<PAGE>
As Filed With the Securities and Exchange Commission on July 29, 1997
Registration No. 33-53598
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 6 [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
One South Street
Baltimore, MD 21202
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(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
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)
__X___ on August 1, 1997 pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)(1)
______ 75 days after filing ursuant to paragraph (a)(2)
______ 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 1,997,507 shares $8.66 per share (1) $
</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, 1997. Registrant had actual aggregate
redemptions of 1,997,507 shares for its fiscal year ended March 31, 1997;
has used no 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
1,997,507 shares for reductions in its current amendment.
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, 1997, on May 15, 1997.
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
July 29, 1997
Cross Reference Sheet
Items Required by Form N-1A
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<TABLE>
<CAPTION>
<S> <C> <C>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
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,
Policies and Risk Factors;
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor;
Distributor; Custodian, Transfer
Agent and Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Fund
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>
* Information required by Item 5A is contained in the Registrant's 1997
Annual Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<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 and
Accounting Services
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Capital Stock;
Semi-Annual 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 and Yield
Computations
Item 23. Financial Statements Financial Statements
Part C Other Information
- ------ -----------------
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
ISI 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
International Strategy & Investment Group Inc. (the "Distributor") 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, 1997 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 1, 1997.
<PAGE>
1. Fee Table
Shareholder Transaction Expenses:
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases .................. 3.00%
Maximum Sales Charge Imposed on Reinvested Dividends ...... None
Maximum Deferred Sales Charge .............................. None
Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average daily net assets)
Management Fees (net of fee waivers) ..................... 0.26%*
12b-1 Fees ................................................ 0.40%
Asset Based Sales Charge .15%
Service Fee .25%
Other Expenses (net of fee waivers) ........................ 0.59%*
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Total Fund Operating Expenses (net of fee waivers) ...... 1.25%*
=======
- -----------
*The Fund's advisor and the Fund's 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 daily net assets. Absent fee waivers, Management Fees would be 0.40%,
Other Expenses (including administration fees) would be 0.66% and Total Fund
Operating Expenses would be 1.46%, respectively, of the Fund's average daily
net assets.
Example:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption
at the end of each time period:* $42 $68 $97 $177
</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 Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the 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 have been restated to reflect current rather than historical
fees. (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 Conduct Rules of the National
Association of Securities Dealers, Inc.
2. Financial Highlights
The Fund has offered the Shares since January 15, 1993. The financial
highlights included in this table are a part of
2
<PAGE>
the Fund's financial statements for the periods indicated and have been audited
by Coopers & Lybrand L.L.P., independent accountants. The financial statements
and financial highlights for the fiscal year ended March 31, 1997 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, 1997, 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 For the Period
Ended January 15, 1993*
March 31, through
----------------------------------------------- ------------------
1997 1996 1995 1994 March 31, 1993
---------- ---------- ---------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share
Operating
Performance:
Net asset value at
beginning of
period ............... $ 8.37 $ 8.06 $ 9.53 $ 10.14 $ 10.00
------- ------- --------- ------- ----------
Income from
Investment
Operations:
Net investment
income ............... 0.75 0.81 0.63 0.89 0.10
Net realized and
unrealized
gain/(loss) on
investments and
foreign cur-
rency transla-
tion (0.11) 0.22 (1.38) (0.58) 0.12
------- ------- --------- ------- ----------
Total from Invest-
ment Opera-
tions 0.64 1.03 (0.75) 0.31 0.22
Less Distributions:
Dividends from
net investment
income and
short-term
gains ............... (0.26) -- (0.45) (0.92) (0.08)
Return of capital. . (0.46) (0.72) (0.27) -- --
------- ------- --------- ------- ----------
Total distribu-
tions (0.72) (0.72) (0.72) (0.92) (0.08)
------- ------- --------- ------- ----------
Net asset value at
end of period ...... $ 8.29 $ 8.37 $ 8.06 $ 9.53 $ 10.14
======= ======= ========= ======= ==========
Total Return** ......... 7.90% 12.97% (8.31)% 2.77% 2.18%
Ratios to Average
Daily Net Assets:
Expenses1 ............ 1.25% 1.25% 1.25% 1.25% 1.25%3
Net investment
income2 ............ 8.99% 9.49% 7.04% 7.04% 7.62%3
Supplemental
Data:
Net assets at end
of period (000).. $51,966 $60,860 $66,292 $93,622 $ 40,937
Portfolio turnover
rate ............... 46% 125% 104% 219% 104%
</TABLE>
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* Commencement of operations.
** Total return excludes the effect of sales charge.
1 Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 1.58%, 1.47%, 1.45%, 1.44% and 2.19%
(annualized) for the years ended March 31, 1997, 1996, 1995, 1994, and for
the period ended March 31, 1993, respectively.
2 Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 8.66%, 9.27%, 6.84%, 6.85% and
6.68% (annualized) for the years ended March 31, 1997, 1996, 1995, 1994
and for the period ended March 31, 1993, respectively.
3 Annualized.
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, 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, the Fund's investment advisor (the
"Advisor") (See "Investment 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
3
<PAGE>
objective of seeking a high level of current income, consistent with prudent
investment risk. Subject to the limitations described above, the percentage of
assets invested in a particular country or denominated in a particular
currency, as well as the average maturity of the securities held in the Fund's
portfolio, will vary in accordance with the Advisor's analysis of market
conditions, relative yields, and changes in general economic and political
conditions in the United States, Canada and Mexico, and the Advisor's
expectations regarding interest rate changes and changes in currency exchange
rates among the U.S. dollar, the Canadian dollar and the Mexican peso. Based on
the Advisor's analysis of such factors, it is possible that, from time to time,
none of the Fund's assets will be invested in Canada or Mexico or denominated
or payable in Canadian dollars or Mexican pesos.
Under normal circumstances, the dollar weighted expected average maturity of
the Fund's portfolio will vary depending on the Advisor's assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates. It is currently anticipated
that during periods of stable interest rates, the Fund's portfolio will have a
dollar weighted expected average maturity of approximately ten years; and
during periods of declining interest rates, the Fund's portfolio will have a
dollar weighted expected average maturity of over ten years. The Advisor may
shorten the dollar weighted average maturity substantially for temporary,
defensive purposes, such as, when the Advisor 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 by Moody's or S&P, determined to be of comparable
quality by the Advisor under criteria approved by the Fund's Board of Directors
("Comparable Quality"). 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 Comparable
Quality, or in the case of short-term securities, Prime-3 or higher by Moody's,
A-3 or higher by S&P, or Comparable Quality. 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 Comparable
Quality. 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 security 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
4
<PAGE>
market, affecting both the value and liquidity of such securities. The market
prices of these securities may fluctuate more than those of higher rated
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. An economic
downturn could adversely affect the ability of issuers of such securities to
make payments of principal and interest to a greater extent than issuers of
higher rated securities might be affected. A description of fixed-income
security ratings is contained in the Appendix to the Statement of Additional
Information. During the fiscal year ended March 31, 1997, the Fund held no
bonds rated below investment grade.
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, A-1 by S&P, or Comparable Quality.
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 that 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, BBB or higher by S&P,
or Comparable Quality 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
Comparable Quality 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) that are issued by the U.S.
Government and backed by the full faith and credit of the United States and
that differ only in their interest rates, maturities and times of issuance.
STRIPS are U.S. Treasury Securities that 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 or by their respective political
subdivisions, agencies and instrumentalities, which securities have been rated
Aa or higher by Moody's, AA or higher by S&P, or Comparable Quality. These
securities may be denominated or payable in U.S. dollars or Canadian dollars.
Canadian Government Securities in which the Fund may invest include Government
of Canada bonds and Government of Canada Treasury bills. The Bank of Canada,
acting on behalf of the Canadian federal government, is responsible for the
distribution of Treasury bills and federal bond issues. Government of Canada
Treasury bills are debt obligations with maturities of less than one year.
Government of Canada issues of bonds frequently consist of several different
bonds with various maturity dates representing different segments of the yield
curve with maturities ranging from one to 25 years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agencies and provincial Crown
corporations. Each new issue yield is based upon a spread from an outstanding
Government of Canada issue of comparable term and coupon. Spreads in the
marketplace are determined by various factors, including the relative supply
and the rating assigned by the rating agencies. Most provinces also issue
treasury bills.
Many municipalities and municipal financial authorities in Canada raise funds
through the bond market in order to
5
<PAGE>
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 that 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 Comparable Quality or (ii) in the case of short-term securities, Prime-3 or
higher by Moody's, A-3 or higher by S&P or Comparable Quality. 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 that 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 23 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.")
Risks Of International Investing. Investments in foreign securities will
occasion risks relating to political and eco
6
<PAGE>
nomic 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. Between 1991 and 1995, Canada experienced a weakening of its
currency. In January 1995, the Canadian dollar fell to a nine-year low against
the U.S. dollar, decreasing in value by approximately 20% from October 1991.
During 1995 and 1996, however, the Canadian dollar remained steady in value
against the U.S. dollar at a level approximately 4% above that low. 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 that 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,
in Mexican government policy or in the political landscape will not impair its
investment flexibility, operations or ability to achieve its investment
objective. Moreover, recent events in Latin America have shown that economic,
financial and political events in one country of the region can negatively
influence the economic, financial and political conditions of another country
of the region.
Over the past decade, 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 the public sector's financial
deficit. In 1994, Mexico experienced an economic crisis that led to the
devaluation of the Mexican peso in December 1994, high exchange rate
volatility, high inflation, high domestic interest rates, a potentially
unstable banking sector, high unemployment, a loss of consumer purchasing power
and a negative growth rate for the country. The current Mexican fiscal and
monetary policy appears to have brought the crisis under control. Inflation,
interest rates and unemployment are all down, exchange rate volatility has been
lessened and Mexico's gross
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<PAGE>
domestic product growth is expected to be 3.2% for the first half of 1997.
Furthermore, the government has taken control of several of the weakest banks
and has infused capital into the banking system to fortify its loan portfolios.
Over the last decade and notwithstanding the Mexican crisis, 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 that
have sought 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
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. For example, current privatization plans are moving forward
in the telecommunication, satellite, railroad, port, airport, natural gas and
secondary petrochemical plant sectors.
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
International Monetary Fund, Mexico has agreed to adhere to a program of strict
economic reform. Moreover, for the continued right to have access to additional
funds, it must continue with such austerity programs. 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.
Due to the Mexican crisis, bank bailout and subsidies currently being offered
to Mexican citizens by the government to ease the burden of the austerity
measures, the Mexican government, as of July 1997, has a total indebtedness of
about 29.2% of gross domestic product.
In 1994 and 1995, Mexico's economy was undermined by a series of political
events such as high-level assassinations and an armed uprising in the state of
Chiapas that were outside the control of the government and which helped
provoke and fuel the December 1994 Mexican crisis. No assurance can be given
that similar political events will not occur or continue to exist that could
adversely affect the Fund.
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. By
December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. In 1996, the average annual Peso-
Dollar exchange rate decreased approximately 15% from that in 1995, which
itself had decreased approximately 47% from that in 1994. 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
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<PAGE>
order to qualify under Subchapter M of the Code, among other requirements, the
Fund will limit its investments so that at the close of each quarter of the
taxable year, (i) not more than 25% of the market value of the Fund's total
assets will be invested in the securities of a single issuer (other than U.S.
Government securities) and (ii) with respect to 50% of the market value of its
total assets not more than 5% will be invested in the securities of a single
issuer (other than U.S. Government securities). To the extent that a relatively
high percentage of the Fund's assets may be invested in the obligations of a
limited number of issuers, the Fund's portfolio securities may be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of a diversified investment company. The limitations
described in this paragraph are not fundamental policies and may be revised to
the extent applicable federal income tax requirements are revised.
Securities issued or guaranteed by foreign governments, their political
subdivisions, agencies and instrumentalities are not treated like U.S.
Government securities for purposes of the diversification tests described in
the preceding paragraph, but instead are subject to these tests in the same
manner as the securities of non-governmental issuers. In this regard,
securities issued or guaranteed by a foreign government, its political
subdivisions, agencies or instrumentalities may in certain circumstances not be
treated as issued by a single issuer for purposes of these diversification
tests. Thus, in order to meet the diversification tests and thereby maintain
its status as a regulated investment company, the Fund may be required to
diversify its portfolio of Canadian Government Securities and Mexican
Government Securities in a manner which would not be necessary if the Fund
limited its investments to U.S. Government securities.
Other Investment Policies and Risk Considerations
The Fund may also engage in certain other investment practices described more
fully below.
Repurchase Agreements. The Fund may agree to purchase U.S. Treasury Securities,
Canadian Treasury Securities or Mexican Treasury Securities from creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. 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. Default by or bankruptcy proceedings with respect to the seller
may, however, expose the Fund to possible loss because of adverse market action
or delay in connection with the disposition of the underlying obligations.
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
9
<PAGE>
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 that is being used for the security purchase and
the foreign currency in which the security is denominated during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received. In addition, the Fund may enter into forward
contracts with respect to currencies in which certain of its portfolio
securities are denominated and on which options have been written. (See
"Futures Contracts and Options" below.)
Futures Contracts and Options. The Fund may purchase and sell futures contracts
on debt securities and indices of debt securities (i.e., interest rate futures
contracts) as a hedge against or to minimize adverse principal fluctuations
resulting from anticipated interest rate changes. The Fund may also purchase
and sell currency futures contracts as a hedge to protect against anticipated
changes in currency rates or as an efficient means to adjust its exposure to
the currency market. The Fund may also write (sell) covered call options on
futures contracts, purchase put and call options on futures contracts and may
enter into closing transactions with respect to such options on futures
contracts purchased or sold. The Fund may also 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, excluding "bona fide hedging" transactions, 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. A segregated account
of the Fund, consisting of cash or other liquid securities equal at all times to
the amount of the when-issued commitments will be established and maintained by
the Fund at the Fund's custodian. While the Fund will purchase securities on a
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 value of securities so purchased or sold are subject
to market fluctuation and no interest accrues to the purchaser during this
period.
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
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<PAGE>
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 that
reflect both self-imposed standards and federal 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:
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 equaling 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 that
are set forth in the Fund's Statement of Additional Information.
5. How to Invest in the Fund
Shares may be purchased from the Distributor, through any securities dealer
that has entered into a dealer agreement with the Distributor ("Participating
Dealers") or through any financial institution that has entered into a
shareholder servicing agreement with the Fund ("Shareholder Servicing Agents").
Shares may also be purchased 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 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 the
Distributor. Orders for purchases of Shares are accepted on any day on which
the New York Stock Exchange is open for business (a "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 front-end sales charge (the "Offering Price") on the date such net
asset value is determined (the "Purchase Date"). Purchases made by mail must be
accompanied by payment of the Offering Price. Purchases made through the
Distributor or a Participating Dealer or Shareholder Servicing Agent must be in
accordance with such entity's payment procedures. The Distributor may, in its
sole discretion, refuse to accept any purchase order.
The net asset value per Share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per Share is calculated by valuing the Fund's
assets, deducting all 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 Directors.
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<PAGE>
Offering Price
Shares may be purchased from the Distributor, Participating Dealers or
Shareholder Servicing Agents at the Offering Price, which includes a sales
charge that 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 $ 3.00% 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>
- -----------
*The Distributor 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 1933.
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 the Distributor,
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
that 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
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
12
<PAGE>
effected on the next Business Day. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange.
Until February 28, 1998, 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 the Distributor or a Participating Dealer the proceeds of the
redemption or sale of shares of such funds, together with evidence of the
payment of a sales charge (for mutual funds only) and the source of such
proceeds. Shares issued pursuant to this offer will not be subject to the sales
charges described above or any other charge.
The Fund may modify or terminate these offers of exchange at any time, and will
provide shareholders with 60 days' written notice prior to any such
modification or termination. The exchange privilege with respect to other ISI
funds may also be exercised by telephone. (See "Telephone Transactions" below.)
Purchases Through Automatic Investing Plan
Shareholders may purchase Shares regularly by means of an Automatic Investing
Plan with a pre-authorized check drawn on their checking accounts. Under this
plan, the shareholder may elect to have a specified amount invested monthly or
quarterly in Shares. The amount specified by the shareholder will be withdrawn
from the shareholder's checking account using the pre-authorized check. This
amount will be invested in Shares at the applicable Offering Price determined
on the date the amount is available for investment. Participation in the
Automatic Investing Plan may be discontinued by either the Fund or the
shareholder upon 30 days' prior written notice to the other party. A
shareholder who wishes to enroll in the Automatic Investing Plan may do so by
completing the appropriate section of the Application Form attached to this
Prospectus.
Purchases Through Dividend Reinvestment
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 and
Accounting Services" below) either directly or through the Distributor, a
Participating Dealer or a Shareholder Servicing Agent at least five days before
the next date on which dividends or distributions will be paid.
Alternately, shareholders may have their distributions invested in shares of
other funds in the ISI family of funds. Shareholders who are interested in this
option should call (800) 882-8585 for additional information.
Reinvestments of distributions will be effected without a sales charge.
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 the Distributor, 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
the Distributor 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;
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<PAGE>
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
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 and 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. If these procedures are
employed, neither the Fund nor the Transfer Agent will be responsible for any
loss, liability, cost or expense for following instructions received by
telephone that either of them reasonably believes to be genuine. 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.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is based on
current tax laws and regulations,
14
<PAGE>
which may be changed by legislative, judicial, or administrative action. No
attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Fund or the shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, 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. 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
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.
The sale, exchange or redemption of Shares is a taxable event to a shareholder.
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. A majority of the directors of the Fund have no affiliation with the
Distributor, the Advisor, or the Fund's administrator.
The Fund's Directors and officers are as follows:
Edward S. Hyman Chairman
Richard T. Hale Vice Chairman
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Rebecca W. Rimel Director
R. Alan Medaugh President
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Nancy Lazar Vice President
Scott J. Liotta Vice President & Secretary
Carrie L. Butler Vice President
Margaret M. Beeler Assistant Vice President
Keith C. Reilly Assistant Vice President
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
10. Investment Advisor
International Strategy & Investment Inc. ("ISI" or the "Advisor"), a registered
investment advisor, serves as investment advisor to the Fund pursuant to an
Investment Advisory Agreement dated as of 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
15
<PAGE>
deemed to be controlling persons of ISI. As of May 31, 1997, the Advisor had
approximately $630 million 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 $422 million in aggregate net assets as of May 31,
1997.
Pursuant to the terms of the Investment Advisory Agreement, the Advisor is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates under
standards established and periodically reviewed by the Board of Directors. In
general, purchases and sales of securities by the Fund will usually be
principal transactions, and therefore the Fund will not incur substantial
brokerage commission expense. However, the Advisor's primary consideration in
effecting securities transactions will be to obtain best price and execution.
To the extent that the execution and prices of more than one dealer are
comparable, the Advisor may, in its discretion, effect transactions with
dealers that furnish statistical or other information or services that may
benefit the Fund's investment program.
The Advisor and the Fund's 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 daily
net assets. (See "Fee Table.") As compensation for its services for the fiscal
year ended March 31, 1997, the Advisor received from the Fund a fee (net of fee
waivers) equal to .26% 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 a variety of
international and domestic economic reports that follow trends that may
determine the direction of interest rates. These international and domestic
reports are sent to ISI's private institutional clients in the United States
and overseas. The periodical Institutional Investor, which rates analysts and
economists on an annual basis, has rated Mr. Hyman as its "first team"
economist, which is its highest rating, in each of the last seventeen 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"), One South
Street, Baltimore, Maryland 21202, provides administration services to the
Fund. ICC is an indirect subsidiary of Alex. Brown Incorporated.
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 daily 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 daily net
assets. (See "Fee Table.") For the fiscal year ended March 31, 1997, ICC
received a fee (net of fee waivers) equal to .09% of the Fund's average daily
net assets. ICC is also the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
16
<PAGE>
12. Distributor
International Strategy & Investment Group Inc. ("ISI Group" or the
"Distributor") acts as distributor of the Shares. ISI Group is a broker-dealer
that was formed in 1991 and is an affiliate of the Advisor. ISI Group employs
Mr. Edward S. Hyman and Ms. Nancy Lazar. Due to their stock ownership, Mr.
Hyman and Ms. Lazar may be deemed to be controlling persons of ISI Group Inc.
Pursuant to a Distribution Agreement and a Plan of Distribution (the "Plan")
adopted pursuant to Rule 12b-1 under the Investment Company Act. ISI Group is
entitled to receive a fee equal to .40% of the average daily net assets
invested in Shares. The Distributor expects to allocate on a proportional basis
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. Prior to April 1, 1997, Armata Financial
Corp. acted as distributor of the Shares and for the fiscal year ended March
31, 1997 received a fee equal to .40% of the Fund's average daily net assets.
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 ISI Group 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 ISI Group 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 ISI Group's
actual cost of providing distribution services and may be used to pay ISI
Group'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, ISI Group may
retain the unexpended portion of the distribution fee as profit. ISI Group 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 ISI Group is 717 Fifth Avenue, New York, New York 10022.
13. Custodian, Transfer Agent and Accounting Services
Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202,
telephone (800) 882-8585, is the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund.
PNC Bank, National Association ("PNC Bank"), with offices at Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, acts as custodian of the
Fund's assets. Barclays International, Johnson Smirk Building, Four Royal Mint
Court, London EC3N4HJ, has been retained to serve as the Fund's custodian with
respect to its foreign investments.
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.
17
<PAGE>
If the Fund compares its performance to other funds or to relevant indices, the
Fund's performance will be stated in the same terms in which such comparative
data and indices are stated, which is normally total return rather than yield.
For these purposes, the performance of the Fund, as well as the performance of
such investment companies or indices, may not reflect sales charges, which, if
reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Lehman Brothers Government
Corporate Bond Index (or any of its sub-indices), the 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 that monitor the performance of
mutual funds: Money Magazine, Forbes, Business Week, Barron's, Investor's
Daily, IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Yield quotations and performance comparisons may be useful as a basis for
comparing the Fund with other investment alternatives. However, 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, 1997 and March 31,
1996, the Fund's portfolio turnover rate was 46% and 125%, respectively. 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
Unless required under applicable Maryland law, the Fund does not expect to hold
annual meetings of shareholders, but special meetings of shareholders will be
held under certain circumstances. Shareholders of the Fund reserve the right,
under certain circumstances, to request that a meeting of shareholders be held
for the purpose of considering the removal of a Director from office, and if
such a request is made, the Fund will assist with shareholder communications in
connection with the meeting.
Reports
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.
Fund Counsel
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
Shareholder Inquiries
Shareholders with inquiries concerning their Shares should contact the Transfer
Agent at (800) 882-8585, the Distributor, the Advisor, a Participating Dealer
or Shareholder Servicing Agent, as appropriate.
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.
For an IRA information kit, please call ISI at (800) 955-7175.
The minimum initial purchase is $5,000, except that the minimum initial
purchase for qualified retirement plans or IRAs 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)
================================================================================
Individual or Joint Tenant
- --------------------------------------------------------------------------------
First Name Initial Last Name
- --------------------------------------------------------------------------------
Social Security Number
- --------------------------------------------------------------------------------
Joint Tenant Initial Last Name
- --------------------------------------------------------------------------------
Social Security Number
<PAGE>
================================================================================
Corporations, Trusts, Partnerships, etc.
================================================================================
- --------------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- --------------------------------------------------------------------------------
Tax ID Number
- --------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- --------------------------------------------------------------------------------
Existing Account No., if any
Gifts to Minors
- --------------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- --------------------------------------------------------------------------------
Minor's Name (only one)
- --------------------------------------------------------------------------------
Social Security Number of Minor
under the ------------------------------- Uniform Gifts to Minors Act
State of Residence
Mailing Address
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
( )
- -------------------------------------
Daytime Phone
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Intention (Optional)
/ / I agree to the Letter of Intent and Escrow Arrangement 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 ISI Fund(s) set forth below to be applied for a
reduced sales charge. List the Account numbers of other ISI 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 is selected, all distributions will be
reinvested.
Income Dividends Capital Gains
/ / Reinvested in additional shares / / Reinvested in
additional shares
/ / Paid in Cash / / Paid in Cash
Call (800) 882-8585 for information about reinvesting your dividends in other
funds in the ISI Family of Funds.
- --------------------------------------------------------------------------------
<PAGE>
Automatic Investing Plan (Optional)
/ / I authorize you as Agent for 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):
Please attach a voided check.
/ / Monthly ($100 minimum)
/ / Quarterly ($250 minimum)
- ------------------------------------- -------------------------------------
Bank Name Depositor's Signature Date
- ------------------------------------- -------------------------------------
Existing ISI North American Government Bond Fund Account Depositor's Signature
No., if any (if joint acct., both must sign)
- -------------------------------------------------------------------------------
Systematic Withdrawal Plan (Optional)
/ / Beginning the month of ------------ , 19---- , please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $------------
, from shares that I own, payable to the account registration address as shown
above. (Participation requires minimum account value of $10,000)
Frequency (check one):
/ / Monthly
/ / Quarterly (January, April, July and October)
- --------------------------------------------------------------------------------
<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: ------------------------------- Bank Account No.: ---------------------
Address: ---------------------------- Bank Account Name: --------------------
----------------------------
- --------------------------------------------------------------------------------
Signature and Taxpayer Certification
[The following information appears in a box]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
/ / U.S. Citizen/Taxpayer:
/ / I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
/ / If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a
penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-882-8585).
/ / Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:--------------------------
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
[End of Box]
I have received a copy of the Fund's prospectus dated August 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are automatic
and will be effected as described in the Fund's current prospectus (see
"Telephone Transactions"). I also acknowledge that I may bear the risk of loss
in the event of fraudulent use of such privileges. If I do not want telephone
redemption or exchange privileges, I have so indicated on this Application.
[The following information appears in a box]
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
[End of Box]
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------- -----------------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
</TABLE>
<PAGE>
ISI
NORTH AMERICAN
GOVERNMENT BOND
FUND SHARES
(A Class of North American
Government Bond Fund, Inc.)
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund or ISI Group. This
Prospectus does not constitute an offering by the Fund or ISI Group in any
jurisdiction in which such offering may not lawfully be made. Shares may be
offered only to residents of those states in which such shares are eligible for
purchase.
TABLE OF CONTENTS
Page
1. Fee Table ..................... 2
2. Financial Highlights ............... 2
3. Investment Objective, Policies
and Risk Factors ............... 3
4. Investment Restrictions ......... 11
5. How to Invest in the Fund ...... 11
6. How to Redeem Shares ............ 13
7. Telephone Transactions ............ 14
8. Dividends and Taxes ............ 14
9. Management of the Fund ......... 15
10. Investment Advisor ............ 15
11. Administrator .................. 16
12. Distributor ..................... 17
13. Custodian, Transfer Agent and
Accounting Services ............ 17
14. Performance Information ......... 17
15. General Information ............ 18
<PAGE>
[GRAPHIC OMITTED]
ISI
NORTH AMERICAN
GOVERNMENT BOND
FUND SHARES
(A Class of North American
Government Bond Fund, Inc.)
An open-end mutual fund designed to provide a high level of current
income, consistent with prudent investment risk, by investing primarily in a
portfolio consisting of fixed-income securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
August 1, 1997
<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 THE FUND'S PROSPECTUS
FOR THE APPLICABLE CLASS, WHICH MAY BE OBTAINED FROM YOUR
PARTICIPATING DEALER OR BY WRITING OR CALLING INTERNATIONAL
STRATEGY & INVESTMENT GROUP INC., 717 FIFTH AVENUE, NEW YORK,
NEW YORK 10022, (800) 955-7175.
Statement of Additional Information Dated: August 1, 1997
Relating to Prospectus Dated: August 1, 1997
of
ISI North American Government Bond Fund Shares
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <C> <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.............................................................. 21
5. Federal Tax Treatment of Dividends and
Distributions................................................................................. 22
6. Management of the Fund.......................................................................... 24
7. Investment Advisory and Other Services.......................................................... 29
8. Administration.................................................................................. 30
9. Distribution of Fund Shares..................................................................... 31
10. Portfolio Transactions........................................................................ 33
11. Capital Stock................................................................................... 33
12. Semi-Annual Reports............................................................................. 34
13. Custodian, Transfer Agent and
Accounting Services........................................................................... 34
14. Independent Accountants........................................................................ 35
15. Control Persons and Principal Holders of
Securities.................................................................................... 35
16. Performance and Yield Computations.............................................................. 35
17. Financial Statements ........................................................................... 37
18. APPENDIX - Moody's Investors Service and Standard & Poor's Ratings Definitions..................A-1
</TABLE>
<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 the Fund, and may be obtained without charge from the
Fund's distributor (the "Distributor"), 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 respecting the
Fund and its Shares filed with the SEC. Copies of the Registration Statement as
filed, including such omitted items, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
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 Stock" 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
Standard & Poor's Ratings Group ("S&P") or Ba by Moody's Investors Services,
Inc. ("Moody's"), or that are unrated by S&P or Moody's if such bonds, in the
judgment of the Fund's investment advisor (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
1
<PAGE>
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 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.
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. 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.
2
<PAGE>
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 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.
3
<PAGE>
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 portfolio
securities that the Fund anticipates purchasing) 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 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.
4
<PAGE>
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 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);
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);
5
<PAGE>
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;
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
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 investment restriction may be changed by a vote of the
majority of the Fund's Board of Directors. The Fund will not:
6
<PAGE>
1. Invest more than 10% of the value of its net assets in
illiquid securities
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
Territory and Population
Canada is the second largest country in the world in terms of land mass
with an area of 9.22 million square kilometers (3.85 million square miles). It
is located north of the continental United States of America and east of Alaska.
Canada is comprised of ten provinces and two territories. Its population is
approximately 29 million.
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. The legislative branch consists of a House of
Commons (Parliament) and the 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 seats in the
House of Commons. The provincial governments each have a Legislative Assembly
and a Premier.
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 the House of Commons 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
power-sharing 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 was reelected in June, 1997.
Canada has had three major developments regarding unity and
constitutional reform in recent 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 was the possibility of Quebec's
independence. On September 12, 1994, the Quebec separatist party, Parti
Quebecois under the leadership of Jacques Parizeau, won 77
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<PAGE>
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 included a call for
a referendum supporting independence. On October 30, 1995, the referendum was
defeated in a close ballot, in which 50.6% voted against secession and 49.4%
voted for secession. If the referendum had been approved, Quebec would have
become a separate country, but would have retained formal political and economic
links with Canada similar to those that join members of the European Union. It
is expected that the closeness of the vote will result in federally-sponsored
legislation or the proposal of constitutional amendments with regard to the
relationship between the federal government and the provinces. It is also a
possibility that another referendum will take place within the next few years.
In the meantime, the federal government has initiated a legal action in the
Supreme Court of Canada to determine the legality of Quebec's secession. A full
hearing on the matter is not expected before Fall 1997. It is expected that
Quebec's position within Canada will continue to play an active part in
political debate.
Monetary and Banking System
The central bank of Canada is the Bank of Canada. Its main functions
are conducting 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.
North American Free Trade Agreement
Canada and the United States are each other's largest trading partners
and, as a result, there is a significant linkage between the two economies.
Bilateral trade between Canada and the United States in 1995 was larger than
between any other two countries in the world. On January 2, 1988, Canada and the
United States signed the Free Trade Agreement (the "FTA"), which was ratified by
the Canadian Parliament and the United States Senate. In the summer of 1991, the
United States, Canada and Mexico began negotiating the North American Free Trade
Agreement ("NAFTA"). NAFTA was signed on December 17, 1992 at separate
ceremonies in Washington D.C., Mexico City and Ottawa. 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. In
November 1996, Canada and Chile entered into a trade agreement that became
effective on June 2, 1997. Initial talks with other South American countries are
under way for similar bilateral trade agreements that are expected eventually to
fall under the umbrella of a new form of NAFTA. When fully-implemented, NAFTA is
designed to create a North American 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, Mexico and future
parties to NAFTA.
Economic Information Regarding Canada
Canada experienced rapid economic expansion during most of the 1980's.
In the early 1990's, however, the economy experienced a deep recession. This
resulted from, among other things, high government debt and high interest rates.
The recession partly created and partly highlighted some difficulties which the
present government has taken steps to resolve. The relatively low level of
economic activity during this period reduced the growth of tax receipts with the
result that the already high levels of government debt increased.
8
<PAGE>
Recent Developments
The deterioration in the government's fiscal position, which started
during the recession, in the early 1990's, was initially exacerbated by a
reluctance to decrease expenditures or increase taxes. However, in its 1995
budget, the Liberal Party introduced new spending cuts, the largest in over
thirty years, to reduce Canada's budget deficit. Spending cuts, in combination
with an economic recovery, have boosted government revenue. This has resulted in
significant deficit reduction. In comparison to the deficit for fiscal year
1994-95 which was 4.2% of gross domestic product ("GDP"), the 1996-97 budget
estimates a deficit of approximately 3% of GDP for 1996-97 and 2% of GDP for
1997-98. The government's budget deficit objectives can continue to be achieved,
but may require continued economic growth, lower interest rates and additional
reductions in government spending.
In addition to the growth of the federal government deficit during the
recession of the early 1990's, provincial government debt also rose 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 during this period. All
provinces now have initiated plans to balance their respective budgets. These
plans emphasize spending restraint and minimal tax increases.
The result of the deficit reduction plans of the federal and provincial
governments has been an absolute reduction in government spending.
Canada's real GDP growth rate slipped to 2.3% in 1995 from 4.1% in
1994. The economy grew at a slower rate in 1996, but is forecast to experience a
pick-up to 3.0% in 1997. The trade sector continues to be the main impetus for
growth in the Canadian economy. The trade surplus reached a record in 1995, more
than three times higher than the average surplus of between 1990 and 1994. As of
the end of the third quarter of 1996, the trade surplus was almost 35% higher
that it was for 1995. Exports grew by 16% in 1995 and by 6% as of the end of the
third quarter of 1996.
During 1994, despite growing output and low inflation, concern over the
country's deficit and the uncertainty associated with Quebec's status within
Canada lead to a weakening of its currency and higher interest rates. During the
first two quarters of 1995, however, in an attempt to increase domestic growth,
the Bank of Canada decreased interest rates. The easing of monetary policy has
also been facilitated by a renewed strength in the Canadian dollar. This
decrease in interest rates since the beginning of 1995 has improved the
government's prospects of meeting its fiscal targets. On January 20, 1995, the
Canadian dollar fell to .702, its lowest rate in almost nine years and close to
its record low of .692. The Bank of Canada responded by increasing rates on
Treasury bills and selling U.S. dollars. The Canadian dollar has increased in
value from .702 against the U.S. dollar on January 20, 1995 to .734 on February
21, 1997.
The Bank of Canada is sensitive to significant currency deterioration
and is likely to support the currency if further weakness develops. The Bank has
a great deal of policy latitude and sizable reserves and can also raise domestic
short-term rates to produce currency stability.
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.
9
<PAGE>
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.
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. 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
accurately 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
1995............................................ 0.73
1996............................................ 0.73
Source: Board of Governors of the Federal Reserve System,
Federal Reserve Bulletin.
Inflation Rate of the Canadian Consumer Price Index
Inflation, as measured by the national consumer price index, has
remained below 2.5% since 1991.
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<PAGE>
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 for the years 1981 through 1996 (1986=100).
National Consumer
Price Index
-----------------
Year (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
1994...................................... 0.2
1995...................................... 2.3
1996...................................... 1.6
Source: Bank of Canada Review, Winter 1996-1997; Canadian
Economic Observer, February 1997.
Canadian Gross Domestic Product
The following table sets forth Canada's gross domestic product for
the years 1981 through the third quarter of 1996 at historical and constant
prices.
<TABLE>
<CAPTION>
Change from
Gross Domestic Gross Domestic Prior Year at
Year Product Product at 1986 Prices Constant Prices
- ---- --------- ---------------------- ---------------
(percent)
(millions of Canadian Dollars)
<S> <C> <C> <C>
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..................... 676,477 555,052 (1.8)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C>
1992..................... 690,122 559,305 0.8
1993..................... 712,855 571,722 2.2
1994..................... 747,260 594,990 4.1
1995..................... 776,299 608,835 2.3
1996.....................
first quarter 783,908 612,040 0.5
second quarter 790,704 613,928 1.1
third quarter 802,752 618,924 1.6
</TABLE>
Source: Bank of Canada Review, Winter 1996-1997; Canadian Economic Observer,
February 1997.
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 and 5-year and 10-year Canada
Benchmark Bonds from January 1995 through December 1996.
Treasury Bills Benchmark Bonds
1995 3 Months 6 Months 5 Years 10 Years
---- -------- -------- ------- --------
January 8.10 8.47 9.18 9.34
February 8.11 8.15 8.46 8.76
March 8.29 8.35 8.23 8.57
April 7.87 7.87 7.93 8.31
May 7.40 7.36 7.41 7.88
June 6.73 6.65 7.33 7.81
July 6.65 6.87 7.79 8.27
August 6.34 6.62 7.58 8.00
September 6.58 6.80 7.54 7.89
October 7.16 7.21 7.54 7.86
November 5.83 5.87 6.74 7.19
December 5.54 5.64 6.64 7.11
Treasury Bills Benchmark Bonds
1996 3 Months 6 Months 5 Years 10 Years
---- -------- -------- ------- --------
January 5.12 5.20 6.33 7.01
February 5.21 5.38 6.87 7.53
March 5.02 5.25 7.02 7.64
April 4.78 4.97 7.09 7.76
May 4.68 4.88 7.01 7.72
June 4.70 4.94 7.05 7.77
July 4.39 4.75 6.96 7.62
August 4.02 4.32 6.60 7.34
September 3.86 4.13 6.28 7.16
October 3.17 3.33 5.59 6.47
November 2.73 2.89 5.10 6.05
December 2.85 3.24 5.44 6.37
12
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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 third largest nation 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 95.7 million. Mexico's three
largest cities are Mexico City, Guadalajara and Monterrey.
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. In addition, recent
amendments to the Electoral Law now provide for the popular election of the
Governor of Mexico City.
Executive authority is vested in the President, who is elected for a
single six-year term. The executive branch consists of 19 Ministries, the
Attorney General, the Department of the Federal District 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, four for each state and
four 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") has been the dominant
political party in Mexico and, since 1929, has won all presidential elections.
Most recently, in 1994 PRI candidate Ernesto Zedillo Ponce de Leon, was elected
president, garnering 50.2% of the votes. PRI formerly held a majority in both
chambers of the Mexican Congress and, until 1989, it had also won all of the
state governorships. However, in elections held July 6, 1997, other parties,
including Partido de la Revolucion Democratica ("PRD"), National Action Party
("PAN"), Labor Party ("PT") and the Green Ecological Mexican Party ("PVEM"),
eliminated the PRI majority in the Chamber of Deputies and the Senate. PRD, a
central-left political party also has gained control of the Mexico City
government.
These recent election results follow reforms initiated on January 17,
1995, when the Mexican Government and leaders of the PRI signed an agreement
with the oppositions parties aimed at continuing the democratization process.
The parties agreed to work together to arrive at a definitive agreement which
would include controls on fund raising and campaign spending, full access to the
media for opposition parties and complete independence of the federal elections
agency.
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While progress in reforming the political system have been made, there
have also been recent revelations linking Mexico's drug cartels with high
Government officials. These revelations could jeopardize Mexico's official
status as an ally of the U.S. in the war against narcotics smuggling. While
Mexico is currently certified as an ally, there is no assurance that the
certification will be maintained. A loss of certification could result in the
reduction or termination of U.S. economic assistance to Mexico.
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 peso. Mexico
repealed its exchange control rules in 1991 and now maintains only a market
exchange rate. The peso may be freely converted into any other currency and no
restrictions apply to the repatriation of capital or on the transfer of profits
abroad.
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. As a result of the devaluation of the peso at the end of 1994 and
during 1995, the Central Bank has maintained a free-floating system for the peso
against other currencies.
To help stabilize the Mexican financial markets and allow investors to
more fully cover their positions, the Central Bank has recently approved the
listing of derivative products based on the IPC on the Chicago Board Options
Exchange and on the Chicago Mercantile Exchange. Further, futures and options
contracts based on Mexican Brady Bonds are now allowed to be traded. Finally,
last year the Central Bank approved a domestic futures market as well as the
trading of currency options. Thus, on April 25, 1995, the peso was listed on the
Chicago Mercantile Exchange allowing companies and individuals to have some
certainty in the value of the peso at a given time.
Although the Central Bank allows the peso to float freely, it does
occasionally intervene in the exchange markets when the peso comes under
speculative attack. The Bank was forced to adopt this policy after extreme
speculation in September 1995 set back the government's recovery programs by
months when the peso shot down in value and interest rates were thereby forced
upwards. However, except for certain options transactions which allow private
banks to sell foreign currency to Banco de Mexico, in 1996 Banco de Mexico did
not intervene in the exchange market.
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.
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<PAGE>
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. In addition, other amendments permit private industry to
participate in certain industrial activities that were previously reserved to
the Mexican Government.
Economic Information Regarding Mexico
In February 1990, Mexico became the first Latin American country to
reach an agreement with external creditor banks and multinational 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, 1993 and 1994 the
net amount of the debt was $75.755 billion, 78.747 billion, $85.436 billion,
respectively. While at one time reaching $161.13 billion, the total debt had
been reduced to $86.264 billion at the first quarter of 1997. The debt has since
risen to $93.013 as of May, 1997.
Currency Exchange Rates
The following provides some statistical and other related information
regarding historical rates of exchange between the U.S. dollar and the Mexican
peso along with information concerning interest rates on certain Mexican
Government securities. Historical figures are not necessarily indicative of
future fluctuations.
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. 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.
Because the peso had deteriorated to such an extent over the previous
15 years, on January 1, 1993, the Mexican Government introduced a new currency,
the new peso, which eliminated 3 zeros from the peso. Thus, each new peso was
worth 1,000 old Mexican pesos and the new peso was designated
15
<PAGE>
with the symbol "N$". The change was not a devaluation but merely a move to
simplify the math involved in the use of Mexican currency. (The use of the word
"new," which was always intended to be temporary to aid the transition to the
new currency, was removed on January 1, 1996, and Mexico's currency is again
simply known as the Mexican peso -- though it remains with three zeros less.)
With regard to exchange controls, 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.
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. The Mexican Government attempted to devalue the peso by 15%,
however, as a result of investor reaction to the surprise devaluation, the
Government was unable to defend the peso and was forced to let the peso float
freely, 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.
The attempted controlled devaluation by the government ignited an
economic, financial, social and political crisis, which was arguably the worst
in Mexico's history. Foreign investors started taking all of their money out of
the country, which prompted the government to offer interest rates that reached
80%. However, no one was interested in the high rates because the Mexican
Government had approximately US$11 billion in short-term treasury certificates
(Cetes) coming due in the first quarter of 1995, but nearly zero foreign
reserves and no funds coming in. In short, there was the danger that the
government would default on its foreign obligations. In turn, the steep surge in
interest rates, extreme devaluation of the peso, racing inflation, resulting
bankruptcy of companies (due to a drop in consumer demand, an inability to buy
imported machinery and inputs to run business and an inability to pay debt at
the new interest rates) and skyrocketing unemployment (it is estimated some 2.5
million Mexicans lost their jobs in 1995) provoked a crisis in Mexico's
financial system as bank's non-performing loan portfolios began to become
unmanageable.
However, the Zedillo administration, with the help of the International
Monetary Fund (the "IMF") and the United States Government, controlled the
crisis. Since the outbreak of the crisis, the Zedillo administration has made
progress at stabilizing Mexico's economy and financial markets. The IMF and the
United States Government provided approximately US$38.5 billion in emergency
funds to help Mexico meet its short-term maturing obligations. With the
immediate liquidity crisis resolved, Zedillo implemented austerity measures by
increasing taxes, cutting government spending and removing price controls on
basic goods. The net effect has been a relative stabilizing of the exchange rate
and other economic indicators. The peso closed at the end of June, 1996 at 7.59,
down from 7.71 at the end of December 1995. The peso stood at 7.94 to the U.S.
dollar as of July 15, 1997, and Banamex (a large Mexican bank) has forecast an
exchange rate of 8.2 pesos to the U.S. dollar by the end of 1997. The Mexican
financial markets, in dollar terms, were up 19% for the first half of 1996 and
44% for the first half of 1997. Inflation for the first half of 1996 was 15.3%,
far lower than the more than 30% during the same period in 1995. For the first
half of 1997, inflation had decreased to 8.66% and was expected to be 17.1% for
the year. Unemployment was also reduced from 7.6% in August , 1995 to an
average of 5.5% for 1996.
Zedillo has also ameliorated the country's bank crisis by taking
control of several of the weakest banks and by infusing capital into the
industry in exchange for ownership participation in the banks. The government
currently owns approximately 9% of the banking system's assets and 50% of its
non-performing loan portfolio. As a result, the financial system appears to have
stabilized. The government plans to return the assets to private investors by
using a "Resolution Trust" style agency to sell them at depressed values.
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<PAGE>
As part of his fiscal and monetary policies, Zedillo reduced public
participation in the economy from 40% of gross domestic product ("GDP") to 25%,
and has diminished the money supply by 12%. Mexico's money supply is currently
estimated to be under funded by about US$5 billion. To fill this gap, the
government lends money but then also uses its position as creditor as leverage
to cause its borrowers to follow policies aimed at maintaining tight control of
the financial markets. As a result, on June 21, 1996, there was approximately
US$8 billion in circulation, which was about US$1 billion less than there was on
December 31, 1995. The depressed money supply has brought inflation under
control and bolstered the peso. Recent increases in the money supply, however,
may limit continued success in controlling inflation. Moreover, continued flow
of foreign capital into the Mexican markets, while bolstering the value of the
peso, may result in significant overvaluation of the Mexican market.
Another indication that Mexico is emerging from its crisis is that it
has regained access to foreign lenders. In 1996, the Mexican Government made
normal public debt refinancing transactions, but also too advantage of improved
access to international markets and arranged for prepayment of other more
expensive short-term liabilities with lower cost long-term financing. The
government has pre-paid the emergency loans received from the United States and
the International Monetary Fund.
Nevertheless, the crisis has taken its toll. As a result of the foreign
loans Mexico contracted, the bail-out of its banking sector and the subsidy it
is currently providing Mexican citizens by keeping electricity, housing,
education and certain product prices below inflation, Mexico accumulated a total
indebtedness which reached 44% of the country's GDP by the end of 1995. As of
December 31, 1996, indebtedness stood at 33.3% of GDP.
Statistical and Related Information Concerning Mexico
The following table sets forth the Mexican peso to U.S. dollar exchange
rates for each year from 1982 to 1996.
Free Market Rate *Controlled Rate
---------------- ----------------
End of End of
Period Average Period Average
------ ------- ------ -------
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 ................ 2.681 2.483 2.637 2.453
1990 ................ 2.943 2.838 2.939 2.807
1991 ................ 3.075 3.016 3.065 3.007
1992 ................ 3.119 3.094 N/A N/A
1993 ................ 3.192 3.155 N/A N/A
1994 ................ 5.325 3.222 N/A N/A
1995 ................ 7.643 6.419 N/A N/A
1996 ................ 7.898 7.623 N/A N/A
-------
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* 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/Banamex.
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 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. 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.
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. However, due to the Mexican crisis, the progress made in reducing
inflation was reversed and 1995 registered an annual inflation of 51.9%.
Inflation has been brought under control for 1996, coming in at 27.7%.
On January 3, 1995, in response to the economic turmoil following the
devaluation of the peso, President Zedillo announced an emergency economic plan
and a new plan called the Programa de Ajuste Economico (Economic Adjustment
Plan) was entered into by the government with representatives of labor and
business. Like the PECE pacts, the plan's purpose was to keep prices down in
exchange for no unrealistic salary demands by labor groups.
18
<PAGE>
As part of Zedillo's austerity measures in the face of the crisis, on
March 27, 1995, the government raised the Value-Added Tax from 10% to 15%,
further reduced government spending and increased the cost of many
price-controlled goods, including petroleum and electricity, by 35%. It later
removed or eased price controls on many basic goods, such as on bread, milk and
sugar.
Due to the necessity of implementing such a severe fiscal monetary
policy to put Mexico's fiscal house back in order, as of July 1, 1996, wages had
only recovered 60% of their pre-devaluation (December 19, 1994) levels. This
means that Mexican's purchasing power is significantly depressed and that the
recovery will be slow in taking off. To help release some of the pressures, the
government is currently providing Mexican citizens a subsidy in the cost of
electricity, housing and education by keeping their price increases behind
inflation. In October, 1996, the Alianza para el Crecimiento (Pact for Economic
Growth) was signed. This pact called for 8% increases in the prices of gasoline
and diesel fuel, a 10% in the price of industrial electricity and a 17% increase
in the minimum wage. As a result of the success of PRD in the July, 1997
election, additional pressure may be put on the government to increase real
wages. Depending upon the size and success of the increase and the means used to
achieve it, a wage increase may have other, potentially negative effects on
government austerity measures, the level of inflation and the value of the peso.
Consumer Price Index
The following table sets forth the changes in the Mexican consumer
price index for the years 1984 through 1996.
Annual Increases in
National Consumer
Price Index
-----------------
(percent)
1984............................... 59.2
1985............................... 63.7
1986............................... 105.7
1987............................... 159.2
1988............................... 51.7
1989............................... 9.7
1990............................... 29.9
1991............................... 18.8
1992............................... 11.9
1993............................... 8.0
1994............................... 7.1
1995............................... 51.97
1996............................... 27.7
Source: Banco de Mexico/Thyssen Mexico, S.A. de C.V.
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Mexican Gross Domestic Product
The following table sets forth Mexico's gross domestic product for
the years 1987 through 1996.
Period Annual figures in Yearly variation
millions of constant
pesos (1980)
1987 4 825 445 1.9
1988 4 887 841 1.3
1989 5 048 950 3.3
1990 5 276 684 4.5
1991 5 468 560 3.6
1992 5 619 836 2.8
1993 5 658 539 0.7
1994 5 857 478 3.5
1995 5 451 531 (6.9)
1996 N/A 5.1
Source: INEGI
Interest Rates
During 1994, the rate on the 28-day Cetes (Mexican Treasury
certificate) 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. During the height of the crisis, the 28-day Cetes
reached rates as high as 120%, but by March 1996 began to descend to rates below
40%. As of May 1996, the 28-day Cetes rate stood at 28.45%, the 91-day Cetes
rate stood at 31.07% and the six-month Cetes rate stood at 32.67%. As of the end
of 1996, the 28-day Cetes rate stood at 27.25%, 91-day Cetes rate stood at
26.55%. As of July, 1997, the 28-day Cetes rate stood at 18.37% and the 91-day
Cetes rate stood at 18.95%.
4. VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined daily as of the
close of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern
Time) each day on which the New York Stock Exchange is open for business (a
"Business Day") 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, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Redemption
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<PAGE>
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 of Shares," 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, the Distributor, 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 federal
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
The following general discussion of federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislation or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Qualification as Regulated Investment Company
The Fund has been and expects to continue to be taxed as a
regulated investment company (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 to match the
amount of distributable net investment income the Fund must distribute to
satisfy the
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<PAGE>
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,
in order to qualify as a RIC, 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 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 will not lose its status as a RIC if it fails to meet the Asset
Diversification Test solely as a result of a fluctuation in value of portfolio
assets not attributable to a purchase. The Fund may curtail its investment in
certain securities where the application thereto of the Asset Diversification
Test is uncertain.
Fund Distributions
The Fund anticipates that it will distribute substantially all
of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income, regardless of
whether such distributions are paid in cash or are reinvested in Shares.
The Fund may either retain or distribute to shareholders the
excess, if any, of net long-term capital gains over net short-term capital
losses ("net capital gains") for each taxable year. If such gains are
distributed as a capital gains distribution, they are treated by shareholders as
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 net capital or
long-term capital losses as if they arose on the first day of the following
taxable year. Conversely, if the Fund elects to retain its net capital gains, it
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the applicable corporate tax rate. In such event, it is expected
that the Fund also will elect to have shareholders treated as having received a
distribution of such gains, with the result that they will be required to report
such gains on their returns as long-term capital gains, will receive a
refundable tax credit for their allocable share of capital gains tax paid by the
Fund on the gains, and will increase the tax basis for their Shares by an amount
equal to 65 percent of the deemed distribution.
Investors should be careful to consider the tax implications
of buying Shares 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 and otherwise will be short-term capital
gain or loss.
22
<PAGE>
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 capital gains distributions have been
paid with respect to such Shares (or any undistributed net capital gains of the
Fund with respect to such Shares have been included in determining the
shareholder's long-term capital gains). In addition, any loss realized on a sale
or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
If for any taxable year the Fund does not qualify as a 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 to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions will be
eligible for the dividends received deduction in the case of corporate
shareholders.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of distributions paid to any shareholder
(1) who has provided either an incorrect tax identification number or no number
at all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to report the receipt of interest or dividend income properly or (3)
who has failed to certify to the Fund that he is not subject to backup
withholding.
Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% excise tax on 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. For purposes of
the excise tax, a RIC must reduce its capital gain net income by the amount of
any net ordinary loss for the calendar year (but only to the extent the capital
gain net income for the one-year period ending October 31 exceeds the net
capital gains for such period). Because the Fund intends to distribute all of
its income currently (or to retain, at most, its "net capital gains" and pay tax
thereon), the Fund does not anticipate incurring any liability for this excise
tax. However, the Fund may, in certain circumstances, be required to liquidate
portfolio investments in order to make sufficient distributions to avoid excise
tax liability 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 RICs often differ from the rules for federal income
taxation described above. Shareholders are urged to consult their tax advisors
as to the consequences of 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 the Fund's administrator, to the
Distributor, and to the Advisor. Two directors and all of the officers of the
Fund are directors, officers or employees of the Fund's administrator, the
Distributor or the Advisor. The other directors of the Fund have no affiliation
with the Fund's administrator, the Distributor or the Advisor.
23
<PAGE>
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is 717 Fifth Avenue, New York, New York 10022.
*EDWARD S. HYMAN, Chairman and Director (4/8/45)
Chairman, International Strategy and Investment Inc.
(registered investment advisor); Chairman, ISI Inc.
(investments) and Chairman and President, ISI Group Inc.
(registered investment advisory and registered broker-dealer),
1991-Present.
*RICHARD T. HALE, Vice Chairman and Director (7/17/45)
One South Street, Baltimore, Maryland 21202. Managing
Director, Alex. Brown & Sons Incorporated; Director and
President, Investment Company Capital Corp. (registered
investment advisor); Chartered Financial Analyst.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri
63141. Managing Director, CBC Capital (merchant banking),
1993-Present. Formerly, Senior Vice-President and Chief
Financial Officer, General Dynamics Corporation (defense),
1989-1993 and Director, The Arch Fund (registered investment
company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippin Way, Morristown, New Jersey 07960. Director/Trustee,
AIM Funds (registered investment companies). Formerly,
Consultant, Wendell & Stockel Associates, Inc. (consulting
firm) and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (finance and banking); Chairman of the
Quality Control Inquiry Committee, American Institute of
Certified Public Accountants. Formerly, Trustee, Merrill Lynch
Funds for Institutions, 1991-1993, Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992; and
Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management, 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 health care);
Director, Central Carolina Bank & Trust (banking), Key Funds
(registered investment companies), and AMBAC Treasurers Trust
(registered investment company) and DP Mann Holdings
(insurance).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market
Street, Suite 1700, Philadelphia, PA 19103-7017. President and
Chief Executive Officer, The Pew Charitable Trusts; Director
and Executive Vice President, The Glenmede Trust Company.
Formerly, Executive Director, The Pew Charitable Trusts.
R. ALAN MEDAUGH, President (8/20/43)
President, International Strategy and Investment Inc.
24
<PAGE>
EDWARD J. VEILLEUX, Vice President (8/26/43)
One South Street, Baltimore, Maryland 21202. Principal, Alex.
Brown & Sons Incorporated; Vice President, Armata Financial
Corp. (registered broker-dealer); Executive Vice President,
Investment Company Capital Corp. (registered investment
advisor).
GARY V. FEARNOW, Vice President (12/6/44)
One South Street, Baltimore, Maryland 21202. Managing
Director, Alex. Brown & Sons Incorporated; Manager, Private
Client Marketing, Alex. Brown & Sons Incorporated.
NANCY LAZAR, Vice President (8/1/57)
Executive Vice President and Secretary, International Strategy
and Investment Inc.
SCOTT J. LIOTTA, Vice President and Secretary (3/18/65)
One South Street, Baltimore, Maryland 21202. Manager, Fund
Administration, Alex. Brown & Sons Incorporated, July
1996-Present. Formerly, Manager and Foreign Markets
Specialist, Putnam Investments Inc. (registered investment
companies), April 1994-July 1996; Supervisor, Brown Brothers
Harriman & Co. (domestic and global custody), August
1991-April 1994.
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy and
Investment Inc.
MARGARET M. BEELER, Assistant Vice President (3/1/67)
Assistant Vice President, International Strategy & Investment
Inc., May 1996-Present. Formerly, Marketing Representative,
U.S. Healthcare, Inc., 1995-1996; Sales Manager, Donna Maione,
Inc., 1994-1995; Sales Manager, Deborah Wiley California,
1989-1994.
KEITH C. REILLY, Assistant Vice President (6/22/66)
Assistant Vice President, International Strategy & Investment
Inc., May 1996-Present. Formerly, Select Private Banking
Officer, Assistant Manager, Chemical Bank, 1995-1996;
Financial Consultant, Dreyfus Corporation, 1989-1995.
JOSEPH A. FINELLI, Treasurer (1/24/57)
One South Street, Baltimore, Maryland 21202. Vice President,
Alex. Brown & Sons Incorporated, September 1995-Present.
Formerly, Vice President and Treasurer, The Delaware Group of
Funds (registered investment companies) and Vice President,
Delaware Management Company, Inc., 1980-August 1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
One South Street, Baltimore, Maryland 21202. Asset Management
Department, Alex. Brown & Sons Incorporated.
- -----------------------
*A Director who is an "interested person" as defined in the Investment Company
Act.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered,
advised or distributed by the Advisor or the Distributor or by any of their
respective affiliates. There are currently twelve funds in the Flag
Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc. fund complex (the
"Fund Complex"). Mr. Hyman serves as Chairman of three funds in the Fund
Complex.
25
<PAGE>
Mr. Medaugh serves as President and Director of one fund and as President of two
other funds in the Fund Complex. Mr. Hale serves as Chairman of three funds, as
President and Director of one fund and as a Director of each of the other funds
in the Fund Complex. Messrs. Cunnane, Kroeger, Levy, and McDonald serve as
Directors of each fund in the Fund Complex. Ms. Rimel serves as Director of ten
funds in the Fund Complex. Ms. Lazar and Ms. Butler serve as Vice Presidents of
three funds in the Fund Complex. Mr. Fearnow serves as Vice President of ten
funds in the Fund Complex. Mr. Veilleux serves as Executive Vice President of
one fund and as Vice President of eleven funds in the Fund Complex. Mr. Liotta
serves as Vice President and Secretary, Mr. Finelli serves as Treasurer and Ms.
Collidge 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, the Distributor in the ordinary course
of business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of the Fund's administrator, the Distributor, the Advisor or Alex.
Brown Incorporated may be considered to have received remuneration indirectly.
As compensation for his or her services as Director, each Director who is not an
"interested person" of the Fund (as defined in the Investment Company Act) (a
"Non-Interested Director") receives an aggregate annual fee (plus reimbursement
for reasonable out-of-pocket expenses incurred in connection with his or her
attendance at Board and committee meetings) from all Flag Investors/ISI Funds
and Alex. Brown Cash Reserve Fund, Inc. for which he or she serves. In addition,
the Chairman of the Fund Complex's Audit Committee receives an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses is allocated among
all such funds described above in proportion to their relative net assets. For
the fiscal year ended March 31, 1997, Non-Interested Directors' fees
attributable to the assets of the Fund totalled approximately $4,986.
The following table shows aggregate compensation and
retirement benefits payable to each of the Fund's Directors by the Fund and the
Fund Complex, respectively, and pension or retirement benefits accrued as part
of Fund expenses in the fiscal year ended March 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation for Pension or Retirement Total Compensation from the Fund and
Position the Fiscal Year Ended Benefits Accrued as Part of Fund Complex Payable to Directors for the
March 31, 1997 Fund Expenses Fiscal Year Ended March 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Edward S. Hyman $0 $0 $0
Chairman and Director
*Richard T. Hale $0 $0 $0
Vice Chairman and
Director
James J. Cunnane $405(1) $ + $39,000 for service on 12
Director Boards in the Fund Complex
John F. Kroeger $509(1) $ + $49,000 for service on 12
Director Boards in the Fund Complex
Louis E. Levy $405(1) $ + $39,000 for service on 12
Director Boards in the Fund Complex
Eugene J. McDonald $405(1) $ + $39,000 for service on 12
Director Boards in the Fund Complex
Rebecca W. Rimel $464(1) $ + $39,000 for service on 10
Director Boards in the Fund Complex(2)
Harry Woolf(3) $314(1) $ + $29,250 for service on 12
Director Boards in the Fund Complex
</TABLE>
26
<PAGE>
* A Director who is an "interested person" as defined in the Investment
Company Act.
+ The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the year
ended March 31, 1997 was approximately $4,900.
1 Of amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald and Woolf,
and to Ms. Rimel, $405, $0, $0, $405, $314 and $464, respectively, was
deferred pursuant to a deferred compensation plan.
2 Ms. Rimel receives proportionately higher compensation from each fund for
which she serves as a Director.
3 Mr. Woolf retired from the Board of Directors effective December 31, 1996.
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Advisor or their respective
affiliates (the "Participants"). After completion of six years of service, each
Participant will be entitled to receive an annual retirement benefit equal to a
percentage of the fee earned 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. Mr. Kroeger has qualified but has not
received benefits. The Fund has two Participants, a Director who retired
effective December 31, 1994 and a Director who retired effective December 31,
1996, who have qualified for the Retirement Plan by serving thirteen years and
fourteen years, respectively, as Directors in the Fund Complex and each of whom
will be paid a quarterly fee of $4,875 by the Fund Complex for the rest of his
life. Another Participant who retired on January 31, 1996 and died on June 2,
1996, was paid fees of $8,090 by the Fund Complex in the period ended March 31,
1996. Such fees are allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1996 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger, 14
years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years; and for Ms. Rimel, 1
year.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<C> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald and Ms.
Rimel have each executed a Deferred Compensation Agreement. Currently, the
deferring Directors may select various Flag Investors and Alex. Brown Funds in
which all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring Directors' deferral accounts will be paid in
cash, in quarterly installments over a period of ten years.
27
<PAGE>
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 applies to the personal investing activities of all
the directors and officers of the Fund, as well as to designated officers,
directors and employees of the Advisor and the Distributor. As described below,
the Code of Ethics imposes additional restrictions on the Advisor's investment
personnel, including the portfolio managers and employees who execute or help
execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of the Advisor, certain
directors or officers of the Distributor, and all Fund Directors who are
"interested persons", preclear personal securities investments (with certain
exceptions, such as non-volitional purchases or purchases that 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 special preclearance of the acquisition of securities in
private placements. Furthermore, the Code of Ethics provides for trading
"blackout periods" that prohibit trading by investment personnel and certain
other employees within periods of trading by the Fund in the same security.
Officers, directors and employees of the Advisor and the Distributor may comply
with codes instituted by those entities so long as they contain similar
requirements and restrictions.
7. INVESTMENT ADVISORY AND OTHER SERVICES
International Strategy & Investments, Inc. (the "Advisor" or "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 $422
million as of May 31, 1997.
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.
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.
28
<PAGE>
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
Fund's 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. ISI's compensation under the agreement for the three
most recent fiscal years was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
| Fiscal Year Ended March 31,
|--------------------------------------------------------------------------------
| 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees Payable $233,075 $261,577 $339,170
- ------------------------------------------------------------------------------------------------------------
Advisory Fees Waived $129,197 $88,655 $112,435
- ------------------------------------------------------------------------------------------------------------
Total Operating 1.58% 1.47% 1.45%
Expenses*
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Total operating expenses absent fee waivers as a percentage of average
daily net assets.
The Investment Advisory Agreement will continue in effect from year to
year if such continuance is specifically approved (a) at least annually by the
Fund's Board of Directors or by a vote of a majority of the outstanding Shares
and (b) by the affirmative vote of a majority of the 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.
8. ADMINISTRATION
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore,
Maryland 21202, provides administration services to the Fund. Such services
include: monitoring the Fund's regulatory compliance, supervising all aspects of
the Fund's service providers, arranging, but not paying for, the printing and
mailing of prospectuses, proxy materials and shareholder reports, preparing and
filing all documents required by the securities laws of any state in which the
Shares are sold, establishing the Fund's budgets, monitoring the Fund's
distribution plans, preparing the Fund's financial information and shareholder
reports, calculating dividend and distribution payments and arranging for the
preparation of state and federal tax returns.
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. ICC's
compensation under the agreement for the three most recent fiscal years was as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Fiscal Year Ended March 31,
-----------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Fees $116,638 $130,789 $169,585
Payable
- ------------------------------------------------------------------------------------------------------------
Administration Fees $64,599 $44,327 $56,218
Waived
- ------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent.
(See "Custodian, Transfer Agent and Accounting Services"). 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.
9. DISTRIBUTION OF FUND SHARES
International Strategy & Investment Group Inc. ("ISI Group" or the
"Distributor") serves as the distributor for the Shares pursuant to a
Distribution Agreement dated April 1, 1997 between ISI Group and the Fund. The
Distribution Agreement provides that ISI Group has the exclusive right to
distribute the Shares, either directly or through other broker-dealers. ISI
Group, a Delaware corporation, is a broker-dealer that was formed in 1991 and is
an affiliate of the Advisor.
The Distribution Agreement further provides that ISI Group 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. ISI Group has not undertaken to sell any specific
number of Shares. The Distribution Agreement further provides that, in
connection with the distribution of Shares, ISI Group will be responsible for
all of its promotional expenses. The services of ISI Group to the Fund are not
exclusive, and ISI Group shall not be liable to the Fund or its shareholders for
any act or omission by ISI Group or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
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 ISI Group
for distribution and other shareholder servicing assistance as set forth in the
Distribution Agreement, and ISI Group 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 ISI Group 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.
30
<PAGE>
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).
As compensation for providing distribution and related administrative
services as described above, the Fund will pay ISI Group, on a monthly basis, an
annual fee, equal to .40% of the average daily net assets of the Shares. ISI
Group 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 ISI Group 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 its accounts and the operations of the Fund.
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 ISI Group 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.
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 ISI Group will allocate a portion of its
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.
Prior to April 1, 1997, Armata Financial Corp. ("Armata") acted as
distributor of the Shares and was compensated in manner that ISI Group currently
receives compensation for acting as distributor. Armata, in turn, paid the
distribution- related expenses of the Fund, including one or more of the
following: advertising expenses; printing and mailing of prospectuses to other
than current shareholders; compensation to dealers and sales personnel; and
interest carrying or other financing charges. For distribution services for the
three most recent fiscal years Armata received the following compensation:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Fiscal Year Ended March 31,
---------------------------
1997 1996 1995
---- ---- ----
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Fees $233,075 $261,577 $339,170
Payable
- ------------------------------------------------------------------------------------------------------------
Sales Commissions $123,792 $108,906 $138,892
Received
- ------------------------------------------------------------------------------------------------------------
Sales Commissions $44,533 $43,539 $26,492
Retained
- ------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
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 ISI Group.
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. Since
purchases and sales of portfolio securities by the Fund are usually principal
transactions, the Fund incurs little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to broker-dealers serving as
market makers usually includes a mark-up over the bid to the broker-dealer based
on the spread between the bid and asked price for the security. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter.
The Advisor's primary consideration in effecting security transactions
is to obtain, on an overall basis, the best net price and the most favorable
execution of orders. To the extent that the execution and prices offered by more
than one broker-dealer are comparable, the Advisor may, in its discretion,
effect transactions with dealers that furnish statistical, research or other
information or services which the Advisor deems to be beneficial to the Fund's
investment program. Such research services supplement the Advisor's own
research. Research services may include the following: statistical and
background information on the U.S., 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, 1997, March 31, 1996 and March 31,
1995, no brokerage commissions were paid by the Fund.
32
<PAGE>
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, 1997, the
Fund held a 6.25% repurchase agreement issued by Goldman Sachs & Co. valued at
$9,894,000. Goldman Sachs & Co. is one of the Fund's "regular brokers or
dealers."
11. CAPITAL STOCK
Under the Fund's 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 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, a subsidiary of PNC Bank Corp., has
been retained to act as custodian of the Fund's investments. Barclays
33
<PAGE>
International ("Barclays"), Johnson Smirk Building, Four Royal Mint Court,
London EC3N4HJ, has been retained to serve as the Fund's custodian with respect
to the Fund's foreign investments. PNC Bank and Barclays 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, One South 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, ICC
receives up to $15.00 per account per year plus reimbursement for out-of-pocket
expenses incurred in connection therewith. For such services for the fiscal year
ended March 31, 1997, ICC received a fee of $71,408.
ICC also provides accounting services to the Fund. As compensation for
these services, ICC is entitled to receive an annual fee, calculated daily and
paid monthly, as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
0 - $ 10,000,000 $25,000
$10,000,001 - $ 25,000,000 .080%
$25,000,001 - $ 50,000,000 .060%
$50,000,001 - $ 75,000,000 .040%
$75,000,001 - $ 100,000,000 .035%
$100,000,001 - $ 500,000,000 .017%
$500,000,001 - $1,000,000,000 .006%
over $1,000,000,000 .002%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services: express delivery service, independent pricing and storage. As
compensation for providing accounting services for the fiscal year ended March
31, 1997, ICC received fees of $55,309.
14. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by the Fund's
independent accountants, Coopers & Lybrand L.L.P.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, no persons held beneficially or of
record 5% or more of the Fund's outstanding shares, as of July 23, 1997:
As of such date, Fund management's knowledge, Directors and officers as
a group owned less than 1% of the Fund's total outstanding Shares.
16. PERFORMANCE AND YIELD COMPUTATIONS
34
<PAGE>
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.
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.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 payment for the periods
ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
One-year Period Since inception on
Ended March 31, 1997 January 15, 1993
-------------------- ----------------
- -----------------------------------------------------------------------------------------------------------------
Ending Redeemable Average Annual Ending Redeemable Average Annual
Value Total Return Value Total Return
----- ------------ ----- ------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1046.67 4.67% $1138.44 3.13%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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
35
<PAGE>
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.
Yield Calculations
The yield based on the 30-day period ended March 31, 1997 was 7.57% 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>
Alex Brown ISI North Am Govt Bond AR
North American Government Bond Fund, Inc.
Statement of Net Assets
March 31, 1997
<TABLE>
<CAPTION>
Interest Maturity Principal Value
Security Rate Date Amount+ (Note A)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CANADIAN SECURITIES -- 10.99%
Government of Canada, Deb. 9.750% 6/1/21 C$ 2,000,000 $ 1,837,212
Government of Canada, Deb. 9.000 6/1/25 4,500,000 3,877,078
-----------
Total Canadian Securities
(Cost $5,597,185)............................................................. 5,714,290
-----------
MEXICAN SECURITIES(1) -- 12.77%
Mexican Treasury Cete 21.710* 4/30/97 Ps 11,600,740 1,441,732
Mexican Treasury Cete 21.980* 6/12/97 42,862,310 5,194,859
-----------
Total Mexican Securities
(Cost $6,672,976)............................................................. 6,636,591
-----------
U.S. TREASURY SECURITIES -- 56.21%
U.S. Treasury Bond 10.375 11/15/09 $8,000,000 9,562,504
U.S. Treasury Bond 10.375 11/15/12 4,000,000 4,962,500
U.S. Treasury Bond 8.750 5/15/17 6,000,000 6,965,628
U.S. Treasury Bond 7.250 8/15/22 2,000,000 2,003,750
U.S. Treasury Bond 7.125 2/15/23 5,750,000 5,714,063
-----------
Total U.S. Treasury Securities
(Cost $30,731,302)............................................................ $29,208,445
-----------
- ---------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
North American Government Bond Fund, Inc.
Statement of Net Assets (concluded)
March 31, 1997
<TABLE>
<CAPTION>
Principal Value
Amount+ (Note A)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 19.04%
Goldman Sachs & Co., 6.25%
Dated 3/31/97, to be repurchased on 4/1/97,
collateralized by U.S. Treasury
Bonds with a market value of $10,092,041.
(Cost $9,894,000).............................................. $9,894,000 $ 9,894,000
-----------
Total Investments in Securities -- 99.01%
(Cost $52,895,463) ** ......................................... 51,453,326
Other Assets in Excess of Liabilities, Net-- 0.99%............... 512,475
-----------
Net Assets-- 100.00%............................................. $51,965,801
===========
Net Asset Value and Redemption Price Per Share
($51,965,801 / 6,271,466 shares outstanding)................... $8.29
=====
Offering Price Per Share
($8.29 / .970)................................................. $8.55
=====
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Cetes are short-term Mexican government debt securities.
* Yields as of March 31, 1997.
** Also aggregate cost for federal tax purposes.
+ Principal amount is shown in local currency: Canadian dollars (C$), Mexican
pesos (Ps) and U.S. dollars ($).
See Notes to Financial Statements.
38
<PAGE>
North American Government Bond Fund, Inc.
Statement of Operations
For the Year Ended March 31, 1997
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME (NOTE A):
Interest....................................................................... $ 5,980,207
-----------
EXPENSES:
Investment advisory fee (Note B)............................................... 233,075
Distribution fee (Note B)...................................................... 233,075
Administration fee (Note B).................................................... 116,538
Transfer agent fee............................................................. 71,408
Accounting fee (Note B)........................................................ 55,309
Custodian fee.................................................................. 51,310
Legal.......................................................................... 36,898
Audit.......................................................................... 33,353
Registration fees.............................................................. 32,305
Printing and postage........................................................... 29,919
Miscellaneous.................................................................. 11,532
Organizational expense (Note A)................................................ 10,497
Directors' fees................................................................ 4,986
Insurance...................................................................... 1,942
-----------
Total expenses............................................................... 922,147
Less: Fees waived (Note B)..................................................... (193,796)
-----------
Net expenses................................................................. 728,351
-----------
Net investment income.......................................................... 5,251,856
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain on investments............................................... 130,031
Net realized foreign exchange loss............................................. (1,327,424)
Change in net unrealized appreciation or depreciation of investments........... 540,125
Change in net unrealized appreciation or depreciation on translation
of assets and liabilities denominated in foreign currencies.................. (3,190)
-----------
Net loss on investments........................................................ (660,458)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 4,591,398
===========
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
North American Government Bond Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended March 31,
------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income................................... $ 5,251,856 $ 6,142,465
Net realized loss from security and
foreign currency transactions......................... (1,197,393) (2,882,627)
Change in unrealized appreciation or depreciation
of investments and foreign currency translation....... 540,125 4,860,869
Change in net unrealized appreciation or
depreciation on translation of assets and
liabilities denominated in foreign currencies......... (3,190) 77,092
------------ ------------
Net increase in net assets resulting
from operations....................................... 4,591,398 8,197,799
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income................................... (1,823,953) --
Return of capital-tax................................... (3,191,763) (5,474,647)
------------ ------------
Total distributions..................................... (5,015,716) (5,474,647)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of 695,687 and 762,541
shares, respectively.................................. 5,848,278 6,579,788
Value of 306,356 and 335,134 shares issued in
reinvestment of dividends, respectively............... 2,564,081 2,852,645
Cost of 1,997,507 and 2,056,598 shares
repurchased, respectively............................. (16,882,467) (17,587,616)
------------ ------------
Total decrease in net assets derived from capital
share transactions.................................... (8,470,108) (8,155,183)
------------ ------------
Total decrease in net assets............................ (8,894,426) (5,432,031)
NET ASSETS:
Beginning of year....................................... 60,860,227 66,292,258
------------ ------------
End of year............................................. $ 51,965,801 $ 60,860,227
============ ============
- --------------------------------------------------------------------------------------------------
</TABLE>
See 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
For the Year Ended March 31, January 15, 1993(1)
------------------------------------- through
1997 1996 1995 1994 March 31, 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period..... $ 8.37 $ 8.06 $ 9.53 $ 10.14 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income...................... 0.75 0.81 0.63 0.89 0.10
Net realized and unrealized gain/(loss)
on investments and foreign currency
translation.............................. (0.11) 0.22 (1.38) (0.58) 0.12
------- ------- ------- ------- -------
Total from Investment Operations........... 0.64 1.03 (0.75) 0.31 0.22
Less Distributions:
Dividends from net investment income
and short-term gains..................... (0.26) -- (0.45) (0.92) (0.08)
Return of capital.......................... (0.46) (0.72) (0.27) -- --
------- ------- ------- ------- -------
Total distributions........................ (0.72) (0.72) (0.72) (0.92) (0.08)
------- ------- ------- ------- -------
Net asset value at end of period........... $ 8.29 $ 8.37 $ 8.06 $ 9.53 $ 10.14
======= ======= ======= ======= =======
Total Return(2).............................. 7.90% 12.97% (8.31)% 2.77% 2.18%
Ratios to Average Daily Net Assets:
Expenses(3)................................ 1.25% 1.25% 1.25% 1.25% 1.25%(5)
Net investment income(4)................... 8.99% 9.49% 7.04% 7.04% 7.62%(5)
Supplemental Data:
Net assets at end of the period (000)...... $51,966 $60,860 $66,292 $93,622 $40,937
Portfolio turnover rate.................... 46% 125% 104% 219% 104%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 1.58%, 1.47%, 1.45%, 1.44% and
2.19% (annualized) for the years ended March 31, 1997, 1996, 1995, 1994 and
the period ended March 31, 1993, respectively.
(4) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 8.66%, 9.27%, 6.84%,
6.85% and 6.68% (annualized) for the years ended March 31, 1997, 1996, 1995,
1994 and the period ended March 31, 1993, respectively.
(5) Annualized.
See Notes to Financial Statements.
41
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies -- North American Government Bond Fund,
Inc. ("the Fund"), which was organized as a Maryland Corporation on October
19, 1992, commenced operations January 15, 1993. The Fund is
registered under the Investment Company Act of 1940 as a diversified,
open-end Investment Management Company. It is designed to provide a high
level of current income, consistent with prudent investment risk, by
investing primarily in a portfolio consisting of fixed-income securities
issued or guaranteed by the governments of the United States, Canada and
Mexico.
The Fund consists of one share class, the ISI Shares, which are subject to a
3.00% maximum front-end sales charge and a 0.40% distribution fee.
When preparing the Fund's financial statements, management has to make
estimates and assumptions to comply with generally accepted accounting
principles. These estimates affect 1) the assets and liabilities that we
report at the date of the financial statements; 2) the contingent assets and
liabilities that we disclose at the date of the financial statements; and 3)
the revenues and expenses that we report for the period. Our estimates could
be different from the actual results. The Fund's significant accounting
policies are:
Security Valuation -- Debt securities are generally traded in the
over-the-counter market. When there is an available market quotation, the
Fund values a debt security by using the most recent price provided by an
investment dealer. The Fund may also value a debt security by using a price
from an independent pricing service that the Investment Advisor has
determined reflects the obligation's fair market value. When a market
quotation is unavailable, the Investment Advisor determines a fair value
using procedures that the Board of Directors establishes and monitors. The
Fund values short-term obligations with maturities of 60 days or less at
amortized cost.
Repurchase Agreements -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement is
a short-term investment in which the Fund buys a debt security that the
broker agrees to repurchase at a set time and price. The third party, which
is the broker's custodial bank, holds the collateral in a separate account
until the repurchase agreement matures. The agreement ensures that the
collateral's market value, including any accrued interest, is sufficient if
the broker defaults. The Fund's access to the collateral may be delayed or
limited if the broker defaults and the value of the collateral declines or
if the broker enters into an insolvency proceeding.
Foreign Currency Translation -- The Fund separates realized gains or losses
resulting from foreign exchange rate changes and realized gains or losses
resulting from market price changes.
Net realized foreign exchange rate gains or losses occur due to 1) sales of
portfolio securities; 2) sales and maturities of short-term securities; 3)
sales of foreign currencies; 4) currency gains or losses realized between
the trade and settlement dates on securities transactions; and 5)
differences between interest recorded on the Fund's books and the U.S.
dollar equivalent of interest that the Fund actually receives or pays.
The Fund does not separate its unrealized appreciation or depreciation
resulting from foreign exchange rate changes and its unrealized appreciation
or depreciation resulting from market price changes.
Federal Income Tax -- The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the
42
<PAGE>
Notes to Financial Statements (continued)
Fund occasionally makes reclassifications within its capital accounts to
reflect income and gains that are available for distribution under income
tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially all
of its taxable net investment income and net realized capital gains, it will
be exempt from most, if not all, federal income and excise taxes. As a
result, the Fund has made no provisions for federal income taxes.
The Fund has a $1,031,544 capital loss carryforward that may be carried
forward to offset any taxable capital gains if necessary. This capital loss
carryforward begins to expire in the year 2004 if it is not used.
Security Transactions, Investment Income, Distributions and Other -- The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed. Income and
expenses are recorded on an accrual basis. Income includes scientific
amortization of premiums and accretion of discounts when appropriate.
Dividend distributions to shareholders are recorded on the ex-dividend date.
The Fund has deferred the costs incurred by its organization and the initial
public offering of shares. These costs are being amortized on the
straight-line method over a five-year period, which began when the Fund
commenced investment activities.
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees --
International Strategy & Investment Inc. ("ISI") is the Fund's investment
advisor and Investment Company Capital Corp. ("ICC") is the Fund's
administrator. As compensation for its advisory services, the Fund pays ISI
an annual fee. This fee is based on the Fund's average daily net assets and
is calculated daily and paid monthly at the annual rate of 0.40%. The Fund
paid ISI $233,075 for advisory services for the year ended March 31, 1997.
As compensation for its administrative services, the Fund pays ICC an annual
fee. This fee is based on the Fund's average daily net assets and is
calculated daily and paid monthly at the annual rate of 0.20%. The Fund
paid ICC $116,538 for administrative services for the year ended March 31,
1997.
ISI and ICC have agreed to reduce their fees proportionately when necessary
so that the Fund's annual expenses are no more than 1.25% of the Fund's
average daily net assets. For the year ended March 31, 1997, ISI waived fees
of $129,197 and ICC waived fees of $64,599.
As compensation for its accounting services, the Fund pays ICC an annual fee
that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $55,309 for accounting services for the year ended
March 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $71,408
for transfer agent services for the year ended March 31, 1997.
As compensation for providing distribution services, the Fund pays Armata
Financial Corp., an affiliate of ICC, an annual fee that is calculated daily
and paid monthly at an annual rate equal to 0.40% of the Fund's average
daily net assets. For the year ended March 31, 1997, distribution fees were
$233,075. As of April 1, 1997, ISI Group Inc. will serve as the Fund's
distributor.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year
ended March 31, 1997 was approximately $4,900, and the accrued liability was
approximately $9,300.
43
<PAGE>
Notes to Financial Statements (concluded)
C. Capital Share Transactions -- The Fund is authorized to issue up to 25
million shares of $.001 par value capital stock.
D. Investment Transactions -- Excluding short-term and U.S. government
obligations, purchases of investment securities aggregated $2,170,926
and sales of investment securities aggregated $4,821,151 for the year
ended March 31, 1997. Purchases of U.S. government obligations aggregated
$17,693,008 and sales of U.S. government obligations aggregated $20,322,904
for the period.
On March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $158,350
and aggregate gross unrealized depreciation of all securities in which there
is an excess of tax cost over value was $1,600,487.
E. Forward Currency Exchange Contracts -- Forward currency exchange contracts
carry certain risks. These risks include the counterparties' possible
inability to meet the contract terms and the movements in currency values.
There were no outstanding contracts as of March 31, 1997.
F. Net Assets -- On March 31, 1997, net assets consisted of:
Paid-in capital................... $ 54,545,689
Accumulated net realized loss
from security and foreign
currency transactions........... (1,135,206)
Unrealized depreciation of
investments..................... (1,442,137)
Unrealized translation loss....... (2,545)
------------
$ 51,965,801
============
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the ISI Funds, including
charges and expenses, obtain a prospectus from your investment representative or
directly from the Fund at 1-800-955-7175. Read it carefully before you invest.
44
<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, 1997, 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, 1997 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, 1997 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.
Philadelphia, Pennsylvania
May 2, 1997
45
<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", has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating. Debt rated "B" has a greater vulnerability to
default but currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating. Debt rated "CCC" has a
currently identifiable vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely payment of interest
and repayment of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay interest and
repay principal. The "CCC" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "B" or "B-" rating. The rating
"CC" typically is applied to debt subordinated to senior debt that is assigned
an actual or implied "CCC" rating. The rating "C" typically is applied to debt
subordinated to senior debt which is assigned an actual or implied "CCC-" debt
rating. The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued. The rating
"CI" is reserved for income bonds on which no interest is being paid.
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
A-1
<PAGE>
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 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.
A-2
<PAGE>
- 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 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 Parts A and B of the Registration
Statement:
- Financial Highlights for the fiscal years ended
March 31, 1997, 1996, and March 31, 1995, and for
the period ended March 31, 1994.
- Statement of Net Assets at March 31, 1997.
- Statement of Operations for the fiscal year ended
March 31, 1997.
- Statement of Changes in Net Assets for the fiscal
years ended March 31, 1997, March 31, 1996 and
March 31, 1995.
- Financial Highlights for the fiscal years ended
March 31, 1997, March 31, 1996 and March 31, 1995,
and for the period ended March 31, 1994.
- 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) (a)(2) Articles of Incorporation;
(b)(2) Articles of Amendment;
(c)(2) Articles Supplementary dated December 27, 1993;
(2)(1) By-Laws, as amended through December 18, 1996;
(3) None;
(4) Specimen Security is incorporated herein by
reference to Exhibit (1)(a) Articles of
Incorporation and Exhibit (2) By-Laws;
(5)(2) Investment Advisory Agreement dated as of December
15, 1992 between Registrant and International
Strategy & Investment Inc.;
(6) (a)(1) Distribution Agreement between Registrant and
International Strategy & Investment Group,
Inc.;
(b)(1) Form of Agency Distribution Agreement between
International Strategy & Investment Group, Inc.
and Participating Broker-Dealers;
(c)(1) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents;
C-1
<PAGE>
(7) None;
(8)(2) Custodian Agreement dated as of December 15,
1992 between Registrant and Provident National
Bank (now known as PNC Bank);
(9)(3) Master Services Agreement (including
Administration, Transfer Agency and Accounting
Services appendices) between Registrant and
Investment Company Capital Corp.;
(10)(a)(2) Opinion of Counsel;
(b)(1) Opinion of Counsel relating to net redemptions;
(11)(1) Consent of Independent Accountants;
(12) None;
(13)(2) Subscription Agreement re: initial $100,000
capital;
(14) None;
(15)(1) Distribution Plan;
(16)(2) Schedule of Computation of Performance
Information;
(24)(1) Powers of Attorney;
(27)(1) Financial Data Schedule.
------------------
(1) Filed herewith.
(2) Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-53598), filed with
the Securities and Exchange Commission via EDGAR on July 26, 1995.
(3) Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-53598), filed with
the Securities and Exchange Commission on July 29, 1996.
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.
C-2
<PAGE>
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 23, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock 2,039
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
C-3
<PAGE>
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.
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 & 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) International Strategy & Investment Group, Inc. 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
----------------- ----------- ----------
Edward S. Hyman Chairman and Chairman and
Director and Director
R. Alan Medaugh Director President
Nancy Lazar Executive Vice President
and Director Vice President
Joel Fein Chief Financial Officer None
- ---------------------
* 717 Fifth Avenue
New York, New York 10022
(c) Not applicable.
C-4
<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 & 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, or by the Registrant's
transfer agent, dividend disbursing agent and accounting services
provider, ICC, One South 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.
C-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 5 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 29th day of July, 1997.
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 on the date(s) indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
* Director July 29, 1997
- -------------------------- --------------
Edward S. Hyman Date
* Director July 29, 1997
- -------------------------- --------------
Richard T. Hale Date
* Director July 29, 1997
- -------------------------- --------------
James J. Cunnane Date
* Director July 29, 1997
- -------------------------- --------------
John F. Kroeger Date
* Director July 29, 1997
- -------------------------- --------------
Louis E. Levy Date
* Director July 29, 1997
- -------------------------- --------------
Eugene J. McDonald Date
* Director July 29, 1997
- -------------------------- --------------
Rebecca W. Rimel Date
/s/ R. Alan Medaugh President July 29, 1997
- -------------------------- --------------
R. Alan Medaugh Date
/s/ Joseph A. Finelli Chief Financial July 29, 1997
- -------------------------- and Accounting --------------
Joseph A. Finelli Officer Date
* By: /s/ Scott J. Liotta
-------------------------
Scott J. Liotta
Attorney-In-Fact
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit
Number Document
-------------------------------------------------------------------------
<S> <C> <C>
(1) (a) Articles of Incorporation.(2)
(1) (b) Articles of Amendment. (2)
(1) (c) Articles Supplementary dated December 27, 1993.(2)
EX-99.B (2) Registrant's By-Laws, as amended through December 18, 1996.(1)
(4) Registrant's Specimen Security is incorporated herein by reference to
Exhibit (1)(a) Articles of Incorporation and Exhibit (2) By-Laws,
(5) Investment Advisory Agreement dated as of December 15, 1992 between
Registrant and International Strategy and Investment Inc.(2)
EX-99.B (6) (a) Distribution Agreement between Registrant & International Strategy
and Investment Group Inc.(1)
EX-99.B (6) (b) Form of Agency Distribution Agreement between International
Strategy & Investment Group, Inc. and Participating Broker-Dealers.(1)
EX-99.B (6) (c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents.(1)
(8) Custodian Agreement dated as of December 15, 1992 between Registrant
and Provident National Bank (now known as PNC Bank).(2)
(9) Master Services Agreement (including Administration, Transfer Agency
and Accounting Services Appendices) between Registrant and Investment
Company Capital Corp.(3)
(10)(a) Opinion of Counsel.(2)
EX-99.B (10)(b) Opinion of Counsel relating to net redemptions.(1)
EX-99.B (11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(13) Subscription Agreement with respect to the initial capitalization of the
Fund. 2
EX-99.B (15) Registrant's Distribution Plan.(1)
(16) Schedule of Computation of Performance Information.(2)
EX-99.B (24) Powers of Attorney.(1)
EX-27 Financial Data Schedule.(1)
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</TABLE>
(1) Filed herewith.
<PAGE>
(2) Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-53598), filed
with the Securities and Exchange Commission via EDGAR on July 26, 1995.
(3) Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-53598), filed
with the Securities and Exchange Commission on July 29, 1996.
<PAGE>
Exhibit 99.B(2)
As Amended Through
December 18, 1996
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
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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 this 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.
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 than 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.
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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 of the Corporation or these By-Laws,
any corporate action to be taken by vote of the shareholders shall be authorized
by a majority of the total votes cast at a meeting of shareholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
(c) If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the 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
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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 plurality 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
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
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<PAGE>
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
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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
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, subadvisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
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<PAGE>
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,
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.
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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.
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.
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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.
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He may employ and discharge employees and agents of the Corporation, except such
as shall be appointed by the Board, and he may delegate these powers.
Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(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
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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;
(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
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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.
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
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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.
ARTICLE VIII
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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
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
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
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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.
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
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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.
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.
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Exhibit 99.B(6)(a)
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
ISI NORTH AMERICAN GOVERNMENT BOND FUND SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 1st day of April, 1997, by and
between NORTH AMERICAN GOVERNMENT BOND FUND, INC., a Maryland corporation (the
"Fund"), and INTERNATIONAL STRATEGY & INVESTMENT GROUP INC., a Delaware
corporation ("ISI").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint ISI as the exclusive
distributor of the class of shares of the Fund known as the ISI North American
Government Bond Fund Shares (the "Shares") and ISI wishes to become the
distributor of the Shares; and
WHEREAS, the compensation to ISI hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints ISI as the exclusive
distributor for the Shares for the period and on the terms set forth in this
Agreement. ISI accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished ISI with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on 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
authorizing the appointment of ISI as the distributor of the Shares and
approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on October 22, 1992;
<PAGE>
(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
(f) The Fund's most recent prospectus (such prospectus and
all amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish ISI from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. ISI agrees that all solicitations
for subscriptions for Shares shall be made in accordance with the Fund's
Articles of Incorporation and By-Laws, and its then current Registration
Statement, Prospectus and Statement of Additional Information, and shall not at
any time or in any manner violate any provisions of the laws of the United
States or of any state or other jurisdiction in which solicitations are then
being made. In carrying out its obligations hereunder, ISI shall undertake the
following actions and responsibilities:
(a) receive orders for purchase of Shares, accept or reject
such orders on behalf of the Fund in accordance with the currently effective
Prospectus for the Shares and the Fund's Statement of Additional Information and
transmit such orders as are so accepted to the Fund's transfer agent as promptly
as possible;
(b) receive requests for redemption from holders of Shares
and transmit such redemption requests to the Fund's transfer agent as promptly
as possible;
(c) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(d) provide to the Fund's Treasurer, at least quarterly, a
written report of the amounts expended in connection with all distribution
services rendered pursuant to this Agreement, including an explanation of the
purposes for which such expenditures were made; and
(e) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares and perform such
other administrative duties with respect to the Shares as the Fund's Board of
Directors may require.
4. Distribution of Shares. ISI shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that ISI does
not undertake to sell all or any specific portion of the Shares. The Fund shall
not sell any of the Shares except through ISI and securities dealers who have
valid Agency Distribution Agreements with ISI. Notwithstanding the provisions of
the foregoing sentence, the Fund may issue its Shares at their net asset value
to any shareholder of the Fund purchasing such Shares with dividends or other
cash distributions received from the Fund pursuant to an offer made to all
shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by ISI pursuant to this Agreement, as well as any other activities
undertaken by ISI on behalf of the Fund pursuant hereto, shall at all times be
subject to any directives of the Board of Directors of the Fund. The Board of
Directors may agree, on behalf of the Fund, to amendments to this Agreement,
provided that the Fund must obtain prior approval of the shareholders of the
Fund to any amendment which would result in a material increase in the amount
expended by the Fund.
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<PAGE>
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, ISI shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of federal and state
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and ISI as follows:
(a) ISI shall furnish, at its expense and without cost to
the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) ISI shall bear the expenses of any promotional or sales
literature used by ISI or furnished by ISI to purchasers or dealers in
connection with the public offering of the Shares, the expenses of advertising
in connection with such public offering and all legal expenses in connection
with the foregoing; and
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor and administrator; the charges and expenses of any
registrar, 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.
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<PAGE>
8. Delegation of Responsibilities. ISI may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and ISI's 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 ISI of any Fund expense that
ISI is not required to pay or assume under this Agreement shall not relieve ISI
of any of its obligations to the Fund or obligate ISI to pay or assume any
similar Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by ISI, the Fund shall pay to ISI, compensation at the annual
rate of .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 ISI may compensate its investment representatives for opening
accounts, processing investor letters of transmittal and applications and
withdrawal and redemption orders, responding to inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund, and
communicating with the Fund and its transfer agent on behalf of the Fund
shareholders.
11. Agency Distribution Agreements. ISI may enter into agency
distribution agreements (the "Agency Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a transmitting
broker in connection with the proposed offering. All Agency Distribution
Agreements shall be in substantially the form of the agreement attached hereto
as Exhibit "A". For processing Fund shareholders' redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund and communicating with the Fund, its transfer agent
and ISI, ISI may pay each such transmitting broker an amount not to exceed that
portion of the compensation paid to ISI hereunder that is attributable to
accounts of Fund shareholders who are customers of such transmitting broker.
12. Non-Exclusivity. The services of ISI to the Fund are not
to be deemed exclusive and ISI shall be free to render distribution or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that directors, officers or employees of
ISI may serve as directors or officers of the Fund, and that directors or
officers of the Fund may serve as directors, officers and employees of ISI to
the extent permitted by law; and that directors, officers and employees of ISI
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, directors
or officers of any other firm or corporation, including other investment
companies.
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<PAGE>
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.
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 ISI. The notice provided for
herein may be waived by each party. This Agreement shall automatically terminate
in the event of its assignment (as defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder, ISI
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of ISI or reckless disregard by ISI of its duties under
this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that for this purpose
the address of ISI and 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.
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<PAGE>
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/ Scott J. Liotta By: /s/ R. Alan Medaugh
--------------------- ---------------------------
Name: Scott J. Liotta Name: R. Alan Medaugh
Title: President
[SEAL] INTERNATIONAL STRATEGY & INVESTMENT GROUP INC.
Attest: /s/ Nancy Lazar By: /s/ Edward S. Hyman
--------------------- ---------------------------
Name: Nancy Lazar Name: Edward S. Hyman
Title: Chairman
<PAGE>
Exhibit A
ISI FAMILY OF FUNDS
717 Fifth Avenue
New York, New York 10022
AGENCY DISTRIBUTION AGREEMENT
_______________________, 19___
Gentlemen:
International Strategy & Investment Group Inc. ("ISI"), a
Delaware corporation, serves as distributor (the "Distributor") of the ISI
Family of Mutual Funds (collectively, the "Funds", individually a "Fund"). The
Funds are open-end investment companies registered under the "Investment Company
Act of 1940, as amended (the "Investment Company Act"). The Funds offer their
shares ("Shares") to the public in accordance with the terms and conditions
contained in the Prospectus of each Fund. The term "Prospectus" used herein
refers to the prospectus on file with the Securities and Exchange Commission
which is part of the registration statement of each Fund under the Securities
Act of 1933 (the "Securities Act"). In connection with the foregoing you may
serve as a participating dealer (and, therefore, accept orders for the purchase
or redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Transmitting Broker. You are hereby designated as a Broker
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and payment made therefore, (ii) to accept
orders for the redemption of Shares and to transmit to the Funds such orders and
all additional material, including any certificates for Shares, as may be
required to complete the redemption and (iii) to assist shareholders with the
foregoing and other matters relating to their investments in each Fund, in each
case subject to the terms and conditions set forth in the Prospectus of each
Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make
any representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
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<PAGE>
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to comply with applicable
state laws. We will notify you of the states or other jurisdictions in which the
Shares may be sold. You agree that you will offer Shares to your customers only
in those states where there has been compliance with state laws applicable to
the sale of such Shares. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required
by law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to
you except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
-2-
<PAGE>
11. Communications. All communications to us should be sent to
the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one copy of this agreement.
INTERNATIONAL STRATEGY & INVESTMENT
GROUP INC.
--------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name:_____________________________
By:____________________________________
Address:_______________________________
Date:__________________________________
-3-
<PAGE>
Exhibit 99.B(6)(b)
ISI FAMILY OF FUNDS
717 Fifth Avenue
New York, New York 10022
AGENCY DISTRIBUTION AGREEMENT
_______________________, 19___
Gentlemen:
International Strategy & Investment Group Inc. ("ISI"), a
Delaware corporation, serves as distributor (the "Distributor") of the ISI
Family of Mutual Funds (collectively, the "Funds", individually a "Fund"). The
Funds are open-end investment companies registered under the "Investment Company
Act of 1940, as amended (the "Investment Company Act"). The Funds offer their
shares ("Shares") to the public in accordance with the terms and conditions
contained in the Prospectus of each Fund. The term "Prospectus" used herein
refers to the prospectus on file with the Securities and Exchange Commission
which is part of the registration statement of each Fund under the Securities
Act of 1933 (the "Securities Act"). In connection with the foregoing you may
serve as a participating dealer (and, therefore, accept orders for the purchase
or redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Transmitting Broker. You are hereby designated as a Broker
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and payment made therefore, (ii) to accept
orders for the redemption of Shares and to transmit to the Funds such orders and
all additional material, including any certificates for Shares, as may be
required to complete the redemption and (iii) to assist shareholders with the
foregoing and other matters relating to their investments in each Fund, in each
case subject to the terms and conditions set forth in the Prospectus of each
Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make
any representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
<PAGE>
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to comply with applicable
state laws. We will notify you of the states or other jurisdictions in which the
Shares may be sold. You agree that you will offer Shares to your customers only
in those states where there has been compliance with state laws applicable to
the sale of such Shares. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required
by law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to
you except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
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.
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one copy of this agreement.
INTERNATIONAL STRATEGY & INVESTMENT
GROUP INC.
_____________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name:___________________________
By:__________________________________
Address:_____________________________
Date:________________________________
<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
FORM OF
SHAREHOLDER SERVICING AGREEMENT
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement
with you concerning the provision of support services to your clients and
customers ("Customers") who may from time to time beneficially own shares of our
shares of common stock ("Shares").
The terms and conditions of this Servicing Agreement are as
follows:
Section 1. (a) You agree to provide the following services to
Customers who may from time to time beneficially own Shares: (i) aggregating and
processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii) processing
dividend payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you in accordance with the Customer's
instructions ("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records
required by law relating to transactions in Shares and, upon our request,
promptly make such of these records available to us as we may reasonably request
in connection with our operations, and (ii) promptly notify us if you experience
any difficulty in maintaining the records described in the foregoing clauses in
an accurate and complete manner.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees,
agents or assigns are authorized to make any representations concerning us or
Shares except those contained in our then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE>
Section 4. For all purposes of this Agreement you will be
deemed to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect. You may, upon prior written notice
to us, delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all of your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees, agents or assigns regarding
your responsibilities hereunder or the purchase, redemption, transfer or
registration of Shares by or on behalf of Customers. You and your employees
will, upon request, be available during normal business hours to consult with us
or our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will cause our distributor pay to you, and you
will accept as full payment therefor, a fee at the annual rate of ___ of 1% of
the average daily net asset value of the Customers' Shares held of record by you
from time to time, which fee will be computed daily and payable ______. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Customers' Shares will be computed in the manner
specified in our registration statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively increased or decreased by us or by our distributor, at any time
upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of Shares, including the sale of such shares to you
for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such
information relating to your performance under this Agreement as we or they may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
shall otherwise cooperate with us and our designees (including, without
limitation, any auditors designated by us), in connection with the preparation
of reports to our Board of Directors concerning this Agreement and the monies
paid or payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
Section 7. We may enter into other similar services agreements
with any other person or persons without your consent.
Section 8. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the event
of its assignment, as that term is defined in the Investment Company Act of
1940, as amended.
Section 9. This Agreement will be construed in accordance with
the laws of the State of Maryland.
Section 10. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device, if to us at the address below, and if to you,
at the address specified by you after your signature below:
North American Government Bond Fund, Inc.
717 Fifth Avenue
New York, New York 10022
Attention: R. Alan Medaugh
-2-
<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: ______________________________
______________________________
______________________________
<PAGE>
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS LLP]
July 27, 1997
North American Government Bond Fund, Inc.
717 Fifth Avenue
New York, New York 10022
Re: Registration of Additional Securities for North American Government Bond
Fund, Inc. (File Nos. 33-46279 and 811-6600 )
------------------------------------------------------------------------
Ladies and Gentlemen:
North American Government Bond Fund, Inc. (the "Fund") is a corporation
organized under the laws of the State of Maryland with its principal executive
offices is New York, New York. The Fund is a diversified open-end management
investment company registered with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act of 1940, as amended (the "1940
Act"). This opinion relates to the registration of shares of the Fund, par value
$.001, ("Shares") related to the Fund's net redemptions incurred during the
fiscal year ended March 31, 1997 which are now being registered pursuant to Rule
24e-2 under the 1940 Act.
We have reviewed all proceedings taken by the Fund in connection with the offer
and sale of an unlimited number of Shares, which have been offered under a
prospectus included as part of the Fund's Registration Statement on Form N-1A as
amended to the date hereof, which has been filed with the Commission under the
Securities Act of 1933, as amended and the 1940 Act (collectively, the
"Registration Statement").
We are of the opinion that such Shares sold pursuant to the Registration
Statement will be, when issued in return for payment described in the Fund's
prospectus included as part of the Fund's Registration Statement, legally
issued, fully paid and nonassessable by the Fund.
Very truly yours.
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
June 10, 1997
Page 2
Morgan, Lewis & Bockius LLP
<PAGE>
Exhibit 99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated May 2, 1997 on our audit
of the financial statements and financial highlights of North American
Government Bond Fund, Inc. in the Statement of Additional Information with
respect to Post-Effective Amendment No. 5 to the Registration Statement (No.
33-53598) on Form N-1A under the Securities Act of 1933 of North American
Government Bond Fund, Inc. We also consent to 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.
/s/ Coopers & Lybrand LLP
- -------------------------
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, PA
July 28, 1997
<PAGE>
Exhibit 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) The distributor for the Shares
(the "Distributor") 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) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to The
Distributor under the Distribution Agreement which is an annual fee, calculated
on an average daily net basis and paid monthly, equal to .40% of the average
daily net assets invested in Shares.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
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 of the Fund's shares; charges and expenses of legal
counsel, including counsel to the
<PAGE>
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. The Distributor and
transmitting brokers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
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.
<PAGE>
Exhibit 99.B(24)
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 Scott J. Liotta, 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: June 17, 1997
<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 Scott J. Liotta, 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: June 17, 1997
<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 Scott J. Liotta, 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/ Eugene J. McDonald
-------------------------------
Eugene J. McDonald
Date: June 17, 1997
<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 Scott J. Liotta, 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: June 17, 1997
<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 Scott J. Liotta, 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: June 17, 1997
<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 Scott J. Liotta, 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: June 17, 1997
<PAGE>
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 Scott J. Liotta, 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: June 17, 1997
<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 Scott J. Liotta, 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 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 her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
-------------------------------
Rebecca W. Rimel
Date: June 17, 1997
<PAGE>
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, 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 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 his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
-------------------------------
Joseph A. Finelli
Date: June 17, 1997
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