SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No
Post-Effective Amendment No. 2 (File No. 33-63907) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 (File No. 811-7403) X
STRATEGIST GROWTH AND INCOME FUND, INC.
(formerly Express Direct Growth and Income Fund, Inc.)
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Eileen J. Newhouse - IDS Tower 10,
Minneapolis, Minnesota 55440-0010
(612) 671-2772
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
X on Nov. 28, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1) on (date) pursuant
to paragraph (a)(1) 75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Growth and Income Trust has also executed this Amendment to the Registration
Statement.
<PAGE>
Cross reference sheet showing the location in the prospectus and Statement of
Additional Information of the information called for by items enumerated in
Parts A and B of Form N-1A.
Negative answers omitted are so indicated.
PART A
Item No. Section in Prospectus
1 Cover page of prospectus
2 (a) Fund expenses
(b) The Funds in brief
(c) The Funds in brief
3 (a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights
4 (a) The Funds in brief; Investment policies and risks; How the
Funds and Portfolios are organized
(b) Investment policies and risks
(c) Investment policies and risks
5 (a) Board members and officers
(b)(i) Investment manager; About the Advisor
(b)(ii) Investment manager; Administrator and transfer agent
(b)(iii) Investment manager
(c) Portfolio managers
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Investment manager; Administrator and transfer agent; Distributor
(g) About the Advisor
5A(a) *
(b) *
6 (a) Shares; Voting rights
(b) NA
(c) NA
(d) NA
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Special considerations regarding master/feeder structure
7 (a) Distributor
(b) Valuing Fund shares
(c) NA
(d) How to purchase shares
(e) NA
(f) Distributor
(g) NA
8 (a) How to redeem shares
(b) NA
(c) How to purchase, exchange or redeem shares: Other important
information
(d) How to purchase, exchange or redeem shares: How to redeem shares
9 None
PART B
Item No. Section in Statement of Additional Information
10 Cover page of SAI
11 Table of Contents
12 NA
13 (a) Additional Investment Policies; all appendices except
Dollar-Cost Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions
14 (a) Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers
15 (a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers
16 (a)(i) How the Funds and Portfolios are organized; About the Advisor**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and
Agreement of Distribution / Distribution Agreement
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement
(e) NA
(f) Agreements: Plan and Agreement of Distribution / Distribution
Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17 (a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with the Advisor
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions
18 (a) Shares; Voting rights**
(b) NA
19(a) Investing in the Funds
(b) Valuing Fund Shares; Investing in the Funds
(c) Redeeming Shares
20 Taxes
21 (a) Agreements: Distribution Agreement
(b) NA
(c) NA
22 (a) NA
(b) Performance Information
23 Financial Statements
* Designates information is located in annual report.
** Designates location in prospectus.
<PAGE>
Strategist Growth and Income Fund, Inc.
Prospectus
Nov. 28, 1997
This prospectus describes four diversified, no-load mutual funds. Strategist
Growth and Income Fund, Inc. is a mutual fund with four series of capital stock
representing interests in Strategist Balanced Fund, Strategist Equity Fund,
Strategist Equity Income Fund and Strategist Total Return Fund. Each Fund has
its own goals and investment policies.
Each Fund seeks to provide shareholders with current income and growth of
capital.
Each Fund has chosen to participate in a master/feeder structure. Each Fund
seeks to achieve its goals by investing all of its assets in a corresponding
Portfolio of Growth and Income Trust. Each Portfolio is managed by American
Express Financial Corporation and has the same goals as the corresponding Fund.
This arrangement is commonly known as a master/feeder structure.
This prospectus contains facts that can help you decide if one or more of the
Funds is the right investment for you. Read it before you invest and keep it for
future reference.
Additional facts about the Funds are in a Statement of Additional Information
(SAI), filed with the Securities and Exchange Commission (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated by reference. For a free copy,
contact American Express Financial Direct.
Like all mutual funds, these securities have not been approved or disapproved by
the Securities and Exchange Commission or any state securities commission, nor
has the Securities and Exchange Commission or any state securities commission
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Please note that these Funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed to achieve their goals
<PAGE>
American Express Financial Direct
P.O. Box 59196
Minneapolis, MN
55459-0196
800-AXP-SERV
TTY: 800-710-5260
Web site address: http://www.americanexpress.com/direct
<PAGE>
Table of contents
The Funds in brief
Goals and types of Fund investments and their risks
Structure of the Funds
Manager and distributor
Portfolio managers
Fund expenses
Performance
Financial highlights
Total returns
Investment policies and risks
Facts about investments and their risks
Valuing Fund shares
How to purchase, exchange or redeem shares
How to purchase shares
How to exchange shares
How to redeem shares
Methods of exchanging or redeeming shares
Systematic purchase plans
Other important information
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
<PAGE>
How the Funds and Portfolios are organized
Shares
Voting rights
Shareholder meetings
Special considerations regarding master/feeder structure
Board members and officers
Investment manager
Administrator and transfer agent Distributor
About the Advisor
Appendices
Appendix A: Description of corporate bond ratings
Appendix B: Descriptions of derivative instruments
<PAGE>
The Funds in brief
Strategist Growth and Income Fund, Inc. (the Company) is a mutual fund with four
series of capital stock representing interests in Strategist Balanced Fund
(Balanced Fund), Strategist Equity Fund (Equity Fund), Strategist Equity Income
Fund (Equity Income Fund) and Strategist Total Return Fund (Total Return Fund)
(collectively referred to as the Funds). Each Fund is a diversified mutual fund
with its own goals and investment policies. Each of the Funds seeks to achieve
its own goals by investing all of its assets in a corresponding series (the
Portfolio) of Growth and Income Trust (the Trust) rather than by directly
investing in and managing its own portfolio of securities.
Goals and types of Fund investments and their risks
Balanced Fund seeks to provide shareholders with a balance of growth of capital
and current income. It does so by investing all of its assets in Balanced
Portfolio, a diversified mutual fund that balances its investments between
common stocks and senior securities (preferred stocks and debt securities)
issued by U.S. and foreign companies. No more than 65% of Balanced Portfolio's
total assets will be invested in common stocks and no less than 35% in senior
securities, convertible securities, derivative instruments and money market
instruments.
Equity Fund seeks to provide shareholders with current income and growth of
capital. It does so by investing all of its assets in Equity Portfolio, a
diversified mutual fund that invests primarily in common stocks and securities
convertible into common stock of U.S. and foreign companies. It also may invest
in preferred stocks, debt securities, foreign securities, derivative instruments
and money market instruments.
Equity Income Fund seeks to provide shareholders with a high level of current
income and, as a secondary goal, steady growth of capital. It does so by
investing all of its assets in Equity Income Portfolio, a diversified mutual
fund that invests primarily in dividend-paying stocks. The Portfolio also
invests in other common stocks, foreign securities, convertible securities, debt
securities, derivative instruments and money market instruments.
Total Return Fund seeks to provide shareholders maximum total return through a
combination of growth of capital and current income. It does so by investing all
of its assets in Total Return Portfolio, a diversified mutual fund that invests
in U.S. equity securities, U.S. and foreign debt securities, foreign equity
securities and money market instruments. The Portfolio provides diversification
among these major investment categories. The Portfolio has a target mix that
represents the way the Portfolio's investments will be allocated over the long
term. This mix will vary over short-term periods based on the management team's
outlook for the different markets. The Portfolio may also use derivative
instruments. Because investments involve risk, a Fund cannot guarantee achieving
its goals.
<PAGE>
Structure of the Funds
Each Fund uses what is commonly known as a master/feeder structure. This means
that the Fund (the feeder fund) invests all of its assets in the Portfolio (the
master fund). The Portfolio invests in and manages the securities and has the
same goals and investment policies as the Fund. This structure is described in
more detail in the section captioned "Special considerations regarding
master/feeder structure." Here is an illustration of the structure:
- --------------------------------------------------------------------------
Investors buy shares in the Fund
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The Fund invests in the Portfolio
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The Portfolio invests in securities,
such as stocks or bonds
- --------------------------------------------------------------------------
Manager and distributor
Each Portfolio is managed by American Express Financial Corporation (the
Advisor), a provider of financial services since 1894. The Advisor currently
manages more than $171 billion in assets. These assets are managed by a team of
highly skilled, experienced professionals, backed by one of the nation's largest
investment departments. Our team of professionals includes portfolio managers,
senior economists and supporting staff, stock and bond analysts including
Chartered Financial Analysts, and investment managers and researchers based in
London and Hong Kong who add a global dimension to our expertise.
Shares of the Funds are sold through American Express Service Corporation (the
Distributor), an affiliated company of the Advisor.
Portfolio managers
Balanced Portfolio
Edward Labenski joined the Advisor in 1975 and serves as president -
Fixed-Income Advisors of American Express Asset Management Group Inc. and senior
portfolio manager. He has managed the assets of the fixed-income portion of
Balanced Portfolio and its predecessor fund since 1987.
<PAGE>
Kurt Winters joined the Advisor in 1987 and serves as Senior portfolio manager.
He has managed assets of the Portfolio since December 1997. Kurt is responsible
for overall investment management, including the determination of the sectors in
which the fund will invest. A team of research professionals makes investment
decisions within those sectors. From 1992 to 1995 he has managed IDS Life Series
Fund, Managed Portfolio. He was appointed to manage IDS Discovery Fund in 1995.
He also serves as portfolio manager of IDS Equity Value Fund, IDS Progressive
Fund, Balanced Portfolio and Equity Income Portfolio.
Equity Portfolio
Dick Warden joined the Advisor in 1962 and serves as portfolio manager. He has
managed the assets of Equity Portfolio and its predecessor fund since January
1995. He also serves as portfolio manager of IDS Precious Metals Fund.
Equity Income Portfolio
Kurt Winters joined the Advisor in 1987 and serves as Senior portfolio manager.
He has managed assets of the Portfolio since December 1997. Kurt is responsible
for overall investment management, including the determination of the sectors in
which the fund will invest. A team of research professionals makes investment
decisions within those sectors. From 1992 to 1995 he has managed IDS Life Series
Fund, Managed Portfolio. He was appointed to manage IDS Discovery Fund in 1995.
He also serves as portfolio manager of IDS Equity Value Fund, IDS Progressive
Fund, Balanced Portfolio and Equity Income Portfolio.
Total Return Portfolio
Portfolio management team
To determine the appropriate allocation of assets in Total Return Portfolio, an
asset allocation team has been established. As portfolio manager, Steve Merrell
leads this team. In addition to Steve, the team is comprised of Peter Anderson,
Fred Quirsfeld and Peter Lamaison.
Steve Merrell has served as portfolio manager for the Portfolio since September
1997 and as fixed income securities specialist since December 1995. He joined
the Advisor in 1991 and has managed IDS Life Special Income Fund since that
time. Steve serves as vice president and senior portfolio manager.
Peter Anderson advises the Portfolio manager on domestic equities for the
Portfolio. He joined the Advisor in 1982. He was president of American Expres
Asset Management Group Inc. from 1985 to 1993 and has been chairman of th
board since 1993.
<PAGE>
Frederick Quirsfeld advises the portfolio manager on domestic fixed income
securities for the Portfolio. He joined the Advisor in 1985. He serves as vice
president and senior portfolio manager and has managed IDS Bond Fund since 1985.
Peter Lamaison advises the portfolio manager on international equities for the
Portfolio. He joined the Advisor in 1981, and has since served as president,
chief executive officer and chief investment officer of American Express Asset
Management International Inc.
Day-to-day management for the various asset classes held by the Portfolio is the
responsibility of the following managers:
Guru Baliga has served as U.S. equities specialist for the assets of the
Portfolio since December 1995. He joined the Advisor in 1991 and serves as vice
president and senior portfolio manager. He became portfolio manager of IDS Blue
Chip Advantage Fund in 1994. He also is portfolio manager of Aggressive Growth
Portfolio and IDS Small Company Index Fund.
Mark Hays and John O'Brien, the "London Team", provide portfolio management for
the international equities portion of the Portfolio. Mark joined the Advisor in
1984, and John joined the Advisor in 1988.
In addition to serving as portfolio manager for the team, Steve Merrell provides
day-to-day portfolio management for the fixed income portion of the Portfolio.
Fund expenses
The purpose of the following table and example is to summarize the aggregate
expenses of each Fund and its corresponding Portfolio and to assist investors in
understanding the various costs and expenses that investors in each Fund may
bear directly or indirectly. The Company's board believes that, over time, the
aggregate per share expenses of a Fund and its corresponding Portfolio should be
approximately equal to (and may be less than) the per share expenses a Fund
would have if the Company retained its own investment advisor and the assets of
each Fund were invested directly in the type of securities held by the
corresponding Portfolio. For additional information concerning Fund and
Portfolio expenses, see "How the Funds and Portfolios are organized."
Shareholder transaction expenses(a)
Maximum sales charge on purchases(b)
(as a percentage of offering price)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Balanced Fund Equity Fund Equity Income Fund Total Return Fund
- --------------------------- -------------------------- -------------------------- --------------------------
0% 0% 0% 0%
</TABLE>
<PAGE>
Annual Fund and allocated Portfolio operating expenses (as a percentage of
average daily net assets):
<TABLE>
<CAPTION>
Balanced Equity Equity Income Total Return
Fund Fund Fund Fund
------------- ------------- -------------------- ---------------------
- -------------------------------------
<S> <C> <C> <C> <C>
Management fee(c) .53% .48% .53% .49%
12b-1 fee .25 .25 .25 .25
Other expenses(d) .47 .40 .47 .56
Total (after reimbursement) 1.25 1.13 1.25 1.30
(a) A wire redemption charge, currently $15, is deducted from the shareholder's
Investment Management Account for wire redemptions made at the request of
the shareholder.
(b) There are no sales loads; however, each Fund reserves the right upon 60
days advance notice to shareholders to impose a redemption fee of up to 1%
on shares redeemed within one year of purchase.
(c) The management fee is paid by the Trust on behalf of the Portfolios. It
includes the impact of a performance fee that decreased the management fee
by .001% for Balanced Fund, .02% for Equity Fund and .02% for Total Return
Fund in fiscal year ended Sept. 30, 1997.
(d) Other expenses include an administrative services fee, a transfer agency
fee and other nonadvisory expenses.
</TABLE>
The Advisor and the Distributor have agreed to waive certain fees and to absorb
certain other Fund expenses until Dec. 31, 1998. Under this agreement, total
expenses will not exceed 1.25% for Balanced Fund, Equity Fund and Equity Income
Fund and 1.30% for Total Return Fund. Without this agreement, the ratio of
expenses to average daily net assets would have been 6.35% for Balanced Fund,
and 4.53% for Equity Income Fund and 2.79% for Total Return Fund. This agreement
had no impact for Equity Fund for the fiscal year ended September 30, 1997.
Example: Suppose for each year for the next 10 years, Fund expenses are as above
and annual return is 5%. If you sold your shares at the end of the following
years, for each $1,000 invested, you would pay expenses of:
<TABLE>
<CAPTION>
Equity Income Fund Total Return Fund
Balanced Fund Equity Fund
-------------------- --------------------- --------------------- --------------------
- ---------------------
<S> <C> <C> <C> <C>
1 year $ 13 $ 12 $ 13 $ 13
3 years $ 40 $ 36 $ 40 $ 41
5 years $ 69 $ 62 $ 69 $ 71
10 years $152 $138 $152 $157
The table and example do not represent actual expenses, past or future. Actual expenses may be higher or
lower than those shown. Because the Funds pay annual
</TABLE>
<PAGE>
distribution (12b-1) fees, long-term shareholders may indirectly pay an
equivalent of more than a 7.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
Performance
Financial Highlights
<TABLE>
<CAPTION>
Financial highlights
The tables below show certain important information for evaluating each Fund's
results.
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Balanced Fund Equity Fund
1997 1996(b) 1997 1996(b)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $13.57 $13.36 $22.40 $21.73
Income from investment operations:
Net investment income (loss) .66 .18 .54 .21
Net gains (losses) (both 2.99 .17 6.64 .62
realized and unrealized)
Total from investment operations 3.65 35 7.18 .83
Dividends from net investment income (.65) (.14) (.49) (.16)
Net asset value, end of period $16.57 $13.57 $29.09 $22.40
Ratios/supplemental data:
Net assets, end of period (in thousands) $895 $525 $778 $534
Ratio of expenses to average daily net assets(d) .62% 1.25%(c) .58% 1.25%(c)
Ratio of net income (loss) to
average daily net assets 4.60% 3.91%(c) 2.17% 3.06%(c)
Total return 27.4% 2.6% 28.3% 3.8%
Portfolio turnover rate (excluding short-term
securities) 49% 14% 82% 21%
Average brokerage commission rate(e) $.0465 $.0483 $.0320 $.0488
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was May 13, 1996.
(c) Adjusted to an annual basis.
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 6.35% and 34.04% for Balanced Fund for periods ended 1997
and 1996, respectively, 1.13% and 34.21% for Equity Fund for the periods
ended 1997 and 1996, respectively.
(e) Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charged. The comparability of this information may be affected by the
fact that commission rates per share vary significantly among foreign
countries.
<PAGE>
Financial highlights (continued)
Fiscal period ended Sept. 30,
Per share income and capital changesa
Equity Income Fund Total Return Fund
1997 1996(b) 1997 1996(b)
Net asset value, beginning of period $8.92 $8.68 $12.22 $11.89
Income from investment operations:
Net investment income (loss) .37 .13 .31 .06
Net gains (losses) (both realized and unrealized) 2.22 .23 2.29 .31
Total from investment operations 2.59 .36 2.60 .37
Dividends from net investment income (.35) (.12) (.29) (.04)
Net asset value, end of period $11.16 $8.92 $14.53 $12.22
Ratios/supplemental data:
Net assets, end of period (in thousands) $827 $534 $686 $529
Ratio of expenses to average daily net assets(d) 1.07% 1.25%(c) 1.26% 1.30%(c)
Ratio of net income (loss) to
average daily net assets 3.65% 3.51%(c) 2.29% .96%(c)
Total return 29.4% 4.1% 21.4% 3.2%
Portfolio turnover rate (excluding short-term
securities) 81% 17% 99% 35%
Average brokerage commission ratee $.0482 $.0324 $.0339 $.0384
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was May 13, 1996.
(c) Adjusted to an annual basis.
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 4.53% and 24.26% for Equity Income Fund for periods ended
1997 and 1996, respectively, and 2.79% and 31.60% for Total Return Fund for
the periods ended 1997 and 1996, respectively.
(e) Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charged. The comparability of this information may be affected by the
fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Funds are contained in the Funds'
annual report which, if not included with this prospectus, may be obtained
without charge.
Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
Average annual total returns as of Sept. 30, 1997
<TABLE>
<CAPTION>
Purchase 1 year ago 5 years ago Since inception 10 years
made ago
- ----------------------------------------------------- -------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balanced Fund +27.43% +14.03% -- +11.62%
Lipper Balanced Fund Index +24.92% +13.70% -- +11.15%
Equity Fund +28.28% +17.23% -- +13.19%
Lipper Growth and Income Fund Index +35.43% +19.08% -- +13.37%
Equity Income Fund +29.44% +17.45% +18.43%(a) --
Lipper Equity Income Fund Index +33.71% +17.67% +18.52%(b) --
Total Return Fund +21.35% +12.66% -- +11.86%
Lipper Flexible Portfolio Fund Index +23.55% +13.47% +12.39%(c) --
S&P 500 +40.43% +20.73% -- +14.73%
(a) Inception date was Oct. 15, 1990 for IDS Diversified Equity Income Fund, the
predecessor fund to Equity Income Fund.
(b) Measurement period started Nov. 1, 1990.
(c) Inception date was Dec. 31, 1987.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cumulative total returns as of Sept. 30, 1997
Purchase 1 year 5 years Since 10 years
made ago ago inception ago
- ----------------------------------------------------- ------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Balanced Fund +27.43% +91.88% -- +198.96%
Lipper Balanced Fund Index +24.92% +90.03% -- +187.74%
Equity Fund +28.28% +120.29% -- +243.51%
Lipper Growth and Income Fund Index +35.43% +139.41% -- +250.75%
Equity Income Fund +29.44% +122.45% +225.12%(a) --
Lipper Equity Income Fund Index +33.71% +125.64% +224.35%(b) --
Total Return Fund +21.35% +81.37% -- +206.62%
Lipper Flexible Portfolio Fund Index +23.55% +88.08% +213.04%(c) --
S&P 500 +40.43% +156.52% -- +295.09%
(a) Inception date was Oct. 15, 1990 for IDS Diversified Equity Income Fund,
the predecessor fund to Equity Income Fund.
(b) Measurement period started Nov. 1, 1990.
(c) Inception date was Dec. 31, 1987.
</TABLE>
On May 13, 1996, IDS Mutual, IDS Stock Fund, IDS Diversified Equity Income Fund
and IDS Managed Allocation Fund, (the predecessor funds) converted to a
master/feeder structure and transferred all of their assets to Balanced
Portfolio, Equity Portfolio, Equity Income Portfolio and Total Return Portfolio,
respectively. The performance information in the foregoing tables, other than
the 1 year returns, represents performance of the corresponding predecessor
funds prior to March 20, 1995 and of Class A shares of the corresponding
predecessor funds from March 20, 1995 through May 13, 1996, adjusted to reflect
the absence of sales charges on shares of the Funds sold through this
prospectus. The historical performance has not been adjusted for any difference
between the estimated aggregate fees and expenses of the Funds and historical
fees and expenses of the predecessor funds.
These examples show total returns from hypothetical investments in each Fund.
These returns are compared to those of popular indexes for the same periods.
For purposes of calculation, information about each Fund makes no adjustments
for taxes an investor may have paid on the reinvested income and capital gains,
and covers a period of widely fluctuating securities prices. Returns shown
should not be considered a representation of a Fund's future performance.
Lipper Balanced Fund Index, an unmanaged index published by Lipper Analytical
Services, Inc., includes 30 funds that are generally similar to Balanced
Portfolio. Lipper Growth and Income Fund Index is an unmanaged index that
includes 30 funds that are generally similar to Equity Portfolio. Lipper Equity
Income Fund Index is an unmanaged index that includes 30 funds that are
generally similar to Equity Income Portfolio. Lipper
<PAGE>
Flexible Portfolio Fund Index is an unmanaged index that includes 30 funds that
are generally similar to Total Return Portfolio. In each case some funds in the
index may have somewhat different investment policies or objectives than the
Portfolios to which they are compared.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Investment policies and risks
The policies described below apply both to the Fund and the corresponding
Portfolio.
Balanced Portfolio - balances its investments between common stocks and senior
securities (preferred stocks and bonds) issued by U.S. and foreign companies.
Balanced Portfolio buys common stocks that it believes offer both current income
and growth potential. Balanced Portfolio buys senior securities for stability of
value and regular income. No more than 65% of Balanced Portfolio's total assets
will be invested in common stocks and no less than 35% in senior securities,
convertible securities, derivative instruments and money market instruments. At
least 25% of the Portfolio's assets will be invested in debt securities and
convertible securities.
Equity Portfolio - invests primarily in common stocks and securities convertible
into common stock of U.S. and foreign companies. Under normal market conditions,
at least 65% of Equity Portfolio's total assets will be so invested. Other
investments will include preferred stocks, debt securities, derivative
instruments and money market instruments.
Equity Income Portfolio - will invest at least 65% of its net assets in
dividend-paying common and preferred stocks under normal market conditions.
Often these stocks are issued by established companies in the utilities,
financial, consumer and energy sectors of the economy. In selecting stocks, the
investment manager will look at factors such as the current dividend, the
present price of the security, the ability of the company to maintain and
increase the dividend, and the likelihood the company will continue to grow. The
other assets of Equity Income Portfolio will be invested in other common stocks,
foreign securities, convertible securities, debt securities, derivative
instruments and money market instruments.
Total Return Portfolio - allocates its investments generally among four asset
classes: U.S. equities, U.S. and foreign debt securities, foreign equity
securities and cash. It may use derivative instruments and make investments not
in these classes. The portion to be invested in each class is determined by the
investment management team based on its judgment as to which mix of assets will
provide the most favorable total return. That mix, called the Market mix, may be
reset periodically and is expected to be reset at least once every 12 to 18
months.
<PAGE>
<TABLE>
<CAPTION>
Day-to-day the asset mix will vary from the Market mix but will remain within
the ranges described below.
<S> <C> <C>
Range Market mix
- --------------------------------------------- ------------------------------- ------------------------------
U.S. equity securities 25-75% 39%
U.S. and foreign debt securities 10-50 40
foreign equity securities 10-50 21
cash 0-30 0
</TABLE>
No more than 15% of Total Return Portfolio's total assets will be invested in
below investment-grade debt securities and no more than 50% will be invested in
foreign securities. The Portfolio seeks to reduce its overall risk by
diversification but its performance will be affected by many factors.
The various types of investments described above that the investment manager
uses to achieve investment performance are explained in more detail in the next
section and in the SAI.
Facts about investments and their risks
Common stocks: Stock prices are subject to market fluctuations. Stocks of
larger, established companies that pay dividends may be less volatile than the
stock market as a whole.
Preferred stocks: If a company earns a profit, it generally must pay its
preferred stockholders a dividend at a pre-established rate.
Technology Sector: Stocks of companies that have, or are likely to develop,
products, processes or services that will provide or benefit significantly from
technological advances and improvements are subject to volatility and price
fluctuations as the technology market sector increases or decreases in favor
with the investing public. Technology-based issues are exposed to risks
associated with economic conditions in that market sector. Due to competition, a
less diversified product line and other factors, companies that develop and/or
rely on technology could become increasingly sensitive to downswings in the
economy.
Convertible securities: These securities generally are preferred stocks or bonds
that can be exchanged for other securities, usually common stock, at prestated
prices. When the trading price of the common stock makes the exchange likely,
convertible securities trade more like common stock.
Debt securities: The price of bonds generally falls as interest rates increase,
and rises as interest rates decrease. The price of bonds also fluctuates if the
credit rating is upgraded or downgraded. The price of bonds below investment
grade may react more to the ability
<PAGE>
of the issuing company to pay interest and principal when due than to changes in
interest rates. These bonds have greater price fluctuations, are more likely to
experience a default, and sometimes are referred to as junk bonds. Reduced
market liquidity for these bonds may occasionally make it more difficult to
value them. In valuing bonds, a Portfolio relies both on independent rating
agencies and on the investment manager's credit analysis. Securities that are
subsequently downgraded in quality may continue to be held by a Portfolio and
will be sold only when the investment manager believes it is advantageous to do
so.
Balanced Portfolio and Equity Portfolio will not invest more than 5% of the
Portfolio's net assets in bonds below investment grade. Equity Portfolio may
purchase securities rated C or better by Moody's Investors Service, Inc.
(Moody's) or Standard & Poor's Corporation (S&P) or non-rated securities of
equivalent investment quality in the judgment of the investment manager. No more
than 20% of Equity Income Portfolio's net assets may be invested in bonds below
investment grade unless the bonds are convertible securities. Total Return
Portfolio will not invest more than 15% of the Portfolio's total assets in bonds
below investment grade.
<TABLE>
<CAPTION>
Equity Income Portfolio bond ratings and holdings for fiscal 1997
- ---------------------- ----------------------- --------------------------------- ------------------------------
S&P Rating Protection of Percent of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by the AEFC
- ---------------------- ----------------------- --------------------------------- ------------------------------
<S> <C> <C> <C>
- ---------------------- ----------------------- --------------------------------- ------------------------------
7.45% AAA Highest quality -- %
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
0.48 AA High quality --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
3.16 A Upper medium grade --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
2.07 BBB Medium grade --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
0.20 BB Moderately speculative --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- B Speculative --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- CCC Highly speculative --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- CC Poor quality --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- C Lowest quality --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- D In default --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
6.95 Unrated Unrated securities 6.95
- ---------------------- ----------------------- --------------------------------- ------------------------------
(See the Appendix to this prospectus describing corporate bond ratings for
further information.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total Return Portfolio bond ratings and holdings for fiscal 1997
- ---------------------- ----------------------- --------------------------------- ------------------------------
S&P Rating Protection of Percent of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by the AEFC
- ---------------------- ----------------------- --------------------------------- ------------------------------
<S> <C> <C> <C>
- ---------------------- ----------------------- --------------------------------- ------------------------------
6.27% AAA Highest quality 0.16%
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
0.74 AA High quality --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
0.79 A Upper medium grade 0.01
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
2.77 BBB Medium grade 0.03
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
2.84 BB Moderately speculative 0.36
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
2.49 B Speculative 0.25
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
0.73 CCC Highly speculative 0.05
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- CC Poor quality --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- C Lowest quality --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
- -- D In default --
- ---------------------- ----------------------- --------------------------------- ------------------------------
- ---------------------- ----------------------- --------------------------------- ------------------------------
2.88 Unrated Unrated securities 2.02
- ---------------------- ----------------------- --------------------------------- ------------------------------
(See the Appendix to this prospectus describing corporate bond ratings for
further information.)
</TABLE>
Debt securities sold at a deep discount: Some bonds are sold at deep discounts
because they do not pay interest until maturity. They include zero coupon bonds
and PIK (pay-in-kind) bonds. Because such securities do not pay current cash
income, the market value of these securities may be subject to greater
volatility than other debt securities. To comply with tax laws, a Portfolio has
to recognize a computed amount of interest income and pay dividends to
unitholders even though no cash has been received. In some instances, a
Portfolio may have to sell securities to have sufficient cash to pay the
dividends.
Foreign investment: Securities of foreign companies and governments may be
traded in the United States, but often they are traded only on foreign markets.
Frequently, there is less information about foreign companies and less
government supervision of foreign markets. Foreign investments are subject to
currency fluctuations and political and economic risks of the countries in which
the investments are made, including the possibility of seizure or
nationalization of companies, imposition of withholding taxes on income,
establishment of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a foreign market,
the local currency may be purchased using a forward contract in which the price
of the foreign currency in U.S. dollars is established on the date the trade is
made, but delivery of the currency is not made until the securities are
received. As long as a Portfolio holds foreign currencies or securities valued
in foreign currencies, the value of those assets will be affected by changes in
the value of the currencies relative to the U.S. dollar. Because of
<PAGE>
the limited trading volume in some foreign markets, efforts to buy or sell a
security may change the price of the security, and it may be difficult to
complete the transaction. The limited liquidity and price fluctuations in
emerging markets could make investments in developing countries more volatile.
Balanced, Equity and Equity Income Portfolios may invest up to 25% of their
total assets in foreign investments. Total Return Portfolio may invest up to 50%
of its assets in foreign investments.
Derivative instruments: The investment manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily change in
price based on or derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance characteristics. A
small change in the value of the underlying security, currency or index will
cause a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow the investment manager to change the investment
performance characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other parties and
inability to close such instruments. A Portfolio will use derivative instruments
only to achieve the same investment performance characteristics it could achieve
by directly holding those securities and currencies permitted under the
investment policies. Each Portfolio will designate cash or appropriate liquid
assets to cover its portfolio obligations. No more than 5% of each Portfolio's
net assets can be used at any one time for good faith deposits on futures and
premiums for options on futures that do not offset existing investment
positions. This does not, however, limit the portion of a Portfolio's assets at
risk to 5%. The Portfolios are not limited as to the percentage of their assets
that may be invested in permissible investments, including derivatives, except
as otherwise explicitly provided in this prospectus or the SAI. For descriptions
of these and other types of derivative instruments, see the Appendix to this
prospectus and the SAI.
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The investment manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of a Portfolio's net assets will be held in
securities and other instruments that are illiquid.
<PAGE>
Money market instruments: Short-term debt securities rated in the top two grades
or the equivalent are used to meet daily cash needs and at various times to hold
assets until better investment opportunities arise. Generally, less than 25% of
Balanced, Equity and Equity Income Portfolios' total assets are in these money
market instruments. Total Return Portfolio may invest up to 30% of its total
assets in these money market instruments to meet daily cash needs and if the
investment manager decides that asset category is most appropriate. However, for
temporary defensive purposes these investments could exceed that amount for a
limited period of time.
The investment policies described above may be changed by the boards.
Lending portfolio securities: Each Portfolio may lend its securities to earn
income so long as borrowers provide collateral equal to the market value of the
loans. The risks are that borrowers will not provide collateral when required or
return securities when due. Unless a majority of the outstanding voting
securities approve otherwise, loans may not exceed 30% of a Portfolio's net
assets.
Valuing Fund shares
The net asset value (NAV) is the value of a single Fund share. It is the total
value of a Fund's investments in the corresponding Portfolio and other assets,
less any liabilities, divided by the number of shares outstanding. The NAV is
the price at which you purchase Fund shares and the price you receive when you
sell your shares. It usually changes from day to day, and is calculated at the
close of business, normally 3 p.m. Central time, each business day (any day the
New York Stock Exchange is open).
To establish the net assets, all securities held by a Portfolio are valued as of
the close of each business day. In valuing assets:
o Securities and assets with available market values are valued on that
basis
o Securities maturing in 60 days or less are valued at amortized cost
o Assets without readily available market values are valued according to
methods selected in good faith by the board
How to purchase, exchange or redeem shares
How to purchase shares
You may purchase shares of the Funds through an Investment Management Account
(IMA) maintained with American Express Service Corporation (the Distributor).
There is no fee to open an IMA account. Payment for shares must be made directly
to the Distributor.
<PAGE>
Complete an IMA Account Application (available by calling 800-AXP-SERV) and mail
the application to American Express Financial Direct, P.O. Box 59196,
Minneapolis, MN 55459-0196. Corporations and other organizations should contact
the Distributor to determine which additional forms may be necessary to open an
IMA account.
If you already have an IMA account, you may buy shares in the Funds as described
below and need not open a new account.
You may deposit money into your IMA account by check, wire or many other forms
of electronic funds transfer (securities may also be deposited). All deposit
checks should be made payable to the Distributor. If you would like to wire
funds into your existing IMA account, please contact the Distributor at
800-AXP-SERV for instructions.
Minimum Fund investment requirements. Your initial investment in a Fund may be
as low as $2,000 ($1,000 for custodial accounts, Individual Retirement Accounts
and certain other retirement plans). The minimum subsequent investment is $100.
These requirements may be reduced or waived as described in the SAI.
When and at what price shares will be purchased. You must have money available
in your IMA account in order to purchase Fund shares. If your request and
payment (including money transmitted by wire) are received and accepted by the
Distributor before 2 p.m. Central time, your money will be invested at the net
asset value determined as of the close of business (normally 3 p.m. Central
time) that day. If your request and payment are received after that time, your
request will not be accepted or your payment invested until the next business
day. See "Valuing Fund shares."
<PAGE>
Methods of purchasing shares. There are three convenient ways to purchase shares
of the Funds. You may choose the one that works best for you. The Distributor
will send you confirmation of your purchase request.
By phone:
You may use money in your IMA account to make initial and subsequent
purchases. To place your order, call 800-AXP-SERV.
By mail:
Written purchase requests (along with any checks) should be mailed to
American Express Financial Direct, P.O. Box 59196, Minneapolis, MN
55459-0196, and should contain the following information:
o your IMA account number (or an IMA Account Application)
o the name of the Fund(s) and the dollar amount of shares yo
would like purchased
Your check should be made out to the Distributor. It will be deposited
into your IMA account and used, as necessary, to cover your purchase
request.
By systematic purchase:
Once you have opened an IMA account, you may authorize the Distributor
to automatically purchase shares on your behalf at intervals and in
amounts selected by you. See "Systematic purchase plans."
Other purchase information. Each Fund reserves the right, in its sole discretion
and without prior notice to shareholders, to withdraw or suspend all or any part
of the offering made by this prospectus, to reject purchase requests or to
change the minimum investment requirements. All requests to purchase shares of
the Fund are subject to acceptance by the Fund and the Distributor and are not
binding until confirmed or accepted in writing. The Distributor will charge a
$15 service fee against an investor's IMA account if his or her investment check
is returned because of insufficient or uncollected funds or a stop payment
order.
How to exchange shares
The exchange privilege allows you to exchange your investment in a Fund at no
charge for shares of other funds in the Strategist Fund Group available in your
state. For complete information on any other fund, read that fund's prospectus
carefully. Any exchange will involve the redemption of Fund shares and the
purchase of shares in another fund on the basis of the net asset value per share
of each fund. An exchange may result in a gain or loss and is a taxable event
for federal income tax purposes. When
<PAGE>
exchanging into another fund you must meet that fund's minimum investment
requirements. Each Fund reserves the right to modify, terminate or limit the
exchange privilege. The current limit is four exchanges per calendar year. The
Distributor and the Funds reserve the right to reject any exchange, limit the
amount or modify or discontinue the exchange privilege, to prevent abuse or
adverse effects on the Funds and their shareholders.
How to redeem shares
The price at which shares will be redeemed. Shares will be redeemed at the net
asset value per share next determined after receipt by the Distributor of proper
redemption instructions, as described below.
Payment of redemption proceeds. Normally, payment for redeemed shares will be
credited directly to your IMA account on the next business day. However, the
Fund may delay payment, but no later than seven days after the Distributor
receives your redemption instructions in proper form. Redemption proceeds will
be held there or mailed to you depending on the account standing instructions
you selected.
If you recently purchased shares by check, your redemption proceeds may be held
in your IMA account until your check clears (which may take up to 10 days from
the purchase date) before a check is mailed to you.
A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. Redeeming shares held in an IRA or qualified
retirement account may subject you to certain federal taxes, penalties and
reporting requirements. Consult your tax advisor.
Methods of exchanging or redeeming shares
By phone:
You may exchange or redeem your shares by calling 800-AXP-SERV. If you
experience difficulties in exchanging or redeeming shares by telephone, you can
mail your exchange or redemption requests as described below.
To properly process your telephone exchange or redemption request we will need
the following information:
o your IMA account number and your name (for exchanges, both funds must
be registered in the same ownership)
o the name of the fund from which you wish to exchange or redeem shares
o the dollar amount or number of shares you want to exchange or redeem
o the name of the fund into which shares are to be exchanged, if
applicable
<PAGE>
Telephone exchange or redemption requests received before 2 p.m. (Central time)
on any business day, once the caller's identity and account ownership have been
verified by the Distributor, will be processed at the net asset value determined
as of the close of business (normally 3 p.m. Central time) that day.
By mail:
You may also request an exchange or redemption by writing to American Express
Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. Once an exchange
or redemption request is mailed it is irrevocable and cannot be modified or
canceled.
To properly process your mailed exchange or redemption request, we will need a
letter from you that contains the following information:
o your IMA account number
o the name of the fund from which you wish to exchange or redeem shares o the
dollar amount or number of shares you want to exchange or redeem o the name of
the fund into which shares are to be exchanged, if applicable o a signature of
at least one of the IMA account holders in the exact form specified on the
account
Telephone transactions. You may make purchase, redemption and exchange requests
by mail or by calling 800-AXP-SERV. The privilege to initiate transactions by
telephone is automatically available through your IMA account. Each Fund will
honor any telephone transaction believed to be authentic and will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
This includes asking identifying questions and tape recording calls. If these
procedures are not followed, a Fund may be liable for losses due to unauthorized
or fraudulent instructions. Telephone privileges may be modified or discontinued
at any time.
Systematic purchase plans
The Distributor offers a Systematic Purchase Plan (SPP) that allows you to make
periodic investments in the Funds automatically and conveniently. A SPP can be
used as a dollar cost averaging program and saves you the time and expense
associated with writing checks or wiring funds.
Investment minimums: You can make automatic investments in any amount,
from $100 to $50,000.
<PAGE>
Investment methods: Automatic investments are made from your IMA account and you
may select from several different investment methods to make automatic
investment(s):
a) Using uninvested cash in your IMA account: If you elect to use this
option to make your automatic investments, uninvested cash in your IMA
account will be used to make the investment and, if necessary, shares
of your Money Market Fund will be redeemed to cover the balance of the
purchase.
b) Using bank authorizations: If you elect to use this option to make your
automatic investments, money is transferred from your bank checking or
savings account into your IMA account and is then used to make
automatic investments.
If you elect to use bank authorizations for your automatic investments, you will
select a transfer date (when the money is transferred into your IMA account). If
you change your bank authorization date, it may also be necessary to change your
automatic investment date to coincide with the new transfer date.
Investment frequency: You can select the frequency of your automatic investments
(example: twice monthly, monthly or quarterly). Quarterly investments are made
on the date selected in the first month of each quarter (January, April, July
and October).
Changing instructions to an already established plan: If you want to change the
fund(s) selected for your SPP you may do so by calling 800-AXP-SERV, or by
sending written instructions clearly outlining the changes to American Express
Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. Written
notification must include the following:
o The funds with SPP that you want to cancel
o The newly selected fund(s) in which you want to begin making
automatic investments and the amount to be invested in each
fund
o The investment frequency and investment dates for your new
automatic investments
Terminating your SPP. If you wish to terminate your SPP, you may call
800-AXP-SERV, or send written instructions to American Express Financial Direct,
P.O. Box 59196, Minneapolis, MN 55459-0196.
Terminating bank authorizations. If you wish to terminate your bank
authorizations, you may do so at any time by notifying American Express
Financial Direct in writing or by calling 800-AXP-SERV. Your bank authorization
will not automatically terminate when you cancel your SPP.
<PAGE>
IMPORTANT: If you are canceling your bank authorizations and you wish to cancel
your SPP, you must also provide instructions stating that the Distributor should
cancel your SPP. You may notify the Distributor by sending written instructions
to the address above or telephoning 800-AXP-SERV. Your systematic investments
will continue using IMA account assets if the Distributor does not receive
notification to terminate your systematic investments as well.
To avoid procedural difficulties, the Distributor should receive instructions to
change or terminate your SPP or bank authorizations at least 10 days prior to
your scheduled investment date.
Other important information
Minimum balance and account requirements. Each Fund reserves the right to redeem
your shares if, as a result of redemptions, the aggregate value of your holdings
in the Fund drops below $1,000 ($500 in the case of custodial accounts, IRAs and
other retirement plans). You will be notified in writing 30 days before the Fund
takes such action to allow you to increase your holdings to the minimum level.
If you close your IMA account, the Fund will automatically redeem your shares.
Wire transfers to your bank. Funds can be wired from your IMA account to your
bank account. Call the Distributor for additional information on wire transfers.
A $15 service fee will be charged against your IMA account for each wire sent.
No person has been authorized to give any information or to make any
representations not contained in this prospectus in connection with the offering
being made by this prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Funds or
their Distributor. This prospectus does not constitute an offering by the Funds
or by the Distributor in any jurisdiction in which such offering may not be
lawfully made.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, you will
receive these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
<PAGE>
Quick telephone reference
American Express Financial Direct Team
Fund performance, objectives and account inquiries, redemptions and exchanges,
dividend payments or reinvestments and automatic payment arrangements
800-AXP-SERV
TTY Service
For the hearing impaired
800-710-5260
Distributions and taxes
As a shareholder you are entitled to your share of a Fund's net income and any
net gains realized on its investments. Each Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences that you should know about.
Dividend and capital gain distributions
A Portfolio allocates investment income from dividends and interest and net
realized capital gains or losses, if any, to a Fund. A Fund deducts direct and
allocated expenses from the investment income. A Fund's net investment income is
distributed to you at the end of each calendar quarter as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Short-term capital gains are distributed at the end of the calendar year and
are included in net investment income. Long term capital gains are realized when
a security is held for more than one year. A Fund will offset any net realized
capital gains by any available capital loss carryovers. Net realized long-term
capital gains, if any, are distributed at the end of the calendar year as
capital gain distributions. These long-term capital gains will be subject to
differing tax rates depending on the holding period of the underlying
investments. Before they are distributed, both net investment income and net
long-term capital gains are included in the value of each share. After they are
distributed, the value of each share drops by the per-share amount of the
distribution. (If your distributions are reinvested, the total value of your
holdings will not change.)
<PAGE>
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares of a Fund, unless you request the Fund in writing or by phone
to pay distributions to you in cash.
The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared after
your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Taxes
The Funds have received a Private Letter Ruling from the Internal Revenue
Service stating that, for purposes of the Internal Revenue Code, each Fund will
be regarded as directly holding its allocable share of the income and gain
realized by the Portfolio.
Distributions are subject to federal income tax and also may be subject to state
and local taxes. Distributions are taxable in the year the respective Fund
declares them regardless of whether you take them in cash or reinvest them.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
Buying a dividend creates a tax liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be short term (for shares held for one year or less) or long term (for shares
held for more than one year). Long-term capital gains will be taxed at rates
that vary depending upon the holding period. Long-term capital gains are divided
into two holding periods: (1) shares held more than one year but not more than
18 months and (2) shares held more than 18 months.
<PAGE>
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account.
If you do not provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that results
in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number of:
Individual or joint account The individual or individuals listed
on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person who
puts the money into the trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or trustee,
unless no legal entity is designated
in the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
<PAGE>
For details on TIN requirements, call 800-AXP-SERV for federal Form W-9,
"Request for Taxpayer Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to each Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
How the Funds and Portfolios are organized
Shares
The Company currently is composed of four Funds, each issuing its own series of
capital stock. Each Fund is owned by its shareholders. All shares issued by a
Fund are of the same class -- capital stock. Par value is 1 cent per share. Both
full and fractional shares can be issued.
The shares of each Fund making up the Company represent an interest in that
Fund's assets only (and profits or losses), and, in the event of liquidation,
each share of a Fund would have the same rights to dividends and assets as every
other share of that Fund.
Voting rights
As a shareholder, you have voting rights over the Fund's management and
fundamental policies. You are entitled to one vote for each share you own.
Shares of the Funds have cumulative voting rights.
Shareholder meetings
The Company does not hold annual shareholder meetings. However, the board
members may call meetings at their discretion, or on demand by holders of 10% or
more of the Company's outstanding shares, to elect or remove board members.
Special considerations regarding master/feeder structure
Each Fund pursues its goals by investing its assets in a master fund called a
Portfolio. This means that a Fund does not invest directly in securities; rather
the respective Portfolio invests in and manages its portfolio of securities. The
goals and investment policies of each Portfolio are described under the captions
"Investment policies and risks" and "Facts about investments and their risks."
Additional information on investment policies may be found in the SAI.
Board considerations: The board considered the advantages and disadvantages of
investing each Fund's assets in the respective Portfolio. The board believes
that the master/feeder structure will be in the best interest of each Fund and
its shareholders since it offers the opportunity for economies of scale.
A Fund may redeem all of its assets from
<PAGE>
the corresponding Portfolio at any time. Should the board determine that it is
in the best interest of a Fund and its shareholders to terminate its investment
in the Portfolio, it would consider hiring an investment advisor to manage the
Fund's assets, or other appropriate options. A Fund would terminate its
investment if the Portfolio changed its goals, investment policies or
restrictions without the same change being approved by the Fund.
Other feeders: Each Portfolio sells securities to other affiliated mutual funds
and may sell securities to non-affiliated investment companies and institutional
accounts (known as feeders). These feeders buy the Portfolio's securities on the
same terms and conditions as the Fund and pay their proportionate share of the
Portfolio's expenses. However, their operating costs and sales charges are
different from those of the Fund. Therefore, the investment returns for other
feeders are different from the returns of a Fund. Information about other
feeders may be obtained by calling a service representative at 800-437-3133.
Each feeder that invests in a Portfolio is different and activities of its
investors may adversely affect all other feeders, including the Fund. For
example, if one feeder decides to terminate its investment in a Portfolio, that
Portfolio may elect to redeem in cash or in kind. If cash is used, the Portfolio
will incur brokerage, taxes and other costs in selling securities to raise the
cash. This may result in less investment diversification if entire investment
positions are sold, and it also may result in less liquidity among the remaining
assets. If in-kind distribution is made, a smaller pool of assets remains that
may affect brokerage rates and investment options. In both cases, expenses may
rise since there are fewer assets to cover the costs of managing those assets.
Shareholder meetings: Whenever a Portfolio proposes to change a fundamental
investment policy or to take any other action requiring approval of its security
holders, the corresponding Fund will hold a shareholder meeting. The Fund will
vote for or against the Portfolio's proposals in proportion to the vote it
receives for or against the same proposals from its shareholders.
Board members and officers
Shareholders of the Company elect a board that oversees the operations of the
Funds and chooses the Company's officers. The Company's officers are responsible
for day-to-day business decisions based on policies set by the board.
Information about the board members and officers of both the Company and the
Trust is found in the SAI under the caption "Board Members and Officers."
<PAGE>
Investment manager
Each Portfolio pays the Advisor for managing its assets. Each Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the Advisor is paid a fee for these services based on the average
daily net assets of each Portfolio, as follows:
<TABLE>
<CAPTION>
Equity Portfolio,
Equity Income Portfolio and
Balanced Portfolio Total Return Portfolio
- ------------------------------------------- ------------------------------------------
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
- ---------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
First $1.0 0.530% First $0.50 0.530%
Next 1.0 0.505 Next 0.50 0.505
Next 1.0 0.480 Next 1.0 0.480
Next 3.0 0.455 Next 1.0 0.455
Over 6.0 0.430 Next 3.0 0.430
Over 6.0 0.400
</TABLE>
For Balanced, Equity and Total Return Portfolios these fees may be increased or
decreased by a performance adjustment based on a comparison of performance to an
index. For Balanced Portfolio the index is the Lipper Balanced Fund Index. For
Equity Portfolio the index is the Lipper Growth and Income Fund Index. For Total
Return Portfolio the index is the Lipper Flexible Portfolio Fund Index. The
maximum adjustment is 0.08% of each Portfolio's average daily net assets on an
annual basis.
For the fiscal year ended Sept. 30, 1997, each Portfolio paid the Advisor total
investment management fees of 0.53% of average daily net assets for Balanced
Portfolio, 0.48% for Equity Portfolio, 0.53% for Equity Income Portfolio and
0.49% for Total Return Portfolio. Under the agreement, each Portfolio also pays
taxes, brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
The Funds pay the Advisor for shareholder accounting and transfer agent services
under two agreements. The first agreement, the Administrative Services
Agreement, has a declining annual rate that decreases as assets increase. For
each Fund, the fee ranges from 0.04% to 0.02%. The second agreement, the
Transfer Agency Agreement, has an annual fee for each Fund of $20 per
shareholder account.
<PAGE>
Distributor
The Funds sell shares through the Distributor under a Distribution Agreement.
The Distributor is located at P.O. Box 59196, Minneapolis, MN 55459-0196 and is
a wholly-owned subsidiary of Travel Related Services, Inc., a wholly-owned
subsidiary of American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center, New York, NY
10285. Financial consultants representing the Distributor provide information to
investors about individual investment programs, the Funds and their operations,
new account applications, exchange and redemption requests. The Funds reserve
the right to sell shares through other financial intermediaries or
broker/dealers. In that event, the account terms would also be governed by rules
that the intermediary may establish.
To help defray costs, including costs for marketing, sales administration,
training, overhead, direct marketing programs, advertising and related
functions, the Funds pay the Distributor a distribution fee, also known as a
12b-1 fee. Under a Plan and Agreement of Distribution, each Fund pays a
distribution fee at an annual rate of 0.25% of that Fund's average daily net
assets for distribution-related services.
This fee will not cover all of the costs incurred by the Distributor.
Total expenses paid by each Fund for the fiscal year ended Sept. 30, 1997, were
.62% of average daily net assets for Balanced Fund, .58% for Equity Fund, 1.07%
for Equity Income Fund and 1.26% for Total Return Fund.
About the Advisor
The Advisor is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company. The Portfolios may pay
brokerage commissions to broker-dealer affiliates of the Advisor.
<PAGE>
Appendix A
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change, which could affect its price. Ratings by Moody's Investors Service,
Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. The following is a
compilation of the two agencies' rating descriptions.
For further information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A - Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB - Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such issues are often
in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.
D - Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
<PAGE>
Non-rated securities will be considered for investment when they possess a risk
comparable to that of rated securities consistent with the Portfolio's
objectives and policies. When assessing the risk involved in each non-rated
security, the Portfolio will consider the financial condition of the issuer or
the protection afforded by the terms of the security.
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep discount from its
face value and makes no periodic interest payments. The buyer of such a security
receives a rate of return by gradual appreciation of the security, which is
redeemed at face value on the maturity date.
A pay-in-kind security is a security in which the issuer has the option to make
interest payments in cash or in additional securities. The securities issued as
interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
<PAGE>
Appendix B
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments a Portfolio may
use. At various times a Portfolio may use some or all of these instruments and
is not limited to these instruments. It may use other similar types of
instruments if they are consistent with the Portfolio's investment goals and
policies. For more information on these instruments, see the SAI.
Options and futures contracts - An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. A
Portfolio may buy and sell options and futures contracts to manage its exposure
to changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge a Portfolio's investments against price
fluctuations or to increase market exposure.
Asset-backed and mortgage-backed securities - Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.
Indexed securities - The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate-term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters - Inverse floaters are created by underwriters using the
interest payment on securities. A portion of the interest received is paid to
holders of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to holders of inverse
floaters. As interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less income and a
decrease in the price for the inverse floaters.
<PAGE>
Structured products - Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
STRATEGIST GROWTH AND INCOME FUND, INC.
Nov. 28, 1997
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the Funds' prospectus and the financial statements contained
in the Annual Report which may be obtained by calling American Express Financial
Direct, 800-AXP-SERV (TTY: 800-710-5260) or by writing to P.O. Box 59196,
Minneapolis, MN 55459-0196.
This SAI is dated Nov. 28, 1997, and it is to be used with the Funds'
prospectus dated Nov. 28, 1997,and the Annual Report for the fiscal year
ended Sept. 30, 1997.
<PAGE>
TABLE OF CONTENTS
Goals and Investment Policies.....................................See Prospectus
Additional Investment Policies...............................................p.4
Security Transactions.......................................................p.17
Brokerage Commissions Paid to Brokers Affiliated with the Advisor...........p.20
Performance Information.....................................................p.21
Valuing Fund Shares.........................................................p.24
Investing in the Funds......................................................p.26
Redeeming Shares............................................................p.26
Taxes.......................................................................p.27
Agreements..................................................................p.28
Organizational Information..................................................p.32
Board Members and Officers..................................................p.33
Compensation for Fund Board Members.........................................p.34
Trustees of the Preferred Master Trust Group................................p.35
Compensation for Portfolio Board Members....................................p.38
Principal Holders of Securities.............................................p.40
Independent Auditors........................................................p.40
Financial Statements...........................................See Annual Report
Prospectus..................................................................p.40
<PAGE>
Appendix A: Foreign Currency Transactions...................................p.41
Appendix B: Options and Futures Contracts...................................p.46
Appendix C: Mortgage-Backed Securities......................................p.52
Appendix D: Dollar-Cost Averaging...........................................p.53
<PAGE>
ADDITIONAL INVESTMENT POLICIES
Strategist Growth and Income Fund, Inc. (the Company) is a mutual fund with four
series of capital stock representing interests in Strategist Balanced Fund
(Balanced Fund), Strategist Equity Fund (Equity Fund), Strategist Equity Income
Fund (Equity Income Fund) and Strategist Total Return Fund (Total Return Fund)
(Balanced Fund, Equity Fund, Equity Income Fund and Total Return Fund are
collectively referred to as the Funds, and individually, a Fund). Each Fund is a
diversified mutual fund with its own goals and investment policies. Each of the
Funds seeks to achieve its goals by investing all of its assets in a
corresponding series (each a Portfolio) of Growth and Income Trust (the Trust),
a separate investment company, rather than by directly investing in and managing
its own portfolio of securities.
Fundamental investment policies adopted by a Fund or Portfolio cannot be changed
without the approval of a majority of the outstanding voting securities of the
Fund or Portfolio, respectively, as defined in the Investment Company Act of
1940, as amended (the 1940 Act). Whenever a Fund is requested to vote on a
change in the investment policies of the corresponding Portfolio, the Company
will hold a meeting of Fund shareholders and will cast the Fund's vote as
instructed by the shareholders.
Notwithstanding any of the Funds' other investment policies, each Fund may
invest its assets in an open-end management investment company having the same
investment objectives, policies and restrictions as that Fund for the purpose of
having those assets managed as part of a combined pool.
Investment Policies applicable to Balanced Portfolio:
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies that apply both to the Fund and its
corresponding Portfolio and may be changed only with shareholder/unitholder
approval. Unless holders of a majority of the outstanding voting securities
agree to make the change, the Portfolio will not:
`Act as an underwriter (sell securities for others). However, under the
securities laws, the Portfolio may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
`Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Portfolio and Fund have not borrowed in the
past and have no present intention to borrow.
`Make cash loans if the total commitment amount exceeds 5% of the Portfolio's
total assets.
<PAGE>
`Concentrate in any one industry. According to the present interpretation by the
Securities and Exchange Commission (SEC), this means no more than 25% of the
Portfolio's total assets, based on current market value at time of purchase, can
be invested in any one industry.
`Purchase more than 10% of the outstanding voting securities of an issuer.
`Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Portfolio's total assets
may be invested without regard to this 5% limitation.
`Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Portfolio from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business or real estate investment trusts.
For purposes of this policy, real estate includes real estate limited
partnerships.
`Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Portfolio
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
`Make a loan of any part of its assets to American Express Financial Corporation
(the Advisor), to the board members and officers of the Advisor or to its own
board members and officers.
`Purchase securities of an issuer if the board members and officers of the Fund,
the Portfolio and the Advisor hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board members and
officers of the Fund, the Portfolio and the Advisor who own more than 0.5% of an
issuer's securities are added together, and if in total they own more than 5%,
the Portfolio will not purchase securities of that issuer.
`Lend Portfolio securities in excess of 30% of its net assets. The current
policy of the Portfolio's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio receives the
market price in cash, U.S. government securities, letters of credit or such
other collateral as may be permitted by regulatory agencies and approved by the
board. If the market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash payments
equivalent to all interest or other distributions paid on the loaned securities.
A loan will not be made unless the Advisor believes the opportunity for
additional income outweighs the risks.
<PAGE>
The policies below are non-fundamental policies that apply both to the Fund and
its corresponding Portfolio and may be changed without shareholder/unitholder
approval. Unless changed by the board, the Portfolio will not:
`Buy on margin or sell short, except the Portfolio may make margin payments in
connection with transactions in futures contracts.
`Invest in a company to control or manage it.
`Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were
ever to do so, valuation of the pledged or mortgaged assets would be based on
market values. For purposes of this policy, collateral arrangements for margin
deposits on a futures contract are not deemed to be a pledge of assets.
`Invest more than 5% of its total assets in securities of companies, including
any predecessors, that have a record of less than three years continuous
operations.
`Invest more than 10% of its total assets in securities of investment companies.
`Invest more than 5% of its net assets in warrants.
`Invest in exploration or development programs, such as oil, gas or mineral
leases.
`Invest more than 10% of its net assets in securities and other instruments that
are illiquid. For purposes of this policy illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S.
government or its agencies and instrumentalities, the Advisor, under guidelines
established by the board, will consider any relevant factors including the
frequency of trades, the number of dealers willing to purchase or sell the
security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the Advisor, under guidelines established by the board, will evaluate relevant
factors such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to repurchase the
paper, and the nature of the clearance and settlement procedures for the paper.
<PAGE>
The Portfolio may make contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Portfolio does not intend to
commit more than 5% of its total assets to these practices. The Portfolio does
not pay for the securities or receive dividends or interest on them until the
contractual settlement date. The Portfolio will designate cash or liquid
high-grade debt securities at least equal in value to its commitments to
purchase the securities. When-issued securities or forward commitments are
subject to market fluctuations and they may affect the Portfolio's total assets
the same as owned securities.
The Portfolio may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Portfolio may use are
short-term U.S. and Canadian government securities and negotiable certificates
of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters
of credit of banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of investment. Any
cash-equivalent investments in foreign securities will be subject to the
limitations on foreign investments described in the prospectus. The Portfolio
also may purchase short-term corporate notes and obligations rated in the top
two classifications by Moody's Investors Service, Inc. (Moody's) or Standard &
Poor's Corporation (S&P) or the equivalent and may use repurchase agreements
with broker-dealers registered under the Securities Exchange Act of 1934 and
with commercial banks. A risk of a repurchase agreement is that if the seller
seeks the protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired.
The Portfolio may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
Investment Policies applicable to Equity Portfolio:
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies that apply both to the Fund and its
corresponding Portfolio and may be changed only with shareholder/unitholder
approval. Unless holders of a majority of the outstanding voting securities
agree to make the change, the Portfolio will not:
<PAGE>
`Act as an underwriter (sell securities for others). However, under the
securities laws, the Portfolio may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
`Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Portfolio and Fund have not borrowed in the
past and have no present intention to borrow.
`Make cash loans if the total commitment amount exceeds 5% of the Portfolio's
total assets.
`Concentrate in any one industry. According to the present interpretation by the
SEC, this means no more than 25% of the Portfolio's total assets, based on
current market value at the time of purchase, can be invested in any one
industry.
`Purchase more than 10% of the outstanding voting securities of an issuer.
`Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Portfolio's total assets
may be invested without regard to this 5% limitation.
`Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Portfolio from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business or real estate investment trusts.
For purposes of this policy, real estate includes real estate limited
partnerships.
`Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Portfolio
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
`Invest in securities of investment companies except by purchase in the open
market where the dealer's or sponsor's profit is the regular commission. The
Advisor may wish to invest in another investment company if, for example, that
is the only way to invest in a foreign market. If any such investment is ever
made, not more than 10% of the Portfolio's net assets will be so invested. To
the extent the Portfolio were to make such investments, the shareholder may be
subject to duplicate advisory, administrative and distribution fees.
<PAGE>
`Purchase securities of an issuer if the board members and officers of the Fund,
the Portfolio and the Advisor hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board members and
officers of the Fund, the Portfolio and the Advisor who own more than 0.5% of an
issuer's securities are added together, and if in total they own more than 5%,
the Portfolio will not purchase securities of that issuer.
`Lend Portfolio securities in excess of 30% of its net assets. The current
policy of the Portfolio's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio receives the
market price in cash, U.S. government securities, letters of credit or such
other collateral as may be permitted by regulatory agencies and approved by the
board. If the market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash payments
equivalent to all interest or other distributions paid on the loaned securities.
A loan will not be made unless the Advisor believes the opportunity for
additional income outweighs the risks.
The policies below are non-fundamental policies that apply both to the Fund and
its corresponding Portfolio and may be changed without shareholder/unitholder
approval. Unless changed by the board, the Portfolio will not:
`Buy on margin or sell short, except the Portfolio may make margin payments in
connection with transactions in stock index futures contracts.
`Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were
ever to do so, valuation of the pledged or mortgaged assets would be based on
market values. For purposes of this policy, collateral arrangements for margin
deposits on a futures contract are not deemed to be a pledge of assets.
`Invest more than 5% of its total assets in securities of companies, including
any predecessors, that have a record of less than three years continuous
operations.
`Invest in a company to control or manage it.
`Invest more than 5% of its net assets in warrants.
`Invest in exploration or development programs, such as oil, gas or mineral
leases.
`Invest more than 10% of its net assets in securities and other instruments that
are illiquid. For purposes of this policy illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
<PAGE>
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S.
government or its agencies and instrumentalities, the Advisor, under guidelines
established by the board, will consider any relevant factors including the
frequency of trades, the number of dealers willing to purchase or sell the
security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the Advisor, under guidelines established by the board, will evaluate relevant
factors such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to repurchase the
paper, and the nature of the clearance and settlement procedures for the paper.
The Portfolio may make contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Portfolio does not intend to
commit more than 5% of its total assets to these practices. The Portfolio does
not pay for the securities or receive dividends or interest on them until the
contractual settlement date. The Portfolio will designate cash or liquid
high-grade debt securities at least equal in value to its commitments to
purchase the securities. When-issued securities or forward commitments are
subject to market fluctuations and they may affect the Portfolio's total assets
the same as owned securities.
The Portfolio may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Portfolio may use are
short-term U.S. and Canadian government securities and negotiable certificates
of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters
of credit of banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of investment. Any
cash-equivalent investments in foreign securities will be subject to the
limitations on foreign investments described in the prospectus. The Portfolio
also may purchase short-term corporate notes and obligations rated in the top
two classifications by Moody's or S&P or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities Exchange Act of
1934 and with commercial banks. A risk of a repurchase agreement is that if the
seller seeks the protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired.
The Portfolio may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally, Depositary Receipts in
<PAGE>
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary Receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary Receipts also involve the risks of other investments in foreign
securities.
Investment Policies applicable to Equity Income Portfolio:
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies that apply both to the Fund and its
corresponding Portfolio and may be changed only with shareholder/unitholder
approval. Unless holders of a majority of the outstanding voting securities
agree to make the change, the Portfolio will not:
`Act as an underwriter (sell securities for others). However, under the
securities laws, the Portfolio may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
`Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Portfolio and Fund have not borrowed in the
past and have no present intention to borrow.
`Make cash loans if the total commitment amount exceeds 5% of the Portfolio's
total assets.
`Purchase more than 10% of the outstanding voting securities of an issuer.
`Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Portfolio's total assets
may be invested without regard to this 5% limitation.
`Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Portfolio from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business or real estate investment trusts.
For purposes of this policy, real estate includes real estate limited
partnerships.
`Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Portfolio
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
<PAGE>
`Lend Portfolio securities in excess of 30% of its net assets. The current
policy of the Portfolio's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio receives the
market price in cash, U.S. government securities, letters of credit or such
other collateral as may be permitted by regulatory agencies and approved by the
board. If the market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash payments
equivalent to all interest or other distributions paid on the loaned securities.
A loan will not be made unless the Advisor believes the opportunity for
additional income outweighs the risks.
`Concentrate in any one industry. According to the present interpretation by the
SEC, this means no more than 25% of the Portfolio's total assets, based on
current market value at time of purchase, can be invested in any one industry.
The policies below are non-fundamental policies that apply both to the Fund and
its corresponding Portfolio and may be changed without shareholder/unitholder
approval. Unless changed by the board, the Portfolio will not:
`Buy on margin or sell short, except the Portfolio may make margin payments in
connection with transactions in futures contracts.
`Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were
ever to do so, valuation of the pledged or mortgaged assets would be based on
market values. For purposes of this policy, collateral arrangements for margin
deposits on futures contracts are not deemed to be a pledge of assets.
`Invest more than 5% of its total assets in securities of companies, including
any predecessors, that have a record of less than three years continuous
operations.
`Invest in a company to control or manage it.
`Invest in exploration or development programs, such as oil, gas or mineral
leases.
`Invest more than 10% of its total assets in securities of investment companies.
`Purchase securities of an issuer if the board members and officers of the Fund,
the Portfolio and the Advisor hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board members and
officers of the Fund, the Portfolio and the Advisor who own more than 0.5% of an
issuer's securities are added together, and if in total they own more than 5%,
the Portfolio will not purchase securities of that issuer.
`Invest more than 5% of its net assets in warrants.
<PAGE>
`Invest more than 10% of its net assets in securities and other instruments that
are illiquid. For purposes of this policy illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S.
government or its agencies and instrumentalities, the Advisor, under guidelines
established by the board, will consider any relevant factors including the
frequency of trades, the number of dealers willing to purchase or sell the
security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the Advisor, under guidelines established by the board, will evaluate relevant
factors such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to repurchase the
paper, and the nature of the clearance and settlement procedures for the paper.
The Portfolio may make contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Portfolio does not intend to
commit more than 5% of its total assets to these practices. The Portfolio does
not pay for the securities or receive dividends or interest on them until the
contractual settlement date. The Portfolio will designate cash or liquid
high-grade debt securities at least equal in value to its commitments to
purchase the securities. When-issued securities or forward commitments are
subject to market fluctuations and they may affect the Portfolio's total assets
the same as owned securities.
The Portfolio may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Portfolio may use are
short-term U.S. and Canadian government securities and negotiable certificates
of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters
of credit of banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of investment. Any
cash-equivalent investments in foreign securities will be subject to the
limitations on foreign investments described in the prospectus. The Portfolio
also may purchase short-term corporate notes and obligations rated in the top
two classifications by Moody's or S&P or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities Exchange Act of
1934 and with commercial banks. A risk of a repurchase agreement is that if the
seller seeks the protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired.
<PAGE>
The Portfolio may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
Investment Policies applicable to Total Return Portfolio:
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies that apply both to the Fund and its
corresponding Portfolio and may be changed only with shareholder/unitholder
approval. Unless holders of a majority of the outstanding voting securities
agree to make the change, the Portfolio will not:
`Act as an underwriter (sell securities for others). However, under the
securities laws, the Portfolio may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
`Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Portfolio and Fund have not borrowed in the
past and have no present intention to borrow.
`Make cash loans if the total commitment amount exceeds 5% of the Portfolio's
total assets.
`Concentrate in any one industry. According to the present interpretation by the
SEC, this means no more than 25% of the Portfolio's total assets, based on
current market value at time of purchase, can be invested in any one industry.
`Purchase more than 10% of the outstanding voting securities of an issuer.
`Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Portfolio's total assets
may be invested without regard to this 5% limitation.
<PAGE>
`Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Portfolio from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business or real estate investment trusts.
For purposes of this policy, real estate includes real estate limited
partnerships.
`Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Portfolio
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
`Make a loan of any part of its assets to the Advisor, to the board members and
officers of the Advisor or to its own board members and officers.
`Purchase securities of an issuer if the board members and officers of the Fund,
the Portfolio and the Advisor hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board members and
officers of the Fund, the Portfolio and the Advisor who own more than 0.5% of an
issuer's securities are added together, and if in total they own more than 5%,
the Portfolio will not purchase securities of that issuer.
`Lend Portfolio securities in excess of 30% of its net assets. The current
policy of the Portfolio's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio receives the
market price in cash, U.S. government securities, letters of credit or such
other collateral as may be permitted by regulatory agencies and approved by the
board. If the market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash payments
equivalent to all interest or other distributions paid on the loaned securities.
A loan will not be made unless the Advisor believes the opportunity for
additional income outweighs the risks.
`Issue senior securities, except this restriction shall not be deemed to
prohibit the Portfolio from borrowing from banks, using options or futures
contracts, lending its securities or entering into repurchase agreements.
The policies below are non-fundamental policies that apply both to the Fund and
its corresponding Portfolio and may be changed without shareholder/unitholder
approval. Unless changed by the board, the Portfolio will not:
`Buy on margin or sell short, except the Portfolio may make margin payments in
connection with transactions in futures contracts.
<PAGE>
`Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were
ever to do so, valuation of the pledged or mortgaged assets would be based on
market values. For purposes of this policy, collateral arrangements for margin
deposits on a futures contract are not deemed to be a pledge of assets.
`Invest more than 5% of its total assets in securities of companies, including
any predecessors, that have a record of less than three years continuous
operations.
`Invest more than 10% of its total assets in securities of investment companies.
`Invest in a company to control or manage it.
`Invest in exploration or development programs, such as oil, gas or mineral
leases.
`Invest more than 5% of its net assets in warrants.
`Invest more than 10% of its net assets in securities and other instruments that
are illiquid. For purposes of this policy illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S.
government or its agencies and instrumentalities, the Advisor, under guidelines
established by the board, will consider any relevant factors including the
frequency of trades, the number of dealers willing to purchase or sell the
security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the Advisor, under guidelines established by the board, will evaluate relevant
factors such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to repurchase the
paper, and the nature of the clearance and settlement procedures for the paper.
The Portfolio may make contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Portfolio does not intend to
commit more than 5% of its total assets to these practices. The Portfolio does
not pay for the securities or receive dividends or interest on them until the
contractual settlement date. The Portfolio will designate cash or liquid
high-grade debt securities at least equal in value to its commitments to
purchase the securities. When-issued securities or forward commitments are
subject to market fluctuations and they may affect the Portfolio's total assets
the same as owned securities.
<PAGE>
The Portfolio may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Portfolio may use are
short-term U.S. and Canadian government securities and negotiable certificates
of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters
of credit of banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of investment. Any
cash-equivalent investments in foreign securities will be subject to the
limitations on foreign investments described in the prospectus. The Portfolio
also may purchase short-term corporate notes and obligations rated in the top
two classifications by Moody's Investors Service, Inc. (Moody's) or Standard &
Poor's Corporation (S&P) or the equivalent and may use repurchase agreements
with broker-dealers registered under the Securities Exchange Act of 1934 and
with commercial banks. A risk of a repurchase agreement is that if the seller
seeks the protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired.
The Portfolio may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
For a discussion on foreign currency transactions, see Appendix A. For a
discussion on options and futures contracts, see Appendix B. For a discussion on
mortgage-backed securities, see Appendix C. For a discussion on dollar-cost
averaging, see Appendix D.
SECURITY TRANSACTIONS
Subject to policies set by the board, the Advisor is authorized to determine,
consistent with each Fund's and Portfolio's investment goals and policies, which
securities will be purchased, held or sold. In determining where the buy and
sell orders are to be placed, the Advisor has been directed to use its best
efforts to obtain the best available price and most favorable execution except
where otherwise authorized by the board. In selecting broker-dealers to execute
transactions, the Advisor may consider the price of the security including
commission or mark-up, the size and difficulty of the order, the reliability,
integrity, financial soundness and general operation and execution capabilities
of the broker, the broker's expertise in particular markets, and research
services provided by the broker.
<PAGE>
The Advisor has a strict Code of Ethics that prohibits its affiliated personnel
from engaging in personal investment activities that compete with or attempt to
take advantage of planned portfolio transactions for any fund or trust for which
it acts as investment manager. The Advisor carefully monitors compliance with
its Code of Ethics.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing the Advisor to do so to the extent
authorized by law, if the Advisor determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light of that
transaction or the Advisor's overall responsibilities to the portfolios advised
by the Advisor.
Research provided by brokers supplements the Advisor's own research activities.
Such services include economic data on, and analysis of, U.S. and foreign
economies; information on specific industries; information about specific
companies, including earnings estimates; purchase recommendations for stocks and
bonds; portfolio strategy services; political, economic, business and industry
trend assessments; historical statistical information; market data services
providing information on specific issues and prices; and technical analysis of
various aspects of the securities markets, including technical charts. Research
services may take the form of written reports, computer software or personal
contact by telephone or at seminars or other meetings. The Advisor has obtained,
and in the future may obtain, computer hardware from brokers, including but not
limited to personal computers that will be used exclusively for investment
decision-making purposes, which include the research, portfolio management and
trading functions and other services to the extent permitted under an
interpretation by the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, the Advisor must follow
procedures authorized by the board. To date, three procedures have been
authorized. One procedure permits the Advisor to direct an order to buy or sell
a security traded on a national securities exchange to a specific broker for
research services it has provided. The second procedure permits the Advisor, in
order to obtain research, to direct an order on an agency basis to buy or sell a
security traded in the over-the-counter market to a firm that does not make a
market in that security. The commission paid generally includes compensation for
research services. The third procedure permits the Advisor, in order to obtain
research and brokerage services, to cause the Portfolio to pay a commission in
excess of the amount another broker might have charged.
The Advisor has advised the Trust it is
necessary to do business with a number of brokerage firms on a continuing basis
to obtain such services as the handling of large orders, the willingness of a
broker to risk its own money by taking a position in a security, and the
specialized handling of a particular group of securities that only certain
brokers may be able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission,
<PAGE>
but the Advisor believes it may obtain better overall execution. The Advisor has
represented that under all three procedures the amount of commission paid will
be reasonable and competitive in relation to the value of the brokerage services
performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and most favorable execution. In so doing, if, in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by the Advisor in providing advice to all
the trusts in the Preferred Master Trust Group, their corresponding funds and
other accounts advised by the Advisor, even though it is not possible to relate
the benefits to any particular fund, portfolio or account.
Each investment decision made for a Portfolio is made independently from any
decision made for other portfolios, funds or other accounts advised by the
Advisor or any of its subsidiaries. When a Portfolio buys or sells the same
security as another portfolio, fund or account, the Advisor carries out the
purchase or sale in a way the Trust agrees in advance is fair. Although sharing
in large transactions may adversely affect the price or volume purchased or sold
by a Portfolio, a Portfolio hopes to gain an overall advantage in execution. The
Advisor has assured the Trust it will continue to seek ways to reduce brokerage
costs.
On a periodic basis, the Advisor makes a comprehensive review of the
broker-dealers it uses and the overall reasonableness of their commissions. The
review evaluates execution, operational efficiency and research services.
For the fiscal year ended Sept. 30, 1997, Balanced Portfolio, Equity Portfolio,
Equity Income Portfolio and Total Return Portfolio paid total brokerage
commissions of $3,749,845, $6,147,059, $1,979,701 and $5,860,957, respectively.
For the fiscal period from May 13, 1996, to Sept. 30, 1996, Balanced Portfolio,
Equity Portfolio, Equity Income Portfolio and Total Return Portfolio paid total
brokerage commissions of $3,836,080, $3,197,700, $2,585,347 and $7,372,053,
respectively. The Portfolios began operations on May 13, 1996. Substantially all
firms through whom transactions were executed provide research services.
Transactions amounting to $146,560,000 on which $277,857 in commissions were
imputed or paid, were specifically directed to firms in exchange for research
services for Balanced Portfolio. Transactions amounting to $495,098,000, on
which $1,039,140 in commissions were imputed or paid, were specifically directed
to firms in exchange for research services for Equity Portfolio. Transactions
amounting to $10,905,000, on which $17,364 in commissions were imputed or paid,
were specifically directed to firms in exchange for research services for Equity
Income Portfolio. Transactions amounting to $10,089,000, on which $15,510 in
commissions were imputed or paid, were specifically directed to firms in
exchange for research services for Total Return Portfolio.
<PAGE>
As of the fiscal year ended Sept. 30, 1997, the Portfolios listed held
securities of its regular brokers or dealers or of the parents of those brokers
or dealers that derived more than 15% of gross revenue from securities-related
activities as presented below:
<TABLE>
<CAPTION>
<S> <C>
Name of Issuer Value of Securities Owned at End of Fiscal Year
----------------------------------------------------------------
Balanced Portfolio
Bank of America $ 9,929,100
Equitable IBM 5,755,235
Goldman Sachs 38,901,344
Morgan (J. P.) 54,218,250
Morgan Stanley 23,636,149
Salomon Brothers 6,985,860
Equity Portfolio
Bank of America $ 36,656,250
Merrill Lynch 19,891,875
Morgan Stanley 5,987,167
Travelers Group 27,300,000
Salomon Brothers 34,031,745
Equity Income Portfolio
Bank of America $ 9,964,797
Goldman Sachs 23,029,408
Morgan (J.P.) 18,180,000
Morgan Stanley 17,564,981
NationsBank 17,943,750
Salomon Brothers 32,858,105
Total Return Portfolio
Bank of America $ 40,217,180
Goldman Sachs 26,352,041
Morgan Stanley 12,965,672
Travelers Group 7,780,500
</TABLE>
For the fiscal years ended 1997 and 1996, the portfolio turnover rates were 49%
and 45% for Balanced Portfolio, 82% and 71% for Equity Portfolio, 81% and 84%
for Equity Income Portfolio and 99% and 142% for Total Return Portfolio. Higher
turnover rates may result in higher brokerage expenses.
For periods prior to the commencement of operations of Balanced Portfolio,
Equity Portfolio, Equity Income Portfolio and Total Return Portfolio, turnover
rates are based on the turnover rates of the corresponding IDS funds, which
transferred all of their assets to the Portfolios on May 13, 1996.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE ADVISOR
Affiliates of American Express Company (American Express) (of which the Advisor
is a wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of a Portfolio according to procedures adopted by the
board and to the extent consistent with applicable provisions of the federal
securities laws. The Advisor will use an American Express affiliate only if (i)
the Advisor determines that a Portfolio will
<PAGE>
receive prices and executions at least as favorable as those offered by
qualified independent brokers performing similar brokerage and other services
for a Portfolio and (ii) the affiliate charges a Portfolio commission rates
consistent with those the affiliate charges comparable unaffiliated customers in
similar transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
The Advisor may direct brokerage to compensate an affiliate. The Advisor will
receive research on South Africa from New Africa Advisors, a wholly-owned
subsidiary of Sloan Financial Group. The Advisor owns 100% of IDS Capital
Holdings Inc. which in turn owns 40% of Sloan Financial Group. New Africa
Advisors will send research to the Advisor and in turn the Advisor will direct
trades to a particular broker. The broker will have an agreement to pay New
Africa Advisors. All transactions will be on a best execution basis.
Compensation received will be reasonable for the services rendered.
Information about brokerage commissions paid by each Portfolio to brokers
affiliated with the Advisor for the fiscal year ended Sept. 30, 1997, and fiscal
period from May 13, 1996 to Sept. 30, 1996 is contained in the following table:
<TABLE>
<CAPTION>
Fiscal Year ended 1997 1996
Percent of Aggregate
Aggregate Dollar Dollar
Aggregate Percent of Amount of Amount of
Dollar Amount Aggregate Transactions Commissions
Nature of of Brokerage Involving Paid to
Portfolio Broker Affiliation Commissions Commissions Payment of Broker
<S> <C> <C> <C> <C> <C> <C>
Paid to Broker Commissions
Balanced American (1) $ 24,783 0.66% 1.12% $ 13,249
Enterprise
Investment
Services Inc.
Equity American (1) 404,603 6.58 11.47 45,119
Enterprise
Investment
Services Inc.
Equity Income American (1) 125,796 6.35 12.23 44,672
Enterprise
Investment
Services Inc.
Total Return American (1) 314,054 5.36 10.86 103,248
Enterprise
Investment
Services Inc.
(1) Wholly-owned subsidiary of the Advisor.
</TABLE>
PERFORMANCE INFORMATION
The Funds may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations are based on
standardized methods of computing performance as required by the SEC. An
explanation of these and any other methods used by a Fund to compute performance
follows below.
<PAGE>
Average annual total return
A Fund may calculate average annual total return for certain periods by finding
the average annual compounded rates of return over the period that would equate
the initial amount invested to the ending redeemable value, 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
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the end of
the period (or fractional portion thereof)
Aggregate total return
A Fund may calculate aggregate total return for certain periods representing the
cumulative change in the value of an investment in a Fund over a specified
period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the end of
the period (or fractional portion thereof)
<PAGE>
Annualized yield
The Fund may calculate an annualized yield by dividing the net investment income
per share deemed earned during a period by the net asset value per share on the
last day of the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = aggregate expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding during
the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for each corresponding Portfolio's securities. It is not necessarily
indicative of the amount which was or may be paid to the Fund's shareholders.
Actual amounts paid to the Fund's shareholders are reflected in the distribution
yield.
Distribution yield
Distribution yield is calculated according to the following formula:
D divided by POP F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 3.45% for Equity Income Fund for the 30-day
period ended Sept. 30, 1997.
In its sales material and other communications, a Fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor,
<PAGE>
Investor's Daily, Kiplinger's Personal Finance, Lipper Analytical Services,
Money, Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times,
Personal Investor, Stanger Report, Sylvia Porter's Personal Finance, USA Today,
U.S. News and World Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
On May 13, 1996, IDS Mutual, IDS Stock Fund, IDS Diversified Equity Income Fund,
and IDS Managed Allocation Fund (the IDS Funds), four open-end investment
companies managed by the Advisor, transferred all of their respective assets to
Balanced Portfolio, Equity Portfolio, Equity Income Portfolio and Total Return
Portfolio, respectively, in exchange for units of the Portfolios. Also on May
13, 1996, Balanced Fund, Equity Fund, Equity Income Fund and Total Return Fund
transferred all of their respective assets to the corresponding Portfolio of the
Trust in connection with the commencement of their operations.
On March 20, 1995, the IDS Funds converted to a multiple class structure
pursuant to which three classes of shares are offered: Class A, Class B and
Class Y. Class A shares are sold with a 5% sales charge, a 0.175% service fee
and no 12b-1 fee. Performance quoted, other than one year, by Balanced Fund,
Equity Fund, Equity Income Fund and Total Return Fund, prior to commencement of
operations, is based on performance of the corresponding IDS Fund prior to March
20, 1995 and to Class A shares of the corresponding IDS Fund from March 20, 1995
through May 13, 1996, adjusted for differences in sales charge. The historical
performance for these periods has not been adjusted for any difference between
the estimated aggregate fees and expenses of the Funds and historical fees and
expenses of the IDS Funds.
VALUING FUND SHARES
The value of an individual share is determined by using the net asset value
before shareholder transactions for the day and dividing that figure by the
number of shares outstanding at the end of the previous day.
On Oct. 1, 1997, the first business day following the end of the fiscal year,
the computations looked like this:
<TABLE>
<CAPTION>
Net assets Shares
before outstanding at Net asset value
Fund shareholder the end of of one share
transactions previous day
- ----------------- ----------------- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
Balanced $ 900,853 divided by 54,008 equals $ 16.68
Equity 789,867 26,757 29.52
Equity Income 830,066 74,113 11.20
Total Return 690,060 47,232 14.61
</TABLE>
<PAGE>
In determining net assets before shareholder transactions, the securities held
by each Fund's corresponding Portfolio are valued as follows as of the close of
business of the New York Stock Exchange (the Exchange):
`Securities, except bonds other than convertibles, traded on a securities
exchange for which a last-quoted sales price is readily available are valued at
the last-quoted sales price on the exchange where such security is primarily
traded.
`Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none exist, to the over-the-counter market.
`Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
`Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
`Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
`Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at the current rate of exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange that will not be reflected in the computation of a Fund's
net asset value. If events materially affecting the value of such securities
occur during such period, these securities will be valued at their fair value
according to procedures decided upon in good faith by the board.
`Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short-term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before maturity.
Short-term securities maturing in 60 days or less at acquisition date are valued
at amortized cost. Amortized cost is an approximation of market value determined
by systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
<PAGE>
`Securities without a readily available market price and other assets are valued
at fair value as determined in good faith by the board. The board is responsible
for selecting methods it believes provide fair value. When possible, bonds are
valued by a pricing service independent from the Portfolio. If a valuation of a
bond is not available from a pricing service, the bond will be valued by a
dealer knowledgeable about the bond if such a dealer is available.
The Exchange, American Express Service Corporation (the Distributor) and each of
the Funds will be closed on the following holidays: New Year's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
INVESTING IN THE FUNDS
Each Fund's minimum initial investment requirement is $2,000 ($1,000 for
Custodial Accounts, Individual Retirement Accounts and certain other retirement
plans). Subsequent investments of $100 or more may be made. These minimum
investment requirements may be changed at any time and are not applicable to
certain types of investors.
The Securities Investor Protection Corporation (SIPC) will provide account
protection, in an amount up to $500,000, for securities including Fund shares
(up to $100,000 protection for cash), held in an Investment Management Account
maintained with the Distributor. Of course, SIPC account protection does not
protect shareholders from share price fluctuations.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Funds
(or a Fund) to redeem shares for more than seven days. Such emergency situations
would occur if:
`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
`Disposal of a Portfolio's securities is not reasonably practicable or it is
not reasonably practicable for a Fund to determine the fair value of its net
assets, or
`The SEC, under the provisions of the 1940 Act, declares a period of emergency
to exist.
Should each Fund stop selling shares, the board members may make a deduction
from the value of the assets held by the Fund to cover the cost of future
liquidations of the assets so as to distribute fairly these costs among all
shareholders.
<PAGE>
Redemptions by a Fund
Each Fund reserves the right to redeem, involuntarily, the shares of any
shareholder whose account has a value of less than a minimum amount but only
where the value of such account has been reduced by voluntary redemption of
shares. Until further notice, it is the policy of each Fund not to exercise this
right with respect to any shareholder whose account has a value of $1,000 or
more ($500 in the case of Custodial accounts, IRAs and other retirement plans).
In any event, before a Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares in the
account is less than the minimum amount and allow the shareholder 30 days to
make an additional investment in an amount which will increase the value of the
accounts to at least $1,000.
Redemptions in Kind
The Company has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates each Fund to redeem shares in cash, with respect to any one
shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the
net assets of that Fund at the beginning of such period. Although redemptions in
excess of this limitation would normally be paid in cash, each Fund reserves the
right to make payments in whole or in part in securities or other assets in case
of an emergency, or if the payment of such redemption in cash would be
detrimental to the existing shareholders of the Fund as determined by the board.
In such circumstances, the securities distributed would be valued as set forth
in the Prospectus. Should a Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
TAXES
Dividends received should be treated as dividend income for federal income tax
purposes. Corporate shareholders are generally entitled to a deduction equal to
70% of that portion of a Fund's dividend that is attributable to dividends the
Fund has received from domestic (U.S.) securities. For the fiscal year ended
Sept. 30, 1997, 36.11% of Balanced Fund's net investment income dividends,
72.11% of Equity Fund's net investment income dividends, 69.51% of Equity Income
Fund's net investment income dividends and none of Total Return Fund's net
investment income dividends qualified for the corporate deduction.
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year, however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. Short-term capital gains earned by a Fund are paid to shareholders as
part of their ordinary income dividend and are taxable as ordinary income, not
capital gain.
<PAGE>
You may be able to defer taxes on current income from a Fund by investing
through an IRA, 401(k) plan account or other qualified retirement account. If
you move all or part of a non-qualified investment in one of the above-mentioned
Funds to a qualified account, this type of exchange is considered a redemption
of shares. You pay no sales charge, but the exchange may result in a gain or
loss for tax purposes, or excess contributions under IRA or qualified plan
regulations.
Under federal tax law, by the end of a calendar year a Fund must declare and pay
dividends representing 98% of ordinary income for that calendar year and 98% of
net capital gains (both long-term and short-term) for the 12-month period ending
Oct. 31 of that calendar year. A Fund is subject to an excise tax equal to 4% of
the excess, if any, of the amount required to be distributed over the amount
actually distributed. A Fund intends to comply with federal tax law and avoid
any excise tax.
A Fund may be subject to U.S. taxes resulting from holdings in a passive foreign
investment company (PFIC). A foreign corporation is a PFIC when 75% or more of
its gross income for the taxable year is passive income or if 50% or more of the
average value of its assets consists of assets that produce or could produce
passive income.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state and local income tax laws to Fund distributions.
AGREEMENTS
Investment Management Services Agreement
The Trust, on behalf of each Portfolio, has an Investment Management Services
Agreement with the Advisor. For managing the assets of the Portfolios, the
Advisor is paid a fee based upon the following schedule. Each Fund pays its
proportionate share of the fee.
<TABLE>
<CAPTION>
Equity Portfolio,
Equity Income Portfolio and
Balanced Portfolio Total Return Portfolio
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
- --------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
First $1.0 0.530% First $0.50 0.530%
Next 1.0 0.505 Next 0.50 0.505
Next 1.0 0.480 Next 1.0 0.480
Next 3.0 0.455 Next 1.0 0.455
Over 6.0 0.430 Next 3.0 0.430
Over 6.0 0.400
</TABLE>
On Sept. 30, 1997, the daily rates applied to the Portfolios' net assets on an
annual basis were equal to 0.486% for Balanced Portfolio, 0.469% for Equity
Portfolio, 0.494% for Equity Income Portfolio and 0.484% for Total Return
Portfolio. The fee is calculated for
<PAGE>
each calendar day on the basis of net assets at the close of business two days
prior to the day for which the calculation is made.
Before the fee based on the asset charge is paid for Balanced, Equity and Total
Return Portfolios, it is increased or decreased based on investment performance
compared to an index (the Index). For Balanced Portfolio, the index is the
Lipper Balanced Fund Index. For Equity Portfolio, the index is the Lipper Growth
and Income Fund Index. For Total Return Portfolio, the index is the Lipper
Flexible Portfolio Fund Index. Solely for purposes of calculating the
performance incentive adjustment, the Index is compared to the performance of
Class A shares of another fund that invests in the Portfolio (the comparison
fund). For Balanced Portfolio, the comparison fund is IDS Mutual. For Equity and
Total Return Portfolios, the comparison funds are IDS Stock Fund and IDS Managed
Allocation Fund, respectively. The adjustment, determined monthly, will be
calculated using the percentage point difference between the change in the net
asset value of one share of the comparison fund and the change in the Index. The
performance of the comparison fund is measured by computing the percentage
difference between the opening and closing net asset value of one share, as of
the last business day of the period selected for comparison, adjusted for
dividend or capital gain distributions which are treated as reinvested at the
end of the month during which the distribution was made. The performance of the
Index for the same period is established by measuring the percentage difference
between the beginning and ending Index for the comparison period. The
performance is adjusted for dividend or capital gain distributions (on the
securities which comprise the Index), which are treated as reinvested at the end
of the month during which the distribution was made. One percentage point will
be subtracted from the calculation to help assure that incentive adjustments are
attributable to the Advisor's management abilities rather than random
fluctuations and the result multiplied by 0.01%. That number will be multiplied
times the Portfolio's average net assets for the comparison period and then
divided by the number of months in the comparison period to determine the
monthly adjustment.
Where the comparison fund performance exceeds that of the Index, the base fee
will be increased. Where the performance of the Index exceeds the performance of
the comparison fund, the base fee will be decreased. The maximum monthly
increase or decrease will be 0.08% of average net assets on an annual basis.
The 12 month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. For the fiscal year ended Sept. 30, 1997, the
adjustment decreased the fee by $31,926 for Balanced Portfolio, by $607,329 for
Equity Portfolio, and by $532,639 for Total Return Portfolio.
<PAGE>
The management fee is paid monthly. For the fiscal year ended Sept. 30, 1997,
the total amount paid was $21,571,200 for Balanced Portfolio, $16,849,365 for
Equity Portfolio, $9,000,327 for Equity Income Portfolio and $13,358,064 for
Total Return Portfolio. For the fiscal period from May 13, 1996 (commencement of
operations) to Sept. 30, 1996, the total amount paid was $7,488,292 for Balanced
Portfolio, $5,772,345 for Equity Portfolio, $2,737,194 for Equity Income
Portfolio and $4,327,857 for Total Return Portfolio. The amounts are allocated
among the Funds investing in the Portfolios.
Under the Agreement, each Portfolio also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for units; office expenses;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending portfolio securities; and expenses properly payable by each
Portfolio, approved by the board. For the fiscal year ended Sept. 30, 1997,
Balanced Portfolio and Balanced Fund paid nonadvisory expenses of $390,123,
Equity Portfolio and Equity Fund paid nonadvisory expenses of $640,263, Equity
Income Portfolio and Equity Income Fund paid nonadvisory expenses of $165,078
and Total Return Portfolio and Total Return Fund paid nonadvisory expenses of
$767,027. For the fiscal period from May 13, 1996 (commencement of operations)
to Sept. 30, 1996, Balanced Portfolio and Balanced Fund paid nonadvisory
expenses of $263,420, Equity Portfolio and Equity Fund paid nonadvisory expenses
of $55,974, Equity Income Portfolio and Equity Income Fund paid nonadvisory
expenses of $65,943 and Total Return Portfolio and Total Return Fund paid
nonadvisory expenses of $385,758.
Administrative Services Agreement
The Company, on behalf of each Fund, has an Administrative Services Agreement
with the Advisor. Under this agreement, each Fund pays the Advisor for providing
administration and accounting services. The fee is payable from the assets of
each Fund and is calculated as follows:
<TABLE>
<CAPTION>
Equity Fund,
Equity Income Fund and
Balanced Fund Total Return Fund
<S> <C> <C> <C>
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $1.0 0.040% First $0.50 0.040%
Next 1.0 0.035 Next 0.50 0.035
Next 1.0 0.030 Next 1.0 0.030
Next 3.0 0.025 Next 1.0 0.025
Over 6.0 0.020 Next 3.0 0.020
Over 6.0 0.020
</TABLE>
On Sept. 30, 1997, the daily rates applied to the Funds' net assets on an
annual basis were equal to 0.031% for Balanced Fund, 0.028% for Equity Fund,
0.033% for Equity Income
<PAGE>
Fund and 0.031% for Total Return Fund. The fee is calculated for each calendar
day on the basis of net assets as of the close of business two business days
prior to the day for which the calculation is made. For the fiscal year ended
Sept. 30, 1997, the Funds paid fees of $287 for Balanced Fund, $261 for Equity
Fund, $275 for Equity Income Fund and $246 for Total Return Fund.
Under the agreement, each Fund also pays taxes; audit and certain legal fees;
registration fees for shares; office expenses; consultant's fees; compensation
of board members, officers and employees; corporate filing fees; organizational
expenses; and expenses properly payable by each Fund approved by the board.
Transfer Agency Agreement
The Company, on behalf of each Fund, has a Transfer Agency Agreement with the
Advisor. This agreement governs the responsibility for administering and/or
performing transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing shareholder account
administration agent functions in connection with the issuance, exchange and
redemption or repurchase of the Fund shares. The fee is determined by
multiplying the number of shareholder accounts at the end of the day by a rate
of $20 per year and dividing by the number of days in the year. The fees paid to
the Advisor may be changed from time to time upon agreement of the parties
without shareholder approval. For the fiscal year ended Sept. 30, 1997, the
Funds paid fees of $471 for Balanced Fund, $304 for Equity Fund, $440 for Equity
Income Fund and $194 for Total Return Fund.
Plan and Agreement of Distribution/Distribution Agreement
To help American Express Service Corporation (the Distributor) defray the costs
of distribution and servicing, the Company and the Distributor have entered into
a Plan and Agreement of Distribution (Plan). These costs cover almost all
aspects of distributing shares of the Funds. Under the Plan, the Distributor is
paid a fee at an annual rate of 0.25% of each Fund's average daily net assets.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which the expenditures were made. The Plan
and any agreement related to it may be terminated at any time with respect to a
Fund by vote of a majority of board members who are not interested persons of
the Company and have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, by vote of a majority of
the outstanding voting securities of a Fund or by the Distributor. The Plan (or
any agreement related to it) will terminate in the event of its assignment, as
that term is defined in the 1940 Act. The Plan may not be amended to increase
the amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members,
<PAGE>
including a majority of the board members who are not interested persons of the
Company and who do not have a financial interest in the operation of the Plan or
any agreement related to it. The selection and nomination of disinterested board
members is the responsibility of other disinterested board members. No board
member who is not an interested person has any direct or indirect financial
interest in the operation of the Plan or any related agreement. For the fiscal
year ended Sept. 30, 1997, the Funds paid fees of $1,795 for Balanced Fund,
$1,633 for Equity Fund, $1,720 for Equity Income Fund and $1,538 for Total
Return Fund.
Custodian Agreement
The Trust's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. Each Fund also retains the custodian pursuant to a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Trust pays the custodian a maintenance charge per Portfolio and a
charge per transaction in addition to reimbursing the custodian's out-of-pocket
expenses.
The custodian has entered into a sub-custodian arrangement with the Morgan
Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth Floor,
Brooklyn, NY 11201-2775. As part of this arrangement, securities purchased
outside the United States are maintained in the custody of various foreign
branches of Morgan Stanley or in such other financial institutions as may be
permitted by law and by the Portfolio's sub-custodian agreement.
Total fees and expenses
For the fiscal year ended Sept. 30, 1997, the Funds paid total fees and
nonadvisory expenses, net of reimbursements and earnings credits, of $4,462 for
Balanced Fund, $3,796 for Equity Fund, $7,373 for Equity Income Fund and $7,786
for Total Return Fund. The Funds began operations on May 13, 1996. The Advisor
and the Distributor have agreed to waive certain fees and to absorb certain
other Fund expenses until Dec. 31, 1998. Under this agreement, Balanced Fund,
Equity Fund and Equity Income Funds total expenses will not exceed 1.25% and
Total Return Fund's total expenses will not exceed 1.30%.
ORGANIZATIONAL INFORMATION
Each Fund is a series of Strategist Growth and Income Fund, Inc., an open-end
management investment company, as defined in the 1940 Act. The Company was
incorporated on Sept. 1, 1995 in Minnesota. The Company's headquarters are at
IDS Tower 10, Minneapolis, MN 55440-0010.
<PAGE>
BOARD MEMBERS AND OFFICERS
Directors of Strategist Fund Group
The following is a list of the Company's board members who are board members of
all 15 funds in the Strategist Fund Group. All shares of the Funds have
cumulative voting rights with respect to the election of board members.
Rodney P. Burwell
Born in 1939
Xerxes Corporation
7901 Xerxes Ave. S.
Minneapolis, MN
Chairman, Xerxes Corporation (fiberglass storage tanks). Director, Children's
Broadcasting Network, Vaughn Communications, Sunbelt Nursery Group and Fairview
Corporation.
Jean B. Keffeler
Born in 1945
3424 Zenith Avenue South
Minneapolis, MN
Business and management consultant. Director, National Computer Systems and
American Paging Systems, Inc.
Thomas R. McBurney
Born in 1938
McBurney Management Advisors
1710 International Centre
900 2nd Ave. S.
Minneapolis, MN
President, McBurney Management Advisors. Director, The Valspar Corporation
(paints), Wenger Corporation, Security American Financial Enterprises, Allina,
Space Center Enterprises and Greenspring Corporation.
<PAGE>
James A. Mitchell*
Born in 1941
2900 IDS Tower
Minneapolis, MN
President of all funds in the Strategist Fund Group. Executive vice president
and director of the Advisor. Chairman of the board and chief executive officer
of IDS Life Insurance Company. Director, IDS Life funds.
*Interested person of the Company by reason of being an officer, board member,
employee and/or shareholder of the Advisor or American Express.
In addition to Mr. Mitchell, who is president, the Funds' other officers are:
Eileen J. Newhouse
Born in 1955
IDS Tower 10
Minneapolis, MN
Secretary of all funds in the Strategist Fund Group. Counsel of the Advisor.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the Strategist Fund Group. Director, senior vice
president and chief financial officer of the Advisor. Director and executive
vice president and controller of IDS Life Insurance Company.
Compensation for Fund Board Members
Once the assets of a Fund reach $20 million, members of the Fund board who are
not officers of the Advisor or an affiliate receive an annual fee of $1,000 for
Balanced Fund, $1,000 for Equity Fund, $1,000 for Equity Income Fund and $1,000
for Total Return Fund. Once the assets of all funds in the Strategist Fund Group
reach $100 million, members of the board who are not officers of the Advisor or
an affiliate also will receive a fee of $1,000 for attendance at board meetings.
Board members serving more than one fund will receive an aggregate of $1,000
whether attending one or more meetings held on the same day. The cost of the fee
will be shared by the funds served by the director.
During the fiscal year ended Sept. 30, 1997, the independent members of the
board received no compensation. On Sept. 30, 1997, the Funds' board members and
officers as a group owned less than 1% of the outstanding shares of a Fund.
<PAGE>
Trustees of the Preferred Master Trust Group
The following is a list of the Trust's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley who does
not serve the nine IDS Life funds). All units have cumulative voting rights with
respect to the election of board members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc. Director, Merck
& Co., Inc. and Darden Restaurants, Inc.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and FPL Group, Inc. (holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of the Advisor.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of the Advisor since August 1993, and
director of the Advisor. Previously, senior vice president, finance and chief
financial officer of the Advisor.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics,
Inc.
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
<PAGE>
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of the Advisor.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and General Mills, Inc.
(consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person of the Trust by reason of being an officer and employee
of the Trust.
** Interested person of the Trust by reason of being an officer,
board member, employee and/or shareholder of the Advisor or American
Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman of the board, and Mr. Thomas, who is
president, the Trust's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Trust.
<PAGE>
Officers who are also officers and/or employees of the Advisor:
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of the Advisor. Vice
president-investments for the Trust.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of the Advisor.
Director, executive vice president and controller of IDS Life Insurance Company.
Treasurer for the Trust.
Compensation for Portfolio Board Members
Once the assets of the Portfolio reach $20 million, members of the Portfolio
board who are not officers of a Portfolio or of the Advisor receive an annual
fee of $2,200 for Balanced Portfolio, $1,800 for Equity Portfolio, $600 for
Equity Income Portfolio and $1,600 for Total Return Portfolio. They also receive
attendance and other fees. These fees include for each day in attendance at
meetings of the board, $50; for meetings of the Contracts and Investment Review
Committees, $50; meetings of the Audit Committee, $25; for traveling from
out-of-state, $22 for Balanced Portfolio, $18 for Equity Portfolio, $6 for
Equity Income Portfolio and $16 for Total Return Portfolio; and as Chair of the
Contracts Committee, $86. Expenses for attending meetings are reimbursed.
<PAGE>
During the fiscal year ended Sept. 30, 1997, the independent members of the
board for Balanced Portfolio, Equity Portfolio, Equity Income Portfolio and
Total Return Portfolio, for attending up to 32 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
for Balanced Portfolio
Aggregate Pensions or Estimated annual Total cash compensation
compensation Retirement benefits benefit upon from the Preferred
Board Member from the accrued as Portfolio retirement Master Trust Group
Portfolio expenses
- ---------------------- ---------------- ---------------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, $ 2,822 $0 $0 $ 90,300
Jr.
(part of the year) 0 0
Lynne V. Cheney 3,102 0 0 95,800
Robert F. Froehlke 3,172 0 0 103,000
Heinz F. Hutter 3,247 0 0 107,200
Anne P. Jones 3,371 0 0 110,000
Melvin R. Laird 3,118 0 0 97,000
Alan K. Simpson 3,084 0 0 94,600
(part of the year) 0 0
Edson W. Spencer 2,733 0 0 100,700
Wheelock Whitney 3,297 0 0 110,400
C. Angus Wurtele 3,322 0 0 111,600
Compensation Table
for Equity Portfolio
Aggregate Pensions or Estimated annual Total cash compensation
compensation Retirement benefits benefit upon from the Preferred
Board Member from the accrued as Portfolio retirement Master Trust Group
Portfolio expenses
- ---------------------- ---------------- ---------------------- ------------------- -------------------------
H. Brewster Atwater, $ 2,418 $0 $0 $ 90,300
Jr.
(part of the year) 0 0
Lynne V. Cheney 2,632 0 0 95,800
Robert F. Froehlke 2,718 0 0 103,000
Heinz F. Hutter 2,793 0 0 107,200
Anne P. Jones 2,893 0 0 110,000
Melvin R. Laird 2,648 0 0 97,000
Alan K. Simpson 2,614 0 0 94,600
(part of the year) 0 0
Edson W. Spencer 2,429 0 0 100,700
Wheelock Whitney 2,843 0 0 110,400
C. Angus Wurtele 2,868 0 0 111,600
Compensation Table
for Equity Income Portfolio
Aggregate Pensions or Estimated annual Total cash compensation
compensation Retirement benefits benefit upon from the Preferred
Board Member from the accrued as Portfolio retirement Master Trust Group
Portfolio expenses
- ---------------------- ---------------- ---------------------- ------------------- -------------------------
H. Brewster Atwater, $ 1,306 $0 $0 $ 90,300
Jr.
(part of the year) 0 0
Lynne V. Cheney 1,373 0 0 95,800
Robert F. Froehlke 1,506 0 0 103,000
Heinz F. Hutter 1,581 0 0 107,200
Anne P. Jones 1,610 0 0 110,000
Melvin R. Laird 1,389 0 0 97,000
Alan K. Simpson 1,355 0 0 94,600
(part of the year) 0 0
Edson W. Spencer 1,517 0 0 100,700
Wheelock Whitney 1,631 0 0 110,400
C. Angus Wurtele 1,656 0 0 111,600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
for Total Return Portfolio
Aggregate Pensions or Estimated annual Total cash compensation
compensation Retirement benefits benefit upon from the Preferred
Board Member from the accrued as Portfolio retirement Master Trust Group
Portfolio expenses
- ---------------------- ---------------- ---------------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, $ 2,266 $0 $0 $ 90,300
Jr.
(part of the year) 0 0
Lynne V. Cheney 2,472 0 0 95,800
Robert F. Froehlke 2,566 0 0 103,000
Heinz F. Hutter 2,641 0 0 107,200
Anne P. Jones 2,729 0 0 110,000
Melvin R. Laird 2,488 0 0 97,000
Alan K. Simpson 2,454 0 0 94,600
(part of the year) 0 0
Edson W. Spencer 2,277 0 0 100,700
Wheelock Whitney 2,691 0 0 110,400
C. Angus Wurtele 2,716 0 0 111,600
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
As of Sept. 30, 1997, the following held more than 5% of Fund shares.
Strategist Balanced Fund
Kevin M. O'Connor and Elizabeth A. O'Connor, 5.04%.
Additional information on principal holders of securities may be obtained b
writing to American Express Financial Direct, P. O. 59196, Minneapolis,
MN. 55459-0196.
INDEPENDENT AUDITORS
The Funds' and corresponding Portfolios financial statements contained in the
Annual Report to shareholders for the fiscal year ended Sept. 30, 1997 were
audited by independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center, 90
S. Seventh St., Minneapolis, MN 55402-3900. The independent auditors also
provide other accounting and tax-related services as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors Report and the Financial Statements, including Notes to
the Financial Statements and the Schedule of Investments in Securities,
contained in the 1997 Annual Report to shareholders, pursuant to Section 30(d)
of the 1940 Act, are hereby incorporated in this SAI by reference. No other
portion of the Annual Report, however, is incorporated by reference.
PROSPECTUS
The prospectus dated Nov. 28, 1997, is hereby incorporated in this SAI by
reference.
<PAGE>
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies of foreign
countries, and since a Portfolio may hold cash and cash- equivalent investments
in foreign currencies, the value of a Portfolio's assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency exchange
rates and exchange control regulations. Also, a Portfolio may incur costs in
connection with conversions between various currencies.
Spot Rates and Forward Contracts. A Portfolio conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. A forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days from the
contract date, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged at any stage
for trades.
A Portfolio may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When a Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, a Portfolio will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
different currencies from the date the security is purchased or sold to the date
on which payment is made or received or when the dividend or interest is
actually received.
A Portfolio also may enter into forward contracts when management of a Portfolio
believes the currency of a particular foreign country may suffer a substantial
decline against another currency. It may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all securities denominated in such foreign currency. The
precise matching of forward contract amounts and the value of securities
involved generally will not be possible since the future value of such
securities in foreign currencies more than likely will change between the date
the forward contract is entered into and the date it matures. The projection of
short-term currency market movements is extremely difficult and successful
execution of a short-term hedging strategy is highly uncertain. A Portfolio will
not enter into such forward contracts or maintain a net exposure to such
contracts when consummating the contracts would obligate a Portfolio to deliver
an amount of foreign currency in excess of the value of a Portfolio's securities
or other assets denominated in that currency.
<PAGE>
A Portfolio will designate cash or securities in an amount equal to the value of
a Portfolio's total assets committed to consummating forward contracts entered
into under the second circumstance set forth above. If the value of the
securities declines, additional cash or securities will be designated on a daily
basis so that the value of the cash or securities will equal the amount of a
Portfolio's commitments on such contracts.
At maturity of a forward contract, a Portfolio may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If a Portfolio retains the security and engages in an offsetting transaction, a
Portfolio will incur a gain or a loss (as described below) to the extent there
has been movement in forward contract prices. If a Portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline between the date a
Portfolio enters into a forward contract for selling foreign currency and the
date it enters into an offsetting contract for purchasing the foreign currency,
a Portfolio will realize a gain to the extent that the price of the currency it
has agreed to sell exceeds the price of the currency it has agreed to buy.
Should forward prices increase, a Portfolio will suffer a loss to the extent the
price of the currency it has agreed to buy exceeds the price of the currency it
has agreed to sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for a Portfolio to
buy additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency a Portfolio is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the security if its market value exceeds the amount of foreign
currency a Portfolio is obligated to deliver.
A Portfolio's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
that can be achieved at some point in time. Although such forward contracts tend
to minimize the risk of loss due to a decline in value of hedged currency, they
tend to limit any potential gain that might result should the value of such
currency increase.
Although a Portfolio values its assets each business day in terms of U.S.
dollars, it does not intend to convert its foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and unitholders should be
aware of currency conversion costs. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(spread) between the prices at which they are buying and
<PAGE>
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Options on Foreign Currencies. A Portfolio may buy put and write covered call
options on foreign currencies for hedging purposes. For example, a decline in
the dollar value of a foreign currency in which securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of securities, a Portfolio may buy put options on the foreign currency. If
the value of the currency does decline, the Portfolio will have the right to
sell such currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on its portfolio which otherwise would have
resulted.
As in the case of other types of options, however, the benefit to a Portfolio
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, a
Portfolio could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
A Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, when a Portfolio anticipates a decline in the
dollar value of foreign-denominated securities due to adverse fluctuations in
exchange rates, it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the option will
most likely not be exercised and the diminution in value of securities will be
fully or partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and a Portfolio would be required to buy or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, a Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if a Portfolio holds currency sufficient to cover
the option or has an absolute and immediate right to acquire that currency
without additional cash consideration upon conversion of assets denominated in
that currency or exchange of other currency held in the Portfolio. An option
writer could lose amounts substantially in excess of its initial investments,
due to the margin and collateral requirements associated with such positions.
<PAGE>
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for the purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. A Portfolio may enter into
currency futures contracts to sell currencies. It also may buy put and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. A
Portfolio may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations,
including the limitation on the percentage of assets that may be used, described
in the prospectus. All futures contracts are aggregated for purposes of the
percentage limitations.
<PAGE>
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the values of
a Portfolio's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect a
Portfolio against price decline if the issuer's creditworthiness deteriorates.
Because the value of a Portfolio's investments denominated in foreign currency
will change in response to many factors other than exchange rates, it may not be
possible to match the amount of a forward contract to the value of a Portfolio's
investments denominated in that currency over time.
A Portfolio will hold securities or other options or futures positions whose
values are expected to offset its obligations. A Portfolio will not enter into
an option or futures position that exposes a Portfolio to an obligation to
another party unless it owns either (i) an offsetting position in securities or
(ii) cash, receivables and short-term debt securities with a value sufficient to
cover its potential obligations.
<PAGE>
APPENDIX B
OPTIONS AND FUTURES CONTRACTS
A Portfolio may buy or write options traded on any U.S. or foreign exchange or
in the over-the-counter market. Balanced Portfolio, Equity Income Portfolio and
Total Return Portfolio may enter into interest rate futures contracts and stock
index futures contracts traded on any U.S. or foreign exchange and may buy or
write put and call options on these futures and on stock indexes. Equity
Portfolio may enter into stock index futures contracts traded on any U.S. or
foreign exchange and may buy or write put and call options on these futures and
on stock indexes. Options in the over-the-counter market will be purchased only
when the Advisor believes a liquid secondary market exists for the options and
only from dealers and institutions the Advisor believes present a minimal credit
risk. Some options are exercisable only on a specific date. In that case, or if
a liquid secondary market does not exist, a Portfolio could be required to buy
or sell securities at disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition, the
buyer generally pays a broker a commission. The writer receives a premium, less
another commission, at the time the option is written. The cash received is
retained by the writer whether or not the option is exercised. A writer of a
call option may have to sell the security for a below-market price if the market
price rises above the exercise price. A writer of a put option may have to pay
an above-market price for the security if its market price decreases below the
exercise price. The risk of the writer is potentially unlimited, unless the
option is covered.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts may benefit a Portfolio and its unitholders by
improving a Portfolio's liquidity and by helping to stabilize the value of its
net assets.
Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security
<PAGE>
in the securities market and its price on the options market. It is anticipated
the trading technique will be utilized only to effect a transaction when the
price of the security plus the option price will be as good or better than the
price at which the security could be bought or sold directly. When the option is
purchased, the Portfolio pays a premium and a commission. It then pays a second
commission on the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained on the
purchase of the underlying security will be the combination of the exercise
price, the premium and both commissions. When using options as a trading
technique, commissions on the option will be set as if only the underlying
securities were traded.
Put and call options also may be held by a Portfolio for investment purposes.
Options permit a Portfolio to experience the change in the value of a security
with a relatively small initial cash investment.
The risk a Portfolio assumes when it buys an option is the loss of the premium.
To be beneficial to a Portfolio, the price of the underlying security must
change within the time set by the option contract. Furthermore, the change must
be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and subsequent sale (in the case of a call) or purchase (in the case of a
put) of the underlying security. Even then, the price change in the underlying
security does not ensure a profit since prices in the option market may not
reflect such a change.
Writing covered options. A Portfolio will write covered options when it feels it
is appropriate and will follow these guidelines:
`Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with a Portfolio's goals.
`All options written by a Portfolio will be covered. For covered call options,
if a decision is made to sell the security, or for put options if a decision is
made to buy the security, a Portfolio will attempt to terminate the option
contract through a closing purchase transaction.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains. Since a Portfolio is taxed as a regulated
investment company under the Internal Revenue Code, any gains on options and
other securities held less than three months must be limited to less than 30% of
its annual gross income.
If a covered call option is exercised, the security is sold by a Portfolio. The
premium received upon writing the option is added to the proceeds received from
the sale of the security. A Portfolio will recognize a capital gain or loss
based upon the difference between the proceeds and the Portfolio's basis in that
security. Premiums received from writing
<PAGE>
outstanding call options are included as a deferred credit in the Statement of
Assets and Liabilities and adjusted daily to the current market value.
Options on many securities are listed on options exchanges. If the Portfolio
writes listed options, it will follow the rules of the options exchange. Options
are valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. When a Portfolio writes such an option,
the Custodian will segregate assets as appropriate to cover the option. These
options may be more difficult to close. If a Portfolio is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the call written by a Portfolio expires or is exercised.
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. Futures contracts are
commodity contracts listed on commodity exchanges. Futures contracts trade in a
manner similar to the way a stock trades on a stock exchange and the commodity
exchanges, through their clearing corporations, guarantee performance of the
contracts. They include contracts based on U.S. Treasury bonds and on Standard &
Poor's 500 Index (S&P 500 Index). In the case of S&P 500 Index futures
contracts, the specified multiple is $500. Thus, if the value of the S&P 500
Index were 150, the value of one contract would be $75,000 (150 x $500).
Unlike other futures contracts, a stock index futures contract specifies that no
delivery of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract. For example,
excluding any transaction costs, if a Portfolio enters into one futures contract
to buy the S&P 500 Index at a specified future date at a contract value of 150
and the S&P 500 Index is at 154 on that future date, the Portfolio will gain
$500 x (154-150) or $2,000. If a Portfolio enters into one futures contract to
sell the S&P 500 Index at a specified future date at a contract value of 150 and
the S&P 500 Index is at 152 on that future date, the Portfolio will lose $500 x
(152-150) or $1,000.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by a Portfolio taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up within a segregated account at the Portfolio's
custodian bank. Daily thereafter, the futures contract is valued and the payment
of variation margin is required so that each day the Portfolio would pay out
cash in an amount equal to any decline in the contract's value or receive cash
equal to any increase. At the time a futures contract is closed out, a nominal
commission is paid, which is generally lower than the commission on a comparable
transaction in the cash market.
<PAGE>
The purpose of a futures contract is to allow a Portfolio to gain rapid exposure
to or protect itself from changes in the market without actually buying or
selling securities. For example, if a Portfolio owned long-term bonds and
interest rates were expected to increase, it might enter into futures contracts
to sell securities which would have much the same effect as selling some of the
long-term bonds it owned. If interest rates did increase, the value of the debt
securities in a portfolio would decline, but the value of a Portfolio's futures
contracts would increase at approximately the same rate, thereby keeping the net
asset value of a Portfolio from declining as much as it otherwise would have.
If, on the other hand, a Portfolio held cash reserves and interest rates were
expected to decline, a Portfolio might enter into interest rate futures
contracts for the purchase of securities. If short-term rates were higher than
long-term rates, the ability to continue holding these cash reserves would have
a very beneficial impact on a Portfolio's earnings. Even if short-term rates
were not higher, a Portfolio would still benefit from the income earned by
holding these short-term investments. At the same time, by entering into futures
contracts for the purchase of securities, a Portfolio could take advantage of
the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the futures contracts could
be liquidated and a Portfolio's cash reserves could then be used to buy
long-term bonds on the cash market. A Portfolio could accomplish similar results
by selling bonds with long maturities and investing in bonds with short
maturities when interest rates are expected to increase or by buying bonds with
long maturities and selling bonds with short maturities when interest rates are
expected to decline. But by using futures contracts as an investment tool, given
the greater liquidity in the futures market than in the cash market, it might be
possible to accomplish the same result more easily and more quickly.
Risks of Transactions in Futures Contracts.
A Portfolio may elect to close some or all of its contracts prior to expiration.
Although a Portfolio intends to enter into futures contracts only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a liquid secondary market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures contract position, and in the event of adverse price movements, a
Portfolio would have to make daily cash payments of variation margin. Such price
movements, however, will be offset all or in part by the price movements of the
securities owned by a Portfolio. Of course, there is no guarantee the price of
the securities will correlate with the price movements in the futures contract
and thus provide an offset to losses on a futures contract.
Another risk in employing futures contracts to protect against the price
volatility of securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of a
Portfolio's securities. The correlation may be distorted because the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
<PAGE>
In addition, a Portfolio's Advisor could be incorrect in its expectations as to
the direction or extent of various interest rate or market movements or the time
span within which the movements take place. For example, if a Portfolio sold
futures contracts for the sale of securities in anticipation of an increase in
interest rates, and interest rates declined instead, a Portfolio would lose
money on the sale.
OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to buy or sell
futures contracts in the future. Unlike a futures contract, which requires the
parties to the contract to buy and sell a security on a set date, an option on a
futures contract merely entitles its holder to decide on or before a future date
(within nine months of the date of issue) whether to enter into such a contract.
If the holder decides not to enter into the contract, all that is lost is the
amount (premium) paid for the option. Further, because the value of the option
is fixed at the point of sale, there are no daily payments of cash to reflect
the change in the value of the underlying contract. However, since an option
gives the buyer the right to enter into a contract at a set price for a fixed
period of time, its value does change daily and that change is reflected in the
net asset value of a Fund.
The risk a Portfolio assumes when it buys an option is the loss of the premium
paid for the option. The risk involved in writing options on futures contracts a
Portfolio owns, or on securities held in a Portfolio, is that there could be an
increase in the market value of such contracts or securities. If that occurred,
the option would be exercised and the asset sold at a lower price than the cash
market price. To some extent, the risk of not realizing a gain could be reduced
by entering into a closing transaction. A Portfolio could enter into a closing
transaction by purchasing an option with the same terms as the one it had
previously sold. The cost to close the option and terminate a Portfolio's
obligation, however, might be more or less than the premium received when it
originally wrote the option. Further, a Portfolio might not be able to close the
option because of insufficient activity in the options market. Purchasing
options also limits the use of monies that might otherwise be available for
long-term investments.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A Portfolio
exercising a put, for example, would receive the difference between the exercise
price and the current index level. Such options would be used in the same manner
as options on futures contracts.
TAX TREATMENT. As permitted under federal income tax laws, a Portfolio intends
to identify futures contracts as mixed straddles and not mark them to market,
that is, not treat them as having been sold at the end of the year at market
value. Such an election may result in a Portfolio being required to defer
recognizing losses incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
<PAGE>
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract. If the option is a non-equity option, a Portfolio will either
make a 1256(d) election and treat the option as a mixed straddle or mark to
market the option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term. Certain provisions of the Internal Revenue Code may also
limit a Portfolio's ability to engage in futures contracts and related options
transactions. For example, at the close of each quarter of a Portfolio's taxable
year, at least 50% of the value of its assets must consist of cash, government
securities and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements. In order to avoid realizing a gain within the
three-month period, a Portfolio may be required to defer closing out a contract
beyond the time when it might otherwise be advantageous to do so. A Portfolio
also may be restricted in purchasing put options for the purpose of hedging
underlying securities because of applying the short sale holding period rules
with respect to such underlying securities.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (a Portfolio's agent in acquiring the futures position). During
the period the futures contract is open, changes in value of the contract will
be recognized as unrealized gains or losses by marking to market on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments will be made or received depending upon
whether gains or losses are incurred. All contracts and options will be valued
at the last-quoted sales price on their primary exchange.
<PAGE>
APPENDIX C
MORTGAGE-BACKED SECURITIES
A mortgage pass through certificate is one that represents an interest in a
pool, or group, of mortgage loans assembled by the Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) or non-governmental entities. In
pass-through certificates, both principal and interest payments, including
prepayments, are passed through to the holder of the certificate. Prepayments on
underlying mortgages result in a loss of anticipated interest, and the actual
yield (or total return) to a Portfolio, which is influenced by both stated
interest rates and market conditions, may be different than the quoted yield on
certificates. Some U.S. government securities may be purchased on a when-issued
basis, which means that it may take as long as 45 days after the purchase before
the securities are delivered to a Portfolio.
Stripped Mortgage-Backed Securities. A Portfolio may invest in stripped
mortgage-backed securities. Generally, there are two classes of stripped
mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs
entitle the holder to receive distributions consisting of all or a portion of
the interest on the underlying pool of mortgage loans or mortgage-backed
securities. POs entitle the holder to receive distributions consisting of all or
a portion of the principal of the underlying pool of mortgage loans or
mortgage-backed securities. The cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments (including prepayments) on
the underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. A slow
rate of principal payments may adversely affect the yield to maturity of POs. On
an IO, if prepayments of principal are greater than anticipated, an investor may
incur substantial losses. If prepayments of principal are slower than
anticipated, the yield on a PO will be affected more severely than would be the
case with a traditional mortgage-backed security.
Mortgage-Backed Security Spread Options. A Portfolio may purchase
mortgage-backed security (MBS) put spread options and write covered MBS call
spread options. MBS spread options are based upon the changes in the price
spread between a specified mortgage-backed security and a like-duration Treasury
security. MBS spread options are traded in the OTC market and are of short
duration, typically one to two months. A Portfolio would buy or sell covered MBS
call spread options in situations where mortgage-backed securities are expected
to underperform like-duration Treasury securities.
<PAGE>
APPENDIX D
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that eliminates random buy
and sell decisions. One such system is dollar-cost averaging. Dollar-cost
averaging involves building a portfolio through the investment of fixed amounts
of money on a regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility of the
financial markets. By using this strategy, more shares will be purchased when
the price is low and less when the price is high. As the accompanying chart
illustrates, dollar-cost averaging tends to keep the average price paid for the
shares lower than the average market price of shares purchased, although there
is no guarantee.
While this technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.
<TABLE>
<CAPTION>
Dollar-cost averaging
<S> <C> <C>
- ------------------------------------ ----------------------------------- -----------------------------------
Regular Investment Market Price of a Share Shares Acquired
- ------------------------------------ ----------------------------------- -----------------------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5).
The average price you paid for each share: $4.84 ($500 divided by 103.4).
</TABLE>
<PAGE>
Independent auditors' report
The board and shareholders
Strategist Growth and Income Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of
Strategist Balanced Fund, Strategist Equity Fund, Strategist Equity Income Fund
and Strategist Total Return Fund (series within Strategist Growth and Income
Fund, Inc.) as of September 30, 1997, and the related statements of operations
for the year then ended and the statements of changes in net assets and the
financial highlights for the year ended September 30, 1997, and for the period
from May 13, 1996 (commencement of operations), to September 30, 1996. These
financial statements and financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and financial highlights 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 referred to above present fairly, in
all material respects, the financial position of Strategist Balanced Fund,
Strategist Equity Fund, Strategist Equity Income Fund and Strategist Total
Return Fund at September 30, 1997, and the results of their operations, the
changes in their net assets and the financial highlights for the periods stated
in the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities
Strategist Growth and Income Fund, Inc.
Sept. 30, 1997
Strategist Strategist Equity
Balanced Fund Fund
Assets
<S> <C> <C> <C>
Investment in corresponding Portfolio (Note 1) $953,976 $797,906
Organizational costs (Note 1) 1,851 1,851
- ----- -----
Total assets 955,827 799,757
Liabilities
Accrued distribution fee 6 5
Accrued transfer agency fee 2 1
Accrued administrative services fee 1 1
Other accrued expenses 60,773 21,431
------ ------
Total liabilities 60,782 21,438
------ ------
Net assets applicable to outstanding capital stock $895,045 $778,319
-------- --------
Represented by
Capital stock-- $.01 par value (Note 1) $ 540 $ 268
Additional paid-in capital 738,472 580,985
Undistributed net investment income 1,422 2,610
Accumulated net realized gain (loss) (Note 1) 56,895 26,338
Unrealized appreciation (depreciation) on
investments and on translation of assets and
liabilities in foreign currencies 97,716 168,118
------ -------
Total -- representing net assets applicable to
outstanding capital stock $895,045 $778,319
Shares outstanding 54,008 26,757
------ ------
Net asset value per share of outstanding capital stock $ 16.57 $ 29.09
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of assets and liabilities
Strategist Growth and Income Fund, Inc.
Sept. 30, 1997
Strategist Equity Strategist Total
Income Fund Return Fund
Assets
Investment in corresponding Portfolio (Note 1) $860,064 $713,166
Expense receivable from AEFC -- 45
Organizational costs (Note 1) 1,851 1,851
----- -----
Total assets 861,915 715,062
------- -------
Liabilities
Dividends payable to shareholders 142 --
Accrued distribution fee 6 5
Accrued transfer agency fee 2 1
Accrued administrative services fee 1 1
Other accrued expenses 34,705 28,627
------ ------
Total liabilities 34,856 28,634
------ ------
Net assets applicable to outstanding capital stock $827,059 $686,428
-------- --------
Represented by
Capital stock-- $.01 par value (Note 1) $ 741 $ 472
Additional paid-in capital 650,142 554,527
Undistributed net investment income 1,325 1,055
Accumulated net realized gain (loss) (Note 1) 55,659 53,410
Unrealized appreciation (depreciation) on
investments and on translation of assets and
liabilities in foreign currencies 119,192 76,964
------- ------
Total -- representing net assets applicable to
outstanding capital stock $827,059 $686,428
Shares outstanding 74,113 47,232
------ ------
Net asset value per share of outstanding capital stock $ 11.16 $ 14.53
See accompanying notes to financial statements.
<PAGE>
Statements of operations
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30, 1997
Strategist Strategist Equity
Balanced Fund Fund
Investment income
Income:
Dividends $ 17,038 $ 13,477
Interest 20,731 4,575
Less: Foreign taxes withheld (260) (97)
---- ---
Total income 37,509 17,955
------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 3,859 3,228
Distribution fee 1,795 1,633
Transfer agency fee 471 304
Administrative services fees and expenses 287 261
Compensation of board members 50 --
Postage 4,664 70
Registration fees 18,615 838
Reports to shareholders 2,447 124
Audit fees 3,000 302
Other 10,395 599
------ ---
Total expenses 45,583 7,359
Less expenses reimbursed by AEFC (41,121) (3,563)
------- ------
Total net expenses 4,462 3,796
----- -----
Investment income (loss)-- net 33,047 14,159
------ ------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions 63,596 55,147
Foreign currency transactions (887) (94)
---- ---
Net realized gain (loss) on investments 62,709 55,053
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 74,606 114,216
------ -------
Net gain (loss) on investments and foreign currencies 137,315 169,269
------- -------
Net increase (decrease) in net assets resulting
from operations $170,362 $183,428
-------- --------
See accompanying notes to financial statements.
<PAGE>
Statements of operations
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30, 1997
Strategist Equity Strategist Total
Income Fund Return Fund
Investment income
Income:
Dividends $ 22,769 $ 8,021
Interest 9,851 14,221
Less: foreign taxes withheld (93) (334)
--- ----
Total income 32,527 21,908
------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 3,689 3,186
Distribution fee 1,720 1,538
Transfer agency fee 440 194
Administrative services fees and expenses 275 246
Postage 3,555 978
Registration fees 8,412 2,910
Reports to shareholders 1,843 527
Audit fees 3,200 3,000
Other 8,072 4,583
----- -----
Total expenses 31,206 17,162
Less expenses reimbursed by AEFC (23,833) (9,376)
------- ------
Total net expenses 7,373 7,786
----- -----
Investment income (loss)-- net 25,154 14,122
------ ------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions 65,223 68,988
Financial futures contracts -- (514)
Foreign currency transactions (594) (124)
Option contracts written -- (19)
Net realized gain (loss) on investments 64,629 68,331
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 85,635 36,821
------ ------
Net gain (loss) on investments and foreign currencies 150,264 105,152
------- -------
Net increase (decrease) in net assets resulting
from operations $175,418 $119,274
-------- --------
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Balanced Fund
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations and distributions
Investment income (loss)-- net $ 33,047 $ 4,697
Net realized gain (loss) on investments 62,709 (7,479)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 74,606 23,110
------ ------
Net increase (decrease) in net assets resulting
from operations 170,362 20,328
------- ------
Distributions to shareholders from:
Net investment income (32,085) (3,398)
------- ------
Capital share transactions (Note 3)
Proceeds from sales 225,783 479,489
Reinvestment of distributions at net asset value 32,085 3,398
Payments for redemption (25,917) --
------- ------
Increase (decrease) in net assets from capital
share transactions 231,951 482,887
Total increase (decrease) in net assets 370,228 499,817
Net assets at beginning of period (Note 1) 524,817 25,000
- ------- ------
Net assets at end of period $895,045 $524,817
-------- --------
Undistributed net investment income $ 1,422 $ 681
*Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Equity Fund
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations and distributions
Investment income (loss)-- net 14,159 $ 3,636
Net realized gain (loss) on investments 55,053 (28,922)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 114,216 53,902
------- ------
Net increase (decrease) in net assets resulting
from operations 183,428 28,616
------- ------
Distributions to shareholders from:
Net investment income (12,677) (2,429)
------- ------
Capital share transactions (Note 3)
Proceeds from sales 72,008 480,500
Reinvestment of distributions at net asset value 12,677 2,429
Payments for redemption (11,233) --
------- ------
Increase (decrease) in net assets from capital
share transactions 73,452 482,929
Total increase (decrease) in net assets 244,203 509,116
Net assets at beginning of period (Note 1) 534,116 25,000
- ------- ------
Net assets at end of period $778,319 $534,116
-------- --------
Undistributed net investment income $ 2,610 $ 1,327
-------- --------
*Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Equity Income Fund
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations and distributions
Investment income (loss)-- net $ 25,154 $ 4,206
Net realized gain (loss) on investments 64,629 (9,676)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 85,635 33,557
------ ------
Net increase (decrease) in net assets resulting
from operations 175,418 28,087
------- ------
Distributions to shareholders from:
Net investment income (24,199) (3,953)
------- ------
Capital share transactions (Note 3)
Proceeds from sales 144,070 481,588
Reinvestment of distributions at net asset value 24,145 3,788
Payments for redemptions (25,885) (1,000)
------- ------
Increase (decrease) in net assets from capital
share transactions 142,330 484,376
Total increase (decrease) in net assets 293,549 508,510
Net assets at beginning of period (Note 1) 533,510 25,000
- ------- ------
Net assets at end of period $827,059 $533,510
-------- --------
Undistributed net investment income $ 1,325 $ 361
-------- --------
*Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Total Return Fund
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations and distributions
Investment income (loss)-- net $ 14,122 $ 1,139
Net realized gain (loss) on investments 68,331 (16,662)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilites in foreign currencies 36,821 40,143
------ ------
Net increase (decrease) in net assets resulting
from operations 119,274 24,620
------- ------
Distributions to shareholders from:
Net investment income (13,416) (86)
------- ---
Capital share transactions (Note 3)
Proceeds from sales 55,803 479,101
Reinvestment of distributions at net asset value 13,416 86
Payments for redemptions (17,370) --
------- ---
Increase (decrease) in net assets from capital
share transactions 51,849 479,187
Total increase (decrease) in net assets 157,707 503,721
Net assets at beginning of period (Note 1) 528,721 25,000
- ------- ------
Net assets at end of period $686,428 $528,721
-------- --------
Undistributed (excess of distributions over)
net investment income $ 1,055 $ (230)
-------- --------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
1. Summary of significant accounting policies
Strategist Balanced Fund (Balanced Fund), Strategist Equity Fund (Equity Fund),
Strategist Equity Income Fund (Equity Income Fund), and Strategist Total Return
Fund (Total Return Fund) are series of capital stock within Strategist Growth
and Income Fund, Inc. Each Fund is registered under the Investment Company Act
of 1940 (as amended) as a diversified, open-end management investment company.
Strategist Growth and Income, Inc. has 3 billion authorized shares of capital
stock that can be allocated among the separate series as designated by the
board. On April 15, 1996, American Express Financial Corporation (AEFC) invested
$25,000 in each Fund, which represented 1,871 shares for Balanced Fund, 1,150
shares for Equity Fund, 2,880 shares for Equity Income Fund and 2,103 shares for
Total Return Fund. Operations did not formally commence until May 13, 1996.
Investments in Portfolios
Each of the Funds seeks to achieve its investment objectives by investing all of
its net investable assets in a corresponding series of Growth and Income Trust
(the Trust).
Balanced Fund invests all of its assets in Balanced Portfolio, an open-end
investment company that has the same objectives as the Fund. Balanced Portfolio
balances its investments between common stocks and senior securities (preferred
stocks and debt securities) issued by U.S. and foreign companies.
Equity Fund invests all of its assets in Equity Portfolio, an open-end
investment company that has the same objectives as the Fund. Equity Portfolio
invests primarily in common stocks and securities convertible into common
stocks.
Equity Income Fund invests all of its assets in Equity Income Portfolio,
an open-end investment company that has the same objectives as the Fund. Equity
Income Portfolio seeks to provide a high level of current income and, as a
secondary goal, steady growth of capital by investing primarily in
dividend-paying stocks.
Total Return Fund invests all of its assets in Total Return Portfolio, an
open-end investment company that has the same objectives as the Fund. Total
Return Portfolio invests primarily in U.S. equity securities, U.S. and foreign
debt securities, foreign equity securities, and money market instruments.
Each Fund records daily its share of the corresponding Portfolio's income,
expenses and realized and unrealized gains and losses. The financial statements
of the Portfolios are included elsewhere in this report and should be read in
conjunction with the Funds' financial statements. Each Fund records its
investment in the corresponding Portfolio at value that is equal to the Fund's
proportionate ownership interest in the net assets of the Portfolio. As of Sept.
30, 1997, the percentages of the corresponding Portfolio owned by Balanced Fund,
Equity Fund, Equity Income Fund, and Total Return Fund were 0.02%, 0.02%, 0.04%,
and 0.02%, respectively. Valuation of securities held by the Portfolios is
discussed in Note 1 of the Portfolios' "Notes to financial statements," which
are included elsewhere in this report.
Organizational costs
Each Fund incurred organizational expenses in connection with the start-up and
initial registration of the Fund. These costs will be amortized over 60 months
on a straight-line basis beginning with the commencement of operations. If any
or all of the shares held by AEFC representing initial capital of the Fund are
redeemed during the amortization period, the redemption proceeds will be reduced
by the pro rata portion of the unamortized organizational cost balance.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Federal taxes
Since each Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to the shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) allocated from the
Portfolios may differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes, and losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Funds.
On the statement of assets and liabilities, due to permanent book-to-tax
differences, undistributed net investment income and accumulated net realized
gain (loss) have been increased (decreased), resulting in net reclassification
adjustments to additional paid-in capital as follows:
Equity Total
Balanced Equity Income Return
Fund Fund Fund Fund
Undistributed net $(221) $(199) $ 9 $579
investment income
Accumulated net
realized gain (loss) 1,010 214 683 124
----- --- --- ---
Additional paid-in- $ 789 $ 15 $692 $703
capital reduction
Dividends to shareholders
Dividends from net investment income, declared quarterly and paid at the end of
each calendar quarter for Balanced Fund, Equity Fund and Total Return Fund, and
declared daily and paid each calendar quarter for Equity Income Fund, are
reinvested in additional shares of the Funds at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
Other
At Sept. 30, 1997, AEFC owned 40,710 shares for Balanced Fund, 24,041 shares for
Equity Fund, 61,201 shares for Equity Income Fund and 43,835 shares for Total
Return Fund.
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, each Fund accrues its
own expenses as follows:
Each Fund entered into agreements with AEFC for providing administrative
services and transfer agent services. Under its Administrative Services
Agreement, each Fund pays AEFC a fee for administration and accounting services
at a percentage of the Fund's average daily net assets in reducing percentages
from 0.04% to 0.02% annually. Additional administrative service expenses paid by
the Fund are office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, each Fund also pays taxes, audit and certain
legal fees, registration fees for shares, office expenses, consultants' fees,
compensation of board members, corporate filing fees, organizational expenses
and any other expenses properly payable by the Funds and approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts
and records. Each Fund pays AEFC an annual fee per shareholder account of $20.
Under a Plan and Agreement of Distribution, each Fund pays American Express
Service Corporation (the Distributor) a distribution fee at an annual rate of
0.25% of the Fund's average daily net assets for distribution related services.
AEFC and the Distributor have agreed to waive certain fees and to absorb certain
other of Fund expenses until Sept. 30, 1997. Under this agreement, each Fund's
total expenses will not exceed 1.25% (1.30% for Total Return Fund) of each of
the Fund's average daily net assets. In addition, for the year ended Sept. 30,
1997, AEFC further voluntarily agreed to waive certain fees and expenses to .62%
for Balanced Fund, .58% for Equity Fund, 1.07% for Equity Income Fund and 1.26%
for Total Return Fund.
3. Capital share transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended Sept. 30, 1997
Equity Total
Balanced Equity Income Return
Fund Fund Fund Fund
Sold 15,132 2,872 15,615 4,254
Issued for reinvested
distributions 2,072 477 2,319 981
Redeemed (1,859) (437) (3,659) (1,262)
------ ---- ------ ------
Net increase (decrease) 15,345 2,912 14,275 3,973
====== ===== ====== =====
Period ended Sept. 30, 1996*
Equity Total
Balanced Equity Income Return
Fund Fund Fund Fund
Sold 36,541 22,586 56,644 41,149
Issued for reinvested
distributions 251 109 427 7
Redeemed -- -- (113) --
------ ---- ------ ------
Net increase (decrease) 36,792 22,695 56,958 41,156
====== ====== ====== ======
*Inception date was May 13, 1996.
<PAGE>
<TABLE>
<CAPTION>
4. Financial highlights
The tables below show certain important information for evaluating each Fund's
results.
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Balanced Fund Equity Fund
1997 1996(b) 1997 1996(b)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $13.57 $13.36 $22.40 $21.73
Income from investment operations:
Net investment income (loss) .66 .18 .54 .21
Net gains (losses) (both 2.99 .17 6.64 .62
realized and unrealized)
Total from investment operations 3.65 35 7.18 .83
Dividends from net investment income (.65) (.14) (.49) (.16)
Net asset value, end of period $16.57 $13.57 $29.09 $22.40
Ratios/supplemental data:
Net assets, end of period (in thousands) $895 $525 $778 $534
Ratio of expenses to average daily net assets(d) .62% 1.25%(c) .58% 1.25%(c)
Ratio of net income (loss) to
average daily net assets 4.60% 3.91%(c) 2.17% 3.06%(c)
Total return 27.4% 2.6% 28.3% 3.8%
Portfolio turnover rate (excluding short-term
securities) 49% 14% 82% 21%
Average brokerage commission rate(e) $.0465 $.0483 $.0320 $.0488
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was May 13, 1996.
(c) Adjusted to an annual basis.
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 6.35% and 34.04% for Balanced Fund for periods ended 1997
and 1996, respectively, 1.13% and 34.21% for Equity Fund for the periods
ended 1997 and 1996, respectively.
(e) Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charged. The comparability of this information may be affected by the
fact that commission rates per share vary significantly among foreign
countries.
<PAGE>
Financial highlights (continued)
Fiscal period ended Sept. 30,
Per share income and capital changesa
Equity Income Fund Total Return Fund
1997 1996(b) 1997 1996(b)
Net asset value, beginning of period $8.92 $8.68 $12.22 $11.89
Income from investment operations:
Net investment income (loss) .37 .13 .31 .06
Net gains (losses) (both realized and unrealized) 2.22 .23 2.29 .31
Total from investment operations 2.59 .36 2.60 .37
Dividends from net investment income (.35) (.12) (.29) (.04)
Net asset value, end of period $11.16 $8.92 $14.53 $12.22
Ratios/supplemental data:
Net assets, end of period (in thousands) $827 $534 $686 $529
Ratio of expenses to average daily net assets(d) 1.07% 1.25%(c) 1.26% 1.30%(c)
Ratio of net income (loss) to
average daily net assets 3.65% 3.51%(c) 2.29% .96%(c)
Total return 29.4% 4.1% 21.4% 3.2%
Portfolio turnover rate (excluding short-term
securities) 81% 17% 99% 35%
Average brokerage commission ratee $.0482 $.0324 $.0339 $.0384
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was May 13, 1996.
(c) Adjusted to an annual basis.
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 4.53% and 24.26% for Equity Income Fund for periods ended
1997 and 1996, respectively, and 2.79% and 31.60% for Total Return Fund for
the periods ended 1997 and 1996, respectively.
(e) Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charged. The comparability of this information may be affected by the
fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
<PAGE>
Independent auditors' report
The board of trustees and unitholders Growth and Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Balanced Portfolio (a series of
Growth and Income Trust) as of September 30, 1997, and the related statement of
operations for the year then ended and the statements of changes in net assets
for the year ended September 30, 1997 and for the period from May 13, 1996
(commencement of operations) to September 30, 1996. These financial statements
are the responsibility of portfolio management. Our responsibility is to express
an opinion on these financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, and securities on loan, we request
confirmations from brokers, and where replies are not received, we carry out
other appropriate auditing procedures. 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 referred to above present fairly, in
all material respects, the financial position of Balanced Portfolio at September
30, 1997, and the results of its operations and the changes in its net assets
for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Balanced Portfolio
Year ended Sept. 30, 1997
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $4,273,232,620) $4,906,047,462
Dividends and accrued interest receivable 36,438,261
Receivable for investment securities sold 11,842,052
U.S. government securities held as collateral (Note 5) 84,333,637
Unrealized appreciation on foreign currency contracts held,
at value (Notes 1 and 4) 1,335,390
---------
Total assets 5,039,996,802
-------------
Liabilities
Disbursements in excess of cash on demand deposit
(including bank overdraft of $11,925,022) 16,210,197
Payable for investment securities purchased 18,370,329
Payable upon return of securities loaned (Note 5) 151,890,137
Accrued investment management services fee 64,470
Other accrued expenses 141,771
-------
Total liabilities 186,676,904
-----------
Net assets applicable to capital stock $4,853,319,898
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Balanced Portfolio
Year ended Sept. 30, 1997
Investment income
Income:
Dividends $ 96,702,260
Interest 117,904,845
Less: Foreign taxes withheld (1,369,557)
----------
Total income 213,237,548
Expenses (Note 2):
Investment management services fee 21,571,200
Compensation of board members 23,697
Custodian fees 284,831
Audit fees 29,625
Other 65,327
------
Total expenses 21,974,680
Earnings credits on cash balances (Note 2) (11,407)
-------
Total net expenses 21,963,273
----------
Investment income (loss) -- net 191,274,275
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 539,048,011
Foreign currency transactions (3,886,400)
----------
Net realized gain (loss) on investments 535,161,611
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 270,752,151
-----------
Net gain (loss) on investments and foreign currencies 805,913,762
-----------
Net increase (decrease) in net assets resulting from operations $997,188,037
------------
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statements of changes in net assets
Balanced Portfolio
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations
<S> <C> <C>
Investment income (loss)-- net $ 191,274,275 $69,251,201
Net realized gain (loss) on investments 535,161,611 58,304,995
Net change in unrealized appreciation
(depreciation) on investments and on
translation of assets and liabilities
in foreign currencies 270,752,151 26,384,443
----------- ----------
Net increase (decrease) in net assets
resulting from operations 997,188,037 153,940,639
Net contributions (withdrawals) from partners (161,960,911) 3,864,127,133
------------ -------------
Total increase (decrease) in net assets 835,227,126 4,018,067,772
Net assets at beginning of period (Note 1) 4,018,092,772 25,000
------------- ------
Net assets at end of period $4,853,319,898 $4,018,092,772
-------------- --------------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Balanced Portfolio
1. Summary of significant accounting policies
Balanced Portfolio (the Portfolio) is a series of Growth and Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Balanced Portfolio
seeks to provide a balance of growth of capital and current income by investing
in common stocks and senior securities (preferred stocks and debt securities)
issued by U.S. and foreign companies. The Portfolio also may invest in
derivative instruments and money market instruments. The Declaration of Trust
permits the Trustees to issue non-transferable interests in the Portfolio. On
April 15, 1996, American Express Financial Corporation (AEFC) contributed
$25,000 to the Portfolio. Operations did not formally commence until May 13,
1996, at which time an existing fund transferred its assets to the Portfolio in
return for an ownership percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price deemed best to reflect
fair value as quoted by dealers who make markets in these securities or by an
independent pricing service. Securities for which market quotations are not
readily available are valued at fair value according to methods selected in good
faith by the board. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value based
on current interest rates; those maturing in 60 days or less are valued at
amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy and
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy and sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy and write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
Illiquid securities
Investments in securities include issues that are illiquid. The Portfolio
currently limits investments in illiquid securities to 10% of the net assets, at
market value, at the time of purchase. The aggregate value of such securities at
Sept. 30, 1997 was $4,116,960 representing 0.08% of the net assets. Pursuant to
guidelines adopted by the board, certain unregistered securities are determined
to be liquid and are not included within the 10% limitation specified above.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with AEFC for managing its portfolio. Under this agreement,
AEFC determines which securities will be purchased, held or sold. The management
fee is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.53% to 0.43% annually. The fees may be increased or decreased
by a performance adjustment based on a comparison of the performance of Class A
shares of IDS Mutual Fund to the Lipper Balanced Fund Index. The maximum
adjustment is 0.08% of the Portfolio's average daily net assets on an annual
basis. The adjustment decreased the fee by $31,926 for the year ended Sept. 30,
1997.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio, and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended Sept. 30, 1997, the Portfolio's custodian fees were
reduced by $11,407 as a result of earnings credits from overnight cash balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,968,011,015 and $2,297,550,674, respectively, for the
year ended Sept. 30, 1997. For the same period, the portfolio turnover rate was
49%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $24,783 during
this period.
4. Foreign currency contracts
At Sept. 30, 1997, the Portfolio had entered into a foreign currency exchange
contract that obligates the Portfolio to deliver currency at a specified future
date. The unrealized appreciation and/or depreciation on this contract is
included in the accompanying financial statements. See Summary of significant
accounting policies. The terms of the open contract are as follows:
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
Nov. 7, 1997 123,418,698 200,000,000 $1,335,390 $ --
British Pound U.S. Dollar
5. Lending of portfolio securities
At Sept. 30, 1997, securities valued at $148,051,469 were on loan to brokers.
For collateral, the Portfolio received $67,556,500 in cash and U.S. government
securities valued at $84,333,637. Income from securities lending amounted to
$458,584 for the year ended Sept. 30, 1997. The risks to the Portfolio of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Balanced Portfolio
Sept. 30, 1997
(Percentages represent value of investments compared to net assets)
<S> <C> <C>
Common stocks (53.8%)
Issuer Shares Value (a)
Aerospace & defense (0.8%)
Rockwell Intl 625,000 $ 39,335,937
Automotive & related (0.9%)
Genuine Parts 1,050,000 32,353,125
TRW 250,000 13,718,750
-----------
Total 46,071,875
Banks and savings & loans (3.6%)
Banc One 350,000 19,534,375
First Union 800,000 40,050,000
Morgan (JP) 350,000 39,768,750
Natl City 700,000 43,093,750
NationsBank 400,000 24,750,000
Norwest 157,700 9,659,125
-----------
Total 176,856,000
Beverages & tobacco (1.9%)
Anheuser-Busch 950,000 42,868,750
Philip Morris 850,000 35,328,125
UST 500,000 15,281,250
-----------
Total 93,478,125
Building materials & construction (0.9%)
Weyerhaeuser 700,000 41,562,500
Chemicals (3.0%)
ARCO Chemical 575,000 26,162,500
Dow Chemical 500,000 45,343,750
Lubrizol 850,000 35,700,000
Nalco Chemical 950,000 38,059,375
-----------
Total 145,265,625
Energy (4.9%)
Amoco 475,000 45,778,125
Atlantic Richfield 450,000 38,446,875
Chevron 525,000 43,673,438
Mobil 600,000 44,400,000
Texaco 600,000 36,862,500
Ultramar Diamond Shamrock 925,000 29,889,063
-----------
Total 239,050,001
Food (1.7%)
General Mills 275,000 18,957,813
Heinz (HJ) 775,000 35,795,313
Sara Lee 500,000 25,750,000
-----------
Total 80,503,126
Health care (1.5%)
American Home Products 525,000 38,325,000
Baxter Intl 625,000 32,656,250
-----------
Total 70,981,250
Household products (0.6%)
Kimberly-Clark 600,000 29,362,500
Industrial equipment & services (0.5%)
Waste Management 650,000 22,709,375
Insurance (3.2%)
Marsh & McLennan 320,000 24,520,000
SAFECO 850,000 45,050,000
St. Paul Cos 525,000 42,820,312
Transamerica 425,000 42,287,500
-----------
Total 154,677,812
Media (2.6%)
Dun & Bradstreet 1,175,000 33,340,625
Gannett 375,000 40,476,563
Knight-Ridder 600,000 32,775,000
McGraw-Hill Cos 325,000 21,998,438
-----------
Total 128,590,626
Metals (0.3%)
Aluminum Co of America 186,450 15,288,900
Multi-industry conglomerates (1.7%)
Eastman Kodak 525,000 34,092,188
Emerson Electric 850,000 48,981,250
-----------
Total 83,073,438
Paper & packaging (1.1%)
Union Camp 600,000 37,012,500
Unisource Worldwide 750,000 14,250,000
-----------
Total 51,262,500
Real estate investment trust (4.2%)
Amli Residential Properties 425,000 9,881,250
CBL & Associates Properties 550,000 14,265,625
Developers Diversified Realty 325,000 13,000,000
FelCor Suite Hotels 300,000 12,318,750
Gables Residential Trust 475,000 12,884,375
Liberty Property Trust 575,000 15,489,062
LTC Properties 532,700 10,121,300
Meditrust 500,000 20,750,000
Merry Land & Investment 550,000 12,134,375
Nationwide Health Properties 550,000 13,234,375
OMEGA Healthcare Investors 300,000 10,800,000
Security Capital Industrial Trust 700,000 16,318,750
Simon DeBartolo Group 700,000 23,100,000
United Dominion Realty Trust 1,175,000 17,625,000
-----------
Total 201,922,862
Restaurants & lodging (0.7%)
McDonald's 675,000 32,146,875
Retail (2.2%)
Jostens 800,000 $ 21,700,000
May Dept Stores 800,000 43,600,000
Penney (JC) 750,000 43,687,500
-----------
Total 108,987,500
Transportation (0.4%)
Union Pacific 344,000 21,543,000
Utilities -- electric (3.7%)
Baltimore Gas & Electric 500,000 13,875,000
Dominion Resources 600,000 22,725,000
DTE Energy 700,000 21,306,250
Entergy 1,000,000 26,062,500
GPU 825,000 29,596,875
Northern States Power 550,000 27,362,500
Southern Co 1,100,000 24,818,750
Union Electric 400,000 15,375,000
-----------
Total 181,121,875
Utilities -- telephone (3.8%)
Ameritech 600,000 39,900,000
Bell Atlantic 370,000 29,761,875
BellSouth 950,000 43,937,500
GTE 875,000 39,703,125
SBC Communications 480,000 29,460,000
-----------
Total 182,762,500
Foreign (9.6%)(h)
Anglian Water 1,050,000 13,853,872
B.A.T. Inds 3,750,000(b) 32,824,211
British Petroleum ADR 525,000 47,676,562
BTR 7,000,000 28,379,134
Gallaher Group ADR 750,000(b) 14,390,625
Grand Metropolitan 1,500,000 14,314,499
Natl Westminster Bank 2,150,000 32,457,079
Nestle 15,000 20,896,651
Rank Group 3,250,000 19,148,464
Royal & Sun Alliance Insurance Group 3,000,000 28,459,740
Royal Dutch Petroleum 525,000 29,137,500
Royal PTT Nederland ADR 750,000 29,296,875
Safeway 3,750,000 24,331,020
Severn Trent Water 724,864 10,744,135
Tele Danmark ADR 1,050,000 28,021,875
Tenneco 600,000 28,725,000
Thames Water 1,473,893 20,741,654
Tomkins 7,194,444 40,532,892
-------------
Total 463,931,788
Total common stocks
(Cost: $2,041,916,072) $2,610,485,990
Preferred stocks (--%)
Issuer Shares Value (a)
Virginia-American Water
5.05% 2,000 (i) $180,160
Western Resources
4.25% 10,000 611,500
Total preferred stocks
(Cost: $1,200,000) $791,660
Bonds (32.6%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (9.6%)
U.S. Treasury 5.875% 1999-02 $50,000,000 $ 49,891,500
6.25 2000 30,000,000(c) 30,291,600
6.50 2002 25,000,000 25,479,250
6.625 2001 25,000,000 25,551,000
6.75 2000 15,000,000 15,314,400
6.875 2000 20,000,000 20,465,600
7.125 1999 62,650,000 64,193,696
7.50 2001 50,000,000 52,716,500
7.75 2000 25,000,000 26,013,500
8.125 2019 60,000,000 71,368,800
Govt Trust
Certificates Israel 9.25 2001 8,378,308 8,814,986
Overseas Private
Investment 6.99 2009 17,500,000 17,981,250
Resolution
Funding Corp 8.125 2019 50,000,000 58,919,000
-----------
Total 467,001,082
Mortgage-backed securities (8.3%)
Collateralized Mtge
Obligation Trust 9.95 2014 4,038,490 4,372,473
Federal Home
Loan Mtge Corp 5.50 2009 4,782,364 4,626,363
6.75 2008 2,112,409 2,144,983
6.50 2007-11 41,402,397 41,249,718
7.00 2003 6,067,119 6,158,914
8.00 2024 7,637,348 7,922,984
8.50 2026 11,659,237 12,199,643
Collateralized
Mtge Obligation 7.50 2003 7,800,000 7,985,952
8.50 2022 7,000,000 7,645,470
Inverse Floater 3.77 1997 3,529,545(e) 3,394,929
Trust Series Z 6.50 2023 22,057,763(f) 19,964,907
8.25 2024 6,618,107(f) 7,090,375
Federal Natl
Mtge Assn 5.50 2009 7,069,615 6,841,196
6.50 2023-24 29,591,641 29,044,943
7.00 2011 23,074,106 23,312,000
7.40 2004 33,750,000 35,798,962
7.50 2002-25 23,138,545 23,593,641
8.50 2025-26 12,161,455 12,713,829
9.00 2024 6,935,834 7,461,085
Collateralized
Mtge Obligation 4.50 2007 11,900,000 10,644,550
5.00 2024 6,696,552 6,369,158
7.50 2014 1,856,012 1,913,901
Trust Series Z 6.00 2024 7,433,038(f) 6,207,256
6.50 2023 18,311,530(f) 16,128,727
7.00 2016-22 40,114,967(f) 39,293,215
7.50 2014 8,991,662(f) 9,175,372
8.00 2006-20 21,773,134(f) 22,907,988
Govt Natl Mtge Assn 6.50 2027 24,876,295 25,295,957
-----------
Total 401,458,491
Aerospace & defense (0.2%)
United Technologies 8.875 2019 9,500,000 11,317,920
Automotive & related (0.3%)
Ford Motor
Credit Corp 6.55% 2001 13,000,000 13,108,290
Banks and savings & loans (1.6%)
Asian Development
Bank 9.125 2000 17,700,000 19,066,263
BankAmerica 7.70 2026 10,000,000(g) 9,929,100
First Bank System 6.875 2007 5,750,000 5,780,475
Interamer
Development
Bank Euro 9.50 2000 5,000,000 5,381,250
Mellon Capital 7.72 2026 3,850,000 3,844,918
Morgan (JP) 4.00 2012 15,000,000(k) 14,449,500
Union Planters Trust 8.20 2026 10,000,000 10,199,900
U.S. Capital Trust A 8.41 2027 10,000,000(g) 10,452,100
-----------
Total 79,103,506
Beverages & tobacco (0.1%)
Coca-Cola 7.375 2093 3,000,000 3,137,670
Building materials & construction (0.1%)
Owens-Corning
Fiberglass 9.35 2012 3,500,000 4,012,540
Communications equipment & services (0.4%)
BellSouth
Telecommunications 6.50 2005 9,000,000(c) 9,004,230
7.00 1995 10,000,000 9,970,200
-----------
Total 18,974,430
Computers & office equipment (0.1%)
IBM 6.375 2000 5,100,000 5,135,088
Electronics (0.1%)
Harris 10.375 2018 4,000,000 4,361,800
Energy (0.3%)
Occidental Petroleum 6.25 2000 6,500,000 6,496,880
Petronas 7.75 2015 10,000,000 10,153,600
----------
Total 16,650,480
Financial services (1.1%)
Equitable IBM 7.33 2009 5,500,000 5,755,235
Associates 6.00 2000 6,000,000 5,978,220
Avco Financial
Services 7.25 1999 6,500,000 6,645,600
Corporate Property
Investors 7.18 2013 1,500,000(g) 1,476,435
Intl Lease Finance 5.99 1998 5,000,000 5,011,700
KFW Intl Finance 8.00 2010 6,750,000 7,555,950
Property Trust
America REIT 7.50 2014 5,000,000 4,962,150
Salomon Brothers 6.75 2006 7,000,000 6,985,860
Standard Credit
Card Trust 5.95 2004 8,550,000 8,370,108
----------
Total 52,741,258
Health care (0.2%)
Lilly (Eli) 6.77 2036 5,000,000 4,898,900
Kaiser Foundation 9.55 2005 6,000,000 7,031,280
----------
Total 11,930,180
Household products (0.1%)
Procter & Gamble 8.00 2024 3,000,000 3,429,270
Insurance (0.9%)
American United Life 7.75 2026 4,000,000(i) 3,936,800
Nationwide Mutual
Insurance 7.50 2023 11,500,000(g) 11,432,840
Nationwide Trust 9.875 2025 15,500,000(g) 17,674,030
Principal Mutual 8.00 2044 7,150,000(g) 7,410,117
SunAmerica 8.125 2023 5,150,000 5,544,232
----------
Total 45,998,019
Paper & packaging (0.4%)
Crown Cork & Seal 8.00 2023 6,000,000 6,125,040
Intl Paper 5.125 2012 13,400,000 11,176,940
----------
Total 17,301,980
Retail (0.3%)
Wal-Mart Stores 7.00 2006 14,014,294(g) 14,279,444
Transportation (0.3%)
Burlington Northern
Santa Fe 7.00 2025 10,200,000 9,929,700
Canadian Natl
Railway 7.625 2023 6,000,000 6,118,500
----------
Total 16,048,200
Utilities -- electric (1.1%)
Wisconsin Electric
Power 7.75 2023 5,500,000 5,724,180
Arizona Public
Service 8.00 2015 5,400,000 5,781,780
China Light & Power 7.50 2006 7,000,000 7,258,090
Pacific Gas
& Electric 8.25 2022 4,600,000 4,846,376
Public Service
Electric & Gas 6.75 2016 13,000,000 12,771,070
Texas Utilities
Electric 8.175 2037 10,000,000 10,232,500
Wisconsin Electric
Power 6.875 2095 8,000,000 7,606,480
----------
Total 54,220,476
Utilities -- telephone (1.3%)
Bell Telephone
Pennsylvania 7.375 2033 5,000,000 4,953,100
GTE 9.375 2000 4,600,000 4,992,150
GTE 8.75 2021 5,000,000 5,847,750
Illinois Bell Telephone 4.375 2003 4,600,000 4,176,202
New York Telephone 4.875 2006 13,000,000 11,651,380
Pacific Bell
Telephone 6.625 2034 6,100,000 5,662,813
7.375 2043 7,500,000 7,523,325
U S WEST 6.625 2005 7,000,000 7,057,610
Worldcom 7.75 2007 10,000,000 10,549,200
----------
Total 62,413,530
Miscellaneous (0.2%)
M & I Capital Trust 7.65 2026 10,000,000 9,940,600
Municipal bonds (0.5%)
Los Angeles County Pension Obligation
Taxable Revenue Bonds Series 1994C
Zero Coupon
(MBIA Insured) 7.05 2008 9,440,000(d,l) 4,557,443
Los Angeles County Pension Obligation
Taxable Revenue Bonds Series 1995D
(MBIA Insured) 6.97 2008 10,500,000(l) 10,713,255
Orange County Pension Obligation
Taxable Revenue
Bonds 7.31 2009 5,000,000 5,231,800
Yale University 7.375 2096 4,000,000 4,160,440
----------
Total 24,662,938
Foreign (5.1%)(h)
ABN Amro Bank
(U.S. Dollar) 7.125 2093 7,000,000 6,952,890
American General Institute
(U.S. Dollar) 7.57 2045 15,000,000(g) 14,639,700
Bat-Crave-800
(U.S. Dollar) 6.68 2000 7,000,000(g) 7,026,180
Belo (A.H.)
(U.S. Dollar) 7.125 2007 15,000,000 15,328,500
Cleveland Electric/Toledo Edison
(U.S. Dollar) 7.19 2000 5,000,000(g) 5,052,250
(U.S. Dollar) 7.67 2004 10,000,000 10,288,800
CSX
(U.S. Dollar) 7.25 2027 10,000,000(g) 10,497,200
Dao Heng Bank
(U.S. Dollar) 7.75 2007 10,000,000(g) 10,090,400
EES Coke Battery
(U.S. Dollar) 7.125 2002 9,050,000(g) 9,099,775
Global Marine
(U.S. Dollar) 7.125 2007 10,000,000(g) 10,158,700
Govt of Poland PDI Euro
(U.S. Dollar) 4.00 2014 15,000,000 13,143,750
Grand Metropolitan
(U.S. Dollar) Cv 6.50 2000 20,000,000(g) 27,750,000
Hyundai Semiconductor
(U.S. Dollar) 8.25 2004 10,000,000(g) 10,211,200
Israel Electric
(U.S. Dollar) 7.25 2006 10,000,000 10,131,500
Railcar Leasing
(U.S. Dollar) 7.125 2013 15,000,000(g) 15,415,950
Ras Laffan
(U.S. Dollar) 8.29 2014 10,000,000(g) 10,713,100
Republic of Slovenia
(U.S. Dollar) 7.00 2001 7,200,000(g) 7,341,264
Safeco Capital Trust
(U.S. Dollar) 8.07 2037 10,000,000(g) 10,181,200
Swiss Bank
(U.S. Dollar) 7.50 2025 4,700,000 4,872,208
(U.S. Dollar) 7.75 2026 11,000,000 11,713,570
U.S.A. Waste Services
(U.S. Dollar) 7.125 2007 11,000,000 11,168,520
Washington Mutual Capital
(U.S. Dollar) 8.375 2027 5,800,000(g) 6,071,440
Zurich Capital Trust
(U.S. Dollar) 8.38 2037 7,500,000(g) 8,035,575
----------
Total 245,883,672
Total bonds
(Cost: $1,513,425,063) $1,583,110,864
Option purchased (0.2%)
Issuer Number of Exercise Expiration Value(a)
contracts price date
Put
S&P 500 6,000 $900 Dec. 1997 $11,625,000
Total option purchased
(Cost: $16,615,013) $11,625,000
Short-term securities (14.4%)
Issuer Annualized Amount Value (a)
yield on date payable at
of purchase maturity
U.S. government agency (--%)
Federal Home Loan
Mtge Corp Disc Nt 5.42% $ 1,400,000 $ 1,397,270
10-14-97
Commercial paper (14.4%)
ABB Treasury Center (USA)
10-07-97 5.55 17,100,000(j) 17,083,684
ABN Amro
10-16-97 5.92 12,400,000 12,370,303
A.I. Credit
10-01-97 5.53 6,700,000 6,700,000
American General Finance
10-31-97 5.54 10,000,000 9,954,083
Associates Corp North America
10-14-97 5.54 11,500,000 11,477,118
10-21-97 5.54 5,600,000 5,582,858
AT&T
10-27-97 5.54 12,600,000 12,549,859
Avco Financial Services
10-09-97 5.55 19,500,000 19,471,481
10-14-97 5.65 10,000,000 9,976,744
11-25-97 5.58 10,500,000 10,408,180
Barclays US Funding
10-28-97 5.53 15,000,000 14,938,125
Beneficial
10-10-97 5.53 4,800,000 4,793,400
BHP Finance (USA)
10-23-97 5.54 4,900,000 4,883,471
10-24-97 5.54 9,700,000 9,665,791
BOC Group
10-09-97 5.53 4,900,000(j) 4,894,000
CAFCO
11-05-97 5.56 7,900,000(j) 7,857,527
11-13-97 5.57 3,800,000(j) 3,774,945
11-19-97 5.56 8,200,000(j) 8,138,391
Cargill
10-01-97 5.52 5,100,000 5,100,000
10-14-97 5.66 15,000,000 14,966,785
Ciesco LP
10-27-97 5.55 8,300,000 8,266,851
CIT Group Holdings
10-29-97 5.54 10,000,000 9,957,144
10-29-97 5.55 19,300,000 19,217,289
Commerzbank U.S. Finance
10-28-97 5.55 10,000,000 9,958,525
CPC Intl
10-27-97 5.55 9,900,000(j) 9,856,521
11-19-97 5.57 8,700,000(j) 8,632,461
Deutsche Finance
10-29-97 5.53 8,600,000 8,563,211
Fleet Funding
10-22-97 5.54 3,100,000(j) 3,090,036
10-31-97 5.55 11,131,000(j) 11,079,797
Ford Motor Credit
10-06-97 5.53 15,000,000 14,988,521
10-22-97 5.53 11,100,000 11,064,323
10-30-97 5.54 10,000,000 9,953,794
Gannett
10-03-97 5.51 10,100,000(j) 10,096,925
10-15-97 5.52 4,600,000(j) 4,590,197
11-06-97 5.54 3,700,000(j) 3,679,650
General Electric Capital
10-21-97 5.54 15,900,000 15,851,328
Goldman Sachs Group
10-24-97 5.53 16,100,000 16,043,324
10-24-97 5.55 6,400,000 6,377,388
11-14-97 5.55 12,100,000 12,018,513
11-25-97 5.56 4,500,000 4,462,119
Household Finance
10-22-97 5.54% $15,000,000 $14,951,787
Kredietbank North America Finance
10-08-97 5.52 11,100,000 11,088,129
10-08-97 5.53 10,800,000 10,788,429
Lincoln Natl
10-02-97 5.55 4,200,000(j) 4,199,231
May Department Stores
10-28-97 5.55 5,100,000 5,077,708
MCI Communications
11-20-97 5.70 8,200,000(j) 8,135,117
Metlife Funding
10-08-97 5.54 8,800,000 8,789,948
10-17-97 5.55 13,300,000 13,265,019
10-24-97 5.54 9,424,000 9,390,765
Morgan Stanley Group
10-15-97 5.56 10,000,000 9,976,851
10-20-97 5.54 8,000,000 7,976,778
10-21-97 5.56 5,700,000 5,682,520
Motorola
10-23-97 5.52 7,000,000 6,976,472
Natl Australia Funding (Delaware)
10-07-97 5.52 12,000,000 11,989,020
10-10-97 5.52 10,100,000 10,086,113
11-03-97 5.57 20,000,000 19,893,257
New Center Asset Trust
10-17-97 5.54 13,400,000 13,367,185
Paccar Financial
10-07-97 5.52 4,850,000 4,845,554
10-21-97 5.53 11,100,000 11,066,022
10-27-97 5.54 3,200,000 3,187,243
Reed Elsevier
11-03-97 5.54 10,000,000(j) 9,949,583
11-18-97 5.56 5,300,000(j) 5,260,992
SBC Communications
10-23-97 5.55 10,000,000(j) 9,966,389
Societe Generale North America
10-07-97 5.53 28,900,000 28,873,460
Sysco
11-06-97 5.55 2,100,000(j) 2,088,408
UBS Finance (Delaware)
10-06-97 5.52 15,000,000 14,988,542
10-16-97 5.53 6,400,000 6,385,307
USAA Capital
10-01-97 5.64 12,200,000 12,200,000
10-06-97 5.53 8,100,000 8,093,801
10-22-97 5.53 5,900,000 5,881,036
12-02-97 5.58 12,000,000 11,881,350
----------
Total 698,636,678
Total short-term securities
(Cost: $700,076,472) $ 700,033,948
Total investment in securities
(Cost: $4,273,232,620)(m) $4,906,047,462
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 5 to the financial
statements.
(d) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(e) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on Sept. 30, 1997.
(f) This security is a collateralized mortgage obligation that pays no
interest or principal during its initial accrual period until payment of
previous series within the trust have been paid off. Interest is accrued
at an effective yield; similar to a zero coupon bond.
(g) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
board.
(h) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(i) Identifies issues considered to be illiquid (see Note 1 to the financial
statements). Information concerning such security holdings at Sept. 30,
1997, is as follows:
Acquisition
Security date Cost
American United Life* 02-13-96 $4,000,000
7.75% 2026
Virginia-American Water 07-13-56 220,000
5.05% Cm
*Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(j) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
accredited investors. This security has been determined to be liquid under
guidelines established by the board.
(k) Interest rate varies to reflect current market conditions, rate shown is
the effective rate on Sept. 30, 1997.
(l) The following abbreviation is used in portfolio descriptions to identify
the insurer of the issue: MBIA--Municipal Bond Investors Assurance
(m) At Sept. 30,1997, the cost of securities for federal income tax purposes
was $4,268,721,986 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $662,128,842
Unrealized depreciation (24,803,366)
-----------
Net unrealized appreciation $637,325,476
============
See accompanying notes to investments in securities.
<PAGE>
Independent auditors' report
The board of trustees and unitholders Growth and Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Equity Portfolio (a series of
Growth and Income Trust) as of September 30, 1997, the related statement of
operations for the year then ended and the statements of changes in net assets
for the year ended September 30, 1997 and for the period from May 13, 1996
(commencement of operations) to September 30, 1996. These financial statements
are the responsibility of portfolio management. Our responsibility is to express
an opinion on these financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, and securities on loan, we request
confirmations from brokers, and where replies are not received, we carry out
other appropriate auditing procedures. 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 referred to above present fairly, in
all material respects, the financial position of Equity Portfolio at September
30, 1997, and the results of its operations and the changes in its net assets
for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Portfolio
Sept. 30, 1997
Assets
<S> <C>
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated issuers
(identified cost $3,094,630,726) $4,140,592,546
Investments in securities of affiliated issuers
(identified cost $ 40,790,575) 69,650,928
Dividends and accrued interest receivable 7,431,287
Receivable for investment securities sold 55,112,037
U.S. government securities held as collateral (Note 4) 157,000
- -------
Total assets 4,272,943,798
-------------
Liabilities
Disbursements in excess of cash on demand deposit 3,507,565
Payable for investment securities purchased 46,156,429
Unrealized depreciation on foreign currency
contracts held, at value (Notes1 and 5) 3,351
Payable upon return of securities loaned (Note 4) 59,437,000
Accrued investment management services fee 38,688
------
Total liabilities 109,143,033
-----------
Net assets $4,163,800,765
--------------
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Equity Portfolio
Year ended Sept. 30, 1997
Investment income
Income:
Dividends (including $703,000 earned from affiliates) $ 72,715,743
Interest 14,726,478
Less: Foreign taxes witheld (526,601)
--------
Total income 86,915,620
----------
Expenses (Note 2):
Investment management services fee 16,849,365
Compensation of board members 22,624
Custodian fees 511,951
Audit fees 28,875
Other 90,087
------
Total expenses 17,502,902
Earnings credit on cash balances (Note 2) (11,644)
- -------
Total net expenses 17,491,258
----------
Investment income (loss) -- net 69,424,362
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (including $2,126,838
realized loss on sales of affiliated issuers) (Note 3) 491,092,967
Foreign currency transactions (506,142)
--------
Net realized gain (loss) on investments 490,586,825
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 427,383,679
-----------
Net gain (loss) on investments and foreign currencies 917,970,504
-----------
Net increase (decrease) in net assets resulting from operations $987,394,866
------------
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statements of changes in net assets
Equity Portfolio
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations
<S> <C> <C>
Investment income (loss)-- net $ 69,424,362 $ 38,250,649
Net realized gain (loss) on investments 490,586,825 (4,205,188)
Net change in unrealized appreciation
(depreciation) on investments and on
translation of assets and liabilities
in foreign currencies 427,383,679 140,669,806
----------- -----------
Net increase (decrease) in net assets
resulting from operations 987,394,866 174,715,267
Net contributions (withdrawals) from partners (108,642,196) 3,110,307,828
Total increase (decrease) in net assets 878,752,670 3,285,023,095
Net assets at beginning of period (Note 1) 3,285,048,095 25,000
------------- ------
Net assets at end of period $4,163,800,765 $3,285,048,095
-------------- --------------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
1. Summary of significant accounting policies
Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Equity Portfolio
invests primarily in common stocks and securities convertible into common
stocks. The Declaration of Trust permits the Trustees to issue non-transferable
interests in the Portfolio. On April 15, 1996, American Express Financial
Corporation (AEFC) contributed $25,000 to the Portfolio. Operations did not
formally commence until May 13, 1996, at which time, an existing fund
transferred its assets to the Portfolio in return for an ownership percentage of
the Portfolio.
Significant accounting policies followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price deemed best to reflect
fair value as quoted by dealers who make markets in these securities or by an
independant pricing service. Securities for which market quotations are not
readily available are valued at fair value according to methods selected in good
faith by the board. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value based
on current interest rates; those maturing in 60 days or less are valued at
amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy and
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy and sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy and write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with AEFC for managing its portfolio. Under this agreement,
AEFC determines which securities will be purchased, held or sold. The management
fee is a percentage of the portfolio's average daily net assets in reducing
percentages from 0.53% to 0.4% annually. The fees may be increased or decreased
by a performance adjustment based on a comparison of the performance of Class A
shares of IDS Stock Fund to the Lipper Growth and Income Fund Index. The maximum
adjustment is 0.08% of the Portfolio's average daily net assets on an annual
basis. The adjustment decreased the fee by $607,329 for the year ended Sept. 30,
1997.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended Sept. 30, 1997, the Portfolio's custodian fees were
reduced by $11,644 as a result of earnings credits from overnight cash balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,867,116,422 and $2,884,426,737, respectively, for the
year ended Sept. 30, 1997. For the same year, the portfolio turnover rate was
82%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $404,603 for the
year ended Sept. 30, 1997.
4. Lending of portfolio securities
At Sept. 30, 1997, securities valued at $59,437,000 were on loan to brokers. For
collateral, the Portfolio received $59,280,000 in cash and U.S. government
securities valued at $157,000. Income from securities lending amounted to
$876,421 for the year ended Sept. 30, 1997. The risks to the Portfolio of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
5. Foreign currency contracts
At Sept. 30, 1997, the Portfolio had entered into a foreign currency exchange
contract that obligates the Portfolio to deliver currency at a specified future
date. The unrealized appreciation and/or depreciation on this contract is
included in the accompanying financial statements. See Summary of significant
accounting policies. The terms of the open contract are as follows:
Currency to be Currency to be Unrealized Unrealized
Exchange date delivered received appreciation depreciation
Oct. 2, 1997 3,463,151 2,503,000 $ -- $3,351
Canadian U.S. Dollar
Dollar
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Equity Portfolio
Sept. 30, 1997
(Percentages represent value of investments compared to net assets)
Investments in securities of unaffiliated issuers
Common stocks (81.7%)
Issuer Shares Value (a)
Aerospace & defense (2.5%)
<S> <C> <C>
Boeing 800,000 $ 43,550,000
General Motors Cl H 450,000 29,756,250
Lockheed Martin 306,084 32,636,206
-----------
Total 105,942,456
Airlines (0.8%)
AMR 300,000(b) 33,206,250
Automotive & related (0.9%)
Eaton 386,200 35,675,225
Banks and savings & loans (6.1%)
BankAmerica 500,000 36,656,250
BankBoston 328,250 29,029,609
First Union 1,000,000 50,062,500
KeyCorp 575,000 36,584,375
Mellon Bank 700,000 38,325,000
Norwest 400,000 24,500,000
Wachovia 49,300 3,549,600
Washington Mutual 500,000 34,875,000
-----------
Total 253,582,334
Beverages & tobacco (1.4%)
Coca-Cola 550,000 33,515,625
Philip Morris 600,000 24,937,500
-----------
Total 58,453,125
Chemicals (1.2%)
Du Pont (EI) de Nemours 500,000 30,781,250
Praxair 391,300 20,029,669
-----------
Total 50,810,919
Computers & office equipment (4.8%)
Compaq Computer 1,000,000(b,c) 74,750,000
Hewlett-Packard 650,000 45,215,625
Intl Business Machines 200,000 21,187,500
Microsoft 150,000(b) 19,846,875
Synopsys 970,000(b) 41,225,000
-----------
Total 202,225,000
Electronics (1.7%)
Harris 600,000 27,450,000
Intel 450,000 41,540,625
-----------
Total 68,990,625
Energy (3.2%)
Atlantic Richfield 350,000 29,903,125
Exxon 400,000 25,625,000
Gulf Indonesia Resources 126,000(b) 2,803,500
Phillips Petroleum 600,000 30,975,000
Unocal 1,000,000 43,250,000
-----------
Total 132,556,625
Energy equipment & services (0.2%)
Cooper Cameron 137,500(b) 9,874,219
Financial services (0.7%)
Travelers Group 400,000 27,300,000
Food (1.8%)
ConAgra 400,000 26,400,000
CPC Intl 250,000 23,156,250
Sara Lee 500,000 25,750,000
-----------
Total 75,306,250
Furniture & appliances (0.8%)
Maytag 1,000,000 34,125,000
Health care (9.1%)
Baxter Intl 750,000 39,187,500
Bristol-Myers Squibb 500,000 41,375,000
Guidant 1,000,000 56,000,000
Johnson & Johnson 625,000 36,015,625
Medtronic 1,050,000 49,350,000
Merck & Co 200,000 19,987,500
Pfizer 1,000,000 60,062,500
Schering-Plough 700,000 36,050,000
Warner-Lambert 300,000 40,481,250
-----------
Total 378,509,375
Health care services (0.5%)
Tenet Healthcare 700,000(b) 20,387,500
Household products (3.8%)
Colgate-Palmolive 1,000,000 69,687,500
Gillette 550,000 47,471,875
Procter & Gamble 600,000 41,437,500
-----------
Total 158,596,875
Industrial equipment & services (3.5%)
AGCO 500,000 15,843,750
Deere & Co 950,000 51,062,500
Illinois Tool Works 800,000 40,000,000
UCAR Intl 800,000(b) 38,200,000
-----------
Total 145,106,250
Insurance (3.3%)
American Intl Group 375,000 38,695,313
Provident Cos 400,000 27,975,000
SunAmerica 750,000 29,390,625
Travelers Property Casualty Cl A 1,000,000 40,500,000
-----------
Total 136,560,938
Leisure time & entertainment (0.5%)
Disney (Walt) 275,000 $ 22,171,875
Media (0.8%)
Clear Channel Communications 500,000(b) 32,437,500
Metals (2.7%)
Freeport-McMoRan Copper & Gold Cl B 500,000 14,406,250
Getchell Gold 1,000,000(b) 41,000,000
Martin Marietta Materials 1,000,000 36,000,000
Stillwater Mining 1,000,000(b) 21,312,500
-----------
Total 112,718,750
Multi-industry conglomerates (3.5%)
Emerson Electric 400,000 23,050,000
General Electric 1,100,000 74,868,750
Siebe 1,500,000 30,188,602
Xerox 220,000 18,521,250
-----------
Total 146,628,602
Paper & packaging (0.8%)
Longview Fibre 1,636,300 32,521,462
Restaurants & lodging (0.6%)
Hilton Hotels 800,000 26,950,000
Retail (5.6%)
American Stores 1,100,000 26,812,500
Dayton Hudson 500,000 29,968,750
Penney (JC) 550,000 32,037,500
Rite Aid 1,000,000 55,437,500
Safeway 1,000,000(b) 54,375,000
Wal-Mart Stores 1,000,000 36,625,000
-----------
Total 235,256,250
Utilities -- electric (1.6%)
Carolina Power & Light 300,000 10,781,250
DTE Energy 325,000 9,892,187
FPL Group 600,000 30,750,000
Northern States Power 285,000 14,178,750
-------------
Total 65,602,187
Utilities -- telephone (3.2%)
Bell Atlantic 460,800 37,065,600
BellSouth 700,000 32,375,000
SBC Communications 450,000 27,618,750
U S WEST Communications Group 900,000 34,650,000
-------------
Total 131,709,350
Foreign (16.1%) (d)
Commerzbank 600,000(c) 21,634,166
Compagnie Generale des Eaux 156,500 18,412,851
Credito Italiano 20,000,000(c) 54,108,840
Deutsche Bank 600,000 42,249,455
Ericsson (LM) ADR 7,000,000 46,375,000
EXEL 1,250,000 74,453,125
General Electric 4,100,000 25,874,907
ING Groep ADR 600,000(c) 27,562,500
Lufthansa (Deutsche) 1,000,000(b) 19,669,996
Northern Telecom 450,000 46,771,875
Railtrack Group 4,000,000 57,838,316
Royal Dutch Petroleum 1,300,000 72,150,000
Schlumberger 500,000 42,093,750
SGL Carbon 200,000 29,377,636
SmithKline Beecham ADR 1,000,000 48,875,000
Unilever 200,000 42,525,000
-------------
Total 669,972,417
Total common stocks of unaffiliated issuers
(Cost: $2,449,323,305) $3,403,177,359
Preferred stocks (10.6%)
Issuer Shares Value (a)
AirTouch Communications
4.00% 525,000 $16,275,000
Altera
8.00% 347,826(e) 16,563,474
Circuit City Stores
5.50% 535,715 19,955,384
Citicorp
5.50% 250,000 29,781,250
CNF Trust I
5.00% 100,000 6,437,500
ConAgra
4.50% Cv 350,000 21,218,750
Crown Cork & Seal
1.90% Cv 225,000 10,012,500
Finova Finance Trust
5.50% 200,000 13,175,000
Gillette
3.00% 195,000 13,065,000
Hilton Hotels
8.00% 600,000(i) 18,600,000
Host Marriott Financial Trust
6.75% Cv 300,000(e) 19,875,000
Houston Inds
7.00% Cv 325,000(i) 16,900,000
Intel
5.00% Cv 206,000(j) 33,685,120
McKesson
$2.50 Cv 200,000(e) 14,650,000
Medtronic
5.00% 442,125 37,447,987
Merck & Co
4.50% Cv 225,000 20,193,750
Merrill Lynch
6.25% 515,000 19,891,875
Service Corp Intl
5.00% 1,100,000 35,475,000
Sunamerica
$3.19 Cv 500,000(j) 22,937,500
UNUM
$2.34 Cv 650,000 55,087,500
Total preferred stocks
(Cost: $357,217,740) $441,227,590
Bonds (3.2%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
Domestic (2.9%)
Adaptec
Cv Sub Nts 4.75% 2004 $15,000,000(e) $ 16,912,500
Costco
Zero Coupon Cv 3.50 2017 21,000,000(e,k) 11,313,750
Salomon-Emerson Electric ELK
Cv 5.00 1999 35,318,997(f) 34,031,745
Loews
Cv 3.125 2007 15,800,000 16,451,750
Read-Rite
Cv 6.50 2004 12,000,000 11,790,000
Softkey Intl
Cv 5.50 2000 15,000,000 12,993,750
Tower Automotive
Cv 5.00 2004 3,000,000(e) 3,225,000
WBK Strypes ELK
Cv 10.00 2000 15,216,875(f) 15,204,750
------------
Total 121,923,245
Foreign (0.3%) (d)
BAA
(British Pound) 9.36 2006 6,000,000 11,062,304
Total bonds
(Cost: $124,877,180) $132,985,549
Short-term securities (3.9%)
Issuer Annualized Amount Value (a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.6%)
Federal Home Loan Mtge Corp Disc Nt
10-14-97 5.40% $ 9,900,000 $ 9,880,695
Federal Natl Mtge Assn Disc Nt
10-17-97 5.45 14,000,000 13,966,089
------------
Total 23,846,784
Commercial paper (3.2%)
Abbott Laboratories
10-29-97 5.50 9,300,000 9,260,217
Ameritech Capital Funding
10-24-97 5.48 13,266,000(g) 13,216,746
10-28-97 5.52 3,100,000(g) 3,087,166
BellSouth Capital Funding
11-03-97 5.52 10,000,000 9,949,400
BOC Group
10-20-97 5.52 4,000,000 3,988,347
Cargill
10-20-97 5.50 5,900,000 5,882,874
Ciesco LP
11-07-97 5.51 1,500,000 1,491,505
CIT Group Holdings
11-04-97 5.51 6,100,000 6,068,256
Gannett
11-06-97 5.50 6,100,000 6,066,450
Gateway Fuel
10-21-97 5.50 6,000,000 5,981,667
10-27-97 5.49 7,000,000 6,970,960
Kredietbank North America Finance
10-08-97 5.50 1,700,000 1,698,182
10-08-97 5.51 600,000 599,357
Morgan Stanley Group
10-15-97 5.50 6,000,000 5,987,167
Motorola
10-23-97 5.50 10,000,000 9,966,389
Natl Bank Canada
10-03-97 5.52% $4,900,000 4,898,497
New Center Asset Trust
10-17-97 5.51 1,800,000 1,795,592
Paccar Financial
10-20-97 5.51 8,000,000 7,976,735
Reed Elsevier
11-21-97 5.51 8,600,000(g) 8,529,450
SBC Communications Capital
11-03-97 5.51 5,700,000(g) 5,668,270
11-05-97 5.53 9,300,000(g) 9,249,999
USAA Capital
10-22-97 5.51 6,500,000 6,479,108
------------
Total 134,812,334
Letter of credit (0.1%)
Student Loan Marketing Assn-
Nebraska Higher Education
10-31-97 5.54 4,564,000 4,542,930
Total short-term securities
(Cost: $163,212,501) $ 163,202,048
Total investments in securities of unaffiliated issuers
(Cost: $3,094,630,726) $4,140,592,546
Investments in securities of affiliated issuers (h)
Common stocks (1.7%)
Issuer Shares Value (a)
Meridian Gold 3,800,000(b) $ 18,838,428
Mutual Risk Management 1,000,000 50,812,500
Total investments in securities of affiliated issuers
(Cost: $40,790,575) $ 69,650,928
Total investments in securities
(Cost: $3,135,421,301) (l) $4,210,243,474
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 4 to the
financial statements.
(d) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(e) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
board.
(f) ELKS are equity-linked securities that are structured as an
interest-bearing debt security of a brokerage firm and linked to the
common stock of another company. The terms of ELKS differ from those of
ordinary debt securities in that the principal amount received at maturity
is not fixed but is based on the price of the common stock the ELK is
linked to. The principal amount disclosed equals the current estimated
future value of the amount to be received upon maturity.
(g) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors". This security has been determined to be liquid
under guidelines established by the board.
(h) Investments representing 5% or more of the outstanding voting securities
of the issuer. Transactions with companies that are or were affiliates
during the year ended Sept. 30, 1997 are as follows:
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
Meridian
Gold $ 6,941,711 $14,386,276 $ 7,217,469 $14,110,518 $ --
Mutual Risk
Management* 9,937,262 16,742,795 -- 26,680,057 318,000
Station Casino 5,500,000 -- 5,500,000 -- 385,000
Total $22,378,973 $31,129,071 $12,717,469 $40,790,575 $703,000
* Issuer was not an affiliate for the entire fiscal period.
(i) PRIDES -- Preferred Redeemed Increased Dividend Equity Securities are
structured as convertible preferred securities issued by a company.
Investors receive an enhanced yield but based upon a specific formula,
potential appreciation is limited. PRIDES pay dividends, have voting
rights, are non-callable for three years and upon maturity, convert into
shares of common stock.
(j) PERCS (Preferred-Equity Redeemable Cumulative Securities) -- are
convertible preferred securities. PERCS are like buying an underlying
common stock and selling a call option against the position.
(k) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield from the date of acquisition.
(l) At Sept. 30,1997, the cost of securities for federal income tax purposes
was $3,135,919,805 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $1,089,616,771
Unrealized depreciation (15,293,102)
-----------
Net unrealized appreciation $1,074,323,669
==============
<PAGE>
Independent auditors' report
The board of trustees and unitholders Growth and Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Equity Income Portfolio (a series
of Growth and Income Trust) as of September 30, 1997, the related statement of
operations for the year then ended and the statements of changes in net assets
for the year ended September 30, 1997 and for the period from May 13, 1996
(commencement of operations) to September 30, 1996. These financial statements
are the responsibility of portfolio management. Our responsibility is to express
an opinion on these financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities sold but
not delivered, and securities on loan, we request confirmations from brokers,
and where replies are not received, we carry out other appropriate auditing
procedures. 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 referred to above present fairly, in
all material respects, the financial position of Equity Income Portfolio at
September 30, 1997, and the results of its operations and the changes in its net
assets for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Income Portfolio
Sept. 30, 1997
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $1,897,012,312) $2,223,436,124
Dividends and accrued interest receivable 11,452,466
Receivable for investment securities sold 2,419,781
U.S. government securities held as collateral (Note 4) 5,581,115
---------
Total assets 2,242,889,486
-------------
Liabilities
Disbursement in excess of cash on demand deposit
(including bank overdraft of $580,682) 3,854,181
Payable upon return of securities loaned (Note 4) 18,396,315
Accrued investment management services fee 29,994
Other accrued expenses 24,232
------
Total liabilities 22,304,722
----------
Net assets $2,220,584,764
--------------
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Equity Income Portfolio
Year ended Sept. 30, 1997
Investment income
Income:
Dividends $ 56,638,090
Interest 24,431,586
Less: Foreign taxes withheld (235,345)
--------
Total income 80,834,331
----------
Expenses (Note 2):
Investment management services fee 9,000,327
Compensation of board members 13,093
Custodian fees 96,721
Audit fees 21,750
Other 40,370
------
Total expenses 9,172,261
Earnings credits on cash balances (Note 2) (8,105)
------
Total net expenses 9,164,156
---------
Investment income (loss) -- net 71,670,175
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 212,265,522
Foreign currency transactions (1,394,798)
----------
Net realized gain (loss) on investments 210,870,724
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 167,694,853
-----------
Net gain (loss) on investments and foreign currencies 378,565,577
-----------
Net increase (decrease) in net assets resulting from operations $450,235,752
------------
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statements of changes in net assets
Equity Income Portfolio
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations
Investment income (loss)-- net $ 71,670,175 $ 22,182,820
Net realized gain (loss) on investments 210,870,724 16,088,401
Net change in unrealized appreciation
(depreciation) on investments and on
translation of assets and liabilities
in foreign currencies 167,694,853 40,690,701
----------- ----------
Net increase (decrease) in net assets
resulting from operations 450,235,752 78,961,922
Net contributions (withdrawals) from partners 314,194,640 1,377,167,450
----------- -------------
Total increase (decrease) in net assets 764,430,392 1,456,129,372
Net assets at beginning of period (Note 1) 1,456,154,372 25,000
- ------------- ------
Net assets at end of period $2,220,584,764 $1,456,154,372
-------------- --------------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Equity Income Portfolio
1. Summary of significant accounting policies
Equity Income Portfolio (the Portfolio) is a series of Growth and Income Trust
(the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Equity Income
Portfolio seeks to provide a high level of current income and, as a secondary
goal, steady growth of capital by investing primarily in dividend-paying stocks.
The Declaration of Trust permits the Trustees to issue non-transferable
interests in the Portfolio. On April 15, 1996, American Express Financial
Corporation (AEFC) contributed $25,000 to the Portfolio. Operations did not
formally commence until May 13, 1996, at which time, an existing fund
transferred its assets to the Portfolio in return for an ownership percentage of
the Portfolio.
Significant accounting policies followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the counter market and are valued at a price deemed best to reflect
fair value as quoted by dealers who mark markets in these securities or by an
independent pricing service. Securities for which market quotations are not
readily available are valued at fair value according to methods selected in good
faith by the board. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value based
on current interest rates; those maturing in 60 days or less are valued at
amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy and
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy and sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy and write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contracts.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income
including level-yield amortization of premium and discount is accrued daily.
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with AEFC for managing its portfolio. Under this agreement,
AEFC determines which securities will be purchased, held or sold. The management
fee is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.53% to 0.4% annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended Sept. 30, 1997, the Portfolio's custodian fees were
reduced by $8,105 as a result of earnings credits from overnight cash balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,234,036,651 and $1,361,519,799, respectively, for the
year ended Sept. 30, 1997. For the same year, the portfolio turnover rate was
81%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $125,796 for the
year ended Sept. 30, 1997.
4. Lending of portfolio securities
At Sept. 30, 1997, securities valued at $18,396,315 were on loan to brokers. For
collateral, the Portfolio received $12,815,200 in cash and U.S. government
securities valued at $5,581,115. Income from securities lending amounted to
$738,484 for the year ended Sept. 30, 1997. The risks to the Portfolio of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Equity Income Portfolio
Sept. 30, 1997
(Percentages represent value of investments compared to net assets)
Common stocks (58.2%)
Issuer Shares Value (a)
Automotive & related (1.7%)
<S> <C> <C>
Chrysler 505,000 $ 18,590,313
Ford Motor 420,000 19,005,000
-----------
Total 37,595,313
Banks and savings & loans (7.9%)
BankBoston 265,000 23,435,937
First Union 610,000 30,538,125
KeyCorp 410,000 26,086,250
Mellon Bank 345,000 18,888,750
Morgan (JP) 160,000 18,180,000
NationsBank 290,000(c) 17,943,750
Norwest 280,000 17,150,000
Washington Mutual 340,000 23,715,000
-----------
Total 175,937,812
Beverages & tobacco (2.4%)
Anheuser-Busch 480,000 21,660,000
Philip Morris 735,000 30,548,437
-----------
Total 52,208,437
Building materials & construction(1.1%)
Martin Marietta Materials 395,000 14,220,000
Weyerhaeuser 165,000 9,796,875
-----------
Total 24,016,875
Chemicals (0.5%)
Dow Chemical 120,000 10,882,500
Electronics (1.3%)
Thomas & Betts 545,000 $29,770,625
Energy (4.1%)
Amoco 185,000 17,829,375
Atlantic Richfield 240,000 20,505,000
Chevron 190,000 15,805,625
Mobil 225,000 16,650,000
Texaco 320,000 19,660,000
-----------
Total 90,450,000
Financial services (0.6%)
Fannie Mae 300,000 14,100,000
Food (2.3%)
Heinz (HJ) 305,000 14,087,187
Quaker Oats 440,000 22,165,000
Sara Lee 300,000 15,450,000
-----------
Total 51,702,187
Health care (1.9%)
American Home Products 265,000 19,345,000
Baxter Intl 435,000 22,728,750
-----------
Total 42,073,750
Industrial equipment & services (0.7%)
General Signal 350,000 15,137,500
Insurance (1.8%)
Lincoln Natl 200,000 13,925,000
SAFECO 470,000 24,910,000
-----------
Total 38,835,000
Media (1.9%)
Dun & Bradstreet 850,000 24,118,750
McGraw-Hill 265,000 17,937,188
-----------
Total 42,055,938
Paper & packaging (4.8%)
Intl Paper 195,000 10,737,188
Kimberly-Clark 400,000 19,575,000
Tenneco 480,000 22,980,000
Union Camp 380,000 23,441,250
Unisource Worldwide 1,615,000 30,685,000
-----------
Total 107,418,438
Real estate investment trust (5.4%)
Alexandria Real Estate Equities 120,000 3,427,500
Duke Realty 300,000 6,843,750
Equity Residential 105,000 5,729,062
FelCor Suite Hotels 200,000 8,212,500
Gable Residential Trust 220,000 5,967,500
Innkeepers USA Trust 460,000 7,906,250
Kilroy Realty 170,000 4,590,000
LTC Properties 210,000 3,990,000
Merry Land & Investment 245,000 5,405,312
Mid-America Apartment Communities 275,000 8,164,063
Oasis Residential 162,500 3,960,938
OMEGA Healthcare Investors 125,000 4,500,000
Patriot American Hospitality 280,004 8,925,138
Prentiss Properties Trust 270,000 7,796,250
Reckson Associates Realty 220,000 5,857,500
RFS Hotel Investors 255,000 4,972,500
Security Capital Industrial Trust 216,366 5,043,962
Simon DeBartolo Group 140,000 4,620,000
Storage Trust Realty 200,000 5,225,000
Storage USA 105,000 4,265,625
Sun Communities 140,000 5,022,500
-----------
Total 120,425,350
Retail (1.9%)
May Dept Stores 370,000 20,165,000
Penney (JC) 370,000 21,552,500
-----------
Total 41,717,500
Utilities -- electric (4.0%)
DPL 590,000 14,455,000
Duke Power 275,000 13,595,313
FPL Group 290,000 14,862,500
New Century Energies 385,000 16,001,562
Northern States Power 315,000 15,671,250
Southern Co. 665,000 15,004,063
------------
Total 89,589,688
Utilities -- gas (1.3%)
Enron 735,000 28,297,500
Utilities -- telephone (5.0%)
Ameritech 310,000 20,615,000
Bell Atlantic 510,040(c) 41,026,343
BellSouth 490,000 22,662,500
GTE 585,000 26,544,375
------------
Total 110,848,218
Foreign (7.6%) (d)
British Petroleum ADR 270,000 24,519,375
BTR 4,900,000 19,865,394
EXEL 300,000 17,868,750
Imperial Chemical Inds 375,000(c) 24,796,875
Mid Ocean 540,000 34,222,500
Royal Dutch Petroleum 185,000 10,267,500
SmithKline Beecham ADR 220,000 10,752,500
Tomkins 4,770,000 26,873,779
------------
Total 169,166,673
Total common stocks
(Cost: $986,242,054) $1,292,229,304
Preferred stocks (9.6%)
Issuer Shares Value (a)
AirTouch Communications
4% Cv 450,000(h) $ 13,950,000
6% Cv 500,000 16,281,250
AutoZone
5.50% Cv 715,100 19,472,173
Circuit City Stores
5.50% Cv 357,143(e,i) 13,303,577
ConAgra
4.50% Cv 325,000 19,703,125
Crown Cork & Seal
4.50% Cv 700,000 31,150,000
Gannett
4.50% Cv 200,000 19,038,000
Ikon Office Solutions
$5.04 Cv 475,000(c) 30,815,625
Intel
5% Cv 128,000(i) 20,930,560
Service Corp Intl
5% Cv 475,000(h) 15,318,750
SunAmerica
$3.18 Cv 300,000(i) 13,762,500
Total preferred stocks
(Cost: $196,815,952) $213,725,560
Bonds (6.3%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (4.3%)
U.S. Treasury 8.125% 2019-21 $79,400,000 $ 94,669,172
Aerospace & defense (0.6%)
Salomon Brothers United Technologies
Cv 5.00 1998 15,356,625(f) 14,072,016
Chemicals (0.6%)
USA Waste Services
Cv 4.00 2002 12,000,000 13,170,000
Multi-industry conglomerates (0.8%)
Salomon Brothers Emerson Electric
Cv 5.00 1997 19,496,657(f) 18,786,089
Total bonds
(Cost: $133,328,312) $140,697,277
Options purchased (0.4%)
Issuer Number of Exercise Expiration Value(a)
contracts price date
Put
S&P 500 3,500 $900 Dec. 1997 $ 6,781,250
1,000 925 Dec. 1997 2,662,500
Total options purchased
(Cost: $13,251,765) $ 9,443,750
Short-term securities (25.5%)
Issuer Annualized Amount Value (a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.3%)
Federal Home Loan Mtge Corp Disc Nt
10-14-97 5.42% $ 5,000,000 $ 4,990,250
Federal Natl Mtge Assn Disc Nt
10-08-97 5.48 2,000,000 1,997,869
----------
Total 6,988,119
Commercial paper (24.4%)
American General Finance
10-20-97 5.55 6,800,000 6,780,225
10-30-97 5.54 8,700,000 8,661,384
11-04-97 5.55 15,200,000 15,120,901
Ameritech Capital Funding
10-28-97 5.54 6,900,000(g) 6,871,434
Associates Corp North America
10-02-97 5.55 10,000,000 9,998,049
10-14-97 5.54 10,000,000 9,980,103
Avco Financial Services
12-03-97 5.59 6,500,000 6,434,711
BBV Finance (Delaware)
10-30-97 5.55 7,300,000 7,267,480
Beneficial
11-10-97 5.55 10,000,000 9,938,778
BHP Finance
10-07-97 5.54 9,700,000 9,691,108
BOC Group
10-09-97 5.53 10,200,000(g) 10,187,511
CAFCO
10-30-97 5.56 6,100,000(g) 6,072,777
Cargill Global
11-03-97 5.56 8,500,000(g) 8,454,752
Ciesco LP
10-10-97 5.55 10,000,000(g) 9,984,660
11-07-97 5.54 6,100,000 6,065,455
CIT Group Holdings
10-16-97 5.55% 15,000,000 14,965,500
11-04-97 5.54 11,100,000 11,042,237
Commercial Credit
11-06-97 5.58 6,900,000 6,859,376
Commerzbank U.S. Finance
10-03-97 5.53 11,800,000 11,796,388
10-16-97 5.54 18,900,000 18,856,609
10-29-97 5.55 9,200,000 9,160,430
Fleet Funding
10-02-97 5.55 15,100,000(g) 15,097,689
Gannett
10-14-97 5.56 9,800,000(g) 9,780,501
Gateway Fuel
10-27-97 5.54 7,000,000 6,970,960
General Electric
11-13-97 5.57 10,900,000 10,828,002
Goldman Sachs Group
10-03-97 5.52 8,800,000 8,797,306
10-24-97 5.55 8,600,000 8,569,616
11-13-97 5.55 5,700,000 5,662,486
Household Finance
10-30-97 5.56 6,300,000 6,271,986
Kredietbank North America Finance
10-08-97 5.53 10,000,000 9,989,286
11-25-97 5.57 7,000,000 6,938,787
May Dept Stores
11-10-97 5.56 8,200,000 8,149,798
Metlife Funding
10-16-97 5.53 12,868,000 12,838,511
10-17-97 5.55 11,184,000 11,154,585
Morgan Stanley Group
10-14-97 5.54 17,600,000 17,564,981
Natl Australia Funding (Delaware)
10-10-97 5.52 11,500,000 11,484,187
NBD Bank Canada
10-15-97 5.53 14,700,000 14,668,501
10-24-97 5.56 7,400,000 7,370,739
Nestle Capital
10-06-97 5.53 4,400,000 4,396,633
New Center Asset Trust
10-21-97 5.54 10,700,000 10,667,246
10-23-97 5.53 15,000,000 14,949,583
Paccar Financial
10-01-97 5.52 3,500,000 3,500,000
Pacific Mutual
10-02-97 5.53 10,000,000 9,998,469
Reed Elsevier
11-07-97 5.56 7,100,000(g) 9,937,992
St. Paul Companies
10-08-97 5.54 13,900,000(g) 13,885,108
SBC Communications Capital
10-23-97 5.55 8,200,000(g) 8,172,439
10-28-97 5.55 5,000,000(g) 4,976,516
11-03-97 5.56 8,000,000(g) 7,955,466
12-12-97 5.60 7,000,000(g) 6,919,801
Societe Generale North America
10-15-97 5.54 18,000,000 17,961,430
10-16-97 5.54 10,000,000 9,977,042
Southern California Gas
10-06-97 5.53 6,600,000 6,594,949
Toyota Motor Credit
10-21-97 5.55 2,900,000 2,891,123
USAA Capital
10-22-97 5.55 5,400,000 5,382,643
UBS Finance (Delaware)
10-06-97 5.52 4,500,000 4,496,563
10-06-97 5.53 15,000,000 14,988,521
10-09-97 5.52 7,500,000 7,490,833
-----------
Total 541,470,146
Letters of credit (0.8%)
Bank of America-
AES Barber Point
10-24-97 5.54% $10,000,000 $ 9,964,797
Student Loan Mtge Assn -
Nebraska Higher Education
10-30-97 5.56 8,957,000 8,917,171
-------------
Total 18,881,968
Total short-term securities
(Cost: $567,374,229) 567,340,233
Total investments in securities
(Cost: $1,897,012,312) (j) $2,223,436,124
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 4 to the financial
statements.
(d) Foreign security values are stated in U.S. dollars.
(e) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
board.
(f) ELKS are equity-linked securities that are structured as an
interest-bearing debt security and linked to the common stock of another
company. The terms of ELKS differ from those of ordinary debt securities
in that the principal amount received at maturity is not fixed but is
based on the price of the common stock the ELK is linked to. The principal
amount disclosed equals the current estimated future value of the amount
to be received upon maturity.
(g) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid
under the guidelines established by the board.
(h) PRIDES (Preferred Redeemable Increased Dividend Equity Securities) -- are
structured as "convertible preferred securities. Investors receive an
enhanced yield but based upon a specific formula, "potential appreciation
is limited. PRIDES pay dividends have voting rights, are noncallable for
three years and upon maturity, convert into shares of common stock.
(i) PERCS (Preferred-Equity Redeemable Cumulative Securities) -- are
convertible preferred securities. PERCS are like buying an underlying
common stock and selling a call option against the position.
(j) At Sept. 30, 1996, the cost of securities for federal income tax purposes
was $1,895,476,541 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $337,838,519
Unrealized depreciation (9,878,936)
----------
Net unrealized appreciation $327,959,583
============
<PAGE>
Independent auditors' report
The board of trustees and unitholders Growth and Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Total Return Portfolio (a series
of Growth and Income Trust) as of September 30, 1997, the related statement of
operations for the year then ended and the statements of changes in net assets
for the year ended September 30, 1997 and for the period from May 13, 1996
(commencement of operations) to September 30, 1996. These financial statements
are the responsibility of portfolio management. Our responsibility is to express
an opinion on these financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, and securities on loan, we request
confirmations from brokers, and where replies are not received, we carry out
other appropriate auditing procedures. 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 referred to above present fairly, in
all material respects, the financial position of Total Return Portfolio at
September 30, 1997, and the results of its operations and the changes in its net
assets for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Total Return Portfolio
Sept. 30, 1997
Assets
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated issuers
<S> <C>
(identified cost $2,719,395,032) $3,069,531,804
Investments in securities of affiliated issuer
(identified cost $13,079,176) 5,857,500
Dividends and accrued interest receivable 11,942,366
Receivable for investment securities sold 52,365,358
Unrealized appreciation on foreign currency contracts held,
at value (Notes 1 and 4) 26,245
U.S. government securities held as collateral (Note 5) 6,121,325
---------
Total assets 3,145,844,598
-------------
Liabilities
Disbursements in excess of cash on demand deposit
(includes bank overdraft of $48,564,468) 49,525,597
Payable for investment securities purchased 44,986,177
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) 112,220
Payable upon return of securities loaned (Note 5) 51,943,360
Accrued investment management services fee 39,715
Other accrued expenses 30,883
------
Total liabilities 146,637,952
-----------
Net assets $2,999,206,646
--------------
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Total Return Portfolio
Year ended Sept. 30, 1997
Investment income
Income:
Dividends $ 35,485,471
Interest 62,794,083
Less: Foreign taxes withheld (1,468,029)
----------
Total income 96,811,525
----------
Expenses (Note 2):
Investment management services fee 13,358,064
Compensation of board members 27,806
Custodian fees 670,730
Audit fees 28,875
Other 50,741
------
Total expenses 14,136,216
Earnings credits on cash balances (Note 2) (13,747)
- -------
Total net expenses 14,122,469
----------
Investment income (loss) -- net 82,689,056
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (including loss of $1,184,513
on sale of affiliated issuers) (Note 3) 347,541,692
Financial futures contracts (2,231,806)
Foreign currency transactions 402,716
Option contracts written (Note 7) (85,138)
- -------
Net realized gain (loss) on investments 345,627,464
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 122,489,698
-----------
Net gain (loss) on investments and foreign currencies 468,117,162
-----------
Net increase (decrease) in net assets resulting from operations $550,806,218
------------
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statements of changes in net assets
Total Return Portfolio
Year ended For the period
Sept. 30, 1997 from May 13, 1996*
to Sept. 30, 1996
Operations
<S> <C> <C>
Investment income (loss)-- net $ 82,689,056 $ 31,175,277
Net realized gain (loss) on investments 345,627,464 26,015,535
Net change in unrealized appreciation
(depreciation) of investments and on translation
of assets and liabilities in foreign currencies 122,489,698 75,342,945
----------- ----------
Net increase (decrease) in net assets
resulting from operations 550,806,218 132,533,757
Net contributions (withdrawals) from partners (350,789,437) 2,666,631,108
------------ -------------
Total increase (decrease) in net assets 200,016,781 2,799,164,865
Net assets at beginning of period (Note 1) 2,799,189,865 25,000
------------- ------
Net assets at end of period $2,999,206,646 $2,799,189,865
-------------- --------------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Total Return Portfolio
1. Summary of significant accounting policies
Total Return Portfolio (the Portfolio) is a series of Growth and Income Trust
(the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Total Return
Portfolio seeks to provide maximum total return through a combination of growth
of capital and current income by investing in U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Declaration of Trust permits the Trustees to issue non-transferable
interests in the Portfolio. On April 15, 1996, American Express Financial
Corporation (AEFC) contributed $25,000 to the Portfolio. Operations did not
formally commence until May 13, 1996, at which time, an existing fund
transferred its assets to the Portfolio in return for an ownership percentage of
the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price deemed best to reflect
fair value as quoted by dealers who make markets in these securities or by an
independent pricing service. Securities for which market quotations are not
readily available are valued at fair value according to methods selected in good
faith by the board. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value based
on current interest rates; those maturing in 60 days or less are valued at
amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy and
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy and sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy and write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
Illiquid securities
Investments in securities included issues that are illiquid. The Portfolio
currently limits investments in illiquid securities to 10% of the net assets, at
market value, at the time of purchase. The aggregate value of such securities at
Sept. 30, 1997 was $9,395,750 representing 0.31% of the net assets. Pursuant to
guidelines adopted by the board, certain unregistered securities are determined
to be liquid and are not included within the 10% limitation specified above.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Portfolio on
a forward-commitment or when-issued basis can take place one month or more after
the transaction date. During this period, such securities are subject to market
fluctuations, and they may affect the Portfolio's net assets the same as owned
securities. The Portfolio designates cash or liquid high-grade debt securities
at least equal to the amount of its commitment. As of Sept. 30, 1997, the
Portfolio had entered into outstanding when-issued or forward-commitments of
$1,996,219.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with AEFC for managing its portfolio. Under this agreement,
AEFC determines which securities will be purchased, held or sold. The management
fee is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.53% to 0.40% annually. The fees may be increased or decreased
by a performance adjustment based on a comparison of the performance of Class A
shares of IDS Managed Allocation Fund to the Lipper Flexible Portfolio Fund
Index. The maximum adjustment is 0.08% of the Portfolio's average daily net
assets on an annual basis. The adjustment decreased the fee by $532,639 for the
year ended Sept. 30, 1997.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended Sept. 30, 1997, the Portfolio's custodian fees were
reduced by $13,747 as a result of earnings credits from overnight cash balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,436,278,174 and $3,296,916,611, respectively, for the
year ended Sept. 30, 1997. For the same period, the portfolio turnover rate was
99%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $314,054 for the
year ended Sept. 30, 1997.
4. Foreign currency contracts
At Sept. 30, 1997, the Portfolio had entered into foreign currency exchange
contracts that obligate the Portfolio to deliver currencies at specified future
dates. The unrealized appreciation and/or depreciation on these contracts is
included in the accompanying financial statements. See Summary of significant
accounting policies.
The terms of the open contracts are as follows:
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
Oct. 1, 1997 3,203,097 4,431,421 $4,010 $ --
U.S. Dollar Canadian Dollar
Oct. 1, 1997 79,117,881 654,527 -- 965
Japanese Yen U.S. Dollar
Oct. 1, 1997 10,512,617 310,565 5,851 --
Philippine Peso U.S. Dollar
Oct. 1, 1997 71,785,743 593,026 -- 1,720
Japanese Yen U.S. Dollar
Oct. 2, 1997 1,438,498 1,986,810 -- 604
U.S. Dollar Canadian Dollar
Oct. 2, 1997 6,806,050 196,877 -- 399
Philippine Peso U.S. Dollar
Oct. 2, 1997 17,340,065 2,282,188 -- 3,942
Swedish Krona U.S. Dollar
Oct. 3, 1997 2,593,840 4,196,471 15,200 --
British Pound U.S. Dollar
Oct. 3, 1997 10,293,311 297,637 -- 1,720
Philippine Peso U.S. Dollar
Oct. 31, 1997 1,755,783 10,423,469 1,184 --
U.S. Dollar French Franc
Oct. 31, 1997 1,294,930 7,638,661 -- 7,367
U.S. Dollar French Franc
Nov. 28, 1997 3,987,828,460 33,220,000 -- 95,503
Japanese Yen U.S. Dollar
-------- ---------
Total $26,245 $112,220
5. Lending of portfolio securities
At Sept. 30, 1997, securities valued at $50,899,294 were on loan to brokers. For
collateral, the Portfolio received $45,822,035 in cash and government securities
valued at $6,121,325. Income from securities lending amounted to $506,611 for
the year Sept. 30, 1997. The risks to the Portfolio of securities lending are
that the borrower may not provide additional collateral when required or return
the securities when due.
6. Interest rate futures contracts
At Sept. 30, 1997, investments in securities included securities valued at
$12,250,800 that were pledged as collateral to cover initial margin deposits on
150 open sale contracts. The market value of the open sale contracts at Sept.
30, 1997 was $16,518,750 with a net unrealized loss of $228,094. See Summary of
significant accounting policies.
7. Option contracts written
The number of contracts and premium amounts associated with option contracts
written is as follows:
Year ended Sept. 30, 1997
Calls
Contracts Premium
Balance Sept. 30, 1966 -- $ --
Opened 49,000 107,800
Closed or expired (49,000) (107,800)
Expired -- --
------ -------
Balance Sept. 30, 1997 -- $ --
======= ========
See Summary of significant accounting policies.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Total Return Portfolio
Sept. 30, 1997
(Percentages represent value of investments compared to net assets)
Investments in securities of unaffiliated issuers
Common stocks (59.8%)
Issuer Shares Value (a)
<S> <C> <C>
Aerospace & defense (2.0%)
Boeing 234,132 $12,745,561
Lockheed Martin 140,000 14,927,500
Northrop Grumman 65,000 7,889,375
Raytheon 181,200 10,713,450
Rockwell Intl 180,000 11,328,750
United Technologies 50,000 4,050,000
----------
Total 61,654,636
Automotive & related (1.3%)
Chrysler 458,800 16,889,575
Dana 75,000 3,703,125
Ford Motor 188,100 8,511,525
General Motors 100,700 6,740,606
Goodyear Tire & Rubber 50,000 3,437,500
----------
Total 39,282,331
Banks and savings & loans (4.3%)
BankAmerica 356,100 26,106,581
BankBoston 225,000 19,898,437
Citicorp 85,000 11,384,687
Credicorp 65,000(h) 1,235,000
First Union 550,928 27,580,833
KeyCorp 345,800 22,001,525
Mellon Bank 61,400 3,361,650
Norwest 49,800 3,050,250
Washington Mutual 229,700 16,021,575
----------
Total 130,640,538
Beverages & tobacco (1.9%)
Coca-Cola 539,300 32,863,594
Panamerican Beverages Cl A 50,000 1,953,125
Philip Morris 550,000 22,859,375
----------
Total 57,676,094
Building materials & construction (0.6%)
Georgia Pacific 25,000 2,609,375
Masco 75,000 3,435,937
Sherwin-Williams 74,700 2,198,981
Tyco Intl 69,100 5,670,519
Weyerhaeuser 50,000 2,968,750
----------
Total 16,883,562
Chemicals (0.5%)
Du Pont (EI) de Nemours 200,000 12,312,500
Praxair 40,000 2,047,500
----------
Total 14,360,000
Communications equipment & services (0.5%)
Motorola 175,000 12,578,125
Tellabs 50,000(b) 2,575,000
----------
Total 15,153,125
Computers & office equipment (3.9%)
Cisco Systems 101,900(b) 7,445,069
Compaq Computer 194,000(b) 14,501,500
Computer Associates Intl 165,500 11,884,969
First Data 350,000 13,146,875
Hewlett-Packard 150,000 10,434,375
Intl Business Machines 175,000 18,539,062
Microsoft 173,400(b) 22,942,987
Oracle 348,675(b) 12,704,845
Parametric Technology 50,000(b) 2,206,250
Seagate Technology 65,000(b) 2,348,125
----------
Total 116,154,057
Electronics (1.2%)
AMP 175,000 9,373,438
Intel 264,000 24,370,500
LSI Logic 52,500(b) 1,686,563
----------
Total 35,430,501
Energy (1.8%)
Anadarko Petroleum 100,000 7,181,250
Mobil 250,000 18,500,000
Phillips Petroleum 100,000 5,162,500
Unocal 535,000 23,138,750
----------
Total 53,982,500
Energy equipment & services (0.2%)
Baker Hughes 150,000 6,562,500
Financial services (0.5%)
Providian Financial 219,000 8,691,562
Travelers Group 114,000 7,780,500
----------
Total 16,472,062
Food (1.6%)
ConAgra 50,000 3,300,000
CPC Intl 185,000 17,135,625
Quaker Oats 175,000 8,815,625
Sara Lee 300,000 15,450,000
Ralston-Purina Group 30,000 2,655,000
----------
Total 47,356,250
Furniture & appliances (0.3%)
Maytag 225,000 7,678,125
Health care (5.2%)
ALZA 128,100(b) 3,714,900
Amgen 116,000(b) 5,560,750
Baxter Intl 85,000 4,441,250
Boston Scientific 91,400(b) 5,044,137
Bristol-Myers Squibb 262,400 21,713,600
Guidant 109,600 6,137,600
Johnson & Johnson 369,000 21,263,625
Lilly (Eli) 154,100 18,559,419
Medtronic 202,600 9,522,200
Merck & Co 253,600 25,344,150
Perkin-Elmer 25,000 1,826,562
Pfizer 263,200 15,808,450
Schering-Plough 285,000 14,677,500
Warner-Lambert 25,000 3,373,438
----------
Total 156,987,581
Health care services (0.8%)
Service Corp Intl 368,400 11,857,875
Tenet Healthcare 200,000(b) 5,825,000
United Healthcare 100,000 5,000,000
----------
Total 22,682,875
Household products (1.7%)
Colgate-Palmolive 160,000 11,150,000
Gillette 231,800 20,007,238
Procter & Gamble 287,600 19,862,375
----------
Total 51,019,613
Industrial equipment & services (0.3%)
Case 50,000 3,331,250
Deere & Co 62,300 3,348,625
Illinois Tool Works 55,000 2,750,000
----------
Total 9,429,875
Insurance (0.9%)
Aon 102,850 5,438,194
SunAmerica 150,000 5,878,125
UNUM 350,000 15,968,750
----------
Total 27,285,069
Media (0.1%)
Clear Channel Communications 25,000(b) 1,621,875
CS Wireless Systems 2,255(b,l) --
----------
Total 1,621,875
Metals (0.7%)
Aluminum Co of America 255,800 20,975,600
Bar Technologies
with warrants 3,000(b) 150,000
----------
Total 21,125,600
Multi-industry conglomerates (2.6%)
Dover 50,000 3,393,750
Eastman Kodak 64,000 4,156,000
Emerson Electric 87,600 5,047,950
General Electric 529,600 36,045,900
General Signal 73,200 3,165,900
Minnesota Mining & Mfg 58,300 5,392,750
Textron 50,000 3,250,000
Westinghouse Electric 398,000 10,770,875
Xerox 62,500 5,261,719
----------
Total 76,484,844
Paper & packaging (0.8%)
Bemis 218,150 9,762,213
Intl Paper 50,000 2,753,125
Tenneco 225,000 10,771,875
----------
Total 23,287,213
Restaurants & lodging (0.3%)
Hilton Hotels 280,000 9,432,500
Retail (2.3%)
American Stores 430,000 10,481,250
AutoZone 190,000(b) 5,700,000
Dayton Hudson 170,000 10,189,375
Jostens 150,000 4,068,750
Kroger 270,000(b) 8,150,625
Rite Aid 188,500(h) 10,449,969
Wal-Mart Stores 566,700 20,755,388
----------
Total 69,795,357
Transportation (0.1%)
CSX 50,000 $2,925,000
Utilities -- electric (0.4%)
FPL Group 50,000 2,562,500
Southern Co 375,000 8,460,938
----------
Total 11,023,438
Utilities -- gas (0.2%)
Sonat 132,400 6,735,850
Utilities -- telephone (2.0%)
AirTouch Communications 350,000(b) 12,403,125
Ameritech 130,000 8,645,000
BellSouth 210,000 9,712,500
GTE 270,000 12,251,250
U S WEST Communications Group 200,000 7,700,000
WorldCom 267,000(b) 9,445,125
----------
Total 60,157,000
Foreign (20.8%)(o)
Argentina (0.1%)
Telefonica de Argentina ADR 44,000(h) 1,611,500
Australia (0.9%)
Broken Hill Proprietary 63,895 745,861
M.I.M. Holdings 2,621,088(b) 3,215,684
Pasminco 3,807,000(b) 6,356,468
Westpac Banking 1,124,000(h) 7,098,895
WMC Limited 746,891 3,513,480
Woodside Petroleum 686,000 6,559,656
----------
Total 27,490,044
Austria (0.1%)
Boehler-Uddeholm 43,600 3,664,750
Brazil (0.2%)
Centrais Eletricas Brasileiras ADR 102,000(b,h) 2,672,003
Telecomunicacoes Brasileiras-Telebras ADR 33,000 4,248,750
----------
Total 6,920,753
Canada (0.9%)
Air Canada 98,600(b) 963,344
Northern Telecom 118,800 12,347,775
Petro-Canada 262,500(b) 4,777,908
Toronto-Dominion Bank 237,557(b) 8,089,299
----------
Total 26,178,326
Chile (--%)
Cia de Telecomunicaciones de Chile ADR 40,000(h) 1,295,000
Finland (0.3%)
Nokia Cl A 104,000(b) 9,890,249
France (2.2%)
Accor 61,732 11,404,393
Banque Nationale de Paris 282,450 14,230,454
Lafarge 137,115(b) 10,049,068
Michelin Cl B 150,489(h) 8,548,421
SGS-Thomson Microelectronics 39,471(b) 3,719,129
Societe Elf Acquitaine 62,700(b) 8,370,357
Total Petroleum 81,000(b) 9,270,562
----------
Total 65,592,384
Germany (1.2%)
Henkel KGaA 235,966 13,303,265
Hoechst 238,050 10,564,130
SGL Carbon 62,200 9,136,445
Teva Pharmaceutical Inds ADR 27,500 1,533,125
----------
Total 34,536,965
Hong Kong (1.3%)
Cheung Kong Holdings 1,048,000(b) 11,782,889
China Merchants Holdings Intl 1,100,000(b) 2,544,585
HSBC Holdings 386,800 12,946,653
Hutchison Whampoa 569,000 5,606,907
New World Development 1,184,000 7,160,920
----------
Total 40,041,954
Italy (2.0%)
Credito Italiano 4,590,000(b,h) 12,417,979
ENI 2,468,420 15,544,260
Istituto Bancario San Paolo di Torino 1,008,710(b,h) 7,994,179
Telecom Italia 4,513,766 23,982,606
----------
Total 59,939,024
Japan (2.5%)
Casio Computer 742,000(b,h) 6,639,271
DDI 800 (b) 4,016,570
Eisai 215,000(b) 3,847,556
Fujikura 770,000(b,h) 5,505,468
Kurita Water Inds 210,000(b) 4,193,040
Mitsubishi Motor 702,000(b) 3,605,965
Mitsumi Electric 287,000(b,h) 6,063,380
NEC 900,000(b) 10,961,060
Sanwa Bank 180,000(b,h) 2,207,125
Sony 100,000(b) 9,444,905
Sumitomo Bank 137,000(b) 2,065,783
Sumitomo Realty & Development 1,325,000(b) 10,483,636
Tokyo Electron 120,000(b) 7,327,258
----------
Total 76,361,017
Malaysia (--%)
Tenaga Nasional Berhad 481,000(b) 1,297,295
Mexico (0.1%)
Fomento Economico Mexicano Cl B 242,000 2,090,396
Telefonos de Mexico ADR Cl L 32,000 1,656,000
----------
Total 3,746,396
Netherlands (3.2%)
Akzo Nobel 44,040(b) 7,527,013
Baan 43,656(b) 3,148,216
ING Groep 270,520 12,425,513
Philips Electronics 378,930(b) 32,067,849
Royal Dutch Petroleum 350,000 19,425,000
Royal Dutch Petroleum 158,816(b) 8,890,950
Vendex 193,000(b) 11,444,796
----------
Total 94,929,337
Peru (--%)
Telefonica del Peru ADR 24,000(b) 567,000
Philippines (0.1%)
Philippine Long Distance Telephone ADR 56,900 1,543,413
Russia (0.2%)
Lukoil Holding ADR 35,000(b,h) 3,410,225
Mosenergo ADR 80,000(b,c) 3,888,800
----------
Total 7,299,025
Singapore (0.5%)
City Developments 687,000(b) 4,446,747
Keppel Land 950,000(b) 2,397,515
Keppel Land with Warrants 303,000(b) 215,933
Oversea-Chinese Banking 451,440(b) 3,128,646
United Overseas Bank 398,000(b) 2,940,438
----------
Total 13,129,279
Spain (0.3%)
Telefonica de Espana 310,050 9,742,945
Sweden (0.6%)
ABB AB Cl B 95,192 1,342,871
Ericcson Cl B 336,274 16,159,985
----------
Total 17,502,856
Switzerland (1.4%)
Credit Suisse Group 66,069(b) 8,927,015
Novartis 10,530(b) 16,146,531
Roche Holding 1,778 15,771,299
------------
Total 40,844,845
Taiwan (0.1%)
Compal Electronics 366,000(b) 1,304,858
Nan Ya Plastics 549,450(b) 1,315,530
------------
Total 2,620,388
United Kingdom (2.6%)
BG 2,300,578(b) 9,994,449
British Airways 192,920 2,110,038
British Telecommunications 974,995 6,436,051
Glaxo Wellcome 360,700 8,108,264
Great Universal Stores 622,700(b) 6,931,157
Johnson Matthey 445,179(b) 4,854,737
Lloyds TSB Group 362,283(b) 4,873,461
NFC 2,065,378 4,910,829
Shell Transport & Trading 1,811,685(b) 13,244,122
SmithKline Beecham 728,320(b) 7,061,892
Unilever 335,140(b) 9,797,314
-------------
Total 78,322,314
Total common stocks of unaffiliated issuers
(Cost: $1,472,274,975) $1,794,347,030
Preferred stocks and other (2.1%)
Issuer Shares Value (a)
BNP
Warrants 58,000 $ 996,440
Pasminco
Rights 1,087,714(o) 228,991
Paxson Communications
12.5% Pay-in-kind Exchangeable 19,700(i) 2,186,700
Unifi Communications
Warrants 3,000 60,000
UNUM
$2.34 Cv 550,000 46,612,500
Total preferred stocks and other
(Cost: $34,528,494) $50,084,631
Bonds (15.4%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (1.7%)
U.S. Treasury 6.75 % 2000 $32,000,000(m) $32,670,720
6.25 2023 9,700,000 9,420,834
TIPS 3.375 2007 8,103,920(k) 7,949,378
----------
Total 50,040,932
Mortgage-backed securities (1.8%)
Federal Home
Loan Mtge 7.50 2025 25,511,531 26,004,159
8.50 2026 4,318,236 4,518,386
8.50 2027 2,228,880 2,332,188
Federal Natl
Mtge Assn 7.50 2024 17,046,013 17,412,502
Structured Asset
Securities Corp 6.76 2028 2,500,000 2,519,923
----------
Total 52,787,158
Aerospace & defense (0.3%)
Alliant Techsystems 11.75 2003 2,000,000 2,220,000
L-3 Communications 10.375 2007 1,035,000(c) 1,120,388
Newport News
Shipbuilding 8.625 2006 800,000 836,000
Northrop-Grumman 7.75 2016 5,000,000 5,319,900
----------
Total 9,496,288
Airlines (0.2%)
Northwest
Airlines Cl B 8.07 2015 3,965,851 4,203,960
Northwest
Airlines Cl C 8.97 2015 1,964,615 2,106,500
----------
Total 6,310,460
Banks and savings & loans (0.2%)
First Nationwide
Holdings 10.625 2003 1,960,000 2,165,800
GreenPoint Financial 9.10 2027 1,300,000(c) 1,374,906
U.S. Trust Capital 8.41 2027 1,500,000(c) 1,567,815
Washington Mutual 8.375 2027 1,500,000(c) 1,570,200
----------
Total 6,678,721
Building materials & construction (0.2%)
AAF McQuay 8.875 2003 2,535,000 2,528,663
Southdown 10.00 2006 2,350,000 2,573,250
----------
Total 5,101,913
Communications equipment & services (0.6%)
Intl Cable Telephone
Cv 7.25 2005 14,500,000 15,913,750
Unifi
Communications 14.00 2004 3,000,000 2,970,000
----------
Total 18,883,750
Electronics (0.1%)
Thomas & Betts 6.50 2006 4,500,000 4,398,300
Energy (--%)
Forcenergy 9.50 2006 1,000,000 1,050,000
Energy equipment & services (0.2%)
Cliff Drilling 10.25 2003 3,000,000(c) 3,262,500
DI Industries 8.875 2007 1,500,000 1,541,250
----------
Total 4,803,750
Financial services (0.1%)
Airplanes Cl D 10.875 2019 2,750,000 3,141,875
Food (0.1%)
Ameriserve Food 10.125 2007 1,750,000(c) 1,828,750
Furniture & appliances (0.2%)
Interface 9.50 2005 2,500,000 2,653,125
Lifestyle Furniture 10.875 2006 3,250,000 3,648,125
----------
Total 6,301,250
Health care (0.2%)
Lilly (Eli) 6.77 2036 5,000,000 4,898,900
Health care services (0.4%)
Manor Care 7.50 2006 7,000,000 7,298,130
Owens & Minor 10.875 2006 1,200,000 1,323,000
Vencor 8.625 2007 4,000,000(c) 4,080,000
----------
Total 12,701,130
Household products (0.1%)
Revlon Worldwide
Zero Coupon 6.43 1998 3,000,000(e) 2,955,000
Industrial equipment & services (0.1%)
AGCO 8.50 2006 2,800,000 2,912,000
Insurance (0.8%)
American
United Life 7.75 2026 5,000,000(p) 4,921,000
Executive Risk
Capital Trust 8.675 2027 1,500,000 1,590,540
Metropolitan
Life Insurance 7.80 2025 4,800,000(c) 4,921,584
Minnesota
Mutual Life 8.25 2025 4,500,000(c) 4,931,685
Nationwide Trust 9.875 2025 5,000,000(c) 5,701,300
Zurich Capital Trust 8.38 2037 1,875,000(c) 2,008,894
----------
Total 24,075,003
Leisure time & entertainment (0.7%)
Icon Fitness
Zero Coupon 15.91 2001 2,700,000(f) 1,464,750
Plitt Theatres 10.875 2004 5,000,000 5,362,500
Speedway
Motorsports 8.50 2007 2,000,000(c) 2,020,000
Time Warner 9.15 2023 10,000,000 11,653,400
----------
Total 20,500,650
Media (0.9%)
Cablevision Systems 10.50 2016 3,000,000 3,397,500
CS Wireless Systems
Zero Coupon 11.38 2001 3,855,000(f) 1,040,850
Heritage Media
Services 8.75 2006 5,000,000 5,393,750
Lamar Advertising 9.625 2006 800,000 846,000
MDC
Communications 10.50 2006 1,000,000 1,081,250
News America
Holdings 10.125 2012 2,175,000 2,535,419
TCI Communications 8.75 2015 5,000,000 5,508,750
Univision Network
Holdings 7.00 2002 7,500,000 7,696,875
----------
Total 27,500,394
Metals (0.2%)
Bar Technologies 13.50 2001 3,000,000(c) 3,225,000
EnviroSource 9.75 2003 530,000 535,300
EnviroSource
Series B 9.75 2003 1,300,000 1,313,000
----------
Total 5,073,300
Multi-industry conglomerates (0.2%)
Pierce Leahy 11.125 2006 488,000(c) 552,660
Prime Succession 10.75 2004 1,275,000 1,418,438
USI American
Holdings 7.25 2006 3,000,000 2,966,070
----------
Total 4,937,168
Paper & packaging (0.2%)
Gaylord Container 9.75 2007 1,300,000(c) $ 1,322,750
Owens-Illinois 7.85 2004 2,000,000 2,070,400
Silgan Holdings 9.00 2009 2,050,000 2,111,500
Stone Container 12.25 2002 1,000,000 1,041,250
----------
Total 6,545,900
Retail (0.6%)
Dayton Hudson 8.50 2022 2,500,000 2,684,375
Kroger 8.15 2006 5,000,000 5,443,750
Wal-Mart Stores 7.00 2006 9,342,863(c) 9,519,629
----------
Total 17,647,754
Textiles & apparel (0.1%)
Dominion Textiles 9.25 2006 3,500,000 3,657,500
Transportation (0.1%)
Enterprise
Rent-A-Car 6.95 2006 3,000,000(c) 3,001,122
Utilities -- electric (0.6%)
Cleveland Electric
Illuminating 7.19 2000 3,000,000(c) 3,031,350
CMS Energy 8.125 2002 2,900,000 2,963,597
El Paso Electric 7.75 2001 5,000,000 5,113,250
Public Service
Electric & Gas 6.75 2016 7,365,000 7,235,302
----------
Total 18,343,499
Utilities -- gas (0.2%)
Columbia Gas
Systems 7.32 2010 5,043,000 5,119,401
Utilities -- telephone (0.3%)
Geotek Communications
Cv 12.00 2001 2,485,000(p) 2,112,250
Omnipoint 11.625 2006 5,000,000 5,225,000
Worldcom 7.75 2007 3,000,000 3,164,760
----------
Total 10,502,010
Miscellaneous (0.5%)
Adams Outdoor
Advertising 10.75 2006 3,900,000 4,280,250
BTI Telecom 10.50 2007 1,600,000 1,648,000
New Jersey Economic
Development 7.425 2029 3,000,000 3,152,850
Outsourcing
Solutions 11.00 2006 1,075,000 1,191,906
PLD Telekom
Zero Coupon 16.19 1998 3,000,000(f) 2,827,500
PTC Intl Finance 10.75 2007 2,000,000(c) 1,310,000
Transamerican
Energy 11.50 2002 900,000(c) 900,000
Transamerican Energy
Zero Coupon 13.00 2002 1,300,000(c,f) 1,033,500
----------
Total 16,344,006
Foreign (3.4%)(o)
Alfa Bank
(U.S. Dollar) 11.22 1997 1,000,000(g) 1,000,000
Alfa-Russia Finance
(U.S. Dollar) 10.375 2000 4,000,000 3,978,400
Australis Media
(U.S. Dollar)
Zero Coupon 5.30 2003 5,000,000(e) 4,100,000
Avto Bank
(U.S. Dollar) 10.98 1997 2,000,000(c,g) 2,000,000
Cia Latino Americana
(U.S. Dollar) 11.625 2004 1,150,000(c) 1,226,188
City of Moscow
(U.S. Dollar) 9.50 2000 3,000,000(c) 3,097,500
(U.S. Dollar)
Zero Coupon 10.96 1997 2,000,000(e) 1,931,400
Copel
(U.S. Dollar) 9.75 2005 2,000,000(c) 2,062,500
Corporacion Andina De Fomento
(U.S. Dollar) 7.10 2003 6,500,000 6,604,715
Dao Heng Bank
(U.S. Dollar) 7.75 2007 2,500,000(c) 2,522,600
DGS Intl
(U.S. Dollar) 10.00 2007 2,400,000(c) 2,460,000
Espiritu Santo-Escelsa
(U.S. Dollar) 10.00 2007 3,000,000(c) 3,015,000
FSW Intl
(U.S. Dollar) 12.50 2006 2,250,000 2,221,875
Govt of Argentina
(U.S. Dollar) 9.75 2027 2,500,000 2,512,500
Govt of Ecuador
(U.S. Dollar) 6.69 2015 3,280,680 2,378,493
Govt of Poland PDI Euro
(U.S. Dollar) 4.00 2014 4,150,000 3,636,438
Govt of Russia-IAN Bonds
(U.S. Dollar) 6.60 2049 2,500,000 2,062,500
Govt of Russia
(U.S. Dollar)
Zero Coupon 10.82 2020 2,675,000(e,j) 1,989,531
Greater Beijing First
(U.S. Dollar) 9.25 2004 1,200,000(c) 1,172,256
(U.S. Dollar) 9.50 2007 1,400,000(c) 1,354,668
Grupo Iusacell
(U.S. Dollar) 10.00 2004 1,000,000(c) 1,036,250
Grupo Televisa
(U.S. Dollar) 11.375 2003 2,750,000 3,059,375
Guangdong Enterprises
(U.S. Dollar) 8.875 2007 2,200,000(c) 2,241,118
Hutchinson Whampoa
(U.S. Dollar) 7.50 2027 1,650,000(c) 1,632,295
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 5,000,000(c) 5,164,850
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 3,000,000(c) 3,202,500
Jasmine Submarine Telecom
(U.S. Dollar) 8.48 2011 3,700,000(c) 3,656,340
Mexican Cetes
(Mexican Peso)
Zero Coupon 23.32 1998 12,775,000(e) 1,446,641
Ministry Finance Russia
(U.S. Dollar) 9.25 2001 850,000(c) 882,938
(U.S. Dollar) 10.00 2007 2,500,000(c) 2,650,000
Petrozuata Finance
(U.S. Dollar) 7.63 2009 2,000,000(c) 2,061,720
(U.S. Dollar) 8.22 2017 3,000,000(c) 3,171,750
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 1,250,000(c) 1,196,338
(U.S. Dollar) 8.35 2017 1,000,000(c) 937,250
Pindo Deli Finance
(U.S. Dollar) 10.75 2007 1,300,000(c) 1,316,250
Province of Mendoza
(U.S. Dollar) 10.00 2007 2,000,000(c) 2,045,000
Republic of Panama
(U.S. Dollar) 7.875 2002 1,000,000(c) 1,001,840
Rogers Cantel
(U.S. Dollar) 9.375 2008 2,800,000 3,003,000
Southern Peru
(U.S. Dollar) 7.90 2007 1,000,000(c) 1,035,310
Tjiwi Kimia Finance
(U.S. Dollar) 10.00 2004 2,900,000(c) 2,863,750
Veninfotel
(U.S. Dollar)
Cv Pay-in-kind 10.00 2002 2,250,000(i,p) 2,362,500
Veritas Holdings
(U.S. Dollar) 9.625 2003 2,000,000(c) 2,145,000
Zhuhai Highway
(U.S. Dollar) 12.00 2008 5,000,000(c) 5,712,500
-----------
Total 105,151,079
Total bonds
(Cost: $450,114,681) $462,688,963
Short-term securities (25.4%)
Issuer Annualized Amount Value (a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.7%)
Federal Home Loan Mtge Corp Disc Nts
10-07-97 5.46% $11,200,000 $11,189,864
10-10-97 5.43 8,000,000 7,989,180
10-15-97 5.42 4,300,000 4,290,970
Federal Natl Mtge Assn
10-17-97 5.46 12,500,000 12,469,722
11-07-97 5.47 15,265,000 15,179,573
----------
Total 51,119,309
Commercial paper (23.0%)
ABB Treasury Center USA
11-21-97 5.58 6,000,000(d) 5,950,779
12-01-97 5.59 5,000,000(d) 4,951,347
A.I. Credit
10-09-97 5.66 10,000,000 9,987,250
10-21-97 5.55 8,000,000 7,974,470
Albertson's
10-23-97 5.54 10,800,000 10,763,568
American General Finance
10-23-97 5.55 6,700,000 6,677,440
10-30-97 5.54 10,000,000 9,955,614
11-04-97 5.55 19,800,000 19,696,963
Ameritech Capital Funding
10-20-97 5.65 10,000,000 9,969,737
Associates Corp North America
11-05-97 5.55 15,000,000 14,919,646
Avco Financial Services
10-14-97 5.65 10,000,000 9,976,744
11-25-97 5.58 11,500,000 11,399,435
12-03-97 5.59 7,100,000 7,028,685
Barclays U.S. Funding
10-28-97 5.53 15,000,000 14,938,125
BHP Finance
11-10-97 5.58 17,500,000 17,392,083
BellSouth Telecommunications
10-29-97 5.55 14,900,000 14,836,029
Beneficial
10-22-97 5.55 7,000,000 6,975,247
CAFCO
11-05-97 5.56 9,400,000(d) 9,349,462
Campbell Soup
10-23-97 5.53 19,800,000(d) 19,733,450
11-18-97 5.54 7,000,000(d) 6,946,862
Cargill Global
10-17-97 5.55 8,200,000(d) 8,179,956
11-07-97 5.59 2,600,000(d) 2,584,526
11-18-97 5.49 1,800,000(d) 1,786,336
CIT Group Holdings
10-16-97 5.55 15,000,000 14,965,500
11-04-97 5.54 4,400,000 4,377,103
Commercial Credit
11-06-97 5.58 7,100,000 7,058,198
11-07-97 5.54 16,000,000 15,909,391
Commerzbank U.S. Finance
10-29-97 5.55 14,300,000 14,238,494
CPC Intl
10-20-97 5.56 5,000,000(d) 4,983,546
Deutsche Bank Financial
10-20-97 5.53 16,600,000 16,551,814
10-29-97 5.53 13,000,000 12,944,389
Fleet Funding
10-10-97 5.54 9,538,000(d) 9,524,885
Ford Motor Credit
10-10-97 5.54 9,100,000 9,086,205
10-06-97 5.53 17,000,000 16,986,990
Gannett
10-15-97 5.53 9,300,000(d) 9,280,108
11-06-97 5.54 13,200,000 13,127,400
Gateway Fuel
10-30-97 5.53 12,000,000 11,946,833
General Electric Capital
11-12-97 5.58 11,400,000 11,326,318
Goldman Sachs Group
10-03-97 5.52 4,500,000 4,498,622
11-13-97 5.55 10,300,000 10,232,212
11-14-97 5.55 11,700,000 11,621,207
Household Finance
10-24-97 5.54 15,000,000 14,947,196
Kredietbank North America Finance
10-27-97 5.53 15,000,000 14,940,362
Metlife Funding
10-08-97 5.54 14,400,000 14,383,551
10-16-97 5.53 16,889,000 16,850,296
10-17-97 5.55 15,000,000 14,960,548
Morgan Stanley Group
10-08-97 5.55 3,700,000 3,695,564
10-22-97 5.55 9,300,000 9,270,108
NBD Bank Canada
10-31-97 5.56 4,300,000 4,280,148
Nestle Capital
10-06-97 5.53 16,900,000 16,887,067
New Center Asset Trust
10-17-97 5.54 2,000,000 1,995,102
Paccar Financial
10-28-97 5.54 6,200,000 6,174,332
10-17-97 5.56 500,000 498,767
Pitney Bowes Credit
10-20-97 5.75 4,200,000 4,186,394
Reed Elsevier
10-07-97 5.57 10,400,000(d) 10,389,026
10-29-97 5.55 5,500,000(d) 5,476,387
11-05-97 5.56 9,600,000(d) 9,545,703
SBC Communications Capital
10-23-97 5.55 10,000,000(d) 9,966,389
10-28-97 5.55 10,000,000(d) 9,953,032
11-05-97 5.56 9,600,000(d) 9,548,387
11-07-97 5.56 8,500,000(d) 8,451,689
12-12-97 5.60 8,000,000(d) 7,908,345
Southern California Gas
11-20-97 5.57 5,800,000(d) 5,754,107
Toyota Motor Credit
11-03-97 5.56 4,600,000 4,575,003
UBS Finance (Delaware)
10-06-97 5.53 18,600,000 18,585,766
USAA Capital
10-22-97 5.53 4,600,000 4,585,215
11-03-97 5.56 18,000,000 17,903,929
12-02-97 5.58 13,000,000 12,871,463
----------
Total 689,216,845
Letters of credit (0.7%)
Bank of America-
AES Barbers Point
10-17-97 5.53 4,700,000 4,688,532
Bank of America-
Formosa Plastics
11-21-97 5.58 9,500,000 9,422,067
Student Loan Marketing Assn-
Nebraska Higher Education
10-30-97 5.56 8,000,000 7,964,427
----------
Total 22,075,026
Total short-term securities
(Cost: $762,476,882) $ 762,411,180
Total investments in securities of unaffiliated issuers
(Cost: $2,719,395,032) $3,069,531,804
Investments in securities of affiliated issuer (n)
Common stocks (0.2%)
Issuer Shares Value (a)
China North Inds 16,500,000(b,o) $ 5,857,500
Total investments in securities of affiliated issuer
(Cost: $13,079,176) $ 5,857,500
Total investments in securities
(Cost: $2,732,474,208)(q) $3,075,389,304
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
board.
(d) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or
otheraccredited investors. This security has been determined to be liquid
under guidelines established by the board.
(e) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(f) For those zero coupon bonds that become coupon paying at a future date,
the interest rate disclosed represents the annualized effective yield from
the date of acquisition to interest reset date disclosed.
(g) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Sept. 30, 1997.
(h) Security is partially or fully on loan. See Note 5 to the financial
statements.
(i) Pay-in-kind securities are securities in which the issuer has the option
to make interest or dividend payments in cash or in additional securities.
The securities issued as interest or dividends usually have the same
terms, including maturity date, as the pay-in-kind securities.
(j) Sept. 30, 1997, the cost of securities purchased, including interest
purchased, on a when-issued basis was $1,996,219.
(k) U.S. Treasury inflation-protection securities (TIPS) are securities in
which the principal amount is adjusted for inflation and the semi-annual
interest payments equal a fixed percentage of the inflation-adjusted
principal amount.
(l) Negligible market value.
(m) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 6 to the financial statements):
Type of security Notional amount
Sale contracts
U.S. Treasury Note Dec. 97 10-year notes $15,000,000
(n) Investments representing 5% or more of the outstanding voting securities
of the issuer. Transactions with companies that are affiliates during the
year ended Sept. 30, 1997 are as follows:
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
China North Inds $18,789,176 $ -- $5,710,000 $13,079,176 $--
(o) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(p) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Sept. 30, 1997, is as follows:
Security Acquisition dates Cost
American United Life*
7.75% 2026 2/13/96 $5,000,000
Geotek Communications
12.00% 2001 Cv 3/4/96 2,485,000
Veninfotel
10.00% 2002
(U.S. Dollar) Cv Pay-in-kind 03/05/97 through 07/23/97 2,250,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(q) At Sept. 30, 1997, the cost of securities for federal income tax purpose
was $2,733,620,229 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $374,712,999
Unrealized depreciation (32,943,924)
-----------
Net unrealized appreciation $341,769,075
============
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
Financial Statements filed as part of this post-effective amendment:
Strategist Growth and Income Fund, Inc.: Independent Auditor's Report
dated November 7, 1997 Statement of assets and liabilities, September
30, 1997 Statement of operations, year ended September 30, 1997
Statement of changes in net assets, for the year ended September 30,
1997 and for the period from May 13, 1996 to September 30, 1996 Notes
to financial statements
Balanced Portfolio:
Independent Auditor's Report dated November 7, 1997 Statement of assets
and liabilities, September 30, 1997 Statement of operations, year ended
September 30, 1997
Statement of changes in net assets, for the year ended September 30,
1997 and for the period from May 13, 1996 to September 30, 1996 Notes
to financial statements Investments in securities, September 30, 1997
Notes to investments in securities
Equity Portfolio:
Independent Auditor's Report dated November 7, 1997 Statement of assets
and liabilities, September 30, 1997 Statement of operations, year ended
September 30, 1997
Statement of changes in net assets, for the year ended September 30,
1997 and for the period from May 13, 1996 to September 30, 1996 Notes
to financial statements Investments in securities, September 30, 1997
Notes to investments in securities
Equity Income Portfolio:
Independent Auditor's Report dated November 7, 1997 Statement of assets
and liabilities, September 30, 1997 Statement of operations, year ended
September 30, 1997
Statement of changes in net assets, for the year ended September 30,
1997 and for the period from May 13, 1996 to September 30, 1996 Notes
to financial statements Investments in securities, September 30, 1997
Notes to investments in securities
<PAGE>
Total Return Portfolio:
Independent Auditor's Report dated November 7, 1997 Statement of assets
and liabilities, September 30, 1997 Statement of operations, year ended
September 30, 1997
Statement of changes in net assets, for the year ended September 30,
1997 and for the period from May 13, 1996 to September 30, 1996 Notes
to financial statements Investments in securities, September 30, 1997
Notes to investments in securities
(b) EXHIBITS:
1(a). Articles of Incorporation, dated Sept. 1, 1995, filed electronically
on or about Nov. 1, 1995 as Exhibit 1 to Registrant's initia
Registration Statement No. 33-63907 are incorporated herein by
reference.
1(b). Articles of Amendment, dated April 4, 1996, filed electronically on or
about April 17, 1996 as Exhibit 1(b) to Pre-Effective Amendment No. 2
to Registration Statement No. 33-63907 is incorporated herein by
reference.
2. Form of By-laws dated April 24, 1996, is filed electronically herewith.
3. Not Applicable.
4. Not Applicable.
5. Not Applicable.
6. Copy of Distribution Agreement, dated May 13, 1996, filed
electronically as Exhibit 6 to Registrant's Post-Effective
Amendment No. 1 to Registration Statement No. 33-63907, is
incorporated herein by reference.
7. Not Applicable.
8(a). Copy of Custodian Agreement, dated May 13, 1996, filed electronicall
as Exhibit 8(a) to Registrant's Post-Effective Amendment No. 1 to
Registration Statement No. 33-63907, is incorporated herein by
reference.
8(b). Copy of Addendum to Custodian Agreement, dated May 13, 1996, filed
electronically as Exhibit 8(b) to Registrant's Post-Effectiv
Amendment No. 1 to Registration Statement No. 33-63907, is
incorporated herein by reference.
<PAGE>
9(a). Copy of Transfer Agency Agreement, dated May 13, 1996, filed
electronically as Exhibit 9(a) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement No. 33-63907, is
incorporated herein by reference.
9(b) Copy of Administrative Services Agreement, dated May 13, 1996, filed
electronically as Exhibit 9(b) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement No. 33-63907, is
incorporated herein by reference.
9(c). Copy of Agreement and Declaration of Unitholders, between Strategist
Equity Income Fund and IDS Diversified Equity Income Fund, dated May
13, 1996, filed electronically as Exhibit 9(c) to Registrant's
Post-Effective Amendment No. 1 to Registration Statement No. 33-63907,
is incorporated herein by reference.
9(d). Copy of Agreement and Declaration of Unitholders, between Strategist
Balanced Fund and IDS Mutual, dated May 13, 1996, filed
electronically as Exhibit 9(d) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement No. 33-63907, is
incorporated herein by reference.
9(e). Copy of Agreement and Declaration of Unitholders, between Strategist
Equity Fund and IDS Stock Fund, Inc., dated May 13, 1996, filed
electronically as Exhibit 9(e) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement No. 33-63907, is
incorporated herein by reference.
9(f) Copy of Agreement and Declaration of Unitholders, between Strategist
Total Return Fund and IDS Managed Retirement Fund, Inc., dated May 13,
1996, filed electronically as Exhibit 9(f) to Registrant's
Post-Effective Amendment No. 1 to Registration Statement No. 33-63907,
is incorporated herein by reference.
10. Opinion and consent of counsel as to the legality of the securities
being registered, is filed electronically herewith.
11. Independent auditors consent, is filed electronically herewith.
12. Not Applicable.
13. Copy of Share Purchase Agreement, dated April 16, 1996, filed
electronically as Exhibit 13 to Registrant's Pre-Effective Amendment
No. 2, to Registration Statement No. 33-63907, is incorporated herein
by reference.
14. Not Applicable.
15. Copy of Plan and Agreement of Distribution, dated May 13, 1996, filed
electronically as Exhibit 15 to Registrant's Post-Effective Amendment
No. 1 to Registration Statement No. 33-63907, is incorporated herein
by reference.
<PAGE>
16. Copy of schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22(b),
filed on or about April 17, 1996 as Exhibit 16 to Registrant's
Pre-Effective Amendment No. 2, to Registration Statement No. 33-63907,
is incorporated herein by reference.
17. Financial data schedules are filed electronically herewith.
18. Not Applicable.
19(a). Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated April 24, 1996, filed electronically as Exhibit 19(a)
to Registrant's Post-Effective Amendment No. 1 to Registration
Statement No. 33-63907, is incorporated herein by reference.
19(b). Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated April 24, 1996, filed electronically as Exhibit 19(b)
to Registrant's Post-Effective Amendment No. 1 to Registration
Statement No. 33-63907, is incorporated herein by reference.
19(c). Trustees' Power of Attorney to sign Amendments to Registration
Statement, dated January 8, 1997, is filed electronically herewith.
19(d). Officers' Power of Attorney to sign Amendments to Registration
Statement, dated April 11, 1996, filed electronically as Exhibit 19(b)
to Registrant's Pre-Effective Amendment No. 2, to Registration
Statement No. 33-63907, is incorporated herein by reference.
19(e). Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated November 21, 1997, is filed electronically herewith.
19(f). Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated November 21, 1997, is filed electronically herewith.
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class Nov. 6, 1997
Common Stock
Strategist Balanced Fund 32
Strategist Equity Fund 24
Strategist Equity Income Fund 35
Strategist Total Return Fund 13
Item 27. Indemnification
The Articles of Incorporation of the Registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The by-laws of the Registrant provide that present or former directors
of officers of the Fund make or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnifies the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
<PAGE>
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
<PAGE>
PAGE 1
American Express Financial Corporation is the investment advisor of
the Portfolios of the Trust.
<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Strategist Growth and Income Fund, Inc.,
certifies that it meets the requirements for the effectiveness of this Amendment
to its Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Minneapolis and State of Minnesota on the 26th day of November, 1997.
STRATEGIST GROWTH AND INCOME FUND, INC.
By /s/ James A. Mitchell*
James A. Mitchell, President
By /s/ Matthew N. Karstetter
Matthew N. Karstetter, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of November, 1997.
Signature Title
By /s/ Rodney P. Burwell** Director
Rodney P. Burwell
By /s/ Jean B. Keffeler** Director
Jean B. Keffeler
By /s/ Thomas R. McBurney** Director
Thomas R. McBurney
By /s/ James A. Mitchell** Director
James A. Mitchell
<PAGE>
* Signed pursuant to Officers' Power of Attorney dated November 21, 1997, is
filed electronically herewith.
____________________________________________
Sherilyn K. Beck
** Signed pursuant to Directors' Power of Attorney dated November 21, 1997, is
filed electronically herewith.
_____________________________________________
Sherilyn K. Beck
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, GROWTH AND INCOME TRUST consents to the filing of this
Amendment to the Registration Statement signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota on
the 26th day of November, 1997.
GROWTH AND INCOME TRUST
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
By /s/ Matthew N. Karstetter
Matthew N. Karstetter, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of November, 1997.
Signatures Capacity
/s/ William R. Pearce* Trustee
William R. Pearce
/s/ H. Brewster Atwater, Jr.* Trustee
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
<PAGE>
/s/ Alan K. Simpson* Trustee
Alan K. Simpson
/s/ Edson W. Spencer* Trustee
Edson W. Spencer
/s/ John R. Thomas* Trustee
John R. Thomas
/s/ Wheelock Whitney* Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
* Signed pursuant to Trustees' Power of Attorney dated January 8, 1997, filed
electronically as Exhibit 19(c) to Registrant's Post-Effective Amendment No. 2,
by:
__________________________________________
Leslie L. Ogg
** Signed pursuant to Officers' Power of Attorney dated November 21, 1997, is
filed electronically herewith.
__________________________________________
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMEN
NO. 33-63907
This Amendment to the Registration Statement comprises the following papers and
documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other Information.
The signatures.
<PAGE>
STRATEGIST GROWTH & INCOME FUND, INC.
FILE NO.33-63907/811-07403
EXHIBIT INDEX
Exhibit 2: By-laws dated April 24, 1996
Exhibit 10: Opinion and consent of counsel
Exhibit 11: Independent auditors consent
Exhibit 17: Financial Data Schedules
Exhibit 19(c): Trustees' Power of Attorney
Exhibit 19(e): Officers' Power of Attorney
Exhibit 19(f): Directors'Power of Attorney
<PAGE>
Effective date: April 24, 1996
BY-LAWS
OF
STRATEGIST GROWTH AND INCOME FUND, INC.
ARTICLE I
Corporate Seal
The corporate seal shall bear the inscription "Strategist Growth and
Income Fund, Inc., Minnesota, Incorporated 1995".
ARTICLE II
Meeting of Shareholders
Section 1. No regular meeting of shareholders need be held, however, a
majority of directors present at a duly held meeting may call a regular meeting
of shareholders by fixing the date, time and place for a meeting. A regular
meeting of the shareholders shall include an election of directors. No meeting
shall be considered a regular meeting unless specifically designated as such in
the notice of meeting. Regular meetings may be held no more frequently than once
per year.
Section 2. The holders of at least ten percent (10%) of the shares
outstanding and entitled to vote, present in person or by proxy, shall
constitute a quorum, but the holders of a smaller amount may adjourn from time
to time without further notice, other than by notice at the time, until a quorum
is secured at any such adjourned meeting. In case a quorum is not present, the
meeting may be adjourned from time to time without notice other than by notice
at the meeting. At any adjourned meeting at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 3. At each meeting of the shareholders, the polls may be opened
and closed, the proxies and ballots may be received and taken in charge, and all
questions touching the qualification of voters, the validity of proxies, and
acceptances or rejections of votes may be decided by two (2) inspectors of
election. Inspectors may be appointed by the Board of Directors before or at the
meeting. If no such appointment shall have been made or if any inspector be
absent or fails to act, the presiding officer at the meeting shall appoint a
person or persons to fill such vacancy. Inspectors shall take charge of the
polls and, when the vote is completed, shall make a certificate of the result of
the vote taken and of such other facts as may be required by law.
Section 4. Special meetings of the shareholders may be called at any
time as provided for by the laws of the State of Minnesota.
<PAGE>
Section 5. Shareholders shall take action by the affirmative vote of
the holders of a majority of the voting power of the shares present and entitled
to vote except where a larger portion is otherwise required.
ARTICLE III
Directors
Section 1. An organizational meeting of the Board of Directors shall be
held as soon as convenient to a majority of the directors, after the final
adjournment of each regular meeting of the shareholders, and no notice shall be
required. Other meetings of the Board of Directors may be previously scheduled
or called by the President or any two directors. Notice of specially called
meetings shall be sufficient if given to each director at least five days prior
thereto by mail or one day prior thereto by telephone, telegraph or in person,
unless such notice period is waived by each director.
Section 2. The Board of Directors shall fix and change, as it may from
time to time determine, by majority vote, the compensation to be paid the
directors, officers and all employees appointed by the Board of Directors.
Section 3. A director may give advance written consent or opposition to
a proposal to be acted on at a Board meeting. If the director is not present at
the meeting, consent or opposition to a proposal does not constitute presence
for purposes of determining the existence of a quorum, but consent or opposition
shall be counted as a vote in favor of or against the proposal and shall be
entered in the minutes of the meeting, if the proposal acted on at the meeting
is substantially the same or has substantially the same effect as the proposal
to which the director has consented or objected.
Section 4. A majority of the directors shall constitute a quorum, but a
smaller number may adjourn from time to time without notice, other than by
announcement at the meeting, until a quorum is secured; and, likewise, in case a
quorum is present, the meeting may be adjourned from time to time without notice
other than by announcement at the meeting. At any adjourned meeting at which a
quorum may be present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 5. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate an Executive Committee of two or more
directors, which may meet at stated times or on notice to all by any of their
number during intervals between meetings of the Board. The Executive Committee
shall advise with and aid the officers of the Fund in all matters concerning its
interests and the management of its business, and generally perform such duties
and exercise such powers as may be delegated to it from time to time by the
Board of Directors. Vacancies in the membership of such Executive Committee
shall be filled by the Board of Directors.
<PAGE>
Section 6. From time to time the Board of Directors may, by resolution
passed by a majority of the whole Board, appoint any other committee or
committees for any purpose or purposes, which committee or committees shall have
such powers as shall be specified in the resolution of appointment.
Section 7. The quorum for such committee established by the Board of
Directors is two members regardless of the number of members serving on the
committee.
Section 8. Any action required or permitted to be taken at any meeting
of the Board of Directors or of a duly appointed committee of the Board of
Directors may be taken in any manner permitted by law.
ARTICLE IV
Officers
Section 1. The Fund shall have a President who shall serve as the chief
executive officer, a Treasurer who shall serve as the chief financial officer,
and may have such other officers as the Board of Directors may choose from time
to time.
Section 2. The Treasurer shall be the chief financial officer of the
Fund, shall keep or cause to be kept full and accurate accounts of receipts and
disbursements in books belonging to the Fund, and shall perform such other
duties as the Board of Directors may from time to time prescribe or require.
Section 3. Any person designated by the Board of Directors as a Vice
President shall be vested with all the powers and required to perform all the
duties of the President in the President's absence or disability, shall at all
times be vested with the same power as the President to sign and deliver in the
name of the Fund any deeds, mortgages, bonds, contracts or other instruments
pertaining to the business of the Fund, and shall perform such other duties as
may be prescribed by the Board of Directors.
Section 4. Any person designed by the Board of Directors as Secretary
shall attend all meetings of the shareholders of the Fund, the Board of
Directors, and such other meetings as may be designated by the Board of
Directors. The Secretary shall record all of the proceedings of such meetings in
a book or books to be kept for that purpose; shall have custody of the seal,
stock certificate books and minute books of the Fund; may affix the seal of the
Fund to any instrument and perform such additional duties as shall be assigned
by the Board of Directors.
Section 5. The officers of the Fund shall hold office until their
successors are chosen and qualify in their stead. Any officer chosen and
appointed by the Board of Directors may be removed either with or without cause
at any time by the Board of Directors.
<PAGE>
ARTICLE V
Capital Stock
Shares of capital stock shall be uncertificated.
ARTICLE VI
Transfers
Section 1. Shares of stock of the Fund shall be transferred on the
books of the Fund at the request of the holder thereof in person or of her or
his duly authorized attorney upon surrender of the certificate or certificates
therefor, if any, or in their absence by a request for transfer in a form
acceptable to the Fund that may include the request be in writing, and be signed
by the registered holder or by his duly authorized attorney in the manner
specified by the Fund. No transfer or assignment of shares shall affect the
right of the Fund to pay any dividend due upon the shares, or to treat the
holder of record as the holder in fact, until such transfer or assignment is
registered on the books of the Fund and the Fund shall be entitled to treat the
holder of record of any of its shares as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to, or
interest in, such shares on the part of any person whether or not it shall have
express or other notice thereof, save as may be expressly provided by law.
Section 2. The Board of Directors shall have power and authority from
time to time to appoint one or more transfer agents and/or clerks and registrars
for the securities issued by the Fund and to make such rules and regulations as
it may deem expedient concerning the issue, transfer and registration of such
securities.
Section 3. If any security issued by the Fund be lost, stolen,
mutilated or destroyed, the security may be transferred upon giving of a
satisfactory bond of indemnity in an amount which, in the judgment of the Board
of Directors, is sufficient to indemnify the Fund against any claim that may
result therefrom.
ARTICLE VII
Definitions
For all purposes of the Articles of Incorporation and these By-Laws,
the term "business day" shall be defined as a day with respect to which the New
York Stock Exchange is open for business.
ARTICLE VIII
Custodian or Trustee Agreements
The Fund shall enter into a custodian or trustee agreement with a bank
or trust company having aggregate capital, surplus and undivided profits of not
less than $2,000,000 for the custody of the Fund's securities and other assets.
All securities and cash assets owned or acquired by the Fund shall be held by
such
<PAGE>
custodian or trustee pursuant to the terms of such agreement and the Fund shall
deposit or cause to be deposited with such custodian or trustee all such
securities and cash assets. The agreement between the Fund and the custodian or
trustee may be terminated at any time by a vote of a majority of the outstanding
shares of the Fund.
ARTICLE IX
Miscellaneous
Section 1. The fiscal year of the Fund shall begin on the first day of
October in each year and end on the thirtieth day of September following.
Section 2. If the sale of shares issued by the Fund shall at any time
be discontinued, the Board of Directors may in its discretion, pursuant to
resolution, deduct from the value of the assets an amount equal to the brokerage
commissions, transfer taxes, and charges, if any, which would be payable on the
sale of such securities if they were then being sold.
ARTICLE X
Indemnification
Section 1. Each person made or threatened to be made a party to or is
involved (including, without limitation, as a witness) in any actual or
threatened action, suit or proceeding whether civil, criminal, administrative,
arbitration, or investigative, including a proceeding by or in the right of the
Fund by reason of the former or present capacity as a director or officer of the
Fund or who, while a director or officer of the Fund, is or was serving at the
request of the Fund or whose duties as a director or officer involve or involved
service as a director, officer, partner, trustee or agent of another
organization or employee benefit plan, whether the basis of any proceeding is
alleged action in an official capacity or in any capacity while serving as a
director, officer, partner, trustee or agent, shall be indemnified and held
harmless by the Fund to the full extent authorized by the Minnesota Business
Corporation Act, as the same or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the Fund to
provide broader indemnification rights than the law permitted the Fund to
provide prior to such amendment, or by any other applicable law as then in
effect, against judgments, penalties, fines including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred in connection therewith and such indemnification shall
continue as to any person who has ceased to be a director or officer and shall
inure to the benefit of the person's heirs, executors and administrators
provided, however, in an action brought against the Fund to enforce rights to
indemnification, the director or officer shall be indemnified only if the action
was authorized by the Board of Directors of the Fund. The right to
indemnification conferred by this Section shall be a contract right and shall
include the right to be paid by the Fund in advance of the final disposition of
<PAGE>
proceeding for expenses incurred in connection therewith provided,
however, such payment of expenses shall be made only upon receipt of a written
undertaking by the director or officer to repay all amounts so paid if it is
ultimately determined that the director or officer is not entitled to
indemnification.
Section 2. Each person who upon written request to the Fund has not
received payment within thirty days may at any time thereafter bring suit
against the Fund to recover any unpaid amount and, to the extent successful, in
whole or in part, shall be entitled to be paid the expenses of prosecuting such
suit. Each person shall be presumed to be entitled to indemnification upon
filing a written request for payment and the Fund shall have the burden of proof
to overcome the presumption that the director or officer is not so entitled.
Neither the determination by the Fund, whether by the Board of Directors,
special legal counsel or by shareholder, nor the failure of the Fund to have
made any determination shall be a defense or create the presumption that the
director or officer is not entitled to indemnification.
Section 3. The right to indemnification and to the payment of expenses
prior to any final determination shall not be exclusive of any other right which
any person may have or hereinafter acquire under any statute, provision of the
Articles of Incorporation, by-law, agreement, vote of shareholders or otherwise
and notwithstanding any provisions in this Article X, the Fund is not obligated
to make any payment with respect to any claim for which payment is required to
be made to or on behalf of the director or officer under any insurance policy,
except with respect to any excess beyond the amount of required payment under
such insurance and no indemnification will be made in violation of the
provisions of the Investment Company Act of 1940.
<PAGE>
November 26, 1997
Strategist Growth and Income Fund, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:
(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
20,000,000,000 shares, all of $.01 par value, and that such shares
may be issued as full or fractional shares;
(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation of
the Company and upon redemption shall have the status of authorized and
unissued shares;
(c) That the Company registered on Nov. 2, 1995, an indefinite number of
shares pursuant to Rule 24f-2; and
(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.
I hereby consent that the foregoing opinion may be used in connection with
this Post-Effective Amendment.
Very truly yours,
Sherilyn K. Beck
Associate Counsel
EJN/EN/ps
<PAGE>
Independent auditors' consent
- -----------------------------------------------------------
The board and shareholders
Strategist Growth and Income Fund, Inc.:
Strategist Balanced Fund
Strategist Equity Fund
Strategist Equity Income Fund
Strategist Total Return Fund
The board of trustees and unitholders Growth and Income Trust:
Balanced Portfolio
Equity Portfolio
Equity Income Portfolio
Total Return Portfolio
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 26, 1997
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<NET-INVESTMENT-INCOME> 191274275
<REALIZED-GAINS-CURRENT> 535161611
<APPREC-INCREASE-CURRENT> 270752151
<NET-CHANGE-FROM-OPS> 997188037
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 835227126
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 21571200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21974680
<AVERAGE-NET-ASSETS> 4421367636
<PER-SHARE-NAV-BEGIN> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE>6
<SERIES>
<NUMBER>6
<NAME>EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 3135421301
<INVESTMENTS-AT-VALUE> 4210243474
<RECEIVABLES> 62543324
<ASSETS-OTHER> 157000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4272943798
<PAYABLE-FOR-SECURITIES> 46156429
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62986604
<TOTAL-LIABILITIES> 109143033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4163800765
<DIVIDEND-INCOME> 72189142
<INTEREST-INCOME> 14726478
<OTHER-INCOME> 0
<EXPENSES-NET> 17491258
<NET-INVESTMENT-INCOME> 69424362
<REALIZED-GAINS-CURRENT> 490586825
<APPREC-INCREASE-CURRENT> 427383679
<NET-CHANGE-FROM-OPS> 987394866
<EQUALIZATION> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 878752670
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16849365
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<GROSS-EXPENSE> 17502902
<AVERAGE-NET-ASSETS> 3684397023
<PER-SHARE-NAV-BEGIN> 0
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<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>7
<NAME>EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1897012312
<INVESTMENTS-AT-VALUE> 2223436124
<RECEIVABLES> 13872247
<ASSETS-OTHER> 5581115
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2242889486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22304722
<TOTAL-LIABILITIES> 22304722
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2220584764
<DIVIDEND-INCOME> 56638090
<INTEREST-INCOME> 24196241
<OTHER-INCOME> 0
<EXPENSES-NET> 9164156
<NET-INVESTMENT-INCOME> 71670175
<REALIZED-GAINS-CURRENT> 210870724
<APPREC-INCREASE-CURRENT> 167694853
<NET-CHANGE-FROM-OPS> 450235752
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 764430392
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9000327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9172261
<AVERAGE-NET-ASSETS> 1799556318
<PER-SHARE-NAV-BEGIN> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>8
<NAME> TOTAL RETURN PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 2732474208
<INVESTMENTS-AT-VALUE> 3075389304
<RECEIVABLES> 64307724
<ASSETS-OTHER> 6147570
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3145844598
<PAYABLE-FOR-SECURITIES> 44986177
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101651775
<TOTAL-LIABILITIES> 146637952
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2999206646
<DIVIDEND-INCOME> 34017442
<INTEREST-INCOME> 62794083
<OTHER-INCOME> 0
<EXPENSES-NET> 14122469
<NET-INVESTMENT-INCOME> 82689056
<REALIZED-GAINS-CURRENT> 345627464
<APPREC-INCREASE-CURRENT> 122489698
<NET-CHANGE-FROM-OPS> 550806218
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 200016781
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13358064
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14136216
<AVERAGE-NET-ASSETS> 2862841487
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as trustees of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Investment
Company Act of 1940 with the Securities and Exchange Commission:
1940 Act
Reg. Number
Growth Trust 811-07395
Growth and Income Trust 811-07393
Income Trust 811-07307
Tax-Free Income Trust 811-07397
World Trust 811-07399
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Act and any rules and regulations
thereunder, and to file such amendments with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and perform each
and every act required and necessary to be done in connection therewith.
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed open-end
management investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
Strategist Growth Fund, Inc. 33-63905 811-7401
Strategist Growth and Income Fund, Inc. 33-63907 811-7403
Strategist Income Fund, Inc. 33-60323 811-7305
Strategist Tax-Free Fund, Inc. 33-63909 811-7407
Strategist World Fund, Inc. 33-63951 811-7405
hereby constitutes and appoints James A. Mitchell or Eileen J. Newhouse, Colin
M. Lancaster, or Sherilyn K. Beck as his attorney-in-fact and agent, to sign for
him in his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated this 21st day of November, 1997.
/s/ James A. Mitchell
James A. Mitchell
/s/ Matthew N. Karstetter
Matthew N. Karstetter
<PAGE>
DIRECTORS POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors of the below listed open-end
management investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
Strategist Growth Fund, Inc. 33-63905 811-7401
Strategist Growth and Income Fund, Inc. 33-63907 811-7403
Strategist Income Fund, Inc. 33-60323 811-7305
Strategist Tax-Free Fund, Inc. 33-63909 811-7407
Strategist World Fund, Inc. 33-63951 811-7405
hereby constitutes and appoints James A. Mitchell or Eileen J. Newhouse, Colin
M. Lancaster, or Sherilyn K. Beck as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead any and all further
amendments to said registration statements filed pursuant to said Acts and any
rules and regulations thereunder, and to file such amendments with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting to either of them the full power and authority to
do and perform each and every act required and necessary to be done in
connection therewith.
Dated this 20th day of November, 1997.
/s/ Rodney P. Burwell
Rodney P. Burwell
/s/ Jean B. Keffeler
Jean B. Keffeler
/s/ Brian Kleinberg
Brain Kleinberg
/s/ Thomas R. McBurney
Thomas R. McBurney
/s/ James A. Mitchell
James A. Mitchell
