STRALEM & COMPANY
INCORPORATED
405 PARK AVENUE, NEW YORK, N.Y. 10022-4405
TELEPHONE: (212) 888-8123
Fax: (212) 888-8152
February 2000
Dear Shareholder:
For the year 1999, The Stralem Fund was up 14.7%.
Equities were up 38.6% and Treasury bonds were down 6.6% including
interest received.
The Net Asset Value of the Fund year end 1999 was $17.36 per share vs
$15.14 ex-dividend year end 1998.
As of December 31, 1999 assets of the Fund were distributed as follows:
Money Market Funds/Tsy Bills/Misc. 14.17%
Treasury Bonds 32.04%
Equities 53.79%
Attached is a listing of the Fund holdings as of December 31, 1999, as
well as various comparative returns.
<PAGE>
<TABLE>
<CAPTION>
STALEM FUND ** 99 DEC 31 ** RETURN YTD 99
<S> <C> <C> <C>
TBILLS/MF/MISC 14.17% 9,776,475
TREASURY BONDS 32.04% 22,095,625 -6.6% TSY BONDS
EQUITIES 53.79% 37,098,656 38.6% EQUITIES
------------ ---------------
19.5% SP500
TOTAL ASSETS 100.00% $68,970,756
UNITS OUTSTANDING 3,972,041 FUND NAV 17.36 14.7
===================================== =================== ================== ==================== ==========================
NY 4:00 PM VALUE
TSY BONDS (-000)
$10,000 5.625% Feb 2006 95.656 9,565,625
$2,500 7.500% Nov 2016 106.906 2,672,656
$4,500 7.250% Aug 2022 105.344 4,740,469
$6,000 5.500% Aug 2028 85.281 5,116,875
CREATING NEW INDUSTRIES 38.5%
14,500 A+ Hewlett-Packard 113.938 1,652,094
24,000 A- Intel 82.313 1,975,500
10,000 - Lucent Tech 74.813 748,125
20,000 A- Microsoft 116.750 2,335,000
40,000 B+ Oracle 112.063 4,482,500
40,000 B+ Sun Microsystems 77.438 3,097,500
CREATING NEW PRODUCTS 13.2%
20,000 A Bristol Myers 64.188 1,283,750
13,400 A+ Johnson & Johnson 93.125 1,247,875
30,000 A Medtronic 36.438 1,093,125
19,000 A+ Merck 67.063 1,274,188
WELL RUN/DOMINATES ITS INDUSTRY 40.2%
32,000 A+ Automatic Data 53.875 1,724,000
20,000 B+ Bell Atlantic 61.563 1,231,250
20,000 A+ Emerson Electric 57.375 1,147,500
45,000 A+ Gap Inc 46.000 2,070,000
13,500 A+ General Electric 154.750 2,089,125
25,000 A+ MBIA Inc 52.813 1,320,313
32,000 A+ McDonald's 40.313 1,290,000
32,000 A+ Wal-Mart 69.125 2,212,000
16,000 B Whirlpool 65.063 1,041,000
35,000 B Xerox 22.688 794,063
REASONABLE PRICE TO CASH FLOW 8.1%
12,500 B Atlantic Richfield 86.500 1,081,250
12,000 B+ Chevron 86.625 1,039,500
16,000 B Texaco 54.313 869,000
------------
100.0% EQUITIES 37,098,656
</TABLE>
<PAGE>
ANNUALIZED RETURNS
YRS S. FUND* S&P500^
1 YR 14.70% 20.89%
5 YRS 18.36% 28.23%
10 YRS 11.75% 17.93%
*after fees/expenses ^dividends included
[Graphics YRS EQ.ONLY S&P500
Omitted]
1 YR 38.60% 20.89%
2 YRS 41.13% 24.43%
3 YRS 38.76% 27.14%
YRS TSY.ONLY JPMTUS
1 YR -6.60% -2.88%
2 YRS 2.82% 3.48%
3 YRS 6.81% 5.61%
[Graphics [Graphics
Omitted] Omitted]
<PAGE>
And now to 2000...
The current level of operations is fine; inventories continued to be
well controlled receivables are fine (except for financial institutions);
profitable capacity is available; and there is continued pressure on margins.
However, there were three points to consider: Capital Expenditures; Labor; and
Estimated Earnings for 2000.
POINT 1
Capital expenditures (ex software) will be down for the second year in
a row. As we have commented in the past, the efforts to remain competitive,
through improved productivity, has resulted in increased capacity. This,
together with the continued availability of excess capacity in Asia, has
persuaded most managers that a shortage of capacity is not a factor in today's
environment...or even in tomorrow's.
POINT 2
At the end of our first week of visits, the employment/unemployment
data was released showing that more people became employed (good for
consumption) and that hourly earnings only increased 0.01% (good for controlling
inflation). For more than five years, the downward movement of the unemployment
rate has continually caused the "predictors" to raise the inflation flag yet the
combination of many factors have kept labor-cost-led inflation at bay. Why and
how has this occurred? (As we realize you do not have our last quarterly letter
at hand, we shall repeat some of these factors.)
The "why" is simple: Consumers continue to buy with a very sharp focus
on value and the business manager must respond. The "how" is a collection of
various programs reflecting the ingenuity of today's business manager. They are:
DOWN SIZING: BOTTOM UP This is the most common procedure as companies
continue to re-examine how they process their business with the objective of
both removing cost and improving product and output.
DOWN SIZING: TOP DOWN Through mergers, sale of divisions, etc.
redundancy of senior and middle management is eliminated.
TRAINING Today, companies are employing people they would not have
considered five years ago. They have become employable because companies have,
in many cases, redesigned the work process and/or are spending monies training
such people.
4
<PAGE>
POSITIONS LEFT OPEN At the staff level, many positions are left unfilled,
particularly in the Information Technology area. However, this has resulted in
fewer problems than expected...so they are left opened.
JOB SECURITY While consumers feel that jobs are easier to find, while
the number of weeks unemployed has dropped from 19 five years ago to 12 today,
while most members of their family are employed, while most of their neighbors
are employed, and while almost every plant, store, etc. has a "for hire" sign,
there is still a fear concerning job security. Although some of this fear is
based on the continual announcements of "down sizing: bottom up", most is the
need to have a constant source of income to meet the weekly/monthly payments on
the significant increase in borrowing's which have been the source of the growth
in GDP. Workers (except I.T. personnel) are not prepared to go on strike for
higher wages nor to march into their boss's office and demand higher wages for
fear of losing that flow of funds.
Another factor leading to some stability in the work force (again,
except for I.T. personnel) is stock option programs. Granted that many stocks
are selling below their historical high, most are selling above the option
exercise price. Stock options are a win-win source of compensation for
management. The corporation gets to deduct, for Federal Income Taxes purposes,
the difference between the exercise price and the market price on the day that
the option is exercised and they do not have to record that "expense" in the
profit and loss statement to shareholders... even if the company goes into the
market place and buys the shares at a higher price than the exercise price. As
such, there is less pressure to raise prices to recover higher labor costs.
POINT 3
The business manager has learned to successfully deal with a number of
challenges (read "pressures") of business during the past decade. However, a
"new" challenge is appearing in the coming year that has many concerned:
Estimated earnings by Wall Street. The third quarter was a very good one on an
absolute basis and off the wall on a comparative basis. As such, Wall Street has
increased its earnings estimates for next year. This has many corporate people
concerned. It seems that Wall Street cannot remember back an entire year when
third quarter earnings were, on a year-over-year quarterly basis, down more than
20%. Hence, if the third quarter of 1998 were just flat on a year-over-year
basis, then this year's quarter would have been flat against last year's. But,
Wall Street must raise earnings estimates to support the higher security prices
and management is stuck with it. When we asked why don't they do a little
"guidance", we were told that it was too early, that they must wait until this
year is completed and see what accounting options are available!
2000 promises to be another challenging year.
Very truly yours,
Philippe E. Baumann
President
<PAGE>
STRALEM FUND
FINANCIAL STATEMENTS
DECEMBER 31, 1999
(with supplementary information)
<PAGE>
STRALEM FUND, INC.
INDEPENDENT AUDITORS' REPORT
Trustees and Shareholders
Stralem Fund
New York, New York
We have audited the accompanying statement of assets and liabilities of Stralem
Fund, including the portfolio of investments in securities, as of December 31,
1999, 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, 1999, 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 as of December 31, 1999, 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.
New York, New York
January 27, 2000
<PAGE>
STRALEM FUND
Statement of Assets and Liabilities
December 31, 1999
ASSETS
Investments, at market value:
Common stocks (cost - $14,515,029) $ 37,098,656
United States Government obligations (cost - $33,327,557) 33,048,338
Money market mutual funds 1,353,144
-------------
71,500,138
Interest and dividends receivable 515,537
72,015,675
LIABILITIES
Payable for shares reacquired 2,851,880
Accrued expenses 193,042
Dividends payable 3,177,633
------------
6,222,555
Net assets applicable to outstanding shares of beneficial
interest $ 65,793,120
============
Net asset value per share - based on 3,972,041 shares of beneficial
interest outstanding (offering price and redemption price) $16.56
============
See notes to financial statements
2
<PAGE>
Portfolio of Investments in Securities
December 31, 1999
Number of Market
Shares Value
------ -----
Common stocks (51.89%):
Computer and Peripherals (6.64%):
14,500 Hewlett-Packard Co. $ 1,652,094
*40,000 Sun Microsystems 3,097,500
Computer Software and Service (11.95%):
32,000 Automatic Data Processing 1,724,000
*20,000 Microsoft Corp. 2,335,000
*40,000 Oracle Corp. 4,482,500
Electrical Equipment (4.53%):
20,000 Emerson Electric Co. 1,147,500
13,500 General Electric Company 2,089,125
Insurance (1.85%)
25,000 MBIA, Inc. 1,320,313
Home Appliance (1.46%):
16,000 Whirlpool Corp. 1,041,000
Medical Supplies (3.27%):
13,400 Johnson & Johnson 1,247,875
30,000 Medtronic Inc. 1,093,125
Office Equipment and Supplies (1.11%):
35,000 Xerox Corp. 794,063
Personal Care (1.80%):
20,000 Bristol-Myers Squibb 1,283,750
Petroleum (4.18%):
12,500 Atlantic Richfield Co. 1,081,250
12,000 Chevron Corp. 1,039,500
16,000 Texaco, Inc. 869,000
Pharmaceuticals (1.78%):
19,000 Merck & Co, Inc. 1,274,186
Restaurant (1.80%):
32,000 McDonalds Corp. 1,290,000
Retail Stores (5.99%):
45,000 The Gap 2,070,000
32,000 Wal-Mart Stores, Inc. 2,212,000
Semiconductor (2.76%):
24,000 Intel Corp. 1,975,500
Telecommunications Equipment (1.05%):
10,000 Lucent Technologies 748,125
Telecommunications Service (1.72%)
20,000 Bell Atlantic Corp. 1,231,250
------------
37,098,656
3
<PAGE>
Portfolio of Investments in Securities (continued)
December 31, 1999
Face Market
Value Value
----- -----
United States Government obligations (46.22%):
Treasury bonds and notes (30.90%):
$10,000,000 February 15, 2006; 5.625% $ 9,565,625
$ 2,500,000 November 15, 2016; 7.5% 2,672,656
$ 4,500,000 August 15, 2022; 7.25% 4,740,467
$ 6,000,000 August 15, 2028; 5.50% 5,116,875
Treasury bills (15.32%):
$ 7,000,000 January 27, 2000 6,973,435
$ 2,000,000 February 3, 2000 1,990,555
$ 2,000,000 February 10, 2000 1,988,725
------------
33,048,338
Money market mutual funds (1.89%):
Short-term Income Fund 1,353,144
$ 71,500,138
* Nonincome producing
See notes to financial statements
4
<PAGE>
Statement of Operations
Year Ended December 31, 1999
Investment income:
Interest $ 1,755,096
Dividends 346,233
------------
2,101,329
------------
Expenses:
Investment advisory 604,755
Legal fees 176,236
Auditing fees 24,522
Administration expenses 25,000
Directors' fees 2,800
Taxes 10,615
Miscellaneous 11,141
------------
855,069
------------
Net investment income 1,246,260
------------
Net realized gain from security transactions 1,943,052
Net increase in unrealized appreciation of investments 5,830,174
------------
Net gain on investments 7,773,226
------------
Net increase in net assets resulting from operations $ 9,019,486
============
See notes to financial statements
5
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---- ----
Operations:
<S> <C> <C>
Net investment income $ 1,246,260 $ 1,085,166
Net realized gain from security transactions 1,943,052 2,967,304
Net increase in unrealized appreciation of investments 5,830,174 6,583,489
------------ ------------
9,019,486 10,635,959
------------ ------------
Distributions to shareholders:
Investment income (1,234,581) (1,081,537)
Realized gains (1,943,052) (2,967,304)
------------ ------------
(3,177,633) (4,048,841)
------------ ------------
Capital share transactions:
Proceeds from shares sold (850,551 and 688,965 shares, respectively) 13,173,478 9,659,534
Proceeds from reinvestments of dividends (217,567 and 141,890 shares,
respectively) 3,298,315 1,877,205
Cost of shares redeemed (309,443 and 323,353 shares, respectively) (5,182,756) (5,048,005)
------------ ------------
11,289,037 6,488,734
------------ ------------
Increase in net assets 17,130,890 13,075,852
Net assets at January 1 48,662,230 35,586,378
------------ ------------
Net assets at December 31 (including undistributed net investment
income of $177,420 and $165,741, respectively) $ 65,793,120 $ 48,662,230
============ ============
</TABLE>
See notes to financial statements
6
<PAGE>
NOTE A - ORGANIZATION
Stralem Fund (formerly "Stralem Fund, Inc.") (the "Fund") is a Delaware business
trust formed under the laws of the State of Delaware with authority to issue an
unlimited number of shares of beneficial interest.
NOTE B - 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 C - 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 D - OTHER MATTERS
[1] Unrealized appreciation at December 31, 1999 $ 23,982,029
Unrealized depreciation at December 31, 1999 (1,677,621)
--------------
$ 22,304,408
[2] Purchases and sales of securities other than short-term investments
aggregated $16,907,165 and $10,848,006, respectively, for the year ended
December 31, 1999.
See notes to financial statements
7
<PAGE>
Supplementary Information
<PAGE>
Condensed Financial Information
(for a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.14 $ 13.15 $ 11.66 $ 11.55 $ 9.77
-------- -------- -------- ---------- ---------
Income from investment operations:
Net investment income .32 .35 .41 .47 .49
Net gains or losses on securities 1.90 2.90 2.00 .36 2.00
-------- -------- --------- ----------- ---------
Total from investment income 2.22 3.25 2.41 .83 2.49
-------- -------- --------- ----------- ---------
Less distributions:
Dividends from net investment income (.31) (.34) (.40) (.47) (.49)
Distributions from capital gains (.49) (.92) (.52) (.25) (.22)
--------- --------- --------- ---------- ---------
Total distributions (.80) (1.26) (.92) (.72) (.71)
--------- --------- --------- ---------- ---------
Net asset value, end of period $ 16.56 $ 15.14 $ 13.15 $ 11.66 $ 11.55
======== ======== ======== ========== =========
Total return 14.69% 24.70% 20.62% 7.22% 25.45%
Ratios/supplemental data:
Net assets, end of period (in thousands) $65,793 $48,662 $ 35,586 $ 30,849 $ 29,483
Ratio of expenses to average net assets 1.35% 1.18% 1.19% 1.21% 1.23%
Ratio of net investment income to average
net assets 1.97% 2.30% 2.87% 3.72% 4.12%
Portfolio turnover rate 20.00% 18.00% 52.00% 17.00% 35.00%
</TABLE>
