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As Filed With the Securities and Exchange Commission on September 28, 2000
Registration No. 333-31127/811-8291
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 4 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 5 [X]
ISI STRATEGY FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
535 Madison Avenue, 30th Floor, New York, New York 10022
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 446-5600
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R. Alan Medaugh Copy to: Edward J. Veilleux
535 Madison Avenue, 30th Floor Deutsche Banc Alex. Brown
New York, NY 10022 One South Street, 17th Floor
(Name and Address of Agent for Service) Baltimore, MD 21202
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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X on October 1, 2000 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on pursuant to paragraph (a) of Rule 485
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ISI STRATEGY FUND SHARES
(A Class of ISI Strategy Fund, Inc.)
535 Madison Avenue, 30th Floor
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. The
Fund's investments are actively allocated between common stocks of U.S. issuers
and U.S. Treasury securities.
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. (See "How to Buy Shares.") This Prospectus
describes the ISI class (the "Shares") of the Fund.
TABLE OF CONTENTS
Page
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Investment Summary ...................................................... 1
Fees and Expenses of the Fund ........................................... 2
Investment Program ...................................................... 2
The Fund's Net Asset Value .............................................. 4
How to Buy Shares ....................................................... 4
How to Redeem Shares .................................................... 4
Telephone Transactions .................................................. 5
Sales Charges ........................................................... 6
Dividends and Taxes ..................................................... 7
Investment Advisor and Sub-Advisor ...................................... 7
Administrator ........................................................... 8
Financial Highlights .................................................... 9
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
The date of this Prospectus is October 1, 2000
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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INVESTMENT SUMMARY
Objective and Strategies
The Fund seeks to maximize total return through a combination of
long-term growth of capital and current income. The Fund's investments are
actively allocated between common stocks of U.S. issuers and U.S. Treasury
securities.
International Strategy & Investment Inc. ("ISI" or the "Advisor"), the
Fund's investment advisor, determines the relative weightings of common stocks
and Treasury securities in the Fund's portfolio and manages the Treasury
portion of the portfolio. Edward S. Hyman and R. Alan Medaugh, Chairman and
President, respectively, of ISI, will guide the allocation of the Fund's assets
between common stocks and 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.
Wilshire Associates Incorporated, the Fund's investment sub-advisor
("Wilshire" or the "Sub-Advisor") selects the Fund's equity investments with a
mathematical model that seeks to capture the return of the broad U.S. equity
market as represented by the Wilshire 5000 Index ("Wilshire 5000"). Using this
model, Wilshire selects a sampling of the common stocks contained in the
Wilshire 5000 in an attempt to match the return and volatility of the Index.
Risk Profile
The Fund is suited for you if you are seeking long-term total return through an
approach that seeks to moderate risk by balancing investments in common stocks
and bonds. The value of an investment in the Fund will vary from day to day
based on changes in the prices of the common stocks and bonds in the Fund's
portfolio.
General Stock Risk. The value of the Fund's equity investments will
change in relation to changes in the Wilshire 5000. The value of the common
stocks in the Wilshire 5000 will fluctuate based upon investor perceptions of
the economy, the markets, and the companies represented by the Index. The
Fund's investments in common stocks can be expected to be more volatile than
the Fund's investments in bonds.
General Bond Risk. The value of the Fund's Treasury investments will
change in response to economic and market factors, especially interest rate
changes. In general, a change in interest rates will cause an inverse change in
the value of the Treasury investments.
Asset Allocation Risk. Whether or not the Fund benefits from its active
allocation strategy will depend on the Advisor's success in assessing economic
trends and
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their impact on financial assets. The Advisor's assessment of market and
economic conditions may cause it to invest too much or too little in either
stocks or bonds which could adversely affect the Fund's performance.
If you invest in the Fund, you could lose money. An investment in the
Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any
other government agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in
the Fund. This is an historical record and does not necessarily indicate how
the Fund will perform in the future.
For the year ended December 31,*
18.56% 10.00%
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1998 1999
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* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown. For the period December 31, 1999 through June 30,
2000, the total return of the Fund was 1.78%.
During the period shown in the bar chart, the highest return for a
quarter was 12.33% (quarter ended 12/31/98) and the lowest return for a quarter
was -5.08% (quarter ended 9/30/98).
Average Annual Total Return (for the period ended December 31, 1999)
ISI Shares(1) Wilshire 5000 Index(2)
-------------------------- ---------------------
Past One Year ............ 5.10% 23.56%
Since Inception .......... 9.40% (9/16/97) 26.63%(3)
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(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Wilshire 5000 Index is an unmanaged index that represents the broadest
measure of the U.S. equity market. It does not factor in the costs of
buying, selling and holding securities -- costs which are reflected in the
Fund's results.
(3) For the period 9/30/97 through 12/31/99.
1
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FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Shares.
Shareholder Fees (fees paid directly from your investment):
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.45%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ......................... None
Maximum Deferred Sales Charge (Load) ................................................ None
Redemption Fee ...................................................................... None
Exchange Fee ........................................................................ None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees ..................................................................... 0.40%
Distribution and/or Service (12b-1) Fees ............................................ 0.25%
Other Expenses ...................................................................... 0.66%
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Total Annual Fund Operating Expenses ................................................ 1.31%
Less Fee Waivers and Reimbursement of Expenses ...................................... (0.31)%*
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Net Expenses ........................................................................ 1.00%
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* The Advisor has contractually agreed to limit its fees and reimburse expenses
to the extent necessary so that the Fund's Total Annual Operating Expenses
do not exceed 1.00% of the Fund's average daily net assets. This agreement
will continue until at least September 30, 2001 and may be extended.
Example:
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year, the Fund's operating expenses remain the same, and the fee waiver and
expense reimbursement apply during the first year only. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
$542 $813 $1,103 $1,928
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on Sales Charges.) If you hold Shares for
a long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
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INVESTMENT PROGRAM
Investment Objective, Policies and Risk
Considerations
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
common stocks and Treasury securities.
The Fund will invest its assets in a ratio of:
o approximately 80% common stocks to 20% Treasury securities when an aggressive
strategy is deemed warranted,
o approximately 60% common stocks to 40% Treasury securities when a neutral
strategy is deemed warranted, and
o approximately 40% common stocks to 60% Treasury securities when a conservative
strategy is deemed warranted.
The allocation of the Fund's assets will be reviewed periodically in
light of ISI's forecasts and may be changed when ISI determines it appropriate.
2
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In managing the common stocks in the Fund's portfolio, Wilshire will
attempt to capture the return of the broad U.S. equity market as represented by
the Wilshire 5000. To accomplish this, Wilshire uses a mathematical model to
select a sampling of the stocks contained in the Wilshire 5000. With this
model, Wilshire constructs the Fund's equity portfolio so that its market
capitalization and industry sector weightings closely resemble those of the
Wilshire 5000. Therefore, 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.
ISI will manage the Treasury securities in the Fund's portfolio with a
view toward, first, a high level of total return with relative stability of
principal and, second, high current income. Therefore, in addition to yield,
the potential for capital gains and appreciation resulting from possible
changes in interest rates will be a consideration in selecting investments. At
certain times the average maturity of the 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).
An investment in the Fund involves risk. Common stocks are subject to
market risks that may cause their prices to fluctuate over time and these price
fluctuations may differ from changes in the value of the Wilshire 5000. The
prices of common stocks are sensitive to developments affecting particular
companies and to general economic conditions that affect particular industry
sectors or the securities markets as a whole. Because the equity investments of
the Fund are not actively managed, the value of the Fund's equity investments
will change in relation to changes in the Wilshire 5000.
Treasury securities are subject to interest rate risk. 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. 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).
To reduce the Fund's risk under adverse market conditions, the Advisors
may make temporary defensive investments in money market instruments and U.S.
Government obligations. While engaged in a temporary defensive strategy, the
Fund may not achieve its investment objective. The Advisors would follow such a
strategy only if they believed that the risk of loss in pursuing the Fund's
primary investment strategies outweighed the opportunity for gain.
3
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THE FUND'S NET ASSET VALUE
The price you pay when you buy Shares or receive when you redeem Shares
is based on the Fund's net asset value per share. When you buy Shares, the
price you pay may be increased by a sales charge. Read the sections on sales
charges for details on how and when this charge may or may not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange on each day the Exchange is open
for business. While regular trading ordinarily closes at 4:00 p.m. (Eastern
Time), it could be earlier on the day before a holiday. Contact the Transfer
Agent to determine whether the Fund will close early before a particular
holiday. The net asset value per share is calculated by subtracting the Fund's
liabilities from its assets and dividing the result by the Fund's outstanding
Shares.
In valuing its assets, the Fund's investments are priced at their market
value. When price quotes for a particular security are not readily available,
investments are priced at the "fair value" using procedures approved by the
Fund's Board of Directors.
You may buy or redeem Shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Shares.
HOW TO BUY SHARES
You may buy Shares through your securities dealer or through any
financial institution that is authorized to act as a shareholder servicing
agent. You may also buy Shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
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Investment Minimums
Your initial investment must be at least $5,000. Subsequent investments
must be at least $250. The following are exceptions to these minimums:
o If you are investing in an IRA account or a qualified retirement plan, your
initial investment may be as low as $1,000.
o If you are a participant in the Fund's Automatic Investing Plan, your initial
investment may be as low as $250. If you participate in the monthly plan, your
subsequent investments may be as low as $100. If you participate in the
quarterly plan, your subsequent investments may be as low as $250. Refer to
the section on the Fund's Automatic Investing Plan for details.
Investing Regularly
You may make regular investments in the Fund through either of the
following methods. If you wish to enroll in either of these programs or if you
need any additional information, complete the appropriate section of the
attached Application Form or contact your securities dealer, your servicing
agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the money is
received by the Transfer Agent, it will be invested in Shares at that day's
offering price. Either you or the Fund may discontinue your participation upon
30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Shares at net
asset value. You may elect to receive your distributions in cash or to have
your distributions invested in shares of other funds in the ISI family of
funds. To make either of these elections or to terminate automatic
reinvestment, complete the appropriate section of the attached Application Form
or notify the Transfer Agent, your securities dealer or your servicing agent at
least five days before the date on which the next dividend or distribution will
be paid.
HOW TO REDEEM SHARES
You may redeem all or part of your investment through your securities
dealer or servicing agent. Contact
4
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them for details on how to enter your order and for information as to how you
will be paid. If you have an account with the Fund that is in your name, you
may also redeem Shares by contacting the Transfer Agent by mail or (if you are
redeeming less than $50,000) by telephone. The Transfer Agent will mail your
redemption check within seven days after it receives your order in proper form.
Refer to the section on telephone transactions for more information on this
method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Shares:
1) A letter of instructions specifying your account number and the number of
Shares or dollar amount you wish to redeem. The letter must be signed by all
owners of the Shares exactly as their names appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature. You
can obtain one from most banks or securities dealers.
3) Any stock certificates representing the Shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on Shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your Shares by that time,
the dividend will be paid to you in cash, whether or not that is the payment
option you have selected.
If you redeem sufficient Shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining Shares after giving you 60
days' notice. The Fund reserves the right to redeem Shares in kind under
certain circumstances.
<PAGE>
If you own Shares having a value of at least $10,000, you may arrange to
have some of your Shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the
tax and sales charge implications normally associated with Fund redemptions.
Contact your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your Shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $50,000 or exchange them for shares in another ISI
fund by calling the Transfer Agent on any Business Day between the hours of
8:30 a.m. and 7:00 p.m. (Eastern Time). You are automatically entitled to
telephone transaction privileges unless you specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional written instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that it reasonably believes to be genuine.
Your telephone transaction request will be recorded.
During periods of economic or market volatility, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your Shares in certificate form,
you may not exchange or redeem them by telephone.
5
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SALES CHARGES
Purchase Price
The price you pay to buy Shares will be the Fund's offering price, which
is calculated by adding any applicable sales charges to the net asset value per
share. The amount of any sales charge included in your purchase price will be
according to the following schedule:
Sales Charge as % of
---------------------
Net
Offering Amount
Amount of Purchase Price Invested
-------------------------------- ---------- ---------
Less than $ 50,000......... 4.45% 4.66%
$ 50,000 - $ 99,999......... 3.50% 3.63%
$ 100,000 - $ 249,999......... 2.50% 2.56%
$ 250,000 - $ 499,999......... 2.00% 2.04%
$ 500,000 - $ 999,999......... 1.50% 1.52%
$1,000,000 - $1,999,999......... 0.75% 0.76%
$2,000,000 - $2,999,999......... 0.50% 0.50%
$3,000,000 - and over........... None None
The sales charge you pay on a purchase of Shares may be reduced under the
circumstances listed below. Certain restrictions may apply for Shares purchased
through a special offer.
Rights of Accumulation. If you are purchasing additional Shares of this
Fund or shares of any other mutual fund in the ISI family of funds, you may
combine the value of your purchases with the value of your existing investments
to determine whether you qualify for a reduced sales charge. (For this purpose
your existing investments will be valued at the higher of cost or current
value.) You may also combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose. You must be able
to provide sufficient information to verify that you qualify for this right of
accumulation.
Letter of Intent. If you anticipate making additional purchases of Shares
over the next 13 months, you may combine the value of your current purchase
with the value of your anticipated purchases to determine whether you qualify
for a reduced sales charge. You will be required to sign a letter of intent
specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If,
at the end of the
<PAGE>
13-month period, the total value of your purchases is less than the amount you
indicated, you will be required to pay the difference between the sales charges
you paid and the sales charges applicable to the amount you actually did
purchase. Some of your Shares will be redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Shares without paying a sales
charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of Shares
made within the last six months, provided that the amount you are reinvesting
is at least $5,000.
2) If you are exchanging an investment in another ISI fund for an investment in
this Fund (see "Purchases by Exchange" for a description of the conditions).
3) If you are a current or retired Director of this or any affiliated Fund, or
an employee or a member of the immediate family of an employee of any of the
following or their respective affiliates: the Fund's administrator, the
Advisors or a broker-dealer authorized to sell Shares of the Fund.
4) If you purchase Shares in a fiduciary or advisory account with a bank, bank
trust department, registered investment advisory company, financial planner
or securities dealer purchasing Shares on your behalf. To qualify for this
provision you must be paying an account management fee for the fiduciary or
advisory services. You may be charged an additional fee by your securities
dealer or servicing agent if you buy Shares in this manner.
5) If you pay for your purchase with the proceeds from a redemption of shares of
any other mutual fund on which you have paid a sales charge, or from a sale
of shares of any closed-end fund. In order to qualify for this provision, you
must purchase your shares by September 30, 2001 and provide documentation of
your redemption or sale.
Purchases by Exchange
You may exchange shares of any other fund in the ISI family of funds with
the same sales charge structure for an equal dollar amount of Shares without
payment of the sales charges described above or any other charge. In addition,
you may exchange shares of any fund in the ISI
6
<PAGE>
family of funds with a lower sales charge structure or that were purchased
through a special offer, for an equal dollar amount of Shares if you have owned
the shares you are redeeming for at least 24 months. If you have owned them for
less than 24 months, you will be charged the difference in sales charges. You
may enter both your redemption and purchase orders on the same Business Day or,
if you have already redeemed the shares of the other fund, you may enter your
purchase order within six months of the redemption provided the amount of the
purchase order is at least $5,000. The Fund may modify or terminate these
offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your Shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The price you receive when you redeem Shares will be the net asset value
per share.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its Shares and for shareholder service. Shares pay an
annual distribution fee equal to 0.25% of average daily net assets. Because
these fees are paid out of net assets on an on-going basis, they will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of quarterly dividends and to distribute
net capital gains, at least annually.
Certain Federal Income Tax Consequences
The following summary is based on current tax laws, which may change.
<PAGE>
The Fund will distribute substantially all of its net investment income
and net realized capital gains at least annually. The dividends and
distributions you receive are subject to federal, state and local taxation,
depending upon your tax situation. If so, they are taxable whether or not you
reinvest them. Income distributions are generally taxable at ordinary income
tax rates. Capital gains distributions are generally taxable at the rates
applicable to long-term capital gains. Each sale or exchange of the Fund's
shares is generally a taxable event. For tax purposes, an exchange of your Fund
shares for shares of a different ISI fund is the same as a sale.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor regarding your specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR AND SUB-ADVISOR
International Strategy & Investment Inc. ("ISI" or the "Advisor") is the
Fund's investment advisor and Wilshire Associates Incorporated is the Fund's
investment sub-advisor. As of August 31, 2000, the Advisor had approximately
$570 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 $467 million in net assets as of August 31, 2000. Wilshire is a
registered investment advisor with approximately $13 billion of assets under
management as of August 31, 2000.
As compensation for its services for the fiscal year ended May 31, 2000,
ISI received from the Fund a fee equal to $31,928 (net of fee waivers) of the
Fund's average daily net assets. ISI compensates Wilshire out of its advisory
fee or from its own resources.
The Advisor has contractually agreed to reduce its annual fee and
reimburse expenses if necessary, so that the Fund's total annual operating
expenses do not exceed 1.00% of average daily net assets. This agreement will
continue until at least September 30, 2001 and may be extended.
Portfolio Managers
The Fund's portfolio managers are Edward S. Hyman and R. Alan Medaugh of
ISI, and Thomas D. Stevens and David R. Borger of Wilshire.
7
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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 to that, 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 20 years.
Mr. Medaugh, President 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 to that, 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 and Mr. Borger have shared responsibility for managing the
Fund's portfolio of common stocks 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 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 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.
ADMINISTRATOR
Investment Company Capital Corp. ("ICCC") provides administration
services to the Fund. ICCC supervises the day-to-day operations of the Fund,
including the preparation of registration statements, proxy materials,
shareholder reports, compliance with all requirements of securities laws in the
states in which the Shares are distributed and oversight of the relationship
between the Fund and its other service providers. ICCC is also the Fund's
transfer and dividend disbursing agent and provides accounting services to the
Fund.
8
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since it began operations. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, are included in the Annual Report, which is
available upon request.
(For a share outstanding throughout the period):
<TABLE>
<CAPTION>
For the Period
For the For the September 16, 1997(1)
Year Ended Year Ended through May 31,
May 31, 2000 May 31, 1999 1998
-------------- -------------- --------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ...................... $ 11.91 $ 11.00 $ 10.00
------- -------- --------
Income from Investment Operations:
Net investment income ..................................... 0.26 0.21 0.13
Net realized and unrealized gain on investments ........... 0.46 1.10 0.96
------- -------- --------
Total from Investment Operations .......................... 0.72 1.31 1.09
------- -------- --------
Less Distributions:
Distributions from net investment income .................. (0.24) (0.21) ( .09)
Distributions from short-term and long-term gains ......... (0.24) (0.19) --
------- -------- --------
Total distributions ....................................... (0.48) (0.40) (0.09)
------- -------- --------
Net asset value at end of year ............................ $ 12.15 $ 11.91 $ 11.00
======= ======== ========
Total Return(2) ............................................ 6.09% 12.15% 10.94%
Ratios to Average Daily Net Assets:
Expenses(3) ............................................... 1.00% 1.00% 1.00%(5)
Net investment income(4) .................................. 2.10% 1.81% 2.03%(5)
Supplemental Data:
Net assets at end of year (000) ........................... $36,544 $ 35,734 $ 18,220
Portfolio turnover rate ................................... 59.04% 31.93% 20.08%
</TABLE>
-----------
(1) Commencement of operations.
(2) Total Return Figures exclude the impact of sales charges.
(3) Ratio of expenses to average net assets prior to fee waiver and expense
reimbursement was 1.31%, 1.68%, 2.25% for the years ended May 31, 2000 and
1999 and the period ended May 31, 1998, respectively.
(4) Ratio of net investment income to average net assets prior to fee waiver and
expense reimbursement was 1.79%, 1.12%, and 0.78% for the years ended May
31, 2000 and 1999 and the period ended May 31, 1998, respectively.
(5) Annualized.
9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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 219426
Kansas City, MO 64121-9426
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.
<TABLE>
<CAPTION>
<S> <C>
Your Account Registration (Please Print)
----------------------------------------------------
Existing Account No., if any
Individual or Joint Tenant Gifts to Minors
-------------------------------------------------------- ----------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
-------------------------------------------------------- ----------------------------------------------------
Social Security Number Minor's Name (only one)
-------------------------------------------------------- ----------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
-------------------------------------------------------- ----------------------------------------------------
Social Security Number Minor's Date of Birth (Mo./Day/Yr.)
under the _______________Uniform Gifts to Minors Act
State of Residence
Corporations, Trusts, Partnerships, etc. Mailing Address
-------------------------------------------------------- ----------------------------------------------------
Name of Corporation, Trust or Partnership Street
-------------------------------------------------------- ----------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
-------------------------------------------------------- ----------------------------------------------------
Name of Trustees (If to be included in the Registration) Daytime Phone
</TABLE>
Letter of Intent (Optional)
/ / I intend to invest at least the amount indicated below in ISI Strategy Fund
Shares. I understand that if I satisfy the conditions described in the attached
prospectus, this Letter of Intent entitles me to the applicable level of
reduced sales charges on my purchases.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
___ $50,000 ___ $100,000 ___ $250,000 ___ $500,000 ___ $1,000,000 ___ $2,000,000 ___ $3,000,000
</TABLE>
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
--------- ----------- ------------ ------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
Distribution Options
Please check the 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
<TABLE>
<CAPTION>
<S> <C> <C>
Subsequent Investments (check one): / / Monthly ($100 minimum) / / Quarterly ($250 minimum)
Please attach a voided check.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
------------------------------------ -----------------------------------
Bank Name Depositor's Signature Date
------------------------------------ -----------------------------------
Existing ISI Strategy Depositor's Signature Date
Fund Account No., if any (if joint acct., both must sign)
</TABLE>
Systematic Withdrawal Plan (Optional)
/ / Beginning the month of ____________, _____(year), 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:
<TABLE>
<CAPTION>
<S> <C>
Bank:__________________________________ Bank Account No.:_______________________________
Address:_______________________________ Bank Account Name:______________________________
_______________________________
</TABLE>
<PAGE>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against
your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
/ / U.S. Citizen/Taxpayer:
/ / I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
/ / If no Tax ID Number or Social Security Number has been provided
above, I have applied, or intend to apply, to the IRS or the Social
Security Administration for a Tax ID Number or a Social Security
Number, and I understand that if I do not provide either number to the
Transfer Agent within 60 days of the date of this Application or if I
fail to furnish my correct Social Security Number or Tax ID Number, I
may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide either number on
IRS Form W-9. You may request such form by calling the Transfer Agent
at 800-882-8585).
/ / Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:_______________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
I acknowledge that I am of legal age in the state of my residence. I have
received a copy of the Fund's prospectus.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------- ------------------------------------------------------------------
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:
----------------------------------- ------------------------------------------------------
----------------------------------- Rep. No.:
---------------------------------------------------------
Representative:
-------------------------------------
</TABLE>
<PAGE>
ISI STRATEGY FUND SHARES
(A Class of ISI Strategy Fund, Inc.)
Investment Advisor
INTERNATIONAL STRATEGY & INVESTMENT INC.
535 Madison Avenue, 30th Floor
New York, New York 10022
Sub-Advisor
WILSHIRE ASSOCIATES INCORPORATED
1299 Ocean Avenue, Suite 700
Santa Monica, California 90401
Administrator Distributor
INVESTMENT COMPANY CAPITAL CORP. INTERNATIONAL STRATEGY &
One South Street INVESTMENT GROUP INC.
Baltimore, Maryland 21202 535 Madison Avenue, 30th Floor
New York, New York 10022
1-800-955-7175
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street Princeton Forestal Village
Baltimore, Maryland 21202 116-300 Village Boulevard
1-800-882-8585 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY KRAMER LEVIN NAFTALIS & FRANKEL LLP
130 Liberty Street 919 Third Avenue
New York, New York 10006 New York, New York 10022
<PAGE>
ISI
STRATEGY FUND
SHARES
(A Class of ISI
Strategy Fund, Inc.)
You may obtain the following additional information about the Fund, free
of charge, from your securities dealer or servicing agent or by calling (800)
955-7175:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion of
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the
SAI) at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. (Call 202-942-8090 to find out about the operation of the
Public Reference Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
For other shareholder inquiries, contact the Transfer Agent at (800)
882-8585. For Fund information, call (800) 955-7175, or your securities dealer
or servicing agent.
Investment Company Act File No. 811-8291
<PAGE>
ISI
INTERNATIONAL STRATEGY & INVESTMENT
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
allocating investments between common stocks of U.S. issuers and U.S. Treasury
Securities.
October 1, 2000
PROSPECTUS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
------------------------------------
ISI STRATEGY FUND, INC.
535 Madison Avenue, 30th Floor
New York, New York 10022
----------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS. THE AUDITED FINANCIAL STATEMENTS
FOR THE FUND ARE INCLUDED IN THE FUND'S ANNUAL REPORT WHICH HAS BEEN FILED
ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED
INTO THIS STATEMENT OF ADDITIONAL INFORMATION. A COPY OF THE PROSPECTUS AND THE
ANNUAL REPORT MAY BE OBTAINED WITHOUT CHARGE FROM YOUR SECURITIES DEALER OR BY
WRITING OR CALLING INTERNATIONAL STRATEGY & INVESTMENT GROUP INC., 535 MADISON
AVENUE, 30TH FLOOR, NEW YORK, NEW YORK 10022, (800) 955-7175.
Statement of Additional Information Dated: October 1, 2000
Relating to the Prospectus dated October 1, 2000
of
ISI Strategy Fund Shares
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION AND HISTORY.............................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................... 1
VALUATION OF SHARES AND REDEMPTION........................................... 6
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS......................... 6
MANAGEMENT OF THE FUND....................................................... 9
INVESTMENT ADVISORY AND OTHER SERVICES.......................................14
ADMINISTRATION...............................................................15
DISTRIBUTION OF FUND SHARES..................................................15
BROKERAGE....................................................................17
CAPITAL SHARES...............................................................19
SEMI-ANNUAL REPORTS AND ANNUAL REPORTS.......................................19
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES............................19
INDEPENDENT AUDITORS.........................................................20
LEGAL MATTERS................................................................20
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................20
FINANCIAL STATEMENTS.........................................................21
ii
<PAGE>
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 one class of shares: ISI Strategy
Fund Shares (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 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 began operations on September 16, 1997.
Under a license agreement dated September 15, 1997 between the Fund and
International Strategy & Investment Inc. ("ISI" or the "Advisor"), 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.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
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 common stocks
of U.S. issuers and U.S. Treasury Securities. The Fund may make other
investments including securities index futures contracts and Standard & Poor's
Depositary Receipts ("SPDRs").
The allocation of the Fund's assets will be reviewed periodically in
light of ISI's forecasts and may be changed 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.
Wilshire Associates Incorporated ("Wilshire") will manage the equity
portion of the Fund's Portfolio. 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 $9.6 billion under management in these
portfolios. In managing the common stocks of U.S. issuers 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
1
<PAGE>
and volatility comparable to the Index. 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.
ISI will manage the U.S. Treasury Securities in the Fund's portfolio
with a view toward, first, a high level of total return with relative stability
of principal and, second, high current income. Therefore, in addition to yield,
the potential for capital gains and appreciation resulting from possible changes
in interest rates will be a consideration in selecting investments. ISI will be
free to take advantage of the entire range of maturities offered by U.S.
Treasury Securities and may adjust the average maturity of such securities held
in the Fund's portfolio from time to time, depending on its assessment of the
relative yields available 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. Edward S. Hyman, Chairman of the Fund and the Advisor.
There can be no assurance that such economic analysis will accurately predict
interest rate trends or that portfolio strategies based on the economic analysis
of Mr. Hyman will be effective.
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.
Common stocks
The Fund will invest in common stocks of U.S. issuers, 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 common stocks held by the Fund will cause
the value of the Shares to fluctuate.
U.S. Treasury Securities
The Fund will invest in U.S. Treasury Securities which 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.
Standard & Poor's Depositary Receipts
The Fund may invest in SPDRs which are shares of common stock in a unit
investment trust ("UIT") 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
2
<PAGE>
periodic changes in the volatility and relative weightings of such S&P index.
The Fund's investment in SPDRs will be subject to limitations on investment in
other investment companies (see "Investment Restrictions"). 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.
Repurchase Agreements
The Fund may agree to purchase securities issued by the United States
Treasury ("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. Such repurchase
agreements will be fully collateralized. 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
investment Advisor. The list of approved banks and broker-dealers will be
monitored regularly by the Advisor and the Fund's sub-advisor (the
"Sub-Advisor") (collectively, the "Advisors"). 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 Fund 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. The Fund will ordinarily invest no more than 40% of its
net assets at any time in securities purchased on a when-issued basis.
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.
Securities index futures contracts ("Futures Contracts") will be entered on
domestic exchanges and boards of trade, subject to applicable Commodity and
Futures Trading Commission ("CFTC") Rules. These transactions may be entered
into for bona fide hedging and other permissible risk management purposes.
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
3
<PAGE>
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 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.
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 Futures Contract
is set by the exchange on which the contract is traded with review and oversight
by the CFTC. Thereafter, subsequent payments (referred to as "variation margin")
are made to and from the broker to reflect changes in the value of the Futures
Contract. The Fund will not enter into Futures Contracts, if immediately
thereafter, the sum of the amounts of initial margin deposits on the Fund's open
futures contracts entered into for other than "bona fide hedging" would exceed
5% of the value of the Fund's total assets.
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 common
stocks, 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.
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 depend on the Advisor's
ability to predict correctly the direction of securities prices, interest rates
and other economic factors. 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.
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.
Various additional risks exist with respect to the trading of futures.
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
4
<PAGE>
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 correct forecast of general market trends by
the Advisor may still not result in a successful transaction.
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.
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. 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;
3. 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;
4. Invest in real estate or mortgages on real estate;
5. Purchase or sell commodities or commodities contracts (except that the Fund
may purchase or sell futures contracts based on underlying securities
indexes);
6. 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;
7. Issue senior securities;
8. 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;
5
<PAGE>
The following investment restrictions 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.
2. Invest more than 15% of the value of its net assets in illiquid securities.
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 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. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and 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 in cash as
described in the Prospectus. However, if the Board of Directors determines that
it would be in the best interests of the remaining shareholders of the Fund to
make payment of the redemption price in whole or in part by a distribution in
kind of readily marketable securities from the portfolio of the Fund in lieu of
cash, in conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation" and such
valuation will be made as of the same time the redemption price is determined.
The Fund, however, has elected to be governed by Rule 18f-1 under the Investment
Company Act pursuant to which the Fund is obligated to redeem Shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
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. Shareholders are urged to consult with their tax advisors
with specific reference to their own tax situation, including their state and
local tax liabilities.
The following general discussion of certain 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. New legislation, as well as, administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
6
<PAGE>
Qualification as Regulated Investment Company
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of
its net investment income (that generally includes dividends, taxable interest,
and the excess of net short-term capital gains over net long-term capital losses
less operating expenses) and at least 90% of its net tax exempt interest income,
for each tax year, if any, to its shareholders (the "Distribution
Requirement")and also must meet several additional requirements. Included among
these requirements are the following: (i) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
stock or securities, or certain other income; (ii) at the close of each quarter
of the Fund's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iii) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades or
businesses.
The Fund may make investments in securities 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.
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.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held the shares. If any such gains are
retained, the Fund will pay federal income tax thereon. If the Fund elects to
retain any such gains, the Fund may elect to have each shareholder of record on
the last day of the taxable year treated as if he received a distribution of his
pro rata share of such gain, with the result that each shareholder will (1) be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, (2) receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and (3) increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
7
<PAGE>
If the net asset value at the time a shareholder purchases shares of
the Fund reflects undistributed investment company taxable income, recognized
capital gain or unrealized appreciation in the value of the assets of the Fund,
distributions of such amounts will be taxable to the shareholder in the manner
described above, although such distributions economically constitute a return of
capital to the shareholder.
In the case of corporate shareholders, distributions (other than
capital gains distributions) from a RIC generally qualify for the
dividends-received deduction to the extent of the gross amount of qualifying
dividends received by a 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.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared in October, November, or December
of any calendar year and payable to shareholders of record on a specified date
in such a month will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund on December 31st of such calendar year if such
dividends are actually paid in January of the following year.
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.
Sale Or Exchange Of Fund Shares
Generally, gain or loss on the sale or exchange of a Share will be a
capital gain or loss that will be long-term if the Share has been held for more
than twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, the
shareholder must treat a loss on the sale, exchange or redemption of a Share
held for six months or less as a long-term capital loss to the extent of the
amount of any prior capital gains distribution received with respect to such
Share (or any undistributed net capital gains of a Fund that have been included
in determining such 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 acquires (or enters into a contract or option to acquire)
Shares within the 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.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.
Federal Excise Tax
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the calendar year, 98% of its capital gain net income (the
excess of short- and long-term capital gains over short- and long-term capital
losses) for the one-year period ending October 31 of that year, and 100% of any
undistributed amount from the prior calendar year, the Fund will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. The Fund
intends to make sufficient distributions to avoid imposition of this tax, or to
retain, at most its net capital gains and pay tax thereon.
State and Local Taxes
The Fund is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Depending upon state
8
<PAGE>
and local law, distributions by the Fund to shareholders and the ownership of
shares may be subject to state and local taxes. Shareholders are urged to
consult their tax advisors as to the consequences of these and other state and
local tax rules affecting an investment in the Fund.
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 535 Madison Avenue, 30th Floor, New York, New York 10022.
* EDWARD S. HYMAN, Chairman and Director (4/8/45)
Chairman, International Strategy & Investment Inc. (registered
investment advisor), and Chairman and President, International
Strategy and Investment Group Inc. (registered investment advisor
and broker-dealer),1991-Present.
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity
Investor and Capital Markets Consultant; Director, Wit Capital
Group (registered broker dealer) and The Nevis Fund & The Flag
Investors Funds Family (registered investment companies ).
Formerly, Director, Circon Corp. (medical instruments) November
1998-January 1999; President and Chief Executive Officer, The
National Association of Securities Dealers, Inc. and The NASDAQ
Stock Market, Inc., 1987-1997; Chief Operating Officer of Alex.
Brown & Sons Incorporated (now DB Alex. Brown LLC ) 1985-1987;
General Partner, Alex. Brown & Sons Incorporated (now DB Alex.
Brown LLC) 1976-1985.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) Household
International (finance and banking) and the Flag Investors Funds
Family (registered investment companies); Formerly, Chairman of the
Quality Control Inquiry Committee, American Institute of Certified
Public Accountants; Trustee, Merrill LynchFunds for Institutions,
1991-1993; Adjunct Professor, Columbia University-Graduate School
of Business, 1991-1992; and Partner, KPMG Peat Marwick, retired
1990.
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) and American
Science and Engineering (x-ray detection equipment), President of
the Flag Investors Funds Family (registered investment companies).
Formerly Chairman and Member, National Transportation Safety Board;
Director, National Railroad Passenger Corporation (Amtrak) and
Member, Aviation System Capacity Advisory Committee (Federal
Aviation Administration); Interim President of Williams College;
and Director, Flag Investors Funds Family (registered Investment
companies).
9
<PAGE>
R. ALAN MEDAUGH, President (8/20/43)
President, International Strategy & Investment Inc. and Director,
International Strategy & Investment Group, 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.
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy & Investment Inc.,
1991-Present
EDWARD J. VEILLEUX, Vice President (8/26/43)
Director, Deutsche Asset Management, 1999-Present; Executive Vice
President, Investment Company Capital Corporation since 1996.
Trustee, Devcap Trust. (Registered Investment Company)
MARGARET M. BEELER, Assistant Vice President (3/1/67)
Assistant Vice President, International Strategy & Investment Inc.,
1996 - Present. Formerly, Marketing Representative, U.S.
Healthcare, Inc., 1995 -1996; Sales Manager, Donna Maione, Inc.,
1994-1995; Sales Manager, Deborah Wiley California, 1989-1994.
KEITH C. REILLY, Assistant Vice President (6/2/66)
Assistant Vice President, International Strategy & Investment Inc.,
1996-Present; Formerly, Select Private Banking Officer; Assistant
Manager, Chemical Bank, 1995-1996; Financial Consultant, Dreyfus
Corporation, 1989-1995.
CHARLES A. RIZZO, Treasurer (8/5/57)
Director, Deutsche Asset Management; Certified Public Accountant
and Certified Management Accountant. Formerly, Vice President and
Department Head, BT Alex. Brown Incorporated (now DB Alex. Brown
LLC), 1998-1999. Formerly, Senior Manager, Coopers & Lybrand L.L.P.
(now PricewaterhouseCoopers LLP), 1993-1998
FELICIA A. EMRY, Secretary (12/19/69)
Assistant Vice President, Deutsche Asset Management, 1999-Present.
Associate, Hogan & Hartson L.L.P., 1997-1999; Associate, Winston &
Strawn, 1994-1997.
AMY M. OLMERT, Assistant Secretary (5/14/63)
Director, Deutsche Asset Management; Certified Public Accountant.
Formerly, Vice President, BT Alex. Brown Incorporated (now DB Alex.
Brown LLC), 1997-1999. Formerly, Senior Manager, Coopers & Lybrand
L.L.P. (now PreicewaterhouseCoopers LLP), 1992-1997.
10
<PAGE>
DANIEL O. HIRSCH, Assistant Secretary (3/27/54)
Director, Deutsche Asset Management. Formerly, Principal, BT Alex.
Brown Incorporated (now DB Alex. Brown LLC), 1998-1999. Formerly,
Assistant General Counsel, United States Securities and Exchange
Commission, 1993-1998.
----------------------
* A Director who is an "interested person" as defined in the Investment Company
Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies advised by ISI or its affiliates.
There are currently four funds in the ISI Family of Funds (the "Fund Complex").
Mr. Hyman serves as Chairman of each fund in the Fund Complex. Mr. Medaugh
serves as President of each fund in the Fund Complex. Messrs. Hardiman, Levy,
and Vogt serve as Directors of each fund in the Fund Complex. Mr. . Stevens ,
Ms. Butler and Mr. Veilleux serve as Vice Presidents of each fund in the Fund
Complex. Ms. Beeler and Mr. Reilly serve as Assistant Vice Presidents of each
fund in the Fund Complex. Ms. Emry serves as Secretary, Mr. Hirsch and Ms.
Olmert serve as Assistant Secretaries and Mr. Rizzo serves as Treasurer of each
of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, the 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 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 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 attendance at board and committee meetings) from
each fund in the Fund Complex for which he serves. Payment of such fees and
expenses is allocated among the funds described above in direct proportion to
their relative net assets. For the fiscal year ended May 31, 2000, Independent
Directors fees attributable to the assets of the Fund totaled approximately
$2,526.
The following table shows aggregate compensation and retirement
benefits payable to each of the Fund's Directors by the Fund and Fund Complex,
respectively.
11
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the Fund
From the fund payable to and Fund Complex Payable to
Name of Person, Directors for the Fiscal Directors for the Fiscal Year
Position Year Ended May 31, 2000 Ended May 31, 2000(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward S. Hyman(2) $0 $0
Chairman and Director
Truman T. Semans(2)(3) $0 $0
Vice Chairman and Director
R. Alan Medaugh(2)(3) $0 $0
Director and President
Thomas D. Stevens(2)(3) $0 $0
Director
James J. Cunanne(3) $67.00 $19,500 for service on 12
Director Boards in the Fund complex
Joseph R. Hardiman $538.00 $45,000 for service on 12(4)
Director Boards in the Fund complex
Louis E. Levy $556.00 $55,000 for service on 12
Director Boards in the Fund complex
Eugene J. McDonald(3) $85.00 $49,000 for service on 12
Director Boards in the Fund complex
Rebecca W. Rimel(3)(4) $67.00 $39,000 for service on 12
Director Boards in the Fund complex
Carl W. Vogt, Esq.(4) $538.00 $45,000 for service on 12
Boards in the Fund complex
</TABLE>
----------------
(1) Prior to September 28, 1999 the Fund Complex consisted of 12 funds and
included eight funds in the Flag Investors Funds Family.
(2) Denotes an individual who is an "interested person" as defined in the
Investment Company Act.
(3) Resigned as Director effective September 28, 1999.
(4) Ms. Rimel and Messrs. Vogt and Hardiman received (prior to their appointment
or election to all of the funds in the Fund Complex) proportionately higher
compensation from each fund for which they serve as a Director.
12
<PAGE>
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Fund's Code of
Ethics permits access persons to trade securities that may be purchased or held
by the Fund for their own accounts, subject to compliance with the requirements
of the Codes of Ethics of the Fund's advisor, sub-advisor and distributor as
described below.
Access persons of the Fund's advisor, International Strategy &
Investment, Inc. ("ISI" or the "Advisor"), and access persons of the Fund's
distributor , ISI Group, Inc. are subject to the same Code of Ethics. The Code
permits access persons to trade securities that may be purchased or held by the
Fund for their own accounts, subject to compliance with reporting requirements.
In addition, the Code also provides for trading "blackout periods" that prohibit
trading by access persons within periods of trading by the Fund in the same
security, subject to certain exceptions. The Code prohibits short-term trading
profits and personal investment in initial public offerings. The Code requires
prior approval with respect to purchases of securities in private placements.
The Fund's sub-advisor, Wilshire Associates, has also adopted a Code of
Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Code permits
access persons to trade securities that may be purchased or held by the Fund for
their own accounts, subject to compliance with reporting requirements. The Code
also provides for preclearance of personal trades and imposes trading "blackout
periods", subject to certain exceptions. The Code prohibits personal investment
in initial public offerings. The Code requires prior approval with respect to
purchases of securities in private placements.
13
<PAGE>
The Codes of Ethics are on public file with, and is available from, the
SEC.
INVESTMENT ADVISORY AND OTHER SERVICES
The Board of Directors of the Fund, including a majority of the
Independent Directors, have 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 these
contracts are described in greater detail below. 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., open-end management
investment companies with net assets of approximately $467 million as of August
31, 2000.
Wilshire, a California corporation, is a registered investment advisor
with approximately $13 billion in net assets under management as of August 31,
2000. Wilshire currently provides investment advisory services to one open-end
registered investment company with $1 billion of net assets under management as
of August 31, 2000. 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.
14
<PAGE>
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 0.40% 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 0.16% of the
Fund's average daily net assets. ISI has contractually agreed to waive its
annual fee and reimburse expenses to the extent necessary, so that the Fund's
total operating expenses do not exceed 1.00% of its average daily net assets.
ISI's compensation under the Investment Advisory Agreement for the fiscal years
ended May 31, 2000, May 31, 1999 and the period from September 16, 1997
(commencement of operations) through May 31, 1998 was $31,928 (net of fee
waivers of $114,488), $0 (net of fee waivers and reimbursements of $62,291) and
$0 (net of fee waivers of $32,924 and reimbursements of $60,048), respectively.
ISI pays Wishire a fee out of its advisory fee.
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, with such
independent directors casting votes 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.
ADMINISTRATION
Investment Company Capital Corp. ("ICCC"), 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, ICCC is entitled to receive an annual fee calculated
according to the following schedule based on the combined assets of the ISI
Funds:
Assets Fee
0 - $75,000,000 .20%
$75,000,000 - $150,000,000 .15%
$150,000,000 - $225,000,000 .10%
$225,000,000 - $500,000,000 .05%
Over $500,000,000 .03%
ICCC's compensation under the Agreement for the fiscal years ended May
31, 2000, May 31, 1999 and the period from September 16, 1997 (commencement of
operations) through May 31, 1998 was $36,388, $14,809 (net of fee waivers of
$16,586) and $0 (net of fee waivers of $9,877), respectively. The services of
ICCC to the Fund are not exclusive and ICCC is free to render similar services
to others.
ICCC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICCC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services").
ICCC is an indirect subsidiary of Deutsche Bank AG.
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 a Distribution Agreement (the "Distribution Agreement"). ISI Group, a
Delaware corporation, is a broker-dealer that was formed in 1991 and is an
affiliate of the Advisor.
The Distribution Agreement provides that ISI Group has the exclusive
right to distribute the 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
15
<PAGE>
accordance with the Fund's currently effective prospectus and transmit such
orders as are accepted to the Fund's transfer agent as promptly as possible;
receive requests for redemption and transmit such redemption requests to the
Fund's transfer agent as promptly as possible; respond to inquiries from the
Fund's shareholders concerning the status of their accounts with the Fund,
provide the Fund's Board of Directors for their review with quarterly reports
required by Rule 12b-1; maintain such accounts, books and records as may be
required by law or be deemed appropriate by the Fund's Board of Directors; and
take all actions deemed necessary to carry into effect the distribution of the
Shares. ISI Group has not undertaken to sell any specific number of Shares. The
Distribution Agreement further provides that, in connection with the
distribution of Shares, ISI Group will be responsible for all of its promotional
expenses. The services 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 0.25% 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. As compensation for providing distribution and shareholder services
for the fiscal years ended May 31, 2000, May 31, 1999 and the period from
September 16, 1997 (commencement of operations) through May 31, 1998, ISI Group
received $91,510, $65,443 and $20,578, respectively.
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 Distribution Agreement, and ISI Group is authorized to make
payments out of its fees to Participating Dealers.
The Distribution Agreement has an initial term of two years. The
Distribution Agreement and the ISI Plan will remain in effect from year to year
as specifically approved (a) at least annually by the Fund's Board of Directors
and (b) by the affirmative vote of a majority of the Independent Directors, by
votes cast in person at a meeting called for such purpose.
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 Distribution Agreement without the approval of the Fund's
shareholders. The ISI Plan may be terminated at any time, and the Distribution
Agreement 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 Agreement may be
terminated in the same manner at any time. The Distribution Agreement and any
Agency Distribution Agreement 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
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.
16
<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. Currently, banking laws and regulations do not prohibit a
financial holding company affiliate from acting as distributor or Shareholder
Servicing Agent or in other capacities for investment companies. 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
0.25% 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 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.
For the fiscal years ended May 31, 2000, May 31, 1999 and the period
from September 16, 1997 (commencement of operations) through May 31, 1998, ISI
Group was paid commissions of $53,343, $265,128 and $19,311, respectively.
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 Independent Directors and Independent 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.
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.
17
<PAGE>
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.
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 their 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 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 through ISI Group. At the
time of such authorization, the Board adopted certain policies and procedures
incorporating the standards of Rule 17e-1 under the Investment Company Act which
requires that the commissions paid ISI Group must be "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time." Rule 17e-1 also contains
requirements for the review of such transactions by the Board of Directors and
requires the Advisors to furnish reports and to maintain records in connection
with such reviews. The 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.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the Investment Company Act) which the
Fund has acquired during its most recent fiscal year. As of May 31, 2000 the
18
<PAGE>
Fund held a 6.30% repurchase agreement issued by Goldman Sachs & Company valued
at $4,326,737, and 1,500 shares of Morgan Stanley, Dean Witter, Discover & Co.
valued at $107,906.
CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund may issue Shares
of its capital stock with a par value of $.001 per Share. The Fund's Articles of
Incorporation provide for the establishment of separate series and separate
classes of Shares by the Directors at any time without shareholder approval. The
Fund currently has one Series and one class of shares: ISI 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 or class
will vote separately. Any such series will be a separately managed portfolio and
shareholders of each series or class 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.
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.
SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports and 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.
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. For the fiscal year ended May 31, 2000, Bankers Trust was paid $7,030
as compensation for providing custody services. ICCC, 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, ICCC receives up to $16.61 per account per year plus reimbursement for
out-of-pocket expenses incurred in connection therewith.
19
<PAGE>
ICCC also provides accounting services to the Fund. As compensation for
these services, ICCC is entitled to receive an annual fee, calculated daily and
paid monthly, as shown below. For such services for the fiscal year ended May
31, 2000, May 31, 1999 and the period from September 16, 1997 (commencement of
operations) through May 31, 1998, ICCC received a fee of $35,001, $27,591, and
$10,103, respectively.
In addition, the Fund will reimburse ICCC for certain out-of-pocket
expenses incurred in connection with ICCC's provision of accounting services
under the Master Services Agreement.
INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by the Fund's
independent auditors, Deloitte & Touche LLP, Princeton Forestal Village, 116-300
Village Boulevard Princeton, New Jersey 08540.
LEGAL MATTERS
Kramer Levin Naftalis & Frankel LLP serves as counsel to the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, as of September 5, 2000, the following
persons owned beneficially or of record 5% or more of the Fund's outstanding
shares:
Edward S. Hyman, Jr. 7.82%
c/o ISI Funds
535 Madison Avenue 30th Floor
New York, NY 10022-8101
As of September 5, 2000, to Fund management's knowledge, Directors and
officers as a group owned 9.40% of the Fund's total outstanding Shares of the
ISI Shares class.
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: P(1 + T)(n) = 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.
20
<PAGE>
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
1-, 5- and 10-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.
Calculated according to SEC rules, the ending redeemable value and
total return of a hypothetical $1000 payment for the periods ended May 31, 2000,
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
One-Year Period Ended Since Inception
May 31, 2000 (September 16, 1997)
------------------------------------------------------------------------------------------------------------------------------------
Ending Redeemable Average Annual Ending Redeemable Average Annual
Value Total Return Value Total Return
<S> <C> <C> <C> <C>
ISI Shares $1013.80 1.38% $1,261.40 8.97%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
in order to compare more accurately the Fund's performance with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., the Fund calculates its
aggregate and average annual total return for the specified periods of time by
assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges. 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 than 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.
The Fund's annual portfolio turnover rate may vary from year to year,
as well as within a year, depending on market conditions. For the fiscal year
ended May 31, 2000, the Fund's portfolio turnover rate was 59.04%.
FINANCIAL STATEMENTS
The financial statements for the Fund for the period ended May 31,
2000, are incorporated herein by reference to the Fund's Annual Report dated May
31, 2000. The annual financial statements are audited by the Fund's independent
auditors.
21
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
-----------------
(a)(1) Articles of Incorporation, incorporated by reference to Exhibit 1(a) to
Registrant's Registration Statement on Form N-1A (File No. 333-31127), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-97-001293) on July 11, 1997.
(a)(2) Articles of Amendment to Articles of Incorporation, incorporated by
reference to Exhibit 1(b) to Registrant's Registration Statement on Form N-1A
(File No. 333-31127), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-001293) on July 11, 1997.
(b) By-Laws, incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A (File No. 333-31127), file with
the Securities and Exchange Commission via EDGAR on September 30, 1999.
(c) Instruments Defining Rights of Securities Holders, incorporated by reference
to Exhibit 1 (Articles of Incorporation, Articles of Amendment) and Exhibit 2
(By-Laws) of Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 333-31127), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-97-001534) on August 15,
1997.
(d)(1) Investment Advisory Agreement between Registrant and International
Strategy & Investment Inc., incorporated by reference to Exhibit 5(a) of
Post-Effective Amendment No. 1 to Registrant's Registration Statement on Form
N-1A (File No. 333-31127), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000491) on February 26, 1998.
(d)(2) Sub-Advisory Agreement among Registrant, International Strategy &
Investment Inc. and Wilshire Associates Incorporated, incorporated by reference
to Exhibit 5(b) of Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 333-31127), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-98-000491) on February 26,
1998.
(d)(3) Expense limitation agreement, filed herewith.
(e)(1) Distribution Agreement between Registrant and International Strategy &
Investment Group Inc. with respect to the ISI Shares Class, incorporated by
reference to Exhibit 6(a) of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 333-31127), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000491) on
February 26, 1998.
(e)(2) Form of Distribution Agreement between Registrant and International
Strategy & Investment Group Inc. with respect to the Institutional Shares Class,
incorporated by reference to Exhibit 6(b) to Registrant's Registration Statement
on Form N-1A (File No. 333-31127), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001293) on July 11, 1997.
(e)(3) Form of Agency Distribution Agreement between International Strategy &
Investment Group Inc. and Participating Broker-Dealers, incorporated by
reference to Exhibit 6(c) to Registrant's Registration Statement on Form N-1A
(File No. 333-31127), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-001293) on July 11, 1997.
<PAGE>
(e)(4) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents incorporated by reference to Exhibit 6(d) to
Registrant's Registration Statement on Form N-1A (File No. 333-31127), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-97-001293) on July 11, 1997.
(f) None;
(g) Custodian Agreement dated August 11, 1997 between Registrant and Bankers
Trust Company, incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A filed with
the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-98-001596) on July 31, 1998.
(h) Master Services Agreement (including Administration, Transfer Agency and
Accounting Services appendices) between Registrant and Investment Company
Capital Corp. incorporated by reference to Exhibit 9 of Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A (File No. 333-31127),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000491) on February 26, 1998.
(i)(1) Opinion of Counsel incorporated by reference to Exhibit 3 of
Post-Effective Amendment No. 3 to Registrant's Registration Statement on Form
N-1A (File No. 333-31127), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-99-001816) on September 30, 1999;
(i)(2) Consent of Counsel, filed herewith;
(j) Consent of Independent Auditors, filed herewith;
(k) None;
(l) Subscription Agreement re: initial $100,000 capital incorporated by
reference to Exhibit 13 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 333-31127), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000491) on
February 26, 1998.
(m) Distribution Plan with respect to the ISI Shares Class incorporated by
reference to Exhibit 15 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 333-31127), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000491) on
February 26, 1998.
(n) Not Applicable;
(o) Rule 18f-3 Plan incorporated by reference to Exhibit 18 of Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A (File No.
333-31127), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000491) on February 26, 1998.
(p) Powers of Attorney, filed herewith.
<PAGE>
(q)(1) ISI Funds Consolidated Code of Ethics, filed herewith;
(q)(2) International Strategy & Investment, Inc. and International Strategy &
Investment Group Consolidated Code of Ethics, filed herewith;
(q)(3) Wilshire Associates Incorporated Consolidated Code of Ethics, filed
herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
----------------------------------------------------------------------
Provide a list or diagram of all persons directly or indirectly controlled by or
under common control with the Registrant. For any person controlled by another
person, disclose the percentage of voting securities owned by the immediately
controlling person or other basis of that person's control. For each company,
also provide the state or other sovereign power under the laws of which the
company is organized.
None.
Item 25. Indemnification
------------------------
State the general effect of any contract, arrangements or statute under which
any director, officer, underwriter or affiliated person of the Registrant is
insured or indemnified against any liability incurred in their official
capacity, other than insurance provided by any director, officer, affiliated
person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit (a) to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the Corporation or
by resolution or agreement to the fullest extent permitted by the Maryland
General Corporation law.
Section 3. No provision of this Article VIII shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this Article
VIII are to such law as from time to time amended. No further amendment to the
Charter of the Corporation shall decrease, but may expand, any right of any
person under this Article VIII based on any event, omission or proceeding prior
to such amendment.
<PAGE>
Sections 1, 2, 3, 4 and 5 of Article XIII of Registrant's By-Laws, included as
Exhibit (b) to this Registration Statement and incorporated herein by reference,
provide as follows:
Section 1. Indemnification. The Corporation shall indemnify its Directors to the
fullest extent that indemnification of Directors is permitted by the Maryland
General Corporation Law. The Corporation shall indemnify its officers to the
same extent as its Directors and to such further extent as is consistent with
law. The Corporation shall indemnify its Directors and officers who while
serving as Directors or officers also serve at the request of the Corporation as
a Director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the fullest extent consistent with law. This Article XIII shall
not protect any such person against any liability to the Corporation or any
shareholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 (the "1933 Act") and the 1940 Act,
as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former Director or
officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the 1933 Act and the 1940
Act, as such statutes are now or hereafter in force, whether the standards
required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article XIII shall
not be deemed exclusive of any other right, in respect of indemnification or
otherwise, to which those seeking such indemnification may be entitled under any
insurance or other agreement, vote of shareholders or disinterested Directors or
otherwise, both as to action by a Director or officer of the Corporation in his
official capacity and as to action by such person in another capacity while
holding such office or position, and shall continue as to a person who has
ceased to be a Director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation Law in
this Article XIII are to such law as from time to time amended. Insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event of a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered) the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue. In the absence of a determination by a court
of competent jurisdiction, the determinations that indemnification against such
liabilities is proper, and advances can be made, are made by a majority of a
quorum of the disinterested directors of the Fund, or an independent legal
counsel in a written opinion, based on review of readily available facts.
<PAGE>
Item 26. Business and Other Connections of the Investment Advisor
-----------------------------------------------------------------
Describe any other business, profession, vocation or employment of a substantial
nature in which the investment advisor and each director, officer or partner of
the advisor, is or has been, engaged within the last two fiscal years, for his
or her own account or in the capacity of director, officer, employee, partner or
trustee. (Disclose the name and principal business address of any company for
which a person listed above serves in the capacity of director, officer,
employee, partner or trustee, and the nature of the relationship.)
During the past two fiscal years, no director or officer of International
Strategy & Investment Inc., the Registrant's investment advisor, has engaged in
any other business, profession, vocation or employment of a substantial nature
other than that of the business of investment management and, through
affiliates, investment banking.
Describe any other business, profession, vocation or employment of a substantial
nature in which the investment sub-advisor, and each director, officer or
partner of the sub-advisor, is or has been, engaged within the last two fiscal
years, for his or her own account or in the capacity of director, officer,
employee, partner, or trustee. (Disclose the name and principal business address
of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee, and the nature of the
relationship.)
During the last two fiscal years, no director or officer of Wilshire Associates
Incorporated, the Registrant's investment sub-advisor, has engaged in any other
business, profession, vocation or employment of a substantial nature other than
that of the business of investment management and, through affiliates,
investment banking.
Item 27. Principal Underwriters
-------------------------------
(a) State the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the Fund's securities
also acts as principal underwriter, depositor or investment advisor.
International Strategy & Investment Group Inc. acts as distributor for ISI Total
Return U.S. Treasury Fund Shares (a class of Total Return U.S. Treasury Fund,
Inc.), ISI Managed Municipal Fund Shares (a class of Managed Municipal Fund,
Inc.) and ISI North American Government Bond Fund Shares (a class of North
American Government Bond Fund, Inc.).
(b) Provide the information required by the following table for each director,
officer or partner of each principal underwriter named in response to Item 20.
Name and Principal Position and Offices with Position and Offices
Business Address* Principal Underwriter with Registrant
----------------- --------------------- ---------------
Edward S. Hyman Chairman and Director Chairman
and Director
R. Alan Medaugh Director President
Nancy Lazar Executive Vice President Vice President
and Director
Joel Fein Chief Financial Officer None
*535 Madison Avenue, 30th Floor
New York, New York 10022
<PAGE>
(c) Not applicable.
Item 28. Location of Accounts and Records
-----------------------------------------
State the name and address of each person maintaining principal possession of
each account, book or other document required to be maintained by section 31(a)
of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules under that section.
International Strategy & Investment Inc., 535 Madison Avenue, 30th Floor, New
York, New York 10022, the Registrant's investment advisor, maintains physical
possession of each such account, book or other document of the Fund, except for
those maintained by the Registrant's sub-advisor, Wilshire Associates
Incorporated, 1299 Ocean Avenue, Suite 700, Santa Monica, CA 90401, the
Registrant's distributor, International Strategy & Investment Group, Inc., 535
Madison Avenue, 30th Floor, New York, New York 10022, the Registrant's
custodian, Bankers Trust Company, 130 Liberty Street, New York, NY 10006, or by
the Registrant's administrator, transfer agent, dividend disbursing agent and
accounting services provider, Investment Company Capital Corp., One South
Street, Baltimore, MD 21202.
In particular, with respect to the records required by Rule 31a-1(b)(1), ICC and
ISI each maintains physical possession of all journals containing itemized daily
records of all purchases and sales of securities, including sales and
redemptions of Fund securities, and Bankers Trust Company maintains physical
possession of all receipts and deliveries of securities (including certificate
numbers if such detail is not recorded by the custodian or transfer agent), all
receipts and disbursements of cash, and all other debts and credits.
Item 29. Management Services
----------------------------
Provide a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B disclosing the parties to the
contract and the total amount paid and by whom, for the Fund's last three fiscal
years.
See Exhibits (g) and (h).
Item 30. Undertakings
---------------------
In initial registration statements filed under the Securities Act, provide an
undertaking to file an amendment to the registration statement with certified
financial statements showing the initial capital received before accepting
subscriptions from more than 25 persons if the Fund intends to raise its initial
capital under section 14(a)(3)[15U.S.C.80a-14(a)(3)].
Not applicable.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 4 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 28th day of September, 2000.
ISI STRATEGY FUND, INC.
By: */s/ R. Alan Medaugh
-------------------------
R. Alan Medaugh
President
Pursuant to the requirements of the Securities Act of 1933,this amendment to the
Registration Statement has been signed below by the following persons in the
capacities on the date(s) indicated:
*/s/ Edward S. Hyman Chairman and Director September 28, 2000
------------------------
Edward S. Hyman
*/s/ Joseph R. Hardiman Director September 28, 2000
------------------------
Joseph R. Hardiman
*/s/ Louis E. Levy Director September 28, 2000
------------------------
Louis E. Levy
*/s/ Carl W. Vogt, Esq. Director September 28, 2000
------------------------
Carl W. Vogt, Esq.
*/s/ R. Alan Medaugh President and Director September 28, 2000
------------------------
R. Alan Medaugh
*/s/ Charles A. Rizzo Chief Financial September 28, 2000
----------------------- and Accounting Officer
Charles A. Rizzo
/s/ Daniel O. Hirsch Attorney-In-Fact September 28, 2000
-----------------------
Daniel O. Hirsch
* By Power of Attorney
<PAGE>
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch are
authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Total Return U.S. Treasury Fund,
Inc., Managed Municipal Fund, Inc., North American Government Bond Fund,
Inc., and ISI Strategy Fund, Inc. on behalf of each Fund's President
pursuant to a properly executed power of attorney.
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch are
authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Total Return U.S. Treasury Fund,
Inc., Managed Municipal Fund, Inc., North American Government Bond Fund,
Inc., and ISI Strategy Fund, Inc. on behalf of each Fund's Chief
Financial Officer pursuant to a properly executed power of attorney.
