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AMERICAN EXPRESS
Strategist World Fund, Inc.
1997 Annual Report
Strategist Emerging Markets Fund
Strategist World Growth Fund
Strategist World Income Fund
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Table of contents
From the portfolio managers 1
The Funds' long-term performance 7
Independent auditors' report 12
Financial statements (Strategist World Fund, Inc.) 13
Notes to financial statements (Strategist World Fund, Inc.) 18
Federal income tax information 24
Independent auditors' report (Emerging Markets Portfolio) 26
Financial statements (Emerging Markets Portfolio) 27
Notes to financial statements (Emerging Markets Portfolio) 30
Investments in securities (Emerging Markets Portfolio) 35
Independent auditors' report (World Growth Portfolio) 44
Financial statements (World Growth Portfolio) 45
Notes to financial statements (World Growth Portfolio) 48
Investments in securities (World Growth Portfolio) 54
Independent auditors' report (World Income Portfolio) 65
Financial statements (World Income Portfolio) 66
Notes to financial statements (World Income Portfolio) 69
Investments in securities (World Income Portfolio) 74
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From the portfolio manager
(picture of) Ian King
Portfolio manager
Strategist Emerging Markets Fund
The volatility that characterizes financial markets in emerging economies was
never more evident than in the past 12 months. Nevertheless, and despite a
dramatic downturn near the end of the period, Strategist Emerging Markets Fund
produced a positive total return of 5.9% for the fiscal year, which ran from
Nov. 13, 1996 (the Fund's inception date) through Oct. 1997. The gain exceeded
that of the Morgan Stanley Capital Int'l. Emerging Markets Free Index, an
unmanaged index that is commonly used as a benchmark for evaluating the
performance of mutual funds such as this one.
The first several weeks of the period were largely devoted to putting investors'
money to work by purchasing shares of stocks in a wide range of countries,
including Hong Kong/China, Brazil, Argentina, Russia, Mexico, Turkey, Taiwan and
Malaysia. Later in the period, I also established a position in Israel.
A focus on robust economies
For the most part, I concentrated on stocks of companies involved in
infrastructure (construction of roads, bridges, utilities, sewage systems, etc.)
and industrial development, which are in their early stages in many emerging
markets. My investment approach is to focus first on countries with the
fastest-growing economies, then try to identify the stocks in those countries
that appear to have the best long-term appreciation potential. In many cases,
this has led to companies that are especially benefiting from the trend toward
privatization and deregulation in many developing countries.
During the first several months of the period, the investment environment in
most emerging markets was relatively calm and quite productive. Leading the way
were Brazil, Argentina, Mexico, Russia and Hong Kong/China, which constituted
the largest investment exposures for the portfolio.
Market meltdown
All the while, though, trouble had been brewing in Southeast Asia, where
declining currency values had dragged down those markets for many months. Things
came to a head in late Oct. as the Hong Kong market crumbled, sending shock
waves throughout emerging markets worldwide. Although its exposure to Asia was
relatively minor (I had substantially reduced investments there over the
summer), the portfolio couldn't avoid the effect of the consequent declines in
other markets. In the end, the global downturn erased most of the previous 11
months' gain.
While such events test the patience of any investor, it's important to keep in
mind that sharp swings are nothing new in emerging markets and, perhaps more
important, the case for investing in emerging markets is, in my view at least,
as sound as ever. Inflation remains under control around the globe, economies in
many developing countries are still vibrant, and the worldwide trend toward free
markets and capitalism is unbowed. Over the long run, I'm confident that
combination will again prove rewarding.
Ian King
Strategist World Fund, Inc.
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From the portfolio manager
(picture of) John O'Brien
Portfolio manager
Strategist World Growth Fund
Global equity markets were highly volatile during the past fiscal year, which
concluded with a steep sell-off that began in Asia and spread virtually
throughout the world. Still, Strategist World Growth Fund finished in positive
territory for the 12 months, recording a total return of 6% from Nov. 1996
through Oct. 1997.
The early months of the period were quite productive, as many markets around the
world gained ground. Among the most consistent was the U.S. market, which
constituted an increasing portion of the portfolio as the period progressed.
Investments in other markets contributed during that time, too, including those
in Argentina, Germany, the United Kingdom and Canada.
A spring slump
By March, though, stronger-than-expected economic data in the U.S. began to
foster fears of higher inflation and, in turn, a rise in long-term interest
rates. The result was a swift downturn in the U.S., which was mimicked by
several smaller markets, particularly in Southeast Asia. However, by early
summer the environment had become more favorable, and, led by the U.S., most
markets were on an advance that, aside from a moderate setback in August,
continued into the fall.
Asia sell-off
But the biggest news wouldn't come until the final week of the period, when
collapsing currencies in Southeast Asia sparked a severe sell-off in the Hong
Kong stock market, which in turn set in motion a domino effect that drove down
stocks worldwide, including in the U.S. Although the portfolio's exposure to the
hardest-hit Southeast Asia markets was modest, the pervasiveness of the downturn
eroded most of the Fund's gain to that point.
U.S. is largest exposure
As for the make-up of the portfolio, apart from the increase in U.S. holdings
(currently, the portfolio's largest country exposure), changes included reducing
investments in Southeast Asia and adding to those in Europe, particularly France
and Germany, as well as Japan. The portfolio's Japanese holdings performed well
and its hedged position in the local currency, the yen, added value.
At this writing (mid-November), I foresee little change in the portfolio mix. I
am continuing to avoid Southeast Asia, focusing instead on opportunities in
Europe. Above all, I'm emphasizing stocks of companies with substantial
international business presence and superior growth potential.
John O'Brien
Strategist World Fund, Inc.
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From the portfolio manager
(picture of) Ray Goodner
Portfolio manager
Strategist World Income Fund
In an up-and-down period for many worldwide bond markets, Strategist World
Income Fund ultimately posted positive results. For the Nov. 1996 through Oct.
1997 fiscal year, the portfolio generated a total return of 6.6%.
The period got off to a strong start, with the U.S. bond market rallying
strongly through the end of 1996. The ensuing months, though, brought a more
difficult environment. In the U.S., periodic run-ups in long-term interest rates
resulted in an overall erosion of bond prices. There were problems overseas as
well; while the European and Japanese bond markets performed positively,
declining currency values penalized portfolio performance.
Mid-year recovery
Fortunately, the spring and summer were kinder to bond investors. Tame inflation
reports allowed the U.S. bond market to rebound, a trend that spilled over to
major foreign markets, particularly in Europe. European currency values also
began firming up, which also benefited the portfolio.
The portfolio also got a boost from its relatively modest holdings in emerging
markets, which was the best-performing bond sector for the entire 12 months,
despite a sharp decline at the end of the period stemming from economic distress
in Asia. All of the portfolio's investments in emerging markets remained
denominated in U.S. dollars, a strategy that negates the effect of changes in
the values in local currencies.
Asset shifts
During the year, I made a number of portfolio adjustments in response to the
changing conditions. Most noteworthy were increasing the average maturity of
dollar-denominated bonds following the peak in yields and an increase in
European currency exposure after the dollar reached a plateau. This latter
adjustment was accomplished by closing currency hedges and purchasing bonds
outright.
As we begin a new fiscal year, the worldwide fundamentals for bond investors
remain largely favorable, as governments and central banks in most countries
have done an admirable job of reigning in spending deficits and bringing
inflation under control. These achievements, combined with the emergence of
deflationary conditions in parts of Asia, should help keep investors' concerns
about inflation in check. Lastly, while another year of solid economic growth in
the U.S. should bolster the dollar, improving economies in Europe, along with
increasing confidence in the unified European currency, should enhance
investment performance outside the U.S.
Ray Goodner
Strategist World Fund, Inc.
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The Funds' long-term performance
<TABLE>
<CAPTION>
How your $10,000 has grown in Strategist Emerging Markets Fund
<S> <C> <C> <C>
$15,000
Strategist Emerging
Markets Fund
$10,506
Lipper Emerging
Markets Fund Index
MSCI Emerging
Markets Free Index
$10,000
11/96 12/96 1/97 2/97 3/97 4/97 5/97 6/97 7/97 8/97 9/97 10/97
Average annual total return
(as of Oct. 31, 1997)
Since inception*
+5.90%
*Inception date was Nov. 13, 1996. For the purpose of the graph above start
date was Nov. 30, 1996.
</TABLE>
Assumes: Holding period from 11/30/96 to 10/31/97. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $30. Also see "Performance" in the
Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the MSCI Emerging Markets Free Index and the
Lipper Emerging Markets Fund Index. Your investment and return values fluctuate
so that your shares, when redeemed, may be worth more or less than the original
cost. This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results.
Morgan Stanley Capital International (MSCI) Emerging Markets Free Index, an
unmanaged market capitalization-weighted index comprising 26 emerging market
countries. It is widely recognized by investors as a measurement index for
portfolios of emerging market securities. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage commissions
or other fees.
Lipper Emerging Markets Fund Index, published by Lipper Analytical Services,
Inc. includes 31 funds that are generally similar to the Fund, although some
funds in the index may have somewhat different investment policies or
objectives. The index reflects reinvestment of all distributions and changes in
market prices, but excludes brokerage commissions or other fees.
Strategist World Fund, Inc.
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<TABLE>
<CAPTION>
How your $10,000 has grown in Strategist World Growth Fund
<S> <C> <C> <C>
$15,000
Lipper International
Fund Index
MSCI
All Country
World Free Index
EAFE Index
$10,045
Strategist World
Growth Fund
$10,000
5/96 6/96 7/96 8/96 9/96 10/96 11/96 12/96 1/97 2/97 3/97 4/97 5/97 6/97 7/97 8/97 9/97 10/97
Average annual total return
(as of Oct. 31, 1997)
1 year 5 years Since Inception*
+5.98% +10.35% +6.98%
*Inception date was May 29, 1990.
</TABLE>
Assumes: Holding period from 5/31/96 to 10/31/97. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $19. Also see "Performance" in the
Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the Morgan Stanley Capital International All
Country World Free Index, the Morgan Stanley Capital International EAFE Index
and the Lipper International Fund Index. Your investment and return values
fluctuate so that your shares, when redeemed, may be worth more or less than the
original cost. This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
On May 13, 1996, IDS Global Growth Fund (the predecessor fund) converted to a
master/feeder structure and transferred all of its assets to World Growth
Portfolio. The performance information in the total return table, other than the
1 year average annual total return, represents performance of the predecessor
fund prior to March 20, 1995 and of Class A shares of the predecessor fund from
March 20, 1995 through May 13, 1996, adjusted to reflect the absence of sales
charges on shares of the Fund. The historical performance has not been adjusted
for any difference between the estimated aggregate fees and expenses of the Fund
and historical fees and expenses of the predecessor fund.
Morgan Stanley Capital International All Country World Free Index (MSCI All
Country World Free Index) is an unmanaged index compiled from a composite of
securities markets of 47 countries, including Canada, the United States and 26
emerging market countries. It is widely recognized by investors in foreign
markets as the measurement index for portfolios of global securities.
Morgan Stanley Capital International EAFE Index (EAFE Index), an unmanaged index
compiled from a composite of securities markets of Europe, Australia and the Far
East, is widely recognized by investors in foreign markets as the measurement
index for portfolios of non-North American securities. The index reflects
reinvestment of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.
Lipper International Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to World
Growth Portfolio, although some funds in the index may have somewhat different
investment policies or objectives.
Strategist World Fund, Inc.
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<TABLE>
<CAPTION>
How your $10,000 has grown in Strategist World Income Fund
<S> <C> <C> <C>
$12,000
$11,212
Strategist World
Income Fund
Lipper Global Income
Fund Index
Salomon Brothers
Global Gov't Bond
Composite Index
$10,000
5/96 6/96 7/96 8/96 9/96 10/96 11/96 12/96 1/97 2/97 3/97 4/97 5/97 6/97 7/97 8/97 9/97 10/97
Average annual total return
(as of Oct. 31, 1997)
1 year 5 years Since inception*
+6.61% +8.22% +10.19%
*Inception date was May 20, 1989.
</TABLE>
Assumes: Holding period from 5/31/96 to 10/31/97. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $732. Also see "Performance" in the
Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Salomon Brothers Global Gov't Bond
Composite Index and the Lipper Global Income Fund Index. Your investment and
return values fluctuate so that your shares, when redeemed, may be worth more or
less than the original cost. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
On May 13, 1996, IDS Global Bond Fund (the predecessor fund) converted to a
master/feeder structure and transferred all of its assets to World Income
Portfolio. The performance information in the total return table, other than the
1 year average annual total return, represents performance of the predecessor
fund prior to March 20, 1995 and of Class A shares of the predecessor fund from
March 20, 1995 through May 13, 1996, adjusted to reflect the absence of sales
charges on shares of the Fund. The historical performance has not been adjusted
for any difference between the estimated aggregate fees and expenses of the Fund
and historical fees and expenses of the predecessor fund.
Salomon Brothers Global Government Bond Composite Index is an unmanaged
representative list of government bonds of 17 countries throughout the world.
The index is a general measure of government bond performance. Performance is
expressed in the U.S. dollar as well as the currencies of governments making up
the index. The bonds included in the index may not be the same as those in World
Income Portfolio. The index reflects reinvestment of all distributions and
changes in market prices, but excludes brokerage commissions or other fees.
Lipper Global Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to World
Income Portfolio, although some funds in the index may have somewhat different
policies or objectives.
Strategist World Fund, Inc.
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The financial statements contained in Post-Effective Amendment #5 to
Registration Statement No.33-63951 filed on or about December 24, 1997,
are incorporated herein by reference.
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Strategist World Fund, Inc.
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American Express Service Corporation, Distributor
AMERICAN EXPRESS
P.O. Box 59196
Minneapolis, MN 55459-0196
S-6138 C (12/97)
