persons of ISI. As of June 30, 1995,
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 $505 million in aggregate net assets
as of June 30, 1995.
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.
15
<PAGE>
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, 1995, 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
fifteen 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 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 fiscal year ended March 31, 1995, ICC
received a fee (net of fee waivers) equal to .13% of the Fund's average net
assets. ICC is also the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
12. DISTRIBUTOR
Armata Financial Corp. acts as distributor of the Shares. 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, 1995, Armata received a fee
equal to .40% of the average daily net assets invested in Shares. Armata
16
<PAGE>
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 schedule. In addition, financial institutions may be
required to register as dealers pursuant to state securities laws. Amounts
allocated to Participating Dealers and Shareholder Servicing Agents may not
exceed amounts payable to Armata under the Plan with respect to shares held
by or on behalf of customers of such entity.
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 and, effective April 10, 1995, provides accounting services
to the Fund. As compensation for providing accounting services, ICC receives
from the Fund an annual fee equal to $13,000, plus a percentage of the Fund's
average daily net assets in excess of $10 million at a maximum rate of .100%
of net assets and declining at various asset levels to a minimum rate of
.001% on net assets of $1 billion or more. (See the Statement of Additional
Information.) ICC also serves as the Fund's administrator.
14. PERFORMANCE INFORMATION
From time to time, the Fund may quote total return and yield data in
advertisements or in reports to shareholders. Both total return and yield
data will be computed according to the standardized calculations required by
the SEC to provide consistency and comparability in investment company
advertising.
The yield of the Fund will be determined by dividing the net investment
income earned by the Fund during a 30 day period by the maximum offering
price per Share on the last day of the period and annualizing the result on a
semi-annual basis.
Advertisements or reports citing performance data will show the average
annual total return, net of the Fund's sales charge, over one, five and ten
year 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.
17
<PAGE>
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 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's annual portfolio turnover rate (the lesser of the value of the
purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding securities with maturities of one
year or less) may vary from year-to-year, as well as within a year, depending
on market conditions. 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 years ended March 31, 1995
and March 31, 1994, the Fund's portfolio turnover rate was 104% and 219%,
respectively. However, the Fund paid no brokerage commissions during such
periods.
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
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the
Fund will assist with shareholder communications in connection with the
meeting.
REPORTS
The Fund furnishes shareholders with semi-annual 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 L.L.P.
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.
FUND COUNSEL
Morgan, Lewis & Bockius serves as counsel to the Fund.
18
<PAGE>
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.
The minimum initial purchase is $5,000, except that the minimum initial purchase
for qualified retirement plans or IRA's is $1,000 and the minimum initial
purchase for participants in the Fund's Automatic Investing Plan is $250. Each
subsequent purchase requires a $250 minimum, except that the minimum subsequent
purchase under the Fund's Automatic Investing Plan is $100 for monthly purchases
and $250 for quarterly purchases. The Fund reserves the right not to accept
checks for more than $50,000 that are not certified or bank checks.
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
__________________________________
Existing Account No., if any:
INDIVIDUAL OR JOINT TENANT
______________________________________________________________________________
First Name Initial Last Name
______________________________________________________________________________
Social Security Number
______________________________________________________________________________
Joint Tenant Initial Last Name
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
<PAGE>
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
______________________________________________________________________________
Name of Corporation, Trust or Partnership
______________________________________________________________________________
Tax ID Number
______________________________________________________________________________
Name of Trustees (If to be included in the Registration)
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
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>
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 Investments (check one):
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
______________________________________________________________________________
Bank Name
______________________________________________________________________________
Existing ISI North American Government Bond Fund Account No., if any
Please attach a voided check.
______________________________________________________________________________
Depositor's Signature Date
______________________________________________________________________________
Depositor's Signature Date
(if joint acct., both must sign)
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of _______, 19______ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $______,
from Shares that I own, payable to the account registration address as shown
above. (Participation requires minimum account value of $10,000.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July and October)
<PAGE>
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: ________________________________________________________________________
Address: _____________________________________________________________________
______________________________________________________________________________
Bank Account No: _____________________________________________________________
Bank Account Name: ___________________________________________________________
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated August 1, 1995. 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 joint acct., both must sign) Date
For Dealer Use Only
Dealer's Name:_________________________________ Dealer Code:_________________
Dealer's Address:______________________________ Branch Code:_________________
______________________________
Representative: ______________________________ Rep. No. _________________
<PAGE>
ISI INTERNATIONAL STRATEGY AND INVESTMENT
ISI
NORTH AMERICAN
GOVERNMENT BOND
FUND SHARES
(A Class of North American
Government Bond Fund, Inc.) ISI
NORTH AMERICAN
No person has been authorized to GOVERNMENT BOND
give any information or to make FUND SHARES
representations not contained in (A Class of North American
this Prospectus in connection with Government Bond Fund, Inc.)
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. An open-end mutual fund
This Prospectus does not constitute an designed to provide a high level
offering by the Fund or Armata in any of current income, consistent
jurisdiction in which such offering may with prudent investment risk, by
not lawfully be made. investing primarily in a
portfolio consisting of
fixed-income securities issued
TABLE OF CONTENTS or guaranteed by the governments
of the United States, Canada and
Mexico.
August 1, 1995
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Fee Table .................... 2
2. Financial Highlights ......... 3
3. Investment Objective, Policies
and Risk Factors .............. 3
4. Investment Restrictions ...... 10
5. How to Invest in the Fund .... 11
6. How to Redeem Shares ......... 13
7. Telephone Transactions ....... 13
8. Dividends and Taxes .......... 14
9. Management of the Fund ....... 15
10. Investment Advisor ........... 15
11. Administrator ................ 16
12. Distributor .................. 16
13. Custodian, Transfer Agent,
Accounting Services ........... 17
14. Performance Information ...... 17
15. General Information .......... 18
</TABLE>
PROSPECTUS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
____________________________
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
717 Fifth Avenue
New York, New York 10022
____________________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH
A PROSPECTUS FOR THE APPLICABLE CLASS, WHICH MAY BE
OBTAINED FROM YOUR PARTICIPATING DEALER OR BY WRITING
OR CALLING ARMATA FINANCIAL CORP., P.O. BOX 515, BALTIMORE,
MARYLAND 21203, (410) 727-1700.
Statement of Additional Information Dated: August 1, 1995
Relating to Prospectus Dated: August 1, 1995
of
ISI North American Government Bond Fund Shares
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. General Information and History...................... 1
2. Investment Objective, Policies and
Risk Considerations................................ 1
3. Additional Information About
Canada and Mexico.................................... 7
4. Valuation of Shares and Redemption................... 20
5. Federal Tax Treatment of Dividends and
Distributions...................................... 21
6. Management of the Fund............................... 23
7. Investment Advisory and Other Services............... 27
8. Administration....................................... 29
9. Distribution of Fund Shares.......................... 29
10. Portfolio Transactions.............................. 31
11. Capital Stock........................................ 32
12. Semi-Annual Reports.................................. 33
13. Custodian, Transfer Agent and
Accounting Services................................ 33
14. Independent Accountants.............................. 34
15. Control Persons and Principal Holders of
Securities......................................... 34
16. Performance and Yield Computations................... 34
17. Financial Statements ................................ 36
</TABLE>
APPENDIX - Moody's Investors Service and Standard & Poor's Ratings
Definitions
<PAGE>
1. GENERAL INFORMATION AND HISTORY
North American Government Bond Fund, Inc. (the "Fund") is an open-end,
non-diversified, management investment company. Under the rules and
regulations of the Securities and Exchange Commission (the "SEC"), all mutual
funds are required to furnish prospective investors with certain information
concerning the activities of the company being considered for investment.
The Fund currently has one class of shares: ISI North American Government
Bond Fund Shares. The prospectus for such class of the Fund's shares
contains important information concerning that class of shares and the Fund,
and may be obtained without charge from Armata Financial Corp. ("Armata"),
P.O. Box 515, Baltimore, Maryland 21203, or from Participating Dealers that
offer shares of the Fund (the "Shares") to prospective investors.
Prospectuses may also be obtained from Shareholder Servicing Agents. Some of
the information required to be in this Statement of Additional Information is
also included in the Fund's current Prospectus. To avoid unnecessary
repetition, references are made to related sections of the Prospectus. In
addition, the Prospectus and this Statement of Additional Information omit
certain information concerning the Fund and its business that is contained in
the Registration Statement with respect to 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
October 20, 1992. The Fund filed a registration statement with the SEC
registering itself as an open-end, non-diversified management investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act") and its Shares under the Securities Act of 1933 and commenced
operations on January 15, 1993.
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
Investment Objective, Policies and Risk Considerations of the Fund
The Fund's investment objective and its general investment policies are
described in the Prospectus. Additional investment restrictions are set
forth below. This Statement of Additional Information also describes other
investment practices in which the Fund may engage. These practices include
entering into repurchase agreements and purchasing securities for future
delivery. The Fund may also engage in certain other investment practices as
a means of protecting against fluctuations in foreign currencies, which
practices are described more fully below.
Except as described below under "Investment Restrictions of the Fund",
the investment policies described in the Prospectus and in this Statement of
Additional Information are not fundamental, and the Directors may change such
policies without an affirmative vote of a majority of the Fund's outstanding
Shares (as defined under "Capital Shares" below). The Fund's investment
objective is fundamental, however, and may not be changed without such a
vote.
Below Investment Grade Bonds
The Fund may purchase bonds including debentures, that are rated BB by
S&P or Ba by Moody's, or that are unrated if such bonds, in the judgment of
the Fund's investment advisor, International Strategy and Investment Inc.
("ISI" or the "Advisor"), meet the quality criteria established by the Board
of Directors. These bonds are generally known as "junk bonds." These
securities may trade at substantial discounts from their face values.
Appendix A to this Statement of Additional Information sets forth a
description of the S&P and Moody's rating categories, which indicate the
rating agency's opinion as to the probability of timely payment of interest
and principal. Generally, securities which are rated lower than BBB by S&P
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or Baa by Moody's are described as below investment grade. Securities rated
lower than investment grade are of a predominately speculative character and
their future cannot be considered well-assured. The issuer's ability to make
timely payments of principal and interest may be subject to material
contingencies. Securities in the lowest rating categories may be unable to
make timely interest or principal payments and may be in default and in
arrears in interest and principal payments.
Ratings of S&P and Moody's represent their opinions of the quality of
bonds and other debt securities they undertake to rate at the time of
issuance. However, ratings are not absolute standards of quality and may not
reflect changes in an issuer's creditworthiness. Accordingly, the Advisor
does not rely exclusively on ratings issued by S&P or Moody's in selecting
portfolio securities but supplements such ratings with independent and
ongoing review of credit quality. In addition, the total return the Fund may
earn from investments in high yield securities will be significantly affected
not only by credit quality but by fluctuations in the markets in which such
securities are traded. Accordingly, selection and supervision by the Advisor
of investments in lower rated securities involves continuous analysis of
individual issuers, general business conditions, activities in the high yield
bond market and other factors. The analysis of issuers may include, among
other things, historic and current financial conditions, strength of
management, responsiveness to business conditions, credit standing and
current and anticipated results of operations. Analysis of general business
conditions and other factors may include anticipated changes in economic
activity in interest rates, the availability of new investment opportunities
and the economic outlook for specific industries.
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 high yield bonds will fluctuate
over time, reflecting not only changing interest rates but also the bond
market's perception of credit quality and the outlook for economic growth.
When economic conditions appear to be deteriorating, lower rated bonds may
decline in value due to heightened concern over credit quality, regardless of
prevailing interest rates. In addition, in adverse economic conditions, the
liquidity of the secondary market for junk bonds may be significantly
reduced, and there may be significant disparities in the prices quoted for
high yield bonds by various dealers. In addition, adverse economic
developments could disrupt the high yield market, affecting both price and
liquidity, and could also affect the ability of issuers to repay principal
and interest, thereby leading to a default rate higher than has been the case
historically.
Yields and market values of high yield bonds will fluctuate over time,
reflecting not only changing interest rates but the bond market's perception
of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value
due to heightened concern over credit quality, regardless of prevailing
interest rates.
In adverse economic conditions, the liquidity of the secondary market
for high yield bonds may be significantly reduced. Even under normal
conditions, the market for high yield bonds may be less liquid than the
market for investment grade corporate bonds. There are fewer securities
dealers in the high yield market and purchasers of high yield bonds are
concentrated among a smaller group of securities dealers and institutional
investors. In periods of reduced market liquidity, the market for high yield
bonds may become more volatile and there may be significant disparities in
the prices quoted for high yield securities by various dealers. Under
conditions of increased volatility and reduced liquidity, it would become
more difficult for the Fund to value its portfolio securities accurately
because there might be less reliable, objective data available.
Finally, prices for high yield bonds may be affected by legislative and
regulatory developments.
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In addition, from time to time, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructuring such as takeovers, mergers or leveraged buy
outs. Such legislation may significantly depress the prices of outstanding
high yield bonds.
Repurchase Agreements
The Fund may agree to purchase U.S. Treasury securities, Canadian
Treasury securities or Mexican Treasury securities from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price.
Repurchase agreements related to Canadian Treasury securities and Mexican
Treasury securities will be of a duration of no more than one day.
Repurchase agreements related to U.S. Treasury Securities will be of a
duration of no more than seven days from the date of purchase. 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. The Fund does not bear the risk of a decline in value of
the underlying securities unless the seller defaults under its repurchase
obligation. 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 obligation. 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 of the
applicable 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. The Fund will not engage in any such transactions in excess of
the value of the securities denominated or payable in the foreign currency
which are then held in the Fund's portfolio.
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. This may limit the Fund's ability to hedge
effectively its investments in Mexico. Hedging against a decline in the
value of a currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such securities
decline. Such transactions also limit the opportunity for gain if the value
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<PAGE>
of the hedge currency should rise. Moreover, it may not be possible for the
Fund to hedge against a devaluation that is so generally anticipated that the
Fund is not able to contract to sell the currency at a price above the
devaluation level it anticipates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in either the Canadian dollar or Mexican peso ("foreign currency"),
it may, for example, desire to "lock in" the price of the security in U.S.
dollars, Canadian dollars or Mexican pesos. 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.)
If the currency in which the Fund's portfolio securities (or anticipated
portfolio securities) are denominated rises in value with respect to the
currency which is being purchased (or sold), then the Fund will have realized
fewer gains than had the Fund not entered into the forward contracts.
Moreover, the precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible, because the future
value of such securities in foreign currencies will change as a consequence
of market movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The Fund is not
required to enter into such transactions with regard to its foreign currency-
denominated securities and will not do so unless deemed appropriate by the
Advisor. The Fund generally will not enter into a forward contract with a
term of greater than one year, although it may enter into forward contracts
for periods of up to five years. The Fund may be limited in its ability to
enter into hedging transactions involving forward contracts by the Code
requirements relating to qualifications as a regulated investment company.
(See "Federal Income Tax Treatment of Dividends and Distributions.")
Futures Contracts and Options. The Fund may purchase and sell futures
contracts that are currently traded, or may in the future be traded, on U.S.
and foreign commodity exchanges on such underlying fixed-income securities as
U.S. Treasury bonds, notes, and bills and/or any Canadian or Mexican
currencies ("currency" futures) and on such indexes of U.S. or foreign fixed-
income securities as may exist or come into being, such as the Moody's
Investment Grade Corporate Bond Index ("index" futures). As a futures
contract purchaser, the Fund incurs an obligation to take delivery of a
specified amount of the currency underlying the contract at a specified time
in the future for a specified price. As a seller of a futures contract, the
Fund incurs an obligation to deliver the specified amount of the underlying
currency at a specified time in return for an agreed upon price.
The Fund may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Advisor could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For
example, if the Fund sold futures contracts for the sale of securities in
4
<PAGE>
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale.
Another risk which will arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of
the U.S. dollar cash prices of the Fund's portfolio securities and their
denominated currencies.
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
purchases 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. While securities are on loan, the borrower
will pay the Fund any income earned thereon and the Fund may invest any cash
collateral in portfolio securities, thereby earning additional income. 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.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and
state regulatory limitations. The investment restrictions recited below are
in addition to those described in the Fund's Prospectus, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding Shares. The percentage limitations contained in
these restrictions apply at the time of purchase of securities. Accordingly,
the Fund will not:
1. With respect to 50% of its net assets, invest more than 5% of
its total assets in the securities of any single issuer (the U.S.
Government and its agencies and instrumentalities are not considered an
issuer for this purpose);
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2. With respect to 50% of its net assets, 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 (the U.S.
Government and its agencies and instrumentalities are not considered an
issuer for this purpose);
3. Invest in real estate or mortgages on real estate;
4. Purchase or sell commodities or commodities contracts or
futures contracts, except that the Fund may enter into forward foreign
currency exchange contracts, futures contracts and options in accordance
with its investment objective and policies;
5. Act as an underwriter of securities within the meaning of the
federal securities laws;
6. Issue senior securities, except that the Fund may enter into
forward foreign currency contracts and futures contracts in accordance
with its investment objective and policies;
7. Make loans, except that the Fund may purchase or hold debt
instruments and may lend its portfolio securities and enter into
repurchase agreements in accordance with its investment objective and
policies;
8. Effect short sales of securities;
9. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions);
10. Purchase participations or other interests in oil, gas or
other mineral exploration or development programs;
11. Purchase any securities of unseasoned issuers which have been
in operation directly or through predecessors for less than three years;
12. Invest in shares of any other investment company registered
under the Investment Company Act. (If shareholders voted to approve
investments in shares of any other investment company, the Fund will
incur sales charges, management fees and other expenses in connection
with any such investment, which charges would be a Fund expense and
accordingly might have some impact on the Fund's net asset value);
13. Purchase or retain the securities of any issuer, if to the
knowledge of the Fund, any officer or Director of the Fund or its
Advisor owns beneficially more than .5% of the outstanding securities of
such issuer and together they own beneficially more than 5% of the
securities of such issuer;
14. Invest in companies for the purpose of exercising management
or control;
15. Invest in puts or calls, or any combination thereof, except
that the Fund may enter into options, forward foreign currency contracts
and futures contracts, in accordance with its investment objective and
policies; or
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<PAGE>
16. 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. For
the purpose of the foregoing calculations, warrants acquired by the Fund
in units or attached to securities will be deemed to be without value
and therefore not included within the preceding limitations.
The following are investment restrictions that may be changed by a vote
of the majority of the Fund's Board of Directors. The Fund will not:
1. Invest more than 10% of the value of its net assets in illiquid
or restricted securities (as defined under federal and state securities
laws);
2. Invest in real estate limited partnerships; or
3. Invest in oil, gas or mineral leases.
3. ADDITIONAL INFORMATION ABOUT CANADA AND MEXICO
The information in this section is based on material obtained by the
Fund from various Canadian and Mexican governmental and other economic
sources believed to be accurate but has not been independently verified by
the Fund or the Advisor. It is not intended to be a complete description of
Canada or Mexico, the Canadian and Mexican economies, or the consequences of
investing in Mexican and Canadian fixed-income securities.
Additional Information About Canada
Area and Population
Canada is the second largest country in the world in terms of land mass,
with an area of 3.85 million square miles of which approximately 291,580
square miles are covered by fresh water. The developed portion is about one-
third of the total area, the occupied farm land is about 8% and the
productive forest land is about 27% of the total area.
The population as of July 1, 1994 was estimated to be 29,248,100. As of
July 1, 1993, approximately 61% of Canada's population lived in its
metropolitan areas, of which Toronto, Montreal and Vancouver are the largest.
Government
Canada is a constitutional monarchy with Queen Elizabeth II of the
United Kingdom its nominal head of state. The Queen is represented by the
Canadian governor-general, appointed on the recommendation of the Canadian
prime minister. Canada's government has a federal structure, with a federal
government and ten provincial governments. Its Parliament consists of a
House of Commons and a Senate. Members of the House of Commons are elected
by Canadian citizens over 18 years of age. Senators are appointed on a
regional basis by the Prime Minister. The federal government is headed by
the Prime Minister who is chosen from the party that has won the majority of
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seats in the House of Commons. The provincial governments each have a
Legislative Assembly and a Premier.
Legislative authority resides in the federal parliament and the ten
provincial legislative assemblies. Provinces have extensive power with
specific areas of jurisdiction. The federal government has defined areas of
jurisdiction and the power to act in areas declared by Parliament to be for
the general advantage of Canada. This general power has been used to justify
federal action in certain areas of provincial jurisdiction. Concurrent
federal and provincial jurisdiction exists in certain matters, including
agriculture, immigration and pensions. The powersharing issue between the
federal government and provincial governments has been contentious and has
proven to be a central issue in the process of constitutional reform.
Politics
Since World War II, the federal government has been formed by either the
Liberal Party or the Progressive Conservative Party. In October 1993, the
Liberal Party under the leadership of Mr. Jean Chretien, won 178 of the 295
seats in the Canadian House of Commons ending nine years of rule by the
Progressive Conservative Party. He remains popular and unless the Liberal
Party calls for an earlier election, the next general election will take
place in October 1998.
Canada has had three major developments regarding unity and
constitutional reform in four years. The first two major developments were
the rejection of the Meech Lake Agreement in 1990 and the Charlottetown
Accord in 1992. Those reforms would have given Quebec constitutional
recognition as a distinct society, transferred powers from the federal to the
provincial governments and reformed the Senate by providing for more equal
representation among the provinces.
The third major development is the possibility of Quebec's independence.
On September 12, 1994, the Quebec separatist party, Parti Quebecois under the
leadership of Jacques Parizeau won 77 seats in the provincial election with
44.7% of the vote. The Liberal Party won 47 seats with 44.3% of the vote.
The Parti Quebecois' agenda includes a call for a referendum, sometime in
1995, supporting independence. On February 6, 1995, the first of 15 regional
commissions started a month of consultations with regard to a draft law
regarding independence. The commissions are expected to produce a joint-
report which will provide the basis for amendments to the draft law. This
would be followed by the referendum campaign and vote. In 1980, Quebec voted
against independence by a margin of 60% to 40%. Polls indicate that there is
not enough support to pass a referendum for independence. Furthermore, on
February 13, 1995, in what had been seen as a preview to the referendum
Liberal Party candidates defeated Parti Quebecois candidates in two
parliamentary by-elections in Quebec.
Mr. Parizeau has also suggested that he might introduce a series of
referendums until separatism wins, instead of one all-encompassing
referendum. The Quebec Government's proposals suggest that Quebec would be
able to keep the Canadian dollar as its currency, share its armed forces with
Canada and be a partner of Canada with regard to international agreements and
alliances. The actual mechanics of separation, if it were to occur, and the
possible effects on Canada's economy are still not clear. Prime Minister
Chretien has stated that the national government would prevail in a vote on
separatism. Still, until the vote on the referendum, and for the foreseeable
future, Quebec's position within Canada will continue to dominate political
debate. Withdrawal of Quebec from the federation could have a material
adverse effect on the Canadian economy and the value of Canadian fixed-income
securities in which the Fund invests.
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Monetary and Banking System
The central bank of Canada is the Bank of Canada. Its main functions
are to advise on the formulation and execution of monetary policy,
supervising commercial banks acting as a fiscal agent to the federal
government, and managing the foreign exchange fund. The currency unit of
Canada is the Canadian dollar. Canada does not impose foreign exchange
controls on capital receipts or payments by residents or non-residents.
Economic Information Regarding Canada
Canada and the United States are each other's largest trading partners
and, thus, the Canadian and U.S. economies are to a significant degree
linked. On January 2, 1988, Canada and the United States signed the Free
Trade Agreement (the "FTA"), which was ratified by the Parliament of Canada
and the United States Senate. The FTA, which was to be phased in over a ten-
year period that began January 1, 1989, was designed to gradually remove
tariffs imposed on Canada-U.S. trade for all industrial and agricultural
products and to create effective procedures for the resolution of trade
disputes. In the summer of 1991, the United States, Mexico and Canada began
negotiating the North American Free Trade Agreement ("NAFTA"). NAFTA was
signed on December 17, 1992. As scheduled, NAFTA became effective at the end
of 1993. On December 30, 1993, after the legislatures in the United States
and Mexico had ratified NAFTA, the Canadian government announced that it had
proclaimed NAFTA into law and had exchanged the written notifications with
the United States and Mexico needed to bring NAFTA into force. As a result,
NAFTA effectively replaced the FTA. When fully implemented, NAFTA is
designed to create a North America Free Trade Area, expand the flow of goods,
services and investment and eventually eliminate tariff barriers, import
quotas and technical barriers among Canada, the United States and Mexico.
Recent Developments
In its first budget, presented in February 1994, the Liberal Party
introduced new spending cuts to reduce Canada's budget deficit. Canada's
budget deficit is one of the largest for any of the OECD members. For the
fiscal year 1994-95, its budget deficit is estimated to be 5.5% of GDP
compared to 2.5% for the United States. The Government has stated its
commitment to reduce the deficit to approximately 4.2% of GDP in the 1995-
1996 fiscal year and to 3% of GDP in the 1996-1997 fiscal year. While the
Government's budget deficit objectives can be achieved with continued
economic growth and lower interest rates, they also indicate a further rise
in the debt-to-GDP ratio which would continue to grow until the 1996-1997
fiscal year.
In addition to the growth of the federal government deficit, provincial
government debt has risen rapidly. Developments, including increased
spending on social services at the provincial level, were responsible for a
significant amount of the growth of public debt from 1990-1992. In response
to the increase in provincial debt, a number of rating agencies downgraded
some provincial debt ratings. All provinces now have plans to balance their
respective budgets. This may prove to be difficult considering the increase
in interest rates and the federal government's plan to reduce certain
transfers to the provinces.
During 1994, despite growing output and low inflation, concern over the
country's deficit and the uncertainty associated with Quebec's status within
Canada has lead to a weakening of its currency and higher interest rates.
These higher interest rates have threatened the federal deficit reduction
target. In December 1994, the Canadian Parliament proposed legislation
increasing taxes by C$1.1 billion and reducing spending by C$8.7 billion over
the next two years. It is still not clear whether these measures, if
enacted, will have the effect of meeting the federal deficit reduction
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targets. For the period from January 15, 1993 (inception of the Fund)
through June 30, 1995, the Canadian Dollar decreased in value compared to the
U.S. Dollar by approximately 7%. On January 20, 1995, the Canadian dollar
fell to 70.2, its lowest rate in almost nine years and close to its record
low of 69.2. The Bank of Canada responded by increasing rates on Treasury
bills and selling U.S. dollars. The Canadian dollar has increased in value
compared to the U.S. dollar from 70.2 on January 20, 1995 to 73.8 on July 10,
1995.
The following provides certain statistical and related information
regarding historical rates of exchange between the U.S. Dollar and the
Canadian Dollar, information concerning inflation rates, historical
information regarding the Canadian gross domestic product and information
concerning yields on certain Canadian Government Securities. Historical
figures are not necessarily indicative of future fluctuations.
Currency Exchange Rates
The exchange rate between the U.S. Dollar and the Canadian Dollar is at
any moment related to the supply of and demand for the two currencies, and
changes in the rate result over time from the interaction of many factors
directly or indirectly affecting economic conditions in the United States and
Canada, including economic and political developments in other countries and
government policy and intervention in the money markets.
Despite the recent drop in value of the Canadian dollar, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies since the major developed country currencies were permitted
to float freely against each other. However, the range that occurred in the
past is not necessarily indicative of fluctuations in that rate that may
occur over time which may be wider or more confined than the range that
occurred over an historic period of comparable length. Future rates of
exchange cannot be predicted, particularly over extended periods of time.
The following table sets forth, for each year indicated, the annual
average of the daily noon buying rates in New York for cable transfers in
U.S. Dollars for one Canadian Dollar as certified by the Federal Reserve Bank
of New York:
U.S.Dollars
-----------
1981 0.83
1982 0.81
1983 0.81
1984 0.77
1985 0.73
1986 0.72
1987 0.75
1988 0.81
1989 0.84
1990 0.86
1991 0.87
1992 0.83
1993 0.78
1994 0.73
Source: Board of Governors of the Federal Reserve System, Federal
Reserve Bulletin.
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Inflation Rate of the Canadian Consumer Price Index
Inflation has remained below 2% since 1991 and the Government and the
Bank of Canada have reaffirmed the target of holding inflation inside a band
of 1-3% for 1995.
The following table sets forth for each year indicated the average
change in the Canadian consumer price index for the twelve months ended
December 31, of such year (1986=100).
National Consumer
Price Index
-----------------
(percent)
1981 12.4
1982 10.9
1983 5.7
1984 4.4
1985 3.9
1986 4.2
1987 4.4
1988 4.0
1989 5.0
1990 4.8
1991 5.6
1992 1.5
1993 1.8
Source: Bank of Canada Review, Winter 1994-1995; Statistics
Canada.
Canadian Gross Domestic Product
The following table sets forth Canada's gross domestic product for the
years 1981 through 1993 at historical and constant prices.
Change from
Gross Domestic Gross Domestic Prior Year at
Product Product at 1986 Prices Constant Prices
-------------- ---------------------- ---------------
(percent)
(millions of Canadian Dollars)
1981. . . . . . . . . .355,994 440,127 3.7
1982. . . . . . . . . .374,442 425,970 (3.2)
1983. . . . . . . . . .405,717 439,448 3.2
1984. . . . . . . . . .444,735 467,167 6.3
1985. . . . . . . . . .477,988 489,437 4.8
1986. . . . . . . . . .505,666 505,666 3.3
1987. . . . . . . . . .551,597 526,730 4.2
1988. . . . . . . . . .605,906 552,958 5.0
1989. . . . . . . . . .650,748 566,486 2.4
1990. . . . . . . . . .669,467 565,155 (0.2)
1991. . . . . . . . . .674,766 554,735 (1.8)
1992. . . . . . . . . .688,391 558,165 0.6
1993. . . . . . . . . .711,658 570,541 2.2
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Source: Bank of Canada Review, Winter 1994-1995; Statistics Canada
Yields on Canadian Government Treasury Bills
The following table sets forth the average monthly yield on 3-month and
6-month government of Canada Treasury bills for 1994.
Treasury Bills
1994 3 Months 6 Months
---- -------- --------
January 3.63% 3.71%
February 3.84 4.17
March 5.47 6.04
April 5.86 6.28
May 6.14 6.55
June 6.38 7.29
July 5.76 6.64
August 5.52 5.79
September 5.20 5.69
October 5.39 6.04
November 5.86 6.52
December 7.14 8.12
Source: BANK OF CANADA REVIEW, Winter 1994-1995; Statistics Canada.
Additional Information About Mexico
Area and Population
The United Mexican States ("Mexico"), a nation formed by 31 states and a
Federal District (Mexico City), is the fourteenth largest nation in the world
and the third largest in Latin America, occupying a territory of 759,529
square miles. To the north, the country shares a border with the United
States of America, and to the south it has borders with Guatemala and Belize.
Its coastline extends over 6,304 miles along both the Gulf of Mexico and the
Pacific Ocean. Mexico is the second most populous nation in Latin America,
with an estimated population of 91.6 million. Mexico's three largest cities
are Mexico City, Guadalajara and Monterrey, with estimated populations in
1990 of 14.9 million, 2.8 million and 2.5 million, respectively.
Government
The present form of government was established by the Constitution,
which took effect on May 1, 1917. The Constitution established Mexico as a
Federal Republic and provides for the separation of the executive,
legislative and judicial branches. The President and the members of Congress
are elected by popular vote of Mexican citizens over 18 years of age.
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Executive authority is vested in the President, who is elected for a
single six-year term. The executive branch consists of 17 Ministries, the
Attorney General, the Federal District Department and the Attorney General of
Mexico City.
Legislative authority is vested in the Congress, which is composed of
the Senate and the Chamber of Deputies. Senators serve a six-year term.
Deputies serve a three-year term, and neither Senators nor Deputies may serve
consecutive terms in the same chamber. The Senate has 128 members, two for
each state and two for the Federal District. The Chamber of Deputies has 500
members, of whom 300 are elected by direct vote from the electoral districts,
and 200 are selected by a system of proportional representation. The
Constitution provides that the President may veto bills and that Congress may
override such vetoes with a two-thirds majority of each Chamber. Judicial
authority is vested in the Supreme Court of Justice, circuit and district
courts. The Supreme Court has 11 members, each of whom holds office for a
maximum period of fifteen years. Its president is elected every four years.
Politics
The Partido Revolucionario Institucional ("PRI") is the dominant
political party in Mexico. Since 1929 the PRI has won all presidential
elections and has held a majority in General Congress. Until 1989 it had
also won all of the state governorships. The oldest opposition party in
Mexico is the Partido Accion Nacional ("PAN"). The third major party in
Mexico is the Partido de la Revolucion Democratica ("PRD").
On August 21, 1994, elections were held to select a new President of
Mexico for a six-year term beginning on December 1, 1994. In addition,
elections were held for three-quarters of the Senate and the entire Chamber
of Deputies. The candidate of the PRI, Ernesto Zedillo Ponce de Leon, won
the Presidential election with 50.2% of the votes, the candidate of the PAN
was second with 26.7% of the votes and the PRD candidate was third with 17.1%
of the votes. With respect to the Congressional elections, the PRI
maintained its majority in both chambers, with 93 seats in the Senate and 300
seats in the Chamber of Deputies. The PAN has the second largest
representation with 25 seats in the Senate and 119 seats in the Chamber of
Deputies and the PRD the third largest representation with 10 seats in the
Senate and 71 seats in the Chamber of Deputies.
In January 1994, an area in the southern State of Chiapas experienced
civil unrest, including armed attacks on several villages. The Mexican
government responded immediately by providing support to the local
authorities, agreeing to accelerate the disbursement of expenditures in
connection with social programs that were provided for in the 1994 budget and
publicly offering to negotiate a peaceful resolution that would address the
underlying concerns of the local population. Despite the Mexican
government's attempt to resolve the situation, the process has been slow and
has not resulted in an agreement.
In addition to the civil unrest in Chiapas, certain national
developments have led to disillusionment among the electorate with the
institutions of government. These events were the assassination of Luis
Donaldo Colosio, the likely successor to former President Salinas and the
murder of Mr. Jose Francisco Ruiz Massieu, a high-ranking PRI official.
Continuing the reform of the political system, and in response to the
civil unrest in Chiapas and the economic turmoil facing Mexico resulting from
the devaluation of the Peso (as described below), the Mexican Government and
leaders of the PRI signed an agreement with the opposition parties on January
17, 1995, to continue to democratize the country's political system. Changes
would include controls on fund-raising and campaign spending, full access to
the media for the opposition parties and the complete independence of the
federal elections agency.
13
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During 1995, the PRI suffered election defeats in local elections for
Guanajuato and Jalisco against the PAN. Post-electoral problems have arisen
in the elections in Chiapas, Tabasco and Yucatan that were won by the PRI.
Money and Banking
Banco de Mexico, chartered in 1925, is the central bank of Mexico. It
is the Federal Government's primary instrument for the execution of monetary
policy and the regulation of currency and credit. It is authorized by law to
regulate interest rates payable on time deposits, to establish minimum
reserve requirements for credit institutions and to provide discount
facilities for certain types of bank loans. The currency unit of Mexico is
the New Peso. Mexico repealed its exchange control rules in 1991 and now
maintains only a market exchange rate.
A constitutional amendment relating to Banco de Mexico's activities and
role within the Mexican economy became effective on August 23, 1993. The
amendment's purpose was to reinforce the independence of Banco de Mexico,
which may in the future act as a counterbalance to the executive and
legislative branches in fiscal policy matters. The amendment significantly
strengthens Banco de Mexico's authority with respect to monetary policy and
related activities and the regulation of the financial services industry. On
April 1, 1994, a new law governing the activities of Banco de Mexico became
effective. The new law was intended to put into effect the greater degree of
autonomy granted to Banco de Mexico under the constitutional amendment
described above and also established a Foreign Exchange Commission charged
with determining the nation's exchange rate policies. Since the Peso's
devaluation at the end of 1994, when it lost almost 50% of its value, it has
been allowed to float against other currencies. In an effort to provide more
certainty regarding the value of the New Peso, Banco de Mexico approved the
creation of a New Peso futures market on the Chicago Mercantile Exchange.
Trade Reform - NAFTA
Mexico has been a member of the General Agreement on Tariffs and Trade
("GATT") since 1986 and has become a member of the Organization for Economic
Cooperation. Mexico has also entered into NAFTA with the United States and
Canada. In addition, Mexico signed a framework for a free trade agreement in
1992 with Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua and
entered into definitive free trade agreements with Bolivia, Chile, Colombia
and Venezuela. Mexico has also signed tax treaties with Canada, France,
Germany, Ireland, the Netherlands, Spain, Sweden, Switzerland, South Korea,
Singapore, the United Kingdom and the United States.
In connection with the implementation of NAFTA, amendments to several
laws relating to financial services (including the Banking Law and the
Securities Market Law) became effective on January 1, 1994. These measures
permit non-Mexican financial groups and financial intermediaries, through
Mexican subsidiaries, to engage in various activities in the Mexican
financial system, including banking and securities activities. Additional
amendments published in February and May of 1995 permit foreign investors to
(i) acquire a majority position in holding affiliate companies, (ii) directly
hold up to 49% of the capital stock of bank holding companies and full
service banking institutions and up to 30% of the capital stock of brokerage
firms and securities specialists, and (iii) participate in sectors that
previously had been reserved for Mexican Nationals, such as television and
radio broadcasting. However, investment in corporations and partnerships
engaged in certain industries, such as oil, railroad and broadcast television
are exclusively reserved for Mexican citizens and/or government. In
addition, other amendments permit private Mexican companies to participate in
certain industrial activities that were previously reserved for the Mexican
government, such as railroads and the transportation, storage and
14
<PAGE>
distribution of gas. In such activities, foreign investors may hold up to
49% and 100% respectively, of the capital stock of such Mexican companies.
NAFTA had no direct effect on the Mexican securities being purchased by the
Fund.
Economic Information Regarding Mexico
In February 1990, Mexico became the first Latin American country to
reach an agreement with external creditor banks and multi-national agencies
under the U.S. Treasury's approach to debt reduction known as the "Brady
Plan." As part of the Brady Plan, commercial banks and Mexico agreed to debt
reduction and new financing in a set of agreements comprising the 1989-1992
Financing Package. The implementation of this package resulted in a
substantial reduction in Mexico's foreign debt and debt service obligations.
On June 1, 1992, Mexico achieved a further reduction in its foreign public
debt of $7.17 billion to a total of approximately $73.5 billion. At December
31, 1992, December 31, 1993 and December 31, 1994, the net amount of the debt
was $75.755*/ billion, 78.747*/ billion and $85.436*/ billion, respectively.
The following provides some statistical and related information
regarding historical rates of exchange between the U.S. Dollar and the
Mexican Peso, information concerning inflation rates, historical information
regarding the Mexican gross domestic product and information concerning
interest rates on certain Mexican government securities. Historical figures
are not necessarily indicative of future fluctuations.
Currency Exchange Rates
From late 1982 to November 11, 1991, Mexico maintained, a dual foreign
exchange rate system, with a "controlled" rate and a "free market" rate. The
controlled exchange rate applied to certain imports and exports of goods,
advances and payments of registered foreign debt, and funds used for payments
of royalties and technical assistance under registered agreements requiring
such payments. The free market rate was used for all other transactions not
expressly falling within the category of transactions which permit parties to
have access to U.S. Dollars at the controlled rate. The dual system assisted
in controlling the value of the Mexican Peso, particularly from 1983 to 1985.
In later years the difference between the two rates was not significant.
Mexico has now repealed the controlled rate.
Under economic policy initiatives implemented since December 1987, the
Mexican government introduced a schedule of gradual devaluations of the
Mexican Peso 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. On May 28, 1990, the Mexican
Peso began devaluing by an average of .80 Mexican Pesos per day instead of
one Mexican Peso per day. On November 12, 1990 this average was decreased to
.40 Mexican Pesos per day and on November 11, 1991 the daily devaluation rate
was lowered to .20 Mexican Pesos per day.
In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance
that future regulatory actions in Mexico would not affect the Fund's ability
to acquire or hold U.S. Dollar denominated securities or otherwise obtain
U.S. Dollars. On October 21, 1992 the maximum rate at which the Mexican Peso
can devalue against the U.S. dollar was accelerated to .40 Mexican Pesos per
day.
- ------------
*/Source: Banco de Mexico.
15
<PAGE>
In August 1976, the Mexican government established a policy of allowing
the Mexican Peso to float against the U.S. Dollar and other currencies.
Under this policy, the value of Mexican Peso consistently declined against
the U.S. Dollar. On January 1, 1993, the Mexican government introduced a new
currency, the New Peso. Each New Peso was worth 1,000 old Mexican Pesos.
The New Peso is designated by the symbol "N$." The Mexican government has
stated that the New Peso is not a devaluation but a move to simplify the
Mexican currency.
Recent Developments
On December 20, 1994, the Mexican Government announced a new policy that
would allow a more substantial yet still controlled devaluation of the
Mexican Peso. On December 22, 1994 the Mexican Government announced that it
would not continue with the policy announced two days earlier and it would
instead permit the Peso to float against other currencies, resulting in a
continued decline against the U.S. Dollar. On December 23, 1994 the exchange
rate was 4.67 New Pesos to the U.S. Dollar, and on January 4, 1995 it had
fallen further to 5.57 New Pesos to the U.S. Dollar.
On January 12, 1995, President Clinton proposed a plan to help stabilize
the Mexican economy. Under terms of the proposal, the United States would
guarantee $40 billion in new loans to Mexico to be used in the event of a
default on outstanding bonds or loans. In response to President Clinton's
plan, the Peso gained approximately 8% in one day against the U.S. Dollar.
During the next two weeks as it appeared the plan would not be approved by
Congress, the Peso fell again, reaching a new low on January 31, 1995 of 6.35
Pesos to the U.S. Dollar or an effective devaluation of approximately 40%
since December 20, 1994. In February, March, April, May and June, 1995 the
exchange rate of the New Peso to the U.S. Dollar was: 5.83, 6.81, 6.78, 6.17,
and 6.30, respectively, to 1. On July 7, 1995, the exchange rate of the
Mexican New Peso to the U.S. Dollar was 6.17 to 1.
With foreign exchange reserves down from an estimated $30 billion in
February 1994 to $6 billion in December 1994 and $3.5 billion at the end of
January 1995, there existed significant concern about the possibility of a
Mexican government default on the approximately $11 billion in Tesobonos
maturing from February to April 1995. Tesobonos are U.S. dollar-denominated
Mexican Government bonds with a face value of $1,000. The purchase price of
a Tesobono is the Peso equivalent of $1,000 on the day the bond is acquired.
On the date the bond matures, an amount equal to the principal plus interest
will be paid in Pesos at the exchange rate in effect on the date the bond
matures.
During January 1995, with foreign investors estimated to be holding 70%
of outstanding Cetes and 80% of outstanding Tesobonos, it became imperative
that Mexico restore foreign investor confidence. The obligation to repay the
Tesobonos was a significant cause of Mexico's economic turmoil, both because
of the size of the debt and the continuing devaluation of the Peso. On
January 24, 1995, demand for Tesobonos fell dramatically from the previous
week, with interest rates rising to more than 26%. During this same time,
the prices of Mexican Brady Bonds had decreased by approximately 23%.
On January 31, 1995, President Clinton announced a new plan that did not
require Congressional approval in order to be implemented. Under the plan,
the United States guaranteed a line of credit of up to $20 billion to Mexico.
Mexico has an obligation to repay the loan within three to five years.
Moreover, the International Monetary Fund has provided $17.8 billion in five-
year loans, the Federal Reserve has made available to Mexico $6 billion in
short-term loans, and the Bank for International Settlements has provided $10
billion in short-term loans to Mexico. In addition, Canada has pledged $1
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<PAGE>
billion in loans and several Latin American nations pledged $1 billion in
credit to Mexico. Under the terms of the plan, Mexico has an obligation to
pay fees for the use of the loan guarantees and has pledged oil revenues as
collateral for loan guarantees from the United States.
During the first six months of 1995, Mexico has repaid more than U.S.
$27.5 billion worth of the Tesobonos that have matured. Without the
drawdowns made by the United States and the International Monetary Fund,
Mexico would not have been able to make those repayments.
Statistical and Related Information Concerning Mexico
The following table sets forth the Mexican Peso to U.S. Dollar exchange
rates for each year from 1981 to 1994 and the months of January through June,
1995.
Free Market Rate *Controlled Rate
---------------- ----------------
End of End of
Period Average Period Average
-------- ------- ------ -------
1981 ................. 26 24 N/A N/A
1982 ................. 148 57 96 57
1983 ................. 161 150 143 120
1984 ................. 210 185 192 167
1985 ................. 447 310 371 256
1986 ................. 915 637 923 611
1987 ................. 2.209 1.378 2.198 1.366
1988 ................. 2.281 2.273 2.257 2.250
1989 ................. 2.641 2.483 2.637 2.453
1990 ................. 2.945 2.838 2.939 2.807
1991 ................. 3.075 3.016 3.065 3.007
1992 ................. 3.115 3.094 N/A N/A
1993 ................. 3.105 3.155 N/A N/A
1994 ................. 5.325 5.075 N/A N/A
January 1995 ......... 5.695 ----- N/A N/A
February 1995 ........ 5.837 ----- N/A N/A
March 1995 ........... 6.817 ----- N/A N/A
April 1995 ........... 5.785 ----- N/A N/A
May 1995 ............. 6.177 ----- N/A N/A
June 1995 ............ 6.309 ----- N/A N/A
________
* From late 1982 to November 11, 1991, Mexico maintained a dual foreign
exchange rate system, with a "controlled" rate and a "free market" rate.
Mexico has now repealed the controlled rate.
Source: Banco de Mexico.
Wages and Prices
After relatively long periods of economic growth and stability lasting
until the early 1970s, Mexico's economy suffered the effects of high
inflation. The economy improved in the late 1970s as a result of government
policies and important discoveries of oil reserves. However, between 1977
and 1981 these factors contributed to an increase in inflation to an average
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annual rate of 22.4% for that period compared to an average annual rate of
2.4% between 1960 and 1971, and 16.6% between 1972 and 1976.
The economy experienced a setback in 1981 because of the severe drop in
oil prices and high world interest rates which resulted in a substantial
increase in the country's external debt burden. With no new lending to be
obtained from international creditors, the balance of payments equilibrium
could no longer be sustained. The Mexican Peso was devalued and inflation
rose sharply. Through much of the 1980s, the Mexican economy continued to be
affected by high inflation, low growth and excessive domestic and foreign
indebtedness. The inflation rate, as measured by the consumer price index,
rose from 28.7% in December 1981 to 159.2% in December 1987. In December
1987, the Mexican Government agreed with labor and business to curb the
economy's inflationary pressures by freezing the surge in wages and prices.
The Pacto de Solidaridad Economico (Pact for Economic Solidarity, the "PSE")
was announced in December 1987 and included the implementation of restrictive
fiscal and monetary policies, the elimination of trade barriers and the
reduction of import tariffs. The PSE was renamed the Pacto para la
Estabilidad y el Crecimiento Economica (Pact for Stability and Economic
Growth, the "PECE") in November 1988. The PECE has been extended on five
occasions. After substantive increases in public sector prices and utility
rates, price controls were introduced. These policies lowered the consumer
inflation rate from 159.2% in February 1987 to 19.7% in 1989. The inflation
rate rose to 29.9% in 1990 as prices were liberalized. Inflation declined in
1991, falling to 18.8% by year-end. The inflation rate declined in 1992 to
11.9%, to 8.0% in 1993 and to 7.1% in 1994.
Under the PECE, the prices of certain goods and services provided by the
public sector (particularly gasoline, energy for industrial use and utility
services) were increased. The private sector agreed to accept the increases
without increasing private sector prices. Furthermore, the Government
committed itself to implementing measures to reduce agricultural sector
costs.
On October 3, 1993, the 1993-94 PECE went into effect. The purposes of
that PECE, which was effective through December 31, 1994, were essentially
the same as those of its predecessor pacts. The Government promised to
maintain fiscal discipline and a balanced budget. Mexico's foreign exchange
policy remains unchanged. The 1993-94 PECE set an inflation target of 5% for
1994. In addition, the Government agreed to reduce the highest income tax
rate from 35% to 34% and to reduce (for the next two years) the withholding
tax applicable to interest payments on external debt payable to certain
financial institutions and on publicly issued external debt from 15% to 4.9%.
In order to assure industry of stable prices for certain factors of
production, the government has agreed to limit annual increases in the price
of gasoline (except in the border region with the United States) to a maximum
of 5% annually. Commercial and residential electricity rate increases were
also limited to 5%. In connection with efforts to stabilize the Mexican economy,
there has been a gradual reduction in the number of goods and services whose
prices are covered by the original PECE, the 1992-93 PECE and the 1993-94 PECE.
On September 24, 1994, the government, together with the business and
labor sectors, entered into a new agreement that extends the 1993-94 PECE for
1995. That agreement became effective on January 1, 1995. Its main points
are as follows: (i) an inflation target of 4% for 1995; (ii) a 4% GDP (PIB)
growth target for 1995; (iii) an increase in salaries by 4%, together with a
productivity increase, the terms of which are yet to be determined; (iv) the
maintenance of the current foreign exchange policy; (v) the creation of an
investment fund to be financed with the proceeds of privatizations in order
to encourage the participation of the private sector in infrastructure
projects; (vi) gradual increases in the prices of gasoline and electricity,
in amounts not to exceed a 4% increase in 1995; (vii) the creation of tax
benefits for workers receiving certain minimum salaries; and (viii) a
reduction of asset taxes to 1.8% (together with other benefits relating to
asset taxes).
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On January 3, 1995, in response to the economic turmoil following the
devaluation of the Peso, President Zedillo announced an emergency economic
plan. The plan reiterates most of the projections contained in the 1993-94
PECE, but modifies the inflation projection (increased to 20%) and lowers GDP
growth target (to approximately 1%) for 1995. In addition, President Zedillo
reiterated that taxes would not be increased, Government spending would
decrease by approximately 1.3% of GDP, wages would be allowed to increase by
no more than 7% and a Fiscal Advisory Committee would be created to examine
Mexico's fiscal legislation. It is unclear what effect if any, these
policies will have on the Mexican economy. The Programa de Ajuste Economico
was adjusted in March of 1995, as a result of the economic crisis, the
continuing devaluation of the New Peso and rising interest rates. The
adjustments provide for an increase in the Value Added Tax from 10% to 15%, a
reduction in government spending and an increase in PMEX product prices,
including an increase in the price of gasoline by up to 35%.
Prices rose in the first four months of 1995, reaching the highest
level, 8%, on April 11, 1995 and declining to 4.2% in May.
On May 31, 1994, the Plan Nacional de Desarrollo (National Development
Plan) was published in the Official Gazete. This Plan provides a package of
political and economic measures designed to restore stability and economic
vitality to Mexico.
Consumer Price Index
The following table sets forth the changes in the Mexican consumer price
index for each of the twelve years ended December 31, 1994 and for the five
months ended May 31, 1995.
Annual Increases in
National Consumer
Price Index
-------------------
(percent)
1983 ..................................... 80.8
1984 ..................................... 59.2
1985 ..................................... 63.7
1986 ..................................... 105.7
1987 ..................................... 159.2
1988 ..................................... 51.7
1989 ..................................... 19.7
1990 ..................................... 29.9
1991 ..................................... 18.8
1992 ..................................... 11.9
1993 ..................................... 8.0
1994 ..................................... 7.1
May, 1995 ................................ 28.8
Source: Banco de Mexico.
Mexican Gross Domestic Product
The following table sets forth Mexico's gross domestic product for the
years 1983 through 1994 at historical and constant prices.
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<TABLE>
<CAPTION>
Gross Change from Prior
Gross Domestic Product Year at Constant
Domestic Product at 1985 Prices Prices
------------------------------- -------------------------- ----------------
(billions of Mexican Old Pesos) (billions of Mexican Pesos) (percent)
<C> <C> <C> <C>
1983 17,879 44,548 (4.3)
1984 29,472 46,195 3.7
1985 47,392 47,392 2.6
1986 79,191 45,613 (3.8)
1987 193,312 46,460 1.9
1988 390,451 47,039 1.2
1989 507,618 48,613 3.3
1990 686,406 50,774 4.4
1991 865,166 52,615 3.6
1992 1,019,156 54,010 2.8
1993 1,127,584 54,337 0.6
1994 1,272,799 - 3.7
</TABLE>
Source: Banco de Mexico; International Monetary Fund, International
Financial Statistics, Yearbook 1993, March 1994, and June 1995.
Interest Rates
During 1994 the rate on the 28-day Cetes increased from 10.52% in
January to 20.07% in December and further increased to 37.73% in January
1995. During the same time period the rate on the 91-day Cetes increased
from 10.75% in January 1994 to 39.26% in January 1995 and the rate on the
six-month Cetes increased from 10.78% in January 1994 to 35.02% in January
1995. At June 27, 1995 the 28-day Cetes rate stood at 40.75%, the 91-day
Cetes rate stood at 41.48% and the six month Cetes rate stood at 42.24%.
4. VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined once daily as of 4:00 p.m.
(Eastern Time) each day on which the New York Stock Exchange is open for
business ("Business Day") if there is sufficient trading in Fund portfolio
securities to affect net asset value materially, but may not be determined on
days during which no Shares are tendered for redemption and the Fund receives
no order to sell Shares. The New York Stock Exchange is open for business on
all weekdays except for the following holidays: New Year's Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
For the purpose of determining the price at which Shares are redeemed,
the net asset value per Share is calculated by valuing all securities held by
the Fund, deducting the Fund's actual and accrued liabilities (including
liability for dividends declared), and dividing the resulting amount by the
number of then outstanding Shares. To determine the net asset value per
Share of any class, the net asset value calculated as described above will be
further adjusted to reflect the pro rata portion of income and expenses
attributable to that class. For this purpose, securities are valued on the
basis of their last sale price (or, in the absence of recorded sales, at the
average of readily available closing bid and asked prices). Securities or
other assets for which market quotations are not readily available are valued
at their fair value as determined in good faith by the Advisor under
procedures established and monitored by the Board of Directors. Debt
obligations with maturities of 60 days or less will be valued at amortized
cost, which constitutes fair value as determined by the Directors. In the
20
<PAGE>
case of such securities that were originally purchased with maturities in
excess of 60 days, such amortization will be based on the market or fair
value of the securities on the 61st day prior to maturity.
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 Investment Company Act pursuant to which the
Fund is obligated to redeem Shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder. A corporate shareholder requesting a redemption
must have on file with the Fund's Transfer Agent, Armata, a Participating
Dealer or Shareholder Servicing Agent all required resolutions and
certificates, such as resolutions authorizing the redemption and secretary's
certificates.
5. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute
for careful tax planning.
The following general discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. Subsequent legislation, as well as administrative
changes or court decisions, may significantly change the conclusions
expressed herein, and may have a retroactive effect with respect to the
transactions contemplated herein.
Qualification as Regulated Investment Company
The Fund has been and intends to continue to be taxed as a regulated
investment company (a "RIC") under Subchapter M of the Code. As a RIC, the
Fund is exempt from federal income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gains over net
long-term capital losses) for the year (the "Distribution Requirement") and
satisfies certain other requirements of the Code that are described below.
Distributions of investment company taxable income made during the taxable
year or, under certain specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement. The
Distribution Requirement for any year may be waived if a RIC establishes to
the satisfaction of the Internal Revenue Service that it is unable to satisfy
the Distribution Requirement by reason of distributions previously made for
the purpose of avoiding liability for federal excise tax (discussed below).
The Fund may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received
interest income even though no cash payments have been received.
Accordingly, OID Securities may not produce sufficient current cash receipts
21
<PAGE>
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 investments in order to make
sufficient cash distributions to satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement the Fund
must, generally, (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from
the sale or other disposition of stock or securities, or from other income
derived with respect to its business of investing in stock or securities,
(the "Income Requirement") and (2) derive less than 30% of its gross income
from, among other things, gains on the sale or other disposition of stock or
securities (as defined in section 2(a)(36) of the Investment Company Act)
held for less than three months (the "Short-Short Gain Test").
Finally, at the close of each quarter of its taxable year, at least
50% of the value of the Fund's assets must consist of cash and cash items,
U.S. Government securities, securities of other RICs, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which the Fund does
not hold more than 10% of the outstanding voting securities of such issuer),
and no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other RICs), or two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or businesses (the
"Asset Diversification Test"). The Fund may curtail its investment in
certain securities where the application thereto of the Asset Diversification
Test is uncertain.
Fund Distributions
The Fund anticipates that it will distribute substantially all of its
investment company taxable income for each taxable year. Such distributions
will be taxable to shareholders as ordinary income, regardless of whether
such distributions are paid in cash or are reinvested in Shares.
The Fund may either retain or distribute to shareholders the excess,
if any, of net long-term capital gains over net short-term capital losses
("net capital gains") for each taxable year. If such gains are distributed
as a capital gains distribution, they are treated by shareholders as long-
term capital gains, regardless of the length of time the shareholder has held
Shares, whether or not such gains were recognized by the Fund prior to the
date on which a shareholder acquired Shares and whether or not the
distribution was paid in cash or reinvested in Shares. The aggregate amount
of distributions designated by the Fund as capital gains distributions may
not exceed the net capital gains of the Fund for any taxable year, determined
by excluding any net capital losses or net long-term capital losses
attributable to transactions occurring after October 31 of such year and by
treating any such losses as if they arose on the first day of the following
taxable year. Conversely, if the Fund elects to retain its net capital
gains, it will be taxed thereon (except to the extent of any available
capital loss carryovers) at the applicable corporate capital gains tax rate
(presently 35%). In such event, it is expected that the Fund also will elect
to have shareholders treated as having received a distribution of such gains,
with the result that they will be required to report such gains on their
returns as long-term capital gains, will receive a tax credit for their
allocable share of capital gains tax paid by the Fund on the gains, and will
increase the tax basis for their Shares by an amount equal to 65 percent of
the deemed distribution.
Investors should be careful to consider the tax implications of buying
Shares of the Fund just prior to the ex-dividend date of an ordinary income
dividend or capital gains distribution. The price of Shares purchased at
that time may reflect the amount of the forthcoming ordinary income dividend
or capital gains distribution. Those purchasing just prior to an ordinary
income dividend or capital gains distribution will be taxable on the entire
amount of the dividend or distribution received even though the dividend or
capital gains distribution was earned by the Fund before the shareholder
purchased the Shares.
Generally, a gain or loss on the sale of Shares will be a capital gain
or loss, which will be long-term capital gain or loss if the Shares have been
held for more than one year. However, investors should be aware that any
loss realized upon the sale, exchange or redemption of Shares held for six
months or less will be treated as a long-term capital loss to the extent any
22
<PAGE>
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 an investor's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract
or option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). Investors
should particularly note that this loss disallowance rule will apply to
Shares received through the reinvestment of dividends during the 61-day
period.
If for any taxable year the Fund does not qualify as a RIC, 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 as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of distributions paid to any shareholder (1)
who has provided either an incorrect tax identification number or no number
at all, (2) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to the Fund that he is not subject
to backup withholding.
Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% federal excise tax on RICs that
do not distribute in each calendar year an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year.
The excise tax is imposed on the undistributed part of this required
distribution. In addition, the balance of such income must be distributed
during the next calendar year to avoid liability for the excise tax in that
year. For the foregoing purposes, a company is treated as having distributed
any amount on which it is subject to income tax for any taxable year ending
in such calendar year. Because the Fund intends to distribute all of its
income currently (or to retain, at most, its "net capital gains" and pay tax
thereon), the Fund does not anticipate incurring any liability for this
excise tax. However, investors should note that the Fund may, in certain
circumstances, be required to liquidate portfolio investments in order to
make sufficient distributions to avoid excise tax liability, and, in
addition, that the liquidation of investments in such circumstances may
affect the ability of the Fund to satisfy the Short-Short Gain Test.
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state
and local tax rules affecting an investment in the Fund.
6. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are the responsibility of the
Board of Directors. The Board approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including
the Fund's agreements with its investment advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's officers, to Investment Company Capital Corp., acting as the Fund's
administrator ("ICC" or the "Administrator"), to Armata acting as the Fund's
distributor, and to ISI, as the Fund's investment advisor. Two directors and
all of the officers of the Fund are directors, officers or employees of ICC,
Armata or ISI. The other directors of the Fund have no affiliation with ICC,
Armata or ISI.
Directors and Officers
The Directors and executive officers of the Fund and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each Director and executive officer is 717 Fifth
Avenue, New York, New York 10022.
23
<PAGE>
*EDWARD S. HYMAN, Chairman and Director
Chairman, International Strategy and Investment Inc., 1991 to Present;
Formerly, Vice Chairman and Member of the Board of Directors, C.J.
Lawrence Inc. (money manager), 1972-1991.
*RICHARD T. HALE, Vice Chairman and Director
135 East Baltimore Street, Baltimore, Maryland 21202. Managing
Director, Alex. Brown & Sons Incorporated.
JAMES J. CUNNANE, Director
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice-President and Chief Financial Officer, General
Dynamics Corporation (defense) (1989-1993) and Director, The Arch Fund
(mutual fund).
N. BRUCE HANNAY, Director
201 Condon Lane, Port Ludlow, Washington 98365. Formerly, Vice
President, Research and Patents, AT&T Bell Laboratories; Formerly,
Director, Rohm & Haas Company (diversified chemicals) and General
Signal Corp. (control equipment & systems) and Plenum Publishing Corp.
JOHN F. KROEGER, Director
P.O. Box 464, 24875 Swan Road-Martingham, St. Michaels, Maryland
21663. Director/Trustee, AIM Funds (registered investment companies);
Formerly, Consultant, Wendell & Stockel Associates, Inc. (consulting
firm) and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director
26 Farmstead Road, Short Hills, New Jersey 07078. Director, Kimberly-
Clark Corporation (personal consumer products) and Household
International (finance and banking); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993,
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992 and Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director
Duke Management, Erwin Square, Suite 1000, 2200 W. Main Street,
Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and healthcare).
*REBECCA W. RIMEL, Director
Pew Charitable Trust, One Commerce Square, 2005 Market Street, Suite
1700, Philadelphia, PA 19103. President and Chief Executive Officer,
The Pew Charitable Trusts; Director and Executive Vice President, The
Glenmede Trust Company; Formerly, Executive Director, The Pew
Charitable Trusts.
HARRY WOOLF, Director
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, Merrill Lynch Cluster C Funds (registered investment
companies), ATL and Spacelabs Medical Corp. (medical equipment) and
Family Health International (non profit research and education).
R. ALAN MEDAUGH, President
President, International Strategy and Investment Inc.; Formerly,
Managing Director, C.J. Lawrence Fixed Income Management (money
manager).
- -----------------
*/ A Director who is an "interested person" as defined in the
Investment Company Act. Ms. Rimel will be treated by the Fund
as if she could be deemed to be an "interested person."
24
<PAGE>
EDWARD J. VEILLEUX, Vice President
135 East Baltimore Street, Baltimore, Maryland 21202. Principal,
Alex. Brown & Sons Incorporated; President, Investment Company Capital
Corp. (registered investment advisor); Vice President, Armata
Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President
135 East Baltimore Street, Baltimore, Maryland 21202. Managing
Director, Alex. Brown & Sons Incorporated; Manager, Special Products
Department, Alex. Brown & Sons Incorporated.
NANCY LAZAR, Vice President
Executive Vice President and Secretary, International Strategy and
Investment Inc., 1991-Present; Formerly, Vice President, C.J. Lawrence
Inc. (money manager), 1981-1991.
BRIAN C. NELSON, Vice President and Secretary,
135 East Baltimore Street, Baltimore, Maryland 21202. Vice President,
Alex. Brown & Sons Incorporated, Investment Company Capital Corp.
(registered investment advisor) and Armata Financial Corp. (registered
broker-dealer).
DIANA M. ELLIS, Treasurer
135 East Baltimore Street, Baltimore, Maryland 21202. Manager,
Portfolio Accounting Department, Investment Company Capital Corp.
(registered investment advisor); Mutual Fund Accounting Department,
Alex. Brown & Sons Incorporated, 1991-Present; Formerly, Accounting
Manager, Downtown Press Inc. (printer), 1987-1991.
CARRIE L. BUTLER, Assistant Vice President
Assistant Vice President, International Strategy and Investment Inc.;
Formerly Mutual Fund Sales Assistant, C.J. Lawrence Fixed Income
Management (money manager), 1989-1991.
LAURIE D. DEPRINE, Assistant Secretary
135 East Baltimore Street, Baltimore, Maryland 21202. Asset
Management Department, Alex. Brown & Sons Incorporated, 1991-Present;
Formerly, Student.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, advised
or distributed by Alex. Brown, Armata or ISI or by any of their respective
affiliates. There are currently 12 funds in the Flag Investors/ISI Funds and
Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr.
Hyman serves as a Director of three funds in the Fund Complex. Mr. Medaugh
serves as Director and President of one fund and as President of two other
funds in the Fund Complex. Mr. Hale serves as President and Director of one
fund, Vice President of one fund and as a Director of 10 other funds in the
Fund Complex. Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald, and Woolf
serve as Directors of each fund in the Fund Complex. Ms. Rimel serves as
Director of five funds in the Fund Complex. Ms. Lazar serves as Vice
President and Ms. Butler serves as an Assistant Vice President of three funds
in the Fund Complex. Mr. Fearnow serves as Vice President of 10 funds in the
Fund Complex. Mr. Veilleux serves as Executive Vice President of one fund
and as Vice President of 11 funds in the Fund Complex. Mr. Nelson serves as
Vice President and Secretary, Ms. Ellis serves as Treasurer and Ms. DePrine
serves as Assistant Secretary of each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had
normal brokerage transactions with, Alex. Brown or Armata in the ordinary
course of business. All such transactions were made on substantially the
same terms as those prevailing at the time for comparable transactions with
unrelated persons. Additional transactions may be expected to take place in
the future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or
directors of ICC, Alex. Brown, Armata or ISI may be considered to have
received remuneration indirectly. As compensation for his services as
25
<PAGE>
Director, each Director who is not an "interested person" of the Fund (as
defined in the Investment Company Act) (a "Non-Interested Director") receives
an aggregate annual fee (plus reimbursement for reasonable out-of-pocket
expenses incurred in connection with his attendance at Board and committee
meetings) from all Flag Investors/ISI Funds and Alex. Brown Cash Reserve
Fund, Inc. for which he serves. Payment of such fees and expenses are
allocated among all such funds described above in proportion to their
relative net assets. For the fiscal year ended March 31, 1995, Non-
Interested Directors' fees attributable to the assets of the Fund totalled
approximately $5,000. The following table shows aggregate compensation paid
to each of the Fund's Directors by the Fund and the Fund Complex,
respectively, in the fiscal year ended March 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation From Total Compensation From the Fund
Position the Fund for the Fiscal Year and Fund Complex Paid to Directors for
Ended March 31, 1995 the Fiscal Year Ended March 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Edward S. Hyman, Chairman and Director $0 $0
*Richard T. Hale, Vice Chairman and Director $0 $0
James J. Cunnane, Director $171**(1) $9,750 for service on
13 boards **(4)
N. Bruce Hannay, Director $861(2) $39,000 for service on
13 boards(4)
John F. Kroeger, Director $947 $42,900 for service on
13 boards(4)
Louis E. Levy, Director $626*** $29,250 for service on
13 boards ***(4)
Eugene J. McDonald, Director $861(3) $39,000 for service on
13 boards(4)
Rebecca W. Rimel, Director N/A **** N/A ****
Harry Woolf, Director $861(3) $39,000 for service on
13 boards(4)
</TABLE>
- ------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Elected to the Board on December 14, 1994.
*** Elected to the Board on June 17, 1994.
**** Elected to the Board on June 1, 1995.
1 All of this amount has been deferred pursuant to a deferred compensation
plan.
2 $221 of this amount has been deferred pursuant to a deferred
compensation plan.
3 $392 of this amount has been deferred pursuant to a deferred
compensation plan.
4 One of these funds ceased operations on May 17, 1995.
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of five years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned in his or her last year of
service. Upon retirement, each Participant will receive annually 10% of such
fee for each year that was served after completion of the first five years,
up to a maximum annual benefit of 50% of the fee earned in his or her last
year of service. The fee will be paid quarterly, for life, by each Fund for
which he or she serves. The Retirement Plan is unfunded and unvested.
Messrs. Hannay, Kroeger and Woolf have qualified but have not received
26
<PAGE>
benefits, and no such benefits are being accrued for them since they have not
yet retired. The Fund has one Participant, a Director who retired effective
December 31, 1994, who has qualified for the Retirement Plan and who will be
paid a quarterly fee of $4,875 by the Fund Complex for the rest of his life.
Such fee is allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Beginning in December, 1994, any Director who receives fees from the
Fund is permitted to defer a minimum of 50%, or up to all, of his or her
annual compensation pursuant to a Deferred Compensation Plan.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics pursuant
to Rule 17j-1 under the Investment Company Act (the "Code of Ethics"). The
Code of Ethics significantly restricts the personal investing activities of
all employees of the Advisor and the directors and officers of the Fund's
distributors. As described below, the Code of Ethics imposes additional,
more onerous, restrictions on the Fund's investment personnel, including the
portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of the Advisor, any
director or officer of the Fund's distributors, and all Non-Interested
Directors, preclear any personal securities investments (with limited
exceptions, such as non-volitional purchases or purchases which are part of
an automatic dividend reinvestment plan). The preclearance requirement and
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive
restrictions applicable to investment personnel include a ban on acquiring
any securities in an initial public offering, a prohibition from profiting on
short-term trading in securities and preclearance of the acquisition of
securities in private placements. Furthermore, the Code of Ethics provides
for trading "blackout periods" that prohibit trading by investment personnel
and certain other employees within periods of trading by the Fund in the same
security.
7. INVESTMENT ADVISORY AND OTHER SERVICES
ISI serves as the Fund's investment advisor pursuant to an Investment
Advisory Agreement dated as of January 15, 1993 (the "Investment Advisory
Agreement") that was approved by the Board of Directors of the Fund
(including a majority of the "Non-Interested" Directors) on December 15, 1992
and by the sole shareholder of the Fund on December 15, 1992.
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. Due to their stock ownership, Messrs. Hyman
and Medaugh may be deemed to be controlling persons of ISI. ISI is also
investment advisor to Total Return U.S. Treasury Fund, Inc. and Managed
Municipal Fund, Inc., open-end investment companies with net assets of
approximately $505 million as of June 30, 1995.
To supplement its investment analysis, the Advisor may, from time to
time, subscribe to research services located in Canada and Mexico, which
research services may include information about Canada or Mexico,
respectively, such as: statistical and background information on the
economy, information on political developments and general political
stability forecasts and interpretation with respect to money markets, and
performance information.
27
<PAGE>
As described in the Fund's Prospectus, the Advisor (a) formulates and
implements continuing programs for the purchases and sales of securities, (b)
determines what securities (and in what proportion) shall be represented in
the Fund's portfolio, (c) provides the Fund's Board of Directors with regular
financial reports and analyses with respect to the Fund's portfolio
investments and operations, and the operations of comparable investment
companies, (d) obtains and evaluates pertinent information about economic,
statistical and financial information pertinent to the Fund, (e) takes, on
behalf of the Fund, all actions which appear to the Advisor necessary to
carry into effect its purchase and sale programs. Any investment program
undertaken by the Advisor will at all times be subject to policies and
control of the Fund's Board of Directors. The Advisor shall not be liable to
the Fund or its shareholders for any act or omission by the Advisor or any
losses sustained by the Fund or its shareholders except in the case of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
duty.
Pursuant to the terms of the Advisory Agreement, as compensation for its
services, the Advisor receives an annual fee, paid monthly, in an amount
equal to .40% of the average daily net assets of the Fund.
The Advisor and the Administrator have agreed to waive, on a voluntary
basis, a proportionate amount of their respective fees or to reimburse the
Fund to the extent required so that the Fund's total operating annual
expenses do not exceed 1.25% of the Fund's average net assets. For the
fiscal years ended March 31, 1995 and March 31, 1994, the Advisor received
fees of $339,170 and $280,472, respectively, and from such fees, waived
$112,435 and $90,031, respectively. For the period from January 15, 1993
(commencement of operations) through March 31, 1993, the Advisor waived all
fees due it ($17,841). In addition, for the period ended March 31, 1993, the
Advisor and the Administrator reimbursed the Fund for other expenses
aggregating $15,378. Absent such waivers and reimbursements for the fiscal
years ended March 31, 1995 and 1994 and for the fiscal period ended March 31,
1993, the Fund's total operating expenses would have been 1.45%, 1.44% and
2.19%, respectively, of the Fund's average daily net assets. The Advisor has
also agreed to reduce its aggregate fees attributable to the Fund on a
monthly basis for any fiscal year, to the extent required, so that the amount
of the ordinary expenses of the Fund (excluding brokerage commissions,
interest, taxes and extraordinary expenses such as legal claims, liabilities,
litigation costs and indemnification related thereto) paid or incurred by the
Fund for such fiscal year does not exceed the expense limitations applicable
to the Fund imposed by the securities laws or regulations of the states in
which the Shares are registered or qualified for sale as such limitations may
be raised or lowered from time to time. Currently, the most restrictive of
such expense limitations requires the Advisor to reduce its fees to the
extent required so that ordinary expenses of the Fund (excluding brokerage
commissions, interest, taxes and extraordinary expenses such as legal claims,
liabilities, litigation costs and indemnification related thereto) do not
exceed 2.5% of the first $30 million of the Fund's average daily net assets,
2.0% of the next $70 million of the Fund's average daily net assets and 1.5%
of the Fund's average daily net assets in excess of $100 million. In
addition, if required to do so by any applicable state securities laws or
regulations, the Advisor will reimburse the Fund to the extent required to
prevent the expense limitations of any state law or regulation from being
exceeded. Expenses incurred pursuant to the Plan (see "Distribution of Fund
Shares" below) would not come within state expense limitation requirements.
The Investment Advisory Agreement will continue in effect from year to
year after its initial two year term as specifically approved (a) at least
annually by the Fund's Board of Directors and (b) by the affirmative vote of
a majority of the Non-Interested Directors by votes cast in person at a
meeting called for such purpose. The Fund or the Advisor may terminate the
Investment Advisory Agreement on sixty days' written notice without penalty.
The Investment Advisory Agreement will terminate automatically in the event
of assignment.
28
<PAGE>
8. ADMINISTRATION
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore,
Maryland 21202, provides administration services to the Fund. Such services
include: monitoring the Fund's regulatory compliance, supervising all
aspects of the Fund's service providers, arranging, but not paying for, the
printing and mailing of prospectuses, proxy materials and shareholder
reports, preparing and filing all documents required by the securities laws
of any state in which the Shares are sold, establishing the Fund's budgets,
monitoring the Fund's distribution plans, preparing the Fund's financial
information and shareholder reports, calculating dividend and distribution
payments and arranging for the preparation of state and federal tax returns.
As compensation for such services, ICC is entitled to receive from the
Fund a fee equal to .20% of the Fund's average daily net assets. ICC and the
Advisor have agreed to waive, on a voluntary basis, a proportionate amount of
their respective fees to the extent required so that the Fund's total annual
operating expenses do not exceed 1.25% of the Fund's average net assets. For
the fiscal year ended March 31, 1995 and the fiscal period from January 1,
1994 through March 31, 1994, ICC received a fee of $169,585 and $44,233,
respectively, and from such fee, waived $56,218 and $14,429. ICC also serves
as the Fund's transfer and dividend disbursing agent. (See "Custodian,
Transfer Agent, Accounting Services"). ICC is an affiliate of Armata. The
services of ICC to the Fund are not exclusive and ICC is free to render
similar services to others. ICC also provides accounting services to the
Fund.
Prior to January 1, 1994, Alex. Brown & Sons Incorporated ("Alex.
Brown") provided administration services to the Fund. For the period from
April 1, 1993 through December 31, 1993, Alex. Brown received a fee of
$96,003 and from such fee, waived $30,586. For the period from January 15,
1993 (commencement of operations) through March 31, 1993, Alex. Brown waived
all fees due it ($8,920). In addition, in the fiscal period ended March 31,
1993, the Advisor and Alex. Brown reimbursed the Fund for other expenses
aggregating $15,378. (See "Investment Advisory and Other Services" above.)
Until July 1, 1993, Alex. Brown also provided certain accounting services to
the Fund. (See "Custodian, Transfer Agent and Accounting Services.")
9. DISTRIBUTION OF FUND SHARES
Armata serves as the distributor for the Shares pursuant to a
Distribution Agreement dated January 15, 1993 between Armata and the Fund.
The Distribution Agreement provides that Armata has the exclusive right to
distribute the Shares, either directly or through other broker-dealers.
Armata, a Maryland corporation, is a broker-dealer that was formed in 1983
and is an affiliate of ICC (the Fund's administrator and transfer agent).
The Distribution Agreement further provides that Armata will: solicit
and receive orders for the purchase of Shares; accept or reject such orders
on behalf of the Fund in accordance with the Fund's currently effective
prospectus and transmit such orders as are accepted to the Fund's transfer
agent as promptly as possible; receive requests for redemption and transmit
such redemption requests to the Fund's transfer agent as promptly as
possible; respond to inquiries from the Fund's shareholders concerning the
status of their accounts with the Fund; provide the Fund's Board of Directors
for their review with quarterly reports required by Rule 12b-1; maintain such
accounts, books and records as may be required by law or be deemed
appropriate by the Fund's Board of Directors; and take all actions deemed
necessary to carry into effect the distribution of the Shares. Armata has
not undertaken to sell any specific number of Shares. The Distribution
Agreement further provides that, in connection with the distribution of
Shares, Armata will be responsible for all of its promotional expenses. The
services of Armata to the Fund are not exclusive, and Armata shall not be
liable to the Fund or its shareholders for any act or omission by Armata or
29
<PAGE>
any losses sustained by the Fund or its shareholders except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
As compensation for providing distribution and related administrative
services as described above, the Fund will pay Armata, on a monthly basis, an
annual fee, equal to .40% of the average daily net assets of the Shares.
Armata expects to allocate on a proportional basis a substantial portion of
its annual fees to its investment representatives or up to all of its fees to
broker-dealers who enter into Sub-Distribution Agreements with Armata under
which such broker-dealers have agreed to process investor purchase and
redemption orders and respond to inquiries from Fund shareholders concerning
the status of their accounts and the operations of the Fund. For
distribution services for the fiscal years ended March 31, 1995 and March 31,
1994, Armata received fees of $339,170 and $280,472, respectively, and paid
from such fees $0 and $0 as compensation to its investment representatives
and $328,556 and $275,095 as compensation to outside broker dealers. No
compensation was paid to financial institutions.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or
indirectly, only pursuant to a plan adopted by the investment company's board
of directors and approved by its shareholders, the Fund has adopted a Plan of
Distribution for the Shares (the "Plan"). Under the Plan, the Fund pays a
fee to Armata for distribution and other shareholder servicing assistance as
set forth in the Distribution Agreement, and Armata is authorized to make
payments out of its fees to its investment representatives, to Participating
Dealers and to Shareholder Servicing Agents. Payments to Participating
Dealers and Shareholder Servicing Agents, if applicable, may not exceed fees
payable to Armata under the Plan.
The Distribution Agreement, form of Sub-Distribution Agreement and the
Plan were approved by the Fund's Board of Directors, including a majority of
the Non-Interested Directors (who have no direct or indirect financial
interest in the Plan or the Distribution Agreement or any Sub-Distribution
Agreement) on December 15, 1992 and were approved by the sole shareholder of
the Fund on December 15, 1992. The Distribution Agreement and the Plan will
remain in effect from year to year as specifically approved (a) at least
annually by the Fund's Board of Directors and (b) by the affirmative vote of
a majority of the Non-Interested Directors, by votes cast in person at a
meeting called for such purpose.
In approving the Plan, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plan would benefit the Fund and its shareholders. The Plan will be renewed
only if the Directors make a similar determination in each subsequent year.
The Plan may not be amended to increase materially the fee to be paid
pursuant to the Distribution Agreement without the approval of the
shareholders of the Fund. The Plan may be terminated at any time, and the
Distribution Agreement may be terminated at any time upon sixty days' notice,
without penalty, by a vote of a majority of the Fund's Non-Interested
Directors or by a vote of a majority of the outstanding Shares. Any Sub-
Distribution Agreement may be terminated in the same manner at any time. The
Distribution Agreement and any Sub-Distribution Agreement shall automatically
terminate in the event of assignment (as defined in the Investment Company
Act).
During the continuance of the Plan, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plan to Armata pursuant to the Distribution
Agreement, to Participating Dealers pursuant to Sub-Distribution Agreements
and to Shareholder Servicing Agents pursuant to Shareholder Servicing
Agreements. Such reports shall be made by the persons authorized to make
such payments. In addition, during the continuance of the Plan, the
selection and nomination of the Fund's Non-Interested Directors shall be
committed to the discretion of the Non-Interested Directors then in office.
30
<PAGE>
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Armata will allocate a portion of their
respective distribution fees as compensation for such financial institutions'
ongoing shareholder services. Although banking laws and regulations prohibit
banks from distributing shares of open-end investment companies such as the
Fund, according to interpretations by various bank regulatory authorities,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as the shareholder servicing capacities described
above. Should future legislative, judicial or administrative action prohibit
or restrict the activities of the Shareholder Servicing Agents in connection
with the Shareholder Servicing Agreements, the Fund may be required to alter
materially or discontinue its arrangements with the Shareholder Servicing
Agents. Such financial institutions may impose separate fees in connection
with these services and investors should review the applicable Prospectus and
this Statement of Additional Information in conjunction with any such
institution's fee schedule. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein, and
banks and financial institutions may be required to register as dealers
pursuant to state law.
Except as described elsewhere, the Fund pays or causes to be paid all
organizational expenses and all continuing expenses of the Fund, including,
without limitation: investment advisory, administration and distribution
fees; the charges and expenses of any registrar, any custodian or depository
appointed by the Fund for the safekeeping of cash, portfolio securities and
other property, and any transfer, dividend or accounting agent or agents
appointed by the Fund; brokers' commissions, if any, chargeable to the Fund
in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing Shares; all costs and expenses in connection with the
maintenance of registration of the Fund and its Shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting and distributing prospectuses of the Fund and supplements thereto
to the shareholders; all expenses of shareholders' and Directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Non-Interested Directors and Non-
Interested members of any advisory board or committee; all expenses incident
to the payment of any dividend, distribution, withdrawal or redemption,
whether in Shares or in cash; charges and expenses of any outside service
used for pricing of the Shares; fees and expenses of legal counsel or
independent auditors, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (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 or Armata.
10. PORTFOLIO TRANSACTIONS
The Advisor is responsible for decisions to buy and sell securities for
the Fund, selection of broker-dealers and negotiation of commission rates.
In general, purchases and sales of portfolio securities by the Fund will be
primarily principal transactions, and the Fund will incur no substantial
amount of brokerage commission expenses. 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. For the fiscal year ended March 31, 1995,
the Fund paid no brokerage commissions.
31
<PAGE>
The Advisor's primary consideration in effecting security transactions
is to obtain, on an overall basis, the best net price and the most favorable
execution of orders. To the extent that the execution and prices offered by
more than one broker-dealer are comparable, the Advisor may, in its
discretion, effect transactions with dealers that furnish statistical,
research or other information or services which the Advisor deems to be
beneficial to the Fund's investment program. Such research services
supplement the Advisor's own research. Research services may include the
following: statistical and background information on the U.S., Canadian and
Mexican economy, industry groups and individual companies; forecasts and
interpretations with respect to the U.S., Canadian and Mexican money markets;
information on federal, state, local and political developments in the United
States, Canada and Mexico; portfolio management strategies; performance
information on securities, indices and investment accounts; information
concerning prices of securities; the providing of equipment used to
communicate research information; and the providing of access to consultants
who supply research information. Certain research services furnished by
broker-dealers may be useful to the Advisor with clients other than the Fund.
Similarly, any research services received by the Advisor through placement of
portfolio transactions of other clients may be of value to the Advisor in
fulfilling its obligations to the Fund. No specific value can be determined
for research and statistical services furnished without cost to the Advisor
by a broker-dealer. The Advisor is of the opinion that because the material
must be analyzed and reviewed by its staff, its receipt does not tend to
reduce expenses, but may be beneficial in supplementing the Advisor's
research and analysis. Therefore, it may tend to benefit the Fund by
improving the quality of the Advisor's investment advice. For the fiscal
years ended March 31, 1995 and March 31, 1994, respectively, the Advisor
directed no transactions to broker dealers and paid no related commissions
because of research services provided to the Fund.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the Investment Company Act) which the
Fund has acquired during its most recent fiscal year. As of March 31, 1995,
the Fund held a 6.10% repurchase agreement issued by Goldman Sachs & Co.
valued at $2,942,000.
11. CAPITAL STOCK
Under its Articles of Incorporation, the Fund may issue up to twenty-
five 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 one
class of Shares. All Shares of the Fund regardless of class have equal
rights with respect to voting, except that with respect to any matter
affecting the rights of the holders of a particular series or class, the
holders of each series will vote separately. Any such series will be a
separately managed portfolio and shareholders of each series will have an
undivided interest in the net assets of that series. For tax purposes, the
series will be treated as separate entities. Generally, each class of Shares
issued by a particular series will be identical to every other class and
expenses of the Fund (other than 12b-1 fees) are prorated between all classes
of a series based upon the relative net assets of each class. Any matters
affecting any class exclusively will be voted on by the holders of such
class.
Shareholders of the Fund do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
The Fund's By-laws provide that any director of the Fund may be removed
by the shareholders by a vote of a majority of the votes entitled to be cast
for the election of Directors. A meeting to consider the removal of any
32
<PAGE>
Director or Directors of the Fund will be called by the Secretary of the Fund
upon the written request of the holders of at least one-tenth of the
outstanding Shares of the Fund entitled to vote at such meeting.
There are no preemptive, conversion or exchange rights applicable to any
of the Shares. The Fund's issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets
allocated to a separate series of Shares if there is more than one series)
after all debts and expenses have been paid.
As used in this Statement of Additional Information, the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50%
of the outstanding Shares.
12. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The
annual financial statements are audited by the Fund's independent
accountants.
13. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business Park, 200
Stevens Drive, Lester, Pennsylvania 19113, has been retained to act as
custodian of the Fund's investments. Barclays International ("Barclay's"),
75 Wall Street, New York, New York 10265, has been retained to serve as the
Fund's custodian with respect to the Fund's foreign investments. PNC Bank
and Barclay's receive such compensation from the Fund for their services in
such capacities as may be agreed to from time to time by PNC Bank, Barclays,
and the Fund. Investment Company Capital Corp., the Fund's administrator,
135 East Baltimore Street, Baltimore, Maryland 21202 (telephone: (800) 882-
8585) has been retained to act as transfer and dividend disbursing agent. As
compensation for providing these services, the Fund pays ICC up to $15.00
per account plus reimbursement for out-of-pocket expenses incurred in
connection therewith. For such services for the fiscal year ended March 31,
1995, ICC received a fee of $83,596.
ICC also provides accounting services to the Fund, effective April 10,
1995. As compensation for providing accounting services to the Fund, ICC is
entitled to receive an annual fee, calculated daily and paid monthly, as
shown below.
33
<PAGE>
Average Net Assets Accounting Services Fee
- ------------------ -----------------------
0 - $ 10,000,000 $13,000 (fixed fee)
$ 10,000,001 - $ 20,000,000 .100%
$ 20,000,001 - $ 30,000,000 .080%
$ 30,000,001 - $ 40,000,000 .060%
$ 40,000,001 - $ 50,000,000 .050%
$ 50,000,001 - $ 60,000,000 .040%
$ 60,000,001 - $ 70,000,000 .030%
$ 70,000,001 - $ 100,000,000 .020%
$100,000,001 - $ 500,000,000 .015%
$500,000,001 - $1,000,000,000 .005%
over $1,000,000,000 .001%
14. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P., whose Report thereon appears elsewhere herein, and has been
included herein in reliance upon the Report of such firm of accountants given
on its authority as an expert in accounting and auditing. Coopers & Lybrand
L.L.P. has offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania
19103.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 7, 1995, to Fund management's knowledge, the following
persons held beneficially or of record 5% or more of the Fund's outstanding
shares:
Alex. Brown & Sons Incorporated 14.78%*
135 East Baltimore Street
Baltimore, MD 21202
As of such date, Directors and officers as a group owned less than 1% of
the Fund's total outstanding Shares.
____________________
* As of such date Alex. Brown & Sons, Inc. beneficially owned less than 1%
of such Shares.
16. PERFORMANCE AND YIELD COMPUTATIONS
For purposes of quoting and comparing the performance of the Fund to
that of other open-end non-diversified management investment companies and to
stock or other relevant indices in advertisements or in certain reports to
shareholders, performance generally will be stated both in terms of total
return and in terms of yield. However, the Fund may also from time to time
state the performance of the Fund solely in terms of total return.
34
<PAGE>
Total Return Calculation
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P (1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1,
5 or 10 year periods (or fractional portion thereof)of a
hypothetical $1,000 payment made at the beginning of the 1, 5 or 10
year periods.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's registration statement. During its first year of operation the
Fund may, in lieu of annualizing its total return, use an aggregate total return
calculated in the same manner. In calculating the ending redeemable value, the
maximum sales load is deducted from the initial $1,000 payment and all dividends
and distributions by the Fund are assumed to have been reinvested at net asset
value as described in the prospectus on the reinvestment dates during the
period. "T" in the formula above is calculated by finding the average annual
compounded rate of return over the period that would equate an assumed initial
payment of $1,000 to the ending redeemable value. Any sales loads that might in
the future be made applicable at the time to reinvestment would be included as
would any recurring account charges that might be imposed by the Fund.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
in order to compare more accurately the Fund's performance with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., the Fund calculates its
aggregate and average annual total return for the specified periods of time by
assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000 invested in
Shares is net of all sales charges (as distinguished from the computation
required by the SEC where the $1,000 payment is reduced by sales charges before
being invested in Shares). The Fund will, however, disclose the maximum sales
charges and will also disclose that the performance data do not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
Such alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules, and all
advertisements containing performance data will include a legend disclosing that
such performance data represent past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Calculated according to the SEC rules for the one-year period ended
March 31, 1995, the ending redeemable value of a hypothetical $1,000 payment
for the Fund's Shares was $889 resulting in a total return for such shares
equal to -11.06%. For the period from effectiveness of the Fund's
registration statement on January 15, 1993 to the end of the Fund's most
recent fiscal year on March 31, 1995, the ending redeemable value of a
35
<PAGE>
hypothetical $1,000 payment was $934 resulting in an average annual total
return equal to -3.05%.
Calculated according to the alternative computation which assumes no
sales charges and reinvestment of all distributions for the one-year period
ended March 31, 1995, the ending redeemable value of a hypothetical $10,000
investment in the Fund's Shares was $9,169 resulting in a total return for
such shares equal to -8.31%. For the period from effectiveness of the Fund's
registration statement on January 15, 1993 to the end of the Fund's most
recent fiscal year on March 31, 1995, the ending redeemable value of a
hypothetical $10,000 investment was $9,628 resulting in an average annual
total return equal to -3.72%.
Yield Calculations
The Fund's yield for the 30 day period ended March 31, 1995 was 7.53%
and was computed in the manner described 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 semi-annual 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 3.00% for the Shares.
The Fund's net investment income per Share earned during the period is based
on the average daily number of Shares outstanding during the period entitled
to receive dividends and includes dividends and interest earned during the
period minus expenses accrued for the period, net of reimbursements.
Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by
the Fund is calculated by computing the yield to maturity of each obligation
based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month,
or, with respect to obligations purchased during the month, based on the
purchase price (plus actual accrued interest), dividing the result by 360 and
multiplying the quotient by the market value of the obligation (including
actual accrued interest) in order to determine the interest income on the
obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value per
share. Undeclared earned income is net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be and is declared as a dividend shortly thereafter.
17. FINANCIAL STATEMENTS.
See next page.
36
<PAGE>
North American Government Bond Fund, Inc.
Statement of Net Assets
March 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Principal Value
Security Rate Date Value(dagger) (Note A)
<S> <C> <C> <C> <C>
CANADIAN SECURITIES--25.58%
Province of British Columbia, Deb. 7.50% 6/09/14 C$ 6,000,000 $ 3,704,190
Government of Canada, Deb. 9.00 12/01/04 9,725,000 7,140,552
Government of Canada, Deb. 9.75 6/01/21 2,000,000 1,572,262
Government of Canada, Deb. 9.25 6/01/22 6,050,000 4,539,610
Total Canadian Securities
(Cost $18,844,808) 16,956,614
MEXICAN SECURITIES(1)--8.65%
Mexican Treasury Cete 12.50* 4/12/95 Ps 5,528,300 799,292
Mexican Treasury Cete 13.48* 5/04/95 2,800,000 389,154
Mexican Treasury Cete 13.61* 5/25/95 5,738,410 780,281
Mexican Treasury Cete 30.33* 7/20/95 12,425,070 1,538,041
Mexican Treasury Cete 11.27* 8/03/95 7,551,880 914,512
Mexican Treasury Cete 28.23* 8/10/95 6,217,330 749,504
Mexican Treasury Cete 11.66* 6/06/96 6,570,000 562,257
Total Mexican Securities
(Cost $10,940,452) 5,733,041
U.S. SECURITIES--59.31%
U.S. Treasury Note 7.500 11/15/01 $ 5,000,000 5,091,407
U.S. Treasury Bond 10.750 5/15/03 6,900,000 8,364,094
U.S. Treasury Note 7.250 5/15/04 3,800,000 3,804,156
U.S. Treasury Bond 10.375 11/15/12 11,400,000 14,041,594
U.S. Treasury Bond 11.750 11/15/14 1,250,000 1,715,820
U.S. Treasury Strip (Principal) 6.590** 5/15/96 6,000,000 5,577,873
U.S. Treasury Strip (Principal) 7.810** 8/15/17 4,000,000 724,566
Total U.S. Securities
(Cost $39,067,036) 39,319,510
</TABLE>
37
<PAGE>
North American Government Bond Fund, Inc.
Statement of Net Assets (concluded)
March 31, 1995
Principal Value
Value(dagger) (Note A)
REPURCHASE AGREEMENTS--4.44%
Goldman Sachs & Co., 6.10%
Dated 3/31/95, to be repurchased on 4/3/95, collateralized
by U.S. Treasury Bonds with a market value of $3,001,338 $2,942,000
Total Repurchase Agreements
(Cost $2,942,000) $ 2,942,000
Total Investment in Securities--97.98%
(Cost $71,794,296)*** 64,951,165
Other Assets in Excess of Liabilities, Net--2.02% 1,341,093
Net Assets Applicable--100.00% $66,292,258
Net Asset Value and Redemption Price Per Share
($66,292,258 divided by 8,225,853 shares outstanding) $8.06
Offering Price Per Share
($8.06 divided by .970) $8.31
* Yields at the date of purchase.
** Yields as of March 31, 1995.
*** Also aggregate cost for federal tax purposes.
1 Cetes are short-term Mexican government debt securities.
(dagger) Principal value is shown in local currency: Canadian dollars (C$),
Mexican pesos (Ps) and U.S. dollars ($).
See accompanying Notes to Financial Statements.
38
<PAGE>
North American Government Bond Fund, Inc.
Statement of Operations
For the year ended March 31, 1995
INVESTMENT INCOME (NOTE A):
Interest $ 7,033,220
EXPENSES:
Investment advisory fee (Note B) 339,170
Distribution fee (Note B) 339,170
Administration fee (Note B) 169,585
Transfer agent fees (Note B) 83,596
Accounting fee 60,796
Custodian fees 60,404
Registration fees 39,000
Audit 39,000
Legal 37,784
Printing and postage 29,999
Miscellaneous 10,626
Organizational expense (Note A) 10,527
Directors' fees 5,000
Insurance 4,132
Total expenses 1,228,789
Less: Fees waived (Note B) (168,653)
Net expenses 1,060,136
Net investment income 5,973,084
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss from security transactions (3,757,134)
Net realized foreign exchange loss (8,270,248)
Change in unrealized appreciation/(depreciation) of
investments (798,039)
Change in unrealized appreciation/(depreciation) on
translation of assets and liabilities denominated
in foreign currencies (63,148)
Net loss on investments (12,888,569)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(6,915,485)
See accompanying Notes to Financial Statements.
39
<PAGE>
North American Government Bond Fund, Inc.
Statement of Changes in Net Assets
For the year ended March 31,
1995 1994
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,973,084 $ 4,948,431
Net realized gain/(loss) from security and
foreign currency transactions (12,027,382) 650,180
Change in unrealized appreciation/(depreciation)
of investments (798,039) (5,825,256)
Change in unrealized appreciation/(depreciation)
on translation of assets and liabilities
denominated in foreign currencies (63,148) (11,794)
Net decrease in net assets resulting
from operations (6,915,485) (238,439)
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (3,760,903) (5,056,636)
Net realized short-term gains (621,691) (1,055,545)
Return of capital-tax (2,448,605) --
Total distributions (6,831,199) (6,112,181)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of 843,587 and 6,197,568
shares, respectively 7,637,704 63,193,787
Value of 414,693 and 313,525 shares issued in
reinvestment of dividends, respectively 3,689,590 3,201,227
Cost of 2,858,167 and 723,956 shares
repurchased, respectively (24,909,993) (7,359,712)
Total increase/(decrease) in net assets
derived from capital share transactions (13,582,699) 59,035,302
Total increase/(decrease) in net assets (27,329,383) 52,684,682
NET ASSETS:
Beginning of year 93,621,641 40,936,959
End of year $ 66,292,258 $93,621,641
See accompanying Notes to Financial Statements.
40
<PAGE>
North American Government Bond Fund, Inc.
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the period
January 15, 1993*
through
For the year ended March 31, March 31, 1993
1995 1994
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period $ 9.53 $ 10.14 $ 10.00
Income from Investment Operations:
Net investment income 0.63 0.89 0.10
Net realized and unrealized
gain/(loss) on investments (1.38) (0.58) 0.12
Total from Investment Operations (0.75) 0.31 0.22
Less Distributions:
Dividends from net investment income
and short-term gains (0.45) (0.92) (0.08)
Return of capital-tax (0.27) -- --
Total distributions (0.72) (0.92) (0.08)
Net asset value at end of period $ 8.06 $ 9.53 $ 10.14
Total Return (8.31)% 2.77% 2.18%
Ratios to Average Net Assets:
Expenses(2) 1.25% 1.25% 1.25%(1)
Net investment income(3) 7.04% 7.04% 7.62%(1)
Supplemental Data:
Net assets at end of period (000) $66,292 $93,622 $40,937
Portfolio turnover rate 104% 219% 104%
</TABLE>
* Commencement of Operations.
(1) Annualized.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses to
average net assets would have been 1.45%, 1.44% and 2.19% (annualized)
for the years ended March 31, 1995, 1994 and for the period ended
March 31, 1993, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would been 6.84%, 6.85% and 6.68% (annualized)
for the years ended March 31, 1995, 1994 and for the period ended
March 31, 1993, respectively.
See accompanying Notes to Financial Statements.
41
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies--North American Government Bond Fund, Inc.
(the "Fund") was organized as a Maryland Corporation on October 19, 1992 and
commenced operations on January 15, 1993. The Fund is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. Significant accounting policies are as follows:
Security Valuation--Debt securities are generally traded in the
over-the-counter market and are valued at a price deemed best to reflect
fair value as quoted by dealers who make markets in these securities or
by an independent pricing service. Securities or other assets for which
market quotations are not readily available are valued at their fair value
so determined in good faith by the Investment Advisor under procedures
established and monitored by the Board of Directors. Short-term obligations
with maturities of 60 days or less are valued at amortized cost which
approximates market.
Repurchase Agreements--The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement, will
be required on a daily basis to maintain as collateral the value of the
securities subject to the agreement at not less than the repurchase price.
The agreement is conditioned upon the collateral being deposited under the
Federal Reserve book-entry system.
Foreign Currency Translation--The Fund isolates that portion of its
realized gains resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices
of securities held.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions, and the difference between
the amount of interest recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid.
It is not practical to distinguish that portion of the unrealized
appreciation of the Fund that arises as a result of changes in the
exchange rates from fluctuations in market prices of investments during
the period.
Federal Income Tax--No provision is made for federal income taxes as it is
the Fund's intention to continue to qualify as a regulated investment
company and to make requisite distributions to the shareholders which
will be sufficient to relieve it from all or substantially all federal
income and excise taxes. The Fund's policy is to distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
Other--Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis and includes, when
applicable, the pro rata amortization of premiums and accretion of
discounts. Distributions to shareholders are recorded on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with U.S. federal income tax regulations which may differ from generally
accepted accounting principles.
Costs incurred by the Fund in connection with its organization,
registration, and initial public offering of shares, have been deferred
and are being amortized on the straight-line method over a five-year
period beginning on the date in which the Fund commenced its investment
activities.
42
<PAGE>
Notes to Financial Statements (concluded)
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees--
International Strategy & Investment Inc. ("ISI") serves as the Fund's
investment advisor, and Investment Company Capital Corp. ("ICC") serves
as the Fund's administrator. As compensation for its advisory services,
ISI receives from the Fund an annual fee, calculated daily and paid monthly,
at the annual rate of .40% of the Fund's daily net assets. As compensation
for its administrative services, ICC receives from the Fund an annual fee,
computed daily and paid monthly, at the annual rate of .20% of the Fund's
average daily net assets.
ISI and ICC have voluntarily agreed to reduce their respective annual fees
proportionately, if necessary, so that the Fund's annual expenses do not
exceed 1.25% of the Fund's average daily net assets. For the year ended
March 31, 1995, ISI and ICC waived fees of $112,435 and $56,218,
respectively.
As compensation for its transfer agent services, ICC receives from the
Fund a per account fee, calculated and paid monthly. ICC received $83,596
for transfer agent services for the year ended March 31, 1995.
As compensation for providing distribution services, Armata Financial
Corp., an affiliate of the administrator, receives from the Fund an annual
fee, calculated daily and paid monthly, at an annual rate equal to .40% of
the Fund's average daily net assets. For the year ended March 31, 1995,
distribution fees were $339,170.
C. Capital Share Transactions--The Fund is authorized to issue up to 25
million shares of capital stock, par value $.001 per share, all of which
shares are designated as common stock.
D. Investment Transactions--Purchases and sales of investment securities
other than short-term and U.S. Government obligations aggregated
$13,685,463 and $14,183,162, respectively, for the year ended March 31,
1995. Purchases and sales of U.S. Government obligations aggregated
$47,358,533 and $48,073,125, repectively.
At March 31, 1995 aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $647,932
and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $7,491,063.
E. Forward Currency Exchange Contracts--At March 31, 1995, the Fund was a
party to two forward currency exchange contracts under which it is obligated
to exchange currencies at specified future dates. Risks arise from the
possible inability of counterparties to meet the terms of their contracts
and from movements in currency values. Outstanding contracts at March 31,
1995 are as follows:
Unrealized
Contract to Apprec.
Value Receive Deliver (Deprec.)
Date Amounts in Thousands in US$
4/95 C$15,750 US$11,267 (80)
5/95 C$ 4,754 US$ 3,396 2
Accordingly, net unrealized depreciation of $78,141 on these contracts at
March 31, 1995 is included in the accompanying financial statements.
F. Net Assets--At March 31, 1995, net assets consisted of:
Paid-in-Capital $ 83,769,759
Accumulated net realized loss
from security and foreign
currency transactions (10,557,923)
Unrealized depreciation of
investments (6,843,131)
Unrealized translation loss (76,447)
$ 66,292,258
43
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
North American Government Bond Fund, Inc.:
We have audited the accompanying statement of net assets of North American
Government Bond Fund, Inc. as of March 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights
for each of the respective periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments owned as of March 31, 1995 by correspondence with the custodians.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of North American Government Bond Fund, Inc. as of March 31, 1995 and the
results of its operations for the year then ended and the changes in its
net assets and its financial highlights for each of the respective periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
May 1, 1995
44
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong. Debt rated "AA" has
a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Debt rated "BBB" is
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions, or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than
in higher rated categories. Debt rated "BB", "B", "CCC" and "C" is regarded
as having predominant speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the lowest degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Moody's Bond Ratings
Bonds which are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
Aaa securities. Bonds rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future. Bonds rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. Bonds rated Ba are
judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small. Bonds rated Caa
are of poor standing. Such issues may be in default or there may be present
A-1
<PAGE>
elements of danger with respect to principal or interest. Bonds rated Ca
represent obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings. Bonds rated C are
the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing. Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa to B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks at the lower end of its generic
rating category.
Standard & Poor's Commercial Paper Ratings
A is the highest commercial paper rating category utilized by Standard &
Poor's, which uses the numbers 1, 2 and 3 to indicate relative degree of
safety. The designation A-1+ indicates there is an "overwhelming degree" of
safety with regard to the capacity for timely payment. The designation A-1
indicates that the degree of safety regarding timely payment is strong. The
designation A-2 indicates the capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1. Issues carrying the A-3 designation
have an adequate capacity for timely payment. They are, however, somewhat
more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. Issues rated "B" are regarded
as having only speculative capacity for timely payment. The rating "C" is
assigned to short-term debt obligations with a doubtful capacity for
repayment. An issue rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
A-2
<PAGE>
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
A-3
<PAGE>
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
List all financial statements and exhibits filed as part of the
Registration Statement.
---------------------------------------------------------------
(a) Financial statements:
(1) Included in Part B of the Registration Statement:
- Financial Highlights for the fiscal years ended March
31, 1995 and March 31, 1994, and for the period ended
March 31, 1993.
- Statement of Net Assets at March 31, 1995.
- Statement of Operations for the fiscal year ended
March 31, 1995.
- Statement of Changes in Net Assets for the fiscal
years ended March 31, 1995 and March 31, 1994.
- Financial Highlights for the fiscal years ended
March 31, 1995 and March 31, 1994, and for the period
ended March 31, 1993.
- Notes to Financial Statements.
- Report of Independent Accountants.
(2) All required financial statements are included in Parts A and B
hereof. All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) 1\(a) Articles of Incorporation;
1\(b) Articles of Amendment;
1\(c) Articles Supplementary dated December 15, 1993;
1\(2) By-Laws;
(3) None;
2\(4) Specimen Security;
1\(5) Investment Advisory Agreement dated as of December 15, 1992
between Registrant and International Strategy and Investment
Inc.;
(6) 1\(a) Distribution Agreement dated as of December 15, 1992
between Registrant and Armata Financial Corp.;
1\(b) Form of Agency Distribution Agreement between Armata
Financial Corp. and Participating Broker-Dealers;
1\(c) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents;
(7) None;
1\(8) Custodian Agreement dated as of December 15, 1992 between
Registrant and Provident National Bank (now known as PNC Bank);
<PAGE>
1\(9) Form of Master Services Agreement (including Administration,
Transfer Agency and Accounting Services appendices) between
Registrant and Investment Company Capital Corp.;
1\(10) Opinion of Counsel;
1\(11) Consent of Independent Accountants;
(12) None;
1\(13) Subscription Agreement re: initial $100,000 capital;
(14) None;
1\(15) Distribution Plan;
1\(16) Schedule of Computation of Performance Information;
1\(24) Powers of Attorney;
1\(27) Financial Data Schedule.
__________________
1 Filed herewith.
2 Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-53598), filed with
the Securities and Exchange Commission on July 21, 1993.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders
of each class of securities of the Registrant.
The following information is given as of July 7, 1995:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock 2,620
<PAGE>
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability which
may be incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of Directors of
the Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the
Corporation or by resolution or agreement to the fullest extent
permitted by the Maryland General Corporation law.
Section 3. No provision of this Article VIII shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
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.
<PAGE>
Item 28. Business and Other Connections of Investment Advisor
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant,
and each director, officer or partner of any such investment advisor,
is or has been, at any time during the past two fiscal years, engaged
for his own account or in the capacity of director, officer, employee,
partner or trustee.
During the last two years, no director or officer of International
Strategy and Investment Inc., the Registrant's investment advisor, has
engaged in any other business, profession, vocation or employment of a
substantial nature other than that of the business of investment
management and, through affiliates, investment banking.
Item 29. Principal Underwriters
----------------------
(a) Armata Financial Corp. acts as distributor for ISI Total Return
U.S. Treasury Fund Shares (a class of Total Return U.S. Treasury
Fund, Inc.) and ISI Managed Municipal Fund Shares (a class of
Managed Municipal Fund, Inc.).
(b) Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
------------------ -------------- -------------
Jack S. Griswold Chairman and None
Director
F. Barton Harvey, Jr. Director None
John M. Prugh President and
Director None
E. Robert Kent Director None
Peter E. Bancroft Secretary None
Timothy M. Gisriel Treasurer None
_____________________
* 135 East Baltimore Street
Baltimore, Maryland 21202
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the names and
address of each person maintaining physical possession of each such account,
book or other document.
International Strategy and Investment Inc., 717 Fifth Avenue, New
York, New York 10022, maintains physical possession of each such account,
book or other document of the Fund, except for those maintained by the
Registrant's custodian, PNC Bank, National Association (formerly Provident
National Bank), Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, by the Registrant's transfer agent, dividend disbursing
agent and accounting services provider, ICC, 135 E. Baltimore Street,
Baltimore, MD 21202.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
See Exhibit 8.
Item 32. Undertakings
------------
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each prospective person
to whom a prospectus will be delivered with a copy of the
Registrant's latest annual report to shareholders containing
information called for by Item 5A of Form N-1A, upon request and
without charge by contacting Registrant at (800) 955-7175.
<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 the
requirements for effectiveness of this Post-Effective Amendment No. 3 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its 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 26 day of July, 1995.
NORTH AMERICAN GOVERNMENT BOND 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 and on the date indicated.
*/s/ Edward S. Hyman, Jr. Chairman and July 26, 1995
- ------------------------- Director --------------
Edward S. Hyman, Jr. Date
*/s/ Richard T. Hale Director July 26, 1995
- ------------------------ --------------
Richard T. Hale Date
/s/ Rebecca W. Rimel Director July 26, 1995
- ------------------------ --------------
Rebecca W. Rimel Date
/s/ James J. Cunnane Director July 26, 1995
- ------------------------ --------------
James J. Cunnane Date
*/s/ N. Bruce Hannay Director July 26, 1995
- ------------------------ --------------
N. Bruce Hannay Date
*/s/ John F. Kroeger Director July 26, 1995
- ------------------------ --------------
John F. Kroeger Date
*/s/ Louis E. Levy Director July 26, 1995
- ------------------------ --------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director July 26, 1995
- ------------------------ --------------
Eugene J. McDonald Date
*/s/ Harry Woolf Director July 26, 1995
- ------------------------ --------------
Harry Woolf Date
/s/ R. Alan Medaugh President July 26, 1995
- ------------------------ --------------
R. Alan Medaugh Date
*/s/ Diana M. Ellis Treasurer and July 26, 1995
- ------------------------ Chief Financial -------------
Diana M. Ellis Officer Date
*By: /s/ Brian C. Nelson
- ------------------------
Brian C. Nelson
Attorney-In-Fact
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit Page
Number Document Number
- ------- -------- ------
Ex-99.B(1) (a) Registrant's Articles of
Incorporation, filed herewith.
Ex-99.B(1) (b) Articles of Amendment, filed
herewith.
Ex-99.B(1) (c) Articles Supplementary dated
December 15, 1993, filed herewith.
Ex-99.B(2) Registrant's By-Laws, filed herewith.
(4) Registrant's Specimen Security is
incorporated herein by reference to
Post-Effective Amendment No. 1 to
Registrant's Registration Statement on
Form N-1A (Registration No. 33-53598),
filed with the Securities and Exchange
Commission on July 21, 1993.
Ex-99.B(5) Investment Advisory Agreement dated as
of December 15, 1992 between Registrant
and International Strategy and
Investment Inc., filed herewith.
Ex-99.B(6) (a) Distribution Agreement dated as of
December 15, 1992 between Registrant
and Armata Financial Corp., filed
herewith.
Ex-99.B(6) (b) Registrant's Form of Agency
Distribution Agreement between Armata
Financial Corp. and Transmitting
Brokers, filed herewith.
Ex-99.B(6) (c) Registrant's Form of Shareholder
Servicing Agreement, filed herewith.
Ex-99.B(8) Custodian Agreement dated as of
December 15, 1992 between Registrant
and Provident National Bank (now known
as PNC Bank), filed herewith.
Ex-99.B(9) Form of Master Services Agreement
(including Administration, Transfer
Agency and Accounting Services
Appendices) between Registrant and
Investment Company Capital Corp., filed
herewith.
Ex-99-B(10) Opinion of Counsel, filed herewith.
Ex-99.B(11) Consent of Coopers & Lybrand L.L.P.,
filed herewith.
Ex-99.B(13) Subscription Agreement with respect to
the initial capitalization of the Fund,
filed herewith.
Ex-99.B(15) Registrant's Distribution Plan, filed
herewith.
Ex-99.B(16) Schedule of Computation of Performance
Information, filed herewith.
<PAGE>
EDGAR
Exhibit Page
Number Document Number
- ------- -------- ------
Ex-99.B(24) Powers of Attorney, filed herewith.
Ex-27 Financial Data Schedule, filed herewith.
EX-99.B(1)(a)
ARTICLES OF INCORPORATION
OF
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
ARTICLE I
THE UNDERSIGNED, Edward J. Veilleux whose post office address
is 135 East Baltimore Street, Baltimore, Maryland 21202, being at least eighteen
years of age, does hereby act as an incorporator, under and by virtue of the
General Laws of the State of Maryland authorizing the formation of corporations
and with the intention of forming a corporation.
ARTICLE II
The name of the Corporation is North American Government Bond
Fund, Inc.
ARTICLE III
The purpose for which the Corporation is formed is to act as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in securities and
other investments including assets in cash.
(2) To issue and sell shares of its capital stock in such
amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by law.
(3) To redeem, purchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote or consent of the
shareholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by the Charter of the
Corporation.
(4) To enter into a written contract or contracts with any
person or persons providing for a delegation of the management of all or part of
this Corporation's securities portfolio(s) and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors of the Corporation. Any such contract or
contracts may be made with any person even though such person may be an officer,
other employee, director or shareholder of this Corporation or a corporation,
partnership, trust or association in which any such officer, other employee,
director or shareholder may be interested.
<PAGE>
(5) To enter into a written contract or contracts appointing
one or more underwriters, distributors or agents for the sale of the shares of
the Corporation on such terms and conditions as the Board of Directors of the
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director or shareholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
shareholder may be interested.
(6) To enter into a written contract or contracts employing
such custodian or custodians for the safekeeping of the property of the
Corporation and of its shares, such dividend disbursing agent or agents, and
such transfer agent or agents and registrar or registrars for its shares, and
such agent or agents for accounting and other administrative services on such
terms and conditions as the Board of Directors of the Corporation may deem
reasonable and proper for the conduct of the affairs of the Corporation, and to
pay the fees and disbursements of such custodians, dividend disbursing agents,
transfer agents, registrars and accounting and administrative services agents
out of the income and/or any other property of the Corporation. Notwithstanding
any other provisions of the Charter or the By-Laws of the Corporation, the Board
of Directors of the Corporation may cause any or all of the property of the
Corporation to be transferred to, or to be acquired and held in the name of, a
custodian so appointed or any nominee or nominees of this Corporation or nominee
or nominees of such custodian satisfactory to the Board of Directors of the
Corporation.
(7) To employ the same person, partnership (general or
limited), association, trust or corporation in any multiple capacity under
Sections (4), (5) and (6) of this Article, who may receive compensation from the
Corporation in as many capacities in which such person, partnership (general or
limited), association, trust or corporation shall serve the Corporation.
(8) To do any and all such further acts or things and to
exercise any and all such further powers or rights as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of the purposes stated in Article III
hereof.
The Corporation shall be authorized to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of the
Corporation in the State of Maryland is c/o Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland 21202. The name of the resident agent
of the Corporation in this State is Edward J. Veilleux, a citizen of this State,
who resides there, and the post office address of the resident agent is 135 East
Baltimore Street, Baltimore, Maryland 21202.
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ARTICLE VI
Section 1. The total number of shares of capital stock which
the Corporation shall have the authority to issue is twenty-five million
(25,000,000) shares, of the par value of 1 mil ($.001) per share and of the
aggregate par value of twenty-five thousand dollars ($25,000), of which ten
million (10,000,000) shares are designated "ISI North American Government Bond
Fund Shares," and the balance of which shares are unclassified. Unless otherwise
prohibited by law, so long as the Corporation is registered as an open-end
investment company under the 1940 Act, the Board of Directors of the Corporation
shall have the power and authority, without the approval of the holders of my
outstanding shares, to increase or decrease the number of shares of capital
stock, or the number of shares of capital stock of any class or series, that the
Corporation has authority to issue.
Section 2. Any fractional share shall carry proportionately
all the rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation, the right
to vote and the right to receive dividends.
Section 3. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the Charter and
the By-Laws of the Corporation. All shares issued pursuant to the Charter of the
Corporation for which the price or consideration fixed thereon shall have been
paid shall be deemed to be fully paid and non-assessable.
Section 4. The Board of Directors of the Corporation shall
have authority to classify and reclassify any authorized but unissued shares of
capital stock from time to time by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of the capital stock; provided that the Board of Directors of the
Corporation shall not classify or reclassify any of such shares into any class
or series of stock which is prior to any class or series of capital stock then
outstanding with respect to rights upon the liquidation, dissolution or winding
up of the affairs of, or upon any distribution of the general assets of, the
Corporation, except that there may be variations so fixed and determined among
different series and classes as to investment objectives, purchase price, right
of redemption, special rights as to dividends, and in liquidation, with respect
to assets belonging to a particular series or class, voting powers and
conversion rights. Subject to the provisions of Section 7 of this Article VI and
applicable law, the power of the Board of Directors of the Corporation to
classify or reclassify any of the shares of capital stock shall include, without
limitation, authority to classify or reclassify any such stock into a class or
classes of capital stock and to divide and classify shares of any class into one
or more series of such class, by determining, fixing or altering one or more of
the following:
(A) The distinctive designation of such class or
series and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of such class
or series, the number of shares of any class or series may be decreased
by the Board of Directors of the Corporation in connection with any
classification or reclassification of unissued shares and the number of
shares of such class or series may be increased by the Board of
Directors of the Corporation in connection with any such classification
or reclassification, and any shares of any class or series which have
been redeemed, purchased or otherwise acquired by the Corporation shall
remain part of the authorized capital stock and be subject to
classification and reclassification as provided herein.
(B) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends shall be
payable on shares of such class or series.
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(C) Whether or not shares of such class or series
shall have voting rights in addition to any general voting rights
provided by law and the Charter of the Corporation and, if so, the
terms of such additional voting rights.
(D) The rights of the holders of shares of such class
or series upon the liquidation, dissolution or winding up of the
affairs, or upon any distribution of the assets, of the Corporation.
(E) Any other rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the
Corporation.
Section 5. The Board of Directors of the Corporation shall
have authority to issue from time to time shares of capital stock, whether now
or hereafter authorized, for such consideration as the Board of Directors of the
Corporation may deem advisable, subject to such limitations as may be set forth
in the Charter or the By-Laws of the Corporation or in the Maryland General
Corporation Law.
Section 6. No holder of stock of the Corporation shall, as
such holder, have any preemptive right to purchase or subscribe for any shares
of the capital stock of the Corporation or any other security of the Corporation
which it may issue or sell (whether out of the number of shares authorized by
the Charter of the Corporation, or out of any shares of the capital stock of the
Corporation acquired by it after the issue thereof, or otherwise) other than
such right, if any, as the Board of Directors of the Corporation, in its
discretion, may determine.
Section 7. Shares of Common Stock of the Corporation shall
have the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
(A) Assets Belonging to a Class. All consideration
received by the Corporation for the issue or sale of stock of any class
of Common Stock, together with all assets in which such consideration
is invested and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class of shares of Common Stock with respect
to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors,
and shall be so handled upon the books of account of the Corporation.
Such consideration, assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of
such proceeds in whatever form, are herein referred to as "assets
belonging to" such class. Any assets, income, earnings, profits, and
proceeds thereof, funds or payments which are not readily attributable
to any particular class shall be allocable among any one or more of the
classes in such manner and on such basis as the Board of Directors of
the Corporation, in its sole discretion, shall deem fair and equitable.
(B) Liabilities Belonging to a Class. The assets
belonging to any class of Common Stock shall be charged with the
liabilities in respect of such class, and shall also be charged with
such class's share of the general liabilities of the Corporation
determined as hereinafter provided. The determination of the Board of
Directors of the Corporation shall be conclusive as to the amount of
such liabilities, including the amount of accrued expenses and
reserves; as to any allocation of the same to a given class; and as to
whether the same are allocable to one or more classes. The liabilities
so allocated to a class are herein referred to as "liabilities
belonging to" such class. Any liabilities which are not readily
attributable to any particular class shall be allocable among any one
or more of the classes in such manner and on such basis as the Board of
Directors of the Corporation, in its sole discretion, shall deem fair
and equitable.
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(C) Dividends and Distributions. Shares of each class
of Common Stock shall be entitled to such dividends and distributions,
in stock or in cash or both, as may be declared from time to time by
the Board of Directors of the Corporation, acting in its sole
discretion, with respect to such class, provided, however, that
dividends and distributions on shares of a class of Common Stock shall
be paid only out of the lawfully available "assets belonging to such
class" as such phrase is defined in Section 7(A) of this Article VI.
(D) Liquidating Dividends and Distributions. In the
event of the liquidation or dissolution of the Corporation,
shareholders of each class of Common Stock shall be entitled to
receive, as a class, out of the assets of the Corporation available for
distribution to shareholders, but other than general assets not
belonging to any particular class of stock, the assets belonging to
such class; and the assets so distributable to the shareholder of any
class of Common Stock shall be distributed among such shareholders in
proportion to the number of shares of such class held by them and
recorded on the books of the Corporation. In the event that there are
any general assets not belonging to any particular class of stock and
available for distribution, such distribution shall be made to the
holders of stock of all classes of Common Stock in proportion to the
asset value of the respective classes of Common Stock determined as
hereinafter provided.
(E) Voting. Each shareholder of each class of Common
Stock shall be entitled to one vote for each share of Common Stock,
irrespective of the class, then standing in his name on the books of
the Corporation, and on any matter submitted to a vote of shareholders,
all shares of Common Stock then issued and outstanding and entitled to
vote shall be voted in the aggregate and not by class except that: (i)
when expressly required by law, shares of Common Stock shall be voted
by individual class and (ii) only shares of Common Stock of the
respective class or classes affected by a matter shall be entitled to
vote on such matter. At all meetings of the shareholders, the holders
of one-third of the shares of stock of the Corporation entitled to vote
at the meeting, present in person or by proxy, shall constitute a
quorum for the transaction of any business, except as otherwise
provided by statute or by the Charter of the Corporation. In the
absence of a quorum, no business may be transacted, except that the
holders of a majority of the shares of stock present in person or by
proxy and entitled to vote may adjourn the meeting from time to time,
without notice other than announcement at the meeting, except as
otherwise required by the By-Laws of the Corporation, until the holders
of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present, any business
may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy,
of holders of the number of shares of stock of the Corporation in
excess of a majority thereof which may be required by the laws of the
State of Maryland, the 1940 Act, or any other applicable statute, the
Charter or the By-Laws of the Corporation, for action upon any given
matter shall not prevent action at such meeting upon any other matter
or matters which may properly come before the meeting, if there shall
be present at the meeting, in person or by proxy, holders of the number
of shares of stock of the Corporation required for action in respect of
such other matter or matters.
(F) Redemption. To the extent the Corporation has
funds or other property legally available therefor, each holder of
shares of Common Stock of the Corporation shall be entitled to require
the Corporation to redeem all or any part of the shares of Common Stock
of the Corporation standing in the name of such holder on the books of
the Corporation, and all shares of Common Stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may
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be determined by the Board of Directors of the Corporation in
accordance with the provisions hereof, subject to the right of the
Board of Directors of the Corporation to suspend the right of
redemption of shares of Common Stock of the Corporation or postpone the
date of payment of such redemption price in accordance with provisions
of applicable law. Without limiting the generality of the foregoing,
the Corporation shall, to the extent permitted by applicable law, have
the right at any time to redeem the shares owned by any holder of
Common Stock of the Corporation (i) if such redemption is, in the
opinion of the Board of Directors of the Corporation, desirable in
order to prevent the Corporation from being deemed a "personal holding
company" within the meaning of the Internal Revenue Code, as now or
hereinafter in force, (ii) if the value of such shares in the account
maintained by the Corporation or its transfer agent for any class of
Common Stock is less than Five Hundred Dollars ($500.00) provided,
however, that each shareholder shall be notified that the value of his
account is less than Five Hundred Dollars ($500.00) and allowed sixty
(60) days to make additional purchases of shares before such redemption
is processed by the Corporation or (iii) if the net income with respect
to any particular class of Common Stock should be negative or it should
otherwise be appropriate to carry out the Corporation's
responsibilities under the 1940 Act, in each case subject to such
further terms and conditions as the Board of Directors of the
Corporation may from time to time adopt. The redemption price of shares
of Common Stock of the Corporation shall, except as otherwise provided
in this Section 7(F), be the net asset value thereof as determined by
the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption
fee or other charge, if any, as may be fixed by resolution of the Board
of Directors of the Corporation. Payment of the redemption price shall
be made in cash by the Corporation at such time and in such manner as
may be determined from time to time by the Board of Directors of the
Corporation unless, in the opinion of the Board of Directors of the
Corporation, which shall be conclusive, conditions exist which make
payment wholly in cash unwise or undesirable; in such event the
Corporation may make payment wholly or partly by securities or other
property included in the assets belonging or allocable to the class of
the shares redemption of which is being sought, the value of which
shall be determined as provided herein.
(G) Conversion or Exchange. Each holder of any class
of Common Stock of the Corporation, who either surrenders his share
certificate in good delivery form to the Corporation or, if the shares
in question are not represented by certificates, delivers to the
Corporation a written request in good order signed by the shareholder,
shall, subject to such procedures as may be established by the Board of
Directors of the Corporation, be entitled to convert or exchange the
shares in question on the basis hereinafter set forth, into shares of
stock of any other class of the Corporation. The Corporation shall
determine the net asset value, as provided herein, of the shares to be
converted and may deduct therefrom a conversion or exchange cost, in an
amount determined within the discretion of the Board of Directors of
the Corporation. Within five (5) business days after such surrender and
payment of my conversion or exchange cost, the Corporation shall issue
to the shareholder such number of shares of stock of the class desired
as, taken at the net asset value thereof determined as provided herein
in the same manner and at the same time as that of the shares
surrendered, shall equal the net asset value of the shares surrendered,
less any conversion or exchange cost as aforesaid. Any amount
representing a fraction of a share may be paid in cash at the option of
the Corporation. Any conversion or exchange cost may be paid and/or
assigned by the Corporation to the underwriter and/or to any other
entity, as it may elect.
(H) Restrictions on Transferability. If, in the
opinion of the Board of Directors of the Corporation, concentration in
the ownership of shares of Common Stock might cause the Corporation to
be deemed a personal holding company within the meaning of the Internal
Revenue Code, as now or hereafter in force, the Corporation may at any
time and from time to time refuse to give effect on the books of the
Corporation to any transfer or transfers of any share or shares of
Common Stock in an effort to prevent such personal holding company
status.
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ARTICLE VII
The number of directors of the Corporation shall be eight
(8), which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than three (3) except for any period during
which shares of the Corporation are held by less than three shareholders. The
name of the director who shall act until the directors are elected by the
Corporation's shareholders or until his successor is duly elected and qualify
is:
Edward J. Veilleux
ARTICLE VIII
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have any
liability to the Corporation or its shareholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to its
officers to the same extent as to its directors and to such further extent as is
consistent with law. The Board of Directors of the Corporation may make further
provision for indemnification of directors, officers, employees and agents in
the By-Laws of the Corporation or by resolution or agreement to the fullest
extent permitted by the Maryland General Corporation Law.
Section 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may expand, any
right of any person under this Article VIII based on any event, omission or
proceeding prior to such amendment.
ARTICLE IX
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting practices by or
pursuant to the direction of the Board of Directors of the Corporation, as to
the amount of assets, obligations or liabilities of the Corporation, as to the
amount of net income of the Corporation from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been created shall have
been paid or discharged or shall be then or thereafter required to be paid or
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<PAGE>
discharged), as to the value of any security owned by the Corporation or as to
any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board of
Directors of the Corporation as to whether any transaction constitutes a
purchase of securities on "margin", a sale of securities "short", or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of the Charter of the Corporation shall be effective (i)
to require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the 1940 Act, or of any valid rule, regulation or order of
the Securities and Exchange Commission thereunder or (ii) to protect or purport
to protect any director or officer of the Corporation against any liability to
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE X
The duration of this Corporation shall be perpetual.
ARTICLE XI
Section 1. The Corporation reserves the right from time to
time to make any amendments to its Charter which may now or hereafter be
authorized by law, including any amendments changing the terms or contract
rights, as expressly set forth in its Charter, of any of its outstanding stock
by classification, reclassification or otherwise, but no such amendment which
changes such terms or contract rights of any of its outstanding stock shall be
valid unless such amendment shall have been authorized by not less than a
majority of the aggregate number of the votes entitled to be cast thereon by a
vote at a meeting or by the unanimous written consent of the Directors of the
Corporation as provided in the Corporation's By-Laws.
Section 2. Notwithstanding any provision of the General Laws
of the State of Maryland requiring any action to be taken or authorized by the
affirmative vote of a greater proportion than the majority of the total number
of shares of any class of stock of the Corporation, such action shall be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding of that class of
stock entitled to vote thereon, except as otherwise provided in the Charter of
the Corporation.
Section 3. So long as permitted by Maryland law, the books of
the Corporation may be kept outside of the State of Maryland at such place or
places as may be designated from time to time by the Board of Directors of the
Corporation or in the By-Laws of the Corporation.
Section 4. In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Maryland, the Board of Directors of
the Corporation is expressly authorized:
(A) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by the By-Laws of the
Corporation to the shareholders, and except as otherwise required by the 1940
Act.
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<PAGE>
(B) From time to time to determine whether and to what
extent and at what times and places and under what conditions and regulations
the books and accounts of the Corporation, or any of them other than the stock
ledger, shall be open to the inspection of the shareholders, and no shareholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by resolution of the Board
of Directors or of the shareholders of the Corporation.
(C) Without the assent or vote of the shareholders, to
authorize the issuance from time to time of shares of the stock of any class of
the Corporation, whether now or hereafter authorized, for such consideration as
the Board of Directors of the Corporation may deem advisable.
(D) Without the assent or vote of the shareholders, to
authorize and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the property of the Corporation, real and personal.
(E) Notwithstanding anything in the Charter of the
Corporation to the contrary, to establish in its absolute discretion the basis
or method for determining the value of the assets belonging to any class, and
the net asset value of each share of any class of the Corporation for purposes
of sales, redemptions, repurchases of shares or otherwise.
(F) To determine in accordance with generally accepted
accounting principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital and to determine what accounting
periods shall be used by the Corporation for any purpose, whether annual or any
other period, including daily; (i) to set apart out of any funds of the
Corporation such reserves for such purposes as it shall determine and to abolish
the same; (ii) to declare and pay any dividends and distributions in cash,
securities or other property from surplus or any funds legally available
therefor, at such intervals (which may be as frequently as daily) or on such
other periodic basis, as it shall determine; (iii) to declare such dividends or
distributions by means of a formula or other method of determination, at
meetings held less frequently than the frequency of the effectiveness of such
declarations; (iv) to establish payment dates for dividends or any other
distributions on any basis, including date occurring less frequently than the
effectiveness of declarations thereof; and (v) to provide for the payment of
declared dividends on a date earlier or later than the specified payment date in
the case of shareholders of the Corporation redeeming their entire ownership of
shares of any class of the Corporation.
(G) In addition to the powers and authorities granted
herein and by statute expressly conferred upon it, the Board of Directors of the
Corporation is authorized to exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation, subject, nevertheless, to
the provisions of Maryland law, the Charter and the By-Laws of the Corporation.
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IN WITNESS WHEREOF, the undersigned incorporator of North
American Managed Bond Fund, Inc., has signed these Articles of Incorporation on
this 19th day of October, 1992.
/s/ Edward J. Veilleux
----------------------
Edward J. Veilleux
Incorporator
WITNESS:
/s/ Kathryn L. Stanton
- ----------------------
Name: Kathryn L. Stanton
THE UNDERSIGNED incorporator of North American Managed Bond
Fund, Inc. who executed the foregoing Articles of Incorporation of which this
Certificate is made a part, hereby acknowledges the same to be his act and
further acknowledges that, to the best of his knowledge, the matters and facts
set forth therein are true in all material respects under the penalties of
perjury.
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EX-99.B(1)(b)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
ARTICLES OF AMENDMENT
North American Government Bond Fund, Inc., a Maryland corporation,
having its principal business office at 717 Fifth Avenue, New York, New York
10022 (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the sole Director of the Corporation, by written consent dated October 21,
1992, has authorized that the charter of the Corporation be, and hereby is,
amended as follows:
Article II of the Articles of Incorporation is amended and restated to
read in full as follows:
The name of the Corporation is:
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its Vice President and attested by its
Secretary on October 21, 1992.
[SEAL] NORTH AMERICAN GOVERNMENT
BOND FUND, INC.
attest: /s/Brian C. Nelson By: /s/Edward J. Veilleux
--------------- ------------------
Brian C. Nelson Edward J. Veilleux
Secretary Vice-President
The undersigned, Vice-President of North American Government Bond Fund,
Inc., who executed on behalf of said corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby acknowledges, in the
name and on behalf of said corporation, the foregoing Articles of Amendment to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth herein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
/s/Edward J. Veilleux
------------------
Edward J. Veilleux
EX-99.B(1)(c)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
ARTICLES SUPPLEMENTARY
NORTH AMERICAN GOVERNMENT BOND FUND, INC. having its principal office
in the City of New York, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has designated
twenty-five million (25,000,000) shares of Common Stock, par value
$.001 per share and of the aggregate par value of $25,000.00, of which
twenty million (20,000,000) shares are designated "ISI North American
Government Bond Fund Shares" (the "ISI Shares"), and the balance of
which are unclassified.
SECOND: Immediately before the increase in those shares
designated as ISI Shares, the Corporation was authorized to issue
twenty-five million (25,000,000) shares of Common Stock, par value
$.001 per share and of the aggregate par value of $25,000.00, of which
ten million (10,000,000) shares were designated "ISI Shares", and the
balance of which were unclassified.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940,
as amended.
<PAGE>
IN WITNESS WHEREOF, North American Government Bond Fund, Inc.
has caused these Articles Supplementary to be executed by one of its
Vice-Presidents and its corporate seal to be affixed and attested by its
Secretary on this 15th day of December 1993.
[CORPORATE SEAL]
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
By: /s/ Edward J. Veilleux
----------------------
Vice-President
Attest: /s/ Brian C. Nelson
-------------------
Secretary
The undersigned, Vice President of NORTH AMERICAN GOVERNMENT
BOND FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
----------------------
Edward J. Veilleux
EX-99.B(2)
BY-LAWS
OF
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of New York, State of New York.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be in the City of New York, State of New York.
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 Shareholders
------------------------
Section 1. Annual Meetings. An annual meeting of the shareholders of
the Corporation shall not be required to be held in any year in which
shareholders are not required to elect directors under the Investment Company
Act of 1940, as amended (the "1940 Act") even if the Corporation is holding a
meeting of the shareholders for a purpose other than the election of directors.
If the Corporation is required by the 1940 Act to hold a meeting to elect
directors, the meeting shall be designated as the Annual Meeting of shareholders
for that year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of March, in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may properly be brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the shareholders,
unless otherwise provided by law or by the Charter or the Corporation 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 shareholders as provided by the Maryland General Corporation Law,
provided that, except as set forth in Section 2, a special meeting shall be
called at the request of a shareholder or shareholders holding 10% or more of
the outstanding voting securities of the Corporation. 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 shareholders
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
shareholders held during the preceding twelve (12) months.
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Section 3. Place of Meetings. The regular meeting, if any, and any
special meeting of the shareholders 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 shareholders and the purpose or purposes of the meeting shall be
given personally or by mail not less then ten nor more than ninety days before
the date of such meeting, to each shareholder entitled to vote at such meeting
and to each other shareholder 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 shareholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders 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 shareholders shall be deemed
waived by any shareholder 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 shareholders
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
shareholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of shareholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each shareholder.
Section 5. Organization. At each meeting of the shareholders, 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 shareholders 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 of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI 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 for him by a proxy
signed by such shareholder or his attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
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 or 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.
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(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 shareholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of
shareholders, 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 shareholder 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 shareholders. On request of the chairman
of the meeting or any shareholder 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 shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except as
otherwise provided by statute any action required to be taken at any regular or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
shareholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each shareholder 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
of the Corporation, 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 shareholders by law or by the Charter of the Corporation
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 shareholders.
Section 3. Election and Term of Directors. Directors shall be elected
by majority vote of a quorum cast by written ballot at the regular meeting of
shareholders, if any, or at a special meeting held for that purpose. The term of
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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 of the Corporation.
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 shareholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. The shareholders 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 filing of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders 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 shareholders 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 of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation 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 Meeting. Regular meetings of the Board may be held
with notice at such times and places as may be determined by the Board of
Directors.
Section 8. Special Meeting. 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 of the Corporation, these By-Laws, the 1940 Act or other applicable
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statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint
one of its members as Chairman of the Board, who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
director chosen by a majority of the directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however that for so long as the
Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
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; provided, however that for so long as the
Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
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,
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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 shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
----------
Section 1. Committees of the Board. The Board may, by resolution
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this Article
IV.
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 shareholders any action requiring
authorization of shareholders 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 shareholder 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 or 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.
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All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
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 shareholders 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.
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Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation;
(c) cause all moneys and other valuables to be deposited to
the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board of Directors,
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 of Directors 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 shareholders;
(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;
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(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors 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 of Directors, 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
shareholders, (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 shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders 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.
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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 shareholders, including which shareholders 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
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Leaders. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of New
York, New York, but stock ledgers shall be kept at the office(s) of the Transfer
Agent(s) 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.
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<PAGE>
ARTICLE VIII
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of March in each year.
ARTICLE IX
Depositaries and Custodians
---------------------------
Section 1. Depositaries. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts. etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws, and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
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 shareholders in accordance with the
provisions of the 1940 Act.
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<PAGE>
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 shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
-----------------------------------------
Section 1. Indemnification. The Corporation shall indemnify its
directors to the fullest extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as is
consistent with law. The Corporation shall indemnify its Directors and officers
who while serving as Directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
This Article XIII shall not protect any such person against any liability to the
Corporation or any shareholder thereof to which such person would otherwise be
subject by reason of misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Section 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 (the "1933 Act") and the 1940 Act,
as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former director
or officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation law, the 1933 Act and the 1940
Act, as such statutes are now or hereafter in force, whether the standards
required by this Article XIII have been met.
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<PAGE>
Section 4. Other Rights. The indemnification provided by this Article
XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation
Law in this Article XIII are to such law as from time to time amended.
ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
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.
-13-
EX-99.B(5)
INVESTMENT ADVISORY AGREEMENT
-----------------------------
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 15th day of
December, 1992 by and between NORTH AMERICAN GOVERNMENT BOND FUND, INC., a
Maryland corporation (the "Fund"), and INTERNATIONAL STRATEGY AND INVESTMENT
INC., a Delaware corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under
the Investment Advisors Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter an agreement to
provide investment advisory and administrative services for the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints the
Advisor to act as the Fund's investment advisor. The Advisor shall manage the
Fund's affairs and shall supervise all aspects of the Fund's operations (except
as otherwise set forth herein), including the investment and reinvestment of the
cash, securities or other properties comprising the Fund's assets, subject at
all times to the policies and control of the Fund's Board of Directors. The
Advisor hereby accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided. The Advisor shall give the Fund
the benefit of its best judgment, efforts and facilities in rendering its
service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on October 20, 1992 and all amendments thereto
(such Articles of Incorporation, as presently in effect and as they shall from
time to time be amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission (the "SEC") on
October 22, 1992;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-53598) and
under the 1940 Act as filed with the SEC on October 22, 1992 relating to the
shares of the Fund, and all amendments thereto; and
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<PAGE>
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations
under Section 1 hereof, the Advisor shall:
(a) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the prospectus and regularly
report thereon to the Fund's Board of Directors; and
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors; and
(c) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items for the
Fund's principal office; and
(d) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund, and
whether concerning the individual issuers whose securities are included in the
Fund's portfolio or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund's
portfolio;
(e) take all actions necessary to carry into effect the
Fund's purchase and sale programs; and
(f) maintain such books and records, in cooperation with
the Fund's administrator and the Fund's distributors, as may be required by law
or deemed advisable by the Board of Directors.
4. Broker-Dealer Relationships. The Advisor shall be responsible
for decisions to buy and sell securities for the Fund, broker-dealer selection,
and negotiation of its brokerage commission rates, and the Advisor's primary
consideration in effecting securities transactions shall be to obtain the best
price and execution on an overall basis. In performing this function the Advisor
shall comply with applicable policies established by the Board of Directors and
shall provide the Board of Directors with such reports as the Board of Directors
may require in order to monitor the Fund's portfolio transaction activities. In
certain instances the Advisor may make purchases of underwritten issues at
prices which include underwriting fees. The purchase price paid to dealers
serving as market makers may include a spread between the bid and asked prices.
To the extent that the execution and prices offered by more than one dealer are
comparable, the Advisor may, in its discretion, effect transactions with dealers
that furnish statistical, research or other information or services which the
Advisor deems to be beneficial to the Portfolio's investment program. Such
research services supplement the Advisor's own research. Research services may
include the following: statistical and background information on the U.S.,
Canadian and Mexican economy; forecasts and interpretations with respect to the
U.S., Canadian and Mexican money markets; information on federal, state and
local political developments in the United States, Canada and Mexico; portfolio
management strategies; performance information on securities, indices and
investment accounts; information concerning prices of securities; the providing
of equipment used to communicate research information; and the providing of
access to consultants who supply research information. Certain research services
furnished by dealers may be useful to the Advisor with clients other than the
-2-
<PAGE>
Fund. Similarly, any research services received by the Advisor through placement
of portfolio transactions of other clients may be of value to the Advisor in
fulfilling its obligations to the Fund. The Advisor is of the opinion that the
material received is beneficial in supplementing its research and analysis; and
therefore, it may benefit the Fund by improving the quality of the Advisor's
investment advice. The advisory fee paid by the Fund shall not be reduced
because the Advisor receives such services as the Advisor must evaluate
information received as a result of such services, and thus receipt of such
services does not reduce the Advisor's workload.
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as any
other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any applicable directives of the Board
of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and state
law and applicable rules of our registered national securities organization.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall furnish, at its expense and without
cost to the Fund, the services of and one or more officers of the Fund, to the
extent that such officers may be required by the Fund, for the proper conduct of
its affairs; travel expenses of employees and officers of the Advisor; office
space, equipment, research services and supplies; expenses of maintaining
accounts, books, and records, except to the extent such services are provided by
a third party pursuant to a contract with the Fund; and
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to the
Fund's administrator and distributor under the Fund's plan of distribution; the
charges and expenses of any registrar, any custodian or depositary appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions, chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to Federal, State or other governmental agencies; the costs and the expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with registration and 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 and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses or shareholders' and Directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee who are not "interested persons" of the Fund (as
-3-
<PAGE>
defined in the 1940 Act); all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of Fund's shares; charges
and expenses of legal counsel, including counsel to the Directors of the Fund
who are not "interested persons" (as defined in the 1940 Act) of the Fund and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
The Advisor may, but shall not be under any duty to, perform
services on behalf of the Fund which are not required by this Agreement upon the
request of the Fund's Board of Directors. Such services will be performed on
behalf of the Fund and the Advisor's charge in rendering such services may be
billed monthly to the Fund, subject to examination by the Fund's independent
accountants. Payment or assumption by the Advisor of any Fund expense that the
Advisor is not required to pay or assume under this Agreement shall not relieve
the Advisor of any of its obligations to the Fund nor obligate the Advisor to
pay or assume any similar Fund expense on any subsequent occasions.
9. Compensation. (a) For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor monthly
compensation at an annual amount, calculated daily and paid monthly, equal to
.40% of the Fund's average daily net assets.
(b) Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for the part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Subject to the provisions of Section 10 hereof, payment of the Advisor's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by Section 10 hereof.
10. Expense Limitation. In the event the operating expenses of the
Fund, including all investment advisory and administrative fees, for any fiscal
year ending on a date on which this Agreement is in effect, exceed the expense
limitations applicable to the Fund imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale, as
such limitations may be raised or lowered from time to time, the Advisor shall
reduce its investment advisory fee to the extent of its share of such excess
expenses and, if required pursuant to any such laws or regulations, will
reimburse the Fund for its share of annual operating expenses in excess of any
expense limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amounts of any interest, taxes, brokerage
commissions and extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Fund. Such reduction, if any, shall be computed
and accrued daily, shall be settled on a monthly basis and shall be based upon
the expense limitation applicable to the Fund as at the last business day of the
month. That expense limitation which results in the largest reduction shall be
applicable.
11. Non-Exclusivity. The services of the Advisor to the Fund are
not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor are not prohibited from engaging in any other business activity or
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<PAGE>
from rendering services to any other person, or from serving as partners,
officers, trustees or directors of any other firm, trust or corporation,
including other investment companies.
12. Term and Renewal. This Agreement shall become effective as of
the date hereof and shall continue in force and effect, subject to Section 13
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect and
thereafter from year to year, provided that such continuance is specifically
approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act); and
(b) by the affirmative vote of a majority of the Directors
who are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time
without the payment of any penalty, by the Fund upon vote of the Fund's Board of
Directors or a vote of a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act) or by the Advisor, upon sixty (60) days' written
notice to the other party. The notice provided for herein may be waived by
either party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
14. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits to ensure
the accuracy of all services performed under this Agreement, but the Advisor
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.
15. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
of the Advisor for this purpose shall be 717 Fifth Avenue, New York, New York
10022.
16. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant to
the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Maryland.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective offices as of the day and year
first above written.
[SEAL] NORTH AMERICAN GOVERNMENT BOND FUND, INC.
Attest: /s/ Brian C. Nelson By: /s/ Edward J. Veilleux
------------------- ----------------------
Title Vice President
[SEAL] INTERNATIONAL STRATEGY AND INVESTMENT INC.
Attest: /s/ Brian C. Nelson By: /s/ R. Alan Medaugh
------------------- -------------------
Title President
-6-
EX-99.B(6)(a)
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 15th day of December, 1992, by and
between NORTH AMERICAN GOVERNMENT BOND FUND, INC., a Maryland corporation (the
"Fund"), and ARMATA FINANCIAL CORP., a Maryland corporation ("Armata").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Armata as the exclusive
distributor of the shares of Common Stock of the ISI North American Government
Bond Fund Shares Class of the Fund (the "Shares") and Armata wishes to become
the distributor of the Shares; and
WHEREAS, the compensation to Armata hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Armata as Distributor for
the Shares for the period and on the terms set forth in this Agreement. Armata
accepts such appointment and agrees to render the services herein set forth, for
the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Armata with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on October 20, 1992 and all amendments thereto
(the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Armata as the Fund's Distributor of
the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on October 22, 1992;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-53598) and
under the 1940 Act as filed with the SEC on October 22, 1992 relating to the
Shares of the Fund, and all amendments thereto; and
<PAGE>
(f) The Fund's most recent prospectus (such prospectus and
all amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Armata from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Armata shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Armata shall:
(a) receive orders for purchase of Shares, accept or
reject such orders on behalf of the Fund in accordance with the currently
effective Prospectus for the Shares and the Fund's Statement of Additional
Information and transmit such orders as are so accepted to the Fund's transfer
agent as promptly as possible;
(b) receive requests for redemption from holders of Shares
and transmit such redemption requests to the Fund's transfer agent as promptly
as possible;
(c) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(d) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act; and
(e) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares.
4. Distribution of Shares. Armata shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Armata does
not undertake to sell all or any specific portion of the Shares. The Fund shall
not sell any of the Shares except through Armata and securities dealers who have
valid Agency Distribution Agreements with Armata. Notwithstanding the provisions
of the foregoing sentence, the Fund may issue its Shares at their net asset
value to any shareholder of the Fund purchasing such Shares with dividends or
other cash distributions received from the Fund pursuant to an offer made to all
shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Armata pursuant to this Agreement, as well as any other activities
undertaken by Armata on behalf of the Fund pursuant hereto, shall at all times
be subject to any directives of the Board of Directors of the Fund. The Board of
Directors may agree, on behalf of the Fund, to amendments to this Agreement,
provided that the Fund must obtain prior approval of the shareholders of the
Fund to any amendment which would result in a material increase in the amount
expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Armata shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
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<PAGE>
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and state
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Armata as follows:
(a) Armata shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Armata shall bear the expenses of any promotional or
sales literature used by Armata or furnished by Armata to purchasers or dealers
in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing; and
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor and administrator; the charges and expenses of any
registrar, custodian or depositary appointed by the Fund for the safekeeping of
its cash, portfolio securities and other property, and any stock transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and corporate fees payable by the Fund to Federal,
state or other governmental agencies; the cost and expense of engraving or
printing of stock certificates representing Shares; all costs and expenses in
connection with maintenance of registration of the Fund and the Shares with the
SEC and various states and other jurisdictions (including filing fees and legal
fees and disbursements of counsel) except as provided in subparagraph (a) above,
the expenses of printing, including typesetting, and distributing prospectuses
of the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or members of any advisory board or committee; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
Shares or in cash; charges and expenses of any outside service used for pricing
of the Shares; charges and expenses of legal counsel, including counsel to the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act), and of independent accountants, in connection with any matter relating to
the Fund; a portion of membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
8. Delegation of Responsibilities. Armata may, but shall be
under no duty to, perform services on behalf of the Fund which are not required
-3-
<PAGE>
by this Agreement upon the request of the Fund's Board of Directors. Such
services will be performed on behalf of the Fund and Armata's charge in
rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Armata of any Fund expense that Armata is not required to pay or assume under
this Agreement shall not relieve Armata of any of its obligations to the Fund or
obligate Armata to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by Armata, the Fund shall pay to Armata, compensation at the
annual rate of .40% of the average daily net assets invested in the Shares.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Armata may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Agency Distribution Agreements. Armata may enter into
Agency Distribution Agreements (the "Agency Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a transmitting
broker in connection with the proposed offering. All Agency Distribution
Agreements shall be in substantially the form of the agreement attached hereto
as Exhibit "A". For processing Fund shareholders' redemption orders, responding
to the inquiries from Fund shareholders concerning the status of their accounts
and the operations of the Fund and communicating with the Fund, its transfer
agent and Armata, Armata may pay each such transmitting broker an amount not to
exceed that portion of the compensation paid to Armata hereunder that is
attributable to accounts of Fund shareholders who are customers of such
transmitting broker.
12. Non-Exclusivity. The services of Armata to the Fund are
not to be deemed exclusive and Armata shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Armata may serve as directors or officers of the Fund, and that
directors or officers of the Fund may serve as directors, officers and employees
of Armata to the extent permitted by law; and that directors, officers and
employees of Armata are not prohibited from engaging in any other business
activity or from rendering services to any other person, or from serving as
partners, directors or officers of any other firm or corporation, including
other investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act), and
(b) by the affirmative vote of a majority of the Directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and do
not have a financial interest in the operation of this Agreement, by votes cast
in person at a meeting specifically called for such purpose.
-4-
<PAGE>
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Armata. The notice provided
for herein may be waived by each party. This Agreement shall automatically
terminate in the event of its assignment (as defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Armata shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Armata or reckless disregard by Armata of its duties
under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that for this purpose
the address of Armata shall be 135 East Baltimore Street, Baltimore, Maryland
21202, and the address of the Fund shall be 717 Fifth Avenue, New York, New York
10022.
17. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] NORTH AMERICAN GOVERNMENT BOND FUND, INC.
Attest: /s/ Sue Powell By /s/ Edward J. Veilleux
-------------- -----------------------
Vice President
[SEAL] ARMATA FINANCIAL CORP.
Attest: /s/ Sue Powell By /s/ Brian C. Nelson
-------------- -------------------
Vice President
-5-
EX-99.B(6)(b)
Exhibit A
ISI FAMILY OF FUNDS
717 Fifth Avenue
New York, New York 10022
AGENCY DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Armata Financial Corp. ("Armata"), a Maryland corporation,
serves as distributor (the "Distributor") of the ISI Family of Mutual Funds
(collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Transmitting Broker. You are hereby designated a
Transmitting Broker and as such are authorized (i) to accept orders for the
purchase of Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit to
the Funds such orders and all additional material, including any certificates
for Shares, as may be required to complete the redemption and (iii) to assist
shareholders with the foregoing and other matters relating to their investments
in each Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make
any representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
<PAGE>
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to register or qualify in
certain states where registration or qualification is required. We will inform
you as to the states or other jurisdictions in which we believe the Shares have
been qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer Shares
to your customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required
by law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to
you except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
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<PAGE>
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to
the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one copy of this agreement.
ARMATA FINANCIAL CORP.
-----------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name:
--------------------------------
By:
---------------------------------------
Address:
----------------------------------
Date:
-------------------------------------
-3-
EX-99.B(6)(c)
ISI NORTH AMERICAN GOVERNMENT BOND FUND SHARES
(a class of North American Government Bond Fund, Inc.)
717 Fifth Avenue
New York, New York 10022
SHAREHOLDER SERVICING AGREEMENT
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
with you concerning the provision of support services to your clients and
customers ("Customers") who may from time to time beneficially own shares of our
shares of common stock ("Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. (a) You agree to provide the following services to
Customers who may from time to time beneficially own Shares: (i) aggregating and
processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii) processing
dividend payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you in accordance with the Customer's
instructions ("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records required
by law relating to transactions in Shares and, upon our request, promptly make
<PAGE>
such of these records available to us as we may reasonably request in connection
with our operations, and (ii) promptly notify us if you experience any
difficulty in maintaining the records described in the foregoing clauses in an
accurate and complete manner.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees,
agents or assigns are authorized to make any representations concerning us or
Shares except those contained in our then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect. You may, upon prior written notice
to us, delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all of your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees, agents or assigns regarding
your responsibilities hereunder or the purchase, redemption, transfer or
registration of Shares by or on behalf of Customers. You and your employees
will, upon request, be available during normal business hours to consult with us
or our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will cause our distributor pay to you, and you
will accept as full payment therefor, a fee at the annual rate of ____ of 1% of
the average daily net asset value of the Customers' Shares held of record by you
from time to time, which fee will be computed daily and payable ____. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Customers' Shares will be computed in the manner
specified in our registration statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively increased or decreased by us or by our distributor, at any time
upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of Shares, including the sale of such shares to
you for the account of any Customer or Customers.
-2-
<PAGE>
Section 6. You will furnish us or our designees with such
information relating to your performance under this Agreement as we or they may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
shall otherwise cooperate with us and our designees (including, without
limitation, any auditors designated by us), in connection with the preparation
of reports to our Board of Directors concerning this Agreement and the monies
paid or payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
Section 7. We may enter into other similar services agreements
with any other person or persons without your consent.
Section 8. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the event
of its assignment, as that term is defined in the Investment Company Act of
1940, as amended.
Section 9. This Agreement will be construed in accordance with
the laws of the State of Maryland.
Section 10. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device, if to us at the address below, and if to you,
at the address specified by you after your signature below:
North American Government Bond Fund, Inc.
717 Fifth Avenue
New York, New York 10022
Attention: R. Alan Medaugh
-3-
<PAGE>
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to us, at the address set forth in Section 10 above.
Very truly yours,
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
Date: By
-------------------- ----------------------------------
Authorized Officer
Accepted and Agreed to:
------------------------------------
Date: By
--------------------- ---------------------------------
Authorized Officer
Address:
----------------------------
----------------------------
----------------------------
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<PAGE>
EX-99.B(8)
CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of December 15, 1992 by and between NORTH
AMERICAN GOVERNMENT BOND FUND, INC. (the "Fund"), a Maryland corporation, and
PROVIDENT NATIONAL BANK ("Provident"), a national banking association.
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund wishes to
retain Provident to provide custodian services, and Provident wishes to furnish
custodian services, either directly or through an affiliate or affiliates, as
more fully described herein.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by the
Fund's Governing Board, to give Oral and Written Instructions on behalf of the
Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix as such appendix may be amended in writing by the
Fund's Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System" means
Federal Reserve Treasury book-entry system for United States and federal agency
securities, its successor or successors, and its nominee or nominees and any
book-entry system maintained by an exchange registered with the SEC under the
1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures
Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean
the Fund's Board of Directors if the Fund is a corporation or the Fund's Board
of Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by Provident from an Authorized Person or from a
person reasonably believed by Provident to be an Authorized Person.
<PAGE>
(f) "Property". The term "Property" shall mean:
(i) any and all securities and other investment items
which the Fund may from time to time deposit, or
cause to be deposited, with Provident or which
Provident may from time to time hold for the Fund;
(ii) all income in respect of any of such securities and
other investment items;
(iii) all proceeds of the sale of any of such securities
or investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by Provident from time to
time, from or on behalf of the Fund.
(g) "Provident". The term "Provident" shall mean Provident
National Bank or a subsidiary or affiliate of Provident National Bank.
(h) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(i) "Securities and Commodities Laws". The term shall mean the
"1933 Act", the Securities Act of 1933, as amended, the "1934 Act", the
Securities Exchange Act of 1934, as amended, and the "CEA", the Commodities
Exchange Act, as amended.
(j) "Shares". The term "Shares" shall mean the shares of stock
of any series or class of the Fund, or where appropriate, units of beneficial
interest in a trust where the Fund is organized as a Trust.
(k) "Written Instruction". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and received by
Provident. The instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints Provident to provide custodian
services, and Provident accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents. The Fund has provided or, where applicable,
will provide Provident with the following:
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<PAGE>
(a) certified or authenticated copies of the resolutions
of the Fund's Governing Board, approving the
appointment of Provident or its affiliates to
provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement or
agreements;
(e) a copy of the Fund's administration agreements if
Provident is not providing the Fund with such
services;
(f) copies of any shareholder servicing agreements made
in respect of the Fund; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. Provident
undertakes to comply with all applicable requirements of the 1933 Act, the 1934
Act, the 1940 Act, and the CEA, and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to all duties to be
performed by Provident hereunder. Except as specifically set forth herein,
Provident assumes no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, Provident
shall act only upon Oral and Written Instructions. Provident shall be entitled
to rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by Provident to be an Authorized
Person) pursuant to this Agreement. Provident may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any vote, resolution or
proceeding of the Fund's Governing Board or of the Fund's shareholders.
The Fund agrees to forward to Provident Written Instructions confirming
Oral Instructions so that Provident receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received. The
-3-
<PAGE>
fact that such confirming Written Instructions are not received by Provident
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that Provident shall incur no liability to the
Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If Provident is in doubt as to any
action it should or should not take, Provident may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If Provident shall be in doubt as to
any questions of law pertaining to any action it should or should not take,
Provident may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's advisor or Provident, at
the option of Provident).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions Provident receives from the
Fund, and the advice it receives from counsel, Provident shall be entitled to
rely upon and follow the advice of counsel.
(d) Protection of Provident. Provident shall be protected in
any action it takes or does not take in reliance upon directions, advice or Oral
or Written Instructions it receives from the Fund or from counsel and which
Provident believes, in good faith, to be consistent with those directions,
advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon Provident (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of Provident's properly taking or not taking
such action.
7. Records. The books and records pertaining to the Fund, which are in
the possession of Provident, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
-4-
<PAGE>
applicable securities laws, rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during Provident's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by Provident to
the Fund or to an authorized representative of the Fund, at the Fund's expense.
8. Confidentiality. Provident agrees to keep confidential all records
of the Fund and information relative to the Fund and its shareholders (past,
present and potential), unless the release of such records or information is
otherwise consented to, in writing, by the Fund. The Fund further agrees that,
should Provident be required to provide such information or records to duly
constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), Provident shall not be required to seek the
Fund's consent prior to disclosing such information; provided that Provident
gives the Fund prior written notice of the provision of such information and
records.
9. Cooperation with Accountants. Provident shall cooperate with the
Fund's independent public accountant and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. Provident shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
Provident shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
11. Compensation. As compensation for custody services rendered by
Provident during the term of this Agreement, the Fund will pay to Provident a
fee or fees as may be agreed to in writing from time to time by the Fund and
Provident.
12. Indemnification. The Fund agrees to indemnify and hold harmless
Provident and its nominees from all taxes, charges, expenses, assessment, claims
and liabilities (including, without limitation, liabilities arising under the
1933 Act, the 1934 Act, the 1940 Act, the CEA, and any state and foreign
securities and blue sky laws, and amendments thereto, and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action which Provident takes or does not take (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither Provident, nor any of its nominees,
-5-
<PAGE>
shall be indemnified against any liability to the Fund or to its shareholders
(or any expenses incident to such liability) arising out of Provident's or its
nominees' own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement or Provident's own
grossly negligent failure to perform its duties under this Agreement.
13. Responsibility of Provident. Provident shall be under no duty to
take any action on behalf of the Fund except as specifically set forth herein or
as may be specifically agreed to by Provident, in writing. Provident shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing services provided for under this Agreement. Provident
shall be responsible for its own or its nominees' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement or Provident's own negligent failure to perform its duties
under this Agreement.
Without limiting the generality of the foregoing or of any other
provisions of this Agreement, Provident, in connection with its duties under
this Agreement, shall not be under any duty or obligation to inquire into and
shall not be liable for (a) the validity or invalidity or authority or lack
thereof of any Oral or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which Provident
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond Provident's control, including acts
of civil or military authority, national emergencies, fire, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, Provident
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence
of Provident's performance of the services provided hereunder, whether or not
the likelihood of such losses or damages was known by Provident.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange
for delivery to Provident, all the property it owns, including cash received as
a result of the distribution of its Shares, during the period that is set forth
in this Agreement. Provident will not be responsible for such property until
actual receipt.
-6-
<PAGE>
(b) Receipt and Disbursement of Money. Provident, acting upon
Written Instructions, shall open and maintain separate account(s) in the Fund's
name using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, Provident shall
open separate custodial accounts for each separate series, portfolio or class of
the Fund and shall hold in such account(s) all cash received from or for the
accounts of the Fund specifically designated to each separate series, portfolio
or class.
Provident shall make cash payments from or for the account of
the Fund only for:
(i) purchases of securities in the name of the Fund or
Provident or Provident's nominee as provided in
sub-paragraph (j) and for which Provident has
received a copy of the broker's or dealer's
confirmation or payee's invoice, as appropriate.
(ii) purchase or redemption of Shares of the Fund
delivered to Provident;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or similar
expenses which are to be borne by the Fund;
(iv) payment to, subject to receipt of Written
Instructions, the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount
of dividends and distributions stated in the Written
Instructions to be distributed in cash by the
transfer agent to shareholders, or, in lieu of
paying the Fund's transfer agent, Provident may
arrange for the direct payment of cash dividends and
distributions to shareholders in accordance with
procedures mutually agreed upon from time to time by
and among the Fund, Provident and the Fund's
transfer agent.
(v) payments, upon receipt of Written Instructions, in
connection with the conversion, exchange or
surrender of securities owned or subscribed to by
the Fund and held by or delivered to Provident;
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<PAGE>
(vi) payments of the amounts of dividends received with
respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to
provisions in sub-paragraph (c) of this Paragraph
14; and
(viii)payments, upon Written Instructions, made for other
proper Fund purposes.
Provident is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) Provident shall hold all securities received by it
for the account of the Fund in a separate account
that physically segregates such securities from
those of any other persons, firms or corporations.
All such securities shall be held or disposed of
only upon Written Instructions of the Fund pursuant
to the terms of this Agreement. Provident shall have
no power or authority to assign, hypothecate, pledge
or otherwise dispose of any such securities or
investment, except upon the express terms of this
Agreement and upon Written Instructions, accompanied
by a certified resolution of the Fund's Governing
Board, authorizing the transaction. In no case may
any member of the Fund's Board of
Directors/Trustees, or any officer, employee or
agent of the Fund withdraw any securities.
At Provident's own expense and for its own
convenience, Provident may enter into sub-custodian
agreements with other United States banks or trust
companies to perform duties described in this
subparagraph (c). Such bank or trust company shall
have an aggregate capital surplus and undivided
profits, according to its last published report, of
at least one million dollars ($1,000,000), if it is
a subsidiary or affiliate of Provident, or at least
twenty million dollars ($20,000,000) if such bank or
-8-
<PAGE>
trust company is not a subsidiary or affiliate of
Provident. In addition, such bank or trust company
must be qualified to act as custodian and agree to
comply with the relevant provisions of the 1940 Act
and other applicable rules and regulations. Any such
arrangement will not be entered into without prior
written notice to the Fund.
Provident shall remain responsible for the
performance of all of its duties as described in
this Agreement and shall hold the Fund harmless from
its own acts or omissions, under the standards of
care provided for herein, or the acts and omissions
of any sub-custodian chosen by Provident under the
terms of this sub-paragraph (c).
(d) Transactions Requiring Instructions. Upon receipt of Oral
or Written Instructions and not otherwise, Provident, directly or through the
use of the Book-Entry System, shall:
(i) deliver any securities held for the Fund against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as
owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that,
in any such case, the cash or other consideration is
to be delivered to Provident;
(iv) deliver any securities held for the Fund against
receipt of other securities or cash issued or paid
in connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise
of any conversion privilege;
-9-
<PAGE>
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive
and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Fund and take such other steps as shall be stated in
said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation
or recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank
or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be
released only upon payment to Provident of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released
for that purpose; and repay such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note
or notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of
payment therefor; and pay out moneys of the Fund in
connection with such repurchase agreements, but only
upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by
the Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
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<PAGE>
(x) release and deliver securities owned by the Fund for
the purpose of redeeming in kind shares of the Fund
upon delivery thereof to Provident; and
(xi) release and deliver or exchange securities owned by
the Fund for other corporate purposes.
Provident must also receive a certified resolution
describing the nature of the corporate purpose and
the name and address of the person(s) to whom
delivery shall be made when such action is pursuant
to sub-paragraph (d).
(e) Use of Book-Entry System. The Fund shall deliver to
Provident certified resolutions of the Fund's Governing Board approving,
authorizing and instructing Provident on a continuous and on-going basis, to
deposit in the Book-Entry System all securities belonging to the Fund eligible
for deposit therein and to utilize the Book-Entry System to the extent possible
in connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. Provident shall
continue to perform such duties until it receives Written or Oral Instructions
authorizing contrary action(s).
To administer the Book-Entry System properly, the following
provisions shall apply:
(i) With respect to securities of the Fund which are
maintained in the Book-Entry System, established
pursuant to this sub-paragraph (e) hereof, the
records of Provident shall identify by Book-Entry or
otherwise those securities belonging to the Fund.
Provident shall furnish the Fund a detailed
statement of the Property held for the Fund under
this Agreement at least monthly and from time to
time and upon written request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated
from any assets and cash controlled by Provident in
other than a fiduciary or custodian capacity but may
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<PAGE>
be commingled with other assets held in such
capacities. Provident and its sub-custodian, if any,
will pay out money only upon receipt of securities
and will deliver securities only upon the receipt of
money.
(iii) All books and records maintained by Provident which
relate to the Fund's participation in the Book-Entry
System will at all times during Provident's regular
business hours be open to the inspection of the
Fund's duly authorized employees or agents, and the
Fund will be furnished with all information in
respect of the services rendered to it as it may
require.
(iv) Provident will provide the Fund with copies of any
report obtained by Provident on the system of
internal accounting control of the Book-Entry System
promptly after receipt of such a report by
Provident.
Provident will also provide the Fund with such reports on its
own system of internal control as the Fund may reasonably request from time to
time.
(f) Registration of Securities. All Securities held for the
Fund which are issued or issuable only in bearer form, except such securities
held in the Book-Entry System, shall be held by Provident in bearer form; all
other securities held for the Fund may be registered in the name of the Fund;
Provident; the Book-Entry System; a sub-custodian; or any duly appointed
nominee(s) of the Fund, Provident, Book-Entry System or sub-custodian. The Fund
reserves the right to instruct Provident as to the method of registration and
safekeeping of the securities of the Fund. The Fund agrees to furnish to
Provident appropriate instruments to enable Provident to hold or deliver in
proper form for transfer, or to register its registered nominee or in the name
of the Book-Entry System, any securities which it may hold for the account of
the Fund and which may from time to time be registered in the name of the Fund.
Provident shall hold all such securities which are not held in the Book-Entry
System in a separate account for the Fund in the name of the Fund physically
segregated at all times from those of any other person or persons.
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<PAGE>
(g) Voting and Other Action. Neither Provident nor its nominee
shall vote any of the securities held pursuant to this Agreement by or for the
account of the Fund, except in accordance with Written Instructions. Provident,
directly or through the use of the Book-Entry System, shall execute in blank and
promptly deliver all notice, proxies and proxy soliciting materials to the
registered holder of such securities. If the registered holder is not the Fund
then Written or Oral Instructions must designate the person(s) who owns such
securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, Provident is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund,
all income, dividends, distributions, coupons,
option premiums, other payments and similar
items, included or to be included in the
Property, and, in addition, promptly advise the
Fund of such receipt and credit such income, as
collected, to the Fund's custodian account;
(B) endorse and deposit for collection, in the name
of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the
Fund's portfolio securities as a result of a
stock dividend, share split-up or
reorganization, recapitalization, readjustment
or other rearrangement or distribution of rights
or similar securities issued with respect to any
portfolio securities belonging to the Fund held
by Provident hereunder;
(D) present for payment and collect the amount
payable upon all securities which may mature or
be called, redeemed, or retired, or otherwise
become payable on the date such securities
become payable; and
(E) take any action which may be necessary and
proper in connection with the collection and
receipt of such income and other payments and
the endorsement for collection of checks,
drafts, and other negotiable instruments.
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<PAGE>
(ii) Miscellaneous Transactions.
(A) Provident is authorized to deliver or cause to
be delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer
selling for the account of the Fund in
accordance with street delivery custom;
(2) for the exchange of interim receipts or
temporary securities for definitive
securities; and
(3) for transfer of securities into the name of
the Fund or Provident or nominee of either,
or for exchange of securities for a
different number of bonds, certificates, or
other evidence, representing the same
aggregate face amount or number of units
bearing the same interest rate, maturity
date and call provisions, if any; provided
that, in any such case, the new securities
are to be delivered to Provident.
(B) Unless and until Provident receives Oral or
Written Instructions to the contrary, Provident
shall:
(1) pay all income items held by it which call
for payment upon presentation and hold the
cash received by it upon such payment for
the account of the Fund;
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<PAGE>
(2) collect interest and cash dividends
received, with notice to the Fund, to the
account of the Fund;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities
issued with respect to any securities held
by Provident; and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by
the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any State
now or hereafter in effect, inserting the
Fund's name on such certificate as the owner
of the securities covered thereby, to the
extent it may lawfully do so.
(iii) Segregated Accounts.
(A) Provident shall upon receipt of Written or Oral
Instructions establish and maintain a segregated
account(s) on its records for and on behalf of
the Fund. Such account(s) may be used to
transfer cash and securities, including
securities in the Book-Entry System:
(1) for the purpose of compliance by the Fund
with the procedures required by a securities
or option exchange, providing such
procedures comply with the 1940 Act and any
releases of the SEC relating to the
maintenance of segregated accounts by
registered investment companies; and
(2) upon receipt of Written Instructions, for
other proper corporate purposes.
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<PAGE>
(B) Provident shall arrange for the establishment of
IRA custodian accounts for such shareholders
holding shares through IRA accounts, in
accordance with the Prospectus, the Internal
Revenue Code (including regulations), and with
such other procedures as are mutually agreed
upon from time to time by and among the Fund,
Provident and the Fund's transfer agent.
(i) Purchase of Securities. Provident shall settle purchased securities
upon receipt of Oral or Written Instructions from the Fund or its investment
advisor(s) that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased
and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom
the purchase was made. Provident shall upon receipt of
securities purchased by or for the Fund pay out of the monies
held for the account of the fund the total amount payable to
the person from whom or the broker through whom the purchase
was made, provided that the same conforms to the total amount
payable as set forth in such Oral or Written Instructions.
(j) Sales of Securities. Provident shall sell securities upon receipt
of Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
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<PAGE>
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered
and delivery deadline, if any.
Provident shall deliver the securities upon receipt of the
total amount payable to the Fund upon such sale, provided that the total amount
payable is the same as was set forth in the Oral or Written Instructions.
Subject to the foregoing, Provident may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(k) Reports.
(i) Provident shall furnish the Fund the following
reports:
(A) such periodic and special reports as the Fund
may reasonably request;
(B) a monthly statement summarizing all transactions
and entries for the account of the Fund, listing
the portfolio securities belonging to the Fund
with the adjusted average cost of each issue and
the market value at the end of such month, and
stating the cash account of the Fund including
disbursement;
(C) the reports to be furnished to the Fund pursuant
to Rule 17f-4; and
(D) such other information as may be agreed upon
from time to time between the Fund and
Provident.
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<PAGE>
(ii) Provident shall transmit promptly to the Fund any
proxy statement, proxy material, notice of a call or
conversion or similar communication received by it
as custodian of the Property. Provident shall be
under no other obligations to inform the Fund as to
such actions or events.
(l) Collections. All collections of monies
or other property in respect, or which
are to become part, of the Property (but
not the safekeeping thereof upon receipt
by Provident) shall be at the sole risk
of the Fund. If payment is not received
by Provident within a reasonable time
after proper demands have been made,
Provident shall notify the Fund in
writing, including copies of all demand
letters, any written responses,
memoranda of all oral responses and to
telephonic demands thereto, and await
instructions from the Fund. Provident
shall not be obligated to take legal
action for collection unless and until
reasonably indemnified to its
satisfaction. Provident shall also
notify the Fund as soon as reasonably
practicable whenever income due on
securities is not collected in due
course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by Provident on sixty (60) days prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to Provident or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), Provident shall not deliver cash, securities or other property of the
Fund to the Fund. It may deliver them to a bank or trust company of Provident's,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars ($20,000,000), as a
custodian for the Fund to be held under terms similar to those of this
Agreement. Provident shall not be required to make any such delivery or payment
until full payment shall have been made to Provident of all of its fees,
compensation, costs and expenses. Provident shall have a security interest in
and shall have a right of setoff against Property in the Fund's possession as
security for the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to Provident at
Provident's address, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor); (b) if to the Fund, at the address of
the Fund; or (c) if to neither of the foregoing, at such other address as shall
have been notified to the sender of any such Notice or other communication. If
notice is sent by confirming telegram, cable, telex or facsimile sending device,
it shall be deemed to have been given immediately. If notice is sent by
first-class mail, it shall be deemed to have been given five days after it has
been mailed. If notice is sent by messenger, it shall be deemed to have been
given on the day it is delivered.
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<PAGE>
17. Amendments. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. Delegation. Provident may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of Provident
National Bank or PNC Financial Corp., provided that (i) Provident gives the Fund
thirty (30) days prior written notice; (ii) the delegate agrees with Provident
to comply with all relevant provisions of the 1940 Act; and (iii) Provident and
such delegate promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the delegation,
including (without limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one more separate document their agreement, if any, with respect
to delegated and/or Oral Instruments.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Pennsylvania
and governed by Pennsylvania law. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefit of the parties hereto and their
respective successors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PROVIDENT NATIONAL BANK
[SEAL] By: /s/ A. Plambeck
--------------------------
Vice-President
NORTH AMERICAN GOVERNMENT BOND
FUND, INC.
[SEAL] By: /s/ Edward J. Veilleux
-------------------------
Vice-President
-20-
EX-99.B(9)
FORM OF
MASTER SERVICES AGREEMENT
-------------------------
THIS AGREEMENT is made as of the ___ day of ______, 19__ by and between
NORTH AMERICAN GOVERNMENT BOND FUND, INC., a Maryland corporation (the "Fund"),
and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation ("ICC").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain ICC to provide certain services on
behalf of the Fund, as set forth in the Appendices to this Agreement, and ICC is
willing so to serve.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints ICC to perform such services
and to serve such functions on behalf of the Fund as set forth in the Appendices
to this Agreement, on the terms set forth in this Agreement and the Appendices
hereto. ICC accepts such appointment and agrees to furnish such services and
serve such functions. The Fund may have currently outstanding one or more series
or classes of its shares of common stock, par value $.001 per share ("Shares")
and may from time to time hereafter issue separate series or classes of its
Shares or classify and reclassify Shares of any series or class, and the
appointment effected hereby shall constitute appointment for the provision of
services with respect to all existing series and classes and any additional
series and classes unless the parties shall otherwise agree in writing.
2. Delivery of Documents. The Fund has furnished ICC with copies
properly certified or authenticated of the following documents and will furnish
ICC from time to time with copies, properly certified or authenticated, of all
amendments of or supplements thereto, if any:
(a) Resolutions of the Fund's Board of Directors authorizing
the appointment of ICC to act in such capacities on behalf of the Fund
as set forth in the Appendices to this Agreement, and the entering into
of this Agreement by the Fund;
(b) The Fund's Articles of Incorporation and all amendments
thereto (the "Charter") and the Fund's By-Laws and all amendments
thereto (the "By-Laws");
(c) The Fund's most recent Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") and under
the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") relating to the Shares; and
(d) Copies of the Fund's most recent prospectus or
prospectuses, including amendments and supplements thereto
(collectively, the "Prospectus").
3. Services to be Provided; Fees. During the term of this Agreement,
ICC shall perform the services and act in such capacities on behalf of the Fund
as set forth herein and in the Appendices to this Agreement. For the services
performed by ICC for the Fund, the Fund will compensate ICC in such amounts as
may be agreed to from time to time by the parties in writing.
<PAGE>
4. Records. The books and records pertaining to the Fund which are in
the possession of ICC shall be the property of the Fund. Such books and records
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during ICC's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by ICC to the Fund
or the Fund's authorized representative at the Fund's expense.
5. Cooperation With Accountants. In addition to any obligations set
forth in an Appendix hereto, ICC shall cooperate with the Fund's independent
accountants and shall take all reasonable actions in the performance of its
obligations under this Agreement to ensure that the necessary information is
made available to such accountants for the expression of such accountants'
opinion of the Fund's financial statements or otherwise, as such may be required
by the Fund from time to time.
6. Compliance with Governmental Rules and Regulations. The Fund assumes
full responsibility for insuring that the Fund complies with all applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction. ICC undertakes to comply with all applicable
requirements of the 1933 Act, the 1934 Act, the 1940 Act, the Commodities
Exchange Act (if applicable), and all laws, rules and regulations of
governmental authorities having jurisdiction with respect to the performance by
ICC of its duties under this Agreement, including the Appendices hereto.
7. Expenses.
(a) ICC shall bear all expenses of its employees and overhead
incurred in connection with its duties under this Agreement and shall
pay all salaries and fees of the Fund's directors and officers who are
employees of ICC.
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of
the Fund's investment advisor, administrator and distributor; the
charges and expenses of any registrar, any custodian or depositary
appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and corporate fees payable by
the Fund to federal, state or other governmental agencies; the cost and
expense of engraving or printing of stock certificates representing
Shares; all costs and expenses in connection with maintenance of
registration of the Fund and its Shares with the SEC and various states
and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); the expenses of printing, including
typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and
directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of
directors or members of any advisory board or committee other than such
directors or members who are "interested persons" of the Fund (as
defined in the 1940 Act); all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in Shares or
in cash; charges and expenses of any outside service used for pricing
of the Shares; charges and expenses of legal counsel, including counsel
to the directors of the Fund who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in
connection with any matter relating to the Fund; a portion of
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel
(including officers and directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
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<PAGE>
8. Liability; Indemnification. Neither ICC nor any of its officers,
directors or employees shall be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which this Agreement,
including the Appendices hereto, relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its or their part in the
performance of, or from reckless disregard by it or them of, its or their
obligations and duties under this Agreement. The Fund agrees to indemnify and
hold harmless ICC and its nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
arising under the 1933 Act, the 1934 Act, the 1940 Act, and any state and
foreign securities and blue sky laws, all as currently in existence or as
amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which ICC takes or does or omits to take or do at the request or
on the direction of or in reliance on the advice of the Fund; provided, that
neither ICC nor any of its nominees shall be indemnified against any liability
to the Fund or to its shareholders (or any expenses incident to such liability)
arising out of ICC's own willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under this Agreement.
Notwithstanding anything else in this Agreement or any Appendix hereto to the
contrary, ICC shall have no liability to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer as a
consequence of ICC's performance of the services provided in this Agreement or
any Appendix hereto.
9. Responsibility of ICC. ICC shall be under no duty to take any action
on behalf of the Fund except as specifically set forth herein or as may be
specifically agreed to by ICC in writing. In the performance of its duties
hereunder, ICC shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
services provided for under this Agreement, but ICC shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of ICC or reckless disregard by ICC of its duties
under this Agreement. Notwithstanding anything in this Agreement to the
contrary, ICC shall have no liability to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer by or as a
consequence of ICC's performance of the services provided hereunder.
10. Non-Exclusivity. The services of ICC to the Fund are not to be
deemed exclusive and ICC shall be free to render accounting or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that directors, officers or employees of ICC may
serve as directors or officers of the Fund, and that directors or officers of
the Fund may serve as directors, officers and employees of ICC to the extent
permitted by law; and that directors, officers and employees of ICC are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, directors or officers
of any other firm or corporation, including other investment companies.
11. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, to the Fund at
_______________________________________, Attention: ____________, or to ICC at
135 E. Baltimore Street, Baltimore, Maryland 21202, Attention: Mr. Edward J.
Veilleux.
12. Miscellaneous.
(a) This Agreement shall become effective as of the date first
above written and shall remain in force until terminated. This
Agreement, or any Appendix hereto, may be terminated at any time
without the payment of any penalty, by either party hereto on sixty
(60) days' written notice to the other party.
(b) This Agreement shall be construed in accordance with the
laws of the State of Maryland.
(c) If any provisions of this Agreement shall be held or made
invalid in whole or in part, the other provisions of this Agreement
shall remain in force. Invalid provisions shall, in accordance with the
intent and purpose of this Agreement, be replaced by mutual consent of
the parties with such valid provisions which in their economic effect
come as close as legally possible to such invalid provisions.
-3-
<PAGE>
(d) Except as otherwise specified in the Appendices hereto,
ICC shall be entitled to rely on any notice or communication believed
by it to be genuine and correct and to have been sent to it by or on
behalf of the Fund.
(e) ICC agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund
and its prior, present, or potential shareholders, except, after prior
notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld where ICC
may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund.
(f) Any part of this Agreement or any Appendix attached hereto
may be changed or waived only by an instrument in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
By: __________________________________________
Title:
INVESTMENT COMPANY CAPITAL CORP.
By: __________________________________________
Title:
-4-
<PAGE>
Appendix I
TRANSFER AGENCY SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of _____________, 19___ (the "Master Services
Agreement") between NORTH AMERICAN GOVERNMENT BOND FUND, INC. and INVESTMENT
COMPANY CAPITAL CORP. Defined terms not otherwise defined herein shall have the
meaning set forth in the Master Services Agreement.
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is fully
authorized by the Fund's Board of Directors, to give Oral and Written
Instructions on behalf of the Fund. Such persons are listed in the
Certificate attached hereto.
(b) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by ICC from an Authorized Person or
from a person reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and
received by ICC. The instructions may be delivered by hand, mail,
tested telegram, cable, telex or facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall
act only upon Oral and Written Instructions. ICC shall be entitled to rely upon
any Oral and Written Instruction it receives from an Authorized Person (or from
a person reasonably believed by ICC to be an Authorized Person) pursuant to this
Agreement. ICC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of the Fund's
Articles of Incorporation, the Master Services Agreement, or any Appendix
attached thereto, or of any vote, resolution or proceeding of the Fund's Board
of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions confirming Oral
Instructions so that ICC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by ICC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. The Fund further agrees that ICC shall incur no liability
to the Fund in acting upon Oral or Written Instructions provided such
instructions reasonably appear to have been received from an Authorized Person.
If ICC is in doubt as to any action it should or should not take, ICC
may request directions or advice, including Oral or Written Instructions, from
the Fund. ICC shall be protected in any action it takes or does not take in
reliance upon directions, advice or Oral or Written Instructions it receives
from the Fund or from counsel and which ICC believes, in good faith, to be
consistent with those directions, advice or Oral of Written Instructions.
Notwithstanding the foregoing, ICC shall have no obligation (i) to seek such
directions, advice or Oral or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral or Written Instructions unless, under the
terms of other provisions of this Appendix, the same is a condition of ICC's
properly taking or not taking such action.
-5-
<PAGE>
3. Description of Services.
(a) General Services To be Provided. ICC shall provide to the
Fund the following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders, if necessary, to complete or correct
information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in conjunction
with proxy solicitations; solicit and tabulate proxies;
receive and tabulate proxy cards for meetings of the Fund's
shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct shareholder use,
plus customer liaison staff for on-line inquiry response;
(ix) Mail duplicate confirmation to broker-dealers of
their clients' activity, whether executed through the
broker-dealer or directly with ICC;
(x) Provide periodic shareholder lists and statistics to
the Fund;
(xi) Provide detail for underwriter/broker confirmations;
(xii) Mail periodic year-end tax and statement
information;
(xiii) Provide timely notification to investment advisor,
accounting agent, and custodian of Fund activity; and
(xiv) Perform other participating broker-dealer
shareholder services as may be agreed upon from time to time.
(b) Purchase of Shares. ICC shall issue and credit an account
of an investor, in the manner described in the Prospectus, once it
receives: (i) a purchase order; (ii) proper information to establish a
shareholder account; and (iii) confirmation of receipt by, or crediting
of funds for such order to, the Fund's custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares
only in accordance with the provisions of the Prospectus and each
shareholder's individual directions. Shares shall be redeemed at such
time as the shareholder tenders his or her shares and directs the
method of redemption in accordance with the terms set forth in the
Prospectus. If securities are received in proper form, Shares shall be
redeemed before the funds are provided to ICC. When the Fund provides
ICC with funds, redemption proceeds will be wired (if requested) or a
redemption check issued. All redemption checks shall be drawn to the
recordholder unless third party payment authorizations have been signed
by the recordholder and delivered to ICC.
-6-
<PAGE>
(d) Dividends and Distributions. Upon receipt of certified
resolutions of the Fund's Board of Directors authorizing the
declaration and payment of dividends and distributions, ICC shall issue
the dividends and distributions in shares, or, upon shareholder
election, pay such dividends and distributions in cash. Such issuance
or payment shall be made after deduction and payment of the required
amount of funds to be withheld in accordance with any applicable tax
laws or other laws, rules or regulations. The Fund's shareholders shall
receive tax forms and other information, or permissible substitute
notice, relating to dividends and distributions, paid by the Fund as
are required to be filed and mailed by applicable law, rule or
regulation. ICC shall maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends and
distributions paid by the Fund to its shareholders as required by tax
or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the
Prospectus, ICC shall arrange for the following services, in accordance
with the applicable terms set forth in the Prospectus: (i) the issuance
of Shares obtained through any pre-authorized check plan and direct
purchases through broker wire orders, checks and applications; (ii)
exchanges of shares of any fund for Shares of the Fund with which the
Fund has exchange privileges; (iii) automatic redemption from an
account where that shareholder participates in an automatic redemption
plan; and (iv) redemption of Shares from an account with a check
writing privilege.
(f) Communications to Shareholders. Upon timely Written
Instructions, ICC shall mail all communications by the Fund to its
shareholders, including, reports to shareholders, confirmations of
purchases and sales of Shares, monthly or quarterly statements,
dividend and distribution notices, and proxy material.
(g) Records. ICC shall maintain records of the accounts for
each shareholder showing the following information: (i) name, address
and U.S. Tax Identification or Social Security number; (ii) number and
class of Shares held and number and class of Shares for which
certificates, if any, have been issued, including certificate numbers
and denominations; (iii) historical information regarding the account
of each shareholder, including dividends and distributions paid and the
date and price for all transactions on a shareholder's account; (iv)
any stop or restraining order placed against a shareholder's account;
(v) any correspondence relating to the current maintenance of a
shareholder's account; (vi) information with respect to withholdings;
and (vii) any information required in order for ICC to perform any
calculations contemplated or required by this Appendix or the Master
Services Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice
against any certificate reported to be lost or stolen and comply with
all applicable federal regulatory requirements for reporting such loss
or alleged misappropriation. A new certificate shall be registered and
issued upon: (i) the shareholder's pledge of a lost instrument bond or
such other appropriate indemnity bond issued by a surety company
approved by ICC; and (ii) completion of a release and indemnification
agreement signed by the shareholder to protect ICC.
(i) Shareholder Inspection of Stock Records. Upon requests
from Fund shareholders to inspect stock records, ICC will notify the
Fund and the Fund shall deliver Oral or Written Instructions granting
or denying each such request. Unless ICC has acted contrary to the
Fund's Instructions, the Fund agrees to release ICC from any liability
for refusal or permission for a particular shareholder to inspect the
Fund's shareholder records.
(j) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, ICC shall cancel outstanding
certificates surrendered by the Fund to reduce the total amount of
outstanding shares by the number of shares surrendered by the Fund.
-7-
<PAGE>
(k) Telephone Transactions. In accordance with the terms of
the Prospectus, ICC shall act upon shareholder requests made by
telephone for redemption or exchange of ISI shares; provided that (i)
the shareholder has authorized telephone transactions on the Fund's
Account Application or otherwise in writing, (ii) if the request is a
redemption, the amount to be redeemed does not exceed $10,000 and (iii)
ICC has complied with the identification and other security procedures
required by the Fund in connection with telephone transactions.
4. Fees. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third
party all or any part of its obligations under this Appendix; provided that any
such subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
-8-
<PAGE>
Appendix II
ADMINISTRATIVE SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of ______________, 19___ (the "Master Services
Agreement") between NORTH AMERICAN GOVERNMENT BOND FUND, INC. and INVESTMENT
COMPANY CAPITAL CORP. Defined terms not otherwise defined herein shall have the
meaning set forth in the Master Services Agreement.
1. Services to be Provided. ICC will perform the following services on
an ongoing basis:
(a) supervise and manage all aspects of the Fund's operations,
other than portfolio management and distribution;
(b) provide the Fund with such executive, administrative,
clerical and bookkeeping services as are deemed advisable by the Fund's
Board of Directors;
(c) provide the Fund with, or obtain, adequate office space
and all necessary equipment and services, including telephone service,
heat, utilities, stationery supplies and similar items for any offices
as are deemed advisable by the Fund's Board of Directors;
(d) arrange, but not pay for, the periodic updating of
Prospectuses and supplements thereto, proxy material, tax returns,
reports to the Fund's shareholders and reports to and filings with the
SEC and state Blue Sky authorities;
(e) supervise the operations of the Fund's transfer and
dividend-disbursing agent; and
(f) provide the Fund with such administrative and clerical
services for the maintenance of certain shareholder records as are
deemed advisable by the Fund's Board of Directors.
2. Fees. For the service performed by ICC for the Fund pursuant to this
Appendix, the Fund will pay to ICC compensation for such services as the parties
may agree to from time to time in writing.
-9-
<PAGE>
Appendix III
ACCOUNTING SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of ______________ (the "Master Services Agreement")
between NORTH AMERICAN GOVERNMENT BOND FUND, INC. and INVESTMENT COMPANY CAPITAL
CORP. Defined terms not otherwise defined herein shall have the meaning set
forth in the Master Services Agreement.
1. Accounting Services to be Provided. ICC will perform the following
accounting functions if required:
(a) Journalize investment, capital share and income and
expense;
(b) Verify investment buy/sell trade tickets when received
from the Fund's investment advisor and transmit trades to the Fund's
custodian for proper settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain tax lots for each security;
(e) Reconcile cash and investment balances with the custodian,
and provide the Fund's investment advisor with the beginning cash
balance available for investment purposes;
(f) Update the cash availability throughout the day as
required by the Fund's investment advisor;
(g) Post to and prepare the Fund's Statement of Net Assets and
Liabilities and the Statement of Operations;
(h) Calculate various contractual expenses (e.g., advisor and
custody fees);
(i) Monitor the expense accruals and notify Fund management of
any proposed adjustments;
(j) Control all disbursements from the Fund and authorize such
disbursements upon written instructions from the President or any other
officer of the Fund or the investment advisor;
(k) Calculate capital gains and losses;
(l) Determine the Fund's net income;
(m) Obtain security market quotes from independent pricing
services approved by the investment advisor, or if such quotes are
unavailable, then obtain such prices from the investment advisor, and
in either case calculate the market value of portfolio investments;
(n) Transmit or mail a copy of the daily portfolio valuation
to the Fund's investment advisor;
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<PAGE>
(o) Compute the Fund's net asset value;
(p) As appropriate, compute the yields, total return, expense
ratios, portfolio turnover rate;
(q) Prepare a monthly financial statement, which will include
the following items:
o Schedule of Investments;
o Statement of Net Assets and Liabilities;
o Statement of Operations;
o Statement of Changes in Net Assets;
o Cash Statement;
o Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
o Federal and State Tax Returns;
o Excise Tax Returns;
o Annual, Semi-Annual and Quarterly Shareholder
Reports;
o Rules 24 (e)-2 and 24 (f)-2 Notices;
o Annual and Semi-Annual Reports on Form N-SAR;
o Monthly and Quarterly Statistical Data Information
Reports Sent to Performance Tracking Companies;
(s) Assist in the Blue Sky and Federal registration and
compliance process;
(t) Assist in the review of registration statements; and
(u) Assist in monitoring compliance with Sub-Chapter M of the
Internal Revenue Code.
2. Records. ICC shall keep the following records: (a) all books and
records with respect to the Fund's books of account; and (b) records of the
Fund's securities transactions.
3. Liaison With Accountants. In addition to ICC's obligations relating
to the Fund's independent accountants set forth in the Master Services
Agreement, ICC shall act as liaison with the Fund's independent accountants and
shall provide account analyses, fiscal year summaries, and other audit related
schedules.
4. Compensation. For services performed by ICC pursuant to this
Appendix, the Fund will pay to ICC compensation for such services as the parties
may agree to from time to time in writing.
-11-
EX-99.B(10)
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS]
December 17, 1992
North American Government Bond Fund, Inc.
717 Fifth Avenue
New York, NY 10022
Gentlemen:
We have acted as counsel to you in connection with the organization of
North American Government Bond Fund, Inc. (the "Fund") and with the proposed
offering of twenty-five million shares of common stock of the Fund, par value
$.001 per share (the "Shares").
Having prepared the Articles of Incorporation and By-Laws of the Fund,
and having assisted in the preparation of the Fund's Registration Statement on
Form N-1A (File No. 33-53598) under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, including all pre-effective
amendments thereto (the "Registration Statement"), relating to the offering of
the Shares, and having assisted in the preparation of other related documents,
we are of the opinion that:
1. The Fund is a Maryland corporation validly organized and in good
standing under the laws of that state, authorized to issue up to 25,000,000
shares of its common stock, par value $.001 per share.
2. Upon the effectiveness of the Registration Statement, you will, in
jurisdictions where the Shares are qualified for sale, be authorized to make a
public offering of Shares pursuant to the terms of the offering as described in
the Prospectus filed as part of the Registration Statement, and the Shares, when
issued upon receipt of payment therefore as described in the Prospectus, will be
validly issued, fully paid and non-assessable by the Fund.
We have not reviewed the securities laws of any state or territory in
connection with the proposed offering of Shares and we express no opinion as to
the legality of any offer of sale of Shares under any such state of territorial
securities laws.
This opinion is intended only for your use in connection with the
offering of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit 10 to the
Fund's Registration Statement on Form N-1A to be filed with the Securities and
Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to
Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A (No.
33-53598) under the Securities Act of 1933 of North American Government Bond
Fund, Inc.:
The inclusion of our report dated May 1, 1995 on our
audit of the financial statements of North American
Government Bond Fund, Inc. for the year ended March
31, 1995.
The references to our Firm under the headings
"Financial Highlights" and "General Information" in
the Prospectus and "Independent Accountants" in the
Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 24, 1995
EX-99.B(13)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
SUBSCRIPTION AGREEMENT
----------------------
For and in consideration of the mutual agreements herein contained,
International Strategy and Investment, Inc. (the "Subscriber") hereby agrees to
purchase from North American Government Bond Fund, Inc., a Maryland corporation
(the "Fund"), and the Fund agrees to sell 10,000 shares of the Fund's common
stock, par value $.001 per share, at a price of $10.00 per share (the "Shares"),
upon the terms and conditions set forth herein and as part of a public offering
pursuant to the terms and conditions of the Fund's Registration Statement on
Form N-1A (No. 33-53598), as amended and supplemented, initially filed with the
Securities and Exchange Commission on October 22, 1992.
The Subscriber agrees to purchase such Shares and to pay the full
consideration therefor to the Fund upon demand.
The Subscriber hereby confirms to the Fund its representations that it
is purchasing such Shares for investment purposes, with no present intention of
redeeming or reselling any portion thereof, and its agreement that in the event
it should dispose of any of such Shares, such transaction will be effected by
redeeming such Shares through the Fund.
Dated: December 15, 1992 INTERNATIONAL STRATEGY AND INVESTMENT INC.
By: /s/ R. Alan Medaugh
---------------------------
Title: President
Subscription Accepted:
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
By: /s/ Edward J. Veilleux
------------------------
Title: Vice President
EX-99.B(15)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
ISI NORTH AMERICAN GOVERNMENT BOND FUND SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of North American Government Bond Fund, Inc. (the "Fund") with
respect to its ISI North American Government Bond Fund Shares class (the
"Shares"). Other capitalized terms herein have the meaning given to them in the
Fund's prospectus.
2. Payments Authorized. (a) Armata Financial Corp. ("Armata") is
authorized, pursuant to the Plan, to make payments to any transmitting broker
under an Agency Distribution Agreement, to accept payments made to it under the
Distribution Agreement and to make payments on behalf of the Fund to Shareholder
Servicing Agents under Shareholder Servicing Agreements.
(b) Armata may make payments in any amount, provided that the total
amount of all payments made during a fiscal year of the Fund do not exceed, in
any fiscal year of the Fund, the amount paid to Armata under the Distribution
Agreement which is an annual fee, calculated on an average daily net basis and
paid monthly, equal to .40% of the average daily net assets invested in Shares.
3. Expenses Authorized. Armata is authorized, pursuant to the Plan,
from sums paid to it under the Distribution Agreement, to purchase advertising
for the Shares, to pay for promotional or sales literature and to make payments
to sales personnel affiliated with it for their efforts in connection with sales
of Shares. Any such advertising and sales material may include references to
other open-end investment companies or other investments, provided that expenses
relating to such advertising and sales material will be allocated among such
other investment companies or investments in an equitable manner, and any sales
personnel so paid are not required to devote their time solely to the sale of
Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Armata and the Fund's
advisor are authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's advisor, distributor, administrator;
the charges and expenses of any registrar, any custodian or depository appointed
by the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members 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
<PAGE>
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
5. Other Distribution Resources. Armata and transmitting brokers may
expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Armata will report to the Board
of Directors on any such expenditures as part of its regular reports pursuant to
Section 6 of this Plan.
6. Reports. While this Plan is in effect, Armata shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
EX-99.B(16)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
Schedule of Computation of Performance Quotations
(unaudited)
This Schedule is included to illustrate how total return and yield will be
calculated.
1. Total Return
The examples presented use actual data for the Fund's ISI North American
Government Bond Fund Shares class for the period from January 15, 1993
(commencement of operations) through March 31, 1993.
(a) Average Annual Total Return Pursuant to SEC Rules
P(1+T) = ERV
P = initial payment = $1,000
2.5 month ERV = $958
n = 2.5 divided by 12
T = average annual total return = (4.18)%
(b) Aggregate Total Return Pursuant to SEC Rules
P(1+T) = ERV
P = initial payment = $1,000
ERV = $991
T = aggregate total return = (0.89)%
(c) Average Annual Total Return Pursuant to Non-
Standardized Computation
The sum of 1 added to T multiplied by P, raise this
product to the nth power = ERV
P = initial investment = $10,000
2.5 month ERV = $11,090
n = 2.5 divided by 12
<PAGE>
T = average annual total return = 10.90%
(d) Aggregate Total Return Pursuant to Non-
Standardized Computation
P(1+T) = ERV
P = initial payment = $10,000
ERV = $10,218
T = aggregate total return = 2.18%
2. Yield
The example presented uses actual data for the Fund's ISI North
American Government Bond Fund Shares class for the 30 day period ended March 31,
1993.
Yield = Divide (i) the difference of b subtracted from a by
(ii) the product of c multiplied by d. Add 1 to the
result. Raise this amount to the sixth power,
subtract 1, and multiply the result by 2.
a = dividends and interest earned during the period =
281,462.48
b = expenses accrued for the period (net of
reimbursements) = $37,247.81
c = average daily number of shares outstanding during the
period that were entitled to receive dividends =
3,603,650.682
d = maximum offering price per share on the last day
of the period = $10.45
Yield = 7.91%
EX-99.B(24)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
----------------------------
James J. Cunnane
Date: July 26, 1995
----------------------------
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Diana M. Ellis, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in her
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Diana M. Ellis
----------------------------
Diana M. Ellis
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
----------------------------
Richard T. Hale
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, N. Bruce Hannay, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
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/ N. Bruce Hannay
----------------------------
N. Bruce Hannay
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Edward S. Hyman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Edward S. Hyman
----------------------------
Edward S. Hyman
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
----------------------------
John F. Kroeger
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
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: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
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/ Euguene J. McDonald
----------------------------
Eugene J. McDonald
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, R. Alan Medaugh, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ R. Alan Medaugh
----------------------------
R. Alan Medaugh
Date: July 22, 1994
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable North American Government Bond
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
----------------------------
Rebecca W. Rimel
Date: July 26, 1995
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Brian
C. Nelson, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable North American Government Bond Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Harry Woolf
----------------------------
Harry Woolf
Date: July 22, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893566
<NAME> NORTH AMERICAN BOND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 71,794,296
<INVESTMENTS-AT-VALUE> 64,951,165
<RECEIVABLES> 16,112,919
<ASSETS-OTHER> 52,532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81,116,616
<PAYABLE-FOR-SECURITIES> 14,663,038
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161,320
<TOTAL-LIABILITIES> 14,824,358
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,769,759
<SHARES-COMMON-STOCK> 8,225,853
<SHARES-COMMON-PRIOR> 9,825,741
<ACCUMULATED-NII-CURRENT> 5,973,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,757,134)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,843,131)
<NET-ASSETS> 66,292,258
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,033,220
<OTHER-INCOME> 0
<EXPENSES-NET> 1,060,136
<NET-INVESTMENT-INCOME> 5,973,084
<REALIZED-GAINS-CURRENT> (12,027,382)
<APPREC-INCREASE-CURRENT> (861,187)
<NET-CHANGE-FROM-OPS> (6,915,485)
<EQUALIZATION> 66,292,258
<DISTRIBUTIONS-OF-INCOME> 3,760,903
<DISTRIBUTIONS-OF-GAINS> 621,691
<DISTRIBUTIONS-OTHER> 2,448,605
<NUMBER-OF-SHARES-SOLD> 843,587
<NUMBER-OF-SHARES-REDEEMED> 2,858,167
<SHARES-REINVESTED> 414,693
<NET-CHANGE-IN-ASSETS> (13,582,699)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 339,170
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,228,789
<AVERAGE-NET-ASSETS> 84,793,294
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .63
<PER-SHARE-GAIN-APPREC> (1.38)
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.27)
<PER-SHARE-NAV-END> 8.06
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
