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. 5 (File No. 33-63907) [X]
---------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 (File No. 811-7403) [X]
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STRATEGIST 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. 29, 1999 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. 29, 1999
Strategist Balanced Fund
Strategist Equity Fund
Strategist Equity Income Fund
Strategist Total Return Fund
Please note that each Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
TAKE A CLOSER LOOK AT:
The Funds 2
Strategist Balanced Fund 2
Goal 2
Investment Strategy 2
Risks 4
Past Performance 6
Fees and Expenses 8
Management 9
Strategist Equity Fund 10
Goal 10
Investment Strategy 10
Risks 12
Past Performance 13
Fees and Expenses 15
Management 16
Strategist Equity Income Fund 17
Goal 17
Investment Strategy 17
Risks 19
Past Performance 20
Fees and Expenses 22
Management 23
Strategist Total Return Fund 24
Goal 24
Investment Strategy 24
Risks 27
Past Performance 29
Fees and Expenses 31
Management 32
Buying and Selling Shares 33
Valuing Fund Shares 33
Purchasing Shares 33
Exchanging/Selling Shares 37
Distributions and Taxes 39
Personalized Shareholder Information 41
Master/Feeder Structure 41
Business Structure 42
Quick Telephone Reference 44
Financial Highlights 45
<PAGE>
The Funds
Strategist Balanced Fund, Strategist Equity Fund, Strategist Equity Income Fund
and Strategist Total Return Fund are closed to new accounts. Existing
shareholders of these Funds may continue to purchase additional shares. See
"Purchasing Shares." The Funds may resume sales to new investors at some future
date, but they have no present intention to do so.
References to "Fund" throughout this prospectus refer to Strategist Balanced
Fund, Strategist Equity Fund, Strategist Equity Income Fund and Strategist Total
Return Fund, singularly or collectively as the context requires.
Strategist Balanced Fund
GOAL
The Fund seeks to provide shareholders with a balance of growth of capital and
current income. Because any investment involves risk, achieving this goal cannot
be guaranteed. The Fund seeks to achieve its goal by investing all of its assets
in a master portfolio rather than by directly investing in and managing its own
portfolio of securities. The master portfolio has the same goal and investment
policies as the Fund.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in a combination of common stocks and
senior securities (preferred stocks and debt obligations). The Fund will invest
(1) no more than 65% of its total assets in common stocks, (2) at least 35% of
its total assets in senior securities, convertible securities, derivative
instruments and money market instruments, and (3) at least 25% of its total
assets in debt securities and convertible securities. The Fund will utilize
derivative instruments (such as: futures, options and forward contracts) and
when-issued securities to produce incremental earnings, to hedge existing
positions and to increase flexibility. The Fund's potential losses from the use
of these instruments could extend beyond its initial investment.
The selection of common stocks and senior securities are the primary decisions
in building the investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses equity investments by:
<PAGE>
o Determining specific industry weightings within the following sectors:
-- Consumer cyclical -- Energy
-- Consumer stable -- Technology
-- Financial -- Industrial
o Selecting companies that are undervalued based on a variety of measures, such
as price-earnings ratio, price/book ratio, current and projected
earnings, current and projected dividends, and historic price levels.
o Identifying companies with potential for above-average, long-term growth based
on:
-- effective management (considering overall performance),
-- competitive market position, and
-- financial strength.
AEFC chooses debt obligations by:
o Considering opportunities and risks by reviewing interest rate and economic
trends.
o Investing more heavily in certain sectors (i.e., corporate bonds, government
obligations and mortgage-backed securities) based on AEFC's:
-- expectations for interest rates, and
-- expectations for economic trends.
o Identifying securities that are expected to outperform other securities. In
this analysis, AEFC will take risk factors into account (for example,
whether money has been set aside to cover the cost of principal and interest
payments).
o Focusing on bonds that are investment-grade although the fund may invest
up to 5% below investment grade.
o Identifying obligations that contribute to portfolio diversification.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued when compared to other potential
investments,
-- the interest rate or economic outlook changes,
-- the security has reached AEFC's price objective,
-- AEFC identifies a more attractive opportunity,
-- the company has met AEFC's earnings and/or growth expectations,
-- the issuer's credit quality declines or AEFC expects a decline
(the Fund may continue to own securities that are down-graded until AEFC
believes it is advantageous to sell), and
-- the company or the security continues to meet the other standards
described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as foreign securities.
<PAGE>
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objectives. During these times, AEFC may make
frequent securities trades that could result in increased fees, expenses, and
taxes.
For more information on strategies and holdings, see the Fund's Statement
of Additional Information (SAI) and the annual/semiannual reports.
RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Interest Rate Risk
Sector/Concentration Risk
Call/Prepayment Risk
Credit Risk
Liquidity Risk
Style Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity.
<PAGE>
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default. Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Style Risk
The Fund purchases stocks it believes are undervalued, but have potential for
long-term growth and dividend income. These stocks will typically trade at a
discount to the market. Growth cannot be guaranteed and the markets may not be
willing to reevaluate out-of-favor stocks.
<PAGE>
PAST PERFORMANCE
The following bar chart and table show the risks and variability of investing in
the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown
on the chart below, and
o how the Fund's average annual total returns compare to those of other
recognized indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
- -------------------------------------------------------------------------------
Strategist Balanced Fund Performance (based on calendar years)
+24.97%
+23.57%
+20.70%
+18.61%
+14.35%
+13.38%
+10.52%
+9.72%
-2.99%
-2.98%
1989 1990 1991 1992 1993 1994 1995 1996* 1997 1998
During the period shown in the bar chart, the highest return for a calendar
quarter was +10.57% (quarter ending December 1998) and the lowest return for a
calendar quarter was -6.71% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was -0.19%.
*On May 13, 1996, AXP Mutual (the predecessor fund) converted to a master/feeder
structure and transferred all of its assets to Balanced Portfolio. The
performance information in this and the following table, represents performance
of the predecessor fund prior to March 20, 1995 and of Class A shares of the
predecessor fund from March 20, 1995 through May 13, 1996 adjusted to reflect
the absence of sales charges on shares of the Fund. The historical performance
has not been adjusted for any difference between the fees and expenses of the
Fund and historical fees and expenses of the predecessor fund.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
- ------------------------------------------------------------------------------
Strategist Balanced Fund +9.72% +12.73% +12.58%
Lipper Balanced Fund Index +15.09% +13.86% +13.31%
- ------------------------------------------------------------------------------
S&P 500 Index +28.57% +24.01% +19.19%
This table shows total returns from a hypothetical investment in the Fund. These
returns are compared to the indexes shown for the same periods. For purposes of
this calculation, information about the Fund assumes no adjustments for taxes an
investor may have paid on the reinvested income and capital gains.
Lipper Balanced Fund Index, an unmanaged index published by Lipper Analytical
Services, Inc., includes 30 funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
Standard & Poor's 500 Index (S&P 500 Index), 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. However, the S&P 500 Index
companies are generally larger than those in which the Fund invests.
<PAGE>
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
- ------------------------------------------------------------------------------
Shareholder Feesa (fees paid directly from your investment)
Maximum sales charge (load) imposed on
purchasesb (as a percentage of offering price)0%
- ------------------------------------------------------------------------------
Annual Fund operating expensesc (expenses that are deducted from Fund assets)
As a percentage of average daily net assets:
- ------------------------------------------------------------------------------
Management feesd 0.48%
- ------------------------------------------------------------------------------
Distribution (12b-1) fees 0.25%
- ------------------------------------------------------------------------------
Other expensese 0.52%
- ------------------------------------------------------------------------------
Totalf 1.25%
(a) A wire transfer charge, currently $15, is deducted from your brokerage
account for wire transfers made at your request.
(b) There are no sales loads; however, the Fund reserves the right upon 60
days' advance written notice to shareholders to impose a redemption fee
of up to 1% on shares redeemed within one year of purchase.
(c) Both in this table and the following example, Fund operating expenses
include expenses charged by both the Fund and the Portfolio.
(d) The management fee is paid by the Trust on behalf of the Portfolio. For
Balanced Portfolio, it includes the impact of a performance fee that
decreased the management fee by 0.02% in the fiscal year ended Sept. 30,
1999.
(e) Other expenses include an administrative services fee, a transfer agency fee
and other nonadvisory expenses.
(f) The Advisor and the Distributor have agreed to waive certain fees and to
absorb certain other Fund expenses until Sept. 30, 2000. Under this
agreement, total expenses will not exceed 1.25%. For the most recent fiscal
year actual total expenses with fee waivers and expense reimbursement
were 0.98%.
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you sell your shares at the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------
$127 $397 $687 $1,516
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
MANAGEMENT
The Fund's assets are invested in Balanced Portfolio (the Portfolio), which is
managed by AEFC. Bradley Stone, portfolio manager, joined AEFC in 1996. He has
managed the fixed income portion of the assets of the Portfolio since May 1998.
Prior to joining AEFC he was a fixed income portfolio manager at Piper Capital
Management, Inc. from 1990 to 1996.
Kurt Winters, senior portfolio manager, joined AEFC in 1987. He has managed the
equity portion of the assets of the Portfolio since December 1997. Kurt is
responsible for overall investment management of the equity portion, 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 AXP Discovery Fund in 1995. He also manages AXP Equity Value
Fund, AXP Progressive Fund and Equity Income Portfolio.
<PAGE>
Strategist Equity Fund
GOAL
The Fund seeks to provide shareholders with current income and growth of
capital. Because any investment involves risk, achieving this goal cannot be
guaranteed. The Fund seeks to achieve its goal by investing all of its assets in
a master portfolio rather than by directly investing in and managing its own
portfolio of securities. The master portfolio has the same goal and investment
policies as the Fund.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in common stocks and securities
convertible into common stocks. Under normal market conditions, at least 65% of
the Fund's total assets are invested in these securities. In pursuit of its
income objective, the Fund will invest in income-producing equity securities
(such as convertible securities and preferred stocks) and short-term debt
instruments (such as commercial paper). The Fund may invest up to 25% of its
total assets in foreign investments.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses equity investments by:
o Considering opportunities and risks by reviewing overall market conditions
and industry outlook.
o Identifying market trends that AEFC believes will lead to good long-term
growth potential.
o Identifying large companies with strong, sustainable earnings growth based on:
-- effective management (considering overall performance),
-- competitive market position, and
-- financial strength.
<PAGE>
o Focusing on those companies that AEFC considers to be "blue chips." Blue chip
stocks are issued by companies with a market capitalization of at least
$1 billion, an established management, a history of consistent earnings
and a leading position within their respective industries.
o Identifying investments that contribute to portfolio diversification.
o Identifying income-producing securities.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to other potential investments,
-- the security has reached AEFC's price objective,
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic or other events could affect the company's
performance,
-- AEFC wishes to minimize potential losses (i.e., in a market down-turn),
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the company or the security fails to meet the other standards described
above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as debt obligations (rated C or higher), and money market
securities. Additionally, the Fund may utilize derivative instruments (such as:
futures, options and forward contracts) to produce incremental earnings, to
hedge existing positions and to increase flexibility.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees, expenses, and
taxes.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
<PAGE>
RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Inflation Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes 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. Governments 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 occurring.
PAST PERFORMANCE
The following bar chart and table show the risks and variability of investing in
the Fund by showing: o how the Fund's performance has varied for each full
calendar year shown on the chart below, and o how the Fund's average annual
total returns compare to other recognized indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
- ------------------------------------------------------------------------------
Strategist Equity Fund Performance (based on calendar years)
+29.65%
+27.66%
+25.73%
+25.49%
+19.35%
+19.02%
+16.67%
+6.82%
+1.73%
-2.86%
1989 1990 1991 1992 1993 1994 1995 1996* 1997 1998
During the period shown in the bar chart, the highest return for a calendar
quarter was +19.38% (quarter ending December 1998) and the lowest return for a
calendar quarter was -11.79% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was -1.39%.
*On May 13, 1996, AXP Stock Fund (the predecessor fund) converted to a
master/feeder structure and transferred all of its assets to Equity Portfolio.
The performance information in this and the following table, represents
performance of the predecessor fund prior to March 20, 1995 and of Class A
shares of the predecessor fund from March 20, 1995 through May 13, 1996 adjusted
to reflect the absence of sales charges on shares of the Fund. The historical
performance has not been adjusted for any difference between the fees and
expenses of the Fund and historical fees and expenses of the predecessor fund.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
- -------------------------------------------------------------------------------
Strategist Equity Fund +19.35% +16.84% +16.41%
S&P 500 Index +28.57% +24.01% +19.19%
- -------------------------------------------------------------------------------
Lipper Growth and Income Fund Index +13.58% +17.82% +15.53%
This table shows total returns from a hypothetical investment in the Fund. These
returns are compared to the indexes shown for the same periods. For purposes of
this calculation, information about the Fund assumes no adjustments for taxes an
investor may have paid on the reinvested income and capital gains.
S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
Lipper Growth and Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
<PAGE>
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
- -------------------------------------------------------------------------------
Shareholder Feesa (fees paid directly from your investment)
Maximum sales charge (load) imposed on
purchasesb (as a percentage of offering price) 0%
- -------------------------------------------------------------------------------
Annual Fund operating expensesc (expenses that are deducted from Fund assets)
As a percentage of average daily net assets:
- -------------------------------------------------------------------------------
Management feesd 0.48%
- -------------------------------------------------------------------------------
Distribution (12b-1) fees 0.25%
- -------------------------------------------------------------------------------
Other expensese 0.52%
- -------------------------------------------------------------------------------
Totalf 1.25%
(a) A wire transfer charge, currently $15, is deducted from your brokerage
account for wire transfers made at your request.
(b) There are no sales loads; however, the Fund reserves the right upon 60
days' advance written notice to shareholders to impose a redemption fee
of up to 1% on shares redeemed within one year of purchase.
(c) Both in this table and the following example, Fund operating expenses
include expenses charged by both the Fund and the Portfolio.
(d) The management fee is paid by the Trust on behalf of the Portfolio. For
Equity Portfolio, it includes the impact of a performance fee that increased
the management fee by 0.01% in the fiscal year ended Sept. 30, 1999.
(e) Other expenses include an administrative services fee, a transfer agency fee
and other nonadvisory expenses.
(f) The Advisor and the Distributor have agreed to waive certain fees and to
absorb certain other Fund expenses until Sept. 30, 2000. Under this
agreement, total expenses will not exceed 1.25%. For the most recent fiscal
year actual total expenses with fee waivers and expense reimbursement
were 1.25%.
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you sell your shares at the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------
$127 $397 $687 $1,516
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
MANAGEMENT
The Fund's assets are invested in Equity Portfolio (the Portfolio), which is
managed by AEFC. 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>
Strategist Equity Income Fund
GOAL
The Fund seeks to provide shareholders with a high level of current income and,
as a secondary goal, steady growth of capital. Because any investment involves
risk, achieving this goal cannot be guaranteed. The Fund seeks to achieve its
goal by investing all of its assets in a master portfolio rather than by
directly investing in and managing its own portfolio of securities. The master
portfolio has the same goal and investment policies as the Fund.
INVESTMENT STRATEGY
The Fund primarily invests in equity securities. Under normal market conditions,
the Fund will invest at least 65% of its net assets in dividend-paying common
and preferred stocks.
The selection of dividend-paying stocks is the primary decision in building the
investment portfolio.
o Identifying companies with moderate growth potential based on:
-- effective management (considering overall performance), and
-- financial strength.
o Identifying companies with dividend-paying stocks.
o Determining specific industry weightings within the following sectors:
-- Consumer cyclical -- Energy
-- Consumer stable -- Technology
-- Financial -- Industrial
o Identifying stocks that are selling at low prices in relation to:
-- current and projected earnings,
-- current and projected dividends, and
-- historic price levels.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued,
-- the security has reached AEFC's price objective,
-- the company has met AEFC's earnings and/or growth expectations, and
-- the company or the security continues to meet the other standards
described above.
<PAGE>
Although not a primary investment strategy, the Fund also may invest in other
instruments, such as foreign securities, convertible securities, debt
obligations (including bonds and commercial paper of any rating), and money
market securities. Additionally, the Fund may utilize derivative instruments
(such as: futures, options and forward contracts) to produce incremental
earnings, to hedge existing positions and to increase flexibility.
During weak or declining markets or when growth opportunities are unavailable,
the Fund may invest more of its assets in money market securities or commercial
paper. Although the Fund primarily will invest in these securities to avoid
losses, this type of investing also could prevent the Fund from achieving its
investment objectives. AEFC may make frequent securities trades that could
result in increased fees, expenses, and taxes. The Fund is not managed with
respect to tax-efficiency.
<PAGE>
RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Sector/Concentration Risk
Inflation Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
<PAGE>
PAST PERFORMANCE
The following bar chart and table show the risks and variability of investing in
the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
- -------------------------------------------------------------------------------
Strategist Equity Income Fund Performance (based on calendar years)
+25.89%
+24.48%
+23.76
+20.92%
+18.08
+14.60%
+11.71%
-2.13%
1989 1990 1991 1992 1993 1994 1995 1996* 1997 1998
During the period shown in the bar chart, the highest return for a calendar
quarter was +15.63% (quarter ending December 1998) and the lowest return for a
calendar quarter was -10.97% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +1.48%.
*On May 13, 1996, AXP Diversified Equity Income Fund (the predecessor fund)
converted to a master/feeder structure and transferred all of its assets to
Equity Income Portfolio. The performance information in this and the following
table represents performance of the predecessor fund prior to March 20, 1995 and
of Class A shares of the predecessor fund from March 20, 1995 through May 13,
1996 adjusted to reflect the absence of sales charges on shares of the Fund. The
historical performance has not been adjusted for any difference between the fees
and expenses of the Fund and historical fees and expenses of the predecessor
fund.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years Since inceptiona
- -------------------------------------------------------------------------------
Strategist Equity Income Fund +11.71% +14.08% --%
- -------------------------------------------------------------------------------
S&P 500 Index +28.57% +24.01% +22.11%b
- -------------------------------------------------------------------------------
Lipper Equity Income Fund Index +11.78% +16.61% +17.40%b
a Inception date was Oct. 15, 1990.
b Measurement period started Nov. 1, 1990.
This table shows total returns from a hypothetical investment in the Fund. These
returns are compared to the indexes shown for the same periods. For purposes of
this calculation, information about the Fund assumes no adjustments for taxes an
investor may have paid on the reinvested income and capital gains.
S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
Lipper Equity Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
<PAGE>
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
- -------------------------------------------------------------------------------
Shareholder Feesa (fees paid directly from your investment)
Maximum sales charge (load) imposed on
purchasesb (as a percentage of offering price) 0%
- -------------------------------------------------------------------------------
Annual Fund operating expensesc (expenses that are deducted from Fund assets)
(as a percentage of average daily net assets):
- -------------------------------------------------------------------------------
Management fees 0.49%
Distribution (12b-1) fees 0.25%
- -------------------------------------------------------------------------------
Other expensesd 0.51%
- -------------------------------------------------------------------------------
Totale 1.25%
(a) A wire transfer charge, currently $15, is deducted from your brokerage
account for wire transfers made at your request.
(b) There are no sales loads; however, the Fund reserves the right upon 60
days' advance written notice to shareholders to impose a redemption fee
of up to 1% on shares redeemed within one year of purchase.
(c) Both in this table and the following example, Fund operating expenses
include expenses charged by both the Fund and the Portfolio.
(d) Other expenses include an administrative services fee, a transfer agency fee
and other nonadvisory expenses.
(e) The Advisor and the Distributor have agreed to waive certain fees and to
absorb certain other Fund expenses until Sept. 30, 2000. Under this
agreement, total expenses will not exceed 1.25%. For the most recent
fiscal year actual total expenses with fee waivers and expense
reimbursement were 1.25%.
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you sell your shares at the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------
$127 $397 $687 $1,516
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
MANAGEMENT
The Fund's assets are invested in Equity Income Portfolio (the Portfolio), which
is managed by AEFC. Kurt Winters, senior portfolio manager, joined AEFC in 1987.
He has managed the assets of the Portfolio since December 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
AXP Life Series Fund, Managed Portfolio. He was appointed to manage AXP
Discovery Fund in 1995. He also manages AXP Equity Value Fund, AXP Progressive
Fund and Balanced Portfolio.
<PAGE>
Strategist Total Return Fund
GOAL
The Fund seeks to provide shareholders maximum total return through a
combination of growth of capital and current income. Because any investment
involves risk, achieving this goal cannot be guaranteed. The Fund seeks to
achieve its goal by investing all of its assets in a master portfolio rather
than by directly investing in and managing its own portfolio of securities. The
master portfolio has the same goal and investment policies as the Fund.
INVESTMENT STRATEGY
The Fund's assets primarily are allocated among four asset classes: (1) U.S.
equities, (2) U.S. and foreign debt securities, (3) foreign equity securities,
and (4) cash. The Fund's investment manager, American Express Financial
Corporation (AEFC), determines the portion of the Fund's assets to be invested
in each asset class. AEFC expects to reset this mix, called the market mix, at
least once every 12 to 18 months. The Fund may invest up to 50% of its total
assets in foreign investments, which may include emerging markets, and up to 15%
of its total assets in below investment-grade debt securities (lower-quality
bonds).
The allocation among asset classes is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC chooses investments by:
o Considering opportunities and risks by country and currency.
o Identifying investments that contribute to portfolio diversification.
o Determining the appropriate allocation among asset classes based on the
market mix AEFC expects to provide the most favorable total return. The
day-to-day allocation of investments will vary from the market mix but will
remain within the ranges selected by AEFC. As of the end of the most recent
fiscal year, the market mix and ranges selected by AEFC are:
Asset Class Market Mix Range
- -------------------------------------------------------------------------------
U.S. equity securities 50% 25-75%
U.S. and foreign debt securities 40 10-50
- -------------------------------------------------------------------------------
Foreign equity securities 10 0-50
- -------------------------------------------------------------------------------
Cash 0 0-30
<PAGE>
AEFC chooses equity investments by:
o Identifying U.S. and foreign companies of all sizes.
o Identifying smaller companies that exhibit:
-- attractive valuations, based on measures such as the ratio of stock price
to company earnings, free cash flow or book value, and
-- improving earnings, based on an analysis of trends in earnings forecasts
and prior period earnings that were better than expected, as well
as an assessment of the company's competitive market position.
o Identifying larger companies with potential for above-average long-term
growth based on:
-- effective management (considering overall performance),
-- competitive market position, and
-- financial strength.
AEFC chooses debt obligations by:
o Considering opportunities and risks by reviewing interest rate and economic
forecasts.
o Investing more heavily in certain sectors (for example, corporate bonds
and government bonds) based on AEFC's expectations for interest rates.
o Identifying U.S. and foreign bonds that are investment-grade or below
investment-grade (lower-quality).
o Identifying securities that are expected to outperform other securities.
In this analysis, AEFC will take risk factors into account (for example,
whether money has been set aside to cover the cost of principal and
interest payments).
o Identifying obligations that may benefit from currency fluctuations and
interest rate differences among countries. In evaluating whether to
sell a security, AEFC considers, among other factors, whether:
-- the security is overvalued relative to other potential investments,
-- the interest rate or economic outlook changes,
-- the security has reached AEFC's price objective or moved above a
reasonable valuation target,
-- AEFC identifies a more attractive opportunity,
-- the company has met or fails to meet AEFC's earnings and/or growth
expectations,
-- the issuer's credit quality declines or AEFC expects a decline (the Fund
may continue to own securities that are down-graded until AEFC believes
it is advantageous to sell), and
-- the issuer or the security continues to meet the other standards described
above.
<PAGE>
Although not a primary investment strategy, the Fund also may invest in other
instruments such as preferred stocks and convertible securities. Additionally,
the Fund may utilize derivative instruments (such as: futures, options and
forward contracts) to produce incremental earnings, to hedge existing positions
and to increase flexibility.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objectives. During these times, AEFC may make
frequent securities trades that could result in increased fees, expenses, and
taxes.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
<PAGE>
RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Interest Rate Risk
Foreign/Emerging Markets Risk
Call/Prepayment Risk
Credit Risk
Event Risk
Liquidity Risk
Small Company Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes
in interest rates.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the
<PAGE>
standard of care of the local market. Governments 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 occurring.
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in emerging market countries as well as the other considerations
listed above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
PAST PERFORMANCE
The following bar chart and table show the risks and variability of investing in
the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown
on the chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
- ------------------------------------------------------------------------------
Strategist Total Return Fund Performance (based on calendar years)
+45.94%
+34.72%
+19.26%
+14.95%
+14.67%
+11.62%
+9.26%
+8.33%
+0.07%
-4.26%
1989 1990 1991 1992 1993 1994 1995 1996* 1997 1998
During the period shown in the bar chart, the highest return for a calendar
quarter was +12.04% (quarter ending December 1998) and the lowest return for a
calendar quarter was -11.39% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was 0.94%.
*On May 13, 1996, AXP Managed Allocation, (the predecessor fund) converted to a
master/feeder structure and transferred all of its assets to Total Return
Portfolio. The performance information in this and the following table
represents performance of the predecessor fund prior to March 20, 1995 and of
Class A shares of the predecessor fund from March 20, 1995 through May 13, 1996,
adjusted to reflect the absence of sales charges on shares of the Fund. The
historical performance has not been adjusted for any difference between the fees
and expenses of the Fund and historical fees and expenses of the predecessor
fund.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
- -------------------------------------------------------------------------------
Strategist Total Return Fund +8.33% +9.54% +14.57%
S&P 500 Index +28.57% +24.01% +19.19%
- -------------------------------------------------------------------------------
Lipper Flexible Portfolio Fund Index +16.52% +13.58% +12.96%
This table shows total returns from a hypothetical investment in the Fund. These
returns are compared to the indexes shown for the same periods. For purposes of
this calculation, information about the Fund assumes no adjustments for taxes an
investor may have paid on the reinvested income and capital gains.
S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
Lipper Flexible Portfolio Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
<PAGE>
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
- -------------------------------------------------------------------------------
Shareholder Feesa (fees paid directly from your investment)
Maximum sales charge (load) imposed on
purchasesb (as a percentage of offering price)0%
- -------------------------------------------------------------------------------
Annual Fund operating expensesc (expenses that are deducted from Fund assets)
As a percentage of average daily net assets:
- -------------------------------------------------------------------------------
Management feesd 0.44%
- -------------------------------------------------------------------------------
Distribution (12b-1) fees 0.25%
- -------------------------------------------------------------------------------
Other expensese 0.61%
- -------------------------------------------------------------------------------
Totalf 1.30%
(a) A wire transfer charge, currently $15, is deducted from your brokerage
account for wire transfers made at your request.
(b) There are no sales loads; however, the Fund reserves the right upon 60 days'
advance written notice to shareholders to impose a redemption fee of up to
1% on shares redeemed within one year of purchase.
(c) Both in this table and the following example, Fund operating expenses
include expenses charged by both the Fund and the Portfolio.
(d) The management fee is paid by the Trust on behalf of the Portfolio. For
Total Return Portfolio, it includes the impact of a performance fee
that decreased the management fee by 0.06% in the fiscal year ended Sept.
30, 1999.
(e) Other expenses include an administrative services fee, a transfer agency fee
and other nonadvisory expenses.
(f) The Advisor and the Distributor have agreed to waive certain fees and to
absorb certain other Fund expenses until Sept. 30, 2000. Under this
agreement, total expenses will not exceed 1.30%. For the most recent fiscal
year actual total expenses with fee waivers and expense reimbursement were
1.22%.
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you sell your shares at the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------
$132 $412 $714 $1,573
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
<PAGE>
MANAGEMENT
The Fund's assets are invested in Total Return Portfolio (the Portfolio), which
is managed by AEFC. Day-to-day portfolio 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 of the Portfolio since September
1997 and as fixed income securities specialist since December 1995. He joined
AEFC in 1991 and has managed AXP Variable Portfolio -- Bond Fund since that
time. Steve serves as vice president and senior portfolio manager.
Jim 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 AEFC in 1994 as an equity quantitative analyst
for American Express Asset Management Group Inc. He has managed the focused
research product for American Express Asset Management Group since 1996. Prior
to joining AEFC, he served as an equity quantitative analyst at Piper Capital
Management, Inc. He currently also serves as co-manager of AXP Blue Chip
Advantage Fund and manager of AXP Small Company Index Fund.
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
also 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 is
manager of World Growth Portfolio and IDS Life Series Fund, International Equity
Portfolio.
Jake Hurwitz and Kent Kelley, principals of Kenwood Capital Management LLC,
began managing the U.S. small cap equity portion of the Portfolio in January
1999. Jake is portfolio manager of AXP Small Cap Advantage Fund. He manages the
U.S. small cap growth equity portion of AXP Strategy Aggressive Fund. He also
manages the small cap U.S. equity portion of AXP Variable Portfolio -- Strategy
Aggressive Fund. Previously, Jake served as senior vice president at Travelers
Investment Management Company, an affiliate of Smith Barney Asset Management.
Kent is portfolio manager of AXP Small Cap Advantage Fund. He manages the U.S.
small cap growth equity portion of AXP Strategy Aggressive Fund. He also manages
the small cap U.S. equity portion of AXP Variable Portfolio -- Strategy
Aggressive Fund. Previously, Kent was chief executive officer of Travelers
Investment Management Company.
<PAGE>
Buying and Selling Shares
VALUING FUND SHARES
The public offering price for a single Fund share is the net asset value (NAV).
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business of the New York Stock Exchange, normally
3 p.m. Central Time (CT), each business day (any day the New York Stock Exchange
is open).
The Fund's investments are valued based on market quotations, or where market
quotations are not readily available, based on methods selected in good faith by
the board. If the Fund's investment policies permit it to invest in securities
that are listed on foreign stock exchanges that trade on weekends or other days
when the Fund does not price its shares, the value of the Fund's underlying
investments may change on days when you could not buy or sell shares of the
Fund. Please see the SAI for further information.
PURCHASING SHARES
The Fund is closed to new accounts. Purchases are limited to existing accounts
only. The discussion below regarding brokerage accounts and the purchase of
shares of the Fund is qualified by this limitation.
You may purchase additional shares of the Fund in which you are invested through
a brokerage account maintained with American Express Financial Advisors Inc.
(the Distributor). Payment for shares must be made directly to the Distributor.
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide the correct TIN, 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 for a false statement that results in no backup
withholding, and
o criminal penalties for falsifying information.
You also could be subject to backup withholding for failure to report interest
or dividends on your tax return. For details on TIN requirements, call
800-297-7378 to obtain a copy of federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
<PAGE>
Deposits into your brokerage account
You may deposit money into your brokerage account by check, wire or many other
forms of electronic funds transfer (securities also may be deposited). All
deposit checks should be made payable to American Express Financial Advisors
Inc. If you would like to wire funds into your existing brokerage account or add
to your account by electronic transfer, please contact the Distributor at
800-297-7378 for instructions.
Minimum Fund investment requirements
Your initial investment in the 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 brokerage 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. CT, your order will
be priced at the next calculated NAV. See "Valuing Fund Shares."
Methods of purchasing shares
You may purchase shares of the Fund in three ways.
- -------------------------------------------------------------------------------
1 By telephone:
You may use money in your brokerage account to make purchases. To place your
order, call 800-297-7378.
- -------------------------------------------------------------------------------
2 By mail:
Mail written purchase requests (along with any checks) to American Express
Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. These requests
should include:
o your brokerage account number (or a brokerage account application), and
o the name of the Fund and the dollar amount of shares you would like purchased.
Your check should be made payable to American Express Financial Advisors Inc. It
will be deposited into your brokerage account and used to cover your purchase
request.
- -------------------------------------------------------------------------------
3 By systematic purchase:
Once you have opened a brokerage account, you may authorize the Distributor to
automatically purchase shares on your behalf at intervals and in amounts
selected by you as described below.
<PAGE>
Systematic Purchase Plan
The Distributor offers a Systematic Purchase Plan (SPP) that allows you to make
periodic investments in the Fund automatically and conveniently. Participating
in the SPP will save you the time and expense associated with writing checks or
wiring money.
Investment minimums
You can make automatic investments in any amount, from $100 to $50,000.
Investment methods
There are two ways to make automatic investments in your brokerage account:
(1) Using uninvested cash in your brokerage account: If you elect this option,
uninvested cash in your brokerage account will be used to make the investment
and, if necessary, shares of your Money Market Fund will be sold to cover the
balance of the purchase.
(2) Using bank authorizations: If you elect this option, money is transferred
from your bank checking or savings account into your brokerage account for
automatic investments.
You will need to select a transfer date (when the money is transferred into your
brokerage 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 call
800-297-7378, or send written instructions clearly outlining the changes to
American Express Financial Direct,
P.O. Box 59196, Minneapolis, MN 55459-0196. These instructions must include:
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 (for which you have an existing account) and the
amount to be invested in each fund, and
o The investment frequency and investment dates for your new automatic
investments.
<PAGE>
Terminating your SPP
If you wish to terminate your SPP, you may call 800-297-7378, 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
800-297-7378. Your bank authorization will not automatically terminate when you
cancel your SPP.
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
American Express Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196 or
telephoning 800-297-7378. Your systematic investments will continue using
brokerage account assets if the Distributor does not receive notification to
terminate your systematic investments as well.
To avoid procedural difficulties, the Distributor must receive instructions to
change or terminate your SPP or bank authorizations at least 10 days prior to
your scheduled investment date.
Minimum balance and account requirements
The Fund reserves the right to sell your shares if, as a result of sales, 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 brokerage
account, the Fund will automatically sell your shares and mail the proceeds to
you.
Wire transfers to your bank
Money can be wired from your brokerage account to your bank account. Call the
Distributor at 800-297-7378 for additional information on wire transfers. A $15
service fee will be charged against your brokerage account for each wire sent.
<PAGE>
EXCHANGING/SELLING SHARES
Exchanging Shares
You can exchange your shares of the Fund for shares of other funds in the
Strategist Fund Group in which you have an existing account at any time. For
complete information on the other funds, including fees and expenses, read that
fund's prospectus carefully. Your exchange will be priced at the next NAV
calculated after it is accepted by that fund. When exchanging into another fund
you must meet that fund's minimum investment requirements. You may make up to
four exchanges per calendar year.
The Distributor and the Fund 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 Fund and its shareholders. For example, if exchanges are
too numerous or too large, they may disrupt a Fund's investment strategies or
increase its costs.
Selling Shares
You may sell your shares at any time. Your sale price will be the next NAV
calculated after receipt by the Distributor of proper sale instructions, as
described below.
There are no sales loads; however, each Fund reserves the right upon 60 days'
advance notice to shareholders to impose a sales fee up to 1% on shares sold
within one year of purchase.
Normally, payment for shares sold will be credited directly to your brokerage
account on the next business day. However, the Fund may delay payment, but no
later than seven days after the Distributor receives your selling instructions
in proper form. Sale proceeds will be held in your brokerage account or mailed
to you according to your account instructions.
If you recently purchased shares by check, your sale proceeds may be held in
your brokerage account until your check clears (which may take up to 10 days
from the purchase date) before a check is mailed to you.
The Fund reserves the right to redeem in kind.
<PAGE>
Two ways to request an exchange or sale of shares
- ------------------------------------------------------------------------------
1 By telephone:
You may exchange or sell your shares by calling 800-297-7378. Alternatively, you
can mail your exchange or sale requests as described below.
To properly process your telephone exchange or sale request we will need the
following information:
o your brokerage 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 sell shares,
o the dollar amount or number of shares you want to exchange or sell, and
o the name of the fund into which shares are to be exchanged, if applicable.
Telephone exchange or sale requests received before 2 p.m. CT on any business
day, once the caller's identity and account ownership have been verified by the
Distributor, will be processed at the next calculated NAV. See "Valuing Fund
Shares."
- -------------------------------------------------------------------------------
2 By mail:
You also may request an exchange or sale by writing to American Express
Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. Once an exchange
or sale request is mailed it is irrevocable and cannot be modified or canceled.
To properly process your mailed exchange or sale request, we will need a letter
from you that contains the following information:
o your brokerage account number,
o the name of the fund from which you wish to exchange or sell shares,
o the dollar amount or number of shares you want to exchange or sell,
o the name of the fund into which shares are to be exchanged, if applicable, and
o a signature of at least one of the brokerage account holders in the exact form
specified on the account.
Telephone transactions
The privilege to initiate transactions by telephone is automatically available
through your brokerage account. The Fund will honor any telephone transaction
believed to be authentic and will use reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Fund may modify or
discontinue telephone privileges at any time.
<PAGE>
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and net
gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund's net investment income is distributed to you as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Each realized capital gain or loss is long-term or short-term depending on
the length of time the Fund held the security. Realized capital gains and losses
offset each other. The Fund offsets any net realized capital gains by any
available capital loss carryovers. Net short-term capital gains are included in
net investment income. Net realized long-term capital gains, if any, are
distributed by the end of the calendar year as capital gain distributions.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund unless you request distributions in cash. We
reinvest the distributions for you at the next calculated NAV after the
distribution is paid. If you choose cash distributions, you will receive cash
only for distributions declared after your request has been processed.
<PAGE>
TAXES
Distributions are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.
If you buy shares shortly before the record date of a distribution you may pay
taxes on money earned by the Fund before you were a shareholder. You will pay
the full pre-distribution price for the shares, then receive a portion of your
investment back as a distribution, which may be taxable.
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for less
than their cost, the difference is a capital loss. 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).
Selling shares held in an IRA or qualified retirement account may subject you to
federal taxes, penalties and reporting requirements. Please consult your tax
advisor.
Important: This information is a brief and selective summary of some of the tax
rules that apply to the Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
<PAGE>
Personalized Shareholder Information
To help you track and evaluate the performance of your investments, you will
receive these individualized reports:
QUARTERLY STATEMENTS
List all of your holdings and transactions during the previous three months.
YEARLY TAX STATEMENTS
Feature average-cost-basis reporting of capital gains or losses if you sell your
shares along with distribution information to simplify tax calculations.
Master/Feeder Structure
The Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in a Portfolio (the master fund). Other feeder
funds also invest in the Portfolio. The master/feeder structure offers the
potential for reduced costs because it spreads fixed costs of portfolio
management over a larger pool of assets. The Fund may withdraw its assets from
the corresponding Portfolio at any time if the Fund's board determines that it
is best. In that event, the board would consider what action should be taken,
including whether to hire an investment advisor to manage the Fund's assets
directly or to invest all of the Fund's assets in another pooled investment
entity. Here is an illustration of the structure:
Investors buy shares in the Fund
The Fund buys units in the Portfolio
The Portfolio invests in securities, such as stocks or bonds
Other feeders may include mutual funds and institutional accounts. 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 the Fund. Information about other feeders may be obtained by calling
American Express Financial Direct at 800-437-3133.
<PAGE>
Business Structure
Transfer Agent: American Express Client Service Corporation Maintains
shareholder accounts and records for the Fund; receives a fee based on the
number of accounts it services.
Administrative Services Agent: American Express Financial Corporation Provides
administrative and accounting services for the Fund; receives a fee based on
average daily net assets.
Investment Manager: American Express Financial Corporation Manages the
Portfolio's investments and receives a fee based on average daily net assets.*
The Fund invests its assets in the Portfolio. The Fund and/or the Portfolio have
contracts with certain service providers.
Shareholders
The Fund
The Portfolio
Distributor: American Express Financial Advisors Inc. Markets and distributes
shares; receives distribution fee.
Custodian: American Express Trust Company Provides safekeeping of assets;
receives a fee that varies based on the number of securities held.
*Each Portfolio pays AEFC a fee for managing its assets. Each Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 0.48% of average daily
net assets for Balanced Portfolio, 0.48% for Equity Portfolio, 0.49% for Equity
Income Portfolio and 0.44% for Total Return Portfolio. Under the Agreement, each
Portfolio also pays taxes, brokerage commissions and nonadvisory expenses.
<PAGE>
ABOUT AMERICAN EXPRESS FINANCIAL CORPORATION
American Express Financial Corporation (AEFC), the Fund's investment manager,
has been a provider of financial services since 1894, and as of the most recent
fiscal year end manages more than $227 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. This team of professionals includes
portfolio managers, economists and supporting staff, stock and bond analysts
including Chartered Financial Analysts. Some of the professionals are based in
London and Hong Kong and add a global dimension to the teams expertise.
AEFC, located at IDS Tower 10, Minneapolis, MN 55440-0010, is 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.
YEAR 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000. While Year 2000-related
computer problems could have a negative effect on the Fund, AEFC is working to
avoid such problems and to obtain assurances from service providers that they
are taking similar steps.
The companies, governments or international markets in which the Fund invests
also may be adversely affected by Year 2000 issues. To the extent a portfolio
holding is adversely affected by a Year 2000 processing issue, the Fund's return
could be adversely affected.
<PAGE>
Quick Telephone Reference
AMERICAN EXPRESS FINANCIAL DIRECT TEAM:
CALL THE FINANCIAL CONSULTANTS
Fund performance, objectives and account inquiries, sales and exchanges,
dividend payments or reinvestments and automatic
payment arrangements: 800-297-7378
TTY SERVICE
For the hearing impaired: 800-710-5260
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Balanced Fund
Fiscal period ended Sept. 30,
- ------------------------------------------------------------------------------------------
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.07 $16.57 $13.57 $13.36
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .41 .53 .66 .18
Net gains (losses) (both realized and unrealized) 1.40 (.39) 2.99 .17
- ------------------------------------------------------------------------------------------
Total from investment operations 1.81 .14 3.65 .35
Less distributions:
Dividends from net investment income (.38) (.52) (.65) (.14)
Distributions from realized gains (.97) (1.12) -- --
- ------------------------------------------------------------------------------------------
Total distributions (1.35) (1.64) (.65) (.14)
Net asset value, end of period $15.53 $15.07 $16.57 $13.57
- ------------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in thousands) $1,177 $1,095 $895 $525
Ratio of expenses to average daily net assetsc .98% .93% .62% 1.25%d
- ------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
- ------------------------------------------------------------------------------------------
to average daily net assets 2.55% 3.37% 4.60% 3.91%d
- ------------------------------------------------------------------------------------------
Portfolio turnover rate
- ------------------------------------------------------------------------------------------
(excluding short-term securities) 134% 98% 49% 14%
- ------------------------------------------------------------------------------------------
Total return 10.42% .73% 27.43% 2.59%
- ------------------------------------------------------------------------------------------
</TABLE>
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 3.14%, 1.27%, 6.35% and 34.04% for the periods ended 1999,
1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
<PAGE>
<TABLE>
<CAPTION>
Equity Fund
Fiscal period ended Sept. 30,
- ------------------------------------------------------------------------------------------
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $28.28 $29.09 $22.40 $21.73
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .14 .18 .54 .21
Net gains (losses) (both realized and unrealized) 4.74 .24 6.64 .62
- ------------------------------------------------------------------------------------------
Total from investment operations 4.88 .42 7.18 .83
Less distributions:
Dividends from net investment income (.49) (.12) (.49) (.16)
Distributions from realized gains (1.41) (1.11) -- --
Total distributions (1.90) (1.23) (.49) (.16)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $31.26 $28.28 $29.09 $22.40
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in thousands) $1,132 $935 $778 $534
- ------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assetsc 1.25% 1.25% .58% 1.25%d
Ratio of net investment income (loss)
- ------------------------------------------------------------------------------------------
to average daily net assets .45% .69% 2.17% 3.06%d
- ------------------------------------------------------------------------------------------
Portfolio turnover rate
- ------------------------------------------------------------------------------------------
(excluding short-term securities) 76% 79% 82% 21%
- ------------------------------------------------------------------------------------------
Total return 16.95% .91% 28.28% 3.81%
- ------------------------------------------------------------------------------------------
</TABLE>
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 2.15%, 2.03%, 1.13% and 34.21% for the periods ended 1999,
1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund
Fiscal period ended Sept. 30,
- -----------------------------------------------------------------------------------------
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.85 $11.16 $8.92 $8.68
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .12 .21 .37 .13
Net gains (losses) (both realized and unrealized) 1.56 (.47) 2.22 .23
- -----------------------------------------------------------------------------------------
Total from investment operations 1.68 (.26) 2.59 .36
Less distributions:
Dividends from net investment income (.10) (.22) (.35) (.12)
Distributions from realized gains (1.00) (.83) -- --
- -----------------------------------------------------------------------------------------
Total distributions (1.10) (1.05) (.35) (.12)
Net asset value, end of period $10.43 $9.85 $11.16 $8.92
- -----------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in thousands) $1,006 $897 $827 $534
- -----------------------------------------------------------------------------------------
Ratio of expenses to average daily net assetsc 1.25% 1.25% 1.07% 1.25%d
Ratio of net investment income (loss)
- -----------------------------------------------------------------------------------------
to average daily net assets 1.05% 1.95% 3.65% 3.51%d
- -----------------------------------------------------------------------------------------
Portfolio turnover rate
- -----------------------------------------------------------------------------------------
(excluding short-term securities) 84% 97% 81% 17%
- -----------------------------------------------------------------------------------------
Total return 17.34% (2.61%) 29.44% 4.10%
- -----------------------------------------------------------------------------------------
</TABLE>
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 3.62%, 1.68%, 4.53%, and 24.26% for the periods ended 1999,
1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
<PAGE>
<TABLE>
<CAPTION>
Total Return Fund
Fiscal period ended Sept. 30,
- -----------------------------------------------------------------------------------------
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.35 $14.53 $12.22 $11.89
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .32 .40 .31 .06
- -----------------------------------------------------------------------------------------
Net gains (losses) (both realized and unrealized) 1.46 (.94) 2.29 .31
- -----------------------------------------------------------------------------------------
Total from investment operations 1.78 (.54) 2.60 .37
- -----------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32) (.40) (.29) (.04)
Distributions from realized gains (.94) (1.24) -- --
Total distributions (1.26) (1.64) (.29) (.04)
- -----------------------------------------------------------------------------------------
Net asset value, end of period $12.87 $12.35 $14.53 $12.22
- -----------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in thousands) $816 $685 $686 $529
- -----------------------------------------------------------------------------------------
Ratio of expenses to average daily net assetsc 1.22% 1.15% 1.26% 1.30%d
- -----------------------------------------------------------------------------------------
Ratio of net investment income (loss)
- -----------------------------------------------------------------------------------------
to average daily net assets 2.46% 2.92% 2.29% .96%d
- -----------------------------------------------------------------------------------------
Portfolio turnover rate
- -----------------------------------------------------------------------------------------
(excluding short-term securities) 81% 122% 99% 35%
- -----------------------------------------------------------------------------------------
Total return 13.10% (4.09%) 21.35% 3.18%
- -----------------------------------------------------------------------------------------
</TABLE>
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 opering expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 2.94%, 2.16%, 2.79%, and 31.60% for the periods ended 1999,
1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditors' report and additional information about the
performance of the Fund are contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
<PAGE>
The Fund, along with the other funds in the Strategist Fund Group, is
distributed by American Express Financial Advisors Inc.
Additional information about the Fund and its investments is available in the
Fund's Statement of Additional Information (SAI), annual and semiannual reports
to shareholders. In the Fund's annual report, you will find a discussion of
market conditions and investment strategies that significantly affected the Fund
during the last fiscal year. The SAI is incorporated by reference in this
prospectus. For a free copy of the SAI, annual or semiannual report, or to make
inquiries about the Fund contact American Express Financial Direct.
American Express Financial Direct
P.O. Box 59196, Minneapolis, MN 55459-0196
800-297-7378 TTY: 800-710-5620
Web site address:
http://www.americanexpress.com/direct
You may review and copy information about the Fund, including its SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.
Investment Company Act File #811-7403
S-6122 E (11/99)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
STRATEGIST GROWTH AND INCOME FUND, INC.
STRATEGIST BALANCED FUND
STRATEGIST EQUITY FUND
STRATEGIST EQUITY INCOME FUND
STRATEGIST TOTAL RETURN FUND
(singularly and collectively with the corresponding portfolio(s) of Growth and
Income Trust (the Trust) and the Trust, where the context requires, referred to
as the "Fund")
Nov. 29, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that 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.
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 are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
TABLE OF CONTENTS
Mutual Fund Checklist.....................................................p. 3
Fundamental Investment Policies...........................................p. 5
Investment Strategies and Types of Investments............................p. 8
Information Regarding Risks and Investment Strategies.....................p. 12
Security Transactions.....................................................p. 34
Brokerage Commissions Paid to Brokers Affiliated with the Adviser.........p. 36
Performance Information...................................................p. 37
Valuing Fund Shares.......................................................p. 39
Selling Shares............................................................p. 40
Taxes.....................................................................p. 41
Agreements................................................................p. 42
Organizational Information................................................p. 45
Board Members and Officers................................................p. 47
Compensation for Board Members............................................p. 50
Independent Auditors......................................................p. 53
Appendix: Description of Ratings.........................................p. 54
<PAGE>
MUTUAL FUND CHECKLIST
- -------------------------------------------------------------------------------
|X|
Mutual funds are NOT guaranteed or insured by any
bank or government agency. You can lose money.
|X|
Mutual funds ALWAYS carry investment risks. Some
types carry more risk than others.
|X|
A higher rate of return typically involves a
higher risk of loss.
|X|
Past performance is not a reliable indicator of
future performance.
|X|
ALL mutual funds have costs that lower investment
return.
|X|
Shop around. Compare a mutual fund with others of
the same type before you buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:
Develop a Financial Plan
Have a plan - even a simple plan can help you take control of your financial
future.
Dollar-Cost Averaging
An investment 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 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 through changing market conditions to accumulate shares to meet
long-term goals.
<PAGE>
Dollar-cost averaging:
- -------------------------------------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
- -------------------------------------------------------------------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
----- -------- ------
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5)
The average price you paid for each share: $4.84 ($500 divided by 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
The Fund pursues its investment objective by investing all of its assets in a
portfolio of the Trust, a separate investment company, rather than by directly
investing in and managing its own portfolio of securities. The Portfolio has the
same investment objectives, policies, and restrictions as the Fund.
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
Strategist Balanced Fund
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o 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.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o 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 Fund's total assets, based on current market value at time of
purchase, can be invested in any one industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o 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 Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
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.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
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.
o 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.
o Lend Fund securities in excess of 30% of its net assets.
<PAGE>
Strategist Equity Fund
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o 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.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o 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 Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
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.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
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.
o Lend Fund securities in excess of 30% of its net assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at the time of purchase, can be invested in any one
industry.
Strategist Equity Income Fund
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o 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.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o 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 Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real
<PAGE>
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.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
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.
o Lend Fund securities in excess of 30% of its net assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
Strategist Total Return Fund
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o 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.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o 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 Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
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.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
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.
o 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.
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except as permitted under the 1940 Act.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
- -------------------------------------------------------------------------------
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to hedge against certain types of
risk, these practices are left to the investment manager's sole discretion.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- -------------------------------------------
Investment strategies & types of investments: Allowable for
the Fund?
- ---------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Strategist Strategist Strategist Strategist
Balanced Equity Equity Total
Income Return
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Agency and Government Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Borrowing yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Cash/Money Market Instruments yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Collateralized Bond Obligations yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Commercial Paper yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Common Stock yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Convertible Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Corporate Bonds yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Debt Obligations yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Depositary Receipts yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Derivative Instruments yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Foreign Currency Transactions yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Foreign Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
High-Yield (High-Risk) Securities (Junk Bonds) yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Illiquid and Restricted Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Indexed Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Inverse Floaters yes no no yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Investment Companies yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Lending of Portfolio Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Loan Participations yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Mortgage- and Asset-Backed Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Mortgage Dollar Rolls yes no no no
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Municipal Obligations yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Preferred Stock yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Real Estate Investment Trusts yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Repurchase Agreements yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Reverse Repurchase Agreements yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Short Sales no no no no
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Sovereign Debt yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Structured Products yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Variable- or Floating-Rate Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Warrants yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
When-Issued Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes yes yes yes
- ---------------------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
For Strategist Balanced:
The following are guidelines that may be changed by the board at any time:
o No more than 65% of the Fund's total assets will be invested in common
stocks.
o No less than 35% of the Fund's total assets will be invested in senior
securities (preferred stocks and debt obligations), convertible securities,
derivative instruments and money market instruments.
o At least 25% of the Fund's total assets will be invested in debt securities
and convertible securities.
o The Fund will not invest more than 5% of its net assets in bonds below
investment grade.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund'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.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin, but it may make margin payments in
connection with interest rate in futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
For Strategist Equity:
The following are guidelines that may be changed by the board at any time:
o Under normal market conditions, at least 65% of the Fund's total assets
will be invested in common stocks and securities convertible into common
stock of U.S. and foreign companies.
o The Fund will not invest more than 5% of its net assets in bonds below
investment grade.
o The Fund will not purchase securities rated below C by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or the equivalent.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund'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.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
<PAGE>
o The Fund will not invest more than 10% of its net assets in securities of
investment companies.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in stock index futures
contracts.
o The Fund will not invest in a company to control or manage it.
For Strategist Equity Income:
The following are guidelines that may be changed by the board at any time:
o Under normal market conditions, the Fund will invest at least 65% of its
net assets in dividend-paying common and preferred stocks.
o No more than 20% of the Fund's net assets may be invested in bonds below
investment grade unless the bonds are convertible securities.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund'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.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
For Strategist Total Return:
The following are guidelines that may be changed by the board at any time:
o No more than 15% of the Fund's total assets will be invested in below
investment-grade debt securities.
o No more than 50% of the Fund's total assets will be invested in foreign
investments.
o No more than 5% of the Fund'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.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
<PAGE>
o The Fund may invest up to 30% of its total assets in short-term debt
securities rated in the top two grades or the equivalent.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in futures contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
<PAGE>
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
- -------------------------------------------------------------------------------
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk Bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes 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. Governments or trade groups may compel local agents to hold
securities in designated depositories that are
<PAGE>
not subject to independent evaluation. The less developed a country's securities
market is, the greater the likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
<PAGE>
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include 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. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields
<PAGE>
than comparable non-convertible securities, (ii) are less subject to fluctuation
in value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
<PAGE>
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities 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. 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 involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or 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. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based
<PAGE>
derivatives include privately negotiated, over-the-counter (OTC) options
(including caps, floors, collars, and options on futures) and exchange-traded
options on futures. Diverse types of derivatives may be created by combining
options or futures in different ways, and by applying these structures to a wide
range of underlying assets.
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 for the length of the contract 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 during the length of the contract, 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 to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained 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.
When an option is purchased, the buyer 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 sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, 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 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.
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. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a
buyer (holding the "long" position) and a seller (holding the "short" position)
for an asset with delivery deferred until a future date. The buyer agrees to pay
a fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal
<PAGE>
to any decline in the contract's value or receive cash equal to any increase. At
the time a futures contract is closed out, a nominal commission is paid, which
is generally lower than the commission on a comparable transaction in the cash
market.
Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices.
Options on Futures Contracts. Options on futures contracts 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 (some futures are settled in cash), 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 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.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these 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. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor 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 fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred on futures contracts and on underlying securities identified as
hedged positions and require recognition of unrealized capital gain.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund 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.
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 (the Fund'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>
Other Risks of Derivatives.
Derivatives are risky investments.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities. There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative may try
to avoid payment by exploiting various legal uncertainties about certain
derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund'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, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by
<PAGE>
the forces of supply and demand in the foreign exchange markets, actual or
anticipated changes in interest rates, and other complex factors. Currency
exchange rates also can be affected by the intervention of U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments.
Spot Rates and Derivative Instruments. The Fund 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. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund 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, the Fund 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.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of 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. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund'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 the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund 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 the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund 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 the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund 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, the Fund 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 the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
<PAGE>
currency the Fund 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 portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's 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 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 the Fund 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 shareholders 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 selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy 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 the diminutions in the value of securities, the Fund
may buy options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
As in the case of other types of options, however, the benefit to the Fund
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, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund 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 options, 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 the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that 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 the Fund 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 its 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 the Fund 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 that 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. The Fund may enter into currency
futures contracts to sell currencies. It also may buy put options 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. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.
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 value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund'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 the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund 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.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
<PAGE>
Foreign Securities and Domestic Companies with Foreign Operations
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
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 U.S. and, at times, volatility of price can be greater than in the U.S.
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 are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor 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.,
an investor 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. Further, an investor 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
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., 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 additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transition period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
<PAGE>
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
<PAGE>
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time-consuming
negotiations and legal expense, and it may be difficult or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
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 and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
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. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund 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 Fund 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
<PAGE>
of the loan, the Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. 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. If prepayments of principal are
greater than anticipated, an investor in IOs 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.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
<PAGE>
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within territorial boundaries of
the United States (including the District of Columbia). The interest on these
obligations is generally exempt from federal income tax. Municipal obligations
are generally classified as either "general obligations" or "revenue
obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in
<PAGE>
such obligations. Municipal leases may be subject to greater risks than general
obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet in order to issue municipal
obligations. Municipal leases may contain a covenant by the state or
municipality to budget for and make payments due under the obligation. Certain
municipal leases may, however, provide that the issuer is not obligated to make
payments on the obligation in future years unless funds have been appropriated
for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price on the replacement date. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased prior to the scheduled
delivery date, the investor loses the opportunity to participate in the gain.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
<PAGE>
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
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. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets. In addition, when the Fund engages in forward commitment and
when-issued transactions, it relies on the counterparty to consummate the
transaction. The failure of the counterparty to consummate the transaction may
result in the Funds losing the opportunity to obtain a price and yield
considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
<PAGE>
SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Subject to policies set by the board, the Advisor is authorized to determine,
consistent with the Fund's investment goal 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 the most favorable execution except where otherwise
authorized by the board. In selecting broker-dealers to execute transactions,
the Advisor may consider the price of the security, including commission or
mark-up, the size and difficulty of the order, the reliability, integrity,
financial soundness, and general operation and execution capabilities of the
broker, the broker's expertise in particular markets, and research services
provided by the broker.
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.
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 with respect 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.
Normally, a Fund's securities are traded on a principal rather than an agency
basis. In other words, the Advisor will trade directly with the issuer or with a
dealer who buys or sells for its own account, rather than acting on behalf of
another client. The Advisor does not pay the dealer commissions. Instead the
dealer's profit, if any, is the difference, or spread, between the dealer's
purchase and sale price for the security.
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 Fund to pay a commission in excess
of the amount another broker might have charged. The Advisor has advised the
Fund that it is necessary to do business with a number of brokerage firms on a
continuing basis to obtain such services as the handling of large orders, the
willingness of a broker to risk its own money by taking a position in a
security, and the specialized handling of a particular group of securities that
only certain
<PAGE>
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 will be placed on the basis of obtaining the best
available price and the 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 the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by the
Advisor or any of its subsidiaries. When the Fund buys or sells the same
security as another portfolio, fund, or account, the Advisor carries out the
purchase or sale in a way the Fund agrees in advance is fair. Although sharing
in large transactions may adversely affect the price or volume purchased or sold
by the Fund, the Fund hopes to gain an overall advantage in execution.
On a periodic basis, the Advisor makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions. The review
evaluates execution, operational efficiency, and research services.
For fiscal years noted below, each Fund paid the following total brokerage
commissions. Substantially all firms through whom transactions were executed
provide research services.
<TABLE>
<CAPTION>
Equity Income
Portfolio Total Return
Sept. 30, Balanced Portfolio Equity Portfolio ------------ Portfolio
- ----------------------- ------------------ ---------------- ------------
<S> <C> <C> <C> <C>
1999 $ 6,804,222 $ 5,913,765 $ 4,787,674 $ 4,560,856
1998 8,262,117 6,267,759 5,060,074 5,108,612
1997 3,749,845 6,147,059 1,979,701 5,860,957
</TABLE>
No transactions were directed to brokers because of research services they
provided to each Fund except for the affiliates as noted below.
<PAGE>
As of the end of the most recent fiscal year, each Fund held securities of its
regular brokers or dealers of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
<TABLE>
<CAPTION>
Value of Securities
Fund Name of Issuer owned at End of Fiscal Year
<S> <C> <C>
Balanced Portfolio Bank of America $ 87,350,027
Chase Manhattan 36,180,000
Equitable Life Assurance 5,521,230
Fleet Financial Group 47,297,889
Morgan (JP) 13,137,900
Morgan Stanley 51,282,813
NationsBank 11,328,913
Salomon Smith Barney 14,989,021
Equity Portfolio Bank of America 38,981,250
Merrill Lynch 27,705,058
Morgan Stanley 22,296,875
Equity Income Portfolio Bank of America 56,522,812
Chase Manhattan 17,743,275
Fleet Financial Group 23,623,125
Merrill Lynch 2,392,960
Morgan Stanley 47,269,375
Salomon Smith Barney 5,695,828
Total Return Portfolio Advest 567,575
Bank of America 23,169,619
FleetBoston 12,653,937
Hambrecht & Quist 1,796,006
Legg Mason 965,475
Lehman Brothers 7,084,969
Merrill Lynch 14,877,442
Morgan Stanley 9,712,519
Raymond James Financial 528,344
</TABLE>
The portfolio turnover rates for the two most recent fiscal years were as
follows:
<TABLE>
<CAPTION>
Sept. 30, Balanced Portfolio Equity Portfolio Equity Income Total Return
- ---------------------- ------------------- ------------------ Portfolio Portfolio
------------- ------------
<S> <C> <C> <C> <C>
1999 135% 76% 84% 81%
1998 98 79 97 122
</TABLE>
Higher turnover rates may result in higher brokerage expenses.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE ADVISOR
- -------------------------------------------------------------------------------
Affiliates of American Express Company (of which the Advisor is a wholly-owned
subsidiary) may engage in brokerage and other securities transactions on behalf
of the Fund 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 the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund 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 the Fund for the last three
fiscal years to brokers affiliated with the Advisor is contained in the
following table:
<TABLE>
<CAPTION>
As of the end of Fiscal Year
1999 1998 1997
------------------------------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Percent of
-------- --------- -------------- ------------- Aggregate ---------------
Dollar Amount -------------
Aggregate Percent of of --------------- Aggregate
Dollar amount Aggregate Transactions Aggregate Dollar
Fund Nature of Brokerage Involving Dollar Amount Amount of
Broker of Commissions Commissions Payment of of Commissions Commissions
Affiliation Paid to Broker Commissions Paid to Broker Paid to
Broker
Balanced + * 112,076 1.65% 1.85% $ 18,405 $ 24,783
Equity + * 321,979 5.44 17.76 171,639 404,603
Equity Income + * 111,698 2.33 5.16 49,994 125,796
Total Return + * 84,089 1.84 7.38 148,878 314,054
</TABLE>
+American Enterprise Investment Services Inc.
*Wholly-owned subsidiary of the Advisor
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund, are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
Average annual total return
The Fund may calculate average annual total return for certain periods by
finding the average annual compounded rates of return over the period that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the
period (or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for certain periods representing
the cumulative change in the value of an investment in the Fund over a specified
period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the
period (or fractional portion thereof)
<PAGE>
Annualized yield
The Fund may calculate an annualized yield by dividing the net investment income
per share deemed earned during a 30-day 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 = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to Fund shareholders. Actual amounts paid to the
Fund's shareholders are reflected in the distribution yield.
Distribution yield
Distribution yield is calculated according to the following formula:
D divided by POPF equals DY
--- -----
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor DY = distribution yield
On May 13, 1996, AXP Mutual, AXP Stock Fund, AXP Diversified Equity Income Fund
and AXP Managed Allocation Fund (the American Express 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 American Express funds converted to a multiple class
structure pursuant to which three classes of shares are offered: Class A, Class
B and Class Y. Prior to July 1, 1999 Class A shares were sold with a 5% sales
charge, a 0.175% service fee and no 12b-1 fee. Effective July 1, 1999, Class A
shares are sold with a 5% sales charge and a 12b-1 fee of up to 0.25%.
Performance for periods prior to May 13, 1996 is based on the performance of the
corresponding American Express 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 American Express 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 American Express funds.
In its sales material and other communications, the 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, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global
<PAGE>
Investor, Institutional Investor, Investor's Business Daily, Kiplinger's
Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund
Forecaster, Newsweek, The New York Times, Personal Investor, Shearson Lehman
Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal Finance, USA
Today, U.S. News and World Report, The Wall Street Journal, and Wiesenberger
Investment Companies Service. The Fund also may compare its performance to a
wide variety of indexes or averages. There are similarities and differences
between the investments that the Fund may purchase and the investments measured
by the indexes or averages and the composition of the indexes or averages will
differ from that of the Fund.
VALUING FUND SHARES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of the end of the most recent fiscal year, the computations looked like this:
Net asset value
Shares of one share
Fund Net assets outstanding
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Balanced $ 1,176,779 divided by 75,776 equals $ 15.53
Equity 1,132,415 36,228 31.26
Equity Income 1,005,828 96,405 10.43
Total Return 815,804 63,392 12.87
</TABLE>
In determining net assets before shareholder transactions, the securities held
by the Fund's securities are valued as follows as of the close of business of
the New York Stock Exchange (the Exchange):
o 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.
o 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.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o 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.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o 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 the 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.
o 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
<PAGE>
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.
o 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.
SELLING SHARES
- -------------------------------------------------------------------------------
You have a right to sell your shares at any time. For an explanation of sales
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
to redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is
not reasonably practicable for the Fund to determine the fair value of its
net assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the 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.
The 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 the 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 the 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.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the 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, the 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 the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
Rejection of Business
The Fund reserves the right to reject any business, in its sole discretion.
<PAGE>
TAXES
- -------------------------------------------------------------------------------
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 a Fund 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.
Net investment income 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 the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, the following percentage of the Fund's net
investment income dividends qualified for the corporate deduction:
Balanced 36.14%
Equity 100.00%
Equity Income 100.00%
Total Return 16.06%
The 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 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
Income earned by the Fund may have had foreign taxes imposed and withheld on it
in foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of the Fund's total assets at
the close of its fiscal year consists of securities of foreign corporations, the
Fund will be eligible to file an election with the Internal Revenue Service
under which shareholders of the Fund would be required to include their pro rata
portions of foreign taxes withheld by foreign countries as gross income in their
federal income tax returns. These pro rata portions of foreign taxes withheld
may be taken as a credit or deduction in computing federal income taxes. If the
election is filed, the Fund will report to its shareholders the per share amount
of such foreign taxes withheld and the amount of foreign tax credit or deduction
available for federal income tax purposes.
Capital gain distributions, if any, received by shareholders should be treated
as long-term capital gains regardless of how long they owned their shares.
Short-term capital gains earned by the Fund are paid to shareholders as part of
their ordinary income dividend and are taxable. A special 28% rate on capital
gains may apply to sales of precious metals, if any, owned directly by the Fund.
A special 25% rate on capital gains may apply to investments in REITs.
Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
Under federal tax law, by the end of a calendar year the 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. The 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. The Fund intends to comply with federal tax law and
avoid any excise tax.
<PAGE>
For purposes of the excise tax distributions, "section 988" ordinary gains and
losses are distributable based on an Oct. 31 year end. This is an exception to
the general rule that ordinary income is paid based on a calendar year end.
If a mutual fund is the holder of record of any share of stock on the record
date for any dividend payable with respect to such stock, such dividend shall be
included in gross income by the Fund as of the later of (1) the date such share
became ex-dividend or (2) the date the Fund acquired such share. Because the
dividends on some foreign equity investments may be received some time after the
stock goes ex-dividend, and in certain rare cases may never be received by the
Fund, this rule may cause the Fund to take into income dividend income that it
has not received and pay such income to its shareholders. To the extent that the
dividend is never received, the Fund will take a loss at the time that a
determination is made that the dividend will not be received.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
AGREEMENTS
- -------------------------------------------------------------------------------
Investment Management Services Agreement
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, the
Advisor, subject to the policies set by the board, provides investment
management services. For its services, the Advisor is paid a fee based on the
following schedule. Each Fund pays its proportionate share of the fee.
Equity,
Equity Income and
Balanced Total Return
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
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 1.00 0.480
Next 3.0 0.455 Next 1.00 0.455
Over 6.0 0.430 Next 3.00 0.430
Over 6.00 0.400
On the last day of the most recent fiscal year, the daily rates applied to the
Funds' net assets on an annual basis were equal to 0.487% for Balanced, 0.466%
for Equity, 0.488% for Equity Income and 0.493% for Total Return. 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. The
Advisor has agreed to certain fee waivers and expense reimbursements as
discussed in the fund's prospectus.
Before the fee based on the asset charge is paid for Balanced, Equity and Total
Return, it is increased or decreased based on investment performance compared to
an Index (the Index). For Balanced, the Index is the Lipper Balanced Fund Index.
For Equity, the Index is the Lipper Growth and Income Fund Index. For Total
Return, 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, the comparison fund is AXP
Mutual. For Equity and Total Return, the comparison funds are AXP Stock Fund and
AXP 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.
<PAGE>
The performance of the comparison fund is measured by computing the percentage
difference between the opening and closing net asset value of one share, as of
the last business day of the period selected for comparison, adjusted for
dividend or capital gain distributions which are treated as reinvested at the
end of the month during which the distribution was made. The performance of the
Index for the same period is established by measuring the percentage difference
between the beginning and ending Index for the comparison period. The
performance is adjusted for dividend or capital gain distributions (on the
securities which comprise the Index), which are treated as reinvested at the end
of the month during which the distribution was made. One percentage point will
be subtracted from the calculation to help assure that incentive adjustments are
attributable to the Advisor's management abilities rather than random
fluctuations and the result multiplied by 0.01%. That number will be multiplied
times the 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 most recent fiscal year, the adjustment
decreased the fee by $1,244,183 for Balanced, increased the fee by $612,579 for
Equity and decreased the fee by $1,498,682 for Total Return.
The management fee is paid monthly. For fiscal years noted below, each Portfolio
paid the following management fees.
Sept 30, Balanced Equity Equity Income Total Return
- -------- -------- ------ ------------- ------------
1999 $ 23,093,721 $ 22,255,457 $ 13,270,362 $ 11,143,597
1998 23,644,896 20,321,279 12,214,128 12,897,457
1997 21,571,200 16,849,365 9,000,327 13,358,064
Under the Agreement, each Fund 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 securities; and expenses properly payable by each Fund, approved by
the board. For fiscal years noted below, each Fund and corresponding Portfolio
paid the following nonadvisory expense. All fees are net of earnings credits.
Sept 30, Balanced Equity Equity Income Total Return
- -------- -------- ------ ------------- ------------
1999 $ 435,378 $ 475,637 $ 361,658 $ 547,214
1998 481,617 561,614 291,311 951,262
1997 390,123 640,263 165,078 767,027
<PAGE>
Administrative Services Agreement
The 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 calculated as follows:
<TABLE>
<CAPTION>
Equity Fund,
Equity Income Fund and
Balanced Fund Total Return Fund
<S> <C> <C> <C>
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $1 0.040% First $0.50 0.040%
Next 1 0.035 Next 0.50 0.035
Next 1 0.030 Next 1.00 0.030
Next 3 0.025 Next 1.00 0.025
Over 6 0.020 Next 3.00 0.020
Over 6.00 0.020
</TABLE>
On the last day of the most recent fiscal year, the daily rates applied to the
Funds' net assets on an annual basis were equal to 0.040% for Balanced, 0.040%
for Equity, 0.040% for Equity Income and 0.040% for Total Return.
For fiscal years noted below each Fund paid the following administrative fees.
<TABLE>
<CAPTION>
Sept. 30, Balanced Equity Equity Income Total Return
- ---------------------- ---------- --------- -------------- --------------
<S> <C> <C> <C> <C>
1999 $ 478 $ 446 $ 411 $ 315
1998 414 348 361 289
1997 287 261 275 246
</TABLE>
Under the agreement, each Fund also pays taxes; audit and certain legal fees;
registration fees for shares; office expenses; consultant' fees; compensation of
board members, officers and employees; corporate filing fees; organizational
expenses; and expenses properly payable by each Fund approved by the board.
Transfer Agency Agreement
The 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 by the board without shareholder approval.
Distribution Agreement
American Express Financial Advisors Inc. (Distributor) is the Fund's principal
underwriter. The Fund's shares are offered on a continuous basis.
Under a prior agreement the Fund paid a fee to help defray the costs of
distribution and servicing under a Plan and Agreement of Distribution pursuant
to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund paid a fee at an
annual rate of 0.25% of the Fund's average daily net assets. For the most recent
fiscal year, the Funds paid fees of $2,986 for Balanced Fund, $2,787 for Equity
Fund, $2,566 for Equity Income Fund
<PAGE>
and $1,968 for Total Return Fund. These costs covered almost all aspects of
distributing shares of the Funds.
Part of the sales charge may be paid to selling dealers who have agreements with
AEFA. AEFA will retain the balance of the sales charge. At times the entire
sales charge may be paid to selling dealers.
Custodian Agreement
The Fund'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. 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 Fund pays the custodian a maintenance charge 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 Bank of New York,
90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United Stated are maintained in the custody of
various foreign branches of Bank of New York or in other financial institutions
as permitted by law and by the Fund's sub-custodian agreement.
ORGANIZATIONAL INFORMATION
- -------------------------------------------------------------------------------
The Fund is an open-end management investment company. The Fund headquarters are
at P.O. Box 59196, Minneapolis, MN 55459-0196.
SHARES
The shares of the Fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of the Fund
would have the same rights to dividends and assets as every other share of that
Fund.
VOTING RIGHTS
As a shareholder in the Fund, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that you have as many votes as the number of shares you own,
including fractional shares, multiplied by the number of members to be elected.
Dividend Rights
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
<PAGE>
<TABLE>
<CAPTION>
Fund History Table for All Publicly Offered Funds in the Strategist Fund Group
Date of Form of Inception State of Fiscal Diversified
Organization Organization Date Organization Year End
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Growth Fund, Inc. 9/1/95 Corporation MN
Strategist Growth Fund 5/13/96 7/31 Yes
Strategist Growth Trends Fund 5/13/96 7/31 Yes
Strategist Special Growth Fund 8/19/96 7/31 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Growth & Income Fund, Inc. 9/1/95 Corporation MN
Strategist Balanced Fund 5/13/96 9/30 Yes
Strategist Equity Fund 5/13/96 9/30 Yes
Strategist Equity Income Fund 5/13/96 9/30 Yes
Strategist Total Return Fund 5/13/96 9/30 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Income Fund, Inc. 5/25/95 Corporation MN
Strategist Government Income Fund 6/10/96 5/31 Yes
Strategist High Yield Fund 6/10/96 5/31 Yes
Strategist Quality Income Fund 6/10/96 5/31 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Tax-Free Income Fund, Inc. 9/1/95 Corporation MN
Strategist Tax-Free High Yield Fund 5/13/96 11/30 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist World Fund, Inc. 9/1/95 Corporation MN
Strategist Emerging Markets Fund 11/13/96 10/31 Yes
Strategist World Growth Fund 5/13/96 10/31 Yes
Strategist World Income Fund 5/13/96 10/31 No
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
BOARD MEMBERS AND OFFICERS
- -------------------------------------------------------------------------------
Directors of Strategist Fund Group
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members who are board members of all
15 funds in the Strategist Fund Group.
Rodney P. Burwell
Born in 1939
Xerxes Corporation
7901 Xerxes Ave. S.
Minneapolis, MN
Chairman, Xerxes Corporation (fiberglass storage tanks). Director, Fairview
Corporation.
Jean B. Keffeler
Born in 1945
3424 Zenith Avenue South
Minneapolis, MN
Independent management consultant. Director, National Computer Systems.
Thomas R. McBurney
Born in 1938
McBurney Management Advisors
1700 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
President, McBurney Management Advisors. Director, The Valspar Corporation
(paints), Wenger Corporation, Allina, Space Center Enterprises and Greenspring
Corporation.
James A. Mitchell*
Born in 1941
2900 IDS Tower
Minneapolis, MN
President of all funds in the Strategist Fund Group. Chairman of the board, IDS
Life Insurance Company.
John R. Thomas*
Born in 1937
2900 IDS Tower
Minneapolis, MN
Vice president of all funds in the Strategist Fund Group. President and board
member of the American Express funds. Senior vice president of the Advisor.
*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. Thomas, who is vice
president, the Fund's other officers are:
<PAGE>
John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the Strategist Fund Group. Vice president - investment
accounting of the Advisor.
Eileen J. Newhouse
Born in 1955
IDS Tower 10
Minneapolis, MN
Secretary of all funds in the Strategist Fund Group. Counsel of the Advisor.
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 53 American Express funds.
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.
Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN
Chairman and chief executive officer of the Trust. Chairman, Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.
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.
<PAGE>
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).
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
2050 One Financial Plaza
Minneapolis, MN
RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management
committee. Retired vice chairman of the board, Cargill, Incorporated (commodity
merchants and processors). Former chairman, Board Services Corporation.
Alan K. Simpson+
Born in 1931
1201 Sunshine Ave.
Cody, WY
Director of The Institute of Politics, Harvard University. Former three-term
United States Senator for Wyoming. Former Assistant Republican Leader, U.S.
Senate. Director, PacifiCorp (electric power) and Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of the Advisor.
C. Angus Wurtele+'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and
General Mills, Inc. (consumer foods).
<PAGE>
+Member of executive committee.
'Member of investment review committee.
*Interested person by reason of being an officer and employee of the Trust.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of the Advisor or American Express.
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. In addition to Mr. Carlson, 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.
Officers who also are officers and 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.
John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN
Vice president - investment accounting of the Advisor. Treasurer for the Trust.
COMPENSATION FOR BOARD MEMBERS
- -------------------------------------------------------------------------------
Compensation for Fund Board Members
During the most recent fiscal year, the independent members of the Fund board,
for attending up to four meetings, received the following compensation:
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
for Balanced Fund
<S> <C> <C>
Aggregate Total cash compensation from the
Board member compensation from the Fund Strategist Fund Group
- ----------------- -------------------------- ---------------------------------
Rodney P. Burwell $ 267 $ 18,000
- -------------------------------------
Jean B. Keffeler 267 18,000
- -------------------------------------
Thomas R. McBurney 267 18,000
Compensation Table
for Equity Fund
Aggregate Total cash compensation from the
Board member compensation from the Fund Strategist Fund Group
- --------------- -------------------------- ---------------------------------
Rodney P. Burwell $ 267 $ 18,000
- -------------------------------------
Jean B. Keffeler 267 18,000
- -------------------------------------
Thomas R. McBurney 267 18,000
Compensation Table
for Equity Income Fund
Aggregate Total cash compensation from the
Board member compensation from the Fund Strategist Fund Group
- ------------- -------------------------- ---------------------------------
Rodney P. Burwell $ 267 $ 18,000
- -------------------------------------
Jean B. Keffeler 267 18,000
- -------------------------------------
Thomas R. McBurney 267 18,000
Compensation Table
for Total Return Fund
Aggregate Total cash compensation from the
Board member compensation from the Fund Strategist Fund Group
- -------------- -------------------------- --------------------------------
Rodney P. Burwell $ 267 $ 18,000
- -------------------------------------
Jean B. Keffeler 267 18,000
- -------------------------------------
Thomas R. McBurney 267 18,000
</TABLE>
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of the Fund.
Compensation for Portfolio Board Members
During the most recent fiscal year, the independent members of the board for
Balanced Portfolio, Equity Portfolio, Equity Income Portfolio and Total Return
Portfolio, for attending up to 28 meetings, received the following compensation:
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
for Balanced Portfolio
<S> <C> <C>
Total cash compensation from the
---------------------------- Preferred Master Trust Group and
Board member Aggregate American Express Funds
- --------------- compensation from the Portfolio
H. Brewster Atwater, Jr. $ 2,925 $ 121,000
- -------------------------------------
Lynne V. Cheney 2,698 103,500
- -------------------------------------
Heinz F. Hutter 2,600 101,500
- -------------------------------------
Anne P. Jones 2,967 119,000
- -------------------------------------
William R. Pearce 1,250 49,300
- -------------------------------------
Alan K. Simpson 2,698 103,500
- -------------------------------------
C. Angus Wurtele 3,025 127,000
Compensation Table
for Equity Portfolio
Total cash compensation from the
---------------------------------- Preferred Master Trust Group and
Board member Aggregate American Express Funds
- ----------------- compensation from the Portfolio
H. Brewster Atwater, Jr. $ 2,725 $ 121,000
- -------------------------------------
Lynne V. Cheney 2,484 103,500
- -------------------------------------
Heinz F. Hutter 2,400 101,500
- -------------------------------------
Anne P. Jones 2,751 119,000
- -------------------------------------
William R. Pearce 1,150 49,300
- -------------------------------------
Alan K. Simpson 2,484 103,500
- -------------------------------------
C. Angus Wurtele 2,825 127,000
Compensation Table
for Equity Income Portfolio
Total cash compensation from the
---------------------------------- Preferred Master Trust Group and
Board member Aggregate American Express Funds
- --------------------- compensation from the Portfolio
H. Brewster Atwater, Jr. $ 2,075 $ 121,000
- -------------------------------------
Lynne V. Cheney 1,788 103,500
- -------------------------------------
Heinz F. Hutter 1,750 101,500
- -------------------------------------
Anne P. Jones 2,047 119,000
- -------------------------------------
William R. Pearce 850 49,300
- -------------------------------------
Alan K. Simpson 1,788 103,500
- -------------------------------------
C. Angus Wurtele 2,175 127,000
<PAGE>
Compensation Table
for Total Return Portfolio
Total cash compensation from the
---------------------------------- Preferred Master Trust Group and
Board member Aggregate American Express Funds
- -------------------- compensation from the Portfolio
H. Brewster Atwater, Jr. $ 2,125 $ 121,000
- -------------------------------------
Lynne V. Cheney 1,842 103,500
- -------------------------------------
Heinz F. Hutter 1,800 101,500
- -------------------------------------
Anne P. Jones 2,103 119,000
- -------------------------------------
William R. Pearce 850 49,300
- -------------------------------------
Alan K. Simpson 1,842 103,500
- -------------------------------------
C. Angus Wurtele 2,225 127,000
</TABLE>
INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Norwest Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
<PAGE>
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
<PAGE>
Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
<PAGE>
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
<PAGE>
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
<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, 1999, 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 then ended and the financial highlights for the
three-year period ended September 30, 1999, 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 and the financial
highlights 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 as of September 30, 1999, 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 LLP
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statements of assets and liabilities
Strategist Growth and Income Fund, Inc.
Strategist Strategist
Sept. 30, 1999 Balanced Fund Equity Fund
Assets
<S> <C> <C>
Investment in corresponding Portfolio (Note 1) $1,191,707 $1,134,688
Expense receivable from AEFC 2,797 158
----- ---
Total assets 1,194,504 1,134,846
--------- ---------
Liabilities
Accrued distribution fee 8 8
Accrued transfer agency fee 3 2
Accrued administrative services fees 1 1
Other accrued expenses 17,713 2,420
------ -----
Total liabilities 17,725 2,431
------ -----
Net assets applicable to outstanding capital stock $1,176,779 $1,132,415
========== ==========
Represented by
Capital stock-- $.01 par value (Note 1) $ 758 $ 362
Additional paid-in capital 1,076,898 869,181
Undistributed net investment income 3,318 --
Accumulated net realized gain (loss) 64,864 86,146
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies 30,941 176,726
------ -------
Total -- representing net assets applicable to outstanding capital stock $1,176,779 $1,132,415
========== ==========
Shares outstanding 75,776 36,228
Net asset value per share of outstanding capital stock $ 15.53 $ 31.26
---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of assets and liabilities
Strategist Growth and Income Fund, Inc.
Strategist Equity Strategist Total
Sept. 30, 1999 Income Fund Return Fund
Assets
<S> <C> <C>
Investment in corresponding Portfolio (Note 1) $1,020,583 $820,495
Expense receivable from AEFC 447 484
--- ---
Total assets 1,021,030 820,979
--------- -------
Liabilities
Dividends payable to shareholders 8 --
Accrued distribution fee 7 6
Accrued transfer agency fee 2 1
Accrued administrative services fees 1 1
Other accrued expenses 15,184 5,167
------ -----
Total liabilities 15,202 5,175
------ -----
Net assets applicable to outstanding capital stock $1,005,828 $815,804
========== ========
Represented by
Capital stock-- $.01 par value (Note 1) $ 964 $ 634
Additional paid-in capital 882,860 762,133
Undistributed net investment income 3,110 2,170
Accumulated net realized gain (loss) 81,782 39,108
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies 37,112 11,759
------ ------
Total -- representing net assets applicable to outstanding capital stock $1,005,828 $815,804
========== ========
Shares outstanding 96,405 63,392
Net asset value per share of outstanding capital stock $ 10.43 $ 12.87
---------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
Strategist Growth and Income Fund, Inc.
Strategist Strategist
Year ended Sept. 30, 1999 Balanced Fund Equity Fund
Investment income
Income:
<S> <C> <C>
Dividends $ 13,903 $ 15,163
Interest 28,319 3,907
Less foreign taxes withheld (11) (166)
--- ----
Total income 42,211 18,904
------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 5,700 5,476
Distribution fee 2,986 2,787
Transfer agency fee 1,077 625
Administrative services fees and expenses 478 446
Compensation of board members 841 810
Printing and postage 627 131
Registration fees 16,012 8,124
Audit fees 3,600 3,600
Other 6,180 1,995
----- -----
Total expenses 37,501 23,994
Less expenses reimbursed by AEFC (25,747) (10,068)
------- -------
Total net expenses 11,754 13,926
------ ------
Investment income (loss)-- net 30,457 4,978
------ -----
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 51,212 91,239
Financial futures contracts 11,544 --
Foreign currnecy transactions 5 (8)
Options contracts written 4,697 --
----- -----
Net realized gain (loss) on investments 67,458 91,231
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 38,340 64,694
------ ------
Net gain (loss) on investments and foreign currencies 105,798 155,925
------- -------
Net increase (decrease) in net assets resulting
from operations $136,255 $160,903
======== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
Strategist Growth and Income Fund, Inc.
Strategist Equity Strategist Total
Year ended Sept. 30, 1999 Income Fund Return Fund
Investment income
Income:
<S> <C> <C>
Dividends $ 22,103 $ 5,403
Interest 1,616 23,612
Less foreign taxes withheld (80) (32)
--- ---
Total income 23,639 28,983
------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 5,203 3,595
Distribution fee 2,566 1,968
Transfer agency fee 888 353
Administrative services fees and expenses 411 315
Compensation of board members 826 849
Printing and postage 3,292 90
Registration fees 17,990 8,975
Audit fees 3,600 3,600
Other 2,370 3,422
----- -----
Total expenses 37,146 23,167
Less expenses reimbursed by AEFC (24,277) (13,546)
------- -------
Total net expenses 12,869 9,621
------ -----
Investment income (loss)-- net 10,770 19,362
------ ------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 74,242 40,291
Financial futures contracts 6,919 3,547
Foreign currency transactions (9) (726)
Options contracts written -- (3,839)
---- ------
Net realized gain (loss) on investments 81,152 39,273
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 60,252 40,822
------ ------
Net gain (loss) on investments and foreign currencies 141,404 80,095
------- ------
Net increase (decrease) in net assets resulting
from operations $152,174 $99,457
======== =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Balanced Fund
Year ended Sept. 30, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 30,457 $ 34,830
Net realized gain (loss) on investments 67,458 68,234
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 38,340 (105,115)
------ --------
Net increase (decrease) in net assets resulting from operations 136,255 (2,051)
------- ------
Distributions to shareholders from:
Net investment income (28,124) (33,720)
Net realized gain (69,978) (59,803)
------- -------
Total distributions (98,102) (93,523)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 103,210 282,355
Reinvestment of distributions at net asset value 98,102 93,437
Payments for redemptions (157,241) (80,708)
-------- -------
Increase (decrease) in net assets from capital share transactions 44,071 295,084
------ -------
Total increase (decrease) in net assets 82,224 199,510
Net assets at beginning of year 1,094,555 895,045
--------- -------
Net assets at end of year $1,176,779 $1,094,555
========== ==========
Undistributed net investment income $ 3,318 $ 1,208
---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Equity Fund
Year ended Sept. 30, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 4,978 $ 6,052
Net realized gain (loss) on investments 91,231 50,857
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 64,694 (56,086)
------ -------
Net increase (decrease) in net assets resulting from operations 160,903 823
------- ---
Distributions to shareholders from:
Net investment income (16,724) (3,310)
Net realized gain (46,874) (30,218)
------- -------
Total distributions (63,598) (33,528)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 62,285 172,761
Reinvestment of distributions at net asset value 63,598 33,528
Payments for redemptions (25,926) (16,750)
------- -------
Increase (decrease) in net assets from capital share transactions 99,957 189,539
------ -------
Total increase (decrease) in net assets 197,262 156,834
Net assets at beginning of year 935,153 778,319
------- -------
Net assets at end of year $1,132,415 $935,153
========== ========
Undistributed net investment income $ -- $ 6,733
-------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Equity Income Fund
Year ended Sept. 30, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 10,770 $ 17,613
Net realized gain (loss) on investments 81,152 93,664
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 60,252 (142,332)
------ --------
Net increase (decrease) in net assets resulting from operations 152,174 (31,055)
------- -------
Distributions to shareholders from:
Net investment income (9,417) (18,054)
Net realized gain (88,590) (61,081)
------- -------
Total distributions (98,007) (79,135)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 40,318 148,894
Reinvestment of distributions at net asset value 98,007 79,110
Payments for redemptions (84,153) (47,384)
------- -------
Increase (decrease) in net assets from capital share transactions 54,172 180,620
------ -------
Total increase (decrease) in net assets 108,339 70,430
Net assets at beginning of year 897,489 827,059
------- -------
Net assets at end of year $1,005,828 $897,489
========== ========
Undistributed net investment income $ 3,110 $ 1,023
---------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Growth and Income Fund, Inc.
Strategist Total Return Fund
Year ended Sept. 30, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 19,362 $ 21,099
Net realized gain (loss) on investments 39,273 55,511
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 40,822 (106,027)
------ --------
Net increase (decrease) in net assets resulting from operations 99,457 (29,417)
------ -------
Distributions to shareholders from:
Net investment income (19,177) (20,856)
Net realized gain (51,422) (58,828)
------- -------
Total distributions (70,599) (79,684)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 60,649 47,658
Reinvestment of distributions at net asset value 68,970 79,621
Payments for redemptions (27,630) (19,649)
------- -------
Increase (decrease) in net assets from capital share transactions 101,989 107,630
------- -------
Total increase (decrease) in net assets 130,847 (1,471)
Net assets at beginning of year 684,957 686,428
------- -------
Net assets at end of year $815,804 $684,957
======== ========
Undistributed net investment income $ 2,170 $ 2,126
-------- --------
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 Portfolio's net assets. As of
Sept. 30, 1999, the percentages of the corresponding Portfolio owned by Balanced
Fund, Equity Fund, Equity Income Fund, and Total Return Fund were 0.03%, 0.03%,
0.04% and 0.04%, respectively. Valuation of securities held by the Portfolios is
discussed in Note 1 of the Portfolios' "Notes to financial statements" (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 American Express Financial Corporation (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
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Federal taxes
Each Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to the shareholders. No provision for income or excise taxes is
thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred 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 $(223) $5,013 $ 734 $(141)
Accumulated net realized gain (loss) 223 (5,013) 606 1,481
--- ------ --- -----
Additional paid-in capital reduction $ -- $ -- $1,340 $1,340
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
As of Sept. 30, 1999, AEFC owned 48,183 shares for Balanced Fund, 26,649 shares
for Equity Fund, 74,847 shares for Equity Income Fund and 54,458 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 has an agreement with AEFC to provide administrative services. Under
an 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 services.
AEFC and the Distributor have agreed to waive certain fees and to absorb certain
other Fund expenses through Dec. 31, 1999. 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,
1999, AEFC further voluntarily agreed to waive certain fees and expenses to .98%
for Balanced Fund and 1.22% for Total Return Fund.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Sept. 30, 1999
Equity Total
Balanced Equity Income Return
Fund Fund Fund Fund
Sold 6,416 1,911 3,759 4,582
Issued for reinvested distributions 6,343 2,045 9,638 5,462
Redeemed (9,616) (792) (8,100) (2,111)
------ ---- ------ ------
Net increase (decrease) 3,143 3,164 5,297 7,933
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
<PAGE>
<TABLE>
<CAPTION>
4. Financial Highlights
The tables below show certain important financial information for evaluating
each Fund's results.
Balanced Fund
Fiscal period ended Sept. 30,
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.07 $16.57 $13.57 $13.36
Income from investment operations:
Net investment income (loss) .41 .53 .66 .18
Net gains (losses) (both realized and unrealized) 1.40 (.39) 2.99 .17
Total from investment operations 1.81 .14 3.65 .35
Less distributions:
Dividends from net investment income (.38) (.52) (.65) (.14)
Distributions from realized gains (.97) (1.12) -- --
Total distributions (1.35) (1.64) (.65) (.14)
Net asset value, end of period $15.53 $15.07 $16.57 $13.57
Ratios/supplemental data
Net assets, end of period (in thousands) $1,177 $1,095 $895 $525
Ratio of expenses to average daily net assetsc .98% .93% .62% 1.25%d
Ratio of net investment income (loss)
to average daily net assets 2.55% 3.37% 4.60% 3.91%d
Portfolio turnover rate
(excluding short-term securities) 134% 98% 49% 14%
Total return 10.42% .73% 27.43% 2.59%
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 3.14%, 1.27%, 6.35% and 34.04% for the periods ended 1999, 1998, 1997
and 1996, respectively.
d Adjusted to an annual basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Equity Fund
Fiscal period ended Sept. 30,
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $28.28 $29.09 $22.40 $21.73
Income from investment operations:
Net investment income (loss) .14 .18 .54 .21
Net gains (losses) (both realized and unrealized) 4.74 .24 6.64 .62
Total from investment operations 4.88 .42 7.18 .83
Less distributions:
Dividends from net investment income (.49) (.12) (.49) (.16)
Distributions from realized gains (1.41) (1.11) -- --
Total distributions (1.90) (1.23) (.49) (.16)
Net asset value, end of period $31.26 $28.28 $29.09 $22.40
Ratios/supplemental data
Net assets, end of period (in thousands) $1,132 $935 $778 $534
Ratio of expenses to average daily net assetsc 1.25% 1.25% .58% 1.25%d
Ratio of net investment income (loss)
to average daily net assets .45% .69% 2.17% 3.06%d
Portfolio turnover rate
(excluding short-term securities) 76% 79% 82% 21%
Total return 16.95% .91% 28.28% 3.81%
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 2.15%, 2.03%, 1.13% and 34.21% for the periods ended 1999, 1998, 1997
and 1996, respectively.
d Adjusted to an annual basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund
Fiscal period ended Sept. 30,
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.85 $11.16 $8.92 $8.68
Income from investment operations:
Net investment income (loss) .12 .21 .37 .13
Net gains (losses) (both realized and unrealized) 1.56 (.47) 2.22 .23
Total from investment operations 1.68 (.26) 2.59 .36
Less distributions:
Dividends from net investment income (.10) (.22) (.35) (.12)
Distributions from realized gains (1.00) (.83) -- --
Total distributions (1.10) (1.05) (.35) (.12)
Net asset value, end of period $10.43 $9.85 $11.16 $8.92
Ratios/supplemental data
Net assets, end of period (in thousands) $1,006 $897 $827 $534
Ratio of expenses to average daily net assetsc 1.25% 1.25% 1.07% 1.25%d
Ratio of net investment income (loss)
to average daily net assets 1.05% 1.95% 3.65% 3.51%d
Portfolio turnover rate
(excluding short-term securities) 84% 97% 81% 17%
Total return 17.34% (2.61%) 29.44% 4.10%
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 3.62%, 1.68%, 4.53%, and 24.26% for the periods ended 1999, 1998, 1997
and 1996, respectively.
d Adjusted to an annual basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total Return Fund
Fiscal period ended Sept. 30,
Per share income and capital changesa
1999 1998 1997 1996b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.35 $14.53 $12.22 $11.89
Income from investment operations:
Net investment income (loss) .32 .40 .31 .06
Net gains (losses) (both realized and unrealized) 1.46 (.94) 2.29 .31
Total from investment operations 1.78 (.54) 2.60 .37
Less distributions:
Dividends from net investment income (.32) (.40) (.29) (.04)
Distributions from realized gains (.94) (1.24) -- --
Total distributions (1.26) (1.64) (.29) (.04)
Net asset value, end of period $12.87 $12.35 $14.53 $12.22
Ratios/supplemental data
Net assets, end of period (in thousands) $816 $685 $686 $529
Ratio of expenses to average daily net assetsc 1.22% 1.15% 1.26% 1.30%d
Ratio of net investment income (loss)
to average daily net assets 2.46% 2.92% 2.29% .96%d
Portfolio turnover rate
(excluding short-term securities) 81% 122% 99% 35%
Total return 13.10% (4.09%) 21.35% 3.18%
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 opering expenses.
Without this agreement, the ratio of expenses to average daily net assets would
have been 2.94%, 2.16%, 2.79%, and 31.60% for the periods ended 1999, 1998, 1997
and 1996, respectively.
d Adjusted to an annual basis.
</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, 1999, 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, 1999. 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. Our procedures included
confirmation of securities owned as of September 30, 1999, by correspondence
with the custodian and brokers. 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, 1999, 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 LLP
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
Balanced Portfolio
Sept. 30, 1999
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $4,951,575,740) $5,068,259,005
Cash in bank on demand deposit 2,170,728
Dividends and accrued interest receivable 29,944,159
Receivable for investment securities sold 52,282,372
U.S. government securities held as collateral (Note 6) 102,622,654
-----------
Total assets 5,255,278,918
-------------
Liabilities
Payable for investment securities purchased 289,984,158
Payable upon return of securities loaned (Note 6) 257,185,154
Accrued investment management services fee 62,853
Other accrued expenses 37,667
Options contracts written, at value (premium received $1,822,960) (Note 4) 1,595,650
---------
Total liabilities 548,865,482
-----------
Net assets $4,706,413,436
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Balanced Portfolio
Year ended Sept. 30, 1999
Investment income
Income:
<S> <C>
Dividends $ 57,412,690
Interest 118,706,531
Less foreign taxes withheld (45,135)
-------
Total income 176,074,086
-----------
Expenses (Note 2):
Investment management services fee 23,093,721
Compensation of board members 21,888
Custodian fees 321,150
Audit fees 30,750
Other 67,030
------
Total expenses 23,534,539
Earnings credits on cash balances (Note 2) (6,953)
------
Total net expenses 23,527,586
----------
Investment income (loss) -- net 152,546,500
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 209,560,355
Financial future contracts 45,983,773
Foreign currency transactions 17,631
Options contracts written (Note 4) 19,661,127
- ----------
Net realized gain (loss) on investments 275,222,886
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 151,665,578
-----------
Net gain (loss) on investments and foreign currencies 426,888,464
-----------
Net increase (decrease) in net assets resulting from operations $579,434,964
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
zalanced Portfolio
Year ended Sept. 30, 1999 1998
Operations
<S> <C> <C>
Investment income (loss)-- net $ 152,546,500 $ 185,535,190
Net realized gain (loss) on investments 275,222,886 536,885,565
Net change in unrealized appreciation (depreciation) on investments
and on translations of assets and liabilities in foreign currencies 151,665,578 (663,319,521)
----------- ------------
Net increase (decrease) in net assets resulting from operations 579,434,964 59,101,234
Net contributions (withdrawals) from partners (624,252,082) (161,190,578)
------------ ------------
Total increase (decrease) in net assets (44,817,118) (102,089,344)
Net assets at beginning of year 4,751,230,554 4,853,319,898
------------- -------------
Net assets at end of year $4,706,413,436 $4,751,230,554
============== ==============
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
primarily in a combination of common stocks and senior securities (preferred
stocks and debt obligations). The Declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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. 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 its contract obligations.
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, 1999, the
Portfolio had entered into outstanding when-issued or forward-commitments of
$178,389,167.
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. As a "pass-through" entity, the Portfolio therefore
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 an Investment Management Services
Agreement with AEFC to manage 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 AXP 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 $1,244,183 for the year ended Sept. 30, 1999.
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, 1999, the Portfolio's custodian fees were
reduced by $6,953 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $6,886,727,787 and $6,770,086,105, respectively, for the
year ended Sept. 30, 1999. For the same period, the portfolio turnover rate was
134%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $112,076 for the
year ended Sept. 30, 1999.
4. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
Year ended Sept. 30, 1999
Puts Calls
Contracts Premium Contracts Premium
Balance Sept. 30, 1998 2,400 $4,153,631 2,750 $4,469,066
Opened 10,669 14,837,197 25,965 21,514,874
Closed (8,869) (13,042,292) (12,165) (19,073,346)
Exercised (2,051) (2,667,435) (400) (454,252)
Expired (2,149) (3,281,101) (3,650) (4,633,382)
------ ---------- ------ ----------
Balance Sept. 30, 1999 -- $-- 12,500 $1,822,960
See "Summary of significant accounting policies."
5. FUTURES CONTRACTS
As of Sept. 30, 1999, investments in securities included securities valued at
$46,701,039 that were pledged as collateral to cover initial margin deposits on
92 open purchase stock index contracts and 5,725 open sale interest rate
contracts. The market value of the open purchase contracts as of Sept. 30, 1999
was $29,858,600 with a net unrealized loss of $1,495,552. The market value of
the open sale contracts as of Sept. 30, 1999 was $649,865,750 with a net
unrealized gain of $5,828,360. See "Summary of significant accounting policies".
6. LENDING OF PORTFOLIO SECURITIES
As of Sep. 30, 1999, securities valued at $247,477,134 were on loan to brokers.
For collateral, the Portfolio received $154,562,500 in cash and U.S. government
securities valued at $102,622,654. Income from securities lending amounted to
$357,417 for the year ended Sept. 30, 1999. 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, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (63.9%)
Issuer Shares Value(a)
Aerospace & defense (1.9%)
<S> <C> <C>
AlliedSignal 800,000 $47,950,000
Rockwell Intl 770,000 40,425,000
Total 88,375,000
Airlines (0.7%)
AMR 625,000(b) 34,062,500
Automotive & related (2.3%)
Delphi Automotive Systems 1,700,916 27,320,963
Ford Motor 610,000 30,614,375
General Motors 360,000 22,657,500
TRW 577,000 28,705,750
Total 109,298,588
Banks and savings & loans (6.4%)
Bank of America 1,315,000 73,229,062
Bank of New York 1,105,000 36,948,438
Chase Manhattan 480,000 36,180,000
Fleet Financial Group 1,035,000 37,906,875
Mellon Bank 985,000 33,243,750
Washington Mutual 925,000 27,056,250
Wells Fargo 1,340,000 53,097,499
Total 297,661,874
Building materials & construction (0.7%)
American Standard 720,000(b) 27,630,000
Martin Marietta Materials 190,800 7,620,075
Total 35,250,075
Chemicals (1.7%)
Air Products & Chemicals 815,000 23,685,938
Dow Chemical 170,000 19,316,250
Du Pont (EI) de Nemours 640,566 38,994,455
Total 81,996,643
Communications equipment & services (1.0%)
Motorola 550,000 48,400,000
Computers & office equipment (5.1%)
BMC Software 315,000(b) 22,542,188
Electronic Data Systems 295,000 15,616,563
EQUANT 216,800(b,c) 17,642,100
First Data 365,150 16,020,956
Hewlett-Packard 250,000 23,000,000
Intl Business Machines 645,000 78,286,874
NOVA 1,374,400 34,360,000
Solectron 460,000(b) 33,033,750
Total 240,502,431
Electronics (0.7%)
Texas Instruments 420,000 34,545,000
Energy (6.4%)
Chevron 865,000 76,768,750
Conoco Cl B 219,580 6,011,003
ENI 6,190,000(c) 38,796,141
Mobil 865,000 87,148,749
Texaco 910,000 57,443,750
Tosco 1,185,000 29,921,250
Total 296,089,643
Financial services (6.0%)
Associates First Capital Cl A 980,000 35,280,000
Capital One Financial 890,000 34,710,000
Citigroup 2,320,000 102,079,999
Kansas City Southern Inds 623,900 28,972,356
Morgan Stanley, Dean Witter, Discover & Co 575,000 51,282,813
Providian Financial 399,000 31,595,813
Total 283,920,981
Food (1.5%)
Bestfoods 470,000 22,795,000
General Mills 310,000 25,148,750
Sara Lee 900,000(e,f) 21,093,750
Total 69,037,500
Health care (2.0%)
American Home Products 365,000 15,147,500
Baxter Intl 350,000 21,087,500
Guidant 465,000 24,935,625
Mylan Laboratories 760,000 13,965,000
Pharmacia & Upjohn 415,000 20,594,375
Total 95,730,000
Health care services (0.7%)
Cardinal Health 375,000 20,437,500
Columbia/HCA Healthcare 605,000 12,818,438
Total 33,255,938
Industrial equipment & services (2.0%)
Illinois Tool Works 655,000 48,838,437
Parker-Hannifin 1,005,000 45,036,563
Total 93,875,000
Insurance (4.2%)
Allstate 208,550 5,200,716
American General 785,000 49,602,188
American Intl Group 1,005,000 87,372,187
Lincoln Natl 825,250 30,998,453
Marsh & McLennan 335,000 22,947,500
Total 196,121,044
Leisure time & entertainment (1.6%)
Disney (Walt) 1,630,000 42,176,250
Viacom Cl B 770,000(b) 32,532,500
Total 74,708,750
Media (0.5%)
MediaOne Group 375,000(b) 25,617,188
Multi-industry conglomerates (1.3%)
Emerson Electric 335,000 21,167,813
Minnesota Mining & Mfg 210,000 20,173,125
Tyco Intl 170,000(c) 17,552,500
Total 58,893,438
Paper & packaging (0.8%)
Intl Paper 770,000 37,008,125
Retail (3.9%)
Costco Wholesale 660,000(b) 47,520,000
Dayton Hudson 870,000 52,254,375
Gap 1,015,000 32,480,000
TJX Companies 1,750,000 49,109,375
Total 181,363,750
Transportation (0.6%)
Burlington Northern Santa Fe 1,110,000 30,525,000
Utilities -- electric (3.2%)
Carolina Power & Light 410,000 14,503,750
CMS Energy 775,000 26,301,563
Duke Energy 531,800 29,315,474
Edison Intl 885,000 21,516,563
FPL Group 245,000 12,341,875
New Century Energies 710,000 23,740,625
Pinnacle West Capital 275,000 10,003,125
Texas Utilities 400,000 14,925,000
Total 152,647,975
Utilities -- gas (1.0%)
Coastal 1,145,000 46,873,438
Utilities -- telephone (7.8%)
Ameritech 835,000 56,101,563
AT&T 1,885,000 81,997,499
Bell Atlantic 550,000 37,021,875
BellSouth 1,005,000 45,225,000
GTE 355,000 27,290,625
MCI WorldCom 855,000(b) 61,453,124
SBC Communications 465,000 23,744,063
U S WEST Communications Group 545,000 31,099,063
Total 363,932,812
Total common stocks
(Cost: $2,847,064,401) $3,009,692,693
Preferred stocks (0.1%)
Issuer Shares Value(a)
Global TeleSystems Group
7.25% Cm Cv 71,500(g) $2,931,500
Intermedia Communications
7.00% Cm Cv Series F 203,000 3,882,375
Total preferred stocks
(Cost: $8,085,990) $6,813,875
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (40.8%)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (11.6%)
Collateralized Mtge Obligation Trust
<S> <C> <C> <C>
12-20-14 9.95% $1,988,510 $2,089,347
Federal Home Loan Mtge Corp
10-01-03 7.00 2,307,876 2,321,584
07-01-07 6.50 207,953 205,512
07-01-08 6.75 1,095,806 1,084,508
06-01-09 5.50 3,303,712 3,131,291
01-01-11 6.50 11,436,200 11,264,657
03-01-13 5.50 12,989,768 12,251,733
08-01-24 8.00 2,923,573 2,993,008
09-01-28 6.00 26,790,182 24,990,149
Trust Series Z
10-15-23 6.50 2,784,864(l) 2,477,526
Federal Natl Mtge Assn
10-01-02 7.50 317,131 320,204
05-14-04 5.63 10,000,000 9,701,189
01-01-09 5.50 5,067,238 4,799,637
07-01-13 6.50 14,280,652 14,035,120
08-01-13 6.00 26,909,515 25,885,126
02-01-14 7.50 1,023,607 1,015,295
06-01-14 5.50 29,454,953 27,715,343
05-01-23 6.50 4,070,419 3,935,606
09-01-23 6.50 6,416,030 6,191,469
01-01-24 6.50 11,776,565 11,364,385
06-01-24 9.00 3,251,649 3,426,426
08-01-25 7.50 9,759,848 9,799,473
06-01-26 8.50 33,558 34,743
04-01-28 6.00 11,858,290 11,054,179
06-01-28 6.00 9,142,816(d,e,f) 8,522,842
06-01-28 6.00 11,398,425 10,625,498
06-01-28 7.00 22,879 22,479
07-01-28 6.00 13,251,776 12,353,173
09-01-28 6.50 46,628,511 44,742,499
12-01-28 6.50 11,131,359 10,675,641
08-01-29 7.00 130,000,000(i) 127,725,001
08-01-29 7.50 50,000,000(i) 50,140,500
09-01-29 6.50 90,000,000 88,143,750
Total 545,038,893
U.S. government obligations (14.8%)
Resolution Funding Corp
10-15-19 8.13 15,000,000 17,429,457
U.S. Treasury
11-15-05 5.88 1,800,000 1,790,284
05-15-06 6.88 25,000,000 26,095,573
02-15-07 6.25 100,000,000(g) 100,871,000
05-15-07 6.63 90,000,000 92,837,997
08-15-07 6.13 50,000,000(g) 50,062,500
05-15-09 5.50 30,000,000 29,006,250
11-15-15 9.88 24,000,000 32,161,135
11-15-16 7.50 90,000,000(g) 99,700,236
05-15-17 8.75 6,400,000 7,924,736
08-15-19 8.13 65,000,000(d,e,f) 77,009,426
11-15-21 8.00 16,000,000 18,920,261
02-15-23 7.13 12,700,000 13,782,548
Zero Coupon
05-15-09 5.72 110,000,000(k) 60,174,400
05-15-13 6.14 74,000,000(k) 30,837,946
11-15-13 6.16 90,000,000(k) 36,220,410
Total 694,824,159
Automotive & related (0.7%)
Ford Motor Credit
07-16-04 6.70 10,000,000 9,950,356
08-15-08 6.75 10,000,000 9,721,370
Lear
Sr Nts
05-15-09 8.11 15,000,000 14,488,500
Total 34,160,226
Banks and savings & loans (2.1%)
BankAmerica
Sr Nts
02-15-09 5.88 10,000,000 9,126,854
Fleet Financial Group
Sub Nts
05-15-08 6.38 10,000,000 9,391,014
Mellon Financial
Sub Nts
02-15-10 6.38 16,000,000 15,146,181
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 15,000,000 13,137,900
NationsBank
Sub Nts
05-15-10 6.60 11,825,000 11,328,913
Newcourt Credit Group
02-16-05 6.88 10,000,000(h) 9,799,630
Union Planters Capital
Company Guaranty
12-15-26 8.20 10,000,000 9,371,894
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 5,800,000 5,673,898
Wells Fargo
07-15-04 6.63 15,000,000 14,895,900
Total 97,872,184
Building materials & construction (0.2%)
Owens Corning
08-01-18 7.50 12,500,000 11,034,625
Chemicals (0.2%)
Waste Management
Sr Nts
10-01-04 7.00 9,000,000 8,363,412
Commercial finance (0.1%)
Yale University
04-15-96 7.38 4,000,000 4,008,004
Electronics (0.2%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-04 8.25 10,000,000(c,h) 8,070,810
Energy (1.1%)
Occidental Petroleum
Medium-term Nts Series B
04-10-00 6.25 6,500,000 6,497,648
Petronas
(U.S. Dollar)
08-15-15 7.75 10,000,000(c,h) 8,644,443
R & B Falcon
Sr Nts Series B
04-15-05 6.75 10,000,000 8,550,000
Union Pacific Resources
05-15-28 7.15 10,000,000 8,916,641
USX
03-01-08 6.85 10,000,000 9,563,201
Woodside Petroleum
(U.S. Dollar)
04-15-08 6.60 10,000,000(c,h) 9,203,987
Total 51,375,920
Energy equipment & services (0.4%)
Global Marine
09-01-07 7.13 10,000,000 9,549,627
Pioneer Natural Resource
01-15-08 6.50 10,350,000 8,947,342
Total 18,496,969
Financial services (1.3%)
AT&T Capital
Company Guaranty Medium-term Nts Series F
05-15-05 6.60 9,000,000 8,623,449
Bat-CRAVE-800
08-12-00 6.68 7,000,000(h) 7,027,332
Citibank Credit Card Master Trust
Series A
10-07-04 5.95 8,550,000 8,350,443
Equitable Life Assurance Society US Cl B1
05-15-09 7.33 5,500,000 5,521,230
Golden State Holdings
Sr Nts
08-01-03 7.00 10,000,000 9,605,060
Liberty Mutual Insurance
10-15-97 7.70 10,000,000 8,542,540
Railcar Leasing
(U.S. Dollar)
01-15-13 7.13 15,000,000(c,h) 15,194,205
Total 62,864,259
Health care services (0.4%)
Kaiser Permanente
07-15-05 9.55 6,000,000 6,625,970
Service Corp Intl
03-15-08 6.50 2,000,000 1,775,509
04-15-09 7.70 10,000,000 9,546,734
Total 17,948,213
Insurance (0.9%)
Nationwide CSN Trust
02-15-25 9.88 15,500,000(h) 16,841,963
New York Life Insurance
12-15-23 7.50 11,500,000(h) 10,522,204
Principal Mutual
03-01-44 8.00 7,150,000(h) 6,873,412
SAFECO Capital
Company Guaranty
07-15-37 8.07 10,000,000 9,072,442
Total 43,310,021
Media (1.0%)
Belo (AH)
Sr Nts
06-01-07 7.13 15,000,000 14,514,242
Cox Communications
08-15-06 7.75 8,200,000 8,345,714
Time Warner Entertainment
Sr Nts
07-15-33 8.38 23,522,000 24,973,704
Total 47,833,660
Miscellaneous (0.4%)
DTE Burns Harbor LLC
(U.S. Dollar) Sr Nts
01-30-03 6.57 6,250,480(c,h) 6,002,148
KPNQwest
(U.S. Dollar) Sr Nts
06-01-09 8.13 15,000,000(c,h) 14,250,000
Total 20,252,148
Paper & packaging (0.5%)
Caraustar Inds
06-01-09 7.38 15,000,000 14,551,119
Intl Paper
11-15-12 5.13 13,400,000 10,946,313
Total 25,497,432
Real estate investment trust (0.1%)
Property Trust of America
02-15-14 7.50 5,000,000 4,715,032
Restaurants & lodging (0.2%)
MGM Grand
02-01-05 6.95 10,000,000 9,237,293
Retail (0.2%)
Wal-Mart CRAVE Trust
07-17-06 7.00 11,603,197(h) 11,495,751
Transportation (0.5%)
Atlas Air Series C
01-02-10 8.01 14,060,998 13,355,277
Burlington Northern Santa Fe
12-15-25 7.00 10,200,000 9,474,666
Total 22,829,943
Utilities -- electric (2.3%)
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 5,400,000 5,623,239
Cleveland Electric Illuminating
07-01-00 7.19 5,000,000 5,022,534
07-01-04 7.67 10,000,000 10,138,950
CMS Energy
Sr Nts
07-01-03 8.38 20,000,000 19,874,939
Entergy Louisiana
1st Mtge
03-01-08 6.50 5,535,000 5,203,775
Israel Electric
(U.S. Dollar) Sr Nts
12-15-06 7.25 10,000,000(c) 9,810,700
Pacific Gas & Electric
1st Mtge Series 1992D
11-01-22 8.25 4,600,000 4,680,753
PSI Energy
1st Mtge Series BBB
07-15-09 8.00 8,085,000 8,292,634
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 13,000,000(j) 12,056,819
Public Service Electric & Gas
1st Mtge
05-01-23 6.38 5,000,000 4,881,200
TXU Electric Capital
Company Guaranty
01-30-37 8.18 10,000,000 9,546,532
Wisconsin Electric Power
01-15-23 7.75 5,500,000 5,394,561
12-01-95 6.88 8,000,000 7,207,873
Total 107,734,509
Utilities -- gas (0.2%)
Ras Laffan
(U.S. Dollar)
03-15-14 8.29 10,000,000(c) 9,223,181
Utilities -- telephone (1.4%)
Airtouch Communications
05-01-08 6.65 6,950,000 6,695,245
Bell Telephone of Pennsylvania
03-15-33 7.38 5,000,000 4,703,382
GTE
11-01-21 8.75 5,000,000 5,645,245
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.25 21,000,000 20,579,999
SBC Communications
10-15-34 6.63 6,100,000 5,321,655
07-15-43 7.38 7,500,000 7,122,091
U S West Capital Funding
Company Guaranty
07-15-28 6.88 9,000,000 7,928,887
U S WEST Communications
09-15-05 6.63 7,000,000 6,758,687
Total 64,755,191
Total bonds
(Cost: $1,965,718,363) $1,920,941,835
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Option purchased (--%)
Issuer Notional Exercise Expiration Value(a)
amount price date
Put
<S> <C> <C> <C> <C>
U.S. Treasury Bond $100,000,000 $99 Nov. 1999 $1,328,000
Total option purchased
(Cost: $1,195,300) $1,328,000
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (2.8%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.8%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C>
10-22-99 5.22% $8,300,000 $8,273,623
11-03-99 5.27 11,500,000 11,441,241
Federal Home Loan Mtge Corp Disc Nts
10-05-99 5.24 600,000 599,563
10-07-99 5.21 6,000,000 5,993,933
11-15-99 5.29 11,200,000 11,124,866
Federal Natl Mtge Assn Disc Nts
10-01-99 5.20 9,200,000 9,198,671
10-29-99 5.24 11,200,000 11,152,904
11-03-99 5.27 7,000,000 6,965,357
11-03-99 5.28 3,200,000 3,184,133
11-09-99 5.27 2,800,000 2,783,106
12-08-99 5.31 11,700,000 11,578,681
Total 82,296,078
Commercial paper (0.9%)
Alcoa
10-13-99 5.30 7,000,000 6,986,628
11-12-99 5.35 6,400,000 6,357,208
Heinz (HJ)
10-08-99 5.30 5,100,000 5,094,004
Petrofina (Delaware)
10-26-99 5.16 8,800,000 8,765,552
Salomon Smith Barney
10-05-99 5.18 15,000,000 14,989,021
Total 42,192,413
Letter of credit (0.1%)
Bank of America-
AES Hawaii
10-08-99 5.31 5,000,000 4,994,111
Total short-term securities
(Cost: $129,511,686) $129,482,602
Total investments in securities
(Cost: $4,951,575,740)(m) $5,068,259,005
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. For debt securities,
principal amounts are denominated in the currency indicated. As of Sept. 30,
1999, the value of foreign securities represented 3.28% of net assets.
(d) At Sept. 30, 1999, securities valued at $15,679,468 were held to cover open
call options written as follows:
Issuer Notional Exercise Expiration Value(a)
amount price date
U.S. Treasury Bond $120,000,000 $105 Nov. 1999 $1,064,400
U.S. Treasury Note $50,000,000 110 Dec. 1999 531,250
Total $1,595,650
(e) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Sale contracts
U.S. Treasury Note, Dec. 1999, 5-year $10,000,000
U.S. Treasury Note, Dec. 1999, 10-year 49,300,000
U.S. Treasury Bonds, Dec. 1999 513,200,000
(f) Partially pledged as initial margin deposit on the following open stock
index futures purchase contracts (see Note 5 to the financial statements):
Type of security Contracts
S&P 500 Index, Dec. 1999 92
(g) Security is partially or fully on loan. See Note 6 to the financial
statements.
(h) 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.
(i) At Sept. 30, 1999, the cost of securities purchased, including interest
purchased, on a when-issued basis was $178,389,167.
(j) The following abbreviation is used in portfolio descriptions to identify the
insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
(k) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(l) This security is a collateralized mortgage obligation that pays no interest
or principal during its initial accrual period until previous series within the
trust have been paid off. Interest is accrued at an effective yield; similar to
a zero coupon bond.
(m) At Sept. 30, 1999, the cost of securities for federal income tax purposes
was $4,952,496,578 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $348,085,873
Unrealized depreciation (232,323,446)
------------
Net unrealized appreciation $115,762,427
<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, 1999, 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, 1999. 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. Our procedures included
confirmation of securities owned as of September 30, 1999, by correspondence
with the custodian and brokers. 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 as of
September 30, 1999, 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 LLP
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
Equity Portfolio
Sept. 30, 1999
Assets
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers (identified cost
<S> <C>
$3,633,860,824) $4,509,891,730
Investments in securities of affiliated issuers (identified cost $13,992,918) 25,531,250
----------
Total investments in securities (identified cost $3,647,853,742) 4,535,422,980
Cash in bank on demand deposit 2,092,313
Dividends and accrued interest receivable 5,214,283
U.S. government securities held as collateral (Note 4) 35,752,492
----------
Total assets 4,578,482,068
-------------
Liabilities
Payable upon return of securities loaned (Note 4) 58,462,492
Accrued investment management services fee 57,595
Other accrued expenses 197,676
-------
Total liabilities 58,717,763
----------
Net assets $4,519,764,305
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Equity Portfolio
Year ended Sept. 30, 1999
Investment income
Income:
<S> <C>
Dividends (including $51,900 earned from affiliates) $ 62,903,635
Interest 17,337,853
Less foreign taxes withheld (669,597)
--------
Total income 79,571,891
----------
Expenses (Note 2):
Investment management services fee 22,255,457
Compensation of board members 20,244
Custodian fees 354,569
Audit fees 30,750
Other 77,239
------
Total expenses 22,738,259
----------
Earnings credits on cash balances (Note 2) (11,757)
-------
Total net expenses 22,726,502
----------
Investment income (loss) -- net 56,845,389
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $32,338,894 realized gain
on sales of affiliated issuers) (Note 3) 510,565,028
Foreign currency transactions (20,409)
-------
Net realized gain (loss) on investments 510,544,619
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 169,713,139
-----------
Net gain (loss) on investments and foreign currencies 680,257,758
-----------
Net increase (decrease) in net assets resulting from operations $737,103,147
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Equity Portfolio
Year ended Sept. 30, 1999 1998
Operations
<S> <C> <C>
Investment income (loss) -- net $ 56,845,389 $ 62,955,925
Net realized gain (loss) on security transactions 510,544,619 401,372,703
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 169,713,139 (356,961,919)
----------- ------------
Net increase (decrease) in net assets resulting from operations 737,103,147 107,366,709
Net contributions (withdrawals) from partners (286,491,766) (202,014,550)
------------ ------------
Total increase (decrease) in net assets 450,611,381 (94,647,841)
Net assets at beginning of year 4,069,152,924 4,163,800,765
------------- -------------
Net assets at end of year $4,519,764,305 $4,069,152,924
============== ==============
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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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. 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 its contract obligations.
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. As a "pass-through" entity, the Portfolio therefore
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 an Investment Management Services
Agreement with AEFC to manage 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 AXP 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 increased the fee by $612,579 for the year ended Sept. 30,
1999.
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, 1999, the Portfolio's custodian fees were
reduced by $11,757 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $3,264,783,239 and $3,430,662,175, respectively, for the
year ended Sept. 30, 1999. For the same period, the portfolio turnover rate was
76%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $321,979 for the
year ended Sept. 30, 1999.
4. LENDING OF PORTFOLIO SECURITIES
As of Sept. 30, 1999, securities valued at $61,276,850 were on loan to brokers.
For collateral, the Portfolio received $22,710,000 in cash and U.S. government
securities valued at $35,752,492. As of Sept. 30, 1999, due to fluctuating
market conditions, the Fund requested additional collateral which was received
on Oct. 1, 1999. Income from securities lending amounted to $351,523 for the
year ended Sept. 30, 1999. The risks to the Portfolio of securities lending are
that the borrower may not provide additional collateral when required or return
the securities when due.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Equity Portfolio
Sept. 30, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (86.6%)
Issuer Shares Value(a)
Aerospace & defense (1.1%)
<S> <C> <C>
AlliedSignal 650,000 $38,959,375
United Technologies 200,000 11,862,500
Total 50,821,875
Airlines (0.5%)
Southwest Airlines 1,500,000 22,781,250
Automotive & related (0.6%)
Ford Motor 500,000 25,093,750
Banks and savings & loans (3.2%)
Bank of America 700,000 38,981,250
Bank of New York 875,000 29,257,813
First Union 1,000,000 35,562,500
Wells Fargo 1,100,000 43,587,500
Total 147,389,063
Beverages & tobacco (1.3%)
Coca-Cola 1,200,000 57,675,000
Building materials & construction (0.3%)
Martin Marietta Materials 324,000 12,939,750
Communications equipment & services (4.0%)
Lucent Technologies 1,072,500 69,578,438
Motorola 500,000 44,000,000
Nokia Oyj ADR Cl A 500,000(c) 44,906,250
Tellabs 400,000(b) 22,775,000
Total 181,259,688
Computers & office equipment (17.4%)
America Online 550,000(b) 57,200,000
Cisco Systems 1,200,000(b) 82,275,000
Data General 800,000(b) 16,850,000
EMC 500,000(b) 35,718,750
EQUANT 400,000(b,c) 32,550,000
First Data 900,000 39,487,500
Intl Business Machines 1,000,000 121,375,000
Microsoft 2,000,000(b) 181,124,999
Oracle 1,000,000(b) 45,500,000
Pitney Bowes 850,000 51,796,875
Solectron 996,449(b) 71,557,494
Unisys 1,200,000(b) 54,150,000
Total 789,585,618
Electronics (5.5%)
Altera 695,652(b) 30,173,906
Corning 900,000 61,706,250
Intel 1,000,000 74,312,500
Texas Instruments 1,000,000 82,250,000
Total 248,442,656
Energy (4.8%)
BP Amoco ADR 400,000(c) 44,325,000
Chevron 400,000 35,500,000
Conoco Cl A 1,700,000(f) 47,175,000
Exxon 600,000 45,562,500
Mobil 450,000 45,337,500
Total 217,900,000
Energy equipment & services (1.6%)
Halliburton 1,000,000 41,000,000
Schlumberger 525,000(c) 32,714,063
Total 73,714,063
Financial services (1.8%)
Citigroup 1,350,000 59,400,000
Morgan Stanley, Dean Witter, Discover & Co 250,000 22,296,875
Total 81,696,875
Food (1.9%)
Bestfoods 900,000 43,650,000
Ralston-Ralston Purina Group 1,500,000 41,718,750
Total 85,368,750
Health care (7.6%)
Amgen 500,000(b) 40,750,000
Bausch & Lomb 600,000 39,562,500
Baxter Intl 700,000 42,175,000
Biogen 550,000(b) 43,346,875
Bristol-Myers Squibb 800,000 53,999,999
Guidant 500,000 26,812,500
Medtronic 800,000 28,400,000
Mylan Laboratories 1,300,000 23,887,500
Schering-Plough 1,000,000 43,625,000
Total 342,559,374
Health care services (0.8%)
Cardinal Health 700,000 38,150,000
Household products (2.1%)
Colgate-Palmolive 850,000 38,887,500
Procter & Gamble 600,000 56,250,000
Unilever 1(c) 68
Total 95,137,568
Industrial equipment & services (1.6%)
Illinois Tool Works 1,000,000 74,562,500
Insurance (3.0%)
American General 570,000 36,016,875
American Intl Group 1,130,625 98,293,711
Total 134,310,586
Leisure time & entertainment (1.4%)
Royal Caribbean Cruises 867,000 39,015,000
Time Warner 400,000 24,300,000
Total 63,315,000
Media (4.5%)
Clear Channel Communications 800,000(b) 63,900,000
Hispanic Broadcasting Cl A 300,000(b) 22,837,500
Infinity Broadcasting Cl A 1,317,000(b,f) 38,604,563
MediaOne Group 500,000(b) 34,156,250
USA Networks 1,200,000(b) 46,500,000
Total 205,998,313
Metals (1.4%)
Alcoa 600,000 37,237,500
Stillwater Mining 950,000(b,h) 25,531,250
Total 62,768,750
Multi-industry conglomerates (5.6%)
General Electric 1,500,000 177,843,750
Grainger (WW) 800,000 38,450,000
Minnesota Mining & Mfg 400,000 38,425,000
Total 254,718,750
Paper & packaging (1.1%)
Intl Paper 1,000,000 48,062,500
Retail (4.7%)
Circuit City Stores 1,000,000 42,187,500
Dayton Hudson 500,000 30,031,250
Home Depot 500,000 34,312,500
Safeway 500,000(b) 19,031,250
Wal-Mart Stores 1,800,000 85,612,500
Total 211,175,000
Utilities -- electric (1.7%)
Carolina Power & Light 350,000 12,381,250
CMS Energy 300,000 10,181,250
Duke Energy 200,000 11,025,000
New Century Energies 500,000 16,718,750
Texas Utilities 350,000 13,059,375
Unicom 400,000 14,775,000
Total 78,140,625
Utilities -- gas (0.9%)
Coastal 1,000,000 40,937,500
Utilities -- telephone (5.9%)
Ameritech 800,000 53,750,000
AT&T 750,000 32,625,022
BellSouth 750,000 33,750,000
Global TeleSystems Group 1,200,000(b) 23,662,500
MCI WorldCom 800,000(b) 57,499,999
SBC Communications 439,200 22,426,650
U S WEST Communications Group 800,000 45,650,000
Total 269,364,171
Total common stocks
(Cost: $3,031,062,748) $3,913,868,975
Preferred stocks & other (4.9%)
Issuer Shares Value(a)
Adelphia Communications
5.50% Cv Series D 73,500 $12,936,000
CVS
6.00% Cv ACES 200,000(i) 15,137,500
Finova Finance Trust
5.50% Cv 325,000 16,696,875
Georgia-Pacific Group
7.50% Cv 625,000(b) 27,656,250
Global TeleSystems Group
7.25% Cv 300,000(d) 12,300,000
Host Marriott Financial Trust
6.75% Cv 300,000(d) 10,162,500
Ingersoll-Rand
6.75% Cv PRIDES 800,000(j) 21,000,000
Kerr-McGee
5.50% Cv 600,000(b) 23,400,000
MS-Applied Material
6.00% Cv 180,000 10,102,500
MS-Gillette
5.25% Cv 186,795 13,262,445
Newell Financial Trust
5.25% Cm Cv 250,000(d) 10,062,500
Wendys Financing
5.00% Cm Cv Series A 340,000 19,210,000
SBH-Cincinnati Bell
6.25% 216,200 14,701,600
Sprint
8.25% Cv 206,925 16,217,747
Total preferred stocks & other
(Cost: $238,583,776) $222,845,917
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (2.3%)
Issuer Coupon Principal Value(a)
rate amount
COLT Telecom Group
(European Monetary Unit) Cv
<S> <C> <C> <C>
08-06-05 2.00% 25,000,000(c) $21,796,639
Costco
Zero Coupon Cv Sub Nts
08-19-17 3.50 21,000,000(d,g) 18,060,000
Devon Energy
Cv Deb
08-15-08 4.90 15,000,000 14,700,000
Exodus Communications
Cv Sub Nts
03-15-06 5.00 6,000,000(d) 19,548,119
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 4.09 20,000,000(d,g) 6,700,000
Office Depot
Zero Coupon Cv Nts
11-01-08 4.00 7,300,000(g) 4,795,954
Telewest Communication
(British Pound) Cv
02-19-07 5.25 12,240,000(c,d) 18,639,400
Total bonds
(Cost: $83,663,792) $104,240,112
Short-term securities (6.5%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.9%)
Federal Home Loan Mtge Corp Disc Nts
10-07-99 5.16% $12,400,000 $12,387,582
10-07-99 5.19 6,500,000 6,493,453
10-14-99 5.17 15,800,000 15,767,773
10-15-99 5.19 30,000,000 29,935,250
10-28-99 5.22 35,200,000 35,049,735
Federal Natl Mtge Assn Disc Nts
10-21-99 5.22 4,400,000 4,386,653
12-02-99 5.29 50,000,000 49,526,625
12-10-99 5.29 25,000,000 24,733,257
Total 178,280,328
Commercial paper (2.6%)
Alcoa
11-03-99 5.33 4,600,000 4,576,974
BellSouth Capital Funding
11-08-99 5.32 6,900,000(e) 6,860,457
11-08-99 5.33 12,000,000(e) 11,931,099
11-12-99 5.31 16,000,000(e) 15,899,092
BellSouth Telecommunications
10-21-99 5.32 9,600,000 9,570,320
Clorox
10-06-99 5.28 3,000,000 2,997,360
Delaware Funding
10-26-99 5.38 12,100,000(e) 12,053,159
Ford Motor Credit
10-18-99 5.27 5,000,000 4,986,850
GTE Funding
10-21-99 5.35 2,400,000 2,392,538
Merrill Lynch
10-21-99 5.31 13,100,000 13,059,575
10-25-99 5.31 14,200,000 14,147,834
11-01-99 5.31 500,000 497,649
Petrofina (Delaware)
10-27-99 5.31 7,100,000 7,071,830
Pfizer
11-02-99 5.33 1,400,000(e) 1,393,198
Procter & Gamble
11-01-99 5.31 6,300,000 6,270,376
SBC Communications Capital
11-24-99 5.34 2,500,000(e) 2,479,337
Total 116,187,648
Total short-term securities
(Cost: $294,543,426) $294,467,976
Total investments in securities
(Cost: $3,647,853,742)(k) $4,535,422,980
See accompanying notes to investments in securities.
</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,
1999, the value of foreign securities represented 4.31% 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) Security is partially or fully on loan. See Note 4 to the financial
statements.
(g) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(h) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended Sept. 30, 1999 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
Mutual Risk
<S> <C> <C> <C> <C> <C> <C>
Management* $21,682,783 $965,563 $22,648,346 $-- $51,900 $--
Stillwater
Mining* 24,603,388 3,002,085 13,612,555 13,992,918 -- 25,531,250
Total $46,286,171 $3,967,648 $36,260,901 $13,992,918 $51,900 $25,531,250
*Issuer was not an affiliate for the entire year ended Sept. 30, 1999.
(i) ACES (Automatically Convertible Equity Securities) are structured as
convertible preferred securities. Investors receive an enhanced yield but based
upon a specific formula, potential appreciation is limited. ACES pay dividends,
have voting rights, are noncallable for at least three years and upon maturity,
convert into shares of common stock.
(j) 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.
(k) At Sept. 30, 1999, the cost of securities for federal income tax purposes
was $3,648,352,148 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $1,074,898,362
Unrealized depreciation (187,827,530)
------------
Net unrealized appreciation $887,070,832
</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, 1999, 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, 1999. 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. Our procedures included
confirmation of securities owned as of September 30, 1999, by correspondence
with the custodian and brokers. 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 as of
September 30, 1999, 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 LLP
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
Financial Statements
Statement of assets and liabilities
Equity Income Portfolio
Sept. 30, 1999
Assets
Investments in securities, at value (Note 1)
(identified cost $2,555,625,742) $2,656,673,895
Dividends and accrued interest receivable 3,599,886
---------
Total assets 2,660,273,781
-------------
Liabilities
Disbursement in excess of cash on demand deposit 1,146,974
Payable for investment securities purchased 7,766,234
Payable upon return of securities loaned (Note 4) 11,003,200
Accrued investment management services fee 35,027
Other accrued expenses 142,991
-------
Total liabilities 20,094,426
----------
Net assets applicable to outstanding capital stock $2,640,179,355
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Equity Income Portfolio
Year ended Sept. 30, 1999
Investment income
Income:
<S> <C>
Dividends $ 57,981,376
Interest 4,600,549
Less foreign taxes withheld (212,696)
--------
Total income 62,369,229
----------
Expenses (Note 2):
Investment management services fee 13,270,362
Compensation of board members 14,898
Custodian fees 227,178
Audit fees 24,000
Other 99,742
------
Total expenses 13,636,180
Earnings credits on cash balances (Note 2) (7,961)
------
Total net expenses 13,628,219
----------
Investment income (loss) -- net 48,741,010
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 192,917,723
Financial futures contracts 18,449,477
Foreign currency transactions (1,492)
------
Net realized gain (loss) on investments 211,365,708
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 161,093,888
-----------
Net gain (loss) on investments and foreign currencies 372,459,596
-----------
Net increase (decrease) in net assets resulting from operations $421,200,606
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Equity Income Portfolio
Year ended Sept. 30, 1999 1998
Operations
<S> <C> <C>
Investment income (loss)-- net $ 48,741,010 $ 64,833,066
Net realized gain (loss) on investments 211,365,708 263,358,256
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 161,093,888 (386,481,334)
----------- ------------
Net increase (decrease) in net assets resulting from operations 421,200,606 (58,290,012)
Net contributions (withdrawals) from partners (191,699,690) 248,383,687
------------ -----------
Total increase (decrease) in net assets 229,500,916 190,093,675
Net assets at beginning of year 2,410,678,439 2,220,584,764
------------- -------------
Net assets at end of year $2,640,179,355 $2,410,678,439
============== ==============
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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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. 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 its contract obligations.
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. As a "pass-through" entity, the Portfolio therefore
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 an Investment Management Services
Agreement with AEFC to manage 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. Effective with the new Investment
Management Services Agreement, the fee will be adjusted upward or downward by a
performance incentive adjustment based on the Fund's average daily net assets
over a rolling 12-month period as measured against the change in the Lipper
Equity Income Fund Index. The maximum adjustment is 0.08% of the Fund's average
daily net assets after deducting 1% from the performance difference. If the
performance difference is less than 1%, the adjustment will be zero. The first
adjustment will be made on Jan. 1, 2000 and will cover the six-month period
beginning July 1, 1999.
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, 1999, the Portfolio's custodian fees were
reduced by $7,961 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,166,435,922 and $2,237,719,660, respectively, for the
year ended Sept. 30, 1999. For the same period, the portfolio turnover rate was
84%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $111,698 for the
year ended Sept. 30, 1999.
4. LENDING OF PORTFOLIO SECURITIES
As of Sept. 30, 1999, securities valued at $11,743,800 were on loan to brokers.
For collateral, the Portfolio received $11,003,200 in cash. As of Sept. 30,
1999, due to fluctuating market conditions, the Fund requested additional
collateral, which was received on Oct. 1, 1999. Income from securities lending
amounted to $395,032 for the year ended Sept. 30, 1999. The risks to the
Portfolio of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Equity Income Portfolio
Sept. 30, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (93.2%)
Issuer Shares Value(a)
Aerospace & defense (2.2%)
<S> <C> <C>
AlliedSignal 130,000 $7,791,875
Goodrich (BF) 640,000 18,560,000
Rockwell Intl 602,000 31,605,000
Total 57,956,875
Automotive & related (3.5%)
Dana 500,000 18,562,500
Ford Motor 590,000 29,610,625
General Motors 290,000 18,251,875
TRW 530,000 26,367,500
Total 92,792,500
Banks and savings & loans (9.6%)
Allied Capital 567,550 12,734,403
Bank of America 1,015,000 56,522,812
Bank of New York 745,000 24,910,938
BankBoston 325,000 14,096,875
Chase Manhattan 235,400 17,743,275
First Union 623,000 22,155,438
Fleet Financial Group 645,000 23,623,125
Mellon Bank 805,000 27,168,750
Washington Mutual 660,000 19,305,000
Wells Fargo 905,000 35,860,624
Total 254,121,240
Building materials & construction (0.9%)
Fluor 465,000 18,716,250
Martin Marietta Materials 156,800 6,262,200
Total 24,978,450
Chemicals (2.8%)
Dow Chemical 135,000 15,339,375
Du Pont (EI) de Nemours 510,661 31,086,488
Imperial Chemical Inds ADR 360,000(c) 15,547,500
Lyondell Petrochemical 930,000 12,438,750
Total 74,412,113
Communications equipment & services (1.5%)
Motorola 445,000 39,160,000
Computers & office equipment (7.3%)
BMC Software 250,000(b) 17,890,625
Electronic Data Systems 235,000 12,440,313
Equant 175,100(b,c) 14,248,763
First Data 292,300 12,824,663
Hewlett-Packard 200,000 18,400,000
Intl Business Machines 515,000 62,508,124
NOVA 1,098,800(b) 27,470,000
Solectron 370,000(b) 26,570,625
Total 192,353,113
Energy (10.8%)
Chevron 690,000 61,237,500
Conoco Cl A 1,300,000(d) 36,075,000
Conoco Cl B 175,050 4,791,994
ENI 5,290,000(b,c) 33,155,345
FirstEnergy 435,000 11,092,500
Mobil 630,000 63,472,499
Sunoco 920,000 25,185,000
Texaco 790,000 49,868,750
Total 284,878,588
Financial services (8.7%)
Alliance Capital Management LP 1,005,000 27,574,688
Associates First Capital Cl A 755,000 27,180,000
Citigroup 1,980,000 87,120,000
MBNA 1,730,000 39,465,625
Morgan Stanley, Dean Witter, Discover & Co 530,000 47,269,375
Total 228,609,688
Food (2.8%)
Bestfoods 505,000 24,492,500
General Mills 315,000 25,554,375
Sara Lee 1,020,000 23,906,250
Total 73,953,125
Health care (4.0%)
American Home Products 465,000 19,297,500
Bausch & Lomb 420,000 27,693,750
Baxter Intl 360,000 21,690,000
Mylan Laboratories 715,000 13,138,125
Pharmacia & Upjohn 475,000 23,571,875
Total 105,391,250
Household products (2.0%)
Colgate-Palmolive 600,000 27,450,000
Kimberly-Clark 495,000 25,987,500
Total 53,437,500
Industrial equipment & services (3.1%)
Caterpillar 200,000 10,962,500
Illinois Tool Works 490,000 36,535,625
Parker-Hannifin 750,000 33,609,375
Total 81,107,500
Insurance (6.6%)
American General 845,000 53,393,438
American Intl Group 781,250 67,919,921
Lincoln Natl 937,665 35,221,042
Marsh & McLennan 263,500 18,049,750
Total 174,584,151
Media (2.8%)
CBS 1,136,800 52,577,000
MediaOne Group 300,000(b) 20,493,750
Total 73,070,750
Multi-industry conglomerates (0.5%)
Emerson Electric 225,000 14,217,188
Paper & packaging (3.0%)
American Natl Can Group 1,400,000(b) 22,137,500
Intl Paper 1,160,000 55,752,500
Total 77,890,000
Retail (4.9%)
Circuit City Stores 1,280,100 54,004,218
CVS 705,000 28,772,813
Dayton Hudson 775,000 46,548,438
Total 129,325,469
Transportation (0.4%)
Teekay Shipping 750,000 11,718,750
Utilities -- electric (4.3%)
Carolina Power & Light 305,000 10,789,375
CMS Energy 450,000 15,271,875
Duke Energy 346,100 19,078,762
Edison Intl 655,000 15,924,687
New Century Energies 425,000 14,210,938
NiSource 500,000 11,062,500
Northern States Power 655,000 14,123,438
Texas Utilities 350,000 13,059,375
Total 113,520,950
Utilities -- gas (0.6%)
El Paso Energy 380,000 15,128,750
Utilities -- telephone (10.8%)
ALLTEL 100,000 7,037,500
Ameritech 775,000 52,070,312
AT&T 1,365,000 59,377,499
Bell Atlantic 615,000 41,397,187
BellSouth 755,000 33,975,000
GTE 189,600 14,575,500
MCI WorldCom 536,000(b) 38,525,000
SBC Communications 365,000 18,637,813
U S WEST Communications Group 375,000 21,398,438
Total 286,994,249
Total common stocks
(Cost: $2,354,502,486) $2,459,602,199
Preferred stocks (2.1%)
Issuer Shares Value(a)
Cox Communications
7.00% Cm Cv 300,000 $17,325,000
Union Pacific Capital
6.25% Cv 811,500 36,821,813
Total preferred stocks
(Cost: $54,844,779) $54,146,813
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond (0.7%)
Issuer Coupon Principal Value(a)
rate amount
Waste Management
Cv Sub Nts
<S> <C> <C> <C>
02-01-02 4.00% $21,000,000 $18,617,130
Total bond
(Cost: $21,944,946) $18,617,130
Short-term securities (4.7%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.6%)
Federal Home Loan Bank Disc Nt
10-08-99 5.11% $10,400,000 $10,387,826
Federal Home Loan Mtge Corp Disc Nts
10-18-99 5.20 8,000,000 7,979,240
10-21-99 5.24 7,700,000 7,676,554
11-08-99 5.28 2,700,000 2,684,644
11-30-99 5.29 11,800,000 11,691,829
Federal Natl Mtge Assn Disc Nt
10-01-99 5.20 2,000,000 1,999,711
Total 42,419,804
Commercial paper (3.1%)
Alcoa
10-13-99 5.30 5,000,000 4,990,448
10-28-99 5.31 4,100,000 4,083,130
11-12-99 5.35 7,200,000 7,151,860
Ameritech Capital Funding
10-01-99 5.60 7,500,000(e) 7,498,833
Barclay's U.S. Funding
10-26-99 5.32 1,900,000 1,892,727
BellSouth Telecommunications
10-21-99 5.32 1,100,000 1,096,599
Daimler/Chrylser
10-29-99 5.32 8,000,000 7,965,844
Hewlett-Packard
11-01-99 5.30 6,900,000 6,867,615
11-24-99 5.32 5,900,000 5,851,235
Merrill Lynch
10-20-99 5.30 2,400,000 2,392,960
Pfizer
10-19-99 5.29 8,400,000(e) 8,376,591
Procter & Gamble
10-19-99 5.29 5,700,000 5,684,116
Salomon Smith Barney
10-05-99 5.18 5,700,000 5,695,828
United Parcel Services
11-03-99 5.32 10,600,000 10,547,040
Wal-Mart Stores
10-26-99 5.31 1,800,000(e) 1,793,123
Total 81,887,949
Total short-term securities
(Cost: $124,333,531) $124,307,753
Total investments in securities
(Cost: $2,555,625,742)(f) $2,656,673,895
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, 1999,
the value of foreign securities represented 2.38% of net assets.
(d) Security is partially or fully on loan. See Note 4 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) At Sept. 30, 1999, the cost of securities for federal income tax purposes
was $2,556,017,758 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $272,794,658
Unrealized depreciation (172,138,521)
------------
Net unrealized appreciation $100,656,137
<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, 1999, 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, 1999. 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. Our procedures included
confirmation of securities owned as of September 30, 1999, by correspondence
with the custodian and brokers. 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 as of
September 30, 1999, 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 LLP
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
Financial Statements
Statement of assets and liabilities
Total Return Portfolio
Sept. 30, 1999
Assets
Investments in securities, at value (Note 1)
(identified cost $2,220,588,850) $2,270,471,242
Dividends and accrued interest receivable 14,704,607
Receivable for investment securities sold 17,185,093
----------
Total assets 2,302,360,942
-------------
Liabilities
Disbursements in excess of cash on demand deposit 9,635,043
Payable for investment securities purchased 17,653,223
Payable upon return of securities loaned (Note 4) 2,024,000
Accrued investment management services fee 30,910
Other accrued expenses 205,014
-------
Total liabilities 29,548,190
----------
Net assets $2,272,812,752
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Total Return Portfolio
Year ended Sept. 30, 1999
Investment income
Income:
<S> <C>
Dividends $ 17,438,696
Interest 77,490,290
Less foreign taxes withheld (108,605)
--------
Total income 94,820,381
----------
Expenses (Note 2):
Investment management services fee 11,143,597
Compensation of board members 15,312
Custodian fees 416,158
Audit fees 30,000
Other 91,981
------
Total expenses 11,697,048
Earnings credits on cash balances (Note 2) (9,627)
------
Total net expenses 11,687,421
----------
Investment income (loss) -- net 83,132,960
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss):
Security transactions (including $13,090,861 realized loss on investments
of affiliated issuers) (Note 3) 151,744,843
Financial futures contracts 13,105,951
Foreign currency transactions (2,322,376)
Options contracts written (Note 5) (13,940,329)
-----------
Net realized gain (loss) on investments 148,588,089
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 152,366,575
-----------
Net gain (loss) on investments and foreign currencies 300,954,664
-----------
Net increase (decrease) in net assets resulting from operations $384,087,624
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Total Return Portfolio
Year ended Sept. 30, 1999 1998
Operations
<S> <C> <C>
Investment income (loss) -- net $ 83,132,960 $ 101,362,151
Net realized gain (loss) on investments 148,588,089 266,111,907
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 152,366,575 (447,531,928)
----------- ------------
Net increase (decrease) in net assets resulting from operations 384,087,624 (80,057,870)
Net contributions (withdrawals) from partners (691,086,627) (339,337,021)
------------ ------------
Total increase (decrease) in net assets (306,999,003) (419,394,891)
Net assets at beginning of year 2,579,811,755 2,999,206,646
------------- -------------
Net assets at end of year $2,272,812,752 $2,579,811,755
============== ==============
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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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. 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 its contract obligations.
Illiquid securities
As of Sept. 30, 1999, investments in securities included issues that are
illiquid which the Portfolio currently limits to 10% of net assets, at market
value, at the time of purchase. The aggregate value of such securities as of
Sept. 30, 1999 was $3,720,938 representing 0.16% of net assets. According to
board guidelines, 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. As a "pass-through" entity, the Portfolio therefore
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 an Investment Management Services
Agreement with American Express Financial Corporation (AEFC) to manage 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 AXP 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 $1,498,682 for the year ended Sept. 30, 1999.
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, 1999, the Portfolio's custodian fees were
reduced by $9,627 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,884,962,231 and $2,358,137,249, respectively, for the
year ended Sept. 30, 1999. For the same period, the portfolio turnover rate was
81%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $84,089 for the
year ended Sept. 30, 1999.
4. LENDING OF PORTFOLIO SECURITIES
As of Sept. 30, 1999, securities valued at $1,984,220 were on loan to brokers.
For collateral, the Portfolio received $2,024,000 in cash. Income from
securities lending amounted to $190,165 for the year ended Sept. 30, 1999. 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
Contracts and premium amounts associated with options contracts written are as
follows:
Year ended Sept. 30, 1999
Puts
Contracts Premium
Balance Sept. 30, 1998 1,750 $ 6,263,389
Closed (1,750) (6,263,389)
------ ----------
Balance Sept. 30, 1999 -- $ --
See "Summary of significant accounting policies."
6. STOCK INDEX FUTURES CONTRACTS
As of Sept. 30, 1999, investments in securities included securities valued at
$11,623,222 that were pledged as collateral to cover initial margin deposits on
159 open purchase contracts. The market value of the open purchase contracts as
of Sept. 30, 1999 was $51,603,450 with a net unrealized gain of $2,584,704. See
"Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Total Return Portfolio
Sept. 30, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (59.1%)(k)
Issuer Shares Value(a)
Aerospace & defense (0.6%)
<S> <C> <C>
Alliant Techsystems 14,600(b) $1,011,963
AlliedSignal 157,100 9,416,181
Goodrich (BF) 85,800 2,488,200
Total 12,916,344
Airlines (0.3%)
America West Holdings Cl B 42,000(b) 727,125
Amtran 27,300(b) 511,875
SkyWest 41,300 906,019
Southwest Airlines 246,375 3,741,820
Total 5,886,839
Automotive & related (2.2%)
Dana 197,100 7,317,338
Delphi Automotive Systems 193,374 3,106,070
DollarThrifty Automotive Group 24,350(b) 503,741
Ford Motor 363,300 18,233,118
General Motors 216,800 13,644,850
Gentex 80,800(b) 1,669,025
Myers Inds 47,840 849,160
Smith (AO) 42,700 1,291,675
Tower Automotive 73,700(b) 1,460,181
Winnebago Inds 42,900 1,026,919
Total 49,102,077
Banks and savings & loans (4.0%)
Advest Group 31,100 567,575
Anchor Bancorp Wisconsin 33,400 542,750
Bank of America 416,065 23,169,619
Bank of New York 217,100 7,259,281
BankBoston 196,700 8,531,863
Cullen/Frost Bankers 64,700 1,617,500
Dime Community Bancshares 30,400 630,800
FirstMerit 63,800 1,618,925
Flagstar Bancorp 47,400 728,775
Fleet Boston 345,500 12,653,937
Hamilton Bancorp 27,300(b) 580,125
Hudson United Bancorp 13,700 422,131
MAF Bancorp 29,700 590,288
Mellon Bank 38,300 1,292,625
NBT Bancorp 19,700 341,056
Provident Bankshares 17,235 366,782
Queens County Bancorp 34,200 944,775
Republic Bancorp 53,100 613,969
Southwest Bancorp of Texas 27,300(b) 476,044
U.S. Trust 20,300 1,631,613
Wachovia 83,800 6,588,775
Washington Mutual 226,100 6,613,425
Webster Financial 41,400 1,055,700
Wells Fargo 270,300 10,710,638
Wilshire Financial Services Group 411,726(b) 501,791
Total 90,050,762
Beverages & tobacco (0.8%)
Anheuser-Busch 32,600 2,284,038
Beringer Wine Estates Holdings Cl B 21,500(b) 882,844
Canandaigua Wine Cl A 31,400(b) 1,876,150
Coca-Cola 264,100 12,693,306
Total 17,736,338
Building materials & construction (0.4%)
Dycom Inds 28,200(b) 1,189,688
Florida Rock Inds 28,600 993,850
Granite Construction 25,800 672,413
Horton (DR) 89,600 1,159,200
Insituform Technologies Cl A 62,300(b) 1,557,499
NCI Building Systems 32,400(b) 536,625
Pulte 29,400 639,450
Ryland Group 43,100 980,525
TJ Intl 33,100 831,638
URS 32,800 803,600
Total 9,364,488
Chemicals (0.6%)
Air Products & Chemicals 54,400 1,581,000
Dow Chemical 58,400 6,635,700
Geon 33,700 867,775
MacDermid 15,100 514,344
Spartech 30,100 882,306
Waste Management 176,665 3,400,801
Total 13,881,926
Communications equipment & services (1.8%)
CommScope 60,300(b) 1,959,750
Digital Microwave 72,100(b) 1,131,069
Lucent Technologies 339,200 22,005,600
Motorola 109,900 9,671,200
Oak Inds 31,700 1,077,800
Orbital Sciences 22,800(b) 399,000
Plantronics 11,300(b) 562,175
SymmetriCom 96,400(b) 723,000
Tellabs 40,800(b) 2,323,050
Total 39,852,644
Computers & office equipment (11.0%)
3Com 75,600(b) 2,173,500
Acxiom 25,300(b) 497,303
America Online 144,875(b) 15,066,999
American Management Systems 60,600(b) 1,554,769
Apple Computer 65,000(b) 4,115,313
BISYS Group 14,300(b) 670,759
Cisco Systems 372,200(b) 25,518,962
Cognex 41,400(b) 1,249,763
Computer Sciences 167,500(b) 11,777,344
Dell Computer 138,000(b) 5,770,125
Dendrite Intl 31,000(b) 1,464,750
Electronic Data Systems 254,700 13,483,180
EMC 160,800(b) 11,487,150
FactSet Research Systems 23,800 1,353,625
First Data 287,900 12,631,613
Hadco 38,100(b) 1,647,825
Henry (Jack) & Associates 32,600 1,204,163
Hewlett-Packard 105,600 9,715,200
Insight Enterprises 15,800(b) 513,500
Intl Business Machines 332,700 40,381,462
Kronos 21,100(b) 774,106
Lexmark Intl Group Cl A 58,000(b) 4,669,000
Macromedia 48,500(b) 1,982,438
MedQuist 34,800(b) 1,163,625
Mercury Interactive 35,200(b) 2,272,600
Microsoft 459,200(b) 41,586,299
Natl Computer Systems 20,200 774,544
New Era of Networks 23,700(b) 512,513
Novell 99,800(b) 2,064,613
Oracle 98,800(b) 4,495,400
Pitney Bowes 28,700 1,748,906
Profit Recovery Group Intl 63,150(b) 2,818,069
Solectron 63,000(b) 4,524,188
Unisys 385,700(b) 17,404,712
Whittman-Hart 34,700(b) 1,345,709
Xircom 29,800(b) 1,272,088
Total 251,686,115
Electronics (3.1%)
Actel 39,600(b) 752,400
AFC Cable Systems 19,200(b) 816,000
Alpha Inds 25,200(b) 1,421,438
Anixter Intl 68,950(b) 1,603,088
Applied Materials 46,500(b) 3,621,188
Burr-Brown 23,500(b) 928,250
C-Cube Microsystems 24,300(b) 1,057,050
Corning 85,170 5,839,467
CTS 31,900 1,834,250
Dionex 27,600(b) 1,179,900
DSP Communications 11,300(b) 214,700
Electro Scientific Inds 22,300(b) 1,188,172
Etec Systems 15,300(b) 575,663
Helix Technology 41,200 1,369,900
Intel 217,100 16,133,243
Intl Rectifier 82,800(b) 1,262,700
KLA-Tencor 57,300(b) 3,724,499
Kulicke & Soffa Inds 41,300(b) 1,004,106
Lattice Semiconductor 56,500(b) 1,677,344
LSI Logic 67,900(b) 3,496,850
Micrel 29,100(b) 1,262,213
Natl Semiconductor 114,700(b) 3,498,350
Novellus Systems 15,000(b) 1,011,563
Park Electrochemical 41,100 1,351,163
Power Integrations 12,800(b) 886,400
Powerwave Technologies 33,500(b) 1,615,328
S3 87,200(b) 910,150
Texas Instruments 108,600 8,932,349
Varian Medical Systems 50,100 1,095,938
Total 70,263,662
Energy (3.6%)
Barrett Resources 43,400(b) 1,603,088
Chevron 300,100 26,633,874
Exxon 94,800 7,198,875
FirstEnergy 65,800 1,677,900
Forest Oil 53,100(b) 906,019
HS Resources 26,100(b) 427,388
Mobil 250,900 25,278,174
Sunoco 61,200 1,675,350
Texaco 243,900 15,396,188
Total 80,796,856
Energy equipment & services (0.1%)
Marine Drilling 44,000(b) 695,750
Pride Intl 97,900(b) 1,388,957
Tuboscope 61,500(b) 764,906
Total 2,849,613
Financial services (3.4%)
Associates First Capital Cl A 85,300 3,070,800
Capital One Financial 149,300 5,822,700
Citigroup 263,000 11,572,000
Delphi Financial Group Cl A 26,976(b) 814,338
Financial Federal 50,000(b) 943,750
Hambrecht & Quist Group 36,700(b) 1,796,006
Investment Technology Group 28,600 597,025
Kansas City Southern Inds 169,600 7,875,800
Legg Mason 25,200 965,475
Lehman Brothers Holdings 121,500 7,084,969
MBNA 364,500 8,315,156
Merrill Lynch & Co 92,400 6,208,125
Morgan Stanley, Dean Witter, Discover & Co 108,900 9,712,519
Mutual Risk Management 40,700 498,575
Providian Financial 123,600 9,787,575
Radian Group 37,300 1,601,569
Raymond James Financial 26,500 528,344
SEI Investments 11,500 1,026,734
Total 78,221,460
Food (2.1%)
Bestfoods 176,000 8,536,000
Corn Products Intl 40,100 1,220,544
Earthgrains 54,700 1,210,238
General Mills 263,800 21,400,774
Performance Food Group 29,600(b) 758,500
Sara Lee 310,900 7,286,719
Smithfield Foods 45,200(b) 1,209,100
SUPERVALU 228,000 4,973,250
Total 46,595,125
Furniture & appliances (0.2%)
Briggs & Stratton 14,800 863,950
Ethan Allen Interiors 42,800 1,361,575
La-Z-Boy 62,900(h) 1,199,031
Total 3,424,556
Health care (5.0%)
Alpharma Cl A 44,600 1,574,938
American Home Products 175,730 7,292,795
Amgen 98,800(b) 8,052,200
Bausch & Lomb 39,900 2,630,906
Baxter Intl 67,800 4,084,950
Bristol-Myers Squibb 652,200 44,023,499
Guidant 159,900 8,574,638
IDEC Pharmaceuticals 14,300(b) 1,344,647
Jones Pharma 52,900 1,744,047
Liposome 63,400(b) 482,434
Medtronic 356,400 12,652,200
Priority Healthcare Cl B 45,950(b) 1,418,706
Quest Diagnostics 47,500(b) 1,235,000
Roberts Pharmaceutical 48,300(b) 1,461,075
Schering-Plough 416,230 18,158,033
Summit Technology 22,300(b) 408,369
Syncor Intl 22,000(b) 825,000
Techne 27,500(b) 862,813
Total 116,826,250
Health care services (0.5%)
Apria Healthcare Group 71,550(b) 1,198,463
Cardinal Health 80,400 4,381,799
Express Scripts Cl A 21,850(b) 1,709,763
Hanger Orthopedic Group 87,700(b) 1,271,650
Orthodontic Centers of America 33,250(b) 581,875
Patterson Dental 29,200(b) 1,447,225
Renal Care Group 58,500(b) 1,281,516
Total 11,872,291
Household products (0.6%)
Chattem 9,600 211,800
Kimberly-Clark 276,900 14,537,250
Total 14,749,050
Industrial equipment & services (0.3%)
Astec Inds 29,600(b) 714,100
JLG Inds 43,800 665,213
Manitowoc 33,600 1,146,600
Nordson 14,000 686,000
Parker-Hannifin 75,600 3,387,825
Total 6,599,738
Insurance (1.2%)
American General 84,800 5,358,300
American Intl Group 195,437 16,990,804
Blanch (EW) Holdings 14,600 950,825
Fidelity Natl Financial 22,000 334,125
First American Financial 34,600 462,775
Gallagher (Arthur J) 29,100 1,549,575
Hooper Holmes 35,000 896,875
LandAmerica Financial Group 17,500 345,625
Reinsurance Group of America 22,400 575,400
Total 27,464,304
Leisure time & entertainment (1.0%)
Aztar 150,300(b) 1,540,575
Disney (Walt) 355,000 9,185,625
Harrah's Entertainment 149,300(b) 4,143,075
Hasbro 119,750 2,567,141
Time Warner 61,100 3,711,825
Viacom Cl B 42,200(b) 1,782,950
Total 22,931,191
Media (1.4%)
Catalina Marketing 11,600(b) 983,825
CBS 155,000 7,168,750
Comcast Special Cl A 217,600 8,676,800
Consolidated Graphics 24,600(b) 1,036,275
McClatchy Newspapers 22,000 786,500
New York Times Cl A 238,400 8,940,001
Price Communications 44,100(b) 1,105,256
Scholastic 13,400(b) 670,000
True North Communications 24,200 880,275
Valassis Communications 34,700(b) 1,524,631
Total 31,772,313
Metals (0.2%)
Mueller Inds 43,700(b) 1,297,343
Ryerson Tull 46,000 1,063,750
Steel Technologies 88,200 1,025,325
Stillwater Mining 21,900(b) 588,563
Total 3,974,981
Miscellaneous (0.1%)
PFF Bancorp 39,200 808,500
Philadelphia Suburban 29,700 699,806
Total 1,508,306
Multi-industry conglomerates (3.2%)
Bell & Howell 26,700(b) 979,556
Brady (WH) Cl A 33,500 1,072,000
Danaher 55,400 2,918,888
DeVry 29,200(b) 584,000
General Electric 327,400 38,817,362
Interim Services 40,600(b) 664,825
Labor Ready 3,650(b) 36,728
Lason 30,900(b) 1,376,016
Mettler-Toledo Intl 32,900(b) 974,663
NCO Group 22,450(b) 1,055,150
Pre-Paid Legal Services 16,800(b) 661,500
Sylvan Learning Systems 26,300(b) 509,563
Tyco Intl 227,200(c) 23,458,399
Total 73,108,650
Paper & packaging (0.9%)
AptarGroup 42,800 1,144,900
Ball 11,400 502,313
Intl Paper 369,000 17,735,062
Total 19,382,275
Restaurants & lodging (0.5%)
CEC Entertainment 38,100(b) 1,366,838
Darden Restaurants 189,300 3,703,181
Foodmaker 48,800(b) 1,216,950
Ruby Tuesday 57,300 1,117,350
Ryan's Family Steak Houses 99,900(b) 899,100
Taco Cabana Cl A 122,300(b) 1,184,781
Wendy's Intl 82,000 2,162,750
Total 11,650,950
Retail (4.3%)
Ames Dept Stores 26,600(b) 847,875
AnnTaylor Stores 44,100(b) 1,802,588
Bindley Western Inds 116,266 1,664,057
Circuit City Stores-Circuit City Group 59,000 2,489,063
Cost Plus 17,100(b) 829,350
CVS 259,300 10,582,680
Dayton Hudson 41,400 2,486,588
Fossil 63,400(b) 1,715,763
Haverty Furniture Companies 57,900 839,550
Home Depot 156,800 10,760,399
Kroger 403,900(b) 8,911,043
Linens `N Things 35,500(b) 1,198,125
Men's Wearhouse 73,800(b) 1,586,700
Pacific Sunwear of California 38,450(b) 1,077,802
Regis 50,950 980,788
Safeway 356,200(b) 13,557,862
ShopKo Stores 62,300 1,806,700
TJX Companies 146,300 4,105,543
United Stationers 31,900 679,869
Wal-Mart Stores 533,400 25,369,837
Walgreen 117,600 2,984,100
Zale 52,200(b) 1,999,913
Total 98,276,195
Textiles & apparel (0.2%)
Authentic Fitness 51,600 906,225
Brown Shoe 70,100 1,283,706
Dixie Group 97,400(b) 754,850
K-Swiss Cl A 31,700 1,000,531
Oshkosh B'Gosh Cl A 52,900 844,747
Total 4,790,059
Transportation (0.2%)
Atlas Air 30,150(b) 659,531
Expeditors Intl of Washington 14,600 468,569
Landstar System 28,200(b) 979,950
Offshore Logistics 70,000 721,875
USFreightways 35,800 1,696,025
Werner Enterprises 53,800 948,225
Total 5,474,175
Utilities -- electric (0.9%)
Cinergy 74,100 2,097,956
Cleco 22,700 736,331
DTE Energy 83,700 3,023,663
Edison Intl 103,000 2,504,188
El Paso Electric 98,200 883,800
PECO Energy 116,200 4,357,500
Public Service Co of New Mexico 48,800 890,600
TNP Enterprises 28,300 1,101,931
Unicom 130,700 4,827,731
United Illuminating 22,400 1,083,600
Total 21,507,300
Utilities -- gas (0.2%)
Equitable Resources 24,800 937,750
New Jersey Resources 15,600 624,000
ONEOK 24,900 754,781
Piedmont Natural Gas 20,100 609,281
Southwestern Energy 84,600 766,688
UGI 27,800 646,350
Total 4,338,850
Utilities -- telephone (4.1%)
Ameritech 215,100 14,452,031
AT&T 437,150 19,016,026
Bell Atlantic 234,900 15,811,706
BellSouth 237,600 10,692,000
MCI WorldCom 261,175(b) 18,771,953
SBC Communications 206,400 10,539,300
U S WEST Communications Group 71,200 4,062,850
Total 93,345,866
Total common stocks
(Cost: $1,243,769,857) $1,342,201,549
Preferred stocks & other (0.2%)
Issuer Shares Value(a)
Bar Technologies
Warrants 3,000 $60,000
Bell Technology
Warrants 3,410 443,300
KMC Telecom Holdings
Warrants 3,000 7,500
Nakornthai Strip Mill
Warrants 2,722,298 3
Paxson Communications
12.50% Pay-in-kind Exchangeable 26,881(b,i) 2,876,267
PLD Telekom
Warrants 6,000 300
Poland Telecom
Warrants 5,500 302,500
Republic of Argentina
Warrants 4,500(c) 1,125
Telehub Communications
Warrants 2,500 25,000
Unifi Communications
Warrants 3,000 30
Total preferred stocks & other
(Cost: $3,228,971) $3,716,025
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (28.1%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (5.6%)
Republic of Panama
(U.S. Dollar)
<S> <C> <C> <C>
02-13-02 7.88% $1,000,000(c,d) $973,750
U.S. Treasury
11-30-99 5.63 3,500,000 3,504,354
04-30-00 6.75 32,000,000(l) 32,269,503
06-30-02 6.25 8,000,000(l) 8,109,566
03-31-03 5.50 1,500,000 1,486,402
08-15-04 7.25 20,000,000 21,135,666
08-15-05 6.50 12,500,000 12,804,386
05-15-07 6.63 12,500,000 12,894,166
08-15-23 6.25 9,700,000 9,548,971
08-15-27 6.38 20,000,000 20,037,038
United Mexican States
(U.S. Dollar)
03-12-08 8.63 4,000,000(c) 3,722,520
Total 126,486,322
Mortgage-backed securities (3.3%)
Federal Home Loan Mtge Corp
03-01-13 5.50 9,621,602 9,074,935
12-01-25 7.50 12,332,884 12,398,373
07-01-28 6.00 9,502,230 8,863,775
09-01-28 6.00 9,470,245 8,839,729
Federal Natl Mtge Assn
05-01-24 7.50 9,326,635 9,376,159
09-01-28 6.50 9,395,950 9,011,280
10-01-28 6.00 9,612,285 8,960,476
Collateralized Mtge Obligation
05-18-26 5.00 9,593,000 8,169,547
Total 74,694,274
Aerospace & defense (0.3%)
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,035,000 1,076,400
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 800,000 824,000
Northrop-Grumman
03-01-16 7.75 5,000,000 4,958,288
Total 6,858,688
Automotive & related (0.1%)
MSX Intl
Company Guaranty
01-15-08 11.38 2,450,000 2,388,750
Banks and savings & loans (1.0%)
Bank of Singapore
(U.S. Dollar) Sub Nts
08-10-09 7.88 4,200,000(c,d) 4,242,802
Corp Andina de Fomento
(U.S. Dollar)
02-01-03 7.10 6,500,000(c) 6,381,006
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 550,000(c,d) 491,509
Union Planters Bank
Sub Nts
03-15-18 6.50 10,000,000 9,334,766
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 1,500,000 1,467,387
Total 21,917,470
Building materials & construction (0.1%)
Southdown
Sr Sub Nts Series B
03-01-06 10.00 2,350,000 2,567,375
Chemicals (0.3%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 3,550,000 3,141,750
Polymer Group
Company Guaranty Series B
03-01-08 8.75 4,000,000 3,750,000
Total 6,891,750
Commercial finance (0.2%)
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 6,000,000(c) 5,257,500
Communications equipment & services (1.2%)
Clearnet Communications
Zero Coupon Sr Disc Nts
12-15-00 6.24 5,000,000(g) 4,712,500
Covad Communications Group
Sr Nts
02-15-09 12.50 2,000,000 1,890,000
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-03 12.68 3,000,000(g) 1,620,000
MetroMedia Intl Group
(U.S. Dollar) Company Guaranty
06-01-04 14.00 3,000,000(c) 2,220,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 1,000,000 910,000
NTL Communications
Zero Coupon Sr Nts Series B
10-01-03 7.87 9,625,000(g) 6,424,688
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 2,500,000(g) 1,175,000
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 5,500,000(c) 5,568,750
WorldCom
04-01-07 7.75 3,000,000 3,124,071
Total 27,645,009
Computers & office equipment (0.4%)
Concentric Network
Sr Nts
12-15-07 12.75 3,800,000 3,828,500
Globix
Sr Nts
05-01-05 13.00 3,410,000 3,000,800
PSINet
Sr Nts Series B
02-15-05 10.00 2,005,000 1,924,800
Total 8,754,100
Electronics (0.3%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 4,500,000(c,d) 3,526,983
Thomas & Betts
01-15-06 6.50 4,500,000 4,364,496
Total 7,891,479
Energy (1.2%)
Lodestar Holdings
Company Guaranty
05-15-05 11.50 5,000,000 3,750,000
R & B Falcon
04-15-08 6.95 5,000,000 4,150,000
Roil
(U.S. Dollar)
12-05-02 12.78 3,296,000(c,d) 2,406,080
Union Pacific Resources
05-15-28 7.15 7,500,000 6,687,481
USX
03-01-08 6.85 10,000,000 9,563,201
Total 26,556,762
Energy equipment & services (0.1%)
Grey Wolf
Sr Nts
07-01-07 8.88 1,500,000 1,338,750
Financial services (1.0%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 2,750,000(c) 2,634,583
Arcadia Financial
Sr Nts
03-15-07 11.50 1,825,000 1,396,125
Providian Natl Bank
Sr Nts
03-15-03 6.70 10,000,000 9,719,350
SASCO
02-25-28 6.76 2,174,363 2,170,644
Wilmington Trust
05-01-08 6.63 6,300,000 5,982,175
Total 21,902,877
Food (0.1%)
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 2,115,000(c,d) 1,417,050
Furniture & appliances (0.1%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 2,500,000 2,506,250
Health care (0.6%)
Baxter Intl
02-15-28 6.63 10,000,000 8,756,138
Lilly (Eli)
01-01-36 6.77 5,000,000 4,669,219
Total 13,425,357
Health care services (1.2%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 250,000 242,500
Fountain View
Company Guaranty Series B
04-15-08 11.25 2,150,000 1,687,750
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,500,000 2,143,750
Manor Care
Sr Nts
06-15-06 7.50 7,000,000 6,973,472
Owens & Minor
Company Guaranty Sr Sub Nts
06-01-06 10.88 3,200,000 3,344,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,125,000(d) 1,116,563
Service Corp Intl
03-15-20 6.30 11,850,000 11,222,537
Total 26,730,572
Household products (0.3%)
Chattem
Company Guaranty Series B
04-01-08 8.88 2,200,000 2,073,500
Revlon Consumer Products
Sr Nts
02-01-06 8.13 5,000,000 4,512,500
Total 6,586,000
Industrial equipment & services (--%)
AGCO
Sr Sub Nts
03-15-06 8.50 1,025,000 963,500
Insurance (0.7%)
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 1,500,000 1,506,730
Metropolitan Life Insurance
11-01-25 7.80 4,800,000(d) 4,756,267
Minnesota Mutual Life
09-15-25 8.25 4,500,000(d) 4,775,818
Nationwide CSN Trust
02-15-25 9.88 5,000,000(d) 5,432,891
Total 16,471,706
Leisure time & entertainment (1.4%)
Loews Cineplex Entertainment
Sr Sub Nts
08-01-08 8.88 4,500,000 4,050,000
Mirage Resorts
02-01-08 6.75 8,750,000 7,827,400
Speedway Motorsports
Company Guaranty Series D
08-15-07 8.50 2,000,000 1,985,000
Time Warner
02-01-24 7.57 11,875,000 11,564,727
Sr Nts
01-15-28 6.95 5,000,000 4,522,143
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 3,465,000(h) 2,841,300
Total 32,790,570
Media (1.0%)
Australis Media
(U.S. Dollar)
11-01-00 14.00 145,084(b,c) 127,315
05-15-03 15.75 40,885(b,c) 204
(U.S. Dollar) Zero Coupon
05-15-00 15.75 5,000,000(b,c,g) 500
CSC Holdings
Sr Sub Debs
05-15-16 10.50 3,000,000 3,330,000
Heritage Media
Sr Sub Nts
02-15-06 8.75 5,000,000 5,112,499
Lamar Media
Company Guaranty
12-01-06 9.63 800,000 808,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,000,000(c) 1,017,500
News America Holdings
10-15-12 10.13 2,175,000 2,422,982
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 4,000,000(c) 4,000,000
TCI Communications
08-01-15 8.75 1,700,000 1,911,597
Sr Nts
02-15-28 7.13 1,400,000 1,323,980
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 2,480,625(c,i,j) 3,720,938
Total 23,775,515
Metals (0.2%)
EnviroSource
Sr Nts
06-15-03 9.75 530,000 329,925
Sr Nts Series B
06-15-03 9.75 1,300,000 809,250
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 2,384,244(c,d) 2,265,032
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 1,000,000(c) 872,429
Total 4,276,636
Miscellaneous (1.2%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 3,900,000 4,017,000
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 5,000,000 5,000,000
Delphes 2
(U.S. Dollar)
05-05-09 7.75 2,700,000(c,d) 2,565,000
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 4,305,044
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c) 2,212,500
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 2,200,000(b,c,d) 550,000
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000 1,127,000
NSM Steel
Company Guaranty
02-01-06 12.00 2,070,039(b,d) 434,708
02-01-08 12.25 4,300,000(b,d) 86,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,075,000 1,045,438
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 5,500,000(c) 4,510,000
PTC Intl Finance
(U.S. Dollar) Zero Coupon Company Guaranty
07-01-02 10.75 1,000,000(c,g) 690,000
Republic Technology/RTI Capital
07-15-09 13.75 750,000 738,750
Transamerica Energy
06-15-02 11.50 600,000(b) 63,000
Zero Coupon
06-15-02 13.00 1,300,000(b,f) 139,750
Total 27,484,190
Multi-industry conglomerates (0.5%)
Hutchison Whampoa Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 1,650,000(c,d) 1,389,726
(U.S. Dollar) Company Guaranty Series B
08-01-17 7.45 1,000,000(c,d) 862,669
Packaged Ice
Company Guaranty Series B
02-01-05 9.75 5,475,000 4,831,687
Pierce Leahy
Sr Sub Nts
07-15-06 11.13 488,000 518,500
Prime Succession
Sr Sub Nts
08-15-04 10.75 980,000 705,600
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,000,000 2,924,736
Total 11,232,918
Paper & packaging (0.7%)
Doman Inds
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 2,300,000(c) 1,552,500
Gaylord Container
Sr Nts
06-15-07 9.75 1,300,000 1,218,750
Sr Nts Series B
06-15-07 9.38 9,000,000 8,347,500
Owens-Illinois
Sr Nts
05-15-04 7.85 2,000,000 1,977,044
Silgan Holdings
06-01-09 9.00 2,050,000 1,988,500
Total 15,084,294
Restaurants & lodging (0.7%)
Domino's
Company Guaranty Series B
01-15-09 10.38 3,275,000 3,078,500
Extended Stay America
Sr Sub Nts
03-15-08 9.15 4,750,000 4,512,500
MGM Grand
02-06-08 6.88 10,000,000 8,867,090
Total 16,458,090
Retail (1.2%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 2,275,000(g) 1,541,313
Dayton Hudson
12-01-22 8.50 2,500,000 2,612,725
Great Atlantic & Pacific Tea
04-15-07 7.75 10,000,000 9,383,467
Kroger
Sr Nts
07-15-06 8.15 5,000,000 5,155,968
Wal-Mart CRAVE Trust
07-17-06 7.00 7,735,465(d) 7,663,834
Total 26,357,307
Transportation (0.6%)
Enterprise Rent-A-Car USA Finance
02-15-08 6.80 10,000,000(d) 9,387,000
Company Guaranty Medium-term Nts
01-15-06 6.95 3,000,000(d) 2,880,573
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 1,000,000(c) 490,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 2,070,000(c,d) 1,035,000
Total 13,792,573
Utilities -- electric (0.8%)
Cleveland Electric Illuminating
07-01-00 7.19 3,000,000 3,013,520
CMS Energy
Sr Nts
05-15-02 8.13 2,900,000 2,903,285
El Paso Electric
1st Mtge Series B
05-01-01 7.75 5,000,000 5,065,604
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 7,365,000(m) 6,830,651
Total 17,813,060
Utilities -- gas (0.2%)
Columbia Gas System
Series E
11-28-10 7.32 5,043,000 4,918,947
Utilities -- telephone (1.4%)
Frontier
10-15-03 6.00 3,000,000 2,746,890
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 2,485,000(b) 3,106
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,600,000 1,404,000
06-01-08 8.60 5,000,000 4,312,500
03-01-09 9.50 3,000,000 2,790,000
McLeod USA
Sr Nts
03-15-08 8.38 2,300,000 2,144,750
AT&T Canada
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 3,800,000(c,g) 2,935,500
Omnipoint Communications
Sr Nts
08-15-06 11.63 2,500,000 2,587,500
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.25 450,000 441,000
11-01-08 7.50 4,550,000 4,508,457
U S West Capital Funding
Company Guaranty
07-15-28 6.88 9,250,000 8,149,135
Total 32,022,838
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) 3,027,870
Total bonds
(Cost: $687,272,943) $638,286,349
Short-term securities (12.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (6.6%)
Federal Home Loan Bank Disc Nts
10-22-99 5.24% $27,800,000 $27,715,673
11-05-99 5.28 10,200,000 10,144,134
12-01-99 5.25 3,200,000 3,171,287
Federal Home Loan Mtge Corp Disc Nts
10-14-99 5.24 2,400,000 2,395,485
10-15-99 5.24 2,600,000 2,594,732
11-05-99 5.26 25,000,000 24,872,882
Federal Natl Mtge Assn Disc Nts
12-02-99 5.29 24,300,000 24,069,940
12-13-99 5.29 19,000,000 18,788,709
12-17-99 5.29 11,000,000 10,871,062
12-17-99 5.31 24,600,000 24,320,175
Total 148,944,079
Commercial paper (6.0%)
Alcoa
11-12-99 5.36 6,000,000 5,960,838
Barclays U.S. Funding
10-19-99 5.31 6,300,000 6,283,337
10-25-99 5.32 6,000,000 5,978,800
BellSouth Capital Funding
11-08-99 5.33 700,000(e) 696,091
11-16-99 5.33 8,100,000(e) 8,043,179
BMW US Capital
10-21-99 5.18 8,300,000 8,275,182
Daimler/Chrysler
10-18-99 5.18 10,000,000 9,972,334
GTE Funding
10-21-99 5.34 8,500,000 8,474,830
Heinz (HJ)
10-08-99 5.31 7,900,000 7,891,874
Merrill Lynch
10-25-99 5.31 8,700,000 8,669,317
Natl Rural Utilities
11-12-99 5.35 9,200,000 9,142,899
Petrofina (Delaware)
10-27-99 5.31 8,100,000 8,069,053
Pfizer
11-02-99 5.32 3,800,000(e) 3,782,098
United Parcel Services
11-03-99 5.33 10,700,000 10,648,114
USAA Capital
10-29-99 5.31 10,000,000 9,952,130
Wal-Mart Stores
11-01-99 5.32 25,600,000(e) 25,483,164
Total 137,323,240
Total short-term securities
(Cost: $286,317,079) $286,267,319
Total investments in securities
(Cost: $2,220,588,850)(n) $2,270,471,242
See accompanying notes to investments in securities.
</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,
1999, the value of foreign securities represented 4.10% 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 4 to the financial
statements.
(i) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(j) 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, 1999, is as follows:
Security Acquisition Cost
date
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 03-05-97 thru 03-01-99 $2,480,625
(k) 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, 1999 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 Ind* $13,079,176 $10,604,176 $23,683,352 $-- $-- $--
Fomento Economico
Mexicano ADR* 10,019,149 792,894 10,812,043 -- -- --
Thai Farmers Bank* 1,670,797 293,559 1,964,356 -- -- --
Total $24,769,122 $11,690,629 $36,459,751 $-- $-- $--
*Issuer was not an affiliate for the entire year ended Sept. 30, 1999.
(l) 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
S&P 500 Index, Dec. 1999 159
(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, 1999, the cost of securities for federal income tax purposes
was $2,223,115,255 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $188,915,441
Unrealized depreciation (141,559,454)
------------
Net unrealized appreciation $47,355,987
</TABLE>
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) 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 by reference.
(a)(2) 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 are incorporated by reference.
(b) By-laws dated April 24, 1996, filed electronically as Exhibit 2 to
Registrant's Post-Effective Amendment No. 2 to Registration Statement
No. 33-63907, are incorporated by reference.
(c) Not Applicable.
(d) Not Applicable.
(e) Distribution Agreement, between Strategist Growth and Income Fund,
Inc., on behalf of Strategist Balanced Fund, Strategist Equity Fund,
Strategist Equity Income Fund and Strategist Total Return Fund and
American Express Financial Advisors, dated Oct. 1, 1999, is filed
electronically herewith.
(f) Bonus or Profit Sharing Contracts: Not Applicable.
(g)(1) Custodian Agreement, dated May 13, 1996, between Registrant and
American Express Trust Company, filed electronically as Exhibit 8(a) to
Registrant's Post-Effective Amendment No. 1 to Registration Statement
No. 33-63907, is incorporated by reference.
(g)(2) Addendum to Custodian Agreement, dated May 13, 1996, between Registrant
and American Express Trust Company, filed electronically as Exhibit
8(b) to Registrant's Post-Effective Amendment No. 1 to Registration
Statement No. 33-63907, is incorporated by reference.
(g)(3) Custodian Agreement, dated May 13, 1999, between American Express Trust
Company and The Bank of New York is incorporated by reference to
Exhibit (g)(3) to IDS Precious Metals Fund, Inc.'s Post-Effective
Amendment No. 33 to Registration Statement No. 2-93745 filed on or
about May 24, 1999.
(h)(1) Administrative Services Agreement, dated May 13, 1996, between
Registrant and American Express Financial Corporation filed
electronically as Exhibit 9(b) to Registrant's Post-Effective Amendment
No. 1 to Registration Statement No. 33-63907, is incorporated by
reference.
(h)(2) 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
by reference.
(h)(3) 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 by reference.
<PAGE>
(h)(4) 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 by reference.
(h)(5) 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
by reference.
(h)(6) Transfer Agency Agreement, between Registrant and American Express
Client Service Corporation, dated January 1, 1998, filed electronically
as Exhibit 9(a) to Registrant's Post-Effective Amendment No. 3 to
Registration Statement No. 33-63907, filed on or about Nov. 27, 1998,
is incorporated by reference.
(i) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
(j) Independent Auditors Consent, is filed electronically herewith.
(k) Omitted Financial Statements: Not Applicable.
(l) Share Purchase Agreement, dated April 16, 1996, between Registrant and
American Express Financial Corporation filed electronically as Exhibit
13 to Registrant's Pre-Effective Amendment No. 2, to Registration
Statement No. 33-63907, is incorporated by reference.
(m) Plan and Agreement of Distribution: Not Applicable.
(n) Financial Data Schedules: Not Applicable.
(o) Rule 18f-3 Plan: Not Applicable.
(p)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated April 19, 1999 filed electronically as Exhibit (p)(1)
to Registrant's Post-Effective Amendment 4 to Registration Statement
No. 33-63907, is incorporated by reference.
(p)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated April 20, 1999 filed electronically as Exhibit (p)(2)
to Registrant's Post-Effective Amendment 4 to Registration Statement
No. 33-63907, is incorporated by reference.
(p)(3) Trustees' Power of Attorney to sign Amendments to this Registration
Statement, dated January 14, 1999, filed electronically as Exhibit
(p)(3) to Registrant's Post-Effective Amendment 4 to Registration
Statement No. 33-63907, is incorporated by reference.
(p)(4) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated March 1, 1999 filed electronically as Exhibit (p)(4)
to Registrant's Post-Effective Amendment 4 to Registration Statement
No. 33-63907, is incorporated by reference.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
<PAGE>
Item 25. 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.
<TABLE>
<CAPTION>
Item 26. 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:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 and President
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 Senior Vice President
Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440
Vice President
American Express Financial Director
Advisors Japan Inc.
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
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
President and Chief Marketing
Officer
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James E. Choat, American Centurion Life IDS Tower 10 Executive Vice President
Director and Senior Vice Assurance Company Minneapolis, MN 55440
President
American Enterprise Life Director, President and
Insurance Company Chief Executive Officer
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.
IDS Life Insurance Company P.O. Box 5144 Executive Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 Financial Vice President and Chief
Advisors Japan Inc. 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.
American Express Financial Director, President and
Advisors Japan Inc. Chief Executive Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 Centurion Life Vice President
Assurance Company
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 Vice President
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 Financial Vice President and
Advisors Japan 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 Partners Life Vice President and
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
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Debra A. Hutchinson 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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
American Centurion Life Director and Chairman of
Assurance Company the Board
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 and Chairman of
of New York Albany, NY 12205 the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Knight American Express Financial IDS Tower 10 Vice President
Advisors Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Timothy J. Masek American Express Financial IDS Tower 10 Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Global Research
of Global Research
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Shashank B. Modak American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
Director and Senior Vice Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager
President
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
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stephen W. Roszell, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
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.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Theresa M. Sapp American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Director, Senior Vice Minneapolis, MN 55440
President and Chief Financial
Officer
American Enterprise Life Executive Vice President
Insurance Company
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
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 Centurion Life Vice President
Assurance Company
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
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
Vice President and General Advisors Inc. Minneapolis, MN 55440
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Keith N. Tufte American Express Financial IDS Tower 10 Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Equity Research
of Equity Research
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
American Express Financial Vice President and Chief
Advisors Japan Inc. Legal Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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>
<TABLE>
<CAPTION>
Item 27. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for the
following investment companies:
AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery
Fund, Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.;
AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth
Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International
Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP
Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP New
Dimensions Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive
Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series
Trust; AXP Stock Fund, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt
Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund,
Inc., Growth Trust; Growth and Income Trust; Income Trust; Tax-Free
Income Trust; World Trust; IDS Certificate Company; Strategist Income
Fund, Inc.; Strategist Growth Fund, Inc.; Strategist Growth and Income
Fund, Inc.; Strategist World Fund, Inc. and Strategist Tax-Free Income
Fund, Inc.
(b) As to each director, officer or partner of the principal underwriter:
<S> <C> <C>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------- ----------------------------------- -------------------------
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President-Investment Vice President-Investments
IDS Tower 10 Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American Express None
IDS Tower 10 Retirement Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President - Mutual Fund None
IDS Tower 10 Equities
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice President-Ohio/Indiana None
Suite 100
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President-Los Angeles None
Suite 900, E. Westside Twr Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Nonproprietary None
IDS Tower 10 Products
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President - San None
1333 N. California Blvd., Suite 200 Francisco Area
Walnut Creek, CA 94596
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Corporate Senior Vice President None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice President - Third None
IDS Tower 10 Party Distribution
Minneapolis, MN 55440
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President-Advisor Staffing, None
IDS Tower 10 Training and Support
Minneapolis, MN 55440
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas/ None
Suite 200 Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
Colleen Curran Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Arthur E. Delorenzo Group Vice President - Upstate None
4 Atrium Drive, #100 New York
Albany, NY 12205
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Douglas K. Dunning Vice President-Assured Assets None
IDS Tower 10 Product Development and Management
Minneapolis, MN 55440
James P. Egge Group Vice President-Western None
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Phillip W. Evans Group Vice President-Rocky None
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President-Mutual Fund Equity None
IDS Tower 10 Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President - International None
IDS Tower 10
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Gateway None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
Peter A. Gallus Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Senior Vice President-Field None
Suites 6&7 Management
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston Metro None
Two Constitution Plaza
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
Brian M. Heath Senior Vice President and General None
Suite 150 Sales Manager
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President-Incentive None
IDS Tower 10 Management
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Tennessee None
30 Burton Hills Blvd. Valley
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Debra A. Hutchinson Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
James M. Jensen Vice President and None
IDS Tower 10 Controller-Advice and Retail
Minneapolis, MN 55440 Distribution Group
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President-Business None
IDS Tower 10 Development
Minneapolis, MN 55440
Ora J. Kaine Vice President-Financial Advisory None
IDS Tower 10 Services
Minneapolis, MN 55440
Linda B. Keene Vice President-Market Development None
IDS Tower 10
Minneapolis, MN 55440
G. Michael Kennedy Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Richard W. Kling Senior Vice President-Products None
IDS Tower 10
Minneapolis, MN 55440
John M. Knight Vice President-Investment Treasurer
IDS Tower 10 Accounting
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Direct and Interactive
Minneapolis, MN 55440 Group
Mitre Kutanovski Group Vice President-Chicago Metro None
Suite 680
8585 Broadway
Merrillville, IN 48410
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President-Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
<PAGE>
Fred A. Mandell Vice President-Field Marketing None
IDS Tower 10 Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Timothy J. Masek Vice President and Director of None
IDS Tower 10 Global Research
Minnapolis, MN 55440
Sarah A. Mealey Vice President-Mutual Funds None
IDS Tower 10
Minneapolis, MN 55440
Paula R. Meyer Vice President-Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
Shashank B. Modak Vice President - Technology Leader None
IDS Tower 10
Minneapolis, MN 55440
Pamela J. Moret Vice President-Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Consumer Marketing None
IDS Tower 10
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President-Advisory Business None
IDS Tower 10 Systems
Minneapolis, MN 55440
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Marc A. Parker Group Vice None
10200 SW Greenburg Road President-Portland/Eugene
Suite 110
Portland, OR 97223
Carla P. Pavone Vice President-Compensation None
IDS Tower 10 Services and ARD Product
Minneapolis, MN 55440 Distribution
Thomas P. Perrine Senior Vice President-Group None
IDS Tower 10 Relationship Leader/American
Minneapolis, MN 55440 Express Technologies Financial
Services
Susan B. Plimpton Vice President-Marketing Services None
IDS Tower 10
Minneapolis, MN 55440
Larry M. Post Group Vice President-Philadelphia None
One Tower Bridge Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Diana R. Prost Group Vice None
3030 N.W. Expressway President-Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
James M. Punch Vice President and Project None
IDS Tower 10 Manager-Platform I Value Enhanced
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President-Fixed Income Vice President - Fixed Income
IDS Tower 10 Investments
Minneapolis, MN 55440
Rollyn C. Renstrom Vice President-Corporate Planning None
IDS Tower 10 and Analysis
Minneapolis, MN 55440
R. Daniel Richardson III Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial Advisory
Minneapolis, MN 55440 Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Theresa M. Sapp Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President-Arizona/Las None
Suite 205 Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief None
IDS Tower 10 Financial Officer
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President-Quality and None
IDS Tower 10 Service Support
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern Iowa None
466 Westdale Mall Area
Cedar RapIDS, IA 52404
Bridget Sperl Vice President-Geographic Service None
IDS Tower 10 Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - Marketing Offer None
IDS Tower 10 Development
Minneapolis, MN 55440
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President and General Auditor None
IDS Tower 10
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President-Channel Development None
IDS Tower 10
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President Board Member
IDS Tower 10
Minneapolis, MN 55440
Keith N. Tufte Vice President and Director of None
IDS Tower 10 Equity Research
Minneapolis, MN 55440
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President-Detroit Metro None
8115 East Jefferson Avenue
Detroit, MI 48214
Donald F. Weaver Group Vice President-Greater None
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President - Alliance None
1010 Main St. Suite 2B Group
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
Rande L. Zellers Group Vice President-Gulf States None
1 Galleria Blvd., Suite 1900
Metairie, LA 70001
</TABLE>
Item 27 (c). Not Applicable
Item 28. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant, Strategist Growth and Income Fund, Inc., certifies that it
meets all the requirements for effectiveness of this registration statement
under Rule 485(b) 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 24th day of
November, 1999.
STRATEGIST GROWTH AND INCOME FUND, INC.
By /s/ James A. Mitchell**
James A. Mitchell, President
By /s/ John M. Knight
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to its
Registration Statement has been signed below by the following persons in the
capacities indicated on the 24th day of November, 1999.
Signature Title
By /s/ Rodney P. Burwell* Director
Rodney P. Burwell
By /s/ Jean B. Keffeler* Director
Jean B. Keffeler
By /s/ Thomas R. McBurney* Director
Thomas R. McBurney
By /s/ James A. Mitchell* Director
James A. Mitchell
By /s/ John R. Thomas* Director
John R. Thomas
*Signed pursuant to Directors' Power of Attorney, dated April 19, 1999, filed
electronically as Exhibit (p)(1) to Registrant's Post-Effective Amendment No. 4,
by:
/s/ Eileen J. Newhouse
Eileen J. Newhouse
**Signed pursuant to Officers' Power of Attorney, dated April 20, 1999, filed
electronically as Exhibit (p)(2) to Registrant's Post-Effective Amendment No. 4,
by:
/s/ Eileen J. Newhouse
Eileen J. Newhouse
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, 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 24th day of
November, 1999.
GROWTH AND INCOME TRUST
By /s/ Arne H. Carlson****
Arne H. Carlson, Chief Executive Officer
By /s/ John M. Knight
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities indicated on the 24th day of November, 1999.
Signatures Capacity
/s/ H. Brewster Atwater, Jr.*** Trustee
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson*** Chairman of the Board
Arne H. Carlson
/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
/s/ William R. Pearce*** Trustee
William R. Pearce
<PAGE>
Signatures Capacity
/s/ Alan K. Simpson*** Trustee
Alan K. Simpson
/s/ John R. Thomas*** Trustee
John R. Thomas
/s/ C. Angus Wurtele*** Trustee
C. Angus Wurtele
***Signed pursuant to Trustees' Power of Attorney, dated January 14, 1999, filed
electronically as Exhibit (p)(3) to Registrant's Post-Effective Amendment No. 4,
by:
/s/ Leslie L. Ogg
Leslie L. Ogg
****Signed pursuant to Officers' Power of Attorney, dated March 1, 1999, filed
electronically as Exhibit (p)(4) to Registrant's Post-Effective Amendment No. 4,
by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 5 TO REGISTRATION STATEMENT NO.
33-63907
This Amendment to the Registration Statement comprises the following papers and
documents:
The facing sheet.
Part A.
The prospectus for: Strategist Balanced Fund
Strategist Equity Fund
Strategist Equity Income Fund
Strategist Total Return Fund
Part B.
Statement of Additional Information for: Strategist Balanced Fund
Strategist Equity Fund
Strategist Equity Income Fund
Strategist Total Return Fund
Part C.
Other Information.
The signatures.
Strategist Growth and Income Fund, Inc.
File No. 33-63907/811-7403
EXHIBIT INDEX
Exhibit (e): Distribution Agreement, between Strategist Growth and Income
Fund, Inc., on behalf of Strategist Balanced Fund, Strategist
Equity Fund, Strategist Equity Income Fund and Strategist Total
Return Fund and American Express Financial Advisors, dated Oct.
1, 1999, is filed electronically herewith.
Exhibit (i): Opinion and Consent of Counsel, dated November 24, 1999.
Exhibit (j): Independent Auditors' Consent, dated November 23, 1999.
DISTRIBUTION AGREEMENT
Agreement made as of the 1st day of October, 1999, by and between Strategist
Growth and Income Fund, Inc. (the Fund), a Minnesota corporation, on behalf of
each class of its underlying series funds, and American Express Financial
Advisors Inc. (AEFA), a Delaware corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Fund covenants and agrees that, during the term of this agreement and
any renewal or extension, AEFA shall have the exclusive right to act as
principal underwriter for the Fund and to offer for sale and to distribute
either directly or through any affiliated or unaffiliated entity any and all
shares of each class of capital stock issued or to be issued by the Fund.
(2) AEFA hereby covenants and agrees to act as the principal underwriter of each
class of capital shares issued and to be issued by the Fund during the period of
this agreement and agrees during such period to offer for sale such shares as
long as such shares remain available for sale, unless AEFA is unable or
unwilling to make such offer for sale or sales or solicitations therefor legally
because of any federal, state, provincial or governmental law, rule or agency or
for any financial reason.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Fund, it is mutually understood and agreed that such shares are to
be sold on the following terms:
(a) All sales shall be made by means of an application, and every
application shall be subject to acceptance or rejection by the Fund at its
principal place of business. Shares are to be sold for cash, payable at the time
the application and payment for such shares are received at the principal place
of business of the Fund.
(b) No shares shall be sold at less than the net asset value (computed
in the manner provided by the currently effective prospectus or Statement of
Additional Information and the Investment Company Act of 1940, and rules
thereunder). The number of shares or fractional shares to be acquired by each
applicant shall be determined by dividing the amount of each accepted
application by the public offering price of one share of the capital stock of
the appropriate class as of the close of business on the day when the
application, together with payment, is received by the Fund at its principal
place of business. The computation as to the number of shares and fractional
shares shall be carried to three decimal points of one share with the
computation being carried to the nearest 1/1000th of a share. If the day of
receipt of the application and payment is not a full business day, then the
asset value of the share for use in such computation shall be determined as of
the close of business on the next succeeding full business day. In the event of
a period of emergency, the computation of the asset value for the purpose of
determining the number of shares or fractional shares to be acquired by the
applicant may be deferred until the close of business on the first full business
day following the termination of the period of emergency. A period of emergency
shall have the definition given thereto in the Investment Company Act of 1940,
and rules thereunder.
(4) The Fund agrees to make prompt and reasonable effort to do any and all
things necessary, in the opinion of AEFA to have and to keep the Fund and the
shares properly registered or qualified in all appropriate jurisdictions and, as
to shares, in such amounts as AEFA may from time to time designate in order that
the Fund's shares may be offered or sold in such jurisdictions.
(5) The Fund agrees that it will furnish AEFA with information with respect to
the affairs and accounts of the Fund, and in such form, as AEFA may from time to
time reasonably require and further agrees that AEFA, at all reasonable times,
shall be permitted to inspect the books and records of the Fund.
(6) AEFA or its agents may prepare or cause to be prepared from time to time
circulars, sales literature, broadcast material, publicity data and other
advertising material to be used in the sales of shares issued by the Fund,
including material which may be deemed to be a prospectus under rules
promulgated by the Securities and Exchange Commission (each separate promotional
piece is referred to as an "Item of Soliciting Material"). At its option, AEFA
may submit any Item of Soliciting Material to the Fund for its prior approval.
Unless a particular Item of Soliciting Material is approved in writing by the
Fund prior to its use, AEFA agrees to indemnify the Fund and its directors and
officers against any and all claims, demands, liabilities and expenses which the
Fund or such persons may incur arising out of or based upon the use of any Item
of Soliciting Material. The term "expenses" includes amounts paid in
satisfaction of judgments or in settlements. The foregoing right of
indemnification shall be in addition to any other rights to which the Fund or
any director or officer may be entitled as a matter of law. Notwithstanding the
foregoing, such indemnification shall not be deemed to abrogate or diminish in
any way any right or claim AEFA may have against the Fund or its officers or
directors in connection with the Fund's registration statement, prospectus,
Statement of Additional Information or other information furnished by or caused
to be furnished by the Fund.
(7) AEFA agrees to submit to the Fund each application for shares immediately
after the receipt of such application and payment therefor by AEFA at its
principal place of business.
(8) AEFA agrees to cause to be delivered to each person submitting an
application a prospectus to be furnished by the Fund in the form required by the
applicable federal laws or by the acts or statutes of any applicable state,
province or country.
(9) The Fund shall have the right to extend to shareholders of each class the
right to use the proceeds of any cash dividend paid by the Fund to that
shareholder to purchase shares of the same class at the net asset value at the
close of business upon the day of purchase, to the extent set forth in the
currently effective prospectus or Statement of Additional Information.
(10) Shares of each class issued by the Fund may be offered and sold at their
net asset value to the shareholders of the same class of other companies in the
Strategist Fund Group who wish to exchange their investments in shares of the
other funds in the Strategist Fund Group to investments in shares of the Fund,
to the extent set forth in the currently effective prospectus or Statement of
Additional Information, such net asset value to be computed as of the close of
business on the day of sale of such shares of the Fund.
(11) AEFA and the Fund agree to use their best efforts to conform with all
applicable state and federal laws and regulations relating to any rights or
obligations under the term of this agreement.
Part Two: ALLOCATION OF EXPENSES
Except as provided by any other agreements between the parties, AEFA covenants
and agrees that during the period of this agreement it will pay or cause to be
paid all expenses incurred by AEFA or any of its affiliates, in the offering for
sale or sale of each class of the Fund's shares.
Part Three: COMPENSATION
(1) It is covenanted and agreed that AEFA shall be paid:
(i) for a class of shares imposing a front-end sales charge, by the
purchasers of Fund shares in an amount equal to the difference between the total
amount received upon each sale of shares issued by the Fund and the net asset
value of such shares at the time of such sale; and
(ii) for a class of shares imposing a deferred sales charge, by owners
of Fund shares at the time the sales charge is imposed in an amount equal to any
deferred sales charge, as described in the Fund's prospectus.
Such sums as are received by the Fund shall be received as Agent for AEFA and
shall be remitted to AEFA daily as soon as practicable after receipt.
(2) The net asset value of any share of each class of the Fund shall be
determined in the manner provided by the classes' currently effective prospectus
and Statement of Additional Information and the Investment Company Act of 1940,
and rules thereunder.
Part Four: MISCELLANEOUS
(1) AEFA shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this agreement, shall have no authority to
act for or represent the Fund.
(2) AEFA shall be free to render to others services similar to those rendered
under this agreement.
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in AEFA as directors,
officers, shareholders or otherwise; that directors, officers, shareholders or
agents of AEFA are or may be interested in the Fund as directors, officers,
shareholders or otherwise; or that AEFA is or may be interested in the Fund as
shareholder or otherwise; provided, however, that neither AEFA nor any officer
or director of AEFA or any officers or directors of the Fund shall sell to or
buy from the Fund any property or security other than a security issued by the
Fund, except in accordance with a rule, regulation or order of the federal
Securities and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Fund.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) AEFA agrees that no officer, director or employee of AEFA will deal for or
on behalf of the Fund with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors and employees of AEFA from having a financial
interest in the Fund or in AEFA.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of AEFA provided such transactions are handled in the capacity of broker only
and provided commissions charged do not exceed customary brokerage charges for
such services.
(c) Transactions with the Fund by a broker-dealer affiliate of AEFA if
allowed by rule or order of the Securities and Exchange Commission and if made
pursuant to procedures adopted by the Fund's Board of Directors (the "Board").
(7) AEFA agrees that, except as otherwise provided in this agreement, or as may
be permitted consistent with the use of a broker-dealer affiliate of AEFA under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
agreement make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except securities issued by the Fund) or other assets by or for the
Fund.
Part Five: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by AEFA or the Fund, except that such continuance shall be specifically approved
at least annually by a vote of a majority of the Board who are not parties to
this agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and by a majority of
the Board or by vote of a majority of the outstanding voting securities of the
Fund. As used in this paragraph, the term "interested person" shall have the
meaning as set forth in the Investment Company Act of 1940, as amended.
(2) This agreement may be terminated by AEFA or the Fund at any time by giving
the other party sixty (60) days written notice of such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
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 FINANCIAL ADVISORS INC.
By /s/ Pamela J. Moret
Pamela J. Moret
Vice President
November 24, 1999
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
Secretary
EJN/EN/jj
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 LLP
KPMG LLP
Minneapolis, Minnesota
November 23, 1999
