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AMERICAN EXPRESS
Financial Direct
Strategist Growth and Income Fund, Inc.
1996 Annual Report
Strategist Balanced Fund
Strategist Equity Income Fund
Strategist Total Return Fund
Strategist Equity Fund
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Table of contents
From the portfolio managers...................................................1
Independent auditors' report..................................................9
Financial statements (Strategist Growth and Income Fund, Inc.)...............10
Notes to financial statements (Strategist Growth and Income Fund, Inc.)......16
Independent auditors' report (Balanced Portfolio)............................21
Financial statements (Balanced Portfolio)....................................22
Notes to financial statements (Balanced Portfolio)...........................25
Investments in securities (Balanced Portfolio)...............................30
Notes to investments in securities (Balanced Portfolio)......................44
Independent auditors' report (Equity Income Portfolio).......................46
Financial statements (Equity Income Portfolio)...............................47
Notes to financial statements (Equity Income Portfolio)......................50
Investments in securities (Equity Income Portfolio)..........................54
Notes to investments in securities (Equity Income Portfolio).................63
Independent auditors' report (Total Return Portfolio)........................64
Financial statements (Total Return Portfolio)................................65
Notes to financial statements (Total Return Portfolio).......................68
Investments in securities (Total Return Portfolio)...........................74
Notes to investments in securities (Total Return Portfolio).................107
Independent auditors' report (Equity Portfolio).............................109
Financial statements (Equity Portfolio).....................................110
Notes to financial statements (Equity Portfolio)............................113
Investments in securities (Equity Portfolio)................................118
Notes to investments in securities (Equity PortfoliO).......................129
Federal income tax information..............................................131
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From the portfolio managers
Strategist Balanced Fund
(photo of Tom Medcalf)
Tom Medcalf
Portfolio Manager
(photo of Ed Labenski)
Ed Laberski
Portfolio Manager
During the past four-and-a-half month period, the first for
Strategist Balanced Fund, we experienced periods of volatility for
both the stock and bond markets. But in the end, stocks managed a
slight gain while bonds were generally flat. This led to a modest
return for the Fund from its inception in May through the end of
the fiscal period, Sept. 30, 1996.
The most dramatic market development of the past few months
occurred in July, when technology stocks suffered from a
substantial. The fact did not greatly deter the performance of the
Fund. Our stock investment philosophy tends to avoid high-flying
stocks which are subject to abrupt price fluctuation. Rather, we
focus on value stocks, that is, stocks of companies that appear to
be underpriced relative to the market as a whole.
This group of stocks tends to provide more reliable performance
through different market cycles, and that was the case during the
July selloff. Our portfolio, while down slightly during this
slump, performed far better than the S&P 500 stock index. By the
end of the fiscal year stocks were back on their feet, and the
portfolio enjoyed a rally, led by the banking, insurance and
retailing sectors.
Since this Fund also attempts to provide a competitive yield, we
keep a focus on finding stocks which pay a healthy dividend. In
recent months, we added utility stocks and real estate investment
trusts (REITS) to the portfolio. The Fund's high dividend
component is another factor that helped to offset its exposure to
potential market volatility.
The bond component, which makes up approximately one-third of the
portfolio, suffered through a volatile period for interest rates.
Long-term interest rates, which had dipped below 6% in January,
rose above 7% by the summer. When bond yields rise, bond values
decline. Therefore, the rising interest rate trend had a negative
impact on the Fund. However, later in the summer, interest rates
moderated and the bond component responded favorably. This helped
the Fund bounce back late in the fiscal period.
The Portfolio's asset mix changed little in the past months.
Currently, about 60% is made up of stocks, a bit more than 30% in
bonds and slightly less than 10% in cash reserves.
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The coming investment environment appears unpredictable at this
time. We believe that our current asset mix and solid dividend
yield will benefit shareholders during what could be a volatile
period for investors.
/s/ Tom Medcalf
Tom Medcalf
/s/ Ed Labenski
Ed Labenski<PAGE>
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From the portfolio manager
Strategist Equity Income Fund
(Photo of Keith Tufte)
Strategist Equity Income Fund weathered a volatile summer and
turned in a positive performance over the fiscal period dating back
to the opening of the Fund in mid-May the Fund began operations on
the heels of a strong bull market run. While the market suffered a
sudden downturn in the summer, the Fund withstood the correction
well and benefited from a recovery in August and September.
Strategist Equity Income Fund focuses on generating a competitive
total return which includes a high dividend yield. Our stock
selection focuses on relatively conservative companies which tend
to generate a substantial dividend. While these stocks may not
keep pace with a red-hot stock market, they can provide more
consistent performance through the volatile periods.
That was the Fund's experience in the past few months. Of
particular concern to many investors was a period in July, when the
S&P 500 stock index declined by more than 4%. This drop was
precipitated by a selloff of growth stocks. Since our portfolio
usually avoids growth stocks, the Fund performed better than the
market overall.
The Fund's strength came from a variety of market sectors,
including pharmaceutical companies and banks. These are considered
to be defensive stocks, which perform better than most during an
economic slowdown. These holdings stood out during a period when
investor speculation centered on fears of a recession. Some of our
positions responded well when the market perceived a strengthening
economy were our holdings in oil producers and automobile
manufacturers.
Also helping Fund performance was a reduction among some of our
holdings that had been a drag on the Fund's total return. This
included foreign stocks, an area which lagged returns of the
overall U.S. market.
I also trimmed the Portfolio's cash holdings, putting some of the
money to work in stocks, which helped the Fund's returns, and some
into bonds, which boosted the Fund's yield.
Although the stock market has reached record highs, it could become
more vulnerable to negative news in the upcoming months. Given
that, I'm comfortable that this Fund, with its broadly diversified
approach and focus on defensive and higher-yielding stocks, is well
positioned for such an environment. If stocks should continue to
post strong gains, we expect shareholders of the Fund will also
participate.
/s/ Keith Tufte
Keith Tufte
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From the portfolio manager
Strategist Total Return Fund
(photo of Steven Merrell)
Steven Merrell Portfolio Team Member
A rather volatile period in the domestic stock and bond markets and
in foreign markets was mirrored in the performance of Strategist
Total Return Fund in its first months of operation. Since its
inception in mid-May, the Fund returned a bit more than 3%,
reflecting the unevenness of markets over the fiscal period, ending
on Sept. 30, 1996.
This portfolio, which uses an asset allocation approach to invest
in a mix of securities, was dominated by stocks, both foreign and
domestic, throughout the period. About half of the portfolio's
assets were dedicated to domestic stocks. That meant a good
portion of the portfolio performed consistently with the U.S.
market, which went down dramatically in July before rebounding in
the late summer and early fall. While our U.S. stock investments
are concentrated in large, blue chip issues, the portfolio's
particular emphasis has been on stocks of consumer, industrial,
technology, and financial services companies.
Foreign stocks make up about a quarter of the portfolio. More
established foreign markets such as Japan and the United Kingdom
struggled in comparison to the U.S. market. However, we enjoyed
positive returns from our investments in a number of "emerging"
markets, such as Poland, Argentina, Mexico and Canada.
Another 20 percent of the portfolio is invested in bonds, primarily
domestic issues. By spring, it was evident that investors in the
bond market were increasingly fearful of a surge in the rate of
inflation. Their anxiety drove up interest rates, which depressed
bond prices. To offset the negative impact this would have on the
Fund, I reduced the duration of the bond component of the
portfolio. By doing so, I succeeded in limiting the impact of
price swings on the Fund. While bonds struggled through much of
the summer, they began to show improvement in September.
Although the four-and-a-half month period we have just completed
can best be described as lackluster, I strongly believe the Fund's
greatest potential will be derived from equity markets. Although
some volatility may exist, it appears that both domestic and
foreign stocks are positioned for performance that should surpass
that of other types of investments in the market.
The Portfolio's asset allocation approach provides built-in
diversification for shareholders. This investment style offers the
potential to take advantage of opportunities across a broad range
of markets while cushioning the effects of a downturn in any one.
I believe the portfolio's current positioning, with a strong mix of
domestic and foreign stocks and bonds, leaves shareholders prepared
for an approaching period of uncertainty int he markets.
/s/ Steven Merrell
Portfolio team member<PAGE>
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From the portfolio manager
Strategist Equity Fund
(photo of Richard Warden)
Richard Warden
Portfolio Manager
Strategist Equity Fund began operations in mid-May, just as the
stock market was coming off a strong period of growth. That trend
continued early into the summer until a rather dramatic drop in
mid-July. However, stocks recovered from the temporary setback and
then began an upward movement into fall.
The portfolio focuses primarily on domestic blue-chip stocks, so
the direction of the U.S. stock market has a lot to do with the
returns enjoyed by our shareholders. Our diversified position
helps to cushion against potential downturns.
For instance, along with regular stock issues, the portfolio holds
some convertible preferred stock and convertible bonds. These
securities helped to provide a higher yield for shareholders.
Dividend yield contributes to the Fund's total return, regardless
of market trends.
Large, blue-chip stocks benefited the most from the positive turns
in the market over the last few months. As evidenced by the
continuing record pace of the S&P stock index, stocks of some of
America's largest companies have been the most attractive. I moved
to position the Portfolio to take advantage of this trend, and have
increased the Portfolio's weighting in this group of large-
capitalization stocks. More specifically, I am concentrating our
equity holdings in the financial services, technology, and
consumer-products areas.
Looking forward, I hope the market can continue to advance. I look
to maintain a prudent, diversified approach with the goal of
protecting shareholders from the potential of a market downturn
that could seriously affect the largest positions in the Portfolio.
I expect this defensive posture to protect shareholders from the
prospect of a severe market correction, while still allowing
shareholders the opportunity to participate in a continued bull
market.
/s/ Richard H. Warden
Richard H. Warden
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Federal income tax information
The Funds are required by the Internal Revenue Code of 1986 to tell
their shareholders about the tax treatment of the dividends they
pay during their fiscal year. Dividends paid to you will be
reported to you on a tax statement sent next January.
Strategist Balanced Fund
Fiscal year ended Sept. 30, 1996
Income distribution taxable as dividend income, 53.19% qualifying
for deduction by corporations.
Payable date Per share
June 28, 1996 $0.05993
Sept. 27, 1996 0.08500
Total distributions $0.14493
Strategist Equity Income Fund
Fiscal year ended Sept. 30, 1996
Income distribution taxable as dividend income, 100% qualifying for
deduction by corporations.
Payable date Per share
June 28, 1996 $0.04189
Sept. 27, 1996 0.07835
Total distributions $0.12024
Federal income tax information
The Funds are required by the Internal Revenue Code of 1986 to tell
their shareholders about the tax treatment of the dividends they
pay during their fiscal year. Dividends paid to you will be
reported to you on a tax statement sent next January.
Strategist Total Return Fund
Fiscal year ended Sept. 30, 1996
Income distribution taxable as dividend income, none qualifying for
deduction by corporations.
Payable date Per share
June 28, 1996 $0.03800
Strategist Equity Fund
Fiscal year ended Sept. 30, 1996
Income distribution taxable as dividend income, 100% qualifying for
deduction by corporations.
Payable date Per share
June 28, 1996 $0.05674
Sept. 27, 1996 $0.10000
Total distributions $0.15674
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American Express Service Corporation, Distributor
