A new mutual fund will invest in one small country that is trying to rejuvenate its ailing economy, is beset by enemies, and is rocked almost daily by terrorist attacks. More still, the product's advisor has never overseen a mutual fund.

And the potential for war with Iraq poses yet more threat to the tiny nation's security.

Sound like a dicey investment? Some say the idea makes perfect sense.

The Blue and White Fund will invest in the stocks of Israeli companies that trade on the Tel Aviv Stock Exchange as well as U.S. exchanges. The fund is scheduled to begin operations Dec. 31. Investors were able to begin buying shares Nov. 1.

Blue and White Investment Management, the fund's newly formed advisor, has no experience managing mutual funds. The advisor's parent companies, brokerage firm Eplboim, Poutre & Co. and Israeli investment bank RAMCO, each hold a 50% stake in the enterprise. RAMCO manages three mutual funds in Israel, with more than $75 million in assets, according to representatives of the Blue and White Fund.

Shlomo Eplboim, of Eplboim, Poutre & Co., will serve as the fund's chairman and CFO. In a statement issued last week, he said that the fund constitutes an "opportunity for investors to capitalize on the future growth of Israel." Israeli exports have grown in the last decade by 137%, from $934 million to $2.2 billion, he said.

But the fund's prospectus outlines a harrowing list of potential pitfalls. For one, the fund will invest in a large number of technology stocks because the sector makes up a large portion of the Israeli economy. Like U.S. technology companies, Israeli tech firms have been hammered by the bursting of the Internet investment bubble more than two years ago, as well as a slowing global economy. In fact, the Israeli economy has slowed so much that the government there recently cut 2002 growth estimates for the country's gross domestic product to 2% from 4%, according to the prospectus. In addition, the prospectus says that there is "little resolution in sight" for the slump in the technology sector and that the downturn "continues to have a depressive effect on Israeli equities and consumer confidence."

The fund reserves the right to place 100% of its assets in cash for as much as one year due to volatile global markets, a weakening shekel, and the ongoing suicide bombings and violence between Israeli troops and Palestinians.

So, will investors be interested in buying the fund given all of those risks?

In the long term, even with a heavy investment in tech stocks, the fund could prove profitable, said Keith Wasserstrom, a Hollywood, Fla., attorney who works with many Israeli companies and recently returned from a business trip to the country.

While, just like their U.S. counterparts, many Israeli technology firms have shut down, Wasserstrom said that some had "real technology" and are "probably undervalued," particularly those run by former Israeli-military personnel who have applied defense technologies to the private sector.

Many investors, especially Jewish people living in the U.S., may buy the fund as a demonstration of support for Israel, he said. "We're sitting here helpless," he said. "How can we help Israel? Besides business and financial reasons [for buying the fund], people are also making decisions based on their emotions and their heart."

Wasserstrom conceded that the Israeli economy has been hit hard both by the global downturn and by violence. Tourism, Israel's biggest moneymaker, is down markedly, with hotels filling only 30% of their capacity, he said.

But Henry Rothman, a New York attorney who handles SEC filings and other legal matters for Israeli companies that trade on U.S. exchanges, said that the violence in Israel is not affecting the country's economy as directly as the global economic downturn. Rather, the violence has "affected some industries that do business locally," particularly construction and real estate, he said.

"But in the major companies, the information I receive from my clients is that there has been no effect, other than the concern for life and safety and security," Rothman said.

Indeed, Wasserstrom said a resolve has risen among the Israeli people to weather the violence by continuing to go about their daily business. That outlook continues to drive the economy despite the conflict, he said. "I think there was a time six to eight months ago that people just wanted peace. The economy was so devastated, people were not making enough money to enjoy life anymore," he said. "Today, they've gotten over that and they have some kind of resolve."

Other U.S. firms have tried to offer Israeli funds before and failed, said Gregg Wolper, a senior analyst at Morningstar. They simply failed to garner enough assets, he said.

Today, only a few remain, including two funds from TransNations Investments of New York. One is the AMIDEX35 Fund, which invests in the 35 largest Israeli companies traded on Wall Street or in Tel Aviv, and the AMIDEX Israel Technology Fund, which invests in small- and mid-sized Israeli companies that are traded on the Nasdaq.

Performance for the AMIDEX35, which has $6 million in assets, according to Morningstar, has been abysmal. The fund, which is based on an index of 35 Israeli companies, was up 19.2% in 2000, then lost 44.6% of its value in 2001 and then declined by another 41.8% as of Nov. 1 of this year.

The AMIDEX Israel Technology Fund, which Morningstar says holds approximately $1 million in assets, was launched in late 2000 and has declined by 46.8% so far this year.

The Blue and White Fund, meanwhile, will be available to investors at an initial cost of $10 per share.

The fund requires an initial investment of $1,000 and a minimum of $250 for each subsequent investment. A-class shares will carry a load of no more than 5.75%, and C shares will carry a maximum deferred sales charge of 1%.

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