STRALEM FUND, INC.
405 PARK AVENUE, NEW YORK, N.Y. 10022-4405
(212) 888-8123
February 1999
Dear Shareholder:
For the year 1998, the Stralem Fund was up 24.7% Equities were up 43.7%
and Treasury bonds were up 13.2% including interest received.
The Net Asset Value of the Fund year end 1998 was $16.40 per share vs
$13.15 ex-dividend year end 1997.
As of December 1, 1998 assets of the Fund were distributed as follows:
Cash + Short Term Tsy Notes 17.6%
Treasury Bonds 32.5%
Equities 49.9%
Attached is a listing of the Fund holdings.
And now to 1999..........
On the positive side, balance sheets remain strong: with the exception
of manufacturers and retailers of winter coats and snow blowers, inventories are
well under control; receivables are current; operating efficiencies continued to
be achieved (although with less impact than in the past); capacity expansion is
moderate (more a function of removing cost than physical expansion); and, except
for information technology personnel, wages are under control.
On the negative side, the one thing which has not changed from the past
few trips is the continued lack of pricing power. The customer continues to
search for new sources of supply and, when found, returns to the current
supplier offering has a chance to a "re-bid". The individual continues to shop
for value. As no one, and we do mean no one, is prepared to lose market share,
the products and/or services are re-bid and margin pressure grows. Although the
strategists (top down people) are looking for 1999 earnings to increase by only
some 4% to 6% over 1998, the stock pickers (bottom-up people) are looking for a
16% to 18% increase from 1998 to 1999. While we believe that these estimates
will be difficult to achieve, it will be even more difficult when you consider
that in order to achieve their 1998 earnings (upon which the 1999 increase is
based), the companies will have to have a fourth quarter gain of 50% over 1997's
fourth quarter!
As we have said in the past, this is a liquidity driven market and the
data in the above paragraph is not relevant...until it is.
<PAGE>
The line graph compares a hypothetical $10,000 investment in the
Stralem Fund since 1988 with the Lipper Flexible Portfolio Index Avg.
The Fund's valuations are after all charges and expenses and assumes
the reinvestment of all dividends.
The Lipper Flexible Portfolio Index Avg. is a composite average of all
qualifying funds in the respective investment objective group. In this case, a
flexible fund is one that allocates its investments across a wide range of asset
classes including domestic common stocks, bonds, and money market instruments
with a focus on total return. All Lipper Performance Fund Indexes are adjusted
for capital-gains distributions and income dividends. They are compiled and
distributed by Lipper Analytical Services, Inc.
[GRAPHIC OMITTED]
(Line Graph)
- -------------------------------------------------------------------------------
Avg. Annual Total Returns One Five Ten
for Period Ending 12/31/98 Year Years Years
- -------------------------------------------------------------------------------
Stralem Fund 24.7% 13.8% 12.2%
- -------------------------------------------------------------------------------
Lipper Flexible Portfolio 14.2% 13.5% 12.2%
Index Avg.*
- -------------------------------------------------------------------------------
/s/ Philippe E. Baumann
------------------------
Philippe E. Baumann
President
<PAGE>
<TABLE>
<CAPTION>
STRALEM FUND 98 DEC 31
=========
<S> <C> <C> <C>
RETURN
YTD 98
TBILLS/MMF/MISC 13.78% 7,264,617 -----
TSY NOTES 2000 3.84% 2,026,250 7.2%
TSY BONDS 2006-22 32.54% 17,154,688 13.2%
EQUITIES 49.83% 26,265,519 43.7%
------- ----------- -----
TOTAL ASSETS 100.00% $52,711,073 24.7%
UNITS 3,213,366 FUND 16,40
==========================================================================================================
MKT VALUE
TSY NOTES (-000)
$2,000 5.875% Feb 2000 101.313 2,026,250
TSY BONDS (-000)
$8,000 5.625% Feb 2006 105.719 8,457,500
$2,500 7.500% Nov 2016 124.125 3,103,125
$4,500 7.250% Aug 2022 124.313 5,594,063
- --------------------------------------------------
============================================================================================================
TECHNOLOGY 31.1%
- ------------------------------------------------------------------------------------------------------------
14,500 A Hewlett-Packard 68,313 990,531
- ------------------------------------------------------------------------------------------------------------
12,000 A- Intel 118,563 1,422,750
- ------------------------------------------------------------------------------------------------------------
10,000 B+ Microsoft 138,688 1,386,875
- ------------------------------------------------------------------------------------------------------------
34,500 B Oracle 43,125 1,487,813
- ------------------------------------------------------------------------------------------------------------
20,000 B+ Sun Microsystems 85,625 1,712,500
- ------------------------------------------------------------------------------------------------------------
10,000 B Xerox 118,000 1,180,000
- ------------------------------------------------------------------------------------------------------------
CONSUMER 22.9%
- ------------------------------------------------------------------------------------------------------------
30,000 A+ Gap Inc. 56,250 1,687,500
- ------------------------------------------------------------------------------------------------------------
16,000 A+ McDonald's 76,625 1,226,000
- ------------------------------------------------------------------------------------------------------------
20,000 A Unilever ADR 45,000 900,000
- ------------------------------------------------------------------------------------------------------------
16,000 A+ Wal-Mart 81,438 1,303,000
- ------------------------------------------------------------------------------------------------------------
16,000 B Whirlpool 55,375 886,000
- ------------------------------------------------------------------------------------------------------------
HEALTH 19.0%
- ------------------------------------------------------------------------------------------------------------
10,000 A Bristol Myers 133,813 1,338,125
- ------------------------------------------------------------------------------------------------------------
13,400 A+ Johnson & Johnson 83,875 1,123,925
- ------------------------------------------------------------------------------------------------------------
15,000 A+ Medtronic 74,250 1,113,750
- ------------------------------------------------------------------------------------------------------------
9,500 A+ Merck 147,688 1,403,031
- ------------------------------------------------------------------------------------------------------------
ENERGY 10.1%
- ------------------------------------------------------------------------------------------------------------
12,500 B+ Atlantic Richfield 65,250 815,625
- ------------------------------------------------------------------------------------------------------------
12,000 B+ Chevron 82,938 995,250
- ------------------------------------------------------------------------------------------------------------
16,000 B Texaco 52,875 846,000
- ------------------------------------------------------------------------------------------------------------
OTHERS 16.9%
- ------------------------------------------------------------------------------------------------------------
16,000 A+ Automatic Data 80,188 1,283,000
- ------------------------------------------------------------------------------------------------------------
20,000 B+ Bell Atlantic 53,000 1,060,000
- ------------------------------------------------------------------------------------------------------------
12,000 A+ Emerson Electric 60,500 726,000
- ------------------------------------------------------------------------------------------------------------
13,500 A+ General Electric 102,063 1,377,844
- ------------------------------------------------------------------------------------------------------------
100.0% EQUITIES 26,265,519
============================================================================================================
</TABLE>
<PAGE>
STRALEM FUND, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
(with supplementary information)
<PAGE>
STRALEM FUND, INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Stralem Fund, Inc.
New York, New York
We have audited the accompanying statement of assets and liabilities of Stralem
Fund, Inc., including the portfolio of investments in securities, as of December
31, 1998, the related statement of operations for the year then ended and
statements of changes in net assets for each of the years in the two-year period
then ended, and the condensed financial information for each of the years in the
five-year period then ended. These financial statements and the condensed
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits 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 condensed
financial information 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 inspection or confirmation of
investments owned as of December 31, 1998, by correspondence with the
custodians. 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 condensed financial information
enumerated above present fairly, in all material respects, the financial
position of Stralem Fund, Inc. as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the condensed financial
information for each of the years in the five-year period then ended, in
conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
New York, New York
January 13, 1999
<PAGE>
STRALEM FUND, INC.
<TABLE>
<CAPTION>
<S> <C>
Statement of Assets and Liabilities
December 31, 1998
ASSETS
Investments, at market value:
Common stocks (cost - $12,205,503) $ 26,265,519
United States Government obligations (cost - $24,242,265) 26,656,483
Money market mutual funds 2,484,342
---------------
55,406,344
Cash 152,092
Interest and dividends receivable 390,831
---------------
55,949,267
---------------
LIABILITIES
Payable for capital stock reacquired 3,085,902
Accrued expenses 152,294
Dividends payable 4,048,841
---------------
7,287,037
---------------
Net assets applicable to outstanding capital shares $ 48,662,230
============
Net asset value per share - based on 3,213,366 shares of $1 par value capital
stock outstanding (5,000,000 shares authorized) (offering price and redemption
price) $15.14
======
</TABLE>
See notes to financial statements 2
<PAGE>
STRALEM FUND, INC.
Portfolio of Investments in Securities
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Number of Market
Shares Value
---------- -----------
Common stocks (47.41%):
Computer and Peripherals (4.88%):
14,500 Hewlett-Packard Co. $ 990,531
* 20,000 Sun Microsystems 1,712,500
Computer Software and Service (7.50%):
16,000 Automatic Data Processing 1,283,000
* 10,000 Microsoft Corp. 1,386,875
* 34,500 Oracle Corp. 1,487,813
Electrical Equipment (3.80%):
16,000 Emerson Electric Co. 726,000
13,500 General Electric Company 1,377,844
Food Processing (1.62%):
20,000 Unilever PLC 900,000
Home Appliance (1.60%):
16,000 Whirlpool Corp. 886,000
Medical Supplies (4.04%):
13,400 Johnson & Johnson 1,123,925
15,000 Medtronic Inc. 1,113,750
Office Equipment and Supplies (2.13%):
10,000 Xerox Corp. 1,180,000
Personal Care (2.42%):
10,000 Bristol-Myers Squibb 1,338,125
Petroleum (4.80%):
12,500 Atlantic Richfield Co. 815,625
12,000 Chevron Corp. 995,250
16,000 Texaco, Inc. 846,000
Pharmaceuticals (2.53%):
9,500 Merck & Co, Inc. 1,403,031
Restaurant (2.21%):
16,000 McDonalds Corp. 1,226,000
Retail Stores (5.40%):
30,000 The Gap 1,687,500
16,000 Wal-Mart Stores, Inc. 1,303,000
Semiconductor (2.57%):
12,000 Intel Corp. 1,422,750
Telecommunications (1.91%):
20,000 Bell Atlantic Corp. 1,060,000
-----------
26,265,519
-----------
3
<PAGE>
STRALEM FUND, INC.
Portfolio of Investments in Securities (continued)
December 31, 1998
Face Market
Value Value
---------- ------------
United States Government obligations (48.11%):
Treasury bonds and notes (34.62%):
2,000,000 February 15, 2000; 5.75% $ 2,026,250
8,000,000 February 15, 2006; 5.625% 8,457,500
2,500,000 November 15, 2016; 7.5% 3,103,125
4,500,000 August 15, 2022; 7.25% 5,594,060
Treasury bills (13.49%):
2,000,000 January 14, 1999 1,996,819
4,000,000 January 21, 1999 3,990,200
1,500,000 March 4, 1999 1,488,529
------------
26,656,483
------------
Money market mutual funds (4.48%):
Short-term Income Fund 1,984,342
Short-term Income Fund - Government 500,000
------------
2,484,342
------------
$55,406,344
============
* Nonincome producing
See notes to financial statements 4
<PAGE>
STRALEM FUND, INC.
Statement of Operations
Year Ended December 31, 1998
Investment income:
Interest $ 1,349,495
Dividends 293,751
--------------
1,643,246
--------------
Expenses:
Investment advisory 480,396
Legal fees 10,350
Auditing fees 17,600
Administration expenses 24,945
Directors' fees 2,800
Taxes 11,558
Miscellaneous 10,431
--------------
558,080
--------------
Net investment income 1,085,166
--------------
Net realized gain from security transactions 2,967,304
Net increase in unrealized appreciation of investments 6,583,489
--------------
Net gain on investments 9,550,793
--------------
Net increase in net assets resulting from operations $ 10,635,959
==============
See notes to financial statements 5
<PAGE>
STRALEM FUND, INC.
Statements of Changes in Net Assets
Year Ended December 31,
--------------------------------
1998 1997
--------------- ---------------
Operations:
Net investment income $ 1,085,166 $ 1,094,357
Net realized gain from security transactions 2,967,304 1,423,095
Net increase in unrealized appreciation of investments 6,583,489 4,779,675
--------------- ---------------
10,635,959 7,297,127
--------------- ---------------
Distributions to shareholders:
Investment income (1,081,537) (1,066,300)
Realized gains (2,967,304) (1,423,095)
--------------- ---------------
(4,048,841) (2,489,395)
--------------- ---------------
Capital share transactions:
Proceeds from shares sold (688,965 and 494,587 shares, respectively) 9,659,534 6,107,314
Proceeds from reinvestments of dividends (141,890 and 113,361 shares,
respectively) 1,877,205 1,313,854
Cost of shares redeemed (323,353 and 548,042 shares, respectively) (5,048,005) (7,491,424)
--------------- ---------------
6,488,734 (70,256)
--------------- ---------------
Increase in net assets 13,075,852 4,737,476
Net assets at January 1 35,586,378 30,848,902
--------------- ---------------
Net assets at December 31 (including undistributed net investment
income of $165,741 and $162,112, respectively) $ 48,662,230 $ 35,586,378
=============== ===============
</TABLE>
See notes to financial statements 6
<PAGE>
STRALEM FUND, INC.
Notes to Financial Statements
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Security valuation:
Investments in securities traded on a national exchange are valued at the
last reported sales price on the last business day of the year.
Securities traded over-the-counter are valued on the basis of the average
of the last reported bid prices. United States Treasury bonds, notes and
bills are valued at market value.
[2] Federal income taxes:
The Fund has elected to be taxed as a regulated investment company as
defined under the Internal Revenue Code and has distributed to its
shareholders substantially all of its investment income and capital
gains. Therefore, only nominal income tax provisions are required.
[3] Other:
Security transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. Dividends to
shareholders are recorded on the ex-dividend date.
NOTE B - INVESTMENT ADVISORY AGREEMENT
The Fund has an investment advisory contract with Stralem & Company Incorporated
(the "Investment Advisor") that provides for a quarterly fee of 1/4 of 1%
(equivalent to approximately 1% annually) of the average weekly net asset value
of the Fund for the first $50,000,000 of net asset value decreasing to a
quarterly rate of .1875 of 1% for the next $50,000,000 and .125 of 1% thereafter
(equivalent to approximately 3/4 of 1% and 1/2 of 1%, respectively, annually).
Certain officers and a director of the Fund are also officers of the Investment
Advisor. In addition, the Fund reimburses the Investment Advisor for its
expenses attributable to the administration of the Fund, including a
proportionate part of the compensation of the employees of the Investment
Advisor who perform services, other than investment advisory services, for the
Fund. Such reimbursement is limited by the contract to $25,000 per annum.
NOTE C - OTHER MATTERS
<TABLE>
<CAPTION>
<S> <C>
[1] Unrealized appreciation at December 31, 1998 $ 16,490,657
Unrealized depreciation at December 31, 1998 (16,423)
--------------
$ 16,474,234
==============
</TABLE>
[2] Purchases and sales of securities other than short-term investments
aggregated $7,693,731 and $13,523,058, respectively, for the year ended
December 31, 1998.
7
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
STRALEM FUND, INC.
Condensed Financial Information
(for a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.15 $ 11.66 $ 11.55 $ 9.77 $ 10.90
-------- -------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income .35 .41 .47 .49 .50
Net gains or losses on securities 2.90 2.00 .36 2.00 (1.11)
--------- --------- ---------- --------- ----------
Total from investment income (loss) 3.25 2.41 .83 2.49 (.61)
--------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income (.34) (.40) (.47) (.49) (.49)
Distributions from capital gains (.92) (.52) (.25) (.22) (.03)
--------- --------- ---------- --------- ----------
Total distributions (1.26) (.92) (.72) (.71) (.52)
--------- --------- ---------- --------- ----------
Net asset value, end of period $ 15.14 $ 13.15 $ 11.66 $ 11.55 $ 9.77
======== ======== ========== ========= ==========
Total return 24.70% 20.62% 7.22% 25.45% (5.58)%
Ratios/supplemental data:
Net assets, end of period (in thousands) $ 48,662 $35,586 $ 30,849 $ 29,483 $ 25,597
Ratio of expenses to average net assets 1.18% 1.19% 1.21% 1.23% 1.25%
Ratio of net investment income to average
net assets 2.30% 2.87% 3.72% 4.12% 4.52%
Portfolio turnover rate 18.00% 52.00% 17.00% 35.00% 42.00%
</TABLE>
See notes to financial statements 8
