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As Filed With the Securities and Exchange Commission on August 15, 1997
Registration No. 333-31127
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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
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1 [X]
ISI STRATEGY 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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R. Alan Medaugh
717 Fifth Avenue
New York, NY 10022
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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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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Securities Being Registered Amount Being Registered
- ------------------------------------ -----------------------
Share of Common Stock Indefinite*
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*Registrant elects to register an indefinite number of shares of its Common
Stock, par value $.001 per share, under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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ISI STRATEGY FUND, INC.
August 15, 1997
Cross Reference Sheet
(ISI Strategy Fund Shares)
Items Required by Form N-1A
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Part A Information Required in Prospectus Registration Statement Heading
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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 Program
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and Sub-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
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objective,
Policies and Risk
Considerations
</TABLE>
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* Omitted since the answer is negative or the item is not applicable.
** Required information will be contained in the Registrant's first Annual
Report to Shareholders containing results of operations, when available.
<PAGE>
<TABLE>
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Part A Information Required in Prospectus Registration Statement Heading
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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 Brokerage
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 Information
Item 23. Financial Statements Financial Statements
Part C Other Information
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Part C contains the information required by the items
contained therein under the items set forth in the form.
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<PAGE>
Supplement dated _____, 1997
to
Prospectus dated ____, 1997
of
ISI Strategy Fund Shares
(A Class of ISI Strategy Fund, Inc.)
The Prospectus dated _______, 1997 of ISI Strategy Fund Shares ( a class of
shares of ISI Strategy Fund, Inc.) is hereby amended and supplemented by the
following:
The sections entitled "Fee Table" and "How to Invest in the Fund" are modified
to reflect the terms of the following offer:
Until such time as the assets of the Fund reach $100 million, or a minimum of 6
months from the date hereof (the "Special Offering Period"), whichever occurs
first, investments of $100,000 or more in Shares will be made at net asset value
(without a sales charge) as set forth below:
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Dealer
Sales Charge as Sales Charge as Compensation as
Percentage of Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price*
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<S> <C> <C> <C>
Less than $50,000 4.45% 4.66% 4.00%
$50,000 - $99,999 3.50% 3.63% 3.00%
$100,000 and over...** None None 1.00%
</TABLE>
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* 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. Dealers that receive a reallowance of 100% of the sales charge
may be considered underwriters for purposes of the federal securities
laws.
** Purchases of $100,000 or more by persons who would not be eligible for
sales load waivers except for the limited offer described herein are
not subject to an initial sales charge, however, a contingent deferred
sales charge of 1.00% will be imposed on such purchases in the event of
redemption within 36 months following such purchase.
During the Special Offering Period, the following features described under "How
to Invest in the Fund" will not be available: Purchases by Exchange and Letters
of Intent. In addition, Rights of Accumulation will not be available on separate
purchases aggregating more than $50,000 and will only be available on purchases
aggregating more than $100,000 with respect to the amount in excess of $100,000.
The following features will remain in effect during this period: Purchases
Through Automatic Investing and Purchases Through Dividend Reinvestment.
THE FUND RESERVES THE RIGHT TO TERMINATE THIS SPECIAL OFFER AT ANY TIME.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
FOR USE DURING SPECIAL OFFERING PERIOD
ISI STRATEGY FUND SHARES
NEW ACCOUNT APPLICATION
Make check payable to "ISI Strategy Fund Shares" and mail with this Application
to:
ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent at (800)
882-8585. To open an IRA account, call ISI at (800) 955-7175 to request an
application.
The minimum initial purchase is $5,000, except that the minimum initial purchase
for qualified retirement plans or IRA's is $1,000 and the minimum initial
purchase for participants in the Fund's Automatic Investing Plan is $250. Each
subsequent purchase requires a $250 minimum, except that the minimum subsequent
purchase under the Fund's Automatic Investing Plan is $100 for monthly purchases
and $250 for quarterly purchases. The Fund reserves the right not to accept
checks for more than $50,000 that are not certified or bank checks.
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Your Account Registration (Please print) ---------------------------------------------------------
Existing Account No., if any
Individual or Joint Tenant Gifts to Minors
_______________________________________________________ ____________________________________________________________________
First Name Initial Last Name Custodian's Name (only one allowed by law)
_______________________________________________________ ____________________________________________________________________
Social Security Number Minor's Name (only one)
_______________________________________________________ ____________________________________________________________________
Joint Tenant Initial Last Name Social Security Number of Minor
under the ____________________ Uniform Gifts to Minors Act
Social Security Number State of Residence
Corporations, Trusts, Partnerships, etc. Mailing Address
_______________________________________________________ ____________________________________________________________________
Name of Corporation, Trust or Partnership Street
_______________________________________________________ ____________________________________________________________________
Tax ID Number City State Zip
_______________________________________________________ ____________________________________________________________________
Name of Trustees (If to be included in the Registration) Daytime Phone
</TABLE>
Distribution Options
Please check appropriate boxes. There is no sales charge for reinvested
dividends. If none of the options are selected, all distributions will be
reinvested.
<PAGE>
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.
Automatic Investing Plan (Optional)
|_| I authorize you as Agent for the Automatic Investing Plan to automatically
invest $__________ for me, on a monthly or quarterly basis, on or about the 20th
of each month or if quarterly, the 20th of January, April, July and October, and
to draw a bank draft in payment of the investment against my checking account.
(Bank drafts may be drawn on commercial banks only.)
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Minimum Initial Investment: $250
Subsequent Investments (check one): |_| Monthly ($100 minimum) |_| Quarterly ($250 minimum)
Please attach a voided check.
__________________________________________________ ____________________________________________________________
Bank Name Depositor's Signature Date
__________________________________________________ ____________________________________________________________
Existing ISI Strategy Fund Account No., if any Depositor's Signature Date
(if joint acct., both must sign)
</TABLE>
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
Telephone Transactions and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges (for
amounts up to $50,000) unless I mark the box below.
No, I/We do not want: |_| Telephone redemption privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: ___________________ Bank Account No.:___________________
Address: ___________________ Bank Account Name ___________________
<PAGE>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against 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.
I have received a copy of the Fund's prospectus dated, _______ 1997. I
acknowledge that the telephone redemption 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
privileges, I have so indicated on this Application.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
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________________________________________ _______________________________________________________
Signature Date Signature (if a joint account, both must sign) Date
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For Dealer Use Only
Dealer's Name: ________________________________________ Dealer Code: _________________
Dealers Address: ________________________________________ Branch Code: ________________
________________________________________
Representative: ________________________________________ Rep. No. ________________
</TABLE>
<PAGE>
ISI STRATEGY FUND SHARES
(A Class of ISI Strategy Fund, Inc.)
717 Fifth Avenue
New York, New York 10022
For information call (800) 955-7175
ISI Strategy Fund, Inc. (the "Fund") is designed to maximize total return
through a combination of long-term growth of capital and current income by
actively apportioning investments between U.S. Treasury Securities and
diversified investments in U.S. equity securities.
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 , 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 or telephone number.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
1. FEE TABLE
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Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............ 4.45%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, whichever is lower) .......................................................... None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees (net of fee waivers) ................................................... 0.00%*
12b-1 Fees .............................................................................. 0.25%
Other Expenses (net of fee waivers) ...................................................... 0.75%*
------
Total Fund Operating Expenses (net of fee waivers) .................................... 1.00%*
======
</TABLE>
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* The Advisor has voluntarily agreed to waive its fees and to reimburse
expenses to the extent required so that the Fund's Total Operating Expenses do
not exceed 1.00% of the Fund's average daily net assets. In addition, the
Fund's administrator has voluntarily agreed to waive its fee until the earlier
of such time as the Fund's net assets reach $50 million or the Fund has been in
operation for one year. Absent fee waivers, Management Fees would be .40%,
Other Expenses (including administration fees) would be 1.15% and Total Fund
Operating Expenses would be 1.80% of the Fund's average daily net assets.
Example:
1 year 3 years
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You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period:* $54 $75
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* Net of fee waivers
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. (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, 4.45% 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.") The Expenses and Example appearing in the table above are
based on the Fund's estimated amounts for the current fiscal year ending May
31, 1998. Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. The foregoing table has not been
audited by Deloitte & Touche LLP, the Fund's independent auditors.
2. INVESTMENT PROGRAM
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize total return through a
combination of long-term growth of capital and current income. The Fund seeks
to achieve this objective through an active asset allocation strategy that
involves apportioning the Fund's assets between U.S. Treasury Securities and
diversified investments in U.S. equity securities. There can be no assurance
that the Fund's investment objective will be met.
2
<PAGE>
ALLOCATION OF INVESTMENTS
International Strategy & Investment Inc. ("ISI" or "Advisor"), the Fund's
advisor, and Wilshire Associates Incorporated ("Wilshire"), the Fund's
sub-advisor (collectively, the "Advisors"), are responsible for selecting the
Fund's investments. (See "Investment Advisor and Sub-Advisor.") The Fund will
invest primarily in U.S. equity securities (including common stocks, preferred
stocks, convertible debt, warrants, other securities convertible into or
exchangeable for common stocks, and Standard & Poor's ("S&P") depository
receipts ("SPDRs")), securities index futures contracts, and U.S. Treasury
Securities.
Edward S. Hyman, Chairman of ISI and the Fund and R. Alan Medaugh, President of
ISI and President and Director of the Fund, will allocate the Fund's assets
between U.S. equity securities and U.S. Treasury Securities based on ISI's
analysis of the pace of the economy and its forecasts for the direction of
interest rates and corporate earnings. Under normal market conditions, the Fund
will invest its assets in a ratio of (1) approximately 80% equity securities to
20% U.S. Treasury Securities when an aggressive strategy is deemed warranted,
(2) approximately 60% equity securities to 40% U.S. Treasury Securities when a
neutral strategy is deemed warranted, and (3) approximately 40% equity
securities to 60% U.S. Treasury Securities when a defensive strategy is deemed
warranted. As discussed below, the Fund may, especially during its early
stages, use securities index futures contracts as a means of obtaining exposure
to the U.S. equity markets. The allocation of the Fund's assets will be
reviewed periodically in light of ISI's forecasts and may be reallocated when
ISI determines it appropriate. The Fund's assets will be rebalanced on a
quarterly basis if at that time the market value of the equity portion of the
portfolio is below 40% or above 80% of the Fund's total assets. There can be no
assurance that the Advisor's forecasts will accurately predict economic trends
or that portfolio strategies based on these forecasts will be effective.
U. S. EQUITY SECURITIES
Wilshire and its affiliates have, since 1983, focused on building and
maintaining portfolios based on the Wilshire 5000 Index and other
custom-structured U.S. equity applications, and currently have $________ billion
under management in these portfolios. In managing the U.S. equity securities in
the Fund's portfolio Wilshire will attempt to capture the return of the broad
U.S. equity market. Ultimately, Wilshire expects that the performance and
volatility of the Fund's equity portfolio will approximately resemble that of
the Wilshire 5000 Index ("Wilshire 5000" or "Index"). The Wilshire 5000 consists
of all U.S. common stocks that trade on a regular basis on the New York and
American Stock Exchanges and in the NASDQ over-the-counter market. Approximately
7,300 stocks, including large-, medium-, and small-capitalization stocks are
included in the Index. In constructing the Fund's portfolio, Wilshire will, as
the Fund grows, conduct a stratified sampling of the Wilshire 5000 resulting
optimally in the purchase of 1,500 to 2,000 common stocks of issuers included in
the Index based on sector allocation and other investment techniques in an
attempt to achieve performance and volatility comparable to the Index.
Initially, Wilshire may use securities index futures contracts and SPDRs to
gain market exposure without purchasing individual stocks. For example, the
Fund may invest in security index futures contracts on the Standard & Poor's
500 Index ("S&P 500") and the Russell 2000 Index as well as S&P 500 SPDRs and
S&P MidCap 400 Index SPDRs for market exposure.
For more information on securities index futures contracts, see "Futures
Contracts" under "Other Investment Policies and Risk Considerations" below.
A SPDR is a share of common stock in a unit investment trust ("UIT") that is
currently traded on the American Stock Exchange. SPDRs represent a proportionate
undivided interest in a basket of securities owned by the UIT which consists of
substantially all of the common stocks, in substantially the same weighting, as
the component stocks of a specified S&P index. The performance of a SPDR is
intended to track the performance of the component stocks of the relevant S&P
index. The composition and weighting of the securities owned by the UIT will be
adjusted from time to time to conform to periodic changes in the volatility and
relative weightings of such S&P index. See "Risk Considerations" below for more
information about SPDRs. The Fund's investment in SPDRs will be subject to
limitations on investment in other investment companies (see the Statement of
Additional Information).
U.S. TREASURY SECURITIES
ISI will manage the U.S. Treasury Securities in the Fund's portfolio with a view
toward, first, a high level of total return with relative stability of principal
and, second, high current income. Therefore, in addition to yield, the potential
for capital gains and appreciation resulting from possible changes in interest
rates will be a consideration in
3
<PAGE>
selecting investments. ISI will be free to take advantage of the entire range
of maturities offered by U.S. Treasury Securities and may adjust the average
maturity of such securities held in the Fund's portfolio from time to time,
depending on its assessment of the relative yields available on securities of
different maturities and its expectations of future changes in interest rates.
Thus, at certain times the average maturity of the U.S. Treasury Securities
held by the Fund may be relatively short (from under one year to five years,
for example) and at other times may be relatively long (over 10 years, for
example). In determining which direction interest rates are likely to move, the
Advisor relies on the economic analysis made by Mr. Hyman. There can be no
assurance that such economic analysis will accurately predict interest rate
trends or that portfolio strategies based on Mr. Hyman's economic analysis will
be effective.
RISK CONSIDERATIONS
The investment policies of the Fund entail certain risks and considerations of
which an investor should be aware.
U.S. Equity Securities. The Fund will invest in U.S. equity securities which
are subject to market risks that may cause their prices to fluctuate over time
and the price fluctuations may differ from changes in the value of the Wilshire
5000. Fluctuations in the value of the U.S. equity securities held by the Fund
will cause the value of the Shares to fluctuate. An investment in SPDRs is
subject to the same risk of fluctuation in value as the basket of common stocks
underlying the SPDR. In particular, the price at which the underlying SPDR
securities may be sold and the value of the SPDR may be adversely affected if
the secondary trading markets for the SPDRs are limited or absent.
Additionally, the basket of common stocks underlying the SPDR may not exactly
replicate the performance of the specified index because of transaction costs
and other expenses. The basket of common stocks underlying the SPDR may also be
unable to fully replicate the performance of the specified S&P index due to the
temporary unavailability of certain underlying securities or due to other
extraordinary circumstances.
U.S. Treasury Securities. U.S. Treasury Securities are considered among the
safest of fixed-income investments. Because of this added safety, the yields
available from U.S. Treasury Securities are generally lower than the yields
available from corporate debt securities. As with other debt securities, the
value of U.S. Treasury Securities changes as interest rates fluctuate. This is
especially true for securities with longer maturities and for STRIPS
(securities that do not pay interest currently but which are purchased at a
discount and are payable in full at maturity). Changes in the value of
portfolio securities will not affect interest income from those securities but
will be reflected in the Fund's net asset value. Thus, a decrease in interest
rates will generally result in an increase in the value of the Shares.
Conversely, during periods of rising interest rates, the value of the Shares
will generally decline. The magnitude of these fluctuations will generally be
greater at times when the average maturity of the U.S. Treasury Securities held
by the Fund is longer.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Futures Contracts. The Fund may engage in securities index futures contracts in
order to obtain exposure to certain market segments, facilitate allocation of
investments among asset classes and for the purposes of hedging the portfolio's
investments. A securities index futures contract obligates the seller to
deliver (and the purchaser to take), effectively, an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the trade is made. No physical delivery of the underlying stocks in
the index is made. Futures contracts will be entered on domestic exchanges and
boards of trade, subject to applicable Commodities and Futures Trading
Commission ("CFTC") Rules. These transactions may be entered into for bona fide
hedging and other permissible risk management purposes.
In connection with transactions in futures contracts, the Fund will be required
to deposit as "initial margin" a specified amount of cash or short-term U.S.
Government securities. The initial margin required for a securities index
futures contract is set by the exchange on which the contract is traded with
review and oversight by the CFTC. Thereafter, subsequent payments (referred to
as "variation margin") are made to and from the broker to reflect changes in
the value of the futures contract. The Fund will not enter into futures
contracts, if immediately thereafter, the sum of the amounts of initial margin
deposits on the Fund's open futures contracts entered into for other than "bona
fide hedging" would exceed 5% of the value of the Fund's total assets.
Participation in the futures markets involves investment risks and transaction
costs to which the Fund would not be
4
<PAGE>
subject absent the use of these strategies. Gains and losses on futures
contracts, such as securities index futures contracts, depend on the Advisor's
ability to predict correctly the direction of securities prices, interest rates
and other economic factors. Other risks associated with the use of futures
contracts are (i) imperfect correlation between the price of futures contracts
and movements in the prices of the securities underlying the index or of the
securities being hedged in the case of bona fide hedging strategies; (ii) the
fact that skills needed to use these investment strategies are different from
those needed to select portfolio securities; (iii) the possible absence of a
liquid secondary market for any particular instrument at any particular time;
and (iv) the possible need to defer closing out certain positions to avoid
adverse tax consequences. The risk that the Fund will be unable to close out a
futures position will be minimized by only entering into futures contracts for
which there appears to be a liquid exchange or secondary market. In addition,
the possible risk of loss of trading futures contracts in certain strategies
can be substantial, due to both the low margin deposits required and the high
degree of leverage involved in futures pricing.
Other Investments. For temporary, defensive purposes, the Fund may invest up to
100% of its assets in high quality, short-term money market instruments, and in
notes or bonds issued by the U.S. Treasury Department or by other agencies of
the U.S. Government.
Repurchase Agreements. The Fund may agree to purchase U.S. Treasury securities
from creditworthy financial institutions, such as banks and broker-dealers,
subject to the seller's agreement to repurchase the securities at an
established time and price. Default by, or bankruptcy proceedings with respect
to, the seller may, however, expose the Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations.
Purchase of When Issued Securities. From time to time, in the ordinary course
of business, the Fund may make purchases of U.S. Treasury securities, at the
current market value of the securities, on a when-issued basis. A segregated
account of the Fund, consisting of cash or liquid securities equal at all times
to the amount of the when-issued commitments will be established and maintained
by the Fund at the Fund's custodian. While the Fund will purchase securities on
a when-issued basis only with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date if it is deemed
advisable to limit the effects of adverse market action. The value of U.S.
Treasury securities so purchased or sold is subject to market fluctuation and no
interest accrues to the purchaser during this period. The Fund will ordinarily
invest no more than [40]% of its net assets at any time in securities purchased
on a when-issued basis.
[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 market value, determined daily, of the loaned securities. As with any
extensions of credit, there are risk 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 Advisors (subject to review by the Fund's Board of Directors)
will consider all relevant facts and circumstances including the
creditworthiness of the borrower. The Fund will not lend portfolio securities
in excess of [20]% of the value of its total assets. The Board of Directors
will monitor the Fund's lending of portfolio securities.]
3. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal regulatory limitations. The
Fund's investment objective and investment restrictions numbered 1 and 2 are
matters of fundamental policy and may not be changed without shareholder
approval. Investment restriction number 3 may be changed by a majority vote of
the Board of Directors. The Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in any
one industry (for these purposes the U.S. Government, its agencies and
instrumentalities are not considered an industry);
2) With respect to 75% of its total assets, invest more than 5% of the value of
its total assets in the securities of any single issuer or purchase more
than 10% of the outstanding voting securities of any one issuer, except
the U.S. Government, its agencies and instrumentalities; and
3) Invest more than 15% of the value of its net assets in illiquid securities.
5
<PAGE>
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
4. HOW TO INVEST IN THE FUND
Shares may be purchased from the Distributor, through any securities dealer
which has entered into a dealer agreement with the Distributor ("Participating
Dealers") or through any financial institution which has entered into a
shareholder servicing agreement with the Fund ("Shareholder Servicing Agents").
Shares may also be purchased by completing the Application Form attached to
this Prospectus and returning it, together with payment of the purchase price,
to the address shown on the Application Form. As used herein, the "Fund" refers
to The Strategy Fund, Inc., whereas references to the "Shares" shall mean
shares of the Fund's ISI Strategy Fund Shares class, which is a class of shares
of the Fund.
The minimum initial investment is $5,000, except that the minimum initial
investment for qualified retirement plans and IRA's is $1,000 and the minimum
initial investment for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent investment must be at least $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 of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given their
market value where feasible. If a portfolio security is traded on a national
exchange, on the valuation date, the last quoted sale price (or in the absence
of recorded sales, the average of readily available closing bid and asked
prices) will generally be used. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith 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.
OFFERING PRICE
Shares may be purchased at the Offering Price, which includes a sales charge
which is calculated as a percentage of the Offering Price and decreases as the
amount of purchase increases as shown below.
<TABLE>
<CAPTION>
Sales Sales
Charge as Charge as Dealer
Percentage Percentage Compensation
of of Net as Percentage
Offering Amount of Offering
Amount of Purchase Price Invested Price*
------------------ ----- -------- ------
<S> <C> <C> <C>
Less than - $ 50,000 4.45% 4.66% 4.00%
$ 50,000 - $ 99,999 3.50% 3.63% 3.00%
$ 100,000 - $ 249,999 2.50% 2.56% 2.00%
$ 250,000 - $ 499,999 2.00% 2.04% 1.50%
$ 500,000 - $ 999,999 1.50% 1.52% 1.25%
$1,000,000 - $1,999,999 0.75% 0.76% 0.75%
$2,000,000 - $2,999,999 0.50% 0.50% 0.50%
$3,000,000 and over ...... None None None
</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. Dealers
that receive a reallowance of 100% of the sales charge may be considered
underwriters for purposes of the federal securities laws.
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
6
<PAGE>
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 the
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 Fund may amend or terminate
this right of accumulation at any time as to subsequent purchases. The term
"purchase" refers to an individual purchase by a single purchaser, or to
concurrent purchases, which will be aggregated, by a purchaser, the purchaser's
spouse and their children under the age of 21 years purchasing Shares for their
own account.
An investor may also obtain the reduced sales charges shown above by executing
a written Letter of Intent which states the investor's intention to invest at
least $50,000 within a 13-month period in Shares. Each purchase of Shares under
a Letter of Intent will be made at the Offering Price applicable at the time of
such purchase to the full amount indicated on the Letter of Intent. A Letter of
Intent 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 have
similar 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 the Advisor, the Fund's administrator, and their respective affiliates, and
employees of Participating Dealers. In addition, investors who have redeemed
shares of funds in the ISI family of funds that have lower sales charges may
purchase Shares at net asset value in an amount that is not more than the total
redemption proceeds, provided that they held the shares of such funds for more
than 24 months prior to the redemption, the purchase is within six months after
the redemption and the amount of the purchase is at least $5,000.
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 or any other charge. In addition,
shareholders of funds in the ISI family of funds that have lower sales charges
may exchange into other funds in the family upon payment of the difference in
sales charges, except that the exchange will be made at net asset value if the
shares have been held for at least 24 months. Investors who purchased Shares at
no load through a Special Offer may exchange into other funds in the ISI family
of funds upon payment of the applicable sales charge, except that the exchange
will be made at net asset value if such Shares have been held for at least 36
months. 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), or the
close of the New York Stock Exchange, whichever is earlier. Exchange requests
received after 4:00 p.m. (Eastern Time) will be effected on the next Business
Day.
[Until February 28, 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
7
<PAGE>
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.)
Investors should receive and read the applicable prospectus prior to tendering
shares for exchange.
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 minimum initial investment is $250. Each subsequent
investment must be at least $100 for monthly investments and $250 for quarterly
investments. 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 or who wishes to obtain additional
purchase information may do so by completing the appropriate section of the
Application Form attached to this Prospectus.
PURCHASES THROUGH DIVIDEND REINVESTMENT
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Shares. Unless the
shareholder elects otherwise, all income dividends and capital gains
distributions will be reinvested in additional Shares at net asset value,
without a sales charge. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Fund's transfer agent (the
"Transfer Agent") (see "Custodian, Transfer Agent and Accounting Services")
either directly or through their Participating Dealer or 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 the Transfer Agent
for additional information.
5. HOW TO REDEEM SHARES
Shareholders may redeem all or part of their investment on any Business Day by
transmitting a redemption order through the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to 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).
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net
asset value next determined on the following Business Day. 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;
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.
8
<PAGE>
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' 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 participate in the Systematic Withdrawal Plan may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
6. 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 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 determined on the next 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
telecopied 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.")
7. DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income (including net short-term capital gains) in the
form of quarterly dividends. The Fund may distribute to shareholders any
taxable net capital gains on an annual basis or, alternatively, may elect to
retain net capital gains and pay tax thereon.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following summary of federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
the shareholders, and the discussion here is not intended as a substitute for
careful tax planning.The Statement of Additional Information sets forth further
information concerning taxes.
The Fund expects to be taxed as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended. As long as the Fund
qualifies for this tax treatment, it will be relieved of federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will generally pay federal income or capital gains taxes on the amounts so
distributed. Reinvested dividends will be taxed as if they had been distributed
on the reinvestment date.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term
9
<PAGE>
capital losses), if any, will be taxed to shareholders as long-term capital
gains regardless of the length of time the shareholder has held the Shares. All
other income distributions will be taxed to shareholders as ordinary income.
Corporate shareholders may be eligible for the corporate dividends received
deduction on a portion of dividends received from the Fund. Shareholders will
be advised annually as to the tax status of all distributions.
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 sale, exchange or redemption of Shares is a taxable event for the
shareholder.
The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
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.
8. 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, sub-advisor, distributor, administrator, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Distributor, to the Advisors and to the
Fund's administrator. A majority of the Directors of the Fund have no
affiliation with the Distributor, the Advisors or the Fund's administrator.
The Fund's Directors and officers are as follows:
Edward S. Hyman Chairman
Truman T. Semans Vice Chairman
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Michael J. Napoli, Jr. Director
Rebecca W. Rimel Director
Carl W. Vogt, Esq. Director
R. Alan Medaugh Director and President
David R. Borger Vice President
Carie L. Butler Vice President
Nancy Lazar Vice President
Thomas D. Stevens Vice President
Margaret M. Beeler Assistant Vice President
Keith C. Reilly Assistant Vice President
Amy M. Olmert Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
9. INVESTMENT ADVISOR AND SUB-ADVISOR
International Strategy & Investment Inc. is the Fund's investment advisor and
Wilshire Associates Incorporated is the Fund's sub-advisor. ISI employs Messrs.
Edward S. Hyman and R. Alan Medaugh. Due to their stock ownership, Messrs. Hyman
and Medaugh may be deemed to be controlling persons of ISI. As of July 31, 1997,
the Advisor had approximately $ __ million under management. The Advisor also
acts as investment advisor to Total Return U. S. Treasury Fund, Inc., Managed
Municipal Fund, Inc. and North American Government Bond Fund, Inc., open-end
investment companies with approximately $_____ million in net assets as of July
31, 1997. Wilshire is a registered investment advisor with approximately $______
of net assets under management as of July 31, 1997. Wilshire currently provides
advisory or sub-advisory services to ______ [open-end investment companies] with
approximately $_____ of combined net assets as of July 31, 1997. Wilshire is a
California corporation. Wilshire employs as its President and Chairman, Mr.
Dennis Tito who, due to his stock ownership, may be deemed to be a controlling
person of Wilshire.
Pursuant to the terms of the Investment Advisory Agreement, ISI supervises and
manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory
10
<PAGE>
Agreements, ISI delegates to Wilshire certain of its duties, provided that ISI
continues to supervise the performance of Wilshire and report thereon to the
Board of Directors (see "Investment Program").
As compensation for providing investment advisory services, ISI is entitled to
receive an annual fee, calculated daily and payable monthly, equal to .40% of
the Fund's average daily net assets. As compensation for providing sub-advisory
services, Wilshire is entitled to receive an annual fee from ISI, payable from
its advisory fee, calculated daily and payable monthly, equal to .16% of the
Fund's average daily net assets. ISI and Wilshire have voluntarily agreed to
waive their annual fees proportionately, to the extent necessary, and ISI has
voluntarily agreed to reimburse expenses to the extent necessary, so that total
operating expenses do not exceed 1.00% 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. The address of Wilshire is 1299 Ocean Avenue, Suite
700, Santa Monica, California 90401.
PORTFOLIO MANAGERS
The Fund's portfolio managers are Edward S. Hyman and R. Alan Medaugh of ISI,
and Thomas D. Stevens, David R. Borger, and Michael J. Napoli, Jr. of Wilshire.
Mr. Hyman, Chairman of the Fund since its inception and Chairman of ISI since
1991, is responsible for developing the forecasts and economic analysis on which
the allocation strategy and the selection of investments in the Fund's portfolio
of U.S. Treasury Securities are based (see "Investment Program"). Before joining
ISI, Mr. Hyman was a vice chairman and member of the Board of C.J. Lawrence Inc.
and prior thereto, an economic consultant at Data Resources. He writes a variety
of international and domestic economic research reports which follow trends that
may determine the direction of interest rates. These international and domestic
reports are sent to ISI's private institutional clients in the United States and
overseas. The periodical Institutional Investor, which rates analysts and
economists on an annual basis, has rated Mr. Hyman as its "first team"
economist, which is its highest rating, in each of the last [seventeen] years.
Mr. Medaugh, President and a Director of the Fund since its inception and
President of ISI since 1991, is responsible for executing the allocation
strategy as well as the day-to-day management of the Fund's portfolio of U.S.
Treasury Securities. 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.
Mr. Stevens, Mr. Borger and Mr. Napoli have shared responsibility for managing
the Fund's portfolio of U.S. equity securities since the Fund's inception. Mr.
Stevens, a Vice President of the Fund, has served as a Senior Vice President and
Principal of Wilshire and Chief Investment Officer of Wilshire Asset Management
("WAM"), a division of Wilshire for each of the last five years. He has been
employed with Wilshire since 1980. Prior to joining Wilshire, Mr. Stevens was a
portfolio manager and analyst at the National Bank of Detroit. Mr. Borger, a
Vice President of the Fund, has served as a Vice President and Principal of
Wilshire and Director of Research at WAM for each of the last five years. Mr.
Borger has been employed with Wilshire since 1986. Before joining Wilshire, he
was a Vice President and Chief of Quantitative Investment Methods at the
National Bank of Detroit where he managed an equity index fund. Mr. Napoli, a
Director of the Fund, has served as a Vice President of Wilshire and Director of
Marketing for WAM for each of the last five years and as a Principal of
Wilshire since 1993. Mr. Napoli has been employed with Wilshire from 1991 to the
present. Prior to joining Wilshire, he was employed with Drexel Burnham Lambert,
Bankers Trust Co. and Ameri-trust Company.
10. ADMINISTRATOR
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore, Maryland
21202, provides administration services to the Fund. ICC is an indirect
subsidiary of [Bankers Trust New York Corporation].
ICC supervises the day-to-day operations of the Fund, including the preparation
of registration statements, proxy materials, shareholder reports, compliance
with all requirements of securities laws in the states in which the Shares are
distributed and oversight of the relationship between the Fund and its other
service providers. As compensation for these services ICC is entitled to
receive an annual fee, calculated daily and payable monthly equal to .12% of
the
11
<PAGE>
Fund's average daily net assets. ICC has voluntarily agreed to waive its fee
until the earlier of such time as the Fund has $50 million in net assets or has
been in operation for one year.
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.")
11. DISTRIBUTOR
International Strategy & Investment Group Inc. ("ISI Group" or the
"Distributor"), 717 Fifth Avenue, New York, New York 10022, acts as distributor
of the Shares pursuant to a Distribution Agreement and related Plan of
Distribution (the "Plan") adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended. ISI Group is a broker-dealer that was formed
in 1991 and is an affiliate of the Advisor. ISI Group employs Mr. Edward S.
Hyman and Ms. Nancy Lazar. Due to their stock ownership, Mr. Hyman and Ms.
Lazar may be deemed to be controlling persons of ISI Group. As compensation for
its services, the Distributor receives a fee equal to .25% of the Shares'
average daily net assets. 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.
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 the Distributor may allocate a portion of its
distribution fee as compensation for such financial institutions' ongoing
shareholder services. 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. Amounts allocated to
Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to the Distributor under the Plan. Payments under the Plan are made as
described above regardless of the Distributor's actual cost of providing
distribution services and may be used to pay the Distributor's overhead
expenses. If the cost of providing distribution services to the Fund in
connection with the sale of the Shares is less than .25% of the average daily
net assets invested in Shares for any period, the Distributor may retain the
unexpended portion of the distribution fee. The Distributor or its associated
persons will from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Participating Dealers.
12. 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.
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, an
affiliate of ICC, acts as custodian of the Fund's assets.
13. PERFORMANCE INFORMATION
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
stock or other relevant indices.
All such advertisements will show the average annual total return, net of the
Fund's maximum 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 the maximum
sales charge and other fees, according to the required standardized
calculation. 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. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation. 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 which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Wilshire 5000 Index, the
CDA/Wiesenberger Domestic Asset Allocation Average Mutual Fund, [the Consumer
12
<PAGE>
Price Index, the Standard & Poor's 500 Stock Index and other market indices
such as NASDAQ.] The Fund may also use total return performance data as
reported in the following national financial and industry publications that
monitor the performance of mutual funds: Money Magazine, Forbes, Business Week,
Barron's, Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall
Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as respresentative of the future performance of the Fund.
Performance is generally a function of the type and quality of instruments held
by the Fund, operating expenses and market conditions. Any fees charged by
banks with respect to customer accounts through which Shares may be purchased,
although not included in calculations of performance, will reduce performance
results.
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. In accordance with its investment objectives, the Fund may
shift its investments between U.S. Treasury Securities and U.S. equity
securities from time to time which may result in relatively high portfolio
turnover. 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. The Fund estimates its portfolio turnover rate will not exceed
100% in the fiscal year ending, May 31, 1998. (See "Dividends and Taxes.")
14. GENERAL INFORMATION
CAPITAL SHARES
The Fund is an open-end diversified management investment company organized
under the laws of the State of Maryland on June 12, 1997, 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 of
capital stock voting together for election of Directors may elect all the
members of the Board of Directors of the Fund. In the event of liquidation or
dissolution of the Fund, each share is entitled to its portion of the Fund's
assets after all debts and expenses have been paid. The fiscal year end of the
Fund is May 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests in
a separate portfolio of securities, and separate classes of each series of the
Fund. The shares offered by this Prospectus have been designated "ISI Strategy
Fund Shares." The Board has no present intention of establishing any additional
series of the Fund but the Fund does have one other class of shares in addition
to the shares offered hereby, "Wilshire Institutional Strategy Fund Shares."
Information about that class may be obtained by calling the Distributor at
(800) ___ ____. Different classes of the Fund may be offered to certain
investors and holders of such shares may be entitled to certain exchange
privileges not offered to Shares. All classes of the Fund share a common
investment objective, portfolio and advisory fee, but the classes may have
different distribution expenses and sales charges and, accordingly, performance
may differ.
ANNUAL MEETINGS
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 and financial statements. The annual financial statements are
audited by the Fund's independent auditors, Deloitte & Touche LLP.
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 Fund at (800) 955-7175, the Advisors, a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
13
<PAGE>
ISI STRATEGY FUND SHARES
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "ISI Strategy Fund Shares" and mail with this Application
to:
ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent at (800)
882-8585.
To open an IRA account, call ISI at (800) 955-7175 to request an application.
The minimum initial purchase is $5,000, except that the minimum initial
purchase for qualified retirement plans or IRA's is $1,000 and the minimum
initial purchase for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent purchase requires a $250 minimum, except that the minimum
subsequent purchase under the Fund's Automatic Investing Plan is $100 for
monthly purchases and $250 for quarterly purchases. The Fund reserves the right
not to accept checks for more than $50,000 that are not certified or bank
checks.
Your Account Registration (Please Print)
Individual or Joint Tenant
- --------------------------------------
First Name Initial Last Name
- --------------------------------------
Social Security Number
- --------------------------------------
Joint Tenant Initial Last Name
- --------------------------------------
Social Security Number
Corporations, Trusts, Partnerships, etc.
- --------------------------------------
Name of Corporation, Trust or Partnership
- --------------------------------------
Tax ID Number
- --------------------------------------
Name of Trustees (If to be included in the Registration)
Gifts to Minors
================================================================================
- -------------------------------------
Existing Account No., if any
================================================================================
- --------------------------------------
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 Agreement set forth in the
accompanying prospectus. I intend to invest over a 13-month period in shares of
ISI Strategy Fund Shares in an aggregate amount at least equal to:
- --- $50,000 --- $100,000 --- $250,000 --- $500,000 --- $1,000,000 ---
$2,000,000 --- $3,000,000
Right of Accumulation (Optional)
List the Account numbers of other ISI Funds that you or your immediate family
already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
DISTRIBUTION OPTIONS
Please check appropriate boxes. There is no sales charge for reinvested
dividends. If none of the options are selected, all distributions will be
reinvested.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in
additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 882-8585 for information about reinvesting your dividends in other
funds in the ISI Family of Funds.
<PAGE>
Automatic Investing Plan (Optional)
|B) I authorize you as Agent for the Automatic Investing Plan to automatically
invest $------------ for me, on a monthly or quarterly basis, on or about the
20th of each month or if quarterly, the 20th of January, April, July and
October, and to draw a bank draft in payment of the investment against my
checking account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one): [ ] Monthly ($100 minimum)
[ ] Quarterly ($250
minimum)
Please attach a voided check.
- ------------------------------------- -------------------------------------
Bank Name
Depositor's Signature Date
- ------------------------------------- --------------------------------------
Existing ISI Strategy Fund Account No., Depositor's Signature Date
if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
/ / Beginning the month of --------------------- , 19-- , please send me checks
on a monthly or quarterly basis, as indicated below, in the amount of
$--------------------- , from shares that I own, payable to the account
registration address as shown above. (Participation requires minimum account
value of $10,000.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April, July and
October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other ISI Funds) unless I mark one or both of the boxes below.
No, I/We do not want: [ ] Telephone redemption privileges [ ] Telephone
exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: ------------------------- Bank Account
No.: -------------------------
Address: ----------------------- Bank Account
Name: -------------------------
-----------------------
<PAGE>
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 , 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]
- ------------------------------------- -------------------------------------
Signature Date Signature (if a joint account, both
must sign) Date
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: ______________________________________ Dealer Code: ___________
Dealer's Address: ____________________________________ Branch Code: ___________
____________________________________
Representative: ____________________________________ Rep. No.: ______________
<PAGE>
[GRAPHIC OMITTED]
ISI
STRATEGY FUND
SHARES
(A Class of ISI Strategy 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 the Distributor.
TABLE OF CONTENTS
Page
1. Fee Table ....................................................2
2. Investment Program ...........................................2
3. Investment Restrictions ........................................5
4. How to Invest in the Fund .....................................6
5. How to Redeem Shares ...........................................8
6. Telephone Transactions ........................................9
7. Dividends and Taxes ...........................................9
8. Management of the Fund .......................................10
9. Investment Advisor and
Sub-Advisor ................................................10
10. Administrator ................................................11
11. Distributor ...................................................12
12. Custodian, Transfer Agent and
Accounting Services ..........................................12
13. Performance Information .......................................12
14. General Information ..........................................13
ISI
STRATEGY FUND
SHARES
(A Class of ISI Strategy Fund, Inc.)
An open-end mutual fund seeking to maximize total return through a
combination of long-term growth of capital and current income by actively
apportioning investments between securities issued by the United States Treasury
("U.S. Treasury Securities") and diversified investments in U.S. equity
securities.
, 1997
<PAGE>
ISI STRATEGY FUND, INC.
August 15, 1997
Cross Reference Sheet
(Wilshire Institutional Strategy Fund Shares)
Items Required by Form N-1A
<TABLE>
<CAPTION>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights*
Item 4. General Description of Registrant Investment Program
Investment Restrictions;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and Sub-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
</TABLE>
* Omitted since the answer is negative or the item is not applicable.
** Required information will be contained in the Registrant's first Annual
Report to Shareholders containing results of operations, when available.
<PAGE>
<TABLE>
<CAPTION>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
<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 Brokerage
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 Information
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE>
WILSHIRE INSTITUTIONAL STRATEGY FUND SHARES
(A Class of ISI Strategy Fund, Inc.)
717 Fifth Avenue
New York, New York 10022
For information call (800) 955-7175
ISI Strategy Fund, Inc. (the "Fund") is designed to maximize total return
through a combination of long-term growth of capital and current income by
actively apportioning investments between U.S. Treasury Securities and
diversified investments in U.S. equity securities.
Shares of the Wilshire Institutional class of the Fund ("Institutional
Shares") are available through International Strategy & Investment Group Inc.
(the "Distributor"), or the Fund's transfer agent, and may be purchased only by
qualified retirement plans that meet the $1,000,000 minimum investment
requirement. (See "How to Invest in the Institutional Shares.")
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 , 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 or telephone number.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
1. Fee Table
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............ None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, whichever is lower) ........................................................... None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees (net of fee waivers) ................................................... 0.00%*
12b-1 Fees .............................................................................. None
Other Expenses (net of fee waivers) ...................................................... 0.75%*
-------
Total Fund Operating Expenses (net of fee waivers) .................................... 0.75%*
=======
</TABLE>
- -----------
*The Advisor has voluntarily agreed to waive its fees and to reimburse expenses
to the extent required so that the Total Fund Operating Expenses do not exceed
0.75% of the Institutional Share's average daily net assets. In addition, the
Fund's administrator has voluntarily agreed to waive its fee until the earlier
of such time as the Fund's net assets reach $50 million or the Fund has been in
operation for one year. Absent fee waivers, Management Fees would be .40%,
Other Expenses (including administration fees) would be 1.15% and Total Fund
Operating Expenses would be 1.55% of the Institutional Share's average daily
net assets.
Example:
1 year 3 years
-------- --------
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period: $8 $24
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 Institutional Shares will bear directly or
indirectly. A person who purchases Institutional Shares through a financial
institution may be charged separate fees by the financial institution. (For
more complete descriptions of the various costs and expenses, see "How to
Invest in the Instutitional Shares", "Investment Advisor", "Administrator" and
"Distributor.") The Expenses and Example appearing in the table above are based
on the Fund's estimated amounts for the current fiscal year ending May 31,
1998. The foregoing table has not been audited by Deloitte & Touche LLP, the
Fund's independent auditors.
2. Investment Program
Investment Objective and Policies
The Fund's investment objective is to maximize total return through a
combination of long-term growth of capital and current income. The Fund seeks
to achieve this objective through an active asset allocation strategy that
involves apportioning the Fund's assets between U.S. Treasury Securities and
diversified investments in U.S. equity securities. There can be no assurance
that the Fund's investment objective will be met.
Allocation of Investments
International Strategy & Investment Inc. ("ISI" or the "Advisor"), the Fund's
advisor, and Wilshire Associates Incorporated ("Wilshire"), the Fund's
sub-advisor (collectively, the "Advisors"), are responsible for selecting the
2
<PAGE>
Fund's investments. (See "Investment Advisor and Sub-Advisor.") The Fund will
invest primarily in U.S. equity securities (including common stocks, preferred
stocks, convertible debt, warrants, other securities convertible into or
exchangeable for common stocks, and Standard & Poor's ("S&P") depository
receipts ("SPDRs")), securities index futures contracts, and U.S. Treasury
Securities.
Edward S. Hyman, Chairman of ISI and the Fund and R. Alan Medaugh, President of
ISI and President and a Director of the Fund, will allocate the Fund's assets
between U.S. equity securities and U.S. Treasury Securities based on ISI's
analysis of the pace of the economy and its forecasts for the direction of
interest rates and corporate earnings. Under normal market conditions, the Fund
will invest its assets in a ratio of (1) approximately 80% equity securities to
20% U.S. Treasury Securities when an aggressive strategy is deemed warranted,
(2) approximately 60% equity securities to 40% U.S. Treasury Securities when a
neutral strategy is deemed warranted, and (3) approximately 40% equity
securities to 60% U.S. Treasury Securities when a defensive strategy is deemed
warranted. As discussed below, the Fund may, especially during its early
stages, use securities index futures contracts as a means of obtaining exposure
to the U.S. equity markets. The allocation of the Fund's assets will be
reviewed periodically in light of ISI's forecasts and may be reallocated when
ISI determines it appropriate. The Fund's assets will be rebalanced on a
quarterly basis if at that time the market value of the equity portion of the
portfolio is below 40% or above 80% of the Fund's total assets. There can be no
assurance that the Advisor's forecasts will accurately predict economic trends
or that portfolio strategies based on these forecasts will be effective.
U. S. Equity Securities
Wilshire and its affiliates have, since 1983, focused on building and
maintaining portfolios based on the Wilshire 5000 Index and other custom
structured U.S. equity applications and currently have $____ billion under
management in these portfolios. In managing the U.S. equity securities in the
Fund's portfolio Wilshire will attempt to capture the return of the broad U.S.
equity market. Ultimately, Wilshire expects that the performance and volatility
of the Fund's equity portfolio will approximately resemble that of the Wilshire
5000 Index ("Wilshire 5000" or "Index"). The Wilshire 5000 consists of all U.S.
common stocks that trade on a regular basis on the New York and American Stock
Exchanges and in the NASDQ over-the-counter market. Approximately 7,300 stocks,
including large-, medium-, and small-capitalization stocks are included in the
Index. In constructing the Fund's portfolio, Wilshire will, as the Fund grows,
conduct a stratified sampling of the Wilshire 5000 resulting optimally in the
purchase of 1,500 to 2,000 common stocks of issuers included in the Index based
on sector allocation and other investment techniques in an attempt to achieve
performance and volatility comparable to the Index.
Initially, Wilshire may use securities index futures contracts and SPDRs to
gain market exposure without purchasing individual stocks. For example, the
Fund may invest in security index futures contracts on the Standard & Poor's
500 Index ("S&P 500") and the Russell 2000 Index as well as S&P 500 SPDRs and
S&P MidCap 400 Index SPDRs for market exposure.
For more information on securities index futures contracts, see "Futures
Contracts" under "Other Investment Policies and Risk Considerations" below.
A SPDR is a share of common stock in a unit investment trust ("UIT") that is
currently traded on the American Stock Exchange. SPDRs represent a proportionate
undivided interest in a basket of securities owned by the UIT which consists of
substantially all of the common stocks, in substantially the same weighting, as
the component stocks of a specified S&P index. The performance of a SPDR is
intended to track the performance of the component stocks of the relevant S&P
index. The composition and weighting of the securities owned by the UIT will be
adjusted from time to time to conform to periodic changes in the volatility and
relative weightings of such S&P index. See "Risk Considerations" below for more
information about SPDRs. The Fund's investment in SPDRs will be subject to
limitations on investment in other investment companies (see the Statement of
Additional Information).
U.S. Treasury Securities
ISI will manage the U.S. Treasury Securities in the Fund's portfolio with a
view toward, first, a high level of total return with relative stability of
principal and, second, high current income. Therefore, in addition to yield,
the potential for capital gains and appreciation resulting from possible
changes in interest rates will be a consideration in selecting investments. ISI
will be free to take advantage of the entire range of maturities offered by
U.S. Treasury Securities and may adjust the average maturity of such securities
held in the Fund's portfolio from time to time, depending on its assessment of
the relative yields available
3
<PAGE>
on securities of different maturities and its expectations of future changes in
interest rates. Thus, at certain times the average maturity of the U.S.
Treasury Securities held by the Fund may be relatively short (from under one
year to five years, for example) and at other times may be relatively long
(over 10 years, for example). In determining which direction interest rates are
likely to move, the Advisor relies on the economic analysis made by Mr. Hyman.
There can be no assurance that such economic analysis will accurately predict
interest rate trends or that portfolio strategies based on Mr. Hyman's economic
analysis will be effective.
Risk Considerations
The investment policies of the Fund entail certain risks and considerations of
which an investor should be aware.
U.S. Equity Securities. The Fund will invest in U.S. equity securities which
are subject to market risks that may cause their prices to fluctuate over time
and the price fluctuations may differ from changes in the value of the Wilshire
5000. Fluctuations in the value of the U.S. equity securities held by the Fund
will cause the value of the Shares to fluctuate. An investment in SPDRs is
subject to the same risk of fluctuation in value as the basket of common stocks
underlying the SPDR. In particular, the price at which the underlying SPDR
securities may be sold and the value of the SPDR may be adversely affected if
the secondary trading markets for the SPDRs are limited or absent.
Additionally, the basket of common stocks underlying the SPDR may not exactly
replicate the performance of the specified index because of transaction costs
and other expenses. The basket of common stocks underlying the SPDR may also be
unable to fully replicate the performance of the specified S&P index due to the
temporary unavailability of certain underlying securities or due to other
extraordinary circumstances.
U.S. Treasury Securities. U.S. Treasury Securities are considered among the
safest of fixed-income investments. Because of this added safety, the yields
available from U.S. Treasury Securities are generally lower than the yields
available from corporate debt securities. As with other debt securities, the
value of U.S. Treasury Securities changes as interest rates fluctuate. This is
especially true for securities with longer maturities and for STRIPS
(securities that do not pay interest currently but which are purchased at a
discount and are payable in full at maturity). Changes in the value of
portfolio securities will not affect interest income from those securities but
will be reflected in the Fund's net asset value. Thus, a decrease in interest
rates will generally result in an increase in the value of the Shares.
Conversely, during periods of rising interest rates, the value of the Shares
will generally decline. The magnitude of these fluctuations will generally be
greater at times when the average maturity of the U.S. Treasury Securities held
by the Fund is longer.
Other Investment Policies and Risk Considerations
Futures Contracts. The Fund may engage in securities index futures contracts in
order to obtain exposure to certain market segments, facilitate allocation of
investments among asset classes and for the purposes of hedging the portfolio's
investments. A securities index futures contract obligates the seller to
deliver (and the purchaser to take), effectively, an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the trade is made. No physical delivery of the underlying stocks in
the index is made. Futures contracts will be entered on domestic exchanges and
boards of trade, subject to applicable Commodities and Futures Trading
Commission ("CFTC") Rules. These transactions may be entered into for bona fide
hedging and other permissible risk management purposes.
In connection with transactions in futures contracts, the Fund will be required
to deposit as "initial margin" a specified amount of cash or short-term U.S.
Government securities. The initial margin required for a securities index
futures contract is set by the exchange on which the contract is traded with
review and oversight by the CFTC. Thereafter, subsequent payments (referred to
as "variation margin") are made to and from the broker to reflect changes in
the value of the futures contract. The Fund will not enter into futures
contracts, if immediately thereafter, the sum of the amounts of initial margin
deposits on the Fund's open futures contracts entered into for other than "bona
fide hedging" would exceed 5% of the value of the Fund's total assets.
Participation in the futures markets involves investment risks and transaction
costs to which the Fund would not be subject absent the use of these
strategies. Gains and losses on futures contracts, such as securities index
futures contracts, depend on the Advisor's ability to predict correctly
4
<PAGE>
the direction of securities prices, interest rates and other economic factors.
Other risks associated with the use of futures contracts are (i) imperfect
correlation between the price of futures contracts and movements in the prices
of the securities underlying the index or of the securities being hedged in the
case of bona fide hedging strategies; (ii) the fact that skills needed to use
these investment strategies are different from those needed to select portfolio
securities; (iii) the possible absence of a liquid secondary market for any
particular instrument at any particular time; and (iv) the possible need to
defer closing out certain positions to avoid adverse tax consequences. The risk
that the Fund will be unable to close out a futures position will be minimized
by only entering into futures contracts for which there appears to be a liquid
exchange or secondary market. In addition, the possible risk of loss of trading
futures contracts in certain strategies can be substantial, due to both the low
margin deposits required and the high degree of leverage involved in futures
pricing.
Other Investments. For temporary, defensive purposes, the Fund may invest up to
100% of its assets in high quality, short-term money market instruments, and in
notes or bonds issued by the U.S. Treasury Department or by other agencies of
the U.S. Government.
Repurchase Agreements. The Fund may agree to purchase U.S. Treasury securities
from creditworthy financial institutions, such as banks and broker-dealers,
subject to the seller's agreement to repurchase the securities at an
established time and price. Default by, or bankruptcy proceedings with respect
to, the seller may, however, expose the Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying obligations.
Purchase of When Issued Securities. From time to time, in the ordinary course of
business, the Fund may make purchases of U.S. Treasury securities, at the
current market value of the securities, on a when-issued basis. A segregated
account of the Fund, consisting of cash or liquid securities equal at all times
to the amount of the when-issued commitments will be established and maintained
by the Fund at the Fund's custodian. While the Fund will purchase securities on
a when-issued basis only with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date if it is deemed
advisable to limit the effects of adverse market action. The value of U.S.
Treasury securities so purchased or sold is subject to market fluctuation and no
interest accrues to the purchaser during this period. The Fund will ordinarily
invest no more than [40]% of its net assets at any time in securities purchased
on a when-issued basis.
[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 market value, determined daily, of the loaned securities. As with any
extensions of credit, there are risk 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 Advisors (subject to review by the Fund's Board of Directors)
will consider all relevant facts and circumstances including the
creditworthiness of the borrower. The Fund will not lend portfolio securities
in excess of [20]% of the value of its total assets. The Board of Directors
will monitor the Fund's lending of portfolio securities.]
3. Investment Restrictions
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal regulatory limitations. The
Fund's investment objective and investment restrictions numbered 1 and 2 are
matters of fundamental policy and may not be changed without shareholder
approval. Investment restriction number 3 may be changed by a majority vote of
the Board of Directors. The Fund will not:
1) Concentrate 25% or more of its total assets in securities of issuers in any
one industry (for these purposes the U.S. Government, its agencies and
instrumentalities are not considered an industry);
2) With respect to 75% of its total assets, invest more than 5% of the value of
its total assets in the securities of any single issuer or purchase more
than 10% of the outstanding voting securities of any one issuer, except
the U.S. Government, its agencies and instrumentalities; and
3) Invest more than 15% of the value of its net assets in illiquid securities.
5
<PAGE>
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
4. How to Invest in the Institutional Shares
Qualified retirement plans may purchase Institutional Shares through the
Distributor or by completing the Application Form attached to this Prospectus
and returning it, together with payment of the purchase price, as instructed in
the Application.
The minimum initial investment in Institutional Shares is $1,000,000. There is
no minimum for subsequent investments. Orders for purchases of Institutional
Shares are accepted on any day on which the New York Stock Exchange is open for
business (a "Business Day"). Purchase orders for Institutional Shares will be
executed at a per share purchase price equal to the net asset value next
determined after receipt of the purchase order and immediately available funds.
The Distributor may, in its sole discretion, refuse to accept any purchase
order. The Fund reserves the right to suspend the sale of Institutional Shares
at any time at the discretion of the Advisors and the Distributor.
The net asset value per share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given their
market value where feasible. If a portfolio security is traded on a national
exchange, on the valuation date, the last quoted sale price (or in the absence
of recorded sales, the average of readily available closing bid and asked
prices) will generally be used. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith 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.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued. Beneficial owners of Institutional Shares will have the
same rights and ownership with respect to such shares as if certificates had
been issued.
[Purchases Through Automatic Investing Plan
Shareholders may purchase Institutional 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 Institutional Shares. The minimum initial
investment is $___. Each subsequent investment must be at least $___ for monthly
investments and $___ for quarterly investments. 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 Institutional 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
or who wishes to obtain additional purchase information may do so by completing
the appropriate section of the Application Form attached to this Prospectus.]
Purchases Through Dividend Reinvestment
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Institutional
Shares. Unless the shareholder elects otherwise, all income dividends and
capital gains distributions will be reinvested in additional Institutional
Shares at net asset value. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Fund's transfer agent (the
"Transfer Agent") (see "Custodian, Transfer Agent and Accounting Services")
either directly or through the Distributor, at least five days before the next
date on which dividends or distributions will be paid.
6
<PAGE>
5. How to Redeem Institutional Shares
Institutional Shares may be redeemed by the record owner on any Business Day by
transmission of a redemption order through the Distributor, or by regular or
express mail to the Transfer Agent at its address listed under "Custodian,
Transfer Agent and Accounting Services." Record owners may also redeem
Institutional Shares by telephone (in amounts up to $________.) (See "Telephone
Redemptions" below.) A redemption order is effected at the net asset value per
share next determined after receipt of the order in proper form. Redemption
orders received after 4:00 p.m. (Eastern Time), or the close of the New York
Stock Exchange, whichever is earlier, will be effected at the net asset value
next determined on the following Business Day. Payment for redeemed
Institutional Shares will be made to or at the direction of the record owner.
Payment will be made as promptly as feasible and, under most circumstances,
within three Business Days.
Dividends payable up to the date of redemption of Institutional Shares will be
paid on the next dividend payable date. If all of the Institutional 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' notice.
Systematic Withdrawal Plan
Shareholders who hold Institutional Shares having a value of $________ 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 Institutional 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. A shareholder who wishes to participate in the
Systematic Withdrawal Plan may do so by completing the appropriate section of
the Application Form attached to this Prospectus.
6. Telephone Redemptions
Record owners may redeem Institutional Shares, in amounts up to $ , by
notifying the Transfer Agent by telephone on any Business Day between the hours
of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its
address listed under "Custodian, Transfer Agent and Accounting Services."
Telephone redemption privileges are automatic. Shareholders may specifically
request that no telephone redemptions 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 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
redemptions placed after 4:00 p.m. (Eastern Time) will be effected at the net
asset value as determined on the next 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
redemption requested by telephone. In addition, all telephone redemption
requests will be recorded and investors may be required to provide additional
telecopied 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 redemptions. In such event,
requests should be made by regular or express mail. (See "How to Redeem
Institutional Shares.")
7. Dividends and Taxes
Dividends and Distributions
The Fund's policy is to distribute to record owners substantially all of its
taxable net investment income (including net short-term capital gains) in the
form of quarterly dividends. The Fund may distribute to record owners any
taxable net capital gains on an annual basis or, alternatively, may elect to
retain net capital gains and pay tax thereon.
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<PAGE>
Tax Treatment of Dividends and Distributions
The following summary of federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
the shareholders, and the discussion here is not intended as a substitute for
careful tax planning.The Statement of Additional Information sets forth further
information concerning taxes.
The Fund expects to be taxed as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended. As long as the Fund
qualifies for this tax treatment, it will be relieved of federal income tax on
amounts distributed to shareholders, but shareholders, unless otherwise exempt,
will generally pay federal income or capital gains taxes on the amounts so
distributed. Reinvested dividends will be taxed as if they had been distributed
on the reinvestment date.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time the shareholder has held the Shares. All other income distributions will be
taxed to shareholders as ordinary income. Corporate shareholders may be eligible
for the corporate dividends received deduction on a portion of dividends
received from the Fund. Shareholders will be advised annually as to the tax
status of all distributions.
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 sale, exchange or redemption of Institutional Shares is a taxable event for
the shareholder.
The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
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.
8. 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, sub-advisor, distributor, administrator, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers, to the Distributor, to the Advisors and to the
Fund's administrator. A majority of the Directors of the Fund have no
affiliation with the Distributor, the Advisors or the Fund's administrator.
The Fund's Directors and officers are as follows:
Edward S. Hyman Chairman
Truman T. Semans Vice Chairman
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Michael J. Napoli, Jr. Director
Rebecca W. Rimel Director
Carl W. Vogt, Esq. Director
R. Alan Medaugh Director and President
David R. Borger Vice President
Carie L. Butler Vice President
Nancy Lazar Vice President
Thomas D. Stevens Vice President
Margaret M. Beeler Assistant Vice President
Keith C. Reilly Assistant Vice President
Amy M. Olmert Secretary
Joseph A. Finelli Treasurer
Laurie D. Collidge Assistant Secretary
9. Investment Advisor and Sub-Advisor
International Strategy & Investment Inc. is the Fund's investment advisor and
Wilshire Associates Incorporated is the Fund's sub-advisor. ISI employs Messrs.
Edward S.
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<PAGE>
Hyman and R. Alan Medaugh. Due to their stock ownership, Messrs. Hyman and
Medaugh may be deemed to be controlling persons of ISI. As of July 31, 1997, the
Advisor had approximately $ __ million under management. The Advisor also acts
as investment advisor to Total Return U. S. Treasury Fund, Inc., Managed
Municipal Fund, Inc. and North American Government Bond Fund, Inc., open-end
investment companies with approximately $_____ million in net assets as of July
31, 1997. Wilshire is a registered investment advisor with approximately $______
of net assets under management as of July 31, 1997. Wilshire currently provides
advisory or sub-advisory services to ______ [open-end investment companies] with
approximately $_____ of combined net assets as of July 31, 1997. Wilshire is a
California corporation. Wilshire employs as its President and Chairman, Mr.
Dennis Tito who, due to his stock ownership, may be deemed to be a controlling
person of Wilshire.
Pursuant to the terms of the Investment Advisory Agreement, ISI supervises and
manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory Agreements, ISI delegates to Wilshire certain of its duties,
provided that ISI continues to supervise the performance of Wilshire and report
thereon to the Board of Directors (see "Investment Program").
As compensation for providing investment advisory services, ISI is entitled to
receive an annual fee, calculated daily and payable monthly, equal to .40% of
the Fund's average daily net assets. As compensation for providing sub-advisory
services, Wilshire is entitled to receive an annual fee from ISI, payable from
its advisory fee, calculated daily and payable monthly, equal to .16% of the
Fund's average daily net assets. ISI and Wilshire have voluntarily agreed to
waive their annual fees proportionately, to the extent necessary, and ISI has
voluntarily agreed to reimburse expenses to the extent necessary, so that total
operating expenses do not exceed 1.00% 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. The address of Wilshire is 1299 Ocean Avenue, Suite
700, Santa Monica, California 90401.
Portfolio Managers
The Fund's portfolio managers are Edward S. Hyman and R. Alan Medaugh of ISI,
and Thomas D. Stevens, David R. Borger, and Michael J. Napoli, Jr. of Wilshire.
Mr. Hyman, Chairman of the Fund since its inception and Chairman of ISI since
1991, is responsible for developing the forecasts and economic analysis on which
the allocation strategy and the selection of investments in the Fund's portfolio
of U.S. Treasury Securities are based (see "Investment Program"). Before joining
ISI, Mr. Hyman was a vice chairman and member of the Board of C.J. Lawrence Inc.
and prior thereto, an economic consultant at Data Resources. He writes a variety
of international and domestic economic research reports which follow trends that
may determine the direction of interest rates. These international and domestic
reports are sent to ISI's private institutional clients in the United States and
overseas. The periodical Institutional Investor, which rates analysts and
economists on an annual basis, has rated Mr. Hyman as its "first team"
economist, which is its highest rating, in each of the last [seventeen] years.
Mr. Medaugh, President and a Director of the Fund since its inception and
President of ISI since 1991, is responsible for executing the allocation
strategy as well as the day-to-day management of the Fund's portfolio of U.S.
Treasury Securities. 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.
Mr. Stevens, Mr. Borger and Mr. Napoli have shared responsibility for managing
the Fund's portfolio of U.S. equity securities since the Fund's inception. Mr.
Stevens, a Vice President of the Fund, has served as a Senior Vice President and
Principal of Wilshire and Chief Investment Officer of Wilshire Asset Management
("WAM"), a division of Wilshire for each of the last five years. He has been
employed with Wilshire since 1980. Prior to joining Wilshire, Mr. Stevens was a
portfolio manager and analyst at the National Bank of Detroit. Mr. Borger, a
Vice President of the Fund, has served as a Vice President and Principal of
Wilshire and Director of Research at WAM for each of the last five years. Mr.
Borger has been employed with Wilshire since 1986. Before joining Wilshire, he
was a Vice President and Chief of Quantitative Investment Methods at the
National Bank of Detroit where he managed an equity index fund. Mr. Napoli, a
Director of the Fund, has served as a Vice President of Wilshire and Director of
Marketing for WAM for each of the last five years and as a Principal of Wilshire
since 1993. Mr.
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<PAGE>
Napoli has been employed with Wilshire from 1991 to the present. Prior to
joining Wilshire, he was employed with Drexel Burnham Lambert, Bankers Trust
Co. and Ameri-trust Company.
10. Administrator
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore, Maryland
21202, provides administration services to the Fund. ICC is an indirect
subsidiary of [Bankers Trust New York Corporation.]
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
Institutional Shares are distributed and oversight of the relationship between
the Fund and its other service providers. As compensation for these services
ICC is entitled to receive an annual fee, calculated daily and payable monthly
equal to .12% of the Fund's average daily net assets. ICC has voluntarily
agreed to waive its fee until the earlier of such time as the Fund has $50
million in net assets or has been in operation for one year.
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.")
11. Distributor
International Strategy & Investment Group Inc. ("ISI Group" or the
"Distributor"), 717 Fifth Avenue, New York, New York 10022, acts as distributor
of the Fund's 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 IS Group. The Distributor receives no
compensation for distributing the Institutional Shares.
The Distributor bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other than
Fund shareholders.
12. 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.
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, an
affiliate of ICC, acts as custodian of the Fund's assets.
13. Performance Information
From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
stock or other relevant indices.
All such advertisements will show the average annual total return, net of the
Fund's maximum 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 the maximum
sales charge and other fees, according to the required standardized
calculation. 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. The standardized calculation is required by the SEC to provide
consistency and comparability in investment company advertising and is not
equivalent to a yield calculation. 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.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Wilshire 5000 Index, the
CDA/Wiesenberger Domestic Asset Allocation Average Mutual Fund, [the Consumer
Price Index, the Standard & Poor's 500 Stock Index and other market indices
such as NASDAQ.] The Fund may also use total return performance data as
reported in the following national financial and industry publications that
monitor the performance of mutual funds: Money Magazine, Forbes, Business Week,
Barron's, Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall
Street Journal.
10
<PAGE>
Performance will fluctuate and any statement of performance should not be
considered as respresentative of the future performance of the Fund.
Performance is generally a function of the type and quality of instruments held
by the Fund, operating expenses and market conditions. Any fees charged by
banks with respect to customer accounts through which Institutional Shares may
be purchased, although not included in calculations of performance, will reduce
performance results.
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. In accordance with its investment objectives, the Fund may
shift its investments between U.S. Treasury Securities and U.S. equity
securities from time to time which may result in relatively high portfolio
turnover. 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. The Fund estimates its portfolio turnover rate will not exceed
100% in the fiscal year ending, May 31, 1998. (See "Dividends and Taxes.")
14. General Information
Capital Shares
The Fund is an open-end diversified management investment company organized
under the laws of the State of Maryland on June 12, 1997, 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 of
capital stock voting together for election of Directors may elect all the
members of the Board of Directors of the Fund. In the event of liquidation or
dissolution of the Fund, each share is entitled to its portion of the Fund's
assets after all debts and expenses have been paid. The fiscal year end of the
Fund is May 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests in
a separate portfolio of securities, and separate classes of each series of the
Fund. The shares offered by this Prospectus have been designated "Wilshire
Institutional Strategy Fund Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund does have one other
class of shares in addition to the shares offered hereby, "ISI Strategy Fund
Shares." Information about that class may be obtained by calling the
Distributor at (800) ___ ____. Different classes of the Fund may be offered to
certain investors and holders of such shares may be entitled to certain
exchange privileges not offered to Institutional Shares. All classes of the
Fund share a common investment objective, portfolio and advisory fee, but the
classes may have different distribution expenses and sales charges and,
accordingly, performance may differ.
Annual Meetings
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 and financial statements. The annual financial statements are
audited by the Fund's independent auditors, Deloitte & Touche LLP.
Fund Counsel
Morgan Lewis & Bockius LLP serves as counsel to the Fund.
Shareholder Inquiries
Shareholders with inquiries concerning their Institutional Shares should
contact the Transfer Agent at (800) 882-8585, the Fund at (800) 955-7175, the
Advisors, a Participating Dealer or Shareholder Servicing Agent, as
appropriate.
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<PAGE>
WILSHIRE INSTITUTIONAL STRATEGY FUND SHARES
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Wilshire Institutional Strategy Fund Shares" and mail
with this Application to:
ISI Mutual Funds
P.O. Box 419426
Kansas City, MO 64141-6426
For assistance in completing this form, please call the Transfer Agent
at (800) 882-8585.
To open an IRA account, call ISI at (800) 955-7175 to request an Application.
The minimum initial purchase is $1,000,000.
Your Account Registration (Please Print)
Name on Account
- ------------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- ------------------------------------------------------------------------------
Tax ID Number
/ / Corporation / / Partnership / / Trust
/ / Non-Profit or Charitable Organization / / Other_______
If a Trust, please provide the following:
- --------------------------------------------------------------------------------
Date of Trust For the Benefit of
- --------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- ------------------------------------------------------------------------------
Existing Account No., if any
Mailing Address
- -------------------------------------------------------------------------------
Name of Individual to Receive Correspondence
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
( )
- --------------------------------------------------------------------------------
Daytime Phone
<PAGE>
Initial Investment
The minimum initial purchase for the Wilshire Institutional Shares of the Fund
is $1,000,000 except there is no minimum for qualified retirement plans or for
subsequent investments.
Indicate the amount to be invested and the method of payment:
__A. By Mail: Enclosed is a check in the amount of $______ payable to ISI
Strategy Fund, Inc.
__B. By Wire: A bank wire in the amount of $______ has been sent
from_____________________ _______________________
Name of Bank Wire Control Number
Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial
investment:
o Send completed Application by overnight carrier to ISI Funds at the
address listed above.
o Call 1-800-882-8585 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust Company
("IFTC"), as follows:
IFTC
a/c ISI Funds
Acct. # _______
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o ISI Strategy Fund, Inc. -- Wilshire Institutional Shares
o "For further credit to ________________________________________ ."
(Investor's Fund Account Number)
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.
Income Dividends Capital Gains
/ / Reinvested in additional shares / / Reinvested in
additional shares
/ / Paid in Cash / / Paid in Cash
Automatic Investing Plan (Optional)
/ / I authorize you as Agent for the Automatic Investing Plan to automatically
invest $____________ for me, on a monthly or quarterly basis, on or about the
20th of each month or if quarterly, the 20th of January, April, July and
October, and to draw a bank draft in payment of the investment against my
checking account. (Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $____
Subsequent Investments (check one): / / Monthly ($____ minimum)
/ / Quarterly ($____ minimum)
|-------------------------------|
| Please attach a voided check.|
|-------------------------------|
- ------------------------------------- -------------------------------------
Bank Name Depositor's Signature Date
- ------------------------------------- -------------------------------------
Existing ISI Strategy Fund Account No., Depositor's Signature Date
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 $_______.)
Frequency (check one): / / Monthly / / Quarterly (January, April, July and
October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $______) unless I mark the box below.
No, I/We do not want: / / Telephone redemption privileges
Redemptions effected by telephone will be wired to the bank account designated
below:
<PAGE>
Bank Account Designation (This Section Must Be Completed)
Please attach a blank voided check to provide account and bank routing
information.
- --------------------------------------------------------------------------------
Name of Bank Branch
- --------------------------------------------------------------------------------
Bank Address City/State/Zip
- --------------------------------------------------------------------------------
Name(s) on Account
- --------------------------------------------------------------------------------
Account Number A.B.A. Number
Acknowledgment, Certificate and Signature
- -----------------------------------------------------------------------------
[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 , 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]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- -------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
<PAGE>
Person(s) Authorized to Conduct Transactions
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any *
of the Authorized Person(s) is, by lawful and appropriate action of the
investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- --------------------------------------------------------------------------------
Name/Title
- --------------------------------------------------------------------------------
Name/Title
- --------------------------------------------------------------------------------
Name/Title
- --------------------------------------------------------------------------------
Name/Title
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
The signature appearing to the right of each Authorized Person is that person's
signature. The Fund's transfer agent (the "Transfer Agent") may, without
inquiry, act upon the instructions (whether verbal, written, or provided by
wire telecommunication, or any other process) of any perrson claiming to be an
Authorized Person. Neither the Transfer Agent nor any entity on behalf of which
the Transfer Agent is acting shall be liable for any claims or expenses
(including legal fees) or for any losses resulting from actions taken upon any
instructions believed to be genuine. The Transfer Agent may continue to rely on
the instructions made by any person claiming to be an Authorized Person until
it is informed through an amended Application that the person is no longer an
Authorized Person and it has a reasonable period (not to exceed one week) to
process the amended Application. Provisions of the Application shall be equally
Applicable to any successor of the Transfer Agent.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from
any one Authorized Person. Written instructions will require signatures of
the number of Authorized Persons indicated in this space.
Certificate of Authority
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I_____________________ , Secretary of the above-named investor, do hereby
certify that at a meeting on ________________ , at which a quorum was present
throughout, the Board of Directors (Board of Trustees) of the investor duly
adopted a resulution which is in full force and effect and in accordance with
the investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to do
so on behalf of the investor; (2) empowered the above-named Authorized
Person(s) to effect securities transactions for the investor on the terms
described above; (3) authorized the Secretary to certify, from time to time,
the names and titles of the officers of the investor and to notify ICC when
changes in officers occur; and (4) authorized the Secretary to certify that
such a resolution has been duly adopted and will remain in full force and
effect until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor:
This ______ day of __________ , 199__ Secretary ____________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- --------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If there
are not enough spaces here for all necessary signatures, complete a separate
certificate containing the language of this Certificate B and attach it to the
Application).
- --------------------------------------------------------------------------------
Signature and title Date
- --------------------------------------------------------------------------------
Signature and title Date
<PAGE>
WILSHIRE INSTITUTIONAL
STRATEGY FUND
SHARES
(A Class of ISI Strategy 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 the Distributor.
TABLE OF CONTENTS
Page
----
1. Fee Table ........................ 2
2. Investment Program ............... 2
3. Investment Restrictions ......... 5
4. How to Invest in the Institutional
Shares ........................... 6
5. How to Redeem Institutional
Shares ........................... 7
6. Telephone Redemptions ............ 7
7. Dividends and Taxes ............... 7
8. Management of the Fund ............ 8
9. Investment Advisor and
Sub-Advisor ..................... 8
10. Administrator .................. 10
11. Distributor ..................... 10
12. Custodian, Transfer Agent and
Accounting Services ............ 10
13. Performance Information ......... 10
14. General Information ............... 11
[LOGO TO COME]
WILSHIRE INSTITUTIONAL
STRATEGY FUND
SHARES
(A Class of ISI Strategy Fund, Inc.)
An open-end mutual fund seeking to maximize total return through a
combination of long-term growth of capital and current income by actively
apportioning investments between securities issued by the United States
Treasury ("U.S. Treasury Securities") and diversified investments in U.S.
equity securities.
, 1997
PROSPECTUS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------------------------
ISI STRATEGY FUND, INC.
717 Fifth Avenue
New York, New York 10022
----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS FOR THE
APPLICABLE CLASS, WHICH MAY BE OBTAINED FROM YOUR
PARTICIPATING DEALER OR BY WRITING OR CALLING INTERNATIONAL
STRATEGY & INVESTMENT GROUP INC., 717 FIFTH AVENUE, NEW YORK,
NEW YORK 10022, (800) 955-7175
Statement of Additional Information Dated: _________, 1997
Relating to the Prospectuses of
ISI Strategy Fund Shares Dated: __________, 1997
and
Wilshire Institutional Strategy Fund Shares
Dated: __________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <C>
1. General Information and History....................................................... 1
2. Investment Objectives and Policies.................................................... 1
3. Valuation of Shares and Redemption.................................................... 5
4. Federal Tax Treatment of Dividends and
Distributions....................................................................... 5
5. Management of the Fund................................................................ 9
6. Investment Advisory and Other Services................................................ 14
7. Administration........................................................................ 15
8. Distribution of Fund Shares........................................................... 16
9. Brokerage............................................................................. 18
10. Capital Shares........................................................................ 19
11. Semi-Annual Reports................................................................... 20
12. Custodian, Transfer Agent and
Accounting Services................................................................. 20
13. Independent Auditors.................................................................. 21
14. Control Persons and Principal Holders of
Securities.......................................................................... 21
15. Performance and Yield Computations.................................................... 21
16. Financial Statements ................................................................. 22
</TABLE>
<PAGE>
1. GENERAL INFORMATION AND HISTORY
ISI Strategy Fund, Inc. (the "Fund") is an open-end management
investment company. Under the rules and regulations of the Securities and
Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. The Fund currently offers two classes
of shares: ISI Strategy Fund Shares (the "ISI Shares") and Wilshire
Institutional Strategy Fund Shares (the "Institutional Shares"). There are two
separate prospectuses for the Fund's shares: one for the ISI Shares and one for
the Institutional Shares. Each prospectus contains important information
concerning the classes of shares offered thereby and the Fund, and may be
obtained without charge from the Fund's distributor (the "Distributor") or from
Participating Dealers that offer shares of the respective classes of the Fund
(the "Shares") to prospective investors. Prospectuses may also be obtained from
Shareholder Servicing Agents. As used herein the term "Prospectus" describes
information common to the prospectuses of the two classes of the Fund's Shares,
unless the term "Prospectus" is modified by the appropriate class designation.
As used herein, the "Fund" refers to ISI Strategy Fund, Inc. and specific
references to any class of the Fund's Shares will be made using the name of such
class. Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectuses. To avoid
unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information for the Fund and its business that is
contained in the Registration Statement about the Fund and its Shares filed with
the SEC. Copies of the Registration Statement as filed, including such omitted
items, may be obtained from the SEC by paying the charges prescribed under its
rules and regulations.
The Fund was incorporated under the laws of the State of Maryland
on June 12, 1997. The Fund filed a registration statement with the SEC
registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and commenced operations on ___________, 1997.
Under a license agreement dated __________, 1997 between the Fund
and International Strategy & Investment Inc., International Strategy &
Investment Inc. licenses to the Fund the "ISI" name and logo, but retains rights
to that name and logo, including the right to permit other investment companies
to use them. In addition, Wilshire Associates Incorporated licenses to the Fund
the "Wilshire" name and logo, but retains rights to that name and logo,
including the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund's investment objective and its general investment
policies are described in the Prospectus. Additional investment restrictions are
set forth below. This Statement of Additional Information also describes other
investment practices in which the Fund may engage.
Except as specifically identified under "Investment Restrictions"
in the Prospectus and in this Statement of Additional Information, the
investment policies described in these documents are not fundamental, and the
Directors may change such policies without an affirmative vote of a majority of
the Fund's outstanding Shares (as defined under "Capital Shares" below). The
Fund's investment objective is fundamental, however, and may not be changed
without such a vote.
-1-
<PAGE>
Repurchase Agreements
The Fund may agree to purchase securities issued by the United
States Treasury ("U.S. Treasury Securities") from financial institutions, such
as banks and broker-dealers, subject to the seller's agreement to repurchase the
securities at an established time and price. Such repurchase agreements will be
fully collateralized. The Fund's procedures regarding repurchase agreements are
discussed in greater detail in the Fund's Prospectuses. The collateral for these
repurchase agreements will be held by the Fund's custodian or by a duly
appointed sub-custodian. The Fund will enter into repurchase agreements only
with banks and broker-dealers that have been determined to be creditworthy by
the Fund's Board of Directors under criteria established with the assistance of
the Fund's investment advisor. The list of approved banks and broker-dealers
will be monitored regularly by the Fund's investment advisor (the "Advisor") and
the Fund's sub-advisor (the Sub-Advisor") (collectively, the "Advisors") and
reviewed at least quarterly by the Fund's Board of Directors. The seller under a
repurchase agreement may be required to maintain the value of the securities
subject to the repurchase agreement at not less than the repurchase price.
Default by the seller would, however, expose the Fund to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying obligations. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund may be delayed or limited
in its ability to sell the collateral.
When-Issued Securities
The Fund may make purchases of U.S. Treasury Securities, at the
current market value of the securities, on a when-issued basis. When such
transactions are negotiated, the yield to maturity is fixed. The coupon interest
rate on such U.S. Treasury Securities is fixed at the time of the U.S. Treasury
auction date therefore determining the price to be paid by the Fund, but
delivery and payment will take place after the date of the commitment. A
segregated account of the Fund, consisting of cash, cash equivalents or U.S.
Treasury Securities equal at all times to the amount of the when-issued
commitments will be established and maintained by the Fund at the Fund's
custodian. Additional cash or U.S. Treasury Securities will be added to the
account when necessary. While the Fund will purchase securities on a when-issued
basis only with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date if it is deemed advisable to limit the
effects of adverse market action. The securities so purchased or sold are
subject to market fluctuation and no interest accrues to the purchaser during
this period. At the time the Fund makes the commitment to purchase or sell
securities on a when-issued basis, it will record the transaction and thereafter
reflect the value of such security purchased or, if a sale, the proceeds to be
received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price.
Futures Contracts
The Fund may enter into futures contracts based on indexes or
groups of securities ("Futures Contracts"). Each such Futures Contract provides
for a cash payment, equal to the amount, if any, by which the value of the index
at maturity is above or below the value of the index at the time the contract
was entered into, times a fixed index "multiplier". The index underlying such a
Futures Contract is generally a broad based index of securities designed to
reflect movements in the relevant market as a whole. The index assigns weighted
values to the securities included in the index, and its composition is changed
periodically. Futures Contracts have been designed by exchanges which have been
designated as "contract markets" by the Commodity Futures Trading Commission
(the "CFTC"), and must be executed through a futures commission merchant ("FCM")
(i.e. futures broker), which is a member of the relevant contract market. The
exchanges guarantee performance of the contracts as between the clearing members
of the exchange.
-2-
<PAGE>
At the same time a Futures Contract is purchased or sold, the Fund must
allocate cash or securities as a performance bond or deposit payment ("initial
deposit"). The initial deposit varies but may be as low as 5% or less of the
value of the contract. Daily thereafter, the Futures Contract is valued and the
payment of "variation margin" may be required since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although Futures Contracts call for the making or acceptance of a cash
settlement at a specified future time, the contractual obligation is usually
fulfilled before such date by buying or selling, as the case may be, on a
commodities exchange, an identical Futures Contract calling for settlement in
the same month, subject to the availability of a liquid secondary market. The
Fund incurs brokerage fees when it purchases and sells Futures Contracts. The
purpose of the acquisition or sale of a Futures Contract, in the case of a
portfolio such as that of the Fund which holds or intends to acquire equity
securities, is to attempt to protect the Fund from market fluctuations, obtain
exposure to a particular market or market segment without actually buying or
selling securities, and/or facilitate the allocation of investments among asset
classes. For example, if the Fund owns stocks replicating the Wilshire _____
Index, the Fund might sell index Futures Contracts based on such index as a
hedge against market decline. The use of Futures Contracts as an investment
technique allows the Fund to maintain a hedging position without having to sell
its portfolio securities.
To the extent the Fund enters into Futures Contracts for these
purposes, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts will consist of liquid
assets from its portfolio in an amount equal to the difference between the
fluctuating market value of such Futures Contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
Futures Contracts.
Although the Fund believes that use of such contracts will benefit the
Fund, if the investment judgment of the Advisor about the general direction of
interest rates is incorrect, the Fund's overall performance would be poorer than
if it had not entered into any such contract. For example, if the Fund has
hedged against the possibility of a market decline and instead the market rises,
the Fund will lose part or all of the benefit of the increased value of its
securities portfolio which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities from its portfolio to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. The
Fund may also have to sell securities at a time when it may be disadvantageous
to do so.
Various additional risks exist with respect to the trading of futures.
For example, the Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in such instruments will depend on the degree to
which price movements in the underlying index correlate with price movements in
the relevant portion of the Fund's portfolio. The trading of futures entails the
additional risk of imperfect correlation between movements in the futures price
and the price of the underlying index. The Fund's ability to engage in futures
strategies will also depend on the availability of liquid markets in such
instruments. Transactions in these instruments are also subject to the risk of
brokerage firm or clearing house insolvencies. The liquidity of a secondary
market in a Futures Contract may be adversely affected by "daily price
fluctuation limits", established by exchanges, which limit the amount of
fluctuation in the price of a contract during a single trading day and prohibit
trading beyond such limit. In addition, the exchanges on which futures are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). In addition, the ordinary spreads between prices in the cash and
futures markets, due to differences in the natures of those markets, are subject
to distortions. First, all participants in the futures market are subject to
initial deposit and variation margin requirements. Rather than meeting
additional variation
-3-
<PAGE>
margin requirements, investors may close out Futures Contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general market trends by
the Advisor may still not result in a successful transaction.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectus, and are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the outstanding
Shares. The percentage limitations contained in these restrictions apply at the
time of purchase of securities.
Accordingly, the Fund will not:
1. Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only from banks and in an amount not
exceeding 10% of the value of the total assets of the Fund at the
time of such borrowing, provided that, while borrowings by the
Fund equaling 5% or more of the Fund's total assets are
outstanding, the Fund will not purchase securities for
investment;
2. Invest in real estate or mortgages on real estate;
3. Purchase or sell commodities or commodities contracts (except
that the Fund may purchase or sell futures contracts based on
underlying securities indexes);
4. Act as an underwriter of securities within the meaning of the
Federal securities laws, except insofar as it might be deemed to
be an underwriter upon disposition of certain portfolio
securities acquired within the limitation on purchases of
restricted securities;
5. Issue senior securities;
6. Make loans, except that the Fund may purchase or hold debt
instruments and may enter into repurchase agreements [and make
loans of portfolio securities] in accordance with its investment
objective and policies;
The following investment restriction may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered under
the Investment Company Act, except as permitted by federal law.
3. VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined daily as of the close
of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time)
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Martin Luther King, Jr.'s Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Redemption
The Fund may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and
-4-
<PAGE>
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 "How to Invest" in each
Prospectus and such valuation will be made as of the same time the redemption
price is determined. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act pursuant to which the Fund is obligated to
redeem Shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund during any 90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
The following general discussion of federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Qualification as Regulated Investment Company
The Fund expects to be taxed as a regulated investment company
("RIC") under Subchapter M of the Code. As a RIC, the Fund is exempt from
federal income tax on its net investment income and capital gains which it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital losses) for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income
made during the taxable year or, under certain specified circumstances, within
12 months after the close of the taxable year, will satisfy the Distribution
Requirement. The Distribution Requirement for any year may be waived if a RIC
establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for federal excise tax
(discussed below).
The Fund may make investments in securities (such as STRIPS) that
bear "original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Fund must distribute to satisfy the
Distribution Requirement.
-5-
<PAGE>
In some cases, the Fund may have to borrow money or dispose of other investments
in order to make sufficient cash distributions to satisfy the Distribution
Requirement.
In addition to satisfaction of the Distribution Requirement, in
order to qualify as a RIC the Fund must, generally, (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 (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in stock or securities (the "Income Requirement"), and (2) derive less
than 30% of its gross income (exclusive of certain gains from designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from gains on the sale or other disposition of any of the following
investments if such investments are held for less than three months (the
"Short-Short Gain Test"): (a) stock or securities (as defined in Section
2(a)(36) of the Investment Company Act); (b) options, futures or forward
contracts (other than options, futures or forward contracts on foreign
currencies) and (c) foreign currencies (or options, futures or forward contracts
on foreign currencies) but only if such currencies (or options, futures or
forward contracts) are not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with respect to stocks
or securities).
Finally, at the close of each quarter of its taxable year, at
least 50% of the value of the Fund's assets must consist of cash and cash items,
U.S. Government securities, securities of other regulated investment companies,
and securities of other issuers (as to which the Fund has not invested more than
5% of the value of its total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses (the "Asset
Diversification Test"). Generally, 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.
Although the Fund intends to distribute substantially all of its
net investment income and may distribute its capital gains for any taxable year,
the Fund will be subject to federal income taxation to the extent any such
income or gains are not distributed.
Fund Distributions
The Fund anticipates that it will distribute substantially all of
its 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 taxable to 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 and net long-term capital losses attributable to transactions
occurring after October 31 of such year and by treating any such net capital
losses or net long-term capital losses as if they arose on the first day of the
following taxable year. Conversely, if the Fund elects to retain its net capital
gains, it will be taxed thereon (except to the extent of any available capital
loss carryovers) at the applicable corporate
-6-
<PAGE>
capital gains 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 shareholders 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.
In the case of corporate shareholders, Fund distributions (other
than capital gains distributions) generally qualify for the 70% dividends
received deduction to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. For purposes of the alternative minimum
tax and the environmental tax, corporate shareholders generally will be required
to take the full amount of any dividend received from the Fund into account in
determining their adjusted current earnings for purposes of computing
"alternative minimum taxable income."
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, gain or loss on the sale of Shares will be capital
gain or loss, which will be long-term capital gain or loss if the Shares have
been held for more than one year and otherwise will be short-term capital gain
or loss. However, any loss realized upon the sale, exchange or redemption of
Shares held for six months or less and has previously received a capital gains
distribution with respect to the Share (or any undistributed net capital gains
of the Fund with respect to such Share are included in determining the
shareholder's long-term capital gains), the shareholder must treat the loss as a
long-term capital loss to the extent any capital gains distributions have been
paid with respect to such Shares (or any undistributed net capital gains of the
Fund with respect to such Shares have been included in determining the
shareholder's long-term capital gains). In addition, any loss realized on a sale
or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable to shareholders as ordinary dividends to the
extent of the Fund's current and accumulated earnings and profits. Such
distributions will be eligible for the dividends received deduction in the case
of corporate shareholders.
The Fund will provide a statement annually to shareholders as to
the federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends received deduction.
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
-7-
<PAGE>
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to the Fund that he is not subject to
backup withholding.
Excise Tax; Miscellaneous Considerations
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute in each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the one-year period ending on October 31 of such
calendar year. The excise tax is imposed on the undistributed part of this
required distribution. In addition, the balance of such income must be
distributed during the next calendar year to avoid liability for the excise tax
in that year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. For purposes of the excise tax, a regulated
investment company must reduce its capital gain net income by the amount of any
net ordinary loss for the calendar year (but only to the extent the capital gain
net income for the one-year period ending on October 31 exceeds the net capital
gains for such period). Because the Fund intends to distribute all of its income
currently (or to retain, at most, its "net capital gains" and pay tax thereon),
the Fund does not anticipate incurring any liability for this excise tax.
However, the Fund may, in certain circumstances, be required to liquidate
portfolio investments in order to make sufficient distributions to avoid excise
tax liability. The liquidation of investments in such circumstances may affect
the ability of the Fund to satisfy the Short-Short Gain Test.
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of federal, state and local tax rules
affecting an investment in the Fund.
5. 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, sub-advisor, distributor,
administrator, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's executive officers, to the Advisors, the
Distributor, and the Fund's administrator. A majority of the directors of the
Fund have no affiliation with the Advisors, the Distributor, or the Fund's
administrator.
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 & Investment Inc. (registered
investment advisor), Chairman, ISI Inc. (investments) and Chairman
and President, ISI Group Inc. (registered investment advisor and
registered broker-dealer), 1991-Present.
*TRUMAN T. SEMANS, Vice Chairman and Director (10/27/26)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
Maryland 21202. Managing Director, Alex. Brown & Sons Incorporated
and Director, Investment Company Capital Corp. (registered
investment advisor); Formerly, Vice Chairman, Alex. Brown
Incorporated.
-8-
<PAGE>
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice President and Chief Financial Officer, General
Dynamics Corporation (defense), 1989-1993, and Director, The Arch
Fund (registered investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies); Formerly, Consultant,
Wendell & Stockel Associates, Inc. (consulting firm); 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; Partner, KPMG
Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management
Company (investments); Executive Vice President, Duke University
(education, research and health care); Director, Central Bank &
Trust (banking), Key Funds (registered investment companies), AMBAC
Treasurers Trust (registered investment company) and DP Mann
Holdings (insurance).
*R. ALAN MEDAUGH, Director and President (8/20/43)
President, International Strategy & Investment Inc., 1991-Present.
*MICHAEL J. NAPOLI, JR., Director (10/1/51)
1299 Ocean Avenue, Suite 700, Santa Monica, CA 90401. Vice President
(1991-Present) and Principal (1993-Present), Wilshire Associates
Incorporated; Director of Marketing, Wilshire Asset Management
(1991-Present).
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.
CARL W. VOGT, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2604. Senior Partner, Fulbright & Jaworski
L.L.P. (law); Director, Yellow Corporation (trucking); Formerly,
Chairman and Member, National Transportation Safety Board; Director,
National Railroad Passenger Corporation (Amtrak) and Member,
Aviation System Capacity Advisory Committee (Federal Aviation
Administration).
-9-
<PAGE>
DAVID R. BORGER, Vice President (12/33/48)
Wilshire Associates Incorporated, 1299 Ocean Avenue, Suite 700,
Santa Monica, CA 90401. Vice President and Principal, Wilshire
Associates Incorporated; Director of Research, Asset Management
Division.
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy & Investment Inc.,
1991-Present.
NANCY LAZAR, Vice President (8/1/57)
Executive Vice President and Secretary, International Strategy &
Investment Inc., 1991-Present.
THOMAS D. STEVENS, Vice President (5/27/49)
Wilshire Associates Incorporated, 1299 Ocean Avenue, Suite 700,
Santa Monica, CA 90401. Senior Vice President and Principal,
Wilshire Associates Incorporated; Chief Investment Officer, Wilshire
Asset Management.
MARGARET M. BEELER, Assistant Vice President (3/1/67)
Assistant Vice President, International Strategy & Investment Inc.,
May 1996-Present; 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 (6/2/66)
Assistant Vice President, International Strategy & Investment Inc.,
May 1996-Present; Select Private Banking Officer, Assistant
Manager, Chemical Bank, 1995-1996; Financial Consultant, Dreyfus
Corporation, 1989-1995.
AMY M. OLMERT, Secretary ( )
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
Maryland 21202. __________, Alex. Brown & Sons Incorporated
and__________, Investment Company Capital Corp. (registered
investment advisor) __________ 1997 - Present. Formerly, ___________
Coopers & Lybrand L.L.P. (accounting) 19__ - 1997.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
Maryland 21202. Vice President, Alex. Brown & Sons Incorporated and
Vice President Investment Company Capital Corp. (registered
investment advisor), September 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds (registered
investment companies) and Vice President, Delaware Management
Company, Inc. (investments), 1980-August 1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Alex. Brown & Sons Incorporated, One South Street, Baltimore,
Maryland 21202. Asset Management Department, Alex. Brown & Sons
Incorporated, 1991-Present.
- ---------
* 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 13 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 four funds in the Fund Complex. Mr. Medaugh
serves as a
-10-
<PAGE>
Director and President of two funds and as President of two other funds in the
Fund Complex. Mr. Semans serves as Chairman of five funds and as a Director of
six other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy and McDonald
serve as Directors of each fund in the Fund Complex. Ms. Rimel and Mr. Vogt each
serve as a Director of eleven funds in the Fund Complex. Ms. Lazar and Ms.
Butler serve as Vice Presidents of four funds in the Fund Complex. Ms. Beeler
and Mr. Reilly each serve as Assistant Vice President for four funds in the Fund
Complex. Ms. Olmert serves as Secretary, Mr. Finelli serves as Treasurer and Ms.
Collidge serves as Assistant Secretary, respectively, for each of the funds in
the Fund Complex.
Some of the Directors of the Fund are customers of, and have
had normal brokerage transactions with, the Fund's administrator 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 Advisors, the Distributor or the Fund's administrator may be
considered to have received remuneration indirectly. As compensation for his or
her services as director, each Director who is not an "interested person" of the
Fund (as defined in the Investment Company Act) (an "Independent Director")
receives an aggregate annual fee (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance at
Board and committee meetings) from all Flag Investors/ISI Funds and Alex. Brown
Cash Reserve Fund, Inc. for which such Director serves. In addition, the
Chairman of the Fund Complex's Audit Committee receives an aggregate annual fee
from the Fund Complex. Payment of such fees and expenses is allocated among all
such funds described above in direct proportion to their relative net assets.
-11-
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Estimated Total Compensation
Estimated Aggregate Pension or From
Compensation Retirement the Fund and Fund Complex
From the Fund for Initial Benefits Accrued Payable to Directors
Name of Person, Fiscal Period Ending as Part of Fund for the Initial Fiscal Period
Position May 31, 1998 Expenses Ending May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Edward S. Hyman $0 $0 $0
Chairman
*Truman T. Semans $0 $0 $0
Vice Chairman
*R. Alan Medaugh $0 $0 $0
Director and President
*Michael J. Napoli, Jr. $0 $0 $0
Director
James J. Cunnane $83(1) + $39,000 for service on 13
Director Boards in the Fund Complex
John F. Kroeger $105(1) + $49,000 for service on 13
Director Boards in the Fund Complex
Louis E. Levy $83(1) + $39,000 for service on 13
Director Boards in the Fund Complex
Eugene J. McDonald $83(1) + $39,000 for service on 13
Director Boards in the Fund Complex
Rebecca W. Rimel $85(1) + $39,000 for service on 11(2)
Director Boards in the Fund Complex
Carl W. Vogt, Esq. $86(1) + $39,000 for service on 11(2)
Director Boards in the Fund Complex
</TABLE>
- ----------
* Denotes an individual 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
Fund for the initial fiscal period is estimated to be $ 700.
(1) Of the amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald,
Vogt and Ms. Rimel no amount is estimated to be deferred pursuant to a
deferred compensation plan.
(2) Ms. Rimel and Mr. Vogt receive proportionately higher compensation
from each fund for which they serve as a Director.
The Fund Complex has adopted a retirement plan (the
"Retirement Plan") for Directors who are not employees of the Fund, the Fund's
administrator or their respective affiliates (the "Participants"). After
completion of six years of service, each Participant will be entitled to receive
an annual retirement benefit equal to a percentage of the fee earned by the
Participant in his or her last year of service. Upon retirement, each
Participant will receive annually 10% of such fee for each year that he or she
served after completion of the first five years, up to a maximum annual benefit
of 50% of the fee earned by the Participant in his or her last year of service.
The fee will be paid quarterly, for life, by each Fund for which he or she
serves. The Retirement Plan is unfunded and unvested. 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; for Ms. Rimel, 1
year and for Mr. Vogt, 1 year.
-12-
<PAGE>
<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
Vogt 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 generally equal quarterly installments over a period of ten
years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of
Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Code of
Ethics applies to the personal investing activities of the directors and
officers of the Fund, as well as to designated officers, directors and employees
of the Advisors 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 covered employees of the
Advisors, certain directors or officers of the Distributor, and all Fund
Directors who are "interested persons", preclear any personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases which are part of an automatic dividend reinvestment plan). The
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.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On June 17, 1997, the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory
Agreement between the Fund and ISI and a Sub-Advisory Agreement among the Fund,
ISI, and Wilshire Associates Incorporated ("Wilshire" or the "Sub-Advisor"),
both of which contracts are described in greater detail below. The Investment
Advisory Agreement and the Sub-Advisory Agreement were approved by the sole
shareholder of the Fund on ______. ISI is a registered investment advisor that
was formed in January, 1991. ISI employs Messrs. Edward S. Hyman, the Fund's
Chairman, and R. Alan Medaugh, the Fund's President. ISI is also investment
advisor to Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc.
and North American Government Bond Fund, Inc.
-13-
<PAGE>
Wilshire, a California corporation, is a registered investment
advisor with approximately $______ in net assets under management as of July 31,
1997. Wilshire currently provides investment advisory services to __ open-end
registered investment companies with $___ of net assets under management as of
July 31, 1997. Wilshire employs as its President and Chief Executive
Officer, Mr. Dennis Tito who, due to his stock ownership, may be deemed to be a
controlling person of Wilshire.
Under the Investment Advisory Agreement, ISI: (1) formulates and
implements continuing programs for the purchase and sales of securities, (2)
determines what securities (and in what proportion) shall be represented in the
Fund's portfolio (3) provides the Fund's Board of Directors with regular
financial reports and analysis with respect to the Fund's portfolio investments
and operations, and the operations of comparable investment companies, (4)
obtains and evaluates economic, statistical, and financial information pertinent
to the Fund, (5) takes on behalf of the Fund, all actions which appear to the
Advisor necessary to carry into effect its purchase and sale programs. ISI has
delegated these responsibilities to Wilshire for a portion of the Fund's
portfolio, provided that ISI continues to supervise the performance of Wilshire
and report thereon to the Fund's Board of Directors. Any investment program
undertaken by ISI or Wilshire will at all times be subject to the policies and
control of the Fund's Board of Directors. Neither ISI or Wilshire shall be
liable to the Fund or its shareholders for any act of omission by ISI or
Wilshire or any losses sustained by the Fund or its shareholders except in the
case of willful misfeasance, bad faith, gross negligence, or reckless disregard
of duty. The services of ISI and Wilshire to the Fund are not exclusive and both
ISI and Wilshire are free to render similar services to others.
As compensation for these services, ISI is entitled to receive an
annual fee from the Fund calculated daily and paid monthly, at the annual rate
of .40%. of the Fund's daily net asset value. As compensation for its services,
Wilshire is entitled to receive a fee from ISI, payable out of ISI's advisory
fee, calculated daily and payable monthly, at the annual rate of .16% of the
Fund's average daily net assets. ISI and Wilshire have voluntarily agreed to
waive their annual fees proportionately to the extent necessary, and ISI has
voluntarily agreed to reimburse expenses to the extent necessary, so that total
operating expenses do not exceed 1.00% of the Fund's average daily net assets.
Each of the Investment Advisory and the Sub-Advisory Agreements has
an initial term of two years and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by the
Fund's Board of Directors, including a majority of the Independent Directors
who have no direct or indirect financial interest in such agreements, by votes
cast in person at a meeting called for such purpose, or by a vote of a majority
of the outstanding shares (as defined under "Capital Stock") The Fund or ISI 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 (as defined in the Investment Company Act). The
Sub-Advisory Agreement has similar termination provisions.
7. 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 its administration services, ICC is
entitled to receive an annual fee calculated daily and payable monthly equal to
.12% of the Fund's average daily net assets. ICC has voluntarily agreed to waive
its fee until the earlier of such time as the Fund has $50 million in net assets
or has been in operation for one year.
-14-
<PAGE>
The services of ICC to the Fund are not exclusive and ICC is
free to render similar services to others.
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. (See "Custodian, Transfer Agent
and Accounting Services".) ICC is an indirect subsidiary of [Bankers Trust
New York Corporation].
8. DISTRIBUTION OF FUND SHARES
International Strategy & Investment Group Inc. ("ISI Group" or
the "Distributor") serves as the exclusive distributor of the Fund's Shares
pursuant to two separate Distribution Agreements, one for each class of the
Fund's shares (collectively the "Distribution Agreements"). ISI Group, a
Delaware corporation, is a broker-dealer that was formed in 1991 and is an
affiliate of the Advisor.
The Distribution Agreements provide that ISI Group has the
exclusive right to distribute the related class of shares either directly or
through other broker-dealers and further provide 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; with respect to the ISI shares class, 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 Agreements
further provide that, in connection with the distribution of Shares, ISI Group
will be responsible for all of its promotional expenses. The services by ISI
Group to the Fund are not exclusive, and ISI Group shall not be liable to the
Fund or its shareholders for any act or omission by ISI Group or any losses
sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
As compensation for providing distribution and related
administrative services for the ISI Shares as described above, the Fund will pay
ISI Group , on a monthly basis, an annual fee, equal to .25% of the Fund's
average daily net assets. ISI Group expects to allocate on a proportional basis
up to all of its fees to broker-dealers who enter into Agency Distribution
Agreements with ISI Group ("Participating Dealers") under which such
broker-dealers have agreed to process investor purchase and redemption orders
and respond to inquiries from Fund shareholders concerning the status of their
accounts and the operations of the Fund.
ISI Group receives no compensation for distributing the
Institutional Shares.
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 ISI Shares (the "ISI Plan"). Under the ISI Plan, the Fund
pays a fee to ISI Group for distribution and other shareholder servicing
assistance as set forth in the ISI Shares Distribution Agreement, and ISI Group
is authorized to make payments out of its fees to Participating Dealers.
Each of the Distribution Agreements have an initial term of
two years. The Distribution Agreements and, in the case of the ISI Shares
Distribution Agreement, the Plan encompassed therein will remain in effect from
year to year as specifically approved (a) at least annually by the Fund's Board
of Directors and (b) by the affirmative vote of a majority of the Independent
Directors, by votes cast in person at a meeting called for such purpose. The
Distribution Agreements, forms of Agency Distribution Agreements and the ISI
Plan were most
-15-
<PAGE>
recently approved by the Fund's Board of Directors, including a majority of the
Independent Directors on June 17, 1997.
In approving the ISI Plan, the Directors concluded, in the
exercise of reasonable business judgment, that there was a reasonable likelihood
that the ISI Plan would benefit the Fund and its shareholders. The ISI Plan will
be renewed only if the Directors make a similar determination in each subsequent
year. The ISI Plan may not be amended to increase materially the fee to be paid
pursuant to the ISI Shares Distribution Agreement without the approval of the
Fund's shareholders. The ISI Plan may be terminated at any time, and the
Distribution Agreements may be terminated at any time upon 60 days' notice,
without penalty, by a vote of a majority of the Fund's Independent Directors
or by a vote of a majority of the outstanding Shares. Any Agency Distribution
Agreements may be terminated in the same manner at any time. The Distribution
Agreements and any Agency Distribution Agreements shall automatically terminate
in the event of assignment.
During the continuance of the ISI 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 ISI Plan to ISI Group pursuant to
the ISI Shares Distribution Agreement, to Participating Dealers pursuant to
Agency 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 ISI
Plan, the selection and nomination of the Fund's Independent Directors shall
be committed to the discretion of the Independent Directors then in office.
In addition, [with respect to the ISI Shares,] 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 distribution fee 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 from various bank
regulatory authorities, financial institutions are not prohibited from acting in
other capacities for investment companies, such as the shareholder servicing
capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents. 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.
Under the ISI Plan, amounts allocated to Participating Dealers
and Shareholder Servicing Agents may not exceed amounts payable to the
Distributor, with respect to shares held by or on behalf of customers of such
entities. Payments under the ISI Plan are made as described above regardless of
the Distributor's actual cost of providing distribution services and may be used
to pay the Distributor's overhead expenses. If the cost of providing
distribution services to the Fund in connection with the sale of the ISI Shares
is less than .25% of the ISI Shares' average daily net assets for any period,
the unexpended portion of the distribution fee may be retained by the
Distributor. The ISI Plan does not provide for any charges to the Fund for
excess amounts expended by the Distributor and, if the ISI Plan is terminated in
accordance with its terms, the obligation of the Fund to make payments to the
distributor pursuant to the ISI Plan will cease and the Fund will not be
required to make any payments past the date the ISI Shares Distribution
Agreement terminates. In return for payments received pursuant to the ISI Plan,
ISI will pay the distribution-related expenses of the ISI Class 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.
Except as described elsewhere, the Fund pays or causes to be
paid all continuing expenses of the Fund, including, without limitation:
investment advisory, administration and distribution fees; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safekeeping of cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions, if any,
-16-
<PAGE>
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 Disinterested Directors and Disinterested 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 the Advisors, the Distributor or the Fund's administrator.
9. BROKERAGE
ISI and Wilshire, subject to the supervision of ISI, are each
responsible for decisions to buy and sell securities for a portion of the Fund's
portfolio, for broker-dealer selection and for negotiation of commission rates.
Purchases and sales of securities on a securities exchange are
effected through broker-dealers who charge a commission for their services.
Brokerage commissions are subject to negotiation between the Advisors and the
broker-dealers. The Advisors may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, ISI Group.
In over-the-counter transactions, orders are placed directly
with a principal market maker and such purchases normally include 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. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with ISI
Group in any transaction in which ISI Group acts as a principal; that is, an
order will not be placed with ISI Group if execution of the trade involves ISI
Group serving as a principal with respect to any part of the Fund's order, nor
will the Fund buy or sell over-the-counter securities with ISI Group acting as
market maker.
The Advisors' primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, the Advisors may, in their discretion,
effect agency transactions with broker-dealers that furnish statistical,
research or other information or services which are deemed by the Advisors to be
beneficial to the Fund's investment program. Certain research services furnished
by broker-dealers may be useful to the Advisors with clients other than the
Fund. Similarly, any research services received by the Advisors through
placement of portfolio transactions of other clients may be of value to the
Advisors in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to the
Advisors by a broker-dealer. The Advisors are of the opinion that because the
material must be analyzed and reviewed by their staffs, its receipt does not
tend to reduce expenses, but may be beneficial in supplementing the Advisors's
research and analysis. Therefore, it may tend to benefit the Fund by improving
the Advisors's investment advice. In over-the-counter transactions, the Advisors
will not pay any commission or other remuneration for research services. The
Advisors' policy is to pay a broker-dealer higher commissions for transactions
effected on an agency (but not on a principal) basis for particular transactions
than might be charged if a different broker-dealer had been chosen when, in the
Advisors' opinion, this
-17-
<PAGE>
policy furthers the overall objective of obtaining best price and execution.
Subject to periodic review by the Fund's Board of Directors, the Advisors are
also authorized to pay broker-dealers higher commissions on brokerage
transactions for the Fund in order to secure research and investment services
described above. However, Wilshire has no current intention to do so. The
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board. The foregoing policy under
which the Fund may pay higher commissions to certain broker-dealers in the case
of agency transactions, does not apply to transactions effected on a principal
basis.
Subject to the above considerations, the Board of Directors
has authorized the Fund to effect portfolio transactions, on an agency basis,
through ISI Group. At the time of such authorization, the Board adopted certain
policies and procedures incorporating the standards of Rule 17e-1 under the
Investment Company Act which requires that the commissions paid ISI Group must
be "reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
Rule 17e-1 also contains requirements for the review of such transactions by the
Board of Directors and requires the Advisors to furnish reports and to maintain
records in connection with such reviews. The ISI Shares Distribution Agreement
does not provide for any reduction in the distribution fee to be received by ISI
Group from the Fund as a result of profits from brokerage commissions on
transactions of the Fund effected through ISI Group.
The Advisors manage other investment accounts. It is possible
that, at times, identical securities will be acceptable for the Fund and one or
more of such other accounts; however, the position of each account in the
securities of the same issuer may vary and the length of time that each account
may choose to hold its investment in such securities may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more of these accounts is considered
at or about the same time, transactions in such securities will be allocated
among the accounts in a manner deemed equitable by the Advisors. The Advisors
may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable execution.
Such simultaneous transactions, however, could adversely affect the ability of
the Fund to obtain or dispose of the full amount of a security which it seeks to
purchase or sell.
10. CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund may issue
up to 25 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
two classes of shares: ISI Strategy Fund Shares and Wilshire Institutional
Strategy Fund 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 and any applicable service fees) are prorated between all classes of
a series based upon the relative net assets of each class. Any matters affecting
any class exclusively will be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and, therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
-18-
<PAGE>
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.
11. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors.
12. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company, 130 Liberty Street, New York, New York
10006 (Bankers Trust) has been retained to act as custodian of the Fund's
investments. Bankers Trust receives such compensation from the Fund for its
services as custodian as may be agreed to from time to time by Bankers Trust and
the Fund. Investment Company Capital Corp., One South Street, Baltimore,
Maryland 21202 (telephone: (800) 882-8585) has been retained to act as the
Fund's transfer and dividend disbursing agent. As compensation for these
services, ICC receives up to $10.12 per account per year plus reimbursement for
out-of-pocket expenses incurred in connection therewith.
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. ICC is an affiliate of
Bankers Trust.
<TABLE>
<CAPTION>
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
<C> <C> <C>
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
</TABLE>
In addition, the Fund will reimburse ICC for certain
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services under the Master Services Agreement.
-19-
<PAGE>
13. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by the
Fund's independent auditors Deloitte & Touche LLP.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons owned
beneficially 5% or more of the Fund's outstanding Shares, as of August 15, 1997.
International Strategy Investment Group Inc., 717 Fifth Avenue, New York, New
York 10022 owned 100% of the Fund's outstanding shares.
As of such date, to Fund management's knowledge, Directors and
officers as a group owned less than 1% of the Fund's total outstanding Shares of
either class.
15. PERFORMANCE COMPUTATIONS
For purposes of quoting and comparing the performance of the
Fund to that of other open-end diversified management investment companies and
to stock or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return.
The total return quotations, under the rules of the SEC, must
be calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1,5 or 10)
ERV = ending redeemable value at the end of the 1-, 5- or 10-year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1-, 5- or 10-year
periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one-, five- and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date the Fund (or a
series) commenced operations (provided such date is subsequent to the date the
registration statement became effective). In calculating the ending redeemable
value for the ISI Shares, the maximum sales load (4.45%) is deducted from the
ending redeemable value and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. "T" in the formula above
is calculated by finding the average annual compounded rate of return over the
period that would equate an assumed initial payment of $1,000 to the ending
redeemable value. Any sales loads that might in the future be made applicable at
the time to reinvestments would be included as would any recurring account
charges that might be imposed by the Fund. The Institutional Shares are sold
without a sales load.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
in order to compare more accurately the Fund's performance with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., the Fund calculates its
aggregate and average annual total return for the specified periods of time by
assuming the
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<PAGE>
investment of $10,000 in Shares and assuming the reinvestment of each dividend
or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges. The Fund will, however, disclose
the maximum sales charges and will also disclose that the performance data does
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 that the information prescribed under SEC
rules, and all advertising containing performance data will include a legend
disclosing that such performance data represents 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 that their original
cost.
16. FINANCIAL STATEMENTS.
See next page.
-21-
<PAGE>
ISI STRATEGY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of August 14, 1997
Assets:
Cash $ 100,000
Deferred Organizational Costs (Note 2) 88,000
----------
Total Assets $ 188,000
Liabilities:
Accrued Expenses 88,000
---------
Net Assets $ 100,000
=========
Net Asset Value Redemption Price Per:
ISI Shares applicable to 9,999 shares
outstanding (Notes 1, 3) $ 10.00
=========
Institutional Shares applicable to 1 share
outstanding (Notes 1, 3) $ 10.00
=========
Initial Offering Price Per Share:
ISI Shares (Including 4.45% sales charge) $ 10.46
=========
Institutional Shares $ 10.00
=========
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
1. ISI Strategy Fund, Inc. (the "Fund") was organized as a Maryland
corporation on June 12, 1997, and has had no operation since that date,
except for matters relating to the Fund's organization and registration
under the Investment Company Act of 1940 and the Securities Act of 1933
and the sale of an aggregate of 10,000 shares (9,999 ISI shares and 1
Wilshire Institutional share)("initial shares") of the Fund to
International Strategy & Investment Group Inc.
2. Costs incurred by the Fund in connection with its organization,
registration and the initial public offering of shares have been
deferred and will be amortized on a straight-line basis over a period
not exceeding sixty months from the date on which the Fund commences
operations. In the event that any of the initial shares are redeemed
during such period, the proceeds will be reduced by unamortized
organization expense in the same proportion as the number of initial
shares being redeemed bears to the number of initial shares outstanding
at the time of redemption.
3. The Fund is currently authorized to issue 25 million shares of common
stock, $.001 par value per share, of which 20 million shares have been
designated ISI shares, 5 million shares have been designated Wilshire
Insitutional Shares.
4. The Fund has entered into an Investment Advisory Agreement with
International Strategy & Investment Inc. ("ISI"), a Sub-Advisory
Agreement with Wilshire Asset Management Incorporated ("Wilshire"), an
Administration Agreement with Investment Company Capital Corp. and a
Distribution Agreement (and in the case of the ISI Shares, a
Distribution Plan) with Institutional Strategy & Investment Group Inc.
(See "Investment Advisor and Sub-Advisor", "Administrator" and
"Distributor" in the Prospectuses and "Investment Advisory and Other
Services", "Administration" and "Distribution of Fund Shares" in the
Statement of Additional Information.)
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board
of Directors and Shareholders,
ISI Strategy Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of ISI
Strategy Fund, Inc. (the "Fund") as of August 14, 1997. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement presents fairly, in all material
respects, the financial position of ISI Strategy Fund, Inc. at August 14, 1997
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -----------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
August 14, 1997
23
<PAGE>
Part C Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
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:
Statement of Assets and Liabilities as of August 14, 1997.
(b) Exhibits:
(1) (a) Articles of Incorporation; (2)
(b) Articles of Amendment to Articles of
Incorporation; (2)
(2) By-Laws; (2)
(3) None;
(4) Incorporated herein by reference to Exhibit (1)
Articles of Incorporation, Articles of Amendment
and Exhibit (2) By-Laws;
(5) (a) Form of Investment Advisory Agreement between
Registrant and International Strategy &
Investment Inc.(2)
(b) Form of Sub-Advisory Agreement among
Registrant, International Strategy &
Investment Inc. and Wilshire Associates
Incorporated.(1)
(6) (a) Form of Distribution Agreement between
Registrant and International Strategy &
Investment Group Inc. with respect to the
ISI Shares Class;(2)
(b) Form of Distribution Agreement between
Registrant and International Strategy &
Investment Group Inc. with respect to the
Institutional Shares Class.(2)
(c) Form of Agency Distribution Agreement
between International Strategy &
Investment Group Inc. and Participating
Broker-Dealers; (2)
(d) Form of Shareholder Servicing Agreement
between Registrant and
Shareholder Servicing Agents; (2)
(7) None;
(8) Form of Custodian Agreement between Registrant
and Bankers Trust Company (1)
(9) Form of Master Services Agreement (including
Administration, Transfer Agency and Accounting
Services appendices) between Registrant and
Investment Company Capital Corp.; (2)
(10) Opinion of Counsel; (1)
(11) Consent of Independent Auditors; (1)
C-1
<PAGE>
(12) None;
(13) Form of Subscription Agreement re: initial
$100,000 capital; (1)
(14) None;
(15) Form of Distribution Plan with respect to the
ISI Shares Class; (2)
(16) Schedule of Computation of Performance
Information; (3)
(18) Rule 18f-3 Plan(2)
(24) Powers of Attorney; (2)
(27) Financial Data Schedule. (3)
- ---------------------
(1) Filed herewith.
(2) Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A (File No. 333-31127), filed with the
Securities and Exchange Commission on July 11, 1997.
(3) To be filed by Post-Effective Amendment.
Item 25. Persons Controlled by or under Common Control with Registrant
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of August 15, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
ISI Shares 1
Wilshire Institutional Shares 1
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:
C-2
<PAGE>
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.
Sections 1, 2, 3, 4 and 5 of Article XIII of Registrant's
By-Laws, included as Exhibit 2 to this Registration Statement and incorporated
herein by reference, provide as follows:
Section 1. Indemnification. The Corporation shall indemnify
its Directors to the fullest extent that indemnification of
Directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same
extent as its Directors and to such further extent as is
consistent with law. The Corporation shall indemnify its
Directors and officers who while serving as Directors or
officers also serve at the request of the Corporation as a
Director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan to the
fullest extent consistent with law. This Article XIII shall
not protect any such person against any liability to the
Corporation or any shareholder thereof to which such person
would otherwise be subject by reason of willful 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.
C-3
<PAGE>
Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right,
in respect of indemnification or otherwise, to which those
seeking such indemnification may be entitled under any
insurance or other agreement, vote of shareholders or
disinterested Directors or otherwise, both as to action by a
Director or officer of the Corporation in his official
capacity and as to action by such person in another capacity
while holding such office or position, and shall continue as
to a person who has ceased to be a Director or officer and
shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from
time to time amended.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1940 Act
and will be governed by the final adjudication of such issue. In the absence of
a determination by a court of competent jurisdiction, the determinations that
indemnification against such liabilities is proper, and advances can be made,
are made by a majority of a quorum of the disinterested, non-party directors of
the Fund, or an independent legal counsel in a written opinion, based on review
of readily available facts.
Item 28. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment
advisor of the Registrant, and each director, officer or
partner of any such investment advisor, is or has been, at any
time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee,
partner or trustee.
[During the 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.]
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment
sub-advisor of the Registrant, and each director, officer or
partner of any such investment sub-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.
The list required by this Item 28 of officers and directors of
Wilshire Associates Incorporated, together with the
information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers
and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Wilshire
Associates Incorporated pursuant to the Investment Advisors
Act of 1940 (File No. 801-36233).
C-4
<PAGE>
Item 29. Principal Underwriter
(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.), ISI
Managed Municipal Fund Shares (a class of Managed
Municipal Fund, Inc.) and ISI North American Government
Bond Fund Shares (a class of North American Government
Bond Fund, Inc.).
(b)
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Position and Offices
Business Address* Principal Underwriter with Registrant
- ----------------- ------------------------- ---------------------
<S> <C> <C>
Edward S. Hyman Chairman and Director Chairman
and Director
R. Alan Medaugh Director President
and Director
Nancy Lazar Executive Director
Vice President
and Director
Joel Fein Chief Financial None
Officer
</TABLE>
- ---------------------
* 717 Fifth Avenue
New York, New York 10022
(c) Not applicable.
Item 30. Location of Accounts and Records
With respect to each account, book or other document required
to be maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the
Rules [17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the 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 sub-advisor, Wilshire Associates
Incorporated, 1299 Ocean Avenue, Suite 700, Santa Monica, CA 90401, the
Registrant's custodian, Bankers Trust Company, 130 Liberty Street, New
York, New York 10006 or by the Registrant's transfer agent, dividend
disbursing agent and accounting services provider, Investment Company
Capital Corp., 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
C-5
<PAGE>
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) Registrant hereby undertakes to file a post-effective
amendment containing reasonably current financial
statements, which need not be certified, within four
to six months from the effective date of this
Registration Statement.
(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, when such annual report is issued, 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-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 the Registrant has duly caused this
Pre-Effective 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 15th day of August, 1997.
ISI STRATEGY FUND, INC.
By: /s / R. Alan Medaugh
-----------------------------
R. Alan Medaugh,
President and Director
Pursuant to the requirements of the Securities Act of 1933,
this Pre-Effective 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>
* August 15, 1997
- ------------------------- Director ------------------
Edward S. Hyman Date
* August 15, 1997
- ------------------------- Director ------------------
Truman T. Semans Date
* August 15, 1997
- ------------------------- Director ------------------
James J. Cunnane Date
* August 15, 1997
- ------------------------- Director ------------------
John F. Kroeger Date
* August 15, 1997
- ------------------------- Director ------------------
Louis E. Levy Date
* August 15, 1997
- ------------------------- Director ------------------
Eugene J. McDonald Date
* August 15, 1997
- ------------------------- Director ------------------
Michael J. Napoli, Jr. Date
* August 15, 1997
- ------------------------- Director ------------------
Rebecca W. Rimel Date
* August 15, 1997
- ------------------------- Director ------------------
Carl W. Vogt, Esq. Date
/s/ R. Alan Medaugh August 15, 1997
- ------------------------- President and -------------------
R. Alan Medaugh Director Date
/s/ Joseph A. Finelli August 15, 1997
- ------------------------- Chief Financial -------------------
Joseph A. Finelli and Accounting Date
Officer
* By: /s/ R. Alan Medaugh
--------------------
R. Alan Medaugh
</TABLE>
<PAGE>
ISI STRATEGY FUND, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Document
-----------------------------------------------------------
<S> <C>
(1) (a) Articles of Incorporation. (2)
(1) (b) Articles of Amendment to Articles of Incorporation. (2)
(2) By-Laws. (2)
(4) Incorporated herein by reference to EX.99.B(1) Articles of
Incorporation, Articles of Amendment and EX.99.B(2) By-Laws;
(5) (a) Form of Investment Advisory Agreement between Registrant and
International Strategy & Investment Inc. (2)
EX-99.B(5) (b) Form of Sub-Advisory Agreement among Registrant,
International Strategy & Investment Inc. and Wilshire
Associates Incorporated. (1)
(6) (a) Form of Distribution Agreement between Registrant and
International Strategy & Investment Group Inc. with respect to the ISI
Shares Class. (2)
(6) (b) Form of Distribution Agreement between Registrant and
International Strategy & Investment Group Inc. with respect to the
Institutional Shares Class. (2)
(6) (c) Form of Agency Distribution Agreement between International
Strategy & Investment Group Inc. and Participating Broker-Dealers. (2)
(6) (d) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents. (2)
EX-99.B(8) Form of Custodian Agreement between Registrant and
Bankers Trust Company. (1)
(9) Form of Master Services Agreement (including Administration,
Transfer Agency and Accounting Services Appendices) between
Registrant and Investment Company Capital Corp. (2)
EX-99.B(10) Opinion of Counsel. (1)
EX-99.B(11) Consent of Independent Auditors. (1)
EX-99.B(13) Form of Subscription Agreement with respect to the initial
capitalization of the Fund. (1)
(15) Form of Distribution Plan with respect to the ISI Shares Class. (2)
(16) Schedule of Computation of Performance Information. (3)
(18) Rule 18f-3 Plan (2)
(24) Powers of Attorney. (2)
(27) Financial Data Schedule. (3)
</TABLE>
----------------------
(1) Filed herewith.
(2) Incorporated by reference to Registrant's Registration Statement on Form
N-1A (File No. 333-31127) as filed with the Securities and Exchange
Commission on July 11, 1997.
(3) To be filed by Post-Effective Amendment.
<PAGE>
EXHIBIT 5(b)
FORM OF SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the ___ day of ______, 1997 by
and among ISI STRATEGY FUND, INC., a Maryland corporation (the "Fund"),
INTERNATIONAL STRATEGY & INVESTMENT INC., a Delaware corporation (the
"Advisor"), and WILSHIRE ASSOCIATES INCORPORATED, a California corporation (the
"Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub- Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on June 12, 1997 and all
amendments thereto (such Articles of Incorporation, as presently in
effect as they shall from time to time be amended are herein called the
"Articles of Incorporation");
(b) The Fund's Bylaws and all amendments thereto (such Bylaws,
as presently in effect as they shall from time to time be amended, are
herein called the "Bylaws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") on July 11, 1997;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No.333-31127)
and under the 1940 Act (File No. 811-8291) as filed with the SEC on
July 11, 1997 relating to the shares of the Fund, and all amendments
thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments are supplements thereto are
herein called "Prospectus").
-1-
<PAGE>
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub- Advisor shall:
(a) determine which issuers and securities shall be
represented in a portion of the Fund's portfolio and regularly report
thereon to the Fund's Board of Directors;
(b) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(c) take, on behalf of the Fund, all actions
pertaining to investment management services which appear to the Fund
necessary to carry into effect such purchase and sale programs as
aforesaid, including the placing of orders for the purchase and sale of
securities of the Fund; and
(d) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances where the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection and negotiation of its brokerage commission rates,
the Sub-Advisor in effecting securities transactions will seek to obtain the
best price and execution on an overall basis. In performing its function, the
Sub-Advisor shall comply with applicable policies established by the Board of
Directors and shall provide the Board of Directors with such reports as the
Board of Directors may require in order to monitor the Fund's portfolio
transaction activities. Portfolio securities may be purchased or sold by the
Fund in principal transactions. The Sub-Advisor may also purchase securities
from underwriters which include a commission paid by the issuer to the
underwriter. The purchase price paid to dealers serving as market makers may
include a spread between the bid and ask prices. The price to the Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered.
Subject to policies as the Board of Directors may determine,
the Sub-Advisor shall not be deemed to have acted unlawfully or to have breached
any duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provided brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities to the Fund.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
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<PAGE>
(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;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the Bylaws; and
(e) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall furnish, at its expense and
without cost to the Fund, the services of any officers of the Fund, to
the extent that such officers may be required by the Fund for the
proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense and without
cost to the Fund, a trading function in order to carry out its
obligations under Section 3 hereof to place orders for the purchase
and sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to
the Advisor under the Investment Advisory Agreement between the Fund
and the Advisor; payments to the Fund's distributor under the Fund's
plan of distribution; 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'
commission 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 the
registration and maintenance of registration of the Fund and its shares
with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses 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 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.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to .16% of the Fund's average daily net assets.
-3-
<PAGE>
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals 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.
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the Sub-Advisor
of any of its obligations to the Fund nor obligate the Sub-Advisor to pay or
assume any similar Fund expenses on any subsequent occasions.
10. Use of Name. The Fund shall have the right to use the name
"Wilshire" in the name of a class or series of the Fund as mutually agreed for
so long as this Agreement remains in force and effect. However, that term shall
remain the property of the Sub-Advisor or its affiliates as the case may be and
the Fund may use that term after the termination of this Agreement only with the
specific written permission of the Sub-Advisor (or an appropriate affiliate).
11. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 13
hereof, for two years from the date hereof.
12. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors who
are not parties to this Agreement or "interested persons" of a party
to this Agreement (other than as Directors of the Fund) by votes cast
in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
14. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that partners of the Sub-Advisor may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or partners of the Sub-Advisor to the extent permitted by law; and that
the partners of the Sub-Advisory are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
-4-
<PAGE>
15. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor 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 party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 1299 Ocean Avenue, Santa Monica,
California, 90401 and the address of the Advisor and the Fund for this purpose
shall be 717 Fifth Avenue, New York, New York 10022.
17. Questions and 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 said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
Attest: ISI STRATEGY FUND, INC.
_________________________ By: ____________________________________
Attest: INTERNATIONAL STRATEGY & INVESTMENT INC.
_________________________ By: ____________________________________
Attest: WILSHIRE ASSOCIATES INCORPORATED
_________________________ By: ____________________________________
-6-
<PAGE>
EXHIBIT 8
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT dated as of __________________, 199__ between BANKERS TRUST
COMPANY (the "Custodian") and ISI STRATEGY FUND, INC. (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desire to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the
Custodian as custodian of all assets of each Portfolio which are delivered to
and accepted by the Custodian or any Subcustodian (as that term is defined in
Section 4) (the "Property") pursuant to the terms and conditions set forth
herein. Without limitation, such Property shall include stocks and other equity
interests of every type, evidences of indebtedness, other instruments
representing same or rights or obligations to receive, purchase, deliver or sell
same and other noncash investment property of a Portfolio which is acceptable
for deposit ("Securities") and cash from any source and in any currency
("Cash"). The Custodian shall not be responsible for any property of a Portfolio
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instruction to settle Securities transactions in any country
shall be deemed to authorize the holding of such Securities and Cash in that
country.
3. Custody Account. The Custodian agrees to establish and maintain
one or more custody accounts on its books each in the name of a Portfolio (each,
an "Account") for any and all Property from time to time received and accepted
by the Custodian or any Subcustodian for the account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio, the Customer shall, by Instructions (as herein defined in Section
14), specifically indicate which
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Portfolio such Property belongs or if such Property belongs to more than one
Portfolio shall allocate such Property to the appropriate Portfolio. The
Custodian shall allocate such Property to the Accounts in accordance with the
Instructions; provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept any Property that is not in proper form for
deposit for any reason. The Customer on behalf of each Portfolio, acknowledges
its responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement warrants its authority to
deposit in the appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the same
class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or otherwise become payable and all coupons
and other income items which call for payment upon presentation
to the extent that the Custodian or Subcustodian is actually
aware of such opportunities and hold the cash received in such
Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for an
Account, endeavor to receive Instructions, provided that if such
Instructions are not received in time for the Custodian to take
timely action, no action shall be taken with respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for an Account and such rights entitlement or
fractional interest bears an expiration date, if after
endeavoring to obtain Instructions such Instructions are not
received in time for the Custodian to take timely action or if
actual notice of such actions was received too late to seek
Instructions, sell in the discretion of the Custodian (which
sale the Customer hereby authorizes the Custodian to make) such
rights entitlement or fractional interest and credit the Account
with the net proceeds of such sale:
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(e) execute in the Customer's name for an Account whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income
from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other similar
income on the Property in such Account by any governmental
authority. In the event there is insufficient Cash available in
such Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the
Customer, at its option, may deposit additional Cash in such
Account or take steps to have sufficient Cash available. The
Customer agrees, when and if requested by the Custodian and
required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information,
executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes
and instructs the Custodian to hold the Property in each Account in custody
accounts which have been established by the Custodian with (a) one of its U.S.
branches or another U.S. bank or trust company or branch thereof located in the
U.S., which is itself qualified under the Investment Company Act of 1940, as
amended ("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"),
or a U.S. securities depository or clearing agency or system in which the
Custodian or a U.S. Subcustodian participates (individually, a "U.S. Securities
System") or (b) one of its non-U.S. branches or majority-owned non-U.S.
subsidiaries, a non-U.S. branch or majority-owned subsidiary of a U.S. bank or a
non-U.S. bank or trust company, acting as custodian (individually, a "non-U.S.
Subcustodian"; U.S. Subcustodians and non-U.S. Subcustodians, collectively,
"Subcustodians"), or a non-U.S. depository or clearing agency or system in which
the Custodian or any Subcustodian participates (individually, a "non-U.S.
Securities System"; U.S. Securities System and non-U.S. Securities System
collectively, Securities System"), provided that in each case in which a U.S.
Subcustodian or U.S. Securities System is employed, each such Subcustodian or
Securities System shall have been approved by Instructions: provided further
that in each case in which a non-U.S. Subcustodian or non-U.S. Securities System
is employed, (a) such Subcustodian or Securities System either is (i) a
"qualified U.S. bank" as defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5")
or (ii) an "eligible foreign custodian" within the meaning of Rule 17f-5 or such
Subcustodian or Securities System is the subject of an order granted by the U.S.
Securities and Exchange Commission ("SEC") exempting such agent or the
subcustody arrangements thereto from all or part of the provisions of Rule 17f-5
and (b) the agreement between the Custodian and such non-U.S. Subcustodian has
been approved by Instructions; it being understood that the Custodian shall have
no liability or responsibility for determining whether the approval of any
Subcustodian or Securities System has been proper under the 1940 Act or any rule
or regulation thereunder.
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Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement Subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities as may reasonably be requested by the
Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5 requires
the Customer's Board of Trustees to directly approve its foreign custody
arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the nominal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account
which is maintained by the Custodian in the custody of a Subcustodian employed
pursuant to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such
Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim
of any kind in favor of such Subcustodian or its creditors
except a claim for payment in accordance with such agreement
for their safe custody or administration and expenses related
thereto, (iii) beneficial ownership of such Securities be
freely transferable without the payment of money or value
other than for safe custody or administration and expenses
related
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thereto, (iv) adequate records will be maintained identifying
the Property held pursuant to such Agreement as belonging to the
Custodian, on behalf of its customers and (v) to the extent
permitted by applicable law, officers of or auditors employed
by, or other representatives of or designated by, the Custodian,
including the independent public accountants of or designated
by, the Customer be given access to the books and records of
such Subcustodian relating to its actions under its agreement
pertaining to any Property held by it thereunder or confirmation
of or pertinent information contained in such books and records
be furnished to such persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the
Account(s) which are maintained by the Custodian or any Subcustodian in the
custody of a Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books such
Property as being held for the account of the Custodian or
Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the case
may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the Custodian
or Subcustodian, as the case may be, unless precluded by
applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a
Subcustodian or in a Securities System as authorized herein,
shall be clearly recorded on the Custodian's books as belonging
to the appropriate Account and not for the Custodian's own
interest. The Custodian
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shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions for each Account.
All accounts, books and records of the Custodian relating
thereto shall be open to inspection and audit at all reasonable
times during normal business hours by any person designated by
the Customer. All such accounts shall be maintained and
preserved in the form reasonably requested by the Customer. The
Custodian will supply to the Customer from time to time, as
mutually agreed upon, a statement in respect to any Property in
an Account held by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the
Customer of exceptions or objections to any such statement
within sixty (60) days of the mailing thereof, the Customer
shall be deemed to have approved such statement and in such case
or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct
with respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions from
the Customer's independent certified public accountants with
respect to the Custodian's activities hereunder in connection
with the preparation of the Customer's Form N1-A and the
Customer's Form N-SAR or other periodic reports to the SEC and
with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's
independent certified public accountants with respect to the
services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for
safeguarding Cash and Securities, including Cash and Securities
deposited and/or maintained in a securities system or with a
Subcustodian. Such report shall be of sufficient scope and in
sufficient detail as may reasonably be required by the Customer
and as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the
Custodian which can provide the Customer, on a daily basis, with
the ability to view on-line or to print on hard copy various
reports of Account activity and of Securities and/or Cash being
held in any Account. To the extent that such service shall
include market values of Securities in an Account, the Customer
hereby acknowledges that the Custodian now obtains and may in
the future obtain information on such values from outside
sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or
represent or warrant either the reliability of such service nor
the accuracy or completeness of any such information furnished
or obtained by or through such service and (ii) shall be without
liability in selecting and utilizing such service or furnishing
any information derived therefrom.
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9. Holding of Securities, Nominees, etc. Securities in an Account
which are held by the Custodian or any Subcustodian may be held by such entity
in the name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged
or delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian.
Settlement and payment for Securities received for an Account and delivery of
Securities out of such Account may be effected in accordance with the customary
or established securities trading or securities processing practices and
procedures in the Jurisdiction or market in which the transaction occurs,
including, without limitation, delivering Securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such Securities
from such
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purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Global Guide provided to the Customer by the Custodian, the Custodian may,
at its sole option, reverse such credits or debits to the appropriate Account in
the event that the transaction does not settle, or the income is not received in
a timely manner, and the Customer agrees to hold the Custodian harmless from any
losses which may result therefrom.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any
Instructions to settle the purchase of any securities for the
Account, unless there are sufficient immediately available
funds in the relevant currency in the Account, provided that
if, after all expenses, debits and withdrawals of Cash in the
relevant currency ("Debits") applicable to the Account have
been made and if after all Conditional Credits, as defined
below, applicable to the Account have been made final entries
as set forth in (c) below, the amount of immediately available
funds of the relevant currency in such Account is at least
equal to the aggregate purchase price of all securities for
which the Custodian has received Instructions to settle on
that date ("Settlement Date"), the Custodian, upon settlement,
shall credit the Securities to the Account by making a final
entry on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable
to the Account have been made, there remains outstanding any
Conditional Credit (as defined below) applicable to the
Account or the amount of immediately available funds in a
given currency in such Account are less than the aggregate
purchase price in such currency of all securities for which
the Custodian has received Instructions to settle on the
Settlement Date, the Custodian, upon settlement, may credit
the securities to the Account by making a conditional entry on
its books and records ("Conditional Credit"), pending receipt
of sufficient immediately available funds in the relevant
currency in the Account.
(c) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are deposited into the Account,
the Custodian shall make the Conditional Credit a final entry
on its books and records. In such case, the Customer shall be
liable to the Custodian only for late
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charges at a rate which the Custodian customary charges for
similar extensions of credit.
(d) If, within a reasonable time from the posting of a
Conditional Credit and after all Debits applicable to the
Account have been made, immediately available funds in the
relevant currency at least equal to the aggregate purchase
price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are not deposited into
the Account, the Customer authorizes the Custodian, as agent,
to sell the securities and credit the Account with the
proceeds of such sale. In such case, the Customer shall be
liable to the Custodian for any deficiencies, out-of-pocket
costs and expenses associated with the sale of the securities,
including but not limited to, shortfalls in the sales proceeds
and the Custodian is hereby authorized to sell such other
securities to the extent necessary to satisfy such shortfalls
with the net proceeds of such sales.
(e) The Customer agrees that it will not use the Account to
facilitate the purchase of securities without sufficient funds
in the Account (which funds shall not include the expected
proceeds of the sale of the purchased securities).
14. Permitted Transactions. The Customer agrees that it will
cause transactions to be made pursuant to this Agreement only upon Instructions
in accordance with Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or
readjustment.
(d) Upon conversion of Securities pursuant to their terms into
other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or
supervisory fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed.
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(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect
any restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of
the Customer against delivery of the shares to be redeemed to
the Custodian, a Subcustodian or the Customer's transfer
agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the
Custodian, a Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among the Customer, on behalf of a Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association
of Securities Dealers, Inc., relating to compliance with the
rules of The Options Clearing Corporation, the Commodities
Futures Trading Commission and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to the Custodian of monies for the
premium due and a receipt for the Securities which are to be
held in escrow. Upon exercise of the option, or at expiration,
the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance
with Instructions in the delivery of Securities to be held in
escrow and will have no responsibility or liability for any
such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from
Securities related transactions.
(n) Upon the termination of this Agreement as set forth in
Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from
the Customer in respect of any of the Custodian's duties hereunder which have
been received by the Custodian at its address set forth in Section 22 below
(i) in writing (including, without limitation, facsimile transmission) or by
tested telex signed or given by such one or more person or persons as the
Customer shall have from time to time authorized in writing to give the
particular class of Instructions in question and whose
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name and (if applicable) signature and office address have been filed with the
Custodian, or (ii) which have been transmitted electronically through an
electronic on-line service and communications system offered by the Custodian or
other electronic instruction system acceptable to the Custodian, or (iii) a
telephonic or oral communication by one or more persons as the Customer shall
have from time to time authorized to give the particular class of Instructions
in question and whose name has been filed with the Custodian; or (iv) upon
receipt of such other form of instructions as the Customer may from time to time
authorize in writing and which the Custodian has agreed in writing to accept.
Instructions in the form of oral communications shall be confirmed by the
Customer by tested telex or writing in the manner set forth in clause (i) above,
but the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific transactions
or to types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the night to assume in the absence of notice
to the contrary from the Customer tha t any person whose name is on file with
the Custodian pursuant to this Section has been authorized by the Customer to
give the Instructions in question and that such authorization has not been
revoked. The Custodian may act upon and conclusively rely on, without any
liability to the Customer or any other person or entity for any losses resulting
therefrom, any Instructions reasonably believed by it to be furnished by the
proper person or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be
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counsel for the Customer) on all matters and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution, strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination
of this Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
12
<PAGE>
18. Fees and Expenses. The Customer agrees to pay to the Custodian
such compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to Section
13 and pursuant to indemnities granted by the Customer under this Agreement. The
provisions of this Section shall survive the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and
which may be deducted from any income received from any Property in an Account,
the Custodian shall perform such services with respect thereto as are described
in Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement
may be amended, modified or waived except in a writing signed by the parties
hereto. No waiver of any provision hereto shall be deemed a continuing waiver
unless it is so designated. No failure or delay on the part of either party in
exercising any power or right under this Agreement operates as a waiver, nor
does any single or partial exercise of any power or right preclude any other or
further exercise thereof or the exercise of any other power or right.
21. Termination.
(a) Termination of Entire Agreement. This Agreement may be
terminated by the Customer or the Custodian by ninety (90) days'
written notice to the other; provided that notice by the
Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in each Account and to
whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall,
within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names
of the persons to whom the Custodian shall deliver the
Securities in each Account and to whom the Cash in such Account
shall be paid. In either case, the Custodian will deliver such
Securities and Cash to the persons so specified, after deducting
therefrom any amounts which the Custodian determines to be owed
to it under Sections 13, 18, and 24. In addition, the Custodian
may in its discretion withhold from such delivery such Cash and
Securities as may be necessary
13
<PAGE>
to settle transactions pending at the time of such delivery. The
Customer grants to the Custodian a lien and right of setoff
against the Account and all Property held therein from time to
time in the full amount of the foregoing obligations. If within
ninety (90) days following the giving of a notice of termination
by the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the persons to
whom the Custodian shall deliver the Securities in each Account
and to whom the Cash in such Account shall be paid, the
Custodian, at its election, may deliver such Securities and pay
such Cash to a bank or trust company doing business in the State
of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such
Securities and Cash until a written notice as aforesaid is
delivered to the Custodian, provided that the Custodian's
obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer or the Custodian as to one or more
Portfolios (but less than all of the Portfolios) by delivery of
an amended Exhibit A deleting such Portfolios, in which case
termination as to such deleted Portfolios shall take effect
ninety (90) days after the date of such delivery, or such
earlier time as mutually agreed. The execution and delivery of
an amended Exhibit A which deletes one or more Portfolios shall
constitute a termination of this Agreement only with respect to
such deleted Portfolio(s), shall be governed by the preceding
provisions of Section 21 as to the identification of a successor
custodian and the delivery of Cash and Securities of the
Portfolio(s) so deleted to such successor custodian and shall
not affect the obligations of the Custodian and the Customer
hereunder with respect to the other Portfolios set forth in
Exhibit A, as amended from time to time.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
24. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations;
14
<PAGE>
provided that, if there is more than one Account and the obligations secured
pursuant to this Section can be allocated to a specific Account or the Portfolio
related to such Account, such security interest and right of setoff will be
limited to Property held for that Account only and its related Portfolio. Should
the Customer fail to pay promptly any amounts owed hereunder, Custodian shall be
entitled to use available Cash in the Account or applicable Account, as the case
may be, and to dispose of Securities in the Account or such applicable Account
as is necessary. In any such case and without limiting the foregoing, Custodian
shall be entitled to take such other action(s) or exercise such other options,
powers and rights as Custodian now or hereafter has as a secured creditor under
the New York Uniform Commercial Code or any other applicable law.
25. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian
that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law
or otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian a duly
executed Secretary's Certificate in the form of Exhibit E hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer
that:
(i) the terms of this Agreement do not violate any obligation
by which the Custodian is bound, whether arising by
contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding
upon the Custodian in accordance with its terms;
(iii) the Custodian will deliver to the Customer such evidence
of such authorization as the Customer may reasonably
require, whether by way of a certified resolution or
otherwise; and
15
<PAGE>
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so
qualified or upon ceasing to be so qualified shall
promptly notify the Customer in writing.
26. Governing Law and Successors and Assigns. This Agreement shall
be governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
27. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 22 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
[28. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.]
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
29. Submission to Jurisdiction. Any suit, action or proceeding
arising out of this Agreement may be instituted in any State or Federal court
sitting in the City of New York, State of New York, United States of America,
and the Customer irrevocably submits to the non-exclusive jurisdiction of any
such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in such a court
and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the
16
<PAGE>
parties hereto, by judicial or administrative process or otherwise by applicable
law or regulation. The provisions of this Section shall survive the termination
of this Agreement.
31. Severability. If any provision of this Agreement is determined
to be invalid or unenforceable, such determination shall not affect the validity
or enforceability of any other provision of this Agreement.
32. Entire Agreement. This Agreement together with any exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
33. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
34. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
ISI STRATEGY FUND, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST COMPANY
By:____________________________________
Name:__________________________________
Title:_________________________________
17
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________,199__ between Bankers
Trust Company and ISI Strategy Fund, Inc.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
ISI STRATEGY FUND, INC.
Dated as of: By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST COMPANY
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of ________________, 199__ between
Bankers Trust Company and ISI Strategy Fund, Inc.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the Global Guide. For the United
States and Canada, the term "corporate communications" means the proxy
statements or meeting agenda, proxy cards, annual reports and any other meeting
materials received by the Custodian. For countries other then the United States
and Canada, the term "corporate communications" means the meeting agenda only
and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
<PAGE>
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian wall not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
Global Guide. The Custodian will notify the Customer as
<PAGE>
to the inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit B will be deemed to be
automatically amended to include or delete such countries as the case may be.
Dated as of ISI STRATEGY FUND, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST COMPANY
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ISI Strategy Fund, Inc.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ISI Strategy Fund, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When Withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian,
<PAGE>
counsel or other professional tax advisers and shall be without liability to the
Customer for any action reasonably taken or omitted pursuant to information
contained in such services or such advice.
Dated as of ISI STRATEGY FUND, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
BANKERS TRUST COMPANY
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT E
[Name of Entity]
Certificate of the Secretary
I, [Name of Secretary], hereby certify that I am the Secretary of
ISI Strategy Fund, Inc., an open-end investment company organized under the laws
of the State of Maryland (the "Company"), and as such I am duly authorized to,
and do hereby, certify that:
1. Organizational Documents. The Company's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of Maryland, the Company continues to be in existence and is in good
standing, and no action has been taken to repeal such organizational documents,
the same being in full force and effect on the date hereof.
2. Bylaws. The Company's Bylaws have been duly adopted and no action
has been taken to repeal such Bylaws, the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of the
Company, which resolutions (i) have not in any way been revoked or rescinded,
(ii) have been in full force and effect since their adoption, to and including
the date hereof, and are now in full force and effect, and (iii) are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein, including, without limitation, confirming that the
Company is duly authorized to enter into a certain custody agreement with
Bankers Trust Company (the "Agreement"), and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
execute said Agreement on behalf of the Company, in conformity with the
requirements of the Company's organizational documents, Bylaws, and other
pertinent documents to which the Company may be bound.
4. Incumbency. The following named individuals are duly elected (or
appointed), qualified, and acting officers of the Company holding those offices
set forth opposite their respective names as of the date hereof, each having
full authority, acting individually, to bind the Company as a legal matter, with
respect to all matters pertaining to the Agreement, and to execute and deliver
said Agreement on behalf of the Company, and the signatures set forth opposite
the respective names and titles of said officers are their true, authentic
signatures:
Name Title Signature
[Name] [Position] _________________________
[Name] [Position] _________________________
[Name] [Position] _________________________
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
[Date], 19__.
By:____________________________________
Name:__________________________________
Title: Secretary
I, [Name of Confirming Officer], [Title] of the Company, hereby certify
that on this ___ day of [Date], 19__, [Name of Secretary] is the duly elected
Secretary of the Company and that the signature above is his genuine signature.
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT 10
[LETTERHEAD MORGAN, LEWIS & BOCKIUS LLP]
2000 One Logan Square
Philadelphia, PA 19103-6993
215-963-5000
Fax: 215-963-5299
August 15, 1997
ISI Strategy Fund, Inc.
717 Fifth Avenue
New York, NY 10022
Ladies and Gentlemen:
We have acted as counsel to you in connection with the
organization of ISI Strategy Fund, Inc. (the "Fund") and with the proposed
offering of twenty-five million (25,000,000) shares of common stock of the Fund,
par value $.001 per share (the "Shares").
Having prepared the Articles of Incorporation and By-laws of
the Fund, and having assisted in the preparation of the Fund's Registration
Statement on Form N-1A (File No. 333-31127) under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, including all
pre-effective amendments thereto (the "Registration Statement"), relating to the
offering of the Shares, and having assisted in the preparation of other related
documents, we are of the opinion that:
1. The Fund is a Maryland corporation validly organized and in
good standing under the laws of that state, authorized to issue up to
twenty-five million (25,000,000) shares of its common stock, par value $.001 per
share of which twenty million (20,000,000) shares are designated ISI Shares and
five million (5,000,000) shares are designated Wilshire Institutional Shares.
2. Upon the effectiveness of the Registration Statement, you
will, in jurisdictions where the Shares are qualified for sale, be authorized to
make a public offering of Shares pursuant to the terms of the offering as
described in the Prospectuses filed as part of the Registration Statement, and
the Shares, when issued upon receipt of payment therefore as described in the
Prospectuses, will be validly issued, fully paid and non-assessable by the Fund.
<PAGE>
ISI Strategy Fund, Inc.
August 15, 1997
Page 2
We have not reviewed the securities laws of any state or
territory in connection with the proposed offering of Shares and we express no
opinion as to the legality of any offer of sale of Shares under any such state
or territorial securities laws.
This opinion is intended only for you use in connection with
the offering of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as an
exhibit to the Fund's Registration Statement on Form N-1A to be filed with the
Securities and Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
--------------------------------------------
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
ISI Strategy Fund, Inc.:
We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement
No. 333-31127 of our report dated August 14, 1997 appearing in the Statement of
Additional Information, which is a part of such Registration Statement and to
the references to us under the captions "General Information--Reports" appearing
in the Prospectus which is also a part of such Registration Statement and
"Independent Auditors" appearing in the Statement of Additional Information.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
August 14, 1997
<PAGE>
EXHIBIT 13
ISI STRATEGY FUND, INC.
FORM OF
SUBSCRIPTION AGREEMENT
For and in consideration of the mutual agreements herein
contained, International Strategy & Investment Group Inc. ("ISI Group") hereby
agrees to purchase from ISI Strategy Fund, Inc., a Maryland corporation (the
"Fund"), and the Fund agrees to sell 9,999 shares of the Fund's ISI common
stock, and 1 share of the Fund's Wilshire Institutional common stock, each
having a par value $.001 per share, at a price of $10.00 per share (the
"Shares"), upon the terms and conditions set forth herein and as part of a
public offering pursuant to the terms and conditions of the Fund's Registration
Statement on Form N-1A (No. 333- 31127), as amended and supplemented, initially
filed with the Securities and Exchange Commission on July 11, 1997.
ISI Group agrees to purchase such Shares and to pay the full
consideration therefor to the Fund upon demand.
ISI Group hereby confirms to the Fund its representations that
it is purchasing such Shares for investment purposes, with no present intention
of redeeming or reselling any portion thereof, and its agreement that in the
event it should dispose of any of such Shares, such transaction will be effected
by redeeming such Shares through the Fund.
Dated: ______, 1997 INTERNATIONAL STRATEGY & INVESTMENT
GROUP INC.
By:____________________________________
Title:_________________________________
Subscription Accepted:
ISI STRATEGY FUND, INC.
By:__________________________________
Title:_______________________________
