<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 (File No. 33-63909) [x]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 (File No. 811-07407) [x]
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STRATEGIST TAX-FREE INCOME 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 Jan. 29, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Tax-Free Income Trust also has executed this Amendment to the Registration
Statement.
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Strategist Tax-Free High Yield Fund
Prospectus/Jan. 29, 1999
Please note that this Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goals
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Prospectus -- jan. 29, 1999
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Table of Contents
Take a closer look at:
The Fund 2
Goal 2
Investment Strategy 2
Risks 3
Past Performance 5
Fees and Expenses 7
Management 8
Buying and Selling Shares 8
Valuing Fund Shares 8
Purchasing Shares 8
Exchanging/Selling Shares 12
Distributions and Taxes 14
Personalized Shareholder Information 15
Quick Telephone Reference 16
Master/Feeder Structure 17
Business Structure 18
Financial Highlights 20
Appendix 21
Prospectus -- jan. 29, 1999
<PAGE>
The Fund
Strategist Tax-Free High Yield Fund (the Fund), a series of Strategist Tax-Free
Income Fund, Inc. is a diversified mutual fund. The fund has its own goal and
investment policies. The Fund seeks to achieve its goal by investing all of its
assets in a corresponding portfolio (the Portfolio) rather than by directly
investing in and managing its own portfolio of securities.
Goal
The Fund seeks to provide shareholders with a high yield generally exempt from
federal income taxes. Because any investment involves risk, achieving this goal
cannot be guaranteed.
Investment Strategy
The Portfolio's assets primarily are invested in medium and lower quality bonds
(junk bonds) and other debt obligations. Under normal market conditions, the
Portfolio will invest at least 80% of its net assets in bonds and in other debt
obligations issued by or on behalf of state or local governmental units whose
interest is exempt from federal income tax and is not subject to the alternative
minimum tax. However, the Portfolio may invest up to 20% of its net assets in
debt obligations the interest from which is subject to the alternative minimum
tax.
The selection of municipal obligations that are tax-exempt is the primary
decision in building the investment portfolio.
American Express Financial Corporation (AEFC), the Portfolio's investment
manager, chooses investments by:
o Considering opportunities and risks in municipal obligations given current
and expected interest rates.
o Identifying municipal obligations that:
-- are medium or lower quality,
-- have similar qualities, in AEFC's opinion, even though they are not rated
or have been given a lower rating by a rating agency,
-- have long-term maturities with higher yields,
-- have characteristics that fit our investment strategy at the time of
purchase (coupon, call, maturity etc.).
o Identifying investments that contribute to portfolio diversification.
Strategist Tax-Free High Yield Fund
<PAGE>
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued,
-- the issuer's credit rating declines or AEFC expects a decline (the
Fund may continue to own securities that are down-graded until
AEFC believes it is advantageous to sell),
-- political, economic, or other events could affect the issuer's
performance,
-- AEFC expects the issuer to call the security,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards
described above.
The Portfolio also may invest in derivative instruments, money market securities
and other short-term tax-exempt securities, and other instruments.
During weak or declining markets, the Portfolio may invest more of its assets in
money market securities or certain taxable investments. Although the Portfolio
primarily will invest in these securities to avoid losses, this type of
investing also could reduce the benefit from any improvement in the market. AEFC
may make frequent securities trades that could result in increased fees,
expenses, and taxes.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
Risks
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Interest Rate Risk
Credit Risk
Legal/Legislative Risk
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall).
Prospectus -- jan. 29, 1999
<PAGE>
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Strategist Tax-Free High Yield Fund
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Past Performance
The following bar chart and table show the risks and variability of investing in
the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown on
the charts below, and
o how its average annual total returns compare to a recognized index.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
================================================================================
Performance (based on calendar years)
+11.39% +5.10% +12.02% +8.70% +9.73% -5.07% +17.39% +2.54% +9.78% +5.45%
1989 1990 1991 1992 1993 1994 1995 1996* 1997 1998
During the period shown in the bar chart, the highest return for a calendar
quarter was +3.61% (quarter ending June, 1997) and the lowest return for a
calendar quarter was -0.15% (quarter ending March, 1997).
The Fund's year to date return as of Dec. 31, 1998 was +5.45%.
*On May 13, 1996, IDS High Yield Tax-Exempt Fund transferred all of its assets
to the Portfolio. The performance information in this and the following table
represents performance of IDS High Yield Tax-Exempt Fund prior to March 20, 1995
and of Class A shares of IDS High Yield Tax-Exempt 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 IDS High Yield
Tax-Exempt Fund.
Prospectus -- jan. 29, 1999
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
Tax-Free High Yield +5.45% +5.75% +7.54%
================================================================================
Lehman Brothers Municipal Bond Index +6.48% +5.84% +8.01%
This table shows total returns form a hypothetical investment in the Fund. These
returns are compared to the index shown for the same periods. For purposes of
this calculation, information about the Fund assumes no adjustments for taxes an
investor may have paid on the reinvested income and capital gains.
Lehman Brothers Municipal Bond Index is an unmanaged index 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 by the Fund. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees.
Strategist Tax-Free High Yield Fund
<PAGE>
Fees and Expenses
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
================================================================================
Shareholder Fees (fees paid directly from your investment)a
Maximum sales charge (load) imposed on purchasesb
(as a percentage of offering price) 0%
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Annual Fund operating expensesc (expenses that are deducted from Fund assets) As
a percentage of average daily net assets:
Management fees 0.46%
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Distribution (12b-1) fees 0.25%
Other expensesd 1.05%
Totale 1.76%
a A wire transfer charge, currently $15, is deducted from your brokerage
account for wire transfers made at your request.
b The Fund imposes a 0.50% fee for shares sold 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 shareholder
are not unfairly bearing the costs associated with frequent traders.
c Both in this table and the following example, Fund operating expenses
include expenses charged by both the Fund and the Portfolio.
d Other expenses include an administrative services fee, a transfer agency fee
and other nonadvisory expenses.
e The Advisor and the Distributor have agreed to waive certain fees and to
absorb certain other Fund expenses until Dec. 31, 1999. Under this
agreement, total expenses will not exceed 0.95%. For the most recent fiscal
year actual total expenses with fee waivers and expense reimbursement were
0.94%.
The Fund has adopted a plan under Rule 12b-1 of the 1940 Act that allows it to
pay distribution fees. Because these fees are paid out of Fund assets on an
ongoing basis, long-term shareholders may end up paying more than the 7.25%
sales charge permitted by the NASD.
Prospectus -- jan. 29, 1999
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you sell your shares at the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
$179 $554 $955 $2,078
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
Management
The Fund's assets are invested in Tax-Free High Yield Portfolio (the Portfolio),
which is managed by American Express Financial Corporation (AEFC). Kurt Larson,
vice president and senior portfolio manager, joined AEFC in 1961. He has managed
the assets of the Fund and its predecessor fund since 1979.
Buying and Selling Shares
Valuing Fund Shares
The public offering price for a single Fund share is the net asset value (NAV).
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business of the New York Stock Exchange, normally
3 p.m. Central Standard Time (CST), each business day (any day the New York
Stock Exchange is open).
Investments are valued based on market value, or where market quotations are not
readily available, on methods selected in good faith by the board.
Purchasing Shares
You may purchase shares of the Fund through a brokerage account maintained with
the Distributor. There is no fee to open a brokerage account. Payment for shares
must be made directly to the Distributor.
Strategist Tax-Free High Yield Fund
<PAGE>
Complete a brokerage account application (available by calling 800-297-7378) 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 what additional forms may be necessary to open a
brokerage account.
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide the correct TIN, you could be subject to backup
withholding of 31% of taxable distributions and proceeds from certain sales and
exchanges. You also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN,
o a civil penalty of $500 for a false statement that results in no backup
withholding, and
o criminal penalties for falsifying information.
You also could be subject to backup withholding for failure to report interest
or dividends on your tax return. For details on TIN requirements, call
800-297-7378 for federal Form W-9, "Request for Taxpayer Identification Number
and Certification."
Deposits into your brokerage account. You may deposit money into your brokerage
account by check, wire or many other forms of electronic funds transfer
(securities also may be deposited). All deposit checks should be made payable to
American Express Service Corporation. If you would like to wire funds into your
existing brokerage account, please contact the Distributor at 800-297-7378 for
instructions.
Minimum Fund investment requirements. Your initial investment in the Fund may be
as low as $2,000 ($1,000 for custodial accounts, Individual Retirement Accounts
and certain other retirement plans). The minimum subsequent investment is $100.
These requirements may be reduced or waived as described in the SAI.
When and at what price shares will be purchased. You must have money available
in your brokerage account in order to purchase Fund shares. If your request and
payment (including money transmitted by wire) are received and accepted by the
Distributor before 2 p.m. CST, your order will be priced at the next calculated
NAV. See "Valuing Fund Shares."
Prospectus -- jan. 29, 1999
<PAGE>
Methods of purchasing shares. You may purchase shares of the Fund in three ways.
(1) By telephone:
You may use money in your brokerage account to make initial and subsequent
purchases. To place your order, call 800-297-7378.
(2) By mail:
Mail written purchase requests (along with any checks) to American Express
Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. Thes
requests should include:
o your brokerage account number (or a brokerage account application), and
o the name of the Fund and the dollar amount of shares you would like
purchased.
Your check should be made payable to American Express Service Corporation.
It will be deposited into your brokerage account and used to cover your
purchase request.
(3) By systematic purchase:
Once you have opened a brokerage account, you may authorize the Distributor
to automatically purchase shares on your behalf at intervals and in amounts
selected by you as described below.
Systematic Purchase Plan. The Distributor offers a Systematic Purchase Plan
(SPP) that allows you to make periodic investments in the Fund automatically and
conveniently. Participating in the SPP will save you the time and expense
associated with writing checks or wiring money.
Investment minimums. You can make automatic investments in any amount, from $100
to $50,000.
Investment methods. There are two ways to make automatic investments from your
brokerage account:
(1) Using uninvested cash in your brokerage account: If you elect this option,
uninvested cash in your brokerage account will be used to make the
investment and, if necessary, shares of your Money Market Fund will be sold
to cover the balance of the purchase.
(2) Using bank authorizations: If you elect this option, money is transferred
from your bank checking or savings account into your brokerage account for
automatic investments.
Strategist Tax-Free High Yield Fund
<PAGE>
You will need to select a transfer date (when the money is transferred into your
brokerage account). If you change your bank authorization date, it may also be
necessary to change your automatic investment date to coincide with the new
transfer date.
Investment frequency. You can select the frequency of your automatic investments
(example: twice monthly, monthly or quarterly). Quarterly investments are made
on the date selected in the first month of each quarter (January, April, July
and October).
Changing instructions to an already established plan. If you want to change the
fund(s) selected for your SPP you may call 800-297-7378, or send written
instructions clearly outlining the changes to American Express Financial Direct,
P.O. Box 59196, Minneapolis, MN 55459-0196. These instructions must include:
o the funds with SPP that you want to cancel,
o the newly selected fund(s) in which you want to begin making automatic
investments and the amount to be invested in each fund, and
o the investment frequency and investment dates for your new automatic
investments.
Terminating your SPP. If you wish to terminate your SPP, please call
800-297-7378, or send written instructions to American Express Financial Direct,
P.O. Box 59196, Minneapolis, MN 55459-0196.
Terminating bank authorizations. If you wish to terminate your bank
authorizations, you may do so at any time by notifying American Express
Financial Direct in writing or by calling 800-297-7378. Your bank authorization
will not automatically terminate when you cancel your SPP.
If you are canceling your bank authorizations and you wish to cancel your SPP,
you must also provide instructions stating that the Distributor should cancel
your SPP. You may notify the Distributor by sending written instructions to
American Express Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196 or
telephoning 800-297-7378. Your systematic investments will continue using
brokerage account assets if the Distributor does not receive notification to
terminate your systematic investments as well.
To avoid procedural difficulties, the Distributor must receive instructions to
change or terminate your SPP or bank authorizations at least 10 days prior to
your scheduled investment date.
Prospectus -- jan. 29, 1999
<PAGE>
Minimum balance and account requirements. The Fund reserves the right to sell
your shares if, as a result of sales, the aggregate value of your holdings in
the Fund drops below $1,000 ($500 in the case of custodial accounts, IRAs and
other retirement plans). You will be notified in writing 30 days before the Fund
takes such action to allow you to increase your holdings to the minimum level.
If you close your brokerage account, the Fund will automatically sell your
shares.
Wire transfers to your bank. Money can be wired from your brokerage account to
your bank account. Call the Distributor at 800-297-7378 for additional
information on wire transfers. A $15 service fee will be charged against your
brokerage account for each wire sent.
Exchanging/Selling Shares
Exchanging Shares. You may exchange your shares of the Fund for shares of other
funds in the Strategist Fund Group at any time. For complete information on the
other funds, including fees and expenses, read that fund's prospectus carefully.
Your exchange will be priced at the next NAV calculated after it is accepted by
that fund. When exchanging into another fund you must meet that fund's minimum
investment requirements. You may make up to four exchanges per calendar year.
The Distributor and the Fund reserve the right to reject any exchange, limit the
amount or modify or discontinue the exchange privilege to prevent abuse or
adverse effects on the Fund and its shareholders. For example, if exchanges are
too numerous or too large, they may disrupt a Fund's investment strategies or
increase its costs.
Selling Shares. You may sell your shares at any time. Your sale price will be
the next NAV calculated after receipt by the Distributor of proper sale
instructions, as described below.
The Fund imposes a 0.50% fee for shares sold 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.
Normally, payment for shares sold will be credited directly to your brokerage
account on the next business day. However, the Fund may delay payment, but no
later than seven days after the Distributor receives your selling instructions
in proper form. Sale proceeds will be held in your brokerage account or mailed
to you according to your account instructions.
Strategist Tax-Free High Yield Fund
<PAGE>
If you recently purchased shares by check, your sale proceeds may be held in
your brokerage account until your check clears (which may take up to 10 days
from the purchase date) before a check is mailed to you.
The Fund reserves the right to redeem in kind.
Two ways to request an exchange or sale of shares
(1) By telephone:
You may exchange or sell your shares by calling 800-297-7378. If you
experience difficulties in exchanging or selling shares by telephone, you
can mail your exchange or sale requests as described below.
To properly process your telephone exchange or sale request we will need
the following information:
o your brokerage account number and your name (for exchanges, both funds
must be registered in the same ownership),
o the name of the fund from which you wish to exchange or sell shares,
o the dollar amount or number of shares you want to exchange or sell, and
o the name of the fund into which shares are to be exchanged, if
applicable.
Telephone exchange or sale requests received before 2 p.m. CST on any business
day, once the caller's identity and account ownership have been verified by the
Distributor, will be processed at the next calculated NAV. See "Valuing Fund
Shares."
(2) By mail:
You also may request an exchange or sale by writing to American Express
Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196. Once an
exchange or sale request is mailed it is irrevocable and cannot be modified
or canceled.
To properly process your mailed exchange or sale request, we will need a
letter from you that contains the following information:
o your brokerage account number,
o the name of the fund from which you wish to exchange or sell shares,
o the dollar amount or number of shares you want to exchange or sell,
o the name of the fund into which shares are to be exchanged, if
applicable, and
o a signature of at least one of the brokerage account holders in the exact
form specified on the account.
Prospectus -- jan. 29, 1999
<PAGE>
Telephone transactions. The privilege to initiate transactions by telephone is
automatically available through your brokerage account. The Fund will honor any
telephone transaction believed to be authentic and will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Telephone privileges may be modified or discontinued at any time.
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and net
gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
Dividend and capital gain distributions
The Fund's net investment income is distributed to you as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Short-term capital gains are included in net investment income. Long-term
capital gains are realized when a security is held for more than one year. The
Fund offsets any net realized capital gains by any available capital loss
carryovers. Net realized long-term capital gains, if any, are distributed by the
end of the calendar year as capital gain distributions.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund, unless you request distributions in cash. We
reinvest the distributions for you at the next calculated NAV after the
distribution is paid. If you choose cash distributions, you will receive cash
only for distributions declared after your request has been processed.
Taxes
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.
Strategist Tax-Free High Yield Fund
<PAGE>
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.
If you buy shares shortly before a distribution you will pay taxes on money
earned by the Fund before you were a shareholder. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
For tax purposes, an exchange is considered a sale and purchase and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held for more
than one year). If you sell shares for less than their cost, the difference is a
capital loss.
Selling shares held in an IRA or qualified retirement account may subject you to
federal taxes, penalties and reporting requirements. Please consult your tax
advisor.
Important: This information is a brief and selective summary of some of the tax
rules that apply to this Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
Personalized Shareholder Information
To help you track and evaluate the performance of your investments, you will
receive these individualized reports:
Quarterly statements list all of your holdings and transactions during the
previous three months.
Yearly tax statements feature average-cost-basis reporting of capital gains or
losses if you sell your shares along with distribution information to simplify
tax calculations.
Prospectus -- jan. 29, 1999
<PAGE>
Quick Telephone Reference
American Express Financial Direct Team: Call the Financial Consultants
Fund performance, objectives and account inquiries, sales and exchanges,
dividend payments or reinvestments and automatic payment arrangements
800-297-7378
TTY Service
For the hearing impaired
800-710-5260
Strategist Tax-Free High Yield Fund
<PAGE>
Master/Feeder Structure
The Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in a Portfolio (the master fund). Other feeder
funds also invest in the Portfolio. The master/feeder structure offers the
potential for reduced costs because it spreads fixed costs of portfolio
management over a larger pool of assets. The Fund may withdraw its assets from
the corresponding Portfolio at any time if the Fund's board determines that it
is best. In that event, the board would consider what action should be taken,
including whether to hire an investment advisor to manage the Fund's assets
directly or to invest all of the Fund's assets in another pooled investment
entity. Here is an illustration of the structure:
Investors buy shares in the Fund
m
The Fund buys units in the Portfolio
m
The Portfolio invests in securities,
such as stocks or bonds
Other feeders may include mutual funds and institutional accounts. These feeders
buy the Portfolio's securities on the same terms and conditions as the Fund and
pay their proportionate share of the Portfolio's expenses. However, their
operating costs and sales charges are different from those of the Fund.
Therefore, the investment returns for other feeders are different from the
returns of the Fund. Information about other feeders may be obtained by calling
American Express Financial Direct at 800-437-3133.
Prospectus -- jan. 29, 1999
<PAGE>
Business Structure
===============================================================================
Shareholders
Transfer Agent:
American Express Client Service Corporation Maintains shareholder accounts and
records for the Fund; receives a fee based on the number of accounts it
services.
Administrative Services Agent:
American Express Financial Corporation
Provides administrative and accounting services for the Fund; receives a fee
based on assets.
The Fund
Distributor:
American Express Service Corporation
Markets and distributes shares; receives distribution fee.
The Fund invests its assets in the Portfolio. The Fund and/or the Portfolio have
contracts with certain service providers.
Investment Manager:
American Express Financial Corporation
Manages the Portfolio's investments and receives a fee based on average daily
net assets.*
The Portfolio
Custodian:
American Express Trust Company
Provides safekeeping of assets; receives a fee that varies based on the number
of securities held.
* The Portfolio pays AEFC a fee for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 0.46% of average daily
net assets. Under the Agreement, the Portfolio also pays taxes, brokerage
commissions and nonadvisory expenses.
Strategist Tax-Free High Yield Fund
<PAGE>
About American Express Financial Corporation
American Express Financial Corporation, the Investment Manager, has been a
provider of financial services since 1894, and as of the most recent fiscal year
end manages more than $204 billion in assets. These assets are managed by a team
of highly skilled, experienced professionals, backed by one of the nation's
largest investment departments. This team of professionals includes portfolio
managers, economists and supporting staff, stock and bond analysts including
Chartered Financial Analysts. Some of the professionals are based in London and
Hong Kong and add a global dimension to the team's expertise.
Year 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000.
While Year 2000-related computer problems could have a negative effect on the
Fund, AEFC is working to avoid such problems and to obtain assurances from
service providers that they are taking similar steps. The companies or
governments in which each Portfolio invests also may be adversely affected by
Year 2000 issues.
Prospectus -- jan. 29, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Fiscal period ended Nov. 30,
<S> <C> <C> <C>
Per share income and capital changesa
1998 1997 1996b
Net asset value, beginning of period $4.64 $4.56 $4.46
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .26 .28 .15
Net gains (losses) (both realized and unrealized) .04 .08 .10
- --------------------------------------------------------------------------------------------------
Total from investment operations .30 .36 .25
- --------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.26) (.28) (.15)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $4.68 $4.64 $4.56
- --------------------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in thousands) $863 $734 $535
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assetsc .94% .95% .95%d
- --------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
- --------------------------------------------------------------------------------------------------
to average daily net assets 5.54% 6.02% 6.22%d
Portfolio turnover rate
(excluding short-term securities) 14% 4% 4%
- --------------------------------------------------------------------------------------------------
Total return 6.65% 8.26% 5.60%
- --------------------------------------------------------------------------------------------------
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent
b Inception date was May 13, 1996.
c The Advisor and Distributor voluntarily limited total operating expenses to
0.95% of average daily net assets. Without this agreement, the ratio of
expenses to average daily net assets would have been 1.76%, 2.96% and 24.16%
for the periods ended 1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
The information in this table has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund is contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.
Strategist Tax-Free High Yield Fund
<PAGE>
Appendix
1999 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:
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 federal
Marginal Tax Rate. For example: Let's assume you are married filing jointly,
your taxable income is $138,000 and your adjusted gross income is $175,000.
Under Taxable Income married filing jointly status, $138,000 is in the
$104,050-$158,550 range. Under Adjusted Gross Income, $175,000 is in the
$126,600 to $189,950 column. The Taxable Income line and Adjusted Gross Income
column meet at 31.93%. This is the rate you'll use in Step 2.
Prospectus -- jan. 29, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Adjusted gross income*
- --------------------------------------------------------------------------------------------------
Taxable income** $0 $126,600 $189,950
to to to Over
$126,600(1) $189,950(2) $312,450(3) $312,450(2)
- --------------------------------------------------------------------------------------------------
Married Filing Jointly
$ 0 - $ 43,050 15.00%
43,050 - 104,050 28.00 28.84%
104,050 - 158,550 31.00 31.93 33.29%
158,550 - 283,150 36.00 37.08 38.66 37.08%
283,150 + 39.60 42.53*** 40.79
- --------------------------------------------------------------------------------------------------
Adjusted gross income*
- --------------------------------------------------------------------------------------------------
Taxable income** $0 $126,600
to to Over
$126,600(1) $249,100(3) $249,100(2)
- --------------------------------------------------------------------------------------------------
Single
$ 0 - $ 25,750 15.00%
25,750 - 62,450 28.00
62,450 - 130,250 31.00 32.61%
130,250 - 283,150 36.00 37.87 37.08%
283,150 + 39.60 40.79
- --------------------------------------------------------------------------------------------------
</TABLE>
* Gross income with certain adjustments before taking itemized deductions and
personal exemptions.
** Amount subject to federal income tax after itemized deductions (or standard
deduction) and personal exemptions.
*** This rate is applicable only in the limited case where your adjusted gross
income is less than $312,450 and your taxable income exceeds $283,150.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized deductions
and no current phase-out of personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions, personal exemptions phase-out 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.
Strategist Tax-Free High Yield Fund
<PAGE>
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.
<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00%
- ---------------------------------------------------------------------------------------------------
Marginal Tax Rates Equal the Taxable Rates shown below:
15.00% 2.94 3.53 4.12 4.71 5.29 5.88 6.47 7.06
28.00% 3.47 4.17 4.86 5.56 6.25 6.94 7.64 8.33
28.84% 3.51 4.22 4.92 5.62 6.32 7.03 7.73 8.43
31.00% 3.62 4.35 5.07 5.80 6.52 7.25 7.97 8.70
31.93% 3.67 4.41 5.14 5.88 6.61 7.35 8.08 8.81
32.61% 3.71 4.45 5.19 5.94 6.68 7.42 8.16 8.90
33.29% 3.75 4.50 5.25 6.00 6.75 7.50 8.24 8.99
36.00% 3.91 4.69 5.47 6.25 7.03 7.81 8.59 9.38
37.08% 3.97 4.77 5.56 6.36 7.15 7.95 8.74 9.54
37.87% 4.02 4.83 5.63 6.44 7.24 8.05 8.85 9.66
38.66% 4.08 4.89 5.71 6.52 7.34 8.15 8.97 9.78
39.60% 4.14 4.97 5.79 6.62 7.45 8.28 9.11 9.93
40.79% 4.22 5.07 5.91 6.76 7.60 8.44 9.29 10.13
42.53% 4.35 5.22 6.09 6.96 7.83 8.70 9.57 10.44
- ---------------------------------------------------------------------------------------------------
</TABLE>
Prospectus -- jan. 29, 1999
<PAGE>
This page left blank intentionally.
<PAGE>
This page left blank intentionally.
<PAGE>
This Fund, along with the other funds in the Strategist Fund Group, are
distributed by American Express Service Corporation.
Additional information about the Fund and its investments are available in the
Fund's SAI, annual and semiannual reports to shareholders. In the Fund's annual
report, you will find a discussion of market conditions and investment
strategies that significantly affected the Fund during the last fiscal year. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
the annual report, or the semiannual report contact American Express Financial
Direct.
American Express Financial Direct
P.O. Box 59196, Minneapolis, MN 55459-0196
800-297-7378 TTY: 800-710-5620
Web site address:
http://www.americanexpress.com/direct
You may review and copy information about the Fund, including its SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund is available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.
Investment Company Act File 811-7405
S-6126 E (1/99)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
STRATEGIST TAX-FREE INCOME FUND, INC.
STRATEGIST TAX-FREE HIGH YIELD FUND
(singularly and collectively with the corresponding portfolio of Tax-Free
Income Trust (the Trust) and the Trust, where the context requires,
referred to as the "Fund")
Jan. 29, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that may be obtained
by calling American Express Financial Direct, 800-AXP-SERV (TTY: 800-710-5260)
or by writing to P.O. Box 59196, Minneapolis, MN 55459-0196.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
Strategist Tax-Free Income Fund, Inc.
Strategist Tax-Free High Yield Fund
TABLE OF CONTENTS
Mutual Fund Checklist...............................................p.3
Fundamental Investment Policies.....................................p.5
Investment Strategies and Types of Investments......................p.6
Information Regarding Risks and Investment Strategies...............p.8
Security Transactions..............................................p.28
Brokerage Commissions Paid to Brokers Affiliated with the Advisor..p.29
Performance Information............................................p.30
Valuing Fund Shares................................................p.32
Selling Shares.....................................................p.33
Capital Loss Carryover.............................................p.34
Taxes..............................................................p.34
Agreements.........................................................p.35
Organizational Information.........................................p.38
Board Members and Officers.........................................p.39
Compensation for Board Members.....................................p.43
Principal Holders of Securities....................................p.44
Independent Auditors...............................................p.44
Appendix: Description of Ratings..................................p.45
<PAGE>
MUTUAL FUND CHECKLIST
- -------------------------------------------------------------------------------
|X|
Mutual funds are NOT guaranteed or insured by any
bank or government agency. You can lose money.
|X|
Mutual funds ALWAYS carry investment risks. Some
types carry more risk than others.
|X|
A higher rate of return typically involves a
higher risk of loss.
|X|
Past performance is not a reliable indicator of future performance.
|X|
ALL mutual funds have costs that lower investment return.
|X|
Shop around. Compare a mutual fund with others of
the same type before you buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:
Develop a Financial Plan
Have a plan - even a simple plan can help you take control of your financial
future.
Dollar-Cost Averaging
An investment technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is dollar-cost
averaging. Dollar-cost averaging involves building a portfolio through the
investment of fixed amounts of money on a regular basis regardless of the price
or market condition. This may enable an investor to smooth out the effects of
the volatility of the financial markets. By using this strategy, more shares
will be purchased when the price is low and less when the price is high. As the
accompanying chart illustrates, dollar-cost averaging tends to keep the average
price paid for the shares lower than the average market price of shares
purchased, although there is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares to meet
long-term goals.
<PAGE>
Dollar-cost averaging:
- -----------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
- -----------------------------------------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
----- -------- ------
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5)
The average price you paid for each share: $4.84 ($500 divided by 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
<PAGE>
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The Fund pursues its investment objective by investing all of its assets in a
portfolio of the Trust, a separate investment company, rather than by directly
investing in and managing its own portfolio of securities. The Portfolio has the
same investment objectives, policies, and restrictions as the Fund.
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
o Under normal market conditions, invest less than 80% of its net assets in
bonds and notes issued by or on behalf of state and local governmental
units whose interest, in the opinion of counsel for the issuer, is exempt
from federal income tax and is not subject to the alternative minimum tax.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation. For
purposes of this policy, the terms of a municipal security determine the
issuer.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Lend Fund securities in excess of 30% of its net assets.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It also lists certain percentage
guidelines that are generally followed by the Fund's investment manager. This
table is intended to show the breadth of investments that the investment manager
may make on behalf of the Fund. For a description of principal risks, please see
the prospectus. Notwithstanding the Fund's ability to utilize these strategies
and techniques, the investment manager is not obligated to use them at any
particular time. For example, even though the investment manager is authorized
to adopt temporary defensive positions and is authorized to attempt to hedge
against certain types of risk, these practices are left to the investment
manager's sole discretion.
- ------------------------------------------------------- ------------------------
Investment strategies & types of investments: Strategist Tax-Free
High Yield Fund
Allowable for
the Fund?
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Agency and Government Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Borrowing yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Cash/Money Market Instruments yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Collateralized Bond Obligations yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Commercial Paper yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Common Stock no
- ------------------------------------------------------- -----------------------
- ------------------------------------------------------- ------------------------
Convertible Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Corporate Bonds yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Debt Obligations yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Depositary Receipts no
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Derivative Instruments yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Foreign Currency Transactions yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Foreign Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
High-Yield (High-Risk) Securities (Junk Bonds) yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Illiquid and Restricted Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Indexed Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Inverse Floaters yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Investment Companies no
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Lending of Portfolio Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Loan Participations yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Mortgage- and Asset-Backed Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Mortgage Dollar Rolls yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Municipal Obligations yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Preferred Stock no
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Real Estate Investment Trusts yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Repurchase Agreements yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Reverse Repurchase Agreements yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Short Sales no
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Sovereign Debt yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Structured Products yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Variable- or Floating-Rate Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Warrants yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
When-Issued Securities yes
- ------------------------------------------------------- ------------------------
- ------------------------------------------------------- ------------------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes
- ------------------------------------------------------- ------------------------
<PAGE>
The following are guidelines that may be changed by the board at any time:
o The Fund 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.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o 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 investment manager, appropriate
short-term tax-exempt securities are not available, the Fund may invest up
to 20% of its net assets in certain taxable investments for temporary
defensive purposes.
o The Fund will not buy on margin or sell short, except the Fund may use
derivative instruments.
o The Fund will not invest in voting securities, or securities of investment
companies.
o Under normal market conditions, the Fund does not intend to commit more
than 5% of its total assets to when-issued securities or forward
commitments.
<PAGE>
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Some of these investments are speculative and involve a high
degree of risk. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with, but not limited to, bond prices (when interest rates
rise, bond prices fall).
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
<PAGE>
Reinvestment Risk
The risk that an investor will not be able to reinvest their income or principal
at the same rate as it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margins.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of a common stock is generally determined by corporate earnings, type
of products or services offered, projected growth rates, experience of
management, liquidity, and general market conditions for the markets on which
the stock trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique
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investment characteristics in that they generally (i) have higher yields than
common stocks but lower yields than comparable non-convertible securities, (ii)
are less subject to fluctuation in value than the underlying stock since they
have fixed income characteristics, and (iii) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
<PAGE>
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend on (or "derive" from) the value of one or more other assets,
such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable gain or loss in the price of the
derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
<PAGE>
Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees to sell the security at the set price when the buyer wants to
exercise the option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a security at a set
price for the length of the contract. A person who writes a put option agrees to
buy the security at the set price if the purchaser wants to exercise the option,
no matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price. The risk of the writer is
potentially unlimited, unless the option is covered.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security is the combination of the exercise
price, the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day an
investor would pay out cash in an amount
<PAGE>
equal to any decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable transaction
in the cash market.
Options on Futures Contracts. Options on futures contracts give the holder
a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date, an option on a futures contract merely entitles its holder to
decide on or before a future date (within nine months of the date of issue)
whether to enter into a contract. If the holder decides not to enter into the
contract, all that is lost is the amount (premium) paid for the option. Further,
because the value of the option is fixed at the point of sale, there are no
daily payments of cash to reflect the change in the value of the underlying
contract. However, since an option gives the buyer the right to enter into a
contract at a set price for a fixed period of time, its value does change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded
on national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code also may limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received
<PAGE>
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.
Other Risks of Derivatives.
Derivatives are risky investments.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities. There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
<PAGE>
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by the forces of supply and
demand in the foreign exchange markets, actual or anticipated changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected by the intervention of U.S. or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities and Domestic Companies with Foreign Operations
Investors should recognize that investing in foreign securities involves special
risks, including those set forth below, which are not typically associated with
investing in U.S. securities. Foreign companies are not generally subject to
uniform accounting, auditing, and financial reporting standards comparable to
those applicable to domestic companies. Additionally, many foreign stock
markets, while growing in volume of trading activity, have substantially less
volume than the New York Stock Exchange, and securities of some foreign
companies are less liquid and more volatile than securities of domestic
companies. Similarly, volume and liquidity in most foreign bond markets are less
than the volume and liquidity in the U.S. and, at times, volatility of price can
be greater than in the U.S. Further, foreign markets have different clearance,
settlement, registration, and communication procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in such procedures could result in temporary periods when
assets are uninvested and no return is earned on them. The inability of an
investor to make intended security purchases due to such problems could cause
the investor to miss attractive investment opportunities. Payment for securities
without delivery may be required in certain foreign markets and, when
participating in new issues, some foreign countries require payment to be made
in advance of issuance (at the time of issuance, the market value of the
security may be more or less than the purchase price). Some foreign markets also
have compulsory depositories (i.e., an investor does not have a choice as to
where the securities are held). Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges.
Further, an investor may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts. There is generally less
government supervision and regulation of business and industry practices, stock
exchanges, brokers, and listed companies than in the U.S. It may be more
difficult for an investor's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delays or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, diplomatic developments that could affect
investments in those countries, or other unforeseen actions by regulatory bodies
(such as changes to settlement or custody procedures).
<PAGE>
The expected introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transaction period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
<PAGE>
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
<PAGE>
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, an investor 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 Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
<PAGE>
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, or possessions of the United States (including the District of
Columbia). The interest on these obligations is generally exempt from federal
income tax. Municipal obligations are generally classified as either "general
obligations" or "revenue obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement, thereby, determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities. A specific risk of a repurchase agreement is that if the
seller seeks the protection of bankruptcy laws, the Fund's ability to liquidate
the security involved could be impaired.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price on the replacement date. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities
or to defer an unrealized gain. If the value of the securities sold short
increased prior to the scheduled delivery date, the investor loses the
opportunity to participate in the gain.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
<PAGE>
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
<PAGE>
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
<PAGE>
SECURITY TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held, or sold. In determining where the buy and sell orders are to
be placed, AEFC has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board. In selecting broker-dealers to execute transactions,
AEFC may consider the price of the security, including commission or mark-up,
the size and difficulty of the order, the reliability, integrity, financial
soundness, and general operation and execution capabilities of the broker, the
broker's expertise in particular markets, and research services provided by the
broker.
AEFC 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 Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC 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. AEFC 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 AEFC to do so to the extent authorized by
law, if AEFC 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 AEFC's overall
responsibilities with respect to the Fund and the other funds and trusts in the
IDS MUTUAL FUND GROUP for which it acts as investment manager.
Research provided by brokers supplements AEFC'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. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC 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 AEFC, 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 AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund that it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some portfolio transactions may
not be effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by AEFC or
any of its subsidiaries. When the Fund buys or sells the same security as
another portfolio, fund, or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
The Fund paid total brokerage commissions of $0 for fiscal year ended Nov. 30,
1998, $0 for fiscal year 1997, and $150,492 for fiscal period from May 13, 1996
(commencement of operations) to Nov. 30, 1996. Substantially all firms through
whom transactions were executed provide research services.
No transactions were directed to brokers because of research services they
provided to the Fund.
As of the end of the most recent fiscal year, the Fund held no securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities.
The portfolio turnover rate was 14% in the most recent fiscal year, and 4% in
the year before.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE ADVISOR
- -------------------------------------------------------------------------------
Affiliates of American Express Company (of which the Advisor is a wholly-owned
subsidiary) may engage in brokerage and other securities transactions on behalf
of the Fund according to procedures adopted by the board and to the extent
consistent with applicable provisions of the federal securities laws. The
Advisor will use an American Express affiliate only if (i) the Advisor
determines that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
<PAGE>
No brokerage commissions were paid to brokers affiliated with the Advisor for
the three most recent fiscal years.
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows.
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 30-day period by the net asset value per share
on the last day of the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
<PAGE>
The Fund's annualized yield was 4.36% for Tax-Free High Yield Fund for the
30-day period ended Nov. 30, 1998.
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to 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 POPF equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor DY = distribution yield
The Fund's distribution yield was 5.57% for Tax-Free High Yield Fund for the
30-day period ended Nov. 30, 1998.
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, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Marginal Income Tax-Equivalent
Tax Bracket Yield Distribution Annualized
- ------------------------------------- ----------------------------------- -----------------------------------
15.0% 6.55% 5.13%
28.0% 7.74% 6.06%
31.0% 8.07% 6.32%
36.0% 8.70% 6.81%
39.6% 9.22% 7.22%
</TABLE>
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
Tax-Free High Yield Portfolio in exchange for units of the Portfolio. Also on
May 13, 1996, the Tax-Free High Yield 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 for periods prior to May 13, 1996 is based on the
performance of the IDS Fund adjusted for differences in sales charges. For the
period from March 20, 1995 to May 13, 1996, performance is based on the
performance of Class A shares of the IDS Fund. 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.
<PAGE>
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Daily, Kiplinger's
Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund
Forecaster, Newsweek, The New York Times, Personal Investor, Shearson Lehman
Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal Finance, USA
Today, U.S. News and World Report, The Wall Street Journal, and Wiesenberger
Investment Companies Service.
VALUING FUND SHARES
- -------------------------------------------------------------------------------
The value of an individual share is determined by using the net asset value
(NAV) before shareholder transactions for the day.
On the first business day following the end of the fiscal year, the computations
looked like this:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net assets Shares
before outstanding at Net asset value
Fund shareholder divided by the end of equals of one share
transactions previous day
- --------------------- ----------------- ----------------- ---------------- ----------------- -----------------
Tax-Free High Yield $862,056 184,200 $4.68
</TABLE>
In determining net assets before shareholder transactions, the securities held
by the Fund's securities are valued as follows as of the close of business of
the New York Stock Exchange (the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the exchange
where the security is primarily traded and, if none exist, to the
over-the-counter market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities
traded over-the-counter but not included in the NASDAQ National Market
System are valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued
at their fair value according to procedures decided upon in good faith by
the board.
<PAGE>
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is an
approximation of market value determined by systematically increasing the
carrying value of a security if acquired at a discount, or reducing the
carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
o Securities without a readily available market price and other assets are
valued at fair value as determined in good faith by the board. The board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the
Portfolio. If a valuation of a bond is not available from a pricing
service, the bond will be valued by a dealer knowledgeable about the bond
if such a dealer is available.
SELLING SHARES
- --------------------------------------------------------------------------------
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Funds
to redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is
not reasonably practicable for the Fund to determine the fair value of its
net assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the Fund stop selling shares, the board members may make a deduction from
the value of the assets held by the Fund to cover the cost of future
liquidations of the assets so as to distribute fairly these costs among all
shareholders.
The Fund reserves the right to redeem, involuntarily, the shares of any
shareholder whose account has a value of less than a minimum amount but only
where the value of such account has been reduced by voluntary redemption of
shares. Until further notice, it is the policy of the Fund not to exercise this
right with respect to any shareholder whose account has a value of $1,000 or
more ($500 in the case of Custodial accounts, IRAs and other retirement plans).
In any event, before the Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares in the
account is less than the minimum amount and allow the shareholder 30 days to
make an additional investment in an amount which will increase the value of the
accounts to at least $1,000.
<PAGE>
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of that Fund at the beginning of such period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make payments in whole or in part in securities or other assets in case of an
emergency, or if the payment of such redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In such
circumstances, the securities distributed would be valued as set forth in the
Prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
Rejection of Business
The Fund reserves the right to reject any business, in its sole discretion.
CAPITAL LOSS CARRYOVER
- -------------------------------------------------------------------------------
For federal income tax purposes, the Fund had total capital loss carryovers of
$6,041 at the end of the most recent fiscal year, that if not offset by
subsequent capital gains will expire as follows:
Fund 2004 2005 2006
- ---- ---- ---- ----
Tax-Free High Yield $1,194 $2,743 $2,104
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
TAXES
- --------------------------------------------------------------------------------
You may be able to defer taxes on current income from a Fund by investing
through an IRA 401(k) plan account or other qualified retirement account. If you
move all or part of a non-qualified investment in a Fund to a qualified account,
this type of exchange is considered a redemption of shares. You pay no sales
charge, but the exchange may result in a gain or loss for tax purposes, or
excess contributions under IRA or qualified plan regulations.
The Fund may purchase tax-exempt securities at a discount from the price at
which they were originally issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of this market discount will
be included in the Fund's ordinary income and will be taxable income when it is
distributed to you.
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 alternative minimum tax, it will flow through to
that fund's shareholders and
<PAGE>
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.
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 most recent fiscal year
99.93% of the income distribution was designated as exempt from federal income
taxes.
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. Short-term capital gains earned by the Fund are paid to shareholders as
part of their ordinary income dividend and are taxable.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
AGREEMENTS
- --------------------------------------------------------------------------------
Investment Management Services Agreement
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, the
Advisor, subject to the policies set by the board, provides investment
management services.
For its services, the Advisor is paid a fee based on the following schedule. The
Fund pays its proportionate share of the fee.
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
<PAGE>
On the last day of the most recent fiscal year, the daily rates applied to the
Fund's net assets on an annual basis were equal to 0.440% for the Fund. 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. For fiscal year 1998, the total amount paid
was $26,484,165 for the Fund, for fiscal year 1997, the total amount paid was
$26,174,871, for fiscal period 1996, the total amount paid was $14,890,546. The
amount is allocated among the Fund.
Under the Agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for units; office expenses;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities; and expenses properly payable by the Fund, approved by
the board. For fiscal year 1998, the Fund paid nonadvisory expenses of $316,051;
for fiscal year 1997, the total amount paid was $396,734; for fiscal period
1996, the total amount paid was $188,679. All fees are net of earnings credits.
Administrative Services Agreement
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 calculated as follows:
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
On the last day of the most recent fiscal year the daily rates applied to the
Fund's net assets on an annual basis were equal to 0.040%. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. For fiscal
year 1998, the Fund paid fees of $316.
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 Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs the responsibility for administering
and/or performing transfer agent functions, for acting as service agent in
connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. The fee is
determined by multiplying the number of shareholder accounts at the end of the
day by a rate of $25 per year and dividing by the number of days in the year.
The fees paid to AECSC may be changed by the board without shareholder approval.
<PAGE>
Distribution Agreement/Plan and Agreement of Distribution
American Express Service Corporation (Distributor) is the Fund's principal
underwriter. The Fund's shares are offered on a continuous basis.
To help the Distributor defray the costs of distribution and servicing, the Fund
and the Distributor have entered into a Plan and Agreement of Distribution
(Plan). These costs cover almost all aspects of distributing the Fund's shares.
A substantial portion of the costs are not specifically identified to any one
fund. 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 Fund 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. 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
Fund and who do not have a financial interest in the operation of the Plan or
any agreement related to it. The selection and nomination of disinterested board
members is the responsibility of other disinterested board members. No board
member who is not an interested person has any direct or indirect financial
interest in the operation of the Plan or an related agreement. For fiscal year
1998, the Fund paid fees of $1,977 for Tax-Free High Yield Fund. The fee is not
allocated to any one service (such as advertising, payments to underwriters, or
other uses). However, a significant portion of the fee is generally used for
sales and promotional expenses.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a sub-custodian agreement with the Morgan Stanley
Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth Floor, Brooklyn, NY
11201-2775. As part of this arrangement, securities purchased outside the United
Stated are maintained in the custody of various foreign branches of Morgan
Stanley or in other financial institutions as permitted by law and by the Fund's
sub-custodian agreement.
<PAGE>
ORGANIZATIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company. The Fund headquarters are
at P.O. Box 59196, Minneapolis, MN 55459-0196.
SHARES
The shares of the Fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of the Fund
would have the same rights to dividends and assets as every other share of that
Fund.
VOTING RIGHTS
As a shareholder in the Fund, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that you have as many votes as the number of shares you own,
including fractional shares, multiplied by the number of members to be elected.
Dividend Rights
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
<TABLE>
<CAPTION>
Fund History Table for All Publicly Offered Funds in the Strategist Fund Group
<S> <C> <C> <C> <C> <C> <C>
Date of Form of Inception State of Fiscal Diversified
Organization Organization Date Organization Year End
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Growth Fund, Inc. 9/1/95 Corporation MN
Strategist Growth Fund 5/13/96 7/31 Yes
Strategist Growth Trends Fund 5/13/96 7/31 Yes
Strategist Special Growth Fund 8/19/96 7/31 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Growth & Income Fund, Inc. 9/1/95 Corporation MN
Strategist Balanced Fund 5/13/96 9/30 Yes
Strategist Equity Fund 5/13/96 9/30 Yes
Strategist Equity Income Fund 5/13/96 9/30 Yes
Strategist Total Return Fund 5/13/96 9/30 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Income Fund, Inc. 5/25/95 Corporation MN
Strategist Government Income Fund 6/10/96 5/31 Yes
Strategist High Yield Fund 6/10/96 5/31 Yes
Strategist Quality Income Fund 6/10/96 5/31 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist Tax-Free Income Fund, Inc. 9/1/95 Corporation MN
Strategist Tax-Free High Yield Fund 5/13/96 11/30 Yes
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Strategist World Fund, Inc. 9/1/95 Corporation MN
Strategist Emerging Markets Fund 11/13/96 10/31 Yes
Strategist World Growth Fund 5/13/96 10/31 Yes
Strategist World Income Fund 5/13/96 10/31 No
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
BOARD MEMBERS AND OFFICERS
- -------------------------------------------------------------------------------
Directors of Strategist Fund Group
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members who are board members of all
15 funds in the Strategist Fund Group.
Rodney P. Burwell
Born in 1939
Xerxes Corporation
7901 Xerxes Ave. S.
Minneapolis, MN
Chairman, Xerxes Corporation (fiberglass storage tanks). Director, Vaughn
Communications, Sunbelt Nursery Group and Fairview Corporation.
Jean B. Keffeler
Born in 1945
3424 Zenith Avenue South
Minneapolis, MN
Business and management consultant. Director, National Computer Systems.
Brian Kleinberg
Born in 1957
American Express Company
World Financial Center
New York, NY
Vice president of all funds in the Strategist Fund Group. Executive vice
president of American Express Financial Direct since 1997. Previously, executive
vice president and general manager in the Consumer Card Services Group from
October 1995 to August 1997, senior vice president of marketing and business
development from August 1995 to October 1995 and senior vice president of
consumer lending marketing from October 1991 to August 1995.
Thomas R. McBurney
Born in 1938
McBurney Management Advisors
1700 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
President, McBurney Management Advisors. Director, The Valspar Corporation
(paints), Wenger Corporation, Allina, Space Center Enterprises and Greenspring
Corporation.
<PAGE>
James A. Mitchell*
Born in 1941
2900 IDS Tower
Minneapolis, MN
President of all funds in the Strategist Fund Group. Executive vice president
and director of the Advisor. Chairman of the board and chief executive officer
of IDS Life Insurance Company.
Director, IDS Life funds.
*Interested person of the Company by reason of being an officer, board member,
employee and/or shareholder of the Advisor or American Express.
In addition to Mr. Mitchell, who is president, the Funds' other officers are:
Eileen J. Newhouse
Born in 1955
IDS Tower 10
Minneapolis, MN
Secretary of all funds in the Strategist Fund Group. Counsel of the Advisor.
Trustees of the Preferred Master Trust Group
The following is a list of the Trust's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards).
H. Brewster Atwater, Jr.+'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
Arne H. Carlson+*
Born 1934
901 S. Marquette Ave.
Minneapolis, MN
Former two-term Governor for Minnesota, chairman, State Board of Investment and
State Auditor. Chairman of the board, Americans for Job Security. Board member,
Minnesotans for School Choice and CEO America.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.
<PAGE>
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of the Advisor.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of the Advisor.
Heinz F. Hutter+
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones'
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Retired vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).
<PAGE>
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of the Advisor.
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 by reason of being an officer and employee of the Trust.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of the Advisor or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Trust's other officers are:
<PAGE>
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President of Board Services Corporation. Vice president, general counsel and
secretary for the Trust.
Officers who also are officers and employees of the Advisor:
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of the Advisor. Vice
president-investments for the Trust.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of the Advisor. Vice president
- - fixed income investments for the Trust.
Stuart A. Sedlacek
Born in 1957
IDS Tower 10
Minneapolis, MN
Senior vice president and chief financial officer of AEFC since January 1998.
Vice president-assured assets of AEFC from 1994 to 1997. Treasurer for the
Trust.
COMPENSATION FOR BOARD MEMBERS
Compensation for Fund Board Members
During the most recent fiscal year, the independent members of the Fund board,
for attending up to 4 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
for Tax-Free High Yield Fund
<S> <C> <C>
Aggregate Total cash compensation from the
Board member ---------------------------------- Strategist Fund Group
compensation from the Fund
Rodney P. Burwell $0 $2,000
- -------------------------------------
Jean B. Keffeler 0 2,000
- -------------------------------------
Thomas R. McBurney 0 2,000
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of the Fund.
</TABLE>
<PAGE>
Compensation for Portfolio Board Members
During the most recent fiscal year, the independent members of the board for
Tax-Free High Yield Portfolio, for attending up to 28 meetings, received the
following compensation:
<TABLE>
<CAPTION>
Compensation Table
for Tax-Free High Yield Portfolio
<S> <C> <C>
Total cash compensation from the
---------------------------------- Preferred Master Trust Group and
Board member Aggregate IDS MUTUAL FUND GROUP
compensation from the Portfolio
H. Brewster Atwater, Jr. $3,300 $105,900
- -------------------------------------
Lynne V. Cheney 3,213 95,400
- -------------------------------------
Heinz F. Hutter 3,225 101,400
- -------------------------------------
Anne P. Jones 3,436 107,900
- -------------------------------------
Alan K. Simpson 3,163 92,400
- -------------------------------------
Edson W. Spencer 3,317 106,900
- -------------------------------------
Wheelock Whitney 3,275 104,400
- -------------------------------------
C Angus Wurtele 3,475 116,400
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
- -------------------------------------------------------------------------------
As of 30 days prior to the date of this SAI, John L. Warren and Rosana L. Warren
held 8.40% of Strategist Tax-Free High Yield Fund shares. Additional information
on principal holders of securities may be obtained by writing to American
Express Financial Direct, P.O. Box 59196, Minneapolis, MN 55459-0196.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center, 90 S. Seventh
St., Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
<PAGE>
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
<PAGE>
Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond and preferred stock ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt or preferred issue in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds and preferred stock carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA Bonds and preferred stock considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and/or dividends
and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds and preferred stock considered to be investment grade
and of very high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is very strong,
although not quite as strong as bonds rated AAA.
<PAGE>
A Bonds and preferred stock considered to be investment grade
and of high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than debt or preferred
securities with higher ratings.
BBB Bonds and preferred stock considered to be investment grade
and of satisfactory credit quality. The obligor's ability to
pay interest or dividends and repay principal is considered to
be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact
on these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred stock
will fall below investment grade is higher than for securities
with higher ratings.
Fitch speculative grade bond or preferred stock ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings (BB to C) represent Fitch's assessment of the likelihood of timely
payment of principal and interest or dividends in accordance with the terms of
obligation for issues not in default. For defaulted bonds or preferred stock,
the rating (DDD to D) is an assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.
Bonds or preferred stock that have the same rating are of similar but not
necessarily identical credit quality since the rating categories cannot fully
reflect the differences in the degrees of credit risk.
BB Bonds or preferred stock are considered speculative. The
obligor's ability to pay interest or dividends and repay
principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its
debt service requirements.
B Bonds or preferred stock are considered highly speculative.
While bonds in this class are currently meeting debt service
requirements or paying dividends, the probability of continued
timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the
issue.
CCC Bonds or preferred stock have certain identifiable
characteristics that if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business
and economic environment.
CC Bonds or preferred stock are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal or suspension of preferred stock dividends is
imminent.
DDD,
DD,
and D Bonds are in default on interest and/or principal payments
or preferred stock dividends are suspended. Such securities
are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization
of the obligor. DDD represents the highest potential for
recovery of these securities and D represents the lowest
potential for recovery.
<PAGE>
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
that may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.
Each rating also takes into account the legal form of the security (e.g. first
mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating
dispersion among the various classes of securities is determined by several
factors including relative weightings of the different security classes in the
capital structure, the overall credit strength of the issuer, and the nature of
covenant protection. Review of indenture restrictions is important to the
analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of BBB- and higher fall within the definition
of investment grade securities, as defined by bank and insurance supervisory
authorities. Structured finance issues, including real estate, asset-backed and
mortgage-backed financings, use this same rating scale with minor modification
in the definitions. Thus, an investor can compare the credit quality of
investment alternatives across industries and structural types. A "Cash Flow
Rating" (as noted for specific ratings) addresses the likelihood that aggregate
principal and interest will equal or exceed the rated amount under appropriate
stress conditions.
Rating Scale Definition
-------------------------- ----------------------------------------------------
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for
risk-free U.S. Treasury debt.
-------------------------- ----------------------------------------------------
AA+ High credit quality. Protection factors are strong.
AA Risk is modest, but may vary slightly from time to
time because of economic conditions.
AA-
-------------------------- ----------------------------------------------------
A+ Protection factors are average but adequate.
A However, risk factors are more variable and greate
in periods of economic stress.
A-
-------------------------- ---------------------------------------------------
BBB+ Below-average protection factors but still
considered sufficient for prudent BBB investment.
BBB- Considerable variability in risk during economic
cycles.
-------------------------- ---------------------------------------------------
BB+ Below investment grade but deemed likely to meet
obligations when due. Present BB or prospective
financial protection factors fluctuate according
to industry BB- conditions or company fortunes.
Overall quality may move up or down frequently
within this category.
- ------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that
obligations will not be met B when due. Financial
protection factors will fluctuate widely according
to B- economic cycles, industry conditions, and/or
company fortunes. Potential exists for frequent
changes in the rating within this category or into
a higher or lower rating grade.
<PAGE>
-------------------------- ----------------------------------------------------
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of
principal, interest, or preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable economic/industry
conditions, and or with unfavorable company
developments.
-------------------------- ---------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
-------------------------- ----------------------------------------------------
IBCA Long-Term Debt Ratings
AAA Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk
substantially.
AA Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk, albeit not very significantly.
A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic, or financial conditions
may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic,
or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic, or financial conditions.
B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic, or financial conditions.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions.
CC Obligations that are highly speculative or that have a high risk of
default.
C Obligations that are currently in default.
Notes: "+" or "-" may be appended to a rating below AAA to denote relative
status within major rating categories. Ratings of BB and below are assigned
where it is considered that speculative characteristics are present.
<PAGE>
Thomson Bank Watch Long-Term Debt Ratings
Investment Grade
AAA (LC-AAA) Indicates that the ability to repay principal and
interest on a timely basis is extremely high.
AA (LC-AA) Indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.
A (LC-A) Indicates the ability to repay principal and
interest is strong. Issues rated A could be more
vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
BBB (LC-BBB) The lowest investment-grade category: indicates
an acceptable capacity to repay principal and interest.
BBB issues are more vulnerable to adverse developments
(both internal and external) than obligations with higher
ratings.
Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest.
BB (LC-BB) While not investment grade, the BB rating suggests
that the likelihood of default is considerably less than
for lower-rated issues. However, there are significant
uncertainties that could affect the ability to adequately
service debt obligations.
B (LC-B) Issues rated B show higher degree of uncertainty
and therefore greater likelihood of default than
higher-rated issues. Adverse developments could negatively
affect the payment of interest and principal on a timely
basis.
CCC (LC-CCC) Issues rated CCC clearly have a high likelihood
of default, with little capacity to address further
adverse changes in financial circumstances.
CC (LC-CC) CC is applied to issues that are subordinate to
other obligations rated CCC and are afforded less
protection in the event of bankruptcy or reorganization.
D (LC-D) Default.
<PAGE>
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
<PAGE>
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Investors Service, Inc. Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D Default Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps' short-term ratings are consistent with the rating criteria used
by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, banker's
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper also is rated according to this scale.
Emphasis is placed on liquidity, which is defined as not only cash from
operations but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and
or access to alternative sources of funds, is
outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing
requirements, access to capital markets is good.
Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade
<PAGE>
D-4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or
interest payments.
Thomson BankWatch (TBW) Short-Term Ratings
The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of untimely or
incomplete payments of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW- I.
TBW-3 The lowest investment-grade category; indicates that while
the obligation is more susceptible to adverse developments
(both internal and external) than those with higher
ratings, the capacity to service principal and interest in
a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA Short-Term Ratings
IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt that has a maturity of less than one year.
A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C Obligations for which there is a high risk of default or which
are currently in default.
<PAGE>
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
STRATEGIST TAX-FREE INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Strategist Tax-Free High Yield Fund (a series of Strategist Tax-Free Income
Fund, Inc.) as of November 30, 1998, and the related statement of operations for
the year then ended and the statements of changes in net assets for each of the
years in the two-year
period ended November 30, 1998 and the financial highlights for the two-year
period ended November 30,1998 and for the period from May 13, 1996 (commencement
of operations) to November 30, 1996. These financial statements and the
financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Strategist Tax-Free High Yield
Fund at November 30, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the periods stated in the first
paragraph above, in conformity with generally accepted accounting principles.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 8, 1999
STRATEGIST TAX-FREE HIGH YIELD FUND
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
Strategist Tax-Free High Yield Fund
Nov. 30, 1998
Assets
<S> <C>
Investment in Tax-Free High Yield Portfolio (Note 1) $891,213
Organizational costs (Note 1) 1,276
Expense reimbursement receivable from AEFC 8
-
Total assets 892,497
-------
Liabilities
Dividends payable to shareholders 795
Accrued distribution fee 18
Accrued transfer agency fee 3
Accrued administrative services fees 3
Other accrued expenses 29,042
------
Total liabilities 29,861
------
Net assets applicable to outstanding capital stock $862,636
========
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,842
Additional paid-in capital 821,938
Undistributed net investment income 604
Accumulated net realized gain (loss)(Note 4) (10,425)
Unrealized appreciation (depreciation) on investments 48,677
------
Total -- representing net assets applicable
to outstanding capital stock $862,636
--------
Shares outstanding 184,200
-------
Net asset value per share of outstanding capital stock $ 4.68
-------
See accompanying notes to financial statements.
ANNUAL REPORT -- NOV. 30, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Strategist Tax-Free High Yield Fund
Year Ended Nov. 30, 1998
Investment income
Income:
<S> <C>
Interest $51,231
-------
Expenses (Note 2):
Expenses allocated from Tax-Free High Yield Portfolio 3,659
Distribution fee 1,977
Transfer agency fee 304
Administrative services fees and expenses 316
Registration fees 3,654
Audit fees 3,500
Other 522
---
Total expenses 13,932
Less expenses reimbursed by AEFC (6,478)
------
Total net expenses 7,454
-----
Investment income (loss) -- net 43,777
------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (2,114)
Financial futures contracts (1,203)
------
Net realized gain (loss) on investments (3,317)
Net change in unrealized appreciation
(depreciation) on investments 10,887
------
Net gain (loss) on investments 7,570
-----
Net increase (decrease) in net assets
resulting from operations $51,347
-------
See accompanying notes to financial statements.
STRATEGIST TAX-FREE HIGH YIELD FUND
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Tax-Free High Yield Fund
Year Ended Nov. 30, 1998 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 43,777 $ 38,840
Net realized gain (loss) on investments (3,317) (5,811)
Net change in unrealized appreciation
(depreciation) on investments 10,887 19,642
------ ------
Net increase (decrease) in net assets
resulting from operations 51,347 52,671
------ ------
Distributions to shareholders from:
Net investment income (44,314) (39,320)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 101,260 188,471
Reinvestment of distributions at net asset value 43,846 39,737
Payments for redemptions (23,880) (41,894)
------- -------
Increase (decrease) in net assets from capital
share transactions 121,226 186,314
------- -------
Total increase (decrease) in net assets 128,259 199,665
Net assets at beginning of year 734,377 534,712
------- -------
Net assets at end of year $862,636 $734,377
======== ========
Undistributed net investment income $ 604 $ 624
----- -----
See accompanying notes to financial statements.
ANNUAL REPORT -- NOV. 30, 1998
</TABLE>
<PAGE>
Notes to Financial Statements
Strategist Tax-Free High Yield Fund
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. The Fund has 3 billion authorized shares of
capital stock.
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 invests primarily in medium- and
lower-quality bonds (junk bonds) and other debt obligations.
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 that is equal to the
Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund at Nov. 30, 1998 was 0.01%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
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 American Express Financial Corporation (AEFC)
representing initial capital of the Fund are redeemed during the amortization
period, the redemption proceeds will be reduced by the pro rata portion of the
unamortized organizational cost balance.
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to the shareholders, no provision for income or excise taxes is
thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts 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.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $517 and
accumulated net realized loss has been increased by $1 resulting in a net
reclassification adjustment to decrease paid-in capital by $516.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly, 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
At Nov. 30, 1998, AEFC owned 130,681 shares 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 an agreement with AEFC to provide administrative services.
Under its Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.04% to 0.02% annually.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account of $25.
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 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 and the Distributor have agreed to waive certain fees and to absorb other
of the Fund's expenses until Dec. 31, 1999. Under this agreement, the Fund's
total expenses will not exceed 0.95% of the Fund's average daily net assets. In
addition, for the year ended Nov. 30, 1998, AEFC further voluntarily agreed to
waive certain fees and expenses to 0.94%.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended Nov. 30, 1998
Sold 21,706
Issued for reinvested distributions 9,380
Redemptions (5,146)
------
Net increase (decrease) 25,940
Year ended Nov. 30, 1997
Sold 41,520
Issued for reinvested distributions 8,740
Redemptions (9,305)
------
Net increase (decrease) 40,955
4. CAPITAL LOSS CARRYOVER
For federal income tax purposes, Tax-Free High Yield Fund had a capital loss
carryover at Nov. 30, 1998 of $6,041 that if not offset by subsequent capital
gains, will expire in 2004 through 2006. It is unlikely the board will authorize
a distribution of any net realized capital gains for a fund until its available
capital loss carryover has been offset or expires.
<PAGE>
<TABLE>
<CAPTION>
Strategist tax-free High Yield fund
5. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Fund's results.
Fiscal period ended Nov. 30,
Per share income and capital changesa
1998 1997 1996b
<S> <C> <C> <C>
Net asset value, beginning of period $4.64 $4.56 $4.46
Income from investment operations:
Net investment income (loss) .26 .28 .15
Net gains (losses) (both realized and unrealized) .04 .08 .10
Total from investment operations .30 .36 .25
Less distributions:
Dividends from net investment income (.26) (.28) (.15)
Net asset value, end of period $4.68 $4.64 $4.56
Ratios/supplemental data
Net assets, end of period (in thousands) $863 $734 $535
Ratio of expenses to average daily net assetsc .94% .95% .95%d
Ratio of net investment income (loss)
to average daily net assets 5.54% 6.02% 6.22%d
Portfolio turnover rate
(excluding short-term securities) 14% 4% 4%
Total return 6.65% 8.26% 5.60%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 13, 1996.
c The Advisor and Distributor voluntarily limited total operating expenses to
0.95% of average daily net assets. Without this agreement, the ratio of
expenses to average daily net assets would have been 1.76%, 2.96% and
24.16% for the periods ended 1998, 1997 and 1996, respectively.
d Adjusted to an annual basis.
ANNUAL REPORT -- NOV. 30, 1998
</TABLE>
<PAGE>
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
TAX-FREE INCOME TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Tax-Free High Yield Portfolio (a
series of Tax-Free Income Trust) as of November 30, 1998, the related statement
of operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period ended November 30, 1998.
These financial statements are the responsibility of portfolio management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, we request confirmations from brokers,
and where replies are not received, we carry out other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tax-Free High Yield Portfolio
at November 30, 1998, and the results of its operations and the changes in its
net assets for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 8, 1999
STRATEGIST TAX-FREE HIGH YIELD FUND
<PAGE>
Financial Statements
Statement of assets and liabilities
Tax-Free High Yield Portfolio
Nov. 30, 1998
Assets
Investments in securities, at value (Note 1)
(identified cost $5,285,205,796) $5,904,062,280
Accrued interest receivable 110,837,009
Receivable for investment securities sold 2,480,000
---------
Total assets 6,017,379,289
-------------
Liabilities
Disbursements in excess of cash on demand deposit 831,659
Payable for investment securities purchased 10,599,592
Accrued investment management services fee 216,673
Other accrued expenses 36,407
------
Total liabilities 11,684,331
----------
Net assets $6,005,694,958
==============
See accompanying notes to financial statements.
ANNUAL REPORT -- NOV. 30, 1998
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Tax-Free High Yield Portfolio
Year ended Nov. 30, 1998
Investment income
Income:
<S> <C>
Interest $375,334,322
------------
Expenses (Note 2):
Investment management services fee 26,484,165
Compensation of board members 26,404
Custodian fees 183,131
Audit fees 35,250
Other 71,718
------
Total expenses 26,800,668
Earnings credits on cash balances (Note 2) (1,650)
------
Total net expenses 26,799,018
----------
Investment income (loss) -- net 348,535,304
-----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 3,877,026
Financial futures contracts (8,962,494)
----------
Net realized gain (loss) on investments (5,085,468)
Net change in unrealized appreciation (depreciation) on investments 61,787,273
----------
Net gain (loss) on investments 56,701,805
----------
Net increase (decrease) in net assets resulting from operations $405,237,109
------------
See accompanying notes to financial statements.
STRATEGIST TAX-FREE HIGH YIELD FUND
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Tax-Free High Yield Portfolio
Year ended Nov. 30, 1998 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 348,535,304 $ 361,599,248
Net realized gain (loss) on investments (5,085,468) (34,205,753)
Net change in unrealized appreciation
(depreciation) on investments 61,787,273 137,325,053
---------- -----------
Net increase (decrease) in net assets resulting
from operations 405,237,109 464,718,548
Net contributions (withdrawals) from partners (387,941,646) (640,111,208)
------------ ------------
Total increase (decrease) in net assets 17,295,463 (175,392,660)
Net assets at beginning of year 5,988,399,495 6,163,792,155
------------- -------------
Net assets at end of year $6,005,694,958 $5,988,399,495
============== ==============
See accompanying notes to financial statements.
ANNUAL REPORT -- NOV. 30, 1998
</TABLE>
<PAGE>
Notes to Financial Statements
Tax-Free High Yield Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Tax-Free High Yield Portfolio (the Portfolio) is a series of Tax-Free Income
Trust (the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Tax-Free High
Yield Portfolio invests primarily in medium- and lower-quality bonds and other
debt obligations. The Declaration of Trust permits the Trustees to issue
non-transferable interests in the Portfolio.
The Portfolios' significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and sell put and call
options and write covered call options on portfolio securities as well as write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity for profit if the market price of the
security increases. The risk in writing a put option is that the Portfolio may
incur a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Portfolio pays a premium
whether or not the option is exercised. The Portfolio also has the additional
risk of being unable to enter into a closing transaction if a liquid secondary
market does not exist. The Portfolio may write over-the-counter options where
completing the obligation depends upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Portfolio will realize
a gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Portfolio may buy
and sell financial futures contracts. Risks of entering into futures contracts
and related options include the possibility of an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Portfolio on
a forward-commitment or when-issued basis can take place one month or more after
the transaction date. During this period, such securities are subject to market
fluctuations and they may affect the Portfolio's net assets the same as owned
securities. The Portfolio designates cash or liquid high-grade short-term debt
securities at least equal to the amount of its commitment. As of Nov. 30, 1998
the Portfolio had entered into outstanding when-issued or forward-commitments of
$7,669,520.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio.
As a "pass-through" entity, the Portfolio therefore does not pay any income
dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including level-yield amortization of premium and
discount, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with AEFC for managing its portfolio. Under this agreement,
AEFC determines which securities will be purchased, held or sold. The management
fee is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.49% to 0.36% annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended Nov. 30, 1998, the Portfolio's custodian fees were reduced
by $1,650 as a result of earnings credits from overnight cash balances.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $852,223,946 and $817,753,955, respectively, for the
year ended Nov. 30, 1998. For the same period, the portfolio turnover rate was
14%. Realized gains and losses are determined on an identified cost basis.
STRATEGIST TAX-FREE HIGH YIELD FUND
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Tax-Free High Yield Portfolio
Nov. 30, 1998
(Percentages represent value of investment compared to net assets)
Municipal bonds (96.8%)
Name of issuer and Coupon Principal Value(a)
title of issue(b, g) rate amount
Alabama (0.2%)
Baldwin County Eastern Shore Health Care Authority
Hospital Revenue Bonds Thomas Hospital Series 1991
<S> <C> <C> <C> <C>
04-01-16 8.50% $4,765,000 $5,349,141
Camden Industrial Development Board Solid Waste Disposal
Revenue Bonds MacMillan Bloedel Series 1991A A.M.T.
04-01-19 7.75 8,500,000 9,106,305
Total 14,455,446
Alaska (0.2%)
Industrial Development & Exploration Authority
Electric Power Revenue Bonds
Upper Lynn Canal Regional Power
Series 1997 A.M.T.
01-01-18 5.80 830,000 832,913
01-01-32 5.88 1,800,000 1,806,588
North Slope Borough General Obligation Bonds
Zero Coupon Series 1994B (CGIC Insured)
06-30-04 7.05 7,000,000(d) 5,568,500
06-30-05 7.15 7,000,000(d) 5,317,410
Total 13,525,411
Arizona (1.2%)
Chandler Industrial Development Authority
Beverly Enterprises Series 1994
09-01-08 7.63 2,660,000 2,771,826
Flagstaff Industrial Development Authority
Lifecare Revenue Bonds Northern Arizona
Senior Living Community Series 1998
09-01-28 6.20 5,020,000 4,985,011
09-01-38 6.30 6,165,000 6,098,603
Maricopa County Hospital System Revenue Bonds
Samaritan Health Services Series 1981
01-01-08 12.00 255,000 401,888
Maricopa County Industrial Development Authority
Multi-family Housing Revenue Bonds Series B
07-01-26 7.38 2,295,000 2,782,481
Maricopa County Industrial Development Authority
Senior Living Facilities Revenue Bonds Series 1997A
04-01-27 7.88 15,000,000 16,444,649
Maricopa County Pollution Control Refunding
Revenue Bonds Palo Verde Public Service
08-15-23 6.38 3,500,000 3,686,550
Navajo Industrial Development Authority Revenue Bonds
Stone Container Corporation Series 1997 A.M.T.
06-01-27 7.20 3,000,000 3,357,630
Phoenix Civic Improvement Waste Water System
Lease Refunding Revenue Bonds
07-01-18 5.00 5,000,000 5,028,000
Phoenix Industrial Development Authority
Refunding Revenue Bonds Christian Care Apartments
01-01-26 6.50 9,525,000 10,278,237
Pima County Industrial Development Authority
Multi-family Housing Revenue Bonds
Las Villas De Kino Apartments Series 1997 A.M.T.
08-01-29 6.90 7,000,000 7,201,390
Pima County Industrial Development Authority
Revenue Bonds LaPosada Park Centre Series 1996A
05-15-27 7.00 5,750,000 6,173,200
Scottsdale Industrial Development Authority
Beverly Enterprises Series 1994
09-01-08 7.63 2,940,000 3,063,833
Total 72,273,298
Arkansas (0.1%)
Pope County Solid Waste Disposal Revenue Bonds
Arkansas Power & Light Series
1991 A.M.T.
01-01-21 8.00 3,250,000 3,512,990
California (9.1%)
ABAG Financial Authority for Nonprofit Corporations
Certificate of Participation International School
Series 1996
05-01-26 7.38 8,000,000 8,504,160
Anaheim Public Financing Authority Lease
Capital Appreciation Revenue Bonds
Zero Coupon (FSA Insured)
09-01-26 5.08 4,430,000(d) 1,074,142
09-01-27 5.08 17,860,000(d) 4,112,801
09-01-28 5.08 8,835,000(d) 1,932,038
Community Development Authority Health Facilities
Unihealth America Certificate of Participation
Series 1993 Inverse Floater (AMBAC Insured)
10-01-11 7.77 22,400,000(c) 27,328,000
Contra Costa County Residential Rent Facility
Multi-family Housing Revenue Bonds Cypress Meadows
Series 1998E A.M.T.
09-01-28 7.00 5,000,000 4,983,750
East Bay Municipal Utility District Water Revenue Bonds
Series 1993 Inverse Floater (MBIA Insured)
06-01-08 6.12 15,500,000(c) 17,263,125
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue Bonds Series 1995A
01-01-35 5.00 41,070,000 39,413,647
Fresno Health Facility Refunding Revenue Bonds
Holy Cross Health System (MBIA Insured)
12-01-13 5.63 3,000,000 3,254,010
Irwindale Redevelopment Agency Subordinate Lien
Tax Allocation Bonds
12-01-26 7.05 5,750,000 6,429,765
Lake Elsinore Public Financing Authority
Local Agency Revenue Bonds Series 1997F
09-01-20 7.10 12,000,000 13,019,040
Los Angeles County Certificate of Participation
05-01-15 6.71 20,000,000 21,726,200
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding
Revenue Bonds Delta Airlines
11-01-25 6.35 13,000,000 14,185,210
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding Revenue Bonds
United Airlines Series 1984
11-15-21 8.80 11,650,000 12,815,816
Los Angeles Water & Power Electric Plant
Refunding Revenue Bonds Series 1992
02-01-20 6.38 10,000,000 10,841,800
Millbrae Residential Facility Revenue Bonds
Magnolia of Millbrae Series 1997A A.M.T.
09-01-27 7.38 2,500,000 2,640,600
Modesto Santa Clara Redding Public Power Bonds
San Juan Series C (AMBAC Insured)
07-01-21 5.50 4,500,000 4,504,230
Northern California Power Agency Geothermal 3
Revenue Bonds
07-01-09 5.00 49,635,000 49,653,860
Novato Community Facility District 1 Vintage Oaks
Public Improvement Special Tax Refunding Bonds
08-01-21 7.25 5,000,000 5,482,700
Oceanside Certificate of Participation Refunding Bonds
Oceanside Civic Center (MBIA Insured)
08-01-19 5.25 7,000,000 7,190,750
Orange County Special Tax Community Facilities Bonds
Aliso Veijo District 88-1 Series 1992A
08-15-18 7.35 6,000,000 6,886,020
Pleasanton Joint Powers Financing Authority Reassessment
Revenue Bonds Series 1993A
09-02-12 6.15 4,395,000 4,739,744
Regional Airports Improvement Facilities Sublease
Revenue Bonds Continental Airlines Los Angeles
International Airport Series 1988 A.M.T.
08-01-08 9.00 3,700,000 3,786,284
08-01-17 9.00 8,100,000 8,285,895
Sacramento Cogeneration Authority Revenue Bonds
Procter & Gamble Series 1995
07-01-14 6.50 3,800,000 4,430,192
07-01-21 6.50 8,000,000 9,326,720
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (FSA Insured)
11-15-05 7.12 15,800,000(c) 18,189,750
11-15-06 7.32 16,400,000(c) 18,962,500
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (MBIA Insured)
11-15-15 7.77 15,000,000(c) 16,537,500
Sacramento Power Authority Cogeneration
Revenue Bonds Campbell Soup Series 1995
07-01-22 6.00 25,000,000 26,805,500
San Joaquin Hills Orange County Transportation
Corridor Agency Senior Lien Toll Road Revenue Bonds
01-01-32 6.75 14,785,000 16,770,773
San Joaquin Hills Transportation Corridor Agency
Capital Appreciation Toll Road Refunding Revenue
Bonds Zero Coupon Series 1997A (MBIA Insured)
01-15-24 5.62 9,000,000(d) 2,526,930
01-15-25 5.03 69,375,000(d) 18,518,269
01-15-26 5.51 30,000,000(d) 7,613,100
01-15-27 5.51 6,670,000(d) 1,608,337
01-15-28 5.05 13,880,000(d) 3,180,047
01-15-32 5.41 27,000,000(d) 5,042,790
01-15-36 5.42 88,415,000(d) 13,484,172
San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Revenue Bonds
Zero Coupon Escrowed to Maturity
01-01-17 5.35 34,860,000(d) 14,295,040
San Jose Redevelopment Agency Merged Area
Tax Allocation Bonds Series 1993 Inverse Floater
(MBIA Insured)
08-01-14 6.81 33,600,000(c) 36,330,000
Sierra Unified School District Fresno County
Certificate of Participation Capital Funding
Refunding Bonds Series 1993
03-01-18 6.13 6,470,000 6,855,224
South Tahoe Joint Powers Financing Authority
Refunding Revenue Bonds South Tahoe Area 1
Series 1995B
10-01-28 6.00 9,900,000 10,418,760
Southern California Public Power Authority
Power Revenue Bonds Palo Verde
Series 1993 Inverse Floater (FGIC Insured)
07-01-17 6.62 20,000,000(c) 21,175,000
Ukiah Unified School District
Mendocino County Certificate of Participation
Series 1993
09-01-10 6.00 5,000,000 5,326,200
University of California Refunding Revenue Bonds
Multiple Purpose Project (AMBAC Insured)
09-01-16 5.25 6,000,000 6,195,600
Total 543,645,991
Colorado (6.9%)
Arapahoe County Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
04-01-09 8.00 4,000,000 4,503,600
Arapahoe County Public Highway Authority Capital
Improvement Trust Fund E-470 Highway
Revenue Bonds
08-31-26 7.00 22,000,000 26,388,559
Aurora Centretech Metropolitan District
Arapahoe County Series 1987B
12-01-23 6.00 5,699,785 5,899,107
Bowles Metropolitan District General Obligation Bonds
Series 1995
12-01-15 7.75 15,500,000 16,478,050
Briargate Public Building Authority
Landowner Assessment Lien Bonds Series 1985A
12-15-00 10.25 4,064,880(j) 3,455,148
Castle Rock Ranch Public Facility Improvement
Revenue Bonds Series 1996
12-01-17 6.25 10,000,000 11,193,300
Colorado Springs Hospital Revenue Bonds
Memorial Hospital Series 1990
12-15-10 7.88 5,000,000 5,422,350
Colorado Springs Utilities System
Pre-refunded Revenue Bonds Series 1991C
11-15-15 6.50 1,505,000 1,652,731
Colorado Springs Utilities System
Refunding Revenue Bonds Series 1991C
11-15-15 6.50 24,895,000 27,130,570
11-15-21 6.75 30,000,000 32,964,452
Dawson Ridge Metropolitan District
Refunding Revenue Bonds
Zero Coupon Series B Escrowed to Maturity
10-01-22 5.21 40,000,000(d) 11,284,800
Denver City & County Airport Systems Revenue Bonds
Series 1991A A.M.T.
11-15-23 8.75 10,000,000 11,328,000
Denver City & County Airport Systems Revenue Bonds
Series 1991D A.M.T.
11-15-21 7.75 8,650,000 9,538,961
Denver City & County Airport Systems Revenue Bonds
Series 1992A
11-15-25 7.25 20,975,000 23,980,507
Denver City & County Airport Systems Revenue Bonds
Series 1992B A.M.T.
11-15-23 7.25 20,500,000 22,748,030
Denver City & County Airport Systems Revenue Bonds
Series 1994A
11-15-12 7.50 5,000,000 5,762,000
Denver City & County Airport Systems Revenue Bonds
Series 1994A A.M.T.
11-15-23 7.50 19,340,000 22,385,663
Denver City & County GVR Metropolitan District
General Obligation Refunding Bonds Series 1991
12-01-06 8.00 1,385,000 1,689,008
Denver City & County GVR Metropolitan District
General Obligation Refunding Bonds Series 1995B
12-01-06 11.00 730,000 721,167
Denver Special Facility Airport Revenue Bonds
United Airlines Series A A.M.T.
10-01-32 6.88 25,400,000 27,286,457
Denver Urban Renewal Authority Tax Increment
Revenue Bonds Downtown Denver Redevelopment
Adams Mark Hotel Series 1989 A.M.T.
09-01-15 8.00 16,285,000 18,389,999
09-01-16 8.00 1,785,000 2,015,729
09-01-17 8.00 1,930,000 2,179,472
Denver Urban Renewal Authority Tax Increment
Revenue Bonds South Broadway Montgomery Ward
Urban Renewal Series 1992
05-01-16 8.50 13,730,000 15,322,543
Denver West Metropolitan District
General Obligation Bonds Series 1996
06-01-16 6.50 2,560,000 2,835,098
Denver West Metropolitan District
General Obligation Refunding Improvement Bonds
Series 1995
12-01-14 7.00 4,230,000 4,765,307
Hotchkiss Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
09-01-09 8.00 1,500,000 1,691,595
Housing Finance Authority Single Family Program
Senior Bonds Series 1991B (FGIC Insured)
08-01-11 7.25 2,150,000 2,270,293
02-01-18 7.30 1,950,000 2,056,958
Lowry Economic Redevelopment Authority
Revenue Bonds Series 1996
12-01-10 7.50 19,000,000 21,893,700
Lowry Economic Redevelopment Authority
Series A
12-01-10 7.00 3,600,000 4,032,288
Saddle Rock Metropolitan District Limited Tax
General Obligation Bonds Series 1997
12-01-16 7.63 5,590,000 5,939,207
State Health Facility Authority Hospital Improvement
Refunding Revenue Bonds
Parkview Episcopal Medical Center Series 1995
09-01-25 6.13 7,000,000 7,444,920
State Health Facility Authority Revenue Bonds
Liberty Heights Zero Coupon Escrowed to Maturity
07-15-22 7.50 81,465,000(d) 23,728,311
Superior Metropolitan District 2 Limited Tax
General Obligation Refunding Bonds
MDC Holdings Series 1994B
12-01-98 7.50 945,000 945,066
12-01-13 8.25 2,580,000 3,172,755
12-01-13 8.50 12,000,000 13,477,680
Thornton Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
09-01-09 8.00 4,500,000 5,066,550
Westminster Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
04-01-09 8.00 3,500,000 3,947,055
Total 412,986,986
Connecticut (0.2%)
State Development Authority Pollution Control
Refunding Revenue Bonds Connecticut Light & Power
Series 1993B A.M.T.
09-01-28 5.95 10,000,000 10,065,600
District of Columbia (0.7%)
General Obligation Refunding Bonds Series 1994A
(MBIA Insured)
06-01-10 6.00 27,875,000 31,052,472
06-01-11 6.10 7,580,000 8,481,186
Housing Finance Agency Multi-family Mortgage
Revenue Bonds Temple Courts Section 8
Series 1985 (FHA Insured)
02-01-22 12.00 1,305,000 1,521,212
Total 41,054,870
Florida (4.2%)
Arbor Greene Community Development District
Special Assessment Revenue Bonds Series 1996
05-01-18 7.60 4,995,000 5,438,956
Arbor Greene Community Development District
Special Assessment Revenue Bonds Series 1998
05-01-19 6.30 1,390,000 1,415,590
Brooks of Bonita Springs Community
Development District Special Assessment
District Capital Improvement Revenue Bonds
Series 1998A
05-01-19 6.20 11,200,000 11,302,592
Brooks of Bonita Springs Community
Development District Special Assessment
District Capital Improvement Revenue Bonds
Series 1998B
05-01-06 5.65 2,750,000 2,746,563
Charlotte County Development Authority 1st Mortgage
Refunding Revenue Bonds
Royal Palm Retirement Centre Series 1991
03-01-14 9.50 3,945,000 4,306,323
Crossings at Fleming Island Community Development
District Special Assessment Bonds Series 1995
05-01-16 8.25 10,010,000 11,099,088
Crossings at Fleming Island Community Development
District Utility Revenue Bonds Series 1994
10-01-19 7.38 13,250,000 14,098,133
Department of Transportation Turnpike Revenue Bonds
Series 1991A (AMBAC Insured)
07-01-20 6.25 20,000,000 21,306,999
Gateway Centre Development District Pinellas County
Special Assessment Revenue Bonds Series 1988
01-01-09 9.13 1,015,000 1,049,256
Grand Haven Community Development District
Special Assessment Bonds Flagler County
Series 1997A
05-01-02 6.30 4,900,000 5,034,995
Grand Haven Community Development District
Special Assessment Revenue Bonds
Series 1998A
05-01-19 6.90 1,000,000 1,039,800
Heritage Harbor Community Development District
Special Assessment Revenue Bonds
Series 1997B
05-01-03 6.00 1,250,000 1,271,175
05-01-05 5.75 1,650,000 1,670,823
Hillsborough County Utility Refunding Revenue Bonds
Series 1991A
08-01-14 7.00 24,000,000 25,979,376
Hillsborough County Utility Refunding Revenue Bonds
Series 1991A (MBIA Insured)
08-01-16 6.50 24,760,000 26,822,012
Lakewood Ranch Community Development District 1
Manatec County Benefit Special Assessment Bonds
Series 1998
05-01-17 7.30 3,680,000 3,765,523
Lakewood Ranch Community Development District 1
Special Assessment Bonds Series 1994
05-01-14 8.25 3,050,000 3,340,757
Miami Health Facility Authorization Revenue Bonds
Inverse Floater (AMBAC Insured)
08-15-15 7.12 3,500,000(c) 3,696,875
North Springs Improvement Special Assessment
District Revenue Bonds Heron Bay Series 1997
05-01-19 7.00 3,000,000 3,163,830
North Springs Improvement Special Assessment
District Revenue Bonds Parkland Isles Series 1997B
05-01-05 6.25 3,000,000 3,080,520
Palm Beach County Health Facilities Authority Hospital
Revenue Bonds Good Samaritan Health Series 1993
10-01-22 6.30 3,750,000 4,173,488
Polk County Industrial Development Authority 1st Mortgage
Refunding Revenue Bonds Spring Haven II
12-01-14 8.75 6,115,000 6,678,069
Port Everglades Port Authority Revenue Bonds Junior Lien
09-01-16 5.00 18,635,000 18,700,036
River Ridge Community Development District
Special Assessment Revenue Bonds Series 1998
05-01-08 5.75 4,000,000 4,025,520
Riverwood Community Development District
Charlotte County Special Assessment Revenue Bonds
Series 1992A-B
05-01-12 8.50 5,610,000(j) 5,980,709
Sumter County Industrial Development Authority
Industrial Development Revenue Bonds
Little Sumter Utility Company Series 1997 A.M.T.
10-01-27 7.25 4,200,000 4,277,532
Sumter County Industrial Development Authority
Industrial Development Water & Sewer Revenue Bonds
Little Sumter Utility Company Series 1998 A.M.T.
10-01-27 6.75 2,950,000 2,964,573
Sumter County Village Community Development
District 1 Capital Improvement Revenue Bonds
Series 1992
05-01-12 8.40 935,000 1,005,901
Sunrise Utility System Refunding & Improvement
Revenue Bonds
10-01-18 10.75 5,000,000 5,633,500
Tampa Health Systems Revenue Bonds
Catholic Health East Obligation Group
Series 1998A-2 (AMBAC Insured)
11-15-28 4.88 26,330,000 25,661,480
Village Center Community Development District
Sub Recreational Revenue Bonds
Series 1998C
01-01-19 7.38 2,670,000 2,714,189
Village Center Community District Recreational
Revenue Bonds Series 1996B
01-01-17 8.25 2,785,000 3,051,135
Village Community Development District 2
Special Assessment District Revenue Bonds
Series 1996
05-01-17 7.63 5,435,000 5,863,278
Volusia County Industrial Development Authority
1st Mortgage Refunding Revenue Bonds Series 1996
11-01-26 7.63 10,925,000 12,159,853
Total 254,518,449
Georgia (2.2%)
Atlanta Special Purpose Facility Revenue Bonds
Delta Airlines Series 1989B A.M.T.
12-01-18 7.90 13,500,000 14,206,050
12-01-19 6.25 8,685,000 8,762,818
Colquitt County Development Authority Revenue Bonds
Zero Coupon Escrowed to Maturity
12-01-21 6.87 46,350,000(d) 13,698,279
Effingham County Pollution Control Revenue Bonds
Fort Howard Series 1988
10-01-05 7.90 19,850,000 20,944,132
Fulco Hospital Authority Revenue Anticipation Certificate
Georgia Baptist Health Care Systems Series 1992A
09-01-22 6.38 20,300,000 22,478,392
George L. Smith II World Congress Center Authority
Miscellaneous Revenue Bonds Dome Stadium
Series 2000 (MBIA Insured) A.M.T.
07-01-20 5.50 8,000,000(i) 8,029,600
Municipal Electric Authority Power Refunding Bonds
Series 1989R
01-01-14 6.00 9,130,000 9,152,003
Municipal Electric Authority Power Revenue Bonds
Series L
01-01-20 5.00 1,150,000 1,135,200
Rockdale County Development Authority Solid Waste
Disposal Revenue Bonds Visy Paper Series 1993 A.M.T.
01-01-26 7.50 10,000,000 10,694,200
Savannah Economic Development Authority
1st Mortgage Revenue Bonds Zero Coupon Series 1991A
12-01-21 5.40 13,755,000(d) 4,065,153
Savannah Economic Development Authority
Revenue Bonds Zero Coupon Escrowed to Maturity
12-01-21 6.87 64,220,000(d) 18,979,579
Total 132,145,406
Hawaii (0.4%)
City & County of Honolulu Refunding & Improvement
General Obligation Bonds Series 1993B Inverse Floater
09-07-06 6.77 10,000,000(c) 11,450,000
09-11-08 6.93 10,000,000(c) 11,650,000
Total 23,100,000
Idaho (--%)
State Building Authority Lease
Revenue Bonds Series 1998A (MBIA Insured)
09-01-25 4.75 1,250,000 1,213,063
Illinois (7.7%)
Bradley Kankakee County Tax Increment
Refunding Revenue Bonds Series 1993
12-01-12 8.40 5,590,000 6,339,619
Broadview Cook County Senior Lien Tax Increment
Revenue Bonds Series 1993
07-01-13 8.25 11,360,000 12,928,930
Chicago General Obligation Bonds
Series 1991 (AMBAC Insured)
01-01-16 6.00 6,170,000 6,688,342
Chicago General Obligation Bonds
Series 1994A (AMBAC Insured)
01-01-22 5.88 17,850,000 19,285,140
Chicago General Obligation Refunding Bonds
Series 1995A (AMBAC Insured)
01-01-18 5.50 20,000,000 21,605,600
Chicago O'Hare International Airport
General Airport Refunding Revenue Bonds Series 1993A
01-01-16 5.00 14,450,000 14,318,361
Chicago O'Hare International Airport
General Airport Revenue Bonds Series 1990A A.M.T.
01-01-16 7.50 21,000,000 22,163,190
01-01-18 6.00 29,000,000 29,904,219
Chicago O'Hare International Airport
Special Revenue Bonds (FGIC Insured) A.M.T.
11-01-25 7.88 17,750,000 19,120,478
Chicago O'Hare International Airport
Special Revenue Bonds A.M.T.
01-01-17 7.50 32,250,000 33,923,129
Chicago O'Hare International Airport
Special Revenue Facility Bonds Delta Airlines
Series 1992
05-01-18 6.45 10,000,000 10,625,500
Chicago O'Hare International Airport
Special Revenue Facility Bonds United Airlines
Series C
05-01-18 8.20 22,285,000 23,308,772
Chicago Ridge Special Service Area 1 Unlimited
Ad Valorem Tax Bonds Series 1990
12-01-08 9.00 2,700,000 3,031,425
Chicago Wastewater Transmission Revenue Bonds
Series 1994 (MBIA Insured)
01-01-24 6.38 22,500,000 25,727,174
Cook County Bedford Park Senior Lien Tax Increment
Revenue Bonds
01-01-06 7.00 1,090,000 1,178,573
01-01-12 7.38 1,700,000 1,854,836
Cook County Bedford Park Senior Lien Tax Increment
Revenue Bonds Mark IV Series 1992
03-01-12 9.75 1,710,000 2,024,042
Development Finance Authority Lifecare Revenue Bonds
Presbyterian Homes Series 1996B
09-01-31 6.40 6,700,000 7,539,778
Development Finance Authority Pollution Control
Refunding Revenue Bonds Central Illinois
Public Service 2nd Series 1993B
06-01-28 5.90 2,500,000 2,640,925
Development Finance Authority Pollution Control
Refunding Revenue Bonds Commonwealth Edison
Series 1994
01-15-09 5.70 2,000,000 2,214,280
01-15-14 5.85 4,500,000 5,089,995
Development Finance Authority Pollution Control
Refunding Revenue Bonds Illinois Power
Series 1991A
07-01-21 7.38 19,250,000 22,145,970
Development Finance Authority Retirement Housing
Revenue Bonds Zero Coupon Escrowed to Maturity
04-15-20 7.75 68,000,000(d) 21,101,760
DuPage County Tax Increment Revenue Bonds
Series 1997
01-01-17 7.88 4,690,000 5,274,421
Educational Facilities Authority Refunding Revenue Bonds
Lewis University Series 1996
10-01-26 6.13 8,780,000 9,294,420
Educational Facilities Authority Refunding Revenue Bonds
Loyola University of Chicago Series 1993
Inverse Floater (FGIC Insured)
07-01-12 7.42 11,000,000(c) 12,333,750
Granite City Madison County Hospital
Refunding Revenue Bonds St. Elizabeth Medical Center
Series 1989A
06-01-08 8.13 3,120,000 3,223,771
Health Facilities Authority Refunding Revenue Bonds
Edwards Hospital Series 1993A
02-15-19 6.00 6,350,000 6,686,614
Health Facilities Authority Refunding Revenue Bonds
Masonic Medical Center Series 1993
10-01-19 5.50 2,000,000 2,053,660
Health Facilities Authority Refunding Revenue Bonds
Morris Hospital
12-01-23 6.13 3,005,000 3,182,656
Health Facilities Authority Refunding Revenue Bonds
University of Chicago Series 1993 Inverse Floater
(MBIA Insured)
08-15-14 7.62 10,000,000(c) 11,175,000
Health Facilities Authority Revenue Bonds
Sarah Bush Lincoln Health Center Series 1992
05-15-12 7.25 2,000,000 2,258,800
05-15-22 7.25 2,000,000 2,258,800
Health Facilities Authority Revenue Bonds
Sarah Bush Lincoln Health Center Series 1996B
02-15-22 5.75 2,915,000 3,019,474
Health Facility Authority Revenue Bonds
South Suburban Hospital Series 1992
02-15-09 7.00 4,000,000 4,581,640
02-15-18 7.00 5,000,000 5,880,963
Hodgkins General Obligation Tax Increment Bonds
Series 1991
12-01-09 9.50 11,630,000 13,590,053
Hodgkins General Tax Increment Bonds
Series 1995A
12-01-13 7.63 9,000,000 10,034,550
Huntley Special Tax Bonds
Series 1998
02-01-25 6.75 2,450,000 2,498,780
Lakemoor Special Tax Revenue Bonds
Series 1997
03-01-27 7.80 9,000,000 9,768,330
Lansing Tax Increment Refunding Revenue Bonds
Landings Redevelopment Area Limited Sales
Tax Pledge Series 1992
12-01-08 7.00 10,000,000 11,095,000
Marion General Obligation Hospital Alternate
Revenue Source Bonds Series 1991
12-01-16 7.50 3,800,000 4,268,198
Metropolitan Pier & Exposition Authority
Dedicated State Tax Refunding Revenue Bonds
McCormick Place Zero Coupon (FGIC Insured)
06-15-19 6.37 6,000,000(d) 2,102,760
Metropolitan Pier & Exposition Authority
Dedicated State Tax Refunding Revenue Bonds
McCormick Place Zero Coupon (MBIA Insured)
06-15-17 6.61 11,210,000(d) 4,390,397
Metropolitan Pier & Exposition Authority
Sales Tax & Miscellaneous Tax Revenue
Capital Appreciation Refunding Bonds
Zero Coupon Series 1996A (MBIA Insured)
12-15-22 6.05 16,225,000(d) 4,713,849
Regional Transportation Authority General
Obligation Bonds Counties of Cook, DuPage, Kane, Lake,
McHenry & Will Series 1992A (AMBAC Insured)
06-01-22 6.13 7,200,000 7,647,120
State Development Finance Authority Regency Park
Retirement Housing Revenue Bonds Zero Coupon
Series 1991B Escrowed to Maturity
07-15-25 5.49 10,000,000(d) 2,328,000
Tinley Park Cook & Will Counties Limited Sales Tax
Revenue Bonds Series 1988
11-01-99 10.25 895,000(j) 322,200
Tinley Park Cook & Will Counties Unlimited Ad Valorem
Tax Bonds of Special Service
12-01-98 10.65 75,000 72,000
12-01-99 10.65 80,000 75,200
12-01-00 10.65 90,000 83,700
12-01-01 10.65 100,000 92,000
12-01-02 10.65 110,000 101,200
12-01-03 10.65 120,000 110,400
12-01-04 10.65 135,000 124,200
12-01-05 10.65 150,000 138,000
12-01-06 10.65 165,000 151,800
12-01-07 10.65 185,000 170,200
Total 459,861,944
Indiana (2.3%)
Brazil 1st Mortgage Revenue Bonds Hoosier Care II
Series 1990
06-01-20 10.38 4,095,000 4,368,423
Carmel Retirement Rental Housing Refunding
Revenue Bonds Beverly Enterprises Series 1992
12-01-08 8.75 6,565,000 7,401,644
Development Finance Authority Environmental
Improvement Refunding Revenue Bonds USX Corporation
Series 1996
07-15-30 6.25 2,000,000 2,148,880
East Chicago Elementary School Building Lake County
1st Mortgage Refunding Bonds Series 1996
01-05-16 6.25 8,000,000 9,280,880
Hanover 1st Mortgage Revenue Bonds Hoosier Care II
Series 1990
06-01-20 10.38 6,710,000 7,158,027
Health Facility Authority Hospital Revenue Bonds
Community Hospital of Anderson Series 1993
01-01-23 6.00 10,000,000 10,380,600
Health Facility Authority Hospital Revenue Bonds
Union Hospital Series 1993 (MBIA Insured)
09-01-18 5.13 10,000,000 10,047,300
Health Facility Finance Authority Hospital Revenue Bonds
Hancock Memorial Series 1996
08-15-17 6.13 2,295,000 2,460,447
La Porte County Hospital Authority Hospital Refunding
Revenue Bonds La Porte Hospital Series 1993
03-01-12 6.25 5,070,000 5,493,446
03-01-23 6.00 2,990,000 3,116,029
Lawrenceburg Pollution Control Refunding Revenue Bonds
Methodist Hospital Series 1989
09-01-08 6.50 15,555,000 16,216,243
Marion County Hospital Authority Refunding Revenue Bonds
Methodist Hospital Series 1989 (MBIA Insured)
09-01-13 6.50 4,115,000 4,249,807
Rockport Pollution Control Refunding Revenue Bonds
Indiana Michigan Electric Series B
03-01-16 7.60 5,500,000 5,916,625
St. Joseph County Hospital Authority
Health Systems Revenue Bonds
Memorial Health System
Series 1998A (MBIA Insured)
08-15-28 4.63 30,000,000 27,402,300
St. Joseph County Hospital Facility Revenue Bonds
Memorial Hospital of South Bend
06-01-10 9.40 1,850,000 2,403,520
Vincennes Economic Development
Revenue Bonds Southwest Indiana
Regional Youth Village Facility Series 1993
01-01-24 8.50 16,575,000 17,819,285
Total 135,863,456
Iowa (0.6%)
Keokuk Hospital Facilities Refunding Revenue Bonds
Keokuk Area Hospital Series 1991
12-01-21 7.63 5,350,000 6,028,006
Muscatine Electric Refunding Revenue Bonds Series 1986
01-01-05 6.00 10,845,000 10,866,690
01-01-06 6.00 11,330,000 11,352,660
01-01-07 5.00 2,250,000 2,250,675
01-01-08 5.00 5,100,000 5,101,326
Total 35,599,357
Kansas (0.1%)
Wyandotte County Kansas City Multi-family
Housing Revenue Bonds Park Victoria Apartments
Series 1998 A.M.T.
08-01-28 6.25 5,035,000 5,057,204
Kentucky (0.9%)
Development Finance Authority Hospital Facility
Revenue Bonds St. Luke Hospital Series 1989B
10-01-19 6.00 22,695,000 23,539,027
Economic Development Finance Authority Hospital
Refunding Revenue & Improvement Bonds
Appalachian Regional Hospital Series 1997
10-01-22 5.88 5,000,000 5,168,950
Muhlenberg County Hospital
Refunding Revenue Bonds
Muhlenberg Community Hospital Series 1996
07-01-10 6.75 9,045,000 9,569,972
Turnpike Authority Economic Road Development
Refunding Revenue Bonds Series 1993 Inverse Floater
(AMBAC Insured)
06-06-12 7.40 15,000,000(c) 16,968,750
Total 55,246,699
Louisiana (2.6%)
Calcasieu Parish Industrial Development Pollution Control
Refunding Revenue Bonds Gulf State Utilities
Series 1992
10-01-12 6.75 10,500,000 11,224,815
Energy & Power Authority Refunding Revenue Bonds
Rodemacher Unit 2 Series 1991 (FGIC Insured)
01-01-13 6.00 28,000,000 29,165,920
Hodge Village Combined Utility System Revenue Bonds
Stone Container Series 1990 A.M.T.
03-01-10 9.00 23,000,000 24,386,670
New Orleans Audubon Park Commission Aquarium
Revenue Bonds Series 1992A
04-01-12 8.00 7,100,000 8,138,730
Public Facilities Authority Revenue Bonds
Glen Retirement Systems Series 1995
12-01-15 6.50 1,000,000 1,078,420
12-01-25 6.70 1,500,000 1,632,195
Public Facilities Authority Revenue Bonds
Windsor Multi-family Housing Foundation
Series 1996A
01-01-26 6.25 9,570,000(j) 7,177,500
Southern Louisiana Port Commission Terminal
Refunding Revenue Bonds GATX Terminal Series 1993
03-01-23 7.00 13,180,000 14,350,120
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light 2nd Series 1984
12-01-14 8.00 29,155,000 30,983,602
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light Series 1991 A.M.T.
06-01-21 7.50 20,700,000 22,423,068
West Feliciana Parish Demand Pollution Control
Revenue Bonds Gulf State Utilities Series 1985B
05-01-15 9.00 6,000,000 6,517,500
Total 157,078,540
Maine (0.1%)
Finance Authority Multi-family Housing Revenue
Obligation Securities Huntington Common
Series 1997A
09-01-27 7.50 5,000,000 5,208,950
Maryland (0.8%)
Frederick County Economic Refunding Revenue Bonds
Alumax Series 1992
04-01-17 7.25 9,880,000 10,650,047
Frederick County Obligation Special Tax Revenue Bonds
Urbana Community Development Authority Series 1998
07-01-25 6.63 6,000,000 6,043,560
Harford County Industrial Development Revenue Bonds
Dorsey
04-16-05 8.00 467,000 469,690
Prince George's County Hospital Revenue Bonds
Dimensions Health Series 1992
07-01-17 7.25 11,400,000 12,926,232
07-01-22 7.00 7,000,000 7,881,510
State Transportation Authority Facility
Capital Appreciation Revenue Bonds
Zero Coupon Series 1992 (FGIC Insured)
07-01-10 6.33 3,000,000(d) 1,807,740
07-01-11 6.33 6,700,000(d) 3,817,325
State Transportation Authority Facility
Revenue Bonds Zero Coupon
Series 1992 (FGIC Insured)
07-01-12 6.35 5,000,000(d) 2,688,250
Total 46,284,354
Massachusetts (3.2%)
Bay Transportation Authority Refunding Revenue Bonds
Series 1994A (MBIA Insured)
03-01-12 6.00 8,000,000 8,688,960
03-01-21 4.75 5,000,000 4,819,950
Health & Educational Facilities Authority
Revenue Bonds Berkshire Health Systems
Series C
10-01-11 5.90 1,800,000 1,870,326
10-01-20 6.00 4,000,000 4,180,360
Health & Educational Facilities Authority
Revenue Bonds Beverly Hospital Inverse Floater
(MBIA Insured)
06-18-20 7.47 8,000,000(c) 9,250,000
Health & Educational Facilities Authority
Revenue Bonds Charlton Memorial Hospital
Series 1991B
07-01-13 7.25 6,455,000 7,139,101
Health & Educational Facilities Authority
Revenue Bonds Holyoke Hospital
Series B
07-01-15 6.50 500,000 532,075
Industrial Finance Agency Pollution Control
Refunding Revenue Bonds Eastern Edison
Series 1993
08-01-08 5.88 4,250,000 4,408,355
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991A
07-01-15 9.00 18,885,000 20,951,397
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991B A.M.T.
07-01-15 9.25 24,800,000 27,514,607
Municipal Wholesale Electric Power
Supply System Pre-refunded Revenue Bonds
Series 1992B
07-01-17 6.75 10,130,000 11,328,683
Municipal Wholesale Electric Power
Supply System Revenue Bonds
Series 1993A Inverse Floater (AMBAC Insured)
07-01-18 7.02 6,500,000(c) 6,955,000
State Industrial Finance Agency Assisted Living
Facility Revenue Bonds Marina Bay LLC
Series 1997 A.M.T.
12-01-27 7.50 2,000,000 2,091,880
State Industrial Finance Agency Assisted Living
Facility Revenue Bonds Newton Group Properties LLC
Series 1997 A.M.T.
09-01-27 8.00 4,300,000 4,734,429
State Water Authority
Water & Sewer General Revenue Bonds
Series 1998A (FSA Insured)
08-01-27 4.75 12,000,000 11,527,200
Water Resource Authority General
Refunding Revenue Bonds Series 1992B
11-01-15 5.50 22,175,000 22,942,699
Water Resource Authority General
Revenue Bonds Series 1992A
07-15-19 6.50 3,500,000 4,202,065
Water Resource Authority General
Revenue Bonds Series 1993B-95B
(MBIA Insured)
12-01-25 5.00 9,000,000 8,894,790
Water Resource Authority General
Revenue Bonds Series 1998A
(FSA Insured)
08-01-37 4.75 24,500,000 23,135,595
Water Resource Authority General
Revenue Bonds Series B (MBIA Insured)
03-01-22 5.00 10,000,000 9,850,500
Total 195,017,972
Michigan (4.2%)
Concord Academy Certificate of Participation Series 1998
10-01-19 7.00 1,000,000 995,530
Crawford County Economic Development Corporation
Environmental Improvement Revenue Bonds
Weyerhaeuser Series 1991A
07-15-07 7.13 10,800,000 12,651,876
Detroit Unlimited Tax General Obligation Bonds
Series 1993
04-01-14 6.35 5,725,000 6,215,461
Detroit Unlimited Tax General Obligation Bonds
Series 1995A
04-01-15 6.80 1,375,000 1,599,881
Lincoln Consolidated School District Unlimited Tax
General Obligation Refunding Bonds (FGIC Insured)
05-01-18 5.85 6,455,000 6,997,478
Midland County Economic Development Corporation
Pollution Control Limited Obligation Refunding Revenue
Bonds Midland Cogeneration Series 1990 A.M.T.
07-23-09 9.50 35,200,000 37,944,544
Midland County Economic Development Corporation
Pollution Control Limited Obligation Refunding Revenue
Bonds Midland Cogeneration Series 1990C
07-23-09 8.50 18,900,000 20,112,246
Monroe County Pollution Control
Revenue Bonds Detroit Edison A.M.T.
12-01-19 7.75 40,250,000 42,671,440
State Hospital Finance Authority
Hospital Pre-refunded Revenue Bonds
McLaren Obligated Group Series 1991A
09-15-21 7.50 7,500,000 8,390,925
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995
01-01-26 6.70 3,000,000 3,349,020
State Hospital Finance Authority
Refunding Revenue Bonds
Detroit Medical Center
Series 1993A
08-15-18 6.50 10,000,000 10,943,300
State Hospital Finance Authority
Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995
01-01-16 6.63 2,750,000 3,066,498
State Hospital Finance Authority
Revenue Bonds Central Michigan Community Hospital
10-01-27 6.25 2,095,000 2,223,570
State Job Development Authority Pollution Control
Revenue Bonds Chrysler
11-01-99 5.70 4,350,000 4,416,164
State Trunk Line Bonds Series A (MBIA Insured)
11-01-20 4.75 10,500,000 10,165,995
Obligation Refunding Revenue Bonds
Crown Paper Company Series 1997B
08-01-12 6.25 1,100,000 1,014,398
Strategic Fund Limited Obligation Refunding
Revenue Bonds Detroit Edison
Series 1995AA (MBIA Insured)
09-01-25 6.40 12,000,000 13,604,640
Strategic Fund Limited Obligation Refunding
Revenue Bonds Great Lakes Pulp & Fibre
Zero Coupon Series 1994 A.M.T.
12-01-27 10.25 21,509,600(d) 15,056,720
Strategic Fund Limited Tax Obligation
Refunding Revenue Bonds Ford Motor
Series 1991A
02-01-06 7.10 16,400,000 19,303,456
Summit Academy Certificate of Participation
Series 1998
09-01-18 7.00 2,500,000 2,505,050
Troy City Downtown Development Authority
County of Oakland Development Bonds
Series 1995A Asset Guaranty
11-01-18 6.38 1,000,000 1,121,900
Van Buren Township Tax Increment Revenue Bonds
Series 1994
10-01-16 8.40 3,970,000 4,544,022
Wayne Charter County Airport Revenue Bonds
Detroit Metro Wayne County Series 1998A
(MBIA Insured) A.M.T.
12-01-28 5.00 13,900,000 13,479,942
Wayne County Special Airport Facilities
Refunding Revenue Bonds Northwest Airlines Series 1995
12-01-15 6.75 11,280,000 12,389,839
Total 254,763,895
Minnesota (4.1%)
Becker Solid Waste Disposal Facility
Revenue Bonds Liberty Paper Series 1994B A.M.T.
08-01-15 9.00 17,800,000 19,351,447
Bloomington Health Care Facility Revenue Bonds
Friendship Village of Bloomington Series 1992
04-01-02 8.50 3,060,000 3,277,321
Brainerd Economic Development Authority
Health Care Facility Revenue Bonds
Benedictine Health System St. Joseph Medical Center
Series 1990
02-15-20 8.38 4,670,000 5,032,392
Duluth Economic Development Authority
Health Care Facility Pre-refunded Revenue Bonds
Benedictine Health System St. Mary's Medical Center
Series 1990
02-15-20 8.38 8,300,000 8,944,080
Fergus Falls Health Care Facilities Revenue Bonds
LRHC Long-Term Care Facility Series 1995
12-01-25 6.50 1,530,000 1,670,638
International Falls Solid Waste Disposal
Revenue Bonds Boise Cascade
Series 1990 A.M.T.
01-01-15 7.75 10,000,000 10,407,100
Little Canada Multi-family Housing Revenue Bonds
Housing Alternative Development Company
Series 1997A
12-01-27 6.25 1,755,000 1,785,169
Mahtomedi Multi-family Housing
Revenue Bonds Briarcliff A.M.T.
06-01-36 7.35 1,995,000 2,097,942
Maplewood Elder Care Facility Revenue Bonds
Care Institute Series 1994
01-01-24 7.75 8,000,000 8,420,880
Maplewood Multi-family Housing
Refunding Revenue Bonds Carefree Cottages
of Maplewood III Series 1995 A.M.T.
11-01-32 7.20 4,955,000 5,152,110
Mille Lacs Capital Improvement Authority Infrastructure
Revenue Bonds Series 1992A
11-01-12 9.25 4,455,000 5,406,232
Minneapolis Housing & Healthcare Facility Revenue Bonds
Augustana Chapel View Homes Incorporated Series 1997
06-01-27 6.75 2,640,000 2,787,550
Richfield Multi-family Housing
Refunding Revenue Bonds
Village Shores Apartments Series 1996
08-01-31 7.63 4,945,000 5,185,970
Robbinsdale Multi-family Housing Revenue Bonds
Copperfield Hill Series 1996A
12-01-31 7.35 3,500,000 3,614,975
Roseville Housing Facilities Nursing Home
Refunding Revenue Bonds College Properties
Incorporated Series 1998
10-01-28 5.88 7,000,000 7,005,880
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Series 1992
01-01-18 5.75 32,210,000 33,703,255
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Zero Coupon Series 1994A (MBIA Insured)
01-01-21 6.87 13,500,000(d) 4,458,105
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds
Zero Coupon Series 1994A (MBIA Insured)
01-01-22 6.73 17,500,000 (d) 5,491,325
01-01-23 6.74 27,500,000(d) 8,199,125
01-01-24 6.75 19,960,000(d) 5,653,870
01-01-25 6.75 27,500,000(d) 7,399,975
01-01-26 6.75 27,500,000(d) 7,029,550
01-01-27 6.75 12,450,000(d) 3,026,097
St. Louis Park Health Care Facilities
Pre-refunded Revenue Bonds
Park Nicollet Medical Center Series 1990A
01-01-20 9.25 6,000,000 6,490,800
St. Louis Park Health Care Facilities
Revenue Bonds Healthsystem Minnesota
Obligated Group Series 1993 Inverse Floater
(AMBAC Insured)
07-01-05 5.28 10,200,000(c) 10,735,500
St. Louis Park Health Care Facilities
Revenue Bonds Healthsystem Minnesota
Obligated Group Series 1993B Inverse Floater
(AMBAC Insured)
07-01-13 6.28 18,000,000(c) 18,719,999
St. Louis Park Multi-family Housing
Refunding Revenue Bonds
Park Boulevard Towers Series 1996A
04-01-31 7.00 11,480,000 12,014,624
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds
Lyngblomsten Care Center Series 1993A
11-01-06 7.13 1,610,000 1,704,040
11-01-17 7.13 2,635,000 2,829,121
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds Lyngblomsten
Multi-family Rental Housing Series 1993B
11-01-24 7.00 2,725,000 2,796,259
St. Paul Port Authority Redevelopment Multi-family
Refunding Revenue Bonds Burlington Apartments
Series A (GNMA Insured)
05-01-31 5.75 14,355,000 14,925,611
St. Paul Port Authority Redevelopment Multi-family
Subordinate Refunding Revenue Bonds
Burlington Apartments Series A
02-01-31 8.63 3,770,000 3,867,756
Vadnais Heights Multi-family Housing
Refunding Revenue Bonds
Cottages of Vadnais Heights
Series 1995 A.M.T.
12-01-31 7.00 1,980,000 2,058,269
Washington County Housing & Redevelopment
Authority Refunding Revenue Bonds
Woodbury Multi-family Housing Series 1996
12-01-23 6.95 4,835,000 5,022,018
Total 246,264,985
Mississippi (0.8%)
Claiborne County Pollution Control Refunding Revenue Bonds
System Energy Resources Series 1995
05-01-25 7.30 4,000,000 4,190,920
Claiborne County Pollution Control Revenue Bonds
Middle South Energy
12-01-13 9.50 1,195,000 1,235,176
Harrison County Waste Water Management District
Refunding Bonds Series 1986
02-01-15 5.00 4,250,000 4,372,188
Jackson Industrial Development Revenue Bonds Dorsey
04-16-05 8.00 397,000 401,006
Long Beach Urban Renewal Multi-family Housing
Revenue Bonds Long Beach Square Apartments
Series 1998 A.M.T.
08-01-28 6.75 3,870,000 3,825,495
Lowndes County Solid Waste Disposal Pollution Control
Refunding Revenue Bonds Weyerhaeuser Series 1989
04-01-22 8.45 4,000,000(h) 4,797,880
Lowndes County Solid Waste Disposal Pollution Control
Revenue Bonds Weyerhaeuser Series 1989 A.M.T.
12-01-05 7.88 12,250,000 13,007,785
Medical Center Educational Building
Hospital Refunding Revenue Bonds
University of Mississippi Medical Center
Series 1998B (AMBAC Insured)
12-01-23 5.50 14,000,000 15,118,599
Total 46,949,049
Missouri (0.7%)
Regional Convention & Sports Complex Authority Bonds
St. Louis Sponsor Series 1991B
08-15-21 7.00 5,810,000 6,598,824
Sikeston Electric System Refunding Revenue Bonds
Series 1992 (MBIA Insured)
06-01-02 5.80 4,165,000 4,442,847
St. Louis Industrial Development Authority
Refunding Revenue Bonds Kiel Center
Multi-purpose Arena Series 1992 A.M.T.
12-01-24 7.88 15,400,000 16,821,111
St. Louis Regional Convention & Sports Complex Authority
Refunding Revenue Bonds Series 1991C
08-15-21 7.90 2,575,000 3,022,381
St. Louis Regional Convention & Sports Complex Authority
Revenue Bonds Series 1991C
08-15-21 7.90 125,000 138,645
State Environment & Improvement Energy Resources
Authority Pollution Control Revenue Bonds Chrysler
10-01-99 5.70 9,250,000 9,346,478
Total 40,370,286
Nebraska (--%)
Omaha Public Power District Electric System
Revenue Bonds Series 1986A
02-01-15 6.00 1,370,000 1,533,318
Nevada (0.8%)
Clark County Collateralized Pollution Control Revenue Bonds
Nevada Power A.M.T.
10-01-09 7.80 11,850,000 12,358,839
Clark County Industrial Development Revenue Bonds
Nevada Power Series 1990 A.M.T.
06-01-20 7.80 5,000,000 5,293,850
Clark County Passenger Facility Charge Airport
Refunding Revenue Bonds
Las Vegas McCarran Intl Airport
Series 1998 (MBIA Insured)
07-01-22 4.75 10,000,000 9,628,800
Las Vegas Redevelopment Agency Tax Increment
Subordinate Lien Revenue Bonds Series 1994A
06-15-10 6.00 2,000,000 2,111,920
06-15-14 6.10 2,750,000 2,891,158
Las Vegas Special Improvement District 707
Local Improvement Bonds
Summerlin Area Series 1996
06-01-16 7.10 6,000,000 6,257,460
Washoe County Hospital Revenue Bonds
Washoe Medical Center Series 1993A
06-01-15 6.00 7,250,000 7,694,425
Total 46,236,452
New Hampshire (2.1%)
Business Financial Authority Pollution Control
& Solid Waste Disposal Refunding Revenue Bonds
Crown Paper Company Series 1996
01-01-22 7.75 4,255,000 4,331,037
Business Financial Authority Pollution Control
Refunding Revenue Bonds United Illuminating
Series 1993A
10-01-33 5.88 13,200,000 13,439,448
Higher Education & Health Facilities Authority
Lifecare Revenue Bonds Rivermead at Peterborough
Retirement Community Series 1998
07-01-18 5.63 1,365,000 1,353,097
07-01-28 5.75 2,500,000 2,509,300
Industrial Development Authority Pollution Control
Revenue Bonds State Public Service Series 1991B
05-01-21 7.50 51,485,000 54,766,139
Industrial Development Authority Pollution Control
Revenue Bonds State Public Service Series 1991C A.M.T.
05-01-21 7.65 25,000,000 26,647,750
Industrial Development Authority Pollution Control
Revenue Bonds United Illuminating Series 1989A A.M.T.
12-01-14 8.00 8,000,000 8,437,040
State Higher Education & Health Facility Authority Hospital
Revenue Bonds Hitchcock Clinic Series 1994
(MBIA Insured)
07-01-24 6.00 13,000,000 14,264,250
Total 125,748,061
New Jersey (0.2%)
Health Care Facility Finance Authority Revenue Bonds
St. Peter Medical Center Series 1994F (MBIA Insured)
07-01-16 5.00 10,000,000 10,027,400
Health Care Facility Finance Authority Revenue Bonds
Zurbrugg Memorial Hospital Series C
07-01-12 8.50 3,500,000 3,467,835
Total 13,495,235
New Mexico (1.8%)
Albuquerque Health Care System Revenue Bonds
Lovelace Medical Fund
03-01-11 10.25 55,000 55,911
Bernalillo County Muti-family Housing Revenue Bonds
Series 1997D
04-01-27 7.70 9,915,000 10,314,575
Farmington Pollution Control Refunding Revenue Bonds
Series 1996A-B
12-01-16 6.30 10,000,000 10,736,500
Farmington Pollution Control Refunding Revenue Bonds
Series 1997A
10-01-20 6.95 4,000,000 4,429,920
Farmington Pollution Control Refunding Revenue Bonds
State Public Service San Juan Series 1994A
08-15-23 6.40 30,650,000 32,343,719
Farmington Power Refunding Revenue Bonds
Generating Division
01-01-13 9.88 5,000,000 6,636,450
Las Vegas Hospital Facility Refunding Revenue Bonds
Northeastern Regional Hospital Series 1987
08-01-13 9.63 5,370,000 5,483,307
Lordsberg Pollution Control Refunding Revenue Bonds
Phelps Dodge
04-01-13 6.50 20,000,000 22,054,800
Sandoval County Multi-family Housing
Refunding Revenue Bonds Meadowlark Apartments
Series 1998A A.M.T.
07-01-38 6.38 11,300,000 11,465,658
Sandoval County Multi-family Housing
Refunding Revenue Bonds Meadowlark Apartments
Series 1998B A.M.T.
07-01-01 6.38 1,000,000 1,004,170
Santa Fe County Lifecare Revenue Bonds
El Castillo Retirement Series 1998A
05-15-15 5.50 1,000,000 993,560
05-15-25 5.63 2,500,000 2,472,775
Total 107,991,345
New York (9.1%)
Battery Park City Authority Refunding Revenue Bonds
Series 1993A
11-01-10 5.50 9,940,000 10,549,223
Dormitory Authority New York City University System
Consolidated 2nd Generation Resource Revenue Bonds
Series 1990C
07-01-16 6.00 39,465,000 40,500,361
07-01-17 5.00 20,820,000 20,570,993
Dormitory Authority New York City University System
Consolidated 2nd Generation Resource Revenue Bonds
Series 1990D
07-01-09 7.00 5,000,000 5,863,000
Dormitory Authority New York City University System
Consolidated 2nd Generation Resource Revenue Bonds
Series 1994A
07-01-18 5.75 5,500,000 6,054,785
Dormitory Authority New York Court Facility Lease
Revenue Bonds Series 1993A
05-15-16 5.38 11,000,000 11,176,440
Dormitory Authority New York State
Memorial Sloan-Kettering Cancer Center
Series 1998 (MBIA Insured)
07-01-20 5.75 7,500,000 8,429,100
07-01-23 5.50 7,700,000 8,437,352
Dormitory Authority New York State
University Education Facility Revenue Bonds
Series 1993A
05-15-13 5.50 24,530,000 26,625,598
Long Island Power Authority
Revenue Bonds Series A
12-01-26 5.25 8,445,000 8,503,017
12-01-29 5.50 7,500,000 7,755,525
Metropolitan Transportation Authority
Transportation Facility Revenue Bonds
Series 1998A (MBIA Insured)
07-01-24 4.75 12,850,000 12,352,705
New York & New Jersey Port Authority Special Obligation
Revenue Bonds KIAC Partners Series 4 A.M.T.
10-01-19 6.75 3,500,000 3,843,245
New York City General Obligation Bonds Series 1992B
02-01-00 7.40 30,000,000 31,307,699
New York City General Obligation Bonds Series 1996F-G
02-01-19 5.75 5,500,000 5,854,860
02-01-20 5.75 2,325,000 2,475,009
New York City General Obligation Bonds Series 1998H
08-01-22 5.00 30,000,000 29,346,300
New York City Industrial Development Agency
Special Facility Revenue Bonds American Airlines
Series 1990 A.M.T.
07-01-20 8.00 16,130,000 16,503,893
New York City Municipal Water Finance Authority
Water & Sewer System Refunding Revenue Bonds
Series 1998D (MBIA Insured)
06-15-25 4.75 8,000,000 7,684,960
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series 1994B Inverse Floater (MBIA Insured)
06-15-09 7.11 15,500,000(c) 17,166,250
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds Series A
06-15-21 6.25 55,500,000 58,594,124
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds Series B
06-15-17 5.00 6,255,000 6,269,637
New York City Pre-refunded Unlimited General
Obligation Bonds Series 1994B-1
08-15-16 7.00 16,500,000 19,216,890
New York City Transitional Finance Authority
Future Tax Secured Sales Tax Revenue Bonds
Series 1998B
11-15-27 4.50 15,000,000 13,901,850
New York City Unlimited Tax General
Obligation Bonds Series 1996G
02-01-17 5.75 20,000,000 21,290,400
New York City Unlimited Tax General
Obligation Bonds Series 1998F
08-01-23 5.00 7,235,000 7,083,861
New York City Unlimited Tax General
Obligation Bonds Series 1998G
08-01-22 5.00 10,000,000 9,782,100
New York City Unlimited Tax General
Obligation Bonds Series 1998J
08-01-23 5.00 10,760,000 10,520,482
North Hempstead Nassau County New York
Various Purpose Bonds
Series 1998A (FGIC Insured)
01-15-23 4.75 3,100,000 2,983,502
Port Authority Special Project Bonds La Guardia
Airport Passenger Terminal
Continental & Eastern Airlines A.M.T.
12-01-06 9.00 2,645,000 2,907,649
Port Authority Special Project Bonds La Guardia
Airport Passenger Terminal
Continental & Eastern Airlines Series 2 A.M.T.
12-01-10 9.00 8,800,000 9,673,840
12-01-15 9.13 17,500,000 19,278,000
State Dormitory Authority State University Education Facility
Pre-refunded Revenue Bonds Series 1990A
05-15-12 7.70 10,000,000 10,797,700
State Housing Finance Agency Service Contract Obligation
Revenue Bonds Series 1995A
03-15-25 6.50 12,475,000 14,517,418
State Housing Finance Agency State University Construction
Refunding Bonds Series 1986A
05-01-13 6.50 3,500,000 4,189,430
State Medical Facilities Finance Agency
Mental Health Services Improvement Refunding
Revenue Bonds Series 1993D
08-15-23 5.25 15,000,000 15,074,550
State Medical Facilities Finance Agency
Mental Health Services Improvement Refunding
Revenue Bonds Series 1993F
02-15-19 5.25 5,790,000 5,844,831
State Urban Development Correctional Capital Facilities
Refunding Revenue Bonds Series 1993A
01-01-21 5.25 12,110,000 12,173,456
State Urban Development Correctional Facility
Refunding Revenue Bonds Series A
01-01-16 5.50 2,750,000 2,827,770
State Urban Development Correctional Facility
Revenue Bonds Series 6
01-01-25 5.38 9,000,000 9,158,130
State Urban Development Correctional Facility
Services Contract Lease Revenue Bonds
Series 1998A (FSA Insured)
01-01-28 5.00 10,000,000 9,938,800
Total 547,024,735
North Carolina (3.6%)
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1986A
01-01-17 5.00 6,500,000 6,613,913
01-01-18 4.00 8,675,000 7,753,542
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1988A
01-01-26 6.00 1,940,000 2,229,448
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1989A
01-01-10 7.50 29,160,000 36,153,504
01-01-11 5.50 37,800,000 37,811,340
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1991A
01-01-19 5.75 55,000,000 55,646,250
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1993B
01-01-12 6.25 24,655,000 26,239,577
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1994B
01-01-07 7.25 5,000,000 5,814,500
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series B
01-01-09 6.13 10,000,000 10,986,100
Eastern Municipal Power Agency Power System
Revenue Bonds Series 1993D
01-01-13 5.88 2,300,000 2,401,913
Municipal Power Agency 1 Catawba Electric
Revenue Bonds Series 1993
Inverse Floater (MBIA Insured)
01-01-12 6.97 7,400,000(c) 8,158,500
01-01-20 7.17 15,000,000(c) 16,218,750
Total 216,027,337
North Dakota (0.3%)
Fargo Hospital Refunding Revenue & Improvement Bonds
Dakota Hospital Series 1992
11-15-12 6.88 3,000,000 3,377,640
11-15-22 7.00 4,250,000 4,803,478
Ward County Health Care Facilities
Refunding Revenue Bonds Series 1996B
07-01-21 6.25 4,000,000 4,299,600
Ward County Health Care Facilities
Refunding Revenue Bonds Trinity Group Series 1996A
07-01-26 6.25 6,110,000 6,567,639
Total 19,048,357
Ohio (3.2%)
Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Cleveland Electric Company Series 1997B
08-01-20 6.00 10,000,000 10,240,400
Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Ohio Edison Series A
05-15-29 5.95 13,300,000 13,745,683
Air Quality Development Authority
Pollution Control Revenue Bonds
Ohio Edison Series 1989A
07-01-23 7.63 6,750,000 6,985,575
Bellefontaine Hospital Facility
Refunding Revenue Bonds
Mary Rutan Health Association of Logan County
Series 1993
12-01-13 6.00 5,330,000 5,561,748
Butler County Hospital Facility Improvement
Refunding Revenue Bonds
Fort Hamilton-Hughes Memorial Center
Series 1991
01-01-10 7.50 9,800,000 10,582,726
Carroll Water & Sewer District
Unlimited Tax General Obligation Bonds
12-01-10 6.25 1,895,000 2,018,402
Carroll Water & Sewer District
Water System Improvement Unlimited Tax
General Obligation Bonds
12-01-10 6.25 7,855,000 8,415,376
Cleveland Parking Facilities Improvement
Revenue Bonds Series 1992
09-15-22 8.10 15,000,000 17,499,000
Coshocton County Solid Waste Disposal
Refunding Revenue Bonds
Stone Container Series 1992
08-01-13 7.88 17,500,000 19,289,199
Cuyahoga County Health Care Facilities
Lifecare Refunding Revenue Bonds
Judson Retirement Community Series 1996A
11-15-13 7.25 2,080,000 2,281,032
Cuyahoga County Health Care Facilities
Refunding Revenue Bonds
Judson Retirement Community Series A
11-15-18 7.25 4,130,000 4,529,165
Erie County Hospital Improvement Refunding
Revenue Bonds Firelands Community Hospital
Series 1992
01-01-15 6.75 6,540,000 7,114,866
Franklin County Multi-family Housing
Refunding Revenue Bonds
Jefferson Chase Apartments
Series 1998B A.M.T.
11-01-35 6.40 1,465,000 1,468,531
Franklin County Multi-family Housing
Refunding Revenue Bonds
West Bay Apartments A.M.T.
12-01-25 6.38 8,425,000 8,584,233
Lorain County Independent Living & Hospital Facilities
Refunding Revenue Bonds Elyria United Methodist
Series 1996C
06-01-22 6.88 3,100,000 3,421,594
Marion County Health Care Facilities
Improvement Refunding Revenue Bonds
United Church Homes Series 1993
11-15-10 6.38 2,000,000 2,123,480
Marion County Health Care Facilities
Refunding & Improvement Revenue Bonds
United Church Homes Series 1993
11-15-15 6.30 1,800,000 1,903,572
Montgomery County Health Facilities Refunding
Revenue Bonds Friendship Village Dayton Series 1990A
02-01-16 9.25 9,025,000 9,787,342
State Water & Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995
08-01-25 7.70 13,000,000 14,801,410
State Water Development Authority Pollution Control
Refunding Revenue Bonds Toledo Edison
Series 1994A A.M.T.
10-01-23 8.00 10,000,000 11,424,100
Water Development Authority Collateralized Pollution Control
Revenue Bonds Cleveland Electric Series 1989 A.M.T.
10-01-23 8.00 10,000,000 10,204,900
Water Development Authority Collateralized Pollution Control
Revenue Bonds Toledo Edison Series 1989 A.M.T.
10-01-23 8.00 8,500,000 8,836,685
Water Development Authority Pollution Control
Revenue Bonds Ohio Edison A.M.T.
10-01-23 8.10 10,000,000 10,517,700
Total 191,336,719
Oklahoma (1.0%)
Grand River Dam Authority Refunding Revenue Bonds
Series 1987
06-01-12 5.00 10,105,000 10,106,112
Hinton Economic Development Authority
Certificate of Participation
Dominion Leasing Series 1990A
07-01-15 9.75 19,090,000 21,854,804
Hinton Economic Development Authority
Certificate of Participation
Series 1994
07-01-15 8.75 11,415,000 12,826,807
Jackson County Hospital Authority
Refunding Revenue Bonds
Jackson County Memorial Hospital Series 1994
08-01-15 7.30 6,580,000 7,153,842
Midwest City Memorial Hospital Authority Hospital
Revenue Bonds Series 1992
04-01-22 7.38 7,815,000 8,809,459
Stillwater Medical Center Authority
Hospital Revenue Bonds Series 1997B
05-15-19 6.50 1,750,000 1,898,470
Total 62,649,494
Oregon (0.6%)
State Health Housing Educational & Cultural Facilities
Authority Revenue Bonds Oregon Baptist Retirement
Homes-Weidler Retirement Center Series 1995
11-15-26 8.00 7,645,000 8,602,154
Western Generation Agency Revenue Bonds
Wauna Cogeneration Series 1994A
01-01-21 7.13 13,600,000 14,749,200
Western Generation Agency Revenue Bonds
Wauna Cogeneration Series 1994B A.M.T.
01-01-16 7.40 9,000,000 9,865,440
Total 33,216,794
Pennsylvania (4.1%)
Allegheny County Industrial Development Authority
Environment Improvement Revenue Bonds
USX Corporation Series 1994A
12-01-20 6.70 6,000,000 6,567,780
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995
05-01-25 7.63 7,500,000 8,459,775
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995A
07-15-25 7.75 21,150,000 24,061,932
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Toledo Edison Series 1995A
05-01-20 7.75 14,000,000 15,988,420
Beaver County Industrial Development Authority
Pollution Control Revenue Bonds
Ohio Edison
09-01-24 7.75 34,650,000 36,070,996
Beaver County Industrial Development Authority
Pollution Control Revenue Bonds
Toledo Edison-Beaver Valley Series 1995
05-01-20 7.63 11,700,000 13,197,249
Butler County Industrial Development Authority Health Care
Refunding Revenue Bonds Pittsburgh Lifetime Care
Community Sherwood Oaks Series 1993
06-01-11 5.75 2,000,000 2,093,700
06-01-16 5.75 3,000,000 3,100,080
Convention Center Authority Refunding Revenue Bonds
Philadelphia Series 1994A
09-01-19 6.75 5,300,000 5,948,455
Delaware County Authority 1st Mortgage Revenue Bonds
Riddle Village Series 1996
06-01-26 7.00 10,000,000 10,532,300
Delaware County Authority 1st Mortgage Revenue Bonds
Whitehorse Village Continuing Care Series 1989
07-01-09 9.70 1,000,000 1,066,670
07-01-19 9.70 10,000,000 10,666,700
Delaware County Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Philadelphia Electric Series A
04-01-21 7.38 900,000 966,249
Harrisburg Dauphin County General Obligation Bonds
Zero Coupon Series 1997F (AMBAC Insured)
09-15-20 5.50 3,000,000(d) 988,500
09-15-21 5.52 1,000,000(d) 310,840
09-15-22 5.52 1,000,000(d) 295,040
Montgomery County Higher Education & Health Authority
Retirement Community Revenue Bonds G.D.L. Farms
Series A
01-01-20 9.50 3,000,000 3,249,000
Philadelphia Gas Works Revenue Bonds Series 13
06-15-21 7.70 4,150,000 4,631,359
Philadelphia Hospital & Higher Education Facility
Authority Hospital Revenue Bonds
Albert Einstein Medical Center
04-01-11 7.63 15,545,000 16,084,101
Philadelphia Municipal Authority Lease
Refunding Revenue Bonds Series 1993D
07-15-13 6.25 2,500,000 2,675,800
07-15-17 6.30 1,550,000 1,660,174
Philadelphia Water & Sewer Revenue Bonds Series 16
08-01-10 7.50 13,200,000 14,723,148
08-01-18 7.00 14,000,000 15,188,320
Philadelphia Water & Wastewater Revenue Bonds
Series 1993 (CGIC Insured)
06-15-15 5.50 11,000,000 11,421,410
State Department of General Services
Certificate of Participation
Series 1994A (AMBAC Insured)
07-01-15 5.00 25,000,000 24,998,999
Wilkins Industrial Development Authority Revenue Bonds
Retirement Community Longwood at Oakmont
Series 1991A
01-01-21 10.00 8,495,000 9,778,680
Total 244,725,677
Puerto Rico (1.0%)
Commonwealth Public Improvement General Obligation
Refunding Revenue Bonds Series 1998
07-01-23 4.50 13,200,000 12,289,068
Electric Power Agency Revenue Bonds
Series N
07-01-10 6.00 40,000,000 40,538,800
Electric Power Agency Revenue Bonds
Series O
07-01-10 6.00 5,305,000 5,376,458
Total 58,204,326
South Carolina (1.1%)
Cherokee County Spring City Industrial Development
Revenue Bonds Knitting Cluett Peabody
09-01-09 7.40 5,200,000 6,318,416
Jobs Economic Development Authority
1st Mortgage Health Facilities Nursing Home Refunding
Revenue Bonds Lutheran Homes Series 1998
05-01-26 5.70 5,235,000 5,246,674
Piedmont Municipal Power Agency Electric
Refunding Revenue Bonds Series 1986B
01-01-24 5.75 7,550,000 7,553,398
Public Service Authority Electric System
Expansion Revenue Bonds Santee Cooper
Series 1991D
07-01-31 6.63 14,975,000 16,695,478
Public Service Authority Electric System
Revenue Bonds Santee Cooper
Series 1991B
07-01-31 6.00 8,000,000 8,465,760
Public Service Authority Electric System
Revenue Bonds Santee Cooper
Series 1993A Inverse Floater (MBIA Insured)
06-28-13 7.04 17,700,000(c) 19,425,749
Total 63,705,475
South Dakota (0.6%)
Heartland Consumers Power District Electric System
Refunding Revenue Bonds Series 1986
01-01-10 6.00 10,205,000 11,342,245
Sioux Falls Multi-family Housing Revenue Bonds
Series 1996A
12-01-34 7.50 12,200,000 13,265,792
State Lease Revenue Trust Certificates Series 1993
(CGIC Insured)
09-01-17 6.70 7,260,000 8,880,795
Total 33,488,832
Tennessee (0.4%)
Nashville & Davidson Counties Health & Education
Facilities 1st Mortgage Revenue Bonds
Blakeford at Green Hills CCRC
07-01-24 9.25 12,230,000 15,554,481
Nashville & Davidson Counties Health & Education
Facilities Board Revenue Bonds
Zero Coupon Escrowed to Maturity
06-01-21 5.38 29,109,000(d) 8,931,223
Total 24,485,704
Texas (6.7%)
Alliance Airport Authority Special Facility Revenue Bonds
American Airlines Series 1990 A.M.T.
12-01-29 7.50 37,400,000 40,120,476
Austin Combined Utility Systems Refunding Revenue Bonds
Series 1985
05-15-10 10.75 10,000,000 11,024,700
05-15-15 10.75 2,000,000 2,204,940
Austin Combined Utility Systems Refunding Revenue Bonds
Series 1986
11-15-13 5.00 19,985,000 19,986,199
Board of Regents of the University System General
Refunding Revenue Bonds Series 1986
08-15-07 6.50 2,565,000 2,906,504
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1989A A.M.T.
01-01-19 8.25 14,000,000 14,323,120
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1990A A.M.T.
02-01-20 8.13 13,205,000 13,988,057
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1991A A.M.T.
03-01-21 7.88 24,450,000 26,530,451
Castlewood Municipal Utility District Water &
Sewer Systems Unlimited Tax & Refunding Revenue Bonds
Series 1997
04-01-14 6.75 2,860,000 3,039,236
Colony Municipal Utility District 1 Denton County
Series 1980
08-01-07 9.25 1,000,000 1,364,830
Cypress Hill Municipal Utility District 1
General Obligation Bonds
09-01-22 5.30 2,045,000 2,037,986
Dallas & Fort Worth International Airport Special Facility
Revenue Bonds American Airlines Series 1990 A.M.T.
11-01-25 7.50 26,200,000 28,049,458
Dallas & Fort Worth International Airport Special Facility
Revenue Bonds Delta Airlines Series 1991 A.M.T.
11-01-26 7.13 13,500,000 14,318,505
Dallas Civic Center Miscellaneous Refunding Revenue
& Improvement Bonds Series 1998 (MBIA Insured)
08-15-23 4.88 29,850,000 29,094,497
Denison Hospital Authority Hospital Revenue Bonds
Texoma Medical Center Series 1994
08-15-24 7.10 3,950,000 4,414,639
Harris County Health Facilities Hospital Revenue Bonds
Memorial Hospital Series 1992
06-01-15 7.13 16,000,000 17,978,240
Harris County Industrial Development Marine Terminal
Refunding Revenue Bonds GATX Terminal Series 1992
02-01-22 6.95 15,000,000 16,148,550
Harris County Municipal Utility District 196
Water & Sewer Revenue Bonds Series 1998
09-01-23 5.50 2,585,000 2,553,773
Hidalgo County Health Services Corporation
Hospital Revenue Bonds Mission Hospital
Series 1996
08-15-26 6.88 7,880,000 8,704,484
Interstate Municipal Utility District
Unlimited Tax Bonds Harris County Series 1996
09-01-21 6.75 3,020,000 3,289,112
Karnes County Public Facility Lease Revenue Bonds
03-01-15 9.20 15,645,000 19,738,827
Kings Manor Municipal Utility District
Waterworks & Sewer Systems Combination
Unlimited Tax & Revenue Bonds Series 1995
03-01-18 6.88 2,470,000 2,719,025
Lower Colorado River Authority Combined Utility
Junior Lien Revenue Bonds 7th Supplement
Series 1998 (FSA Insured)
01-01-28 4.75 10,500,000 10,037,475
Midland County Hospital District Revenue Bonds Series 1992
06-01-16 7.50 3,025,000 3,410,052
Mineral Wells Independent School Districts Palo Pinto &
Parker Counties Unlimited Tax General Obligation School
Building & Refunding Bonds Series 1998
Permanent School Fund Guarantee
02-15-22 4.75 5,430,000 5,244,403
02-15-28 4.75 8,345,000 8,001,019
Municipal Power Agency
Refunding Revenue Bonds (MBIA Insured)
09-01-09 5.25 8,000,000 8,619,680
Municipal Power Agency
Revenue Bonds
09-01-13 5.50 7,410,000 7,417,632
Rio Grande City Consolidated Independent School District
Public Facilities Lease Revenue Bonds Series 1995
07-15-10 6.75 4,000,000 4,409,840
Rolling Creek Utility District Unlimited Tax
General Obligation Refunding Bonds
Series 1998
03-01-15 5.75 3,660,000 3,708,788
Sabine River Authority Collateralized Pollution Control
Revenue Bonds Texas Utilities Electric Series 1990A A.M.T.
02-01-20 8.13 30,500,000 32,311,090
San Antonio Electric & Gas Systems
Revenue Bonds Series 1987
02-01-14 5.00 8,680,000 8,680,781
Uvalde Consolidated Independent School District
General Obligation Bonds
Permanent School Fund Guarantee
08-01-22 4.50 5,100,000 4,728,108
West Side Calhoun County Navigation District
Solid Waste Disposal Revenue Bonds
Union Carbide Chemical & Plastics Series 1991 A.M.T.
03-15-21 8.20 17,550,000 19,173,375
Total 400,277,852
Utah (1.6%)
Carbon County Solid Waste Disposal
Refunding Revenue Bonds Sunnyside
Cogeneration Associates Series 1991 A.M.T.
07-01-18 9.25 25,350,000(j) 13,942,500
Housing Finance Agency Single Family Mortgage
Senior Bonds Series 1991C (FGIC Insured)
07-01-11 7.30 570,000 601,669
07-01-16 7.35 450,000 474,705
Hurricane Health Facilities Development Revenue Bonds
Mission Health Services Series 1990
07-01-20 10.50 7,570,000 8,311,482
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series 1993B Inverse Floater
07-01-11 7.30 7,600,000(c) 8,512,000
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series 1996C (MBIA Insured)
07-01-17 5.70 46,000,000 49,294,980
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series F (AMBAC Insured)
07-01-13 5.00 5,000,000 5,000,800
Intermountain Power Agency Power Supply
Revenue Bonds Series 1987A (MBIA Insured)
07-01-12 5.00 8,000,000 8,001,760
Tooele County Pollution Control Refunding Revenue Bonds
Laidlaw Environmental Services Incorporated
Series 1997A A.M.T.
07-01-27 7.55 4,000,000 4,434,080
Total 98,573,976
Virginia (0.7%)
Fairfax County Economic Development Authority
Educational Facilities Revenue Bonds
Browne Academy Series 1998
10-01-08 6.00 1,500,000 1,517,625
10-01-23 6.45 5,200,000 5,303,844
Fairfax County Redevelopment & Housing Authority
Multi-family Housing Revenue Bonds
Burkeshire Commons Series 1996
10-01-36 7.60 13,155,000 14,437,349
Hopewell City Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Stone Container Series 1992
05-01-10 8.25 3,170,000 3,516,640
Housing Development Authority Commonwealth
Mortgage Bonds Series 1992A
01-01-33 7.15 11,890,000 12,506,497
Prince William County Service Authority Water & Sewer
Systems Refunding Revenue Bonds
Series 1997 (FGIC Insured)
07-01-29 4.75 1,875,000 1,804,706
Total 39,086,661
Washington (2.7%)
King County Housing Authority Pooled Housing
Refunding Revenue Bonds Series 1995A
03-01-26 7.20 4,000,000 4,176,120
Longview Industrial Development Corporation Solid Waste
Revenue Bonds Weyerhaeuser Series 1991 A.M.T.
02-01-13 7.45 20,000,000 21,504,000
Public Power Supply System Nuclear Project 1
Refunding Revenue Bonds Bonneville Power Administration
Series 1993A Inverse Floater (FSA Insured)
07-01-11 7.47 25,000,000(c) 30,593,750
Public Power Supply System Nuclear Project 1
Refunding Revenue Bonds Series A
07-01-15 6.50 21,000,000 23,287,740
Public Power Supply System Nuclear Project 1
Revenue Bonds Series 1990A
07-01-17 6.00 38,875,000 40,372,465
Public Power Supply System Nuclear Project 2
Revenue Bonds Series 1994A
07-01-11 5.38 10,000,000 10,387,300
Snohomish County Public Utility District 1
Generation System Revenue Bonds Series 1986A
01-01-20 5.00 17,750,000 17,978,975
State General Obligation
Refunding Revenue Bonds
Zero Coupon Series 1997A
07-01-19 5.95 16,260,000(d) 5,765,959
State Housing Finance Commission
Refunding Revenue Bonds Horizon House
Series 1995A (Asset Guaranty)
07-01-17 6.00 3,700,000 3,953,413
07-01-27 6.13 3,845,000 4,128,530
Total 162,148,252
West Virginia (1.2%)
Kanawha County Pollution Control
Revenue Bonds Union Carbide Series 1984
08-01-04 7.35 3,000,000 3,449,760
Mason County Pollution Control
Refunding Revenue Bonds Appalachian Power
Series 1992J
10-01-22 6.60 25,000,000 26,810,250
Pea Ridge Public Service District Sewer
Refunding Revenue Bonds Series 1990
05-01-20 9.25 2,540,000 2,811,018
Putnam County Pollution Control Revenue Bonds
Appalachian Power Series C
07-01-19 6.60 10,600,000 11,310,518
School Building Authority Capital Improvement
Revenue Bonds Series 1991A
07-01-21 6.00 20,785,000 21,782,888
South Charleston Pollution Control Refunding
Revenue Bonds Union Carbide Series 1985
08-01-05 7.63 3,000,000 3,524,910
Total 69,689,344
Wisconsin (0.6%)
Health & Education Facilities Authority
Revenue Bonds St. Clare Hospital
02-15-22 7.00 12,115,000 13,132,175
Madison Industrial Development
Refunding Revenue Bonds Madison Gas & Electric
Series 1992B
10-01-27 6.70 19,300,000 20,958,449
State Health & Education Facilities Authority
Lifecare Revenue Bonds United Lutheran
Program for the Aging - Luther Manor Series 1998
03-01-28 5.70 3,250,000 3,233,620
Total 37,324,244
Wyoming (0.2%)
Natrona County Hospital Revenue Bonds
Wyoming Medical Center
09-15-10 8.13 6,500,000 7,141,940
State Farm Loan Board Capital Facilities
Revenue Bonds Series 1994
04-01-24 6.10 5,000,000 5,477,950
Total 12,619,890
Total municipal bonds
(Cost: $5,189,274,609) $5,814,702,281
Other (--%)
Issuer Value(a)
Smoky Mountain Golf Course(k) $599,999
Total other
(Cost: $7,171,187) $599,999
See accompanying notes to investments in securities.
STRATEGIST TAX-FREE HIGH YIELD FUND
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (1.5%)
Issuer(b,f,g) Effective Amount payable Value(a)
yield at maturity
Burke County Georgia Development Authority Pollution
Control Revenue Bonds (Georgia Power) Vogtle
2nd Series V.R.
<S> <C> <C> <C> <C>
07-01-24 3.30% $1,700,000 $1,700,000
Burke County Georgia Development Authority Pollution
Control Revenue Bonds (Georgia Power) Vogtle
3rd Series 1995 V.R.
09-01-25 3.25 4,200,000 4,200,000
Burke County Georgia Development Authority Pollution
Control Revenue Bonds (Georgia Power) Vogtle
Series 1995 V.R.
04-01-25 3.25 1,300,000 1,300,000
Burke County Georgia Pollution Control Revenue
Bonds (Georgia Power) Series 1994 V.R.
07-01-24 3.35 2,800,000 2,800,000
Emery County Utah Pollution Control Refunding
Revenue Bonds (Pacificorp) Series 1994 V.R.
11-01-24 3.35 7,050,000 7,050,000
Harris County Texas Development Solid Waste
Exxon Series 1997 V.R.
04-01-33 3.30 3,700,000 3,700,000
Illinois Health Facility Provena Health
Series 1998B V.R.
05-01-28 3.35 4,900,000 4,900,000
Jackson County Mississippi Pollution Control
Revenue Bonds (Chevron) Series 1992 V.R.
12-01-16 3.25 1,200,000 1,200,000
Jacksonville Florida Pollution Control Revenue Bonds
Power & Light Series 1995 V.R.
05-01-29 3.25 6,100,000 6,100,000
Long Island New York Power Authority Electric
Revenue Bonds 5th Series V.R.
05-01-33 3.25 12,800,000 12,800,000
Louisiana State Offshore Terminal Authority
Deepwater Port Revenue Bonds Loop
Series 1992 V.R.
09-01-08 3.30 3,650,000 3,650,000
Monroe County Georgia Development Authority
(Georgia Power) 2nd Series V.R.
07-01-25 3.65 4,900,000 4,900,000
New York City Municipal Water Finance Authority
Series G V.R. (FGIC Insured)
06-15-24 3.25 15,700,000 15,700,000
Orange County California Sanitation
Certificate of Participation Series 1992 V.R.
08-01-17 3.20 10,000,000 10,000,000
Roanoke Virginia Hospital Revenue Bonds
Carlton Health System Series 1997A V.R.
07-01-32 3.30 2,200,000 2,200,000
Uinta County Wyoming Pollution Control
Revenue Bonds (Chevron) Series 1993 V.R.
08-15-20 3.25 2,000,000 2,000,000
Valdez Alaska Marine Terminal Revenue Bonds
(Exxon Pipeline) Series 1985 V.R.
10-01-25 3.30 1,000,000 1,000,000
Valdez Alaska Marine Terminal Revenue Bonds
(Exxon Pipeline) Series 1993A V.R.
12-01-33 3.30 2,460,000 2,460,000
Washington Health Care Facility Authority
(Sisters of Providence) Series 1985D V.R.D.N.
10-01-05 3.25 1,100,000 1,100,000
Total short-term securities
(Cost: $88,760,000) $88,760,000
Total investments in securities
(Cost: $5,285,205,796)(l) $5,904,062,280
See accompanying notes to investments in securities.
STRATEGIST TAX-FREE HIGH YIELD FUND
</TABLE>
<PAGE>
Strategist tax-free high yield fund
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(c) 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 Nov. 30, 1998. Inverse floaters in the aggregate represent 6.14% of
the Fund's net assets as of Nov. 30, 1998.
(d) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(e) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(f) The Portfolio is entitled to receive principal amount from issuer or
corporate guarantor, if indicated in parentheses, after a day or a week's
notice. The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective rate on
Nov. 30, 1998.
(g) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of Nov. 30, 1998, the value
of securities subject to alternative minimum tax
represented 16.63% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(h) Interest rate varies to reflect current market conditions; rate shown is the
effective rate on Nov. 30, 1998.
(i) At Nov. 30, 1998, the cost of securities purchased, including interest
purchased, on a when-issued basis was $7,669,520.
(j) Non-income producing. Items identified are in default as to payment of
interest and/or principal.
(k) This property was acquired through foreclosure in connection with the
default of a bond issue. The property is valued as of Nov. 30, 1998 at the
approximate sales price realized by the portfolio subsequent to year end.
(l) At Nov. 30, 1998, the cost of securities for federal income tax purposes was
$5,292,047,829 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $640,676,997
Unrealized depreciation (28,662,546)
-----------
Net unrealized appreciation $612,014,451
STRATEGIST TAX-FREE HIGH YIELD FUND
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Articles of Incorporation, dated August 31, 1995, filed electronically
on or about September 1, 1995, as Exhibit 1 to Registration Statement
No. 33-63909, are incorporated by reference.
(a)(2) Articles of Amendment dated April 4, 1996, filed electronically on or
about April 17, 1996, as Exhibit 1(b) to Registrant's Pre-Effective
Amendment No. 1 are incorporated by reference.
(b) By-laws effective April 24, 1996, filed electronically on or about
April 17, 1996, as Exhibit 2 to Registrant's Pre-Effective Amendment
No. 1 are incorporated by reference.
(c) Instruments Defining Rights of Security Holders: Not Applicable.
(d) Investment Advisory contracts: Not Applicable.
(e) Distribution Agreement between Strategist Tax-Free Income Fund, Inc. on
behalf of Strategist Tax-Free High Yield Fund and American Express
Service Corporation dated May 13, 1996, filed electronically as Exhibit
6 to Registrant's Post-Effective Amendment No. 2 to Registration
Statement No. 33-63909, is incorporated by reference.
(f) Bonus or Profit Sharing Contracts: Not Applicable.
g(1) Custodian Agreement between Strategist Tax-Free Income Fund, Inc. on behalf
of Strategist Tax-Free High Yield Fund and American Express Trust Company
dated May 13, 1996, filed electronically as Exhibit 8(a) to Registrant's
Post-Effective Amendment No. 2 to Registration Statement No. 33-63909, is
incorporated by reference.
g(2) Addendum to the Custodian Agreement among Strategist Tax-Free Income Fund,
Inc. on behalf of Strategist Tax-Free High Yield Fund, American Express
Trust Company and American Express Financial Corporation executed on May
13, 1996, filed electronically as Exhibit 8(b) to Registrant's
Post-Effective Amendment No. 2 to Registration Statement No. 33-63909, is
incorporated by reference.
h(1) Administrative Services Agreement between Strategist Tax-Free Income Fund,
Inc. on behalf of Strategist Tax Free High Yield Fund and American Express
Financial Corporation dated May 13, 1996, filed electronically as Exhibit
9(b) to Registrant's Post-Effective Amendment No. 2 to Registration
Statement No. 33-63909, is incorporated by reference.
h(2) Agreement and Declaration of Unitholders between Strategist Tax-Free Income
Fund, Inc. and IDS High Yield Tax-Exempt Fund, Inc. dated May 13, 1996,
filed electronically as Exhibit 9(c) to Registrant's Post-Effective
Amendment No. 2 to Registration Statement No. 33-63909, is incorporated by
reference.
h(3) Transfer Agency Agreement between Strategist Tax-Free Income Fund, Inc. on
behalf of Strategist Tax-Free High Yield Fund and American Express Client
Service Corporation dated Jan. 1, 1998, filed electronically as Exhibit
h(3) to Registrant's Post-Effective Amendment No. 4 to Registration
Statement No. 33-63909, is incorporated by reference.
(i) Opinion and consent of counsel as to the legality of securities being
registered is filed electronically herewith.
(j) Independent Auditors Consent is filed electronically herewith.
(k) Omitted Financial Statements: Not Applicable.
(l) Share Purchase Agreement between Strategist Tax-Free Income Fund, Inc. and
American Express Financial Corporation dated April 16, 1996, filed
electronically as Exhibit 13 to Registrant's Post-Effective Amendment No. 2
to Registration Statement No. 33-63909, is incorporated by reference.
<PAGE>
(m) Plan and Agreement of Distribution between Strategist Tax-Free Income
Fund, Inc. on behalf of Strategist Tax-Free High Yield Fund and
American Express Service Corporation dated May 13, 1996, filed
electronically as Exhibit 15 to Registrant's Post-Effective Amendment
No. 2 to Registration Statement No. 33-63909, is incorporated by
reference.
(n) Financial Data Schedules are filed electronically herewith.
(o) Rule 18f-3 Plan: Not Applicable.
(p)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated November 20, 1997, is incorporated by reference to
Exhibit 19(a) of Registrant's Post-Effective Amendment No. 3 filed on
or about Jan. 26, 1998.
(p)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated November 21, 1997, is incorporated by reference to
Exhibit 19(b) of Registrant's Post-Effective Amendment No. 3 filed on or
about Jan. 26, 1998.
(p)(3) Trustees' Power of Attorney to sign amendments to this Registration
Statement dated January 14, 1999, is filed electronically herewith.
(p)(4) Officers' Power of Attorney to sign Amendments to this Registration
Statement 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 by reference.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
Item 25. 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>
American Express Financial Corporation is the investment advisor of the
Portfolios of the Trust.
<PAGE>
<TABLE>
<CAPTION>
Item 26. Business and Other Connections of Investment Adviser (American Express
Financial Corporation)
Directors and officers of American Express Financial Corporation who are
directors and/or officers of one or more other companies:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Peter J. Anderson, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Karl J. Breyer, American Express Financial IDS Tower 10 Corporate Senior Vice
Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440 President
Vice President
American Express Financial Director
Advisors Japan Inc.
American Express Minnesota Director
Foundation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Senior Vice President and Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
Chief Marketing Officer
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James E. Choat, American Centurion Life IDS Tower 10 Executive Vice President
Director and Senior Vice Assurance Company Minneapolis, MN 55440
President
American Enterprise Life Director, President and
Insurance Company Chief Executive Officer
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company Executive Vice President
of New York
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Colleen Curran, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Service Vice President and Chief
Corporation Legal Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Luz Maria Davis American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas K. Dunning, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President,
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief
President, General Counsel Compliance Officer
and Chief Compliance Officer
American Express Financial Vice President and Chief
Advisors Japan Inc. Compliance Officer
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Alabama Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Massachusetts Inc.
IDS Insurance Agency of Director and Vice President
New Mexico Inc.
IDS Insurance Agency of Director and Vice President
North Carolina Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Insurance Agency of Director and Vice President
Wyoming Inc.
IDS Real Estate Services, Vice President
Inc.
Investors Syndicate Director
Development Corp.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gordon M. Fines, American Express Asset IDS Tower 10 Senior Vice President and
Vice President Management Group Inc. Minneapolis, MN 55440 Chief Investment Officer
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
American Express Financial Director, President and
Advisors Japan Inc. Chief Executive Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Corporate Insurance Company Minneapolis, MN 55440 Controller
Controller
American Express Financial Vice President and
Advisors Inc. Corporate Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Harvey Golub, American Express Company American Express Tower Chairman and Chief
Director World Financial Center Executive Officer
New York, NY 10285
American Express Travel Chairman and Chief
Related Services Company, Executive Officer
Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David A. Hammer, American Express Financial IDS Tower 10 Vice President and
Vice President and Marketing Advisors Inc. Minneapolis, MN 55440 Marketing Controller
Controller
IDS Plan Services of Director and Vice President
California, Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Scott A. Hawkinson, American Express Financial IDS Tower 10 Vice President and
Vice President and Controller Advisors Inc. Minneapolis, MN 55440 Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Janis K. Heaney, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James G. Hirsh, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President and Corporate Minneapolis, MN 55440 and Assistant Secretary
Treasurer
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Financial Vice President and
Advisors Japan Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Partners Life Vice President and
Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
Public Employee Payment Vice President and
Company Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director, President and Chief Minneapolis, MN 55440
Executive Officer
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Martin G. Hurwitz, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Nancy E. Jones, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ora J. Kaine, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Linda B. Keene, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
G. Michael Kennedy, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan D. Kinder, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
American Centurion Life Director and Chairman of
Assurance Company the Board
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Director and President
Corporation
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of Director and President
New Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director and Chairman of
of New York Albany, NY 12205 the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Kurt A. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief U.S. Advisors Inc. Minneapolis, MN 55440 U.S. Economist
Economist
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jonathan S. Linen, IDS Tower 10
Director Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Sarah A. Mealey, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Director
Corporation
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
Investors Syndicate Director, Chairman of the
Development Corporation Board and President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William P. Miller, Advisory Capital IDS Tower 10 Vice President
Vice President and Senior Strategies Group Inc. Minneapolis, MN 55440
Portfolio Manager
American Express Asset Senior Vice President and
Management Group Inc. Chief Investment Officer
American Express Financial Vice President and Senior
Advisors Inc. Portfolio Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James A. Mitchell, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President
American Enterprise Director
Investment Services Inc.
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director and Senior Vice
Corporation President
American Express Tax and Director
Business Services Inc.
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of the
Board and Chief Executive
Officer
IDS Plan Services of Director
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Vice President
Company
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Senior Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
IDS Life Insurance Company Director and Executive
Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mary Owens Neal, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Carla P. Pavone, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Public Employee Payment Director and President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Punch, American Express Financial IDS Tower 10 Vice President and Project
Vice President and Project Advisors Inc. Minneapolis, MN 55440 Manager
Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Senior Vice President and
Senior Vice President Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager
American Express Financial Senior Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Rollyn C. Renstrom, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
ReBecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stephen W. Roszell, Advisory Capital IDS Tower 10 Director
Senior Vice President Strategies Group Inc. Minneapolis, MN 55440
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
American Express Trust Director
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Senior Vice President and Minneapolis, MN 55440
Chief Financial Officer
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Chairman of the Board and
Inc. President
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Assistant Insurance Company Minneapolis, MN 55440 General Counsel and
General Counsel Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James J. Strauss, American Express Financial IDS Tower 10 Vice President and General
Vice President and General Advisors Inc. Minneapolis, MN 55440 Auditor
Auditor
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Wesley W. Wadman, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Asset Director and Senior Vice
Management International, President
Inc.
American Express Asset Director and Vice Chairman
Management Ltd.
American Express Financial Vice President
Advisors Inc.
IDS Fund Management Limited Director and Vice Chairman
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lawrence J. Welte, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffry F. Welter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Financial Vice President and Chief
Advisors Japan Inc. Legal Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440 and Senior Portfolio
Manager
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 27. Principal Underwriters.
(a) American Express Service Corporation acts as principal underwriter for
the following investment companies:
Strategist Income Fund, Inc.; Strategist Growth Fund, Inc.; Strategist
Growth and Income Fund, Inc.; Strategist World Fund, Inc.; Strategist
Tax-Free Income Fund, Inc., APL Variable Annuity Account 1, ACL
Variable Annuity Account 1 and IDS Certificate Company.
(b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with Underwriter Offices with Registrant
- ------------------------------------------ --------------------------------------- ---------------------------
<S> <C> <C>
Ward D. Armstrong Vice President-Workplace Financial None
IDS Tower 10 Services
Minneapolis, MN 55440
Cynthia M. Carlson Vice President None
IDS Tower 10
Minneapolis, MN 55440
John R. Cattau Vice President None
American Express Tower
World Financial Center
New York, NY 10285
Colleen Curran Vice President and Chief Legal Counsel None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Director and President None
IDS Tower 10
Minneapolis, MN 55440
James A. Jacobs Vice President-Sales and Service None
IDS Tower 10
Minneapolis, MN 55440
Nancy E. Jones Vice President-Business Development None
IDS Tower 10
Minneapolis, MN 55440
Verna J. Kaufman Vice President None
IDS Tower 10
Minneapolis, MN 55440
Richard W. Kling Vice President None
IDS Tower 10
Minneapolis, MN 55440
Timothy S. Meehan Secretary None
IDS Tower 10
Minneapolis, MN 55440
James A. Mitchell Director and Senior Vice President Board member and President
IDS Tower 10
Minneapolis, MN 55440
Julia K. Morton Vice President and Chief Financial None
IDS Tower 10 Officer
Minneapolis, MN 55440
</TABLE>
<PAGE>
Item 27(c). Not applicable.
Item 28. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Strategist Tax-Free Income Fund, Inc.,
certifies that it meets all of the requirements for effectiveness pursuant to
Rule 485(b) under the Securities Act 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 the State of Minnesota on the
25th day of January, 1999.
STRATEGIST TAX-FREE INCOME FUND, INC.
By /s/ James A. Mitchell*
James A. Mitchell
President
By /s/ Steve Turbenson
Steve Turbenson
Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacities indicated on the 25th day of January, 1999.
Signature Title
/s/ Rodney P. Burwell** Director
Rodney P. Burwell
/s/ Jean B. Keffeler** Director
Jean B. Keffeler
/s/ Thomas R. McBurney** Director
Thomas R. McBurney
/s/ James A. Mitchell** Director
James A. Mitchell
*Signed pursuant to Officers' Power of Attorney dated November 21, 1997, filed
electronically as Exhibit 19(b) to Registrant's Post-Effective Amendment No. 3,
by:
/s/ Eileen J. Newhouse
Eileen J. Newhouse
**Signed pursuant to Directors' Power of Attorney dated November 20, 1997, filed
electronically as Exhibit 19(a) to Registrant's Post-Effective Amendment No. 3,
by:
/s/ Eileen J. Newhouse
Eileen J. Newhouse
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, 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 25th day of January, 1999.
TAX-FREE INCOME TRUST
By /s/William R. Pearce**
William R. Pearce
Chief Executive Officer
By /s/Stuart A. Sedlacek
Stuart A. Sedlacek
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 25th day of January, 1999.
Signatures Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/s/ H. Brewster Atwater, Jr.* Trustee
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson* Trustee
Arne H. Carlson
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
/s/ Alan K. Simpson* Trustee
Alan K. Simpson
/s/ Edson W. Spencer* Trustee
Edson W. Spencer
/s/ John R. Thomas* Trustee
John R. Thomas
_____________________ Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
<PAGE>
*Signed pursuant to Trustees' Power of Attorney dated January 14, 1999, filed
electronically herewith as Exhibit (p)(1), by:
/s/ Leslie L. Ogg
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:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 5 TO REGISTRATION STATEMENT
NO. 33-63909
This post-effective amendment comprises the following papers and documents:
The facing sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements
Part C.
Other Information.
The signatures.
Strategist Tax-Free Income Fund, Inc.
File No. 33-63909/811-07407
EXHIBIT INDEX
Exhibit (i) Opinion and consent of counsel.
Exhibit (j) Independent Auditors Consent.
Exhibit (n) Financial Data Schedules.
Exhibit (p)(3) Trustees' Power of Attorney, dated Jan. 14, 1999.
January 26, 1998
Strategist Tax-Free Income Fund, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of Strategist
Tax-Free Income Fund, Inc (the Company) and all necessary certificates, permits,
minute books, documents and records of the Company, and the applicable statutes
of the State of Minnesota, and it is my opinion that the shares sold in
accordance with applicable federal and state securities laws will be legally
issued, fully paid, and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/ Eileen J. Newhouse
Eileen J. Newhouse
Group Counsel
EJN/NL/rdh
Independent auditors' consent
The board and shareholders
Strategist Tax-Free Income Fund, Inc.:
Strategist Tax-Free High Yield Fund
The board of trustees and unitholders
Tax-Free Income Trust:
Tax-Free High Yield Portfolio
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STRATEGIST TAX-FREE INCOME FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 8
<ASSETS-OTHER> 892489
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 892497
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29861
<TOTAL-LIABILITIES> 29861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 823780
<SHARES-COMMON-STOCK> 184200
<SHARES-COMMON-PRIOR> 158260
<ACCUMULATED-NII-CURRENT> 604
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (10425)
<ACCUM-APPREC-OR-DEPREC> 48677
<NET-ASSETS> 862636
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 51231
<OTHER-INCOME> 0
<EXPENSES-NET> 7454
<NET-INVESTMENT-INCOME> 43777
<REALIZED-GAINS-CURRENT> (3317)
<APPREC-INCREASE-CURRENT> 10887
<NET-CHANGE-FROM-OPS> 51347
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 44314
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21706
<NUMBER-OF-SHARES-REDEEMED> 5146
<SHARES-REINVESTED> 9380
<NET-CHANGE-IN-ASSETS> 128259
<ACCUMULATED-NII-PRIOR> 624
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 7107
<GROSS-ADVISORY-FEES> 3659
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13932
<AVERAGE-NET-ASSETS> 786539
<PER-SHARE-NAV-BEGIN> 4.64
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0.26
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.68
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> TAX-FREE HIGH YIELD PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 5285205796
<INVESTMENTS-AT-VALUE> 5904062280
<RECEIVABLES> 113317009
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6017379289
<PAYABLE-FOR-SECURITIES> 10599592
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1084739
<TOTAL-LIABILITIES> 11684331
<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> 6005694958
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 375334322
<OTHER-INCOME> 0
<EXPENSES-NET> 26799018
<NET-INVESTMENT-INCOME> 348535304
<REALIZED-GAINS-CURRENT> (5,085,468)
<APPREC-INCREASE-CURRENT> 61787273
<NET-CHANGE-FROM-OPS> 405237109
<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> 17295463
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26484165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26800668
<AVERAGE-NET-ASSETS> 5986258444
<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>
TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as trustees of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Investment
Company Act of 1940 with the Securities and Exchange Commission:
1940 Act
Reg. Number
Growth Trust 811-07395
Growth and Income Trust 811-07393
Income Trust 811-07307
Tax-Free Income Trust 811-07397
World Trust 811-07399
hereby constitutes and appoints William R. Pearce, Arne H. Carlson and Leslie L.
Ogg or either one of them, as her or his attorney-in-fact and agent, to sign for
her or him in her or his name, place and stead any and all further amendments to
said registration statements filed pursuant to said Act and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 14th day of January, 1999.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Arne H. Carlson /s/ Alan K. Simpson
Arne H. Carlson Alan K. Simpson
/s/ Lynne V. Cheney /s/ Edson W. Spencer
Lynne V. Cheney Edson W. Spencer
/s/ William H. Dudley /s/ John R. Thomas
William H. Dudley John R. Thomas
/s/ David R. Hubers ___________________
David R. Hubers Wheelock Whitney
/s/ Heinz F. Hutter /s/ C. Angus Wurtele
Heinz F. Hutter C. Angus Wurtele
/s/ Anne P. Jones
Anne P. Jones
