As filed with the Securities and Exchange Commission on April 29, 1998
Registration Statement No. 2-34277
ICA No. 811-1920
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 39 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
STRALEM FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
405 Park Avenue, New York NY 10022
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 888-8123
Philippe E. Baumann, 405 Park Avenue, New York, NY 10022
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(Name and Address of Agent for Service)
Copy to:
Susan J. Penry-Williams, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
|X| Immediately upon filing pursuant to paragraph (b)
| | On (date) pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1) of Rule 485
| | On (date) pursuant to paragraph (a)(1)
| | 75 days after filing pursuant to paragraph (a)(2)
| | On (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
STRALEM FUND, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 404(c)
N-1A
Item No. Prospectus Page
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1 .......... Cover Page
2(a) .......... 2 Annual Fund Operating Expenses
(b) .......... *
(c) .......... *
3(a) .......... 3 Per Share Income & Capital Changes
(b) .......... *
(c) .......... *
4(a) .......... 4-8 Description of the Fund; Investment Objective;
Management Policies; Investment Considerations;
Management of the Fund; Investment Advisor
(b) .......... *
(c) .......... 3-5
5(a) .......... 6-8 Management of the Fund; Investment Advisor
(b) .......... 6-8
(c) .......... *
(d) .......... 11 General Information
(e) .......... 6-8 Management of the Fund
(f) .......... *
6(a) .......... 8 Description of the Fund's Shares
(b) .......... *
(c) .......... *
(d) .......... *
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* Denotes negative answer or inapplicable.
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<PAGE>
N-1A
Item No. Prospectus Page
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(e) ........... 4,11 Description of the Fund; General Information
(f) ........... 8-9 Tax Information
(g) ........... 6
7(a) ........... 10 Sale of Shares
(b) ........... 10
(c) ........... *
(d) ........... 10
(e) ........... *
8(a) ........... 10-11 Sale of Shares, Redemption of Shares
(b) ........... *
(c) ........... *
(d) ........... *
9 ........... *
Statement Page
--------------
10 ........... Cover Page
11 ........... Table of Contents
12 ........... *
13(a) ........... 2-5, 9-10 Investment Objective and Policies; Investment
Advisor
(b) ........... 2-5 Investment Policies; Investment Restrictions
(c) ........... 2-3 Investment Policies
(d) ........... *
14(a) ........... 6-7 Management of the Fund
(b) ........... 6-7
(c) ........... *
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* Denotes negative answer or inapplicable.
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<PAGE>
N-1A
Item No. Prospectus Page
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15(a) ........... 8 Control Persons and Principal Holders of
Securities
(b) ........... 8
(c) ........... 8
16(a) ........... 6-8, 9-10 Investment Advisor; Management of the Fund
(b) ........... 9-11 Investment Advisor; Brokerage Allocation
(c) ........... *
(d) ........... *
(e) ........... *
(f) ........... *
Prospectus Page
(g) ........... 11 General Information
(h) ........... 11 General Information
Statement Page
--------------
(i) ........... 17 Information About the Fund
17(a) ........... 10-11 Brokerage Allocation
(b) ........... 11
(c) ........... 11
(d) ........... 11
(e) ........... *
18(a) ........... 11-12 Purchase, Redemption and Pricing of Shares
(b) ........... *
19(a) ........... 11-12 Purchase, Redemption and Pricing of Shares
(b) ........... 11-12
(c) ........... *
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* Denotes negative answer or inapplicable.
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<PAGE>
N-1A
Item No. Prospectus Page
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20 ........... *
21 ........... 9-12 Investment Advisor; Brokerage Allocation;
Purchase, Redemption and Pricing of Shares
22 ........... *
23) ........... 19 et. seq. Financial Statements
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* Denotes negative answer or inapplicable.
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<PAGE>
PROSPECTUS
STRALEM FUND, INC.
405 Park Avenue
New York, New York 10022
Telephone: (212) 888-8123
Fax: (212) 888-8152
Stralem Fund, Inc. (the "Fund") is a non-diversified open-end
investment company seeking to realize a combination of income and capital
appreciation in an attempt to maximize total return. The shares of the Fund are
offered only to clients of Stralem & Company Incorporated, the investment
advisor to the Fund (the "Investment Advisor").
The Investment Advisor has the flexibility to select among different
types of investments for capital growth and income and alter the composition of
the Fund's portfolio as economic and market trends change. There is no assurance
that the Fund will be able to achieve its objective or that shareholders of the
Fund will be protected from the risk of loss inherent in securities ownership.
This Prospectus sets forth information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and retain it for future reference.
A "Statement of Additional Information" which provides a further
discussion of certain matters described in this Prospectus and other matters
which may be of interest to some investors has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. For a free
copy, call the telephone number or write to the address listed above.
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TABLE OF CONTENTS
Page
Fee Table ....................................................... 2
Condensed Financial Information.................................. 3
Description of the Fund......................................... 4
Investment Objective.................................... 4
Management Policies..................................... 4
Year 2000 Problem....................................... 6
Investment Considerations............................... 6
Management of the Fund.......................................... 6
Board of Directors...................................... 6
Investment Advisor...................................... 6
Description of the Fund's Shares................................ 8
Dividends, Distributions and Tax Matters........................ 8
Sale of Shares................................................... 10
Redemption of Shares............................................. 10
Performance Calculation.......................................... 11
General Information.............................................. 11
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus and of the
Statement of Additional Information is April 29, 1998
<PAGE>
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends.......... None
Maximum Deferred Sales Load................................. None
Redemption Fee............................................. None
ANNUAL FUND OPERATING EXPENSES:
(as a % of average net assets)
Management Fee(1)........................................... 1.08%
12b-1 Fee.................................................. .00%
Other Expenses.............................................. .11%
Total Operating Expenses............................................. 1.19%
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(1) Pursuant to the Investment Advisory Contract, the Fund pays the
Investment Advisor on the Fund's first $50 million of net assets an
annual fee equal to 1.00% of the average weekly net asset value of the
Fund during the quarter period ended. With regard to net assets in
excess of $50 million, the annual fee payable decreases, as described
under "Management of the Fund -- Investment Advisor" in this
Prospectus. The Investment Advisory Contract also provides that the
Fund shall reimburse the Investment Advisor for certain of its expenses
attributable to the administration of the Fund. Administrative expenses
reimbursed by the Fund to the Investment Advisor for the fiscal year
ending December 31, 1997 were equal to .08% of the Fund's average net
asset value.
EXAMPLE: You would pay the following expenses on a $1000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.
1 Year..................................... $12
3 Years.................................... $38
5 Years.................................... $65
10 Years................................... $144
The purpose of the expense summary provided above is to assist
investors in understanding the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. The "Annual Fund Operating Expenses"
summary shows the management fee, Rule 12b-1 fee, and other operating expenses
expected to be incurred by the Fund during the current fiscal year. The
"Example" set forth above assumes all dividends and other distributions are
reinvested and that the percentages under "Annual Fund Operating Expenses"
remain the same in the years shown.
These examples should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
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<PAGE>
STRALEM FUND, INC.
CONDENSED FINANCIAL INFORMATION
per share income and capital changes
(for a share outstanding throughout the year)
Financial Highlights
The information in the following table for the ten years ended December
31, 1997 has been audited by Richard A. Eisner & Company, LLP, independent
auditors, whose report dated January 21, 1998 expressing an unqualified opinion
thereon appears in the statement of additional information. This table should be
read in conjunction with the financial statements, related notes and report of
Richard A. Eisner & Company, LLP all of which are included in the statement of
additional information and may be obtained from the Fund upon request without
charge.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.66 $11.55 $9.77 $10.90 $10.49
------- ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income .41 .47 .49 .50 .50
Net gains or losses on securities 2.00 .36 2.00 (1.11) .73
---- --- ---- ------ ---
Total from investment income (loss) 2.41 .83 2.49 (.61) 1.23
---- --- ---- ----- ----
Less distributions:
Dividends from net investment income (.40) (.47) (.49) (.49) (.49)
Distributions from capital gains (.52) (.25) (.22) (.03) (.33)
----- ----- ----- -----
Total distributions (.92) (.72) (.71) (.52) (.82)
----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $13.15 $11.66 $11.55 $9.77 $10.90
======= ====== ======= ===== ======
Total return 20.62% 7.22% 25.45% (5.58)% 11.73%
Ratios/supplemental data:
Net assets, end of period (in thousands) $35,586 $30,849 $29,483 $25,597 $27,286
Ratio of expenses to average net assets 1.19% 1.21% 1.23% 1.25% 1.24%
Ratio of net investment income to average net 2.87% 3.72% 4.12% 4.52% 4.44%
assets 52.00% 17.00% 35.00% 42.00% 52.00%
Portfolio turnover rate $0.2631 $ 0.1474
Average commission rate per share #
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commissions rate per share for
security trades on which commissions are charged. This amount may vary
from period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
Year Ended December 31,
1992 1991 1990 1989 1988
Net asset value, beginning of period $10.78 $ 9.93 $10.47 $ 9.42 $ 9.53
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income .51 .54 .57 .64 .66
---
Net gains or losses on securities 1.09 (.38) 1.13 (.12)
---- ----- ---- -----
Total from investment income (loss) .51 1.63 .19 1.77 .54
--- ---- --- ---- ---
Less distributions:
Dividends from net investment income (.51) (.53) (.57) (.63) (.65)
-----
Distributions from capital gains (.29) (.25) (.16) (.09)
----- ----- ----- -----
Total distributions (.80) (.78) (.73) (.72) (.65)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $10.49 $10.78 $ 9.93 $10.47 $ 9.42
====== ====== ====== ====== ======
Total return 4.68% 16.41% 1.85% 18.75% 5.55%
Ratios/supplemental data:
Net assets, end of period (in thousands) $22,761 $20,962 $18,103 $18,527 $17,602
Ratio of expenses to average net assets 1.28% 1.28% 1.34% 1.29% 1.35%
Ratio of net investment income to average net 4.73% 5.06% 5.37% 5.83% 5.70%
assets 53.00% 67.00% 37.00% 124.00% 33.00%
Portfolio turnover rate
Average commission rate per share #
</TABLE>
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commissions rate per share for
security trades on which commissions are charged. This amount may vary
from period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
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<PAGE>
DESCRIPTION OF THE FUND
STRALEM FUND, INC. (the "Fund") was incorporated on July 9, 1969 under
the laws of the State of Delaware. The Fund is a non-diversified open-end
management investment company as defined by the Investment Company Act of 1940,
as amended (the "1940 Act"), offering shares of its Capital Stock, $1.00 Par
Value. The Fund is an open-end investment company because, upon the demand of an
investor, it has a legal duty to acquire the shares of the Fund held by such
investor for the net asset value of the shares. The office of the Fund is at 405
Park Avenue, New York, New York 10022, its telephone number is (212) 888- 8123.
Investment Objective
The objective of the Fund is to seek the realization of a combination
of income and capital appreciation in an attempt to maximize total return. The
Investment Advisor has the flexibility to select among different types of
investments for capital growth and income and alter the composition of the
Fund's portfolio as economic and market trends change. This investment approach
distinguishes the Fund from many other investment companies which often seek
either capital growth or current income. There is no assurance that the Fund
will be able to achieve its objective or that shareholders of the Fund will be
protected from the risk of loss inherent in securities ownership.
Management Policies
Since 1974, the Fund's investment policy has been to achieve its
investment objective through a portfolio of securities which is not confined to
any particular area. The Fund remains non-diversified and may, therefore, invest
a greater percentage of its assets in the securities of fewer issuers than many
diversified investment companies. To the extent that a greater portion of its
assets are invested in a smaller number of issuers, an investment in the Fund
may be considered more speculative than an investment in a diversified fund.
The Investment Advisor considers both the opportunity for gain and the
risk of loss in making investments. While the Investment Advisor anticipates
that over the long term the Fund's portfolio will consist primarily of common
stock or securities convertible into or exchangeable for common stocks (which
may include privately placed securities, although the Fund has no current
intention of purchasing such securities), the Fund may also invest in long-term
bonds and short-term investments, including short-term U.S. government
securities, bank interest- bearing accounts, certificates of deposit and other
money market instruments (provided that such accounts and instruments will be
restricted to banks insured by the Federal Deposit Insurance Corporation), and
real estate investment trusts (provided that such securities are readily
marketable). In addition, the Fund may also make short sales to the extent that,
at the time of such sales, it owns not less than the amount of such security
sold short and/or other securities convertible or exchangeable into such amount.
Flexibility to choose among these various kinds of investments is a
principal feature of the Fund's investment approach. The Fund may shift its
emphasis among these different types of investments, as well as among various
industry sectors, as financial trends and economic conditions change. For
example, one strategy will be to increase the Fund's investments in equity
securities when the Investment Advisor anticipates a generally rising stock
market. A corresponding strategy will be to reduce the Fund's investments in
equity securities when the Investment Advisor anticipates a declining stock
market or when it believes that the total return from debt and short-term
investments can be expected to exceed returns from equity investments.
In selecting equity investments, the Investment Advisor will typically
seek equities of companies listed on major U.S. stock exchanges that it believes
are undervalued in the market place. Consistent
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<PAGE>
with this approach, the Investment Advisor will direct the sale of equity
investments that it judges to be overpriced or when it believes other
investments offer better values.
In selecting debt investments, the Investment Advisor will be primarily
concerned with determining when it is most appropriate to buy and sell debt
securities. The Investment Advisor will seek debt securities with longer
maturities during periods when it anticipates lower interest rates and shorter-
term debt securities when it expects interest rates to rise. The Investment
Advisor will select the Fund's debt securities from United States treasury
issues, long or short-term, or high quality bonds (rated AA or higher1). In
selecting convertible securities, the Investment Advisor will select such
securities which meet comparable quality ratings as set forth for debt
instruments. As a consequence of these quality limitations, the Fund's
opportunities for income and gain may be more limited as will the Fund's
investment risk.
Unless authorized by the shareholders, the Fund will not purchase or
sell put and call options on stocks and stock price indexes listed on major
exchanges (i.e., not including securities traded over-the-counter) where the
total cost of such puts and calls exceeds 10% of the net asset value of the Fund
at the time of purchase. The Fund will not purchase options on securities traded
over-the-counter, but may purchase call options on securities traded
over-the-counter to complete short sales with respect to such securities
previously entered into by the Fund. Call and put options are, respectively,
contracts to buy or sell a security or stock price index at a specific price
expiring at a specific time. The Fund also will not sell a put or call option
unless it owns such option at the time of such sale. The maximum financial risk
of such transaction equals the original costs of such put or call option. The
Fund will not sell a call option in cases where it does not already own the
security underlying such option. Therefore, in the case of the sale of a call
option, there is no financial liability risk since the fund is long on the
securities on which call options may have been sold, but the Fund would lose the
potential for gain on the underlying security above the exercise price.
In addition, the Fund will not, unless approved by the shareholders,
purchase the securities of any other registered open-end investment company,
except as part of a merger or consolidation with, or the acquisition of the
assets of, another investment company; however, the Fund may purchase the
securities of no-load open-end investment companies that invest primarily in
money market instruments, provided that (i) not more than 10% of the Fund's and
any of its affiliates, net assets shall be invested in such money market
investment companies, (ii) not more than 5% of the Fund's net assets shall be
invested in any single such money market investment company and (iii) such
purchase will not result in the Fund owning more than 3% of the outstanding
voting stock of the acquired investment company. (The Fund may purchase shares
of registered closed-end investment companies. However, no more than 5% of the
then current value of the Fund's total assets based upon market value at the
time of purchase may be invested in such securities and no more than 10% of the
Fund's net assets will be invested in investment companies of any type.)2 Any
investment in any such investment company would involve duplicative expenses,
that is, in addition to expenses directly incurred by the Fund, part of the
Fund's investment in such company would be used for payment of such company's
expenses.
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1 As rated by Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's"). S&P's bond ratings range from AAA to D, with
AAA being the highest. Debt rated AA by S&P has a very strong capacity to
pay interest and principal, and differs from the highest rated issues only
in a small degree. Moody's bond ratings range from AAA to C, with AAA being
the highest. Debt rated AA by Moody's is judged to be of high quality by
all standards. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities, or fluctuations of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
in AAA securities.
2 Additionally, the Fund will not acquire more than 3% of the total
outstanding voting stock of any such closed-end investment company.
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<PAGE>
During 1996 and 1997 the turnover rate of the Fund's portfolio,
calculated by dividing the lesser of purchases or sales of portfolio securities
for the period by the monthly average of the value of the portfolio securities
owned by the Fund during the period, was approximately 17% and 52%,
respectively. The Fund cannot predict what its turnover rate will be in 1998. A
high rate of turnover may result in increased income and gain which would have
to be distributed to the Fund's stockholders in order for the Fund to continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code. See "Tax Information."
Year 2000 Problem
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Investment Advisor and other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Investment Advisor is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's major service providers.
Investment Considerations
The Fund offers to sell and redeem its shares at the next determined
net asset value. No sales charge, underwriting discount or commission is paid by
investors. The minimum dollar amount of shares which may be purchased at any one
time is $100. The Fund receives the full amount of the purchase price of the
shares. The value of the Fund's shares fluctuates because the values of the
securities in which it invests fluctuate. When the Fund sells portfolio
securities it may realize a gain or a loss, depending on whether it sells them
for more or less than their cost. The Fund will earn dividend or interest income
to the extent that it receives dividends or interest from its investments.
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Fund is responsible for the overall
operations of the Fund. The officers of the Fund, under the direction of the
Board of Directors of the Fund, are responsible for the day-to-day operations of
the Fund.
Investment Advisor
Stralem & Company Incorporated (the "Investment Advisor"), having an
office at 405 Park Avenue, New York, New York 10022 is a member of the National
Association of Securities Dealers, Inc. The Investment Advisor is a registered
investment advisor that manages funds for individuals, trusts, pension plans and
other institutional investors. The Investment Advisor also performs some
brokerage functions for its clients. The Investment Advisor has not in the past,
and does not at the present time, sponsor or manage any other mutual fund.
The Investment Advisor is the investment advisor to the Fund under a
contract (the "Contract") dated February 28, 1977 which has been renewed
annually by the Board of Directors of the Fund. The Contract provides that the
Investment Advisor will screen and analyze potential investments for the Fund
and, subject to the investment restrictions and policies of the Fund, determine
the amount of each investment that should be made and the form of such
investment. The Investment Advisor is also responsible for reviewing and
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<PAGE>
re-evaluating the Fund's portfolio periodically in order to determine at what
point investments have met the Fund's basic objective or are unlikely to meet
such objective, in which case the Investment Advisor would recommend the sale of
such investments. The Investment Advisor, in the performance of its duties,
causes such of the Fund's investments to be bought and sold as it deems
appropriate and consistent with the Fund's basic objective of seeking to realize
a combination of income and capital appreciation intended to produce the highest
total return consistent with reasonable risk. Additionally, the Investment
Advisor provides the Fund with, and pays for, all office space and utilities,
and all research and investment services. The Investment Advisor provides the
Fund with, and initially pays for (subject to reimbursement by the Fund, as
provided below), all clerical, statistical and related services (excluding
legal, accounting, auditing and custodial services) reasonably required by the
Fund for the conduct of its business. Legal, accounting, auditing and custodial
services are separately obtained and paid for by the Fund.
Since 1974, Hirschel B. Abelson, President of the Investment Advisor
and Secretary and Treasurer of the Fund, Philippe Baumann, Executive Vice
President of the Investment Advisor and President and Director of the Fund, and
M. Joel Unger, Vice President of the Investment Advisor, have been responsible
for the day-to-day management of the Fund's portfolio. See "Management of the
Fund - Directors and Officers" in the accompanying Statement of Additional
Information for a description of Messrs. Abelson's and Baumann's business
experience during the past five years. Mr. Unger has been Vice President of the
Investment Advisor for more than the past five years.
The Fund reimburses the Investment Advisor for certain of its expenses
attributable to the administration of the Fund, including a proportionate part
of the compensation of employees of the Investment Advisor who perform the
clerical, statistical and related services for the Fund referred to above; such
reimbursement is paid quarterly and is limited by the Contract to $25,000 per
annum. Under such provision of the Contract, the Fund reimburses the Investment
Advisor for, among other things, the expenses and compensation of its employees
incurred in preparing reports for the Fund, in performing the Fund's duties as
the transfer agent and registrar of its own shares and dividend paying agent and
in performing all of the other administrative functions of the Fund. The Fund
pays all of its other costs and expenses directly. As a consequence of such
reimbursement of the Investment Advisor and such direct payment of other costs,
substantially all of the Fund's expenses, other than those for office space and
facilities, are directly or indirectly paid by the Fund.
As compensation for its services under the Contract, the Fund pays to
the Investment Advisor as of the last day of each March, June, September and
December on which the Contract is in force a sum equal to the aggregate of the
following percentages of the average weekly net asset value of the Fund during
the quarterly period then ended:
1/4 of 1% of the first $50 million of such net asset value (1%
annually);
3/16 of 1% of the next $50 million of such net asset value (3/4
of 1% annually); and
1/8 of 1% of such net asset value in excess of $100 million (1/2
of 1% annually).
Prior to establishing in 1988 the current fee schedule described above,
the Board of Directors of the Fund compared advisory fees and fee structures of
mutual funds similar in size and purpose to the Fund. Based on this review, the
Board of Directors concluded that the increase in the fee schedule would result
in a reasonable level of compensation to the Investment Advisor which is higher
than the fees payable by most other funds. However, in the opinion of the Board,
the increased fees, when considered together with the relatively low level of
expenses which are incurred by the Investment Advisor and reimbursed by the
Fund, will result in a level of costs which is slightly lower than, but roughly
comparable to, the costs payable by other funds.
-7-
<PAGE>
As of March 31, 1998, the net asset value of the Fund was $46,565,523.
The Fund's total expenses for fiscal year 1997 were 1.19% of average net asset
value. Management expenses for fiscal year 1997 were 1.08% of average net asset
value; this figure was higher than the 1% annual fee set for the Investment
Advisor due to administrative expenses reimbursed by the Fund to the Investment
Advisor.
Although the Contract does not contain any provision requiring the
Fund's brokerage to be transacted through the Investment Advisor, in 1996 and
1997, all of the Fund's brokerage was placed through the Investment Advisor or
affiliated persons of the Fund or the Investment Advisor or any brokers an
affiliated person of which is an affiliated person or the Fund or the Investment
Advisor. Subject to the supervision of the Board of Directors , the Investment
Advisor has been authorized to allocate brokerage to affiliated broker-dealers
on an agency basis to effect portfolio transactions. The Board of Directors have
adopted procedures incorporating the standards of Rule 17e-1 of the Investment
Company Act of 1940, as amended, which require that the commission paid to
affiliated broker-dealers 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.
DESCRIPTION OF THE FUND'S SHARES
The Fund has authorized capital of 5,000,000 shares of one class of
capital stock, par value $1.00. Each share has one vote and participates equally
in dividends and distributions declared by the Fund and in the Fund's net assets
on liquidation. The shares, when issued, are fully paid and non-assessable, are
transferable and redeemable at net asset value and have no preemptive,
conversion or exchange rights. The shares of the Fund do not have cumulative
voting rights; consequently, holders of more than 50% of the shares voting for
the election of directors can elect all of the directors if they choose to do
so; and, in such event, the holders of the remaining shares so voting would not
be able to elect any directors.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
Dividends And Distributions
Dividends are paid at least annually by the Fund. The Fund also
distributes net capital gains (if any) at least annually. Dividends and
distributions of shares may be reinvested at net asset value without an initial
sales charge. Shareholders should indicate on the purchase application whether
they wish to receive dividends and distributions in cash. Otherwise, all income
dividends and capital gains distributions are automatically reinvested in the
Fund at the next determined net asset value unless the Fund receives written
notice from an individual shareholder prior to the record date requesting that
the distributions and dividends be distributed to the investor in cash.
Tax Matters
The Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including the requirements with respect to
diversification of assets, distribution of income and sources of income. It is
the Fund's policy to distribute to its shareholders nearly all of its investment
income (net of expenses) and any capital gains (net of capital losses) in
accordance with the timing requirements imposed by the Code so that the Fund
will satisfy the distribution requirement of Subchapter M and not be subject to
federal income tax or the 4% excise tax. If the Fund fails to satisfy any of the
Code requirements for qualification as a regulated investment company, it will
be taxed at regular corporate tax rates on all of its taxable income (including
capital gains) without any deduction for distributions to shareholders, and
distributions to shareholders will be taxable as ordinary dividends (even if
derived from the Fund's net long-term capital gains) to the extent of the Fund's
-8-
<PAGE>
current and accumulated earnings and profits. In 1997, the Fund incurred
federal, state and local income taxes of $8,760 on income received but not
distributed by the Fund.
Distributions by the Fund of its net investment income and the excess,
if any, of its net short-term capital gain over its net long-term capital loss
are generally taxable to shareholders as ordinary income. These distributions
are treated as dividends for federal income tax purposes. Distributions by the
Fund of the excess, if any, of its net long-term capital gain over its net
short-term capital loss are designated as capital gain dividends and are taxable
to shareholders as long-term capital gains, without regard to the length of time
the Fund's shares were held.
Distributions by the Fund to shareholders will be treated in the same
manner for federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund. In general, distributions by the Fund are taken
into account by the shareholders in the year in which they are made. However,
certain distributions made during January will be treated as having been paid by
the Fund and received by the shareholders on December 31 of the preceding year.
A statement setting forth the federal income tax status of all distributions
made or deemed made during the year, including any amount of foreign taxes
"passed through," will be sent to shareholders promptly after the end of each
year. A shareholder who purchases shares of the Fund just prior to the record
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase may have reflected
the amount of such dividend.
A shareholder will recognize gain or loss upon the sale (exchange) or
redemption of shares of the Fund in an amount equal to the difference between
the proceeds of the sale or redemption and the shareholder's adjusted tax basis
in the shares. Any loss recognized upon a taxable disposition of shares within
six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any capital gain dividends received on such
shares. All or a portion of any loss recognized upon a taxable disposition of
shares of the Fund may be disallowed if other shares of the Fund are purchased
within 30 days before or after such disposition.
Ordinary income dividends paid to non-resident alien or foreign entity
shareholders generally will be subject to United States withholding tax at a
rate of 30% (or lower rate under an applicable treaty). Foreign shareholders are
urged to consult their own tax advisers concerning the applicability of United
States withholding taxes.
Under the backup withholding rules of the Code, certain shareholders
may be subject to 31% backup withholding tax on ordinary income dividends,
capital gain dividends and redemption payments made by the Fund. In order to
avoid this backup withholding, a shareholder must provide the Fund with a
correct taxpayer identification number (which for an individual is usually
his/her Social Security number) or certify that the shareholder is a corporation
or otherwise exempt from or not subject to backup withholding.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder should
also review the more detailed discussion of federal income tax considerations
relevant to the Fund that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax adviser as to the tax consequences of investments in the Fund, including
the application of state and local taxes which may differ from the federal
income tax consequences described above.
-9-
<PAGE>
SALE OF SHARES
The Fund offers and redeems its shares at the next- determined net
asset value. No sales charge, underwriting discount or commission is paid by
investors. The minimum dollar amount of shares which may be purchased at any one
time is $100.
The net asset value of the Fund's shares is determined by the Fund as
of the close of trading on the New York Stock Exchange, Inc. (the "Exchange") on
the last business day in each calendar week on which the Exchange will be open
and on each other day on which it receives orders for sales and/or redemptions,
if such orders are received prior to the close of trading on the Exchange, or on
the business day next succeeding the date of such receipt, if such orders are
received after the close of trading on the Exchange. Such determination is made
by the Fund by dividing the value of its securities, plus any cash and other
assets (including dividends and interest accrued but not collected) less all
liabilities (including accrued expenses but excluding capital and surplus), by
the number of shares outstanding. A security listed or traded on an exchange is
valued at its last sale price on that exchange prior to the time when assets
will be valued. Lacking any sales on any day, the security is valued at the mean
between the current closing "bid" and "asked" prices. All other securities for
which over-the- counter market quotations are readily available are valued on
the basis of the average of the last current "bid" prices, if such securities
are held "long", or on the basis of the average of the last current "asked"
prices, if such securities are owned "short", in each case as reported by the
National Quotation Bureau, Inc. When market quotations are not readily
available, or when restricted securities are being valued, such securities are
valued at fair value as determined in good faith by the Management of the Fund.
Other assets are also valued at fair value as determined in good faith by the
Board of Directors of the Fund.
Shares of the Fund are continuously offered for sale at net asset
value. Net asset value for these purposes is determined as of the close of
trading on the Exchange on the business day on which the purchase order is
placed with the Fund by a prospective investor, if such order is received prior
to the close of trading on the Exchange, or on the business day next succeeding
the date of such receipt, if such order is received after the close of trading
on the Exchange. Shares are issued as of the opening of trading on the Exchange
on the business day next succeeding the day on which net asset value was
determined.
Shares sold by the Fund may be purchased only from Stralem & Company
Incorporated, 405 Park Avenue, New York, New York 10022, the statutory
underwriter of such shares (the Investment Adviser to the Fund), which, pursuant
to a distribution agreement dated February 28, 1977, acts without any
compensation as exclusive representative of the Fund in making such sales. It
receives, on behalf of the Fund, subscriptions for shares and payments therefor.
The distribution agreement was approved and adopted by the Fund's shareholders
at a Special Shareholders' Meeting held on February 11, 1977 and has been
renewed annually by the Board of Directors .
REDEMPTION OF SHARES
Shareholders may redeem their shares of the Fund without charge by the
Fund at the next-determined net asset value of such shares only after receipt at
the office of the Fund of a written request for redemption and deposit of
properly endorsed certificates. The signature of the endorser must be
guaranteed. The redemption price (net asset value) of shares shall be determined
as of the close of trading on the Exchange on the business day on which a
request for redemption has been received by the Fund, if such order is received
prior to the close of trading on the Exchange, or on the business day next
succeeding the date of such receipt, if such order is received after the close
of trading on the Exchange. Payment will be made as soon as reasonably
practicable after receipt of such request and good delivery of the shares being
redeemed and, in any event, shall be made within three business days thereafter.
Redemption of shares or payment therefor may be suspended at times (a) when the
Exchange is closed, (b) when trading on the Exchange is restricted, (c) when an
emergency
-10-
<PAGE>
exists, a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits; the applicable rules
and regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist.
Because the net asset value of the Fund's shares will fluctuate as a
result of changes in the market value of securities owned, the amount a
shareholder will receive upon redemption may be more or less than the amount
he/she paid for the shares.
PERFORMANCE CALCULATION
The Fund calculates performance on a total return basis for various
periods. The total return basis combines changes in principal and dividends and
distributions for the periods shown, as well as the deduction of all charges and
expenses. Principal changes are based on the difference between the beginning
and closing net asset value for the period. Calculations assume reinvestment of
all dividends and distributions paid by the Fund. Dividends and distributions
are comprised of net investment income and net realized capital gains,
respectively. In addition, the Fund may calculate performance on a total return
basis at net asset value.
Performance will vary from time to time and past results are not
necessarily representative of future results. A shareholder should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Comparative performance information may be used from time to time in
the advertising or marketing of the Fund's shares, including data from Lipper
Analytical Services, Inc. and Morningstar Mutual Funds. Such comparative
performance information will be stated in the same terms in which the
comparative data and indices are stated.
GENERAL INFORMATION
The Custodian for all securities of the Fund is Schroder & Co. Inc., a
Delaware corporation which is a member corporation of the New York Stock
Exchange, Inc., and the corporation through which the Investment Advisor clears
its securities transactions. Its principal office is presently located at 787
Seventh Avenue, New York, New York 10019. The Fund has a bank checking account
with Chase Manhattan Bank. The Fund acts as its own transfer agent and registrar
and dividend agent.
The Fund's Annual Report to Shareholders contains additional
performance information which will be made available upon request and without
charge.
Shareholder inquiries may be made by calling the telephone number or
writing to the Fund at the address shown on the front cover.
-11-
<PAGE>
STRALEM FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
April 29, 1998
This Statement of Additional Information, which is not a prospectus, supplements
and should be read in conjunction with the current prospectus of Stralem Fund,
Inc. (the "Fund"), dated April 29, 1998, as it may be revised from time to time.
To obtain a copy of the Fund's prospectus, please write to the Fund at 405 Park
Avenue, New York, New York 10022 or call (212) 888- 8123.
Stralem & Company Incorporated serves as the Fund's investment advisor.
TABLE OF CONTENTS
Page
Investment Objective and Policies......................................... B-2
Management of the Fund.................................................... B-6
Control Persons and Principal Holders of Securities....................... B-8
Investment Advisor........................................................ B-9
Brokerage Allocation..................................................... B-11
Purchase, Redemption and Pricing of Shares............................... B-11
Taxes.................................................................... B-12
Information About the Fund............................................... B-17
Independent Auditors' Report........................................... B-18
Financial Statements..................................................... B-19
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Objective of the Fund
The investment objective of the Fund is to seek the realization of a
combination of income and capital appreciation in an attempt to maximize total
return. To achieve this end, the Investment Advisor has the flexibility to
select among different types of investments for capital growth and income and
alter the composition of the Fund's portfolio as economic and market trends
change.
Investment Policies
Since 1974, the Fund's investment policy has been to achieve its
investment objective through a portfolio of securities which is not confined to
any particular area. The Fund is non-diversified and may, therefore, invest a
greater percentage of its assets in the securities of fewer issuers than many
diversified investment companies. To the extent that a greater portion of its
assets is invested in a smaller number of issuers, an investment in the Fund may
be considered more speculative than an investment in a diversified fund.
While the Investment Advisor anticipates that over the long term the
Fund's portfolio will consist primarily of common stocks or securities
convertible or exchangeable for common stocks, the Fund may also invest in
long-term bonds and other debt securities and short-term investments, including
short- term U.S. government securities, bank interest-bearing accounts,
certificates of deposit and other money market instruments.
The Fund may shift its emphasis among the different types of
investments, as well as among various industry sectors, as financial trends and
economic conditions change. For example, one strategy will be to increase the
Fund's investments in equity securities when the Investment Advisor anticipates
a generally rising stock market. A corresponding strategy will be to reduce the
Fund's investments in equity securities when the Investment Advisor anticipates
a declining stock market or when it believes that the total return from debt or
convertible securities and short-term investments can be expected to exceed
returns from equity investments.
During 1996 and 1997 the turnover rate of the Fund's portfolio,
calculated by dividing the lesser of purchases or sales of portfolio securities
for the period by the monthly average of the value of the portfolio securities
owned by the Fund during the period, was approximately 17% and 52%,
respectively. The Fund cannot predict what its turnover rate will be in 1998. A
high rate of turnover may result in increased income and gain which would have
to be distributed to the Fund's stockholders in order for the Fund to continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code.
Notwithstanding that the Fund is a non-diversified investment company,
the Fund is subject to certain limitations on the degree to which it can
concentrate its investments. In addition to the investment restrictions (see
Investment Restrictions at page B-2) adopted by the Fund, other restrictions on
the degree to which the Fund can concentrate its investments arise by virtue of
the Fund's continuing intention to comply with the provisions of the Internal
Revenue Code which relieve investment companies which distribute substantially
all of their net income, excluding long-term capital gains, from Federal
taxation. Such additional restrictions are the following:
(1) As to 50% of the value of its total assets, the Fund may not invest
more than 5% of its assets, taken at market value, in the securities
of any one issuer (except United States Government securities) and may
not purchase more than 10% of the outstanding voting securities of any
such issuer; and
B-2
<PAGE>
(2) The Fund may not invest more than 25% of the value of its total
assets, taken at market value, in the securities of a single issuer.
The Fund has no present intention to concentrate its investments in any
particular industry, and will not purchase a security if, as a result of such
purchase, more than 25% of the value of its total assets, based upon current
market value, will be invested in securities in a particular industry. The
foregoing policy is fundamental and may not be changed without approval of the
holders of a majority of the Fund's outstanding shares; however, this policy
does not assure the achievement of the Fund's investment objective or eliminate
the risk of loss which is inherent in the ownership of securities.
Allocation of Investments by the Investment Advisor
Although the Investment Advisor does not presently act as an investment
advisor for any other mutual fund, it is a registered investment advisor under
the Investment Advisers Act of 1940, as amended, and, accordingly, it has as
clients private individuals, trusts, pension and profit sharing funds, some of
whom, like the Fund, have capital appreciation as an investment objective. As a
result, investment personnel of the Investment Advisor may at times consider
purchases and sales of the same investment securities for the Fund as well as
for one or more of the other accounts which they manage or advise. In such
cases, it would be the practice of such personnel to allocate the purchases and
sales transactions among the Fund and such other accounts in an equitable
manner. In making such allocation, the main factors considered would be the
respective investment objectives of the Fund and the other accounts, the
relative size of the portfolio holdings of each of the same or comparable
securities, the current availability of cash for investment by the Fund and each
of the other accounts, the tax status of the Fund and the other accounts, and
the size of investment commitments generally held by the Fund and the other
accounts.
Within the limits set forth in Section 17 of the Investment Company Act
of 1940, as amended, the Fund may invest in securities the issuers of which are
clients of the Investment Advisor, but such investments would only be made in
securities which are freely marketable under the Securities Act of 1933 (the
"Securities Act").
Investment Restrictions
The Fund has adopted certain restrictions which cannot be changed
without approval of the holders of a majority of its outstanding shares. A
majority vote means the lesser of (i) 67% or more of the shares present (in
person or by proxy) at a meeting of shareholders at which more than one-half of
the outstanding shares of the Fund are present (in person or by proxy) or (ii)
more than one-half of the outstanding shares of the Fund. The Fund, without such
approval, may not:
1. Borrow money for investment purposes. However, for
temporary or emergency purposes, including meeting redemptions and
securing short-term credits for the clearance of purchases and sales of
securities, the Fund may borrow up to 5% of the value of its assets,
but the Fund may not borrow money if, immediately after such borrowing,
the Fund will have net assets of less than 300% of the amount of such
borrowing. (Both references to the Fund's assets in this paragraph mean
the market value of the Fund's net assets.)
2. Underwrite securities of other issuers, except that the
Fund may purchase securities offered as private placements and, in so
doing, may state at the time of purchase that it has no present
intention to dispose of such securities and may agree that any
disposition of such securities will be subject to compliance with the
Securities Act. While such purchases can at times be made at
advantageous prices and offer attractive opportunities for investment
not otherwise available in the open market, the liquidity and
marketability of such securities may be limited and the Fund may not be
able to dispose of its holdings in such securities at the current
market price. The Management of the Fund
B-3
<PAGE>
would value the same at fair value in good faith as required by the
Investment Company Act of 1940. No more than 5% of the value of the
Fund's total assets, based upon the then current market value at the
time of the purchase of any such securities, may be invested in such
securities.
3. Concentrate its investments in a particular industry. No
more than 25% of the value of the Fund's total assets, based upon the
current market value at the time of purchase of securities in a
particular industry, may be invested in such industry.
4. Except for the purpose of providing office space for the
transaction of its business, engage in the purchase or sale of direct
interests in real estate or invest in indirect interests in real
estate. The Fund may, however, invest in securities of real estate
investment trusts when such securities are readily marketable, but has
no current intention of so doing.
5. Engage in the purchase and sale of commodities or commodity
contracts.
6. Make loans, except the Fund may lend money to corporations
by purchasing corporately-offered short-term and/or long-term debt
securities. If any such debt security is not freely marketable under
the Securities Act, the amount thereof will be included in the
limitation referred to in the last sentence of paragraph 2 above. The
purchase of a portion of an issue of publicly distributed bonds,
debentures and/or debt securities will not be considered the making of
a loan.
7. Invest in companies for the purpose of exercising control
or management.
8. Purchase securities on margin.
9. Make short sales, except that the Fund may sell securities
short to the extent that, at the time of any such sale, it owns not
less than the amount of such security sold short and/or other
securities convertible or exchangeable into such amount./1/ The Fund
may also make such short sales in special arbitrage situations for the
purpose of profiting from a current difference between the price of a
security sold, such as stock, and a security owned, such as a
debenture convertible into that stock.
10. Purchase or sell put and call options on stocks and stock
price indexes listed on major exchanges (i.e., not including securities
traded over-the-counter) where the total cost of such puts and calls
exceeds 10% of the net asset value of the Fund at the time of purchase.
Call and put options are, respectively, contracts to buy or sell a
security or stock price index at a specific price expiring at a
specific time. The Fund will not sell call options where it does not
already own the security underlying such options. See item 14 regarding
the risks associated with such options. The Fund will not purchase
options on securities traded over-the-counter; provided, however, that
the Fund shall be permitted to purchase call options on securities
traded over-the-counter to complete a short sale with respect to such
securities previously entered into by the Fund.
11. Purchase the securities of any other registered open-end
investment company, except as part of a merger or consolidation with,
or the acquisition of the assets of, another investment company;
however, the Fund may purchase the securities of no-load open-end
investment companies that invest primarily in money market instruments,
provided that (i) not more than 10% of the Fund's
- --------
/1/ A short sale is a sale of securities not owned at the time of sale
anticipating the price to fall and the securities to be repurchased at a
profit. A person selling short borrows the equivalent securities to be
delivered to the buyer and eventually buys the securities to return to the
buyer. In the case of the type of short sales made by the Fund (referred to
as a "short sale against the box"), the Fund already owns the stock being
sold, but keeps possession of it, and therefore has to borrow the
equivalent stock to deliver to the purchaser.
B-4
<PAGE>
and any of its affiliates, net assets shall be invested in such money
market investment companies, (ii) not more than 5% of the Fund's net
assets shall be invested in any single such money market investment
company and (iii) such purchase will not result in the Fund owning more
than 3% of the outstanding voting stock of the acquired investment
company. (The Fund may purchase shares of registered closed-end
investment companies. However, no more than 5% of the then current
value of the Fund's total assets based upon market value at the time of
purchase may be invested in such securities and no more than 10% of the
Fund's net assets will be invested in investment companies of any
type.)/2/
12. Mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned by it. In connection
with short sales, the Fund may, however, pledge or hypothecate
securities as security for its obligation to replace the securities
sold short.
13. Participate on a joint basis in any securities trading
account.
14. Sell a put or call option unless it owns such option at
the time of such sale. The maximum financial risk equals the original
costs of such put or call option. In the case of a call option, the
Fund will only sell such option if it already owns the security
underlying such option. Therefore, there is no financial liability risk
since the Fund is long on the securities on which call options may have
been sold.
15. Issue senior securities of the Fund.
- --------
/2/ Additionally, the Fund will not require more than 3% of the total
outstanding voting stock of any such closed-end investment company.
B-5
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The Board of Directors of the Fund is responsible for the over-all
operations of the Fund. The officers of the Fund, under the direction of the
Board of Directors of the Fund, are responsible for the day-to-day operations of
the Fund. The Directors and Officers of the Fund are as follows:
<TABLE>
<CAPTION>
Shares of Fund Beneficially Current Principal Occupation
Owned Directly or Indirectly and Principal Occupation
Name, Office and Address at March 31, 1998 During Past Five Years
------------------------ ------------------- -----------------------
<S> <C> <C>
Philippe E. Baumann* 159,687/3/ Mr. Baumann has been a Director and
Director and President Vice-President of Stralem & Company
880 Fifth Avenue Incorporated from 1970 to May 31, 1973.
New York, New York 10021 Since June 1, 1973, he has been its
Executive Vice-President.
Hirschel B. Abelson* 180,005/4/ Mr. Abelson has been President of Stralem
Secretary and Treasurer & Company Incorporated for more than
112 East 74th Street five years.
New York, NY 10021
Kenneth D. Pearlman 348 Mr. Pearlman has been the Managing
Director Director of The Evans Partnership, an
200 East 64th Street investment partnership, for more than
New York, NY 10021 five years.
Michael T. Rubin* 534/5/ From 1974 through his retirement in June
Director 1997, Mr. Rubin served as Vice
322 West 57th Street President of the Fund and an Assistant
New York, NY 10019 Vice President and an Assistant Secretary
of Stralem & Company Incorporated.
- --------
* Interested person as defined in the Investment Company Act of 1940, as
amended, by reason of relationship as officer or director.
/3/ Does not include 147,135 shares owned in the aggregate by two children of
Mr. Baumann and 13,136 shares owned by his wife, but includes 155,461
shares owned beneficially by Mr. Baumann through his interest in Stralem
Employees Profit Sharing Trust, and 4,226 shares held directly.
/4/ Does not include 2,476 shares owned in the aggregate by three children of
Mr. Abelson and 348 shares owned by his wife, but includes 179,657 shares
owned beneficially by Mr. Abelson through his interest in Stralem Employees
Profit Sharing Trust and 348 shares held directly.
/5/ Does not include an aggregate of 782 shares owned by Mr. Rubin's daughter,
of which shares he disclaims beneficial ownership.
B-6
<PAGE>
Shares of Fund Beneficially Current Principal Occupation
Owned Directly or Indirectly and Principal Occupation
Name, Office and Address at March 31, 1998 During Past Five Years
------------------------ ------------------- -----------------------
Jean Paul Ruff 1,413/6/ Mr. Ruff has been President of Hawley
Director Fuel Coal, Inc. since 1976 and Chairman
351 E. 84th Street since 1980.
New York, NY 10028
Philippe Labaune 0 Mr. Labaune has been employed by
Vice President Stralem & Company Incorporated since
313 East 95th Street May 1997. He has served as Assistant
#14 Vice President and Assistant Secretary of
New York, NY 10128 Stralem & Company Incorporated and Vice
President of the Fund since October 1997.
He was a trader at Societe Generale
Securities Corp. from 1995-1997 and a
student at Pace University prior to 1995.
Joann Paccione 0 Ms. Paccione has been Assistant Secretary
Assistant Secretary and and Assistant Treasurer of the Fund since
Assistant Treasurer April 1990. She was employed as an
112 Thomas Avenue accountant by Richard Eisner & Company,
Emerson, NJ 07630 LLP from 1981 through October 1987.
Since October 1987, Ms. Paccione has
been engaged in providing accounting
services on an independent basis.
</TABLE>
Mr. Baumann has served as a director of the Fund since April 27, 1972.
Mr. Pearlman was elected a director for the first time on February 6, 1974. Mr.
Ruff was elected a director at the Annual Meeting of Stockholders held on April
23, 1980. Mr. Rubin was elected a director on October 8, 1997 to fill the seat
left vacant upon the death of William Hertan in December 1996.
None of the directors and officers of the Fund receives any
compensation, other than directors, fees, from the Fund. The Fund pays each
director of the Fund who is not an employee of the Investment Advisor a
director's fee of $200 for each meeting attended, but not in excess of $1,200 a
year, and reimburses them for their out-of-pocket expenses incurred on Fund
business. No directors' out-of-pocket expenses were claimed or reimbursed during
1997. The table below illustrates the compensation paid to each director for the
Fund's most recently completed fiscal year:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual Total Compensation
Compensation from the Accrued as Part of Benefits Upon from the Fund Paid
Name of Person, Position Fund Fund Expenses Retirement to Directors
- -------------------------- -------------------- ------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
Jean Paul Ruff, Director $1,000 0 0 $1,000
Kenneth D. Pearlman, Director $1,000 0 0 $1,000
Michael T. Rubin, Director $200 0 0 $200
</TABLE>
- --------
/6/ Does not include 27,932 shares owned in the aggregate by two children of
Mr. Ruff and 13,966 shares held by Mr. Ruff's wife in custody for his
daughter, of which shares he disclaims beneficial ownership.
B-7
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The Fund has authorized capital of 5,000,000 shares of one class of
capital stock, par value $1.00. As of March 31, 1998, the Fund had 3,245,488
shares of capital stock issued and outstanding. The following table shows
certain information as to the holdings of shareholders with 5% or more of the
Fund's outstanding shares and the directors and officers of the Fund as a group
as of March 31, 1998:
<TABLE>
<CAPTION>
Amount and Nature
Name of of Beneficial
Beneficial Owner Address Ownership7 Percent of Class
---------------- ------- ---------- ----------------
<S> <C> <C> <C>
Stralem Employees' 405 Park Avenue 523,033 shares 16.12%
Profit Sharing Trust New York, NY 10022
Gunther & Co. - Swiss Bank 4 World Trade Center 440,489 shares/8/ 13.57%
Corporation New York, NY 10005
All officers and directors of the Fund as 341,987 shares/9/ 10.54%
a group
</TABLE>
- --------
7 Unless otherwise indicated, all ownership is record and beneficial.
8 Record only.
9 Does not include an aggregate of 205,775 shares beneficially owned by wives
or children of certain of such officers and directors, as to which shares
said officers and directors disclaim any beneficial interest. See table
under "Management of the Fund" above for further information.
B-8
<PAGE>
INVESTMENT ADVISOR
The Investment Advisor, Stralem & Company Incorporated, having an
office at 405 Park Avenue, New York, New York 10022, is the investment advisor
to the Fund under a contract (the "Contract") dated February 28, 1977. The
Contract provides that the Investment Advisor will screen and analyze potential
investments for the Fund and, subject to the investment restrictions and
policies of the Fund, determine the amount of each investment that should be
made and the form of such investment. The Investment Advisor is also responsible
for reviewing and re-evaluating the Fund's portfolio, periodically, in order to
determine at what point investments have met the Fund's basic objective or are
unlikely to meet such objective. The Investment Advisor, in the performance of
its duties, causes such of the Fund's investments to be bought and sold as it
deems appropriate and consistent with the Fund's basic objective of the
realization of a combination of income and capital appreciation to produce the
highest total return consistent with reasonable risk. Additionally, the
Investment Advisor provides the Fund with, and pays for, all office space and
utilities and all research and investment services. The Investment Advisor
provides the Fund with, and initially pays for (subject to reimbursement by the
Fund, as provided below), all clerical, statistical and related services
(excluding legal, accounting, auditing and custodial services) reasonably
required by the Fund for the conduct of its business. Legal, accounting,
auditing and custodial services are separately obtained and paid for by the
Fund.
The Fund reimburses the Investment Advisor for certain of its expenses
attributable to the administration of the Fund, including a proportionate part
of the compensation of employees of the Investment Advisor who perform the
clerical, statistical and related services for the Fund referred to above; such
reimbursement is limited by the Contract to $25,000 per annum. Under such
provision of the Contract, the Fund reimburses the Investment Advisor for, among
other things, the expenses and compensation of its employees incurred in
preparing reports for the Fund, in performing the Fund's duties as the transfer
agent and registrar of its own shares and as dividend agent and in performing
all of the other administrative functions of the Fund. The Fund pays all of its
other costs and expenses directly. As a consequence of such reimbursement of the
Investment Advisor and such direct payment of other costs, substantially all of
the Fund's expenses, other than those for office space and facilities, are
directly or indirectly paid by the Fund. The Contract is reviewed annually by
the Board of Directors of the Fund who may in their discretion approve the
continuation of the Contract: The Board of Directors, including a majority of
disinterested directors, approved the continuation of the Contract at a meeting
held in person on April 8, 1998.
The Contract was approved and adopted by the Fund's shareholders at a
Special Shareholders, meeting held on February 11, 1977, upon the transfer of
control of the Investment Advisor, consummated on February 28, 1977, which
caused the automatic termination of the Fund's prior investment advisory
agreement. The Contract is identical to the previous investment advisory
agreement except for its effective date, the length of its initial term, which
has been shortened from two years to one year, and for certain minor changes
improving the clarity of the agreement and/or conforming it to changes in
applicable law. The Contract is reviewed annually by the Board of Directors of
the Fund who may in their discretion approve the continuation of the Contract.
The Board of Directors, including a majority of disinterested directors,
approved the continuation of the Contract at a meeting held in person on April
8, 1998.
The Contract provides that the Fund will pay to the Investment Advisor
as of the last day of each March, June, September and December in which the
investment advisory agreement is in force a sum equal to the aggregate of the
following percentages of the average weekly net asset value of the Fund during
the quarterly period then ended:
1/4 of 1% of the first $50 million of such net asset value (1%
annually),
3/16 of 1% of the next $50 million of such net asset value (3/4
of 1% annually), and
1/8 of 1% of such net asset value in excess of $100 million (1/2
of 1% annually).
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As of March 31, 1998, the net asset value of the Fund was $46,565,523.
The total payment under the Contract for 1997 was $412,175, of which
$21,240 was a reimbursement of the Investment Advisor's expenses attributable to
administration of the Fund. The total payment under the Contract for 1996 was
$365,410 of which $20,600 a reimbursement for the Investment Advisor's expenses
attributable to the administration of the Fund. The total payment under the
Contract for 1995 was $331,844, of which $20,450 was a reimbursement of the
Investment Advisor's expenses attributable to administration of the Fund.
Prior to establishing the current fee schedule, the Fund compared
advisory fees and fee structures of mutual funds similar in size and purpose to
the Fund. Based on this review, the Board of Directors concluded that the
increase in the fee schedule would result in a reasonable level of compensation
to the Investment Advisor which is higher than the fees payable by most other
funds. However, in the opinion of the Fund, the increased fees, when considered
together with the relatively low level of expenses which are incurred by the
Investment Advisor and reimbursed by the Fund, result in a level of costs which
is slightly lower than, but roughly comparable to, the costs payable by other
funds.
All other terms and conditions of the Investment Advisory Agreement
were not amended and will continue in effect, including, without limitation,
provisions relating to the reimbursement of expenses.
The Contract will continue in effect from year to year so long as its
continuance is specifically approved at least annually either (1) by the Board
of Directors of the Fund or (2) by the vote of a majority of the outstanding
shares of the Fund, provided that in either event the continuance is also
approved by the vote of a majority of the directors of the Fund who are not
parties to the Contract or interested persons of such parties, cast in person at
a meeting called for the purpose of voting on such approval. In addition, the
Contract may be terminated, without the payment of any penalty, at any time by
the Board of Directors of the Fund, by the Investment Advisor, or by the vote of
a majority of the outstanding shares of the Fund upon not more than 60 days,
written notice, and will be automatically terminated upon any assignment
thereof.
The Investment Advisor's other advisory clients pay advisory fees to
the Investment Advisor based upon the amount of the securities and/or cash of
such clients with respect to which the investment Advisor renders investment
advice. Accordingly, although the Fund pays an investment advisory fee to the
Investment Advisor, investment advisory clients of the Investment Advisor who
own shares of the Fund's stock may also pay an additional advisory fee to the
Investment Advisor (in addition to the fee indirectly paid on their behalf by
the Fund) with respect to the amount invested in the shares of the Fund. No
additional investment advisory fees are charged to clients of the Investment
Advisor which are subject to the Employee Retirement and Income Security Act on
amounts invested by such clients in the Fund.
Mr. Philippe E. Baumann is an officer and director of the Fund and also
of the Investment Advisor. Mr. Rubin is a director of the Fund . Mr. Abelson is
an officer of the Fund and is also an officer of the Investment Advisor. Mr.
Labaune is an officer of the Fund and an officer of the Investment Advisor. The
following persons, as of March 31, 1998, beneficially owned 5% or more of the
Investment Advisor's outstanding voting Common Shares: President of the
Investment Advisor, Hirschel B. Abelson (33.3%); Executive Vice President of the
Investment Advisor, Philippe E. Baumann (33.3%); and Vice President of the
Investment Advisor, M. Joel Unger (33.3%). Messrs. Abelson, Baumann and Unger
together control the Investment Advisor. Messrs. Abelson, Baumann and Unger,
together with members of their families, also own 100% of the outstanding
non-voting Common Shares of the Investment Advisor.
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BROKERAGE ALLOCATION
Decisions to buy and sell securities for the Fund and assignment of its
portfolio business and negotiation of its commission rates, where applicable,
are made by the President and the Vice-President of the Fund, who are also
officers of the Investment Advisor. It is the Fund's policy to obtain the best
prices and execution of orders available, and, in doing so, the Fund will assign
portfolio executions and negotiate transactions in accordance with the
reliability and quality of a broker's services (including handling of execution
of orders, research services the nature of which is the receipt of research
reports, and related services) and the value of such services and expected
contribution to the performance of the Fund. Where commissions paid reflect
services furnished to the Fund in addition to execution of orders, the Fund will
stand ready to demonstrate that such services were bona fide and rendered for
the benefit of the Fund. It is possible that certain of such services may have
the effect of reducing the Investment Advisor's expenses.
During 1997, the Fund's brokerage amounted to $57,500, all of which was
placed through the Investment Advisor or affiliated persons of the Fund or the
Investment Advisor or any other brokers an affiliated person of which is an
affiliated person of the Fund or the Investment Advisor. The Contract does not
contain any provision requiring the Fund's brokerage to be transacted through
the Investment Advisor. During 1996, the Fund's brokerage amounted to $33,788
all of which was placed through the Investment Advisor or affiliated persons of
the Fund or the Investment Advisor or any other brokers an affiliated person of
which is an affiliated person of the Fund or the Investment Advisor. During
1995, the Fund's brokerage amounted to $26,201, all of which was placed through
the Investment Advisor or affiliated persons of the Fund or the Investment
Advisor or any other brokers an affiliated person of which is an affiliated
person of the Fund or the Investment Advisor. The Board of Directors has
reviewed and approved the foregoing brokerage arrangements.
With respect to any transactions to which competitively
determined rates are applicable, the execution will not be placed with the
Investment Advisor at a commission rate less favorable than the Investment
Advisor's contemporaneous charges for its other most favored, but unaffiliated,
customers; and, in addition, a good faith judgment will be made that the
Investment Advisor is qualified to obtain the best price on the particular
transaction and that the commission charged will be reasonable in relation to
the value of the brokerage provided in terms of either the particular
transaction or the Investment Advisor's overall responsibilities to the Fund.
Since the obligation already exists to provide management (which would include
elements of research and related skills), brokerage commissions paid to the
Investment Advisor will not reflect anything other than payment for the
execution services performed on the particular transactions.
When the Fund purchases or sells a security "over-the -counter", if
possible it effects the transaction with a principal market maker, without the
use of a broker, unless in the opinion of the Fund a better execution will be
achieved through the use of a broker.
The Contract does not provide for a reduction of the investment
advisory fee by any portion of the brokerage generated by portfolio transactions
of the Fund which the Investment Advisor may receive.
The Investment Advisor will not participate in commissions paid by the
Fund to other brokers or dealers and will not receive any reciprocal business,
directly or indirectly, as a result of such commissions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Fund offers and redeems its shares at net asset value. No sales
charge, underwriting discount or commission is paid by investors. The minimum
dollar amount of shares which may be purchased at any one time is $100.
Shares of the Fund are continuously offered for sale at net asset
value. Net asset value for these purposes is determined as of the close of
trading on the Exchange on the business day on which the
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purchase order is placed with the Fund by a prospective investor, if such order
is received prior to the close of trading on the Exchange, or on the business
day next succeeding the date of such receipt, if such order is received after
the close of trading on the Exchange. Shares are issued as of the opening of
trading on the Exchange on the business day next succeeding the day on which net
asset value was determined. The computation of the total offering price per
unit, using the value of the Fund's portfolio securities and other assets and
its outstanding securities as of the date of the Fund's Statement of Assets and
Liabilities at December 31, 1997 herein, equals the net asset value per share
set forth on such statement and is described in the Prospectus, "Sale of
Shares".
The Fund pays an investment advisory fee to the Investment Advisor;
accordingly, investment advisory clients of the Investment Advisor who pay an
investment advisory fee based upon the amount of securities or cash with respect
to which the Investment Advisor renders investment advice and who own shares of
the Fund's stock may also effectively pay an additional advisory fee with
respect to these shares.
Shares sold by the Fund may be purchased only from Stralem & Company
Incorporated, 405 Park Avenue, New York, New York 10022, the statutory
underwriter of such shares, which pursuant to a distribution agreement dated as
of February 28, 1977, acts without any compensation as exclusive representative
of the Fund in making such sales. It receives, on behalf of the Fund,
subscriptions for shares and payments therefor. The distribution agreement was
approved and adopted by the Fund's shareholders at a Special Shareholders
Meeting held on February 11, 1977 and approved for continuation by the Board of
Directors, including a majority of the disinterested directors, at a meeting
held in person on April 8, 1998.
Shareholders may redeem their shares of the Fund without charge at the
net asset value of such shares only after receipt at the office of the Fund of a
written request for redemption and deposit of properly endorsed certificates.
The signature of the endorser must be guaranteed. The redemption price (net
asset value) of shares shall be determined as of the close of trading on the
Exchange on the business day on which a request for redemption has been received
by the Fund, if such order is received prior to the close of trading on the
Exchange or on the business day next succeeding the date of such receipt if such
order is received after the close of trading on the Exchange. Payment will be
made as soon as reasonably practicable after receipt of such request and good
delivery of the shares being redeemed and in any event shall be made within
three business days thereafter. Redemption of shares or payment therefor may be
suspended at times (a) when the Exchange is closed, (b) when trading on the
Exchange is restricted, (c) when an emergency exists, as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits; provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist.
Because the net asset value of the Fund's shares will fluctuate as a
result of changes in the market value of securities owned, the amount a
shareholder will receive upon redemption may be more or less than the amount
he/she paid for the shares.
TAXES
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 Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends
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and other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will, therefore, count towards the satisfaction of the
Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256 (unless the Fund
elects otherwise), will generally be treated as ordinary income or loss.
Further, the Code also treats as ordinary income a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of the Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, or (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto), or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
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Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security rather than by the issuer of the option.
If, for any taxable year, the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
its ordinary taxable income for such calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
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Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes. However, such distributions will qualify for the 70%
dividends-received deduction for corporate shareholders, but only to the extent
discussed below.
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to distribute any
such amounts. Net capital gain that is distributed and designated as a capital
gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. The Code provides, however, that under certain conditions
only 50% (58% for alternative minimum tax purposes) of the capital gain
recognized upon the Fund's disposition of domestic "small business" stock will
be subject to tax.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally available
to corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
Generally, a dividend received by the Fund will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that the
Fund has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of Code Section 246(c)(3) and
(4) any period during which the Fund has an option to sell, is under a
contractual obligation to sell, has made and not closed a short sale of, is the
grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with respect
to, such (or substantially identical) stock; (2) to the extent that the Fund is
under an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property;
or (3) to the extent that the stock on which the dividend is paid is treated as
debt-financed under the rules of Code section 246A. The 46-day holding period
must be satisfied during the 90-day period beginning 45 days prior to each
applicable ex-dividend date; the 91-day holding period must be satisfied during
the 180-day period beginning 90 days before each applicable ex-dividend date.
Moreover, the dividends-received deduction for a corporate shareholder may be
disallowed or reduced (1) if the corporate shareholder fails to satisfy the
foregoing requirements with respect to its shares of the Fund or (2) by
application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. For purposes of the corporate AMT, the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, a corporate shareholder will generally be required
to take the full amount of any dividend received from the Fund into account
(without a dividends-received deduction) in determining its adjusted current
earnings, which are used in computing an additional corporate preference item
(i.e., 75% of the
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excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his/her
shares; any excess will be treated as gain from the sale of his/her shares, as
discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed net
investment income or recognized capital gain net income, 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.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has failed
to provide a correct taxpayer identification number, (2) who is subject to
backup withholding for failure to properly report the receipt of interest or
dividend income, or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or that it is a corporation or other "exempt
recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. Long-term capital gain recognized by an individual
shareholder will be taxed at the lowest rates applicable to capital gains if the
holder has held such shares for more than 18 months at the time of the sale.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) (discussed
above in connection with the dividends-received deduction for corporations)
generally will apply in determining the holding period of shares. Long-term
capital gains of noncorporate taxpayers are currently taxed at a maximum rate at
least 11.6% lower than the maximum rate applicable to ordinary income. Capital
losses in any year are deductible only to the extent of capital gains plus, in
the case of a noncorporate taxpayer, $3,000 of ordinary income.
B-16
<PAGE>
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate) upon the gross amount of the dividend. Such
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on the sale of shares of the Fund, capital gain dividends and
amounts retained by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of a foreign shareholder other than a corporation, the Fund
may be required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless such shareholder furnishes the Fund with proper
notification of his/her foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; State and Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in the Fund.
INFORMATION ABOUT THE FUND
The Fund was incorporated on July 9, 1969 under the laws of the State
of Delaware.
The Fund is authorized to issue 5,000,000 shares of Common Stock, par
value $1.00 per share. Each share has one vote and participates equally in
dividends and distributions declared by the Fund and in the Fund's net assets on
liquidation. The shares, when issued, are fully paid and non-assessable. Shares
have no pre-emptive, subscription or conversion rights and are freely
transferable.
Richard A. Eisner & Company, LLP, 575 Madison Avenue, New York, New
York 10022 is the independent certified public accountant for the Fund and
performs auditing services for the Fund.
B-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Stralem Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of
Stralem Fund, Inc., including the portfolio of investments in securities, as of
December 31, 1997, the related statement of operations for the year then ended
and statements of changes in net assets for each of the years in the two-year
period then ended, and the condensed financial information for each of the years
in the ten-year period then ended. These financial statements and the condensed
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included inspection or confirmation of
investments owned as of December 31, 1997, by correspondence with the
custodians. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial
information enumerated above present fairly, in all material respects, the
financial position of Stralem Fund, Inc. as of December 31, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the condensed financial
information for each of the years in the ten-year period then ended, in
conformity with generally accepted accounting principles.
/s/Richard A. Eisner & Company, LLP
New York, New York
January 21, 1998
B-18
<PAGE>
<TABLE>
<CAPTION>
STRALEM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS
<S> <C>
Investments, at market value:
Common stocks (cost - $12,685,943) $ 20,792,391
United States Government obligations (cost - $17,230,424) 19,014,721
Money market mutual funds 2,121,934
------------
41,929,046
Interest and dividends receivable 399,567
Miscellaneous 5,982
------------
42,334,595
LIABILITIES
Payable for capital stock reacquired 4,117,839
Accrued expenses 140,984
Dividends payable 2,489,394
------------
6,748,217
------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL SHARES $ 35,586,378
============
NET ASSET VALUE PER SHARE BASED ON 2,705,864 SHARES OF $1 PAR VALUE CAPITAL
STOCK OUTSTANDING (5,000,000 SHARES AUTHORIZED) (OFFERING PRICE AND REDEMPTION
PRICE) $ 13.15
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-19
<PAGE>
<TABLE>
<CAPTION>
STRALEM FUND, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1997
Number of Market
Shares Value
------ -----
<S> <C>
Common stocks (49.59%):
Auto & Truck (2.26%):
27,000 Chrysler Corp. 950,063
Computer and Peripherals (4.87%):
14,500 Hewlett-Packard Co. 906,250
* 28,500 Sun Microsystems 1,136,438
Computer Software & Service (6.54%):
18,500 Automatic Data Processing 1,135,438
* 6,500 Microsoft Corp. 840,125
* 34,300 Oracle Corp. 765,319
Electrical Equipment (4.52%):
16,000 Emerson Electric Co. 903,000
13,500 General Electric Company 990,563
Household Products (1.56%):
8,200 Procter & Gamble Company 654,463
Medical Supplies (4.23%):
15,000 Johnson & Johnson 988,125
15,000 Medtronic Inc. 784,688
Office Equipment & Supplies (2.20%):
12,500 Xerox Corp. 922,656
Personal Care (4.85%):
11,600 American Home Products Corp. 887,400
12,100 Bristol-Myers Squibb 1,144,963
Petroleum (6.53%):
12,200 Atlantic Richfield Co. 977,525
12,000 Chevron Corp. 924,000
15,400 Texaco, Inc. 837,375
Pharmaceuticals (2.41%):
9,500 Merck & Co, Inc. 1,009,375
Restaurant (1.82%):
16,000 McDonalds Corp. 764,000
Retail Stores (4.82%):
29,250 The Gap 1,036,547
25,000 Wal-Mart Stores, Inc. 985,938
Semiconductor (2.98%):
12,000 Intel Corp. 843,000
7,100 Motorola, Inc. 405,140
----------
20,792,391
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-20
<PAGE>
<TABLE>
<CAPTION>
STRALEM FUND, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
DECEMBER 31, 1997
FACE MARKET
VALUE VALUE
----- -----
<S> <C>
United States Government obligations (45.35%):
Treasury bonds and notes (40.62%):
3,500,000 February 15, 2000; 5.88% $ 3,512,031
5,000,000 August 15, 2004; 7.25% 5,403,125
2,500,000 November 15, 2016; 7.5% 2,917,188
4,500,000 August 15, 2022; 7.25% 5,200,311
Treasury bills (4.73%):
500,000 February 19, 1998 496,504
500,000 March 5, 1998 495,604
1,000,000 March 12, 1998 989,958
----------------
19,014,721
----------------
Money market mutual funds (5.06%):
Short-term Income Fund 1,621,934
Short-term Income Fund - Government 500,000
----------------
2,121,934
----------------
$ 41,929,046
================
* Nonincome producing
</TABLE>
See notes to financial statements
B-21
<PAGE>
<TABLE>
<CAPTION>
STRALEM FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $ 1,229,467
Dividends 320,382
----------------
1,549,849
----------------
EXPENSES:
Investment advisory 390,935
- ---------
Legal fees 9,550
Auditing fees 16,600
Administration expenses 21,240
Directors' fees 2,200
Taxes 8,760
Miscellaneous 6,207
----------------
455,492
----------------
Net investment income 1,094,357
----------------
Net realized gain from security transactions 1,423,095
Net increase in unrealized appreciation of investments 4,779,675
----------------
Net gain on investments 6,202,770
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,297,127
================
</TABLE>
See notes to financial statements
B-22
<PAGE>
<TABLE>
<CAPTION>
STRALEM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996
---------------------- ------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,094,357 $ 1,256,819
Net realized gain from security transactions 1,423,095 650,722
Net increase in unrealized appreciation of investments 4,779,675 543,138
---------------------- ------------------
7,297,127 2,450,679
---------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Investment income (1,066,300) (1,254,368)
Realized gains (1,423,095) (650,722)
---------------------- ------------------
(2,489,395) (1,905,090)
---------------------- ------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold (494,587 and 376,675 shares, respectively) 6,107,314 4,386,387
- -----
Proceeds from reinvestments of dividends (113,361 and 108,525
shares, respectively) 1,313,854 1,258,890
Cost of shares redeemed (548,042 and 391,228 shares, respectively) (7,491,424) (4,825,496)
---------------------- ------------------
(70,256) 819,781
---------------------- ------------------
INCREASE IN NET ASSETS 4,737,476 1,365,370
Net assets at January 1 30,848,902 29,483,532
---------------------- ------------------
NET ASSETS AT DECEMBER 31 (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $162,112 AND $134,055, RESPECTIVELY) $ 35,586,378 $ 30,848,902
====================== ===================
</TABLE>
See notes to financial statements
B-23
<PAGE>
STRALEM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] SECURITY VALUATION:
Investments in securities traded on a national exchange are valued at
the last reported sales price on the last business day of the year.
Securities traded over-the-counter are valued on the basis of the
average of the last reported bid prices. United States Treasury bonds,
notes and bills are valued at market value.
[2] FEDERAL INCOME TAXES:
The Fund has elected to be taxed as a regulated investment company as
defined under the Internal Revenue Code and has distributed to its
shareholders substantially all of its investment income and capital
gains.
Therefore, only nominal income tax provisions are required.
[3] OTHER:
Security transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. Dividends to
shareholders are recorded on the ex-dividend date.
NOTE B - INVESTMENT ADVISORY AGREEMENT
The Fund has an investment advisory contract with Stralem & Company Incorporated
(the "Investment Advisor") that provides for a quarterly fee of 1/4 of 1%
(equivalent to approximately 1% annually) of the average weekly net asset value
of the Fund for the first $50,000,000 of net asset value decreasing to a
quarterly rate of .1875 of 1% for the next $50,000,000 and .125 of 1% thereafter
(equivalent to approximately 3/4 of 1% and 1/2 of 1%, respectively, annually).
Certain officers and a director of the Fund are also officers of the Investment
Advisor. In addition, the Fund reimburses the Investment Advisor for its
expenses attributable to the administration of the Fund, including a
proportionate part of the compensation of the employees of the Investment
Advisor who perform services, other than investment advisory services, for the
Fund. Such reimbursement is limited by the contract to $25,000 per annum.
NOTE C - OTHER MATTERS
[1] Unrealized appreciation at December 31, 1997 $ 9,937,879
Unrealized depreciation at December 31, 1997 (47,134)
------------
$ 9,890,745
[2] Purchases and sales of securities other than short-term investments
aggregated $21,330,421 and $18,473,427, respectively, for the year
ended December 31, 1997.
B-24
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits,
(a) Financial Statements:
Part A - Financial Highlights.
Part B - Statement of Assets and Liabilities as of
December 31, 1997.
Portfolio of Investments in Securities as of
December 31, 1997.
Statement of Operations for the year ended
December 31, 1997.
Statement of Changes in Net Assets for each
of the two years ended December 31, 1996 and
1997, respectively.
(b) Exhibits.
(1) Charter, as now in effect.
(a) Amendment dated December 11, 1987, incorporated by
reference to Exhibit (a) filed under Part II Item 1(b) of the Fund's
Post-Effective Amendment No. 29 to its Registration Statement on
Form N-1A dated May 1, 1988 (the "1988 Registration Statement").
(b) Charter, as amended, incorporated by reference to
Exhibit No. 1 filed under Part II, Item 1(b) of the Fund's
Post-Effective Amendment No. 21 to its Registration Statement on
Form N-1 under the Securities Act of 1933 dated March 31, 1980 (SEC
Reg. No. 2-34277) (the "1980 Registration Statement").
(2) By-laws, as now in effect.
(a) Restated and amended, effective as of February 24,
1988, incorporated by reference to Exhibit 2(a) filed with the 1988
Registration Statement.
(b) By-laws effective prior to February 24, 1988,
incorporated by reference to Exhibit No. 2 filed with the 1980
Registration Statement.
(3) Not applicable.
(4) Specimen Certificates.
Incorporated by reference to Exhibit No. 4 filed with the
1980 Registration Statement.
(5) Investment Advisory Contracts.
Incorporated by reference to Exhibit No. 5 to the 1980
Registration Statement.
(6) Distribution Agreements.
Incorporated by reference to Exhibit No. 6 to the 1980
Registration Statement.
(7) Not applicable.
<PAGE>
(8) Custodian Agreements and Depository Contracts.
Incorporated by reference to Exhibit No. 8 to the 1980
Registration Statement.
(9) Not applicable.
(10) Opinion and Consent of Counsel. Incorporated by reference
to Exhibit No. 10 to the 1980 Registration Statement.
(11) Consents
(a) Consent of Counsel, filed herewith.
(b) Consent of Independent Public Accountants, filed
herewith.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedule, filed herewith as EX-27.
Item 25. Persons Controlled by or Under Common Control with Registrant.
There are no persons controlled by or under common control with
the Registrant.
Item 26. Number of Holders of Securities.
As of March 31, 1998, the number of record holders of the only
class of the Registrant's securities is as follows:
(1) (2)
Title of Class Holders Number of Record
Capital Stock 208
Item 27. Indemnification.
Article VI of the Fund's By-laws, as amended, which is
contained in the 1988 Registration Statement as a part of Exhibit 2
thereof and is hereby incorporated by reference herein, generally
provides that the Fund shall indemnify the directors and officers of
the Fund and its affiliated companies to the fullest extent
permitted by Section 145 of the General Corporation Law of the state
of Delaware as limited by the provisions of the Investment Company
Act of 1940, as amended.
In general, Section 145 permits a Delaware corporation to
indemnify its directors and officers and those of affiliated
companies against liability and expenses incurred in connection with
actions,
<PAGE>
suits and proceedings against such persons in their capacity as
directors and officers, if such persons acted in good faith and in a
manner which such persons reasonably believed to be in the best
interest of the corporation or its affiliated entities and, with
respect to a criminal action, had no reasonable cause to believe
their conduct was unlawful. A Delaware corporation has the power to
indemnify an officer or director in a shareholder derivative action
only if, in addition to meeting the above standards of conduct, such
person has not been judged by a court to be liable for negligence or
misconduct in the performance of his duty to the corporation or, if
he has been so judged, the court has specifically approved such
indemnification.
Section 145 further provides for mandatory indemnification
against expenses actually and reasonably incurred by a director or
officer in an action, suit or proceeding in which such director or
officer has been successful on the merits or otherwise.
Section 17(h) of the Investment Company Act of 1940 (the
"Investment Company Act") further limits such indemnification by
prohibiting the purported protection of directors against liability
to which they may otherwise be subject by reason of gross negligence
or the reckless disregard of the duties involved in the conduct of
their office.
Indemnification provisions of the present By-laws now state
that an officer or director who seeks indemnification for other than
"disabling conduct" as defined in the Investment Company Act of
1940, as amended, shall be indemnified fully. "Disabling conduct"
will be found to exist where an officer's or directors liability
arises by reason of willful malfeasance, bad faith, gross negligence
or reckless disregard of duties. Expenses may be advanced to an
officer or director upon receipt from such individual of an
undertaking to repay such advanced amounts if it is ultimately
determined that he is not entitled to be indemnified, provided that
at least one of the following conditions to such advances shall have
been met: (i) the person to be indemnified provides security for the
undertaking, (ii) the Corporation is insured against losses arising
out of the undertaking, or (iii) a majority of a quorum of
"disinterested" directors or independent legal counsel determine
that there is reason to believe the person to be indemnified will
ultimately be found to be entitled to indemnification.
In addition, Section 102(b)(7) of the General Corporation Law
permits the adoption in the Certificate of Incorporation of a
Delaware corporation of a provision limiting or eliminating the
potential monetary liability of directors to the corporation or its
stockholders by reason of their conduct as directors. The provision
would not permit any limitation on or the elimination of the
liability of a director for disloyalty to the corporation or its
stockholders, failing to act in good faith, engaging in intentional
misconduct or a knowing violation of law, obtaining an improper
personal benefit or paying a dividend or approving a stock
repurchase that was illegal under the General Corporation Law
(Section 174). Accordingly, the provisions limiting or eliminating
the potential monetary liability of directors permitted by Section
102(b)(7) apply only to the "duty of care" of directors -
unintentional errors in their deliberations or judgments and not to
any form of "bad faith" conduct.
At the April 22, 1987 Annual Meeting the holders of a majority
of the outstanding shares of the Company's Common Stock approved an
amendment to the Certificate of incorporation of the Company
eliminating the personal monetary liability of directors as
permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware and by the Investment Company Act. A stockholder
is able to prosecute an action against a director for monetary
damages only if he can show a breach of the duty of loyalty, a
failure to act in good faith, intentional misconduct, a knowing
violation of law, an improper personal benefit, grossly negligent
conduct, reckless disregard of the duties involved in the conduct of
his office, or an illegal dividend or stock repurchase, as referred
to in the amendment, and not "negligence" in satisfying his duty of
care. Directors remain potentially liable for monetary damages for
suits by parties other than the Fund and its shareholders, such as
governmental and regulatory agencies. The amendment does not limit
or eliminate the right of the Company or any stockholder to seek an
injunction or any other non-monetary relief in the event of a
<PAGE>
breach of a director's duty of care. The amendment does not apply to
any act or omission occurring prior to its effective date. In
addition, the amendment applies only to claims against a director
arising out of his role as a director and not, if he is also an
officer, his role as an officer or in any other capacity or to his
responsibilities under any other law, such as the federal securities
laws.
As of the date of this Statement of Additional Information, no
judicial interpretations of such an amendment to a certificate of a
company that is a registered investment company under the Investment
Company Act have been reported. If Delaware courts, or the Delaware
legislature, should narrow or expand coverage of the relevant
portions of Delaware law, the potential liability of directors for
their actions likewise would be narrowed or expanded without further
shareholder action.
In addition, it is the view of the staff of the Securities and
Exchange Commission that, to the extent that provisions of Delaware
corporate law, the Certificate of Incorporation or the By-laws of
the Fund are inconsistent with requirements imposed by the
Investment Company Act, including Section 17(h) thereof, the
provisions of the Investment Company Act are preemptive.
Consequently, as a result of the compliance of the language of the
amendment to the Certificate of Incorporation with Section 17(h) of
the Investment Company Act, the public policies of the Investment
Company Act in respect thereof, and the staff of the Securities and
Exchange Commission's position on Federal preemption of State law,
it is unlikely that a court would relieve a director of an
Investment Company Act-determined standard of care in reliance upon
either Delaware law or the proposed amendment.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Fund pursuant to the foregoing
provisions, or otherwise, the Fund 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 that a claim for
indemnification against such liabilities (other than the payment by
the Fund of expenses incurred or paid by a director, officer or
controlling person of the Fund in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Fund 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 of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
The names and principal occupations of the officers and directors of
the Investment Advisor are:
Name and Title Principal Occupation
Hirschel B. Abelson President of Stralem & Company
Director and President Incorporated
Philippe E. Baumann Executive Vice President and Director of
Director and Executive Vice President Stralem & Company Incorporated
M. Joel Unger Vice President of Stralem & Company
Director and Vice President Incorporated
Irene Bergman Assistant Vice President of Stralem &
Assistant Vice President Company Incorporated
Philippe Labaune Assistant Vice President and Assistant
Assistant Vice President Secretary of Stralem & Company
Incorporated
Except for Mr. Unger, the address of each of the foregoing is 405 Park
Avenue, New York, NY 10022. Mr. Unger's address is 1650 Yates Street,
Denver, CO 90203
Item 29. Principal Underwriters.
(a) Stralem & Company Incorporated, the only underwriter
of the Fund, does not act as a principal underwriter, depositor or
investment advisor to any other investment company.
(b) Please see the table furnished in response to Item 28
above. In addition, Mr. Philippe E. Baumann, the President and a
director of the Fund, is the Executive Vice-President and a director
of Stralem & Company Incorporated. Hirschel Abelson, the Secretary
and Treasurer of the Fund is also the President of Stralem & Company
Incorporated. Mr. Philippe Labaune, Vice- President of the Fund, is
also an Assistant Vice-President and Assistant Secretary of Stralem
& Company Incorporated.
(c) Inapplicable.
Item 30. Location of Accounts and Records.
All accounts and records are in the physical possession of the Fund
at 405 Park Avenue, New York, New York 10022.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
The Fund will provide each person to whom the Prospectus dated April
29, 1998 is delivered with a copy of the Fund's most recent annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
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 Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 29th
day of April, 1998.
STRALEM FUND, INC.
By: Philippe E. Baumann
-------------------
Philippe E. Baumann, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Dates
---------- ----- -----
<S> <C> <C>
Director and President April 29, 1998
/s/Philippe E. Baumann (Principal Executive Officer)
- -------------------------
(Philippe E. Baumann)
Director April 29, 1998
/s/Kenneth D. Pearlman
- -------------------------
(Kenneth D. Pearlman)
Director April 29, 1998
/s/Jean Paul Ruff
- -------------------------
(Jean Paul Ruff)
Director April 29, 1998
/s/Michael Rubin
- -------------------------
(Michael Rubin)
Secretary and Treasurer (Principal April 29, 1998
/s/Hirschel B. Abelson Financial and Accounting Officer)
- -------------------------
(Hirschel B. Abelson)
</TABLE>
[LETTERHEAD OF KRAMER, LEVIN, NAFTALIS & FRANKEL]
April 28, 1998
Stralem Fund, Inc.
405 Park Avenue
New York, New York 10022
Re: Stralem Fund, Inc.
Registration No. 2-34277
------------------------
Dear Gentlemen:
We hereby consent to the reference of our firm as counsel in
Post-Effective Amendment No. 39 to the Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the inclusion in the Statement of Additional
Information in Post- Effective Amendment No. 39 to the Registration Statement
(No. 2-34277) being filed under the Securities Act of 1933 (No. 19 under the
Investment Company Act of 1940) on Form N-1A by Stralem Fund, Inc. of our report
dated January 21, 1998 relating to the statement of assets and liabilities,
including the portfolio of investments in securities of Stralem Fund, Inc. as at
December 31, 1997, the related statement of operations for the year then ended
and statements of changes in net assets for each of the years in the two-year
period then ended, and the condensed financial information for each of the years
in the ten-year period then ended, appearing in the Prospectus. We also consent
to the reference to Richard A. Eisner & Company, LLP in the sections Information
About The Fund and Condensed Financial Information.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 32,038
<INVESTMENTS-AT-VALUE> 41,929
<RECEIVABLES> 400
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,335
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,749
<TOTAL-LIABILITIES> 6,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,706
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<PER-SHARE-NAV-BEGIN> 11.66
<PER-SHARE-NII> .41
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</TABLE>
