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STATEMENT OF ADDITIONAL INFORMATION
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ISI STRATEGY FUND, INC.
717 Fifth Avenue
New York, New York 10022
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS WHICH MAY BE OBTAINED FROM YOUR SECURITIES
DEALER OR BY WRITING OR CALLING INTERNATIONAL STRATEGY & INVESTMENT GROUP INC.,
717 FIFTH AVENUE, NEW YORK, NEW YORK 10022, (800) 955-7175.
Statement of Additional Information Dated: October 1, 1999
Relating to the Prospectus dated October 1, 1999
TABLE OF CONTENTS
Page
GENERAL INFORMATION AND HISTORY...............................................1
INVESTMENT OBJECTIVES AND POLICIES............................................2
VALUATION OF SHARES AND REDEMPTION............................................8
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS..........................9
MANAGEMENT OF THE FUND........................................................12
INVESTMENT ADVISORY AND OTHER SERVICES........................................19
ADMINISTRATION................................................................20
DISTRIBUTION OF FUND SHARES...................................................20
BROKERAGE ....................................................................23
CAPITAL SHARES................................................................25
SEMI-ANNUAL REPORTS...........................................................26
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES.............................26
INDEPENDENT AUDITORS..........................................................27
LEGAL MATTERS.................................................................27
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................27
FINANCIAL STATEMENTS..........................................................28
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GENERAL INFORMATION AND HISTORY
ISI Strategy Fund, Inc. (the "Fund") is an open-end management
investment company. Under the rules and regulations of the Securities and
Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with information concerning the activities of the company
being considered for investment. The Fund has one class of shares: ISI Strategy
Fund Shares (the "ISI Shares"). The ISI Shares Prospectus contains important
information concerning ISI Shares offered by the Fund, and may be obtained
without charge from the Fund's distributor (the "Distributor") or from
Participating Dealers that offer shares of the Fund (the "Shares") to
prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. As used herein, the "Fund" refers to ISI Strategy Fund, Inc.
and specific references to any class of the Fund's Shares will be made using the
name of such class. Some of the information required to be in this Statement of
Additional Information is also included in the Fund's current Prospectus. To
avoid unnecessary repetition, references are made to related sections of the
Prospectus. In addition, the Prospectus and this Statement of Additional
Information omit certain information for the Fund and its business that is
contained in the Registration Statement about the Fund and its Shares filed with
the SEC. Copies of the Registration Statement as filed, including such omitted
items, may be obtained from the SEC by paying the charges prescribed under its
rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
June 12, 1997. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
its Shares under the Securities Act of 1933, as amended (the "Securities Act"),
and commenced operations on September 16, 1997.
Under a license agreement dated September 15, 1997 between the Fund and
International Strategy & Investment Inc. ("ISI" or the "Advisor"), International
Strategy & Investment Inc. licenses to the Fund the "ISI" name and logo, but
retains rights to that name and logo, including the right to permit other
investment companies to use them. In addition, Wilshire Associates Incorporated
licenses to the Fund the "Wilshire" name and logo, but retains rights to that
name and logo, including the right to permit other investment companies to use
them.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund's investment 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 an active asset allocation strategy that involves
apportioning the Fund's assets between diversified investments in common stocks
of U.S. issuers and U.S. Treasury Securities. The Fund may make other
investments including securities index futures contracts and Standard & Poor's
Depositary Receipts ("SPDRs").
The allocation of the Fund's assets will be reviewed periodically in
light of ISI's forecasts and may be changed when ISI determines it appropriate.
The Fund's assets will be rebalanced on a quarterly basis if at that time the
market value of the equity portion of the portfolio is below 40% or above 80% of
the Fund's total assets.
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Wilshire Associates Incorporated ("Wilshire") will manage the equity
portion of the Fund's Portfolio. Wilshire and its affiliates have, since 1983,
focused on building and maintaining portfolios based on the Wilshire 5000 Index
("Wilshire 5000" or "Index") and other custom-structured U.S. equity
applications, and currently have $9.6 billion under management in these
portfolios. In managing the common stocks of U.S. issuers in the Fund's
portfolio, Wilshire will attempt to capture the return of the broad U.S. equity
market. Ultimately, Wilshire expects that the performance and volatility of the
Fund's equity portfolio will approximately resemble that of the Wilshire 5000.
The Wilshire 5000 consists of all U.S. common stocks that trade on a regular
basis on the New York and American Stock Exchanges and in the NASDAQ
over-the-counter market. Approximately 7,300 stocks, including large-,
medium-and small-capitalization stocks are included in the Index. In
constructing the Fund's portfolio, Wilshire will, as the Fund grows, conduct a
stratified sampling of the Wilshire 5000, resulting optimally in the purchase of
1,500 to 2,000 common stocks of issuers included in the Index based on sector
allocation and other investment techniques, in an attempt to achieve performance
and volatility comparable to the Index. Wilshire may use securities index
futures contracts and SPDRs to gain market exposure without purchasing
individual stocks. For example, the Fund may invest in security index futures
contracts on the Standard & Poor's 500 Index ("S&P 500") and the Russell 2000
Index as well as S&P 500 SPDRs and S&P MidCap 400 Index SPDRs for market
exposure.
ISI will manage the U.S. Treasury Securities in the Fund's portfolio
with a view toward, first, a high level of total return with relative stability
of principal and, second, high current income. Therefore, in addition to yield,
the potential for capital gains and appreciation resulting from possible changes
in interest rates will be a consideration in selecting investments. ISI will be
free to take advantage of the entire range of maturities offered by U.S.
Treasury Securities and may adjust the average maturity of such securities held
in the Fund's portfolio from time to time, depending on its assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates. Thus, at certain times the
average maturity of the U.S. Treasury Securities held by the Fund may be
relatively short (from under one year to five years, for example) and at other
times may be relatively long (over 10 years, for example). In determining which
direction interest rates are likely to move, the Advisor relies on the economic
analysis made by Mr. Edward S. Hyman, Chairman of the Fund and the Advisor.
There can be no assurance that such economic analysis will accurately predict
interest rate trends or that portfolio strategies based on the economic analysis
of Mr. Hyman will be effective.
The Fund's investment objective and its general investment policies are
described in the Prospectus. Additional investment restrictions are set forth
below. This Statement of Additional Information also describes other investment
practices in which the Fund may engage.
Except as specifically identified under "Investment Restrictions" in
the Prospectus and in this Statement of Additional Information, the investment
policies described in these documents are not fundamental, and the Directors may
change such policies without an affirmative vote of a majority of the Fund's
outstanding Shares (as defined under "Capital Shares" below). The Fund's
investment objective is fundamental, however, and may not be changed without
such a vote.
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Common stocks
The Fund will invest in common stocks of U.S. issuers, which are
subject to market risks that may cause their prices to fluctuate over time and
the price fluctuations may differ from changes in the value of the Wilshire
5000. Fluctuations in the value of the common stocks held by the Fund will cause
the value of the Shares to fluctuate.
U.S. Treasury Securities
The Fund will invest in U.S. Treasury Securities which are considered
among the safest of fixed-income investments. Because of this added safety, the
yields available from U.S. Treasury Securities are generally lower than the
yields available from corporate debt securities. As with other debt securities,
the value of U.S. Treasury Securities changes as interest rates fluctuate. This
is especially true for securities with longer maturities and for STRIPS
(securities that do not pay interest currently but which are purchased at a
discount and are payable in full at maturity). Changes in the value of portfolio
securities will not affect interest income from those securities but will be
reflected in the Fund's net asset value. Thus, a decrease in interest rates will
generally result in an increase in the value of the Shares. Conversely, during
periods of rising interest rates, the value of the Shares will generally
decline. The magnitude of these fluctuations will generally be greater at times
when the average maturity of the U.S. Treasury Securities held by the Fund is
longer.
Standard & Poor's Depositary Receipts
The Fund may invest in SPDRs which are shares of common stock in a unit
investment trust ("UIT") traded on the American Stock Exchange. SPDRs represent
a proportionate undivided interest in a basket of securities owned by the UIT,
which consists of substantially all of the common stocks, in substantially the
same weighting, as the component stocks of a specified S&P index. The
performance of a SPDR is intended to track the performance of the component
stocks of the relevant S&P index. The composition and weighting of the
securities owned by the UIT will be adjusted from time to time to conform to
periodic changes in the volatility and relative weightings of such S&P index.
The Fund's investment in SPDRs will be subject to limitations on investment in
other investment companies (see "Investment Restrictions"). An investment in
SPDRs is subject to the same risk of fluctuation in value as the basket of
common stocks underlying the SPDR. In particular, the price at which the
underlying SPDR securities may be sold and the value of the SPDR may be
adversely affected if the secondary trading markets for the SPDRs are limited or
absent. Additionally, the basket of common stocks underlying the SPDR may not
exactly replicate the performance of the specified index because of transaction
costs and other expenses. The basket of common stocks underlying the SPDR may
also be unable to fully replicate the performance of the specified S&P index due
to the temporary unavailability of certain underlying securities or due to other
extraordinary circumstances.
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Repurchase Agreements
The Fund may agree to purchase securities issued by the United States
Treasury ("U.S. Treasury Securities") from creditworthy financial institutions,
such as banks and broker-dealers, subject to the seller's agreement to
repurchase the securities at an established time and price. Such repurchase
agreements will be fully collateralized. The collateral for these repurchase
agreements will be held by the Fund's custodian or by a duly appointed
sub-custodian. The Fund will enter into repurchase agreements only with banks
and broker-dealers that have been determined to be creditworthy by the Fund's
investment Advisor. The list of approved banks and broker-dealers will be
monitored regularly by the Advisor and the Fund's sub-advisor (the
"Sub-Advisor") (collectively, the "Advisors"). The seller under a repurchase
agreement may be required to maintain the value of the securities subject to the
repurchase agreement at not less than the repurchase price. Default by the
seller would, however, expose the Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, the Fund may be delayed or limited in its ability
to sell the collateral.
When-Issued Securities
The Fund may make purchases of U.S. Treasury Securities, at the current
market value of the securities, on a when-issued basis. When such transactions
are negotiated, the yield to maturity is fixed. The coupon interest rate on such
U.S. Treasury Securities is fixed at the time of the U.S. Treasury auction date
therefore determining the price to be paid by the Fund, but delivery and payment
will take place after the date of the commitment. A segregated account of the
Fund, consisting of cash, cash equivalents or U.S. Treasury Securities equal at
all times to the amount of the when-issued commitments will be established and
maintained by the Fund at the Fund's custodian. Additional cash or U.S. Treasury
Securities will be added to the account when necessary. While the Fund will
purchase securities on a when-issued basis only with the intention of acquiring
the securities, the Fund may sell the securities before the settlement date if
it is deemed advisable to limit the effects of adverse market action. The
securities so purchased or sold are subject to market fluctuation and no
interest accrues to the Fund during this period. At the time the Fund makes the
commitment to purchase or sell securities on a when-issued basis, it will record
the transaction and thereafter reflect the value of such security purchased or,
if a sale, the proceeds to be received, in determining its net asset value. At
the time of delivery of the securities, their value may be more or less than the
purchase or sale price. The Fund will ordinarily invest no more than 40% of its
net assets at any time in securities purchased on a when-issued basis.
Futures Contracts
The Fund may engage in securities index futures contracts in order to
obtain exposure to certain market segments, facilitate allocation of investments
among asset classes and for the purposes of hedging the portfolio's investments.
A securities index futures contract obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific
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dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
trade is made. No physical delivery of the underlying stocks in the index is
made. Securities index futures contracts ("Futures Contracts") will be entered
on domestic exchanges and boards of trade, subject to applicable Commodity and
Futures Trading Commission ("CFTC") Rules. These transactions may be entered
into for bona fide hedging and other permissible risk management purposes.
Each such Futures Contract provides for a cash payment, equal to the
amount, if any, by which the value of the index at maturity is above or below
the value of the index at the time the contract was entered into, times a fixed
index "multiplier." The index underlying such a Futures Contract is generally a
broad based index of securities designed to reflect movements in the relevant
market as a whole. The index assigns weighted values to the securities included
in the index, and its composition is changed periodically. Futures Contracts
have been designed by exchanges which have been designated as "contract markets"
by the CFTC, and must be executed through a futures commission merchant ("FCM")
(i.e. futures broker), which is a member of the relevant contract market. The
exchanges guarantee performance of the contracts as between the clearing members
of the exchange.
In connection with transactions in Futures Contracts, the Fund will be
required to deposit as "initial margin" a specified amount of cash or short-term
U.S. Government securities. The initial margin required for a Futures Contract
is set by the exchange on which the contract is traded with review and oversight
by the CFTC. Thereafter, subsequent payments (referred to as "variation margin")
are made to and from the broker to reflect changes in the value of the Futures
Contract. The Fund will not enter into Futures Contracts, if immediately
thereafter, the sum of the amounts of initial margin deposits on the Fund's open
futures contracts entered into for other than "bona fide hedging" would exceed
5% of the value of the Fund's total assets.
Although Futures Contracts call for the making or acceptance of a cash
settlement at a specified future time, the contractual obligation is usually
fulfilled before such date by buying or selling, as the case may be, on a
commodities exchange, an identical Futures Contract calling for settlement in
the same month, subject to the availability of a liquid secondary market. The
Fund incurs brokerage fees when it purchases and sells Futures Contracts. The
purpose of the acquisition or sale of a Futures Contract, in the case of a
portfolio such as that of the Fund which holds or intends to acquire common
stocks, is to attempt to protect the Fund from market fluctuations, obtain
exposure to a particular market or market segment without actually buying or
selling securities, and/or facilitate the allocation of investments among asset
classes. For example, if the Fund owns stocks replicating the Wilshire 5000
Index, the Fund might sell index Futures Contracts based on such index as a
hedge against market decline. The use of Futures Contracts as an investment
technique allows the Fund to maintain a hedging position without having to sell
its portfolio securities.
To the extent the Fund enters into Futures Contracts for these
purposes, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts will consist of liquid
assets from its portfolio in an amount equal to the difference between the
fluctuating market value of such Futures Contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
Futures Contracts.
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Participation in the futures markets involves investment risks and
transaction costs to which the Fund would not be subject absent the use of these
strategies. Gains and losses on Futures Contracts depend on the Advisor's
ability to predict correctly the direction of securities prices, interest rates
and other economic factors. For example, if the Fund has hedged against the
possibility of a market decline and instead the market rises, the Fund will lose
part or all of the benefit of the increased value of its securities portfolio
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may also have to sell
securities at a time when it may be disadvantageous to do so.
Other risks associated with the use of Futures Contracts are (i)
imperfect correlation between the price of Futures Contracts and movements in
the prices of the securities underlying the index or of the securities being
hedged in the case of bona fide hedging strategies; (ii) the fact that skills
needed to use these investment strategies are different from those needed to
select portfolio securities; (iii) the possible absence of a liquid secondary
market for any particular instrument at any particular time; and (iv) the
possible need to defer closing out certain positions to avoid adverse tax
consequences. The risk that the Fund will be unable to close out a futures
position will be minimized by only entering into futures contracts for which
there appears to be a liquid exchange or secondary market. In addition, the
possible risk of loss of trading futures contracts in certain strategies can be
substantial, due to both the low margin deposits required and the high degree of
leverage involved in futures pricing.
Various additional risks exist with respect to the trading of futures.
Transactions in these instruments are also subject to the risk of brokerage firm
or clearing house insolvencies. The liquidity of a secondary market in a Futures
Contract may be adversely affected by "daily price fluctuation limits,"
established by exchanges, which limit the amount of fluctuation in the price of
a contract during a single trading day and prohibit trading beyond such limit.
In addition, the exchanges on which futures are traded may impose limitations
governing the maximum number of positions on the same side of the market and
involving the same underlying instrument which may be held by a single investor,
whether acting alone or in concert with others (regardless of whether such
contracts are held on the same or different exchanges or held or written in one
or more accounts or through one or more brokers). In addition, the ordinary
spreads between prices in the cash and futures markets, due to differences in
the natures of those markets, are subject to distortions. First, all
participants in the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation margin
requirements, investors may close out Futures Contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, from the point of view of speculators, the margin
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general market trends by
the Advisor may still not result in a successful transaction.
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Other Investments
For temporary defensive purposes, the Fund may invest up to 100% of
its assets in high quality, short-term money market instruments, and in notes or
bonds issued by the U.S. Treasury Department or by other agencies of the U.S.
Government.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectus, and are matters of fundamental policy and
may not be changed without the affirmative vote of a majority of the outstanding
Shares. The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Accordingly, the Fund will not:
1. Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government, its agencies
and instrumentalities are not considered an industry);
2. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any single issuer or
purchase more than 10% of the outstanding voting securities of any one
issuer, except the U.S. Government, its agencies and instrumentalities;
3. Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only from banks and in an amount not
exceeding 10% of the value of the total assets of the Fund at the time
of such borrowing, provided that, while borrowings by the Fund equaling
5% or more of the Fund's total assets are outstanding, the Fund will
not purchase securities for investment;
4. Invest in real estate or mortgages on real estate;
5. Purchase or sell commodities or commodities contracts (except that the
Fund may purchase or sell futures contracts based on underlying
securities indexes);
6. Act as an underwriter of securities within the meaning of the Federal
securities laws, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;
7. Issue senior securities;
8. Make loans, except that the Fund may purchase or hold debt instruments
and may enter into repurchase agreements and make loans of portfolio
securities in accordance with its investment objective and policies;
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The following investment restrictions may be changed by a vote of the majority
of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered under the
Investment Company Act, except as permitted by federal law.
2. Invest more than 15% of the value of its net assets in illiquid
securities.
VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) each
day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Shares by check as
described in the Prospectus. However, if the Board of Directors determines that
it would be in the best interests of the remaining shareholders of the Fund to
make payment of the redemption price in whole or in part by a distribution in
kind of readily marketable securities from the portfolio of the Fund in lieu of
cash, in conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation" and such
valuation will be made as of the same time the redemption price is determined.
The Fund, however, has elected to be governed by Rule 18f-1 under the Investment
Company Act pursuant to which the Fund is obligated to redeem Shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
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FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult with their tax advisors
with specific reference to their own tax situation, including their state and
local tax liabilities.
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as, administrative
changes or court decisions may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Qualification as Regulated Investment Company
The Fund intends to qualify and elect to be treated as a"regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of
its net investment income (that generally includes dividends, taxable interest,
and the excess of net short-term capital gains over net long-term capital losses
less operating expenses) and at least 90% of its net tax exempt interest income,
for each tax year, if any, to its shareholders and also must meet several
additional requirements. Included among these requirements are the following:
(i) at least 90% of the Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities, or certain other
income; (ii) at the close of each quarter of the Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other securities, with
such other securities limited, in respect to any one issuer, to an amount that
does not exceed 5% of the value of the Fund's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
The Fund may make investments in securities that bear "original issue
discount" or "acquisition discount" (collectively, "OID Securities"). The holder
of such securities is deemed to have received interest income even though no
cash payments have been received. Accordingly, OID Securities may not produce
sufficient current cash receipts to match the amount of distributable net
investment income the Funds must distribute to satisfy the Distribution
Requirement. In some cases, the Funds may have to borrow money or dispose of
other investments in order to make sufficient cash distributions to satisfy the
Distribution Requirement.
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Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%,regardless
of the length of time the shareholder has held the shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than
capital gains distributions) from a RIC generally qualify for the
dividends-received deduction to the extent of the gross amount of qualifying
dividends received by a Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, distributions from the Fund
generally will not qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in October, November, or December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Sale Or Exchange Of Fund Shares
Generally, gain or loss on the sale or exchange of a Share will be a
capital gain or loss that will be long-term if the Share has been held for more
than twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or
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less and has previously received a capital gains distribution with respect to
the Share (or any undistributed net capital gains of a Fund with respect to such
Share are included in determining the shareholder's long-term capital gains),
the shareholder must treat the loss as along-term capital loss to the extent of
the amount of the prior capital gains distribution (or any undistributed net
capital gains of a Fund that have been included in determining such
shareholder's long-term capital gains). In addition, any loss realized on a sale
or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.
Federal Excise Tax
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short- and long-term capital gains over short- and long-term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
State and Local Taxes
The Fund is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Depending upon state
and local law, distributions by the Fund to shareholders and the ownership of
shares may be subject to state and local taxes. Shareholders are urged to
consult their tax advisors as to the consequences of these and other state and
local tax rules affecting an investment in the Fund.
MANAGEMENT OF THE FUND
The overall business affairs of the Fund are the responsibility of the
Board of Directors. The Board approves all significant agreements between the
Fund and persons or companies furnishing services to the Fund, including the
Fund's agreements with its investment advisor, sub-advisor, distributor,
administrator, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's executive officers, the Advisors, the
Distributor and the Fund's administrator. A majority of the directors of the
Fund have no affiliation with the Advisors, the Distributor or the Fund's
administrator.
11
<PAGE>
Directors and Officers
The Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during the last five years are
set forth below. Unless otherwise indicated, the address of each Director and
executive officer is 717 Fifth Avenue, New York, New York 10022.
* EDWARD S. HYMAN, Chairman and Director (4/8/45)
Chairman, International Strategy & Investment Inc. (registered
investment advisor), Chairman and President, International
Strategy and Investment Group Inc. (registered
broker-dealer),1991-Present.
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity
Investor and Capital Markets Consultant; Director, Wit Capital
Group (registered broker dealer) and The Nevis Fund
(registered investment company). Formerly, Director, Circon
Corp. (medical instruments), November 1998-January 1999;
President and Chief Executive Officer, The National
Association of Securities Dealers, Inc. and The NASDAQ Stock
Market, Inc., 1987-1997; Chief Operating Officer of Alex.
Brown & Sons Incorporated (now Deutsche Banc Alex. Brown
Incorporated) 1985-1987; General Partner, Alex. Brown & Sons
Incorporated (now Deutsche Banc Alex. Brown Incorporated) 1976
-1985.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and
Household International (finance and banking). Formerly,
Chairman of the Quality Control Inquiry Committee, American
Institute of Certified Public Accountants, 1992-1998; Trustee,
Merrill Lynch Funds for Institutions, 1991-1993; Adjunct
Professor, Columbia University-Graduate School of Business,
1991-1992; and Partner, KPMG Peat Marwick, retired 1990.
12
<PAGE>
CARL W. VOGT, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2604. Senior Partner, Fulbright &
Jaworski L.L.P. (law); Director, Yellow Corporation (trucking)
and American Science and Engineering (x-ray detection
equipment); Formerly, Chairman and Member, National
Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak) and Member, Aviation System
Capacity Advisory Committee (Federal Aviation Administration).
*R. ALAN MEDAUGH, President (8/20/43)
President, International Strategy & Investment Inc.
(registered investment advisor) and Director, International
Strategy & Investment Group, Inc. (registered broker-dealer),
1991-Present.
*MICHAEL J. NAPOLI, JR., Vice President (10/1/51)
1299 Ocean Avenue, Suite 700, Santa Monica, CA 90401. Vice
President (1991-Present) and Principal (1993-Present),
Wilshire Associates Incorporated; Director of Marketing,
Wilshire Asset Management (1991-Present).
DAVID R. BORGER, Vice President (12/23/48)
Wilshire Associates Incorporated, 1299 Ocean Avenue, Suite
700, Santa Monica, CA 90401. Vice President and Principal,
Wilshire Associates Incorporated; Director of Research, Asset
Management Division.
CARRIE L. BUTLER, Vice President (5/1/67)
Assistant Vice President, International Strategy & Investment
Inc., 1991-Present.
13
<PAGE>
NANCY LAZAR, Vice President (8/1/57)
Executive Vice President and Secretary, International Strategy
& Investment Inc. (registered investment advisor) and
Executive Vice President and Director, International Strategy
& Investment Group Inc. (registered broker-dealer),
1991-Present.
THOMAS D. STEVENS, Vice President (5/27/49)
Wilshire Associates Incorporated, 1299 Ocean Avenue, Suite
700, Santa Monica, CA 90401. Senior Vice President and
Principal, Wilshire Associates Incorporated; Chief Investment
Officer, Wilshire Asset Management.
MARGARET M. BEELER, Assistant Vice President (3/1/67)
Assistant Vice President, International Strategy & Investment
Inc., 1996 - Present. Formerly, Marketing Representative, U.S.
Healthcare, Inc., 1995 -1996; Sales Manager, Donna Maione,
Inc., 1994-1995; Sales Manager, Deborah Wiley California,
1989-1994.
KEITH C. REILLY, Assistant Vice President (6/2/66)
Assistant Vice President, International Strategy & Investment
Inc., 1996-Present; Formerly, Select Private Banking Officer;
Assistant Manager, Chemical Bank, 1995-1996; Financial
Consultant, Dreyfus Corporation, 1989-1995.
CHARLES A. RIZZO, TREASURER (8/5/57)
One South Street, Baltimore, Maryland 21202. Vice President
and Department Head, Deutsche Asset Management Americas,
1998-Present. Formerly, Senior Manager, PricewaterhouseCoopers
LLP 1993-1998.
AMY M. OLMERT, SECRETARY (5/14/63)
One South Street, Baltimore Maryland 21202.
Vice President, Deutsche Asset Management Americas
since 1999; and Vice President, BT Alex. Brown Incorporated,
1997-1999. Formerly, Senior Manager, PricewaterhouseCoopers
LLP 1993-1998.
DANIEL O. HIRSCH, ASSISTANT SECRETARY (3/27/54)
One South Street, Baltimore, Maryland 21202. Director,
Deutsche Asset Management Americas, 1998-Present. Formerly,
Assistant General Counsel, United States Securities and
Exchange Commission, 1993-1998.
----------------------
A Director who is an "interested person" as defined in the Investment Company
Act.
14
<PAGE>
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies advised by ISI or its affiliates.
There are currently four funds in the ISI Funds fund complex (the "Fund
Complex"). Mr. Hyman serves as Chairman of each fund in the Fund Complex. Mr.
Medaugh serves as President of each fund in the Fund Complex. Messrs. Hardiman,
Levy, and Vogt serve as Directors of each fund in the Fund Complex. Ms. Lazar
and Ms. Butler serve as Vice Presidents of four funds in the Fund Complex. Ms.
Beeler and Mr. Reilly each serve as Assistant Vice President for four funds in
the Fund Complex. Ms. Olmert serves as Secretary, Mr. Hirsch serves as Assistant
Secretary and Mr. Rizzo serves as Treasurer, respectively, for each of the funds
in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, the Fund's administrator or its affiliates in the
ordinary course of business. All such transactions were made on substantially
the same terms as those prevailing at the time for comparable transactions with
unrelated persons. Additional transactions may be expected to take place in the
future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of the Advisors, the Distributor or the Fund's administrator may be considered
to have received remuneration indirectly. As compensation for his or her
services as director, each Director who is not an "interested person" of the
Fund (as defined in the Investment Company Act) (an "Independent Director")
receives an aggregate annual fee (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance at
board and committee meetings) from all each fund in the Fund Complex for which
he or she serves. In addition, the Chairmen of the Fund Complex's Audit
Committee and Executive Committee receive an aggregate annual fee from the Fund
Complex. Payment of such fees and expenses is allocated among the funds
described above in direct proportion to their relative net assets. For the year
ended May 31, 1999, Independent Directors fees attributable to the assets of the
Fund totaled approximately $972.
The following table shows aggregate compensation and retirement
benefits payable to each of the Fund's Directors by the Fund and Fund Complex,
respectively, and pension or retirement benefits accrued as part of Fund
expenses in the fiscal year ended May 31, 1999.
15
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the Fund
From the fund payable to Pension or Retirement and Fund Complex Payable to
Name of Person, Directors for the Fiscal Benefits Accrued as Directors for the Fiscal Year
Position Year Ended May 31, 1999 Part of Fund Expenses Ended May 31, 1999
- ----------------------------- --------------------------- ------------------------- ----------------------------------
<S> <C> <C> <C>
Edward S. Hyman(1) $0 $0 $0
Chairman and Director
Truman T. Semans(1)(7) $0 $0 $0
Vice Chairman and Director
R. Alan Medaugh(1)(7) $0 $0 $0
Director and President
Michael J. Napoli(1)(7) $0 $0 $0
Director
James J. Cunanne(7) $102.68 $(2) $39,000 for service on 13(3)
Director Boards in the Fund complex
Joseph R. Hardiman(4) $84.47 $(2) $29,250 for service on 12(6)
Director Boards in the Fund complex
John F. Kroeger(5) $89.71 $(2) $36,750 for service on 13(3)
Director Boards in the Fund complex
Louis E. Levy $123.31 $(2) $46,500 for service on 13(3)
Director Boards in the Fund complex
Eugene J. McDonald(7) $110.70 $(2) $44,000 for service on 13(3)
Director Boards in the Fund complex
Rebecca W. Rimel(7) $104.26 $(2) $39,000 for service on 12(3)(6)
Director Boards in the Fund complex
Carl W. Vogt, Esq. $104.89 $(2) $39,000 for service on 13(3)(6)
Director Boards in the Fund complex
</TABLE>
- ------------------------
(1) Denotes an individual who is an "interested person" as defined in the
Investment Company Act.
(2) The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for the
period ended May 31, 1999 was $972.
(3) One of these funds ceased operations on July 29, 1998.
(4) Appointed effective September 27, 1998.
(5) Retired effective September 27, 1998. Deceased, November 26, 1998.
(6) Ms. Rimel receives and Messrs. Vogt and Hardiman received (prior to their
appointment or election to all of the funds in the Fund Complex) proportionately
higher compensation from each fund for which they serve as a Director.
(7) Resigned effective September 28, 1999.
16
<PAGE>
The Fund Complex has adopted a retirement plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's administrator or
their respective affiliates (the "Participants"). After completion of six years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which the Participant serves. The Retirement Plan is
unfunded and unvested. Such fees are allocated to each fund in the Fund Complex
based upon the relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1998 are as follows: for Mr. Cunnane, 4 years; for Mr. Levy, 4
years; for Mr. McDonald, 6 years; for Ms. Rimel, 3 years and for Mr. Vogt, 3
years; for Mr. Hardiman, 0 years.
<TABLE>
<CAPTION>
Estimated Annual Benefits Payable By
Years of Service Fund Complex Upon Retirement
- ----------------- ------------------------------------------------------
Chairmen of Audit and
Executive Committees Other Participants
-------------------------------------------- -----------------------
<S> <C> <C>
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer 50%
or up to 100%, of his or her annual compensation pursuant to a Deferred
Compensation Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms. Rimel have
each executed a Deferred Compensation Agreement. Currently, the deferring
Directors may select from among various Flag Investors, Deutsche Banc Alex.
Brown Cash Reserve Fund, Inc. and BT International Equity Fund in which all or
part of their deferral account shall be deemed to be invested. Distributions
from the deferring Directors' deferral accounts will be paid in cash, in
generally equal quarterly installments over a period of 10 years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all of the directors and
officers of the Fund, as well as to designated officers, directors and employees
of the Advisors and the Distributor. As described below, the Code of Ethics
imposes additional restrictions on the Advisors' investment personnel, including
17
<PAGE>
the portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The Code of Ethics requires that any officer, director, or employee of
the Fund, International Strategy & Investment Group, Inc. or the Advisor
preclear any personal securities investments (with certain exceptions, such as
non-volitional purchases or purchases that are part of an automatic dividend
reinvestment plan). The foregoing would apply to any officer, director or
employee of the Distributor that is an access person. The preclearance
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. The substantive
restrictions applicable to investment personnel include a ban on acquiring any
securities in an initial public offering, a prohibition from profiting on
short-term trading in securities and special preclearance of the acquisition of
securities in private placements. Furthermore, the Code of Ethics provides for
trading "blackout periods" that prohibit trading by investment personnel and
certain other employees within periods of trading by the Fund in the same
security. Officers, directors and employees of the Advisors and the Distributor
may comply with codes instituted by those entities so long as they contain
similar requirements and restrictions.
18
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
On June 17, 1997, the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory Agreement
between the Fund and ISI and a Sub-Advisory Agreement among the Fund, ISI and
Wilshire Associates Incorporated ("Wilshire" or the "Sub-Advisor"), both of
which contracts are described in greater detail below. The Investment Advisory
Agreement and the Sub-Advisory Agreement were approved by the sole shareholder
of the Fund on September 10, 1997. ISI is a registered investment advisor that
was formed in January 1991. ISI employs Messrs. Edward S. Hyman, the Fund's
Chairman, and R. Alan Medaugh, the Fund's President. ISI is also investment
advisor to Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc.
and North American Government Bond Fund, Inc., open-end management investment
companies with net assets of approximately $477 million as of August 31, 1999.
Wilshire, a California corporation, is a registered investment advisor
with approximately $9.6 billion in net assets under management as of August 31,
1999. Wilshire currently provides investment advisory services to 1 open-end
registered investment company with $277 million of net assets under management
as of August 31, 1999. Wilshire employs as its President and Chief Executive
Officer, Mr. Dennis Tito, who, due to his stock ownership, may be deemed to be a
controlling person of Wilshire.
Under the Investment Advisory Agreement, ISI: (1) formulates and
implements continuing programs for the purchase and sales of securities, (2)
determines what securities (and in what proportion) shall be represented in the
Fund's portfolio (3) provides the Fund's Board of Directors with regular
financial reports and analysis with respect to the Fund's portfolio investments
and operations, and the operations of comparable investment companies, (4)
obtains and evaluates economic, statistical, and financial information pertinent
to the Fund, and (5) takes on behalf of the Fund, all actions which appear to
the Advisor necessary to carry into effect its purchase and sale programs. ISI
has delegated these responsibilities to Wilshire for a portion of the Fund's
portfolio, provided that ISI continues to supervise the performance of Wilshire
and report thereon to the Fund's Board of Directors. Any investment program
undertaken by ISI or Wilshire will at all times be subject to the policies and
control of the Fund's Board of Directors. Neither ISI or Wilshire shall be
liable to the Fund or its shareholders for any act of omission by ISI or
Wilshire or any losses sustained by the Fund or its shareholders except in the
case of willful misfeasance, bad faith, gross negligence, or reckless disregard
of duty. The services of ISI and Wilshire to the Fund are not exclusive and both
ISI and Wilshire are free to render similar services to others.
As compensation for these services, ISI is entitled to receive an
annual fee from the Fund calculated daily and paid monthly, at the annual rate
of 0.40% of the Fund's daily net asset value. As compensation for its services,
Wilshire is entitled to receive a fee from ISI, payable out of ISI's advisory
fee, calculated daily and payable monthly, at the annual rate of 0.16% of the
Fund's average daily net assets. ISI has contractually agreed to waive its
annual fee and reimburse expenses to the extent necessary, so that the Fund's
total operating expenses do not exceed 1.00% of its average daily net assets.
ISI's compensation under the Investment Advisory Agreement for the fiscal year
ended May 31, 1999 and the period from September 16, 1997 (commencement of
19
<PAGE>
operations) through May 31, 1998 was $0 (net of fee waivers and reimbursements
of $62,291) and $0 (net of fee waivers of $32,924 and reimbursements of
$60,048), respectively. ISI pays Wishire a fee out of its advisory fee.
Each of the Investment Advisory and the Sub-Advisory Agreements has an
initial term of two years and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by the
Fund's Board of Directors, including a majority of the Independent Directors who
have no direct or indirect financial interest in such agreements, by votes cast
in person at a meeting called for such purpose, or by a vote of a majority of
the outstanding shares (as defined under "Capital Stock"). The Fund or ISI may
terminate the Investment Advisory Agreement on 60 days' written notice without
penalty. The Investment Advisory Agreement will terminate automatically in the
event of assignment (as defined in the Investment Company Act).
The Sub-Advisory Agreement has similar termination provisions.
ADMINISTRATION
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore,
Maryland 21202, provides administration services to the Fund. Such services
include: monitoring the Fund's regulatory compliance, supervising all aspects of
the Fund's service providers, arranging, but not paying for, the printing and
mailing of prospectuses, proxy materials and shareholder reports, preparing and
filing all documents required by the securities laws of any state in which the
Shares are sold, establishing the Fund's budgets, monitoring the Fund's
distribution plans, preparing the Fund's financial information and shareholder
reports, calculating dividend and distribution payments and arranging for the
preparation of state and federal tax returns. As compensation for its
administration services, ICC is entitled to receive an annual fee calculated
according to the following schedule based on the combined assets of the the ISI
Funds:
Assets Fee
0 - $75,000,000 .20%
$75,000,000 - $150,000,000 .15%
$150,000,000 - $225,000,000 .10%
$225,000,000 - $500,000,000 .05%
Over $500,000,000 .03%
ICC's compensation under the Agreement for the fiscal year ended May
31, 1999 and the period from September 16, 1997 (commencement of operations)
through May 31, 1998 was $14,809 (net of fee waivers of $16,586) and $0 (net of
fee waivers of $9,877), respectively. The services of ICC to the Fund are not
exclusive and ICC is free to render similar services to others.
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. (See "Custodian, Transfer Agent and Accounting Services"). ICC
is an indirect subsidiary of Deutsche Bank AG.
20
<PAGE>
DISTRIBUTION OF FUND SHARES
International Strategy & Investment Group Inc. ("ISI Group" or the
"Distributor") serves as the exclusive distributor of the Fund's Shares pursuant
to a Distribution Agreement (the "Distribution Agreement"). ISI Group, a
Delaware corporation, is a broker-dealer that was formed in 1991 and is an
affiliate of the Advisor.
The Distribution Agreement provides that ISI Group has the exclusive
right to distribute the Shares either directly or through other broker-dealers
and further provide that ISI Group will: solicit and receive orders for the
purchase of Shares; accept or reject such orders on behalf of the Fund in
accordance with the Fund's currently effective prospectus and transmit such
orders as are accepted to the Fund's transfer agent as promptly as possible;
receive requests for redemption and transmit such redemption requests to the
Fund's transfer agent as promptly as possible; respond to inquiries from the
Fund's shareholders concerning the status of their accounts with the Fund,
provide the Fund's Board of Directors for their review with quarterly reports
required by Rule 12b-1; maintain such accounts, books and records as may be
required by law or be deemed appropriate by the Fund's Board of Directors; and
take all actions deemed necessary to carry into effect the distribution of the
Shares. ISI Group has not undertaken to sell any specific number of Shares. The
Distribution Agreement further provides that, in connection with the
distribution of Shares, ISI Group will be responsible for all of its promotional
expenses. The services by ISI Group to the Fund are not exclusive, and ISI Group
shall not be liable to the Fund or its shareholders for any act or omission by
ISI Group or any losses sustained by the Fund or its shareholders except in the
case of willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
As compensation for providing distribution and related administrative
services for the ISI Shares as described above, the Fund will pay ISI Group , on
a monthly basis, an annual fee, equal to 0.25% of the Fund's average daily net
assets. ISI Group expects to allocate on a proportional basis up to all of its
fees to broker-dealers who enter into Agency Distribution Agreements with ISI
Group ("Participating Dealers") under which such broker-dealers have agreed to
process investor purchase and redemption orders and respond to inquiries from
Fund shareholders concerning the status of their accounts and the operations of
the Fund. As compensation for providing distribution and shareholder services
for the fiscal year ended May 31, 1999 and the period from September 16, 1997
(commencement of operations) through May 31, 1998, ISI Group received $65,443
and $20,578, respectively.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted a Plan of Distribution
for the ISI Shares (the "ISI Plan"). Under the ISI Plan, the Fund pays a fee to
ISI Group for distribution and other shareholder servicing assistance as set
forth in the Distribution Agreement, and ISI Group is authorized to make
payments out of its fees to Participating Dealers.
The Distribution Agreement has an initial term of two years. The
Distribution Agreement and the ISI Plan will remain in effect from year to year
as specifically approved (a) at least annually by the Fund's Board of Directors
and (b) by the affirmative vote of a majority of the Independent Directors, by
votes cast in person at a meeting called for such purpose. The Distribution
21
<PAGE>
Agreement, forms of Agency Distribution Agreement and the ISI Plan were most
recently approved by the Fund's Board of Directors, including a majority of the
Independent Directors on September 28, 1999.
In approving the ISI Plan, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
ISI Plan would benefit the Fund and its shareholders. The ISI Plan will be
renewed only if the Directors make a similar determination in each subsequent
year. The ISI Plan may not be amended to increase materially the fee to be paid
pursuant to the Distribution Agreement without the approval of the Fund's
shareholders. The ISI Plan may be terminated at any time, and the Distribution
Agreement may be terminated at any time upon 60 days' notice, without penalty,
by a vote of a majority of the Fund's Independent Directors or by a vote of a
majority of the outstanding Shares. Any Agency Distribution Agreement may be
terminated in the same manner at any time. The Distribution Agreement and any
Agency Distribution Agreement shall automatically terminate in the event of
assignment.
During the continuance of the ISI Plan, the Fund's Board of Directors
will be provided for their review, at least quarterly, a written report
concerning the payments made under the ISI Plan to ISI Group pursuant to the
Distribution Agreement, to Participating Dealers pursuant to Agency Distribution
Agreements and to Shareholder Servicing Agents pursuant to Shareholder Servicing
Agreements. Such reports shall be made by the persons authorized to make such
payments. In addition, during the continuance of the ISI Plan, the selection and
nomination of the Fund's Independent Directors shall be committed to the
discretion of the Independent Directors then in office.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which ISI Group will allocate a portion of its
distribution fee as compensation for such financial institutions' ongoing
shareholder services. Although banking laws and regulations prohibit banks from
distributing shares of open-end investment companies such as the Fund, according
to interpretations from various bank regulatory authorities, financial
institutions are not prohibited from acting in other capacities for investment
companies, such as the shareholder servicing capacities described above. Should
future legislative, judicial or administrative action prohibit or restrict the
activities of the Shareholder Servicing Agents in connection with the
Shareholder Servicing Agreements, the Fund may be required to alter materially
or discontinue its arrangements with the Shareholder Servicing Agents. Such
financial institutions may impose separate fees in connection with these
services and investors should review the applicable Prospectus and this
Statement of Additional Information in conjunction with any such institution's
fee schedule.
Under the ISI Plan, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to the Distributor,
with respect to shares held by or on behalf of customers of such entities.
Payments under the ISI Plan are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the ISI Shares is less than
0.25% of the ISI Shares' average daily net assets for any period, the unexpended
portion of the distribution fee may be retained by the Distributor. The ISI Plan
22
<PAGE>
does not provide for any charges to the Fund for excess amounts expended by the
Distributor and, if the ISI Plan is terminated in accordance with its terms, the
obligation of the Fund to make payments to the distributor pursuant to the ISI
Plan will cease and the Fund will not be required to make any payments past the
date the Distribution Agreement terminates. In return for payments received
pursuant to the ISI Plan, ISI will pay the distribution-related expenses of the
ISI Class including one or more of the following: advertising expenses; printing
and mailing of prospectuses to other than current shareholders; compensation to
dealers and sales personnel; and interest, carrying or other financing charges.
For the fiscal year ended May 31, 1999 and the period from September
16, 1997 (commencement of operations) through May 31, 1998, ISI Group was paid
commissions of $265,128 and from that amount retained $0 and $19,311 and from
that amount retained $0, respectively.
Except as described elsewhere, the Fund pays or causes to be paid all
continuing expenses of the Fund, including, without limitation: investment
advisory, administration and distribution fees; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of cash, portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions, if any,
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with the
maintenance of registration of the Fund and its Shares with the SEC and various
states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting and distributing prospectuses of the Fund and supplements thereto to
the shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Independent Directors and Independent members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in Shares or in cash;
charges and expenses of any outside service used for pricing of the Shares; fees
and expenses of legal counsel or independent auditors, in connection with any
matter relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
assumed by the Advisors, the Distributor or the Fund's administrator.
BROKERAGE
ISI and Wilshire, subject to the supervision of ISI, are each
responsible for decisions to buy and sell securities for a portion of the Fund's
portfolio, for broker-dealer selection and for negotiation of commission rates.
23
<PAGE>
Purchases and sales of securities on a securities exchange are effected
through broker-dealers who charge a commission for their services. Brokerage
commissions are subject to negotiation between the Advisors and the
broker-dealers. The Advisors may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, ISI Group.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with ISI
Group in any transaction in which ISI Group acts as a principal.
The Advisors' primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, the Advisors may, in their discretion,
effect agency transactions with broker-dealers that furnish statistical,
research or other information or services which are deemed by the Advisors to be
beneficial to the Fund's investment program. Certain research services furnished
by broker-dealers may be useful to the Advisors with clients other than the
Fund. Similarly, any research services received by the Advisors through
placement of portfolio transactions of other clients may be of value to the
Advisors in fulfilling their obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to the
Advisors by a broker-dealer. The Advisors are of the opinion that because the
material must be analyzed and reviewed by their staffs, its receipt does not
tend to reduce expenses, but may be beneficial in supplementing the Advisors'
research and analysis. Therefore, it may tend to benefit the Fund by improving
the Advisors' investment advice. In over-the-counter transactions, the Advisors
will not pay any commission or other remuneration for research services. The
Advisors' policy is to pay a broker-dealer higher commissions for particular
transactions than might be charged if a different broker-dealer had been chosen
when, in the Advisors' opinion, this policy furthers the overall objective of
obtaining best price and execution. Subject to periodic review by the Fund's
Board of Directors, the Advisors are also authorized to pay broker-dealers
higher commissions on brokerage transactions for the Fund in order to secure
research and investment services described above. However, Wilshire has no
current intention to do so. The allocation of orders among broker-dealers and
the commission rates paid by the Fund will be reviewed periodically by the
Board. The foregoing policy under which the Fund may pay higher commissions to
certain broker-dealers in the case of agency transactions, does not apply to
transactions effected on a principal basis.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through ISI Group. At the
time of such authorization, the Board adopted certain policies and procedures
incorporating the standards of Rule 17e-1 under the Investment Company Act which
requires that the commissions paid ISI Group must be "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time." Rule 17e-1 also contains
24
<PAGE>
requirements for the review of such transactions by the Board of Directors and
requires the Advisors to furnish reports and to maintain records in connection
with such reviews. The Distribution Agreement does not provide for any reduction
in the distribution fee to be received by ISI Group from the Fund as a result of
profits from brokerage commissions on transactions of the Fund effected through
ISI Group. The Advisors manage other investment accounts. It is possible that,
at times, identical securities will be acceptable for the Fund and one or more
of such other accounts; however, the position of each account in the securities
of the same issuer may vary and the length of time that each account may choose
to hold its investment in such securities may likewise vary. The timing and
amount of purchase by each account will also be determined by its cash position.
If the purchase or sale of securities consistent with the investment policies of
the Fund or one or more of these accounts is considered at or about the same
time, transactions in such securities will be allocated among the accounts in a
manner deemed equitable by the Advisors. The Advisors may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution. Such simultaneous
transactions, however, could adversely affect the ability of the Fund to obtain
or dispose of the full amount of a security which it seeks to purchase or sell.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the Investment Company Act) which the
Fund has acquired during its most recent fiscal year. As of May 31, 1999, the
Fund held a 4.50% repurchase agreement issued by Goldman Sachs & Company valued
at $2,048,000, and 1,000 shares of Morgan Stanley, Dean Witter, Discover & Co.
valued at $96,500.
CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund may issue up to 25
million Shares of its capital stock with a par value of $.001 per Share.
The Fund's Articles of Incorporation provide for the establishment of separate
series and separate classes of Shares by the Directors at any time without
shareholder approval. The Fund currently has one Series and one class of shares:
ISI Strategy Fund Shares. All Shares of the Fund regardless of class have equal
rights with respect to voting, except that with respect to any matter affecting
the rights of the holders of a particular series or class, the holders of each
series or class will vote separately. Any such series will be a separately
managed portfolio and shareholders of each series or class will have an
undivided interest in the net assets of that series. For tax purposes, the
series will be treated as separate entities. Generally, each class of Shares
issued by a particular series will be identical to every other class and
expenses of the Fund (other than 12b-1 fees and any applicable service fees) are
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively will be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
25
<PAGE>
The Fund's By-laws provide that any director of the Fund may be removed
by the shareholders by a vote of a majority of the votes entitled to be cast for
the election of Directors. A meeting to consider the removal of any Director or
Directors of the Fund will be called by the Secretary of the Fund upon the
written request of the holders of at least one-tenth of the outstanding Shares
of the Fund entitled to vote at such meeting.
There are no preemptive, conversion or exchange rights applicable to
any of the Shares. The Fund's issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets allocated
to a separate series of Shares if there is more than one series) after all debts
and expenses have been paid.
As used in this Statement of Additional Information, the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company, 130 Liberty Street, New York, New York 10006
("Bankers Trust") has been retained to act as custodian of the Fund's
investments. Bankers Trust receives such compensation from the Fund for its
services as custodian as may be agreed to from time to time by Bankers Trust and
the Fund. For the fiscal year ended May 31, 1999, Bankers Trust was paid $7,030
as compensation for providing custody services. Investment Company Capital
Corp., One South Street, Baltimore, Maryland 21202 (telephone: (800) 882-8585)
has been retained to act as the Fund's transfer and dividend disbursing agent.
As compensation for these services, ICC receives up to $16.20 per account per
year plus reimbursement for out-of-pocket expenses incurred in connection
therewith.
26
<PAGE>
ICC also provides accounting services to the Fund. As compensation for
these services, ICC is entitled to receive an annual fee, calculated daily and
paid monthly, as shown below. For such services for the fiscal year ended May
31, 1999 and the period from September 16, 1997 (commencement of operations)
through May 31, 1998, ICC received a fee of $27,591, and $10,103, respectively.
Average Daily Net Assets Incremental Annual Accounting Fee
- ------------------------ ---------------------------------
$0 - $10,000,000 $13,000(fixed fee)
$10,000,000 - $20,000,000 0.100%
$20,000,000 - $30,000,000 0.080%
$30,000,000 - $40,000,000 0.060%
$40,000,000 - $50,000,000 0.050%
$50,000,000 - $60,000,000 0.040%
$60,000,000 - $70,000,000 0.030%
$70,000,000 - $100,000,000 .020%
$100,000,000 - $500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 0.001%
In addition, the Fund will reimburse ICC for certain out-of-pocket expenses
incurred in connection with ICC's provision of accounting services under the
Master Services Agreement.
INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by the Fund's
independent auditors, Deloitte & Touche LLP.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, as of September 2, 1999, the following
persons owned beneficially or of record 5% or more of the Fund's outstanding
shares:
Edward S. Hyman, Jr. 6.97%
c/o ISI Funds
717 5th Avenue
New York, NY 10022-8101
As of September 2, 1999, to Fund management's knowledge, Directors and officers
as a group owned 9.26% of the Fund's total outstanding Shares of the ISI Shares
class.
PERFORMANCE COMPUTATIONS
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return.
27
<PAGE>
The total return quotations, under the rules of the SEC, must be calculated
according to the following formula:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1,5 or 10)
ERV = ending redeemable value at the end of the 1-, 5- or
10-year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the 1-,
5- or 10-year periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one-, five- and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement or the date the Fund (or a
series) commenced operations.
Calculated according to SEC rules, the ending redeemable value and
total return of a hypothetical $1000 payment for the periods ended May 31, 1999,
were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------- ---------------------------------------------------
One-Year Period Ended Since Inception
May 31, 1999 (September 16, 1997)
--------------------------------------------------- ---------------------------------------------------
Ending Redeemable Average Annual Ending Redeemable Average Annual
Value Total Return Value Total Return
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISI
Shares $1,121.53 7.16% $1,244.26 10.69%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
in order to compare more accurately the Fund's performance with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., the Fund calculates its
aggregate and average annual total return for the specified periods of time by
assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges. The Fund will, however, disclose
the maximum sales charges and will also disclose that the performance data does
not reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules, and all advertising containing performance data will include a legend
disclosing that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less that their original
cost.
The Fund's annual portfolio turnover rate may vary from year to year,
as well as within a year, depending on market conditions. For the fiscal year
ended May 31, 1999, the Fund's portfolio turnover rate was 31.93%.
FINANCIAL STATEMENTS
See next page
28
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- 66.8%
20th Century Industries 200 $ 3,662
3Com Corp.(1) 600 16,500
@entertainment, Inc.(1) 100 1,262
A.G. Edwards & Sons, Inc. 200 6,725
AAR Corp. 200 3,950
Abbott Laboratories 2,700 122,006
Abercrombie & Fitch Co.-- Class A 102 8,581
ABR Information Services, Inc.(1) 100 2,525
Acceptance Insurance Companies, Inc.(1) 100 1,569
Ackerley Group, Inc. 100 1,887
ACNielsen Corp.(1) 100 2,819
Action Performance Companies., Inc.(1) 100 3,800
Acxiom Corp.(1) 100 2,700
Adaptec, Inc. 200 6,175
ADC Telecommunications, Inc.(1) 200 9,775
Adelphi Communications Corp.-- Class A(1) 100 7,550
Administaff, Inc.(1) 100 1,600
Adobe Systems, Inc. 100 7,412
Advance Paradigm, Inc.(1) 100 4,837
Advanced Energy Industries(1) 100 2,487
Advanced Fibre Communications 100 1,044
Advanced Micro Devices, Inc.(1) 200 3,700
AES Corp.(1) 300 14,925
Aetna, Inc. 300 27,244
AFC Cable Systems, Inc.(1) 100 3,437
Affiliated Computer Services, Inc.-- Class A 200 8,675
Affiliated Managers Group, Inc. 200 5,850
Aflac, Inc. 500 25,500
Aftermath Technology Corp.(1) 100 1,100
Ag-Chem Equipment Co., Inc.(1) 100 1,125
AGCO Corp. 100 1,162
AGL Resources, Inc. 200 3,775
Agribrands International(1) 100 3,494
Air Express International Corp. 100 2,500
Air Products & Chemicals, Inc. 400 16,400
Airborne Freight Corp. 100 2,587
Airgas, Inc.(1) 200 2,287
Airlease, Ltd. 100 1,112
Airtouch Communications, Inc.(1) 1,000 100,500
AK Steel Holding Corp. 100 2,400
Alaska Air Group, Inc.(1) 100 4,150
Albany International Corp.-- Class A 204 4,781
Albemarle Corp. 100 2,244
Alberto-Culver Co.-- Class B 100 2,644
Albertson's, Inc. 400 21,400
Alcoa 660 36,300
Aliant Communications, Inc. 100 4,750
Allegheny Energy, Inc. 200 6,975
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Allegheny Teledyne, Inc. 300 $ 6,131
Allegiance Telecom, Inc.(1) 100 3,700
Allen Telecom, Inc.(1) 100 1,044
Allergan, Inc. 100 9,300
Alliance Capital Management LP 300 9,094
Alliant Energy Corp. 100 3,019
Alliant Techsystems, Inc.(1) 100 8,500
Allied Capital Corp. 200 3,725
Allied Products Corp.(1) 200 1,037
Allied Waste Industries, Inc.(1) 300 5,587
Allied-Signal, Inc. 1,000 58,062
Allmerica Financial Corp. 100 5,856
Allstate Corp. 1,500 54,656
ALLTEL Corp. 500 35,844
Alphanet Solutions, Inc.(1) 100 394
Altera Corp.(1) 400 13,925
Alterra Healthcare Corp.(1) 100 1,225
Alyn Corp.(1) 100 228
ALZA Corp.(1) 240 8,565
Amazon.com, Inc.(1) 400 47,500
AMB Property Corp. 100 2,250
AMBAC, Inc. 100 5,831
AMC Entertainment, Inc.(1) 300 5,100
Amcol International Corp. 550 7,803
Amcore Financial, Inc. 100 2,119
Amerada Hess Corp. 200 11,987
Amerco 100 2,500
Ameren Corp 200 8,187
America Online(1) 1,880 224,425
American Axle & Mfg. Holdings 200 3,037
American BanCorp. Ohio 100 1,950
American Bankers Insurance Group 100 5,362
American Biltrite, Inc. 100 2,050
American Classic Voyages Co.(1) 100 1,756
American Dental Partners(1) 200 2,075
American Electric Power Co., Inc. 300 13,012
American Express Co. 800 96,950
American Financial Group, Inc. 100 3,375
American General Corp. 400 28,900
American Greetings Corp.-- Class A 100 2,862
American Heritage Life Investment Corp. 100 2,325
American Home Products Corp. 2,400 138,300
American International Group, Inc. 2,206 252,173
American Management Systems, Inc. 100 3,175
American Power Conversion Corp.(1) 200 7,787
American Retirement Corp. 100 1,694
American Standard Co., Inc.(1) 100 4,625
American Stores Co. 500 16,500
7
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
American Tower Corp(1) 200 $ 4,500
American Water Works Co., Inc. 100 3,100
Amerin Corp.(1) 200 5,375
Amerisource Health Corp.-- Class A 200 5,912
Ameritech Corp. 2,000 131,625
AmeriTrade Holding Corp. 100 8,969
Amgen, Inc. 900 56,925
Amli Residential Properties 400 9,025
AMR Corp. 300 19,519
Amsouth Bancorp 375 10,641
Anadarko Petroleum Corp. 200 7,500
Analog Devices, Inc.(1) 300 11,531
Anchor Gaming(1) 100 4,475
Andrew Corp.(1) 200 3,100
ANDRX Corp.(1) 100 10,087
Anesta Corp.(1) 100 1,787
Anheuser Busch 800 58,450
Answerthink Consulting Group(1) 100 2,637
Antec Corp.(1) 200 5,862
AON Corp. 450 19,350
Apache Corp. 200 7,200
Apartment Investment & Management Co. 252 10,584
Apogee Enterprises, Inc. 400 4,775
Apollo Group, Inc.-- Class A(1) 100 2,794
Apple Computer, Inc.(1) 200 8,812
Applebee's International, Inc. 100 2,950
Applied Materials, Inc.(1) 700 38,456
Arabian Shield Development Co.(1) 100 109
Arch Chemicals 50 1,153
Arch Coal, Inc. 200 2,925
Archer-Daniels-Midland Co. 1,025 15,375
Archstone Communities Trust 300 6,750
Arden Realty Group 100 2,556
Area Bankshares Corp. 200 4,950
Argonaut Group, Inc. 100 2,688
Arnold Industries, Inc. 100 1,650
Arrow Electronics, Inc.(1) 200 3,475
Arrow Financial Corp. 200 5,350
Arrow International, Inc. 100 2,537
Artesian Resources Corp-- Class A 100 2,162
Artesyn Technologies, Inc.(1) 200 4,225
Asarco, Inc. 200 3,212
Ascend Communications, Inc.(1) 400 37,075
Ashland 100 4,075
Aspen Technology, Inc.(1) 100 1,044
Associated Banc Corp. 100 3,462
Associated Estates Realty Corp. 200 2,287
Associated Group, Inc.(1) 100 6,500
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Associates First Capital Corp.-- Class A 1,324 $ 54,284
Astoria Financial Corp. 100 4,500
At Home Corp. Series A(1) 200 25,350
AT&T Corp. 5,738 318,459
Atlantic Coast Airlines, Inc.(1) 100 1,750
Atlantic Richfield Co. 600 50,212
Atlas Air, Inc.(1) 100 2,687
Atmel Corp. 200 3,950
Atrion Corp.(1) 300 2,850
Authentic Fitness Corp. 100 1,644
Autodesk, Inc. 100 2,762
Automatic Data Processing, Inc. 1,100 45,306
Automobile Protection Corp. 100 1,025
Autonation(1) 800 13,100
Autozone, Inc.(1) 300 8,681
Avalonbay Communities, Inc. 100 3,537
Avery Dennison 200 11,975
Avid Technology, Inc.(1) 100 1,625
Avis Rent A Car, Inc. 100 2,869
Avista Corp. 100 1,806
Aviva Petroleum, Inc.(1) 500 881
Avnet, Inc. 100 4,356
Avondale Industries, Inc.(1) 100 3,650
Avon Products, Inc. 500 24,719
AVT Corp.(1) 100 3,337
Avx Corp. 200 4,087
Aztec Manufacturing Co. 100 1,006
Aztec Technology Partners(1) 20 49
Baker Hughes, Inc. 570 17,741
Baldor Electric Co. 200 3,850
Ball Corp. 100 4,869
Ballard Medical Products(1) 100 2,375
Bancwest Corp. 100 3,800
Bank of America 3,123 202,019
Bank of South Carolina 100 1,525
Bank One Corp 2,136 120,817
BankBoston Corp. 500 23,687
Bankers Trust New York Corp. 200 18,512
Bard, C.R. , Inc. 100 4,569
Barnes & Noble, Inc.(1) 100 2,819
Barnett, Inc.(1) 100 925
Barr Laboratories, Inc.(1) 100 3,294
Bassett Furniture Industries, Inc. 200 4,800
Bausch & Lomb, Inc. 100 7,637
Baxter International, Inc. 500 32,281
BB&T Corp. 600 21,900
Bea Systems, Inc.(1) 200 4,075
Bear Stearns Co., Inc. 210 9,319
8
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
BEC Energy Holding Co. 100 $ 4,400
Beckman Coulter 100 5,075
Becton, Dickinson & Co. 400 15,500
Bed, Bath & Beyond, Inc.(2) 200 6,837
Bell Atlantic Corp. 2,800 153,300
Bell Industries, Inc. 100 1,025
BellSouth Corp. 3,500 165,156
Belo, (A.H.) Corp.-- Class A 200 4,412
Bemis Co., Inc. 100 3,775
Bergen Brunswig Corp. 400 8,800
Beringer Wine Estates Holdings, Inc.(1) 100 4,062
Berkshire Hathaway-- Class A(1) 2 144,000
Berkshire Hathaway, Inc.-- Class B(1) 20 46,360
Best Buy Co., Inc.(1) 400 18,200
Bestfoods 500 25,000
Bethlehem Steel Corp. 100 831
Beverly Enterprises, Inc.(1) 100 725
Beyond.com(1) 100 2,125
BI, Inc.(1) 100 912
Biogen, Inc.(1) 100 10,912
Biomet, Inc.(1) 200 7,987
Bisys Group, Inc.(1) 100 5,491
BJ Services Co.(1) 200 5,512
BJ's Wholesale Club, Inc.(1) 100 2,600
Black & Decker Corp. 100 5,694
Blonder Tongue Laboratories, Inc.(1) 100 662
Blount International, Inc.-- Class A 100 2,787
Blyth Industries, Inc.(1) 100 2,800
BMC Software, Inc.(1) 400 19,775
Bob Evans Farms, Inc. 200 3,850
Boeing Co. 1,700 71,825
Boise Cascade Corp. 100 3,962
Boise Cascade Office Products Corp.(1) 200 2,387
Borders Group, Inc.(1) 100 1,712
Boston Properties, Inc.(1) 100 3,594
Boston Scientific Corp.(1) 700 26,556
Bowater, Inc. 100 5,150
Brady (W. H.) Co.-- Class A 100 2,506
Brandywine Realty Trust 200 3,887
Brightpoint, Inc.(1) 300 1,706
Brinker International, Inc.(1) 100 2,806
Bristol Hotel & Resorts, Inc.(1) 50 403
Bristol-Myers Squibb Co. 3,500 240,188
Brooke Group, Ltd.(1) 100 2,425
Brookstone, Inc.(1) 200 3,062
Brown Shoe Company, Inc. 200 3,800
Brown-Forman Corp.-- Class B 100 6,669
Browning-Ferris Industries, Inc. 300 12,450
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Brunswick Corp. 200 $ 4,800
Brush Wellman, Inc. 100 1,694
BT Financial Corp. 100 2,700
Buckeye Technology, Inc.(1) 100 1,631
Burlington Industries, Inc.(1) 300 2,944
Burlington Northern Corp. 800 24,800
Burlington Resources, Inc. 300 12,881
Burnham Pacific Properties, Inc. 100 1,106
Bush Boake Allen, Inc.(1) 200 5,762
Butler Manufacturing Co. 100 2,812
BWAY Corp.(1) 100 1,425
Cabletron Systems, Inc.(1) 200 2,975
Cablevision Systems Corp.-- Class A(1) 200 15,775
Cabot Corp. 100 2,362
Cabot Industrial Trust 400 8,600
Cadence Design Systems, Inc.(1) 400 5,150
California Water Service Group 100 2,600
Callaway Golf Co. 100 1,644
Callon Petroleum Co.(1) 300 3,225
Calpine Corp.(1) 100 5,419
Cambrex Corp. 100 2,250
Cambridge Technology Partners(1) 100 1,700
Campbell Soup 800 35,300
Capital One Financial Corp. 100 15,069
Capitol Transamerica Corp. 100 1,500
Capstar Broadcasting Corp.(1) 100 2,512
Caraustar Industries, Inc. 100 2,637
Cardinal Health, Inc. 524 31,636
Carematrix, Inc.(1) 200 2,962
Caribiner International, Inc.(1) 100 537
Carlisle Companies, Inc. 100 4,675
Carnival Corp.-- Class A 1,100 45,100
Carolina First Corp. 100 2,744
Carolina Power & Light Co. 300 13,125
Carpenter Technology Corp. 100 2,850
Carramerica Realty Corp. 100 2,494
Carter-Wallace, Inc. 300 5,419
Cascade Corp. 400 5,400
Cascade Financial Corp 100 1,650
Cascade Natural Gas Corp.(1) 200 3,362
Case Corp. 100 4,700
Casella Waste Systems, Inc.(1) 100 1,969
Casey's General Stores, Inc. 100 1,344
Cash America International, Inc. 300 3,806
Castle Energy Corp. 100 1,812
Catalina Marketing Corp.(1) 100 8,856
Catellus Development Corp.(1) 200 3,075
Caterpillar, Inc. 600 32,925
9
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Cathay Bancorp, Inc. 100 $ 3,512
Cbrl Group 100 1,731
CBS Corp.(1) 1,300 54,275
Ccb Financial Corp. 200 10,787
CDI Corp.(1) 100 3,237
CDW Computer Centers(1) 200 8,700
Cedar Fair 100 2,494
CellStar Corp. 300 2,344
Cendant Corp.(1) 1,440 26,550
Centennial Cellular 100 4,581
Centex Corp. 100 3,706
Centigram Communications Corp.(1) 400 3,850
Centocor, Inc.(1) 100 4,344
Central & South West Corp. 400 10,300
Central Hudson Gas & Electric Corp. 100 4,219
Centura Banks, Inc. 100 5,831
Century Communications Corp.-- Class A(1) 100 5,325
Centurytel, Inc. 225 8,620
Ceridian Corp. 300 9,900
CH Robinson Worldwide 100 3,231
Champion Enterprises, Inc.(1) 100 2,044
Champion International Corp. 200 10,250
Chancellor Media Corp.(1) 300 15,244
Charles Schwab Corp. 750 79,359
Charter One Financial 310 8,816
Chase Industries, Inc.(1) 100 837
Chase Manhattan Corp. 1,500 108,750
Cheap Tickets, Inc.(1) 100 3,150
Checkfree Holdings, Corp.(1) 300 14,119
Checkpoint System, Inc.(1) 200 1,825
Cheesecake Factory, Inc. 50 1,381
Chesapeake Corp. 100 3,606
Chevron Corp. 1,100 101,956
Children's Comprehensive Services, Inc. 200 1,225
Children's Place Retail Stores, Inc.(1) 100 3,894
Chiquita Brands International, Inc. 100 806
Chiron Corp.(1) 300 6,337
Choice Hotels Corp, Inc.(1) 300 4,669
Chris-Craft Industries, Inc. 103 4,751
CIENA Corp.(1) 200 5,750
Cigna Corp. 400 37,300
Cincinnati Bell, Inc. 200 4,837
Cincinnati Financial Corp. 300 12,356
Cinergy 300 10,237
Cintas Corp. 200 12,700
Circuit City Stores, Inc. 200 14,362
Circus Circus Enterprises, Inc.(1) 300 6,337
Cirrus Logic(1) 400 3,000
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Cisco Systems, Inc.(1) 2,775 $302,128
CIT Group, Inc.-- Class A 300 8,700
Citation Corp. 100 1,344
Citigroup 4,039 267,584
Citizens First Financial Corp.(1) 200 2,875
Citizens Utilities Co.-- Class B 500 4,781
Citrix Systems, Inc(1) 200 9,887
City National Corp. 100 3,937
CKE Restaurants, Inc. 110 2,021
Claire's Stores, Inc. 100 2,925
Clayton Homes, Inc. 225 2,573
Clear Channel Communications, Inc. 731 48,292
CLECO Corp. 100 3,306
Clorox Co. 234 23,619
CMG Information Services(1) 400 41,450
CMS Energy Corp. 200 9,300
Cna Financial Corp. 300 13,031
CNA Surety Corp. 200 2,900
Cnb Bancshares, Inc. 205 8,841
Cnet, Inc. 100 10,825
CNF Transportation 100 4,150
Coastal Corp. 400 15,425
Coca-Cola Co. 4,400 300,575
Coca-Cola Enterprises, Inc. 800 29,000
Colgate-Palmolive Co. 500 49,937
Colonial Bancgroup 200 2,575
Colonial Properties Trust 100 2,806
Coltec Industries(1) 200 4,000
Columbia Energy Group 150 8,025
Columbia/HCA Healthcare 1,100 25,919
Columbus McKinnon Corp. 100 2,487
Comair Holdings, Inc. 150 2,841
Comarco, Inc.(1) 100 1,969
Comcast Corp.-- Class A Special 1,400 53,900
Comdisco, Inc. 300 7,312
Comerica, Inc. 250 15,109
Comfort Systems USA, Inc.(1) 200 3,150
Commerce Bancorp, Inc. 6 241
Commerce Bancshares, Inc. 105 4,325
Commercial Federal Corp.(1) 200 4,562
Commercial Net Lease Realty 200 2,637
Commonwealth Energy System 100 4,238
Commonwealth Telephone Enterprises, Inc. 100 3,937
Communications Systems, Inc. 200 2,675
Community Banks, Inc. 157 3,336
Compaq Computer Corp. 2,989 70,802
Compass Bancshares, Inc. 250 7,398
CompUSA, Inc.(1) 200 1,612
10
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Computer Associates International, Inc. 950 $ 44,947
Computer Sciences Corp.(1) 300 19,406
Compuware Corp.(1) 600 18,637
Comsat 100 3,262
Comverse Technology 150 10,134
Conagra, Inc. 900 23,456
Concepts Direct, Inc.(1) 100 925
Concord Communications, Inc.(1) 100 4,450
Concord EFS, Inc. 250 8,469
Conectiv, Inc. 175 4,222
Conexant Systems(1) 150 5,812
Conning Corp. 200 3,412
Conoco, Inc. 300 8,137
Conseco, Inc. 583 17,818
Consolidated Edison 400 19,425
Consolidated Graphics, Inc.(1) 100 4,612
Consolidated Natural Gas Co. 200 11,887
Consolidated Press, Inc. 100 2,775
Consolidated Products, Inc.(1) 125 2,312
Consolidated Stores Corp.(2) 182 6,256
Constellation Energy Group 300 9,356
Continental Airlines, Inc.-- Class B(1) 100 3,925
Convergys Corp. 400 7,050
Cooper Cameron Corp.(1) 100 3,619
Cooper Industries, Inc.(1) 200 9,912
Cooper Tire & Rubber Co. 100 2,375
Coors (Adolph) Co.-- Class B 100 4,750
Copart, Inc.(1) 200 3,650
Cordant Technologies 100 4,850
Cornerstone Properties, Inc. 200 3,312
Corning, Inc. 400 21,850
Corporate Express, Inc.(1) 200 1,312
Corrpro Companies, Inc. 100 994
Costco Companies, Inc.(1) 400 29,000
Costilla Energy, Inc.(1) 400 125
Coulter Pharmaceutical, Inc.(1) 200 5,200
Countrywide Credit Industries, Inc. 200 8,225
Covance, Inc.(1) 100 2,119
Covenant Transport, Inc.-- Class A(1) 100 1,200
Cox Communications(1) 1,000 39,062
Cox Radio, Inc.-- Class A(1) 100 5,344
CPB, Inc. 300 6,375
CPI Corp. 100 3,150
Craig Corp.(1) 100 756
Crane Co. 150 4,509
Credit Acceptance Corp.(1) 100 600
Crescent Real Estate Co. 200 4,612
Crestline Capital Corp.(1) 40 647
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Crompton & Knowles Corp. 100 $ 1,806
Cross (A.T.) Co.-- Class A 100 625
Cross Timbers Oil Co. 100 1,081
Crown Cork & Seal Co., Inc.(1) 200 6,275
Crystal Oil Co.(1) 100 3,237
CSG Systems International, Inc.(1) 200 6,387
CSK Auto Corp.(1) 100 2,800
CSS Industries, Inc.(1) 100 2,700
CSX Corp. 400 18,775
Culp, Inc. 100 825
Cummins Engine Co., Inc. 100 5,062
Cutter & Buck, Inc. 100 2,962
CVS Corp 662 30,452
Cyberian Outpost(1) 100 1,144
Cymer, Inc.(1) 300 5,494
Cypress Semiconductor Corp.(1) 100 1,112
Cyprus AMAX Minerals 300 3,769
Cytec Industries, Inc.(1) 200 5,487
Cytyc Corp.(1) 100 2,075
D & K Healthcare Resources(1) 100 2,363
D.R. Horton, Inc. 100 1,700
Daily Journal Corp.(1) 100 3,700
Dain Rauscher Corp. 100 5,206
Daisytek International Corp.(1) 200 3,200
Dana Corp. 285 14,713
Danaher Corp. 200 12,087
Darden Restaurants, Inc. 200 4,262
Data Dimensions, Inc.(1) 200 800
Data Transmission Network Corp.(1) 100 2,231
Davel Communications 100 606
Davox Corp.(1) 100 837
Dawson Geophysical Co.(1) 100 1,075
Dayton Hudson Corp. 800 50,400
Dean Foods Corp. 100 3,750
Deere & Co. 400 15,225
Delia's, Inc.(1) 100 1,325
Dell Computer Corp. 4,500 154,969
Delphi Automotive Systems(1) 1,540 30,222
Delta & Pine Land Co. 100 2,931
Delta Air Lines, Inc. 300 17,212
Deluxe Corp. 100 3,606
Dentsply International(1) 100 2,700
Department 56, Inc.(1) 100 3,319
DeVry, Inc. 200 4,450
Dial Corp. 200 6,250
Diamond Offshore Drilling, Inc. 200 5,450
Diebold, Inc. 100 2,812
DII Group, Inc.(1) 100 3,294
11
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Dillards, Inc.-- Class A 200 $ 7,025
Dime Bancorp, Inc. 200 4,075
Dole Food, Inc. 100 3,069
Dollar General Corp. 351 9,330
Dollar Tree Stores, Inc. 100 3,362
Dominion Resources, Inc. 300 12,956
Donaldson, Lufkin & Jenrette, Inc. 200 13,400
Donnelly Corp.-- Class A 200 3,275
Doubleclick 100 9,744
Dover Corp. 400 15,075
Dow Chemical Co. 400 48,600
Dow Jones & Co., Inc. 200 10,500
DPL, Inc. 300 5,419
Dqe, Inc. 100 4,275
Dress Barn, Inc.(1) 200 2,937
DST Systems(1) 200 10,800
DTE Energy Co. 300 13,069
Duke Energy Co. 600 36,188
Duke Realty Investments, Inc. 100 2,312
Dun & Bradstreet 300 10,500
Dupont, (E.I.) de Nemours & Co. 2,000 130,875
Dura Automotive Systems, Inc.(1) 34 1,011
Dura Pharmaceutical, Inc.(1) 200 2,075
Dynegy, Inc. 300 5,194
E Trade Group, Inc.(1) 400 17,800
E-Tek Dynamics(1) 100 3,625
Earthgrains Co. 100 2,344
Earthlink Network, Inc.(1) 100 5,350
Earthshell Container Common(1) 200 1,500
Eastern Enterprises 100 3,469
Eastman Chemical Co. 100 5,062
Eastman Kodak Co. 600 40,575
Eaton Corp. 100 8,719
Ebay 200 35,437
Echostar Communications Corp.(1) 100 11,475
Ecolab, Inc. 200 8,500
Edison International, Inc. 600 16,500
El Paso Energy Corp. 200 7,212
Electro Scientific Industries, Inc.(1) 100 3,750
Electronic Arts(1) 100 4,894
Electronic Data Systems Corp. 900 50,625
Electronics For Imaging(1) 100 4,906
Eli Lilly & Co. 2,000 142,875
EMC Corp.(1) 900 89,662
Emerson Electric Co. 800 51,100
Emmis Communication-- Class A(1) 100 4,675
Energy East Corp 200 5,550
Energy Research Corp. 100 1,250
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Engelhard Corp. 200 $ 4,050
Enron Corp. 600 42,825
Enron Oil & Gas Co. 200 3,812
Ensco International, Inc. 200 3,550
Entergy 400 12,975
Equifax, Inc. 300 10,800
Equitable Companies, Inc. 400 28,075
Equity Office Properties Trust 500 14,125
Equity Residential Properties Trust 200 9,587
Erie Indemnity Company 100 2,712
Escalade 100 1,600
Estee Lauder Co.-- Class A 100 9,125
Evans & Sutherland Computer Corp.(1) 100 1,575
Evercell(1) 33 184
Everest Reinsurance Holdings, Inc. 200 6,575
Evergreen Resources, Inc.(1) 200 4,450
Excel Technology, Inc.(1) 100 1,250
Excelsior-Henderson Motorcycle(1) 100 612
Excite, Inc.(1) 200 26,600
Expeditors International of Washington 100 5,562
Express Scripts, Inc.(1) 100 7,012
Extended Stay America, Inc.(1) 100 1,062
Exxon Corp. 4,400 351,450
F & M National Corp. 100 2,994
Fair, Issac & Co., Inc. 100 3,275
Family Dollar Stores, Inc. 300 6,694
Fannie Mae 1,900 129,200
Fastenal Co. 100 5,125
FBL Financial Group, Inc.-- Class A 100 2,006
FDX Corp. 600 33,037
Federal Home Loan Mortgage Corp. 1,200 69,975
Federal-Mogul Corp. 100 4,613
Federated Department Stores(1) 400 21,800
Federated Investors, Inc.-- Class B 200 3,500
Felcor Lodging Trust, Inc. 168 3,811
Ferro Corp. 100 2,906
Fifth Third Bancorp 500 34,094
FileNet Corp.(1) 600 5,925
Financial Security Assurance Holdings, Ltd. 200 11,350
Finova Group, Inc. 100 4,781
First American Corp. 200 8,162
First American Financial Corp. 100 1,644
First Data Corp. 800 35,950
First Financial Bancorp 220 5,225
First Financial Corp.-- Indiana 100 3,750
First Financial Corp. / RI 100 1,200
First Health Group Corp. 400 8,100
First Security Corp. 300 5,681
12
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
First Tennessee National Corp. 200 $ 8,237
First Union Corp. 1,782 82,083
First United Corp 100 1,544
First Virginia Banks, Inc. 100 4,969
First Washington Realty Trust 300 6,525
Firstar Corp. 1,384 39,877
Firstenergy Corp. 400 12,725
Firstmerit Corp. 100 2,731
Fiserv, Inc.(2) 225 8,437
Flagstar Bancorp, Inc. 100 2,350
Fleet Financial Group, Inc. 1,000 41,125
Florida Progress Corp. 200 8,387
Flowers Industries, Inc. 200 4,450
Flowserve Corp. 100 2,050
Fluor Corp. 100 3,725
Flushing Financial Corp. 150 2,212
FMC Corp.(1) 100 6,619
Food Lion, Inc.-- Class A 700 7,744
Foodmaker, Inc.(1) 200 5,400
Ford Motor Co. 2,200 125,537
Fore Systems, Inc.(1) 200 6,875
Forest Laboratories, Inc.(1) 100 4,762
Forrester Research, Inc.(1) 100 3,200
Fort James Corp. 200 7,325
Fortune Brands, Inc. 300 12,262
Fossil, Inc.(1) 100 4,194
Foster Wheeler Corp. 200 2,750
Foundation Health Systems, Inc.(1) 200 3,575
Fountain Powerboat Industries, Inc.(1) 100 400
Fox Entertainment Group(1) 200 5,100
Fpl Group, Inc. 300 17,456
Franchise Finance Corp. REIT 100 2,462
Franklin Resources, Inc. 500 21,750
Freedom Securities Corp. 100 1,737
Freeport-McMoran Copper & Gold,-- Class B(1) 200 2,825
Fremont General Corp. 200 4,237
French Fragrances, Inc.(1) 400 3,037
Friedmans, Inc.-- Class A 100 900
Frisch's Restaurants, Inc. 100 1,025
Frontier Corp. 300 15,787
Fruit of The Loom, Inc.-- Class A(1) 100 1,031
Fuller (H.B.) Co. 100 6,350
Fulton Financial Corp. 110 2,351
Funco, Inc.(1) 200 4,350
Furniture Brands International, Inc.(1) 100 2,425
Galileo International, Inc. 200 9,000
Gannett Company, Inc. 500 36,125
Gap, Inc. 1,050 65,691
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Gartner Group,-- Class A(1) 100 $ 2,300
Gateway 2000, Inc.(1) 300 18,244
GATX Corp. 100 3,881
Gaylord Entertainment Co. 100 3,106
GBC Bancorp 200 3,700
Geltex Pharmaceuticals, Inc.(1) 100 1,700
GenCorp, Inc. 100 2,444
General Cable Corp. 100 1,519
General Cigar Holdings, Inc.(1) 100 800
General Dynamics Corp. 200 13,150
General Electric Co. 5,900 599,956
General Growth Properties, Inc. 100 3,844
General Instrument Corp.(1) 300 11,606
General Mills, Inc. 300 24,112
General Motors Corp. 1,200 82,800
General Motors Corp.-- Class H(1) 200 10,975
General Nutrition Companies, Inc.(1) 100 1,656
General Semiconductor, Inc.(1) 700 5,425
Genesys Telecom Labs, Inc.(1) 100 2,312
Genentech, Inc. Special Common(1) 200 17,512
Genrad, Inc.(1) 200 3,650
Gentex Corp.(1) 100 3,003
Genuine Parts Co. 200 6,737
Genzyme Corp.(1) 100 4,056
Genzyme-Molecular Oncology(1) 10 36
Geocities(1) 100 10,012
Geon Co. 100 3,012
Georgia Pacific Timber Group 100 2,681
Georgia-Pacific Corp. 200 17,287
Geotel Communications Corp.(1) 200 11,100
Giant Industries, Inc. 200 2,112
Gilead Sciences, Inc.(1) 100 4,362
Gillette Co. 2,000 102,000
Glacier Bancorp 121 2,428
Glatfelter (P.H.) Co. 100 1,331
Glenborough Realty Trust, Inc. 100 1,831
Glimcher Realty Trust 200 3,387
Global Industrial Technologies, Inc.(1) 100 1,244
Global Marine, Inc.(1) 300 4,219
Global Telesystems Group, Inc.(1) 100 7,600
Golden State Bancorp, Inc.(1) 200 4,912
Golden State Bancrp-Litigation Warr 100 169
Golden West Financial Corp. 100 9,487
Goodrich (B.F.) Co. 110 4,455
Goodyear Tire & Rubber Co. 300 17,906
GPU, Inc. 200 8,712
Graco, Inc. 100 3,269
Grainger (W.W.), Inc. 200 10,612
13
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Great Atlantic & Pacific Tea Co., Inc. 100 $ 3,275
Great Lakes Chemical Corp. 100 4,519
Great Plains Software, Inc. 100 3,769
Green Mountain Power Corp. 100 1,037
GreenPoint Financial Corp. 200 6,900
Greif Brothers Corp.-- Class A 100 2,575
Griffin Land & Nurseries, Inc.-- Class A 200 2,175
GTE Corp. 1,700 107,206
Guidant Corp. 500 25,000
Gulfstream Aerospace Corp. 100 6,175
H & R Block, Inc. 200 9,637
Hach Co. 100 1,737
Haggar Corp. 200 2,525
Halliburton Co. 800 33,100
Hallmark Capital Corp. 200 2,375
Hallwood Group, Inc. 200 3,925
Halter Marine Group, Inc.(1) 100 737
Hannaford Brothers, Co. 100 5,200
Harcourt General, Inc. 100 4,919
Harley-Davidson, Inc. 300 15,319
Harman International Industries, Inc. 100 4,437
Harnischfeger Industries, Inc. 200 1,437
Harrah's Entertainment(1) 200 4,325
Harris Corp. 200 7,562
Harsco Corp. 100 3,262
Harte-Hank Communications, Inc. 100 2,275
Hartford Financial Services Group, Inc. 400 25,300
Hartford Life, Inc.-- Class A 100 4,750
Hasbro, Inc. 300 8,587
Hayes Lemmerz International, Inc. 100 3,300
Hcr Manor Care 200 5,350
Health Care REIT 100 2,475
Health Management Associates, Inc.(1) 350 4,550
Healtheon Corp. 100 8,900
Healthplan Services Corp. 300 2,662
Healthsouth Corp. 700 9,362
Hearst-Argyle Television 100 2,475
Heartland Express, Inc.(1) 300 4,594
Hector Communications Corp.(1) 200 1,875
Heilig-Meyers Co. 400 2,775
Heinz, (H.J.) Co. 600 28,988
Helix Technology Corp. 200 3,412
Helmerich and Payne 200 4,662
Herbalife International, Inc.-- Class A 200 2,200
Hercules, Inc. 200 6,987
Herman Miller, Inc. 100 2,019
Hershey Foods Corp. 300 16,275
Hertz Corp.-- Class A 100 5,494
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Hewlett-Packard Co. 1,800 $169,762
Hexcel Corp.(1) 300 3,206
Hibernia Corp.-- Class A 200 2,850
Hickory Tech Corp. 100 1,075
Highwoods Properties, Inc. 100 2,631
Hillenbrand Industries, Inc. 100 4,194
Hilton Hotels Corp. 400 5,500
Hollinger International 200 2,775
Holly Corp. 100 1,275
Hollywood Park, Inc.(1) 100 1,444
Home Depot, Inc. 2,600 147,875
Homegold Financial 100 162
Homestake Mining Co. 300 2,344
Hon Industries, Inc. 100 2,437
Honeywell, Inc. 200 18,925
Horizon Financial Corp. 200 2,712
Horizon Group Properties, Inc. 20 77
Hormel Foods Corp. 100 3,962
Host Marriott Corp.(1) 400 5,000
Household International, Inc. 906 39,298
Howmet International, Inc.(1) 100 1,775
Hrpt Properties Trust 200 3,062
Hubbell, Inc.-- Class B 100 4,187
Hudson United Bancorp 100 3,062
Huffy Corp. 100 1,344
Humana, Inc. 300 3,769
Huntington Bancshares, Inc. 410 14,196
Hutchinson Technology, Inc.(1) 100 2,325
Hvide Marine, Inc.-- Class A 100 184
Hyperion Software Corp.(1) 100 1,556
I2 Technologies, Inc. 200 6,325
Ibp, Inc. 200 4,287
ICG Communications, Inc. 31 591
ICN Pharmaceuticals, Inc. 200 6,575
ICOS Corp.(1) 100 4,381
IDT Corp.(1) 200 4,425
Idx Systems Corp. 100 2,387
Ikon Office Solutions, Inc. 200 2,787
Il Fornaio (America) Corp.(1) 300 4,050
Illinois Tool Works, Inc. 400 30,700
Illinova Corp. 100 2,719
IMC Fertilizer Group, Inc. 200 4,187
Immunex Corp.(1) 100 13,112
Impath, Inc.(1) 100 2,762
Ims Health 600 14,775
Independence Holding Co. 100 1,075
Independent Bank Corp. 157 2,669
Indymac Mortgage Holdings, Inc. 100 1,481
14
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Information Resources, Inc.(1) 100 $ 850
Informix Corp.(1) 300 1,997
Infoseek Corp.(1) 100 4,187
Ingersoll-Rand Co. 300 19,106
Ingles Market, Inc.-- Class A 100 1,225
Inhale Therapeutic Systems(1) 100 2,650
Inktomi Corp. 100 10,300
Innovex, Inc. 100 1,337
Input/Output, Inc.(1) 100 850
Insignia Financial Group(1) 133 1,629
Integrated Electrical Services(1) 100 1,506
Intel Corp. 6,000 324,375
Interface, Inc.-- Class A 200 1,550
Intermedia Communications of Florida, Inc. 200 5,062
International Bancshares Corp. 100 4,694
International Business Machines Corp. 3,200 372,200
International Flavors & Fragrances, Inc. 100 4,112
International Game Technology 200 3,525
International Home Foods, Inc.(1) 200 3,200
International Network Services(1) 150 5,606
International Paper Co. 748 37,400
International Specialty Products(1) 200 1,875
Interpool, Inc. 200 2,512
Interpublic Group of Cos., Inc. 200 15,150
Interstate Bakeries 100 2,187
Intimate Brands 400 20,725
International Integration 100 1,906
Intrav, Inc. 100 1,750
Intuit(1) 200 16,275
Invacare Corp. 100 2,494
Investors Title Co. 100 2,000
Iomega Corp.(1) 300 1,369
Ipalco Enterprises, Inc. 200 4,937
IRT Property Co. 100 969
Irvine Apartments Communities 100 3,375
Irwin Financial Corp. 100 2,312
Itron, Inc.(1) 300 2,494
ITT Industries(1) 200 7,550
Ivax Corp.(1) 400 5,475
IXC Communications, Inc.(1) 100 3,600
J. D. Edwards & Co.(1) 200 3,844
J.C. Penney Co., Inc. 500 25,844
Jabil Circuit, Inc. 200 9,650
Jacobs Engineering Group, Inc.(1) 100 3,719
JDN Realty Corp. 100 2,187
Jefferson-Pilot Corp. 150 10,153
JLG Industries, Inc. 300 5,794
Jlm Industries, Inc.(1) 100 462
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Jo-Ann Stores, Inc.-- Class A 300 $ 5,044
Johns Manville Corp. 200 2,625
Johnson & Johnson 2,400 222,300
Johnson Controls, Inc. 200 12,612
Johnstown American Industries, Inc.(1) 100 1,575
Jones Apparel Group, Inc.(1) 200 6,150
Jones Intercable, Inc.-- Class A(1) 100 5,350
Justin Industries, Inc. 200 2,687
K-V Pharmaceutical Co.-- Class A(1) 100 1,681
Kaiser Aluminum & Chemical Corp.(1) 100 875
Kaman Corp.-- Class A 200 2,650
Kansas City Power & Light Co. 100 2,781
Kansas City Southern Industries 200 11,250
Kaufman & Broad Home Corp. 100 2,412
Kaydon Corp. 100 3,331
Keane, Inc.(1) 100 2,900
Keebler Foods Co.(1) 100 3,350
Kellogg Co. 700 24,281
Kellwood Co. 100 2,375
Kennedy-Wilson, Inc. 150 1,350
Kent Electronics Corp.(1) 200 2,612
Kerr-McGee Corp. 173 8,044
KeyCorp. 800 27,800
Keyspan Energy Corp. 288 7,776
Keystone Financial, Inc. 100 3,203
Kilroy Realty Corp. 100 2,475
Kimball International, Inc.-- Class B 200 3,600
Kimberly Clark Corp. 1,000 58,687
Kimco Realty Corp. 100 3,994
King Pharmaceuticals(1) 100 2,375
King World Productions, Inc.(1) 100 3,337
Kitty Hawk, Inc.(1) 300 2,381
KLA Instruments Corp.(1) 100 4,550
Klamath First Bancorp, Inc. 200 3,175
Kmart Corp.(1) 800 12,300
KN Energy, Inc. 150 3,216
Knight-Ridder, Inc. 100 5,269
Knight/Trimark Group 200 11,200
Knoll, Inc.(1) 100 2,425
Kohls Corp.(1) 300 20,456
Kollmorgen Corp. 200 2,512
Kroger Co.(1) 800 46,850
Labor Ready, Inc. 150 5,344
Laclede Gas Co. 200 4,412
Ladd Furniture, Inc. 200 4,075
Lafarge Corp. 100 23,344
Lam Research Corp.(1) 200 5,550
Lamar Advertising Co.(1) 100 3,412
15
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Lancaster Colony Corp. 100 $ 3,341
Lance, Inc. 100 1,456
Landry's Seafood Restaurants, Inc.(1) 300 2,737
Lanvision Systems, Inc.(1) 100 137
Lason Holdings, Inc.(1) 100 3,831
Lawson Products, Inc. 100 2,475
Leap Wireless International(1) 25 437
Lear Corp.(1) 100 4,919
Legato Systems, Inc.(1) 100 5,475
Legg Mason, Inc. 400 13,525
Leggett & Platt, Inc. 200 5,275
Lehman Brothers, Inc. 200 10,925
Lennar Corp. 100 2,262
Leucadia National Corp. 100 2,087
Level 3 Communications, Inc. 600 47,100
Level 8 Systems, Inc.(1) 100 881
Level One Communications, Inc.(1) 100 4,525
Leviathan Gas Pipeline Partners 100 2,187
Lexmark International Group, Inc.-- Class A(1) 100 13,612
Lg&E Energy 200 4,562
LHS Group, Inc.(1) 200 5,687
Liberty Financial Companies, Inc. 200 5,225
Liberty Property Trust 100 2,412
Lifepoint Hospitals(1) 57 570
Ligand Pharmaceutical-- Class B(1) 200 2,050
Limited, Inc. 400 19,550
Lincare Holdings, Inc. 100 2,462
Lincoln National Corp. 200 20,350
Lindsay Manufacturer Co.(1) 150 2,644
Linear Technology Corp. 300 15,900
Linens `N Things, Inc.(1) 100 3,987
Lithia Motors(1) 200 3,787
Litton Industries, Inc.(1) 100 6,494
Liz Claiborne, Inc. 100 3,600
Lockheed Martin 700 28,306
Loews Corp. 200 16,262
Logansport Financial Corp. 100 1,150
Longview Fibre Co. 100 1,356
Loral Space and Communications Ltd.(1) 400 6,650
Louis Dreyfus Natural Gas Corp.(1) 200 3,900
Louisiana-Pacific Corp. 200 4,050
Lowe's Cos., Inc. 700 36,356
LSI Logic Corp. 300 11,119
LTV Corp. 100 612
Lubrizol Corp. 100 2,750
Lucent Technologies, Inc. 4,800 273,000
Lycos, Inc.(1) 100 10,050
Lyondell Petrochemical Co. 200 3,812
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
M.A. Hanna Co. 300 $ 4,425
Mack-Cali Realty Corp. 100 3,237
Macromedia, Inc.(1) 100 3,834
Magellan Petroleum Corp.(1) 200 256
Mahaska Investment 100 1,512
Mail-Well, Inc.(1) 100 1,481
Mallinckrodt Group, Inc. 100 3,463
Manitowoc Co., Inc. 150 5,100
Manpower, Inc. 100 2,300
Marine Drilling Companies, Inc.(1) 200 2,875
Marine Transport Corp. 10 43
Mark IV Industries, Inc. 200 3,700
Marriott International-- Class A 400 15,225
Marsh and McLennan 500 36,375
Marshall & Ilsley Corp. 200 14,000
Martin Marietta Materials, Inc. 100 6,063
Masco Corp. 600 17,138
Mascotech, Inc. 200 3,125
Matewan Bancshares 100 2,394
Matlack Systems, Inc.(1) 100 519
Mattel, Inc. 820 21,679
Maverick Tube Corp.(1) 100 1,294
Maxim Integrated Products, Inc.(1) 200 10,688
Maxwell Technologies, Inc.(1) 200 4,500
Maxxam, Inc.(1) 100 6,125
May Department Stores Co. 600 25,988
Mays (J.W.), Inc.(1) 100 700
Maytag Corp. 200 14,113
MBIA, Inc. 200 13,663
MBNA Corp. 1,400 38,675
McClatchy Newspapers, Inc. 100 3,681
McCormick & Co., Inc. 100 3,038
McDermott International, Inc. 100 2,563
McDonald's Corp. 2,400 92,400
McGraw-Hill, Inc. 400 20,750
MCI Worldcom, Inc.(1) 3,229 278,905
McKesson Hboc 459 15,635
McLeod, Inc.(1) 200 10,700
McMoran Exploration(1) 200 3,613
Men Corp. 200 4,000
MDC Holdings, Inc. 100 1,975
MDU Resources Group, Inc. 150 3,431
Mead Corp. 200 7,475
Meade Instruments Corp. 100 1,350
Mech Financial, Inc. 300 10,613
Mede America Corp.(1) 100 3,075
Media Arts Group, Inc.(1) 300 2,081
Medialink Worldwide(1) 100 1,600
16
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Mediaone Group 1,100 $ 81,263
Medical Assurance, Inc.(1) 100 2,794
Medimmune, Inc.(1) 100 6,363
Meditrust Corp. Paired Stock 255 3,538
Medtronic, Inc. 1,110 78,810
Melita International Corp.(1) 100 1,456
Mellon Bank Corp. 1,000 35,688
MemberWorks, Inc.(1) 100 4,525
Men's Wearhouse, Inc.(1) 100 2,553
Mentor Corp. MN 200 3,188
Mercantile BanCorp., Inc. 300 17,531
Mercantile Bankshares Corp. 100 3,594
Merchants New York Bancorp, Inc. 200 6,800
Merck & Co., Inc. 4,300 290,250
Mercury General Corp. 100 3,606
Meredith Corp. 100 3,494
Meristar Hospitality Corp. 100 2,188
Meristar Hotels & Resorts, Inc.(1) 100 431
Meritor Automotive, Inc. 100 2,438
Merrill Lynch & Co., Inc. 600 50,400
Merrimac Industries, Inc.(1) 10 70
Metamor Worldwide, Inc.(1) 100 2,738
Methode Electronics, Inc.-- Class A 200 3,688
Metro Networks, Inc.(1) 100 5,563
Metro-Goldwyn-Mayer, Inc. 200 3,100
Metromedia Fiber Network, Inc.(1) 200 8,075
Metzler Group, Inc.(1) 100 3,275
MGIC Investment Corp. 200 9,625
MGM Grand, Inc.(1) 133 5,586
Microage, Inc.(1) 200 1,119
Microchip Technology, Inc.(1) 100 4,388
Microfinancial 100 1,213
Micromuse, Inc.(1) 100 3,988
Micron Electronics, Inc.(1) 200 2,013
Micron Technology, Inc.(1) 400 15,175
Microsoft Corp. 9,000 726,188
Midamerican Energy Holdings 100 3,375
Midcoast Energy Resources, Inc. 12 195
Middlesex Water Co. 100 2,369
Milacron 100 2,131
Millennium Chemicals, Inc. 100 2,494
Millennium Pharmaceuticals(1) 100 3,788
MindSpring Enterprises, Inc.(1) 100 7,400
Minerals Technologies, Inc. 100 5,325
MiniMed, Inc.(1) 200 11,813
Minnesota Mining & Manufacturing Co. 700 60,025
Minnesota Power & Light Co. 200 4,300
Mips Technologies(1) 100 2,994
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Mirage Resorts, Inc.(1) 300 $ 6,150
Mississippi Chemical Corp. 100 963
Mitchell Energy & Development Corp. --
Class A 200 3,200
MMC Networks, Inc.(1) 200 5,575
MMI Cos. 200 3,450
Mobil Corp. 1,400 141,750
Modacad1 200 1,963
Modis Professional Services 200 2,950
Mohawk Industries, Inc.(1) 100 2,913
Molex, Inc. 300 9,188
Momentum Business Applications(1) 6 48
Mondavi (Robert) Corp.-- Class A(1) 100 3,375
Monsanto Co. 1,100 45,650
Montana Power Co. 100 7,388
Morgan Stanley Dean Witter
Discover & Co. 1,000 96,500
Morgan, (J.P.) & Co., Inc. 300 41,794
Morrison Health Care, Inc. 100 1,956
Morrison Knudsen Corp.(1) 200 1,988
Morton International, Inc. New 200 7,800
Motivepower Industries, Inc. 150 2,541
Motorola, Inc. 1,100 91,094
MRV Communications, Inc.(1) 200 2,338
Msb Financial 200 2,375
Murphy Oil Corp. 100 4,906
Myers Industries, Inc. 100 2,288
Mylan Laboratories 200 5,075
Myriad Genetics, Inc.(1) 200 2,075
Mystic Financial 100 1,150
Nabisco Holdings Corp.-- Class A 200 8,375
Nabors Industries, Inc.(1) 200 4,000
Nalco Chemical Co. 100 3,350
Nash Finch Co. 300 2,813
National Bancorp Alaska, Inc. 300 8,250
National City Bankshares, Inc. 220 5,555
National City Corp. 620 41,036
National Community Bancorp 200 4,688
National Data Corp. 100 4,706
National Fuel & Gas Co. 100 4,750
National Golf Properties 100 2,581
National Health Investors, Inc. 100 2,344
National Semiconductor Corp.(1) 200 3,875
National Service Industries, Inc. 200 7,363
National Steel Corp.-- Class B 400 3,050
Nautica Enterprises(1) 100 1,619
Navigant International, Inc.(1) 10 81
Navistar International Corp. 100 4,938
17
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
NBTY, Inc.(1) 200 $ 1,256
NCR Corp.(1) 200 7,813
Neiman Marcus Group, Inc.(1) 100 2,756
Nelson (Thomas), Inc. 100 981
Neon Systems(1) 100 3,563
Network Appliance Corp. 200 9,431
Network Associates, Inc. 250 3,672
Nevada Power Co. 100 2,513
New Century Energies, Inc. 200 8,088
New England Electric System 100 5,006
New Era of Networks 200 8,900
New Jersey Resources Corp. 100 3,775
New Plan Excel Realty Trust, Inc. 100 2,000
New York Times Co.-- Class A 300 10,238
Newell Rubbermaid, Inc. 536 21,708
Newfield Exploration Co.(1) 100 2,538
Newmont Mining Corp. 405 7,214
Newpark Resources, Inc.(1) 100 900
Newsedge Corp.(1) 100 831
Nextel Communications, Inc.-- Class A(1) 500 18,438
Nextlink Communications, Inc.(1) 300 22,950
Nfo Worldide, Inc. 100 1,419
Niagara Bancorp, Inc. 400 4,175
Niagara Mohawk Holdings(1) 300 4,463
Nicor 100 3,763
Nielsen Media Research 265 7,089
Nike, Inc. 500 30,469
Nisource 200 5,588
Nobility Homes 110 963
Noble Affiliates, Inc. 100 2,650
Noble Drilling Corp.(1) 200 3,625
Nordstrom, Inc. 300 10,650
Norfolk Southern Corp. 700 22,925
North American Vaccine, Inc.(1) 200 1,075
North Central Bancshares, Inc. 100 1,763
North Fork BanCorp., Inc. 250 5,328
Northeast Utilities(1) 200 3,525
Northern States Power Co. 300 7,819
Northern Trust Corp. 200 18,075
Northfield Laboratories, Inc.(1) 200 2,413
Northland Cranberries, Inc.-- Class A 100 900
Northrop Grumman Corp. 100 6,750
Northwest Airlines Corp.-- Class A(1) 100 3,325
Northwest Bancorp, Inc. 200 1,888
Northwest Natural Gas Co. 100 2,400
Northwestern Corp. 100 2,625
Norwood Financial Corp. 100 2,200
Nova Corp. (Georgia)(1) 100 2,225
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Novell, Inc.(1) 600 $ 14,100
Novellus Systems, Inc.(1) 100 4,881
NTL, Inc. 100 9,444
Nu Skin Asia Pacific, Inc.(1) 200 3,600
Nucor Corp. 200 9,988
Oakley, Inc.(1) 200 1,625
Occidental Petroleum Corp. 600 12,675
Ocean Energy, Inc.(1) 400 3,950
Oceaneering International, Inc.(1) 100 1,544
Ocwen Financial Corp. 200 1,738
OEA, Inc.(1) 200 2,013
OEC Medical Systems, Inc.(1) 100 2,388
Office Depot, Inc. 600 12,525
Officemax(1) 300 3,450
Offshore Logistics, Inc.(1) 100 1,131
OGE Energy Corp. 100 2,575
Ohio Art Co. 100 1,563
Ohio Casualty Corp. 100 3,806
Old Kent Financial Corp. 205 9,212
Old National Bancorp 158 5,458
Old Republic International Corp. 200 3,638
Olin Corp. 100 1,325
Olsten Corp. 100 888
Omnicare, Inc. 200 4,788
Omnicom Group, Inc. 300 21,000
Omnipoint Corp. 100 1,744
Omniquip International 200 2,113
On Command Corp.(1) 300 4,200
One Valley Bancorp, Inc. 100 3,844
Onix Systems, Inc.(1) 100 700
Online System Services, Inc.(1) 100 1,500
Open Market, Inc.(1) 100 1,238
Optical Cable Corp.(1) 100 1,131
Oracle Systems Corp. 2,600 64,513
Orange & Rockland Utilities, Inc. 100 5,819
Orbital Sciences Corp.(1) 100 2,263
Oregon Steel Mills, Inc. 400 5,475
Orphan Medical, Inc.(1) 100 694
Outback Steakhouse(1) 150 5,381
Outdoor Systems, Inc. 350 10,478
Overseas Shipholding Group, Inc. 100 1,250
Owens Corning 100 3,938
Owens-Illinois, Inc.(1) 300 9,150
Oxford Health Plan(1) 100 1,906
Oxigene, Inc.(1) 300 2,888
P.P.& L. Resources, Inc. 300 9,000
Paccar, Inc. 100 5,631
Pacific Century Financial Corp. 200 4,000
18
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Pacificamerica Money Center, Inc.(1) 200 $ 88
Pacificare Health Systems, Inc.-- Class B(1) 100 8,638
Pacificorp 500 9,094
Paging Network, Inc .(1) 100 325
PaineWebber Group, Inc. 300 14,100
Pairgain Technologies, Inc. 100 1,244
Pall Corp. 200 4,013
Palm Harbor Homes, Inc. 125 2,688
PAM Transportation Services, Inc.(1) 100 900
Pameco Corp.(1) 200 1,563
Panamsat Corp.(1) 100 3,250
Papa John's International(1) 100 3,950
Parametric Technology Corp.(1) 400 5,550
Parexel International Corp.(1) 100 2,394
Park Place Entertainment(1) 400 4,200
Parker-Hannifin Corp. 200 8,738
Patrick Industries, Inc. 100 1,338
Patriot American Hospitality, Inc. 321 1,665
Patterson Dental Co.(1) 100 3,663
Paychex, Inc. 375 11,109
Payless Shoesource, Inc.(1) 100 5,150
Pc Connection, Inc.(1) 100 1,400
Pe Corp.-Celera Genomics Group(1) 50 850
Pe Corp.-Pe Biosystems 100 11,169
PECO Energy 400 19,575
Penford Corp. 200 2,631
Penn Engineering & Manufacturing Corp. 100 2,150
Pennsylvania Real Estate Investment Trust 100 2,075
PennzEnergy Co. 100 1,544
Pennzoil-Quaker State Co.(1) 100 1,388
Penske Motorsports, Inc.(1) 100 4,900
Pentair, Inc. 100 4,413
Penwest Pharmaceuticals Co.(1) 150 1,298
People's Energy 100 3,850
Peoples Bank of Bridgeport(1) 100 3,000
Peoples Heritage Financial Group, Inc. 200 3,750
Peoples Holdings Co. 100 3,250
Peoplesoft, Inc.(1) 400 6,475
Pep Boys (Manny Moe & Jack) 100 1,888
Pepsi-Cola Bottling(1) 200 4,638
Pepsico, Inc. 2,600 93,113
Perceptron, Inc.(1) 300 1,538
Peregrine Systems, Inc. 200 4,588
Performance Technologies, Inc.(1) 200 2,900
Perot Systems(1) 200 5,425
Perrigo(1) 100 919
PETsMART, Inc.(1) 100 900
Pfizer, Inc. 2,300 246,100
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
PG & E Corp. 700 $ 23,625
Pharmaceutical Products Development
Service Co.(1) 100 2,675
Phelps Dodge Corp. 100 5,181
Philip Morris Cos. 4,400 169,675
Phillips Petroleum Co. 500 26,219
Photronics, Inc.(1) 200 3,950
Physician Reliance Network(1) 200 1,800
Pier 1 Imports, Inc. 150 1,659
Pimco Advisors Holdings L.P. 100 2,838
Pinnacle West Capital Corp. 200 8,375
Pioneer Hi Bred International 400 15,000
Pioneer Natural Resouces Co. 100 1,088
Pitney Bowes, Inc. 500 31,875
Pixar, Inc.(1) 100 3,950
Pizza Inn, Inc. 100 328
Placer Dome Group, Inc. 245 2,726
Plantronics, Inc.(1) 100 6,125
Platinum Technology, Inc.(1) 157 4,573
Playboy Enterprises, Inc.-- Class B(1) 100 2,913
PMI Group 100 5,850
PNC Bank Corp. 500 28,625
Polaroid Corp. 200 4,225
Policy Management Systems 100 3,638
Pool Energy Service Co.(1) 100 1,688
Popular, Inc. 200 6,088
Post Properties, Inc. 100 4,188
Potomac Electric Power Co. 200 6,175
Powerhouse Technologies, Inc.(1) 400 7,400
Powerwave Technologies, Inc.(1) 200 4,625
PPG Industries, Inc. 300 18,206
Praxair, Inc. 300 14,644
Pre-Paid Legal Services, Inc.(1) 100 2,656
Premark International 100 3,581
Premier Parks, Inc. 100 3,563
Premiere Technologies, Inc.(1) 200 3,088
Presidential Life Corp. 100 1,838
Preview Travel, Inc. 100 1,738
Price Communications Corp. 312 4,446
Priceline.com, Inc.(1) 300 33,609
Pride International, Inc. 300 3,131
Prima Energy Corp.(1) 100 1,681
Prime Retail, Inc. 400 3,575
Primedia, Inc.(1) 300 4,913
Primus Telecommunications Group, Inc. 61 1,014
Prison Realty Corp. 175 2,209
Procter & Gamble Co. 2,300 214,763
Prodigy Communications Corp.(1) 100 2,581
19
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Programmers Paradise, Inc.(1) 500 $ 5,406
Progressive Corp. of Ohio 100 14,038
Project Software & Development, Inc.(1) 200 5,688
Prologos Trust 300 6,131
Promus Hotel Corp.(1) 100 2,500
Protection One, Inc.(1) 300 1,650
Protective Life Corp. 100 3,619
Protein Design Labs, Inc.(1) 200 3,925
Provident Financial Group, Inc. 200 8,563
Provident Bankshares Corp. 110 2,544
Provident Companies, Inc. 200 7,813
Providian Financial Corp. 250 23,984
PS Group Holdings, Inc. 100 1,100
PSINet, Inc.(1) 100 4,450
PSS World Medical, Inc.(1) 200 2,463
Psw Technologies, Inc.(1) 100 319
Public Service Enterprise Group 400 16,775
Public Storage, Inc. 286 8,348
Puerto Rican Cement Co., Inc. 100 3,288
Puget Sound Power & Light Co. 100 2,606
Pulte Corp. 100 2,381
Pvf Capital 100 1,400
Quaker Oats Co. 200 13,213
Qualcomm, Inc. 200 19,450
Quantum Corp.(1) 300 5,944
Queens County Bancorp, Inc. 100 3,163
Questar Corp. 200 3,813
Quiksilver, Inc. 150 4,275
Quintiles Transnational Corp.(1) 200 8,125
Quorum Health Group, Inc.(1) 100 1,256
Qwest Communications International, Inc. 1,232 52,283
R&b Falcon Corp.(1) 200 1,850
R&g Financial Corp. 200 3,025
Rcn Corp.(1) 100 4,156
R.H.Donnelley 220 4,180
R.L.I. Corp. 200 7,438
R.R. Donnelley & Sons Co. 200 7,250
Rainbow Technologies, Inc.(1) 200 1,988
Rainforest Cafe, Inc.(1) 100 544
Ralston Purina Group 600 16,350
Rambus, Inc.(1) 100 7,750
Rare Hospitality International, Inc.(1) 200 4,600
Rational Software(1) 200 6,763
Raychem Corp. 100 3,475
Rayonier, Inc. 100 4,663
Rayovac Corp.(1) 100 2,525
Raytheon Co.-- Class B 600 40,838
Reader's Digest Assn., Inc.-- Class A 200 7,325
RealNetworks, Inc.(1) 200 14,175
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Redwood Empire Bancorp 100 $ 2,588
Reebok International Ltd.(1) 200 3,975
Regions Financial Corp. 400 15,150
Reinsurance Group of America 150 5,850
Reliance Group Holdings 200 1,988
Reliance Steel & Aluminum Co. 100 3,563
Reliant Energy 500 15,250
Reliastar Financial Corp. 200 8,313
Renal Care Group, Inc.(1) 200 5,550
Rent-A-Center(1) 100 2,581
Republic Group, Inc. 100 1,788
Republic New York Corp. 200 13,588
Republic Services(1) 200 4,700
Resmed, Inc.(1) 100 2,806
Rexall Sundown, Inc.(1) 200 3,413
Reynolds & Reynolds 200 4,375
Reynolds Metals Co. 100 5,319
RF Monolithics, Inc.(1) 100 681
Risk Capital Holdings, Inc.(1) 100 1,600
Rite Aid Corp. 400 10,000
RJR Nabisco Holdings Corp. 600 18,563
Roanoke Electric Steel Corp. 100 1,588
Robert Half International, Inc.(1) 200 5,638
Rock of Ages Corp.(1) 200 2,125
Rockwell International Corp. 300 16,556
Rohm & Haas Co. 300 12,038
Rollins Truck Leasing Corp. 250 2,719
Roper Industries, Inc. 200 6,450
Ross Stores, Inc.(1) 200 9,188
Rouse Co. 100 2,575
Royal Caribbean Cruises Ltd. 300 11,738
RPM, Inc. (Ohio) 200 2,775
Ruby Tuesday, Inc. 100 1,856
Ruddick Corp. 100 1,763
Rural/Metro Corp.(1) 300 2,269
Russell Corp. 100 2,344
Ryans Family Steak Houses, Inc.(1) 200 2,338
Ryder Systems, Inc. 100 2,400
S&K Famous Brands, Inc.(1) 100 944
Sabre Group Holdings, Inc.(1) 100 6,156
Safeco Corp. 200 8,788
Safeguard Scientifics, Inc.(1) 100 7,313
Safety Components International, Inc.(1) 100 513
Safeway, Inc.(1) 900 41,850
Saks, Inc.(1) 282 7,790
Sangstat Medical Corp.(1) 100 1,375
SanminA(1) 100 7,498
Santa Fe Snyder Corp.(1) 100 850
Sante Fe International Corp. 600 12,150
20
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Sapient Corp.(1) 100 $ 6,375
Sara Lee Corp. 1,600 38,400
Sauer, Inc. 200 2,063
SBC Communications, Inc. 3,475 177,659
Scana Corp. 200 5,338
Schein (Henry), Inc.(1) 100 3,019
Schering-Plough Corp. 2,600 117,163
Schlumberger Ltd. 1,000 60,188
School Specialty, Inc.(1) 11 164
SCI Systems, Inc.(1) 100 4,150
Scientific-Atlanta, Inc. 100 3,531
Scios-Nova, Inc.(1) 100 363
SCM Microsystems, Inc.(1) 100 5,800
Scotts Co. (The)(1) 100 4,400
Scpie Holdings, Inc. 100 2,850
Scripps (E.W.) Co. 100 4,713
Seagate Technology, Inc.(1) 400 12,075
Sealed Air Corp.-- New 153 9,505
Sears, Roebuck & Co. 700 33,469
SEI Corp. 100 10,200
Seitel, Inc. 100 1,581
Selective Insurance Group, Inc. 200 3,775
Sempra Energy 450 9,675
Sensormatic Electronics Corp. 100 1,338
Sepracor, Inc.(1) 100 6,375
Sequa Corp.-- Class A 100 5,788
Sequent Computer Systems, Inc.(1) 300 3,900
Serologicals Corp.(1) 100 794
Service Corp. International 400 7,676
SFX Entertainment, Inc.-- Class A(1) 100 5,444
Shaw Industries, Inc.(1) 200 3,375
Sherwin Williams Co. 300 9,244
Shopko Stores, Inc.(1) 200 7,100
Shuffle Master, Inc. 100 688
Shurgard Storage Centers-- Class A 100 2,719
Siebel Systems, Inc.(1) 200 9,106
Sierra Pacific Resources 100 3,638
Sigma Aldrich Corp. 200 6,400
Silicon Graphics, Inc.(1) 300 3,713
Simon Property Group, Inc. 300 8,775
Sky Financial Group, Inc. 100 2,944
Skytel Communications(1) 100 2,031
Skywest, Inc.(1) 200 4,650
SLI, Inc.(1) 100 3,238
SLM Holding Corp. 250 10,375
Smith (A.O.) Corp. 150 3,656
Smith International, Inc.(1) 100 4,325
Smithfield Foods, Inc.(1) 100 2,669
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Smucker (J.M.) Co. 100 $ 2,069
Smurfit-Stone Container Corp.(1) 597 12,873
Snap-On Tools Corp. 100 3,619
Snyder Communications, Inc.(1) 100 2,444
Sodexho Marriott Services(1) 125 2,844
Sola International, Inc. 200 3,338
Solectron Corp.(2) 500 27,375
Solutia, Inc.(1) 100 2,245
Sonat, Inc. 200 7,088
Sonic Automotive, Inc. 200 2,600
Sonoco Products 100 2,500
Sotheby's Holdings-- Class A 100 3,794
South Alabama Bancorp 100 1,300
Southdown, Inc.(1) 88 5,577
Southern Banc Co. 100 1,225
Southern Co. 1,200 34,050
Southtrust Corp. 250 9,734
Southwest Airlines Co. 600 19,238
Southwest Bancorp of Texas, Inc. 200 3,350
Sovereign Bancorp, Inc. 260 3,429
Specialty Care Network, Inc.(1) 100 138
Speedfam-Ipec(1) 100 1,313
Speedway Motorsports, Inc.(1) 100 4,013
Spelling Entertainment Group, Inc.(1) 100 969
Spieker Properties, Inc. 100 4,094
Spinnaker Industries, Inc.(1) 100 1,375
Springs Industries, Inc.-- Class A 100 3,963
Sprint Corp (Fon Group) 800 90,200
Sprint Corp (Pcs Group)(1) 750 33,750
SPX Corp.(1) 68 5,279
Ss&c Technologies, Inc.(1) 600 7,500
St Joe Co. 100 2,731
St. Jude Medical, Inc.(1) 100 3,381
St. Mary Land & Exploration Co. 100 2,000
St. Paul Cos., Inc. 400 14,225
Stage Stores, Inc. 100 531
Stanley Works 100 3,256
Staples, Inc. 850 24,438
Starbucks Corp.(1) 300 11,156
Starwood Financial Trust 100 5,750
Starwood Hotels & Resorts Worldwide 291 9,530
State Street Corp. 300 22,875
Statefed Financial Corp. 100 1,100
Steel Dynamics, Inc.(1) 300 5,119
Sterigenics International, Inc.(1) 200 3,100
Sterile Recoveries(1) 100 1,138
STERIS Corp. 100 1,656
Sterling Commerce, Inc.(1) 200 7,775
21
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Sterling Software, Inc.(1) 100 $ 2,431
Stewart Enterprises, Inc. 200 3,688
Stoneridge, Inc.(1) 100 1,431
Storage Technology Corp.(1) 200 3,975
Structural Dynamics Research Corp.(1) 100 1,788
Stryker Corp. 200 11,900
Suiza Foods Corp.(1) 200 7,325
Summit Bancorp 300 12,281
Sun Healthcare Group, Inc.(1) 300 338
Sun Microsystems, Inc. 1,400 83,650
Sunbeam Oster Corp. 100 706
Sundstrand Corp. 100 6,919
Sungard Data Systems, Inc.(1) 200 7,000
Sunoco, Inc. 200 6,088
Sunrise Assisted Living, Inc.(1) 167 6,166
Suntrust Banks, Inc. 592 39,960
Superior Industries International, Inc. 100 2,494
Superior National Insurance Group, Inc. 100 2,025
Superior Telecom, Inc. 125 3,703
SuperValu, Inc. 200 4,850
Svi Holdings(1) 300 3,675
Sybase, Inc.(1) 100 969
Sybron International Corp.(1) 200 5,025
Sylvan Learning Systems, Inc.(1) 100 2,725
Symantec Corp.(1) 100 2,450
Symbol Technologies, Inc.(1) 100 5,000
Synopsys, Inc.(1) 100 4,438
Synovus Financial Corp. 450 9,056
Syntel, Inc.(1) 50 541
Synthetic Industries, Inc.(1) 100 2,250
Sysco Corp. 600 17,813
T. Rowe Price 200 7,725
Taco Cabana, Inc.(1) 100 1,069
Talk.com 100 1,038
Tandy Corp. 200 16,500
Taubman Centers, Inc. 200 2,738
TBC Corp.(1) 100 706
TCA Cable Television, Inc. 100 5,663
Tcf Financial Corp. 100 2,775
Tech Data Corp.(1) 200 7,356
TECO Energy, Inc. 200 4,638
Tecumseh Products-- Class A 100 6,600
Teleflex, Inc. 100 4,369
Teleglobe, Inc. 177 5,343
Telephone & Data Systems, Inc. 100 6,725
Tellabs, Inc.(1) 600 35,100
Telxon Corp. 100 1,038
Temple Inland, Inc. 100 6,700
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Tenet Healthcare(1) 500 $ 12,250
Tenneco, Inc. 300 6,994
Teppco Partners, L.P. 200 4,750
Teradyne, Inc.(1) 100 5,281
Tetra Tech, Inc.(1) 200 4,250
Tetra Technologies, Inc.(1) 100 850
Texaco, Inc. 900 58,950
Texas Industries, Inc. 100 3,638
Texas Instruments, Inc. 700 76,563
Texas Utilities Co. 500 22,500
Textron, Inc. 300 26,719
The Bank of New York Co., Inc. 1,400 50,050
The Chubb Corp. 300 21,019
The Servicemaster Co. 500 9,063
Thermo Electron Corp.(1) 200 3,825
Thermo Fibertek, Inc.(1) 100 744
Thermo Instrument Systems, Inc.(1) 200 2,875
Thermo Optek Corp.(1) 100 1,025
Thermoquest Corp.(1) 300 3,825
Thomas & Betts Corp. 100 4,281
Tidewater, Inc. 100 2,556
Tier Technologies, Inc.(1) 200 1,406
Tiffany & Co. 100 8,288
Time Warner, Inc. 2,200 149,738
Times Mirror Co.-- Class A 100 5,894
Timken Co. 200 4,113
Titan International, Inc. 100 938
Titanium Metals Corp. 100 700
TJX Cos., Inc. 600 18,000
TMP Worldwide, Inc.(1) 100 4,881
Todd-AO Corp.-- Class A 100 713
Tokheim Corp.(1) 500 4,938
Toll Brothers, Inc.(1) 200 4,363
Tompkins County Trustco, Inc. 200 6,500
Tootsie Roll Industries, Inc. 100 4,144
Torchmark Corp. 300 10,013
Toro Co. 100 3,356
Tosco Corp. 300 7,669
Total Renal Care Holdings(1) 200 3,075
Total System Services, Inc. 450 8,353
Toys R Us, Inc.(1) 400 9,225
Trammell Crow Co.(1) 200 3,700
Trans World Entertainment Corp.(1) 100 1,263
Transaction Network Services, Inc.(1) 100 2,675
Transamerica Corp. 200 14,675
Transatlantic Holdings, Inc. 100 7,494
Transmontaigne Oil Co.(1) 100 1,413
Transocean Offshore, Inc. 200 4,925
22
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Travel Services International, Inc. 100 $ 822
Travelers Property Casualty Corp. 100 3,950
Trendwest Resorts, Inc.(1) 100 2,350
Trenwick Group, Inc. 100 3,150
Triad Hospitals(1) 57 577
Triarc Companies, Inc.-- Class A(1) 200 4,075
Tribune Co. 200 15,788
Trico Marine Services, Inc.(1) 100 706
Tricon Global Restaurants, Inc. 240 13,980
Trigon Healthcare, Inc.(1) 100 3,813
TriNet Corporate Realty Trust 100 2,706
Trinity Industries, Inc. 100 3,119
True North Communications, Inc. 100 2,338
Trustmark Corp. 100 2,300
TRW, Inc. 200 10,013
TSI International Software 200 4,425
Tuboscope Vetco International Corp.(1) 200 2,675
Tupperware Corp. 100 2,225
Tut Systems(1) 100 4,150
TV Guide 200 8,025
Twinlab Corp.(1) 100 919
Tyson Foods, Inc. 400 9,200
U S Office Prods Co. 25 131
U.S. Bancorp, Inc. 200 3,075
U.S. Foodservice(1) 100 4,450
U.S. Industries, Inc. 200 3,525
U.S. Trust Corp. 100 8,769
U.S. West, Inc. 908 49,089
U.S.A. Floral Products, Inc.(1) 300 2,175
U.S.Bancorp 1,300 42,250
UAL Corp.(1) 100 6,725
Ubid, Inc. 100 3,356
UCAR International, Inc. 200 4,525
Ultramar Diamond Shamrock Corp. 200 4,400
Unicom Corp. 400 16,925
Unifi, Inc. 100 1,650
Union Carbide Corp Holding Co. 200 10,263
Union Pacific Corp. 400 22,825
Union Pacific Resources Group, Inc. 400 5,575
Union Planters Corp. 200 8,263
Unionbancal Corp. 300 11,091
Uniphase Corp.(1) 100 13,400
Unisource Worldwide, Inc. 100 1,175
Unisys Corp.(1) 500 18,969
United Asset Management Co. 100 2,231
United Auto Group, Inc.(1) 100 1,000
United Bankshares, Inc. 100 2,669
United Dominion Realty Trust, Inc. 200 2,213
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
United Healthcare Corp. 300 $ 417,475
United International Holdings-- Class A(1) 100 7,200
United Mobile Homes, Inc. 100 938
United Rentals, Inc.(1) 96 2,880
United States Cellular Corp.(1) 200 9,650
United States Satellite Broadcasting
Company, Inc.(1) 100 4,039
United Stationers, Inc. 200 3,750
United Technologies Corp. 800 49,650
Unitrin, Inc. 200 7,000
Unity Bancorp 105 1,129
Universal Corp. 100 2,613
Universal Health Services, Inc.--Class B(1) 100 4,988
Univision Communications, Inc.(1) 200 11,863
Unocal Corp. 400 15,900
Unova, Inc.(1) 100 1,450
UNUM Corp. 200 10,763
Urocor, Inc. 100 538
URS Corp.(1) 200 4,925
USA Networks, Inc.(1) 200 8,000
USAir Group, Inc.(1) 100 4,856
Usana, Inc. 200 1,750
Usec, Inc. 300 3,300
USG Corp. 200 11,325
UST Corp. 100 2,413
UST, Inc. 300 9,150
Usweb Corp.(1) 200 5,075
U.S. Freightways Corp. 100 3,938
USX Marathon Group 500 14,969
USX-U.S. Steel Group 100 2,694
Utilicorp United, Inc. 150 3,741
Vail Resorts, Inc.(1) 100 2,063
Valassis Communications, Inc. 150 5,222
Valero Energy Corp. 200 4,013
Valhi, Inc. 200 2,363
Valley National Bancorp 336 9,429
Valspar Corp. 100 3,650
Varco International, Inc.(1) 200 1,825
Vastar Resources, Inc. 200 11,000
Venator Group, Inc.(1) 100 1,094
Ventas, Inc. 300 1,613
Verio, Inc.(1) 100 5,425
Verisign, Inc. 100 11,850
VERITAS Software Corp.(1) 100 8,825
Vertex Pharmaceuticals, Inc.(1) 100 2,006
VF Corp. 200 9,200
Viacom, Inc.-- Class B 1,300 50,050
Viad Corp. 200 5,950
23
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (continued) May 31, 1999
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK -- continued
Vicor Corp.(1) 100 $ 1,650
Vishay Intertechnology, Inc.(1) 105 2,185
Visio Corp.(1) 100 3,288
Vision Twenty-One, Inc.(1) 500 1,719
VISX, Inc.(1) 200 10,388
Vitech America, Inc. 100 856
Vitesse Semiconductor, Corp.(1) 100 5,494
Vlasic Foods International(1) 40 303
VLSI Technology, Inc.(1) 100 2,094
Voicestream Wireless Corp.(1) 200 5,463
Vornado Operating, Inc.(1) 7 49
Vornado Realty Trust 143 5,550
Vulcan Materials Co. 300 13,556
VWR Scientific Products Corp.(1) 100 2,863
W. R. Berkley Corp. 100 2,538
W.R. Grace & Co.-W/I(1) 200 3,563
Wabash National 200 3,813
Wachovia Corp. 400 35,300
Waddell & Reed Financial 100 2,450
Wal-Mart Stores, Inc. 8,000 341,000
Walgreen Co. 1,800 41,850
Walker Interactive Systems, Inc.(1) 100 338
Walt Disney Co. 3,700 107,763
Walter Industries, Inc. 200 2,625
Wang Labs, Inc.(1) 100 2,894
Warnaco Group, Inc.--Class A 100 2,950
Warner Lambert Co. 1,589 98,518
Washington Federal, Inc. 110 2,475
Washington Gas Light Co. 100 2,444
Washington Mutual, Inc. 1,086 41,472
Waste Connections, Inc.(1) 200 5,350
Waste Management, Inc. 1,089 57,581
Waters Corp.(1) 100 9,863
Watkins-Johnson Co. 100 2,475
Watson Pharmaceuticals, Inc.(1) 200 7,663
Wausau-Mosinee Paper Corp. 100 1,800
Weatherford International(1) 100 3,300
Weis Markets, Inc. 100 3,519
Wellpoint Health Networks, Inc.(1) 100 8,244
Wells Fargo Co. 3,000 120,000
Wells Financial Corp. 100 1,575
Wendys International, Inc. 200 5,450
West Marine, Inc.(1) 100 1,288
West Teleservices(1) 200 1,525
Westamerica BanCorp. 100 3,456
Western Bancorp 42 1,709
Western Digital Corp.(1) 200 1,575
Western Resources, Inc. 100 2,906
Western Wireless Corp. 200 4,900
<PAGE>
Market
Shares Value
- --------------------------------------------------------------------------------
Westfield America, Inc. 200 $ 3,325
Westinghouse Air Brake Co. 100 2,288
WestPoint Stevens, Inc.(1) 100 3,163
Westvaco Corp. 200 5,713
Westwood One, Inc.(1) 200 6,950
Weyerhaeuser Co. 300 18,619
Whirlpool Corp. 100 6,450
Whitman Corp. 200 3,400
Whole Foods Market, Inc. 100 4,150
Wicor, Inc. 200 5,100
Wild Oats Markets, Inc.(1) 100 2,931
Wiley (John) & Sons, Inc.-- Class A 200 8,638
Willamette Industries, Inc. 200 8,475
Williams Clayton Energy, Inc.(1) 200 1,350
Williams Cos., Inc. 800 41,450
Williams-Sonoma, Inc.(1) 100 2,981
Wilmington Trust Corp. 100 5,881
Windmere Durable Holdings, Inc.(1) 300 3,938
Winn Dixie Stores, Inc. 300 10,744
WinStar Communications, Inc.(1) 100 4,944
Wisconsin Energy Corp. 200 5,550
Witco Corp. 100 1,750
Wm. Wrigley, Jr. Co. 200 17,413
Wolverine World Wide, Inc. 200 2,700
Woodward Governor Co. 100 2,500
Workflow Management, Inc.(1) 13 167
World Access, Inc.(1) 400 4,550
Worthington Industries, Inc. 100 1,281
WPS Resources Corp. 100 3,200
Wynns International, Inc. 100 1,806
Xcl Ltd.(1) 100 131
Xerox Corp. 1,200 67,425
Xilinx, Inc.(1) 300 13,331
Yahoo!, Inc.(1) 400 59,200
Yardville National Bancorp 100 1,238
York International Corp. 100 4,219
Young & Rubicam, Inc. 100 3,825
Zenith Electronics Corp.(1) 100 43
Zenith National Insurance Corp. 100 2,275
Ziff-Davis, Inc.(1) 200 2,600
Zions Bancorp 100 6,375
Zonagen, Inc.(1) 200 2,150
------------
Total Common Stock
(Cost $20,518,974) $ 23,875,416
------------
24
<PAGE>
ISI Strategy Fund, Inc.
Statement of Net Assets (concluded) May 31, 1999
Principal
Value Market
(000) Value
- --------------------------------------------------------------------------------
U.S. TREASURY BONDS--26.2%
10.375%, 11/15/12 $750 $ 965,156
9.250%, 02/15/16 2,500 3,309,765
8.875%, 02/15/19 1,000 1,309,844
8.125%, 08/15/19 1,000 1,229,063
7.875%, 02/15/21 2,100 2,535,750
----------
Total U.S. Treasury Bonds
(Cost $9,469,918) 9,349,578
----------
REPURCHASE AGREEMENT--5.7%
Goldman Sachs & Co., 4.50%, Dated 05/28/99,
to be repurchased on 06/01/99, at
$2,049,024 collateralized by U.S.
Treasury Bonds with a market value
of $2,054,591. (Cost $2,048,000) 2,048 2,048,000
----------
Total Investments--98.7%
(Cost $32,036,892)(2) 35,272,994
----------
Other Assets in Excess of
Liabilities--1.3% 461,241
-----------
Net Assets--100.0% $35,734,235
-----------
Net Asset Value and Redemption
Price Per Share
($35,734,235 3 3,001,292) $11.91
======
Maximum Offering Price Per Share
($11.91 3 0.9555) $12.46
======
- --------------------------------------------------------------------------------
(1) Non-income producing security.
(2) Aggregate cost for federal tax purposes was $32,052,628.
See Notes to Financial Statements.
25
<PAGE>
ISI Strategy Fund, Inc.
Statement of Operations
For the
Year Ended
May 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ................................................... $ 219,414
Interest .................................................... 518,835
-----------
Total income ................................................ 738,249
-----------
EXPENSES:
Investment advisory fee ..................................... 104,709
Legal fee ................................................... 72,577
Distribution fee ............................................ 65,443
Registration fee ............................................ 56,898
Audit fee ................................................... 39,605
Administration fee .......................................... 31,395
Accounting fee .............................................. 27,591
Printing and postage ........................................ 17,020
Transfer agent fee .......................................... 11,730
Custodian fee ............................................... 7,030
Miscellaneous ............................................... 9,406
-----------
Total expenses ............................................. 443,404
Less: Fees waived ........................................... (183,586)
-----------
Net expenses ............................................... 259,818
-----------
Net investment income ....................................... 478,431
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions ................ 173,372
Change in unrealized appreciation/depreciation
of investments ............................................. 2,351,825
-----------
Net gain on investments ..................................... 2,525,197
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................... $ 3,003,628
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
26
<PAGE>
ISI Strategy Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
For the September 16, 1997(1)
Year Ended through
May 31, 1999 May 31, 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income ...................... $ 478,431 $ 166,743
Net realized gain from security transactions 173,372 198,062
Change in unrealized appreciation
of investments ............................ 2,351,825 884,277
------------ ------------
Net increase in net assets
resulting from operations ................. 3,003,628 1,249,082
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
ISI Class ................................ (440,554) (105,433)
Net realized long-term and short-term gains:
ISI Class ................................ (369,934) --
------------ ------------
Total Distributions ....................... (810,488) (105,433)
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .............. 17,040,574 18,021,106
Value of shares issued in reinvestment
of dividends ............................. 713,228 99,815
Cost of shares repurchased ................ (2,432,446)
------------ ------------
Increase in net assets derived from capital
share transactions ....................... 15,321,356 17,076,090
------------ ------------
Total increase in net assets .............. 17,514,496 18,219,739
NET ASSETS:
Beginning of period ....................... 18,219,739 --
------------ ------------
End of period ............................. $ 35,734,235 $ 18,219,739
============ ============
- ------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
See Notes to Financial Statements.
27
<PAGE>
ISI Strategy Fund, Inc.
Financial Highlights (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Period
For the September 16, 1997(1)
Year Ended through
May 31, 1999 May 31, 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period .......... $ 11.00 $ 10.00
---------- ----------
Income from Investment Operations:
Net investment income ........................... 0.21 0.13
Net realized and unrealized gain on investments . 1.10 0.96
---------- ----------
Total from Investment Operations ................ 1.31 1.09
---------- ----------
Less Distributions:
Distributions from net investment income ........ (0.21) (0.09)
Distributions from short-term and long-term gains (0.19) --
---------- ----------
Total distributions ............................. (0.40) (0.09)
---------- ----------
Net asset value at end of period ................ $ 11.91 $ 11.00
========== ==========
Total Return .................................... 12.15% 10.94%
Ratios to Average Daily Net Assets:
Expenses(2)...................................... 1.00% 1.00%(4)
Net investment income(3)......................... 1.81% 2.03%(4)
Supplemental Data:
Net assets at end of period (000) ............... $ 35,734 $ 18,220
Portfolio turnover rate ......................... 31.93% 20.08%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Ratio of expenses to average net assets prior to fee waiver and expense
reimbursement was 2.25% and 1.68% for the period ended May 31, 1998 and the
year ended May 31,1999, respectively.
(3) Ratio of net investment income to average net assets prior to fee waiver and
expense reimbursement was 0.78% and 1.12% for the period ended May 31, 1998
and the year ended May 31,1999, respectively.
(4) Annualized. See Notes to Financial Statements.
28
<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 began
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 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 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 provision 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
29
<PAGE>
Notes to Financial Statements (continued)
and includes the pro rata scientific method for amortization of premiums and
accretion of discounts when appropriate. Expenses are recorded as incurred.
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 public offering of shares. These costs are being
amortized on the straight-line method over a five-year period, except for
registration fees 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 and Investment Inc. ("ISI") is the Fund's investment
advisor. As compensation for its 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%. ISI has agreed
to waive a portion of its fee and reimburse expenses so that the Fund's total
operating expenses for any fiscal year do not exceed 1.00% of the Fund's
average daily net assets. For the year ended May 31, 1999 ISI waived all of
its fees and reimbursed the Fund for expenses in the amount of $62,291
Wilshire Associates Incorporated ("Wilshire") is the Fund's sub-advisor. As
compensation for its 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%.
Investment Company Capital Corp. ("ICC"), a subsidiary of Bankers Trust
Corporation, is the Fund's administrator. As compensation for its
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 agreed to waive its fee for administrative
services for the first year of the Fund's operations. For the year ended May
31, 1999, ICC's fee was $14,809 (net of fee waivers of $16,586) of which
$3,686 was payable at the end of the period.
Certain officers and directors of the Fund are also officers or directors of
ISI, Wilshire or ICC.
ICC also provides accounting services, to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly based on the
Fund's average daily net assets.For the year ended May 31, 1999, ICC's fee
was $27,591 of which $2,956 was payable at the end of the period.
ICC also provides transfer agent services to the Fund for which the Fund pays
ICC a per account fee that is calculated and paid monthly. For the year ended
May 31, 1999, ICC's fee was $11,730, of which $1,770 was payable at the end
of the period.
ISI Group, Inc., an affiliate of ISI, provides distribution services to the
Fund for which the Fund pays ISI Group Inc., an annual fee that is calculated
daily and paid monthly at an annual rate equal to 0.25% of the Fund's average
daily net assets. For the year ended May 31, 1999, ISI Group's fee was
$65,443, of which $7,716 was payable at the end of the period.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
May 31, 1999 was $972 and the accrued liability was $1,719.
On June 4, 1999, Bankers Trust Corporation merged with Deutsche Bank AG.
30
<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
For the Sept. 16, 1997(1)
Year Ended through
May 31, 1999 May 31, 1998
------------ --------------------
Shares sold ............. 1,491,211 1,744,374
Shares issued to share-
holders on reinvest-
ment of dividends ...... 63,693 9,391
Shares redeemed ......... (210,438) (96,939)
---------- ----------
Net increase in shares
outstanding ............ 1,344,466 1,656,826
========== ==========
Proceeds from sales
of shares .............. $17,040,574 $18,021,106
Value of reinvested
dividends .............. 713,228 99,815
Cost of shares
redeemed ............... (2,432,446)
---------- ----------
Net increase from capital
share transactions ..... $15,321,356 $17,076,090
========== ==========
- --------------
(1) Commencement of operations.
D. Investment Transactions -- Excluding short-term and U.S. government
obligations, purchases of investment securities aggregated $11,901,512 and
sales of investment securities aggregated $1,565,120 for the year ended May
31, 1999. Purchases of U.S. government obligations aggregated $9,597,717 and
sales of U.S. government obligations aggregated $6,083,561.
On May 31, 1999, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $4,369,383 and
aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $1,133,281.
E. Net Assets -- On May 31, 1999, net assets consisted of:
Paid-in capital .......................... $ 32,397,446
Accumulated net realized gain
from security transactions .............. 1,500
Unrealized appreciation
of investments .......................... 3,236,102
Undistributed net investment
income................................... 99,187
------------
$ 35,734,235
============
F. Tax Information (Unaudited) For the Tax Year Ended May 31, 1999 We are
providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $29,643 from long-term
capital gains; of which $29,643 was subject to the 20% rate gains category.
Of ordinary distributions made during the fiscal year ended May 31, 1999,
30.23% qualifies for the dividends received deduction available to corporate
shareholders.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
31
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
ISI Strategy Fund, Inc.
We have audited the statement of net assets of the ISI Strategy Fund, Inc., as
of May 31, 1999, and the related statement of operations for the year then
ended, and the statements of changes in net assets and the financial highlights
for each of the two years in period then ended. 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 audits.
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 as of May 31, 1999 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ISI
Strategy Fund, Inc. as of May 31, 1999, the results of its operations for the
year then ended, the changes in its net assets, and the financial highlights for
each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
July 2, 1999
32
