<PAGE>
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. 3 (File No. 33-63907) X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 (File No. 811-7403) X
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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. 27, 1998 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>
Strategist Growth and Income Fund, Inc.
Prospectus
Nov. 27, 1998
This prospectus describes four 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
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
Year 2000
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.
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:
<PAGE>
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 $74 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,
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
Bradley Stone joined the Advisor in 1996 and serves as portfolio manager. He has
managed the assets of the fixed-income portion of the Portfolio since May 1998.
Prior to joining the Advisor he was a fixed income portfolio manager at Piper
Capital Management, Inc. from 1990 to 1996.
Kurt Winters joined the Advisor in 1987 and serves as senior portfolio manager.
He has managed the assets of the equity portion of the Portfolio since Dec.
1997. Kurt is responsible for overall investment management, including the
determination of the sectors in which the Portfolio will invest. A team of
research professionals makes investment decisions within those sectors. From
1992 to 1995, he 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 and Equity Income
Portfolio.
Equity Portfolio
Dick Warden joined the Advisor in 1962 and serves as portfolio manager. He has
managed the assets of the Portfolio and its predecessor fund since Jan. 1995. He
also serves as portfolio manager of IDS Precious Metals Fund.
Mike Kennedy joined the Advisor in 1985 and serves as vice president and senior
portfolio manager. He has managed the assets of the Portfolio since Oct. 1998.
In 1993, he became Director of Research for the Advisor. In 1996 he was promoted
to vice president and Director of Global Research.
<PAGE>
Equity Income Portfolio
Kurt Winters joined the Advisor in 1987 and serves as senior portfolio manager.
He has managed the assets of the Portfolio since Dec. 1997. Kurt is responsible
for overall investment management, including the determination of the sectors in
which the Portfolio will invest. A team of research professionals makes
investment decisions within those sectors. From 1992 to 1995, he 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 and Balanced Portfolio.
Total Return Portfolio
Day-to-day management for the various asset classes held by the Portfolio is the
responsibility of the following team of portfolio managers led by Steve Merrell:
Steve Merrell has served as portfolio manager for the Portfolio since Sept. 1997
and as fixed income securities specialist since Dec. 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.
James Johnson began managing the U.S. equity portion of the Portfolio in July
1998. He also provides quantitative analysis for the Portfolio's tactical asset
allocation decisions. He joined the Advisor in 1994 as an equity quantitative
analyst for American Express Asset Management Group. He has managed the focused
research product for American Express Asset Management Group since 1996. Prior
to joining the Advisor, he served as an equity quantitative analyst at Piper
Capital Management, Inc.
Ian King and John O'Brien, the "London Team," provide portfolio management for
the international equities portion of the Portfolio. Ian joined AEFC in 1995 and
serves as portfolio manager for Emerging Markets Portfolio. Prior to joining
AEFC he was director of Lehman Brothers Global Asset Management Ltd. from 1992
to 1995. John joined AEFC in 1988 and serves as vice president and portfolio
manager for American Express Asset Management International Inc. He became
portfolio manager of World Growth Portfolio and IDS Life Series Fund,
International Equity Portfolio in September 1997.
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)
Balanced Equity Equity Total
Fund Fund Income Fund Return Fund
- -------------------- ------------------ ----------------- ----------------
0% 0% 0% 0%
<PAGE>
Annual Fund and allocated Portfolio operating expenses (as a percentage of
average daily net assets):
<TABLE>
<CAPTION>
Balanced Equity Equity Total
Fund Fund Income Fund Return Fund
- -------------------------------------- ------------- ------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Management fee(c) 0.49% 0.47% 0.51% 0.45%
12b-1 fee 0.25 0.25 0.25 0.25
Other expenses(d) 0.51 0.53 0.49 0.60
Total (after reimbursement) 1.25 1.25 1.25 1.30
</TABLE>
(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
.02% for Balanced Portfolio, .005% for Equity Portfolio and .05% for Total
Return Portfolio in fiscal year ended Sept. 30, 1998.
(d)Other expenses include an administrative services fee, a transfer agency fee
and other nonadvisory expenses.
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: 1.27% for Balanced Fund,
2.03% for Equity Fund, 1.68% for Equity Income Fund and 2.16% for Total Return
Fund.
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 total expenses of:
<TABLE>
<CAPTION>
Balanced Equity Equity Total
Fund Fund Income Fund Return Fund
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
1 year $ 13 $ 13 $ 13 $ 13
3 years $ 40 $ 40 $ 40 $ 41
5 years $ 69 $ 69 $ 69 $ 71
10 years $152 $152 $152 $157
</TABLE>
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
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.
<PAGE>
Performance
Financial highlights
<TABLE>
<CAPTION>
The tables below show certain important financial information for evaluating each Fund's results.
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Balanced Fund Equity Fund
1998 1997 1996b 1998 1997 1996b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $16.57 $13.57 $13.36 $29.09 $22.40 $21.73
beginning of period
Income from investment operations:
Net investment income (loss) .53 .66 .18 .18 .54 .21
Net gains (losses) (both (.39) 2.99 .17 .24 6.64 .62
realized and unrealized)
Total from investment .14 3.65 .35 .42 7.18 .83
operations
Less distributions:
Dividends from net (.52) (.65) (.14) (.12) (.49) (.16)
investment income
Distributions from (1.12) -- -- (1.11) -- --
realized gains
Total distributions (1.64) (.65) (.14) (1.23) (.49) (.16)
Net asset value, $15.07 $16.57 $13.57 $28.28 $29.09 $22.40
end of period
Ratios/supplemental data:
Net assets, end of $1,095 $895 $525 $935 $778 $534
period (in thousands)
Ratio of expenses to .93% .62% 1.25%c 1.25% .58% 1.25%c
average daily net assets(d)
Ratio of net income (loss) 3.37% 4.60% 3.91%c .69% 2.17% 3.06%c
to average daily net assets
Total return .7% 27.4% 2.6% .9% 28.3% 3.8%
Portfolio turnover rate (excluding 98% 49% 14% 79% 82% 21%
short-term securities)
Average brokerage commission rate(e) $.0479 $.0465 $.0483 $.0417 $.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 1.27%, 6.35% and 34.04% for Balanced Fund for periods ended
1998, 1997 and 1996, respectively, 2.03%, 1.13% and 34.21% for Equity Fund
for the periods ended 1998, 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>
<TABLE><CAPTION>
Financial highlights (continued)
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Equity Income Fund Total Return Fund
1998 1997 1996b 1998 1997 1996b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $11.16 $8.92 $8.68 $14.53 $12.22 $11.89
beginning of period
Income from investment operations:
Net investment income (loss) .21 .37 .13 .40 .31 .06
Net gains (losses) (both (.47) 2.22 .23 (.94) 2.29 .31
realized and unrealized)
Total from investment (.26) 2.59 .36 (.54) 2.60 .37
operations
Less distributions:
Dividends from net (.22) (.35) (.12) (.40) (.29) (.04)
investment income
Distributions from (.83) -- -- (1.24) -- --
realized gains
Total distributions (1.05) (.35) (.12) (1.64) (.29) (.04)
Net asset value, $9.85 $11.16 $8.92 $12.35 $14.53 $12.22
end of period
Ratios/supplemental data:
Net assets, end of $897 $827 $534 $685 $686 $529
period (in thousands)
Ratio of expenses to 1.25% 1.07% 1.25%d 1.15% 1.26% 1.30%d
average daily net assets(c)
Ratio of net income (loss) 1.95% 3.65% 3.51%d 2.92% 2.29% .96%d
to average daily net assets
Total return (2.6%) 29.4% 4.1% (4.1)% 21.4% 3.2%
Portfolio turnover rate (excluding 97% 81% 17% 122% 99% 35%
short-term securities)
Average brokerage commission rate(e) $.0487 $.0482 $.0324 $.0128 $.0339 $.0384
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 13, 1996.
c The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 1.68%, 4.53% and 24.26% for Equity Income Fund for periods
ended 1998, 1997 and 1996, respectively, and 2.16%, 2.79% and 31.60% for
Total Return Fund for the periods ended 1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
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 these tables 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.
<PAGE>
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, 1998
<TABLE>
<CAPTION>
Purchase 1 year 5 years Since 10 years
made ago ago inception(a) ago
- ------------------------------------------ ---------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balanced Fund +0.73% +10.62% --% +11.57%
Lipper Balanced Fund Index +4.82% +11.66% --% +12.31%
Equity Fund +0.90% +13.74% --% +14.57%
Lipper Growth and Income Fund Index -1.35% +14.85% --% +14.06%
Equity Income Fund -2.61% +11.62% +15.48%a --%
Lipper Equity Income Fund Index +1.29% +14.04% +16.15%b --%
Total Return Fund -4.09% +8.06% --% +13.42%
Lipper Flexible Portfolio Fund Index +3.81% +11.25% --% +11.67%
S&P 500 +9.06% +19.90% +19.45%b +17.26%
(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.
Cumulative total returns as of Sept. 30, 1998
Purchase 1 year 5 years Since 10 years
made ago ago inception ago
- --------------------------------------- ----------------- ---------------- ----------------- ----------------
Balanced Fund +0.73% +65.63% --% +198.79%
Lipper Balanced Fund Index +4.82% +73.55% --% +219.27%
Equity Fund +0.90% +90.37% --% +289.77%
Lipper Growth and Income Fund Index -1.35% +99.83% --% +272.78%
Equity Income Fund -2.61% +73.30% +214.67%a --%
Lipper Equity Income Fund Index +1.29% +92.86% +227.61%b --%
Total Return Fund -4.09% +47.36% --% +252.35%
Lipper Flexible Portfolio Fund Index +3.81% +70.38% --% +201.67%
S&P 500 +9.06% +147.82% +309.18% +391.64%
(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.
</TABLE>
On May 13, 1996, IDS Mutual, IDS Diversified Equity Income Fund, IDS Managed
Allocation Fund and IDS Stock 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 one year total returns, represents performance of the corresponding
predecessor funds prior to March 20, 1995 and of Class A
<PAGE>
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 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 - 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 total assets will
be invested in debt securities and convertible securities.
Equity Portfolio - 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 - 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 - Total Return Portfolio allocates its investments
generally among four asset classes (each of which has its own particular risk
attributes): U.S. equities, U.S. and foreign debt securities, foreign equity
securities and cash. Each of these asset classes may include subcategories. For
example, U.S. equities may include both large capitalization and small
capitalization companies. Foreign securities
<PAGE>
may include both developed and emerging markets. The Portfolio may use
derivative instruments and make investments not in these classes. The portion to
be invested in each class is determined by the portfolio manager based on his
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.
Day-to-day the asset mix will vary from the market mix but will remain within
the ranges described below.
Range market mix
----------------- -------------------
U.S. equity securities 25-75% 50%
U.S. and foreign debt securities 10-50 25
foreign equity securities 10-50 25
cash 0-30 0
No more than 15% of the 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 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.
<PAGE>
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. Total Return Portfolio will not invest more than 15% of the
Portfolio's total assets in bonds below investment grade.
Total Return Portfolio bond ratings and holdings for fiscal 1998
<TABLE>
<CAPTION>
Percent of net assets in
S&P Rating (or unrated securities assessed by
Percent of net Moody's equivalent) Protection of principal and the AEFC
assets interest
- ----------------- -------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
6.20% AAA Highest quality 0.24%
0.75 AA High quality --
1.69 A Upper medium grade --
5.29 BBB Medium grade 0.23
6.31 BB Moderately speculative 0.18
4.78 B Speculative 0.34
0.74 CCC Highly speculative 0.52
-- CC Poor quality --
-- C Lowest quality --
0.03 D In default --
2.74 Unrated Unrated securities 1.23
</TABLE>
(See the Appendix to this prospectus describing corporate bond ratings for
further information.)
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 investments: There are risks when investing in securities of foreign
companies and governments in addition to those assumed when investing in
domestic securities. These risks are classified as country risk, currency risk,
and custody risk. Each can adversely affect the value of an investment. Country
risk includes the political, economic, and other conditions of a country. These
conditions include lack of publicly available information, less government
oversight, the possibility of government-imposed restrictions, even the
nationalization of assets. Currency risk results from the constantly changing
exchange rate between local currency and the U.S. dollar. Whenever the Portfolio
holds securities valued in local currency or holds the currency, changes in the
exchange rate add or subtract from the asset value of the Portfolio. Custody
risk refers to the process of clearing and settling trades. It also covers
holding securities with local agents and depositories. Low trading volume and
volatile prices in less developed markets make trades harder to complete and
settle. Local agents are held only to the standard of care of the local market.
Government or trade groups may compel local agents to hold securities in
designated depositories that are not subject to independent evaluation. The less
developed a country's securities market is, the greater the likelihood of
problems occuring. The risks of foreign investments are managed carefully but
the Portfolio cannot guarantee against losses that might result from them. The
limited liquidity and price fluctuations in emerging markets could make
investments in developing countries more volatile.
<PAGE>
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 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.
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.
<PAGE>
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 the Distributor. There is no fee to open an IMA account.
Payment for shares must be made directly to the Distributor.
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."
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.
<PAGE>
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 you
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 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.
<PAGE>
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
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 followed, a Fund will not be liable for losses due to
unauthorized or fraudulent instructions. Telephone privileges may be modified or
discontinued at any time.
<PAGE>
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.
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.
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.
<PAGE>
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.
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.
<PAGE>
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. 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.)
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 cash only for distributions
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).
<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 don't 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
<TABLE>
<CAPTION>
Use the Social Security or
For this type of account: Employer Identification number of:
<S> <C>
Individual or joint account The individual or one of the individuals listed on
the joint 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, The legal entity (not the personal representative
pension trust or estate 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 tax-exempt organization The organization
</TABLE>
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.
<PAGE>
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 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
<PAGE>
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."
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:
Balanced Portfolio
Assets Annual rate at
(billions) each asset level
First $1.00 0.530%
Next $1.00 0.505
Next $1.00 0.480
Next $3.00 0.455
Over $6.00 0.430
Equity Portfolio,
Equity Income Portfolio and
Total Return Portfolio
Assets Annual rate at
(billions) each asset level
First $0.50 0.530%
Next $0.50 0.505
Next $1.00 0.480
Next $1.00 0.455
Next $3.00 0.430
Over $6.00 0.400
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, 1998, the Advisor received total investment
management fees of .49% of average daily net assets for Balanced Portfolio, .47%
for Equity Portfolio, .51% for Equity Income Portfolio and .45% for Total Return
Portfolio. Under the agreement, each Portfolio also pays taxes, brokerage
commissions and nonadvisory expenses.
<PAGE>
Administrator and transfer agent
Under an Administrative Services Agreement, each Fund pays the Advisor for
administration and accounting services at an annual rate that decreases as
assets increase. For each Fund, the fee ranges from 0.04% to 0.02%.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. Each Fund pays
AECSC an annual fee for each Fund of $20 per shareholder account.
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, 1998, were
.93% of average daily net assets for Balanced Fund, 1.25% for Equity Fund, 1.25%
for Equity Income Fund and 1.15% 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.
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which would have a material impact on the operations of the Funds. The Funds
have no computer systems of their own but are dependent upon the systems
maintained by the Advisor and certain other third parties.
A comprehensive review of the Advisor's computer systems and business processes
has been conducted to identify the major systems that could be affected by the
Year 2000 issue. Steps are being taken to resolve any potential problems
including modification of existing software and the purchase of new software.
These measures are scheduled to be completed and tested on a timely basis. The
Advisor's goal is to complete internal remediation and testing of each of its
critical systems by the end of 1998 and to continue compliance efforts through
1999. The Year 2000 readiness of other third parties whose system failures
<PAGE>
could have an impact on the Funds' operations currently is being evaluated. The
companies or governments in which the Portfolio invests also may be adversely
affected by Year 2000 issues. This may affect the value of the Portfolio
investments. The potential materiality of any impact is not known at this time.
<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.
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.
<PAGE>
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.
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. 27, 1998
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. 27, 1998, and it is to be used with the Funds' prospectus
dated Nov. 27, 1998, and the Annual Report for the fiscal year ended Sept. 30,
1998.
<PAGE>
TABLE OF CONTENTS
Goals and Investment Policies....................................See Prospectus
Additional Investment Policies..........................................p.3
Security Transactions..................................................p.16
Brokerage Commissions Paid to Brokers Affiliated with the Advisor......p.20
Performance Information................................................p.21
Valuing Fund Shares....................................................p.23
Investing in the Funds.................................................p.25
Redeeming Shares.......................................................p.25
Taxes..................................................................p.27
Agreements.............................................................p.28
Organizational Information.............................................p.32
Board Members and Officers.............................................p.32
Independent Auditors...................................................p.40
Financial Statements...........................................See Annual Report
Prospectus.............................................................p.40
Appendix A: Foreign Currency Transactions..............................p.41
Appendix B: Investing in Foreign Securities............................p.46
Appendix C: Options and Futures Contracts..............................p.47
Appendix D: Mortgage-Backed Securities.................................p.53
Appendix E: Dollar-Cost Averaging......................................p.54
<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.
The Portfolio has no current intention to invest in securities of other
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 the Portfolio's net assets in securities and derivative
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 the Portfolio's net assets in securities and derivative
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 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 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.
The Portfolio has no current intention to invest in securities of other
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 the Portfolio's net assets in securities and derivative
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.
The Portfolio has no current intention to invest in securities of other
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 the Portfolio's net assets in securities and derivative
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
<PAGE>
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 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 investing in foreign securities, see Appendix B. For a discussion
on options and futures contracts, see Appendix C. For a discussion on
mortgage-backed securities, see Appendix D. For a discussion on dollar-cost
averaging, see Appendix E.
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
<PAGE>
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.
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
<PAGE>
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, 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.
Balanced Portfolio, Equity Portfolio, Equity Income Portfolio and Total Return
Portfolio paid total brokerage commissions of $8,262,117, $6,267,759, $5,060,074
and $5,108,612 for the fiscal year ended Sept. 30, 1998, $3,749,845, $6,147,059,
$1,979,701 and $5,860,957 for fiscal year 1997, and $3,836,080, $3,197,700,
$2,585,347 and $7,372,053 for the fiscal period May 13, 1996 to Sept. 30, 1996,
respectively. Substantially all firms through whom transactions were executed
provide research services.
<PAGE>
Transactions amounting to $96,576,000, on which $211,790 in commissions were
imputed or paid, were specifically directed to firms in exchange for research
services for Balanced Portfolio. Transactions amounting to $161,277,000, on
which $252,546 in commissions were imputed or paid, were specifically directed
to firms in exchange for research services for Equity Portfolio. Transactions
amounting to $21,698,000, on which $20,762 in commissions were imputed or paid,
were specifically directed to firms in exchange for research services for Total
Return Portfolio.
No transactions were directed to brokers because of research services they
provided to Equity Income Portfolio except for the affiliates as noted below.
As of the fiscal year ended Sept. 30, 1998, the Portfolios listed held
securities of their 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:
Name of Issuer Value of Securities Owned at End of Fiscal Year
Balanced Portfolio
Bank of America $62,293,339
Bear Stearns 21,829,737
First Chicago 78,775,000
Fleet Financial 12,281,570
Fleet Funding 12,420,375
Merrill Lynch 19,941,733
Morgan (JP) 14,314,500
Morgan Stanley 2,360,176
NationsBank 49,530,265
Salomon Smith Barney 18,465,777
Travelers Group 45,281,250
Name of Issuer Value of Securities Owned at End of Fiscal Year
Equity Portfolio
Bank of America $ 37,354,693
Bear Stearns 117,753,328
First Chicago 34,250,000
Fleet Funding 17,454,665
Goldman Sachs 24,744,464
Merrill Lynch 9,935,847
Morgan Stanley 93,790,682
Salomon Smith Barney 47,491,364
<PAGE>
Name of Issuer Value of Securities Owned at End of Fiscal Year
Equity Income Portfolio
Bank of America $21,494,688
Bear Stearns 40,505,305
First Chicago 48,977,499
Fleet Funding 2,295,768
Goldman Sachs 5,589,677
NationsBank 30,896,250
Salomon Smith Barney 14,177,478
Name of Issuer Value of Securities Owned at End of Fiscal Year
Total Return Portfolio
Bank of America $24,578,805
Chase Manhattan 2,123,575
First Chicago 13,706,849
Goldman Sachs 22,457,676
Lehman Brothers 1,110,225
Merrill Lynch 1,672,338
Morgan Stanley 5,292,488
NationsBank 13,995,599
Schwab (Charles) 1,397,813
Travelers Group 8,804,999
For the fiscal years ended 1998 and 1997, the portfolio turnover rates were 98%
and 49% for Balanced Portfolio, 79% and 82% for Equity Portfolio, 97% and 81%
for Equity Income Portfolio and 122% and 99% for Total Return Portfolio. Higher
turnover rates may result in higher brokerage expenses.
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 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.
<PAGE>
Information about brokerage commissions paid by each Portfolio to brokers
affiliated with the Advisor for the last three fiscal years is contained in the
following table:
<TABLE>
<CAPTION>
Fiscal Year ended 1998 1997 1996
---------------------- ---- ----
Percent of Aggregate Aggregate
Aggregate Percent of Aggregate Dollar Dollar
Dollar Aggregate Dollar Amount Amount of Amount of
Nature of Amount of Brokerage of Transactions Commissions Commissions
Portfolio Broker Affiliation Commissions Commissions Involving Paid to Paid to
Paid to Payment of Broker Broker
Broker Commissions
- --------------- ---------------------- ------------ -------------- ------------ ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced American Enterprise (1) $ 18,405 0.22% 0.46% $24,783 $13,249
Investment Services
Inc.
Equity American Enterprise (1) 171,639 2.74 5.68 404,603 45,119
Investment Services
Inc.
Equity Income American Enterprise (1) 49,994 0.99 1.71 125,796 44,672
Investment Services
Inc.
American Enterprise (1)tal Retur148,878 2.91 5.34 314,054 103,248
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.
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)
<PAGE>
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)
Annualized yield
A 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
A 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 a Fund's shareholders.
Actual amounts paid to a 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
<PAGE>
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 1.24% for Equity Income Fund for the 30-day
period ended Sept. 30, 1998.
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, 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 for periods prior to May 13, 1996 is based on the
performance of the corresponding IDS Fund adjusted for differences in sales
charges. For the period from March 20, 1995 to May 13, 1996, performance is
based on the performance of Class A shares of the corresponding IDS Fund. 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.
<PAGE>
On Oct. 1, 1998, 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> <C> <C>
divided by equals
Balanced $1,080,053 72,633 $14.87
Equity 901,655 33,064 27.27
Equity Income 875,548 91,108 9.61
Total Return 673,272 55,459 12.14
</TABLE>
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 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.
<PAGE>
`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.
`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:
<PAGE>
`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 a 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.
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.
<PAGE>
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, 1998, 38.56% of Balanced Fund's net investment income dividends, 100%
of Equity Fund's net investment income dividends, 59.18% of Equity Income Fund's
net investment income dividends and 18.46% 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. 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.
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. Each 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.
<PAGE>
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, 1998, the daily rates applied to the Portfolios' net assets on an
annual basis were equal to 0.487% for Balanced Portfolio, 0.470% for Equity
Portfolio, 0.491% for Equity Income Portfolio and 0.489% for Total Return
Portfolio. The fee is calculated for 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. 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
<PAGE>
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, 1998, the
adjustment decreased the fee by $889,629 for Balanced Portfolio, by $200,375 for
Equity Portfolio and by $1,363,906 for Total Return Portfolio.
The management fee is paid monthly. For the fiscal year ended Sept. 30, 1998,
the total amount paid was $23,644,896 for Balanced Portfolio, $20,321,279 for
Equity Portfolio, $12,214,128 for Equity Income Portfolio and $12,897,457 for
Total Return Portfolio; for fiscal year 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; and for
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, 1998,
Balanced Portfolio and Balanced Fund paid nonadvisory expenses of $481,617,
Equity Portfolio and Equity Fund paid nonadvisory expenses of $561,614, Equity
Income Portfolio and Equity Income Fund paid nonadvisory expenses of $291,311
and Total Return Portfolio and Total Return Fund paid nonadvisory expenses of
$951,262; for fiscal year 1997, Balanced Portfolio and Balanced Fund paid
nonadvisory expenses of $390,123, Equity Portfolio and Equity Fund paid
<PAGE>
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 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
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
<S> <C> <C> <C>
First $1 0.040% First $0.50 0.040%
Next 1 0.035 Next 0.50 0.035
Next 1 0.030 Next 1 0.030
Next 3 0.025 Next 1 0.025
Over 6 0.020 Next 3 0.020
Over 6 0.020
</TABLE>
On Sept. 30, 1998, the daily rates applied to the Funds' net assets on an annual
basis were equal to 0.040% for Balanced Fund, 0.038% for Equity Fund, 0.038% for
Equity Income Fund and 0.039% 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, 1998, the Funds paid fees of $414 for Balanced Fund, $348
for Equity Fund, $361 for Equity Income Fund and $289 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.
<PAGE>
Transfer Agency Agreement
The Company, on behalf of each Fund, has a Transfer Agency Agreement with
American Express Client Service Corporation (AECSC). 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's 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 AECSC may be changed from time to
time upon agreement of the parties without shareholder approval. For the fiscal
year ended Sept. 30, 1998, the Funds paid fees of $871 for Balanced Fund, $505
for Equity Fund, $799 for Equity Income Fund and $319 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, 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, 1998, the Funds paid fees of
$2,586 for Balanced Fund, $2,178 for Equity Fund, $2,258 for Equity Income Fund
and $1,808 for Total Return Fund.
<PAGE>
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 agreement 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
Stated are maintained in the custody of various foreign branches of Morgan
Stanley or in other financial institutions as permitted by law and by the
Portfolio's sub-custodian agreement.
Total fees and expenses
For the fiscal year ended Sept. 30, 1998, the Funds paid total fees and
nonadvisory expenses, net of reimbursements and earnings credits, of $9,613 for
Balanced Fund, $10,900 for Equity Fund, $11,271 for Equity Income Fund and
$8,303 for Total Return Fund. 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 Fund
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.
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 Fund have
cumulative voting rights with respect to the election of board members.
<PAGE>
Rodney P. Burwell
Born in 1939
Xerxes Corporation
7901 Xerxes Ave. S.
Minneapolis, MN
Chairman, Xerxes Corporation (fiberglass storage tanks). Director, 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.
Brian Kleinberg
Born in 1957
American Express Company
World Financial Center
New York, NY
Vice president of all funds in the Strategist Fund Group. Executive vice
president of American Express Financial Direct since 1997. Previously, executive
vice president and general manager in the Consumer Card Services Group from
October 1995 to August 1997, senior vice president of marketing and business
development from August 1995 to October 1995 and senior vice president of
consumer lending marketing from October 1991 to August 1995.
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, 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, and Mr. Kleinberg, who is vice
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.
Compensation for Fund Board Members
Once the assets of a Fund reach $20 million, members of the Fund's 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, 1998, the independent members of the
board received no compensation. On Sept. 30, 1998, the Funds' board members and
officers as a group owned less than 1% of the outstanding shares of a Fund.
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.
<PAGE>
H. Brewster Atwater, Jr.+'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired 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 and Union
Pacific Resources.
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, chief executive officer and director of the Advisor.
Heinz F. Hutter+
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
<PAGE>
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. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
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. Retired 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) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of the Advisor.
<PAGE>
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 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.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of the Advisor. Vice president
- - fixed income investments 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 $1,900 for Balanced Portfolio, $1,800 for Equity Portfolio, $600 for
Equity Income Portfolio and $1,100 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, $19 for Balanced Portfolio, $18 for Equity Portfolio, $6 for
Equity Income Portfolio and $11 for Total Return Portfolio; and as Chair of the
Contracts Committee, $83. Expenses for attending meetings are reimbursed.
<PAGE>
During the fiscal year ended Sept. 30, 1998, the independent members of the
board for Balanced Portfolio, Equity Portfolio, Equity Income Portfolio and
Total Return Portfolio, for attending up to 26 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
for Balanced Portfolio
Total cash
Aggregate Pensions or compensation from the
compensation Retirement Estimated annual Preferred Master Trust
Board Member from the benefits accrued benefit upon Group and IDS MUTUAL
Portfolio as Portfolio retirement FUND GROUP
expenses
- ----------------------- ---------------- -------------------- -------------------- --------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, $ 2,775 $0 $0 $98,500
Jr.
Lynne V. Cheney 2,745 0 0 92,400
Robert F. Froehlke 642 0 0 24,900
Heinz F. Hutter 2,825 0 0 101,500
Anne P. Jones 2,817 0 0 96,900
Melvin R. Laird 330 0 0 12,200
Alan K. Simpson 2,598 0 0 84,400
Edson W. Spencer 3,017 0 0 113,000
Wheelock Whitney 2,875 0 0 104,500
C. Angus Wurtele 2,925 0 0 107,500
Compensation Table
for Equity Portfolio
Total cash
Aggregate Pensions or compensation from the
compensation Retirement Estimated annual Preferred Master Trust
Board Member from the benefits accrued benefit upon Group and IDS MUTUAL
Portfolio as Portfolio retirement FUND GROUP
expenses
- ----------------------- ---------------- -------------------- -------------------- --------------------------
H. Brewster Atwater, $2,525 $0 $0 $98,500
Jr.
Lynne V. Cheney 2,479 0 0 92,400
Robert F. Froehlke 575 0 0 24,900
Heinz F. Hutter 2,575 0 0 101,500
Anne P. Jones 2,553 0 0 96,900
Melvin R. Laird 293 0 0 12,200
Alan K. Simpson 2,336 0 0 84,400
Edson W. Spencer 2,767 0 0 113,000
Wheelock Whitney 2,625 0 0 104,500
C. Angus Wurtele 2,675 0 0 107,500
Compensation Table
for Equity Income Portfolio
Total cash
Aggregate Pensions or compensation from the
compensation Retirement Estimated annual Preferred Master Trust
Board Member from the benefits accrued benefit upon Group and IDS MUTUAL
Portfolio as Portfolio retirement FUND GROUP
expenses
- ----------------------- ---------------- -------------------- -------------------- --------------------------
H. Brewster Atwater, $1,625 $0 $0 $98,500
Jr.
Lynne V. Cheney 1,523 0 0 92,400
Robert F. Froehlke 375 0 0 24,900
Heinz F. Hutter 1,675 0 0 101,500
Anne P. Jones 1,601 0 0 96,900
Melvin R. Laird 181 0 0 12,200
Alan K. Simpson 1,392 0 0 84,400
Edson W. Spencer 1,867 0 0 113,000
Wheelock Whitney 1,725 0 0 104,500
C. Angus Wurtele 1,775 0 0 107,500
<PAGE>
Compensation Table
for Total Return Portfolio
Total cash
Aggregate Pensions or compensation from the
compensation Retirement Estimated annual Preferred Master Trust
Board Member from the benefits accrued benefit upon Group and IDS MUTUAL
Portfolio as Portfolio retirement FUND GROUP
expenses
- ----------------------- ---------------- -------------------- -------------------- --------------------------
H. Brewster Atwater, $2,025 $0 $0 $98,500
Jr.
Lynne V. Cheney 1,951 0 0 92,400
Robert F. Froehlke 542 0 0 24,900
Heinz F. Hutter 2,075 0 0 101,500
Anne P. Jones 2,021 0 0 96,900
Melvin R. Laird 274 0 0 12,200
Alan K. Simpson 1,810 0 0 84,400
Edson W. Spencer 2,267 0 0 113,000
Wheelock Whitney 2,125 0 0 104,500
C. Angus Wurtele 2,175 0 0 107,500
</TABLE>
INDEPENDENT AUDITORS
The Funds' and corresponding Portfolios' financial statements contained in the
Annual Report to shareholders for the fiscal year ended Sept. 30, 1998 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 Funds.
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 Annual Report to shareholders for the fiscal year ended Sept.
30, 1998, 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. 27, 1998, 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 a
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, a 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
INVESTING IN FOREIGN SECURITIES
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below and those described in
the prospectus, which are not typically associated with investing in United
States securities. Foreign companies are not generally subject to uniform
accounting and auditing and financial reporting standards comparable to those
applicable to domestic companies. Additionally, many foreign stock markets,
while growing in volume of trading activity, have substantially less volume than
the New York Stock Exchange, and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the United States and at times, volatility of price can be greater
than in the United States. Further, foreign markets have different clearance,
settlement, registration and communication procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in such procedures could result in temporary periods when
assets of a Portfolio are uninvested and no return is earned thereon. The
inability of a Portfolio to make intended security purchases due to such
problems could cause that Portfolio to miss attractive investment opportunities.
Payment for securities without delivery may be required in certain foreign
markets and, when participating in new issues, some foreign countries require
payment to be made in advance of issuance (at the time of issuance, the market
value of the security may be more or less than the purchase price). Some foreign
markets also have compulsory depositories (i.e., a Portfolio does not have a
choice as to where the securities are held). Fixed commissions on some foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Portfolio will endeavor to achieve the most favorable net
results on their portfolio transactions. Further, a Portfolio may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States. It may be more difficult for a Portfolio's agents to
keep currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the United States and foreign countries may be less reliable than within
the United States, thus increasing the risk of delays or loss of certificates
for portfolio securities. In addition, with respect to certain foreign
countries, there is the possibility of nationalization, expropriation, the
imposition of withholding or confiscatory taxes, political, social or economic
instability, diplomatic developments which could affect United States
investments in those countries, or other unforeseen actions by regulatory bodies
(such as changes to settlement or custody procedures). Investments in foreign
securities may also entail certain risks, such as possible currency blockages or
transfer restrictions, and the difficulty of enforcing rights in other
countries.
<PAGE>
APPENDIX C
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, a 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.
`A Portfolio will deal only in standard option contracts traded on national
securities exchanges or those that may be quoted on NASDAQ (a system of price
quotations developed by the National Association of Securities Dealers, Inc.).
`A Portfolio will write options only as permitted under federal laws or
regulations, such as those that limit the amount of total assets subject to the
options.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.
<PAGE>
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 is that
security. Premiums received from writing 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 fund 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, a 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
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.
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.
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 D
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 E
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
- ------------------------------------- ----------------------------------- -----------------------------------
Regular Investment Market Price of a Share Shares Acquired
- ------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
$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, 1998, and the related statements of
operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period ended September 30,
1998 and the financial highlights for the two-year period ended September
30, 1998, 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, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities
Strategist Growth and Income Fund, Inc.
Sept. 30, 1998
Strategist Strategist Equity
Balanced Fund Fund
Assets
<S> <C> <C>
Investment in corresponding Portfolio (Note 1) $1,137,764 $943,936
Expense receivable from AEFC -- 5,112
Organizational costs (Note 1) 1,340 1,341
----- -----
Total assets 1,139,104 950,389
--------- -------
Liabilities
Accrued distribution fee 8 6
Accrued transfer agency fee 3 2
Accrued administrative services fee 1 1
Other accrued expenses 44,537 15,227
------ ------
Total liabilities 44,549 15,236
------ ------
Net assets applicable to outstanding capital stock $1,094,555 $935,153
---------- --------
Represented by
Capital stock-- $.01 par value (Note 1) $ 726 $ 331
Additional paid-in capital 1,032,859 769,255
Undistributed net investment income 1,208 6,733
Accumulated net realized gain (loss) 67,161 46,802
Unrealized appreciation (depreciation) on
investments and on translation of assets and
liabilities in foreign currencies (7,399) 112,032
------ -------
Total -- representing net assets applicable
to outstanding capital stock $1,094,555 $935,153
---------- --------
Shares outstanding 72,633 33,064
------ ------
Net asset value per share of outstanding capital stock $ 15.07 $ 28.28
---------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities
Strategist Growth and Income Fund, Inc.
Sept. 30, 1998
Strategist Equity Strategist Total
Income Fund Return Fund
Assets
<S> <C> <C>
Investment in corresponding Portfolio (Note 1) $920,666 $705,346
Expense receivable from AEFC 13 --
Organizational costs (Note 1) 1,340 1,340
----- -----
Total assets 922,019 706,686
------- -------
Liabilities
Dividends payable to shareholders 123 --
Accrued distribution fee 6 5
Accrued transfer agency fee 3 1
Accrued administrative services fee 1 1
Other accrued expenses 24,397 21,722
------ ------
Total liabilities 24,530 21,729
------ ------
Net assets applicable to outstanding capital stock $897,489 $684,957
-------- --------
Represented by
Capital stock-- $.01 par value (Note 1) $ 911 $ 555
Additional paid-in capital 830,081 661,563
Undistributed net investment income 1,023 2,126
Accumulated net realized gain (loss) 88,614 49,776
Unrealized appreciation (depreciation) on
investments and on translation of assets and
liabilities in foreign currencies (23,140) (29,063)
------- -------
Total -- representing net assets applicable to
outstanding capital stock $897,489 $684,957
-------- --------
Shares outstanding 91,108 55,459
------ ------
Net asset value per share of outstanding capital stock $ 9.85 $ 12.35
-------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30, 1998
Strategist Strategist Equity
Balanced Fund Fund
Investment income
Income:
<S> <C> <C>
Dividends $ 15,095 $14,533
Interest 29,445 2,471
Less foreign taxes withheld (97) (52)
--- ---
Total income 44,443 16,952
------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 5,159 4,235
Distribution fee 2,586 2,178
Transfer agency fee 871 505
Administrative services fees and expenses 414 348
Postage -- 200
Registration fees 92 5,844
Reports to shareholders -- 360
Audit fees 3,500 3,200
Other 511 830
--- ---
Total expenses 13,133 17,700
Less expenses reimbursed by AEFC (3,520) (6,800)
------ ------
Total net expenses 9,613 10,900
----- ------
Investment income (loss)-- net 34,830 6,052
------ -----
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions 69,401 50,636
Financial futures contracts 394 --
Foreign currency transactions (1,019) 175
Options contracts written (542) 46
---- --
Net realized gain (loss) on investments 68,234 50,857
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (105,115) (56,086)
-------- -------
Net gain (loss) on investments and foreign currencies (36,881) (5,229)
------- ------
Net increase (decrease) in net assets resulting
from operations $ (2,051) $ 823
-------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30, 1998
Strategist Equity Strategist Total
Income Fund Return Fund
Investment income
Income:
<S> <C> <C>
Dividends $ 22,589 $ 7,539
Interest 6,486 22,041
Less foreign taxes withheld (191) (178)
---- ----
Total income 28,884 29,402
------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 4,671 3,513
Distribution fee 2,258 1,808
Transfer agency fee 799 319
Administrative services fees and expenses 361 289
Registration fees 3,917 5,994
Audit fees 3,200 3,200
Other -- 511
---
Total expenses 15,206 15,634
Less expenses reimbursed by AEFC (3,935) (7,331)
------ ------
Total net expenses 11,271 8,303
------ -----
Investment income (loss)-- net 17,613 21,099
------ ------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions 91,617 59,600
Financial futures contracts 2,041 (2,179)
Foreign currency transactions 6 317
Options contracts written -- (2,227)
------
Net realized gain (loss) on investments 93,664 55,511
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (142,332) (106,027)
-------- --------
Net gain (loss) on investments and foreign currencies (48,668) (50,516)
------- -------
Net increase (decrease) in net assets resulting
from operations $(31,055) $ (29,417)
-------- ---------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30,
Strategist Balanced Fund
1998 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 34,830 $ 33,047
Net realized gain (loss) on investments 68,234 62,709
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (105,115) 74,606
-------- ------
Net increase (decrease) in net assets resulting
from operations (2,051) 170,362
------ -------
Distributions to shareholders from:
Net investment income (33,720) (32,085)
Net realized gain (59,803) --
------- ---
Total distributions (93,523) (32,085)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 282,355 225,783
Reinvestment of distributions at net asset value 93,437 32,085
Payments for redemptions (80,708) (25,917)
------- -------
Increase (decrease) in net assets from capital
share transactions 295,084 231,951
------- -------
Total increase (decrease) in net assets 199,510 370,228
Net assets at beginning of year 895,045 524,817
------- -------
Net assets at end of year $1,094,555 $895,045
---------- --------
Undistributed net investment income $ 1,208 $ 1,422
---------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30,
Strategist Equity Fund
1998 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 6,052 $ 14,159
Net realized gain (loss) on investments 50,857 55,053
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (56,086) 114,216
------- -------
Net increase (decrease) in net assets resulting
from operations 823 183,428
--- -------
Distributions to shareholders from:
Net investment income (3,310) (12,677)
Net realized gain (30,218) --
------- ---
Total distributions (33,528) (12,677)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 172,761 72,008
Reinvestment of distributions at net asset value 33,528 12,677
Payments for redemption (16,750) (11,233)
------- -------
Increase (decrease) in net assets from capital
share transactions 189,539 73,452
------- ------
Total increase (decrease) in net assets 156,834 244,203
Net assets at beginning of year 778,319 534,116
------- -------
Net assets at end of year $935,153 $778,319
-------- --------
Undistributed net investment income $ 6,733 $ 2,610
-------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30,
Strategist Equity income Fund
1998 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 17,613 $ 25,154
Net realized gain (loss) on investments 93,664 64,629
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (142,332) 85,635
-------- ------
Net increase (decrease) in net assets resulting
from operations (31,055) 175,418
------- -------
Distributions to shareholders from:
Net investment income (18,054) (24,199)
Net realized gain (61,081) --
------- ---
Total distributions (79,135) (24,199)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 148,894 144,070
Reinvestment of distributions at net asset value 79,110 24,145
Payments for redemptions (47,384) (25,885)
------- -------
Increase (decrease) in net assets from capital
share transactions 180,620 142,330
------- -------
Total increase (decrease) in net assets 70,430 293,549
Net assets at beginning of year 827,059 533,510
------- -------
Net assets at end of year $897,489 $827,059
-------- --------
Undistributed net investment income $ 1,023 $ 1,325
------- -------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Year ended Sept. 30,
Strategist Total Return Fund
1998 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 21,099 $ 14,122
Net realized gain (loss) on investments 55,511 68,331
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilites in foreign currencies (106,027) 36,821
-------- ------
Net increase (decrease) in net assets resulting
from operations (29,417) 119,274
------- -------
Distributions to shareholders from:
Net investment income (20,856) (13,416)
Net realized gain (58,828) --
------- ---
Total distributions (79,684) (13,416)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 47,658 55,803
Reinvestment of distributions at net asset value 79,621 13,416
Payments for redemptions (19,649) (17,370)
------- -------
Increase (decrease) in net assets from capital
share transactions 107,630 51,849
------- ------
Total increase (decrease) in net assets (1,471) 157,707
Net assets at beginning of year 686,428 528,721
------- -------
Net assets at end of year $684,957 $686,428
-------- --------
Undistributed net investment income $ 2,126 $ 1,055
-------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Strategist Growth and Income Fund, Inc.
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 Fund, Inc. has
3 billion authorized shares of capital stock that can be allocated among
the separate series as designated by the board.
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 the value
that is equal to the Fund's proportionate ownership interest in the net
assets of the Portfolio. As of Sept. 30, 1998, 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 0.03%,
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 a net
reclassification adjustment to additional paid-in capital as follows:
Equity Total
Balanced Equity Income Return
Fund Fund Fund Fund
Undistributed net
investment income $(1,324) $1,381 $139 $828
Accumulated net
realized gain (loss) 1,835 (175) 372 (317)
Additional paid-in
capital reduction $511 $1,206 $511 $511
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, 1998, AEFC owned 44,262 shares for Balanced Fund, 25,104
shares for Equity Fund, 67,533 shares for Equity Income Fund and 49,466
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 an agreement with AEFC for providing administrative
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.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. Each Fund
pays AECSC 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 Fund expenses through Dec. 31, 1998. 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, 1998, AEFC further voluntarily agreed to waive certain
fees and expenses to .93% for Balanced Fund and 1.15% for Total Return
Fund.
<PAGE>
3. Capital share transactions
Transactions in shares of capital stock for the years indicated are as
follows:
Year ended Sept. 30, 1998
Equity Total
Balanced Equity Income Return
Fund Fund Fund Fund
Sold 17,601 5,667 13,570 3,489
Issued for reinvested
distributions 6,007 1,202 7,727 6,111
Redeemed (4,983) (562) (4,302) (1,373)
Net increase (decrease) 18,625 6,307 16,995 8,227
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
<PAGE>
<TABLE>
<CAPTION>
4. Financial highlights
The tables below show certain important financial information for
evaluating each Fund's results.
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Balanced Fund Equity Fund
1998 1997 1996b 1998 1997 1996b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.57 $13.57 $13.36 $29.09 $22.40 $21.73
Income from investment operations:
Net investment income (loss) .53 .66 .18 .18 .54 .21
Net gains (losses) (both realized and unrealized) (.39) 2.99 .17 .24 6.64 .62
Total from investment operations .14 3.65 .35 .42 7.18 .83
Less distributions:
Dividends from net investment income (.52) (.65) (.14) (.12) (.49) (.16)
Distributions from realized gains (1.12) -- -- (1.11) -- --
Total distributions (1.64) (.65) (.14) (1.23) (.49) (.16)
Net asset value, end of period $15.07 $16.57 $13.57 $28.28 $29.09 $22.40
Ratios/supplemental data:
Net assets, end of period (in thousands) $1,095 $895 $525 $935 $778 $534
Ratio of expenses to average daily net assets(d) .93% .62% 1.25%c 1.25% .58% 1.25%c
Ratio of net income (loss) to average
daily net assets 3.37% 4.60% 3.91%c .69% 2.17% 3.06%c
Total return .7% 27.4% 2.6% .9% 28.3% 3.8%
Portfolio turnover rate (excluding
short-term securities) 98% 49% 14% 79% 82% 21%
Average brokerage commission rate(e) $.0479 $.0465 $.0483 $.0417 $.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 1.27%, 6.35% and 34.04% for Balanced Fund for periods ended 1998, 1997
and 1996, respectively, 2.03%, 1.13% and 34.21% for Equity Fund for the periods
ended 1998, 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>
<TABLE>
<CAPTION>
Financial highlights (continued)
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Equity Income Fund Total Return Fund
1998 1997 1996b 1998 1997 1996b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.16 $8.92 $8.68 $14.53 $12.22 $11.89
Income from investment operations:
Net investment income (loss) .21 .37 .13 .40 .31 .06
Net gains (losses) (both realized
and unrealized) (.47) 2.22 .23 (.94) 2.29 .31
Total from investment operations (.26) 2.59 .36 (.54) 2.60 .37
Less distributions:
Dividends from net investment income (.22) (.35) (.12) (.40) (.29) (.04)
Distributions from realized gains (.83) -- -- (1.24) -- --
Total distributions (1.05) (.35) (.12) (1.64) (.29) (.04)
Net asset value, end of period $9.85 $11.16 $8.92 $12.35 $14.53 $12.22
Ratios/supplemental data:
Net assets, end of period (in thousands) $897 $827 $534 $685 $686 $529
Ratio of expenses to average daily net assets(c) 1.25% 1.07% 1.25%d 1.15% 1.26% 1.30%d
Ratio of net income (loss) to average
daily net assets 1.95% 3.65% 3.51%d 2.92% 2.29% .96%d
Total return (2.6%) 29.4% 4.1% (4.1)% 21.4% 3.2%
Portfolio turnover rate (excluding
short-term securities) 97% 81% 17% 122% 99% 35%
Average brokerage commission rate(e) $.0487 $.0482 $.0324 $.0128 $.0339 $.0384
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 13, 1996.
c The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets would
have been 1.68%, 4.53% and 24.26% for Equity Income Fund for periods ended 1998,
1997 and 1996, respectively, and 2.16%, 2.79% and 31.60% for Total Return Fund
for the periods ended 1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
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, 1998, and the
related statement of operations for the year then ended and the statements
of changes in net assets for each of the years in the two-year period ended
September 30, 1998. 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, 1998, 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.
/s/ KPMG Peat Markwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Balanced Portfolio
Sept. 30, 1998
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $4,835,128,090) $4,811,625,578
Dividends and accrued interest receivable 24,524,579
Receivable for investment securities sold 41,939,900
Receivable from investment advisor 208,291
U.S. government securities held as collateral (Note 6) 11,745,681
----------
Total assets 4,890,044,029
-------------
Liabilities
Disbursements in excess of cash on demand deposit 5,380,830
Payable for investment securities purchased 59,147,008
Payable upon return of securities loaned (Note 6) 64,245,681
Accrued investment management services fee 64,461
Options contracts written, at value
(premium received $8,622,697) (Note 4) 9,899,326
Other accrued expenses 76,169
------
Total liabilities 138,813,475
-----------
Net assets $4,751,230,554
--------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Balanced Portfolio
Year ended Sept. 30, 1998
Investment income
Income:
<S> <C>
Dividends $ 70,716,129
Interest 139,363,451
Less foreign taxes withheld (418,460)
--------
Total income 209,661,120
-----------
Expenses (Note 2):
Investment management services fee 23,644,896
Compensation of board members 23,548
Custodian fees 405,370
Audit fees 29,625
Other 34,257
------
Total expenses 24,137,696
Earnings credits on cash balances (Note 2) (11,766)
-------
Total net expenses 24,125,930
----------
Investment income (loss) -- net 185,535,190
-----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 521,155,282
Foreign currency transactions (4,883,350)
Options contracts written (Note 4) (2,264,688)
Financial futures contracts (Note 5) 22,878,321
----------
Net realized gain (loss) on investments 536,885,565
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (663,319,521)
------------
Net gain (loss) on investments and foreign currencies (126,433,956)
------------
Net increase (decrease) in net assets resulting from operations $ 59,101,234
-------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Balanced Portfolio
Year ended Sept. 30,
1998 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 185,535,190 $ 191,274,275
Net realized gain (loss) on investments 536,885,565 535,161,611
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (663,319,521) 270,752,151
------------ -----------
Net increase (decrease) in net assets
resulting from operations 59,101,234 997,188,037
Net contributions (withdrawals) from partners (161,190,578) (161,960,911)
------------ ------------
Total increase (decrease) in net assets (102,089,344) 835,227,126
Net assets at beginning of year 4,853,319,898 4,018,092,772
------------- -------------
Net assets at end of year $4,751,230,554 $4,853,319,898
-------------- --------------
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.
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 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, if any, may
arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement date 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
At Sept. 30, 1998, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid securities
to 10% of net assets, at market value, at the time of purchase. The
aggregate value of such securities at Sept. 30, 1998 was $4,421,640
representing 0.09% 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 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 $889,629 for the year ended Sept. 30, 1998.
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, 1998, the Portfolio's custodian fees were
reduced by $11,766 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 $4,954,025,281 and $4,555,917,811,
respectively, for the year ended Sept. 30, 1998. For the same period, the
portfolio turnover rate was 98%. Realized gains and losses are determined
on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $18,405
during this period.
<PAGE>
4. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
Year ended Sept. 30, 1998
Puts Calls
Contracts Premium Contracts Premium
Balance Sept. 30, 1997 -- $ -- -- $ --
Opened 2,400 4,153,631 4,983 7,347,256
Exercised -- -- (1,233) (809,749)
Closed -- -- (1,000) (2,068,441)
Balance Sept. 30, 1998 2,400 4,153,631 2,750 4,469,066
See "Summary of significant accounting policies."
5. Interest rate future contracts
Investments in securities at Sept. 30, 1998, included securities valued at
$45,122,447 that were pledged as collateral to cover initial margin
deposits on 1,450 open sale contracts. The market value of the open sale
contracts at Sept. 30, 1998 was $176,084,375 with a net unrealized loss of
$4,398,698. See "Summary of significant accounting policies."
6. Lending of portfolio securities
At Sept. 30, 1998, securities valued at $64,420,600 were on loan to
brokers. For collateral, the Portfolio received $52,500,000 in cash and
U.S. government securities valued at $11,745,681. Income from securities
lending amounted to $317,595 for the year ended Sept. 30, 1998. 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, 1998
(Percentages represent value of investments compared to net assets)
Common stocks (60.3%)
Issuer Shares Value(a)
Aerospace & defense (1.2%)
<S> <C> <C>
AlliedSignal 800,000 $28,300,000
Rockwell Intl 770,000(l) 27,816,250
Total 56,116,250
Airlines (0.6%)
AMR 502,200(b) 27,840,713
Automotive & related (2.1%)
Ford Motor 870,000 40,835,625
General Motors 630,000 34,453,125
TRW 577,000 25,604,375
Total 100,893,125
Banks and savings & loans (7.0%)
BankAmerica 805,000 48,400,625
First Chicago NBD 1,150,000 78,775,000
First Union 1,581,250 80,940,233
NationsBank 690,000(b) 36,915,000
Washington Mutual 2,587,500 87,328,125
Total 332,358,983
Beverages & tobacco (0.6%)
Fortune Brands 928,000 27,492,000
Building materials & construction (0.4%)
American Standard 800,000(b) 21,100,000
Chemicals (1.2%)
Air Products & Chemicals 965,000 $28,708,750
Du Pont (EI) de Nemours 500,000 28,062,500
Total 56,771,250
Communications equipment & services (1.3%)
Motorola 815,000 34,790,313
Northern Telecom 858,000(c) 27,456,000
Total 62,246,313
Computers & office equipment (4.3%)
3Com 1,177,200(b,l) 35,389,575
Compaq Computer 1,178,000 37,254,250
Electronic Data Systems 510,000 16,925,625
Hewlett-Packard 605,000 32,027,188
Intl Business Machines 650,000 83,199,999
Total 204,796,637
Electronics (1.2%)
AMP 480,000 17,160,000
Applied Materials 620,000(b) 15,655,000
Texas Instruments 450,000 23,737,500
Total 56,552,500
Energy (7.8%)
Chevron 610,000 51,278,125
Elf Aquitaine ADR 477,500(c) 29,694,531
ENI 5,800,000(b,c) 35,559,220
Exxon 615,000 43,165,313
Mobil 750,000 56,953,124
Royal Dutch Petroleum 1,690,000(c) 80,486,249
Texaco 775,000(l) 48,582,813
Tosco 960,000 20,640,000
Unocal 151,500 5,491,875
Total 371,851,250
Energy equipment & services (0.7%)
Halliburton 728,500 $20,807,781
Santa Fe Intl 906,800 13,942,050
Total 34,749,831
Financial services (2.6%)
Boston Properties 370,000 10,545,000
Household Intl 1,782,500 66,843,750
Travelers Group 1,207,500 45,281,250
Total 122,670,000
Food (2.2%)
Bestfoods 599,000 29,014,063
General Mills 552,000 38,640,000
Sara Lee 655,000(l) 35,370,000
Total 103,024,063
Health care (3.8%)
American Home Products 673,000 35,248,375
Amgen 473,000(b) 35,741,063
Baxter Intl 580,000 34,510,000
Johnson & Johnson 465,000 36,386,250
Merck & Co 283,000 36,666,187
Total 178,551,875
Health care services (0.5%)
Columbia/HCA Healthcare 1,198,000 24,034,875
Household products (1.3%)
Kimberly-Clark 700,000 28,350,000
Procter & Gamble 450,000 31,921,875
Total 60,271,875
Industrial equipment & services (1.0%)
Browning-Ferris Inds 1,015,000 30,703,750
Case 423,100 9,202,425
Illinois Tool Works 137,200 7,477,400
Total 47,383,575
Insurance (4.1%)
American Intl Group 776,250 $59,771,250
Lincoln Natl 862,500 70,940,625
Marsh & McLennan 1,334,250 66,378,938
Total 197,090,813
Leisure time & entertainment (0.5%)
Mattel 860,000 24,080,000
Media (0.3%)
CBS 603,650 14,638,513
Multi-industry conglomerates (1.1%)
Emerson Electric 850,000 52,912,500
Paper & packaging (0.7%)
Tenneco 1,022,000 33,598,250
Real estate investment trust (1.4%)
Equity Office Properties Trust 405,000 9,922,500
Nationwide Health Properties 325,000 7,312,500
ProLogis Trust 700,000 15,837,500
Simon Property Group 700,000 20,825,000
Spieker Properties 380,000 13,965,000
Total 67,862,500
Retail (3.0%)
American Stores 2,200,000 70,812,500
Costco Cos 600,000(b) 28,425,000
Dayton Hudson 1,155,000 41,291,250
Total 140,528,750
Transportation (1.4%)
Burlington Northern Santa Fe 1,120,000 35,840,000
Union Pacific 747,000 31,840,875
Total 67,680,875
Utilities -- electric (3.5%)
Carolina Power & Light 585,000 $27,019,688
CMS Energy 775,000 33,760,938
Duke Energy 601,800 39,831,638
New Century Energies 900,000 43,818,749
Northern States Power 800,000 22,450,000
Total 166,881,013
Utilities -- gas (0.6%)
Coastal 775,000 26,156,250
Utilities -- telephone (3.9%)
Ameritech 800,000 37,900,000
BCE 445,000(c) 12,432,188
BellSouth 490,000 36,872,500
SBC Communications 834,400 37,078,650
U S WEST Communications 1,125,000 58,992,187
Group Total 183,275,525
Total common stocks
(Cost: $2,988,626,916) $2,863,410,104
Preferred stock (0.7%)
Issuer Shares Value(a)
Houston Inds 420,000(j) $32,051,250
7.00% Cv ACES
Total preferred stock
(Cost: $33,029,970) $32,051,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (33.1%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (5.8%)
Govt Trust Certs Israel
<S> <C> <C> <C>
11-15-01 9.25% $6,537,751 $6,853,263
Overseas Private Investment
U.S. Govt Guaranty Series 1996A
01-15-09 6.99 17,500,000 19,054,525
Republic of Slovenia
(U.S. Dollar)
08-06-01 7.00 7,200,000(c,f) 7,420,320
Resolution Funding Corp
10-15-19 8.13 50,000,000 66,928,500
Zero Coupon
01-15-19 6.50 53,000,000(i) 17,295,490
10-15-19 6.32 50,000,000(i) 15,355,500
U.S. Treasury
11-15-01 4.75 7,500,000 6,549,000
11-15-04 4.88 7,500,000 5,718,150
08-15-19 8.13 65,000,000(l,m) 89,136,449
08-15-23 6.25 25,000,000(l,m) 28,638,250
11-15-27 6.13 10,000,000(d) 11,528,600
Total 274,478,047
Mortgage-backed securities (11.8%)
Collateralized Mtge Obligation Trust
12-20-14 9.95 2,862,422 3,084,031
Federal Home Loan Mtge Corp
01-15-03 7.50 6,864,711 7,104,220
10-01-03 7.00 4,199,808 4,283,804
07-01-07 6.50 384,135 391,456
07-01-08 6.75 1,618,302 1,650,668
06-01-09 5.50 4,095,202 4,106,259
01-01-11 6.50 14,999,344 15,327,529
03-01-13 5.50 14,433,340 14,371,594
10-15-23 6.50 2,596,077 2,724,947
08-01-24 8.00 5,006,350 5,202,649
03-01-26 7.00% $9,000,000 $9,236,070
09-01-28 6.00 27,723,129 27,692,634
Collateralized Mtge Obligation
04-15-22 8.50 7,000,000 7,712,390
Trust Series Z
04-25-24 8.25 13,986(g) 14,659
Federal Natl Mtge Assn
10-01-02 7.50 529,862 543,982
12-25-06 8.00 11,060,338 11,852,148
02-15-08 5.75 70,000,000(d) 74,049,149
01-01-09 5.50 6,093,144 6,105,757
08-01-13 6.00 29,545,686 29,837,641
02-01-14 7.50 1,416,399 1,455,350
05-01-23 6.50 4,913,466 5,010,114
09-01-23 6.50 7,593,852 7,743,223
01-01-24 6.50 13,930,046 14,186,637
06-01-24 9.00 4,938,371 5,255,464
08-01-25 7.50 16,160,863 16,673,323
06-01-26 8.50 52,851 55,154
03-01-28 6.00 85,457,765(m) 85,287,401
03-01-28 6.50 1,549,201 1,575,801
04-01-28 6.00 2,264,656(l,m) 2,260,141
04-01-28 6.00 27,399,028 27,343,834
06-01-28 6.00 9,448,534(l,m) 9,429,259
06-01-28 6.00 11,842,704 11,818,545
06-01-28 7.00 26,522,359 27,253,725
07-01-28 6.00 13,961,206 13,932,725
08-01-28 7.00 39,120,766 40,199,539
09-01-28 6.50 49,500,000(m) 50,329,444
Collateralized Mtge Obligation
Trust Series Z
10-25-16 7.00 8,880,998(g) 8,920,341
Standard Credit Card Trust
10-07-04 5.95 8,550,000 8,864,142
Total 562,885,749
Aerospace & defense (0.3%)
United Technologies
11-15-19 8.88% $9,500,000 $12,522,805
Automotive & related (0.2%)
Ford Motor Credit
08-15-08 6.75 10,000,000 10,732,490
Banks and savings & loans (2.7%)
BankAmerica
Sub Nts Series B
12-31-26 7.70 10,000,000(f) 10,400,200
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 10,000,000(c,f) 6,892,520
Fleet Financial Group
Sub Deb
01-15-28 6.88 1,500,000 1,550,970
Fleet Financial Group
Sub Nts
05-15-08 6.38 10,000,000 10,730,600
Mellon Capital
Company Guaranty Series A
12-01-26 7.72 8,000,000 8,437,680
Mellon Financial
Sub Nts
02-15-10 6.38 16,000,000 16,824,320
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 15,000,000 14,314,500
NationsBank
Sub Nts
05-15-10 6.60 11,825,000 12,615,265
Swiss Bank
Sub Deb
07-15-25 7.50 4,700,000 5,478,978
09-01-26 7.75 11,000,000 13,248,620
Union Planters Capital
Company Guaranty
12-15-26 8.20% $10,000,000 $10,990,800
US Capital
02-01-27 8.41 10,000,000(f) 10,927,300
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 5,800,000 6,386,322
Total 128,798,075
Building materials & construction (0.2%)
Tyco Intl Group
(U.S. Dollar) Company Guaranty
06-15-28 7.00 9,100,000(c) 9,496,942
Communications equipment & services (0.2%)
US West Capital Funding
Company Guaranty
07-15-28 6.88 9,000,000 9,489,870
Consumer finance -- personal loans (0.1%)
Yale University
04-15-96 7.38 4,000,000 4,733,200
Electronics (0.3%)
Harris
12-01-18 10.38 4,000,000 4,234,200
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-04 8.25 10,000,000(c,f) 7,788,600
Total 12,022,800
Energy (1.1%)
Occidental Petroleum
Medium-term Nts Series B
04-10-00 6.25 6,500,000 6,625,515
Petronas
(U.S. Dollar)
08-15-15 7.75 10,000,000(c) 5,670,500
R & B Falcon
Sr Nts Series B
04-15-05 6.75 10,000,000 10,334,600
Union Pacific Resources
05-15-28 7.15 10,000,000 9,665,500
USX
03-01-08 6.85 10,000,000 10,399,500
Woodside Petroleum
(U.S. Dollar)
04-15-08 6.60 10,000,000(c,f) 10,190,700
Total 52,886,315
Energy equipment & services (0.4%)
Global Marine
09-01-07 7.13 10,000,000 11,109,100
Pioneer Natural Resource
01-15-08 6.50 10,350,000 9,810,765
Total 20,919,865
Financial services (1.5%)
Bat-Crave-800
08-12-00 6.68 7,000,000(f) 7,172,690
BB & T
06-30-25 6.38 10,000,000 10,428,900
GS Escrow
Sr Nts
08-01-03 7.00 10,000,000(f) 10,446,200
Household Finance
Medium-term Nts Series E
06-17-08 6.40 8,020,000 8,445,301
Liberty Mutual Insurance
10-15-97 7.70 10,000,000 11,589,100
Railcar Leasing
(U.S. Dollar)
01-15-13 7.13 15,000,000(c,f) 16,714,650
Salomon
Sr Nts
01-15-06 6.75 7,000,000 7,518,210
Total 72,315,051
Health care services (0.2%)
Kaiser Permanente
07-15-05 9.55 6,000,000 7,339,500
Insurance (1.9%)
American General Institute Capital
Company Guaranty Series A
12-01-45 7.57 15,000,000(f) 15,868,200
American United Life Insurance
03-30-26 7.75 4,000,000(k) 4,421,640
Equitable Life Assurance Society US Cl B1
Series 174
05-15-09 7.33 5,500,000 5,936,865
Nationwide CSN Trust
02-15-25 9.88 15,500,000(f) 19,722,355
New York Life Insurance
12-15-23 7.50 11,500,000(f) 12,174,590
Principal Mutual
03-01-44 8.00 7,150,000(f) 8,293,214
SAFECO Capital
Company Guaranty
07-15-37 8.07 10,000,000 10,976,200
SunAmerica
04-28-23 8.13 5,150,000 6,169,597
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 7,500,000(c,f) 8,454,750
Total 92,017,411
Leisure time & entertainment (0.2%)
MGM Grand
02-01-05 6.95 10,000,000 10,255,000
Media (0.6%)
Belo (AH)
Sr Nts
06-01-07 7.13 15,000,000 16,801,950
Time Warner Entertainment
Sr Nts
07-15-33 8.38 10,000,000 12,357,900
Total 29,159,850
Miscellaneous (0.4%)
DTE Burns Harbor LLC
Sr Nts
01-30-03 6.57 7,900,000(f) 7,902,370
M & I Capital
Company Guaranty
12-01-26 7.65 10,000,000 10,463,600
Total 18,365,970
Paper & packaging (0.3%)
Intl Paper
11-15-12 5.13 13,400,000 12,511,178
Real estate investment trust (0.1%)
Property Trust of America
02-15-14 7.50 5,000,000 5,404,500
Retail (0.3%)
Wal-Mart CRAVE Trust
07-17-06 7.00 12,850,202(f) 13,593,714
Transportation (0.9%)
Atlas Air Series C
01-02-10 8.01 15,000,000 15,586,200
Burlington Northern Santa Fe
12-15-25 7.00 10,200,000 10,791,396
Canadian Natl Railroad
(U.S. Dollar)
05-15-23 7.63 6,000,000(c) 6,695,340
CSX
05-01-27 7.25 10,000,000 11,005,800
Total 44,078,736
Utilities -- electric (2.0%)
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 5,400,000 6,344,082
Cleveland Electric Illuminating
07-01-00 7.19 5,000,000 5,157,800
07-01-04 7.67 10,000,000 10,600,000
Entergy Louisiana
1st Mtge
03-01-08 6.50 5,535,000 5,911,712
Israel Electric
(U.S. Dollar) Sr Nts
12-15-06 7.25 10,000,000(c) 10,486,500
Pacific Gas & Electric
1st Mtge Series 1992D
11-01-22 8.25 4,600,000 5,142,524
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 13,000,000(h) 13,734,890
Public Service Electric & Gas
1st Mtge
05-01-23 6.38 13,325,000 14,091,601
TU Electric Capital
Company Guaranty
01-30-37 8.18 10,000,000 10,568,100
Wisconsin Electric Power
01-15-23 7.75 5,500,000 6,108,905
12-01-95 6.88 8,000,000 8,446,720
Total 96,592,834
Utilities -- gas (0.2%)
Ras Laffan
(U.S. Dollar)
03-15-14 8.29 10,000,000(c,f) 7,266,300
Utilities -- telephone (1.4%)
Airtouch Communications
05-01-08 6.65 6,950,000 7,522,194
Bell Telephone of Pennsylvania
03-15-33 7.38 5,000,000 5,373,200
GTE
11-01-21 8.75 5,000,000 6,356,050
New York Telephone
04-15-08 6.00 13,000,000 13,723,450
SBC Communications
10-15-34 6.63 6,100,000 6,239,873
07-15-43 7.38 7,500,000 8,319,675
U S WEST Communications
09-15-05 6.63 7,000,000 7,583,450
WorldCom
Sr Nts
08-15-28 6.95 10,000,000 10,575,000
Total 65,692,892
Total bonds
(Cost: $1,470,810,612) $1,573,559,094
Options purchased (--%)
Issuer Shares Exercise Expiration Value(a)
price date
Put
U.S. Treasury Note Dec. 98 81,000 $114 Nov. 1998 $29,363
U.S. Treasury Note Dec. 98 120,000 109 Nov. 1998 18,744
Total options purchased
(Cost: $72,863) $48,107
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (7.2%)
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
<S> <C> <C> <C>
10-07-98 5.46% $11,600,000 $11,589,492
10-08-98 5.46 12,000,000 11,987,307
10-30-98 5.45 32,000,000 31,860,284
11-06-98 5.12 15,000,000 14,923,500
Federal Natl Mtge Assn Disc Nt
10-21-98 5.45 9,100,000 9,072,574
Total 79,433,157
Commercial paper (5.4%)
Avco Financial Services
12-17-98 5.43 10,000,000 9,866,000
Bear Stearns
10-22-98 5.52 21,900,000 21,829,737
BellSouth Capital Funding
10-02-98 5.55 17,500,000(e) 17,497,302
CAFCO
12-08-98 5.42 3,800,000(e) 3,761,544
Ciesco LP
11-06-98 5.46 17,400,000 17,305,518
Commerzbank U.S. Finance
10-01-98 5.54 9,700,000 9,700,000
Daimler-Benz
10-08-98 5.57 11,600,000 11,586,422
Delaware Funding
10-05-98 5.55 10,890,000(e) 10,883,285
Deutsche Bank Financial
10-16-98 5.57 2,200,000 2,194,331
10-23-98 5.56 13,500,000 13,450,464
Fleet Funding
11-12-98 5.50 12,500,000(e) 12,420,375
General Electric Capital Services
11-09-98 5.22 8,700,000 8,651,084
Glaxo Wellcome
10-27-98 5.54 13,500,000(e) 13,446,180
GTE Funding
10-08-98 5.54 12,100,000 12,086,989
Intl Lease Finance
10-20-98 5.52 13,828,000 13,787,860
Kredietbank North America Finance
10-05-98 5.57 8,700,000 8,693,258
Merrill Lynch
10-20-98 5.54 20,000,000 19,941,733
Morgan Stanley, Dean Witter, Discover & Co
01-22-99 5.39 2,400,000 2,360,176
Pfizer
10-30-98 5.52 3,000,000(e) 2,986,733
11-02-98 5.53 6,700,000(e) 6,667,244
Procter & Gamble
10-13-98 5.36 3,225,000 3,219,249
Reed Elsevier
10-09-98 5.58 15,000,000(e) 14,977,351
Salomon Smith Barney
11-03-98 5.22 11,000,000 10,947,567
Toyota Motor Credit
10-08-98 5.56 1,400,000 1,398,500
UBS Finance (Delaware)
10-19-98 5.55 10,000,000 9,972,450
Total 259,631,352
Letters of credit (0.1%)
Bank of America-
AES Hawaii
10-15-98 5.52 3,500,000 3,492,514
Total short-term securities
(Cost: $342,587,729) $342,557,023
Total investments in securities
(Cost: $4,835,128,090)(o) $4,811,625,578
</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) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Sept. 30,
1998, the value of foreign securities represented 5.79% of net assets.
(d) Security is partially or fully on loan. See Note 6 to the financial
statements.
(e) 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.
(f) 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.
(g) This security is a collateralized mortgage obligation that pays no
interest or principal during its initial accrual period until payment of a
previous series within the trust have been paid off. Interest is accrued at an
effective yield; similar to a zero coupon bond.
(h) The following abbreviation is used in portfolio description to
identify the insurer of the issue: AMBAC -- American Municipal Bond Association
Corporation
(i) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(j) ACES are automatically convertible to the underlying equity securities.
(k) Identifies issue considered to be illiquid as to their
marketability (see Note 1 to the financial statements). Information concerning
such security holdings at Sept. 30, 1998, is as follows:
Security Acquisition Cost
date
American United Life Insurance*
7.75% 2026 02-13-96 $4,000,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(l)Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
Type of securityNotional amount
Sale contracts
U.S. Treasury Note Dec. 1998 $145,000,000
(m) At Sept. 30, 1998, securities valued at $39,136,849 were held to cover
open call options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
U.S. Treasury Bonds Dec. 98 140,000 $130 Nov. 1998 $3,552,120
U.S. Treasury Bonds Dec. 98 20,000 132 Nov. 1998 274,000
U.S. Treasury Bonds Dec. 98 35,000 126 Nov. 1998 1,996,092
U.S. Treasury Bonds Dec. 98 30,000 128 Nov. 1998 1,204,686
U.S. Treasury Notes Dec. 98 50,000 112 Nov. 1998 1,507,810
Total $8,534,708
At Sept. 30, 1998, cash or short-term securities were designated to cover
open put options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
U.S. Treasury Bonds Dec. 98 80,000 $130 Nov. 1998 $1,002,126
U.S. Treasury Bonds Dec. 98 30,000 124 Nov. 1998 32,811
U.S. Treasury Bonds Dec. 98 50,000 126 Nov. 1998 132,810
U.S. Treasury Bonds Dec. 98 30,000 128 Nov. 1998 173,436
U.S. Treasury Notes Dec. 98 50,000 112 Nov. 1998 23,435
Total $1,364,618
(n) At Sept. 30, 1998, the cost of securities for federal income tax purposes
was $4,833,068,334 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $332,015,618
Unrealized depreciation (353,458,374)
Net unrealized depreciation $(21,442,756)
<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, 1998, the related
statement of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-year period ended
September 30, 1998. 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, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Portfolio
Sept. 30, 1998
Assets
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers
<S> <C>
(identified cost $3,370,898,325) $4,040,920,621
Investments in securities of affiliated issuers
(identified cost $46,286,171) 94,093,750
----------- ----------
Total investments in securities (identified
cost $3,417,184,496) 4,135,014,371
Dividends and accrued interest receivable 5,417,767
Receivable for investment securities sold 37,280,885
----------
Total assets 4,177,713,023
-------------
Liabilities
Disbursements in excess of cash on demand deposit 18,712,443
Payable for investment securities purchased 31,692,727
Payable upon return of securities loaned (Note 4) 57,983,200
Accrued investment management services fee 53,005
Other accrued expenses 118,724
-------
Total liabilities 108,560,099
-----------
Net assets $4,069,152,924
--------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Equity Portfolio
Year ended Sept. 30, 1998
Investment income
Income:
<S> <C>
Dividends (including $375,000 earned from affiliates) $ 71,754,480
Interest 12,328,142
Less foreign taxes withheld (247,438)
--------
Total income 83,835,184
----------
Expenses (Note 2):
Investment management services fee 20,321,279
Compensation of board members 21,402
Custodian fees 456,752
Audit fees 28,875
Other 58,858
------
Total expenses 20,887,166
Earnings credit on cash balances (Note 2) (7,907)
------
Total net expenses 20,879,259
----------
Investment income (loss) -- net 62,955,925
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (including $14,337,109 realized gain
on sales of affiliated issuers) (Note 3) 399,997,277
Foreign currency transactions 1,109,250
Options contracts written (Note 5) 266,176
-------
Net realized gain (loss) on investments 401,372,703
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies (356,961,919)
------------
Net gain (loss) on investments and foreign currencies 44,410,784
----------
Net increase (decrease) in net assets resulting from operations $107,366,709
------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Equity Portfolio
Year ended Sept. 30,
1998 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 62,955,925 $ 69,424,362
Net realized gain (loss) on investments 401,372,703 490,586,825
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (356,961,919) 427,383,679
------------ -----------
Net increase (decrease) in net assets resulting
from operations 107,366,709 987,394,866
Net contributions (withdrawals) from partners (202,014,550) (108,642,196)
------------ ------------
Total increase (decrease) in net assets (94,647,841) 878,752,670
Net assets at beginning of year 4,163,800,765 3,285,048,095
------------- -------------
Net assets at end of year $4,069,152,924 $4,163,800,765
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Equity Portfolio
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.
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 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, if any, may arise from sales of foreign currency,
closed forward contracts, exchange gains or losses realized between the
trade date and settlement date 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 $200,375 for the year ended Sept. 30, 1998.
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, 1998, the Portfolio's custodian fees were
reduced by $7,907 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 $3,266,472,385 and $3,660,542,688,
respectively, for the year ended Sept. 30, 1998. For the same period, the
portfolio turnover rate was 79%. Realized gains and losses are determined
on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $171,639
for the year ended Sept. 30, 1998.
4. Lending of portfolio securities
At Sept. 30, 1998, securities valued at $55,178,888 were on loan to
brokers. For collateral, the Portfolio received $57,983,200 in cash. Income
from securities lending amounted to $395,893 for the year ended Sept. 30,
1998. 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. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
Year ended Sept. 30, 1998
Calls
Contracts Premium
Balance Sept. 30, 1997 -- $ --
Opened 2,000 266,176
Expired (2,000) (266,176)
Balance Sept. 30, 1998 -- $ --
See "Summary of significant accounting policies."
<PAGE>
<TABLE><CAPTION>
Investments in securities
Equity Portfolio
Sept. 30, 1998
(Percentages represent value of investments compared to net assets)
Common stocks (76.9%)
Issuer Shares Value(a)
Aerospace & defense (3.1%)
<S> <C> <C>
General Motors Cl H 450,000 $16,565,625
Gulfstream Aerospace 847,900(b) 34,127,975
Lockheed Martin 306,084 30,857,093
Raytheon Cl B 800,000 43,150,000
Total 124,700,693
Airlines (0.8%)
AMR 600,000(b) 33,262,500
Automotive & related (0.6%)
Ford Motor 500,000 23,468,750
Banks and savings & loans (6.1%)
Banco di Roma 8,000,000(c) 14,297,600
BankAmerica 500,000 30,062,500
First Chicago NBD 500,000 34,250,000
First Union 800,000 40,950,000
HypoVereinsbank 300,000(c) 22,096,470
Norwest 800,000 28,650,000
Wachovia 620,000 52,855,000
Washington Mutual 750,000 25,312,500
Total 248,474,070
Beverages & tobacco (0.7%)
Coca-Cola 525,000 30,253,125
Building materials & construction (1.9%)
American Standard 1,000,000(b) 26,375,000
Martin Marietta Materials 1,148,500 49,600,844
Total 75,975,844
Chemicals (1.2%)
Du Pont (EI) de Nemours 400,000 $22,450,000
Waste Management 547,375 26,308,211
Total 48,758,211
Computers & office equipment (6.4%)
America Online 150,000 16,687,500
Cisco Systems 450,000(b) 27,815,625
Compaq Computer 1,500,000 47,437,500
Hewlett-Packard 600,000 31,762,500
Intl Business Machines 400,000 51,200,000
Microsoft 525,000(b) 57,782,813
Network Associates 750,000(b,e) 26,625,000
Total 259,310,938
Electronics (0.4%)
Intel 200,000 17,150,000
Energy (1.6%)
Exxon 600,000 42,112,500
Royal Dutch Petroleum 500,000(c) 23,812,500
Total 65,925,000
Energy equipment & services (0.6%)
Schlumberger 525,000(c) 26,414,063
Financial services (5.1%)
Associates First Capital Cl A 800,000 52,200,000
CIT Group Cl A 1,000,000 25,625,000
Household Intl 900,000 33,750,000
Mutual Risk Management 1,500,000(d,e) 53,062,500
Providian Financial 500,000 42,406,250
Total 207,043,750
Food (1.1%)
Sara Lee 800,000 43,200,000
Health care (11.0%)
Baxter Intl 750,000 $44,625,000
Bristol-Myers Squibb 500,000 51,937,499
Guidant 775,000 57,543,750
Medtronic 700,000 40,512,500
Merck & Co 400,000 51,825,000
Pfizer 600,000 63,562,500
Schering-Plough 800,000 82,850,000
Warner-Lambert 750,000 56,625,000
Total 449,481,249
Household products (3.6%)
Colgate-Palmolive 600,000 41,100,000
Gillette 500,000 19,125,000
Procter & Gamble 300,000 21,281,250
Rhone-Poulenc 699,893(c) 29,371,570
Unilever 600,000(c) 36,750,000
Total 147,627,820
Industrial equipment & services (1.1%)
Illinois Tool Works 800,000 43,600,000
Insurance (3.3%)
ACE 750,000(c) 22,500,000
American Intl Group 562,500 43,312,500
EXEL Cl A 700,000(e) 44,100,000
SunAmerica 400,000 24,400,000
Total 134,312,500
Leisure time & entertainment (0.3%)
Mattel 500,000 14,000,000
Media (2.4%)
CBS 1,000,000 24,250,000
Chancellor Media 500,000(b) 16,687,500
Clear Channel Communications 1,200,000(b) 57,000,000
Total 97,937,500
Metals (1.0%)
Stillwater Mining 1,300,000(b,d) 41,031,250
Multi-industry conglomerates (3.7%)
Emerson Electric 500,000 31,125,000
General Electric 1,500,000 119,343,750
Total 150,468,750
Paper & packaging (0.2%)
Owens-Illinois 400,000(b) 10,000,000
Retail (9.5%)
American Stores 600,000 19,312,500
Dayton Hudson 1,100,000 39,325,000
Home Depot 1,200,000 47,400,000
Koninklijke Ahold 1,700,000(c) 50,818,950
Rite Aid 2,000,000 71,000,000
Safeway 2,000,000(b) 92,750,000
Wal-Mart Stores 1,200,000 65,550,000
Total 386,156,450
Utilities -- electric (2.6%)
Carolina Power & Light 350,000 16,165,625
CMS Energy 300,000 13,068,750
Duke Energy 250,000 16,546,875
GPU 300,000 12,750,000
New Century Energies 350,000 17,040,625
Texas Utilities 350,000 16,296,875
Unicom 400,000 14,950,000
Total 106,818,750
Utilities -- telephone (8.4%)
AirTouch Communications 700,000(b) 39,900,000
Ameritech 800,000 37,900,000
AT&T 1,150,775 67,248,414
Bell Atlantic 600,000 29,062,500
BellSouth 500,000 37,625,000
Cable & Wireless Communications 3,350,000(b,c) 22,411,165
MCI WorldCom 875,422(b) $42,786,250
Southern New England
Telecommunications 250,000 19,531,250
U S WEST Communications Group 900,000 47,193,750
Total 343,658,329
Total common stocks
(Cost: $2,442,606,293) $3,129,029,542
Preferred stocks & other (12.3%)
Issuer Shares Value(a)
BS-Intel
5.00% Cv PERCS 206,000(h) $34,974,680
BS-Medtronic
5.00% Cv 884,250 39,906,203
BS-Service Corp Intl
5.00% 1,100,000 34,000,999
CVS
6.00% Cv ACES 200,000(g) 16,300,000
Ericsson (LM) Telephone ADR
4.25% Cv 5,000,000(c) 26,875,000
Federal-Mogul Finance Trust
7.00% Cm Cv 270,000 14,883,750
Finova Finance Trust
5.50% Cv 300,000 20,700,000
Glenborough Realty Trust
7.75% Cv Series A 402,105 8,192,889
GS-Altera
Cv 347,826(f) 12,566,953
Host Marriott Financial Trust
6.75% Cv 300,000 11,662,500
Houston Inds
7.00% Cv ACES 325,000(g) 24,801,563
Ingersoll-Rand
6.75% Cv PRIDES 800,000(i) 16,800,000
McKesson
5.00% Cv 200,000(f) $25,175,000
MediaOne Group
6.25% Cv 569,500 31,820,813
MS-Applied Material 180,000(e) 5,107,500
MS-Gillette
Cv 186,795 15,597,383
MS-UNUM
3.25% Cv 1,217,092 59,028,961
Newell Financial Trust
5.25% Cm Cv 250,000(f) 14,031,250
Owens-Illinois
4.75% Cv 400,000 14,300,000
PLC Capital Trust
6.50% Cv PRIDES 80,000(i) 4,870,000
Rhone-Poulenc
Warrants 699,893(c) 2,199,743
SBH-Cincinnati Bell
6.25% 216,200 10,918,100
SBH-Emerson Electric
5.00% Cv PERCS 615,380(h) 36,573,264
Sprint
8.25% Cv 154,325 10,416,938
Tribune/TLC
6.25% Cv 470,000(b) 10,163,750
Total preferred stocks & other
(Cost: $467,680,687) $501,867,239
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (1.8%)
Issuer Coupon Principal Value(a)
rate amount
Colt Telecom Group
(Deutsche Mark) Cv
<S> <C> <C> <C>
08-06-05 2.00% 25,000,000(c) $11,269,986
Costco
Zero Coupon Cv Sub Nts
08-01-17 3.51 21,000,000(f,j) 12,862,500
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 3.70 20,000,000(j) 7,600,000
Office Depot
Zero Coupon Cv Nts
11-01-08 4.09 7,300,000(j) 4,881,875
Pennzoil
Cv Deb
08-15-08 4.90 15,000,000 15,187,500
PLATINUM Technology
Cv Sub Nts
12-15-02 6.25 15,000,000(f) 13,125,000
Solectron
Cv Sub Nts
03-01-06 6.00 6,700,000(f) 10,259,375
Total bonds
(Cost: $77,924,744) $75,186,236
Short-term securities (10.5%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Government agencies (1.4%)
Federal Home Loan Bank Disc Nt
10-23-98 5.20% $5,500,000 $5,482,589
Federal Home Loan Mtge Corp Disc Nts
10-26-98 5.43 25,000,000 24,906,249
10-28-98 5.45 15,000,000 14,939,025
11-12-98 5.15 14,800,000 14,711,595
Total 60,039,458
Commercial paper (8.9%)
ABB Treasury Center USA
10-28-98 5.54 10,000,000(k) 9,956,628
AIG Funding
10-08-98 5.57 3,900,000 3,895,672
Aluminum Co of America
11-17-98 5.53 10,800,000 10,720,441
American General Finance
10-29-98 5.54 11,900,000 11,849,002
Associates Corp North America
10-09-98 5.54 8,900,000 8,889,102
Avco Financial Services
11-23-98 5.58 4,200,000 4,146,720
Barclays U.S. Funding
10-01-98 5.57 9,000,000 9,000,000
11-04-98 5.27 16,200,000 16,119,674
Bear Stearns
10-22-98 5.52 8,900,000 8,871,446
BellSouth Telecommunications
11-23-98 5.24 14,800,000 14,686,698
CAFCO
10-23-98 5.57 5,200,000(k) 5,182,459
11-06-98 5.53 7,400,000(k) 7,359,374
Ciesco LP
10-09-98 5.58% $8,200,000(k) $8,186,382
10-22-98 5.58 700,000(k) 696,607
11-10-98 5.52 9,000,000(k) 8,941,290
Commerzbank U.S. Finance
10-01-98 5.54 10,000,000 10,000,000
10-20-98 5.53 11,800,000 11,765,810
Daimler-Benz
10-29-98 5.56 9,400,000 9,359,569
Delaware Funding
10-13-98 5.55 1,100,000(k) 1,097,976
10-27-98 5.52 8,000,000(k) 7,968,280
Deutsche Bank Financial
10-23-98 5.56 13,500,000 13,450,464
Fleet Funding
10-13-98 5.57 8,000,000(k) 7,985,200
10-22-98 5.54 9,500,000(k) 9,469,465
Ford Motor Credit
10-02-98 5.56 5,500,000 5,499,157
General Electric Capital Services
10-29-98 5.54 11,900,000 11,849,002
Goldman Sachs Group
10-13-98 5.56 12,200,000 12,177,511
GTE Funding
10-08-98 5.54 12,100,000 12,086,989
Heinz (HJ)
10-16-98 5.53 5,000,000 4,988,563
Intl Lease Finance
10-08-98 5.54 10,900,000 10,888,280
Merrill Lynch
11-09-98 5.56 10,000,000 9,935,847
Morgan Stanley, Dean Witter,
Discover & Co
10-21-98 5.53 14,100,000 14,056,838
Natl Rural Utilities
10-14-98 5.54 8,500,000 8,483,118
Novartis Finance
10-02-98 5.57 13,100,000 13,097,977
10-05-98 5.52 5,800,000(k) 5,796,449
Reed Elsevier
10-27-98 5.54 15,900,000(k) 15,836,612
Rohm & Haas
10-22-98 5.55 16,300,000 16,247,419
Toyota Motor Credit
10-08-98 5.56 5,700,000 5,693,893
UBS Finance (Delaware)
10-19-98 5.55 10,000,000 9,972,450
Xerox
11-05-98 5.24 1,200,000 1,193,910
Xerox Credit
10-05-98 5.53 4,200,000 4,197,429
Total 361,599,703
Letter of credit (0.2%)
BankAmerica-
AES Hawaii
10-08-98 5.52 7,300,000 7,292,193
Total short-term securities
(Cost: $428,972,772) $428,931,354
Total investments in securities
(Cost: $3,417,184,496)(l) $4,135,014,371
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of
Sept. 30, 1998, the value of foreign securities represented 7.10% of
net assets.
(d) 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, 1998 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
<S> <C> <C> <C> <C> <C> <C>
Meridian Gold* $14,110,518 $ -- $14,110,518 $ -- $ -- $ --
Mutual Risk Management* 26,680,057 -- 4,997,274 21,682,783 375,000 53,062,500
Stillwater Mining* 18,684,058 9,895,800 3,976,470 24,603,388 -- 41,031,250
Total $59,474,633 $9,895,800 $23,084,262 $46,286,171 $375,000 $94,093,750
*Issuer was not an affiliate for the entire year ended Sept. 30, 1998.
(e) Security is partially or fully on loan. See Note 4 to the financial
statements.
(f) 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.
(g) ACES are automatically convertible to the underlying equity securities.
(h) 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.
(i) 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.
(j) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(k) 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.
(l) At Sept. 30, 1998, the cost of securities for federal income tax purposes
was $3,417,683,000 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $877,511,946
Unrealized depreciation160,180,575)
Net unrealized appreciation $717,331,371
</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 Equity Income
Portfolio (a series of Growth and Income Trust) as of September 30, 1998,
the related statement of operations for the year then ended and the
statements of changes in net assets for each of the years in the two-year
period ended September 30, 1998. 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 Income Portfolio
at September 30, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Income Portfolio
Sept. 30, 1998
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $2,542,309,249) $2,483,072,599
Dividends and accrued interest receivable 3,580,354
Receivable for investment securities sold 9,528,440
Unrealized appreciation on foreign currency contracts
held, at value (Note 7) 4,106
U.S. government securities held as collateral (Note 4) 730,082
-------
Total assets 2,496,915,581
-------------
Liabilities
Disbursements in excess of cash on demand deposit 1,732,504
Payable for investment securities purchased 53,426,194
Payable upon return of securities loaned (Note 4) 31,004,282
Accrued investment management services fee 33,367
Other accrued expenses 40,795
------
Total liabilities 86,237,142
----------
Net assets $2,410,678,439
--------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Equity Income Portfolio
Year ended Sept. 30, 1998
Investment income
Income:
<S> <C>
Dividends $ 60,548,099
Interest 17,302,364
Less foreign taxes withheld (515,140)
--------
Total income 77,335,323
----------
Expenses (Note 2):
Investment management services fee 12,214,128
Compensation of board members 13,738
Custodian fees 253,350
Audit fees 29,250
Other 5,616
-----
Total expenses 12,516,082
Earnings credits on cash balances (Note 2) (13,825)
-------
Total net expenses 12,502,257
----------
Investment income (loss) -- net 64,833,066
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 256,847,907
Financial futures contracts (Note 6) 6,494,276
Foreign currency transactions 16,073
------
Net realized gain (loss) on investments 263,358,256
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (386,481,334)
------------
Net gain (loss) on investments and foreign currencies (123,123,078)
------------
Net increase (decrease) in net assets resulting from operations $ (58,290,012)
-------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Equity Income Portfolio
Year ended Sept. 30,
1998 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 64,833,066 $ 71,670,175
Net realized gain (loss) on investments 263,358,256 210,870,724
Net change in unrealized appreciation
(depreciation ) on investments and on translation
of assets and liabilities in foreign currencies (386,481,334) 167,694,853
------------ -----------
Net increase (decrease) in net assets resulting
from operations (58,290,012) 450,235,752
Net contributions (withdrawals) from partners 248,383,687 314,194,640
----------- -----------
Total increase (decrease) in net assets 190,093,675 764,430,392
Net assets at beginning of year 2,220,584,764 1,456,154,372
------------- -------------
Net assets at end of year $2,410,678,439 $2,220,584,764
-------------- --------------
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.
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 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, if any, 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, 1998, the Portfolio's custodian fees were
reduced by $13,825 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 $2,845,348,494 and $2,124,098,737,
respectively, for the year ended Sept. 30, 1998. For the same year, the
portfolio turnover rate was 97%. Realized gains and losses are determined
on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $49,994 for
the year ended Sept. 30, 1998.
4. Lending of portfolio securities
At Sept. 30, 1998, securities valued at $28,282,700 were on loan to
brokers. For collateral, the Portfolio received $30,274,200 in cash and
U.S. government securities valued at $730,082. Income from securities
lending amounted to $104,104 for the year ended Sept. 30, 1998. 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>
5. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
Year ended Sept. 30, 1998
Calls
Contracts Premium
Balance Sept. 30, 1997 -- $ --
Opened 311 204,781
Exercised (311) (204,781)
Balance Sept. 30, 1998 -- $ --
See "Summary of significant accounting policies."
6. Stock index futures contracts
Investments in securities at Sept. 30, 1998, included securities valued at
$10,430,967 that were pledged as collateral to cover initial margin
deposits on 450 open purchase contracts. The market value of the open
purchase contracts at Sept. 30, 1998 was $115,425,000 with a net unrealized
loss of $811,755. See "Summary of significant accounting policies."
7. Foreign currency contracts
At Sept. 30, 1998, 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
contracts are as follows:
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
Oct. 7, 1998 6,161,838 10,177,815,119 $4,106 $--
U.S. Dollar Italian Lira
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Equity Income Portfolio
Sept. 30, 1998
(Percentages represent value of investments compared to net assets)
Common stocks (88.1%)
Issuer Shares Value(a)
Aerospace & defense (1.6%)
<S> <C> <C>
Goodrich (BF) 550,000 $17,978,125
Rockwell Intl 602,000 21,747,250
Total 39,725,375
Automotive & related (3.8%)
Chrysler 585,000 28,006,875
Dana 510,000 19,029,375
Ford Motor 530,000 24,876,875
TRW 430,000 19,081,250
Total 90,994,375
Banks and savings & loans (10.9%)
BankAmerica 357,500 21,494,688
BankBoston 1,045,000 34,485,000
First Chicago NBD 715,000 48,977,499
First Union 1,045,000 53,490,937
NationsBank 577,500(b) 30,896,250
Norwest 935,000 33,484,688
Washington Mutual 1,182,500 39,909,375
Total 262,738,437
Building materials & construction (1.1%)
Masco 1,040,000 25,610,000
Chemicals (1.3%)
Imperial Chemical Inds ADR 360,000(c,d) 11,430,000
Lyondell Petrochemical 930,000 20,692,500
Total 32,122,500
Communications equipment
& services (1.3%)
Motorola 215,000 $9,177,813
Northern Telecom 672,000(c,d) 21,504,000
Total 30,681,813
Computers & office equipment (6.4%)
3Com 894,500(b) 26,890,906
Electronic Data Systems 605,200 20,085,075
First Data 490,000 11,515,000
Hewlett-Packard 355,000 18,792,813
Intl Business Machines 604,800 77,414,400
Total 154,698,194
Electronics (1.1%)
AMP 385,000 13,763,750
Applied Materials 475,000(b) 11,993,750
Total 25,757,500
Energy (13.9%)
Chevron 485,000(d) 40,770,313
Elf Aquitaine ADR 382,000(c) 23,755,625
ENI 4,300,000(b,c) 26,362,870
Exxon 660,900 46,386,918
Mobil 600,000 45,562,500
Royal Dutch Petroleum 1,325,000(c) 63,103,124
Texaco 650,000 40,746,875
Ultramar Diamond Shamrock 750,000 17,062,500
Unocal 865,000 31,356,250
Total 335,106,975
Energy equipment & services (0.3%)
BJ Services 469,900(b) 7,635,875
Financial services (2.8%)
Fannie Mae 467,500 30,036,875
Household Intl 990,000 37,125,000
Total 67,161,875
Food (4.9%)
Bestfoods 704,000 $34,100,000
General Mills 622,000 43,540,000
Sara Lee 743,000(e) 40,122,000
Total 117,762,000
Health care (5.1%)
American Home Products 573,000 30,010,875
Baxter Intl 526,000 31,297,000
Johnson & Johnson 396,000 30,987,000
Merck & Co 241,000(e) 31,224,563
Total 123,519,438
Health care services (0.8%)
Columbia/HCA Healthcare 998,000 20,022,375
Household products (1.3%)
Kimberly-Clark 756,000 30,618,000
Industrial equipment & services (1.1%)
Browning-Ferris Inds 700,000 21,175,000
Illinois Tool Works 102,200 5,569,900
Total 26,744,900
Insurance (7.7%)
American General 660,000 42,157,500
EXEL Cl A 637,407 40,156,641
Lincoln Natl 632,500 52,023,125
Marsh & McLennan 1,008,500 50,172,875
Total 184,510,141
Media (0.1%)
Donnelley (RH) 170,000 2,103,750
Multi-industry conglomerates (1.7%)
Emerson Electric 675,000 42,018,750
Paper & packaging (1.7%)
Tenneco 725,000 23,834,375
Union Camp 429,000 16,891,875
Total 40,726,250
Real estate investment trust (3.0%)
Equity Office Properties Trust 450,000(d) $11,025,000
FelCor Suite Hotels 500,000 12,156,250
Highwoods Properties 600,000 16,650,000
ProLogis Trust 800,000 18,100,000
Simon Property Group 500,000 14,875,000
Total 72,806,250
Retail (3.5%)
American Stores 1,150,000 37,015,625
Dayton Hudson 540,000 19,305,000
Penney (JC) 605,000 27,187,188
Total 83,507,813
Transportation (0.6%)
Teekay Shipping 750,000(c) 13,640,625
Utilities -- electric (5.0%)
CMS Energy 450,000 19,603,125
DPL 720,000 14,130,000
Duke Energy 346,100 22,907,494
FPL Group 330,000 22,996,874
New Century Energies 425,000 20,692,188
Northern States Power 720,000 20,205,000
Total 120,534,681
Utilities -- telephone (7.2%)
Ameritech 420,000 19,897,500
AT&T 430,000 25,128,125
BCE 345,000(c) 9,638,438
BellSouth 379,000 28,519,750
MCI WorldCom 536,000(b) 26,197,000
SBC Communications 650,000 28,884,375
U S WEST Communications Group 675,000 35,395,312
Total 173,660,500
Total common stocks
(Cost: $2,185,876,519) $2,124,408,392
Preferred stocks & other (4.0%)
Issuer Shares Value(a)
AutoZone
5.00% Cv PERCS 715,100(g) $17,671,551
BS-Intel
5.00% Cv PERCS 128,000(g) 21,731,840
BS-Service Corp Intl
5.00% 475,000 14,682,250
MediaOne Group
6.25% Cv 344,100(b) 19,226,588
Union Pacific Capital Trust
6.25% Cv 541,000 23,939,250
Total preferred stocks & other
(Cost: $97,728,569) $97,251,479
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (1.2%)
Issuer Coupon Principal Value(a)
rate amount
Chemicals (0.6%)
Waste Management
Cv Sub Nts
<S> <C> <C> <C>
02-01-02 4.00% $12,000,000 $14,535,000
Electronics (0.6%)
SBH-United Technologies
Cv
12-04-98 5.00 18,600,000(f) 14,177,478
Total bonds
(Cost: $26,000,024) $28,712,478
Short-term securities (9.7%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.1%)
Federal Home Loan Mtge Corp Disc Nts
10-02-98 5.46% $10,400,000 $10,398,428
10-05-98 5.45 24,000,000 23,985,506
10-14-98 5.46 9,700,000 9,680,962
10-28-98 5.32 11,000,000 10,956,275
11-30-98 5.17 15,000,000 14,869,613
Federal Natl Mtge Assn Disc Nt
10-09-98 5.45 4,400,000 4,394,681
Total 74,285,465
Commercial paper (6.6%)
Barclays U.S. Funding
10-01-98 5.57 12,000,000 12,000,000
Bear Stearns
10-15-98 5.54 4,100,000 4,091,215
BellSouth Telecommunications
11-03-98 5.24 11,900,000 11,843,059
CAFCO
10-21-98 5.57 6,700,000(h) 6,677,705
Fleet Funding
10-13-98 5.56 2,300,000(h) 2,295,768
Ford Motor Credit
10-09-98 5.54 7,300,000 7,291,062
Gannett
11-05-98 5.27 6,200,000(h) 6,168,354
Goldman Sachs Group
10-13-98 5.56 5,600,000 5,589,677
GTE Funding
10-06-98 5.59 800,000 799,380
10-08-98 5.54 12,100,000 12,086,989
Intl Lease Finance
10-07-98 5.54 10,000,000 9,990,783
10-08-98 5.54 5,900,000 5,893,656
Motorola
11-24-98 5.24% $6,300,000 $6,250,860
Novartis Finance
10-05-98 5.52 5,700,000(h) 5,696,510
Paccar Financial
10-22-98 5.54 1,500,000 1,495,170
Pfizer
10-30-98 5.52 4,900,000(h) 4,878,330
Procter & Gamble
11-09-98 5.23 3,300,000 3,281,410
Reed Elsevier
10-15-98 5.50 5,300,000(h) 5,288,705
Rohm & Haas
10-22-98 5.55 11,100,000 11,064,193
Toyota Motor Credit
10-01-98 5.58 10,000,000 10,000,000
10-23-98 5.37 11,600,000 11,562,074
Xerox
10-05-98 5.53 9,400,000 9,394,245
11-05-98 5.24 4,800,000 4,775,640
Total 158,414,785
Total short-term securities
(Cost: $232,704,137) $232,700,250
Total investments in securities
(Cost: $2,542,309,249)(i) $2,483,072,599
See accompanying notes to investments in securities.
</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) Foreign security values are stated in U.S. dollars. As of Sept. 30, 1998,
the value of foreign securities represented 7.02% of net assets.
(d) Security is partially or fully on loan. See Note 4 to the financial
statements.
(e) Partially pledged as initial margin deposit on the following open stock
index futures purchase contracts (see Note 6 to the financial statements):
Type of security Contracts
Standard & Poor's 500 Stock Index, Dec. 1998 450
(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) 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.
(h) 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.
(i) At Sept. 30, 1998, the cost of securities for federal income tax purposes
was $2,542,423,219 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $161,532,020
Unrealized depreciation (220,882,640)
Net unrealized depreciation $(59,350,620)
<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, 1998,
the related statement of operations for the year then ended and the
statements of changes in net assets for each of the years in the two-year
period ended September 30, 1998. 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, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Total Return Portfolio
Sept. 30, 1998
Assets
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers
<S> <C>
(identified cost $2,714,032,407) $2,630,213,076
Investments in securities of affiliated issuer
(identified cost $23,098,325) 7,887,350
----------- ---------
Total investments in securities
(identified cost $2,737,130,732) 2,638,100,426
Cash in bank on demand deposit 2,949,386
Dividends and accrued interest receivable 22,799,267
Receivable for investment securities sold 80,588,427
Receivable from investment advisor 212,906
U.S. government securities held as collateral
for securities loaned (Note 5) 14,322,267
Unrealized appreciation on foreign currency
contracts held, at value (Notes 1 and 4) 298,516
-------
Total assets 2,759,271,195
-------------
Liabilities
Payable for investment securities purchased 79,772,919
Unrealized depreciation on foreign currency contracts
held, at value (Notes 1 and 4) 12,631
Payable upon return of securities loaned (Note 5) 86,751,567
Accrued investment management services fee 35,209
Options contracts written, at value
(premium received $6,263,389) (Note 6) 12,701,874
Other accrued expenses 185,240
-------
Total liabilities 179,459,440
-----------
Net assets $2,579,811,755
--------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Total Return Portfolio
Year ended Sept. 30, 1998
Investment income
Income:
<S> <C>
Dividends (includes $917,855 from affiliates) $ 29,457,073
Interest 86,437,471
Less foreign taxes withheld (686,048)
--------
Total income 115,208,496
-----------
Expenses (Note 2):
Investment management services fee 12,897,457
Compensation of board members 17,264
Custodian fees 859,639
Audit fees 29,250
Other 54,439
------
Total expenses 13,858,049
Earnings credits on cash balances (Note 2) (11,704)
-------
Total net expenses 13,846,345
----------
Investment income (loss) -- net 101,362,151
-----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 280,655,670
Financial futures contracts (9,066,534)
Foreign currency transactions 2,480,965
Options contracts written (Note 6) (7,958,194)
----------
Net realized gain (loss) on investments 266,111,907
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (447,531,928)
------------
Net gain (loss) on investments and foreign currencies (181,420,021)
------------
Net increase (decrease) in net assets resulting from operations $ (80,057,870)
-------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Total Return Portfolio
Year ended Sept. 30,
1998 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 101,362,151 $ 82,689,056
Net realized gain (loss) on investments 266,111,907 345,627,464
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies (447,531,928) 122,489,698
------------ -----------
Net increase (decrease) in net assets resulting
from operations (80,057,870) 550,806,218
Net contributions (withdrawals) from partners (339,337,021) (350,789,437)
------------ ------------
Total increase (decrease) in net assets (419,394,891) 200,016,781
Net assets at beginning of year 2,999,206,646 2,799,189,865
------------- -------------
Net assets at end of year $2,579,811,755 $2,999,206,646
-------------- --------------
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.
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, if any, may
arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement date 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
At Sept. 30, 1998, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid securities
to 10% of net assets, at market value, at the time of purchase. The
aggregate value of such securities at Sept. 30, 1998 was $8,905,156
representing 0.35% of 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, 1998, the Portfolio had entered
into outstanding when-issued or forward-commitments of $9,968,800.
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 $1,363,906 for the year ended Sept. 30,
1998.
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 ther expenses properly payable by the Trust or Portfolio and
approved by the board.
During the year ended Sept. 30, 1998, the Portfolio's custodian fees were
reduced by $11,704 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 $3,043,695,649 and $3,052,730,306,
respectively, for the year ended Sept. 30, 1998. For the same period, the
portfolio turnover rate was 122%. Realized gains and losses are determined
on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $148,878
for the year ended Sept. 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
4. Foreign currency contracts
At Sept. 30, 1998, 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:
Exchange Currency to Currency to Unrealized Unrealized
date be delivered be received appreciation depreciation
<S> <C> <C> <C> <C>
Oct. 1, 1998 1,568,707 921,522 $ -- $ 2,027
U.S. Dollar British Pound
Oct. 1, 1998 42,323,220 309,899 77 --
Japanese Yen U.S. Dollar
Oct. 1, 1998 36,019,683 269,407 5,729 --
Japanese Yen U.S. Dollar
Oct. 1, 1998 116,563,149,371 418,614 -- 1,388
Turkish Lira U.S. Dollar
Oct. 2, 1998 51,970,157 381,572 1,132 --
Japanese Yen U.S. Dollar
Oct. 2, 1998 9,377,875,000 33,831 40 --
Turkish Lira U.S. Dollar
Oct. 6, 1998 402,314 2,352,694 -- 2,044
U.S. Dollar South African Rand
Oct. 6, 1998 403,404 2,374,438 566 --
U.S. Dollar South African Rand
Oct. 6, 1998 355,774 210,704 -- 62
Singapore Dollar U.S. Dollar
Oct. 30, 1998 8,368,239 1,491,931 -- 2,451
French Franc U.S. Dollar
Oct. 30, 1998 3,840,921 681,244 -- 4,659
French Franc U.S. Dollar
Nov. 30, 1998 308,820,778 2,301,472 21,768 --
Japanese Yen U.S. Dollar
Nov. 30, 1998 1,541,702,750 11,650,000 269,204
Japanese Yen U.S. Dollar
Total $298,516 $12,631
</TABLE>
<PAGE>
5. Lending of portfolio securities
At Sept. 30, 1998, securities valued at $84,207,508 were on loan to
brokers. For collateral, the Portfolio received $72,429,300 in cash and
U.S. government securities valued at $14,322,267. Income from securities
lending amounted to $658,567 for the year ended Sept. 30, 1998. 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. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
Year ended Sept. 30, 1998
Puts Calls
Contracts Premium Contracts Premium
Balance Sept. 30, 1997 -- $-- -- $--
Opened 8,750 14,423,300 3,800 811,073
Closed (3,200) (6,815,481) -- --
Exercised (2,500) (1,016,216) (2,800) (651,578)
Expired (1,300) (328,214) (1,000) (159,495)
Balance Sept. 30, 1998 1,750 $6,263,389 -- $--
See "Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Total Return Portfolio
Sept. 30, 1998
(Percentages represent value of investments compared to net assets)
Common stocks (47.2%)
Issuer Shares Value (a)
Aerospace & defense (0.5%)
<S> <C> <C>
AlliedSignal 155,900 $5,514,962
Goodrich (BF) 109,700 3,585,819
Lockheed Martin 21,900 2,207,794
Raytheon Cl B 50,200 2,707,663
Total 14,016,238
Airlines (0.2%)
AMR 92,000(b) 5,100,250
Southwest Airlines 47,750 955,000
Total 6,055,250
Automotive & related (1.1%)
Chrysler 18,000 861,750
Dana 148,800 5,552,100
Ford Motor 351,600 16,503,225
General Motors 52,800 2,887,500
Otosan Otomobil Sanayii 2,931,500(b,c) 665,456
Tata Engineering & Locomotive GDR 532,000(c) 1,635,900
Total 28,105,931
Banks and savings & loans (6.2%)
Akbank T.A.S. ADR 300,000(b,c) 840,000
Argentaria 420,688(b,c) 8,373,164
Banc One 270,800(c) 11,542,850
Banca Intesa 1,927,827(b,c) 8,117,116
BankAmerica 227,700 13,690,462
Banque Natl de Paris 244,103(b,c) 13,077,403
Bayerische Vereinsbank 174,944(c) 12,885,483
BIG Bank Gdanski GDR 88,000(b,c) $1,102,200
Chase Manhattan 49,100 2,123,575
Credito Italiano 2,562,534(b,c) 10,680,898
First Chicago NBD 200,100 13,706,849
First Union 44,800 2,293,200
Instituto Bancario San Paolo di Torino 627,034(b,c) 7,882,319
Natl Bank of Greece 110,000(c,h) 2,959,000
NationsBank 261,600 13,995,599
Nordbanken Holding 573,688(b,c) 3,293,887
Norwest 77,200 2,764,725
Thai Farmers Bank 724,000(b,c) 485,732
Toronto-Dominion Bank 232,057(c) 6,197,348
UBS 36,193 7,079,955
Wachovia 118,300 10,085,075
Washington Mutual 112,200 3,786,750
Yapi Kredit Finance 313,250,000(b,c) 3,555,388
Zagrebacka Banka 76,000 (c) 633,916
Total 161,152,894
Beverages & tobacco (1.3%)
Coca-Cola 337,500 19,448,437
Fomento Economico Mexicano ADR 288,400(c,j) 5,659,850
Panamerican Beverages Cl A 50,000(c) 890,625
PepsiCo 150,900 4,442,119
Philip Morris 41,900 1,930,019
Total 32,371,050
Building materials & construction (0.2%)
Daiwa House Inds 305,000 (c) 2,768,577
Empresas ICA Sociedad Controladora 290,200 (c) 1,704,925
Singapore Technologies Engineering 1,836,000(b,c) 1,762,009
Total 6,235,511
Chemicals (1.1%)
Air Products & Chemicals 183,600 5,462,100
Du Pont (EI) de Nemours 108,500(c) 6,089,562
Engelhard 63,100 1,116,081
Henkel KGaA 164,886(c) $12,495,177
Waste Management 66,265(b) 3,184,862
Total 28,347,782
Communications equipment & services (1.0%)
Andrew Corp 70,800(b) 938,100
Ascend Communications 44,200(b) 2,011,100
China Telecom 1,418,000(b,c) 2,232,499
Lucent Technologies 129,500 8,943,594
Motorola 47,700 2,036,194
Newbridge Networks 58,800(b) 1,057,845
NICE-Systems ADR 85,000(b,c) 1,253,750
Northern Telecom 120,720(c) 3,863,040
Tellabs 90,400(b) 3,599,050
Vimpel-Communications ADR 57,000(b,c) 299,250
Total 26,234,422
Computers & office equipment (4.5%)
Apple Computer 76,300 (h) 2,908,938
Automatic Data Processing 95,800 7,161,050
Cisco Systems 162,900(b) 10,069,255
Compaq Computer 172,700 5,461,638
Computer Associates Intl 63,000 2,331,000
Computer Sciences 21,600 1,177,200
Dell Computer 91,400(b) 6,009,550
Electronic Data Systems 76,800 2,548,800
EMC 108,100(b) 6,181,969
First Data 84,900 1,995,150
Formula Systems ADR 56,500(c) 1,130,000
General Instrument 52,300(b) 1,130,988
Hewlett-Packard 171,100 9,057,606
Intl Business Machines 133,200 17,049,599
Microsoft 260,300(b) 28,649,268
Oracle 120,300(b) 3,503,738
Parametric Technology 225,200(b) 2,266,075
Persetel Q Data Holdings 320,000 2,662,240
Seagate Technology 53,100(b) 1,330,819
Sun Microsystems 37,900 $1,887,894
Synnex Technology Intl 265,319(b) 866,426
Total 115,379,203
Electronics (1.0%)
Celestica 63,000(c) 794,829
Compal Electronics 512,400(b,c) 1,517,114
Fujikura 390,000(b,c) 1,438,905
Intel 195,700 16,781,274
Matsushita Communication Industrial 54,000(c) 1,936,970
Rohm 17,000(b,c) 1,617,803
Samsung Electronics GDR 135,436(b,c) 1,858,859
Total 25,945,754
Energy (2.8%)
Amoco 38,400 2,068,800
Chevron 84,400 7,094,875
Exxon 234,800 16,480,025
Hellenic Petroleum 422,000(c) 3,593,541
Lukoil Holding ADR 72,840(c,h) 883,185
Mobil 60,700 4,609,406
MOL Magyar Olaj-es Gazipari GDR 69,500(c) 1,336,138
Petro-Canada 442,500(c) 5,553,726
Royal Dutch Petroleum 445,100(c) 21,197,888
Total Petroleum Cl B 77,094(b,c) 9,719,695
Total 72,537,279
Energy equipment & services (0.4%)
Halliburton 151,300 4,321,506
Sasol 173,000 793,222
Schlumberger 119,600(c) 6,017,376
Total 11,132,104
Financial services (1.5%)
Associates First Capital Cl A 43,700 2,851,425
Fannie Mae 186,000 11,950,499
Household Intl 176,100 6,603,750
Lehman Brothers Holdings 39,300 1,110,225
Merrill Lynch & Co 35,300 $1,672,338
Morgan Stanley, Dean Witter,
Discover & Co 53,400 2,299,538
Schwab (Charles) 35,500 1,397,813
Sumitomo Realty & Development 506,000(b,c) 926,031
Travelers Group 234,800 8,804,999
Total 37,616,618
Food (1.5%)
Bestfoods 212,000 10,268,750
General Mills 174,000 12,180,000
Sara Lee 185,900 10,038,600
Sysco 248,000 5,843,500
Total 38,330,850
Health care (5.2%)
ALZA 33,100(b) 1,435,713
American Home Products 42,400 2,220,700
Amgen 43,400(b) 3,279,413
Baxter Intl 95,900 5,706,050
Boston Scientific 32,500(b) 1,669,688
Bristol-Myers Squibb 185,200 19,237,649
EGIS 78,000(b,c) 1,392,538
Guidant 92,900 6,897,825
Johnson & Johnson 53,000 4,147,250
Lilly (Eli) 63,800 4,996,338
Medtronic 41,200 2,384,450
Merck & Co 95,000 12,308,438
Novartis 7,924(b,c) 12,739,255
Pfizer 154,700 16,388,530
Pharmacia & Upjohn 34,400 1,726,450
Schering-Plough 165,400 17,129,237
SmithKline Beecham 378,270(b,c) 4,176,895
Takeda Chemical Inds 85,000(c) 2,271,149
Warner-Lambert 189,200 14,284,600
Total 134,392,168
Health care services (0.4%)
Aetna 41,100 $2,856,450
Service Corp Intl 100,100 3,190,688
Tenet Healthcare 97,100(b) 2,791,625
United Healthcare 66,300 2,320,500
Total 11,159,263
Household products (0.5%)
Newell 31,900 1,469,394
Procter & Gamble 90,500 6,419,844
Rhone-Poulenc Cl A 32,886(b,c) 1,380,087
Unilever 457,369(b,c) 3,907,303
Total 13,176,628
Industrial equipment & services (0.7%)
Illinois Tool Works 31,400 1,711,300
Ingersoll-Rand 48,000 1,821,000
Mannesmann 151,161(b,c) 13,849,295
NACCO Inds Cl A 9,000 900,000
Total 18,281,595
Insurance (1.1%)
American General 137,100 8,757,262
American Intl Group 38,850 2,991,450
Aon 25,600 1,651,200
ING Groep 77,283(b,c) 3,483,856
Lincoln Natl 80,900 6,654,025
UNUM 85,400 4,243,313
Total 27,781,106
Leisure time & entertainment (0.6%)
Accor 30,807(b,c) 6,464,199
Disney (Walt) 189,300 4,791,656
Mattel 157,300 4,404,400
Total 15,660,255
Media (0.8%)
CBS 120,200 $2,914,850
Clear Channel Communications 30,500(b) 1,448,750
Gannett 38,100 2,040,731
Grupo Televisa 207,300(b,c) 4,003,481
Knight-Ridder 81,200 3,613,400
Sony 22,000(b,c) 1,528,349
Time Warner 70,500 6,173,157
Total 21,722,718
Metals (0.6%)
Aluminum Co of America 52,102 3,699,242
Companhia Vale do Rio Doce 200,000(c) 2,950,000
Compania de Minas
Buenaventura ADR 242,209(c) 2,815,680
Reynolds Metals 130,000 6,605,625
Total 16,070,547
Multi-industry conglomerates (3.3%)
Bombardier Cl B 260,000(b,c) 2,837,200
Cendant 225,600(b) 2,622,600
China Merchants Holdings Intl 2,328,000(b,c) 1,381,901
China North Inds 16,500,000(b,c,j) 2,227,500
Cosco Pacific Limited 3,284,000(c) 1,366,801
Eastman Kodak 69,600 5,380,950
Emerson Electric 171,400 10,669,650
General Electric 338,400 26,923,950
General Electric PLC 1,463,901(b,c) 10,770,212
Shanghai Industrial Holdings 1,158,000(b,c,h) 2,316,347
Tyco Intl 155,700(c) 8,602,425
Viag 6,941 4,771,561
Williams 1,030,892(c) 6,116,592
Total 85,987,689
Paper & packaging (0.5%)
Fort James 172,500 $5,660,156
Owens-Illinois 141,400(b) 3,535,000
Tenneco 141,100 4,638,663
Total 13,833,819
Restaurants & lodging (0.2%)
Marriott Intl Cl A 72,900 1,740,488
Wendy's Intl 99,700 2,212,093
Total 3,952,581
Retail (2.6%)
Albertson's 202,100 10,938,663
Consolidated Stores 50,000(b) 981,250
Costco Cos 32,000(b) 1,516,000
CVS 144,500 6,330,906
Dayton Hudson 131,100 4,686,825
Great Universal Stores 731,755(b) 8,167,264
Home Depot 146,200 5,774,900
K mart 131,300 1,567,394
Kroger 152,100(b) 7,605,000
Meyer (Fred) 44,200(b) 1,718,275
Rite Aid 138,000 4,899,000
Wal-Mart Stores 256,100 13,989,462
Total 68,174,939
Textiles & apparel (--%)
Reliance Industries 67,540 (c) 364,716
Transportation (0.3%)
Burlington Northern Santa Fe 141,000 4,512,000
Strintzis Lines 700,000 3,454,850
Total 7,966,850
Utilities -- electric (1.3%)
Baltimore Gas & Electric 246,800 8,236,950
Carolina Power & Light 93,400 4,313,913
DTE Energy 91,700 4,143,694
Duke Energy 42,500 $2,812,969
FirstEnergy 57,300 1,779,881
PECO Energy 98,900 3,616,031
Southern Co 51,200 1,507,200
Suez Lyonnaise des Eaux 44,064(c) 7,506,884
Total 33,917,522
Utilities -- gas (0.5%)
Enron 238,900 12,616,906
Utilities -- telephone (5.0%)
AirTouch Communications 111,400(b) 6,349,800
Ameritech 142,400 6,746,200
AT&T 200,800 11,734,250
Bell Atlantic 44,900 2,174,844
BellSouth 128,500 9,669,625
Compania Anonima Nacional
Telefonos de Venezuela ADR 255,000(c) 4,335,000
Compania de Telecomunicaciones
de Chile ADR 244,548(c) 4,676,981
GTE 24,900 1,369,500
Mahanagar Telephone Nigam 195,952(b,c) 2,322,031
MCI WorldCom 207,275 10,130,566
Orange 1,072,464(c) 10,018,959
Rostelecom ADR 98,300(c,h) 196,600
SBC Communications 256,300 11,389,331
Telecom Italia 1,534,921(b,c) 7,341,527
Telecom Italia (New) 2,016,420(c) 13,895,553
Telecomunicacoes Brasileiras 51,900(c) 3,655,706
Telefonica de Argentina ADR 91,100(c) 2,681,756
U S WEST Communications Group 253,500 13,292,906
Vodafon 593,398(c) 6,920,623
Total 128,901,758
Total common stocks
(Cost: $1,232,424,614) $1,217,421,946
Preferred stocks & other (0.2%)
Issuer Shares Value (a)
Banca Intesa Warrants 1,927,827(c) $1,594,120
Bar Technologies Warrants 3,000 165,000
Bell Technology Warrants 3,410 34,100
Concentric Network Warrants 3,800 342,000
General Electric Warrants 22,983 29,598
KMC Telecom Holdings Warrants 3,000 15,000
Nakornthai Strip Mill 2,722,298(c) 3
Paxson Communications
12.50% Pay-in-kind Exchangeable 23,820(i) 2,262,900
Poland Telecom Warrants 5,500(c) 220,000
Unifi Communications Warrants 3,000 30
Versatel Warrants 5,500 55,000
Total preferred stocks & other
(Cost: $3,838,596) $4,717,751
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (36.2%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (10.6%)
Argentine Republic
(U.S. Dollar)
<S> <C> <C> <C>
03-31-23 5.75% $3,180,000(c) $2,136,563
City of Moscow
(U.S. Dollar) Zero Coupon
12-31-98 21.80 6,153,151(c,f) 623,930
Govt of Ecuador
(U.S. Dollar)
02-28-25 3.50 2,400,000(c) 1,010,000
Govt of Germany
(Deutsche Mark) Zero Coupon
10-16-98 1.74 12,000,000(c,f) 7,174,393
Govt of Russia
(Russian Ruble)
09-27-00 2.31 19,002,914(c) 43,639
12-15-20 6.63 20,300,000(c) 1,268,750
(Russian Ruble) Zero Coupon
05-05-99 -- 28,554,000(c,f) 178,183
(U.S. Dollar)
06-10-03 11.75 6,250,000(c,d) 1,285,155
07-24-05 8.75 16,575,000(c,d) 3,397,874
06-24-28 12.75 2,480,000(c,d) 472,750
12-29-49 6.63 14,543,878(c) 1,236,230
Province of Mendoza
(U.S. Dollar)
09-04-07 10.00 2,000,000(c,d) 1,448,340
Republic of Argentina
(Argentine Peso)
07-10-02 8.75 25,900,000(c,d) 17,612,000
02-12-07 11.75 15,000,000(c) 10,312,500
Republic of Korea
(U.S. Dollar)
04-15-08 8.88 8,950,000(c,h) 7,688,739
Republic of Panama
(U.S. Dollar)
02-13-02 7.88 1,000,000(c,d) 897,500
United Mexican States
(U.S. Dollar)
12-31-19 6.25 28,000,000(c) 20,387,499
05-15-26 11.50 6,750,000(c) 6,517,969
U.S. Treasury
11-30-99 5.63 3,500,000 3,543,120
04-30-00 6.75 32,000,000 33,100,480
06-30-02 6.25 8,000,000 8,511,200
03-31-03 5.50 1,500,000 1,572,900
08-15-04 7.25 20,000,000 22,942,400
08-15-05 6.50 12,500,000 14,096,750
05-15-08 5.63 12,500,000(h) 13,690,000
08-15-23 6.25 9,700,000 11,111,641
08-15-27 6.38 20,000,000 23,592,200
11-15-27 6.13 50,000,000(h) 57,642,999
Total 273,495,704
Mortgage-backed securities (3.6%)
Federal Home Loan Mtge Corp
03-01-13 5.50 10,584,449 10,539,168
12-01-25 7.50 18,758,146 19,338,147
07-01-28 6.00 10,000,000 9,987,500
09-01-28 6.00 9,790,907 9,783,627
Federal Natl Mtge Assn
05-01-24 7.50 13,240,997 13,673,316
03-01-25 6.00 10,000,000(n) 9,968,800
09-01-28 6.50 9,980,064 10,151,421
Federal Natl Mtge Assn
Collateralized Mtge Obligation
05-18-26 5.00 9,593,000 9,358,229
Total 92,800,208
Aerospace & defense (0.3%)
K&F Inds
Sr Sub Nts Series B
10-15-07 9.25 1,000,000 986,250
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,035,000 1,130,738
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 800,000 844,000
Northrop-Grumman
03-01-16 7.75 5,000,000 5,458,400
Total 8,419,388
Automotive & related (0.1%)
MSX Intl
Company Guaranty
01-15-08 11.38 2,450,000 2,477,563
Banks and savings & loans (1.5%)
Alfa-Russia Finance
(U.S. Dollar) Medium-term Nts Bank Guaranty
07-28-00 10.38 4,000,000(c) 440,000
Corp Andina de Fomento
(U.S. Dollar)
02-01-03 7.10 6,500,000(c) 6,614,790
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 2,500,000(c,d) 1,723,130
Greenpoint Capital
Company Guaranty
06-01-27 9.10 1,300,000 1,532,999
Provident Cos
03-15-38 7.41 11,000,000 11,843,920
Union Planters Bank
Sub Nts
03-15-18 6.50 10,000,000 10,466,100
US Capital
02-01-27 8.41 1,500,000(d) 1,639,095
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 1,500,000(d) 1,651,635
Wilshire Financial Services
Series B
08-15-04 13.00 4,000,000 3,705,000
Total 39,616,669
Building materials & construction (0.1%)
Southdown
Sr Sub Nts Series B
03-01-06 10.00 2,350,000 2,540,938
Chemicals (0.1%)
Polymer Group
Company Guaranty Series B
03-01-08 8.75 4,000,000 3,780,000
Commercial finance (0.2%)
Netia Holdings
(U.S. Dollar) Company
Guaranty Series B
11-01-07 10.25 6,000,000(c) 4,552,500
Communications equipment & services (1.5%)
American Cellular
Sr Nts
05-15-08 10.50 4,500,000(d) 4,365,000
IXC Communications
Sr Sub Nts
04-15-08 9.00 2,000,000 1,990,000
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-08 12.68 3,000,000(g) 1,380,000
Level 3 Communications
Sr Nts
05-01-08 9.13 4,500,000 4,252,500
MJD Communications
05-01-08 9.50 1,000,000(d) 1,007,500
NTL
Zero Coupon
04-01-08 9.78 6,000,000(d,g) 4,896,286
RCN
Zero Coupon Sr Disc Nts Series B
02-15-08 9.80 4,800,000(g) 2,496,000
TCI Telecommunications
Sr Nts
02-15-28 7.13 1,400,000 1,530,067
Telehub Communications
Zero Coupon
07-31-05 13.88 2,500,000(d,g) 1,450,000
US West Capital Funding
Company Guaranty
07-15-28 6.88% $9,250,000 $9,753,477
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 5,500,000(c,d) 5,225,000
Total 38,345,830
Computers & office equipment (0.3%)
Concentric Network
Sr Nts
12-15-07 12.75 3,800,000 3,515,000
Globix
Sr Nts
05-01-05 13.00 3,410,000 2,762,100
PSINet
Sr Nts Series B
02-15-05 10.00 1,005,000 1,010,025
Total 7,287,125
Electronics (0.3%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 4,500,000(c,d) 3,280,725
Thomas & Betts
01-15-06 6.50 4,500,000 4,774,725
Total 8,055,450
Energy (1.2%)
Forcenergy
Sr Sub Nts
11-01-06 9.50 1,000,000 732,500
Lodestar Holdings
(U.S. Dollar) Sr Nts
05-15-05 11.50 5,000,000(c,d) 4,087,500
R & B Falcon
04-15-08 6.95 5,000,000 5,172,150
Roil
(U.S. Dollar)
12-05-02 12.78% $9,140,000(c,d) $2,102,200
Transamerica Energy
06-15-02 11.50 600,000 360,000
Zero Coupon
06-15-07 13.26 1,300,000(g) 650,000
Union Pacific Resources
05-15-28 7.15 7,500,000 7,249,125
USX
03-01-08 6.85 10,000,000 10,399,500
Total 30,752,975
Energy equipment & services (0.2%)
Cliffs Drilling
Company Guaranty Series D
05-15-03 10.25 3,000,000 3,183,750
DI Inds
Sr Nts
07-01-07 8.88 1,500,000 1,170,000
Total 4,353,750
Financial services (1.4%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 2,750,000(c) 3,143,250
Arcadia Financial
Sr Nts
03-15-07 11.50 1,825,000 1,298,031
Beneficial
Medium-term Nts
02-18-13 6.25 10,000,000 10,420,800
Providian Natl Bank
Sr Nts
03-15-03 6.70 10,000,000 10,419,100
SASCO
02-25-28 6.76 2,500,000 2,552,475
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00% $2,900,000(c) $1,218,000
Wilmington Trust
05-01-08 6.63 6,300,000 6,749,001
Total 35,800,657
Food (0.1%)
Ameriserve Food Distributions
Company Guaranty
07-15-07 10.13 1,750,000 1,559,688
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 2,400,000(c,d) 1,416,000
Total 2,975,688
Furniture & appliances (0.2%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 2,500,000 2,587,500
Lifestyle Furnishings
Company Guaranty
08-01-06 10.88 3,250,000 3,489,688
Total 6,077,188
Health care (0.6%)
Baxter Intl
02-15-28 6.63 10,000,000 10,626,700
Lilly (Eli)
01-01-36 6.77 5,000,000 5,521,750
Total 16,148,450
Health care services (1.1%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 250,000 231,250
Fountain View
Sr Sub Nts
04-15-08 11.25% $2,150,000(d) $1,916,188
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,500,000(d) 2,153,125
Manor Care
Sr Nts
06-15-06 7.50 7,000,000 7,683,830
Owens & Minor
Company Guaranty Sr Sub Nts
06-01-06 10.88 3,200,000 3,360,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,125,000(d) 992,813
Service Corp Intl
03-15-20 6.30 11,850,000 12,365,711
Total 28,702,917
Household products (0.2%)
Revlon Consumer Products
Sr Nts
02-01-06 8.13 5,000,000 4,950,000
Industrial equipment & services (0.3%)
AGCO
Sr Sub Nts
03-15-06 8.50 1,025,000 1,004,500
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 5,000,000 4,993,750
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000 1,084,125
Total 7,082,375
Insurance (1.1%)
American United Life Insurance
03-30-26 7.75 5,000,000(k) 5,527,050
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 1,500,000 1,727,160
Metropolitan Life Insurance
11-01-25 7.80 4,800,000(d) 5,555,664
Minnesota Mutual Life
09-15-25 8.25 4,500,000(d) 5,541,975
Nationwide CSN Trust
02-15-25 9.88 5,000,000(d) 6,362,049
Veritas Holdings
(U.S. Dollar) Sr Nts
12-15-03 9.63 1,273,000(c) 1,328,694
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 1,875,000(c,d) 2,113,688
Total 28,156,280
Leisure time & entertainment (1.6%)
Icon Health & Fitness
Zero Coupon Sr Disc Nts Series B
11-15-06 15.91 10,500,000(g) 525,000
Loews Cineplex Entertainment
Sr Sub Nts
08-01-08 8.88 4,500,000 4,477,500
Mirage Resorts
02-01-08 6.75 8,750,000 8,858,763
SFX Entertainment
Company Guaranty Series B
02-01-08 9.13 945,000 897,750
Speedway Motorsports
08-15-07 8.50 2,000,000 2,085,000
Time Warner
02-01-24 7.57 11,875,000 13,187,068
Sr Nts
01-15-28 6.95 5,000,000 5,218,150
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 3,940,000 3,634,650
11-15-05 10.00 3,000,000 2,580,000
Total 41,463,881
Media (1.1%)
Australis Media
(U.S. Dollar)
11-01-00 14.00 454,044(c) 347,438
(U.S. Dollar) Zero Coupon
05-15-03 15.75 5,040,885(c,g) 75,613
CSC Holdings
Sr Sub Debs
05-15-16 10.50 3,000,000 3,390,000
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 7,000,000(c,d) 3,639,020
Grupo Televisa
(U.S. Dollar) Sr Nts Series A
05-15-03 11.38 2,750,000(c) 2,550,625
Heritage Media
Sr Sub Nts
02-15-06 8.75 5,000,000 5,237,499
Lamar Advertising
Company Guaranty
12-01-06 9.63 800,000 856,000
Liberty Group Operating
Company Guaranty
02-01-08 9.38 3,750,000 3,604,688
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50% $1,000,000(c) $1,023,750
News America Holdings
10-15-12 10.13 2,175,000 2,585,401
TCI Communications
08-01-15 8.75 1,700,000 2,115,735
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 2,250,000(c,d,i,k) 3,375,000
Total 28,800,769
Metals (0.6%)
Bar Technologies
Company Guaranty
04-01-01 13.50 3,000,000(d) 3,210,000
EnviroSource
Sr Nts
06-15-03 9.75 530,000 489,588
Sr Nts Series B
06-15-03 9.75 1,300,000 1,200,875
Grupo Minero Mexico
(U.S. Dollar) Company
Guaranty Series A
04-01-08 8.25 5,000,000(c) 3,899,999
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 2,882,928(c,d) 2,364,001
NSM Steel
Company Guaranty
02-01-06 12.00 4,350,000 2,175,000
02-01-08 12.25 4,300,000 2,279,000
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 1,000,000(c) 1,031,380
Total 16,649,843
Miscellaneous (1.7%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75% 3,900,000 4,104,750
Chattem
Company Guaranty Series B
04-01-08 8.88 2,200,000 2,134,000
CTI Holdings
(U.S. Dollar) Zero Coupon Sr Nts
04-15-08 11.59 3,800,000(c,g) 1,638,750
Delphes 2
(U.S. Dollar)
05-05-09 7.75 3,700,000(c) 3,515,000
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 4,834,143
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c) 2,343,750
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 2,200,000(c,d) 1,204,588
IPC Magazines Group
(British Pound)
03-15-08 15.90 1,875,000(c,d) 2,518,271
03-15-08 17.76 2,000,000(c,d) 1,530,090
Jasmine Submarine Telecom
(U.S. Dollar) Sr Nts
05-30-11 8.48 1,247,480(c,d) 860,761
Michael Petroleum
Sr Nts
04-01-05 11.50 1,250,000(d) 1,131,250
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,075,000 1,014,531
Packaged Ice
Company Guaranty Series B
02-01-05 9.75 6,475,000 6,135,062
Pindo Deli Finance Mauritius
(U.S. Dollar) Company Guaranty
10-01-07 10.75 1,300,000(c) 546,000
PLD Telekom
(U.S. Dollar)
06-01-04 14.00 3,000,000(c) 2,520,000
Poland Telecom Finance
(U.S. Dollar) Company Guaranty
12-01-07 14.00 5,500,000(c,d) 5,334,999
PTC Intl Finance
(U.S. Dollar) Zero Coupon Company Guaranty
07-01-07 10.75 2,000,000(c,g) 1,347,500
Purina Mills
Sr Sub Nts
03-15-10 9.00 1,475,000 1,471,313
Total 44,184,758
Multi-industry conglomerates (0.4%)
American Eco
Company Guaranty
05-15-08 9.63 4,400,000(d) 3,817,000
Hutchison Whampo Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 1,650,000(c,d) 1,117,413
(U.S. Dollar) Company
Guaranty Series B
08-01-17 7.45 1,000,000(c,d) 716,060
Pierce Leahy
Sr Sub Nts
07-15-06 11.13 488,000(d) 535,580
Prime Succession
Sr Sub Nts
08-15-04 10.75 1,275,000 1,265,438
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,000,000 3,222,750
Total 10,674,241
Municipal bonds (0.1%)
New Jersey Economic Development
Authority State Pension Funding
Revenue Bond (MBIA Insured)
02-15-29 7.43 3,000,000(m) 3,555,600
Paper & packaging (0.6%)
Doman Inds
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 2,300,000(c) 1,656,000
Gaylord Container
Sr Nts
06-15-07 9.75 1,300,000 1,066,000
Sr Nts Series B
06-15-07 9.38 9,000,000 7,222,500
Owens-Illinois
Sr Nts
05-15-04 7.85 2,000,000 2,118,320
Silgan Holdings
06-01-09 9.00 2,050,000 1,952,625
Stone Container
Sr Sub Deb
04-01-02 12.25 1,000,000 975,000
Total 14,990,445
Restaurants & lodging (0.5%)
Extended Stay America
Sr Sub Nts
03-15-08 9.15 4,750,000 4,108,750
MGM Grand
02-06-08 6.88 10,000,000(h) 9,603,700
Total 13,712,450
Retail (1.3%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-08 10.00 4,850,000(d,g) 2,685,688
CEX Holdings
Sr Sub Nts
06-01-08 9.63 3,000,000(d) 2,865,000
Dayton Hudson
12-01-22 8.50 2,500,000 2,819,250
Great Atlantic & Pacific Tea
04-15-07 7.75 10,000,000 10,455,600
Kroger
Sr Nts
07-15-06 8.15 5,000,000 5,723,150
Wal-Mart CRAVE Trust
07-17-06 7.00 8,566,801(d) 9,062,476
Total 33,611,164
Textiles & apparel (0.2%)
Pillowtex
Company Guaranty Sr Sub Nts Series B
12-15-07 9.00 2,500,000 2,462,500
Texon Intl
(Deutsche Mark) Sr Nts
02-01-08 3.11 4,000,000(c) 1,868,320
Total 4,330,820
Transportation (0.7%)
Enterprise Rent-A-Car
USA Finance
02-15-08 6.80 10,000,000 10,186,500
Company Guaranty
Medium-term Nts
01-15-06 6.95 3,000,000(d) 3,198,966
Greater Beijing
(U.S. Dollar) Sr Nts
06-15-04 9.75% $1,200,000(c,d) $456,000
06-15-07 10.00 1,400,000(c,d) 490,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 12.00 5,000,000(c,d) 2,650,000
Total 16,981,466
Utilities -- electric (1.2%)
Cleveland Electric Illuminating
07-01-00 7.19 3,000,000 3,094,680
CMS Energy
Sr Nts
05-15-02 8.13 2,900,000 3,087,485
Comp Paranaense De Energ
(U.S. Dollar)
05-02-05 9.75 2,000,000(c,d) 1,324,160
El Paso Electric
1st Mtge Series B
05-01-01 7.75 5,000,000 5,257,550
Espirito Santo -- Escelsa
(U.S. Dollar)
07-15-07 10.00 3,000,000(c) 1,643,640
Korea Electric Power
(U.S. Dollar)
02-01-27 7.00 12,500,000(c) 8,230,250
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 7,365,000(m) 7,781,344
Total 30,419,109
Utilities -- gas (0.2%)
Columbia Gas System
Series E
11-28-10 7.32 5,043,000 5,727,789
Utilities -- telephone (0.9%)
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 2,485,000(b,k) 3,106
Grupo Iusacell
(U.S. Dollar)
07-15-04 10.00 1,000,000(c) 765,000
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,600,000 1,624,000
06-01-08 8.60 5,000,000 4,962,500
McLeod USA
Sr Nts
03-15-08 8.38 2,300,000 2,271,250
MetroNet Communications
(U.S. Dollar) Zero
Coupon Sr Disc Nts
06-15-08 4.92 3,800,000(c,f) 2,099,500
Omnipoint Communications
Sr Nts
08-15-06 11.63 5,000,000 3,600,000
Philippine Long Distance
Telephone
(U.S. Dollar) Medium-term
Nts Series E
03-06-07 7.85 1,250,000(c,d) 924,038
03-06-17 8.35 1,000,000(c,d) 654,780
Rogers Cantel
(U.S. Dollar)
06-01-08 9.38 2,800,000(c) 2,849,000
WorldCom
04-01-07 7.75% $3,000,000 $3,452,940
Total 23,206,114
Total bonds
(Cost: $1,013,237,964) $934,680,104
Options purchased (--%)
Issuer Shares Exercise Expiration Value(a)
price date
Call
Russell 2000 175,000 $438 Dec. 1998 $78,138
Total options purchased
(Cost: $6,263,389) $78,138
Short-term securities (18.7%)(l)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (3.6%)
Federal Home Loan Mtge Corp Disc Nts
10-02-98 5.43% $4,000,000 $3,999,398
10-02-98 5.47 400,000 399,939
10-07-98 5.46 2,900,000 2,897,373
10-14-98 5.44 24,700,000 24,651,655
10-30-98 5.45 10,000,000 9,956,339
10-30-98 5.45 22,600,000 22,501,326
11-30-98 5.16 13,000,000 12,885,369
11-30-98 5.17 13,900,000 13,779,174
Total 91,070,573
Commercial paper (14.7%)
American General
11-10-98 5.56 10,000,000(e) 9,937,193
Barclays U.S. Funding
10-01-98 5.57 8,100,000 8,100,000
BBV Finance (Delaware)
10-22-98 5.55 11,000,000 10,962,279
CAFCO
10-07-98 5.56 5,000,000(e) 4,995,400
12-08-98 5.42 4,900,000(e) 4,850,412
Commerzbank U.S. Finance
11-18-98 5.56 10,000,000 9,887,032
Consolidated Natural Gas
10-19-98 5.50 13,600,000 13,562,804
CXC
10-20-98 5.58 12,700,000(e) 12,659,274
Delaware Funding
10-08-98 5.57 3,671,000(e) 3,667,053
Deutsche Bank Financial
10-19-98 5.57 20,500,000 20,437,859
10-21-98 5.56 15,000,000 14,949,572
10-23-98 5.56 5,100,000 5,082,827
Ford Motor Credit
10-01-98 5.55 15,000,000 15,000,000
10-09-98 5.54 11,000,000 10,986,531
10-14-98 5.55 6,100,000 6,085,793
General Electric Capital
11-18-98 5.59 5,000,000 4,961,977
General Electric Capital Services
10-29-98 5.54 7,700,000 7,667,001
11-09-98 5.22 16,300,000 16,208,353
Glaxo Wellcome
10-27-98 5.54 6,200,000(e) 6,175,283
Goldman Sachs Group
10-13-98 5.56 19,700,000 19,663,687
10-15-98 5.55 2,800,000 2,793,989
GTE Funding
10-26-98 5.32 4,200,000 4,184,542
Heinz (HJ)
10-08-98 5.56 9,000,000 8,990,340
10-16-98 5.53 5,600,000 5,587,190
Household Finance
11-02-98 5.53 15,600,000 15,523,732
11-03-98 5.52 10,000,000 9,949,767
Intl Lease Finance
10-22-98 5.57 10,100,000 10,064,225
Kredietbank North America Finance
10-05-98 5.57 16,000,000 15,987,600
Morgan Stanley, Dean Witter, Discover & Co
10-14-98 5.55 3,000,000 2,992,950
Motorola
11-24-98 5.24 3,500,000 3,472,700
Natl Rural Utilities
10-27-98 5.58 19,000,000 18,879,178
Natl Rural Utilities Finance
10-14-98 5.57 12,000,000 11,971,285
New Center Asset Trust
10-13-98 5.55 15,000,000 14,972,450
Reed Elsevier
11-02-98 5.58 12,400,000(e) 12,303,205
UBS Finance (Delaware)
10-19-98 5.55 10,000,000 9,972,450
USAA Capital
10-21-98 5.57 9,300,000 9,267,724
Xerox
10-05-98 5.53 1,500,000 1,499,082
Xerox Credit
10-05-98 5.53 15,000,000 14,990,833
Total 379,243,572
Letter of credit (0.4%)
Bank of America-
AES Hawaii
10-08-98 5.52 10,900,000 10,888,342
Total short-term securities
(Cost: $481,366,169) $481,202,487
Total investments in securities
(Cost: $2,737,130,732)(o) $2,638,100,426
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of
Sept. 30,1998, the value of foreign securities represented 21.8% of net assets.
(d) 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.
(e) 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.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) 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.
(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) 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, 1998 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
<S> <C> <C> <C> <C> <C> <C>
China North Inds $13,079,176 $ -- $-- $13,079,176 $825,000 $2,227,500
Fomento Economico
Mexicano ADR -- 10,019,149 -- 10,019,149 92,855 5,659,850
Total $13,079,176 $10,019,149 $-- $23,098,325 $917,855 $7,887,350
(k) 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, 1998, is
as follows:
Security Acquisition Cost
dates
American United Life Insurance*
7.75% 2026 02-13-96 $5,000,000
Geotek Communications
12.00% 2001 Cv Sr Sub Nts 03-04-96 2,485,000
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
10.00% 2002 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.
(l) At Sept 30, 1998, cash or short-term securities were designated to cover
open put options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
Russell 2000 175,000 $438 Dec. 1998 $12,701,874
(m) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
MBIA -- Municipal Bond Investors Assurance
(n) At Sept. 30, 1998, the cost of securities purchased, including interest
purchased, on a when-issued basis was $9,886,510.
(o) At Sept. 30, 1998, the cost of securities for federal income tax purpose was
$2,742,575,277 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $178,187,664
Unrealized depreciation (282,662,515)
Net unrealized depreciation $(104,474,851)
See accompanying notes to investments in securities.
</TABLE>
<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 6, 1998. Statement of
assets and liabilities, September 30, 1998. Statement of operations,
year ended September 30, 1998.
Statement of changes in net assets, for the years ended September 30,
1998 and September 30, 1997.
Notes to financial statements.
Balanced Portfolio:
Independent Auditor's Report dated November 6, 1998. Statement of
assets and liabilities, September 30, 1998. Statement of operations,
year ended September 30, 1998.
Statement of changes in net assets, for the years ended September 30,
1998 and September 30, 1997.
Notes to financial statements.
Investments in securities, September 30, 1998.
Notes to investments in securities.
Equity Portfolio:
Independent Auditor's Report dated November 6, 1998. Statement of
assets and liabilities, September 30, 1998. Statement of operations,
year ended September 30, 1998.
Statement of changes in net assets, for the years ended September 30,
1998 and September 30, 1997.
Notes to financial statements.
Investments in securities, September 30, 1998.
Notes to investments in securities.
Equity Income Portfolio:
Independent Auditor's Report dated November 6, 1998. Statement of
assets and liabilities, September 30, 1998. Statement of operations,
year ended September 30, 1998.
Statement of changes in net assets, for the years ended September 30,
1998 and September 30, 1997.
Notes to financial statements.
Investments in securities, September 30, 1998.
Notes to investments in securities.
<PAGE>
Total Return Portfolio:
Independent Auditor's Report dated November 6, 1998. Statement of
assets and liabilities, September 30, 1998. Statement of operations,
year ended September 30, 1998.
Statement of changes in net assets, for the years ended September 30,
1998 and September 30, 1997.
Notes to financial statements.
Investments in securities, September 30, 1998.
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 initial
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 as
Exhibit 2 to Registrant's Post-Effective Amendment No. 2 to
Registration Statement No. 33-63907, is incorporated herein by
reference.
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 electronically
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-Effective Amendment
No. 1 to Registration Statement No. 33-63907, is incorporated herein by
reference.
9(a). Copy of Transfer Agency Agreement, between Registrant and American
Express Client Service Corporation, dated January 1, 1998, is filed
electronically herewith.
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.
<PAGE>
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.
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 November 20, 1997, filed electronically as Exhibit
19(f) to Post-Effective Amendment No. 2 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 November 21, 1997, filed electronically as Exhibit
19(e) to Post-Effective Amendment No. 2, to Registration Statement No.
33-63907, is incorporated herein by reference.
<PAGE>
19(c). Trustees' Power of Attorney to sign Amendments to this Registration
Statement, dated January 7, 1998, is filed electronically herewith.
19(d). Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated April 11, 1996, filed electronically as Exhibit
19(b) to Pre-Effective Amendment No. 2, to Registration Statement No.
33-63907, is incorporated herein by reference.
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. 13, 1998
-------------- -------------
Common Stock
Strategist Balanced Fund 56
Strategist Equity Fund 31
Strategist Equity Income Fund 45
Strategist Total Return Fund 19
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.
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>
American Express Financial Corporation is the investment advisor of the
Portfolios of the Trust.
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Adviser (American Express
Financial Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or
officers of one or more other companies:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Peter J. Anderson, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gurudutt Baliga, American Express Asset IDS Tower 10 Senior Vice President and
Vice President Management Group Inc. Minneapolis, MN 55440 Chief Investment Officer
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Karl J. Breyer, American Express Financial IDS Tower 10 Corporate Senior Vice
Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440 President
Vice President
American Express Minnesota Director
Foundation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Senior Vice President and Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
Chief Marketing Officer
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James E. Choat, American Enterprise Life IDS Tower 10 Director, President and
Director and Senior Vice Insurance Company Minneapolis, MN 55440 Chief Executive Officer
President
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Colleen Curran, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Service Vice President and Chief
Corporation Legal Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Luz Maria Davis American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas K. Dunning, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President,
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief
President, General Counsel Compliance Officer
and Chief Compliance Officer
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Alabama Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Massachusetts Inc.
IDS Insurance Agency of Director and Vice President
New Mexico Inc.
IDS Insurance Agency of Director and Vice President
North Carolina Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Insurance Agency of Director and Vice President
Wyoming Inc.
IDS Real Estate Services, Vice President
Inc.
Investors Syndicate Director
Development Corp.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gordon M. Fines, American Express Asset IDS Tower 10 Senior Vice President and
Vice President Management Group Inc. Minneapolis, MN 55440 Chief Investment Officer
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Corporate Insurance Company Minneapolis, MN 55440 Controller
Controller
American Express Financial Vice President and
Advisors Inc. Corporate Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Harvey Golub, American Express Company American Express Tower Chairman and Chief
Director World Financial Center Executive Officer
New York, NY 10285
American Express Travel Chairman and Chief
Related Services Company, Executive Officer
Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David A. Hammer, American Express Financial IDS Tower 10 Vice President and
Vice President and Marketing Advisors Inc. Minneapolis, MN 55440 Marketing Controller
Controller
IDS Plan Services of Director and Vice President
California, Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Investment Officer
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Scott A. Hawkinson, American Express Financial IDS Tower 10 Vice President and
Vice President and Controller Advisors Inc. Minneapolis, MN 55440 Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Janis K. Heaney, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James G. Hirsh, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President and Corporate Minneapolis, MN 55440 and Assistant Secretary
Treasurer
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Express Partners Vice President and
Life Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
Public Employee Payment Vice President and
Company Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director, President and Chief Minneapolis, MN 55440
Executive Officer
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Martin G. Hurwitz, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Nancy E. Jones, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ora J. Kaine, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Matthew N. Karstetter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Linda B. Keene, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
G. Michael Kennedy, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan D. Kinder, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
IDS Securities Corporation Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Brian C. Kleinberg, American Enterprise IDS Tower 10 Director
Executive Vice President Investment Services Inc. Minneapolis, MN 55440
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director
Corporation
AMEX Assurance Company Director and Chairman of
the Board
American Partners Life Executive Vice President
Insurance Company
IDS Property Casualty 1 WEG Blvd. Director and Chairman of
Insurance Company DePere, WI 54115 the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
American Centurion Life Director
Assurance Company
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Director and President
Corporation
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of Director and President
New Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Kurt A. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief U.S. Advisors Inc. Minneapolis, MN 55440 U.S. Economist
Economist
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
IDS Securities Corporation Director, President and
Chief Executive Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jonathan S. Linen, IDS Tower 10
Director Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Sarah A. Mealey, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Director
Corporation
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
Investors Syndicate Director, Chairman of the
Development Corporation Board and President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William P. Miller, Advisory Capital IDS Tower 10 Vice President
Vice President and Senior Strategies Group Inc. Minneapolis, MN 55440
Portfolio Manager
American Express Asset Senior Vice President and
Management Group Inc. Chief Investment Officer
American Express Financial Vice President and Senior
Advisors Inc. Portfolio Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James A. Mitchell, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President
American Enterprise Director
Investment Services Inc.
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director and Senior Vice
Corporation President
American Express Tax and Director
Business Services Inc.
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of the
Board and Chief Executive
Officer
IDS Plan Services of Director
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Vice President
Company
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Senior Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
IDS Life Insurance Company Director and Executive
Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mary Owens Neal, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Carla P. Pavone, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Public Employee Payment Director and President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Punch, American Express Financial IDS Tower 10 Vice President and Project
Vice President and Project Advisors Inc. Minneapolis, MN 55440 Manager
Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Senior Vice President and
Senior Vice President Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager
American Express Financial Senior Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Rollyn C. Renstrom, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
ReBecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stephen W. Roszell, Advisory Capital IDS Tower 10 Director
Senior Vice President Strategies Group Inc. Minneapolis, MN 55440
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
American Express Trust Director
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, American Enterprise Life IDS Tower 10 Executive Vice President
Senior Vice President and Insurance Company Minneapolis, MN 55440
Chief Financial Officer
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Chairman of the Board and
Inc. President
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Assistant Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Assistant Insurance Company Minneapolis, MN 55440 General Counsel and
General Counsel Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James J. Strauss, American Express Financial IDS Tower 10 Vice President and General
Vice President and General Advisors Inc. Minneapolis, MN 55440 Auditor
Auditor
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Wesley W. Wadman, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Asset Director and Senior Vice
Management International, President
Inc.
American Express Asset Director and Vice Chairman
Management Ltd.
American Express Financial Vice President
Advisors Inc.
IDS Fund Management Limited Director and Vice Chairman
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lawrence J. Welte, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffry F. Welter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440 and Senior Portfolio
Manager
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 29. Principal Underwriters.
(a) American Express Service Corporation acts as principal underwriter for the following
investment companies:
Strategist Income Fund, Inc.; Strategist Growth Fund, Inc.; Strategist Growth and Income
Fund, Inc.; Strategist World Fund, Inc.; Strategist Tax-Free Income Fund, Inc., APL
Variable Annuity Account 1, ACL Variable Annuity Account 1 and IDS Certificate Company.
(b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with Underwriter Offices with Registrant
- ------------------------------------------ --------------------------------------- ---------------------------
<S> <C> <C>
Ward D. Armstrong Vice President - Workplace Financial None
IDS Tower 10 Services
Minneapolis, MN 55440
Cynthia M. Carlson Vice President None
IDS Tower 10
Minneapolis, MN 55440
John R. Cattau Vice President None
American Express Tower
World Financial Center
New York, NY 10285
Colleen Curran Vice President and Chief Legal Counsel None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Director and President None
IDS Tower 10
Minneapolis, MN 55440
James A. Jacobs Vice President-Sales and Service None
IDS Tower 10
Minneapolis, MN 55440
Nancy E. Jones Vice President - Business Development None
IDS Tower 10
Minneapolis, MN 55440
Verna J. Kaufman Vice President None
IDS Tower 10
Minneapolis, MN 55440
Brian C. Kleinberg Director None
IDS Tower 10
Minneapolis, MN 55440
Richard W. Kling Vice President None
IDS Tower 10
Minneapolis, MN 55440
Timothy S. Meehan Secretary None
IDS Tower 10
Minneapolis, MN 55440
James A. Mitchell Director and Senior Vice President Board member and President
IDS Tower 10
Minneapolis, MN 55440
Julia K. Morton Vice President and Chief Financial None
IDS Tower 10 Officer
Minneapolis, MN 55440
</TABLE>
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) Registrant hereby undertakes to file a Post-Effective Amendment,
using financial statements which need not be certified, within
four to six months from the effective date of the post-effective
amendment to Registrant's 1933 Act Registration Statement or
within 60 days of the four to six month period in compliance with
the generic comment letter of the Division of Investment
Management dated Feb. 25, 1995, section V - Financial Statements,
or commencement of operations by the Fund, whichever is later.
(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 25th day of November, 1998.
STRATEGIST GROWTH AND INCOME FUND, INC.
By /s/ James A. Mitchell*
James A. Mitchell, President
By /s/ Steve Turbenson
Steve Turbenson, Assistant 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 25th day of November, 1998.
Signature Title
By /s/ Rodney P. Burwell** Director
Rodney P. Burwell
By /s/ Jean B. Keffeler** Director
Jean B. Keffeler
By /s/ Brian Kleinberg** Director
Brian Kleinberg
By /s/ Thomas R. McBurney** Director
Thomas R. McBurney
By /s/ James A. Mitchell** Director
James A. Mitchell
*Signed pursuant to Officers' Power of Attorney, dated November 21, 1997,
filed electronically as Exhibit 19(e) to Registrant's Post-Effective Amendment
No. 2, by:
/s/ Eileen J. Newhouse
Eileen J. Newhouse
**Signed pursuant to Directors' Power of Attorney, dated November 20, 1997,
filed electronically as Exhibit 19(f) to Registrant's Post-Effective Amendment
No. 2, by:
/s/ Eileen J. Newhouse
Eileen J. Newhouse
<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 25th day of November, 1998.
GROWTH AND INCOME TRUST
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
By /s/ Stuart A. Seclacek***
Stuart A. Sedlacek, 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 25th day of November, 1998.
Signatures Capacity
/s/ William R. Pearce* Chairman of the Board
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>
Signatures Capacity
/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 7, 1998, filed
electronically herewith, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney, dated April 11, 1996,
filed electronically as Exhibit 19(b) to Registrant's Pre-Effective Amendment
No. 2, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
***Signed pursuant to Officer's Power of Attorney, dated November 24, 1998, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT 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 and Income Fund, Inc.
File No. 33-63907/811-7403
EXHIBIT INDEX
Exhibit 9(a): Transfer Agency Agreement, between Registrant and
American Express Client Service Corporation, dated January
1, 1998.
Exhibit 10: Opinion and consent of counsel.
Exhibit 11: Independent auditors' consent.
Exhibit 17: Financial Data Schedules.
Exhibit 19(c): Trustees' Power of Attorney, dated January 7, 1998.
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of January 1, 1998, between Strategist Growth and Income
Fund, Inc. (the "Company"), a Minnesota corporation, on behalf of its underlying
series funds (individually a "Fund" and collectively the "Funds"), and American
Express Client Service Corporation (the "Transfer Agent"), a Minnesota
corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.
3. Documents. The Company will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to be
appropriate or necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's Articles
of Incorporation and its By-laws, such shares shall be validly
issued, fully paid and non-assessable by the Company.
(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
<PAGE>
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the prospectus. All shares shall be
held in book entry form and no certificate shall be
issued unless the Fund is permitted to do so by the
prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to
redeem shares in accordance with the terms of the Fund's
prospectus, the Transfer Agent will record the redemption of
shares of the Fund, prepare and present the necessary report
to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon
the receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt
of instructions or forms acceptable to the Transfer Agent to
transfer the shares to the name of a new owner, change the
name or address of the present owner or take other legal
action, the Transfer Agent will take such action as is
requested.
(d) Exchange of Fund Shares. On receipt of instructions to
exchange the shares of the Fund for the shares of another fund
in the Strategist Fund Group or other product in accordance
with the terms of the prospectus, the Transfer Agent will
process the exchange in the same manner as a redemption and
sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer,
exchange or redeem shares of the Fund or take any action requested by
a shareholder until it is satisfied that the requested transaction or
action is legally authorized or until it is satisfied there is no
basis for any claims adverse to the transaction or action. It may rely
on the provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code. The
Company shall indemnify the Transfer Agent for any act done or omitted
to be done in reliance on such laws or for refusing to transfer,
exchange or redeem shares or taking any requested action if it acts on
a good faith belief that the transaction or action is illegal or
unauthorized.
<PAGE>
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.
(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the Fund or as directed by instructions
or forms acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm
each transaction either at the time of the transaction or
through periodic reports as may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or
stolen checks issued to shareholders upon receipt of proper
notification and will maintain any stop payment orders against
the lost or stolen checks as it is economically desirable to
do.
(j) Reports to Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties
to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees
that all records prepared or maintained by it relating to the services
to be performed by it under the terms of this Agreement are the
property of the Company and may be inspected by the Company or any
person retained by the Company at reasonable times. The Company and
Transfer Agent agree to protect the confidentiality of those records.
<PAGE>
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") and on opinion of
counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the
Company with the services as herein provided, neither the Transfer
Agent, nor any officer, director or agent thereof shall be held liable
for any loss arising out of or in connection with their actions under
this Agreement so long as they act in good faith and with due
diligence, and are not negligent or guilty of any willful misconduct.
It is further understood and agreed that the Transfer Agent may rely
upon information furnished to it reasonably believed to be accurate
and reliable. In the event the Transfer Agent is unable to perform its
obligations under the terms of this Agreement because of an act of
God, strike or equipment or transmission failure reasonably beyond its
control, the Transfer Agent shall not be liable for any damages
resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the
date first set forth above (the "Effective Date") and shall continue
in effect from year to year thereafter as the parties may mutually
agree; provided that either party may terminate this Agreement by
giving the other party notice in writing specifying the date of such
termination, which shall be not less than 60 days after the date of
receipt of such notice. In the event such notice is given by the
Company, it shall be accompanied by a vote of the Board, certified by
the Secretary, electing to terminate this Agreement and designating a
successor transfer agent or transfer agents. Upon such termination and
at the expense of the Company, the Transfer Agent will deliver to such
successor a certified list of shareholders of the Fund (with name,
address and taxpayer identification or Social Security number), a
historical record of the account of each shareholder and the status
thereof, and all other relevant books, records, correspondence, and
other data established or maintained by the Transfer Agent under this
Agreement in the form reasonably acceptable to the Company, and will
cooperate in the transfer of such duties and responsibilities,
including provisions for assistance from the Transfer Agent's
personnel in the establishment of books, records and other data by
such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Company agrees that the Transfer Agent may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that the Transfer Agent remains fully
responsible for the services. Except for out-of-pocket expenses
identified in Schedule B, the Transfer Agent shall bear the cost of
subcontracting such services, unless otherwise agreed by the parties.
<PAGE>
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
STRATEGIST GROWTH AND INCOME FUND, INC.
Strategist Balanced Fund
Strategist Equity Fund
Strategist Equity Income Fund
Strategist Total Return Fund
By: /s/ James A. Mitchell
James A. Mitchell
President
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
By: /s/ Barry J. Murphy
Barry J. Murphy
President
<PAGE>
Schedule A
STRATEGIST GROWTH AND INCOME FUND, INC.
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Strategist Balanced Fund $20
Strategist Equity Fund $20
Strategist Equity Income Fund $20
Strategist Total Return Fund $20
Until December 31, 1998, the Transfer Agent has agreed to waive certain fees and
to absorb certain fund expenses under this Agreement. If, at the end of any
month, the fees and expenses of the applicable Fund exceed: o 1.25% for Balanced
Fund, o 1.25% for Equity Fund, o 1.25% for Equity Income Fund, or o 1.30% for
Total Return Fund,
the respective Fund shall not pay fees and expenses under this Agreement to the
extent necessary to keep the Fund's expense ratio from exceeding the limitation.
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage
for proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange
confirmations and exchange prospectuses, redemption confirmations,
redemption checks, confirmations on changes of address and any other
communication required to be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information
and other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Company
<PAGE>
November 24, 1998
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 Strategist
Growth and Income Fund, Inc. (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 that the shares sold in
accordance with applicable federal and state securities laws will be legally
issued, fully paid, and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/ Eileen J. Newhouse
Eileen J. Newhouse
Group Counsel
EJN/EN/rdh
<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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STRATEGIST BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 1139104
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1139104
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44549
<TOTAL-LIABILITIES> 44549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1033585
<SHARES-COMMON-STOCK> 72633
<SHARES-COMMON-PRIOR> 54008
<ACCUMULATED-NII-CURRENT> 1208
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 67161
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7399
<NET-ASSETS> 1094555
<DIVIDEND-INCOME> 14998
<INTEREST-INCOME> 29445
<OTHER-INCOME> 0
<EXPENSES-NET> 9613
<NET-INVESTMENT-INCOME> 34830
<REALIZED-GAINS-CURRENT> 68234
<APPREC-INCREASE-CURRENT> (105115)
<NET-CHANGE-FROM-OPS> (2051)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33720
<DISTRIBUTIONS-OF-GAINS> 59803
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17601
<NUMBER-OF-SHARES-REDEEMED> 4983
<SHARES-REINVESTED> 6007
<NET-CHANGE-IN-ASSETS> 199510
<ACCUMULATED-NII-PRIOR> 1422
<ACCUMULATED-GAINS-PRIOR> 56895
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5159
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13133
<AVERAGE-NET-ASSETS> 1034427
<PER-SHARE-NAV-BEGIN> 16.57
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 0.39
<PER-SHARE-DIVIDEND> .52
<PER-SHARE-DISTRIBUTIONS> (1.12)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.07
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STRATEGIST EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 5112
<ASSETS-OTHER> 945277
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 950389
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15236
<TOTAL-LIABILITIES> 15236
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 769586
<SHARES-COMMON-STOCK> 33064
<SHARES-COMMON-PRIOR> 26757
<ACCUMULATED-NII-CURRENT> 6733
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 46802
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 112032
<NET-ASSETS> 935153
<DIVIDEND-INCOME> 14481
<INTEREST-INCOME> 2471
<OTHER-INCOME> 0
<EXPENSES-NET> 10900
<NET-INVESTMENT-INCOME> 6052
<REALIZED-GAINS-CURRENT> 50857
<APPREC-INCREASE-CURRENT> (56086)
<NET-CHANGE-FROM-OPS> 823
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3310
<DISTRIBUTIONS-OF-GAINS> 30218
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5667
<NUMBER-OF-SHARES-REDEEMED> 562
<SHARES-REINVESTED> 1202
<NET-CHANGE-IN-ASSETS> 119760
<ACCUMULATED-NII-PRIOR> 2610
<ACCUMULATED-GAINS-PRIOR> 26338
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4235
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17700
<AVERAGE-NET-ASSETS> 871081
<PER-SHARE-NAV-BEGIN> 29.09
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> 1.11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 28.28
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> STRATEGIST EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 13
<ASSETS-OTHER> 922006
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 922019
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24530
<TOTAL-LIABILITIES> 24530
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 830992
<SHARES-COMMON-STOCK> 91108
<SHARES-COMMON-PRIOR> 74113
<ACCUMULATED-NII-CURRENT> 1023
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 88614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23140)
<NET-ASSETS> 897489
<DIVIDEND-INCOME> 22400
<INTEREST-INCOME> 6484
<OTHER-INCOME> 0
<EXPENSES-NET> 11271
<NET-INVESTMENT-INCOME> 17613
<REALIZED-GAINS-CURRENT> 93664
<APPREC-INCREASE-CURRENT> (142332)
<NET-CHANGE-FROM-OPS> (31055)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18054
<DISTRIBUTIONS-OF-GAINS> 61081
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13570
<NUMBER-OF-SHARES-REDEEMED> 4302
<SHARES-REINVESTED> 7727
<NET-CHANGE-IN-ASSETS> 70430
<ACCUMULATED-NII-PRIOR> 1325
<ACCUMULATED-GAINS-PRIOR> 55659
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4671
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15206
<AVERAGE-NET-ASSETS> 903256
<PER-SHARE-NAV-BEGIN> 11.16
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.47)
<PER-SHARE-DIVIDEND> .22
<PER-SHARE-DISTRIBUTIONS> .83
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<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STRATEGIST TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 706686
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 706686
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21729
<TOTAL-LIABILITIES> 21729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 662118
<SHARES-COMMON-STOCK> 55459
<SHARES-COMMON-PRIOR> 47232
<ACCUMULATED-NII-CURRENT> 2126
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 49776
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (29063)
<NET-ASSETS> 684957
<DIVIDEND-INCOME> 7361
<INTEREST-INCOME> 22041
<OTHER-INCOME> 0
<EXPENSES-NET> 8303
<NET-INVESTMENT-INCOME> 21099
<REALIZED-GAINS-CURRENT> 55511
<APPREC-INCREASE-CURRENT> (106027)
<NET-CHANGE-FROM-OPS> (29417)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20856
<DISTRIBUTIONS-OF-GAINS> 58828
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3489
<NUMBER-OF-SHARES-REDEEMED> 1373
<SHARES-REINVESTED> 6111
<NET-CHANGE-IN-ASSETS> (1471)
<ACCUMULATED-NII-PRIOR> 1055
<ACCUMULATED-GAINS-PRIOR> 53410
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3513
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15634
<AVERAGE-NET-ASSETS> 723404
<PER-SHARE-NAV-BEGIN> 14.53
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> (0.94)
<PER-SHARE-DIVIDEND> 0.40
<PER-SHARE-DISTRIBUTIONS> 1.24
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.35
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4835128090
<INVESTMENTS-AT-VALUE> 4811625578
<RECEIVABLES> 66672770
<ASSETS-OTHER> 11745681
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4890044029
<PAYABLE-FOR-SECURITIES> 59147008
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 796666467
<TOTAL-LIABILITIES> 138813475
<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> 4751230554
<DIVIDEND-INCOME> 70297669
<INTEREST-INCOME> 139363451
<OTHER-INCOME> 0
<EXPENSES-NET> 24125930
<NET-INVESTMENT-INCOME> 185535190
<REALIZED-GAINS-CURRENT> 536885565
<APPREC-INCREASE-CURRENT> 663319521
<NET-CHANGE-FROM-OPS> 59101234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 102089344
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23644896
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24137696
<AVERAGE-NET-ASSETS> 5062532990
<PER-SHARE-NAV-BEGIN> .00
<PER-SHARE-NII> .00
<PER-SHARE-GAIN-APPREC> .00
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> .00
<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-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 3417184496
<INVESTMENTS-AT-VALUE> 4135014371
<RECEIVABLES> 42698652
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4177713023
<PAYABLE-FOR-SECURITIES> 31692727
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76867372
<TOTAL-LIABILITIES> 108560099
<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> 4069152924
<DIVIDEND-INCOME> 71507042
<INTEREST-INCOME> 12328142
<OTHER-INCOME> 0
<EXPENSES-NET> 20879259
<NET-INVESTMENT-INCOME> 62955925
<REALIZED-GAINS-CURRENT> 401372703
<APPREC-INCREASE-CURRENT> (356961919)
<NET-CHANGE-FROM-OPS> 107366709
<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> (94647841)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 20321279
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<GROSS-EXPENSE> 20887166
<AVERAGE-NET-ASSETS> 4394570653
<PER-SHARE-NAV-BEGIN> 0
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<RETURNS-OF-CAPITAL> 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-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2542309249
<INVESTMENTS-AT-VALUE> 2483072599
<RECEIVABLES> 13108794
<ASSETS-OTHER> 734188
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2496915581
<PAYABLE-FOR-SECURITIES> 53426194
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32810948
<TOTAL-LIABILITIES> 86237142
<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> 2410678439
<DIVIDEND-INCOME> 6003942
<INTEREST-INCOME> 17295831
<OTHER-INCOME> 0
<EXPENSES-NET> 12502257
<NET-INVESTMENT-INCOME> 64833066
<REALIZED-GAINS-CURRENT> 263358256
<APPREC-INCREASE-CURRENT> (386481334)
<NET-CHANGE-FROM-OPS> (58290012)
<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> 190093675
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12214128
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2492116142
<PER-SHARE-NAV-BEGIN> 0
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<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<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-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2737130732
<INVESTMENTS-AT-VALUE> 2638100426
<RECEIVABLES> 103600600
<ASSETS-OTHER> 17570169
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2759271195
<PAYABLE-FOR-SECURITIES> 79772919
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99686521
<TOTAL-LIABILITIES> 179459440
<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> 2579811755
<DIVIDEND-INCOME> 28773955
<INTEREST-INCOME> 86434541
<OTHER-INCOME> 0
<EXPENSES-NET> 13846345
<NET-INVESTMENT-INCOME> 101362151
<REALIZED-GAINS-CURRENT> 266111907
<APPREC-INCREASE-CURRENT> (447531928)
<NET-CHANGE-FROM-OPS> (80057870)
<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> (419394891)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12897457
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13858049
<AVERAGE-NET-ASSETS> 2943269928
<PER-SHARE-NAV-BEGIN> 0
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<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<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 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson
/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley 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
