ISI
Strategy
Fund Shares
- --------------------------------------------------------------------------------
Directors and Officers
Edward S. Hyman Nancy Lazar
Chairman Vice President
Truman T. Semans David R. Borger
Vice Chairman Vice President
James J. Cunnane Carrie L. Butler
Director Vice President
John F. Kroeger Thomas D. Stevens
Director Vice President
Louis E. Levy Margaret M. Beeler
Director Assistant Vice President
Eugene J. McDonald Keith C. Reilly
Director Assistant Vice President
R. Alan Medaugh Joseph A. Finelli
Director and President Treasurer
Michael J. Napoli, Jr. Amy M. Olmert
Director Secretary
Rebecca W. Rimel Scott J. Liotta
Director Assistant Secretary
Carl W. Vogt, Esq.
Director
Investment Objective
An open-end mutual fund seeking to maximize total return through a
combination of long-term growth of capital and current income by
actively apportioning investments between diversified investments in
U.S. equity securities and securities issued by the United States
Treasury ("U.S. Treasury Securities").
Investment Advisor
ISI Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
Shareholder Servicing Agent
Investment Company Capital Corp.
P.O. Box 419426
Kansas City, MO 64141-6426
Distributor
ISI Group Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
STRATEGY
FUND SHARES
(A Class of ISI Strategy Fund, Inc.)
[STRATEGY LOGO]
SEMI-ANNUAL REPORT
November 30, 1997
<PAGE>
Investment Advisor's Report
- --------------------------------------------------------------------------------
This is ISI Strategy Fund's first Investment Advisor's Report. We
appreciate your support.
Fund Investment Philosophy
The Strategy Fund is based on the idea that over a period of time changing
economic conditions present investment opportunities for stocks and bonds. The
Fund's objective is to maximize total return through a combination of long-term
growth of capital and current income. The Fund seeks to achieve this objective
through the active management of the percentage of assets held in stocks and
bonds. ISI's economic outlook serves as the basis for the Fund's asset
allocation strategy. The Strategy Fund patterns the equity portion of its
portfolio to replicate the overall U.S. stock market. Wilshire Associates is the
sub-advisor that manages the equity portfolio, matching their proprietary broad
stock market benchmark, the Wilshire 5000. The bond section is managed by ISI.
It is composed solely of Treasuries, whose maturity is actively managed in an
attempt to exceed the return of the Treasury market as a whole.
Investment Environment
The Asian financial crisis appears to have a wide scope and all its
implications are not yet understood. In general, financial crises are typically
good for surviving financial assets. U.S. stocks and bonds should benefit from
the increased liquidity and decreased inflation that are important results of
financial crises. For a historic perspective, please see the following stock
market chart on which we have noted earlier financial crises.
FINANCIAL CRISES AND STOCKS
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
S&P 500
-------
68:1 95.0
68:2 90.8
68:3 89.1
68:4 95.7
68:5 97.9
68:6 100.5
68:7 100.3
68:8 98.1
68:9 101.3
68:10 103.8
68:11 105.4
68:12 106.5
69:1 102.0
69:2 101.5
69:3 99.3
69:4 101.3
69:5 104.6
69:6 99.1
69:7 94.7
69:8 94.2
69:9 94.5
69:10 95.5
69:11 96.2
69:12 91.1
70:1 90.3
70:2 87.2
70:3 88.7
70:4 86.0
70:5 76.1
70:6 75.6
70:7 75.7
70:8 77.9
70:9 82.6
70:10 84.4
70:11 84.3
70:12 90.1
71:1 93.5
71:2 97.1
71:3 99.6
71:4 103.0
71:5 101.6
71:6 99.7
71:7 99.0
71:8 97.2
71:9 99.4
71:10 97.3
71:11 92.8
71:12 99.2
72:1 103.3
72:2 105.2
72:3 107.7
72:4 108.8
72:5 107.7
72:6 108.0
72:7 107.2
72:8 111.0
72:9 109.4
72:10 109.6
72:11 115.1
72:12 117.5
73:1 118.4
73:2 114.2
73:3 112.4
73:4 110.3
73:5 107.2
73:6 104.8
73:7 105.8
73:8 103.8
73:9 105.6
73:10 109.8
73:11 102.0
73:12 94.8
74:1 96.1
74:2 93.5
74:3 97.4
74:4 92.5
74:5 89.7
74:6 89.8
74:7 82.8
74:8 76.0
74:9 68.1
74:10 69.4
74:11 71.7
74:12 67.1
75:1 72.6
75:2 80.1
75:3 83.8
75:4 84.7
75:5 90.1
75:6 92.4
75:7 92.5
75:8 85.7
75:9 84.7
75:10 88.6
75:11 90.1
75:12 88.7
76:1 96.9
76:2 100.6
76:3 101.1
76:4 101.9
76:5 101.2
76:6 101.8
76:7 104.2
76:8 103.3
76:9 105.5
76:10 101.9
76:11 101.2
76:12 104.7
77:1 103.8
77:2 101.0
77:3 100.6
77:4 99.1
77:5 98.8
77:6 99.3
77:7 100.2
77:8 97.8
77:9 96.2
77:10 93.7
77:11 94.3
77:12 93.8
78:1 90.3
78:2 89.0
78:3 88.8
78:4 92.7
78:5 97.4
78:6 97.7
78:7 97.2
78:8 103.9
78:9 103.9
78:10 100.6
78:11 94.7
78:12 96.1
79:1 99.7
79:2 98.2
79:3 100.1
79:4 102.1
79:5 99.7
79:6 101.7
79:7 102.7
79:8 107.4
79:9 108.6
79:10 104.5
79:11 103.7
79:12 107.8
80:1 110.9
80:2 115.3
80:3 104.7
80:4 103.0
80:5 107.7
80:6 114.6
80:7 119.8
80:8 123.5
80:9 126.5
80:10 130.2
80:11 135.7
80:12 133.5
81:1 133.0
81:2 128.4
81:3 133.2
81:4 134.4
81:5 131.7
81:6 132.3
81:7 129.1
81:8 129.6
81:9 118.3
81:10 119.8
81:11 122.9
81:12 123.8
82:1 117.3
82:2 114.5
82:3 110.8
82:4 116.3
82:5 116.4
82:6 109.7
82:7 109.4
82:8 109.7
82:9 122.4
82:10 132.7
82:11 138.1
82:12 139.4
83:1 144.3
83:2 146.8
83:3 151.9
83:4 157.7
83:5 164.1
83:6 166.4
83:7 167.0
83:8 162.4
83:9 167.2
83:10 167.7
83:11 165.2
83:12 164.4
84:1 166.4
84:2 157.3
84:3 157.4
84:4 157.6
84:5 156.6
84:6 153.1
84:7 151.1
84:8 164.4
84:9 166.1
84:10 164.8
84:11 166.3
84:12 164.5
85:1 171.6
85:2 180.9
85:3 179.4
85:4 180.6
85:5 184.9
85:6 188.9
85:7 192.5
85:8 188.3
85:9 184.1
85:10 186.2
85:11 197.5
85:12 207.3
86:1 208.2
86:2 219.4
86:3 232.3
86:4 238.0
86:5 238.5
86:6 245.3
86:7 240.2
86:8 245.0
86:9 238.3
86:10 237.4
86:11 245.1
86:12 248.6
87:1 264.5
87:2 280.9
87:3 292.5
87:4 289.3
87:5 289.1
87:6 301.4
87:7 310.1
87:8 329.4
87:9 318.7
87:10 280.2
87:11 245.0
87:12 241.0
88:1 250.5
88:2 258.1
88:3 265.7
88:4 262.6
88:5 256.1
88:6 270.7
88:7 269.1
88:8 263.7
88:9 268.0
88:10 277.4
88:11 271.0
88:12 276.5
89:1 285.4
89:2 294.0
89:3 292.7
89:4 302.3
89:5 313.9
89:6 323.7
89:7 331.9
89:8 346.6
89:9 347.3
89:10 347.4
89:11 340.2
89:12 348.6
90:1 340.0
90:2 330.5
90:3 338.5
90:4 338.2
90:5 350.3
90:6 360.4
90:7 360.0
90:8 330.8
90:9 315.4
90:10 307.1
90:11 315.3
90:12 328.8
91:1 325.5
91:2 362.3
91:3 372.3
91:4 379.7
91:5 378.0
91:6 378.3
91:7 380.2
91:8 389.4
91:9 387.2
91:10 386.9
91:11 385.9
91:12 388.5
92:1 416.1
92:2 412.6
92:3 407.4
92:4 407.4
92:5 414.8
92:6 408.3
92:7 415.1
92:8 417.9
92:9 418.5
92:10 412.5
92:11 422.8
92:12 435.6
93:1 435.2
93:2 441.7
93:3 450.2
93:4 443.1
93:5 445.3
93:6 448.1
93:7 447.3
93:8 454.1
93:9 459.2
93:10 463.9
93:11 462.9
93:12 466.0
94:1 473.0
94:2 471.6
94:3 463.8
94:4 447.2
94:5 450.9
94:6 454.8
94:7 451.4
94:8 464.2
94:9 467.0
94:10 463.8
94:11 461.0
94:12 455.2
95:1 465.3
95:2 481.9
95:3 493.2
95:4 507.9
95:5 523.8
95:6 539.4
95:7 557.4
95:8 559.1
95:9 578.8
95:10 582.9
95:11 595.5
95:12 614.6
96:1 614.4
96:2 649.5
96:3 647.1
96:4 647.2
96:5 661.2
96:6 668.5
96:7 644.1
96:8 662.7
96:9 674.9
96:10 701.5
96:11 735.7
96:12 743.3
97:1 766.2
97:2 798.4
97:3 792.2
97:4 763.9
97:5 833.1
97:6 876.3
97:7 925.3
97:8 927.7
97:9 937.0
97:10 951.2
97:11 938.9
97:12 962.4
98:1 NA
Source: ISI Inc.
There are two factors holding us back from a full equity component. First,
the extent of this crisis and its solutions are not known. Second, unlike
earlier crises, the U.S. stock market did not sell off ahead of the actual
crisis, leaving stocks somewhat overvalued. As you will see in the portfolio
management section, the Fund currently has a 65% stock market weighting, as we
believe that the favorable elements for the U.S. economy will generally overcome
the negative impact on corporate earnings.
1
<PAGE>
Investment Advisor's Report (continued)
- --------------------------------------------------------------------------------
Portfolio Management
Overview
ISI's management strategy can be described this way: In a defensive
environment for financial assets, where rising interest rates and weak corporate
earnings are expected, the Fund will move toward a heavier weighting in
fixed-income securities with an emphasis on maturities of five years or less.
Conversely, in an environment more favorable to financial assets, low inflation,
declining interest rates and rising corporate profits, the Fund will move toward
a heavier weighting in equities along with longer maturity Treasuries (see table
below).
Strategies for Different Financial
Environments
- ----------------------------------------------------------
Weighting
Outlook for Financial Assets Equities Treasuries
- ----------------------------------------------------------
Defensive 40% 60%
- ----------------------------------------------------------
Neutral 60% 40%
- ----------------------------------------------------------
Aggressive 80% 20%
- ----------------------------------------------------------
Equity Portfolio
The goal of the Fund's equity portfolio is to provide broad exposure to the
U.S. equity market as represented by the Wilshire 5000, the broadest measure of
the U.S. equity market. Given the size of the potential universe of stocks and
the amount of assets we can invest, the initial portfolio has been built and
currently maintains an industry and capitalization profile very similar to that
of the benchmark Wilshire 5000. In order to achieve this profile, we have had to
alter the weightings of selected individual securities. We are quite pleased
with the minimal variances that are illustrated below in the capitalization
alignment of the portfolio relative to its benchmark.
ISI Strategy Fund Equity Portfolio
Capitalization Profile
(As of 11/30/97)
- ------------------------------------------------------------------
ISI Strategy Fund Wilshire 5000
Equity Portfolio Index Variance
- ------------------------------------------------------------------
First Decile 83.07% 82.37% 0.70%
- ------------------------------------------------------------------
Second Decile 8.85% 8.69% 0.16%
- ------------------------------------------------------------------
Third Decile 3.97% 3.96% 0.01%
- ------------------------------------------------------------------
Fourth Decile 1.65% 2.12% -0.47%
- ------------------------------------------------------------------
Fifth Decile 1.66% 1.23% 0.43%
- ------------------------------------------------------------------
Sixth Decile 0.55% 0.74% -0.19%
- ------------------------------------------------------------------
Seventh Decile 0.08% 0.45% -0.37%
- ------------------------------------------------------------------
Eighth Decile 0.00% 0.27% -0.27%
- ------------------------------------------------------------------
Ninth Decile 0.00% 0.13% -0.13%
- ------------------------------------------------------------------
Tenth Decile 0.17% 0.04% 0.13%
- ------------------------------------------------------------------
Portfolio Total 100.00% 100.00%
- ------------------------------------------------------------------
Similarly, the industry diversification of the portfolio is very much in
line with that of the benchmark Wilshire 5000. Also, the Fund's top 10 holdings
reflect a representation of the largest securities in the U.S. equity market
(see table on page 3). As the portfolio grows, we will continue to use sampling
technology to achieve the portfolio's desired overall characteristics. It is our
intention to continue to manage the portfolio with an eye toward maintaining an
industry and capitalization profile that closely reflects the alignment of the
benchmark Wilshire 5000.
2
<PAGE>
Investment Advisor's Report
- --------------------------------------------------------------------------------
(concluded)
ISI Strategy Fund Equity Portfolio --
Top 10 Holdings
(As of 11/30/97)
- -----------------------------------------------------
% Market
Company Value
- -----------------------------------------------------
General Electric Co. 1.87%
- -----------------------------------------------------
Microsoft Corp. 1.67%
- -----------------------------------------------------
Exxon Corp. 1.34%
- -----------------------------------------------------
Intel Corp. 1.31%
- -----------------------------------------------------
Coca-Cola Co. 1.27%
- -----------------------------------------------------
Merck & Co. Inc. 1.12%
- -----------------------------------------------------
Loews Corp. 1.08%
- -----------------------------------------------------
Wells Fargo & Co. 1.04%
- -----------------------------------------------------
Procter & Gamble Co. 1.03%
- -----------------------------------------------------
Pfizer Inc. 0.98%
- -----------------------------------------------------
Subtotal 12.71%
- -----------------------------------------------------
Bond Portfolio
The bond portfolio had an average maturity of 12.6 years as of November 28.
More recently, we have extended the portfolio's maturity to 13.2 years,
believing that one of the main benefits from the Asian financial crisis will be
lower inflation in the U.S. With "real" bond yields already high, lower
inflation should boost U.S. bond prices.
The Strategy Fund began on September 16 and now has over $10 million in
assets. We appreciate the vote of confidence you have given the newest member of
the ISI Family of Funds.
Sincerely,
/s/ R. Alan Medaugh
- -------------------
R. Alan Medaugh
President
December 19, 1997
SEC Calculations
- --------------------------------------------------------------------------------
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
Fund's currently effective 4.45% maximum sales charge.
- ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
% Return with
Periods ended 12/31/97: Sales Charge
- ----------------------------------------------------
One Year --
- ----------------------------------------------------
Since Inception (9/16/97) (3.89)%
- ----------------------------------------------------
These total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid.
Any performance figures shown are for the full period indicated. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. Past performance
is not an indicator of future results.
3
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
Statement of Net Assets November 30, 1997
(Unaudited)
Market
Value
Shares (Note A)
- --------------------------------------------------------
COMMON STOCKS -- 64.1%
Aerospace -- 1.0%
The Boeing Company 600 $ 31,875
Lockheed Martin Corporation 100 9,756
OEA, Inc. 200 6,225
Raytheon Company 200 11,187
Rockwell International Corporation 200 9,750
Rohr, Inc.* 300 9,187
United Technologies Corporation 200 14,988
---------
92,968
Air Transportation -- 0.3%
Airborne Freight Corporation 100 6,369
AMR Corporation* 100 12,119
Comair Holdings, Inc. 300 6,637
Federal Express Corporation* 100 6,706
---------
31,831
---------
Apparel -- 0.4%
Fabri-Centers of America* 500 10,469
NIKE, Inc. 600 29,213
---------
39,682
---------
Banks -- 5.5%
Banc One Corporation 200 10,275
The Bank of New York
Company, Inc. 300 16,125
BankAmerica Corporation 400 29,200
BankBoston Corporation 100 8,912
Bankers Trust New York
Corporation 100 11,856
Barnett Banks, Inc. 100 7,037
CCB Financial Corporation 100 9,600
Chase Manhattan Corporation 100 10,863
Citicorp 300 35,981
Community Banks, Inc. 100 4,225
CoreStates Financial Corporation 100 7,731
Fifth Third Bancorp 200 14,100
First Chicago NBD Corporation 300 23,475
First Financial Bancorp 200 9,425
First Union Corporation 600 29,250
Fleet Financial Group, Inc. 300 19,819
J. P. Morgan & Company
Incorporated 100 11,419
KeyCorp 200 13,487
Mellon Bank Corporation 200 11,338
National Bancorp of Alaska, Inc. 100 12,000
National City Bancshares, Inc. 210 10,080
National City Corporation 200 13,350
NationsBank Corporation 300 18,019
North Fork Bancorp, Inc. 200 6,075
Banks -- continued
Norwest Corporation 400 $ 14,975
ONBANCorp, Inc. 100 6,725
Pacific Century Financial
Corporation 100 5,100
PNC Bank Corp. 300 16,144
Provident Financial Group, Inc. 200 9,000
SunTrust Banks, Inc. 100 7,100
U.S. Bancorp 300 32,269
Wachovia Corporation 100 7,700
Wells Fargo & Company 200 61,450
Wilmington Trust Corporation 100 5,838
---------
509,943
---------
Business Machines -- 4.2%
3Com Corporation* 200 7,250
BMC Software, Inc.* 200 12,975
Centigram Communications
Corporation* 500 8,156
Cisco Systems, Inc.* 300 25,875
Compaq Computer Corporation 300 18,731
Concord EFS, Inc.* 300 7,650
Data Dimensions, Inc.* 300 5,475
Dell Computer Corporation* 500 42,094
Digital Equipment Corporation* 200 9,850
Honeywell, Inc. 100 6,550
International Business
Machines Corporation 400 43,825
MicroAge, Inc.* 400 8,050
Microsoft Corporation* 700 99,050
Novellus Systems, Inc.* 100 3,762
Oracle Corporation* 400 13,325
Pitney Bowes, Inc. 100 8,406
Sigma Designs, Inc.* 1,000 5,000
Sun Microsystems, Inc.* 300 10,800
Tech Data Corporation* 200 8,075
Xerox Corporation 600 46,612
---------
391,511
---------
Business Services -- 2.6%
America Online, Inc.* 100 7,550
Automatic Data Processing, Inc. 700 39,375
Computer Associates
International, Inc. 450 23,428
Cytec Industries Inc.* 200 9,150
DST Systems, Inc.* 200 7,412
First Data Corporation 400 11,325
Glasgal Communications, Inc.* 1,200 6,225
HBO & Company 400 17,950
Mentor Corporation 300 10,200
4
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
Statement of Net Assets (continued) November 30, 1997
(Unaudited)
Market
Value
Shares (Note A)
- --------------------------------------------------------
COMMON STOCKS -- continued
Business Services -- continued
National Service Industries 200 $ 9,362
PeopleSoft, Inc.* 200 13,088
Perceptron, Inc.* 400 8,850
Republic Industries, Inc.* 400 10,425
SS&C Technologies, Inc.* 800 9,050
Synopsys, Inc.* 200 8,225
Transworld Home Healthcare, Inc.* 700 5,512
USA Waste Services, Inc.* 500 16,531
Waste Management, Inc. 400 9,850
Yahoo! Inc.* 200 10,225
York Research Corporation* 1,100 8,800
---------
242,533
---------
Chemicals -- 1.8%
Air Products and Chemicals, Inc. 100 7,669
BetzDearborn, Inc. 100 6,087
Crompton & Knowles Corporation 200 5,300
The Dow Chemical Company 200 19,750
duPont (E.I.) de Nemours
and Company 700 42,394
Minnesota Mining and
Manufacturing Company 300 29,231
Monsanto Company 400 17,475
OXiGENE, Inc.* 400 7,100
PPG Industries, Inc. 300 17,381
Praxair, Inc. 200 8,787
---------
161,174
---------
Construction -- 0.5%
Masco Corporation 200 9,425
Puerto Rican Cement
Company, Inc. 200 8,438
Sherwin-Williams Company 600 17,137
Toll Brothers, Inc.* 400 9,650
---------
44,650
---------
Consumer Durables -- 0.4%
Bassett Furniture Industries, Inc. 400 11,750
Newell Company 400 16,325
Windmere-Durable Holdings Inc.* 400 9,650
---------
37,725
---------
Containers -- 0.2%
Crown Cork & Seal Company Inc. 200 9,763
Stone Container Corporation 500 6,250
---------
16,013
---------
Cosmetics -- 1.3%
Alberto-Culver Company 200 6,237
Colgate-Palmolive Company 300 20,044
Cosmetics -- continued
The Dial Corporation 400 $ 7,750
Gillette Corporation 200 18,463
Procter & Gamble Company 800 61,050
ThermoLase Corporation* 500 6,875
---------
120,419
---------
Domestic Oil -- 0.9%
Atlantic Richfield Company 400 32,600
Cornerstone Propane Partners, L.P. 400 9,350
Diamond Offshore Drilling, Inc. 200 9,975
Phillips Petroleum Company 200 9,687
Unocal Corporation 200 7,962
USX-Marathon Group 400 13,700
---------
83,274
---------
Drugs and Medicine -- 6.4%
Abbott Laboratories 200 13,000
American Home Products
Corporation 400 27,950
Amgen, Inc.* 400 20,450
Barr Laboratories, Inc.* 200 7,200
Baxter International Inc. 700 35,437
Bergen Brunswig Corporation 200 8,587
Boston Scientific Corporation* 200 9,038
Bristol-Myers Squibb Company 500 46,812
Cardinal Health, Inc. 100 7,575
Carter-Wallace, Inc. 500 8,281
Columbia/HCA Healthcare
Corporation 600 17,700
Eli Lilly and Company 400 25,225
Genentech, Inc.* 200 11,675
Guidant Corporation 200 12,850
HealthCare COMPARE Corporation* 200 10,425
HEALTHSOUTH Corporation* 400 10,500
Inhale Therapeutic Systems* 300 9,300
Johnson & Johnson 400 25,175
Medtronic, Inc. 1,100 52,525
Merck & Co., Inc. 700 66,194
PAREXEL International Corporation* 200 6,900
Pfizer Inc. 800 58,200
Renal Treatment Centers, Inc.* 300 9,994
Schering-Plough Corporation 600 37,613
Sola International, Inc.* 200 6,050
Sybron International Corporation* 200 8,800
Tenet Healthcare Corporation* 300 9,506
United Healthcare Corporation 200 10,413
Warner-Lambert Company 100 13,987
Zonagen, Inc.* 200 6,200
---------
593,562
---------
5
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
Statement of Net Assets (continued) November 30, 1997
(Unaudited)
Market
Value
Shares (Note A)
- --------------------------------------------------------
COMMON STOCKS -- continued
Electronics -- 3.9%
Alliant Techsystems, Inc.* 100 $ 5,944
AMP, Inc. 300 13,031
Applied Materials, Inc.* 600 19,800
EMC Corporation* 400 12,125
Electronic Data Systems Corporation 400 15,200
General Semiconductor, Inc.* 900 9,788
General Signal Corporation 200 8,162
GenRad, Inc.* 300 7,969
Glenayre Technologies, Inc.* 800 8,700
Hewlett-Packard Company 500 30,531
Intel Corporation 1,000 77,625
Level One Communications, Inc.* 200 8,350
Lucent Technologies, Inc. 400 32,050
Methode Electronics, Inc. - Class A 400 6,500
Micron Technology, Inc.* 500 12,437
Motorola, Inc. 200 12,575
MRV Communications, Inc.* 300 8,475
NETCOM On-Line Communication
Services, Inc. 500 9,938
NEXTEL Communications,
Inc.--Class A* 600 15,150
Nextlevel Systems, Inc.* 500 6,625
Tellabs, Inc.* 400 20,800
Texas Instruments Incorporated 200 9,850
Zilog, Inc.* 400 7,650
---------
359,275
---------
Energy and Utilities -- 2.4%
American Electric Power Company 200 9,912
Consolidated Edison Company
of New York, Inc. 300 11,325
Duke Energy Corporation 600 31,200
Edison International 500 13,406
Enron Corporation 400 15,500
FPL Group, Inc. 800 44,750
MDU Resources Group, Inc. 300 8,962
New York State Electric & Gas
Corporation 200 6,150
NICOR, Inc. 100 4,025
OGE Energy Corp. 200 10,175
PG&E Corporation 700 19,775
Southern Company 500 12,000
Texas Utilities Company 300 12,000
WICOR, Inc. 200 9,225
The Williams Companies, Inc. 200 10,688
---------
219,093
---------
Energy - Raw Materials -- 1.2%
AMCOL International Corporation 500 $ 12,000
Baker Hughes Incorporated 400 16,750
Burlington Resources Inc. 200 8,900
Halliburton Company 200 10,787
Helmerich & Payne, Inc. 100 7,606
Key Energy Group, Inc.* 300 7,294
McDermott International, Inc. 200 6,300
Occidental Petroleum Corporation 600 17,812
Schlumberger Limited 300 24,694
---------
112,143
---------
Food and Agriculture -- 3.1%
Archer-Daniels-Midland Company 400 8,550
Bob Evans Farms, Inc. 400 8,000
Campbell Soup Company 200 11,200
The Coca-Cola Company 1,200 75,000
Coca-Cola Enterprises Inc. 400 12,225
ConAgra, Inc. 600 21,563
CPC International, Inc. 100 10,337
Dean Foods Company 100 5,312
Flowers Industries, Inc. 400 7,975
General Mills, Inc. 100 7,400
H.J. Heinz Company 200 10,012
Kellogg Company 600 27,825
Lance, Inc. 200 5,088
McCormick & Co., Inc. 300 7,950
Nash Finch Company 400 7,500
PepsiCo, Inc. 400 14,750
Sara Lee Corporation 600 31,725
Suiza Foods Corporation* 200 11,638
---------
284,050
---------
Gold -- 0.1%
Homestake Mining Company 800 8,400
---------
Insurance -- 2.7%
Acceptance Insurance
Companies, Inc.* 300 7,293
Aetna Inc. 100 7,538
Allstate Corporation 300 25,763
American General Corporation 700 37,712
American International Group, Inc. 400 40,325
Amerin Corporation* 300 7,013
Chubb Corporation 200 14,187
Cigna Corporation 100 16,725
Erie Indemnity Company 200 5,850
General Re Corporation 100 19,850
Life Re Corporation 500 28,563
Marsh and McLennan Companies, Inc. 100 7,444
6
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
Statement of Net Assets (continued) November 30, 1997
(Unaudited)
Market
Value
Shares (Note A)
- --------------------------------------------------------
COMMON STOCKS -- continued
Insurance -- continued
The PMI Group, Inc. 100 $ 6,500
RLI Corp. 200 8,737
Selective Insurance Group, Inc. 100 5,038
Western National Corporation 300 8,850
---------
247,388
---------
International Oil -- 2.2%
Amoco Corp. 100 9,000
Aviva Petroleum, Inc.* 6,600 9,900
Chevron Corporation 700 56,131
Exxon Corporation 1,300 79,300
Mobil Corporation 300 21,581
Texaco Inc. 400 22,600
---------
198,512
---------
Liquor -- 0.2%
Anheuser-Busch Companies, Inc. 400 17,275
---------
Media -- 1.6%
AMC Entertainment Inc.* 500 10,969
CBS Corporation 500 15,000
Comcast Corporation 400 11,200
Cox Communications, Inc.* 300 10,181
Gannett Company, Inc. 200 11,612
Tele-Communications, Inc.* 400 9,163
Time Warner Inc. 600 34,950
Viacom, Inc. - Class B* 1,200 42,000
---------
145,075
---------
Miscellaneous Finance -- 4.0%
American Express Company 300 23,663
Area Bancshares Corporation 400 8,100
Associated Estates Realty Corporation 400 9,025
Brooks Fiber Properties, Inc.* 200 10,950
Cali Realty Corporation 100 3,969
Capital Factors Holdings, Inc.* 500 8,688
The Charles Schwab Corporation 500 19,281
CPB, Inc. 400 8,400
Everest Reinsurance Holdings, Inc. 200 7,588
Fannie Mae 600 31,687
First Washington Realty Trust, Inc. 400 10,075
FIRSTPLUS Financial Group, Inc. 200 7,625
Franklin Resources, Inc. 200 17,975
Freddie Mac 500 20,625
Green Tree Financial Corporation 400 12,250
Household International, Inc. 100 12,600
MBNA Corporation 500 13,281
Mechanics Savings Bank* 400 10,250
Merrill Lynch & Co., Inc. 200 14,038
Miscellaneous Finance -- continued
Morgan Stanley, Dean Witter,
Discover and Co. 300 $ 16,294
Northwest Savings Bank 400 5,600
Patriot American Hospitality, Inc. 300 9,375
Prime Retail, Inc. 600 8,663
SLM Holding Corporation 100 12,912
Travelers Group, Inc. 939 47,420
United Asset Management
Corporation 300 7,819
Washington Mutual, Inc. 200 13,825
---------
371,978
---------
Miscellaneous -- 0.3%
CIENA Corporation* 200 10,800
Lason Holdings, Inc.* 300 8,400
NEXTLINK Communications, Inc.* 400 8,100
---------
27,300
---------
Motor Vehicles -- 1.1%
Cascade Corporation 500 9,000
Chrysler Corporation 600 20,588
Eaton Corporation 100 9,444
Echlin Inc. 200 6,337
Ford Motor Company 400 17,200
General Motors Corporation 400 24,400
Navistar International Corporation* 300 6,600
U.S. Rentals, Inc.* 300 7,706
---------
101,275
---------
Non-Durables and Entertainment -- 0.9%
Mattel, Inc. 400 16,025
McDonald's Corporation 1,100 53,350
Service Corporation International 300 10,969
Tricon Global Restaurants, Inc.* 40 1,352
---------
81,696
---------
Non-Ferrous Metals -- 0.3%
Aluminum Company of America 300 20,175
Cyprus Amax Minerals Company 500 9,156
---------
29,331
---------
Optical and Photo -- 0.2%
Corning Inc. 200 8,487
Eastman Kodak Company 200 12,125
---------
20,612
---------
Paper and Forest Products -- 0.7%
Bowater Incorporated 200 8,975
Chesapeake Corporation 200 6,850
Georgia-Pacific Corporation 100 8,538
International Paper Company 200 9,488
7
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
Statement of Net Assets (continued) November 30, 1997
(Unaudited)
Market
Value
Shares (Note A)
- --------------------------------------------------------
COMMON STOCKS -- continued
Paper and Forest Products-- continued
Jefferson Smurfit Corporation* 500 $ 8,250
Kimberly-Clark Corporation 200 10,413
Weyerhaeuser Company 300 15,844
---------
68,358
---------
Producer Goods -- 3.3%
Albany International Corp. 300 7,294
AlliedSignal Inc. 400 14,850
Caterpillar Inc. 200 9,588
Corporate Express, Inc.* 400 6,250
Deere and Company 600 32,888
Dover Corporation 100 6,706
Emerson Electric Company 200 11,000
General Cigar Holdings, Inc.* 300 7,050
General Electric Company 1,500 110,625
Harnischfeger Industries, Inc. 200 7,637
Harsco Corporation 100 3,963
Illinois Tool Works, Inc. 400 21,925
Jabil Circuit, Inc.* 200 9,625
Tenneco, Inc. 200 8,662
Tokheim Corporation 600 11,288
Trinity Industries, Inc. 100 4,537
U.S. Industries, Inc. 300 7,725
UCAR International, Inc.* 200 7,988
Woodward Governor Company 300 9,825
York International Corporation 100 4,631
---------
304,057
---------
Railroad and Shipping -- 0.5%
Burlington Northern Santa Fe 400 36,600
Union Pacific Corporation 200 12,000
---------
48,600
---------
Real Property -- 0.3%
Arbor Property Trust 1,000 10,750
Simon DeBartolo Group, Inc. 400 13,075
---------
23,825
---------
Retail -- 3.1%
Barnes & Noble, Inc. 200 6,188
Borders Group, Inc.* 300 8,569
CUC International, Inc.* 300 8,625
CVS Corporation 200 13,275
Dayton Hudson Corporation 200 13,288
Family Dollar Stores, Inc. 300 8,306
Federated Department Stores, Inc.* 200 9,112
The Gap, Inc. 200 10,737
Giant Food, Inc. 200 6,750
Heilig-Meyers Company 600 7,763
The Home Depot, Inc. 600 33,562
Retail -- continued
J.C. Penney Company, Inc. 200 $ 12,850
Mac Frugals Bargains Closeouts, Inc.* 300 12,863
The May Department Stores Company 300 16,125
Safeway Inc.* 300 18,225
Sears, Roebuck and Co. 200 9,163
Shopko Stores, Inc.* 400 8,650
Toys "R" Us, Inc.* 300 10,238
Wal-Mart Stores, Inc. 1,300 51,919
Walgreen Company 700 22,531
---------
288,739
---------
Steel -- 0.2%
Allegheny Teledyne Inc. 400 10,300
National Steel Corporation - Class B* 600 9,000
---------
19,300
---------
Telephone -- 3.8%
AirTouch Communications, Inc.* 500 19,625
Ameritech Corporation 300 23,119
AT&T Corporation 900 50,288
Bell Atlantic Corporation 500 44,625
BellSouth Corporation 600 32,850
GTE Corporation 200 10,112
Intermedia Communications Inc.* 700 34,737
Jacor Communications, Inc.* 200 8,750
LCI International, Inc.* 300 8,269
MCI Communications Corporation 500 21,969
McLeodUSA Incorporated - Class A* 200 7,400
PairGain Technologies, Inc.* 300 7,087
SBC Communications Inc. 500 36,406
Sprint Corporation 200 11,713
U.S. West Communications Group 300 13,556
WorldCom, Inc.* 500 16,000
---------
346,506
---------
Tires and Rubber -- 0.2%
Cooper Tire and Rubber Company 300 6,712
The Goodyear Tire & Rubber Company 200 12,138
---------
18,850
---------
Tobacco -- 1.0%
Loews Corporation 600 63,675
Philip Morris Companies Inc. 700 30,450
---------
94,125
---------
Travel and Recreation -- 1.1%
AMERCO* 200 5,650
Carnival Corporation 600 32,437
Harrah's Entertainment, Inc.* 400 8,025
HFS, Inc.* 100 6,863
8
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
Statement of Net Assets (concluded) November 30, 1997
(Unaudited)
Market
Shares/ Value
Par (000) (Note A)
- --------------------------------------------------------
COMMON STOCKS -- concluded
Travel and Recreation -- continued
ITT Corporation* 100 $ 7,588
Marriott International, Inc. 100 7,244
Video Lottery Technologies, Inc.* 500 5,750
The Walt Disney Company 300 28,481
----------
102,038
----------
Trucking and Freight -- 0.2%
Expeditors International of
Washington, Inc. 200 7,788
Heartland Express, Inc.* 400 9,450
----------
17,238
----------
Total Common Stocks
(Cost $5,956,101) 5,920,324
----------
U.S. TREASURY BONDS -- 31.3%
10.375%, 11/15/12 $1,500 1,979,766
7.875%, 2/15/21 750 909,023
----------
Total U.S. Treasury Bonds
(Cost $2,849,297) 2,888,789
----------
REPURCHASE AGREEMENT -- 3.1%
Goldman Sachs & Co., 5.50% $289
Dated 11/28/97, to be repurchased
on 12/1/97, collateralized by
U.S. Treasury Bonds with a market
value of $295,191.
(Cost $289,000) $ 289,000
----------
Total Investment in Securities -- 98.5%
(Cost $9,094,398)** 9,098,113
----------
Other Assets in Excess of
Liabilities, Net -- 1.5% 138,884
----------
Net Assets -- 100.0% $9,236,997
==========
Net Asset Value and Redemption
Price Per Share
($9,236,997 / 917,290 shares outstanding) $10.07
======
Maximum Offering Price Per Share
($10.07 / 0.955 ) $10.54
======
- --------------------------------------------------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
9
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Operations
(Unaudited) For the Period
September 16, 1997(1)
through
November 30, 1997
- --------------------------------------------------------------------------------------------------
<S><C>
INVESTMENT INCOME (NOTE A):
Interest $ 30,333
Dividends 11,542
--------
Total income 41,875
--------
EXPENSES:
Printing and postage 13,172
Custodian fee (Note A) 6,285
Audit fee 5,920
Investment advisory fee (Note B) 5,049
Transfer agent fee (Note B) 4,662
Distribution fee (Note B) 3,156
Pricing fee 1,836
Accounting fee (Note B) 1,641
Registration fees 1,540
Administration fee 1,515
Miscellaneous 824
Directors' fees 340
Organizational expense (Note A) 205
--------
Total expenses 46,145
Less: Fees waived and expenses reimbursed (Note B) (33,522)
--------
Net expenses 12,623
--------
Net investment income 29,252
--------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Change in unrealized appreciation or depreciation of investments 3,715
--------
Net unrealized gain on investments 3,715
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 32,967
========
</TABLE>
- --------------------------------------------------------
(1) Commencement of operations.
See Notes to Financial Statements.
10
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
(Unaudited) For the Period
September 16, 1997(1)
through
November 30, 1997
- ------------------------------------------------------------------------------------------------------
<S><C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 29,252
Net realized gain/(loss) from security transactions --
Change in unrealized appreciation or depreciation of investments 3,715
-----------
Net increase in net assets resulting from operations 32,967
-----------
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 9,227,283
Value of shares issued in reinvestment of dividends --
Cost of shares repurchased (23,253)
-----------
Increase in net assets derived from capital share transactions 9,204,030
-----------
Total increase in net assets 9,236,997
NET ASSETS:
Beginning of period --
-----------
End of period $9,236,997
==========
</TABLE>
- --------------------------------------------------------
(1) Commencement of operations.
See Notes to Financial Statements.
11
<PAGE>
ISI Strategy Fund, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (For a share outstanding throughout the period)
(Unaudited)
<TABLE>
<CAPTION>
For the Period
September 16, 1997(1)
through
November 30, 1997
- -----------------------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $10.00
------
Income from Investment Operations:
Net investment income 0.07
Net realized and unrealized gain/(loss) on investments --
------
Total from Investment Operations 0.07
------
Net asset value at end of period $10.07
======
Total Return(2) 0.70%
Ratios to Average Daily Net Assets:
Expenses 1.00%(3,4)
Net investment income 2.32%(3,5)
Supplemental Data:
Net assets at end of period (000) $9,237
Portfolio turnover rate --
Average commissions per share $ 0.0291
</TABLE>
- --------------------------------------------------------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of expenses to average daily net assets would have been 3.66%
(annualized).
(5) Without the waiver of advisory fees and reimbursement of expenses (Note B),
the ratio of net investment income to average daily net assets would have
been (0.34)% (annualized).
See Notes to Financial Statements.
12
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. Significant Accounting Policies -- ISI Strategy Fund, Inc. (the "Fund"),
which was organized as a Maryland Corporation on June 12, 1997 and commenced
operations September 16, 1997, is registered under the Investment Company
Act of 1940 as a diversified, open-end investment management company. It
seeks to maximize total return through a combination of long-term growth of
capital and current income by actively apportioning investments between
diversified investments in U.S. equity securities and securities issued by
the United States Treasury ("U.S. Treasury Securities").
The Fund consists of one share class, ISI Shares, which has a 4.45% maximum
sales charge and a 0.25% distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles.
These estimates affect 1) the assets and liabilities that we report at the
date of the financial statements; 2) the contingent assets and liabilities
that we disclose at the date of the financial statements; and 3) the
revenues and expenses that we report for the period. Our estimates could be
different from the actual results. The Fund's significant accounting
policies are:
Security Valuation -- The Fund values a portfolio security that is primarily
traded on a national exchange by using the last price reported for the day.
If there are no sales or the security is not traded on a listed exchange,
the Fund values a security at the average of the last bid and asked prices
in the over-the-counter market. When a market quotation is unavailable, the
Investment Advisor determines a fair value using procedures that the Board
of Directors establishes and monitors. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost.
Repurchase Agreements -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement is
a short-term investment in which the Fund buys a debt security that the
broker agrees to repurchase at a set time and price. The third party, which
is the broker's custodial bank, holds the collateral in a separate account
until the repurchase agreement matures. The agreement ensures that the
collateral's market value, including any accrued interest, is sufficient if
the broker defaults. The Fund's access to the collateral may be delayed or
limited if the broker defaults and the value of the collateral declines or
if the broker enters into an insolvency proceeding.
Federal Income Taxes -- The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and gains
that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially all
of its taxable net investment income and net realized capital gains, it will
be exempt from most, if not all, federal income and excise taxes. As a
result, the Fund has made no provisions for federal income taxes.
Security Transactions, Investment Income, Distributions and Other -- The
Fund uses the trade date to account for security transactions and the
specific identification method for financial reporting and income tax
purposes to determine the cost of investments sold or redeemed. Interest
income is recorded on an accrual basis and includes the pro rata scientific
method for amortization of premiums and accretion of discounts when
appropriate. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. The Fund has deferred the costs incurred by its
organization and the initial
13
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
public offering of shares. These costs are being amortized on the
straight-line method over a five-year period, which began when the Fund
commenced investment activities.
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees --
International Strategy & Investment Inc. ("ISI") is the Fund's investment
advisor, Wilshire Associates Incorporated ("Wilshire") is the Fund's
sub-advisor and Investment Company Capital Corp. ("ICC"), a subsidiary of
Bankers Trust New York Corporation, is the Fund's administrator.
As compensation for advisory services, the Fund pays ISI an annual fee based
on the Fund's average daily net assets. This fee is calculated daily and
paid monthly at the annual rate of 0.40%. As compensation for sub-advisory
services, ISI pays Wilshire an annual fee based on the Fund's average daily
net assets. This fee is calculated daily and paid monthly at the annual rate
of 0.16%. ISI and Wilshire have agreed to waive their annual fees
proportionately when necessary, and ISI has agreed to reimburse expenses
when necessary, so that the Fund's total operating expenses are no more than
1.00% of its average daily net assets.
As compensation for administrative services, the Fund pays ICC an annual fee
based on the Fund's average daily net assets. This fee is calculated daily
and paid monthly at the annual rate of 0.12%. ICC has agreed to waive its
fee until the Fund has $50 million in net assets or has been in operation
for one year, whichever occurs first.
Certain officers and directors of the Fund are also officers or directors of
the Fund's investment advisor, sub-advisor or administrator.
As compensation for its accounting services, the Fund pays ICC an annual fee
that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $1,641 for accounting services for the period
ended November 30, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $4,662
for transfer agent services for the period ended November 30, 1997.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997, PNC Bank served as the Fund's
custodian. From September 22, 1997 to November 30, 1997, the Fund accrued
$6,285 in custody expenses.
As compensation for providing distribution services, the Fund pays ISI Group
Inc., which is affiliated with ISI, an annual fee that is calculated daily
and paid monthly. This fee is paid at an annual rate equal to 0.25% of the
Fund's average daily net assets.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period
ended November 30, 1997 was $216, and the accrued liability was $216.
C. Capital Share Transactions -- The Fund is authorized to issue up to 25
million shares of $.001 par value capital stock (20 million ISI Class, 5
million Wilshire Institutional Class). Transactions in shares of the Fund
were as follows:
For the Period
Sept. 16, 1997(1)
through
Nov. 30, 1997
-----------------
Shares sold 919,593
Shares issued to shareholders
on reinvestment of dividends --
Shares redeemed (2,303)
----------
Net increase in shares outstanding 917,290
==========
Proceeds from sale of shares $9,227,283
Value of reinvested dividends --
Cost of shares redeemed (23,253)
----------
Net increase from capital
share transactions $9,204,030
==========
- --------------------------------------------------------
(1) Commencement of operations.
14
<PAGE>
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
D. Investment Transactions -- Excluding short-term and U.S. government
obligations, purchases of investment securities aggregated $5,956,101 for
the period ended November 30, 1997. Purchases of U.S. government obligations
aggregated $2,854,423. There were no sales of investment securities during
the period.
On November 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $251,942
and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $248,227.
E. Net Assets -- On November 30, 1997, net assets consisted of:
Paid-in capital $9,204,030
Undistributed net investment
income 29,252
Unrealized appreciation
of investments 3,715
----------
$9,236,997
==========
- -----------------------------------------------
This report is prepared for the general
information of shareholders. It is authorized
for distribution to prospective investors only
when preceded or accompanied by an effec-
tive prospectus.
For more complete information regard-
ing any of the ISI Funds, including charges
and expenses, obtain a prospectus from your
investment representative or directly from
the Fund at 1-800-955-7175. Read it carefully
before you invest.
- -----------------------------------------------
15
