<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. (File No. 33-63909)
Post-Effective Amendment No. 1
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 (File No. 811-07407)
STRATEGIST TAX-FREE INCOME FUND, INC.
(formerly Express Direct Tax-Free Fund, Inc.)
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Eileen J. Newhouse - IDS Tower 10,
Minneapolis, Minnesota 55440-0010
(612) 671-2772
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
_____immediately upon filing pursuant to paragraph (b)
X on Sept. 27, 1996 pursuant to paragraph (b)
_____60 days after filing pursuant to paragraph (a)(i)
_____on (date) pursuant to paragraph (a)(i)
_____75 days after filing pursuant to paragraph (a)(ii)
_____on (date) pursuant to paragraph (a)(ii) 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.
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule 24f of
the Investment Company Act of 1940.
Tax-Free Income Trust has also executed this Registration
Statement.
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PAGE 2
Cross reference sheet for the Fund showing the location in its
prospectus and the Statement of Additional Information of the
information called for by the items enumerated in Parts A and B of
Form N-1A.
<TABLE><CAPTION>
Negative answers omitted from prospectus are so indicated.
PART A PART B
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
<S> <C> <S> <C>
1 Cover page of prospectus 10 Cover page of SAI
2(a) The Fund in brief; Fund 11 Table of Contents
expenses
(b) The Fund in brief; Fund 12 NA
expenses
(c) The Fund in brief; Fund 13(a) Additional Investment Policies; all
expenses appendices except Dollar-Cost Averaging
(b) Additional Investment Policies
3(a) NA (c) Additional Investment Policies
(b) NA (d) Security Transactions
(c) Performance
(d) NA 14(a) Board Members and Officers
(b) Board Members and Officers
4(a) The Fund in brief; Investment policies (c) Board Members and Officers
and risks; How the Fund and Portfolio
are organized 15(a) NA
(b) Investment policies and risks (b) NA
(c) Investment policies and risks (c) Board Members and Officers
5(a) Board members and officers 16(a)(i) How the Fund and Portfolio are organized*;
About the Advisor
(b)(i) Investment Manager; About the Advisor (a)(ii) Agreements: Investment Management Services
(b)(ii) Investment manager; Administrator and Agreement, Plan and Supplemental
transfer agent Agreement of Distribution/Distribution Agreement
(b)(iii) Investment manager (a)(iii) NA
(c) Portfolio manager (b) NA
(d) Administrator and transfer agent (c) NA
(e) Administrator and transfer agent (d) Agreements: Administrative Services Agreement
(f) Investment manager; Administrator and (e) NA
transfer agent; Distributor (f) Agreements: Plan and Supplemental Agreement of
(g) About the Advisor Distribution/Distribution Agreement
(g) NA
5A(a) NA (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
6(a) Shares; Voting rights 17(a) NA
(b) NA (b) Brokerage Commissions Paid to Brokers Affiliated
(c) NA with the Advisor
(d) NA (c) Security Transactions
(e) Cover page; Special shareholder services (d) Security Transactions
(f) Dividend and capital gains distributions; (e) Security Transactions
Reinvestments
(g) Taxes 18(a) Shares; Voting rights*
(h) Special considerations regarding master/ (b) NA
feeder structure
7(a) Distributor 19(a) Investing in the Fund
(b) Valuing Fund shares (b) Valuing Fund shares*; Investing in the Fund;
(c) NA Redeeming Shares
(d) How to purchase shares (c) Redeeming Shares
(e) NA
(f) Distributor 20 Taxes
8(a) How to redeem shares; Special considerations 21(a) Agreements: Plan and Supplemental Agreement of
regarding master/feeder structure Distribution/Distribution Agreement, Placement
(b) NA Agency Agreement
(c) How to purchase, exchange or redeem shares:
Other important information (b) Agreements: Plan and Supplemental Agreement of
(d) How to purchase, exchange or redeem shares: Distribution/Distribution Agreement, Placement
How to redeem shares Agency Agreement
9 None 22(a) NA
(b) Performance Information (for all funds except
money market funds)
23 NA
*Designates page number in prospectus. /TABLE
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PAGE 3
Strategist Tax-Free High Yield Fund
Prospectus
Sept. 27, 1996
This prospectus describes a diversified, no-load mutual fund,
Strategist Tax-Free High Yield Fund, a series of Strategist Tax-
Free Income Fund, Inc., whose goal is to provide high yield
generally exempt from federal income taxes.
The Fund has chosen to participate in a master/feeder structure.
The Fund seeks to achieve its goal by investing all of its assets
in a Portfolio of Tax-Free Income Trust, which is a separate
investment company managed by American Express Financial
Corporation that has the same goal as the Fund. This arrangement
is commonly known as a master/feeder structure.
This prospectus contains facts that can help you decide if the Fund
is the right investment for you. Read it before you invest and
keep it for future reference.
Additional facts about the Fund are in a Statement of Additional
Information (SAI), filed with the Securities and Exchange
Commission (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI, dated Sept. 27, 1996, is
incorporated here by reference. For a free copy, contact American
Express Financial Direct.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
American Express Financial Direct
P.O. Box 59196
Minneapolis, MN
55459-0196
1-800-AXP-SERV
TTY: 1-800-710-5260
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Table of contents
The Fund in brief
Goal and types of Fund investments and their risks
Structure of the Fund
Manager and distributor
Portfolio manager
Fund expenses
Performance
Financial highlights
Total Returns
Yield
Investment policies and risks
Facts about investments and their risks
Valuing Fund shares
How to purchase, exchange or redeem shares
How to purchase shares
How to exchange shares
How to redeem shares
Systematic purchase plans
Other important information
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund and Portfolio are organized
Shares
Voting rights
Shareholder meetings
Special considerations regarding master/feeder structure
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About the Advisor
Appendices
Appendix A: Description of bond ratings
Appendix B: 1996 Federal tax-exempt and taxable equivalent yield
calculation
Appendix C: Descriptions of derivative instruments
<PAGE>
PAGE 5
The Fund in brief
Strategist Tax-Free Income Fund, Inc. (the Company) is a mutual
fund with one series of capital stock representing interests in
Strategist Tax-Free High Yield Fund (the Fund). The Fund is a
diversified mutual fund that seeks to achieve its goal by investing
all of its assets in Tax-Free High Yield Portfolio (the Portfolio)
of Tax-Free Income Trust (the Trust) rather than by directly
investing in and managing its own portfolio of securities.
Goal and types of Fund investments and their risks
The Fund seeks to provide shareholders with a high yield generally
exempt from federal income taxes. It does so by investing all of
its assets in the Portfolio, which has the same investment
objective as the Fund. The Portfolio is a diversified mutual fund
that usually invests in medium- and lower-quality bonds and notes
issued by or on behalf of state and local governmental units whose
interest generally is exempt from federal income tax. The
Portfolio also may invest in derivative instruments and money
market instruments.
Because investments involve risk, the Fund cannot guarantee
achieving its goal. Some of the Portfolio's investments may be
considered speculative and involve additional investment risks.
The foregoing investment goal is a fundamental policy of the Fund
and Portfolio, which may not be changed unless authorized by a
majority of the outstanding voting securities of the Fund or of the
Portfolio, as the case may be. However, the Fund may withdraw its
assets from the Portfolio at any time if the board of directors of
the Company determines that it is in the best interests of the Fund
to do so. In such event, the Company would consider what action
should be taken, including whether to retain an investment advisor
to manage the Fund's assets directly or to reinvest all of the
Fund's assets in another pooled investment entity.
Structure of the Fund
This Fund uses what is commonly known as a master/feeder structure.
This means that it is a feeder fund that invests all of its assets
in the Portfolio which is its master fund. The Portfolio actually
invests in and manages the securities and has the same goal and
investment policies as the Fund. This structure is described in
more detail in the section captioned "Special considerations
regarding master/feeder structure." Here is an illustration of the
structure:
Investors
buy shares in the Fund
The Fund
invests in the Portfolio
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PAGE 6
The Portfolio
invests in securities,
such as stocks or bonds
Manager and distributor
The Portfolio is managed by American Express Financial Corporation
(the Advisor), a provider of financial services since 1894. The
Advisor currently manages more than $51 billion in assets. These
assets are managed by a team of highly skilled, experienced
professionals, backed by one of the nation's largest investment
departments. Our team of professionals includes portfolio
managers, senior economists and supporting staff, stock and bond
analysts including Chartered Financial Analysts, and investment
managers and researchers based in London and Hong Kong who add a
global dimension to our expertise. These professionals evaluate
thousands of securities.
Shares of the Fund are sold through American Express Service
Corporation (the Distributor), an affiliated company of the
Advisor.
Portfolio manager
Kurt Larson joined the Advisor in 1961 and serves as vice president
and senior portfolio manager. He has managed the assets of Tax-
Free High Yield Portfolio and its predecessor fund since 1979.
Fund expenses
The purpose of the following table and example is to summarize the
aggregate expenses of the Fund and its Portfolio and to assist
investors in understanding the various costs and expenses that
investors in the Fund may bear directly or indirectly. The
Company's board believes that, over time, the aggregate per share
expenses of the Fund and its Portfolio should be approximately
equal to (and may be less than) the per share expenses the Fund
would have if the Company retained its own investment advisor and
the assets of the Fund were invested directly in the type of
securities held by the Portfolio. The percentages indicated as
"Management fee" and "Other expenses" are based on both the Fund's
and Portfolio's projected fees and expenses for the current fiscal
year ending Nov. 30, 1996. For additional information concerning
Fund and Portfolio expenses, see "How the Fund and Portfolio are
organized."
Shareholder transaction expenses+
Maximum sales charge on purchases*
(as a percentage of offering price) 0%
Annual Fund and allocated Portfolio operating expenses
(% of average daily net assets):
Management fee** 0.44%
12b-1 fee 0.25%
Other expenses*** 0.26%
Total (after reimbursement) 0.95%<PAGE>
PAGE 7
+A wire redemption charge, currently $15, is deducted from the
shareholder's Investment Management Account for wire redemptions
made at the request of the shareholder.
*There is no sales load; however, the Fund imposes a 0.50%
redemption fee for shares redeemed or exchanged within 180 days of
their purchase date. This fee reimburses the Fund for brokerage
fees and other costs incurred. This fee also helps assure that
long-term shareholders are not unfairly bearing the costs
associated with frequent traders.
**The management fee is paid by the Trust on behalf of the
Portfolio.
***Other expenses include an administrative services fee, a
transfer agency fee and other nonadvisory expenses.
The Advisor and the Distributor have agreed to waive certain fees
and to absorb certain other Fund expenses until Nov. 30, 1997.
Under this agreement, the Fund's total expenses will not exceed
0.95%. Without this agreement, the ratio of expenses to average
daily net assets would not exceed the most restrictive applicable
state expense limitation.
Example: Suppose for each year for the next 10 years, Fund expenses
are as above and annual return is 5%. If you sold your shares at
the end of the following years, for each $1,000 invested, you would
pay total expenses of:
1 year $10
3 years $30
5 years $53
10 years $117
The table and example do not represent actual expenses, past or
future. Actual expenses may be higher or lower than those shown.
Because the Fund pays annual distribution (12b-1) fees of 0.25% per
year, long-term shareholders may indirectly pay an equivalent of
more than a 7.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
Performance
Financial highlights
Period ended July 31,
Per share income and capital changes*
1996**
Net asset value, 4.46
beginning of period
Income from investment operations:
Net investment income 0.05
Net gains 0.03
(both realized and unrealized)
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PAGE 8
Total from investment 0.08
operations
Less distributions:
Dividends from net (0.05)
investment income
Net asset value, 4.49
end of period
Ratios/supplemental data
Net assets, end of 516
period (in thousands)
Ratio of expenses to 0.95%+
average daily net assets***
Ratio of net income 6.13%+
to average daily net assets
Total return 1.90%
Portfolio turnover rate 8%
(excluding short-term securities)
for Tax-Free High Yield Portfolio
*For a share outstanding throughout the period. Rounded to the
nearest cent.
**Period from May 13, 1996 to July 31, 1996 (Unaudited)
***The Advisor and American Express Service Corporation (the
Distributor) voluntarily limited total operating expenses to 0.95%
of average daily net assets. Without this agreement, the ratio of
expenses to average daily net assets would not exceed the most
restrictive applicable state expense limitation.
+Adjusted to an annual basis.
The information in this table shows certain financial information
for evaluating the Fund's results.
Total returns
Total return is the sum of all of your returns for a given period,
assuming you reinvest all distributions. It is calculated by
taking the total value of shares you own at the end of the period
(including shares acquired by reinvestment), less the price of
shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of
return over a given time period (usually two or more years). It is
the total return for the period converted to an equivalent annual
figure.
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PAGE 9
Average annual total returns as of July 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Tax-Free High Yield
Fund 6.08% 6.89% 7.63%
Lehman Brothers
Municipal Bond Index 6.58 7.72 8.22
Cumulative total returns as of July 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Tax-Free High Yield
Fund 6.08% 39.54% 108.61%
Lehman Brothers
Municipal Bond Index 6.58 45.09 120.53
On May 13, 1996, IDS High Yield Tax-Exempt Fund (the predecessor
fund) converted to a master/feeder structure and transferred all of
its assets to the Portfolio. The performance information in the
foregoing tables 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 sold through
this prospectus. The historical performance has not been adjusted
for any difference between the estimated aggregate fees and
expenses of the Fund and historical fees and expenses of the
predecessor fund.
These examples show total returns from hypothetical investments in
the Fund. These returns are compared to those of a popular index
for the same periods.
For purposes of calculation, information about the Fund makes no
adjustments for taxes an investor may have paid on the reinvested
income and capital gains, and covers a period of widely fluctuating
securities prices. Returns shown should not be considered a
representation of the Fund's future performance.
Lehman Brothers Municipal Bond Index, an unmanaged index, is made
up of a representative list of general obligation, revenue, insured
and pre-refunded bonds. The index is frequently used as a general
measure of tax-exempt bond market performance. However, the
securities used to create the index may not be representative of
the bonds held in the Portfolio. The index reflects reinvestment
of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.
Yield
Yield is the net investment income earned per share for a specified
time period, divided by the net asset value at the end of the
period. From time to time the Fund may advertise its 30-day
annualized yield. The Fund calculates the 30-day annualized yield
by dividing:
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PAGE 10
o net investment income per share deemed earned during a 30-day
period by
o the net asset value per share on the last day of the period,
and
o converting the result to a yearly equivalent figure.
The Fund also may calculate a tax equivalent yield by dividing the
tax-exempt portion of its yield by one minus a stated income tax
rate. A tax equivalent yield demonstrates the taxable yield
necessary to produce an after-tax yield equivalent to that of a
fund that invests in exempt obligations.
The Fund's yield varies from day to day, mainly because share
values and offering prices (which are calculated daily) vary in
response to changes in interest rates. Net investment income
normally changes much less in the short run. Thus, when interest
rates rise and share values fall, yield tends to rise. When
interest rates fall, yield tends to follow. Past yields should not
be considered an indicator of future yields.
Investment policies and risks
The Fund and Portfolio have the same investment policies. These
policies may be changed by the boards.
Under normal market conditions, the Portfolio will invest at least
80% of its net assets in bonds and notes issued by or on behalf of
state and local governmental units whose interest is exempt from
federal income tax (according to the opinion of counsel for the
issuer) and is not subject to the alternative minimum tax. This
policy cannot be changed without approval of a majority of the
outstanding voting securities. Other investments include
derivative instruments, money market instruments and bonds subject
to the alternative minimum tax computation.
The various types of investments described above that the portfolio
manager uses to achieve investment performance are explained in
more detail in the next section and in the SAI.
Facts about investments and their risks
Bonds and notes exempt from federal income taxes: The price of
bonds generally falls as interest rates increase, and rises as
interest rates decrease. The price of bonds or notes also
fluctuates if the credit rating is upgraded or downgraded. The
price of bonds or notes below investment grade may react more to
the ability of a company to pay interest or principal when due than
to changes in interest rates. They have greater price
fluctuations, are more likely to experience a default, and
sometimes are referred to as junk bonds. Reduced market liquidity
for these bonds may occasionally make it more difficult to value
them.
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PAGE 11
The Portfolio usually invests in medium- and lower-quality notes
rated A, BBB or BB by Standard & Poor's Corporation, Moody's
Investors Service, Inc. or Fitch Investors Services, Inc., or in
securities the portfolio manager believes have similar qualities
even though they are not rated or have been given a lower rating by
a rating agency. The Portfolio invests in higher-quality bonds and
notes when the difference in yield between higher- and lower-
quality securities does not warrant the increase in risk or there
is not an adequate supply of lower-quality securities. Securities
that are subsequently downgraded in quality may continue to be held
by the Portfolio and will be sold only when the investment manager
believes it is advantageous to do so.
<TABLE><CAPTION>
Tax-Free High Yield Portfolio
Bond ratings and holdings for the period ending July 31, 1996
S&P Rating Percent of
(or Moody's Protection of net assets in
Percent of or Fitch's principal and unrated securities
net assets equivalent) interest assessed by the Advisor
<S> <C> <C> <C>
22.24% AAA Highest quality 4.90%
6.26% AA High quality ---
19.36% A Upper medium grade 0.23%
22.91% BBB Medium grade 1.90%
3.89% BB Moderately speculative 8.69%
0.88% B Speculative 4.10%
--- CCC Highly speculative 0.74%
--- CC Poor quality ---
--- C Lowest quality ---
--- D In default 0.29%
21.24% Unrated Unrated securities 0.39%
</TABLE>
(The information in the table above relates to the predecessor fund
that transferred its assets to Tax-Free High Yield Portfolio on May
13, 1996. See Appendix to this prospectus describing bond ratings
for further information.)
Bonds sold at a deep discount: Some bonds are sold at deep
discounts because they do not pay interest until maturity. They
include zero coupon bonds and PIK (pay-in-kind) bonds. To comply
with tax laws, the Portfolio has to recognize a computed amount of
interest income and pay dividends to unitholders even though no
cash has been received. In some instances, the Portfolio may have
to sell securities to have sufficient cash to pay the dividends.
Concentration: The Portfolio may invest more than 25% of its total
assets in industrial revenue bonds, but it does not intend to
invest more than 25% of its total assets in industrial revenue
bonds issued for companies in the same industry or state. As the
similarity in issuers increases, the potential for fluctuation in
the net asset value also increases.
Derivative instruments: The portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no <PAGE>
PAGE 12
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow the portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties, and inability to close such instruments. The Portfolio
will use derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The Portfolio will designate cash or appropriate liquid
assets to cover portfolio obligations. The use of derivative
instruments may produce taxable income. No more than 5% of the
Portfolio's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not
offset existing investment positions. This does not, however,
limit the portion of the Portfolio's assets at risk to 5%. The
Portfolio is not limited as to the percentage of its assets that
may be invested in permissible investments, including derivatives,
except as otherwise explicitly provided in this prospectus or the
SAI. For descriptions of these and other types of derivative
instruments, see the Appendix to this prospectus and the SAI.
Securities and other instruments that are illiquid: A security or
other instrument is illiquid if it cannot be sold quickly in the
normal course of business. Some investments cannot be resold to
the U.S. public because of their terms or government regulations.
All securities and other instruments, however, can be sold in
private sales, and many may be sold to other institutions and
qualified buyers or on foreign markets. The portfolio manager will
follow guidelines established by the board and consider relevant
factors such as the nature of the security and the number of likely
buyers when determining whether a security is illiquid. No more
than 10% of the Portfolio's net assets will be held in securities
and other instruments that are illiquid.
Money market instruments: Short-term tax-exempt debt securities
rated in the top two grades or the equivalent are used to meet
daily cash needs and at various times to hold assets until better
investment opportunities arise. Under extraordinary conditions
where, in the opinion of the portfolio manager, appropriate short-
term tax-exempt securities are not available, the Portfolio is
authorized to make certain taxable investments as described in the
SAI.
Lending portfolio securities: The Portfolio may lend its
securities to earn income so long as borrowers provide collateral
equal to the market value of the loans. The risks are that
borrowers will not provide collateral when required or return
securities when due. Unless holders of a majority of the
outstanding voting securities approve otherwise, loans may not
exceed 30% of the Portfolio's net assets.
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PAGE 13
Valuing Fund shares
The net asset value (NAV) is the value of a single Fund share. It
is the total value of the Fund's investments in the corresponding
Portfolio and other assets, less any liabilities, divided by the
number of shares outstanding. The NAV is the price at which you
purchase Fund shares and the price you receive when you sell your
shares. It usually changes from day to day, and is calculated at
the close of business, normally 3 p.m. Central time, each business
day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates
decline.
To establish the net assets, all securities held by the Portfolio
are valued as of the close of each business day. In valuing
assets:
o Securities (except bonds) and assets with available market
values are valued on that basis.
o Securities maturing in 60 days or less are valued at amortized
cost.
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board.
How to purchase, exchange or redeem shares
How to purchase shares
You may purchase shares of the Fund through an Investment
Management Account (IMA) maintained with American Express Service
Corporation (the Distributor). There is no fee to open an IMA
account. Payment for shares must be made directly to the
Distributor.
Complete an IMA Account Application (available by calling 1-800-
AXP-SERV) and mail the application to American Express Financial
Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. Corporations
and other organizations should contact the Distributor to determine
which additional forms may be necessary to open an IMA account.
If you already have an IMA account, you may buy shares in the Fund
as described below and need not open a new account.
You may deposit money into your IMA account by check, wire or many
other forms of electronic funds transfer (securities may also be
deposited). All deposit checks should be made payable to the
Distributor. If you would like to wire funds into your existing
IMA account, please contact the Distributor at 1-800-AXP-SERV for
instructions.
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PAGE 14
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 IMA account in order to purchase Fund
shares. If your request and payment (including money transmitted
by wire) are received and accepted by the Distributor before 2 p.m.
Central time, your money will be invested at the net asset value
determined as of the close of business (normally 3 p.m. Central
time) that day. If your request and payment are received after
that time, your request will not be accepted or your payment
invested until the next business day. (See "Valuing Fund shares.")
Methods of purchasing shares. There are three convenient ways to
purchase shares of the Fund. You may choose the one that works
best for you. The Distributor will send you confirmation of your
purchase request.
By phone:
You may use money in your IMA account to make initial and
subsequent purchases. To place your order, call 1-800-AXP-
SERV.
By mail:
Written purchase requests (along with any checks) should be
mailed to American Express Financial Direct, P.O. Box 59196,
Minneapolis, MN 55459-0196, and should contain the following
information:
o your IMA account number (or an IMA Account Application)
o the name of the Fund and the dollar amount of shares you would
like purchased
Your check should be made out to the Distributor. It will be
deposited into your IMA account and used, as necessary, to
cover your purchase request.
By systematic purchase:
Once you have opened an IMA account, you may authorize the
Distributor to automatically purchase shares on your behalf at
intervals and in amounts selected by you. (See "Systematic
purchase plans.")
Other purchase information. The Fund reserves the right, in its
sole discretion and without prior notice to shareholders, to
withdraw or suspend all or any part of the offering made by this
prospectus, to reject purchase requests or to change the minimum
investment requirements. All requests to purchase shares of the <PAGE>
PAGE 15
Fund are subject to acceptance by the Fund and the Distributor and
are not binding until confirmed or accepted in writing. The
Distributor will charge a $15 service fee against an investor's IMA
account if his or her investment check is returned because of
insufficient or uncollected funds or a stop payment order.
How to exchange shares
The exchange privilege allows you to exchange your investment in
the Fund at no charge for shares of other funds in the Strategist
Fund Group available in your state. For complete information,
including fees and expenses, read the prospectus carefully before
exchanging into a new fund. Any exchange will involve the
redemption of Fund shares and the purchase of shares in another
fund on the basis of the net asset value per share of each fund.
An exchange may result in a gain or loss and is a taxable event for
federal income tax purposes. When exchanging into another fund you
must meet that fund's minimum investment requirements. The Fund
reserves the right to modify, terminate or limit the exchange
privilege. The current limit is four exchanges per calendar year.
The Distributor and the 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.
How to redeem shares
The price at which shares will be redeemed. Shares will be
redeemed at the net asset value per share next determined after
receipt by the Distributor of proper redemption instructions, as
described below.
The Fund imposes a 0.50% redemption fee for shares redeemed or
exchanged within 180 days of their purchase date. This fee
reimburses the Fund for brokerage fees and other costs incurred.
This fee also helps assure that long-term shareholders are not
unfairly bearing the costs associated with frequent traders.
Payment of redemption proceeds. Normally, payment for redeemed
shares will be credited directly to your IMA account on the next
business day. However, the Fund may delay payment, but no later
than seven days after the Distributor receives your redemption
instructions in proper form. Redemption proceeds will be held
there or mailed to you depending on the account standing
instructions you selected. If you recently purchased shares by
check, your redemption proceeds may be held in your IMA account
until your check clears (which may take up to 10 days from the
purchase date) before a check is mailed to you.
A redemption is a taxable transaction. If your proceeds from your
redemption are more or less than the cost of your shares, you will
have a gain or loss, which can affect your tax liability.
Redeeming shares held in an IRA or qualified retirement account may
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
<PAGE>
PAGE 16
Methods of exchanging or redeeming shares
By phone:
You may exchange or redeem your shares by calling 1-800-AXP-SERV.
Telephone exchanges or redemptions may be difficult to implement
during periods of drastic economic or market changes. If you
experience difficulties in exchanging or redeeming shares by
telephone, you can mail your exchange or redemption requests as
described below.
To properly process your telephone exchange or redemption request
we will need the following information:
o your IMA account number and your name (for exchanges, both
funds must be registered in the same ownership)
o the name of the Fund from which you wish to exchange or redeem
shares
o the dollar amount or number of shares you want to exchange or
redeem
o the name of the fund into which shares are to be exchanged, if
applicable
Telephone exchange or redemption requests received before 2 p.m.
(Central time) on any business day, once the caller's identity and
account ownership have been verified by the Distributor, will be
processed at the net asset value determined as of the close of
business (normally 3 p.m. Central time) that day.
By mail:
You may also request an exchange or redemption by writing to
American Express Financial Direct, P.O. Box 59196, Minneapolis, MN
55459-0196. Once an exchange or redemption request is mailed it is
irrevocable and cannot be modified or canceled.
To properly process your mailed exchange or redemption request, we
will need a letter from you that contains the following
information:
o your IMA account number
o the name of the Fund from which you wish to exchange or redeem
shares
o the dollar amount or number of shares you want to exchange or
redeem
o the name of the fund into which shares are to be exchanged, if
applicable
o a signature of at least one of the IMA account holders in the
exact form specified on the account
Telephone transactions. You may make purchase, redemption and
exchange requests by mail or by calling 1-800-AXP-SERV where
trained representatives are available to answer questions about the
Fund and your account. The privilege to initiate transactions by
telephone is automatically available through your IMA account. The
Fund will honor any telephone transaction believed to be authentic <PAGE>
PAGE 17
and will use reasonable procedures to confirm that instructions
communicated by telephone are genuine. This includes asking
identifying questions and tape recording calls. If these
procedures are not followed, the Fund may be liable for losses due
to unauthorized or fraudulent instructions. Telephone privileges
may be modified or discontinued at any time.
Systematic purchase plans
The Distributor offers a Systematic Purchase Plan (SPP) that allows
you to make periodic investments in the Funds automatically and
conveniently. A SPP can be used as a dollar-cost averaging program
and saves you the time and expense associated with writing checks
or wiring funds.
Investment minimums: You can make automatic investments in any
amount, from $100 to $50,000.
Investment methods: Automatic investments are made from your IMA
account and you may select from several different investment
methods to make automatic investment(s):
a) Using uninvested cash in your IMA account: If you elect to
use this option to make your automatic investments, uninvested
cash in your IMA account will be used to make the investment
and, if necessary, shares of your Money Market Fund will be
redeemed to cover the balance of the purchase.
b) Using bank authorization or direct deposit: Bank
authorizations (transfers from a bank checking or savings
account) and direct deposit (automatic deposit of all or a
portion of a payroll or government check) are two of the
investment method options that are available through SPP.
Money is transferred into your IMA account and automatic
investments can be made using these amounts.
If you elect to use bank authorizations and/or direct deposit for
your automatic investments, you will select two dates: a transfer
date (when the money is transferred into your IMA account) and your
investment date. The automatic investment date selected may be the
same day of your bank authorization or direct deposit. Your
investment date should be on or close to the transfer/deposit date
in order to minimize uninvested cash in your IMA account.
If you make changes to your bank authorization or direct deposit
date, it may also be necessary to change your automatic investment
date to coincide with the new transfer/deposit date.
Investment frequency: You can select the frequency of your
automatic investments (twice monthly, monthly or quarterly) and
choose either the 5th or the 20th of the month for your automatic
investment dates. Quarterly investments are made on the date
selected in the first month of each quarter (January, April, July
and October).
<PAGE>
PAGE 18
Changing instructions to an already established plan: If you want
to change the fund(s) selected for your SPP you may do so by
calling 1-800-AXP-SERV, or by sending written instructions clearly
outlining the changes to American Express Financial Direct, P.O.
Box 59196, Minneapolis, MN 55459-0196. Written notification must
include the following:
o The funds with SPP that you want to cancel
o The newly selected fund(s) in which you want to begin
making automatic investments and the amount to be
invested in each fund
o The investment frequency and investment dates for your
new automatic investments
Information on changing bank authorization and direct deposit
instructions is included in the Systematic Purchase Plan Terms and
Conditions brochure which you will receive after enrolling in SPP.
Terminating your SPP. If you wish to terminate your SPP, you may
call 1-800-AXP-SERV, or send written instructions to American
Express Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-
0196.
Terminating bank authorizations and direct deposit. If you wish to
terminate your bank authorizations, you may do so at any time by
notifying American Express Financial Direct in writing. You must
notify your employer or government agency to cancel direct deposit.
Your bank authorization and/or direct deposit will not
automatically terminate when you cancel your SPP.
IMPORTANT: If you are canceling your bank authorizations and/or
direct deposit and you wish to cancel your SPP, you must also
provide instructions stating that the Distributor should cancel
your SPP. You may notify the Distributor by sending written
instructions to the address above or telephoning 1-800-AXP-SERV.
Your systematic investments will continue using IMA account assets
if the Distributor does not receive notification to terminate your
systematic investments as well.
To avoid procedural difficulties, the Distributor should receive
instructions to change or terminate your SPP or bank authorizations
at least 10 days prior to your scheduled investment date.
Additional information. This information is only a summary of the
Systematic Purchase Plan Terms and Conditions brochure that you
will receive if you choose to enroll in SPP. Please read it
carefully and keep it for future reference.
Other important information
Minimum balance and account requirements.
The Fund reserves the right to redeem your shares if, as a result
of redemptions, the aggregate value of your holdings in the Fund
drops below $1,000 ($500 in the case of custodial accounts, IRAs <PAGE>
PAGE 19
and other retirement plans). You will be notified in writing 30
days before the Fund takes such action to allow you to increase
your holdings to the minimum level. If you close your IMA account,
the Fund will automatically redeem your shares.
Wire transfers to your bank. Funds can be wired from your IMA
account to your bank account. Call the Distributor for additional
information on wire transfers. A $15 service fee will be charged
against your IMA account for each wire sent.
No person has been authorized to give any information or to make
any representations not contained in this prospectus in connection
with the offering being made by this prospectus and, if given or
made, such information or representation must not be relied upon as
having been authorized by the Fund or its Distributor. This
prospectus does not constitute an offering by the Fund or by the
Distributor in any jurisdiction in which such offering may not be
lawfully made.
Special shareholder services
Services
To help you track and evaluate the performance of your investments,
you will receive these services:
Quarterly statements listing all of your holdings and transactions
during the previous three months.
Yearly tax statements featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares along with
distribution information - which simplifies tax calculations.
Quick telephone reference
American Express Financial Direct Team
Fund performance, objectives and account inquiries, redemptions and
exchanges, dividend payments or reinvestments and automatic payment
arrangements
1-800-AXP-SERV
TTY Service
For the hearing impaired
1-800-710-5260
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net
income and any net gains realized on its investments. The Fund
distributes dividends and capital gain distributions to qualify as
a regulated investment company and to avoid paying corporate income
and excise taxes. Dividend and capital gain distributions will
have tax consequences you should know about.
<PAGE>
PAGE 20
Dividend and capital gain distributions
Investment income is allocated to the Fund by the Portfolio, less
direct and allocated expenses. The Fund's net realized capital
gains or losses, if any, consist of the net realized capital gains
or losses allocated to the Fund from the Portfolio. The Fund's net
investment income from dividends and interest is distributed to you
monthly as dividends. Short-term capital gains are distributed at
the end of the calendar year and are included in net investment
income. Long-term capital gains are realized whenever a security
held for more than one year is sold for a higher price than was
paid for it. The Fund will offset any net realized capital gains
by any available capital loss carryovers. The net realized capital
gains, if any, are distributed at the end of the calendar year as
capital gain distributions. Before they're distributed, net long
term capital gains are included in the value of each share. After
they're distributed, the value of each share drops by the per-share
amount of the distribution. (If your distributions are reinvested,
the total value of your holdings will not change.) Short-term
capital gains earned by the Fund are paid to shareholders as part
of their ordinary income dividend and are taxable as ordinary
income.
Reinvestments
Dividends and capital gain distributions are automatically
reinvested in additional shares of the Fund, unless you request the
Fund in writing or by phone to pay distributions to you in cash.
The reinvestment price is the net asset value at close of business
on the day the distribution is paid. (Your quarterly statement
will confirm the amount invested and the number of shares
purchased.)
If you choose cash distributions, you will receive only those
declared after your request has been processed.
Taxes
The Fund has received a Private Letter Ruling from the Internal
Revenue Service stating that, for purposes of the Internal Revenue
Code, the Fund will be regarded as directly holding its allocable
share of the income and gain realized by the Portfolio.
Dividends distributed from interest earned on tax-exempt securities
(exempt-interest dividends) are exempt from federal income taxes
but may be subject to state and local taxes. Dividends distributed
from other income earned and capital gain distributions are not
exempt from federal income taxes. Distributions are taxable in the
year the Fund declares them regardless of whether you take them in
cash or reinvest them.
<PAGE>
PAGE 21
Interest on certain private activity bonds is a preference item for
purposes of the individual and corporate alternative minimum taxes.
To the extent the Fund earns such income, it will flow through to
its shareholders and may be taxable to those shareholders who are
subject to the alternative minimum tax.
Because interest on municipal bonds and notes is tax-exempt for
federal income tax purposes, any interest on borrowed money used
directly or indirectly to purchase Fund shares is not deductible on
your federal income tax return. You should consult a tax advisor
regarding its deductibility for state and local income tax
purposes.
Each January, you will receive a tax statement showing the kinds
and total amount of all distributions you received during the
previous year. You must report distributions on your tax returns,
even if they are reinvested in additional shares.
Buying a dividend creates a tax liability. This means buying
shares shortly before a capital gain distribution. You pay the
full pre-distribution price for the shares, then receive a portion
of your investment back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain.
If you sell shares for more than their cost, the difference is a
capital gain. Your gain may be either short term (for shares held
for one year or less) or long term (for shares held for more than
one year).
Your Taxpayer Identification Number (TIN) is important. As with
any financial account you open, you must list your current and
correct Taxpayer Identification Number (TIN) -- either your Social
Security or Employer Identification number. The TIN must be
certified under penalties of perjury on your application when you
open an account.
If you don't provide the TIN, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed
to report interest or dividends on your tax return as required.
<PAGE>
PAGE 22
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors
Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, call 1-800-AXP-SERV for federal
Form W-9, "Request for Taxpayer Identification Number and
Certification."
Important: This information is a brief and selective summary of
certain federal tax rules that apply to the Fund. Tax matters are
highly individual and complex, and you should consult a qualified
tax advisor about your personal situation.
How the Fund and Portfolio are organized
The Fund is a series of Strategist Tax-Free Income Fund, Inc., an
open-end management investment company, as defined in the
Investment Company Act of 1940. The Company was incorporated on
Sept. 1, 1995 in Minnesota. The Company's headquarters are at IDS
Tower 10, Minneapolis, MN 55440-0010.
Shares
The Fund is owned by its shareholders. All shares issued by the
Fund are of the same class -- capital stock. Par value is 1 cent
per share. Both full and fractional shares can be issued.
<PAGE>
PAGE 23
Voting rights
As a shareholder, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each
share you own. Shares of the Fund have cumulative voting rights.
Shareholder meetings
The Company does not hold annual shareholder meetings. However,
the board members may call meetings at their discretion, or on
demand by holders of 10% or more of the Company's outstanding
shares, to elect or remove board members.
Special considerations regarding master/feeder structure
The Fund pursues its goal by investing its assets in a master fund
called the Portfolio. This means that the Fund does not invest
directly in securities; rather the Portfolio invests in and manages
its portfolio of securities. The Portfolio is a separate
investment company, but it has the same goals and investment
policies as the Fund. The goals and investment policies of the
Portfolio are described under the captions "Investment policies and
risks" and "Facts about investments and their risks." Additional
information on investment policies may be found in the SAI.
Board considerations: The board considered the advantages and
disadvantages of investing the Fund's assets in the Portfolio. The
board believes that the master/feeder structure can be in the best
interest of the Fund and its shareholders since it offers the
opportunity for economies of scale. The Fund may redeem all of its
assets from the Portfolio at any time. Should the board determine
that it is in the best interest of the Fund and its shareholders to
terminate its investment in the Portfolio, it would consider hiring
an investment advisor to manage the Fund's assets, or other
appropriate options. The Fund would terminate its investment if
the Portfolio changed its goals, investment policies or
restrictions without the same change being approved by the Fund.
Other feeders: The Portfolio sells securities to other affiliated
mutual funds and may sell securities to non-affiliated investment
companies and institutional accounts (known as feeders). These
feeders buy the Portfolio's securities on the same terms and
conditions as the Fund and pay their proportionate share of the
Portfolio's expenses. However, their operating costs and sales
charges are different from those of the Fund. Therefore, the
investment returns for other feeders are different from the returns
of the Fund. Information about other feeders may be obtained by
calling a service representative at 1-800-437-3133.
Each feeder that invests in the Portfolio is different and
activities of its investors may adversely affect all other feeders,
including the Fund. For example, if one feeder decides to
terminate its investment in the Portfolio, the Portfolio may elect
to redeem in cash or in kind. If cash is used, the Portfolio will
incur brokerage, taxes and other costs in selling securities to <PAGE>
PAGE 24
raise the cash. This may result in less investment diversification
if entire investment positions are sold, and it also may result in
less liquidity among the remaining assets. If in-kind distribution
is made, a smaller pool of assets remains that may affect brokerage
rates and investment options. In both cases, expenses may rise
since there are fewer assets to cover the costs of managing those
assets.
Shareholder meetings: Whenever the Portfolio proposes to change a
fundamental investment policy or to take any other action requiring
approval of its security holders, the Fund will hold a shareholder
meeting. The Fund will vote for or against the Portfolio's
proposals in proportion to the vote it receives for or against the
same proposals from its shareholders.
Board members and officers
Shareholders of the Company elect a board that oversees the
operations of the Fund and chooses the Company's officers. The
Company's officers are responsible for day-to-day business
decisions based on policies set by the board. Information about
the board members and officers of both the Company and the Trust is
found in the SAI under the caption "Board Members and Officers."
Investment manager
The Portfolio pays the Advisor for managing its assets. The Fund
pays its proportionate share of the fee. Under the Investment
Management Services Agreement, the Advisor is paid a fee for these
services based on the average daily net assets of the Portfolio, as
follows:
Assets Annual rate at
(billions) each asset level
First $1.0 0.490%
Next 1.0 0.465
Next 1.0 0.440
Next 3.0 0.415
Next 3.0 0.390
Over 9.0 0.360
Under the agreement, the Portfolio also pays taxes, brokerage
commissions and nonadvisory expenses.
Administrator and transfer agent
The Fund pays the Advisor for shareholder accounting and transfer
agent services under two agreements. The first agreement, the
Administrative Services Agreement, has a declining annual rate
beginning at 0.04% and decreasing to 0.02% as assets increase. The
second agreement, the Transfer Agency Agreement, has an annual fee
for the Fund of $25 per shareholder account.
<PAGE>
PAGE 25
Distributor
The Fund sells shares through the Distributor under a Distribution
Agreement. The Distributor is located at P.O. Box 59196,
Minneapolis, MN 55459-0196 and is a wholly owned subsidiary of
Travel Related Services, Inc., a wholly owned subsidiary of
American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center, New
York, NY 10285. Financial consultants representing the
Distributor provide information to investors about individual
investment programs, the Fund and its operations, new account
applications, exchange and redemption requests. The Fund reserves
the right to sell shares through other financial intermediaries or
broker/dealers. In that event, the account terms would also be
governed by rules that the intermediary may establish.
To help defray costs, including costs for marketing, sales
administration, training, overhead, advertising and related
functions, the Funds pay the Distributor a distribution fee, also
known as a 12b-1 fee. This fee is paid under a Plan and Agreement
of Distribution that follows the terms of Rule 12b-1 of the
Investment Company Act of 1940. Under this Agreement, the Fund
pays a distribution fee at an annual rate of 0.25% of the Fund's
average daily net assets for distribution-related services. This
fee will not cover all of the costs incurred by the Distributor.
Total fees and expenses (excluding taxes and brokerage commissions)
cannot exceed the most restrictive applicable state expense
limitation. The Advisor and the Distributor have agreed to waive
certain fees and to absorb certain other Fund expenses until Nov.
30, 1997. Under this agreement, the Fund's total expenses will not
exceed 0.95%.
About the Advisor
The Advisor is located at IDS Tower 10, Minneapolis, MN 55440-0010.
It is a wholly owned subsidiary of American Express Company. The
Portfolio may pay brokerage commissions to broker-dealer affiliates
of the Advisor.
<PAGE>
PAGE 26
Appendix A
Description of bond ratings
Bond ratings concern the quality of the issuing state or local
governmental unit. They are not an opinion of the market value of
the security. Such ratings are opinions on whether the principal
and interest will be repaid when due. A security's rating may
change, which could affect its price. Ratings by Moody's Investors
Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings
by Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC,
CC, C and D. The following is a compilation of the two agencies'
rating descriptions. For further information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Portfolio's objectives and policies. When assessing the
risk involved in each non-rated security, the Portfolio will
consider the financial condition of the issuer or the protection
afforded by the terms of the security.<PAGE>
PAGE 27
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep
discount from its face value and makes no periodic interest
payments. The buyer of such a security receives a rate of return
by gradual appreciation of the security, which is redeemed at face
value on the maturity date.
A pay-in-kind security is a security in which the issuer has the
option to make interest payments in cash or in additional
securities. The securities issued as interest usually have the
same terms, including maturity date, as the pay-in-kind securities.
<PAGE>
PAGE 28
Appendix B
1996 Federal Tax-Exempt and Taxable Equivalent Yield Calculation
These tables will help you determine your federal taxable yield
equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as
guides, you can locate your Marginal Tax Rate in the table below.
First locate your Taxable Income in a filing status and income
range in the left-hand column. Then, locate your Adjusted Gross
Income at the top of the chart. At the point where your Taxable
Income line meets your Adjusted Gross Income column the percentage
indicated is an approximation of your Marginal Tax Rate. For
example: Let's assume you are married filing jointly, your taxable
income is $138,000 and your adjustable gross income is $175,000.
Under Taxable Income married filing jointly status, $138,000 is in
the $96,900 - $147,700 range. Under Adjusted Gross Income,
$175,000 in the $117,950 to $176,950 column. The Taxable Income
line and Adjusted Gross Income column meet at 31.93%. This is the
rate you'll use in Step 2.
<TABLE><CAPTION>
Taxable income** Adjusted gross income*
$ 0 $117,950 $176,950 Over
to to to
$117,950(1) $176,950(2) $299,450(3) $299,450(2)
Married Filing Jointly
<S> <C> <C> <C> <C>
$ 0 - $ 40,100 15.00%
40,100 - 96,900 28.00 28.84%
96,900 - 147,700 31.00 31.93 33.19%
147,700 - 263,750 36.00 37.08 38.55 37.08%
263,750 + 39.60 42.40*** 40.79
$ 0 $117,950 Over
to to
$117,950(1) $240,450(3) $240,450(2)
Single
$ 0 - $ 24,000 15.00%
24,000 - 58,150 28.00
58,150 - 121,300 31.00 32.56%
121,300 - 263,750 36.00 37.81 37.08%
263,750 + 39.60 40.79
*Gross income with certain adjustments before taking itemized deductions and personal
exemptions.
**Amount subject to federal income tax after itemized deductions and personal exemptions.
***This rate is applicable only in the limited case where your adjusted gross income is less
than $299,450 and your taxable income exceeds $263,750.
<PAGE>
PAGE 29
(1) No Phase-out -- Assumes no phase-out of itemized deductions or
personal exemptions.
(2) Itemized Deductions Phase-out -- Assumes a single taxpayer has
one personal exemption and joint taxpayers have two personal
exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs --
Assumes a single taxpayer has one personal exemption, joint
taxpayers have two personal exemptions and itemized deductions
continue to phase-out.
If these assumptions do not apply to you, it will be necessary to
construct your own personalized tax equivalency table.
STEP 2: Determining your federal taxable yield equivalents.
Using 31.93%, you may determine that a tax-exempt yield of 4% is
equivalent to earning a taxable 5.88% yield.
For these Tax-Exempt Rates:
3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
Marginal Tax Rates Equal the Taxable Rates shown below:
15.00% 4.12 4.71 5.29 5.88 6.47 7.06 7.65 8.24
28.00% 4.86 5.56 6.25 6.94 7.64 8.33 9.03 9.72
28.84% 4.92 5.62 6.32 7.03 7.73 8.43 9.13 9.84
31.00% 5.07 5.80 6.52 7.25 7.97 8.70 9.42 10.14
31.93% 5.14 5.88 6.61 7.35 8.08 8.81 9.55 10.28
32.56% 5.19 5.93 6.67 7.41 8.16 8.90 9.64 10.38
33.19% 5.24 5.99 6.74 7.48 8.23 8.98 9.73 10.48
36.00% 5.47 6.25 7.03 7.81 8.59 9.38 10.16 10.94
37.08% 5.56 6.36 7.15 7.95 8.74 9.54 10.33 11.13
37.81% 5.63 6.43 7.24 8.04 8.84 9.65 10.45 11.26
38.55% 5.70 6.51 7.32 8.14 8.95 9.76 10.58 11.39
39.60% 5.79 6.62 7.45 8.28 9.11 9.93 10.76 11.59
40.79% 5.91 6.76 7.60 8.44 9.29 10.13 10.98 11.82
42.40% 6.08 6.94 7.81 8.68 9.55 10.42 11.28 12.15
/TABLE
<PAGE>
PAGE 30
Appendix C
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the
Portfolio may use. At various times the Portfolio may use some or
all of these instruments and is not limited to these instruments.
It may use other similar types of instruments if they are
consistent with the Portfolio's investment goal and policies. For
more information on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or
sell an instrument at a set price during a certain period of time.
A futures contract is an agreement to buy or sell an instrument for
a set price on a future date. The Portfolio may buy and sell
options and futures contracts to manage its exposure to changing
interest rates, security prices and currency exchange rates.
Options and futures may be used to hedge the Portfolio's
investments against price fluctuations or to increase market
exposure.
Asset-backed and mortgage-backed securities. Asset-backed
securities include interests in pools of assets such as motor
vehicle installment sale contracts, installment loan contracts,
leases on various types of real and personal property, receivables
from revolving credit (credit card) agreements or other categories
of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities.
Interest and principal payments depend on payment of the underlying
loans or mortgages. The value of these securities may also be
affected by changes in interest rates, the market's perception of
the issuers and the creditworthiness of the parties involved. The
non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal
only (PO) securities. Cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments on the
underlying mortgage loans or mortgage-backed securities.
Indexed securities. The value of indexed securities is linked to
currencies, interest rates, commodities, indexes or other financial
indicators. Most indexed securities are short- to intermediate-
term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created by underwriters
using the interest payment on securities. A portion of the
interest received is paid to holders of instruments based on
current interest rates for short-term securities. The remainder,
minus a servicing fee, is paid to holders of inverse floaters. As
interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. <PAGE>
PAGE 31
As interest rates go up, the holders of the inverse floaters
receive less income and a decrease in the price for the inverse
floaters.
Structured products. Structured products are over-the-counter
financial instruments created specifically to meet the needs of one
or a small number of investors. The instrument may consist of a
warrant, an option or a forward contract embedded in a note or any
of a wide variety of debt, equity and/or currency combinations.
Risks of structured products include the inability to close such
instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 32
STATEMENT OF ADDITIONAL INFORMATION
FOR
STRATEGIST TAX-FREE INCOME FUND, INC.
Sept. 27, 1996
This Statement of Additional Information (SAI) is not a prospectus.
It should be read together with the Fund's prospectus which may be
obtained by calling American Express Financial Direct, 1-800-AXP-
SERV (TTY: 1-800-710-5260) or by writing to P.O. Box 59196,
Minneapolis, MN 55459-0196.
This SAI is dated Sept. 27, 1996, and it is to be used with the
Fund's prospectus dated Sept. 27, 1996.
<PAGE>
PAGE 33
TABLE OF CONTENTS
Goal and Investment Policies......................See Prospectus
Additional Investment Policies.............................p. 3
Security Transactions......................................p. 6
Brokerage Commissions Paid to Brokers Affiliated
with the Advisor...........................................p. 8
Performance Information....................................p. 8
Valuing Fund Shares........................................p.11
Investing in the Fund......................................p.12
Redeeming Shares...........................................p.13
Pay-out Plans..............................................p.14
Taxes......................................................p.15
Agreements.................................................p.16
Board Members and Officers.................................p.18
Custodian..................................................p.23
Independent Auditors.......................................p.24
Prospectus.................................................p.24
Appendix A: Description of Short-Term Securities..........p.25
Appendix B: Options and Interest Rate Futures Contracts...p.27
Appendix C: Dollar-Cost Averaging.........................p.33
Financial Statements.......................................p.34
<PAGE>
PAGE 34
ADDITIONAL INVESTMENT POLICIES
Strategist Tax-Free Income Fund, Inc. (the Company) is a series
mutual fund with one series of capital stock representing interests
in Strategist Tax-Free High Yield Fund (the Fund). The Fund is a
diversified mutual fund with its own goals and investment policies.
The Fund seeks to achieve its goals by investing all of its assets
in a corresponding series portfolio (the Portfolio) of Tax-Free
Income Trust (the Trust), a separate investment company, rather
than by directly investing in and managing its own portfolio of
securities.
Fundamental investment policies adopted by the Fund or Portfolio
cannot be changed without the approval of a majority of the
outstanding voting securities of the Fund or Portfolio, as defined
in the Investment Company Act of 1940 (the 1940 Act). Whenever the
Fund is requested to vote on a change in the investment policies of
the corresponding Portfolio, the Company will hold a meeting of
Fund shareholders and will cast the Fund's vote as instructed by
the shareholders.
Notwithstanding any of the 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.
Investment Policies applicable to the Portfolio:
These are investment policies in addition to those presented in the
prospectus. The policies below are fundamental policies that apply
both to the Fund and its corresponding Portfolio and may be changed
only with shareholder/unitholder approval. Unless holders of a
majority of the outstanding voting securities agree to make the
change, the Portfolio will not:
'Act as an underwriter (sell securities for others). However,
under the securities laws, the Portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Portfolio has not borrowed in the past
and has no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Portfolio's total assets.
'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 <PAGE>
PAGE 35
that up to 25% of the Portfolio's total assets may be invested
without regard to this 5% limitation. For purposes of this policy,
the terms of a municipal security determine the issuer.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited
partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the Portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
'Lend Portfolio securities in excess of 30% of its net assets. The
current policy of the board is to make these loans, either long- or
short-term, to broker-dealers. In making such loans, the Portfolio
gets the market price in cash, U.S. government securities, letters
of credit or such other collateral as may be permitted by
regulatory agencies and approved by the board. If the market price
of the loaned securities goes up, the Portfolio will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the
Portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities. A loan will not
be made unless American Express Financial Corporation (the Advisor)
believes the opportunity for additional income outweighs the risks.
The policies below are non-fundamental policies that apply both to
the Fund and its corresponding Portfolio and may be changed without
shareholder/unitholder approval. Unless changed by the board, the
Portfolio will not:
'Buy on margin or sell short, except it may enter into interest
rate future contracts.
'Pledge or mortgage its assets beyond 15% of total assets. If the
Portfolio were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities whose issuer
or guarantor of principal and interest has been in operation for
less than three years.
'Invest in voting securities, securities of investment companies or
exploration or development programs, such as oil, gas or mineral
leases.
<PAGE>
PAGE 36
'Invest more than 5% of its net assets in warrants. Under one
state's law no more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the New York or American Stock
Exchange.
'Invest more than 10% of its net assets in securities and
derivative instruments that are illiquid. In determining the
liquidity of municipal lease obligations, the Advisor, under
guidelines established by the board, will consider the essential
nature of the leased property, the likelihood that the municipality
will continue appropriating funding for the leased property, and
other relevant factors related to the general credit quality of the
municipality and the marketability of the municipal lease
obligation.
The Portfolio may invest up to 20% of its net assets in certain
taxable investments for temporary defensive purposes. It may
purchase short-term U.S. and Canadian government securities. It
may invest in bank obligations including negotiable certificates of
deposit, non-negotiable fixed time deposits, bankers' acceptances
and letters of credit. The issuing bank or savings and loan
generally must have 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 Portfolio may purchase short-term corporate notes and
obligations rated in the top two classifications by Moody's
Investors Service, Inc. (Moody's) or Standard & Poor's Corporation
(S&P) or the equivalent. It also may use repurchase agreements
with broker-dealers registered under the Securities Exchange Act of
1934 and with commercial banks. Repurchase agreements involve
investments in debt securities where the seller (broker-dealer or
bank) agrees to repurchase the securities from the Portfolio at
cost plus an agreed-to interest rate within a specified time. A
risk of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired, and it might
subsequently incur a loss if the value of the security declines or
if the other party to a repurchase agreement defaults on its
obligation.
The Portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the Advisor, under guidelines established by the
board, will evaluate relevant factors such as the issuer and the
size and nature of its commercial paper programs, the willingness
and ability of the issuer or dealer to repurchase the paper, and
the nature of the clearance and settlement procedures for the
paper.
<PAGE>
PAGE 37
For a description of short-term securities, see Appendix A. For a
discussion on options and interest rate futures contracts, see
Appendix B. For a discussion on dollar-cost averaging, see
Appendix C.
SECURITY TRANSACTIONS
Subject to policies set by the board, the Advisor is authorized to
determine, consistent with the Portfolio'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 most favorable execution except where
otherwise authorized by the board.
The Advisor has a strict Code of Ethics that prohibits its
affiliated personnel from engaging in personal investment
activities that compete with or attempt to take advantage of
planned portfolio transactions for any fund or trust for which it
acts as investment manager. The Advisor carefully monitors
compliance with its Code of Ethics.
Normally, the Portfolio'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.
On occasion, it may be desirable to compensate a broker for
research services or for brokerage services by paying a commission
that might not otherwise be charged or a commission in excess of
the amount another broker might charge. The board has adopted a
policy authorizing the Advisor to do so to the extent authorized by
law, if the Advisor determines, in good faith, that such commission
is reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light
of that transaction or the Advisor's overall responsibilities to
the Portfolios advised by the Advisor.
Research provided by brokers supplements the Advisor's own research
activities. Such services include economic data on, and analysis
of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates;
purchase recommendations for stocks and bonds; portfolio strategy
services; political, economic, business and industry trend
assessments; historical statistical information; market data
services providing information on specific issues and prices; and
technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of
written reports, computer software or personal contact by telephone
or at seminars or other meetings. The Advisor has obtained, and in
the future may obtain, computer hardware from brokers, including <PAGE>
PAGE 38
but not limited to personal computers that will be used exclusively
for investment decision-making purposes, which include the
research, portfolio management and trading functions and other
services to the extent permitted under an interpretation by the
SEC.
When paying a commission that might not otherwise be charged or a
commission in excess of the amount another broker might charge, the
Advisor must follow procedures authorized by the board. To date,
three procedures have been authorized. One procedure permits the
Advisor to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research
services it has provided. The second procedure permits the
Advisor, in order to obtain research, to direct an order on an
agency basis to buy or sell a security traded in the over-the-
counter market to a firm that does not make a market in that
security. The commission paid generally includes compensation for
research services. The third procedure permits the Advisor, in
order to obtain research and brokerage services, to cause the
Portfolio to pay a commission in excess of the amount another
broker might have charged. The Advisor has advised the Trust it is
necessary to do business with a number of brokerage firms on a
continuing basis to obtain such services as the handling of large
orders, the willingness of a broker to risk its own money by taking
a position in a security, and the specialized handling of a
particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some Portfolio
transactions may not be effected at the lowest commission, but the
Advisor believes it may obtain better overall execution. The
Advisor has assured the Trust that under all three procedures the
amount of commission paid will be reasonable and competitive in
relation to the value of the brokerage services performed or
research provided.
All other transactions shall be placed on the basis of obtaining
the best available price and most favorable execution. In so
doing, if, in the professional opinion of the person responsible
for selecting the broker or dealer, several firms can execute the
transaction on the same basis, consideration will be given by such
person to those firms offering research services. Such services
may be used by the Advisor in providing advice to all the Trusts in
the Preferred Master Trust Group, their corresponding Funds and
other accounts advised by the Advisor, even though it is not
possible to relate the benefits to any particular fund, portfolio
or account.
Each investment decision made for the Portfolio is made
independently from any decision made for other portfolios, funds or
accounts advised by the Advisor or any of its subsidiaries. When
the Portfolio buys or sells the same security as another portfolio,
fund or account, the Advisor carries out the purchase or sale in a
way the Trust agrees in advance is fair. Although sharing in large
transactions may adversely affect the price or volume purchased or <PAGE>
PAGE 39
sold by the Portfolio, the Portfolio hopes to gain an overall
advantage in execution. The Advisor has assured the Trust it will
continue to seek ways to reduce brokerage costs.
On a periodic basis, the Advisor makes a comprehensive review of
the broker-dealers it uses and the overall reasonableness of their
commissions. The review evaluates execution, operational
efficiency and research services.
For the fiscal periods 1995 and 1994, the portfolio turnover rates
were 14% and 17%.
For periods prior to the commencement of operations of the
Portfolio, turnover rates are based on the turnover rate of the IDS
Fund which transferred all of its assets to the Portfolio on May
13, 1996.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE ADVISOR
Affiliates of American Express Company (American Express) (of which
the Advisor is a wholly owned subsidiary) may engage in brokerage
and other securities transactions on behalf of the Portfolio
according to procedures adopted by the board and to the extent
consistent with applicable provisions of the federal securities
laws. The Advisor will use an American Express affiliate only if
(i) the Advisor determines that the Portfolio will receive prices
and executions at least as favorable as those offered by qualified
independent brokers performing similar brokerage and other services
for the Portfolio and (ii) the affiliate charges the Portfolio
commission rates consistent with those the affiliate charges
comparable unaffiliated customers in similar transactions and if
such use is consistent with terms of the Investment Management
Services Agreement.
The Advisor may direct brokerage to compensate an affiliate. The
Advisor will receive research on South Africa from New Africa
Advisors, a wholly-owned subsidiary of Sloan Financial Group. The
Advisor owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send
research to the Advisor and in turn the Advisor will direct trades
to a particular broker. The broker will have an agreement to pay
New Africa Advisors. All transactions will be on a best execution
basis. Compensation received will be reasonable for the services
rendered.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past
performance. Average annual total return and current yield
quotations 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.
<PAGE>
PAGE 40
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)
Annualized yield
The Fund may calculate an annualized yield by dividing the net
investment income per share deemed earned during a period by the
net asset value per share on the last day of the period and
annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = aggregate expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
The Fund's yield, calculated as described above according to the
formula prescribed by the SEC, is a hypothetical return based on
market value yield to maturity for the Portfolio's securities. It <PAGE>
PAGE 41
is not necessarily indicative of the amount which was or may be
paid to the Fund's shareholders. Actual amounts paid to the Fund's
shareholders are reflected in the distribution yield.
Distribution yield
Distribution yield is calculated according to the following
formula:
D divided by POP F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield
Tax-Equivalent Yield
Tax-equivalent yield is calculated by dividing that portion of the
yield (as calculated above) which is tax-exempt by one minus a
stated income tax rate and adding the result to that portion, if
any, of the yield that is not tax-exempt. The following table
shows the fund's tax equivalent yield, based on federal but not
state tax rates, for the 30-day period ended Nov. 30, 1995.
Marginal
Income Tax Tax-Equivalent Yield
Bracket Distribution Annualized
Class A
15.0% 6.60% 5.82%
28.0% 7.79% 6.88%
33.0% 8.37% 7.39%
Class B
15.0% 6.07% 5.25%
28.0% 7.17% 6.19%
33.0% 7.70% 6.66%
Class Y
15.0% 7.14% 6.33%
28.0% 8.43% 7.47%
33.0% 9.06% 8.03%
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, Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report, <PAGE>
PAGE 42
Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
On May 13, 1996, IDS High Yield Tax-Exempt Fund (the IDS Fund), an
open-end investment company managed by the Advisor, transferred all
of its assets to the Portfolio in exchange for units of the
Portfolio. Also on May 13, 1996, the Fund transferred all of its
assets to the Portfolio in connection with the commencement of its
operations.
On March 20, 1995, the IDS Fund converted to a multiple class
structure pursuant to which three classes of shares are offered:
Class A, Class B and Class Y. Class A shares are sold with a 5%
sales charge, a 0.175% service fee and no 12b-1 fee. Performance
quoted by the Fund is based on the performance and yield of the IDS
Fund prior to March 20, 1995 and to Class A shares of the IDS Fund
from March 20, 1995 through May 13, 1996, adjusted for differences
in sales charge. The historical performance for these periods has
not been adjusted for any difference between the estimated
aggregate fees and expenses of the Fund and historical fees and
expenses of the IDS Fund.
VALUING FUND SHARES
The value of an individual share is determined by using the net
asset value before shareholder transactions for the day and
dividing that figure by the number of shares outstanding at the end
of the previous day.
In determining net assets before shareholder transactions, the
securities held by the Fund's corresponding Portfolio are valued as
follows as of the close of business of the New York Stock Exchange
(the Exchange):
'Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and asked
prices on the exchange where the security is primarily traded and,
if none exist, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are
valued at the last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which
a last-quoted sales price is not readily available, and other
securities traded over-the-counter but not included in the NASDAQ
National Market System are valued at the mean of the closing bid
and asked prices.
<PAGE>
PAGE 43
'Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
'Foreign securities traded outside the United States are generally
valued as of the time their trading is complete, which is usually
different from the close of the Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at
the current rate of exchange. Occasionally, events affecting the
value of such securities may occur between such times and the close
of the Exchange that will not be reflected in the computation of
[the] [a] Portfolio's net asset value. If events materially
affecting the value of such securities occur during such period,
these securities will be valued at their fair value according to
procedures decided upon in good faith by the board.
'Short-term securities maturing more than 60 days from the
valuation date are valued at the readily available market price or
approximate market value based on current interest rates. Short-
term securities maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at
amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at
acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the
maturity date.
'Securities without a readily available market price, bonds other
than convertibles 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 Trust. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable
about the bond if such a dealer is available.
The Exchange, American Express Service Corporation (AESC) and the
Fund will be closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
INVESTING IN THE FUND
The Fund's minimum initial investment requirement is $2,000 ($1,000
for Custodial Accounts, Individual Retirement Accounts and certain
other retirement plans). Subsequent investments of $100 or more
may be made. These minimum investment requirements may be changed
at any time and are not applicable to certain types of investors.
The Securities Investor Protection Corporation (SIPC) will provide
account protection, in an amount up to $500,000, for securities <PAGE>
PAGE 44
including Fund shares (up to $100,000 protection for cash), held in
an Investment Management Account maintained with AESC. Of course,
SIPC account protection does not protect shareholders from share
price fluctuations.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an
explanation of redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net
asset value, stop accepting payments for purchase of shares or
suspend the duty of the Fund to redeem shares for more than seven
days. Such emergency situations would occur if:
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the Portfolio's securities is not reasonably
practicable or it is not reasonably practicable for the Portfolio's
to determine the fair value of its net assets, or
'The SEC, under the provisions of the 1940 Act, as amended,
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.
Redemptions by the Fund
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, IRA's 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.
Redemptions in Kind
The Company 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 the Fund at the
beginning of such period. Although redemptions in excess of this
limitation would normally be paid in cash, the Fund reserves the <PAGE>
PAGE 45
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.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment
in regular installments at no extra cost. While the plans differ
on how the pay-out is figured, they all are based on the redemption
of your investment. Net investment income dividends and any
capital gain distributions will automatically be reinvested, unless
you elect to receive them in cash. If you are redeeming a tax-
qualified plan account for which American Express Trust Company
acts as custodian, you can elect to receive your dividends and
other distributions in cash when permitted by law. If you redeem
an IRA or a qualified retirement account, certain restrictions,
federal tax penalties and special federal income tax reporting
requirements may apply. You should consult your tax advisor about
this complex area of the tax law.
To start any of these plans, please submit an authorization form
supplied by American Express Financial Direct. For a copy, write
or call American Express Financial Direct, 1-800-AXP-SERV (TTY: 1-
800-710-5260), P.O. Box 59196, Minneapolis, MN 55459-0196. Your
authorization must be received in the Minneapolis headquarters at
least five days before the date you want your payments to begin.
The initial payment must be at least $50. Payments will be made on
a monthly, bimonthly, quarterly, semiannual or annual basis. Your
choice is effective until you change or cancel it.
The following pay-out plans are designed to take care of the needs
of most shareholders. If you need a more irregular schedule of
payments, it may be necessary for you to make a series of
individual redemptions, in which case you will have to send in a
separate redemption request for each pay-out. The Fund reserves
the right to change or stop any pay-out plan and to stop making
such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be
redeemed at net asset value at regular intervals during the time
period you choose. This plan is designed to end in complete re-
demption of all shares in your account with the Fund by the end of
the fixed period.
<PAGE>
PAGE 46
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed
at net asset value for each payment and that amount will be sent to
you. The length of time these payments continue is based on the
number of shares in your account with the Fund.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares
is necessary to make the payment will be redeemed in regular
installments until your account with the Fund is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
payment. Percentages range from 0.25% to 0.75%. For example, if
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account with the Fund is $10,000 on
the payment date.
TAXES
All distributions of net investment income during the year will
have the same percentage designated as tax-exempt. This annual
percentage is expected to be substantially the same as the
percentage of tax-exempt income actually earned during any
particular distribution period. For the year ended Dec. 31, 1995,
21.82% of the income distribution was designated as exempt from
federal income taxes.
Capital gain distributions, if any, received by individual and
corporate 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 as ordinary
income, not capital gain.
If you are a "substantial user" (or related person) of facilities
financed by industrial development bonds, you should consult your
tax advisor before investing. The income from such bonds may not
be tax-exempt for you.
Interest on private activity bonds generally issued after August
1986 is a preference item for purposes of the individual and
corporate alternative minimum taxes. "Private-activity" (non-
governmental purpose) municipal bonds include industrial revenue
bonds, student-loan bonds and multi- and single-family housing
bonds. An exception is made for private activity bonds issued for
qualified--501(c)(3)--organizations, including non-profit colleges,
universities and hospitals. These bonds will continue to be tax-
exempt and will not be subject to the alternative minimum tax for
individuals. To the extent a fund earns income subject to the <PAGE>
PAGE 47
alternative minimum tax, it will flow through to that fund's
shareholders and may subject some shareholders, depending on their
tax status, to the alternative minimum tax. The Fund reports the
percentage of its income earned from these bonds to shareholders
with their other tax information.
State law determines whether interest income on a particular
municipal bond is tax-exempt for state tax purposes. It also
determines the tax treatment of those bonds when earned by a mutual
fund and paid to the fund's shareholders. The Fund will tell you
the percentage of interest income from municipal bonds it received
during the year on a state-by-state basis. Your tax advisor should
help you report this income for state tax purposes.
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 Nov. 30 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.
This is a brief summary that relates to federal income taxation
only. Shareholders should consult their tax advisor as to the
application of federal, state and local income tax laws to Fund
distributions.
AGREEMENTS
Investment Management Services Agreement
The Trust, on behalf of the Portfolio, has an Investment Management
Services Agreement with the Advisor. For its services, the Advisor
is paid a fee based on the following schedule:
Assets Annual rate at
(billions) each asset level
First $1.0 0.490%
Next 1.0 0.465
Next 1.0 0.440
Next 3.0 0.415
Next 3.0 0.390
Over 9.0 0.360
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 management fee is paid monthly.
Under the Agreement, the Portfolio also pays taxes, brokerage
commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration
fees for units; Portfolio office expenses; consultants' fees; <PAGE>
PAGE 48
compensation of board members, officers and employees; corporate
filing fees; organizational expenses; expenses incurred in
connection with lending portfolio securities; and expenses properly
payable by the Portfolio, approved by the board.
Administrative Services Agreement
The Company, on behalf of the Fund, has an Administrative Services
Agreement with the Advisor. Under this agreement, the Fund pays
the Advisor for providing administration and accounting services.
The fee is payable from the assets of the Fund and is calculated as
follows:
Fund assets Annual rate at
(billions) each asset level
First $1 0.040%
Next 1 0.035
Next 1 0.030
Next 3 0.025
Next 3 0.020
Over 9 0.020
Under the agreement, the Fund also pays taxes; audit and certain
legal fees; registration fees for shares; office expenses;
consultant's fees; compensation of board members, officers and
employees; corporate filing fees; organizational expenses; and
expenses properly payable by the Fund approved by the board.
Transfer Agency Agreement
The Company, on behalf of the Fund, has a Transfer Agency Agreement
with the Advisor. This agreement governs the responsibility for
administering and/or performing transfer agent functions, for
acting as service agent in connection with dividend and
distribution functions and for performing shareholder account
administration agent functions in connection with the issuance,
exchange and redemption or repurchase of the Fund's shares. The
fee is determined by multiplying the number of shareholder accounts
at the end of the day by a rate of $25 per year and dividing by the
number of days in the year. The fees paid to the Advisor may be
changed from time to time upon agreement of the parties without
shareholder approval.
Placement Agency Agreement
Pursuant to a Placement Agency Agreement, the Distributor acts as
placement agent of the units of the Trust.
Plan and Agreement of Distribution/Distribution Agreement
To help the Distributor defray the costs of distribution and
servicing, the Company and the Distributor have entered into a Plan
and Agreement of Distribution (Plan). These costs cover almost all
<PAGE>
PAGE 49
aspects of distributing Fund shares. Under the Plan, the
Distributor is paid a fee at an annual rate of 0.25% of the Fund's
average daily net assets.
The Plan must be approved annually by the board, including a
majority of the disinterested board members, if it is to continue
for more than a year. At least quarterly, the board must review
written reports concerning the amounts expended under the Plan and
the purposes for which the expenditures were made. The Plan and
any agreement related to it may be terminated at any time by vote
of a majority of board members who are not interested persons of
the Company and have no direct or indirect financial interest in
the operation of the Plan or in any agreement related to the Plan,
by vote of a majority of the outstanding voting securities of the
Fund or by the Distributor. The Plan (or any agreement related to
it) will terminate in the event of its assignment, as that term is
defined in the 1940 Act, as amended. The Plan may not be amended
to increase the amount to be spent for distribution without
shareholder approval, and all material amendments to the Plan must
be approved by a majority of the board members, including a
majority of the board members who are not interested persons of the
Company and who do not have a financial interest in the operation
of the Plan or any agreement related to it. The selection and
nomination of such disinterested board members is the
responsibility of such disinterested board members. No board
member who is not an interested person has any direct or indirect
financial interest in the operation of the Plan or any related
agreement.
Total fees and expenses
Total combined fees and nonadvisory expenses of both the Fund and
Portfolio cannot exceed the most restrictive applicable state
limitation. Currently, the most restrictive applicable state
expense limitation, subject to exclusion of certain expenses, is
2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million and 1.5% of average daily net
assets over $100 million, on an annual basis. At the end of each
month, if the fees and expenses of the Fund exceed this limitation
for the Fund's fiscal year in progress, the Advisor will assume all
expenses in excess of the limitation. The Advisor then may bill
the Fund for such expenses in subsequent months up to the end of
that fiscal year, but not after that date. No interest charges are
assessed by the Advisor for expenses it assumes.
BOARD MEMBERS AND OFFICERS
The following is a list of the Company's board members and
officers, who are also board members and officers of all 13 funds
in the Strategist Fund Group. All shares of the Fund have
cumulative voting rights with respect to the election of board
members.
<PAGE>
PAGE 50
Directors and officers
Rodney P. Burwell
Born in 1939
Xerxes Corporation
7901 Xerxes Ave. S.
Minneapolis, MN
Chairman, Xerxes Corporation (fiberglass storage tanks). Director,
Children's Broadcasting Network, Vaughn Communications, Sunbelt
Nursery Group, Fairview Corporation.
William J. Heron Jr.*
Born in 1941
American Express Company
World Financial Center
New York, NY
Vice president of all funds in the Strategist Fund Group.
President of American Express Financial Direct since 1995. Chief
executive officer, Swig Investment Company from 1993 to 1995.
Group Executive, Citicorp/Citibank from 1985 to 1993.
Jean B. Keffeler
Born in 1945
The Keffeler Company
3033 Excelsior Blvd.
Minneapolis, MN
President, The Keffeler Company (management advisory services).
Director, National Computer Systems, American Paging Systems, Inc.
Thomas R. McBurney
Born in 1938
McBurney Management Advisors
1800 International Centre
900 2nd Ave. S.
Minneapolis, MN
President, McBurney Management Advisors. Director, The Valspar
Corporation (paints), Wenger Corporation, Security American
Financial Enterprises, Allina, Space Center Enterprises,
Greenspring Corporation.
James A. Mitchell*
Born in 1941
2900 IDS Tower
Minneapolis, MN
President of all funds in the Strategist Fund Group. Executive
vice president and director of the Advisor. Chairman of the board
and chief executive officer of IDS Life Insurance Company.
Director, IDS Life Funds.
<PAGE>
PAGE 51
*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. Heron, who
is vice president, the Funds' other officers are:
Eileen J Newhouse
Born in 1955
IDS Tower 10
Minneapolis, MN
Secretary of all funds in the Strategist Fund Group. Counsel of
the Advisor.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the Strategist Fund Group. Director,
senior vice president and chief financial officer of the Advisor.
The following is a list of the Trust's board members and officers,
who, except for Mr. Dudley, are board members and officers of all
five Trusts in the Preferred Master Trust Group and all funds in
the IDS MUTUAL FUND GROUP. Mr. Dudley is a board member of all
five Trusts in the Preferred Master Trust Group and the 34 publicly
offered funds in the IDS MUTUAL FUND GROUP. All units have
cumulative voting rights with respect to the election of board
members.
Trustees and officers
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, the Interpublic Group of Companies, Inc.
(advertising) and FPL Group, Inc. (holding company for Florida
Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of the Advisor.
<PAGE>
PAGE 52
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of the Advisor.
Previously, senior vice president, finance and chief financial
officer of the Advisor.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term congressman,
secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's
Digest Association, Inc., Science Applications International Corp.,
Wallace Reader's Digest Funds and Public Oversight Board (SEC
Practice Section, American Institute of Certified Public
Accountants).
<PAGE>
PAGE 53
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
President of all Trusts in the Preferred Master Trust Group since
April 1996 and president of all funds in the IDS MUTUAL FUND GROUP
since June 1993. Former vice chairman of the board, Cargill,
Incorporated (commodity merchants and processors).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Councils of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of the Advisor.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person of the Trust by reason of being an officer and
employee of the Trust.
<PAGE>
PAGE 54
**Interested person of the Trust by reason of being an officer,
board member, employee and/or shareholder of the Advisor or
American Express.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Trust's other
officers are:
Leslie L. Ogg
Born in 1938.
901 S. Marquette Ave.
Minneapolis, MN
Vice president, general counsel and secretary of all Trusts in the
Preferred Master Trust Group and of all funds in the IDS MUTUAL
FUND GROUP.
Officers who are also officers and/or employees of the Advisor:
Peter J. Anderson
Born in 1942.
IDS Tower 10
Minneapolis, MN
Vice president-investments of all Trusts in the Preferred Master
Trust Group and all funds in the IDS MUTUAL FUND GROUP. Director
and senior vice president-investments of the Advisor.
Melinda S. Urion
Born in 1953.
IDS Tower 10
Minneapolis, MN
Treasurer of all Trusts in the Preferred Master Trust Group and of
all funds in the IDS MUTUAL FUND GROUP. Director, senior vice
president and chief financial officer of the Advisor. Director and
executive vice president and controller of IDS Life Insurance
Company.
CUSTODIAN
The Trust's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402-2307, through a custodian agreement. The
Fund also retains the custodian pursuant to a custodian agreement.
The custodian is permitted to deposit some or all of its securities
in central depository systems as allowed by federal law. For its
services, the Portfolio pays the custodian a maintenance charge and
a charge per transaction in addition to reimbursing the custodian's
out-of-pocket expenses.
<PAGE>
PAGE 55
INDEPENDENT AUDITORS
The Fund's and corresponding Portfolio's financial statements to be
contained in its Annual Report to shareholders at the end of the
fiscal year will be audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis,
MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
PROSPECTUS
The prospectus dated Sept. 27, 1996, is hereby incorporated in this
SAI by reference.
<PAGE>
PAGE 56
APPENDIX A
DESCRIPTION OF SHORT-TERM SECURITIES
Short-term Tax-exempt Securities
A portion of the Portfolio's assets are in cash and short-term
securities for day-to-day operating purposes. The investments will
usually be in short-term municipal bonds and notes. These include:
(1) Tax anticipation notes sold to finance working capital needs
of municipalities in anticipation of receiving taxes on a future
date.
(2) Bond anticipation notes sold on an interim basis in
anticipation of a municipality issuing a longer term bond in the
future.
(3) Revenue anticipation notes issued in anticipation of revenues
from sources other than taxes, such as federal revenues available
under the Federal Revenue Sharing Program.
(4) Tax and revenue anticipation notes issued in anticipation of
revenues from taxes and other sources of revenue, except bond
placements.
(5) Construction loan notes insured by the Federal Housing
Administration which remain outstanding until permanent financing
by the Federal National Mortgage Association (FNMA) or the
Government National Mortgage Association (GNMA) at the end of the
project construction period.
(6) Tax-exempt commercial paper with a stated maturity of 365 days
or less issued by agencies of state and local governments to
finance seasonal working capital needs or as short-term financing
in anticipation of longer-term financing.
(7) Project notes issued by local housing authorities to finance
urban renewal and public housing projects. These notes are
guaranteed by the full faith and credit of the U.S. government.
(8) Variable rate demand notes, on which the yield is adjusted at
periodic intervals not exceeding 31 days and on which the principal
must be repaid in not less than seven days' notice, are considered
short-term regardless of the stated maturity.
Short-term Taxable Securities and Repurchase Agreements
Depending on market conditions, a portion of the Portfolio's
investments may be in short-term taxable securities. These
include:
(1) Obligations of the U.S. government, its agencies and
instrumentalities resulting principally from lending programs of
the U.S. government;<PAGE>
PAGE 57
(2) U.S. Treasury bills with maturities up to one year. The
difference between the purchase price and the maturity value or
resale price is the interest income to the Portfolio;
(3) Certificates of deposit or receipts with fixed interest rates
issued by banks in exchange for deposit of funds;
(4) Bankers' acceptances arising from short-term credit
arrangements designed to enable business to obtain funds to finance
commercial transactions;
(5) Letters of credit which are short-term notes issued in bearer
form with a bank letter of credit obligating the bank to pay the
bearer the amount of the note;
(6) Commercial paper rated in the two highest grades by Standard &
Poor's or Moody's. Commercial paper is generally defined as
unsecured short-term notes issued in bearer form by large well-
known corporations and finance companies. These ratings reflect a
review of management, economic evaluation of the industry
competition, liquidity, long-term debt and ten-year earning trends.
Standard & Poor's rating A-1 indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Standard & Poor's ratings A-2 indicates that capacity for timely
payment on issues with this designation is strong.
Moody's rating Prime-1 (P-1) indicates a superior capacity for
repayment of short-term promissory obligations.
Moody's rating Prime-2 (P-2) indicates a strong capacity for
repayment of short-term promissory obligations.
(7) Repurchase agreements involving acquisition of securities by
the Portfolio with a concurrent agreement by the seller, usually a
bank or securities dealer, to reacquire the securities at cost plus
interest within a specified time. From this investment, the
Portfolio receives a fixed rate of return that is insulated from
market rate changes while it holds the security.
<PAGE>
PAGE 58
APPENDIX B
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
The Portfolio may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market. The Portfolio
may enter into interest rate futures contracts traded on any U.S.
or foreign exchange. The Portfolio also may buy or write put and
call options on these futures. Options in the over-the-counter
market will be purchased only when the investment manager believes
a liquid secondary market exists for the options and only from
dealers and institutions the investment manager believes present a
minimal credit risk. Some options are exercisable only on a
specific date. In that case, or if a liquid secondary market does
not exist, the Portfolio could be required to buy or sell
securities at disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash (in the case of a put) that would be required upon
exercise.
The price paid by the buyer for an option is called a premium. In
addition, the buyer generally pays a broker a commission. The
writer receives a premium, less a commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit the
Portfolio and its unitholders by improving the Portfolio's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. Options are used as a trading technique to
take advantage of any disparity between the price of the underlying
<PAGE>
PAGE 59
security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized
only to effect a transaction when the price of the security plus
the option price will be as good or better than the price at which
the security could be bought or sold directly. When the option is
purchased, the Portfolio pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying
security when the option is exercised. For record-keeping and tax
purposes, the price obtained on the purchase of the underlying
security will be the combination of the exercise price, the premium
and both commissions. When using options as a trading technique,
commissions on the option will be set as if only the underlying
securities were traded.
Put and call options also may be held by the Portfolio for
investment purposes. Options permit the Portfolio to experience
the change in the value of a security with a relatively small
initial cash investment. The risk the Portfolio assumes when it
buys an option is the loss of the premium. To be beneficial to the
Portfolio, the price of the underlying security must change within
the time set by the option contract. Furthermore, the change must
be sufficient to cover the premium paid, the commissions paid both
in the acquisition of the option and in a closing transaction or in
the exercise of the option and subsequent sale (in the case of a
call) or purchase (in the case of a put) of the underlying
security. Even then the price change in the underlying security
does not ensure a profit since prices in the option market may not
reflect such a change.
Writing covered options. The Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the
Portfolio's goal.
'All options written by the Portfolio will be covered. For covered
call options if a decision is made to sell the security, the
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
'The Portfolio will write options only as permitted under federal
or state laws or regulations, such as those that limit the amount
of total assets subject to the options. While no limit has been
set by the Portfolio, it will conform to the requirements of
certain states. For example, California limits the writing of
options to 50% of the assets of a portfolio.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since the
Portfolio is taxed as a regulated investment company under the
Internal Revenue Code, any gains on options and other securities
held less than three months must be limited to less than 30% of its
annual gross income.
<PAGE>
PAGE 60
If a covered call option is exercised, the security is sold by the
Portfolio. The Portfolio will recognize a capital gain or loss
based upon the difference between the proceeds and the security's
basis.
Options on many securities are listed on options exchanges. If the
Portfolio writes listed options, it will follow the rules of the
options exchange. Options are valued at the close of the New York
Stock Exchange. An option listed on a national exchange, CBOE or
NASDAQ will be valued at the last quoted sales price or, if such a
price is not readily available, at the mean of the last bid and
asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contracts markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by the Portfolio entering into a futures contract
purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the
sale exceeds the price in the offsetting purchase, the Portfolio
immediately is paid the difference and realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio
pays the difference and realizes a loss. Similarly, closing out a
futures contract purchase is effected by the Portfolio entering
into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Portfolio realizes a gain, and if
the offsetting sale price is less than the purchase price, the
Portfolio realizes a loss. At the time a futures contract is made,
a good-faith deposit called initial margin is set up within a
segregated account at the Portfolio's custodian bank. The initial
margin deposit is approximately 1.5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment of
variation margin is required so that each day the Portfolio would
pay out cash in an amount equal to any decline in the contract's
value or receive cash equal to any increase. At the time a futures
contract is closed out, a nominal commission is paid, which is
generally lower than the commission on a comparable transaction in
the cash markets.
<PAGE>
PAGE 61
The purpose of a futures contract, in the case of a portfolio
holding long-term debt securities, is to gain the benefit of
changes in interest rates without actually buying or selling
long-term debt securities. For example, if the Portfolio owned
long-term bonds and interest rates were expected to increase, it
might enter into futures contracts to sell securities which would
have much the same effect as selling some of the long-term bonds it
owned.
Futures contracts are based on types of debt securities referred to
above, which have historically reacted to an increase or decline in
interest rates in a fashion similar to the debt securities the
Portfolio owns. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of
the Portfolio's futures contracts would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio
from declining as much as it otherwise would have. If, on the
other hand, the Portfolio held cash reserves and interest rates
were expected to decline, the Portfolio might enter into interest
rate futures contracts for the purchase of securities. If short-
term rates were higher than long-term rates, the ability to
continue holding these cash reserves would have a very beneficial
impact on the Portfolio's earnings. Even if short-term rates were
not higher, the Portfolio would still benefit from the income
earned by holding these short-term investments. At the same time,
by entering into futures contracts for the purchase of securities,
the Portfolio could take advantage of the anticipated rise in the
value of long-term bonds without actually buying them until the
market had stabilized. At that time, the futures contracts could
be liquidated and the Portfolio's cash reserves could then be used
to buy long-term bonds on the cash market. The Portfolio could
accomplish similar results by selling bonds with long maturities
and investing in bonds with short maturities when interest rates
are expected to increase or by buying bonds with long maturities
and selling bonds with short maturities when interest rates are
expected to decline. But by using futures contracts as an
investment tool, given the greater liquidity in the futures market
than in the cash market, it might be possible to accomplish the
same result more easily and more quickly. Successful use of
futures contracts depends on the investment manager's ability to
predict the future direction of interest rates. If the investment
manager's prediction is incorrect, the Portfolio would have been
better off had it not entered into futures contracts.
OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to
buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and
sell a security on a set date, an option on a futures contract
merely entitles its holder to decide on or before a future date
(within nine months of the date of issue) whether to enter into
such a contract. If the holder decides not to enter into the
contract, all that is lost is the amount (premium) paid for the
option. Furthermore, because the value of the option is fixed at
the point of sale, there are no daily payments of cash to reflect <PAGE>
PAGE 62
the change in the value of the underlying contract. However, since
an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily
and that change is reflected in the net asset value of the
Portfolio.
RISKS. There are risks in engaging in each of the management tools
described above. The risk the Portfolio assumes when it buys an
option is the loss of the premium paid for the option. Purchasing
options also limits the use of monies that might otherwise be
available for long-term investments.
The risk involved in writing options on futures contracts the
Portfolio owns, or on securities held in its portfolio, is that
there could be an increase in the market value of such contracts or
securities. If that occurred, the option would be exercised and
the asset sold at a lower price than the cash market price. To
some extent, the risk of not realizing a gain could be reduced by
entering into a closing transaction. The Portfolio could enter
into a closing transaction by purchasing an option with the same
terms as the one it had previously sold. The cost to close the
option and terminate the Portfolio's obligation, however, might be
more or less than the premium received when it originally wrote the
option. Furthermore, the Portfolio might not be able to close the
option because of insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities
subject to futures contracts may not correlate perfectly with the
behavior of the cash prices of the securities. The correlation may
be distorted because the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or
security price and their cost of borrowed funds. Such distortions
are generally minor and would diminish as the contract approached
maturity.
Another risk is that the Portfolio's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the movements
take place. For example, if the Portfolio sold futures contracts
for the sale of securities in anticipation of an increase in
interest rates, and interest rates declined instead, the Portfolio
would lose money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, the
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
<PAGE>
PAGE 63
Federal income-tax treatment of gains or losses from transactions
in options on futures contracts and indexes will depend on whether
such option is a section 1256 contract. If the option is a non-
equity option, the Portfolio will either make a 1256(d) election
and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term. Certain provisions of the Internal Revenue Code
may also limit the Portfolio's ability to engage in futures
contracts and related options transactions. For example, at the
close of each quarter of the Portfolio's taxable year, at least 50%
of the value of its assets must consist of cash, government
securities and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived
from sales of securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, the
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 64
APPENDIX C
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility
of the financial markets. By using this strategy, more shares will
be purchased when the price is low and less when the price is high.
As the accompanying chart illustrates, dollar-cost averaging tends
to keep the average price paid for the shares lower than the
average market price of shares purchased, although there is no
guarantee.
While this 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 in a Fund to meet long-term goals.
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).
<PAGE>
PAGE 65
<TABLE>
<CAPTION>
Statement of assets and liabilities
Strategist Tax-Free High Yield Fund
July 31, 1996
Assets
(Unaudited)
<S> <C>
Investment in Tax-Free High Yield Portfolio (Note 1) $539,135
Expense receivable from AEFC 286
Organizational costs (Note 1) 13,795
Total assets 553,216
Liabilities
Dividends payable to shareholders 411
Other accrued expenses 23,112
Payable to advisor 13,912
Total liabilities 37,435
Net assets applicable to outstanding capital stock $515,781
Represented by
Capital stock -- authorized 3,000,000,000
shares of $.01 par value; outstanding 114,997 shares $1,150
Additional paid-in-capital 506,277
Accumulated net realized loss (Note 1) (1,098)
Unrealized appreciation of investments 9,452
Total representing net assets applicable to outstanding
capital stock $515,781
Net asset value per share of outstanding capital stock $4.49
See accompanying notes to financial statements.
<PAGE>
PAGE 66
Statement of operations
Strategist Tax-Free High Yield Fund
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Investment Income (Unaudited)
Income:
Interest $3,277
Expenses (Note 2):
Distribution fee 115
Transfer agency fee 6
Administrative services fee 18
Postage 2,924
Registration fees 12,236
Reports to shareholders 1,574
Audit fees 4,558
Administrative 67
Other 1,866
Total feeder expenses 23,364
Expenses allocated from Tax-Free High Yield Portfolio 218
Total expenses 23,582
Less expenses reimbursed by AEFC (23,143)
Total net expenses 439
Investment income -- net 2,838
Realized and unrealized gain (loss) -- net
Net realized loss on investments (1,098)
Net change in unrealized appreciation or
depreciation of investments 9,452
Net loss on investments 8,354
Net increase in net assets resulting from operations 11,192
See accompanying notes to financial statements.
<PAGE>
PAGE 67
Statement of changes in net assets
Strategist Tax-Free High Yield Fund
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Operations and distributions July 31, 1996
Period ended
(Unaudited)
Investment income - net $2,838
Net realized loss on investments (1,098)
Net change in unrealized appreciation or
depreciation of investments 9,452
Net increase in net assets resulting from operations 11,192
Distributions to shareholders from:
Net investment income (2,838)
Total distributions (2,838)
Capital share transactions (Note 3)
Proceeds from sales 405,000
Reinvestment of distributions at net asset value 2,427
Increase in net assets from capital share transactions 407,427
Total increase (decrease) in net assets 415,781
Net assets at beginning of period (Note 1) 100,000
Net assets at end of period $515,781
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 68
Notes to financial statements
Strategist Tax-Free High Yield Fund
(Unaudited as to July 31, 1996)
____________________________________________________________
1. Summary of significant accounting policies
The Fund is a series of Strategist Tax-Free Income Fund, Inc. and
is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company.
On April 15, 1996, American Express Financial Corporation (AEFC)
purchased 22,422 shares of the Fund. Operations did not formally
commence until May 13, 1996 when the shares became effectively
registered under the Securities Act of 1933.
Investment in Tax-Free High Yield Portfolio
The Fund invests all of its net investable assets in the Tax-Free
High Yield Portfolio (the Portfolio), a series of Tax Free Income
Trust, an open-end investment company that has the same objectives
as the Fund. The Portfolio seeks to provide unit holders with a
high yield generally exempt from federal income taxes. The Fund
records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements
of the Portfolio are included elsewhere in this report and should
be read in conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at value which is
equal to the Fund's proportionate ownership interest in the net
assets of the Portfolio. The percentage of the Portfolio owned by
the Fund at July 31, 1996 was 0.01%. Valuation of securities held
by the Portfolio is discussed in Note 1 of the Portfolio's Notes to
Financial Statements.
Organizational Costs
The Fund incurred organizational expenses in connection with the
start-up and initial registration of the Fund. These costs will be
amortized over 60 months on a straight-line basis beginning with
the commencement of operations. If any or all of the shares held
by AEFC representing initial capital of the Fund are redeemed
during the amortization period, the redemption proceeds will be
reduced by the pro rata portion of the unamortized organizational
cost balance.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.<PAGE>
PAGE 69
Federal taxes
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to the shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses)
allocated from the Portfolio may differ for financial statement and
tax purposes primarily because of the deferral of losses on certain
futures contracts, the recognition of certain foreign currency
gains (losses) as ordinary income (loss) for tax purposes, and
losses deferred due to "wash sale" transactions. The character
of distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization
for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized
gains (losses) were recorded by the Fund.
Dividends to shareholders
Dividends declared daily and payable monthly, from net investment
income, are reinvested in additional shares of the Fund 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 July 31, 1996, AEFC owned 113,871 shares or 99% of the Fund.
____________________________________________________________
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, the Fund
accrues its own expenses as follows:
The Fund entered into agreements with AEFC for providing
administrative services and serving as transfer agent as follows:
Under its Administrative Services Agreement, the Fund pays AEFC 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 this Agreement, the Fund also pays taxes;
audit and certain legal fees; registration fees for shares; office
expenses; consultant's fees; compensation of board members;
corporate filing fees; organizational expenses; and any other
expenses properly payable by the Fund approved by the board.
Under a separate transfer agency agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an annual fee
per shareholder account of $25.
<PAGE>
PAGE 70
Under a plan and agreement of distribution, the Fund pays American
Express Service Corporation (the Distributor) a distribution fee at
an annual rate of 0.25% of the Fund's average daily net assets for
distribution related services.
A redemption fee of 0.5% is applied and retained by the Fund, if
shares are redeemed or exchanged within 180 days of purchase.
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation. However, AEFC and the Distributor have agreed
to waive certain fees and to absorb certain other Fund expenses
until Nov. 30, 1997. Under this agreement, the Fund's total
expenses will not exceed 0.95% of the Fund's average daily net
assets.
____________________________________________________________
3. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
Period ended July 31, 1996*
____________________________________________________________
Sold 114,455
Issued for reinvested 542
distributions
____________________________________________________________
Net increase 114,997
____________________________________________________________
*Inception date was May 13, 1996.
____________________________________________________________
4. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on page 7 of the prospectus.
<PAGE>
PAGE 71
<TABLE>
<CAPTION>
Statement of assets and liabilities
Tax-Free High Yield Portfolio
July 31, 1996
Assets
(Unaudited)
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $5,721,880,578) $6,059,574,450
Dividends and accrued interest receivable 91,235,175
Receivable for investment securities sold 630,000
Total assets 6,151,439,625
Liabilities
Disbursements in excess of cash on demand deposit 4,593,655
Payable for investment securities purchased 7,306,563
Accrued investment management services fee 73,429
Other accrued expenses 103,982
Total liabilities 12,077,629
Net assets $6,139,361,996
See accompany notes to financial statements.
<PAGE>
PAGE 72
Statement of Operations
Tax-Free High Yield Portfolio
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Investment income
(Unaudited)
Income:
Interest $92,307,028
Expenses (Note 2):
Investment management services fee 6,007,329
Compensation of board members 9,199
Custodian fees 69,252
Audit fees 20,625
Administrative 1,366
Other 14,290
Total expenses 6,122,061
Earning credits on cash balances (12,823)
Total net expenses 6,109,238
Investment income -- net 86,197,790
Realized and unrealized gain (loss) -- net
Net realized loss on security transactions (Note 3) (1,512,358)
Net realized loss on futures (9,470,454)
Net realized gain on exercised option contracts
written (Note 5) 1,795,303
Net realized loss on investments (9,187,509)
Net change in unrealized appreciation or
depreciation of investments 332,461,059
Net gain on investments 323,273,550
Net increase in net assets resulting from operations $409,471,340
See accompanying notes to financial statements.
<PAGE>
PAGE 73
Statement of changes in net assets
Tax-Free High Yield Portfolio
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Operations and distributions
(Unaudited)
Investment income - net $86,197,790
Net realized loss on investments (9,187,509)
Net change in unrealized appreciation or
depreciation of investments 332,461,059
Net increase in net assets resulting from operations 409,471,340
Net contributions 5,729,890,656
Total increase in net assets 6,139,361,996
Net assets at beginning of period 0
Net assets at end of period $6,139,361,996
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 74
Notes to financial statements
Tax-Free High Yield Portfolio
(Unaudited as to July 31, 1996)
____________________________________________________________
1. Summary of significant accounting policies
The Tax-Free High Yield Portfolio (Portfolio) is a series of Tax
Free Income Trust (Trust) and is registered under the Investment
Company Act of 1940 (as amended) as a diversified, open-end
management investment company. Tax Free Income Portfolio seeks to
provide unitholders with a high yield generally exempt from federal
income taxes by investing in medium- and lower-quality bonds and
notes issued by or on behalf of state and local governmental units
whose interest generally is exempt from federal income tax. The
Portfolio also may invest in derivative instruments and money
market instruments. The Declaration of Trust permits the Trustees
to issue non-transferable interests in the Portfolio. The Portfolio
commenced operations on May 13, 1996. At this time an existing fund
transferred its assets to the Portfolio in return for an ownership
percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are
summarized below:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available
are valued at fair value according to methods selected in good
faith by the board. Determination of fair value involves, among
other things, reference to market indexes, matrixes and data from
independent brokers. 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.
<PAGE>
PAGE 75
Option transactions
In order to produce incremental earnings, protect gains and
facilitate buying and selling of securities for investment
purposes, the Portfolio may buy or write options traded on any U.S.
or foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The Portfolio also may buy and sell put and
call options and write covered call options on portfolio securities
and may write cash-secured put options. The risk in writing a call
option is that the Portfolio gives up the opportunity of profit if
the market price of the security increases. The risk in writing a
put option is that the Portfolio may incur a loss if the market
price of the security decreases and the option is exercised. The
risk in buying an option is that the Portfolio pays a premium
whether or not the option is exercised. The Portfolio also has the
additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Portfolio may buy and sell stock index futures
contracts traded on any U.S. or foreign exchange. The Portfolio
also may buy or write put and call options on these futures
contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid
market and that a change in the value of the contract or option may
not correlate with changes in the value of the underlying
securities.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a
partnership and each investor in the Portfolio is treated as the
owner of its proportionate share of the net assets, income,
expenses and realized and unrealized gains and losses of the
Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
<PAGE>
PAGE 76
Other
Security transactions are accounted for on the date securities are
purchased or sold. Interest income, including level-yield
amortization of premium and discount, is accrued daily.
____________________________________________________________
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an
investment management services agreement with American Express
Financial Corporation (AEFC) for managing its portfolio. Under this
Agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the Portfolio's
average daily net assets in reducing percentages from 0.49% to
0.36% annually.
Under the agreement, the Trust also pays taxes and nonadvisory
expenses, which include custodian fees to be paid to an affiliate
of AEFC; audit and certain legal fees; fidelity bond premiums;
registration fees for units; Portfolio office expenses;
consultants' fees; compensation of trustees; corporate filing fees;
and any other expenses properly payable by the Trust or Portfolio,
approved by the board.
For the period from May 13, 1996 to July 31, 1996, the Portfolio's
custodian fees were reduced by $12,823 as a result of earnings
credits from overnight cash balances.
Pursuant to a placement agency agreement, American Express
Financial Advisors Inc. acts as placement agent of the units of the
Trust.
____________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $458,149,201 and $550,292,548,
respectively, for the period from May 13, 1996 to July 31, 1996.
For the same period, the portfolio turnover rate was 8%. Realized
gains and losses are determined on an identified cost basis.
____________________________________________________________
4. Interest rate futures contracts
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.
<PAGE>
PAGE 77
At July 31, 1996, investments in securities included securities
valued at $44,037,950 that were pledged as collateral to cover
initial margin deposits on 3,500 sale contracts. The market value
of the open contracts at July 31, 1996 was $381,937,500 with a net
unrealized loss of $5,232,813.
____________________________________________________________
5. Option contracts written
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The Portfolio will realize a gain or loss upon expiration
or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost
for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or
paid.
The number of contracts and premium amounts associated with option
contracts written is as follows:
Period ended July 31, 1996
__________________________
Calls
__________________________
Contracts Premium
________________________________________________________
Opened 1,800 $1,795,302
Exercised (1,800) (1,795,302)
________________________________________________________
Balance July 31, 1996 -- $ --
________________________________________________________
<PAGE>
PAGE 78
<TABLE>
<CAPTION>
Investments in securities
Tax-Free High Yield Portfolio (Percentages represent value of
July 31, 1996 (Unaudited) investments compared to net assets)
_____________________________________________________________________________________________________________________________
Municipal bonds (97.2%)
_____________________________________________________________________________________________________________________________
Name of issuer and title Coupon Maturity Principal Value(a)
of issue (b,c,i) rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Alabama (0.8%)
Baldwin County Eastern Shore Health Care Authority Hospital
Revenue Bonds Thomas Hospital Series 1991 8.50 % 2016 $ 4,765,000 $ 5,550,558
Camden Industrial Development Board Solid Waste Disposal
Revenue Bonds MacMillan Bloedel Series 1991A A.M.T. 7.75 2019 8,500,000 (g) 9,050,375
Courtland Industrial Development Board Pollution Control
Refunding Bonds Champion International 6.15 2019 17,000,000 16,725,960
Marengo County Limited Obligation Capital Outlay
Warrants Series 1988 8.50 2018 3,000,000 3,331,290
Mobile Industrial Development Board Solid Waste
Refunding Revenue Bonds Mobile Energy Services 6.95 2020 11,250,000 11,736,112
Mobile Medical Clinic Board Psychiatric
Revenue Bonds Charter Medical 11.50 2008 2,740,000 2,778,771
______________
Total 49,173,066
_____________________________________________________________________________________________________________________________
Alaska (0.4%)
North Slope Borough General Obligation Bonds Series 1984B
Zero Coupon (CGIC Insured) 7.05 2004 7,000,000 (f) 4,615,730
North Slope Borough General Obligation Bonds Series 1984B
Zero Coupon (CGIC Insured) 7.15 2005 7,000,000 (f) 4,341,400
State Finance Housing Authority Series 1995A (MBIA Insured) 5.875 2030 18,500,000 17,799,775
______________
Total 26,756,905
_____________________________________________________________________________________________________________________________
Arizona (0.5%)
Chandler Industrial Development Authority
Beverly Enterprises Series 1994 7.625 2008 2,900,000 2,976,763
Maricopa County Hospital System Revenue Bonds
Samaritan Health Services Series 1981 12.00 2008 4,590,000 5,098,199
Maricopa County Industrial Development Authority
Multi-family Housing Revenue Bonds Series B 7.375 2026 2,335,000 2,311,977
Maricopa County Pollution Control Refunding Revenue Bonds
Palo Verde Public Service 6.375 2023 3,500,000 3,274,880
Phoenix Civic Improvement Waste Water System
Lease Refunding Revenue Bonds 5.00 2018 5,000,000 4,495,650
Phoenix Industrial Development Authority
Refunding Revenue Bonds Christian Care Apartments 6.50 2026 9,525,000 9,233,345
Scottsdale Industrial Development Authority
Beverly Enterprises Series 1994 7.625 2008 3,170,000 3,253,910
______________
Total 30,644,724
_____________________________________________________________________________________________________________________________
Arkansas (0.1%)
Pope County Solid Waste Disposal Revenue Bonds
Arkansas Power & Light Series 1991 A.M.T. 8.00 2021 3,250,000 3,510,617
_____________________________________________________________________________________________________________________________
California (7.9%)
Burbank Redevelopment Agency Tax Allocation Bonds
Golden State Series 1993A 6.00 2013-23 9,500,000 9,410,315
Community Development Authority Health Facilities
Unihealth America Certificate of Participation
Series 1993 Inverse Floater (AMBAC Insured) 7.47 2011 22,400,000 (d) 22,288,000
East Bay Municipal Utility District Water Revenue Bonds
Series 1993 Inverse Floater (MBIA Insured) 6.37 2008 15,500,000 (d) 14,628,125
Eden Township Hospital District Insured Health Facilities
Refunding Revenue Bonds Certificate of Participation
Eden Hospital Health Services Series 1993 5.85 2018 3,750,000 3,593,588
Foothill Eastern Transportation Corridor Agency
Toll Road Revenue Bonds Series 1995A 5.00 2035 41,070,000 33,575,546
Foothill Eastern Transportation Corridor Agency
Toll Road Revenue Bonds Series 1995A 6.00 2034 46,225,000 44,236,863
Fresno Health Facility Refunding Revenue Bonds
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Holy Cross Health System (MBIA Insured) 5.625 2013 3,000,000 3,001,890
Irwindale Redevelopment Agency Subordinate Lein
Tax Allocation Bonds 7.05 2026 5,750,000 5,939,807
Los Angeles County Certificate of Participation 6.71 2015 20,000,000 20,113,200
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding Revenue Bonds
Delta Airlines 6.35 2025 13,000,000 13,000,520
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding Revenue Bonds
United Airlines Series 1984 8.80 2021 11,650,000 12,931,034
Los Angeles Water & Power Electric Plant
Refunding Revenue Bonds Series 1992 6.375 2020 10,000,000 10,375,200
Modesto Santa Clara Redding Public Power Bonds
San Juan Series C (AMBAC Insured) 5.50 2021 4,500,000 4,238,370
Northern California Power Agency Geothermal #3
Revenue Bonds 5.00 2009 49,635,000 46,964,141
Novato Community Facility District #1 Vintage Oaks
Public Improvement Special Tax Refunding Bonds 7.25 2021 5,000,000 5,200,700
Oceanside Certificate of Participation Refunding Bonds
Oceanside Civic Center (MBIA Insured) 5.25 2019 7,000,000 6,506,010
Orange County Special Tax Community Facilities Bonds
Aliso Veijo District 88-1 Series 1992A 7.35 2018 6,000,000 6,948,960
Pleasanton Joint Powers Financing Authority Reassessment
Revenue Bonds Series 1993A 6.15 2012 4,825,000 4,854,674
Regional Airports Improvement Facilities Sublease
Revenue Bonds Continental Airlines Los Angeles
International Airport Series 1988 A.M.T. 9.00 2008-17 12,400,000 13,190,061
Sacramento Cogeneration Authority Revenue Bonds
Proctor & Gamble Series 1995 6.50 2014-21 11,800,000 11,928,780
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series R 6.00 2015-17 20,385,000 20,341,979
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (FSA Insured) 6.60 2005 15,800,000 (d) 15,642,000
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (FSA Insured) 6.80 2006 16,400,000 (d) 16,215,500
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (MBIA Insured) 7.25 2015 15,000,000 (d) 13,950,000
Sacramento Power Authority Cogeneration Revenue Bonds
Series 1995 6.00 2022 25,000,000 24,170,250
San Joaquin Hills Orange County Transportation
Corridor Agency Senior Lien Toll Road Revenue Bonds 6.75 2032 14,785,000 15,193,953
San Jose Redevelopment Agency Merged Area Tax
Allocation Bonds Series 1993 Inverse Floater
(MBIA Insured) 7.08 2014 33,600,000 (d) 30,450,000
San Marcos Public Facility Authority
Refunding Revenue Bonds
Civic Center Public Improvement Series A 6.20 2022 12,300,000 11,899,758
Sierra Unified School District Fresno County
Certificate of Participation Capital Financing
Refunding Bonds Series 1993 6.125 2018 6,470,000 6,382,008
Southern California Public Power Authority
Power Revenue Bonds Palo Verde
Series 1993 Inverse Floater (FGIC Insured) 6.80 2017 20,000,000 (d) 17,225,000
Southern California Public Power Authority
Power Revenue Bonds Series 1986B 5.75 2017 2,025,000 2,025,000
Southern California Public Power Authority Transmission
Refunding Revenue Bonds Series 1986B 7.00 2022 240,000 246,518
South Tahoe Joint Power Financing Authority
Refunding Revenue Bonds South Tahoe Area #1
Series 1995B 6.00 2028 9,900,000 9,336,096
Ukiah Unified School District Mendocino County
Certificate of Participation Series 1993 6.00 2010 5,000,000 4,990,300
University of California Refunding Revenue Bonds
Multiple Purpose Project (AMBAC Insured) 5.25 2016 6,000,000 5,511,240
______________
Total 486,505,386
_____________________________________________________________________________________________________________________________
Colorado (6.3%)
Arapahoe County Capital Improvement Trust Fund
E-470 Highway Revenue Bonds 7.00 2026 22,000,000 23,192,180
Arapahoe County Industrial Development Revenue Bonds
Dillion Real Estate-Kroger 8.00 2009 4,000,000 4,389,640
Aurora Centretech Metropolitan District
Arapahoe County Series 1987B 6.00 2023 5,732,785 4,237,159
Bowles Metropolitan District General Obligation Bonds
Series 1995 7.75 2015 16,000,000 15,951,360
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Briargate Public Building Authority Landowner
Assessment Lien Bonds Series 1985A 10.25 2000 5,000,000 (e) 3,400,000
Castle Rock Ranch Public Facility Improvement
Revenue Bonds Series 1996 6.25 2017 10,000,000 10,188,600
Colorado Health Facility Authority Hospital Improvement
Refunding Revenue Bonds
Parkview Episcopal Medical Center Series 1995 6.125 2025 7,000,000 6,582,240
Colorado Health Facility Authority Revenue Bonds
Escrowed to Maturity Liberty Heights Zero Coupon 7.50 2022 81,465,000 (f) 13,088,982
Colorado Springs Hospital Revenue Bonds
Memorial Hospital Series 1990 7.875 2010 5,000,000 5,589,050
Colorado Springs Stetson Hills Public Building Authority
Landowner Assessment Lien Bonds Series 1988A 9.75 2008 2,869,110 (e) 86,073
Colorado Springs Utilities System Refunding Revenue Bonds
Series 1991C 6.50 2015 24,895,000 26,462,887
Colorado Springs Utilities System Refunding Revenue Bonds
Series 1991C 6.75 2021 30,000,000 32,955,845
Colorado Springs Utilities System
Pre-Refunded Revenue Bonds Series 1991C 6.50 2015 1,505,000 1,659,940
Denver City & County Airport Systems Revenue Bonds
Series 1991A A.M.T. 8.75 2023 10,000,000 (g) 11,861,300
Denver City & County Airport Systems Revenue Bonds
Series 1991D A.M.T. 7.75 2021 8,650,000 9,543,891
Denver City & County Airport Systems Revenue Bonds
Series 1992A 7.25 2025 20,975,000 23,283,089
Denver City & County Airport Systems Revenue Bonds
Series 1992B A.M.T. 7.25 2023 20,500,000 21,699,250
Denver City & County Airport Systems Revenue Bonds
Series 1994A A.M.T. 7.50 2012-23 24,340,000 27,080,312
Denver City & County Airport Systems Revenue Bonds
Series 1995A (MBIA Insured) 5.70 2025 20,000,000 19,801,200
Denver City & County GVR Metropolitan District
General Obligation Refunding Bonds Series 1991 8.00 2006 1,385,000 1,406,329
Denver City & County GVR Metropolitan District
General Obligation Refunding Bonds Series 1995B 11.00 2006 730,000 708,005
Denver Special Facility Airport Revenue Bonds
United Air Lines Series A A.M.T. 6.875 2032 25,400,000 25,803,606
Denver Urban Renewal Authority Tax Increment
Revenue Bonds Downtown Denver Redevelopment
Adams Mark Hotel Series 1989 A.M.T. 8.00 2015-17 20,000,000 20,016,800
Denver Urban Renewal Authority Tax Increment
Revenue Bonds South Broadway Montgomery Ward
Urban Renewal Series 1992 8.50 2016 14,280,000 14,880,474
Denver West Metropolitan District General Obligation
Refunding Improvement Bonds Series 1995 7.00 2014 4,230,000 4,396,535
Hotchkiss Industrial Development Revenue Bonds
Dillion Real Estate-Kroger 8.00 2009 1,500,000 1,646,115
Housing Finance Authority Single Family Program
Senior Bonds Series 1991B (FGIC Insured) 7.25 2011 2,910,000 3,066,674
Housing Finance Authority Single Family Program
Senior Bonds Series 1991B (FGIC Insured) 7.30 2018 2,635,000 2,745,328
Lowry Economic Redevelopment Authority
Revenue Bonds Series 1996 7.50 2010 19,000,000 18,539,060
Northern Colorado Water District Revenue Bonds Series D 6.00 2015 4,000,000 4,001,320
Superior Metropolitan District #2 Limited Tax
General Obligation Refunding Bonds
MDC Holdings Series 1994B 7.50 1998 2,700,000 2,801,493
Superior Metropolitan District #2 Limited Tax
General Obligation Refunding Bonds
MDC Holdings Series 1994B 8.25 2013 2,580,000 2,785,574
Superior Metropolitan District #2 Limited Tax
General Obligation Refunding Bonds
MDC Holdings Series 1994B 8.50 2013 12,000,000 13,142,040
Thornton Industrial Development Revenue Bonds
Dillion Real Estate-Kroger 8.00 2009 4,500,000 4,500,000
Westminster Industrial Development Revenue Bonds
Dillion Real Estate-Kroger 8.00 2009 3,500,000 3,840,935
______________
Total 385,333,286
_____________________________________________________________________________________________________________________________
District of Columbia (0.6%)
General Obligation Refunding Bonds Series 1994A
(MBIA Insured) 6.00 2010 27,875,000 28,348,317
General Obligation Refunding Bonds Series 1994A
(MBIA Insured) 6.10 2011 7,580,000 7,730,842
Housing Finance Agency Multiple Family Mortgage
Revenue Bonds Temple Courts Section 8
Series 1985 (FHA Insured) 12.00 2022 1,320,000 1,479,179
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Total 37,558,338
_____________________________________________________________________________________________________________________________
Florida (3.9%)
Broward County Airport System Revenue Bonds
Series 1989B A.M.T. 7.625 2013 15,000,000 16,183,050
Charlotte County Development Authority 1st Mortgage
Refunding Revenue Bonds
Royal Palm Retirement Centre Series 1991 9.50 2014 4,145,000 4,377,410
Crossings at Fleming Island Community Development District
Special Assessment Bonds Series 1995 8.25 2016 10,375,000 10,992,624
Crossings at Fleming Island Community Development
District Utility Revenue Bonds Series 1994 7.375 2019 14,000,000 13,829,620
Department of Transportation Turnpike Revenue Bonds
Series 1991A (AMBAC Insured) 6.25 2020 20,000,000 20,370,400
Gateway Centre Development District Pinellas County
Special Assessment Revenue Bonds Series 1988 9.125 2009 1,640,000 1,746,994
Hillsborough County Utility Refunding Revenue Bonds
Series 1991A (MBIA Insured) 6.50 2016 24,760,000 26,307,748
Hillsborough County Utility Refunding Revenue Bonds
Series 1991A 7.00 2014 24,000,000 25,946,150
Jacksonville Electric Authority St. John's River Power
Park System Revenue Bonds Series 1989 6.00 2015 10,300,000 10,375,602
Jacksonville Health Facilities Authority Hospital
Refunding Revenue Bonds Riverside Hospital
Series 1989 7.625 2013 1,600,000 1,688,688
Lakeland Electric & Water Refunding Revenue Bonds
Series 1986 7.00 2009 5,000,000 5,019,400
Lakewood Ranch Community Development District #1
Special Assessment Bonds Series 1994 8.25 2014 8,270,000 8,535,136
Lee County Industrial Development Authority
Industrial Development Revenue Bonds Gulf Utility
Series 1988A A.M.T. 9.625 2018 5,545,000 6,182,841
Lee County Industrial Development Authority
Industrial Development Revenue Bonds Gulf Utility
Series 1988B 9.50 2020 3,970,000 4,416,625
Miami Health Facility Authorization Revenue Bonds
Inverse Floater (AMBAC Insured) 6.63 2015 3,500,000 (d) 2,931,250
Municipal Power Agency Refunding Revenue Bonds
St. Lucie Series 1986 7.375 2016 6,000,000 6,156,540
Palm Beach County Health Facilities Authority Hospital
Revenue Bonds Good Samaritan Health Series 1993 6.30 2022 4,250,000 4,326,457
Polk County Industrial Development Authority 1st Mortgage
Refunding Revenue Bonds Spring Haven II 8.75 2014 6,415,000 6,779,757
Port Everglades Port Authority Revenue Bonds Junior Lien 5.00 2016 18,635,000 16,838,027
Riverwood Community Development District Charlotte County
Special Assessment Revenue Bonds Series 1992A-B 8.50 2012 6,415,000 6,786,172
State Board of Education Refunding Bonds Series 1989A 6.00 2025 16,750,000 16,816,497
Sumter County Village Community Development District #1
Capital Improvement Revenue Bonds Series 1992 8.40 2012 2,755,000 2,873,052
Sunrise Utility System Refunding & Improvement
Revenue Bonds 10.75 2018 5,000,000 6,132,000
Village Community Development District #2
Special Assessment District Revenue Bonds Series 1996 7.625 2017 6,055,000 6,065,536
Village Center Community Development District 2
Lake County Recreational Revenue Bond Antic Notes
Series 1996 6.50 2000 6,365,000 6,364,173
______________
Total 238,041,749
_____________________________________________________________________________________________________________________________
Georgia (2.3%)
Atlanta Special Purpose Facility Revenue Bonds
Delta Air Lines Series 1989B A.M.T. 6.25 2019 8,685,000 8,416,981
Atlanta Special Purpose Facility Revenue Bonds
Delta Air Lines Series 1989B A.M.T. 7.90 2018 13,500,000 14,325,525
Colquitt County Development Authority Revenue Bonds
Escrowed to Maturity Zero Coupon 6.87 2021 46,350,000 (f) 7,780,311
Effingham County Pollution Control Revenue Bonds
Fort Howard Series 1988 7.90 2005 19,850,000 20,693,823
Fulco Hospital Authority Revenue Anticipation Certificate
Georgia Baptist Health Care Systems Series 1992A 6.375 2022 20,300,000 19,782,959
Municipal Electric Authority Power Refunding Bonds
Series 1989R 6.00 2014 9,130,000 9,133,469
Municipal Electric Authority Power Revenue Bonds 6.00 2020 3,350,000 3,291,945
Municipal Electric Authority Power Revenue Bonds
Series 5 (FGIC Insured) 6.00 2025 34,490,000 34,549,323
Municipal Electric Authority Power Revenue Bonds
Series L 5.00 2020 1,150,000 998,488
Rockdale County Development Authority Solid Waste
Disposal Revenue Bonds Visy Paper Series 1993 A.M.T. 7.50 2026 10,000,000 10,122,000
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Savannah Georgia Economic Development Authority
Revenue Bonds Escrowed to Maturity Zero Coupon 6.87 2021 64,220,000 (f) 10,779,969
______________
Total 139,874,793
_____________________________________________________________________________________________________________________________
Hawaii (0.3%)
City & County of Honolulu Refunding & Improvement
General Obligation Bonds Series 1993B Inverse Floater 6.74 2006 10,000,000 (d) 10,075,000
City & County of Honolulu Refunding & Improvement
General Obligation Bonds Series 1993B Inverse Floater 7.04 2008 10,000,000 (d) 10,075,000
______________
Total 20,150,000
_____________________________________________________________________________________________________________________________
Illinois (8.5%)
Bradley Kankakee County Tax Increment
Refunding Revenue Bonds Series 1993 8.40 2012 5,800,000 6,286,620
Broadview Cook County Senior Lien Tax Increment
Revenue Bonds Series 1993 8.25 2013 12,000,000 12,948,960
Chicago General Obligation Refunding Bonds
Series 1995A (AMBAC Insured) 5.50 2018 20,000,000 19,221,200
Chicago General Obligation Bonds Series 1991
(AMBAC Insured) 6.00 2016 6,170,000 6,206,280
Chicago General Obligation Bonds Series 1994A
(AMBAC Insured) 5.875 2022 17,850,000 17,514,242
Chicago O'Hare International Airport General Airport
Revenue Bonds Series 1990A A.M.T. 6.00 2018 29,000,000 28,722,470
Chicago O'Hare International Airport General Airport
Revenue Bonds Series 1990A A.M.T. 7.50 2016 21,000,000 22,851,570
Chicago O'Hare International Airport General Airport
Refunding Revenue Bonds Series 1993A 5.00 2016 14,450,000 12,911,653
Chicago O'Hare International Airport
Special Revenue Facility Bonds Delta Airlines
Series 1992 6.45 2018 10,000,000 9,966,300
Chicago O'Hare International Airport
Special Revenue Facility Bonds United Airlines
Series C 8.20 2018 23,235,000 25,029,671
Chicago O'Hare International Airport Terminal
Special Revenue Bonds A.M.T. 7.50 2017 32,250,000 34,736,475
Chicago O'Hare International Airport Terminal
Special Revenue Bonds (FGIC Insured) A.M.T. 7.875 2025 17,750,000 19,022,320
Chicago Ridge Special Service Area #1 Unlimited Ad Valorem
Tax Bonds Series 1990 9.00 2008 2,700,000 2,903,904
Chicago Wastewater Transmission Revenue Bonds
Series 1994 (MBIA Insured) 6.375 2024 22,500,000 23,339,250
Cook County Bedford Park Senior Lien Tax Increment
Revenue Bonds Mark IV Series 1992 9.75 2012 1,740,000 1,997,033
Development Finance Authority Improvement
Refunding Revenue Bonds Catholic Partners
Series 1995A (Connie Lee Insured) 5.30 2018 15,750,000 14,111,370
Development Finance Authority Pollution Control
Refunding Revenue Bonds Central Illinois Public Service
Series 1993B-2 5.90 2028 2,500,000 2,468,625
Development Finance Authority Pollution Control
Refunding Revenue Bonds Commonwealth Edison
Series 1994 5.70 2009 2,000,000 2,027,380
Development Finance Authority Pollution Control
Refunding Revenue Bonds Commonwealth Edison
Series 1994 5.85 2014 4,500,000 4,486,230
Development Finance Authority Pollution Control
Refunding Revenue Bonds Illinois Power Series 1991A 7.375 2021 19,250,000 21,100,503
Development Finance Authority Pollution Control
Revenue Bonds Illinois Power Series 1986A-C A.M.T. 7.625 2016 42,560,000 44,221,968
Development Finance Authority Retirement Housing
Revenue Bonds Escrowed to Maturity Zero Coupon 7.75 2020 68,000,000 (f) 12,512,000
Development Finance Authority Solid Waste Disposal Facility
Revenue Bonds Ford Heights Waste Tire to Energy
Series 1994 A.M.T. 7.875 2011 32,000,000 10,880,000
Educational Facilities Authority Refunding Revenue Bonds
Art Institute of Chicago Series 1993 5.75 2018 1,750,000 1,687,087
Educational Facilities Authority Refunding Revenue Bonds
Art Institute of Chicago Series 1993 5.80 2027 3,350,000 3,229,232
Educational Facilities Authority Refunding Revenue Bonds
Loyola University of Chicago Series 1993 Inverse Floater
(FGIC Insured) 7.37 2012 11,000,000 (d) 10,725,000
Granite City Madison County Hospital
Refunding Revenue Bonds St. Elizabeth Medical Center
Series 1989A 8.125 2008 3,500,000 3,612,420
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Hanover Park Cook & DuPage Counties 1st Mortgage
Revenue Bonds Windsor Park Manor Series 1989 9.50 2014 7,000,000 7,535,080
Health Facilities Authority Refunding Revenue Bonds
Edwards Hospital Series 1993A 6.00 2019 6,350,000 6,166,675
Health Facilities Authority Refunding Revenue Bonds
Masonic Hospital 6.125 2023 3,005,000 2,810,697
Health Facilities Authority Refunding Revenue Bonds
Masonic Medical Center Series 1993 5.50 2019 2,000,000 1,822,040
Health Facilities Authority Refunding Revenue Bonds
Peoria Methodist Medical Center Series 1985A 8.00 2014 4,000,000 4,007,240
Health Facilities Authority Refunding Revenue Bonds
University of Chicago Series 1993 Inverse Floater
(MBIA Insured) 7.62 2014 10,000,000 (d) 9,462,500
Health Facility Authority Revenue Bonds
Delnore Community Hospital Series 1989 8.00 2019 7,000,000 7,770,070
Health Facility Authority Revenue Bonds
Sarah Bush Lincoln Health Center Series 1992 7.25 2012-22 4,000,000 4,160,760
Health Facility Authority Revenue Bonds
South Suburban Hospital Series 1992 7.00 2009-18 9,000,000 9,550,390
Hodgkins General Obligation Tax Increment Bonds
Series 1991 9.50 2009 13,000,000 15,829,192
Hodgkins General Obligation Tax Increment Bonds
Series 1995C 9.00 2001 1,010,000 1,007,283
Hodgkins General Tax Increment Bonds
Series 1995A 7.625 2013 9,000,000 9,142,470
Lansing Tax Increment Refunding Revenue Bonds
Landings Redevelopment Area Limited Sales Tax Pledge
Series 1992 7.00 2008 10,000,000 10,880,900
Marion General Obligation Hospital Alternate
Revenue Source Bonds Series 1991 7.50 2016 3,800,000 4,090,206
Metropolitan Fair & Exposition Authority
Dedicated State Tax Revenue Bonds 6.00 2014 5,585,000 5,584,553
Metropolitan Pier & Exposition Authority
Dedicated State Tax Refunding Revenue Bonds
McCormick Place Zero Coupon (FGIC Insured) 5.61 2021 4,410,000 (f) 963,497
Metropolitan Pier & Exposition Authority
Dedicated State Tax Refunding Revenue Bonds
McCormick Place Zero Coupon (FGIC Insured) 6.37 2019 6,000,000 (f) 1,497,960
Metropolitan Pier & Exposition Authority
Dedicated State Tax Refunding Revenue Bonds
McCormick Place Zero Coupon (MBIA Insured) 6.61 2017 11,210,000 (f) 3,159,763
Northwest Suburban Water Supply Joint
Action Water Agency (MBIA Insured) 5.75 2012 2,000,000 1,999,860
Northwest Water Commission Cook & Lake County Water
Revenue Bonds (MBIA Insured) 6.50 2012 5,025,000 5,226,703
Pekin Pollution Control Revenue Bonds
Commonwealth Edison Series 1979B 6.75 2004 2,250,000 2,251,035
Regional Transportation Authority General Obligation Bonds
Counties of Cook, Dupage, Kane, Lake, McHenry and Will
Series 1992A (AMBAC Insured) 6.125 2022 7,200,000 7,257,096
Tinley Park Cook & Will Counties Limited Sales Tax
Revenue Bonds Series 1988 10.25 1999 895,000 (e) 349,050
Tinley Park Cook & Will Counties Unlimited Ad Valorem
Tax Bonds of Special Service 10.65 2007 1,335,000 1,161,450
Robbins Cook County Resource Recovery Revenue Bonds
Robbins Resource Recovery Partners Series 1994A A.M.T. 9.25 2014 21,000,000 20,475,000
Waukegan Pollution Control Revenue Bonds
Commonwealth Edison Series B 6.875 2009 5,000,000 5,001,500
______________
Total 523,882,733
_____________________________________________________________________________________________________________________________
Indiana (3.0%)
Brazil 1st Mortgage Revenue Bonds Hoosier Care II
Series 1990 10.375 2020 4,225,000 4,572,168
Carmel Retirement Rental Housing Refunding Revenue Bonds
Beverly Enterprises Series 1992 8.75 2008 7,000,000 (g) 7,688,380
East Chicago Elementary School Building Lake County
First Mortgage Refunding Bonds Series 1995 6.25 2016 8,000,000 8,044,320
Hammond Multi-School Building 1st Mortgage Bonds
Series 1995 (MBIA Insured) 5.80 2015 3,590,000 3,565,768
Hammond Multi-School Building 1st Mortgage Bonds
Series 1995 (MBIA Insured) 5.85 2020 16,015,000 15,773,494
Hanover 1st Mortgage Revenue Bonds Hoosier Care II
Series 1990 10.375 2020 6,910,000 7,477,794
Health Facility Authority Hospital Revenue Bonds
Community Hospital of Anderson Series 1993 6.00 2023 10,000,000 9,566,200
Health Facility Authority Hospital Revenue Bonds
Union Hospital (MBIA Insured) Series 1993 5.125 2018 10,000,000 8,981,500
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Indianapolis Resource Recovery Revenue Bonds
Ogden Martin System of Indianapolis Series 1985A-B 7.80 2004 9,400,000 9,775,145
Indianapolis Resource Recovery Revenue Bonds
Ogden Martin System of Indianapolis Series 1985B 7.90 2008 2,050,000 2,131,590
Kokomo Hospital Authority Hospital Refunding Revenue Bonds
St. Joseph's Hospital Series 1988A 8.75 2013 5,000,000 5,509,550
La Porte County Hospital Authority Hospital
Refunding Revenue Bonds La Porte Hospital Series 1993 6.00 2023 2,990,000 2,762,850
La Porte County Hospital Authority Hospital
Refunding Revenue Bonds La Porte Hospital Series 1993 6.25 2012 5,070,000 4,941,780
Lawrenceburg Pollution Control Refunding Revenue Bonds
Indiana-Michigan Electric Series E 5.90 2019 8,100,000 7,659,198
Marion County Hospital Authority Hospital Facility
Revenue Bonds Methodist Hospital Series 1989 6.50 2008-13 19,670,000 20,812,696
Municipal Power Agency Power Supply System
Refunding Revenue Bonds 5.75 2018 6,470,000 6,208,353
Princeton Pollution Control Revenue Bonds
State Public Service Series 1987C (MBIA Insured) 7.60 2012 16,000,000 16,633,280
Rockport Pollution Control Refunding Revenue Bonds
Indiana-Michigan Electric Series B 7.60 2016 5,500,000 5,900,015
St. Joseph County Hospital Facility Revenue Bonds
Memorial Hospital of South Bend 9.40 2010 2,000,000 2,403,900
Sullivan Pollution Control Refunding Revenue Bonds
Indiana-Michigan Electric Series C 5.95 2009 18,500,000 18,148,685
Vincennes Economic Development
Revenue Bonds Southwest Indiana
Regional Youth Village Facility Series 1993 8.50 2024 16,575,000 16,978,601
______________
Total 185,535,267
_____________________________________________________________________________________________________________________________
Iowa (0.8%)
Iowa City Refunding Revenue Bonds Mercy Hospital
Series 1986 6.00 2012 6,300,000 6,267,681
Keokuk Hospital Facilities Refunding Revenue Bonds
Keokuk Area Hospital Series 1991 7.625 2021 5,350,000 5,661,959
Muscatine Electric Refunding Revenue Bonds Series 1986 5.00 2007-08 7,720,000 7,460,888
Muscatine Electric Refunding Revenue Bonds Series 1986 6.00 2005-06 23,280,000 23,296,296
Sioux City Hospital Facility Revenue Bonds
St. Lukes Regional Medical Center 10.875 2013 3,670,000 3,879,410
______________
Total 46,566,234
_____________________________________________________________________________________________________________________________
Kentucky (1.2%)
Development Finance Authority Hospital Facility
Revenue Bonds St. Luke Hospital Series 1989B 6.00 2019 22,695,000 22,165,752
Development Finance Authority Medical Center
Refunding Revenue Improvement Bonds Ashland Hospital
Series 1987 9.75 2011 4,000,000 4,370,200
Jefferson County Multi-family Housing Revenue Bonds
Brownsboro Gardens Series 1986A (FHA Insured) A.M.T. 8.00 2026 5,495,000 5,641,771
Louisville Airport Lease Revenue Bonds Series 1989A A.M.T. 7.875 2019 4,000,000 4,364,087
Louisville & Jefferson County Riverport Authority Mortgage
Revenue Bonds Series 1986 A.M.T. 7.875 2016 7,185,000 7,391,066
McCracken County Revenue Bonds Lourdes Hospital 6.00 2012 8,300,000 8,346,397
Muhlenberg County Hospital Refunding Revenue Bonds
Muhlenberg Community Hospital Series 1988 9.50 2010 4,205,000 4,513,311
Turnpike Authority Economic Road Development
Refunding Revenue Bonds Series 1993 Inverse Floater
(AMBAC Insured) 7.34 2012 15,000,000 (d) 14,718,750
______________
Total 71,511,334
_____________________________________________________________________________________________________________________________
Louisiana (3.2%)
Calcasieu Parish Industrial Development Pollution Control
Refunding Revenue Bonds Gulf State Utilities Series 1992 6.75 2012 10,500,000 10,536,645
Energy & Power Authority Refunding Revenue Bonds
Rodemacher Unit #2 Series 1991 (FGIC Insured) 6.00 2013 28,000,000 28,289,800
Hodge Village Combined Utility System Revenue Bonds
Stone Container Series 1990 A.M.T. 9.00 2010 23,000,000 24,882,550
New Orleans Audobon Park Commission Aquarium
Revenue Bonds Series 1992A 7.00 1997 500,000 506,760
New Orleans Audobon Park Commission Aquarium
Revenue Bonds Series 1992A 8.00 2012 7,100,000 7,695,974
Public Facilities Authority Revenue Bonds
Glen Retirement Systems Series 1995 6.50 2015 1,000,000 968,920
Public Facilities Authority Revenue Bonds
Glen Retirement Systems Series 1995 6.70 2025 1,500,000 1,464,120
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Public Facilities Authority Revenue Bonds
Windsor Multi-Family Housing Foundation Series 1996A 6.25 2026 9,570,000 9,343,095
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light Series 1984 8.25 2014 28,600,000 31,241,496
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light Series 1991 A.M.T. 7.50 2021 20,700,000 21,836,637
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light 2nd Series 1984 8.00 2014 29,155,000 31,760,582
St. James Parish Pollution Control Revenue Bonds
B.F. Goodrich Series 1981 14.50 2011 500,000 530,755
Southern Louisiana Port Commission
Dock & Wharf Facilities B.F. Goodrich 14.50 2011 3,335,000 3,534,433
Southern Louisiana Port Commission Terminal
Refunding Revenue Bonds Gatx Terminal Series 1993 7.00 2023 13,180,000 13,572,369
West Feliciana Parish Demand Pollution Control
Revenue Bonds Gulf State Utilities Series 1985B 9.00 2015 6,000,000 6,701,580
______________
Total 192,865,716
_____________________________________________________________________________________________________________________________
Maine (0.3%)
Bucksport Solid Waste Disposal Revenue Bonds
Champion International Series 1985 6.25 2010 14,185,000 14,223,867
Health & Higher Educational Facilities Authority
Revenue Bonds St. Mary's Hospital Series 1989 8.625 2022 3,500,000 3,936,380
______________
Total 18,160,247
_____________________________________________________________________________________________________________________________
Maryland (0.6%)
Frederick County Economic Refunding Revenue Bonds
Alumax Series 1992 7.25 2017 9,880,000 10,224,318
Harford County Industrial Development Revenue Bonds
Dorsey 8.00 2005 546,000 546,573
Prince George's County Hospital Revenue Bonds
Dimensions Health Series 1992 7.00 2022 7,000,000 7,902,020
Prince George's County Hospital Revenue Bonds
Dimensions Health Series 1992 7.25 2017 11,400,000 13,014,468
State Transportation Authority Facility Revenue Bonds
Series 1992 Capital Appreciation Zero Coupon
(FGIC Insured) 6.33 2010-11 9,700,000 (f) 4,266,896
State Transportation Authority Facility Revenue Bonds
Series 1992 Zero Coupon (FGIC Insured) 6.35 2012 5,000,000 (f) 2,031,300
______________
Total 37,985,575
______________________________________________________________________________________________________________________________
Massachusetts (2.3%)
Bay Transportation Authority Refunding Revenue Bonds
Series 1994A (MBIA Insured) 6.00 2012 8,000,000 8,275,840
Greater Lawrence Sanitary District North Andover
General Obligation Bonds 8.50 2005 3,670,000 3,836,948
Health & Educational Facilities Authority Revenue Bonds
Berkshire Health Systems Series C 5.90 2011 2,000,000 1,873,260
Health & Educational Facilities Authority Revenue Bonds
Berkshire Health Systems Series C 6.00 2020 4,000,000 3,553,400
Health & Educational Facilities Authority Revenue Bonds
Beverly Hospital Inverse Floater (MBIA Insured) 7.62 2020 8,000,000 (d) 7,510,000
Health & Educational Facilities Authority Revenue Bonds
Charlton Memorial Hospital Series B 7.25 2013 6,455,000 6,842,107
Industrial Finance Agency Pollution Control
Refunding Revenue Bonds Eastern Edison Series 1993 5.875 2008 4,250,000 4,112,343
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991A 9.00 2015 18,885,000 20,833,932
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991B A.M.T. 9.25 2015 25,000,000 27,769,750
Municipal Wholesale Electric Power Supply System
Revenue Bonds Series 1992B 6.75 2017 10,130,000 11,339,623
Municipal Wholesale Electric Power Supply System
Revenue Bonds Series 1993A Inverse Floater
(AMBAC Insured) 7.02 2018 6,500,000 (d) 5,598,125
Water Resources Authority General
Refunding Revenue Bonds Series 1992B 5.50 2015 22,175,000 21,111,265
Water Resources Authority General Revenue Bonds
Series 1992A 6.50 2019 3,500,000 3,789,905
Water Resources Authority General Revenue Bonds
Series 1993B-95B (MBIA Insured) 5.00 2022-25 19,000,000 16,760,550
______________
Total 143,207,048
_____________________________________________________________________________________________________________________________
Michigan (3.9%)
Crawford County Economic Development Corporation <PAGE>
PAGE 86
Environmental Improvement Revenue Bonds
Weyerhaeuser Series 1991A 7.125 2007 10,800,000 11,844,468
Detroit Unlimited Tax General Obligation Bonds
Series 1993 6.35 2014 6,120,000 6,100,049
Detroit Unlimited Tax General Obligation Bonds
Series 1995A 6.80 2015 1,375,000 1,456,579
Lincoln Consolidated School District Unlimited Tax
General Obligation Refunding Bonds (FGIC Insured) 5.85 2018 6,455,000 6,459,067
Midland County Economic Development Corporation
Pollution Control Limited Obligation
Refunding Revenue Bonds Midland Cogeneration
Series 1990B A.M.T. 9.50 2009 35,200,000 38,080,416
Midland County Economic Development Corporation
Pollution Control Limited Obligation
Refunding Revenue Bonds Midland Cogeneration
Series 1990C 8.50 2009 18,900,000 19,965,015
Monroe County Pollution Control
Revenue Bonds Detroit Edison A.M.T. 7.75 2019 40,250,000 (g) 43,501,798
Regents of the University of Michigan Hospital
Refunding Revenue Bonds Series 1986A 7.75 2012 5,000,000 5,165,450
State Hospital Finance Authority Hospital
Refunding Revenue Bonds Detroit Medical Center
Series 1993A 6.50 2018 10,000,000 10,211,800
State Hospital Finance Authority Hospital
Refunding Revenue Bonds
Sinai Hospital Greater Detroit Series 1995 6.625 2016 2,750,000 2,709,987
State Hospital Finance Authority Hospital
Refunding Revenue Bonds
Sinai Hospital Greater Detroit Series 1995 6.70 2026 3,000,000 2,939,430
State Hospital Finance Authority Hospital
Revenue Bonds Central Michigan Community Hospital 6.25 2016 2,095,000 1,986,730
State Hospital Finance Authority Hospital
Revenue Bonds McLaren Obligated Group Series 1991A 7.50 2021 7,500,000 8,571,225
State Job Development Authority Pollution Control
Revenue Bonds Chrysler 5.70 1999 4,350,000 4,455,357
Strategic Fund Limited Obligation Refunding Revenue Bonds
Detroit Edison Series 1995AA (MBIA Insured) 6.40 2025 12,000,000 12,601,920
Strategic Fund Limited Obligation Refunding Revenue Bonds
Ford Motor Series 1991A 7.10 2006 16,400,000 18,496,248
Strategic Fund Limited Obligation Refunding Revenue Bonds
Great Lakes Pulp & Fibre Series 1994 A.M.T. 10.25 2016 35,000,000 30,251,550
Troy City Downtown Development Authority Revenue Bonds
Oakland County Series 1995A 6.375 2018 1,000,000 1,000,270
Van Buren County Downtown Development Authority
Tax Increment Revenue Bonds Series 1994 8.40 2016 4,000,000 4,444,440
Wayne County Special Airport Facilities
Refunding Revenue Bonds Northwest Airlines Series 1995 6.75 2015 11,325,000 11,428,963
______________
Total 241,670,762
_____________________________________________________________________________________________________________________________
Minnesota (3.6%)
Appleton Correctional Facility Revenue Bonds Series 1990A 9.875 2020 15,000,000 (e) 12,000,000
Apple Valley 1st Mortgage Nursing Home Revenue Bonds
Apple Valley Health Care (FHA Insured) 10.50 2012 420,000 480,132
Becker Solid Waste Disposal Facility Revenue Bonds
Liberty Paper Series 1994B A.M.T. 9.00 2015 18,000,000 18,443,340
Bloomington Community Development
Refunding Revenue Note 24th Avenue Motel 8.50 2005 1,541,844 1,557,262
Bloomington Health Care Facility Revenue Bonds
Friendship Village of Bloomington Series 1992 8.50 2002 4,255,000 4,566,338
Brainerd Economic Development Authority
Health Care Facility Revenue Bonds
Benedictine Health System St. Joseph Medical Center
Series 1990 8.375 2020 4,670,000 5,327,349
Duluth Economic Development Authority
Health Care Facility Revenue Bonds
Benedictine Health System St. Mary's Medical Center
Series 1990 8.375 2020 8,300,000 9,468,308
Duluth Housing & Redevelopment Authority
Lakeshore Lutheran Home
1st Mortgage Revenue Bonds 8.00 2000 140,000 140,193
Duluth Housing & Redevelopment Authority
Lakeshore Lutheran Home
1st Mortgage Revenue Bonds 8.25 2009 750,000 751,185
Fergus Falls Health Care Facilities Revenue Bonds
Series 1995 6.50 2025 1,530,000 1,534,697
International Falls Solid Waste Disposal
Revenue Bonds Boise Cascade<PAGE>
PAGE 87
Series 1990 A.M.T. 7.75 2015 10,000,000 10,409,900
Mahtomedi Multifamily Housing Revenue Bonds
Briarcliff A.M.T. 7.35 2036 2,000,000 2,015,420
Maplewood Elder Care Facility Revenue Bonds
Care Institute Series 1994 7.75 2024 8,000,000 8,084,480
Maplewood Multifamily Housing Refunding Revenue Bonds
Carefree Cottages Series 1995 A.M.T. 7.20 2032 5,000,000 4,899,000
Mille Lacs Capital Improvement Authority Infrastructure
Revenue Bonds Series 1992A 9.25 2012 4,710,000 5,252,922
Richfield Multi-family Housing
Revenue Refunding Bonds
Village Shores Apartments Series 1996 7.625 2031 5,010,000 5,018,517
St. Louis Park Health Care Facilities Revenue Bonds
Healthsystem Minnesota Obligated Group Series 1993
Inverse Floater (AMBAC Insured) 4.98 2005 9,200,000 (d) 8,188,000
St. Louis Park Health Care Facilities Revenue Bonds
Healthsystem Minnesota Obligated Group Series 1993
Inverse Floater (AMBAC Insured) 5.98 2013 18,000,000 (d) 15,007,500
St. Louis Park Health Care Park Nicollet
Medical Center Facility Revenue Bonds Series 1990A 9.25 2020 6,000,000 6,983,460
St. Louis Park Multi-family Housing Refunding Revenue Bonds
Park Boulevard Towers Series 1996A 7.00 2031 11,705,000 11,703,478
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds
Lyngblomsten Care Center Series 1993A 7.125 2017 2,840,000 2,877,659
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds
Lyngblomsten Care Center Series 1993A 9.60 2006 2,025,000 2,138,441
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds
Lyngblomsten Multi-family Rental Housing
Series 1993B 7.00 2024 2,845,000 2,762,893
St. Paul Port Authority Redevelopment Multi-family
Refunding Revenue Bonds Burlington Apartments
Series A (GNMA Insured) 5.75 2031 14,355,000 13,872,672
St. Paul Port Authority Redevelopment Multi-family
Subordinate Refunding Revenue Bonds
Burlington Apartments Series A 8.625 2031 3,770,000 3,714,920
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Series 1992 5.75 2018 32,210,000 31,548,407
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds Series 1994A
Zero Coupon (MBIA Insured) 6.72 2021 13,500,000 (f) 3,149,955
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds Series 1994A
Zero Coupon (MBIA Insured) 6.73 2022 17,500,000 (f) 3,847,025
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds Series 1994A
Zero Coupon (MBIA Insured) 6.74 2023 27,500,000 (f) 5,695,525
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds Series 1994A
Zero Coupon (MBIA Insured) 6.75 2024-27 87,410,000 (f) 15,744,511
Vadnais Heights Multi-family Housing
Refunding Revenue Bonds Cottages of Vadnais Heights
Series 1995 A.M.T. 7.00 2031 2,000,000 1,951,240
______________
Total 219,134,729
_____________________________________________________________________________________________________________________________
Mississippi (0.7%)
Claiborne County Pollution Control Refunding Revenue Bonds
System Energy Resources Series 1995 7.30 2025 4,000,000 4,123,320
Claiborne County Pollution Control Revenue Bonds
Middle South Energy 9.50 2013 1,500,000 1,670,220
Claiborne County Pollution Control Revenue Bonds
Middle South Energy Series C 9.875 2014 15,375,000 17,244,292
Harrison County Waste Water Management District
Refunding Bonds Series 1986 5.00 2015 4,250,000 3,917,140
Jackson Industrial Development Revenue Bonds Dorsey 8.00 2005 475,000 476,648
Lowndes County Solid Waste Disposal Pollution Control
Revenue Bonds Weyerhaeuser Series 1989 A.M.T. 7.875 2005 12,250,000 13,402,848
Lowndes County Solid Waste Disposal Pollution Control
Refunding Revenue Bonds Weyerhaeuser Series 1989
Inverse Floater 8.41 2022 4,000,000 (d) 4,293,720
______________
Total 45,128,188
_____________________________________________________________________________________________________________________________
<PAGE>
PAGE 88
Missouri (0.7%)
Regional Convention & Sports Complex Authority Bonds
St. Louis Sponsor Series 1991B 7.00 2021 5,810,000 6,547,231
Regional Convention & Sports Complex Authority Bonds
St. Louis Sponsor Series 1991C 7.90 2021 2,700,000 2,956,257
State Environment & Improvement Energy Resources
Authority Pollution Control Revenue Bonds Chrysler 5.70 1999 9,250,000 9,345,922
Sikeston Electric System Refunding Revenue Bonds
Series 1992 (MBIA Insured) 5.80 2002 4,165,000 4,387,411
St. Louis Industrial Development Authority
Refunding Revenue Bonds Kiel Center
Multipurposes Arena Series 1992 A.M.T. 7.875 2024 15,400,000 16,471,224
______________
Total 39,708,045
_____________________________________________________________________________________________________________________________
Nebraska (--%)
Omaha Public Power District Electric System
Revenue Bonds Series 1986A 6.00 2015 1,370,000 1,399,592
______________________________________________________________________________________________________________________________
Nevada (0.6%)
Clark County Collateralized Pollution Control
Revenue Bonds State Power A.M.T. 7.80 2009 11,850,000 12,493,929
Clark County Industrial Development Revenue Bonds
State Power Series 1990 A.M.T. 7.80 2020 5,000,000 5,282,800
Humboldt County Collateralized Pollution Control &
Water Facilities Washoe County Hospital Revenue Bonds
Washoe Medical Center Series 1989A 7.60 2019 2,750,000 3,011,058
Las Vegas Redevelopment Agency Tax Increment
Subordinate Lien Revenue Bonds Series 1994A 6.00 2010 2,000,000 1,926,100
Las Vegas Redevelopment Agency Tax Increment
Subordinate Lien Revenue Bonds Series 1994A 6.10 2014 2,750,000 2,642,888
Las Vegas Special Improvement District 707
Local Inprovement Bonds
Summerlin Area Series 1996 7.10 2016 6,000,000 6,067,980
Washoe County Hospital Revenue Bonds
Washoe Medical Center Series 1993A 6.00 2015 7,250,000 7,050,262
______________
Total 38,475,017
_____________________________________________________________________________________________________________________________
New Hampshire (2.7%)
Business Financial Authority Pollution Control
Refunding Revenue Bonds United Illuminating
Series 1993A 5.875 2033 13,200,000 12,072,852
Industrial Development Authority Pollution Control
Revenue Bonds State Public Service Series 1991B 7.50 2021 51,485,000 52,070,899
Industrial Development Authority Pollution Control
Revenue Bonds State Public Service Series 1991C A.M.T. 7.65 2021 25,000,000 25,346,500
Industrial Development Authority Pollution Control
Revenue Bonds United Illuminating Series 1987A A.M.T. 9.375 2012 15,000,000 15,867,150
Industrial Development Authority Pollution Control
Revenue Bonds United Illuminating Series 1989A A.M.T. 8.00 2014 8,000,000 8,492,720
State Business Finance Authority
Crown Paper Company Pollution Control & Solid Waste
Refunding Revenue Bonds 7.75 2022 4,255,000 4,291,082
State Higher Education & Health Facility Authority Hospital
Revenue Bonds Hitchcock Clinic Series 1994
(MBIA Insured) 6.00 2024 13,000,000 13,008,840
State Higher Education & Health Facility Authority Hospital
Revenue Bonds Mary Hitchcock Memorial Hospital
Series 1993 Inverse Floater (FGIC Insured) 5.32 2013 17,000,000 (d) 16,471,980
State Turnpike System Refunding Revenue Bonds
Series 1992 5.75 2020 20,615,000 20,016,753
______________
Total 167,638,776
_____________________________________________________________________________________________________________________________
New Jersey (0.3%)
Economic Development Authority 1st Mortgage
Gross Revenue Bonds Mega Care Union Hospital 8.625 2007 2,500,000 2,663,700
Health Care Facility Finance Authority Revenue Bonds
St. Peter Medical Center Series 1994F (MBIA Insured) 5.00 2016 10,000,000 9,029,100
Health Care Facility Finance Authority Revenue Bonds
Zurbrugg Memorial Hospital Series C 8.50 2012 3,500,000 3,632,405
______________
Total 15,325,205
_____________________________________________________________________________________________________________________________
New Mexico (1.8%)
Albuquerque Airport Revenue Bonds Series 1987B A.M.T. 8.75 2019 15,000,000 15,464,250
Albuquerque Health Care System Revenue Bonds <PAGE>
PAGE 89
Lovelace Medical Fund 10.25 2011 55,000 55,239
Cibola County Correctional Facility
Certificate of Participation Series 1993 8.50 2015 17,045,000 17,964,578
Farmington Pollution Control Refunding Revenue Bonds
State Public Service San Juan Series 1994A 6.40 2023 30,650,000 29,767,893
Farmington Pollution Control Revenue Bonds
State Public Service 6.50 2009 5,935,000 5,918,026
Farmington Pollution Control Revenue Bonds
State Public Service San Juan Series 1978A 6.00 2008 9,105,000 8,960,686
Farmington Power Refunding Revenue Bonds
Generating Division 9.875 2013 5,000,000 6,733,850
Las Vegas Hospital Facility Refunding Revenue Bonds
Northeastern Regional Hospital Series 1987 9.625 2013 5,670,000 5,939,948
Lordsberg Pollution Control Refunding Revenue Bonds
Phelps Dodge 6.50 2013 20,000,000 20,761,800
______________
Total 111,566,270
_____________________________________________________________________________________________________________________________
New York (8.0%)
Battery Park City Authority Refunding Revenue Bonds
Series 1993A 5.50 2010 9,940,000 9,784,936
Dormitory Authority New York State University Education
Facility Pre-Refunded Revenue Bonds Series 1990A 7.70 2012 10,000,000 11,286,300
Dormitory Authority New York State University Education
Facility Revenue Bonds Series 1993A 5.50 2013 24,530,000 23,216,173
Dormitory Authority New York City University System
Consolidated 2nd General Resource Revenue Bonds
Series 1990C 5.00 2017 20,820,000 17,782,570
Dormitory Authority New York City University System
Consolidated 2nd General Resource Revenue Bonds
Series 1990C 6.00 2016 39,465,000 38,699,379
Dormitory Authority New York City University System
Consolidated 2nd General Resource Revenue Bonds
Series 1990D 7.00 2009 5,000,000 5,539,850
Dormitory Authority New York City University System
Consolidated 2nd General Resource Revenue Bonds
Series 1994A 5.75 2018 5,500,000 5,300,790
Dormitory Authority New York Court Facility Lease
Revenue Bonds Series 1993A 5.375 2016 11,000,000 9,949,170
Metropolitan Transportation Authority Commuter Facility
Revenue Bonds Series H 6.00 2014 6,150,000 6,050,309
Metropolitan Transportation Authority Transit Facility
Revenue Bonds Series G 6.00 2014 4,970,000 4,942,715
Metropolitan Transportation Transit Facilities
Service Contract Series 3 6.00 2019 6,395,000 6,277,524
New York City General Obligation Bonds Series 1992B 7.40 2000 30,000,000 32,186,400
New York City General Obligation Bonds Series 1994B 7.00 2016 16,500,000 17,361,960
New York City General Obligation Bonds Series 1996F-G 5.75 2017-20 27,825,000 25,990,176
New York City Industrial Development Agency
Special Facility Revenue BondsAmerican Airlines
Series 1990 A.M.T. 8.00 2020 16,130,000 17,053,926
New York City Municipal Water Financial Authority
Water & Sewer System Revenue Bonds Series 1994B
Inverse Floater (MBIA Insured) 6.49 2009 15,500,000 (d) 14,453,750
New York City Municipal Water Financial Authority
Water & Sewer System Revenue Bonds Series A 6.25 2021 55,500,000 56,097,180
New York City Municipal Water Financial Authority
Water & Sewer System Revenue Bonds Series B 5.00 2017 6,255,000 5,604,605
Port Authority Special Obligation Revenue Bonds
KIAC A.M.T. 6.75 2019 3,500,000 3,501,855
Port Authority Special Project Bonds La Guardia
Airport Passenger Terminal Continental &
Eastern Airlines A.M.T. 9.00 2006 2,645,000 2,921,455
Port Authority Special Project Bonds La Guardia
Airport Passenger Terminal Continental &
Eastern Airlines Series 2 A.M.T. 9.00 2010 8,800,000 9,719,776
Port Authority Special Project Bonds La Guardia
Airport Passenger Terminal Continental &
Eastern Airlines Series 2 A.M.T. 9.125 2015 17,500,000 19,389,300
State Energy Research & Development Authority Electric
Facility Revenue Bonds Consolidated Edison A.M.T. 7.125 2022 10,750,000 11,040,680
State Energy Research & Development Authority Electric
Facility Revenue Bonds Consolidated Edison A.M.T. 7.375 2024 23,000,000 24,203,130
State Energy Research & Development Authority Electric
Facility Revenue Bonds Consolidated Edison A.M.T. 7.50 2021 9,000,000 9,239,490
<PAGE>
PAGE 90
State Energy Research & Development Authority Electric
Facility Revenue Bonds Consolidated Edison
Series 1990A A.M.T. 7.50 2025 30,975,000 33,249,184
State Housing Finance Agency Service Contract Obligation
Revenue Bonds Series 1995A 6.50 2025 12,475,000 12,781,511
State Housing Finance Agency State University Construction
Refunding Bonds Series 1986A 6.50 2013 3,500,000 3,764,180
State Local Government Assistance Corporation
Series 1991A 6.50 2020 11,000,000 11,462,770
State Medical Facilities Finance Agency Mental Health Services
Improvement Refunding Revenue Bonds Series 1993D 5.25 2023 15,000,000 13,089,150
State Medical Facilities Finance Agency Mental Health Services
Improvement Refunding Revenue Bonds Series 1993F 5.25 2019 5,790,000 5,120,329
State Urban Development Correctional Facility
Refunding Revenue Bonds Series A 5.50 2016 2,750,000 2,534,235
State Urban Development Correctional Facility
Revenue Bonds Series 1993A 5.25 2021 12,110,000 10,657,769
State Urban Development Correctional Facility
Revenue Bonds Series 6 5.375 2025 9,000,000 8,046,090
______________
Total 488,298,617
_____________________________________________________________________________________________________________________________
North Carolina (3.7%)
Eastern Municipal Power Agency Power Supply System
Refunding Revenue Bonds Series 1993B 6.25 2012 24,655,000 24,765,208
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1986A 4.00 2018 8,675,000 6,854,725
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1986A 5.00 2017 6,500,000 5,825,532
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1988A 6.00 2026 3,125,000 3,140,269
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1989A 5.50 2011 37,800,000 35,402,346
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1989A 6.50 2024 16,750,000 16,811,640
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1989A 7.50 2010 29,160,000 33,494,391
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1991A 5.75 2019 55,000,000 51,085,650
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1994B 7.25 2007 5,000,000 5,522,250
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series B 6.125 2009 10,000,000 10,222,000
Eastern Municipal Power Agency Power System
Revenue Bonds Series 1993D 5.875 2013 2,300,000 2,212,094
Municipal Power Agency #1 Catawba Electric
Revenue Bonds Series 1988 7.00 2016 5,140,000 5,360,814
Municipal Power Agency #1 Catawba Electric
Revenue Bonds Series 1993
Inverse Floater (MBIA Insured) 6.97 2012 7,400,000 (d) 6,789,500
Municipal Power Agency #1 Catawba Electric
Revenue Bonds Series 1993
Inverse Floater (MBIA Insured) 7.17 2020 15,000,000 (d) 13,312,500
Offiss Incorporation Recreational Facilities
Gross Revenue Bonds Smoky Mountain Golf Course
Series 1994-6 8.25 2019 8,295,000 (e) 7,527,712
______________
Total 228,326,631
_____________________________________________________________________________________________________________________________
North Dakota (0.3%)
Fargo Hospital Refunding Revenue & Improvement Bonds
Dakota Hospital Series 1992 6.875 2012 3,000,000 3,375,240
Fargo Hospital Refunding Revenue & Improvement Bonds
Dakota Hospital Series 1992 7.00 2022 4,250,000 4,758,385
General Obligation Bonds Real Estate Series 1986A 6.00 2013 10,000,000 10,088,800
______________
Total 18,222,425
_____________________________________________________________________________________________________________________________
Ohio (2.5%)
Air Quality Development Authority Pollution Control
Refunding Revenue Bonds Ohio Edison Series A 5.95 2029 13,300,000 12,194,105
Air Quality Development Authority Pollution Control
Revenue Bonds Ohio Edison Series 1989A 7.625 2023 6,750,000 7,117,740
Bellefontaine Hospital Facilities Refunding Revenue Bonds
Mary Rutan Health Association Series 1993 6.00 2013 5,330,000 5,007,322
Butler County Hospital Facilities
<PAGE>
PAGE 91
Refunding Revenue & Improvement Bonds
Fort Hamilton-Hughes Memorial Center Series 1991 7.50 2010 8,650,000 9,183,705
Carroll District Water & Sewer Unlimited Tax
General Obligation Bonds Water System Improvement 6.25 2010 9,185,000 8,701,777
Cleveland Parking Facilities Improvement
Revenue Bonds Series 1992 8.10 2022 15,000,000 16,475,700
Coshocton County Solid Waste Disposal
Refunding Revenue Bonds Stone Container Series 1992 7.875 2013 17,500,000 18,471,600
Erie County Hospital Improvement &
Refunding Revenue Bonds Firelands Community Hospital
Series 1992 6.75 2015 6,540,000 6,865,627
Marion County Health Care Facilities
Refunding & Improvement Revenue Bonds
United Church Homes Series 1993 6.30 2015 1,800,000 1,716,840
Marion County Health Care Facilities
Refunding & Improvement Revenue Bonds
United Church Homes Series 1993 6.375 2010 2,000,000 1,962,140
Montgomery County Health Facilities
Refunding Revenue Bonds Friendship Village of Dayton
Series 1990A 9.25 2016 9,000,000 9,436,590
Water Development Authority Collateralized Pollution Control
Refunding Revenue Bonds Cleveland Electric Series 1995 7.70 2025 13,000,000 13,184,730
Water Development Authority Collateralized Pollution Control
Revenue Bonds Cleveland Electric Series 1989 A.M.T. 8.00 2023 10,000,000 10,079,000
Water Development Authority Collateralized Pollution Control
Revenue Bonds Toledo Edison Series 1989 A.M.T. 8.00 2023 8,500,000 8,602,765
Water Development Authority Pollution Control
Revenue Bonds Ohio Edison A.M.T. 8.10 2023 10,000,000 10,606,500
Water Development Authority Pollution Control
Refunding Revenue Bonds Toledo Edison
Series 1994A A.M.T. 8.00 2023 10,000,000 10,201,600
___________
Total 149,807,741
_____________________________________________________________________________________________________________________________
Oklahoma (1.6%)
Grand River Dam Authority Refunding Revenue Bonds
Series 1987 5.00 2012 10,105,000 9,432,916
Hinton Economic Development Authority
Certificate of Participation Series 1994 8.75 2015 12,100,000 12,635,425
Hinton Economic Development Authority
Certificate of Participation Dominion Leasing
Series 1990A 9.75 2015 19,090,000 21,024,390
Jackson County Memorial Hospital Authority Hospital
Refunding Revenue Bonds
Jackson County Memorial Hospital Series 1994 7.30 2015 6,580,000 6,373,585
Midwest City Memorial Hospital Authority Hospital
Revenue Bonds Series 1992 7.375 2022 7,815,000 8,826,105
Oklahoma City Central Oklahoma Transportation &
Parking Authority Parking System
Refunding Revenue Bonds Series 1986 (AMBAC Insured) 6.90 2008 8,180,000 8,363,232
Tulsa Municipal Airport Trust Revenue Bonds
American Airlines Series 1995 6.25 2020 31,550,000 31,085,584
______________
Total 97,741,237
_____________________________________________________________________________________________________________________________
Oregon (0.6%)
State Health Housing Educational &
Cultural Facilities Authority Revenue Bonds
Oregon Baptist Retirement Homes-Weidler
Retirement Center Series 1995 8.00 2026 7,720,000 7,352,914
State Veterans Welfare Department Pre-Refunded Bonds
Series LXVII 12.40 2000 2,000,000 2,054,140
Western Generation Agency Revenue Bonds
Wauna Cogeneration Series 1994A 7.125 2021 19,200,000 19,717,056
Western Generation Agency Revenue Bonds
Wauna Cogeneration Series 1994B A.M.T. 7.40 2016 9,000,000 9,314,010
______________
Total 38,438,120
_____________________________________________________________________________________________________________________________
Pennsylvania (3.9%)
Allegheny County Industrial Development Authority
Environment Improvement Revenue Bonds
USX Corporation Series 1994A 6.70 2020 6,000,000 6,085,500
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
<PAGE>
PAGE 92
Cleveland Electric Illuminating Series 1995 7.625 2025 7,500,000 7,590,225
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995A 7.75 2025 21,150,000 21,605,571
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Toledo Edison Series 1995A 7.75 2020 14,000,000 14,305,200
Beaver County Industrial Development Authority
Pollution Control Revenue Bonds
Toledo Edison-Beaver Valley Series 1995 7.625 2020 11,700,000 11,836,422
Beaver County Industrial Development Authority
Pollution Control Revenue Bonds Ohio Edison 7.75 2024 34,650,000 36,517,981
Butler County Industrial Development Authority Health Care
Refunding Revenue Bonds Pittsburgh Lifetime Care
Community Sherwood Oaks Series 1993 5.75 2011-16 5,000,000 4,707,370
Convention Center Authority Refunding Revenue Bonds
Philadelphia Series 1994A 6.75 2019 5,300,000 5,659,128
Delaware County Authority 1st Mortgage Revenue Bonds
Whitehorse Village Continuing Care Series 1989 9.70 2009-19 11,000,000 11,999,020
Delaware County Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Philadelphia Electric Series A 7.375 2021 900,000 954,324
Fayette County Hospital Authority Hospital
Refunding Revenue Bonds Uniontown Hospital
Series 1987 7.625 2015 9,000,000 9,278,820
Montgomery County Higher Education and Health Authority
Retirement Community Revenue Bonds G.D.L. Farms
Series A 9.50 2020 3,000,000 3,505,830
Philadelphia Airport Revenue Bonds
Philadelphia Airport System Series 1985 8.875 2005 1,680,000 1,720,320
Philadelphia Airport Revenue Bonds
Philadelphia Airport System Series 1985 9.00 2015 5,750,000 5,888,575
Philadelphia Gas Works Revenue Bonds Series 13 7.70 2021 4,150,000 4,770,052
Philadelphia Hospital & Higher Education Facility
Authority Hospital Revenue Bonds
Albert Einstein Medical Center 7.625 2011 15,545,000 16,621,336
Philadelphia Municipal Authority Lease
Refunding Revenue Bonds Series 1993D 6.25 2013 2,500,000 2,506,700
Philadelphia Municipal Authority Lease
Refunding Revenue Bonds Series 1993D 6.30 2017 1,550,000 1,554,138
Philadelphia Water & Sewer Revenue Bonds 16th Series 7.00 2018 14,000,000 15,479,100
Philadelphia Water & Sewer Revenue Bonds 16th Series 7.50 2010 13,200,000 15,096,576
Philadelphia Water & Wastewater Revenue Bonds
Series 1993 (CGIC Insured) 5.50 2015 11,000,000 10,648,110
State Department of General Services Certificate of
Participation Series 1994A (AMBAC Insured) 5.00 2015 25,000,000 22,719,750
Wilkins Industrial Development Authority Revenue Bonds
Retirement Community Longwood at Oakmont
Series 1991A 10.00 2021 8,495,000 10,190,232
______________
Total 241,240,280
_____________________________________________________________________________________________________________________________
Puerto Rico (0.7%)
Electric Power Agency Revenue Bonds Series N-O 6.00 2010 45,305,000 45,493,922
_____________________________________________________________________________________________________________________________
Rhode Island (0.1%)
Public Building Authority Revenue Bonds
Series 1994A (AMBAC Insured) 5.25 2007 3,485,000 3,462,801
_____________________________________________________________________________________________________________________________
South Carolina (0.9%)
Cherokee County Spring City Knitting Cluett Peabody 7.40 2009 5,200,000 5,565,092
Piedmont Municipal Power Agency Electric
Refunding Revenue Bonds Series 1986B 5.75 2024 7,550,000 7,085,449
Public Service Authority Electric System Expansion
Revenue Bonds Santee Cooper Series 1991D 6.625 2031 14,975,000 16,659,238
Public Service Authority Electric System Revenue Bonds
Santee Cooper Series 1991B 6.00 2031 8,000,000 7,987,920
Public Service Authority Electric System Revenue Bonds
Santee Cooper Series 1993A Inverse Floater
(MBIA Insured) 7.15 2013 17,700,000 (d) 16,438,875
______________
Total 53,736,574
_____________________________________________________________________________________________________________________________
South Dakota (0.3%)
Heartland Consumers Power District Electric System
Refunding Revenue Bonds Series 1986 6.00 2010 10,205,000 10,609,424
State Lease Revenue Trust Certificates Series 1993
(CGIC Insured) 6.70 2017 7,260,000 8,153,343
<PAGE>
PAGE 93 ______________
Total 18,762,767
_____________________________________________________________________________________________________________________________
Tennessee (0.4%)
Nashville & Davidson County Health & Education Facility
1st Mortgage Revenue Bonds
Blakeford at Green Hills CCRC 9.25 2024 12,230,000 13,195,681
Knox County Health Education & Housing Facility Hospital
Revenue Bonds Baptist Health System East Tennessee
Series 1989 8.60 2016 10,000,000 10,567,700
______________
Total 23,763,381
_____________________________________________________________________________________________________________________________
Texas (8.6%)
Alliance Airport Authority Special Facility Revenue Bonds
American Airlines Series 1990 A.M.T. 7.50 2029 37,400,000 39,594,632
Austin Combined Utility Systems Refunding Revenue Bonds
Series 1985 10.75 2010-15 12,000,000 14,523,720
Austin Combined Utility Systems Refunding Revenue Bonds
Series 1986 5.00 2013 20,000,000 18,409,800
Austin General Obligation Public Improvement Bonds
Series 1986 6.75 2006 2,000,000 2,005,080
Austin General Obligation Public Improvement Bonds
Series 1986 7.00 2007 5,450,000 5,464,988
Board of Regents of the University System General
Refunding Revenue Bonds Series 1986 6.50 2007 17,500,000 17,552,975
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1989A A.M.T. 8.25 2019 14,000,000 15,081,640
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1990A A.M.T. 8.125 2020 13,205,000 14,438,347
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1991A A.M.T. 7.875 2021 24,450,000 26,840,721
Brazos River Authority Collateralized
Refunding Revenue Bonds Houston Lighting & Power
(MBIA Insured) 5.80 2015 15,000,000 14,863,800
Brazos River Authority Collateralized
Refunding Revenue Bonds Houston Lighting & Power
Series 1989A 7.625 2019 26,300,000 28,546,020
Brownsville Utility System Priority Revenue Bonds
Series 1990 (AMBAC Insured) 6.50 2017 10,015,000 10,913,246
Clay Road Municipal Utility District Tax
Refunding Bonds Series 1996 6.25 2015 2,000,000 1,993,240
Colony Municipal Utility District #1 Denton County
Series 1980 9.25 2007 1,000,000 1,340,560
Dallas & Fort Worth International Airport Special Facility
Revenue Bonds American Airlines Series 1990 A.M.T. 7.50 2025 26,200,000 27,716,980
Dallas & Fort Worth International Airport Special Facility
Revenue Bonds Delta Air Lines Series 1991 A.M.T. 7.125 2026 13,500,000 13,948,200
Denison Hospital Authority Hospital Revenue Bonds
Texoma Medical Center Series 1994 7.10 2024 3,950,000 4,056,690
Fort Bend County Municipal Utility District #23
Unlimited Tax Bonds 6.625 2016 3,085,000 3,049,368
Harris County Health Facilities Development Hospital
Refunding Revenue Bonds Memorial Hospital Series 1985 6.00 2004 6,460,000 6,461,421
Harris County Health Facilities Hospital Revenue Bonds
Memorial Hospital Series 1992 7.125 2015 16,000,000 17,148,960
Harris County Industrial Development Marine Terminal
Refunding Revenue Bonds GATX Terminal Series 1992 6.95 2022 15,000,000 15,586,650
Hidalgo County Health Services Corporation
Hospital Revenue Bonds Mission Hospital
Series 1996 6.875 2026 7,880,000 7,825,234
Houston Water & Sewer System Junior Lein
Refunding Revenue Bonds Series A (FGIC Insured) 5.25 2025 24,125,000 22,294,636
Karnes County Public Facility Lease Revenue Bonds 9.20 2015 15,990,000 16,304,683
Kings Manor Municipal Utility District
Waterworks & Sewer Systems Combination
Unlimited Tax & Revenue Bonds Series 1995 6.875 2018 2,470,000 2,508,927
Matagorda County Navigation District #1
Collateral Pollution Control Refunding Revenue Bonds
Houston Power & Light (MBIA Insured) 5.80 2015 15,000,000 14,864,850
Matagorda County Navigation District #1
Collateral Pollution Control Revenue Bonds
Central Power & Light Series 1986A
(AMBAC Insured) A.M.T. 7.50 2020 6,500,000 7,077,395
Matagorda County Navigation District #1
Collateral Pollution Control Revenue Bonds
<PAGE>
PAGE 94
Houston Power & Light Series 1986A A.M.T. 7.875 2016 8,000,000 8,232,320
Matagorda County Navigation District #1
Pollution Control Revenue Bonds
Central Power & Light Series 1986 A.M.T. 7.875 2016 18,000,000 18,523,620
Midland County Hospital District Revenue Bonds Series 1992 7.50 2016 3,025,000 3,215,605
Mills Road Municipal Utility District Harris County
Unlimited Tax Refunding Bonds Series 1993 6.50 2014 2,690,000 2,702,643
Municipal Power Agency Refunding Revenue Bonds
(MBIA Insured) 5.25 2009 8,000,000 7,939,840
Municipal Power Agency Revenue Bonds Series 1986 6.50 2014 4,000,000 4,009,360
Municipal Power Agency Revenue Bonds 5.50 2013 7,410,000 7,225,491
Municipal Power Agency Revenue Bonds (BIG Insured) 6.25 2010 13,940,000 14,564,512
North Austin Municipal Utility District #1 Austin Contract
Revenue Bonds Series 1985 9.90 2006-07 2,800,000 2,889,824
North Austin Municipal Utility District #1 Austin Contract
Revenue Bonds Series 1985 10.00 2008-09 2,625,000 2,709,945
North Central Texas Health Facility Development Hospital
Revenue Bonds University Medical Center 8.20 2019 4,245,000 4,416,031
North Central Texas Health Facility Development Hospital
Revenue Bonds University Medical Center Series 1987 7.75 2017 7,500,000 7,732,650
Plano Collin & Denton County General Obligation Bonds
Limited Tax Series 1986 6.00 2006 1,600,000 1,601,664
Rio Grande City Consolidated Independent School District
Public Facilities Lease Revenue Bonds Series 1995 6.75 2010 4,000,000 4,111,200
Sabine River Authority Collateralized Pollution Control
Revenue Bonds Texas Utilities Electric Series 1990A A.M.T. 8.125 2020 30,500,000 32,685,325
San Antonio Electric & Gas System
Refunding Revenue Bonds Series 1989B 5.00 2016 11,000,000 9,920,900
San Antonio Electric & Gas System
Revenue Bonds Series 1987 5.00 2014 8,680,000 7,843,335
West Side Calhoun County Navigation District
Solid Waste Disposal Revenue Bonds
Union Carbide Chemical & Plastics Series 1991 A.M.T. 8.20 2021 17,550,000 19,557,018
_____________
Total 530,294,046
_____________________________________________________________________________________________________________________________
Utah (1.9%)
Association Municipal Power System Hunter Series A
(AMBAC Insured) 5.50 2012 4,000,000 3,920,920
Carbon County Solid Waste Disposal
Refunding Revenue Bonds Sunnyside
Cogeneration Associates Series 1991 A.M.T. 9.25 2018 25,350,000 25,350,000
Housing Finance Agency Single Family Mortgage
Senior Bonds Series 1991C (FGIC Insured) 7.30 2011 1,090,000 1,148,718
Housing Finance Agency Single Family Mortgage
Senior Bonds Series 1991C (FGIC Insured) 7.35 2016 865,000 910,283
Hurricane Health Facilities Development Revenue Bonds
Mission Health Services Series 1990 10.50 2020 7,705,000 8,652,099
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series F (AMBAC Insured) 5.00 2013 5,000,000 4,597,550
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series 1993B Inverse Floater 7.34 2011 7,600,000 (d) 7,030,000
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series 1996C (MBIA Insured) 5.70 2017 46,000,000 45,296,200
Intermountain Power Agency Power Supply
Revenue Bonds Series 1987A (MBIA Insured) 5.00 2012 8,000,000 7,418,800
Intermountain Power Agency Power Supply
Revenue Bonds Series 1989A-B 6.00 2023 13,665,000 13,824,267
______________
Total 118,148,837
_____________________________________________________________________________________________________________________________
Virginia (0.3%)
Hopewell City Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Stone Container Series 1992 8.25 2010 3,170,000 3,405,594
Housing Development Authority Commonwealth
Mortgage Bonds Series 1992A 7.15 2033 15,000,000 15,909,000
_____________
Total 19,314,594
_____________________________________________________________________________________________________________________________
Washington (3.7%)
Health Care Facilities Authority Revenue Bonds
Seattle Highline Community Hospital
Series 1993 (Connie Lee Insured) 5.50 2014 7,500,000 7,169,475
King County Housing Authority Pooled Housing
Refunding Revenue Bonds Series 1995A 7.20 2026 4,000,000 4,014,320
<PAGE>
PAGE 93
Longview Industrial Development Corporation Solid Waste
Revenue Bonds Weyerhauser Series 1991 A.M.T. 7.45 2013 20,000,000 21,633,000
Public Power Supply System Nuclear Project #1
Refunding Revenue Bonds Series A 6.50 2015 21,000,000 21,692,790
Public Power Supply System Nuclear Project #1
Refunding Revenue Bonds Bonneville Power Administration
Series 1993A Inverse Floater (FSA Insured) 7.47 2011 25,000,000 (d) 24,625,000
Public Power Supply System Nuclear Project #1
Revenue Bonds Series 1989 6.00 2017 28,070,000 27,383,127
Public Power Supply System Nuclear Project #1
Revenue Bonds Series 1990A 6.00 2017 38,875,000 38,371,569
Public Power Supply System Nuclear Project #2
Revenue Bonds Series 1994A 5.375 2011 10,000,000 9,351,700
Public Power Supply System Nuclear Project #2
Revenue Linked Bonds (FGIC Insured) 5.55 2010 20,000,000 19,488,800
Public Power Supply System Nuclear Project #3
Revenue Bonds Series 1989B 5.50 2017-18 27,550,000 25,302,521
Seattle Municipal Light & Power
Refunding Revenue Bonds Series 1986 5.875 2010 6,000,000 6,022,200
Snohomish County Public Utility District #1
Generation System Revenue Bonds Series 1986A 5.00 2020 17,750,000 16,068,897
State Housing Finance Commission
Refunding Revenue Bonds Horizon House
Series 1995A (Asset Guaranty Insured) 6.00 2017 3,700,000 3,724,087
State Housing Finance Commission
Refunding Revenue Bonds Horizon House
Series 1995A (Asset Guaranty Insured) 6.125 2027 3,600,000 3,615,912
______________
Total 228,463,398
_____________________________________________________________________________________________________________________________
West Virginia (1.4%)
Kanawha County Pollution Control
Revenue Bonds Union Carbide Series 1984 7.35 2004 3,000,000 3,357,990
Marion County Solid Waste Disposal Facility
Revenue Bonds American Power Paper Recycling
Series 1993 A.M.T. 7.75 2011 20,000,000 9,928,000
Marion County Solid Waste Disposal Facility
Revenue Bonds American Power Paper Recycling
Series 1994 A.M.T. 8.25 2011 10,000,000 4,965,200
Marion County Solid Waste Disposal Facility
Revenue Bonds American Power Paper Recycling
Series 1995 A.M.T. 9.00 2011 5,000,000 2,683,050
Marion County Solid Waste Disposal Facility
Revenue Bonds American Power Paper Recycling
Series 1995B A.M.T. 9.25 2011 5,000,000 2,683,300
Mason County Pollution Control Refunding Revenue Bonds
Appalachian Power Series 1992J 6.60 2022 25,000,000 25,489,500
Pea Ridge Public Service District Sewer
Refunding Revenue Bonds Series 1990 9.25 2020 2,605,000 2,709,825
Putnam County Pollution Control Revenue Bonds
Appalachian Power Series C 6.60 2019 10,600,000 10,836,168
School Building Authority Capital Improvement
Revenue Bonds Series 1991A 6.00 2021 20,785,000 20,871,258
South Charleston Pollution Control Refunding
Revenue Bonds Union Carbide Series 1985 7.625 2005 3,000,000 3,407,190
______________
Total 86,931,481
_____________________________________________________________________________________________________________________________
Wisconsin (0.7%)
Health & Education Facilities Authority
Revenue Bonds St. Clare Hospital 7.00 2022 12,115,000 12,900,294
Health Facilities Authority Refunding Revenue Bonds
Villa Clement Series 1986 8.75 2012 4,500,000 4,508,910
Madison Industrial Development
Refunding Revenue Bonds Madison Gas & Electric
Series 1992B 6.70 2027 19,300,000 20,238,752
Superior Water Supply Facility Revenue Bonds
Superior Water Light & Power Series 1986 A.M.T. 7.875 2021 6,500,000 6,669,260
______________
Total 44,317,216
_____________________________________________________________________________________________________________________________
Wyoming (0.3%)
Green River & Rock Springs Sweetwater County
Joint Powers Water Board Revenue Bonds
Series 1988A 8.50 2007 2,500,000 2,708,875
<PAGE>
PAGE 96
Natrona County Hospital Revenue Bonds
Wyoming Medical Center 8.125 2010 6,500,000 6,978,205
State Farm Loan Board Capital Facilities
Revenue Bonds Series 1994 6.10 2024 5,000,000 5,063,700
______________
Total 14,750,780
_____________________________________________________________________________________________________________________________
Total municipal bonds
(Cost: $5,629,127,364) $5,966,824,450
_____________________________________________________________________________________________________________________________
Short-term securities (1.5%)
_____________________________________________________________________________________________________________________________
Issuer (c,h,i) Effective Amount
Value(a)
yield payable at
maturity
_____________________________________________________________________________________________________________________________
Municipal notes
Breckenridge Health Facility Revenue Bonds
V.R.D.B. (MBIA Insured)
11-15-13 3.85% $ 2,595,000 $ 2,595,000
Burke County Georgia Development Authority
Georgia Power Vogtle Series 4 V.R.D.B.
07-01-24 3.60 2,900,000 2,900,000
Michigan Strategic Fund Consumers Power
Series 1988A V.R.D.N.
04-15-18 3.60 3,100,000 3,100,000
Minneapolis Minnesota Special School District
V.R.D.B. (MBIA Insured)
02-01-15 3.85 1,285,000 1,285,000
Minneapolis/St. Paul Housing & Redevelopment
Children's Hospital Series B V.R.D.B.
08-15-25 3.60 3,620,000 3,620,000
Monroe County Georgia Development Authority
Gulf Power Series 2 V.R.D.B.
09-01-24 3.60 3,100,000 3,100,000
Monroe County Georgia Development Authority
Gulf Power Series 2 V.R.D.B.
07-01-25 3.60 4,700,000 4,700,000
New York City General Obligation Bonds
V.R.D.B.
10-01-22 3.70 3,900,000 3,900,000
New York City Municipal Water Finance
Authority Sewer System Revenue Bonds
V.R.D.B. (FGIC Insured)
06-15-23 3.30 4,900,000 4,900,000
New York City Municipal Water Finance
Authority Sewer System Revenue Bonds
V.R.D.B. (FGIC Insured)
06-15-23 3.65 35,650,000 35,650,000
St. Louis Park Minnesota Health System
Revenue Bonds V.R.D.B.
07-01-13 3.85 25,000,000 25,000,000
University of Michigan Hospital
Revenue Refunding Bonds
Series A V.R.D.B.
12-01-19 3.75 2,000,000 2,000,000
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $92,753,214) $ 92,750,000
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $5,721,880,578)(j) $6,059,574,450
_____________________________________________________________________________________________________________________________
<PAGE>
PAGE 97
Notes to investments in securities
____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
__________________________________________
Rating 07-31-96 11-30-95
_______________________________________________________________________________________________________
AAA 26% 29%
AA 6 6
A 20 20
BBB 29 27
BB and below 19 18
________________________________________________________________________________________________________
Total 100% 100%
_______________________________________________________________________________________________________
(c) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
(d) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed
is the rate in effect on July 31, 1996. Inverse floaters in the aggregate
represent 5.3% of the Portfolio's net assets as of July 31, 1996.
(e) Presently non-income producing. Items identified are in default as to payment of interest and/or principal.
(f) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(g) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 4 to the financial statements):
Type of security Notional amount
Sale contracts
_________________________________________________________________
T-Bonds Futures Sept. 1996 $350,000,000
_________________________________________________________________
(h) Interest rate varies to reflect current market conditions; rate shown is
the effective rate on July 31, 1996.
(i) The following abbreviations are used in portfolio descriptions:
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
A.M.T. -- Alternative Minimum Tax - As of July 31, 1996, the value of
securities subject to alternative minimum tax represented 19.3%
of net assets.
<PAGE>
PAGE 98
(j) At July 31, 1996, the cost of securities for federal income tax purposes was approximately
$5,721,871,192 and the approximate aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $415,808,387
Unrealized depreciation (78,106,129)
___________________________________________________________________________
Net unrealized appreciation $337,702,258
___________________________________________________________________________
</TABLE>
<PAGE>
PAGE 99
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
Financial Statements filed as part of this Post-Effective
Amendment:
Strategist Tax-Free High Yield Fund:
Statement of Assets and Liabilities, July 31, 1996
Statement of Operations, period from May 13, 1996 to
July 31, 1996
Statement of changes in net assets, period from May 13, 1996
to July 31, 1996
Notes to Financial Statements
Tax-Free High Yield Portfolio:
Statement of Assets and Liabilities, July 31, 1996
Statement of Operations, period from May 13, 1996 to
July 31, 1996
Statement of changes in net assets, period from May 13, 1996
to July 31, 1996
Notes to Financial Statements
Investments in securities, July 31, 1996
Notes to investments in securities
(b) EXHIBITS:
1(a) Articles of Incorporation, dated May 24, 1995, filed
electronically on or about September 1, 1995, as Exhibit 1 to
Registration Statement No. 33-63909, are incorporated herein
by reference.
1(b) Articles of Amendment dated April 4, 1996, filed
electronically on or about April 17, 1996 as Exhibit 1(b) to
Registrant's Pre-Effective Amendment No. 1 are incorporated
herein by reference.
2. Form of By-laws filed electronically on or about April 17,
1996 as Exhibit 2 to Registrant's Pre-Effective Amendment No.
1 is incorporated herein by reference.
3. Not Applicable.
4. Not Applicable.
5. Not Applicable.
6. Form of Distribution Agreement filed electronically on or
about April 17, 1996 as Exhibit 6 to Registrant's Pre-
Effective Amendment No. 1 are incorporated herein by
reference.
7. Not Applicable.
8(a) Form of Custodian Agreement filed electronically on or about
April 17, 1996 as Exhibit 8 to Registrant's Pre-Effective
Amendment No. 1 are incorporated herein by reference.
<PAGE>
PAGE 100
8(b) Copy of Addendum to the Custodian Agreement between Strategist
Tax-Free Income Fund, Inc. and American Express Trust Company
executed on May 13, 1996, is filed electronically herewith.
9(a) Form of Transfer Agency Agreement filed electronically on or
about April 17, 1996 herewith as Exhibit 9(a) to Registrant's
Pre-Effective Amendment No. 1 is incorporated herein by
reference.
9(b) Form of Administrative Services Agreement filed electronically
on or about April 17, 1996 as Exhibit 9(b) to Registrant's
Pre-Effective Amendment No. 1 is incorporated herein by
reference.
9(c) Copy of Agreement and Declaration of Unitholders between
Strategist Tax-Free Income Fund, Inc. and IDS High Yield Tax-
Exempt Fund dated May 13, 1996, is filed electronically
herewith.
10. An opinion and consent of counsel filed electronically on or
about April 17, 1996 as Exhibit 10 to Registrant's Pre-
Effective Amendment No. 1 is incorporated herein by reference.
11. Independent Auditors Consent to be filed by Amendment.
12. Not Applicable.
13. Share Purchase Agreement filed electronically on or about
April 17, 1996 as Exhibit 13 to Registrant's Pre-Effective
Amendment No. 1 is incorporated herein by reference.
14. Not Applicable.
15. Form of Plan and Agreement of Distribution filed
electronically on or about April 17, 1996 as Exhibit 15 to
Registrant's Pre-Effective Amendment No. 1 is incorporated
herein by reference.
16. Schedule for computation of each performance quotation filed
electronically on or about April 17, 1996 as Exhibit 16 to
Registrant's Pre-Effective Amendment No. 1 is incorporated
herein by reference.
17. Financial Data Schedule is filed electronically herewith.
18. Not Applicable.
19(a). Director's Power of Attorney to sign Amendments to this
Registration Statement, dated April 24, 1996, is filed
electronically as Exhibit 19(a).
19(b). Officers' Power of Attorney to sign Amendments to this
Registration Statement, dated April 24, 1996, is filed
electronically herewith as Exhibit 19(b).
<PAGE>
PAGE 101
19(c). Trustees Power of Attorney dated April 11, 1996 filed
electronically on or about April 17, 1996 as Exhibit 19(a)
to Registrant's Pre-Effective Amendment No. 1 is
incorporated herein by reference.
19(d). Officers' Power of Attorney dated April 11, 1996, filed
electronically on or about April 17, 1996 as Exhibit 19(b)
to Registrant's Pre-Effective Amendment No. 1 is
incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class Sept. 20, 1996
Common Stock 5
$.01 par value
Item 27. Indemnification
Reference is hereby made to Article IV of Registrant's Articles of
Incorporation filed electronically on or about Nov. 1, 1995 as
Exhibit 1 to Registrant's initial registration statement and
Article X of Registrant's By-laws filed electronically on or about
April 17, 1996 as Exhibit 2 to Registrant's Pre-Effective Amendment
No. 1.<PAGE>
PAGE 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Strategist Tax-Free
Income Fund, Inc., certifies that it meets the requirements for the
effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and State of Minnesota on the 26th day
of September, 1996.
STRATEGIST TAX-FREE INCOME FUND, INC.
By /s/ James A. Mitchell*
James A. Mitchell
President
By /s/ Melinda S. Urion*
Melinda S. Urion
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on the 26th day
of September, 1996.
Signature Title
By /s/ Rodney P. Burwell** Director
Rodney P. Burwell
By /s/ William J. Heron Jr.** Director
William J. Heron
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
* Signed pursuant to Officers' Power of Attorney dated April 24,
1996, filed herewith as Exhibit 19(b), by:
Eileen J. Newhouse
** Signed pursuant to Directors Power of Attorney dated April 24,
1996, filed herewith as Exhibit 19(a), by:
Eileen J. Newhouse
<PAGE>
PAGE 103
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, TAX-FREE INCOME TRUST consents to
the filing of this Amendment to the Registration Statement signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis and State of Minnesota on the 26th day of
September, 1996.
TAX-FREE INCOME TRUST
By /s/ Melinda S. Urion*
Melinda S. Urion
Treasurer
By /s/ William R. Pearce**
William R. Pearce
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on the 26th day
of September, 1996.
Signatures Capacity
/s/ William R. Pearce* Trustee
William R. Pearce
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ Robert F. Froehlke* Trustee
Robert F. Froehlke
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
<PAGE>
PAGE 104
Signatures Capacity
/s/ Melvin R. Laird* Trustee
Melvin R. Laird
Trustee
Edson W. Spencer
/s/ John R. Thomas* Trustee
John R. Thomas
Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
* Signed pursuant to Trustees Power of Attorney dated April 11,
1996, filed on or about April 17, 1996 as Exhibit 19(a) to
Registrant's Pre-Effective Amendment No. 1, by:
___________________________________
Leslie L. Ogg
** Signed pursuant to Officers' Power of Attorney dated April 11,
1996, filed on or about April 17, 1996 as Exhibit 19(b) to
Registrant's Pre-Effective Amendment No. 1, by:
___________________________________
Leslie L. Ogg
<PAGE>
PAGE 105
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION
STATEMENT NO. 33-63909
This Amendment to its Registration Statement comprises the
following papers and documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements
Part C.
Other Information.
The signatures.
<PAGE>
PAGE 1
EXHIBIT INDEX
Exhibit 8(b): Addendum to Custodian Agreement.
Exhibit 9(c): Agreement & Declaration of Unitholders between
Strategist Tax-Free Income Fund, Inc. and IDS High
Yield Tax-Exempt Fund.
Exhibit 17: Financial data schedules.
Exhibit 19(a): Directors' Power of Attorney.
Exhibit 19(b): Officers' Power of Attorney.
<PAGE>
PAGE 1
ADDENDUM TO THE CUSTODIAN AGREEMENT
THIS ADDENDUM TO THE CUSTODIAN AGREEMENT dated May 13, 1996
between Strategist Tax-Free Income Fund, Inc. (the Company) on
behalf of its underlying series funds (the Fund) and American
Express Trust Company (the Custodian) is made pursuant to Section
12 of the Agreement to reflect the Corporation's arrangement of
investing all the Fund's assets in corresponding portfolios of a
master trust.
American Express Financial Corporation (AEFC) serves as
administrator for the Company and for the master trust in which the
Fund invests.
The Comapany, the Custodian and AEFC agree as follows:
The parties to this Agreement acknowledge that, so long as the Fund
invests all of its assets in corresponding portfolios of the master
trust, the only assets held by the Fund will be units of the master
trust. The parties agree that the Custodian is entitled to rely
upon AEFC for an accounting of the number of units held, purchased
or redeemed by the Company and to delegate to AEFC responsibility
for all reporting to the Company. AEFC agrees to indemnify and
hold harmless the Custodian from all claims and liabilities
incurred or assessed against the Custodian in connection with the
accounting for and reporting to the Company by AEFC.
IN WITNESS WHEREOF, the Company, the Custodian and AEFC have caused
this addendum to the Custodian Agreement to be executed on May 13,
1996 which shall remain in effect until terminated by one of the
parties on written notice to the other parties to this Addendum.
STRATEGIST TAX-FREE INCOME FUND, INC.
Strategist Tax-Free High Yield Fund
By ____________________________
James A. Mitchell
President
AMERICAN EXPRESS TRUST COMPANY
By ____________________________
Chandrakant A. Patel
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By ____________________________
Richard W. Kling
Senior Vice President
<PAGE>
PAGE 1
TAX-FREE HIGH YIELD PORTFOLIO
AGREEMENT AND DECLARATION OF UNITHOLDERS
This AGREEMENT AND DECLARATION OF UNITHOLDERS is made at
Minneapolis, Minnesota, as of this 13th day of May, 1996 by the
holders of beneficial interest of Tax-Free High Yield Portfolio, a
separate series of Tax-Free Income Trust.
WITNESS that
WHEREAS, the Declaration of Trust for Tax-Free Income Trust
provides for no restrictions on the transfer of units therein; and
WHEREAS, the holders of units in Tax-Free High Yield
Portfolio desire to restrict the transfer of their units in Tax-
Free High Yield Portfolio;
NOW, THEREFORE, the undersigned hereby declare that they will
not transfer any units in Tax-Free High Yield Portfolio held by
them without the prior written consent of the other unitholders
holding at least two thirds of the Tax-Free High Yield Portfolio's
units outstanding (excluding the units of the holder seeking to
effect the transfer) and that any attempted transfer in violation
of this agreement shall be null and void. This agreement shall not
affect the rights of any unitholder to redeem units in Tax-Free
High Yield Portfolio as provided for in the Declaration of Trust.
The undersigned also acknowledge that the remedy of damages for the
violation of this agreement would be inadequate and therefore
further agree that this agreement shall be enforceable solely by
the remedy of specific performance.
IDS HIGH YIELD TAX-EXEMPT FUND, INC.
______________________________
Leslie L. Ogg
Vice President and General Counsel
STRATEGIST TAX-FREE INCOME FUND, INC.
Strategist Tax-Free High Yield Fund
______________________________
James A. Mitchell
President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STRATEGIST TAX-FREE INCOME FUND, INC.
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> MAY-13-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 514673
<INVESTMENTS-AT-VALUE> 539135
<RECEIVABLES> 286
<ASSETS-OTHER> 13795
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 553216
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37435
<TOTAL-LIABILITIES> 37435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 507427
<SHARES-COMMON-STOCK> 114997
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1098)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9457
<NET-ASSETS> 515781
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3277
<OTHER-INCOME> 0
<EXPENSES-NET> (439)
<NET-INVESTMENT-INCOME> 2838
<REALIZED-GAINS-CURRENT> (1098)
<APPREC-INCREASE-CURRENT> 9452
<NET-CHANGE-FROM-OPS> 11192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2838)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114997
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 542
<NET-CHANGE-IN-ASSETS> 407427
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 439
<AVERAGE-NET-ASSETS> 213895
<PER-SHARE-NAV-BEGIN> 4.46
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.49
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<ARTICLE> 6
<NAME> TAX-FREE HIGH YIELD PORTFOLIO
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> MAY-13-1996
<PERIOD-END> MAY-31-1996
[INVESTMENTS-AT-COST] 5721880578
[INVESTMENTS-AT-VALUE] 6059574450
[RECEIVABLES] 91865175
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 6151439625
[PAYABLE-FOR-SECURITIES] 7306563
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 4771066
[TOTAL-LIABILITIES] 12077629
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 0
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 6139361996
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 92307028
[OTHER-INCOME] 0
[EXPENSES-NET] (6109238)
[NET-INVESTMENT-INCOME] 86197790
[REALIZED-GAINS-CURRENT] (9187509)
[APPREC-INCREASE-CURRENT] 332461059
[NET-CHANGE-FROM-OPS] 409471340
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 6139361996
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6007329
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 6109238
[AVERAGE-NET-ASSETS] 6244428415
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
PAGE 1
DIRECTORS POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors of the below listed
open-end management investment companies that previously have filed
registration statements and amendments thereto pursuant to the
requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 with the Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
Strategist Growth Fund, Inc. 33-63905 811-7401
Strategist Growth and Income Fund, Inc. 33-63907 811-7403
Strategist Income Fund, Inc. 33-60323 811-7305
Strategist Tax-Free Fund, Inc. 33-63909 811-7407
Strategist World Fund, Inc. 33-63951 811-7405
hereby constitutes and appoints James A. Mitchell or Eileen J.
Newhouse as her or his attorney-in-fact and agent, to sign for her
or him in her or his name, place and stead any and all further
amendments to said registration statements filed pursuant to said
Acts and any rules and regulations thereunder, and to file such
amendments with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in
connection therewith.
Dated this 24th day of April, 1996.
_____________________________
Rodney P. Burwell
_____________________________
William J. Heron
_____________________________
Jean B. Keffeler
_____________________________
Thomas R. McBurney
_____________________________
James A. Mitchell
<PAGE>
PAGE 1
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed
open-end management investment companies that previously have filed
registration statements and amendments thereto pursuant to the
requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 with the Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
Strategist Growth Fund, Inc. 33-63905 811-7401
Strategist Growth and Income Fund, Inc. 33-63907 811-7403
Strategist Income Fund, Inc. 33-60323 811-7305
Strategist Tax-Free Fund, Inc. 33-63909 811-7407
Strategist World Fund, Inc. 33-63951 811-7405
hereby constitutes and appoints James A. Mitchell or Eileen J.
Newhouse as her or his attorney-in-fact and agent, to sign for her
or him in her or his name, place and stead any and all further
amendments to said registration statements filed pursuant to said
Acts and any rules and regulations thereunder, and to file such
amendments with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in
connection therewith.
Dated this 25th day of April, 1996.
_____________________________
James A. Mitchell
_____________________________
Melinda Urion
