STRALEM EQUITY FUND
PROSPECTUS
January 3, 2000
The Securities and Exchange Commission has not approved or
disapproved the shares of the Fund as an investment. The
Securities and Exchange Commission also has not determined whether
this prospectus is accurate or complete. Any person who tells you
that the Securities and Exchange Commission has made such an
approval or determination is committing a crime.
<PAGE>
Table of Contents
Page
RISK/RETURN SUMMARY............................................................3
Investment Objective......................................................3
Principal Investment Strategies...........................................3
Principal Risks of Investing..............................................3
FEES AND EXPENSES OF THE FUND..................................................3
INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND
RELATED RISKS............................................................4
Investment Objective......................................................4
Principal Strategies......................................................4
Risks of Investing........................................................4
INVESTMENT ADVISER AND INVESTMENT ADVISORY
AGREEMENT................................................................5
SHAREHOLDER INFORMATION........................................................6
Investment Minimums.......................................................6
Net Asset Value...........................................................6
How to Purchase Shares....................................................6
How to Exchange or Redeem Shares..........................................6
Dividends and Capital Gains Distributions.................................7
Tax Issues................................................................7
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<PAGE>
RISK/RETURN SUMMARY
Investment Objective
The investment objective of Stralem Equity Fund (the "Fund") is long-term
capital appreciation.
Principal Investment Strategies
The Fund seeks to achieve its investment objective by investing in equity
securities listed or traded on major U.S. stock exchanges and in the
over-the-counter market. The Fund will invest at least 65% of its assets in the
equity securities of large capitalization U.S. companies. The Fund's investment
strategies can be identified as "value-driven" and/or "flexible" investing.
Principal Risks of Investing
The Fund is subject to the risks common to all mutual funds that invest in
equity securities. You may lose money by investing in this Fund if any of these
occur:
o the stock market of the United States goes down decreasing the value
of equity securities;
o a stock or stocks in the Fund's portfolio do not perform as well as
expected; or
o the Fund manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly.
In addition, the Fund is non-diversified which means that, compared to other
funds, the Fund may invest a greater percentage of its assets in a particular
issuer. To the extent that the Fund invests in a small number of issuers, there
may be a greater risk of losing money than in a diversified investment company.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (Expenses deducted from Fund assets)
Management Fees 1.50%
Distribution (12b-1) Fees 0.00%
Other Expenses* 0.20%
Total Annual Fund Operating Expenses* 1.70%
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*These expenses are based on estimated amounts for the current fiscal year.
- 3 -
<PAGE>
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that the investor redeems all of his or her shares at the
end of each period and that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 YEAR 3 YEARS
$173 $536
The purpose of the above table is to assist you in understanding the various
costs and expenses that an investor in the Fund would bear directly or
indirectly.
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RELATED RISKS
Investment Objective
The Fund's investment objective is long-term capital appreciation.
Principal Strategies
The Fund's investment strategies can be identified as "value-driven" and/or
"flexible" investing. This means that when the Fund anticipates a generally
rising stock market, the Fund invests in equity securities of companies that:
o are listed or traded on major U.S. stock exchanges;
o are a primary factor in their industry;
o have an equity capitalization (at market) of at least $4 billion;
o have a consistently strong and conservative balance sheet;
o have demonstrated a long-term potential for growth superior to the
long-term inflation rate; and
o can be purchased at a price which is in line with current earnings.
Temporary Defensive Investing. During unfavorable market conditions, the Fund
may invest "defensively," that is, make temporary investments that are not
consistent with the Fund's investment objective and principal strategies. As a
result, the Fund may not achieve its investment objective. For example, if there
is a market downturn or if the Fund must raise cash to meet redemption requests,
the Fund may invest more assets in bonds or money market instruments, or invest
in derivative instruments to protect the Fund's investments.
Risks of Investing
As with all mutual funds, investing in the Fund involves certain risks. We
cannot guarantee that the Fund will meet its investment objective. You may lose
money if you invest in the Fund.
- 4 -
<PAGE>
Risks of Investing in Mutual Funds
The following risks are common to all mutual funds and therefore apply to the
Fund:
o Market Risk. The market value of a security may go up or down,
sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than it was at the time of purchase. Market
risk applies to individual securities, a particular sector or the
entire economy.
o Manager Risk. Fund management affects Fund performance. A Fund may
lose money if the Fund manager's investment strategy does not achieve
the Fund's objective or the manager does not implement the strategy
properly.
o Year 2000 Risk. For the first few months of the Year 2000, the Fund,
its service providers or the companies in which the Fund invests could
be disrupted by problems in their computer systems related to the Year
2000. The Adviser has taken steps that it reasonably believes are
designed to adequately address the Year 2000 issue as it relates to
the operation of the Fund. In addition, the Fund's major service
providers have assured the Adviser that they have taken comparable
steps. Neither the Fund nor its major service providers can assure
that these steps will be sufficient to avoid any adverse affects from
the Year 2000 issue.
Risk of Investing in Equity Securities
The following risk is common to all mutual funds that invest in equity
securities and therefore applies to the Fund:
o Equity Risk. The value of the stock will fluctuate with events
affecting the company's profitability or volatility. Unlike debt
securities, which have a preference to a company's earnings and cash
flow, equity securities receive value only after the company meets its
other obligations.
INVESTMENT ADVISER AND INVESTMENT ADVISORY AGREEMENT
Stralem & Company Incorporated (the "Adviser"), 405 Park Avenue, New York, NY
10022 is the investment adviser of the Fund. The Adviser, an investment adviser
registered with the SEC, was founded in November 22, 1966. The Adviser manages
funds for individuals, trusts, pension plans and other institutional investors.
The Adviser also performs some brokerage functions for its clients.
Advisory Services. Under the investment advisory agreement (the "Contract"), the
Adviser screens and analyzes potential investments for the Fund and, subject to
the investment restrictions and policies of the Fund, determines the amount of
each investment that should be made and the form of such investment. The Adviser
also reviews and re-evaluates the Fund's portfolio, periodically, to determine
at what point investments have met the Fund's investment objective or are
unlikely to meet such objective. The Adviser then purchases or sells the Fund's
investments as it deems appropriate and consistent with the Fund's investment
objective. The Adviser also provides certain clerical, statistical and other
administrative services for the Fund.
- 5 -
<PAGE>
For providing these services, the Fund pays the Adviser a quarterly management
fee calculated at an annual rate of 1.50% of the Fund's average weekly net
assets.
Portfolio Manager. Philippe E. Baumann is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Baumann has been executive
vice president of the Adviser since 1973.
SHAREHOLDER INFORMATION
Investment Minimums. The minimum initial investment in the Fund is $200,000.
There is no minimum for subsequent investments. The Fund may reduce or waive the
minimum investment requirements in some cases. Current shareholders of Stralem
Fund are not subject to the investment minimum.
Net Asset Value. The net asset value ("NAV") per share of the Fund is determined
generally as of 4:00 p.m. Eastern Time on each day the New York Stock Exchange,
Inc. (the "Exchange") is open for business. The NAV is calculated by subtracting
the Fund's liabilities from its assets and then dividing that number by the
total number of outstanding shares. Securities without a readily available price
quotation may be priced at fair value. Fair value is determined in good faith by
the management of the Fund.
How to Purchase Shares. You must be a client of the Adviser to purchase shares
of the Fund. Clients may purchase shares from the Adviser at 405 Park Avenue,
New York, New York 10022. When you purchases shares of the Fund, you will pay no
sales charges, underwriting discounts or commissions. The Fund's shares are
continuously offered for sale at NAV. The Fund must receive your purchase
request by the close of the Exchange to receive the NAV of that day. If your
request is received after the close of trading on the Exchange, it will be
processed the next business day.
How to Exchange or Redeem Shares. You may exchange your shares for shares of the
Stralem Fund or redeem your shares without charge at any time. The Fund must
receive your request in writing and if you were issued certificates, your
properly endorsed certificates with your signature guaranteed. Signatures must
be guaranteed by an eligible guarantor institution. Please contact the Adviser
for information about obtaining a signature guarantee. When you exchange shares,
you sell your shares of Stralem Equity Fund and buy shares of Stralem Fund. Your
shares will be valued at the next-determined NAV of such shares. The Fund will
pay you as soon as reasonably practicable after receipt of the redemption
request and certificates. In any event, the Fund will pay you within three
business days. Because the NAV fluctuates with the change in market value of the
securities owned, the amount you receive upon redemption may be more or less
than the amount you paid for the shares.
Additional Exchange and Redemption Information
Suspension of Redemptions. The Fund may suspend at any time redemption of shares
or payment when:
o the Exchange is closed;
o trading on the Exchange is restricted; or
o certain emergency circumstances exists.
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<PAGE>
Exchange Limit. In order to limit expenses, the Fund reserves the right to limit
the number of exchanges you can make in any year to two.
Dividends and Capital Gains Distributions. The Fund intends to distribute all or
most of its net investment income and net capital gains to shareholders
annually. You should indicate whether you want your dividends and distributions
reinvested in the Fund at NAV. Otherwise, your dividends and/or capital gains
distributions will be automatically paid to you in cash.
Tax Issues. The Fund intends to continue to qualify as a regulated investment
company, which means that it pays no federal income tax on the earnings or
capital gains it distributes to its shareholders. We provide this tax
information for your general information. You should consult your own tax
adviser about the tax consequences of investing in a Fund.
o Ordinary dividends from the Fund are taxable as ordinary
income and long-term capital gains dividends from the Fund are
taxable as capital gain.
o Dividends are treated in the same manner for federal income
tax purposes whether you receive them in the form of cash or
additional shares. They may also be subject to state and local
taxes.
o Certain dividends paid to you in January will be taxable as
if they had been paid the previous December.
o We will mail you tax statements every January showing the
amounts and tax status of the distributions you received.
o When you sell (redeem) or exchange shares of a Fund, you must
recognize any gain or loss.
o Because your tax treatment depends on your purchase price and
tax position, you should keep your regular account statements
for use in determining your tax.
o You should review the more detailed discussion of federal
income tax considerations in the Statement of Additional
Information.
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<PAGE>
[back cover]
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Fund and is incorporated by
reference into this prospectus, which means that it is considered a part of this
prospectus.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about the Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To Review or Obtain this Information. To obtain a free copy of the Statement of
Additional Information and annual and semi-annual reports or to make any other
inquiries about the Fund, you may call (212) 888-8123. You may call this number
collect. This information may be reviewed and copied at the Public Reference
Room of the Securities and Exchange Commission in Washington, D.C. Information
on the operation of the Public Reference Room may be obtained by calling (800)
SEC-0330. Copies of this information may also be obtained for a fee by writing
the Public Reference Room of the Securities and Exchange Commission, Washington,
D.C. 20549-6009. Information about the Fund is also available on SEC's World
Wide Web site at http://www.sec.gov.
Investment Company Act File No. 811-1920.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
STRALEM FUND
405 Park Avenue
New York, New York 10022
STRALEM FUND
STRALEM EQUITY FUND
January 3, 2000
This Statement of Additional Information ("SAI") is not a Prospectus. This SAI
should be read in conjunction with Stralem Fund's prospectus dated April 30,
1999 and Stralem Equity Fund's prospectus dated January 3, 2000 (each Fund to
which this SAI relates will be referred to as, collectively, the "Funds") is
offered (each, a "Prospectus"). This SAI should also be read in conjunction with
Stralem Fund's Annual Report dated December 31, 1998. This SAI is incorporated
by reference in its entirety into each Prospectus. To obtain a copy of either
Prospectus, please write to Stralem Fund at 405 Park Avenue, New York, New York
10022 or call (212) 888-8123.
Stralem & Company Incorporated serves as the Funds' investment adviser (the
"Investment Adviser").
TABLE OF CONTENTS
Page
----
General Information.........................................................B-2
Organization and History....................................................B-2
Investment Objective, Policies and Techniques...............................B-2
Management of the Funds.....................................................B-4
Control Persons and Principal Holders of Securities.........................B-6
Investment Adviser..........................................................B-6
Brokerage Allocation........................................................B-8
Additional Information on Purchase, Redemption and Pricing of Shares........B-9
Performance of the Funds....................................................B-9
Taxes......................................................................B-10
Additional Information About the Funds.....................................B-14
Financial Statements.......................................................B-15
<PAGE>
GENERAL INFORMATION
The SAI provides a further discussion of certain matters described in
each Prospectus and other matters which may be of interest to investors. No
investment in shares of the Funds should be made without first reading each
Prospectus.
ORGANIZATION AND HISTORY
Stralem Fund (the "Trust" or "Stralem") is an open-end management
investment company. Stralem was incorporated on July 9, 1969 under the laws of
the State of Delaware, and on April 30, 1999, Stralem was reorganized into a
Delaware business trust. Currently, the Trust offers two separate,
non-diversified series portfolios: Stralem Fund and Stralem Equity Fund.
INVESTMENT OBJECTIVE, POLICIES AND TECHNIQUES
Objectives of the Funds
The investment objective of Stralem Fund is to seek the realization of
a combination of income and capital appreciation in an attempt to maximize total
return. The investment objective of Stralem Equity Fund is long-term capital
appreciation.
Investment Policies
Since 1974, Stralem Fund's investment policy has been to achieve its
investment objective through a portfolio of securities which is not confined to
any particular area. Stralem Equity Fund's investment policy is to invest
primarily in equity securities listed or traded on major U.S. stock exchanges.
Both Funds are 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 each Fund's assets
is invested in a smaller number of issuers, an investment in either Fund may be
considered more speculative than an investment in a diversified fund.
Other Investment Techniques
Each Fund may purchase and sell covered options on stocks and stock
price index listed on major exchanges or traded over-the counter where the total
cost of such options does not exceed 10% of the net asset value of a Fund at the
time of purchase. A covered option is one where a Fund owns the underlying
securities.
Turnover Rate
During 1998 and 1997 the turnover rate of Stralem 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 Stralem Fund during the period, was approximately 18% and 52%,
respectively. Neither Stralem Fund nor Stralem Equity Fund can predict what its
turnover rate will be in 1999. A high rate of turnover may result in increased
income and gain which would have to be distributed to a Fund's shareholders in
order for a Fund to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
Fundamental Investment Restrictions
Each Fund has adopted the following investment restrictions which
cannot be changed without approval of the holders of a majority of its
outstanding shares of that Fund. 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 a Fund are present (in
person or by proxy) or (ii) more than one-half of the outstanding shares of a
Fund.
1. Each Fund may not issue any senior security (as defined by
the Investment Company Act of 1940 (the "1940 Act")), except that (a)
each Fund may engage in transactions that may result in the
B-2
<PAGE>
issuance of senior securities to the extent permitted under applicable
regulations and interpretations of the 1940 Act or an exemptive order;
(b) each Fund may acquire other securities, the acquisition of which
may result in the issuance of a senior security, to the extent
permitted under applicable regulations or interpretations of the 1940
Act; and (c) subject to the restrictions set forth below, each Fund may
borrow as authorized by the 1940 Act.
2. Each Fund may not borrow money, except that it may (a)
enter into commitments to purchase securities and instruments in
accordance with its investment program, provided that the total amount
of any borrowing does not exceed 33 1/3% of that Fund's total assets at
the time of the transaction; and (b) borrow money in an amount not
exceeding 33 1/3% of the value of its total assets at the time when the
loan is made. Any borrowings representing more than 33 1/3% of a Fund's
total assets must be repaid before that Fund may make additional
investments.
3. Each Fund may underwrite securities of other issuers,
except to extent that it may be considered an underwriter within the
meaning of the Securities Act when reselling securities held in its own
portfolio.
4. The Funds may not concentrate their investments in a
particular industry (other than securities issued or guaranteed by the
government or any of its agencies or instrumentalities). No more than
25% of the value of a 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. This restriction shall not
prevent a Fund from investing all of its assets in a "master" fund that
has adopted a similar restriction.
5. The Funds may not engage in the purchase or sale of direct
interests in real estate or invest in indirect interests in real
estate, except for the purpose of providing office space for the
transaction of its business. The Funds may, however, invest in
securities of real estate investment trusts when such securities are
readily marketable, but the Funds have no current intention of so
doing.
6. The Funds may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent a Fund from purchasing or
selling options and futures contracts or from investing in securities
or other instruments backed by physical commodities).
7. The Funds may not lend any security or make any other loan
if, as a result, more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of
publicly issued debt securities or to repurchase agreements.
Each Fund will also be subject to certain restrictions in order to
qualify as a regulated investment company. See "Taxes - Qualifications as a
Regulated Investment Company".
B-3
<PAGE>
MANAGEMENT OF THE FUNDS
Trustees and Officers
The Board of Trustees is responsible for the over-all operations of the
Funds. The officers of the Funds, under the direction of the Board of Trustees,
are responsible for the day-to-day operations of the Funds.
The Board of Trustees and Officers of the Funds are as follows:
Shares of Funds Current Principal
Beneficially Owned Occupation and
Name, Office, Directly or Indirectly Principal Occupation
Address and Age at March 5, 1999 During Past Five Years
- --------------- ----------------------- ----------------------
Philippe E. Baumann (69)(*) 182,516(1) Mr. Baumann has been a
Trustee and President Director and
405 Park Avenue Vice-President of
New York, NY 10022 Stralem & Company
Incorporated from 1970
to May 31, 1973. Since
June 1, 1973, he has
been its Executive Vice
President.
Hirschel B. Abelson (65)* 218,621(2) Mr. Abelson has been a
Secretary and Treasurer Director and President
405 Park Avenue of Stralem & Company
New York, NY 10022 Incorporated since June
1, 1973.
Kenneth D. Pearlman (69) 376 Mr. Pearlman has been
Trustee the Managing Director
745 Fifth Avenue of The Evans
New York, NY 10151 Partnership, an
investment partnership,
since 1992.
Michael T. Rubin (58) 3,883(3) From 1974 through his
Trustee retirement in June
425 Park Avenue South 1997, Mr. Rubin served
New York, NY 10016 as Vice President of
Stralem Fund and an
Assistant Vice
President and an
Assistant Secretary of
Stralem & Company
Incorporated.
Jean Paul Ruff (64) 1,530(4) Mr. Ruff has been
Trustee President of Hawley
351 East 84th Street Fuel Coal, Inc. since
New York, NY 10028 1976 and Chairman since
1980.
Philippe Labaune (30) 516 Mr. Labaune has been
Vice President employed by Stralem &
405 Park Avenue Company Incorporated
New York, NY 10022 since May 1997. He has
served as Assistant
Vice President and
Assistant Secretary of
Stralem & Company
Incorporated and Vice
President of Stralem
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.
B-4
<PAGE>
Joann Paccione (42) 0 Ms. Paccione has been
Assistant Secretary and Assistant Secretary and
Assistant Treasurer Assistant Treasurer of
405 Park Avenue Stralem Fund since
New York, NY 10022 April 1990. She was
employed as an
accountant by Richard
A. Eisner & Company,
LLP from 1981 through
October 1987. Since
October 1987, Ms.
Paccione has been
engaged in providing
accounting services on
an independent basis.
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(*) Interested person as defined in the Investment Company Act of 1940, as
amended, by reason of relationship as officer or trustee.
(1) Does not include 159,291 shares owned in the aggregate by two children
of Mr. Baumann and 13,144 shares owned by his wife, but includes
179,239 shares owned beneficially by Mr. Baumann through his interest
in Stralem Employees Profit Sharing Trust, and 3,277 shares held
directly.
(2) Does not include 2,681 shares owned in the aggregate by three children
of Mr. Abelson and 376 shares owned by his wife, but includes 218,245
shares owned beneficially by Mr. Abelson through his interest in
Stralem Employees Profit Sharing Trust and 376 shares held directly.
(3) Does not include an aggregate of 3,833 shares owned by Mr. Rubin's
daughter, of which shares he disclaims beneficial ownership.
(4) Does not include 30,252 shares owned in the aggregate by two children
of Mr. Ruff and 15,126 shares held by Mr. Ruff's wife in custody for
his daughter, of which shares he disclaims beneficial ownership.
Mr. Baumann has served as a director 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. At a meeting of shareholders
on April 7, 1999, Messrs. Baumann, Pearlman, Ruff and Rubin were elected to
serve as Trustees.
None of the Board of Trustees and Officers of the Funds receives any
compensation, other than Trustees' fees, from the Funds. The Funds pay each
Trustee who is not an employee of the Investment Adviser a Trustee's fee of up
to $1,200 a year for meetings attended, and reimburses them for their
out-of-pocket expenses incurred on Fund business. No Trustees' out-of-pocket
expenses were claimed or reimbursed during 1998. The table below illustrates the
compensation paid to each Trustee for the most recently completed fiscal year:
<TABLE>
<CAPTION>
Pension or Estimated Total
Aggregate Retirement Benefits Annual Compensation
Compensation Accrued as Part of Benefits Upon from the Funds
Name of Person, Position from the Funds Fund Expenses Retirement Paid to Trustees
------------------------ -------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Jean Paul Ruff, $800 0 0 $800
Trustee
Kenneth D. Pearlman, $1,000 0 0 $1,000
Trustee
Michael T. Rubin, $1,000 0 0 $1,000
Trustee
</TABLE>
B-5
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 5, 1999, Stralem Fund had authorized 5,000,000 shares of
beneficial interests, par value $1.00, of which Stralem Fund had 3,933,007
shares of beneficial interest were issued and outstanding. The following table
shows certain information as to the holdings of shareholders with 5% or more of
Stralem Fund's outstanding shares and the trustees and officers of Stralem Fund
as a group as of March 5, 1999:
<TABLE>
<CAPTION>
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Address Ownership(1) of Class
---------------- ------- ---------- --------
<S> <C> <C> <C>
Stralem Employees' 405 Park Avenue 599,644 shares 15.25%
Profit Sharing Trust New York, NY 10022
Brown Brothers Harriman - UBS 4 World Trade Center 576,911 shares(2) 14.67%
New York, NY 10005
</TABLE>
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(1) Unless otherwise indicated, all ownership is record and beneficial.
(2) Record only.
INVESTMENT ADVISER
The Investment Adviser, Stralem & Company Incorporated, having an
office at 405 Park Avenue, New York, New York 10022, is the investment adviser
to the Funds under separate contracts (each, a "Contract") dated April 30, 1999
with Stralem Fund and January 3, 2000 with Stralem Equity Fund. Pursuant to each
Contract, the Investment Adviser provides the Funds with, and pays for, all
office space and utilities and all research and investment services. The
Investment Adviser provides the Funds with, and initially pays for (subject to
reimbursement by the Funds, as provided below), all clerical, statistical and
related services (excluding legal, accounting, auditing and custodial services)
reasonably required by the Funds for the conduct of its business. Legal,
accounting, auditing and custodial services are separately obtained and paid for
by the Funds.
Contract with Stralem Fund
Under its Contract, Stralem Fund reimburses the Investment Adviser for
certain of its expenses attributable to the administration of Stralem Fund,
including a proportionate part of the compensation of employees of the
Investment Adviser who perform the clerical, statistical and related services
for Stralem Fund referred to above; such reimbursement is limited by its
Contract to $25,000 per annum. Under its Contract, Stralem Fund reimburses the
Investment Adviser for, among other things, the expenses and compensation of its
employees incurred in preparing reports for Stralem Fund, in performing Stralem
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
Stralem Fund. Stralem Fund pays all of its other costs and expenses directly. As
a consequence of such reimbursement of the Investment Adviser and such direct
payment of other costs, substantially all of Stralem Fund's expenses, other than
those for office space and facilities, are directly or indirectly paid by
Stralem Fund. Stralem Fund's Contract is reviewed annually by the Board of
Trustees who may in their discretion approve the continuation of the Contract.
Stralem Fund's Contract was approved and adopted by Stralem Fund's
shareholders at an Annual Shareholders' meeting held on April 7, 1999 following
the conversion to a Delaware business trust. This Contract replaced the prior
investment management agreement of Stralem Fund dated February 28, 1977.
Stralem Fund pays the Adviser an advisory fee as described in its
Contract. Under the Contract, Stralem Fund pays to the Investment Adviser on a
quarterly basis an amount equal to the aggregate of the following percentages of
the average weekly net asset value of Stralem Fund during the quarterly period
then ended:
B-6
<PAGE>
1/4 of 1.00% of the first $50 million of such net asset value
(1.00% annually),
3/16 of 1.00% of the next $50 million of such net asset value
(0.75% annually), and
1/8 of 1.00% of such net asset value in excess of $100 million
(0.50% annually).
The total payment under the Contract for Stralem Fund for 1998 was $505,341, of
which $24,945 was a reimbursement of the Investment Adviser's expenses
attributable to administration of Stralem Fund. The total payment under Stralem
Fund's Contract for 1997 was $412,175 of which $21,240 was a reimbursement for
the Investment Adviser's expenses attributable to the administration of Stralem
Fund. The total payment under the Contract for 1996 was $365,410 of which
$20,600 was a reimbursement of the Investment Adviser's expenses attributable to
administration of Stralem Fund.
Contract with Stralem Equity Fund
Under its Contract, Stralem Equity Fund reimburses the Investment
Adviser for certain of its expenses attributable to the administration of
Stralem Equity Fund, including a proportionate part of the compensation of
employees of the Investment Adviser who perform the clerical, statistical and
related services for Stralem Equity Fund referred to above. Under such provision
of its Contract, Stralem Equity Fund reimburses the Investment Adviser for,
among other things, the actual expenses and compensation of its employees
incurred in preparing reports for Stralem Equity Fund, in performing Stralem
Equity 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
Stralem Equity Fund. Stralem Equity Fund pays all of its other costs and
expenses directly. As a consequence of such reimbursement of the Investment
Adviser and such direct payment of other costs, substantially all of Stralem
Equity Fund's expenses, other than those for office space and facilities, are
directly or indirectly paid by Stralem Equity Fund. Stralem Equity Fund's
Contract is reviewed annually by the Board of Trustees who may in their
discretion approve the continuation of the Contract.
Stralem Equity Fund pays the Adviser an advisory fee as described in
its Contract. Under its Contract, Stralem Equity Fund pays to the Investment
Adviser on a quarterly basis an amount equal to the aggregate of the following
percentages of the average weekly net asset value of Stralem Equity Fund during
the quarterly period then ended:
1/4 of 1.50% of the first $100 million of such net asset value
(1.50% annually),
1/4 of 1.25% of the next $100 million of such net asset value
(1.25% annually), and
1/4 of 1.00% of such net asset value in excess of $200 million
(1.00% annually).
Each 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 Trustees or (2) by the vote of a majority of the outstanding shares of a
Fund, provided that in either event the continuance is also approved by the vote
of a majority of the Trustees 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, each Contract may be terminated, without
the payment of any penalty, at any time by the Board of Trustees or by the
Investment Adviser, or by the vote of a majority of the outstanding shares of a
Fund upon not more than 60 days' written notice, and will be automatically
terminated upon any assignment thereof.
Allocation of Investments
The Investment Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, and has as clients private
individuals, trusts, pension and profit sharing funds, some of whom, like the
Funds, have capital appreciation as an investment objective. As a result,
investment personnel of the Investment Adviser may at times consider purchases
and sales of the same investment securities for the Funds 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
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personnel to allocate the purchases and sales transactions among the Funds and
such other accounts in an equitable manner with each account paying the average
share price for all transactions in a particular security on a given business
day. In making such allocation, the main factors considered would be the
respective investment objectives of a 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 a Fund and each of the other
accounts, the tax status of a Fund and the other accounts, and the size of
investment commitments generally held by a Fund and the other accounts. All
transaction costs relating to these purchases and sales will be shared pro rata
by the Funds and the other accounts based on each account's participation in a
transaction.
Within the limits set forth in Section 17 of the Investment Company Act
of 1940, as amended (the "1940 Act"), each Fund may invest in securities the
issuers of which are clients of the Investment Adviser, but such investments
would only be made in securities which are freely marketable under the
Securities Act of 1933 (the "Securities Act").
Each Fund pays an investment advisory fee to the Investment Adviser;
accordingly, investment advisory clients of the Investment Adviser who pay an
investment advisory fee based upon the amount of securities or cash with respect
to which the Investment Adviser renders investment advice and who own shares of
a Fund may also effectively pay an additional advisory fee with respect to these
shares. No additional investment advisory fees are charged to clients of the
Investment Adviser which are subject to the Employee Retirement and Income
Security Act on amounts invested by such clients in a Fund.
Mr. Philippe E. Baumann is an officer and trustee of the Funds and also
of the Investment Adviser. Mr. Abelson is an officer of the Funds and is also an
officer of the Investment Adviser. Mr. Labaune is an officer of the Funds and an
officer of the Investment Adviser. The following persons, as of March 5, 1999,
beneficially owned 5% or more of the Investment Adviser's outstanding voting
common stock: President of the Investment Adviser, Hirschel B. Abelson (33.3%);
Executive Vice President of the Investment Adviser, Philippe E. Baumann (33.3%);
and Vice President of the Investment Adviser, M. Joel Unger (33.3%). Messrs.
Abelson, Baumann and Unger together control the Investment Adviser. Messrs.
Abelson, Baumann and Unger, together with members of their families, also own
100% of the outstanding non-voting common stock of the Investment Adviser.
BROKERAGE ALLOCATION
Decisions to buy and sell securities for a Fund and assignment of
portfolio business and negotiation of commission rates, where applicable, are
made by the Investment Adviser. It is the Funds' policy to obtain the best
prices and execution of orders available, and, in doing so, the Funds 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 a Fund. Where commissions paid reflect
services furnished to a Fund in addition to execution of orders, each Fund will
stand ready to demonstrate that such services were bona fide and rendered for
the benefit of that Fund. It is possible that certain of such services may have
the effect of reducing the Investment Adviser's expenses.
During 1998, 1997 and 1996, Stralem Fund's brokerage amounted to
$37,935, $57,500 and $33,788, respectively, 100% of which was placed through the
Investment Adviser or affiliated persons of Stralem Fund or the Investment
Adviser or any other brokers an affiliated person of which is an affiliated
person of Stralem Fund or the Investment Adviser. The Contracts do not contain
any provision requiring a Fund's brokerage to be transacted through the
Investment Adviser. The Board of Trustees 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
Adviser at a commission rate less favorable than the Investment Adviser's
contemporaneous charges for its other most favored, but unaffiliated, customers;
and, in addition, a good faith judgment will be made that the Investment Adviser
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
Adviser's overall responsibilities to the Funds. Since the obligation already
exists to provide management (which would include elements of research and
related skills),
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brokerage commissions paid to the Investment Adviser will not reflect anything
other than payment for the execution services performed on the particular
transactions.
When a 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 a Fund a better execution will be
achieved through the use of a broker.
The Contracts do not provide for a reduction of the investment advisory
fee by any portion of the brokerage generated by portfolio transactions of a
Fund which the Investment Adviser may receive.
The Investment Adviser will not participate in commissions paid by a
Fund to other brokers or dealers and will not receive any reciprocal business,
directly or indirectly, as a result of such commissions.
ADDITIONAL INFORMATION ON PURCHASE, REDEMPTION AND PRICING OF SHARES
Shares sold by the Funds 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 agreements dated as
of April 30, 1999 with Stralem Fund and January 3, 2000 with Stralem Equity
Fund, acts without any compensation as exclusive representative of the Funds in
making such sales. It receives, on behalf of the Funds, subscriptions for shares
and payments therefor. The April 30, 1999 distribution agreement for Stralem
Fund replaced the prior distribution agreement dated February 28, 1977.
PERFORMANCE OF THE FUNDS
From time to time, the "average annual total return" and "total return"
of an investment in a Fund's shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the components of
those calculations are set forth below.
Total return information may be useful to investors in reviewing a
Fund's performance. A Fund's advertisement of its performance must, under
applicable SEC rules, include the average annual total returns for each class of
shares of a Fund for the 1, 5, and 10-year period (or the life of the class, if
less) as of the most recently ended calendar quarter. This enables an investor
to compare a Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using such
information as a basis for comparison with other investments. Investments in a
Fund are not insured; its total return is not guaranteed and normally will
fluctuate on a daily basis. When redeemed, an investor's shares may be worth
more or less than their original cost. Total return for any given past period is
not a prediction or representation by a Fund of future rates of return on its
shares. The total return of the shares of a Fund are affected by portfolio
quality, portfolio maturity, the type of investments a Fund holds, and operating
expenses.
Total Returns
The "average annual total return" of a Fund is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return ("T" in the formula below) based on the change in value of a
hypothetical initial investment of $1,000 ("P") held for a number of years ("n")
to achieve an Ending Redeemable Value ("ERV"), according to the following
formula:
P(1+T)n = ERV
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P = Cumulative Total Return
-------
P
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In calculating total return for a Fund, the current maximum sales charge (as a
percentage of the offering price) is deducted from the initial investment ("P").
Total return also assumes that all dividends and net capital gains distributions
during the period are reinvested to buy additional shares at net asset value per
share, and that the investment is redeemed at the end of the period.
TAXES
The following is only a summary of certain additional federal income
tax considerations generally affecting the Funds and their shareholders that are
not described in each Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussions here and in each Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Code. As a regulated investment company, a Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends 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 a 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 a Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
However, gain recognized on the disposition of a debt obligation purchased by a
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 a 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 a 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 a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
a 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 a 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 a Fund has a built-in loss with respect to
property that becomes a part of a
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conversion transaction. No authority exists that indicates that the converted
character of the income will not be passed through to a Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a 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 a Fund as part of a "straddle" (which term generally
excludes a situation where the asset is stock and a Fund grants 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 a Fund grants an
in-the-money qualified covered call option with respect thereto. In addition, a
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.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by a Fund will be treated as a short-term capital gain or loss.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a 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 a Fund's
taxable year, at least 50% of the value of a 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 a Fund has
not invested more than 5% of the value of a Fund' total assets in securities of
such issuer and as to which a 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 Funds control 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 not the issuer of the option.
If, for any taxable year, a 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 a Fund's current or
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 its 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).
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Each 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 a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Fund Distributions
Each 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.
Each Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. Each Funds 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 a 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 a Fund's disposition of domestic "small business" stock will be
subject to tax.
Conversely, if a Fund elects to retain its net capital gain, a Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that a 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 a 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 a 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 a Fund from domestic corporations for the taxable year.
Generally, a dividend Fund will not be treated as a qualifying dividend (1) if
it has been received with respect to any share of stock that a 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 a 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 a 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 a 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 non-corporate 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 a Fund into account
(without a dividends-received deduction) in determining its adjusted current
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earnings, which are used in computing an additional corporate preference item
(i.e., 75% of the 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 a 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 a 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 a Fund's assets to be invested in various countries is not known.
Distributions by a 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 a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of a 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 a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of a 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 a 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 a 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.
Each 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 a 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 a 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 a 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 a 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. 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. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of
ordinary income.
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
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
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If the income from a 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 a Fund, capital gain dividends and
amounts retained by a Fund that are designated as undistributed capital gains.
If the income from a 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 a 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, a 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 a 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 a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; State and Local Tax Consideration
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 SAI. 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 may 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 a Fund.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Each Fund is a separate series of Stralem Fund, a Delaware business
trust. The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to shareholders of Delaware corporations, and the Trust Instrument
provides that shareholders of each Fund shall not be liable for the obligations
of that Fund. The Trust Instrument also provides for indemnification out of Fund
property for any shareholder held personally liable solely by his or her being
or having been a shareholder. The Trust Instrument also provides that a Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of a Fund, and shall satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss because of
shareholder liability is considered to be extremely remote.
The Trust Instrument authorizes the Board of Trustees to issue an
unlimited number of shares, which are units of beneficial interest, with a par
value of $0.01 per share. Each share has one vote and participates equally in
dividends and distributions declared by a Fund and in a 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 Funds and
performs auditing services for the Funds.
Schroder & Co. Inc. (the "Custodian"), a Delaware corporation which is
a member corporation of the New York Stock Exchange, Inc., and the corporation
through which the Investment Adviser clears its securities transactions, acts as
the custodian for all securities of the Funds. The Custodian's principal office
is presently
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<PAGE>
located at 787 Seventh Avenue, New York, New York 10019. Each Fund has a bank
checking account with Chase Manhattan Bank.
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New
York 10022 serves as counsel to the Funds.
Each Fund acts as its own transfer agent and registrar and dividend
agent.
FINANCIAL STATEMENTS
The audited financial statements for Stralem Fund (formerly Stralem
Fund, Inc.) and the notes thereto as of December 31, 1998 are incorporated
herein by reference to Stralem Fund's Annual Report to Shareholders dated
January 13, 1999. The December 31, 1998 financial statements are incorporated
herein in reliance upon the report of Richard A. Eisner & Company, LLP,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
Additional copies of the Annual Report may be obtained free of charge
by telephoning Stralem at the telephone number appearing on the front page of
this SAI.
