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
<PAGE>
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ISI
STRATEGY
FUND SHARES
(A CLASS OF ISI STRATEGY FUND, INC.)
[STRATEGY LOGO]
ANNUAL REPORT
MAY 31, 1998
<PAGE>
INVESTMENT ADVISOR'S REPORT
We are pleased to report on the progress of the fund during its first
fiscal year. From commencement of operations on September 16, 1997 to May 31,
1998, the fund posted a cumulative total return of 10.94%. These figures assume
the reinvestment of dividends and exclude the impact of any sales charges. The
equity market was volatile during the fiscal year but equities out-performed
bonds. During the fiscal year, we generally maintained a modest overweighting in
equities but near the close of the fiscal year, we began to shift out of stocks
and into Treasuries. Please see for more details below "Active Management of the
Stock/Bond Mix" and following this letter, ISI's "Economic and Market Outlook."
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 who manages the equity portfolio, matching their proprietary broad
stock market benchmark, the Wilshire 5000. The bond section is managed by ISI.
It is compromised solely of U.S. Treasuries, whose maturity is actively managed
in an attempt to exceed the return of the Treasury market as a whole.
ACTIVE MANAGEMENT OF THE STOCK/BOND MIX
The Fund's benchmark, home base, for the stock/bond mix is 60/40. In its
shortened first fiscal year, the Fund began at a 60/40 level but soon increased
its equity portfolio, so the ratio became 65/35. The October crack in the stock
market reduced the equity portfolio return relative to the bond portfolio.
Seeing this as an opportunity to buy equities, ISI rebalanced the portfolio back
to 65% equities. We made a second adjustment when stocks ran ahead of bonds,
lowering the equities back down to the 65% level. Towards the end of the fiscal
year, we lowered the equities to 60% of the portfolio. Since the end of the
fiscal year we have lowered the equity component to 55% of the portfolio. Please
see table below showing the stock/bond active management during the fiscal year.
ASSET MIX CHANGES
- ---------------------------------------------------------
Date Wilshire 5000 30-year Treasury
- ---------------------------------------------------------
Commencement
of Operations 9,116 $ 99.58
60/40
(9/16/97)
- ---------------------------------------------------------
Increase to 9,222 100.30
65/35
(9/16/97)
- ---------------------------------------------------------
Rebalance 8,875 108.38
Equities up
to 65/35
(1/9/98)
- ---------------------------------------------------------
Rebalance 10,032 105.34
Equities down
to 65/35
(3/9/98)
- ---------------------------------------------------------
Decrease to 10,365 103.56
60/40
(4/28/98)
- ---------------------------------------------------------
5/31/98 10,314 107.25
- ---------------------------------------------------------
*U.S. Treasury 6.375%-8/15/27
1
<PAGE>
INVESTMENT ADVISOR'S REPORT (continued)
EQUITY PORTFOLIO MANAGEMENT
The equity portfolio of the Fund has been constructed to provide broad
exposure to the U.S. equity market. Its benchmark is the Wilshire 5000 Index,
the broadest measure of the U.S. equity market. In looking at both the
capitalization and sector profiles of the equity portfolio, its weightings are
in line with the Wilshire 5000 Index with minimal variances. Although the
portfolio does not hold every security in the Wilshire 5000, through proprietary
sampling technology, we are able to construct and maintain a portfolio of
securities which characteristically is in line with the benchmark Wilshire 5000
Index.
The Fund's top 10 holdings reflect the largest securities in the Wilshire
5000 Index and are currently held in approximately the same weight that they are
in the benchmark. We will continue to manage the portfolio with an eye toward
maintaining very close industry and capitalization alignment with the benchmark
Wilshire 5000 Index. To this end, as the Fund grows, the number of issues held
in the portfolio will grow. At the end of the fiscal year, the portfolio held
1,167 equity issues.
ISI STRATEGY FUND EQUITY PORTFOLIO'S
TOP 10 HOLDINGS
(As of 5/31/98)
- ------------------------------------------------------------
% of
Common Stock
Company Portfolio
- ------------------------------------------------------------
General Electric Co. 2.42%
- ------------------------------------------------------------
Microsoft Corp. 1.82
- ------------------------------------------------------------
Coca Cola Co. 1.68
- ------------------------------------------------------------
Exxon Corp. 1.52
- ------------------------------------------------------------
Merck & Co., Inc. 1.20
- ------------------------------------------------------------
Pfizer Inc. 1.18
- ------------------------------------------------------------
Wal Mart Stores, Inc. 1.08
- ------------------------------------------------------------
Procter & Gamble 1.02
- ------------------------------------------------------------
Intel 1.00
- ------------------------------------------------------------
IBM .99
- ------------------------------------------------------------
Subtotal 13.91
- ------------------------------------------------------------
BOND PORTFOLIO ACTIVE MANAGEMENT
The bond portfolio is invested in U.S. Treasuries and Repurchase Agreements
collateralized by U.S. Treasuries. The bond portfolio's average maturity was
increased during the fiscal year. ISI's outlook for lower rates is the key
reason for this orientation. Please see table below for a review of the bond
portfolio average maturity.
9/30/97 11/30/97 5/31/98
- ------------------------------------------------------------
Average Maturity
including Repo 5.2 yrs 12.6 yrs 14.2 yrs
- ------------------------------------------------------------
2
<PAGE>
INVESTMENT ADVISOR'S REPORT
The Strategy Fund began on September 16, 1997 and now has over $18 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
May 31, 1998
ECONOMIC OUTLOOK
THE ECONOMY
ISI's forecast is for 1998 Nominal GDP to be 4% (3% real + 1% price). This
would be a slowdown from last year's 6% level. Strength in auto sales,
chain-store sales, and housing are likely to boost 2Q real consumer spending and
real construction spending to 5% annual rate increases, which will probably be
enough to produce 3% real GDP growth, even with an enormous trade drag. Hours
worked are up at a 1% annual rate in the second quarter, which with 2%
productivity, is also consistent with 3% real GDP.
Five frameworks make us feel the economy is on the "3% real + 1% price"
track we are forecasting. First, our strength versus weakness economic diffusion
index has rolled over. Second, our company surveys have plateaued. Third, a
number of market indicators point to a slowdown, e.g., commodity prices, gold,
the performance of cyclical shares, etc. Fourth, household employment increases
have slowed significantly. Fifth, over the past 6 weeks, our survey of
manufacturing companies pricing power has collapsed. Please see chart below.
[LINE GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
ISI MFG COMPANIES PRICING POWER SURVEY
0 = WEAK 100 = STRONG MAY 8 15.5
LEVEL 4 Wk. Avg.
7 JAN 94 20.8 18.0
14 JAN 94 20.8 19.0
21 JAN 94 20.8 19.9
28 JAN 94 21.4 21.0
4 FEB 94 21.4 21.1
11 FEB 94 16.7 20.1
18 FEB 94 16.7 19.1
25 FEB 94 16.7 17.9
4 MAR 94 25.0 18.8
11 MAR 94 25.0 20.9
18 MAR 94 24.1 22.7
25 MAR 94 24.1 24.6
1 APR 94 24.1 24.3
8 APR 94 20.8 23.3
15 APR 94 20.8 22.5
22 APR 94 20.8 21.6
29 APR 94 23.6 21.5
6 MAY 94 23.6 22.2
13 MAY 94 23.6 22.9
20 MAY 94 27.8 24.7
27 MAY 94 27.8 25.7
3 JUN 94 32.5 27.9
10 JUN 94 32.5 30.2
17 JUN 94 33.9 31.7
24 JUN 94 33.9 33.2
1 JUL 94 33.9 33.6
8 JUL 94 35.3 34.3
15 JUL 94 35.3 34.6
22 JUL 94 35.3 35.0
29 JUL 94 35.3 35.3
5 AUG 94 33.9 35.0
12 AUG 94 33.9 34.6
19 AUG 94 33.9 34.3
26 AUG 94 43.6 36.3
2 SEP 94 43.6 38.8
9 SEP 94 45.8 41.7
16 SEP 94 45.8 44.7
23 SEP 94 52.8 47.0
30 SEP 94 52.8 49.3
7 OCT 94 52.8 51.1
14 OCT 94 52.8 52.8
21 OCT 94 54.4 53.2
28 OCT 94 54.4 53.6
4 NOV 94 56.9 54.6
11 NOV 94 56.9 55.7
18 NOV 94 57.5 56.4
25 NOV 94 57.5 57.2
2 DEC 94 57.8 57.4
9 DEC 94 57.8 57.7
16 DEC 94 58.9 58.0
23 DEC 94 58.9 58.4
30 DEC 94 60.6 59.1
6 JAN 95 60.6 59.8
13 JAN 95 60.8 60.2
20 JAN 95 60.8 60.7
27 JAN 95 61.4 60.9
3 FEB 95 61.4 61.1
10 FEB 95 56.9 60.1
17 FEB 95 56.9 59.2
24 FEB 95 56.9 58.0
3 MAR 95 58.9 57.4
10 MAR 95 58.9 57.9
17 MAR 95 57.8 58.1
24 MAR 95 57.8 58.4
31 MAR 95 54.4 57.2
7 APR 95 54.4 56.1
14 APR 95 57.2 56.0
21 APR 95 57.2 55.8
28 APR 95 56.7 56.4
5 MAY 95 56.7 57.0
12 MAY 95 57.2 57.0
19 MAY 95 57.2 57.0
26 MAY 95 52.5 55.9
2 JUN 95 52.5 54.9
9 JUN 95 48.3 52.6
16 JUN 95 48.3 50.4
23 JUN 95 43.1 48.1
30 JUN 95 43.1 45.7
7 JUL 95 41.8 44.1
14 JUL 95 41.8 42.5
21 JUL 95 41.8 42.1
28 JUL 95 41.8 41.8
4 AUG 95 45.7 42.8
11 AUG 95 45.7 43.8
18 AUG 95 45.7 44.7
25 AUG 95 45.7 45.7
1 SEP 95 45.4 45.6
8 SEP 95 45.4 45.6
15 SEP 95 42.5 44.8
22 SEP 95 42.5 44.0
29 SEP 95 42.1 43.1
6 OCT 95 42.1 42.3
13 OCT 95 40.4 41.8
20 OCT 95 40.4 41.3
27 OCT 95 39.9 40.7
3 NOV 95 39.9 40.2
10 NOV 95 37.8 39.5
17 NOV 95 37.8 38.9
24 NOV 95 37.8 38.3
1 DEC 95 37.8 37.8
8 DEC 95 36.7 37.5
15 DEC 95 36.7 37.3
22 DEC 95 34.2 36.4
29 DEC 95 34.2 35.5
5 JAN 96 34.2 34.8
12 JAN 96 34.2 34.2
19 JAN 96 29.4 33.0
26 JAN 96 29.4 31.8
2 FEB 96 28.9 30.5
9 FEB 96 28.9 29.2
16 FEB 96 28.6 29.0
23 FEB 96 28.6 28.8
1 MAR 96 28.1 28.6
8 MAR 96 28.1 28.4
15 MAR 96 28.5 28.3
22 MAR 96 28.5 28.3
29 MAR 96 29.0 28.5
5 APR 96 29.0 28.8
12 APR 96 29.0 28.9
19 APR 96 29.0 29.0
26 APR 96 29.3 29.1
3 MAY 96 29.3 29.2
10 MAY 96 31.0 29.7
17 MAY 96 31.0 30.2
24 MAY 96 31.5 30.7
31 MAY 96 31.5 31.3
7 JUN 96 34.4 32.1
14 JUN 96 34.4 33.0
21 JUN 96 34.4 33.7
28 JUN 96 34.4 34.4
5 JUL 96 32.5 33.9
12 JUL 96 32.5 33.5
19 JUL 96 32.8 33.1
26 JUL 96 32.8 32.7
2 AUG 96 32.2 32.6
9 AUG 96 32.2 32.5
16 AUG 96 32.2 32.4
23 AUG 96 32.2 32.2
30 AUG 96 32.2 32.2
6 SEP 96 32.2 32.2
13 SEP 96 31.9 32.1
20 SEP 96 31.9 32.1
27 SEP 96 31.1 31.8
4 OCT 96 31.1 31.5
11 OCT 96 30.6 31.2
18 OCT 96 30.6 30.9
25 OCT 96 30.8 30.8
1 NOV 96 30.8 30.7
8 NOV 96 30.3 30.6
15 NOV 96 30.3 30.6
22 NOV 96 30.0 30.4
29 NOV 96 30.0 30.2
6 DEC 96 28.8 29.8
13 DEC 96 28.8 29.4
20 DEC 96 27.2 28.7
27 DEC 96 27.2 28.0
3 JAN 97 27.2 27.6
10 JAN 97 27.2 27.2
17 JAN 97 26.9 27.1
24 JAN 97 26.9 27.1
31 JAN 97 28.1 27.3
7 FEB 97 28.1 27.5
14 FEB 97 28.9 28.0
21 FEB 97 28.9 28.5
28 FEB 97 26.4 28.1
7 MAR 97 26.4 27.7
14 MAR 97 26.4 27.0
21 MAR 97 26.4 26.4
28 MAR 97 25.6 26.2
4 APR 97 25.6 26.0
11 APR 97 25.0 25.7
18 APR 97 25.0 25.3
25 APR 97 25.0 25.2
2 MAY 97 25.0 25.0
9 MAY 97 24.7 24.9
16 MAY 97 24.7 24.9
23 MAY 97 24.7 24.8
30 MAY 97 24.7 24.7
6 JUN 97 24.4 24.6
13 JUN 97 24.4 24.6
20 JUN 97 24.4 24.5
27 JUN 97 24.4 24.4
4 JUL 97 22.8 24.0
11 JUL 97 22.8 23.6
18 JUL 97 23.9 23.5
25 JUL 97 23.9 23.4
1 AUG 97 24.4 23.8
8 AUG 97 24.4 24.2
15 AUG 97 24.4 24.3
22 AUG 97 24.4 24.4
29 AUG 97 24.7 24.5
5 SEP 97 24.7 24.6
12 SEP 97 24.4 24.6
19 SEP 97 24.4 24.6
26 SEP 97 24.7 24.6
3 OCT 97 24.7 24.6
10 OCT 97 24.7 24.6
17 OCT 97 24.7 24.7
24 OCT 97 23.9 24.5
31 OCT 97 23.9 24.3
7 NOV 97 23.9 24.1
14 NOV 97 23.9 23.9
21 NOV 97 24.2 24.0
28 NOV 97 24.2 24.1
5 DEC 97 23.5 24.0
12 DEC 97 23.5 23.9
19 DEC 97 22.5 23.4
26 DEC 97 22.5 23.0
2 JAN 98 22.3 22.7
9 JAN 98 22.3 22.4
16 JAN 98 22.0 22.3
23 JAN 98 22.0 22.2
30 JAN 98 21.5 22.0
6 FEB 98 21.5 21.8
13 FEB 98 21.0 21.5
20 FEB 98 21.0 21.3
27 FEB 98 20.5 21.0
6 MAR 98 20.5 20.8
13 MAR 98 20.0 20.5
20 MAR 98 20.0 20.3
27 MAR 98 19.5 20.0
3 APR 98 19.5 19.8
10 APR 98 19.0 19.5
17 APR 98 19.0 19.3
24 APR 98 18.8 19.1
1 MAY 98 18.8 18.9
8 MAY 98 15.5 18.0
15 MAY 98 15.5 17.2
22 MAY 98 12.5 15.6
29 MAY 98 12.5 14.0
5 JUN 98 12.3 13.2
12 JUN 98 12.3 12.4
19 JUN 98 11.5 12.2
26 JUN 98 NA NA
3
<PAGE>
ECONOMIC OUTLOOK (continued)
CORPORATE PROFITS AND THE EQUITY MARKET
Over the past 9 months, equity analysts have reduced their 2Q 1998 earnings
estimates from +14% y/y to +5% (Source: First Call, an analyst scorekeeping
organization), and there's probably more to come. First Call calculates that the
consensus is for 4Q 1998 earnings to be up +17% year over year. The stock market
stalled over the past 8 weeks beginning the process of discounting earnings
disappointment. Discounting seems to have been underway for the last six months.
ISI's survey of Institutional Equity Managers (See chart at right) indicates
they have been reducing this equity exposure since November. Currently, there is
now more cushion in the system than was present last October when the market
suffered a significant price crack. Our outlook is for corporate earnings to
register a modest 2% growth for 1998 meaning there is still probably some
downside risk in the market. We expect the damage will be limited and see new
highs later this year because of lower interest rates and better earnings
prospects for 1999.
[LINE GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
ISI INSTITUTIONAL EQUITY MANAGERS SURVEY
INVESTED POSITION 0 = MOST CASH
100 = FULLY INVESTED
JUN 16 54.7
LEVEL
1 MAR 94 NA
8 MAR 94 NA
15 MAR 94 56.3
22 MAR 94 56.3
29 MAR 94 53.0
5 APR 94 54.0
12 APR 94 56.5
19 APR 94 53.8
26 APR 94 53.5
3 MAY 94 52.8
10 MAY 94 52.8
17 MAY 94 50.8
24 MAY 94 51.0
31 MAY 94 52.0
7 JUN 94 52.0
14 JUN 94 54.0
21 JUN 94 46.0
28 JUN 94 56.0
5 JUL 94 52.0
12 JUL 94 51.0
19 JUL 94 50.3
26 JUL 94 51.0
2 AUG 94 52.5
9 AUG 94 49.0
16 AUG 94 54.8
23 AUG 94 53.3
30 AUG 94 56.0
6 SEP 94 57.5
13 SEP 94 51.5
20 SEP 94 51.5
27 SEP 94 54.0
4 OCT 94 50.5
11 OCT 94 50.8
18 OCT 94 48.3
25 OCT 94 49.5
1 NOV 94 49.3
8 NOV 94 50.3
15 NOV 94 54.5
22 NOV 94 50.8
29 NOV 94 53.5
6 DEC 94 51.8
13 DEC 94 51.8
20 DEC 94 53.3
27 DEC 94 54.0
3 JAN 95 53.0
10 JAN 95 52.5
17 JAN 95 52.3
24 JAN 95 50.5
31 JAN 95 51.0
7 FEB 95 54.3
14 FEB 95 52.0
21 FEB 95 51.0
28 FEB 95 53.0
7 MAR 95 51.8
14 MAR 95 52.8
21 MAR 95 53.5
28 MAR 95 54.0
4 APR 95 53.8
11 APR 95 52.5
18 APR 95 52.0
25 APR 95 51.0
2 MAY 95 50.3
9 MAY 95 50.8
16 MAY 95 50.8
23 MAY 95 49.3
30 MAY 95 48.0
6 JUN 95 48.8
13 JUN 95 49.0
20 JUN 95 48.0
27 JUN 95 49.8
4 JUL 95 48.3
11 JUL 95 48.8
18 JUL 95 49.9
25 JUL 95 50.8
1 AUG 95 52.1
8 AUG 95 53.3
15 AUG 95 51.9
22 AUG 95 51.9
29 AUG 95 50.3
5 SEP 95 50.1
12 SEP 95 51.9
19 SEP 95 53.7
26 SEP 95 54.6
3 OCT 95 54.0
10 OCT 95 52.1
17 OCT 95 52.3
24 OCT 95 54.3
31 OCT 95 54.2
7 NOV 95 53.3
14 NOV 95 52.4
21 NOV 95 54.3
28 NOV 95 53.3
5 DEC 95 54.2
12 DEC 95 55.1
19 DEC 95 53.7
26 DEC 95 55.5
2 JAN 96 56.9
9 JAN 96 57.4
16 JAN 96 58.7
23 JAN 96 58.7
30 JAN 96 59.6
6 FEB 96 60.3
13 FEB 96 57.6
20 FEB 96 57.4
27 FEB 96 56.5
5 MAR 96 57.9
12 MAR 96 58.3
19 MAR 96 58.2
26 MAR 96 58.2
2 APR 96 58.0
9 APR 96 59.1
16 APR 96 56.8
23 APR 96 57.3
30 APR 96 56.6
7 MAY 96 56.1
14 MAY 96 56.6
21 MAY 96 55.5
28 MAY 96 56.6
4 JUN 96 56.4
11 JUN 96 55.7
18 JUN 96 53.0
25 JUN 96 54.3
2 JUL 96 54.3
9 JUL 96 53.0
16 JUL 96 54.3
23 JUL 96 53.9
30 JUL 96 53.9
6 AUG 96 54.1
13 AUG 96 54.3
20 AUG 96 53.4
27 AUG 96 53.9
3 SEP 96 53.2
10 SEP 96 53.4
17 SEP 96 51.9
24 SEP 96 51.9
1 OCT 96 53.6
8 OCT 96 53.9
15 OCT 96 54.3
22 OCT 96 54.6
29 OCT 96 56.0
5 NOV 96 58.2
12 NOV 96 58.4
19 NOV 96 57.9
26 NOV 96 58.9
3 DEC 96 58.9
10 DEC 96 58.4
17 DEC 96 58.3
24 DEC 96 56.9
31 DEC 96 57.6
7 JAN 97 58.6
14 JAN 97 58.8
21 JAN 97 59.1
28 JAN 97 59.6
4 FEB 97 60.5
11 FEB 97 59.3
18 FEB 97 59.8
25 FEB 97 59.8
4 MAR 97 62.5
11 MAR 97 60.0
18 MAR 97 59.6
25 MAR 97 58.6
1 APR 97 56.9
8 APR 97 56.9
15 APR 97 56.9
22 APR 97 56.4
29 APR 97 56.1
6 MAY 97 56.9
13 MAY 97 56.9
20 MAY 97 57.6
27 MAY 97 57.6
3 JUN 97 58.4
10 JUN 97 59.0
17 JUN 97 57.8
24 JUN 97 56.8
1 JUL 97 57.3
8 JUL 97 58.8
15 JUL 97 58.5
22 JUL 97 58.9
29 JUL 97 59.9
5 AUG 97 60.5
12 AUG 97 59.2
19 AUG 97 59.2
26 AUG 97 59.2
2 SEP 97 59.7
9 SEP 97 60.2
16 SEP 97 60.7
23 SEP 97 61.2
30 SEP 97 62.8
7 OCT 97 63.8
14 OCT 97 62.8
21 OCT 97 62.8
28 OCT 97 63.8
4 NOV 97 65.6
11 NOV 97 63.8
18 NOV 97 65.1
25 NOV 97 64.5
2 DEC 97 63.3
9 DEC 97 63.8
16 DEC 97 63.8
23 DEC 97 63.3
30 DEC 97 62.2
6 JAN 98 60.5
13 JAN 98 60.5
20 JAN 98 59.7
27 JAN 98 59.2
3 FEB 98 58.7
10 FEB 98 58.7
17 FEB 98 59.4
24 FEB 98 59.9
3 MAR 98 59.9
10 MAR 98 58.9
17 MAR 98 58.4
24 MAR 98 58.4
31 MAR 98 57.9
7 APR 98 55.4
14 APR 98 56.3
21 APR 98 55.7
28 APR 98 55.0
5 MAY 98 54.5
12 MAY 98 54.5
19 MAY 98 54.8
26 MAY 98 54.7
2 JUN 98 54.2
9 JUN 98 53.5
16 JUN 98 54.7
23 JUN 98 NA
4
<PAGE>
ECONOMIC OUTLOOK (concluded)
THE ASIAN FINANCIAL CRISIS
Regarding Asia, each week brings new disappointments. There is little
positive momentum. Core Pac Rim economies are collapsing, with Malaysian auto
production recently reported contracting at a -96% annual rate. In the areas
indirectly affected by the Asian crisis, Brazil's unemployment rate has surged
from 5.6% just 7 months ago to 7.6% in April; the flu has spread! China's stock
market has broken out on the downside, highlighting the devaluation risk.
Japan's record setting $120 billion stimulus package is in the process of being
pared back to just $45 billion. In our view, Asian growth is likely to surprise
on the upside but the time frame is next spring.
INTEREST RATE OUTLOOK
Based on Congressional Budget Office estimates for May, the Federal budget,
on a 12-month sum basis, hit +$53 billion! For the entire year, ISI expects a
+$80 billion surplus. This is good news for Treasury interest rates but not
necessarily for the general level of rates in the U.S. This is because
corporations are racing to issue new debt at a record setting pace. In fact the
overall debt growth for the U.S. economy is expanding at a record pace.
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
- --------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
% Return with
Periods ended 5/31/98: Sales Charge
- --------------------------------------------------------
One Year --
- --------------------------------------------------------
Since Inception (9/16/97) 6.01%
- --------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT*
September 16, 1997 - May 31, 1998
Wilshire Consumer
ISI 5000 Price
Strategy Index Index
9,555 10,000 10,000
9,574 10,075 10,025
9,412 9,738 10,044
9,622 10,065 10,056
9,785 10,249 10,062
9,871 10,299 10,062
10,303 11,050 10,068
10,649 11,612 10,068
10,716 11,741 10,093
10,600 11,430 10,125
* These figures assume the reinvestment of dividends and capital gains
distributions and include the Fund's 4.45% maximum sales charge. The Whilshire
5000 Index is the broadest measure of the U.S. Equity market and incorporates
both large and small capitalization stocks. Management is not aware of any
single index that is truly representative of the Fund since its active
management policy allows the manager to adjust the stock/bond balance and to
adjust the weighted average maturity throughout each U.S. Treasury sector. The
CPI is a widely used measure of inflation. The CPI performance is based on
data released on 6/16/98. Past performance is not an indicator of future
results.
5
<PAGE>
SEC CALCULATIONS (Continued)
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.
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.
6
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS -- 58.7%
AEROSPACE -- 0.9%
B.F. Goodrich Company 210 $ 10,762
The Boeing Company 900 42,863
Coltec Industries* 100 2,231
General Dynamics Corporation 100 4,444
Lockheed Martin Corporation 200 22,450
OEA, Inc. 100 1,713
Raytheon Company - Class B 300 16,406
Rockwell International Corporation 200 11,000
Sundstrand Corporation 100 6,200
Textron, Inc. 200 14,838
TRW, Inc. 100 5,356
United Technologies Corporation 200 18,800
-----------
157,063
-----------
AIR TRANSPORTATION -- 0.4%
AAR Corporation 300 7,931
Airborne Freight Corporation 200 7,450
Alaska Airgroup Incorporated* 100 4,631
AMR Corporation* 100 15,394
ASA Holdings, Inc. 100 3,931
Comair Holdings, Inc. 200 5,325
Delta Air Lines, Inc. 100 11,500
FDX Corporation* 100 6,413
PS Group Holdings, Inc.* 100 1,294
Skywest, Inc. 100 4,325
US Airways Group, Inc.* 100 7,000
-----------
75,194
-----------
APPAREL -- 0.4%
Deckers Outdoor Corporation* 100 725
Fabri-Centers of America* 400 11,800
Fruit of the Loom, Inc.* 100 3,594
J.W. Mays, Inc. 100 1,238
Liz Claiborne, Inc. 100 5,069
Nautica Enterprises, Inc.* 100 2,925
NIKE, Inc. Class B 300 13,800
Quaker Fabric Corporation* 100 2,662
Reebok International Ltd.* 100 2,875
S&K Famous Brands, Inc.* 100 1,825
Springs Industries, Inc. - Class A 100 5,613
Unifi, Inc. 100 3,894
VF Corporation 100 5,319
Warnaco Group - Class A 100 4,125
-----------
65,464
-----------
BANKS -- 5.1%
Amsouth Bancorporation 150 5,766
The Bank of New York Company, Inc. 400 24,450
Banc One Corporation 650 35,831
Market
Shares Value
- ------------------------------------------------------------
BANKS -- continued
BankAmerica Corporation 700 $ 57,881
BankBoston Corporation 100 10,538
Bankers Trust Corporation 100 12,350
BB&T Corporation 100 6,619
Carolina First Corporation 100 2,762
CCB Financial Corporation 100 10,950
Chase Manhattan Corporation 400 54,375
Citicorp 400 59,650
Comerica, Inc. 150 9,863
Commerce Bancorp, Inc. 5 278
Commerce Bancshares, Inc. 100 4,862
Community Banks, Inc. 150 3,788
Compass Bancshares, Inc. 100 4,747
Crestar Financial Corporation 100 5,744
Fifth Third Bancorp 300 14,775
First American Corporation 100 4,637
First Chicago NBD Corporation 300 26,231
First Financial Bancorp 100 5,738
First Security Corporation 100 2,275
First Tennessee & National Corporation 100 3,175
First Union Corporation 924 51,109
First Virginia Banks, Inc. 100 5,225
Firstar Corporation 100 3,669
Firstmerit Corporation 100 2,806
Fleet Financial Group, Inc. 300 24,600
Franchise Finance Corporation
of America 100 2,600
Greenpoint Financial Corporation 100 4,119
Hibernia Corporation - Class A 100 2,100
Huntington Bancshares, Inc. 200 6,550
J. P. Morgan & Company Incorporated 200 24,837
KeyCorp 400 15,175
Keystone Financial, Inc. 100 3,900
Little Falls Bancorp, Inc. 100 2,063
Marshall & Isley Corporation 100 5,400
Mellon Bank Corporation 200 13,487
Mercantile Bancorporation 100 5,113
Mercantile Bankshares Corporation 100 3,563
National Bancorp of Alaska, Inc. 400 12,750
National City Bancshares, Inc. 210 8,413
National City Corporation 320 21,680
NationsBank Corporation 918 69,538
North Fork Bancorp, Inc. 150 3,609
Northern Trust Corporation 100 7,053
Norwest Corporation 700 27,213
Old Kent Financial Corporation 100 3,987
Pacific Century Financial Corporation 100 2,506
7
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
BANKS-- continued
Peoples Bank Bridgeport 100 $ 3,813
PNC Bank Corp 300 17,325
Popular, Inc. 100 6,937
Provident Bankshares Corporation 105 3,281
Provident Financial Group, Inc. 200 10,238
Regions Financial Corporation 100 4,113
Republic New York Corporation 100 12,844
Southtrust Corporation 150 6,084
Southwest Bancorporation of Texas* 100 3,938
Star Banc Corporation 100 6,100
State Street Corporation 200 13,787
Summit Bancorporation 200 10,025
SunTrust Banks, Inc. 200 15,800
Synovus Financial Corporation 150 3,366
Trustmark Corporation 100 2,138
U.S. Bancorp 700 27,387
Union Planters Corporation 100 5,850
Unionbancal Corporation 100 9,763
UST Corporation 100 2,781
Wachovia Corporation 200 16,012
Wells Fargo & Company 100 36,150
Wilmington Trust Corporation 100 6,063
Zions Bancorporation 100 5,100
-----------
929,245
-----------
BUSINESS MACHINES -- 3.9%
3Com Corporation* 300 7,613
Adaptec, Inc.* 100 1,519
Adobe Systems, Inc. 100 3,994
Bay Networks, Inc.* 200 5,537
BMC Software, Inc.* 400 18,425
Cabletron Systems, Inc.* 200 2,575
Centigram Communications
Corporation* 500 6,187
Ceridian Corporation* 100 5,400
Cirrus Logic, Inc.* 100 1,000
Cisco Systems, Inc.* 950 71,844
Compaq Computer Corporation 1,400 38,238
Compuware Corporation* 200 9,187
Concord EFS, Inc.* 200 6,375
Data Dimensions, Inc.* 300 4,238
Davox Corporation* 100 1,837
Dell Computer Corporation* 600 49,444
Diebold, Inc. 100 2,925
Digital Equipment Corporation* 200 10,975
Gateway 2000, Inc.* 200 9,012
Honeywell, Inc. 100 8,394
Informix Corporation 100 681
Market
Shares Value
- ------------------------------------------------------------
BUSINESS MACHINES -- continued
Integrated Device Technology, Inc.* 100 $ 937
International Business Machines
Corporation 900 105,638
Komag, Inc. 100 987
Lexmark International Group, Inc. -
Class A* 100 5,550
MicroAge, Inc.* 200 2,700
Microchip Technology, Inc.* 100 2,450
Micron Electronics, Inc.* 100 1,063
Microsoft Corporation* 2,300 195,069
NCR Corporation* 100 3,394
Network Appliance, Inc.* 100 3,478
Novellus Systems, Inc.* 100 3,781
Oracle Corporation* 900 21,263
Pitney Bowes, Inc. 300 14,100
Platinum Technology, Inc.* 100 2,737
Seagate Technology, Inc.* 100 2,313
Shiva Corporation* 100 937
Sigma Designs, Inc.* 1,000 4,250
Sterling Commerce, Inc.* 100 3,969
Sterling Software, Inc.* 100 2,719
Storage Technology Corporation* 100 8,387
Sun Microsystems, Inc.* 400 16,025
Sybase, Inc.* 100 800
Tech Data Corporation* 200 8,125
Telxon Corporation 100 3,325
Total System Services, Inc. 150 3,131
Wang Laboratories, Inc.* 100 2,400
Xerox Corporation 300 30,825
-----------
715,753
-----------
BUSINESS SERVICES -- 2.7%
ABR Information Services, Inc.* 100 2,563
Accustaff, Inc.* 100 3,294
A.C. Nielsen Corporation* 100 1,287
Allied Waste Industries, Inc.* 100 2,650
America Online, Inc.* 200 16,663
American Management Systems, Inc.* 100 2,712
Aspen Technology, Inc.* 100 4,453
At Home Corporation* 100 3,475
Automatic Data Processing, Inc. 300 19,088
BEA Systems, Inc.* 100 2,006
Browning-Ferris Industries 100 3,556
Caribiner International, Inc.* 100 2,213
CDI Corporation* 100 3,681
CheckFree Holdings Corporation* 100 2,269
Cintas Corporation 100 4,569
Citrix Systems, Inc.* 150 7,828
Cognizant Corporation 200 10,650
8
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
BUSINESS SERVICES-- continued
Computer Associates International, Inc. 550 $ 28,875
Computer Sciences Corporation* 200 10,388
Corrections Corporation of America* 100 2,275
Credit Acceptance Corporation* 100 1,031
Cytec Industries, lnc.* 200 9,800
Deluxe Corporation 100 3,356
DeVry, Inc.* 100 3,981
DST Systems, Inc.* 200 10,575
Dun & Bradstreet Corporation* 100 3,375
Ecolab, Inc. 100 3,088
Equifax, Inc. 100 3,637
First Data Corporation 400 13,300
Fiserv, Inc.* 100 5,897
FORE Systems, Inc.* 100 2,200
Forrester Research, Inc.* 100 3,525
Great Plains Software, Inc.* 100 3,650
GT Interactive Software Corporation* 100 937
H&R Block, Inc. 100 4,400
HBO & Company 200 11,544
Hudson General Corporation 100 4,812
IDX Systems Corporation* 100 4,206
Information Resources, Inc.* 100 1,750
Integrated Circuit Systems, Inc.* 100 1,378
Interpublic Group of Companies, Inc. 100 5,931
J.D. Edwards & Company* 100 3,678
Jacobs Engineering Group, Inc.* 100 3,213
Keane, Inc.* 100 4,488
Labor Ready, Inc.* 100 3,381
Laidlaw Environmental Services, Inc. 280 1,085
Lanvision Systems, Inc.* 100 350
Lason Holdings, Inc.* 300 12,188
Level 8 Systems, Inc.* 100 1,150
Logic Works, Inc.* 100 1,500
Manpower, Inc. 100 4,294
Medaphis Corporation* 100 750
MemberWorks, Inc.* 100 2,725
Mentor Corporation 300 7,941
Metamor Worldwide, Inc.* 100 3,003
Morrison Health Care, Inc. 100 1,712
National Service Industries 200 10,200
Network Associates, Inc.* 100 6,125
NFO Worldwide, Inc.* 100 1,700
Offshore Logistics, Inc.* 100 2,038
Olsten Corporation 100 1,244
Omnicom Group, Inc. 200 9,362
Online System Services, Inc.* 100 1,363
Open Market, Inc.* 100 1,619
Parametric Technology Corporation* 200 6,131
Market
Shares Value
- ------------------------------------------------------------
BUSINESS SERVICES -- continued
Paychex, Inc. 150 $ 5,400
PeopleSoft, Inc.* 300 13,106
Peregrine Systems, Inc.* 100 2,063
Pre-Paid Legal Services, Inc.* 100 3,550
Preview Travel, Inc.* 100 2,837
Programmer's Paradise, Inc.* 600 5,850
Project Software & Development, Inc.* 100 2,250
Protein Design Labs, Inc.* 100 2,513
PSW Technologies, Inc.* 100 606
Puma Technologies, Inc.* 100 600
Republic Industries, Inc.* 300 7,387
Reynolds and Reynolds Company 100 2,094
Robert Half International, Inc.* 100 5,063
Rural/Metro Corporation* 100 2,362
ServiceMaster Company 100 3,306
Siebel Systems, Inc.* 100 2,275
SS&C Technologies, Inc.* 700 11,550
Stratasys, Inc.* 500 4,750
Sungard Data Systems, Inc.* 100 3,413
Symantec Corporation* 100 2,387
Synopsys, Inc.* 100 4,294
Syntel, Inc.* 50 1,184
Tier Technologies, Inc.* 100 1,837
Transworld Home Healthcare, Inc.* 700 4,550
True North Communications, Inc. 100 3,181
Unisource Worldwide, Inc. 100 1,281
USA Waste Services, Inc.* 300 14,156
USWEB Corporation* 100 2,113
Verisign, Inc.* 100 3,194
Viad Corporation 100 2,700
Visio Corporation* 100 4,687
Walker Interactive Systems, Inc.* 100 1,575
Waste Management, Inc. 400 13,000
Westpoint Stevens, Inc.* 100 3,275
Yahoo!, Inc.* 100 10,950
York Research Corporation* 1,100 7,563
-----------
491,010
-----------
CHEMICALS -- 1.6%
Air Products and Chemicals, Inc. 100 8,700
Airgas, Inc.* 100 1,519
Albemarle Corporation 100 2,431
BetzDearborn, Inc. 100 4,925
Cabot Corporation 100 3,331
Crompton & Knowles Corporation 100 2,694
The Dow Chemical Company 200 19,375
E.I. duPont de Nemours and Company 1,100 84,700
Eastman Chemical Company 100 6,700
9
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
CHEMICALS-- continued
Ethyl Corporation 100 $ 706
Ferro Corporation 100 2,863
Hercules, Inc. 100 4,406
International Specialty Products, Inc.* 100 1,731
JLM Industries, Inc.* 100 1,175
Lubrizol Corporation 100 3,475
Lyondell Petrochemical 100 3,119
Millenium Chemicals, Inc. 100 3,163
Minnesota Mining and Manufacturing
Company 400 37,050
Monsanto Company 500 27,687
Morton International, Inc. 100 3,044
OXiGENE, Inc.* 400 5,250
PPG Industries, Inc. 300 21,863
Praxair, Inc. 200 9,863
Rohm & Haas Company 100 10,987
RPM, Inc. 100 1,700
Solutia, Inc. 100 2,744
Synthetech, Inc. 1,100 7,287
Twinlab Corporation* 100 3,713
W.R. Grace & Company* 100 1,856
Witco Corporation 100 3,794
-----------
291,851
-----------
CONSTRUCTION -- 0.4%
ALYN Corporation* 100 800
Apogee Enterprises, Inc. 100 1,393
Centex Corporation 100 3,575
Clayton Homes, Inc. 100 1,881
Fluor Corporation 100 4,769
Interface, Inc. 100 3,919
Johns Manville Corporation 100 1,450
Justin Industries, Inc. 100 1,587
Lafarge Corporation 100 3,763
Lawson Products, Inc. 100 2,713
Masco Corporation 200 11,250
Medusa Corporation 100 5,763
Owens Corning 100 3,750
Palm Harbor Homes, Inc.* 100 4,169
Puerto Rican Cement Company, Inc. 100 5,344
Republic Group, Inc. 100 1,905
Sherwin-Williams Company 200 6,650
Stanley Works 100 4,750
Toll Brothers, Inc.* 300 7,725
United Mobile Homes, Inc. 100 1,125
Walter Industries, Inc.* 100 1,913
WestTeleservices Corporation* 100 1,375
-----------
81,569
-----------
Market
Shares Value
- ------------------------------------------------------------
CONSUMER DURABLES: 0.4%
Bassett Furniture Industries, Inc. 300 $ 9,150
Black & Decker Corporation 100 5,837
Craig Corporation* 100 1,300
Hillenbrand Industries 100 6,175
Kimball International, Inc. Class B 100 2,463
Linens 'n Things, Inc.* 200 6,425
Maytag Corporation 100 5,043
Newell Company 200 9,650
RF Monolithics, Inc.* 100 1,163
Shaw Industries, Inc. 100 1,600
Sunbeam Corporation 100 2,294
Viking Office Products, Inc.* 100 2,859
Windmere-Durable Holdings, Inc.* 400 12,675
-----------
66,634
-----------
CONTAINERS -- 0.2%
Crown Cork & Seal Company, Inc. 200 10,375
Gaylord Container Corporation* 100 837
Owens-Illinois, Inc.* 100 4,494
Sealed Air Corporation* 54 2,868
Stone Container Corporation* 400 7,100
U.S. Can Corporation* 100 1,694
-----------
27,368
-----------
COSMETICS -- 1.3%
Alberto-Culver Company 100 2,975
Avon Products, Inc. 100 8,181
Clorox Company 100 8,350
Colgate-Palmolive Company 300 26,100
The Dial Corporation 300 7,444
Estee Lauder Companies, Inc. 100 6,387
Gillette Corporation 500 58,563
Procter & Gamble Company 1,300 109,119
ThermoLase Corporation* 500 3,094
-----------
230,213
-----------
DOMESTIC OIL -- 0.7%
Amerada Hess Company 100 5,406
Ashland, Inc. 100 4,987
Atlantic Richfield Company 300 23,663
Benton Oil & Gas Company* 100 1,044
Callon Petroleum Corporation* 100 1,650
Chesapeake Energy Corporation 100 431
Costilla Energy, Inc.* 500 5,375
Cross Timbers Oil Company 100 1,731
Diamond Offshore Drilling, Inc. 200 9,563
Fieldworks, Inc.* 100 388
Global Industries Ltd.* 100 2,131
Holly Corporation 100 2,738
Magellan Petroleum Corporation* 300 712
10
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
DOMESTIC OIL-- continued
Midcoast Energy Resources, Inc. 110 $ 2,503
Oryx Energy Company* 100 2,331
Phillips Petroleum Company 200 10,013
Pool Energy Services Company* 100 2,038
Pride International, Inc.* 100 2,243
R&B Falcon Corporation* 100 2,869
Santa Fe Energy Resources, Inc.* 100 994
Seven Seas Petroleum, Inc.* 100 2,538
St. Mary Land & Exploration Company 100 2,725
Sun Company 100 4,250
Tosco Corporation 100 3,174
Trans Montaigne Oil Company* 100 1,619
Transocean Offshore, Inc. 100 4,931
Union Pacific Resources Group, Inc. 100 2,025
Unocal Corporation 200 7,125
UNOVA, Inc.* 100 2,213
USX-Marathon Group 300 10,500
-----------
123,910
-----------
DRUGS AND MEDICINE -- 6.2%
Abbott Laboratories 700 51,931
Aetna, Inc. 100 7,819
Allegiance Corporation 100 5,000
Allergan, Inc. 100 4,200
ALZA Corporation* 100 4,838
American Home Products
Corporation 1,200 57,975
Amerisource Health Corporation -
Class A* 100 5,437
Amgen, Inc.* 300 18,150
Arrow International, Inc. 100 3,456
Arterial Vascular Engineering, Inc.* 100 3,091
Barr Laboratories, Inc.* 100 4,081
Bausch & Lomb, Inc. 100 4,981
Baxter International, Inc. 300 17,156
Becton, Dickinson and Company 100 7,075
Bergen Brunswig Corporation 200 8,300
Beverly Enterprises, Inc.* 100 1,431
Biogen, Inc.* 100 4,400
Biomet, Inc. 100 2,888
Boston Scientific Corporation* 200 12,750
Bristol-Myers Squibb Company 900 96,750
C.R. Bard, Inc. 100 3,469
Cardinal Health, Inc. 100 8,913
Care Matrix Corporation* 100 2,312
Carter-Wallace, Inc. 400 7,125
Centocor, Inc.* 100 3,900
Chiron Corporation 100 1,806
Columbia/HCA Healthcare Corporation 600 19,613
Covance, Inc.* 100 2,119
Market
Shares Value
- ------------------------------------------------------------
DRUGS AND MEDICINE -- continued
DePuy, Inc. 100 $ 2,987
Eli Lilly and Company 1,000 61,438
First Health Group Corporation* 200 11,362
Forest Laboratories, Inc.* 100 3,300
Foundation Health Systems, Inc.* 100 3,044
Genentech, Inc.* 200 13,800
Gensia Sicor, Inc.* 100 425
Genzyme Corporation
(General Division)* 100 2,737
Guidant Corporation 200 12,888
Health Management Associates, Inc.* 200 5,963
HEALTHSOUTH Corporation* 400 11,350
Humana, Inc. 100 3,106
ICN Pharmaceuticals, Inc. 100 4,319
Inhale Therapeutic Systems* 100 3,300
Ivax Corporation* 100 900
Johnson & Johnson 1,300 89,781
Mallinckrodt, Inc. 100 3,081
Manor Care, Inc. 100 3,156
McKesson Corporation 100 7,813
Med Partners, Inc.* 100 894
Medtronic, Inc. 400 22,250
Merck & Co., Inc. 1,100 128,769
Mylan Laboratories 100 3,000
Oakley, Inc.* 100 1,306
Omnicare, Inc. 100 3,506
Oxford Health Plans, Inc.* 100 1,725
PAREXEL International Corporation* 200 6,000
Perrigo Company* 100 1,100
Pfizer, Inc. 1,200 125,775
Pharmerica, Inc. 100 1,219
PhyCor, Inc.* 100 1,687
PSS World Medical, Inc.* 100 1,250
Quintile Transnational Corporation* 100 4,863
Quorum Health Group, Inc.* 100 3,006
Schering-Plough Corporation 700 58,581
Scios, Inc. 100 937
Sola International, Inc.* 100 3,956
Specialty Care Network, Inc.* 100 988
St. Jude Medical, Inc.* 100 3,575
SteriGenics International, Inc.* 200 4,100
Stryker Corporation 100 4,075
Sunrise Assisted Living, Inc.* 100 3,012
Sybron International Corporation* 300 7,181
Tenet Healthcare Corporation* 100 10,500
Total Renal Care Holdings, Inc.* 300 9,206
United Healthcare Corporation 200 12,800
United States Surgical Corporation 100 3,975
11
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
DRUGS AND MEDICINE-- continued
UROCOR, Inc.* 100 $ 738
Vencor, Inc. 100 950
Ventas, Inc.* 100 1,613
Warner-Lambert Company 900 57,431
Watson Pharmaceuticals, Inc.* 100 4,375
Wellpoint Health Networks, Inc.* 100 6,500
Zonagen, Inc.* 100 3,650
-----------
1,120,209
-----------
ELECTRONICS -- 3.3%
Acxiom Corporation* 100 2,162
Advanced Fibre Communication, Inc.* 100 3,706
Allen Telecom, Inc.* 100 1,200
Alliant Techsystems, Inc.* 100 6,450
AMP, Inc. 100 3,800
Andrew Corporation* 100 2,197
Applied Materials, Inc.* 500 16,000
Ascend Communications, Inc.* 200 8,638
Atmel Corporation* 100 1,481
AVX Corporation 100 1,887
Barnett, Inc.* 100 1,813
Bell Industries, Inc.* 100 1,262
Blonder Tongue Laboratories, Inc.* 100 963
Cadence Design Systems, Inc.* 100 3,525
CIENA Corporation* 200 10,400
Cypress Semiconductor Corporation* 100 856
Electro Scientific Industries, Inc.* 100 3,350
Electronic Data Systems Corporation 500 18,188
EMC Corporation* 500 20,719
Excel Communications, Inc.* 100 2,200
Excel Technology, Inc.* 100 1,012
General Instrument Corporation* 400 9,525
General Semiconductor, Inc.* 800 10,800
General Signal Corporation 200 8,225
GenRad, Inc.* 300 5,250
GeoTel Communications Corporation* 100 2,719
Glenayre Technologies, Inc.* 700 10,719
Hearst-Argyle Television, Inc.* 100 3,600
Hewlett-Packard Company 1,000 62,125
Intel Corporation 1,500 107,156
ITT Industries, Inc. 100 3,687
KLA-Tencor Corporation* 100 3,388
Level One Communications, Inc.* 200 5,338
Linear Technology Corporation 100 6,994
Loral Space & Communications Ltd.* 100 2,537
Lucent Technologies, Inc. 1,200 85,125
Metal Management, Inc.* 100 1,000
Methode Electronics, Inc. - Class A 300 3,825
Market
Shares Value
- ------------------------------------------------------------
ELECTRONICS -- continued
Micron Technology, Inc.* 400 $ 9,425
Motorola, Inc. 600 31,762
MRV Communications, Inc.* 300 6,975
Netscape Communications
Corporation* 100 2,450
NEXTEL Communications, Inc. -
Class A* 500 11,781
Omnipoint Corporation* 100 2,056
P-COM, Inc.* 100 1,500
QUALCOMM, Inc.* 100 5,213
Rambus, Inc.* 100 3,866
Rational Software Corporation* 100 1,525
SCI Systems, Inc.* 100 3,412
Scientific-Atlanta, Inc. 100 2,206
Sensormatic Electronics Corporation 100 1,281
Sequent Computer Systems, Inc.* 100 1,656
Snyder Communication, Inc.* 100 4,031
Solectron Corporation* 100 4,138
Speed Fam International, Inc.* 100 1,950
Symbol Technologies, Inc. 100 3,519
Tele-Communications International,
Inc.* 100 1,706
Tellabs, Inc.* 200 13,744
Teradyne, Inc. 100 3,075
Texas Instruments, Inc. 400 20,550
Thermo Electron Corporation* 100 3,513
ThermoQuest Corporation* 100 1,500
Thomas & Betts Corporation 100 5,344
Transaction Network Services, Inc.* 100 2,037
United States Satellite Broadcasting
Company, Inc.* 100 956
Vicor Corporation* 100 1,563
Vishay Intertechnology, Inc.* 105 2,343
Watkins-Johnson Company 100 2,519
Western Digital Corporation* 100 1,700
Western Wireless Corporation* 100 1,850
Xilinx, Inc.* 100 3,803
Zenith Electronics Corporation* 100 50
-----------
608,821
-----------
ENERGY AND UTILITIES -- 2.2%
AES Corporation* 200 9,512
AGL Resources, Inc. 100 2,000
Alleghny Energy, Inc. 100 2,806
Ameren Corporation 100 3,913
American Electric Power Company 200 9,075
American Water Works Company, Inc. 100 2,937
12
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
ENERGY AND UTILITIES-- continued
Atrion Gas and Electric Company 400 $ 4,000
Baltimore Gas and Electric Company 100 3,044
BEC Energy 100 4,056
CalEnergy Company, Inc.* 100 3,025
California Water Service Group 100 2,219
Carolina Power and Light Company 100 4,100
Central & South West Corporation 200 5,287
Cinergy Corporation 100 3,231
CMS Energy Corporation 100 4,356
Coastal Company 100 7,050
Columbia Energy Corporation 100 8,438
Conectiv, Inc. 75 1,533
Conectiv, Inc. - Class A 1 16
Consolidated Edison Company
of New York, Inc. 200 9,075
Consolidated Natural Gas Company 100 5,656
Dominion Resources, Inc. 200 7,938
DQE, Inc. 100 3,287
DTE Energy Company 100 3,956
Duke Energy Corporation 300 17,288
Edison International 400 11,800
El Paso Natural Gas Company 100 3,862
Energy East Corporation 100 4,062
Enova Corporation 100 2,556
Enron Corporation 300 15,038
First Energy Corporation 200 5,937
Florida Progress Corporation 100 4,125
FPL Group, Inc. 200 12,288
Global Industrial Technologies, Inc.* 100 1,694
GPU, Inc. 100 3,850
Houston Industries, Inc. 300 8,587
Illinova Corporation 100 2,906
Interstate Energy Corporation 100 3,006
IPALCO Enterprises, Inc. 100 4,213
Kansas City Power & Light Company 100 2,875
LG&E Energy Corporation 100 2,656
Long Island Lighting Company 100 2,981
MCN Energy Group, Inc. 100 3,600
MDU Resources Group, Inc. 200 6,663
Mid American Energy Holding Company 100 2,081
Middlesex Water Company 100 2,006
Montana Power Company 100 3,625
New Century Energies, Inc. 100 4,600
New England Electric System 100 4,175
Niagra Mohawk Power Corporation* 100 1,238
NICOR, Inc. 100 3,862
Nipsco Industries, Inc. 100 2,688
Market
Shares Value
- ------------------------------------------------------------
ENERGY AND UTILITIES -- continued
Northeast Utilities* 100 $ 1,594
Northern States Power Company 100 5,687
Northwestern Corporation 100 2,413
OGE Energy Corp. 200 10,725
Pacific Enterprises 100 3,806
PG&E Corporation 500 15,750
Pinnacle West Capital Corporation 100 4,494
Public Service Enterprises Group, Inc. 200 6,612
Puget Sound Energy, Inc. 100 2,613
SCANA Corporation 100 2,881
Seagull Energy Corporation* 100 1,656
Sierra Pacific Resources 100 3,431
Sonat, Inc. 100 3,919
Southern Company 700 18,594
TECO Energy, Inc. 100 2,619
Texas Utilities Company 200 7,900
Unicom Corporation 200 6,875
UtiliCorp United, Inc. 100 3,556
Washington Gas Light Company 100 2,606
Washington Water Power Company 100 2,156
Western Resources, Inc. 100 3,838
WICOR, Inc. 100 4,575
The Williams Companies, Inc. 400 12,975
Wisconsin Energy Corporation 100 2,950
WPS Resources Corporation 200 6,262
-----------
395,259
-----------
ENERGY - RAW MATERIALS -- 0.9%
AMCOL International Corporation 650 8,938
Anardarko Petroleum Corporation 100 6,600
Arabian Shield Development Company* 100 275
Aztec Manufacturing Company 100 1,337
Baker Hughes Incorporated 300 10,800
Burlington Resources, Inc. 200 8,425
Dawson Geophysical Company* 100 1,600
Denbury Resources, Inc.* 100 1,663
Dresser Industries, Inc. 200 9,312
EEX Corporation* 100 988
Halliburton Company 200 9,475
Harken Energy Corporation* 200 1,037
Helmerich & Payne, Inc. 100 2,525
KCS Energy, Inc. 100 1,188
Key Energy Group, Inc.* 100 1,644
Louis Dreyfus Natural Gas Corporation* 100 1,750
MAXXAM, Inc.* 100 5,894
McDermott International, Inc. 200 7,637
Nabors Industries, Inc.* 100 2,356
Newpark Resources, Inc.* 100 1,819
13
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
ENERGY - RAW MATERIALS-- continued
NGC Corporation 100 $ 1,519
Noble Affiliates, Inc. 100 3,906
Occidental Petroleum Corporation 500 13,813
Parker Drilling Company* 100 844
Petroleum Development Corporation* 100 550
Schlumberger Limited 500 39,031
Seitel, Inc.* 100 1,700
Smith International, Inc.* 100 4,906
Trico Marine Services, Inc.* 100 1,975
Union Texas Petroleum Holdings, Inc. 100 2,750
Valero Energy Corporation 100 3,262
Varco International, Inc.* 100 2,606
Western Atlas, Inc.* 100 8,656
XCL Ltd.* 100 400
-----------
171,181
-----------
FOOD AND AGRICULTURE -- 2.8%
Archer-Daniels-Midland Company 500 9,438
Bestfoods 300 16,931
Bob Evans Farms, Inc. 300 6,394
Campbell Soup Company 400 21,800
Chiquita Brands International, Inc. 100 1,344
The Coca-Cola Company 2,300 180,262
Coca Cola Enterprises, Inc. 400 15,025
ConAgra, Inc. 500 14,625
Dean Foods Company 100 4,925
Dole Food Company, Inc. 100 4,619
Flowers Industries, Inc. 300 6,188
General Mills, Inc. 100 6,825
H.J. Heinz Company 300 15,919
Hershey Foods Corporation 100 6,925
IBP, Inc. 100 1,937
International Home Foods, Inc.* 100 2,713
Interstate Bakeries Corporation 100 3,225
Keebler Foods Company* 100 2,906
Kellogg Company 400 16,525
Lance, Inc. 200 4,200
Lindsay Manufacturing Company 100 4,650
McCormick & Co., Inc. 200 6,700
Mississippi Chemical Corporation 100 1,675
Nash Finch Company 400 6,750
PepsiCo, Inc. 1,400 57,138
Pioneer Hi-Bred International, Inc. 200 7,612
The Quaker Oats Company 100 5,769
Ralston-Purina Group 100 11,131
Rexall Sundown, Inc.* 100 3,350
Sara Lee Corporation 400 23,550
Smithfield Foods, Inc.* 100 2,700
Market
Shares Value
- ------------------------------------------------------------
FOOD AND AGRICULTURE -- continued
Suiza Foods Corporation* 200 $ 11,687
SUPERVALU, Inc. 100 4,188
Terra Industries, Inc. 100 1,012
Whitman Corporation 100 2,169
Wild Oats Markets, Inc.* 100 2,875
Wm. Wrigley Jr. Company 100 9,625
-----------
505,307
-----------
GOLD -- .07%
Battle Mountain Gold Company 100 531
Homestake Mining Company 700 7,613
Newmont Gold Company 200 5,212
-----------
13,356
-----------
INSURANCE -- 2.5%
20th Century Industries 100 2,819
Acceptance Insurance Companies, Inc.* 200 4,600
AFLAC, Inc. 100 6,394
Allmerica Financial Corporation 100 6,269
Allstate Corporation 400 37,650
Ambac Financial Group, Inc. 100 5,469
American Bankers Insurance Group, Inc. 100 6,000
American General Corporation 300 20,137
American International Group, Inc. 700 86,669
Amerin Corporation* 300 9,019
Aon Corporation 200 12,812
Argonaut Group, Inc. 100 3,213
Chubb Corporation 200 15,912
Cigna Corporation 200 13,700
Cincinnati Financial Corporation 300 12,600
CNA Financial Corporation 100 15,125
Conseco, Inc. 200 9,325
Erie Indemnity Company 200 5,700
The Equitable Companies, Inc. 200 13,775
FBL Financial Group, Inc. 100 2,806
General Re Corporation 100 21,988
The Hartford Financial Services Group 100 11,006
Jefferson-Pilot Corporation 150 8,587
Life Re Corporation 200 14,725
Marsh and McLennan Companies, Inc. 200 17,513
MBIA, Inc. 100 7,456
MGIC Investment Corporation 100 5,994
The PMI Group, Inc. 100 7,519
The Progressive Corporation 100 13,787
Protective Life Corporation 200 7,200
Reliance Group Holdings, Inc. 100 1,806
Risk Capital Holdings, Inc.* 100 2,488
RLI Corp. 200 10,425
SCPIE Holdings, Inc. 100 3,625
14
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS -- CONTINUED
INSURANCE -- continued
Selective Insurance Group, Inc. 200 $ 5,275
The St. Paul Companies, Inc. 200 8,875
Transamerica Corporation 100 11,500
Travelers Property Casualty
Corporation 100 4,156
United Companies Financial
Corporation 100 1,837
-----------
455,756
-----------
INTERNATIONAL OIL -- 1.8%
Amoco Corporation 900 37,631
Aviva Petroleum, Inc.* 600 563
Chevron Corporation 600 47,925
Exxon Corporation 2,300 162,150
Mobil Corporation 700 54,600
Texaco, Inc. 500 28,875
-----------
331,744
-----------
LIQUOR -- 0.2%
Anheuser-Busch Companies, Inc. 400 18,375
Brown Forman Corporation - Class B 100 5,763
Robert Mondavi Corporation* 100 3,562
-----------
27,700
-----------
MEDIA -- 1.6%
The Ackerley Group, Inc. 100 2,000
A.H. Belo Corporation 100 5,150
AMC Entertainment, Inc.* 400 7,200
ANTEC Corporation* 100 1,916
BI, Inc.* 100 962
CBS Corporation* 700 22,225
Century Communications Corporation* 100 1,594
Chancellor Media Corporation* 100 4,181
Clear Channel Communications, Inc.* 100 9,588
Comcast Corporation 300 10,284
Cox Communications, Inc.* 200 8,738
Cymer, Inc.* 100 1,903
Dow Jones & Company, Inc. 100 4,812
E.W. Scripps Company 100 5,288
Gannett Company, Inc. 300 19,781
Gartner Group, Inc.* 100 3,306
Gaylord Entertainment Company 100 3,369
Harte-Hanks Communications, Inc. 100 2,263
Hollinger International, Inc. 100 1,606
John Wiley & Sons, Inc. - Class A 100 5,400
Jones Intercable, Inc.* 100 2,150
King World Productions, Inc.* 100 2,550
Knight-Ridder, Inc. 100 5,706
Maxwell Technologies, Inc.* 100 2,688
Market
Shares Value
- ------------------------------------------------------------
INSURANCE -- continued
McClatchy Company 100 $ 2,969
McGraw-Hill Companies, Inc. 100 7,819
Meredith Corporation 100 3,975
Merrimac Industries, Inc. 110 1,609
Metro-Goldwyn-Mayer, Inc.* 100 2,444
Metromedia International Group, Inc.* 100 1,350
New York Times Company 100 7,050
NewsEDGE Corporation* 100 1,150
Outdoor Systems, Inc.* 100 3,000
Plenum Publishing Corporation 100 6,750
PRIMEDIA, Inc.* 100 1,331
R.R. Donnelley & Sons Company 100 4,500
Reader's Digest Association, Inc. 100 2,850
Spelling Entertainment Group, Inc.* 100 938
Tele-Communications TCI Ventures
Group* 400 6,963
Tele-Communications, Inc.* 500 17,156
Thomas Nelson, Inc. 100 1,294
TimeWarner, Inc. 500 38,906
Times Mirror Company 100 6,400
Tres Com International, Inc.* 100 1,062
Tribune Company 100 6,688
USA Networks, Inc.* 100 2,450
Viacom, Inc. - Class B* 300 16,500
Westwood One, Inc.* 100 2,675
-----------
282,489
-----------
MISCELLANEOUS FINANCE -- 4.2%
A.G. Edwards, Inc. 100 4,044
Affiliated Managers Group, Inc.* 100 3,581
Allied Capital Corporation 100 2,425
AMB Property Corporation 100 2,381
American Express Company 400 41,050
Arden Realty, Inc. 100 2,744
Area Bancshares Corporation 300 10,650
Associated Estates Realty Corporation 300 5,700
Associates First Capital Corporation 362 27,089
The Bear Stearns Companies, Inc. 100 5,425
Beneficial Corporation 100 13,400
Berkshire Hathaway, Inc.* 1 70,700
Capital Factors Holdings, Inc.* 400 7,375
Capital One Financial Corporation 100 9,981
CarrAmerica Realty Corporation 100 2,800
The Charles Schwab Corporation 400 13,200
Charter One Financial, Inc. 200 6,850
The CIT Group, Inc. 100 3,150
Commercial Net Lease Realty 300 4,819
Conning Corporation 100 2,050
15
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
MISCELLANEOUS FINANCE-- continued
Countrywide Credit Industries, Inc. 100 $ 4,625
CPB, Inc. 400 7,600
Crescent Real Estate Equities Company 100 3,425
Dain Rauscher Corporation 100 5,675
Dime Bancorp, Inc. 100 2,919
Equity Office Properties Trust 200 5,500
Everest Reinsurance Holdings, Inc. 200 7,775
Fannie Mae 1,000 59,875
First Washington Realty Trust, Inc. 400 10,075
FIRSTPLUS Financial Group, Inc.* 200 7,975
Franklin Resources, Inc. 300 14,662
Freddie Mac 700 31,850
Golden State Bancorp, Inc.* 100 3,831
Green Tree Financial Corporation 300 12,056
H.F. Ahmanson & Company 100 7,625
Health and Retirement Property Trust 200 3,700
Household International, Inc. 100 13,531
Indymac Mortgage Holdings, Inc. 100 2,369
IRT Property Company 100 1,137
Lehman Brothers Holding, Inc. 100 7,094
Leucadia National Corporation 100 3,431
Liberty Property Trust 100 2,644
M.D.C. Holdings, Inc. 100 1,513
Mack-Cali Realty Corporation 100 3,600
MBNA Corporation 500 15,844
Mechanics Savings Bank* 400 11,950
Meditrust Companies 100 2,819
Merrill Lynch & Co., Inc. 300 26,850
The Money Store, Inc. 100 3,300
Morgan Stanley, Dean Witter, Discover
and Co. 600 46,837
New Plan Realty Trust 100 2,344
Northwest Savings Bank 300 4,875
Ocwen Asset Investment Corporation 100 1,700
Ocwen Financial Corporation* 100 2,438
Pacific America Money Center, Inc.* 100 2,100
Paine Webber Group, Inc. 100 4,294
Patriot American Hospitality, Inc. 200 4,787
Pennsylvania Real Estate Investment
Trust 100 2,356
Prime Retail, Inc. 500 6,594
Providian Financial Corporation 100 6,363
Public Storage, Inc. 100 3,000
R&G Financial Corporation 100 3,925
Security Capital Industrial Trust 100 2,462
Security Capital Pacific Trust 100 2,256
SLM Holding Corporation 250 9,984
Sovereign Bancorp, Inc. 260 4,599
Market
Shares Value
- ------------------------------------------------------------
MISCELLANEOUS FINANCE -- continued
Storage Trust Realty 100 $ 2,413
T. Rowe Price Associates, Inc. 200 7,087
TCF Financial Corporation 100 3,256
Travelers Group, Inc. 1,039 63,379
United Asset Management
Corporation 200 5,200
United Dominion Realty Trust, Inc. 100 1,413
Vision Twenty-One, Inc.* 600 4,387
Washington Mutual, Inc. 300 21,188
Westfield America, Inc. 100 1,750
White River Corporation* 100 8,925
-----------
754,576
-----------
MOTOR VEHICLES -- 1.2%
Aftermarket Technology Corporation* 100 1,712
Automobile Protection Corporation* 100 1,225
Cascade Corporation 500 8,562
Chrysler Corporation 500 27,813
Eaton Corporation 100 8,981
Echlin, Inc. 200 9,500
Excelsior-Henderson Motorcycle
Manufacturing Co.* 100 631
Ford Motor Company 1,100 57,062
General Motors Corporation 700 50,356
Hayes Lemmerz International, Inc.* 100 3,918
Lear Corporation* 100 5,338
Meritor Automotive, Inc. 100 2,406
Myers Industries, Inc. 100 2,112
Navistar International Corporation* 200 6,037
Penske Motorsports, Inc.* 100 3,225
Safety Components International, Inc.* 100 1,700
Sonic Automotive, Inc.* 100 1,788
Stoneridge, Inc.* 100 2,225
Superior Industries International, Inc. 100 2,912
Titan International, Inc. 100 1,944
U.S. Rentals, Inc.* 200 6,487
United Auto Group, Inc.* 100 2,050
Wynn's International, Inc. 100 2,100
-----------
210,084
-----------
NON-DURABLES AND ENTERTAINMENT-- 0.9%
A.T. Cross Company 100 1,156
American Greetings Corporation 100 4,750
AMF Bowling, Inc.* 100 2,500
Applebee's International, Inc. 100 2,437
Applied Science and Technology, Inc.* 100 925
At Entertainment, Inc.* 100 1,700
Boston Chicken, Inc.* 100 203
16
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS -- continued
NON-DURABLES AND ENTERTAINMENT -- continued
Boyd Gaming Corporation* 100 $ 669
Brinker International, Inc.* 100 2,175
Cheesecake Factory, Inc.* 150 3,028
CKE Restaurants, Inc. 100 3,175
Concepts Direct, Inc.* 100 1,475
Consolidated Products, Inc.* 100 1,981
Cracker Barrel Old Country Store, Inc. 100 3,225
Cytyc Corporation* 100 1,675
Darden Restaurants, Inc. 100 1,544
Electronic Arts, Inc.* 100 4,350
Foodmaker, Inc.* 100 1,688
Fortune Brands, Inc. 200 7,687
Frisch's Restaurants, Inc. 100 1,194
Harcourt General, Inc. 100 5,450
Hasbro, Inc. 100 3,825
II Fornaio (America) Corporation* 100 1,312
International Game Technology 100 2,469
Landry's Seafood Restaurant's, Inc.* 100 2,266
Mattel, Inc. 300 11,362
McDonald's Corporation 600 39,375
The Ohio Art Company 100 2,550
On Command Corporation* 400 5,500
Orphan Medical, Inc.* 100 1,087
Papa John's International, Inc.* 100 4,163
Pizza Inn, Inc. 100 569
Planet Hollywood International, Inc.* 100 856
Premark International, Inc. 100 3,206
Rainforest Cafe, Inc.* 100 1,391
Rubbermaid, Inc. 100 3,262
Ryan's Family Steak Houses, Inc.* 100 1,019
Service Corporation International 200 8,175
Sotheby's Holding, Inc. 100 2,300
Starbucks Corporation* 100 4,800
Taco Cabana, Inc.* 100 637
Triarc Companies* 100 2,438
Tricon Global Restaurants, Inc.* 140 4,349
Tupperware Corporation 100 2,700
Wendy's International, Inc. 100 2,469
-----------
165,067
-----------
NON-FERROUS METALS -- 0.2%
AFC Cable Systems, Inc.* 100 3,375
Aluminum Company of America 200 13,874
Cyprus Amax Minerals Company 400 6,350
Howmet International, Inc.* 100 1,512
Kaiser Aluminum Corporation* 100 1,038
Market
Shares Value
- ------------------------------------------------------------
NON-FERROUS METALS -- continued
Minerals Technologies, Inc. 100 $ 5,294
Titanium Metals Corporation 100 2,431
-----------
33,874
-----------
OPTICAL AND PHOTO -- 0.2%
Corning, Inc. 100 3,944
CPI Corporation 100 2,563
DENTSPLY International, Inc. 100 3,374
Eastman Kodak Company 300 21,413
Meade Instruments Corporation* 100 1,037
Perceptron, Inc.* 400 4,900
Photronics, Inc.* 100 2,638
Todd-AO Corporation 100 1,250
-----------
41,119
-----------
PAPER AND FOREST PRODUCTS -- 0.6%
Boise Cascade Corporation 100 3,338
Bowater Incorporated 200 10,125
Buckeye Technologies, Inc.* 100 2,256
Caraustar Industries, Inc. 100 3,069
Chesapeake Corporation 100 3,550
Georgia-Pacific Group 100 6,419
Georgia-Pacific Timber Group 100 2,355
International Paper Company 300 13,800
Jefferson Smurfit Corporation* 400 7,375
Kimberly-Clark Corporation 500 24,781
Long View Fibre Company 100 1,650
Louisiana-Pacific Corporation 100 1,994
P.H. Glatfelter Company 100 1,631
Thermo Fibertek, Inc.* 100 1,150
Union Camp Corporation 100 5,469
Wausau-Mosimee Paper Corporation 100 2,138
Westvaco Corporation 100 2,850
Weyerhaeuser Company 300 15,244
-----------
109,194
-----------
PRODUCER GOODS -- 2.9%
AGCO Corporation 100 2,512
Albany International Corp. 200 5,800
AlliedSignal, Inc. 500 21,375
American Standard Companies, Inc.* 100 4,825
Avery Dennison Corporation 100 5,181
Blount International, Inc. 100 2,819
Boise Cascade Office Products
Corporation* 100 1,712
Case Corporation 100 5,788
Caterpillar, Inc. 400 21,975
Cooper Industries, Inc. 100 6,432
17
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS -- continued
PRODUCER GOODS -- continued
Corporate Express, Inc.* 300 $ 3,478
Daisytek International Corporation* 100 2,550
Deere and Company 200 10,375
Dover Corporation 200 7,500
Emerson Electric Company 400 24,300
General Electric Company 3,100 258,462
Graco, Inc. 100 3,462
Harnischfeger Industries, Inc. 100 3,150
Harsco Corporation 100 4,363
Haskel International, Inc. 100 1,050
Helix Technology Corporation 100 1,781
Herman Miller, Inc. 100 2,769
HON Industries, Inc.* 100 3,200
Hubbell, Inc. - Class B 100 4,706
Illinois Tool Works, Inc. 200 13,200
Ingersoll-Rand Company 200 9,012
Jabil Circuit, Inc.* 200 6,813
Johnson Controls, Inc. 100 5,950
Kuhlman Corporation 100 4,225
Marine Drilling Companies, Inc.* 100 1,881
Mark IV Industries, Inc. 100 2,200
Oceaneering International, Inc.* 100 2,150
Pall Corporation 100 1,981
Pameco Corporation* 100 1,838
Parker-Hannifin Corporation 100 4,107
Raychem Corporation 100 3,763
Snap-on, Inc. 100 4,388
Tecumseh Products Company 100 4,988
Tenneco, Inc. 200 8,325
Thermo Instrument Systems, Inc.* 100 2,806
Thermo Optek Corporation* 100 1,575
Timken Company 100 3,763
Tokheim Corporation 600 9,563
Trinity Industries, Inc. 100 4,775
U.S. Industries, Inc. 200 5,275
UCAR International, Inc.* 200 6,400
US Filter Corporation* 100 3,044
Valhi Corporation* 100 981
Woodward Governor Company 200 5,800
York International Corporation 100 5,000
-----------
533,368
-----------
RAILROAD AND SHIPPING -- 0.3%
Avondale Industries, Inc.* 100 2,813
Burlington Northern Santa Fe 100 9,950
CSX Corporation 200 9,525
Emergent Group, Inc.* 100 500
Kansas City Southern Industries, Inc. 100 4,238
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS -- continued
Railroad and Shipping -- continued
Norfolk Southern Corporation 300 $ 9,394
OMI Corporation* 100 919
Overseas Shipholding Group, Inc. 100 1,937
Spinnaker Industries, Inc.* 100 1,900
Union Pacific Corporation 200 9,675
Westinghouse Air Brake Company 100 2,762
-----------
53,613
-----------
REAL PROPERTY -- 0.2%
American Retirement Corporation* 100 1,950
Boston Properties, Inc. 100 3,400
Burnham Pacific Properties, Inc. 100 1,406
Catellus Development Corporation* 100 1,856
Cornerstone Properties, Inc. 100 1,750
Duke Realty Investments, Inc. 100 2,262
Hollywood Park, Inc.* 100 1,294
Kennedy-Wilson, Inc.* 100 950
The Rouse Company 100 3,006
Simon DeBartolo Group, Inc. 300 10,013
Starwood Hotels and Resorts 191 9,013
Vornado Realty Trust 144 5,519
-----------
42,419
-----------
RETAIL -- 3.2%
Albertson's, Inc. 200 9,262
American Stores Company 300 7,481
Authentic Fitness Corporation 100 1,819
Autozone, Inc.* 100 3,325
Barnes & Noble, Inc.* 100 3,388
Bed Bath & Beyond, Inc.* 100 5,019
Borders Group, Inc.* 200 6,200
Casey's General Stores, Inc. 100 1,419
Cendant Corporation* 740 16,049
Circuit City Stores - Circuit City
Group 100 4,237
Claire's Stores, Inc. 100 1,881
CompUSA, Inc.* 100 1,575
Consolidated Stores Corporation* 182 6,950
Costco Companies, Inc.* 200 11,575
CVS Corporation 132 9,252
Dayton Hudson Corporation 400 18,550
dELiA*s, Inc.* 100 2,350
Dollar General Corporation 125 4,766
Family Dollar Stores, Inc. 400 6,625
Federated Department Stores, Inc.* 200 10,362
Fred Meyer, Inc.* 100 4,300
The Gap, Inc. 400 21,600
General Nutrition Companies, Inc.* 100 3,156
18
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (continued) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS-- continued
RETAIL-- continued
Giant Food, Inc. 200 $ 8,600
The Great Atlantic & Pacific Tea
Company 100 3,200
Heilig-Meyers Company 500 6,000
The Home Depot, Inc. 700 54,994
Intimate Brands, Inc. 200 5,737
J.C. Penney Company, Inc. 200 14,363
Kohl's Corporation* 200 9,512
Kroger Company* 200 8,587
The Limited, Inc. 300 9,975
Lowe's Companies, Inc. 200 15,838
The May Department Stores Company 200 12,862
Nordstrom, Inc. 100 7,206
Office Depot, Inc.* 200 5,900
OfficeMax, Inc.* 100 1,644
Pep Boys - Manny, Moe & Jack 100 2,225
PETsMART, Inc.* 100 987
Pier 1 Imports, Inc. 100 2,406
Proffitt's, Inc.* 100 3,925
Rite Aid Corporation 200 7,163
Ross Stores, Inc. 200 8,825
Safeway, Inc. * 500 18,219
Saks Holding, Inc.* 100 2,356
Sears, Roebuck and Co. 400 24,725
Shopko Stores, Inc.* 300 10,463
Spiegel, Inc.* 100 531
Stage Stores, Inc.* 100 4,663
Staples, Inc.* 200 5,025
Tandy Corporation 100 4,425
TJX Companies, Inc. 200 9,350
Toys "R" Us, Inc.* 300 7,950
U.S. Office Products Company* 100 1,694
Walgreen Company 500 17,594
Wal-Mart Stores, Inc. 2,100 115,894
West Marine, Inc.* 100 1,919
Winn-Dixie Stores, Inc. 100 4,069
-----------
579,967
-----------
STEEL -- 0.2%
AK Steel Holding Corporation 100 1,862
Allegheny Teledyne, Inc.* 200 4,650
Armco, Inc.* 100 544
Bethlehem Steel Corporation* 100 1,225
Citation Corporation* 100 1,912
LTV Corporation 100 1,094
National Steel Corporation - Class B 500 7,875
Nucor Corporation 100 5,150
Roanoke Electric Steel Corporation 100 2,050
Market
Shares Value
- ------------------------------------------------------------
STEEL -- continued
Steel Dynamics, Inc.* 100 $ 1,938
Worthington Industries, Inc. 100 1,763
-----------
30,063
-----------
TELEPHONE -- 3.6%
AirTouch Communications, Inc.* 500 23,812
ALLTEL Corporation 200 7,888
Ameritech Corporation 1,000 42,437
AT&T Corporation 1,500 91,313
Bell Atlantic Corporation 800 73,300
BellSouth Corporation 900 58,050
Century Telephone Enterprises, Inc. 150 6,647
Cincinnati Bell, Inc. 100 3,181
DSC Communications Corporation* 100 1,709
Emmis Broadcasting Corporation* 100 4,419
GTE Corporation 900 52,481
ICG Communications, Inc.* 31 950
Intermedia Communications, Inc.* 100 7,412
Jacor Communications, Inc. * 200 10,575
LCI International, Inc.* 200 7,488
Level 3 Communications, Inc.* 200 10,012
MCI Communications Corporation 600 32,081
McLeod USA Incorporated - Class A* 200 8,300
NEXTLINK Communications, Inc.* 400 12,475
Optical Cable Corporation* 100 950
Paging Network, Inc.* 100 1,369
PairGain Technologies, Inc.* 200 3,125
RCN Corporation* 100 2,150
SBC Communications, Inc. 1,700 66,087
Skytel Communications, Inc.* 100 2,263
Southern New England
Telecommunications Corp. 100 6,437
Sprint Corporation 400 28,700
TCI Satellite Entertainment, Inc.* 100 563
Telephone and Data Systems, Inc. 100 4,375
Teleport Communications Group, Inc.* 100 5,594
Tel-Save Holdings, Inc.* 100 1,975
US West Communications Group 400 20,300
US West Media Group* 400 14,825
World Access, Inc.* 100 3,138
WorldCom, Inc.* 1,010 45,955
-----------
662,336
-----------
TIRES AND RUBBER -- 0.1%
Cooper Tire and Rubber Company 200 4,738
The Goodyear Tire & Rubber Company 200 14,375
TBC Corporation* 100 806
-----------
19,919
-----------
19
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Net Assets (concluded) May 31, 1998
Market
Shares Value
- ------------------------------------------------------------
COMMON STOCKS -- concluded
TOBACCO -- 0.6%
General Cigar Holdings, Inc.* 200 $ 1,987
Loews Corporation 200 18,150
Philip Morris Companies, Inc. 2,300 85,963
RJR Nabisco Holdings Corporation 100 2,819
UST, Inc. 100 2,662
-----------
111,581
-----------
TRAVEL AND RECREATION -- 0.9%
AMERCO* 200 6,500
American Skiing Company* 100 1,343
Avis Rent A Car, Inc.* 100 2,425
Bristol Hotel Company* 100 2,650
Brunswick Corporation 100 3,144
Callaway Golf Company 100 2,062
Candlewood Hotel Company, Inc.* 100 825
CapStar Hotel Company* 100 2,925
Carnival Corporation 300 20,325
Circus Circus Enterprises* 100 1,775
Extended Stay America, Inc.* 100 1,100
Fountain Powerboat Industries, Inc.* 100 1,025
Harrah's Entertainment, Inc.* 300 7,500
Hilton Hotels Corporation 100 3,144
La Quinta Inns, Inc. 100 2,156
Marriott International, Inc. 100 3,475
MGM Grand, Inc.* 100 3,319
MTR Gaming Group, Inc.* 100 275
National Golf Properties, Inc. 100 3,006
Powerhouse Technologies* 500 4,812
Promus Hotel Corporation* 100 4,325
Royal Carribean Cruise Lines Ltd. 100 6,969
Shuffle Master, Inc.* 100 925
Sodexho Marriot Services, Inc. 25 712
The Walt Disney Company 600 67,875
-----------
154,592
-----------
TRUCKING AND FREIGHT -- 0.1%
Alphanet Solutions, Inc.* 100 1,200
C.H. Robinson Worldwide, Inc. 100 2,312
Covenant Transport, Inc.* 100 1,638
Expeditors International of
Washington, Inc. 100 4,000
Heartland Express, Inc.* 400 8,750
Matlack Systems, Inc.* 100 850
P.A.M. Transportation Services* 100 1,025
Rollins Truck Leasing Corporation 150 1,800
Shares/
Principal Market
Value (000) Value
- ------------------------------------------------------------
TRUCKING AND FREIGHT -- continued
Shurgard Storage Centers, Inc. 100 $ 2,869
-----------
24,444
-----------
Total Common Stocks
(Cost $9,957,423) 10,693,312
-----------
PREFERRED STOCK -- .0002%
Containers -- .0002%
Sealed Air Corporation 1 $ 28
-----------
Total Preferred Stocks
(Cost $20) 28
-----------
U.S. TREASURY BONDS -- 34.0%
10.375%, 11/15/12 $2,000 2,663,493
7.875%, 2/15/21 2,850 3,542,837
-----------
Total U.S. Treasury Bonds
(Cost $6,058,276) 6,206,330
-----------
REPURCHASE AGREEMENT -- 6.3%
Goldman Sachs & Co., 5.40%
Dated 5/29/98, to be repurchased
on 6/1/98, collateralized by
U.S. Treasury Bonds with a market
value of $1,165,427.
(Cost $1,142,000) 1,142 $ 1,142,000
-----------
Total Investment in Securities -- 99.0%
(Cost $17,157,193)** 18,041,670
-----------
Other Assets in Excess of
Liabilities, Net-- 1.0% 178,069
-----------
Net Assets-- 100.0% $18,219,739
===========
Net Asset Value and Redemption
Price Per Share
($18,219,739 / 1,656,815 shares outstanding) $11.00
======
Maximum Offering Price Per Share
($11.00 / 0.955 ) $11.51
======
- ------------------------------------------------------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
20
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
For the Period
September 16, 1997(1)
through
May 31, 1998
- -----------------------------------------------------------------------------------
<S><C>
INVESTMENT INCOME
Interest $ 175,650
Dividends 73,403
----------
Total income 249,053
----------
EXPENSES:
Investment advisory fee 32,924
Distribution fee 20,577
Transfer agent fee 5,827
Accounting fee 10,103
Printing and postage 26,470
Custodian fee 8,824
Audit fee 20,480
Registration fees 15,102
Administration fee 9,877
Legal fees 26,791
Miscellaneous 8,184
----------
Total expenses 185,159
Less: Fees waived and expenses reimbursed (102,849)
----------
Net expenses 82,310
----------
Net investment income 166,743
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions 198,062
Change in unrealized appreciation/depreciation of investments 884,277
----------
Net gain on investments 1,082,339
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,249,082
==========
- -----------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
See Notes to Financial Statements.
21
<PAGE>
ISI STRATEGY FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
September 16, 1997(1)
through
May 31, 1998
- -----------------------------------------------------------------------------------
<S><C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 166,743
Net realized gain from security transactions 198,062
Change in unrealized appreciation/depreciation of investments 884,277
-----------
Net increase in net assets resulting from operations 1,249,082
-----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income:
ISI Class (105,433)
-----------
CAPITAL SHARE TRANSACTIONS (NOTE B):
Proceeds from sale of shares 18,021,106
Value of shares issued in reinvestment of dividends 99,815
Cost of shares repurchased (1,044,831)
-----------
Increase in net assets derived from capital share transactions 17,076,090
-----------
Total increase in net assets 18,219,739
NET ASSETS:
Beginning of period --
-----------
End of period $18,219,739
===========
- -----------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
See Notes to Financial Statements.
22
<PAGE>
ISI STRATEGY FUND, INC.
Financial Highlights (For a share outstanding throughout the period)
For the Period
September 16, 1997(1)
through
May 31, 1998
- --------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $ 10.00
-------
Income from Investment Operations:
Net investment income 0.13
Net realized and unrealized gain on investments 0.96
-------
Total from Investment Operations 1.09
-------
Less Distributions:
Distributions from net investment income (0.09)
-------
Total distributions (0.09)
-------
Net asset value at end of period $ 11.00
=======
Total Return 10.94%
Ratios to Average Daily Net Assets:
Expenses 1.00%*(2)
Net investment income 2.03%*(3)
Supplemental Data:
Net assets at end of period (000) $18,220
Portfolio turnover rate 20.08%
- --------------------------------------------------------------------------
* Annualized.
(1) Commencement of operations.
(2) Ratio of expenses to average net assets prior to expense waiver was 2.25%.
(3) Ratio of net investment income to average net assets prior to expense waiver
was .775%.
See Notes to Financial Statements.
23
<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 the Funds' assets between
diversified investments in U.S. equity securities and U.S. Treasury
Securities.
The Fund consists of one share class, ISI Shares, which has a 4.45% maximum
sales charge and a .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 sales price reported for the
day. If there are no sales or the security is not traded on a listed
exchange, the Fund values the security at the average of the last bid and
asked prices in the over-the-counter market. When a market quotation is not
readily available, the Investment Advisor under the direction of the Board
of Directors determines a fair value using the policies and 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 tax.
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.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Expenses are recorded as incurred. Dividend income and distributions to
shareholders are recorded on the exdividend date. The Fund has deferred the
costs incurred by its organization and the initial public offering of
shares. These costs are being amortized on the straight-line method over a
five-year period, except for registration fee's which are amortized over a
three-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 Funds
subadvisor and Investment Company Capital Corp. ("ICC"), a subsidiary of
Bankers Trust 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 subadvisory
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 and
reimburse expenses proportionately 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, subadvisor or administrator.
As compensation for its accounting services, the Fund pays ICC an annual fee
based on the Fund's average daily net assets.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly.
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.
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 May 31, 1998 was $748, and the accrued liability was $739.
As compensation for brokerage services, BTAlex. Brown brokers received
$22,646 for the period ended May 31, 1998.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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
May 31, 1998
-----------------
Shares sold 1,744,374
Shares issued to shareholders on
reinvestment of dividends 9,391
Shares redeemed (96,939)
-----------
Net increase in shares outstanding 1,656,826
===========
Proceeds from sales of shares $18,021,106
Value of reinvested dividends 99,815
Cost of shares redeemed (1,044,831)
-----------
Net increase for capital share
transactions $17,076,090
===========
----------
(1) Commencement of operations.
D. Investment Transactions -- Excluding short-term and U.S. government
obligations, purchases of investment securities aggregated $11,788,014 and
sales of investment securities aggregated $2,028,633 for the period ended
May 31, 1998. Purchases of U.S. government obligations aggregated
$6,085,021. There were no sales of U.S. government obligations for the
period.
On May 31, 1998, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $1,270,737 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $386,460.
E. Net Assets -- On May 31, 1998, net assets consisted of:
Paid-in capital $17,076,090
Accumulated net realized gain
from security transactions 198,062
Unrealized appreciation of
investments 884,277
Undistributed net investment
income 61,310
-----------
$18,219,739
===========
F. Federal Tax Information (unaudited) 68% of the net investment income
dividends paid by the Fund during the tax period ended May 31, 1998,
qualified for the Dividends Received Deduction.
- --------------------------------------------------------------------------------
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 effective prospectus.
For more complete information regarding 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.
- --------------------------------------------------------------------------------
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
ISI Strategy Fund, Inc.
We have audited the statement of net assets of the ISIStrategy Fund, Inc. as of
May 31, 1998, and the related statements of operations, changes in net assets,
and the financial highlights for the period September 16, 1997 (commencement of
operations) through May 31, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at May 31, 1998 by
correspondence with the custodian and broker. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of ISIStrategy Fund,
Inc. as of May 31, 1998, the results of its operations, the changes in its net
assets and the financial highlights for the stated period referred to above in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
June 26, 1998
27
