ISI STRATEGY FUND INC, 497, 1997-09-15

ISI STRATEGY FUND INC
497, 1997-09-15

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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 diversified investments in U.S.
equity securities and U.S. Treasury 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 September 15, 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 September 15, 1997.
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1. Fee Table
<TABLE>
<S> <C>
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%*
======
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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 0.40%, 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
-------- --------
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
- -----------
* 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 diversified investments in U.S.
equity securities and U.S. Treasury Securities. There can be no assurance that
the Fund's investment objective will be met.

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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 ("Wilshire 5000" or
"Index") and other custom-structured U.S. equity applications, and currently
have $8 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. 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 NASDAQ 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

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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
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,

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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 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.

3. Investment Restrictions

The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal regulatory limitations. The
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.

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
that has entered into a dealer agreement with the Distributor ("Participating
Dealers") or through

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any financial institution that has entered into a shareholder servicing
agreement with the Fund ("Shareholder Servicing Agents"). Shares may also be
purchased by completing the Application Form attached to this Prospectus and
returning it, together with payment of the purchase price, to the address shown
on the Application Form. As used herein, the "Fund" refers to ISI 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 IRAs is $1,000 and the minimum
initial investment for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent investment must be at least $250, except that the minimum
subsequent investment for participants in the Fund's Automatic Investing Plan
is $100 for monthly investments and $250 for quarterly investments. (See
"Purchases Through Automatic Investing Plan" below.) The Fund reserves the
right to suspend the sale of Shares at any time at the discretion of the
Distributor. Orders for purchases of Shares are accepted on any day on which
the New York Stock Exchange is open for business (a "Business Day"). Purchase
orders for Shares will be executed at a per Share purchase price equal to the
net asset value next determined after receipt of the purchase order plus any
applicable front-end sales charge (the "Offering Price") on the date such net
asset value is determined (the "Purchase Date"). Purchases made by mail must be
accompanied by payment of the Offering Price. Purchases made through the
Distributor or a Participating Dealer or Shareholder Servicing Agent must be in
accordance with such entity's payment procedures. The Distributor may, in its
sole discretion, refuse to accept any purchase order.

The net asset value per Share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share 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
that is calculated as a percentage of the Offering Price and decreases as the
amount of purchase increases as shown below.

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*
------------------ ------------ ------------ --------------
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

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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.

A shareholder who purchases additional Shares may obtain reduced sales charges
as set forth in the table above through a right of accumulation. In addition,
an investor may obtain reduced sales charges as set forth above through a right
of accumulation of purchases of Shares and purchases of shares of other mutual
funds in the ISI family of funds. The applicable sales charge will be
determined based on the total of (a) the investor's current purchase plus (b)
an amount equal to the then current net asset value or cost, whichever is
higher, of all Shares and of all shares of such other mutual funds in the ISI
family of funds held by the shareholder. To obtain 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

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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
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

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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.

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.
8
<PAGE>
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
Carrie 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 $625 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 $480 million in net
assets as of July 31, 1997. Wilshire is a registered investment advisor with
approximately $8 billion of net assets under management as of July 31, 1997.
Wilshire currently provides advisory or sub-advisory services to 8 open-end
investment companies with approximately $211 million 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 0.40% 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 0.16% 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
that follow trends that may determine the direction of interest rates. These
international and domestic reports are sent to ISI's private institutional
clients in the United States and overseas. The periodical Institutional
Investor, which rates analysts and economists on an annual basis, has rated Mr.
Hyman as its "first team" economist, which is its highest rating, in each of
the last 17 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

11
<PAGE>
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 0.12% 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 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 0.25% 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 0.25% 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 10-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.
12
<PAGE>

The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services that monitor the performance of mutual funds. The
performance of the Fund may also be compared to the 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.

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
65% 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
(212) 446-5600. 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.

13
<PAGE>
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.

14
<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 IRAs is $1,000 and the minimum
initial purchase for participants in the Fund's Automatic Investing Plan is
$250. Each subsequent purchase requires a $250 minimum, except that the minimum
subsequent purchase under the Fund's Automatic Investing Plan is $100 for
monthly purchases and $250 for quarterly purchases. The Fund reserves the right
not to accept checks for more than $50,000 that are not certified or bank
checks.

Your Account Registration (Please Print)

Individual or Joint Tenant

______________________________________
First Name Initial Last Name

______________________________________
Social Security Number

______________________________________
Joint Tenant Initial Last Name

______________________________________
Social Security Number

Corporations, Trusts, Partnerships, etc.

______________________________________
Name of Corporation, Trust or Partnership

______________________________________
Tax ID Number

______________________________________
Name of Trustees (If to be included
in the Registration)

______________________________________
Existing Account No., if any

Gifts to Minors

______________________________________
Custodian's Name (only one allowed by law)

______________________________________
Minor's Name (only one)

______________________________________
Social Security Number of Minor

under the ____________ Uniform Gifts to Minors Act
State of Residence

Mailing Address

______________________________________
Street

______________________________________
City State Zip

( )
______________________________________
Daytime Phone

Statement of Intention (Optional)

[ ] I agree to the Letter of Intent and Escrow 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)
[ ] 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 Depositor's Signature Date
No., if any (if joint acct., both must sign)

Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of ______________________, 19__, please send me checks
on a monthly or quarterly basis, as indicated below, in the amount of
$______________________, from shares that I own, payable to the account
registration address as shown above. (Participation requires minimum account
value of $10,000.)
Frequency (check one):
[ ] Monthly [ ] Quarterly (January, April, July and October)

Telephone Transactions

I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other ISI Funds) unless I mark one or both of the boxes below.

No, I/We do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges

Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:

Bank: ___________________________ Bank Account No.: ______________________

Address: ___________________________ Bank Account Name: ______________________

Signature and Taxpayer Certification
- --------------------------------------------------------------------------------
The 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.

[ ] 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.
- --------------------------------------------------------------------------------

<PAGE>

I have received a copy of the Fund's prospectus dated September 15, 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 Internal Revenue Service does not require your consent to any
provision of this document other than the certifications required to avoid
backup withholding.
- --------------------------------------------------------------------------------

________________________ _____________________________________________________
Signature Date Signature (if 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>

ISI

INTERNATIONAL STRATEGY & INVESTMENT

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 ...... 5
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

<PAGE>

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 diversified investments in U.S. equity
securities and securities issued by the United States Treasury ("U.S. Treasury
Securities").

September 15, 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: September 15, 1997
Relating to the Prospectus of
ISI Strategy Fund Shares Dated September 15, 1997

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page

<S> <C> <C>
1. General Information and History....................................................... 1

2. Investment Objectives and Policies.................................................... 1

3. Valuation of Shares and Redemption.................................................... 4

4. Federal Tax Treatment of Dividends and
Distributions....................................................................... 5

5. Management of the Fund................................................................ 8

6. Investment Advisory and Other Services................................................ 13

7. Administration........................................................................ 14

8. Distribution of Fund Shares........................................................... 14

9. Brokerage............................................................................. 17

10. Capital Shares........................................................................ 18

11. Semi-Annual Reports................................................................... 19

12. Custodian, Transfer Agent and
Accounting Services................................................................. 19

13. Independent Auditors.................................................................. 19

14. Control Persons and Principal Holders of
Securities.......................................................................... 20

15. Performance Computations.............................................................. 20

16. Financial Statement ................................................................. 21

</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 information concerning the activities of the company
being considered for investment. The Fund has two classes of shares: ISI
Strategy Fund Shares (the "ISI Shares") and Wilshire Institutional Strategy Fund
Shares (the "Institutional Shares"). Currently, the Fund only offers the ISI
Shares. The ISI Shares Prospectus contains important information concerning ISI
Shares offered by the Fund, and may be obtained without charge from the Fund's
distributor (the "Distributor") or from Participating Dealers that offer shares
of the Fund (the "Shares") to prospective investors. Prospectuses may also be
obtained from Shareholder Servicing Agents. 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 Prospectus. To avoid unnecessary repetition, references are
made to related sections of the Prospectus. In addition, the Prospectus and this
Statement of Additional Information omit certain information 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 September 15, 1997.

Under a license agreement dated September 15, 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.

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

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<PAGE>

agreements will be fully collateralized. The Fund's procedures regarding
repurchase agreements are discussed in greater detail in the Fund's Prospectus.
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.

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.

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<PAGE>

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 5000
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 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

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<PAGE>

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.

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<PAGE>

Redemption

The Fund may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.

Under normal circumstances, the Fund will redeem Shares by check
as described in the Prospectus. However, if the Board of Directors determines
that it would be in the best interests of the remaining shareholders of the Fund
to make payment of the redemption price in whole or in part by a distribution in
kind of readily marketable securities from the portfolio of the Fund in lieu of
cash, in conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "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).

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<PAGE>

The Fund may make investments in securities (such as STRIPS) that
bear "original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Fund must distribute to satisfy the
Distribution Requirement. In some cases, the Fund may have to borrow money or
dispose of other investments in order to make sufficient cash distributions to
satisfy the Distribution Requirement.

In addition to satisfaction of the Distribution Requirement, in
order to qualify as a RIC the Fund must generally 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").

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 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 capital
gains, will receive a refundable tax credit for

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<PAGE>

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% 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 18 months, mid-term capital gain or loss if shares have
been held for more than 12, but less than 18 months, and otherwise will be
short-term capital gain or loss. However, if any loss is realized upon the sale,
exchange or redemption of Shares held for six months or less and the shareholder
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 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.

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<PAGE>

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.

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, 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)
BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland
21202. Managing Director, BT Alex. Brown Incorporated and Director,
Investment Company Capital Corp.(registered investment advisor);
Formerly, Vice Chairman, Alex. Brown Incorporated (now BT Alex.
Brown Incorporated).

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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).

DAVID R. BORGER, Vice President (12/23/48)
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.

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<PAGE>

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 (5/14/63)
BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland
21202. Vice President, BT Alex. Brown Incorporated, June,
1997-Present. Formerly, Senior Manager, Coopers & Lybrand L.L.P.,
September 1988-June 1997.

JOSEPH A. FINELLI, Treasurer (1/24/57)
BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland
21202. Vice President, BT Alex. Brown 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)
BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland
21202. Asset Management Department, BT Alex. Brown Incorporated,
1991-Present.

- -------------------------
* A Director who is an "interested person" as defined in the
Investment Company Act.

There are currently 13 funds in the Flag Investors/ISI Funds
and BT 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 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 11 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 or its
affiliates in the ordinary course of business. All such transactions were made
on substantially the same terms as those prevailing at

-10-
PH02/181715.5

<PAGE>

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 BT 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.

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

-11-

<PAGE>

(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.

Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <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 the BT
Alex. Brown Cash Reserve Fund, Inc. 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 10 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

-12-

<PAGE>

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 September 10, 1997. 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.

Wilshire, a California corporation, is a registered investment
advisor with approximately $8 billion in net assets under management as of July
31, 1997. Wilshire currently provides investment advisory services to 8 open-end
registered investment companies with $211 million 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, and (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.

-13-

<PAGE>

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 60
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.

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.

-14-

<PAGE>

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 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.

-15-

<PAGE>

In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which 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, 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.

-16-

<PAGE>

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'
research and analysis. Therefore, it may tend to benefit the Fund by improving
the Advisors' 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 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

-17-

<PAGE>

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.

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.

-18-

<PAGE>

As used in this Statement of Additional Information, the term
"majority of the outstanding Shares" means the vote of the lesser of (i) 67% or
more of the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.

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.

Average Daily Net Assets Incremental Annual Accounting Fee
------------------------ ---------------------------------
<S> <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.

13. INDEPENDENT AUDITORS

The annual financial statements of the Fund are audited by the
Fund's independent auditors, Deloitte & Touche LLP.

-19-

<PAGE>

14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

To Fund management's knowledge, as of July 15, 1997, no person
owned beneficially or of record 5% or more 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 investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.

-20-

<PAGE>

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 STATEMENT.

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

<PAGE>

Supplement dated September 15, 1997
to the Prospectus dated September 15, 1997
of ISI Strategy Fund Shares
(A Class of ISI Strategy Fund, Inc.)

The Prospectus dated September 15, 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
six 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:

<TABLE>
<CAPTION>
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*
- ----------------------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
Less than $50,000 4.45% 4.66% 4.00%
$50,000 - $99,000 3.50% 3.63% 3.00%
$100,000 and over** None None 1.00%
</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.

** 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.

Your Account Registration (Please Print)

Individual or Joint Tenant

______________________________________
First Name Initial Last Name

______________________________________
Social Security Number

______________________________________
Joint Tenant Initial Last Name

______________________________________
Social Security Number

Corporations, Trusts, Partnerships, etc.

______________________________________
Name of Corporation, Trust or Partnership

______________________________________
Tax ID Number

______________________________________
Name of Trustees (If to be included
in the Registration)

______________________________________
Existing Account No., if any

Gifts to Minors

______________________________________
Custodian's Name (only one allowed by law)

______________________________________
Minor's Name (only one)

______________________________________
Social Security Number of Minor

under the ____________ Uniform Gifts to Minors Act
State of Residence

Mailing Address

______________________________________
Street

______________________________________
City State Zip

( )
______________________________________
Daytime Phone

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.

Automatic Investing Plan (Optional)

[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_____________ for me, on a monthly or quarterly basis, on or about the
20th of each month or if quarterly, the 20th of January, April, July and
October, and to draw a bank draft in payment of the investment against my
checking account. (Bank drafts may be drawn on commercial banks only.)

Minimum Initial Investment: $250
Subsequent Investments (check one): [ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)

Please attach a voided check.

_____________________________________ ________________________________________
Bank Name Depositor's SignatureDate

_____________________________________ ________________________________________
Existing ISI Strategy Fund Account Depositor's SignatureDate
No., if any (if joint acct., both must sign)

<PAGE>

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 previously shown. (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) 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: ______________________

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 September 15, 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.
- --------------------------------------------------------------------------------

________________________ _____________________________________________________
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.: ________________________