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. 39 (File No. 2-63552) [x]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 40 (File No. 811-2901) [x]
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AXP HIGH YIELD TAX-EXEMPT FUND, INC.
200 AXP Financial Center
Minneapolis, MN 55474
Leslie L. Ogg
901 S. Marquette Avenue, Suite 2810
Minneapolis, MN 55402-3268
(612) 330-9283
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 June 26, 2000 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.
<PAGE>
<PAGE>
AXP-SM-
High Yield
Tax-Exempt Fund
JAN. 28, 2000 PROSPECTUS
REVISED AS OF JUNE 26, 2000
AMERICAN
EXPRESS-Registered Trademark-
FUNDS
AXP HIGH YIELD TAX-EXEMPT FUND SEEKS TO PROVIDE [GRAPHIC]
SHAREHOLDERS WITH A HIGH YIELD GENERALLY EXEMPT
FROM FEDERAL INCOME TAXES.
Please note that this Fund:
- is not a bank deposit
- is not federally insured
- is not endorsed by any bank or government agency
- is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
[LOGO]
<PAGE>
Table of Contents
TAKE A CLOSER LOOK AT:
THE FUND 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 6p
Fees and Expenses 8p
Management 9p
BUYING AND SELLING SHARES 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 12p
Transactions through Third Parties 15p
Sales Charges 15p
Exchanging/Selling Shares 19p
DISTRIBUTIONS AND TAXES 24p
MASTER/FEEDER STRUCTURE 26p
OTHER INFORMATION 27p
FINANCIAL HIGHLIGHTS 28p
APPENDIX 30p
FUND INFORMATION KEY
[GRAPHIC] GOAL AND INVESTMENT STRATEGY
The Fund's particular investment goal and the strategies it intends
to use in pursuing its goal.
[GRAPHIC] RISKS
The major risk factors associated with the Fund.
[GRAPHIC] FEES AND EXPENSES
The overall costs incurred by an investor in the Fund, including
sales charges and annual expenses.
[GRAPHIC] MASTER/FEEDER STRUCTURE
Describes the Fund's investment structure.
[GRAPHIC] MANAGEMENT
The individual or group designated by the investment manager to
handle the Fund's day-to-day management.
[GRAPHIC] FINANCIAL HIGHLIGHTS
Tables showing the Fund's financial performance.
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2p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
The Fund
[GRAPHIC] GOAL
AXP High Yield Tax-Exempt Fund (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.
The Fund seeks to achieve its goal by investing all of its assets in a master
portfolio rather than by directly investing in and managing its own portfolio
of securities. The master portfolio has the same goal and investment policies
as the Fund.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in medium and lower quality bonds
(junk bonds) and other debt obligations. Under normal market conditions, the
Fund 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 Fund 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.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses investments by:
-- Considering opportunities and risks in municipal obligations given current
and expected interest rates.
-- 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 (coupon, call, maturity, etc.) that fit our
investment strategy at the time of purchase.
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PROSPECTUS -- JUNE 26, 2000 3p
<PAGE>
- Identifying investments that contribute to portfolio diversification. AEFC
will weight certain sectors more heavily based on AEFC's expectations for
growth and for expected market trends.
In evaluating whether to sell a security, AEFC considers, among other
factors, whether:
-- the security is overvalued relative to alternative investments,
-- the issuer's credit rating declines or AEFC expects a decline (the Fund
may continue to own securities that are downgraded 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.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as, money market securities and other short-term tax-exempt
securities, and derivatives (such as futures, options and forward contracts).
During weak or declining markets, the Fund may invest more of its assets in
money market securities or certain taxable investments. Although the Fund
primarily will invest in these securities to avoid losses, this type of
investing also could prevent the Fund from achieving its investment
objective. During these times, AEFC may make frequent securities trades that
could result in increased fees, expenses, and taxes.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
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4p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
[GRAPHIC] RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
MARKET RISK
INTEREST RATE RISK
CREDIT RISK
LEGAL/LEGISLATIVE RISK
CALL/PREPAYMENT RISK
MARKET RISK
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
INTEREST RATE RISK
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield
and the greater its sensitivity to changes in interest rates.
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 note). The price of junk bonds may react more to
the ability of the issuing company to pay interest and principal when due
than to changes in interest rates. Junk bonds have greater price fluctuations
and are more likely to experience a default than investment grade bonds.
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.
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, which is the risk that an investor will
not be able to reinvest income or principal at the same rate it currently is
earning.
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PROSPECTUS -- JUNE 26, 2000 5p
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
- how the Fund's performance has varied for each full calendar year shown
on the chart below, and
- how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
[GRAPH]
<TABLE>
<CAPTION>
CLASS A PERFORMANCE (BASED ON CALENDAR YEARS)
<S> <C>
1990 +5.10%
1991 +12.02%
1992 +8.70%
1993 +9.73%
1994 -5.07%
1995 +17.39%
1996 +2.71%
1997 +9.37%
1998 +5.58%
1999 -2.69%
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was +6.69% (quarter ending March 1995) and the lowest return for a
calendar quarter was -4.90% (quarter ending March 1994).
The 4.75% sales charge applicable to Class A shares of the Fund is not
reflected in the bar chart; if reflected, returns would be lower than those
shown. The performance of Class B, Class C and Class Y may vary from that
shown above because of differences in sales charges and fees.
The Fund's year to date return as of March 31, 2000, was +2.20%.
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6p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DEC. 31, 1999)
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
High Yield:
Class A -7.31% +5.23% +5.58% --%
Class B -7.10% --% --% +4.16%(a)
Class Y -2.42% --% --% +5.46%(a)
Lehman Brothers Municipal Bond Index -2.06% +6.91% +6.89% +5.76%(b)
Lipper General Municipal Debt Index -4.07% +6.14% +6.29% +4.95%(b)
</TABLE>
(a) Inception date was March 20, 1995.
(b) Measurement period started April 1, 1995.
This table shows total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to the
indexes shown for the same periods. The performance of Classes A, B and Y
vary because of differences in sales charges and fees. Past performance for
Class Y for the periods prior to March 20, 1995 may be calculated based on
the performance of Class A, adjusted to reflect differences in sales charges,
although not for other differences in expenses. Class C is new as of the date
of this prospectus and therefore performance information is not available.
FOR PURPOSES OF THIS CALCULATION WE ASSUMED:
- the maximum sales charge for Class A shares,
- sales at the end of the period and deduction of the applicable
contingent deferred sales charge (CDSC) for Class B shares,
- no sales charge for Class Y shares, and
- no adjustments for taxes paid by an investor on the reinvested income
and capital gains.
Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a
representative list of general obligation, revenue, insured and pre-refunded
bonds. The index is frequently used as a general measure of tax-exempt bond
market performance. The index reflects reinvestment of all distributions and
changes in market prices, but excludes brokerage commissions or other fees.
However, the securities used to create the index may not be representative of
the bonds held in the Fund.
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PROSPECTUS -- JUNE 26, 2000 7p
<PAGE>
Lipper General Municipal Debt Index, an unmanaged index published by Lipper
Inc., includes the 30 largest funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
[GRAPHIC] 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.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchasesa
(as a percentage of offering price) 4.75%(b) none none none
------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) imposed on sales
(as a percentage of offering price at time of purchase) none 5% 1%(c) none
------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(d) (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS Y
Management fees 0.44% 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00%
Other expenses(e) 0.11% 0.11% 0.11% 0.20%
Total 0.80% 1.55% 1.55% 0.64%
</TABLE>
(a) This charge may be reduced depending on the value of your total
investments in American Express mutual funds. See "Sales Charges."
(b) For Class A purchases over $500,000 on which the sales charge is waived,
a 1% sales charge applies if you sell your shares less than one year
after purchase.
(c) For Class C purchases, a 1% sales charge applies if you sell your shares
less than one year after purchase.
(d) Both in this table and the following example, fund operating expenses
include expenses charged by both the Fund and its Master Portfolio as
described under "Management." Expenses for Class A, Class B and Class Y
are based on actual expenses for the last fiscal year, restated to
reflect current fees. Expenses for Class C are based on estimated
amounts for the current fiscal year.
(e) Other expenses include an administrative services fee, a shareholder
services fee for Class Y, a transfer agency fee and other nonadvisory
expenses.
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8p AXP HIGH YIELD TAX-EXEMPT FUND
<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 hold your shares until
the end of the years shown, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A(a) $553 $719 $899 $1,422
Class B(b) $558 $790 $946 $1,648(d)
Class B(c) $158 $490 $846 $1,648(d)
Class C $158 $490 $846 $1,851
Class Y $ 65 $205 $357 $ 802
</TABLE>
(a) Includes a 4.75% sales charge.
(b) Assumes you sold your Class B shares at the end of the period and
incurred the applicable CDSC.
(c) Assumes you did not sell your Class B shares at the end of the period.
(d) Based on conversion of Class B shares to Class A shares in the ninth
year of ownership.
THIS EXAMPLE DOES NOT REPRESENT ACTUAL EXPENSES, PAST OR FUTURE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
[GRAPHIC] MANAGEMENT
The Fund's assets are invested in Tax-Free High Yield Portfolio (the
Portfolio), which is managed by AEFC. Kurt Larson, vice president and senior
portfolio manager, joined AEFC in 1961. He has managed the assets of the Fund
since 1979.
Buying and Selling Shares
VALUING FUND SHARES
The public offering price for Class A is the net asset value (NAV) adjusted
for the sales charge. For Class B, Class C and Class Y, it is the NAV.
The NAV is the value of a single Fund share. The NAV usually changes daily,
and is calculated at the close of business of the New York Stock Exchange,
normally 3 p.m. Central Time (CT), each business day (any day the New York
Stock Exchange is open).
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PROSPECTUS -- JUNE 26, 2000 9p
<PAGE>
Fund shares may be purchased through various third-party organizations,
including 401(k) plans, banks, brokers and investment advisers. Where
authorized by the Fund, orders will be priced at the NAV next computed after
receipt by the organization or their selected agent.
The Fund's investments are valued based on market quotations, or where market
quotations are not readily available, based on methods selected in good faith
by the board. If the Fund's investment policies permit it to invest in
securities that are listed on foreign stock exchanges that trade on weekends
or other days when the Fund does not price its shares, the value of the
Fund's underlying investments may change on days when you could not buy or
sell shares of the Fund. Please see the SAI for further information.
INVESTMENT OPTIONS
1. CLASS A shares are sold to the public with a sales charge at the time of
purchase and an annual distribution (12b-1) fee of 0.25%.
2. CLASS B shares are sold to the public with a contingent deferred sales
charge (CDSC) and an annual distribution fee of 1.00%.
3. CLASS C shares are sold to the public without a sales charge at the time
of purchase and with an annual distribution fee of 1.00%.
4. CLASS Y shares are sold to qualifying institutional investors without a
sales charge or distribution fee. Please see the SAI for information on
eligibility to purchase Class Y shares.
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10p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
INVESTMENT OPTIONS SUMMARY:
The Fund offers four different classes of shares. There are differences among
the fees and expenses for each class. Not everyone is eligible to buy every
class. After determining which classes you are eligible to buy, decide which
class best suits your needs. Your financial advisor can help you with this
decision.
The following table shows the key features of each class:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
AVAILABILITY Available to Available to Available to Limited to qualifying
all investors. all investors. all investors. institutional investors.
--------------------------------------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Yes. Payable at time No. Entire purchase No. Entire purchase No. Entire purchase
of purchase. Lower price is invested in price is invested in price is invested in
sales charge for shares of the Fund. shares of the Fund. shares of the Fund.
larger investments.
--------------------------------------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE On purchases over Maximum 5% 1% CDSC applies if None.
$500,000, 1% CDSC during the first year you sell your shares
applies if you sell decreasing to 0% less than 1 year
your shares less than after six years. after purchase.
1 year after purchase.
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION AND/OR Yes.* Yes.* Yes.* Yes.
SHAREHOLDER SERVICE FEE 0.25% 1.00% 1.00% 0.10%
--------------------------------------------------------------------------------------------------------------------------
CONVERSION TO CLASS A N/A Yes, automatically in No. No.
ninth calendar year
of ownership.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows it to pay distribution and servicing-related expenses for
the sale of Class A, Class B and Class C shares. Because these fees are paid
out of the Fund's assets on an on-going basis, the fees may cost long-term
shareholders more than paying other types of sales charges imposed by some
mutual funds.
SHOULD YOU PURCHASE CLASS A, CLASS B OR CLASS C SHARES?
If your investments in American Express mutual funds total $250,000 or more,
Class A shares may be the better option because the sales charge is reduced
for larger purchases. If you qualify for a waiver of the sales charge, Class
A shares will be the best option.
If you invest less than $250,000, consider how long you plan to hold your
shares. Class B shares have a higher annual distribution fee than Class A
shares and CDSC for six years. Class B shares convert to Class A shares in
the ninth calendar year of ownership. Class B shares purchased through
reinvested dividends and distributions also will convert to Class A shares in
the same proportion as the other Class B shares.
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PROSPECTUS -- JUNE 26, 2000 11p
<PAGE>
Class C shares also have a higher annual distribution fee than Class A shares.
Class C shares have no sales charge if you hold the shares for one year or
longer. Unlike Class B shares, Class C shares do not convert to Class A. As a
result, you will pay a 1% distribution fee for as long as you hold Class C
shares. If you choose a deferred sales charge option (Class B or Class C),
generally you should consider Class B shares if you intend to hold your shares
for more than six years. Consider Class C shares if you intend to hold your
shares less than six years. To help you determine what investment is best for
you, consult your financial advisor.
PURCHASING SHARES
TO PURCHASE SHARES THROUGH A BROKERAGE ACCOUNT OR FROM ENTITIES OTHER THAN
AMERICAN EXPRESS FINANCIAL ADVISORS INC., PLEASE CONSULT YOUR SELLING AGENT.
THE FOLLOWING SECTION EXPLAINS HOW YOU CAN PURCHASE SHARES FROM AMERICAN
EXPRESS FINANCIAL ADVISORS (THE DISTRIBUTOR).
If you do not have a mutual fund account, you need to establish one. Your
financial advisor will help you fill out and submit an application. Once your
account is set up, you can choose among several convenient ways to invest.
When you purchase shares for a new or existing account, your order will be
priced at the next NAV calculated after your order is accepted by the Fund.
If your application does not specify which class of shares you are
purchasing, we will assume you are investing in Class A shares.
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:
-- a $50 penalty for each failure to supply your correct TIN,
-- a civil penalty of $500 if you make a false statement that results in no
backup withholding, and
-- criminal penalties for falsifying information.
You also could be subject to backup withholding, if the IRS notifies us to do
so, because you failed to report required interest or dividends on your tax
return.
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12p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
HOW TO DETERMINE THE CORRECT TIN
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: USE THE SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER OF:
-----------------------------------------------------------------------------------------------------------------------
<S> <C>
Individual or joint account The individual or one of the owners listed on the joint account
-----------------------------------------------------------------------------------------------------------------------
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors Act)
-----------------------------------------------------------------------------------------------------------------------
A revocable living trust The grantor-trustee (the person who puts the money into the trust)
-----------------------------------------------------------------------------------------------------------------------
An irrevocable trust, pension trust or estate The legal entity (not the personal representative or trustee, unless no
legal entity is designated in the account title)
-----------------------------------------------------------------------------------------------------------------------
Sole proprietorship The owner
-----------------------------------------------------------------------------------------------------------------------
Partnership The partnership
-----------------------------------------------------------------------------------------------------------------------
Corporate The corporation
-----------------------------------------------------------------------------------------------------------------------
Association, club or tax-exempt organization The organization
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
For details on TIN requirements, contact your financial advisor to obtain a
copy of federal Form W-9, "Request for Taxpayer Identification Number and
Certification." You also may obtain the form on the Internet at
(http://www.irs.gov/prod/forms_pubs/).
THREE WAYS TO INVEST
1 BY MAIL: [GRAPHIC]
Once your account has been established, send your check with the account
number on it to:
AMERICAN EXPRESS FUNDS
70200 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
<S> <C>
Initial investment: $2,000
Additional investments: $100
Account balances: $300
</TABLE>
If your account balance falls below $300, you will be asked to increase it to
$300 or establish a scheduled investment plan. If you do not do so within 30
days, your shares can be sold and the proceeds mailed to you.
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PROSPECTUS -- JUNE 26, 2000 13p
<PAGE>
2 BY SCHEDULED INVESTMENT PLAN: [GRAPHIC]
Contact your financial advisor for assistance in setting up one of the following
scheduled plans:
- automatic payroll deduction,
- bank authorization,
- direct deposit of Social Security check, or
- other plan approved by the Fund.
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
<S> <C>
Initial investment: $100
Additional investments: $100/mo.
Account balances: none (on active plans with monthly payments)
</TABLE>
If your account balance is below $2,000, you must make payments at least
monthly.
3 BY WIRE OR ELECTRONIC FUNDS TRANSFER: [GRAPHIC]
If you have an established account, you may wire money to:
NORWEST BANK MINNESOTA (UNTIL JULY 2000)
WELLS FARGO BANK MINNESOTA N. A. (AFTER JULY 2000)
ROUTING TRANSIT NO. 091000019
Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name). Please remember that you
need to provide all 10 digits.
If this information is not included, the order may be rejected, and all money
received by the Fund, less any costs the Fund or American Express Client
Service Corporation (AECSC) incurs, will be returned promptly.
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
<S> <C>
Each wire investment: $1,000
</TABLE>
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14p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
TRANSACTIONS THROUGH THIRD PARTIES
You may buy or sell shares through certain 401(k) plans, banks,
broker-dealers, financial advisors or other investment professionals. These
organizations may charge you a fee for this service and may have different
policies. Some policy differences may include different minimum investment
amounts, exchange privileges, fund choices and cutoff times for investments.
The Fund and the Distributor are not responsible for the failure of one of
these organizations to carry out its obligations to its customers. Some
organizations may receive compensation from the Distributor or its affiliates
for shareholder recordkeeping and similar services. Where authorized by the
Fund, some organizations may designate selected agents to accept purchase or
sale orders on the Fund's behalf. To buy or sell shares through third parties
or determine if there are policy differences, please consult your selling
agent. For other pertinent information related to buying or selling shares,
please refer to the appropriate section in the prospectus.
SALES CHARGES
CLASS A -- INITIAL SALES CHARGE ALTERNATIVE
When you purchase Class A shares, you pay a sales charge as shown in the
following table:
<TABLE>
<CAPTION>
TOTAL INVESTMENT SALES CHARGE AS PERCENTAGE OF:
PUBLIC OFFERING PRICE(a) NET AMOUNT INVESTED
<S> <C> <C>
Up to $50,000 4.75% 4.99%
$50,000 - $99,999 4.50 4.71
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00* 2.04*
$1,000,000 or more 0.00 0.00
</TABLE>
(a) Offering price includes the sales charge.
* The sales charge will be waived until Dec. 31, 2000.
THE SALES CHARGE ON CLASS A SHARES MAY BE LOWER THAN 4.75%, BASED ON THE
COMBINED MARKET VALUE OF:
- your current investment in this Fund,
- your previous investment in this Fund, and
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 15p
<PAGE>
- investments you and your primary household group have made in other
American Express mutual funds that have a sales charge. (The primary
household group consists of accounts in any ownership for spouses or
domestic partners and their unmarried children under 21. For purposes of
this policy, domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.)
AXP Tax-Free Money Fund and Class A shares of AXP Cash Management Fund
do not have sales charges.
OTHER CLASS A SALES CHARGE POLICIES:
- IRA purchases or other employee benefit plan purchases made through a
payroll deduction plan or through a plan sponsored by an employer,
association of employers, employee organization or other similar group,
may be added together to reduce sales charges for all shares purchased
through that plan, and
- if you intend to invest more than $50,000 over a period of 13 months,
you can reduce the sales charges in Class A by filing a letter of
intent. For more details, please contact your financial advisor or see
the SAI.
WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES
Sales charges do not apply to:
- current or retired board members, officers or employees of the Fund or
AEFC or its subsidiaries, their spouses or domestic partners, children
and parents.
- current or retired American Express financial advisors, employees of
financial advisors, their spouses or domestic partners, children and
parents.
- registered representatives and other employees of brokers, dealers or
other financial institutions having a sales agreement with the
Distributor, including their spouses, domestic partners, children and
parents.
- investors who have a business relationship with a newly associated
financial advisor who joined the Distributor from another investment
firm provided that (1) the purchase is made within six months of the
advisor's appointment date with the Distributor, (2) the purchase is
made with proceeds of shares sold that were sponsored by the financial
advisor's previous broker-dealer, and (3) the proceeds are the result of
a sale of an equal or greater value where a sales load was assessed.
- qualified employee benefit plans offering participants daily access to
American Express mutual funds. Eligibility must be determined in
advance. For assistance, please contact your financial advisor.
(Participants in certain qualified plans where the initial sales charge
is waived may be subject to a deferred sales charge of up to 4%.)
--------------------------------------------------------------------------------
16p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
- shareholders who have at least $1 million invested in American Express
mutual funds. Until Dec. 31, 2000, the sales charge does not apply to
shareholders who have at least $500,000 invested in American Express
mutual fund. If the investment is sold less than one year after
purchase, a CDSC of 1% will be charged. During that year, the CDSC will
be waived only in the circumstances described for waivers for Class B
and Class C shares.
- purchases made within 90 days after a sale of shares (up to the amount
sold):
-- of American Express mutual funds in a qualified plan subject to a
deferred sales charge, or
-- in a qualified plan or account where American Express Trust Company
has a recordkeeping, trustee, investment management, or investment
servicing relationship.
Send the Fund a written request along with your payment, indicating the
date and the amount of the sale.
- purchases made:
-- with dividend or capital gain distributions from this Fund or from
the same class of another American Express mutual fund,
-- through or under a wrap fee product or other investment product
sponsored by the Distributor or another authorized broker-dealer,
investment advisor, bank or investment professional,
-- within the University of Texas System ORP,
-- within a segregated separate account offered by Nationwide Life
Insurance Company or Nationwide Life and Annuity Insurance Company,
-- within the University of Massachusetts After-Tax Savings Program, or
-- through or under a subsidiary of AEFC offering Personal Trust
Services' Asset-Based pricing alternative.
- shareholders whose original purchase was in a Strategist fund merged
into an American Express fund in 2000.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 17p
<PAGE>
CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE (CDSC) ALTERNATIVE
FOR CLASS B, the CDSC is based on the sale amount and the number of calendar
years -- including the year of purchase -- between purchase and sale. The
following table shows how CDSC percentages on sales decline after a purchase:
<TABLE>
<CAPTION>
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:
<S> <C>
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
</TABLE>
FOR CLASS C, a 1% CDSC is charged if you sell your shares less than 1 year
after purchase.
For both Class B and Class C, if the amount you are selling causes the value
of your investment to fall below the cost of the shares you have purchased,
the CDSC is based on the lower of the cost of those shares purchased or
market value. Because the CDSC is imposed only on sales that reduce your
total purchase payments, you never have to pay a CDSC on any amount that
represents appreciation in the value of your shares, income earned by your
shares, or capital gains.
In addition, the CDSC on your sale, if any, will be based on your oldest
purchase payment. The CDSC on the next amount sold will be based on the next
oldest purchase payment.
EXAMPLE:
Assume you had invested $10,000 in Class B shares and that your investment
had appreciated in value to $12,000 after 15 months, including reinvested
dividends and capital gain distributions. You could sell up to $2,000 worth
of shares without paying a CDSC ($12,000 current value less $10,000 purchase
amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500
representing part of your original purchase price. The CDSC rate would be 4%
because the sale was made during the second year after the purchase.
WAIVERS OF THE SALES CHARGE FOR CLASS B AND CLASS C SHARES
The CDSC will be waived on sales of shares:
- in the event of the shareholder's death,
- held in trust for an employee benefit plan, or
--------------------------------------------------------------------------------
18p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
- held in IRAs or certain qualified plans if American Express Trust
Company is the custodian, such as Keogh plans, tax-sheltered custodial
accounts or corporate pension plans, provided that the shareholder is:
-- at least 59 1/2 years old AND
-- taking a retirement distribution (if the sale is part of a transfer
to an IRA or qualified plan, or a custodian-to-custodian transfer,
the CDSC will not be waived) OR
-- selling under an approved substantially equal periodic payment
arrangement.
EXCHANGING/SELLING SHARES
EXCHANGES
You can exchange your Fund shares at no charge for shares of the same class
of any other publicly offered American Express mutual fund. Exchanges into
AXP Tax-Free Money Fund may only be made from Class A shares. For complete
information on the other fund, 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.
YOU MAY MAKE UP TO THREE EXCHANGES (1 1/2 ROUND TRIPS) WITHIN ANY 30-DAY PERIOD.
These limits do not apply to scheduled exchange programs and certain
employee benefit plans. Exceptions may be allowed with pre-approval of the
Fund.
Other exchange policies:
- Exchanges must be made into the same class of shares of the new fund.
- If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
- Once we receive your exchange request, you cannot cancel it.
- Shares of the new fund may not be used on the same day for another
exchange.
- If your shares are pledged as collateral, the exchange will be delayed
until AECSC receives written approval from the secured party.
AECSC 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 the Fund's investment
strategies or increase its costs.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 19p
<PAGE>
SELLING SHARES
You can sell your shares at any time. The payment will be mailed within seven
days after accepting your request.
When you sell shares, the amount you receive may be more or less than the
amount you invested. Your sale price will be the next NAV calculated after
your request is accepted by the Fund, minus any applicable CDSC.
You can change your mind after requesting a sale and use all or part of the
proceeds to purchase new shares in the same account from which you sold. If
you reinvest in Class A, you will purchase the new shares at NAV rather than
the offering price on the date of a new purchase. If you reinvest in Class B
or Class C, any CDSC you paid on the amount you are reinvesting also will be
reinvested. To take advantage of this option, send a request within 90 days
of the date your sale request was received and include your account number.
This privilege may be limited or withdrawn at any time and may have tax
consequences.
The Fund reserves the right to redeem in kind.
For more details and a description of other sales policies, please see the
SAI.
--------------------------------------------------------------------------------
20p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
TO SELL OR EXCHANGE SHARES HELD THROUGH A BROKERAGE ACCOUNT OR WITH ENTITIES
OTHER THAN AMERICAN EXPRESS FINANCIAL ADVISORS, PLEASE CONSULT YOUR SELLING
AGENT. THE FOLLOWING SECTION EXPLAINS HOW YOU CAN EXCHANGE OR SELL SHARES
HELD WITH AMERICAN EXPRESS FINANCIAL ADVISORS.
Requests to sell shares of the Fund are not allowed within 30 days of a
telephoned-in address change.
IMPORTANT: If you request a sale of shares you recently purchased by a check
or money order that is not guaranteed, the Fund will wait for your check to
clear. It may take up to 10 days from the date of purchase before payment is
made. (Payment may be made earlier if your bank provides evidence
satisfactory to the Fund and AECSC that your check has cleared.)
TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES
1 BY LETTER: [GRAPHIC]
Include in your letter:
- the name of the fund(s),
- the class of shares to be exchanged or sold,
- your mutual fund account number(s) (for exchanges, both funds must be
registered in the same ownership),
- your Social Security number or Employer Identification number,
- the dollar amount or number of shares you want to exchange or sell,
- signature(s) of all registered account owners,
- for sales, indicate how you want your money delivered to you, and
- any paper certificates of shares you hold.
REGULAR OR EXPRESS MAIL:
AMERICAN EXPRESS FUNDS
70100 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 21p
<PAGE>
2 BY TELEPHONE: [GRAPHIC]
American Express Client Service Corporation
Telephone Transaction Service
800-437-3133
- The Fund and AECSC will use reasonable procedures to confirm
authenticity of telephone exchange or sale requests.
- Telephone exchange and sale privileges automatically apply to all
accounts except custodial, corporate or qualified retirement accounts.
You may request that these privileges NOT apply by writing AECSC. Each
registered owner must sign the request.
- Acting on your instructions, your financial advisor may conduct
telephone transactions on your behalf.
- Telephone privileges may be modified or discontinued at any time.
<TABLE>
<S> <C>
MINIMUM SALE AMOUNT: $100 MAXIMUM SALE AMOUNT: $50,000
</TABLE>
--------------------------------------------------------------------------------
22p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
THREE WAYS TO RECEIVE PAYMENT WHEN YOU SELL SHARES
1 BY REGULAR OR EXPRESS MAIL: [GRAPHIC]
- Mailed to the address on record.
- Payable to names listed on the account.
NOTE: The express mail delivery charges you pay will vary depending on the
courier you select.
2 BY WIRE OR ELECTRONIC FUNDS TRANSFER: [GRAPHIC]
- Minimum wire: $1,000.
- Request that money be wired to your bank.
- Bank account must be in the same ownership as the American Express
mutual fund account.
NOTE: Pre-authorization required. For instructions, contact your financial
advisor or AECSC.
3 BY SCHEDULED PAYOUT PLAN: [GRAPHIC]
- Minimum payment: $50.
- Contact your financial advisor or AECSC to set up regular payments on a
monthly, bimonthly, quarterly, semiannual or annual basis.
- Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 23p
<PAGE>
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and
net gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund's net investment income is distributed to you as DIVIDENDS. Capital
gains are realized when a security is sold for a higher price than was paid
for it. Each realized capital gain or loss is long-term or short-term
depending on the length of time the Fund held the security. Realized capital
gains and losses offset each other. The Fund offsets any net realized capital
gains by any available capital loss carryovers. Net short-term capital gains
are included in net investment income. Net realized long-term capital gains,
if any, are distributed by the end of the calendar year as CAPITAL GAIN
DISTRIBUTIONS.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
- you request distributions in cash, or
- you direct the Fund to invest your distributions in the same class of
any publicly offered American Express mutual fund for which you have
previously opened an account.
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.
--------------------------------------------------------------------------------
24p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
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 capital gain
distributions and other income earned 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.
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 money you borrow that is 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 the record date of a distribution you may
pay taxes on money earned by the Fund before you were a shareholder. You will
pay the full pre-distribution price for the shares, then receive a portion of
your investment back as a distribution, which may be taxable.
For tax purposes, an exchange is considered a sale and purchase and may
result in a gain or loss. A sale is a taxable transaction. If you sell shares
for less than their cost, the difference is a capital loss. If you sell
shares for more than their cost, the difference is a capital gain. Your gain
may be short term (for shares held for one year or less) or long term (for
shares held for more than one year).
If you buy Class A shares and within 91 days exchange into another fund, you
may not include the sales charge in your calculation of tax gain or loss on
the sale of the first fund you purchased. The sales charge may be included in
the calculation of your tax gain or loss on a subsequent sale of the second
fund you purchased.
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.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 25p
<PAGE>
[GRAPHIC] Master/Feeder Structure
This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio (the master fund). 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 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
[GRAPHIC]
The Fund buys units in the Portfolio
[GRAPHIC]
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.
--------------------------------------------------------------------------------
26p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
Other Information
INVESTMENT MANAGER
The investment manager of the Portfolio is AEFC, 200 AXP Financial Center,
Minneapolis, MN 55474. 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
0.44% of its average daily net assets. Under the agreement, the Portfolio
also pays taxes, brokerage commissions and nonadvisory expenses. AEFC or an
affiliate may make payments from its own resources, which include management
fees paid by the Fund, to compensate broker-dealers or other persons for
providing distribution assistance. AEFC is a wholly-owned subsidiary of
American Express Company, a financial services company with headquarters at
American Express Tower, World Financial Center, New York, NY 10285.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 27p
<PAGE>
[GRAPHIC] Financial Highlights
FISCAL PERIOD ENDED NOV. 30,
<TABLE>
<CAPTION>
PER SHARE INCOME AND CAPITAL CHANGES(a)
CLASS A
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.68 $4.64 $4.56 $4.66 $4.18
--------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .26 .26 .27 .27 .28
Net gains (losses) (both realized and unrealized) (.34) .04 .08 (.10) .48
--------------------------------------------------------------------------------------------------
Total from investment operations (.08) .30 .35 .17 .76
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.26) (.27) (.27) (.28)
--------------------------------------------------------------------------------------------------
Net asset value, end of period $4.34 $4.68 $4.64 $4.56 $4.66
--------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $5,110 $5,722 $5,785 $6,001 $6,316
--------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .74% .70% .70% .70% .68%
--------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 5.73% 5.56% 5.85% 6.02% 6.31%
--------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 16% 14% 4% 9% 14%
--------------------------------------------------------------------------------------------------
Total return(c) (1.86%) 6.67% 7.86% 4.02% 18.64%
--------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Effective fiscal year 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
(c) Total return does not reflect payment of a sales charge.
--------------------------------------------------------------------------------
28p AXP HIGH YIELD TAX-EXEMPT FUND
<PAGE>
FISCAL PERIOD ENDED NOV. 30,
<TABLE>
<CAPTION>
PER SHARE INCOME AND CAPITAL CHANGES(a)
CLASS B CLASS Y
1999 1998 1997 1996 1995(b) 1999 1998 1997 1996 1995(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $4.68 $4.64 $4.56 $4.66 $4.46 $4.68 $4.64 $4.56 $4.66 $4.46
-------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23 .22 .23 .24 .19 .26 .26 .27 .28 .22
Net gains (losses) (both realized
and unrealized) (.34) .04 .08 (.10) .20 (.33) .04 .08 (.10) .20
-------------------------------------------------------------------------------------------------------------------
Total from investment operations (.11) .26 .31 .14 .39 (.07) .30 .35 .18 .42
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.23) (.22) (.23) (.24) (.19) (.26) (.26) (.27) (.28) (.22)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.34 $4.68 $4.64 $4.56 $4.66 $4.35 $4.68 $4.64 $4.56 $4.66
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $311 $270 $190 $138 $71 $6 $7 $9 $21 $25
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.50% 1.45% 1.46% 1.46% 1.48%d .64% .62% .61% .53% .54%(d)
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average daily net assets 4.99% 4.81% 5.06% 5.29% 5.36%d 5.77% 5.63% 5.88% 6.15% 6.32%(d)
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 16% 14% 4% 9% 14% 16% 14% 4% 9% 14%
-------------------------------------------------------------------------------------------------------------------
Total return(e) (2.58%) 5.85% 7.08% 3.22% 9.02% (1.56%) 6.73% 7.96% 4.22% 9.15%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Effective fiscal year 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditors' report and additional information about
the performance of the Fund are contained in the Fund's annual report which,
if not included with this prospectus, may be obtained without charge.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 29p
<PAGE>
APPENDIX
2000 FEDERAL TAX-EXEMPT AND TAXABLE EQUIVALENT YIELD CALCULATION
These tables will help you determine your federal taxable yield equivalents
for given rates of tax-exempt income.
STEP 1: CALCULATING YOUR MARGINAL TAX RATE.
Using your Taxable Income and Adjusted Gross Income figures as guides, you
can locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column the percentage indicated is an approximation of your 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
$105,950-$161,450 range. Under Adjusted Gross Income, $175,000 is in the
$128,950 to $193,400 column. The Taxable Income line and Adjusted Gross
Income column meet at 31.93%. This is the rate you'll use in Step 2.
<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAXABLE INCOME** $0 $128,950 $193,400
to to to Over
$128,950(1) $193,400(2) $315,900(3) $315,900(2)
-----------------------------------------------------------------------------------------------
MARRIED FILING JOINTLY
$ 0 - $ 43,850 15.00%
43,850 - 105,950 28.00 28.84%
105,950 - 161,450 31.00 31.93 33.32%
161,450 - 288,350 36.00 37.08 38.69 37.08%
288,350 + 39.60 42.56*** 40.79
-----------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME*
-----------------------------------------------------------------------------------------------
TAXABLE INCOME** $0 $128.950
to to Over
$128,950(1) $251,450(3) $251,450(2)
-----------------------------------------------------------------------------------------------
SINGLE
$ 0 - $ 26,250 15.00%
26,250 - 63,550 28.00
63,550 - 132,600 31.00 32.62%
132,600 - 288,350 36.00 37.89 37.08%
288,350 + 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 $315,900 and your taxable income exceeds
$288,350.
(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.
--------------------------------------------------------------------------------
30p AXP HIGH YIELD TAX-EXEMPT 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>
3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
-----------------------------------------------------------------------------------------
MARGINAL TAX RATES Equal the TAXABLE RATES shown below:
15.00% 4.12 4.71 5.29 5.88 6.47 7.06 7.65 8.24
28.00% 4.86 5.56 6.25 6.94 7.64 8.33 9.03 9.72
28.84% 4.92 5.62 6.32 7.03 7.73 8.43 9.13 9.84
31.00% 5.07 5.80 6.52 7.25 7.97 8.70 9.42 10.14
31.93% 5.14 5.88 6.61 7.35 8.08 8.81 9.55 10.28
32.62% 5.19 5.94 6.68 7.42 8.16 8.90 9.65 10.39
33.32% 5.25 6.00 6.75 7.50 8.25 9.00 9.75 10.50
36.00% 5.47 6.25 7.03 7.81 8.59 9.38 10.16 10.94
37.08% 5.56 6.36 7.15 7.95 8.74 9.54 10.33 11.13
37.89% 5.64 6.44 7.25 8.05 8.86 9.66 10.47 11.27
38.69% 5.71 6.52 7.34 8.16 8.97 9.79 10.60 11.42
39.60% 5.79 6.62 7.45 8.28 9.11 9.93 10.76 11.59
40.79% 5.91 6.76 7.60 8.44 9.29 10.13 10.98 11.82
42.56% 6.09 6.96 7.83 8.70 9.58 10.45 11.32 12.19
-----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 31p
<PAGE>
AMERICAN
EXPRESS-Registered Trademark-
FUNDS
This Fund, along with the other American Express mutual funds, is distributed
by American Express Financial Advisors Inc. and can be purchased from an
American Express financial advisor or from other authorized broker-dealers or
third parties. The Funds can be found under the "Amer Express" banner in most
mutual fund quotations.
Additional information about the Fund and its investments is available in the
Fund's Statement of Additional Information (SAI), annual and semiannual
reports to shareholders. In the Fund's annual report, you will find a
discussion of market conditions and investment strategies that significantly
affected the Fund during its 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 your selling agent or American Express
Client Service Corporation.
American Express Funds
70100 AXP Financial Center, Minneapolis, MN 55474
800-862-7919 TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-202-942-8090). Reports and other information about the Fund are available
on the EDGAR Database on the Commission's Internet site at
(http://www.sec.gov). Copies of this information may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail
address: [email protected], or by writing to the Public Reference Section of
the Commission, Washington, D.C. 20549-0102.
Investment Company Act File #811-2901
TICKER SYMBOL
CLASS A: INHYX CLASS B: IHYBX CLASS C: N/A CLASS Y: N/A
[LOGO]
S-6430-99 T (6/00)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXP(SM) HIGH YIELD TAX-EXEMPT FUND (the Fund)
Jan. 28, 2000
Revised as of June 26, 2000
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
from your financial advisor or by writing to American Express Client Service
Corporation, P.O. Box 534, Minneapolis, MN 55440-0534 or by calling
800-862-7919.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
TABLE OF CONTENTS
Mutual Fund Checklist..............................................p. 3
Fundamental Investment Policies....................................p. 5
Investment Strategies and Types of Investments.....................p. 6
Information Regarding Risks and Investment Strategies..............p. 8
Security Transactions..............................................p.27
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation.............................p.28
Performance Information............................................p.28
Valuing Fund Shares................................................p.31
Investing in the Fund..............................................p.32
Selling Shares.....................................................p.34
Pay-out Plans......................................................p.35
Capital Loss Carryover.............................................p.36
Taxes..............................................................p.36
Agreements.........................................................p.37
Organizational Information.........................................p.40
Board Members and Officers.........................................p.43
Compensation for Board Members.....................................p.45
Independent Auditors...............................................p.45
Appendix: Description of Ratings..................................p.46
<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] You can buy some mutual funds by contacting them
directly. Others, like this one, are sold mainly
through brokers, banks, financial planners, or
insurance agents. If you buy through these
financial professionals, you generally will pay a
sales charge.
[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. Review your plan with your advisor at least once a year or more
frequently if your circumstances change.
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
Tax-Free High Yield Portfolio (the Portfolio) of Tax-Free Income Trust (the
Trust), a separate investment company, rather than by directly investing in and
managing its own portfolio of securities. The Portfolio has the same investment
objectives, policies, and restrictions as the Fund. References to "Fund" in this
SAI, where applicable, refer to the Fund and Portfolio, collectively, to the
Fund, singularly, or to the Portfolio, singularly.
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.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to 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: 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.
<PAGE>
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are 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 bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
<PAGE>
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
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.
<PAGE>
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields 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
<PAGE>
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors also may have an
effect on the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
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.)
<PAGE>
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees for the length of the contract to sell the security at the
set price when the buyer wants to exercise the option, no matter what the market
price of the security is at that time. A person who buys a put option has the
right to sell a security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price if the
purchaser wants to exercise the option during the length of the contract, no
matter what the market price of the security is at that time. An option is
covered if the writer
<PAGE>
owns the security (in the case of a call) or sets aside the cash or securities
of equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a
buyer (holding the "long" position) and a seller (holding the "short" position)
for an asset with delivery deferred until a future date. The buyer agrees to pay
a fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices.
Options on Futures Contracts. Options on futures contracts give the
holder a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date (some futures are settled in cash), an option on a futures
contract merely entitles its holder to decide on or before a future date (within
nine months of the date of issue) whether to enter into a contract. If the
holder decides not to enter into the contract, all that is lost is the amount
(premium) paid for the option. Further, because the value of the option is fixed
at the point of sale, there are no daily payments of cash to
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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.
If the Fund is using short futures contracts for hedging purposes, the Fund may
be required to defer recognizing losses incurred on short futures contracts and
on underlying securities.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
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.
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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.
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of an investor'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, an investor may incur costs in connection
with conversions between various currencies. Currency exchange rates may
fluctuate significantly over short periods of time causing a 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.
Many funds utilize diverse types of derivative instruments in connection with
their foreign currency exchange transactions.
(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
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and
<PAGE>
liquidity in the U.S. and, at times, volatility of price can be greater than in
the U.S. Further, foreign markets have different clearance, settlement,
registration, and communication procedures and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions. Delays
in such procedures could result in temporary periods when assets are uninvested
and no return is earned on them. The inability of an investor to make intended
security purchases due to such problems could cause the investor to miss
attractive investment opportunities. Payment for securities without delivery may
be required in certain foreign markets and, when participating in new issues,
some foreign countries require payment to be made in advance of issuance (at the
time of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transition period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
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.
<PAGE>
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time- consuming
negotiations and legal expense, and it may be difficult or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
<PAGE>
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, the Fund will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence 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.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
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.
<PAGE>
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). 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.)
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price
<PAGE>
at the time of replacement. The price at such time may be more or less than the
price at which the investor sold the security. A fund that is allowed to utilize
short sales will designate cash or liquid securities to cover its open short
positions. Those funds also may engage in "short sales against the box," a form
of short-selling that involves selling a security that an investor owns (or has
an unconditioned right to purchase) for delivery at a specified date in the
future. This technique allows an investor to hedge protectively against
anticipated declines in the market of its securities. If the value of the
securities sold short increased between the date of the short sale and the date
on which the borrowed security is replaced, the investor loses the opportunity
to participate in the gain. A "short sale against the box" will result in a
constructive sale of appreciated securities thereby generating capital gains to
the Fund.
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.
<PAGE>
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets. In addition, when the Fund engages in forward commitment and
when-issued transactions, it relies on the counterparty to consummate the
transaction. The failure of the counterparty to consummate the transaction may
result in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
<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.
The Fund, AEFC and American Express Financial Advisors Inc. (the Distributor)
each have 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 American Express mutual
funds 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
<PAGE>
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 American
Express mutual funds 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 $16,304 for fiscal year ended Nov.
30, 1999, $0 for fiscal year 1998, and $0 for fiscal year 1997. 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 16% in the most recent fiscal year, and 14% in
the year before.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
Affiliates of American Express Company (of which AEFC 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. AEFC will
use an American Express affiliate only if (i) AEFC 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.
No brokerage commissions were paid to brokers affiliated with AEFC 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 below.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
The Fund may calculate average annual total return for a class 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 a class 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 for a class by dividing the net
investment income per share deemed earned during a 30-day period by the public
offering price per share (including the maximum sales charge) on the last day of
the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
---
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
The Fund's annualized yield was 4.80% for Class A, 4.24% for Class B, and 5.23%
for Class Y for the 30-day period ended Nov. 30, 1999.
<PAGE>
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 5.46% for Class A, 5.00% for Class B, and
5.90% for Class Y for the 30-day period ended Nov. 30, 1999.
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, 1999.
Marginal
Income Tax Tax-Equivalent Yield
Bracket Distribution Annualized
------- ------------ ----------
Class A
15.0% 6.42% 5.65%
28.0% 7.58% 6.67%
31.0% 7.91% 6.96%
36.0% 8.53% 7.50%
39.6% 9.04% 7.95%
Class B
15.0% 5.88% 4.99%
28.0% 6.94% 5.89%
31.0% 7.25% 6.14%
36.0% 7.81% 6.63%
39.6% 8.28% 7.02%
Class Y
15.0% 6.94% 6.15%
28.0% 8.19% 7.26%
31.0% 8.55% 7.58%
36.0% 9.22% 8.17%
39.6% 9.77% 8.66%
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 Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and
Wiesenberger Investment Companies Service. The Fund also may
<PAGE>
compare its performance to a wide variety of indexes or averages. There are
similarities and differences between the investments that the Fund may purchase
and the investments measured by the indexes or averages and the composition of
the indexes or averages will differ from that of the Fund.
Ibbotson Associates provides historical returns of the capital markets in the
United States, including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term government bonds,
Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indexes. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios.
The Fund may quote various measures of volatility in advertising. Measures of
volatility seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark.
The Distributor may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Materials may
include discussions of asset allocation, retirement investing, brokerage
products and services, model portfolios, saving for college or other goals, and
charitable giving.
VALUING FUND SHARES
As of the end of the most recent fiscal year, the computation looked like this:
<TABLE>
<CAPTION>
Net asset value
Net assets Shares of one share
outstanding
----------------- -------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Class A $ 5,110,460,186 divided by 1,177,039,848 equals $ 4.34
Class B 310,690,143 71,562,975 4.34
Class C*
Class Y 5,790,035 1,329,624 4.35
</TABLE>
* Class C is new as of the date of this SAI and therefore NAV information is not
available.
In determining net assets before shareholder transactions, 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.
<PAGE>
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued
at their fair value according to procedures decided upon in good faith by
the board.
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is 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 Fund.
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.
INVESTING IN THE FUND
Investors should understand that the purpose and function of the initial sales
charge and distribution fee for Class A shares is the same as the purpose and
function of the CDSC and distribution fee for Class B and Class C shares. The
sales charges and distribution fees applicable to each class pay for the
distribution of shares of the Fund.
SALES CHARGE
Shares of the Fund are sold at the public offering price. The public offering
price is the NAV of one share adjusted for the sales charge for Class A. For
Class B, Class C and Class Y, there is no initial sales charge so the public
offering price is the same as the NAV. Using the sales charge schedule in the
table below, for Class A, the public offering price for an investment of less
than $50,000, made on the last day of the most recent fiscal year, was
determined by dividing the NAV of one share, $4.34, by 0.9525 (1.00-0.0475) for
a maximum 4.75% sales charge for a public offering price of $4.56. The sales
charge is paid to the Distributor by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Sales charge as a
percentage of :
----------------------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
-------------------- -------------- ---------------
Up to $50,000 4.75% 4.99%
$50,000 - $99,999 4.50 4.71
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00* 2.04*
$1,000,000 or more 0.00 0.00
*The sales charge will be waived until Dec. 31, 2000.
<PAGE>
The initial sales charge is waived for certain qualified plans. Participants in
these qualified plans may be subject to a deferred sales charge on certain
redemptions. The Fund will waive the deferred sales charge on certain
redemptions if the redemption is a result of a participant's death, disability,
retirement, attaining age 59 1/2, loans, or hardship withdrawals. The deferred
sales charge varies depending on the number of participants in the qualified
plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
----------------- ---- -----------
Less than $1 million 4% 0%
$1 million or more 0% 0%
Class A - Reducing the Sales Charge
The market value of your investments in the Fund determines your sales charge.
For example, suppose you have made an investment that now has a value of $20,000
and you later decide to invest $40,000 more. The value of your investments would
be $60,000. As a result, your $40,000 investment qualifies for the lower 4.50%
sales charge that applies to investments of more than $50,000 and up to
$100,000.
Class A - Letter of Intent (LOI)
If you intend to invest more than $50,000 over a period of time, you can reduce
the sales charge in Class A by filing a LOI and committing to invest a certain
amount. The agreement can start at any time and will remain in effect for 13
months. The LOI start date can be backdated by 90 days. Your investments will be
charged the sales charge that applies to the amount you have committed to
invest. Five percent of the commitment amount will be placed in escrow. If your
commitment amount is reached within the 13-month period, the shares will be
released from escrow. If you do not invest the commitment amount by the end of
the 13 months, the remaining unpaid sales charge will be redeemed from the
escrowed shares and the remaining balance released from escrow. The commitment
amount does not include purchases in any class of American Express funds other
than Class A; purchases in American Express funds held within a wrap product;
and purchases of AXP Cash Management Fund and AXP Tax-Free Money Fund unless
they are subsequently exchanged to Class A shares of an American Express mutual
fund within the 13 month period. A LOI is not an option (absolute right) to buy
shares.
Class Y Shares
Class Y shares are offered to certain institutional investors. Class Y shares
are sold without a front-end sales charge or a CDSC and are not subject to a
distribution fee. The following investors are eligible to purchase Class Y
shares:
o Qualified employee benefit plans* if the plan:
-uses a daily transfer recordkeeping service offering participants
daily access to American Express mutual funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
<PAGE>
- does not use daily transfer recordkeeping and has
- at least $3 million invested in American Express mutual
funds or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These institutions must have at least $10 million in American Express
mutual funds.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit described above.
* Eligibility must be determined in advance. To do so, contact your financial
advisor.
SYSTEMATIC INVESTMENT PROGRAMS
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments - monthly, quarterly, or semiannually. You are
not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time.
AUTOMATIC DIRECTED DIVIDENDS
Dividends, including capital gain distributions, paid by another American
Express mutual fund subject to a sales charge, may be used to automatically
purchase shares in the same class of this Fund. Dividends may be directed to
existing accounts only. Dividends declared by a fund are exchanged to this Fund
the following day. Dividends can be exchanged into the same class of another
American Express mutual fund but cannot be split to make purchases in two or
more funds. Automatic directed dividends are available between accounts of any
ownership except:
o Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts
as custodian;
o Between two American Express Trust Company custodial accounts with
different owners (for example, you may not exchange dividends from your IRA
to the IRA of your spouse); and
o Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REJECTION OF BUSINESS
The Fund or AECSC reserves the right to reject any business, in its sole
discretion.
<PAGE>
SELLING SHARES
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the prospectus.
During an emergency, the board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of the Fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
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 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 has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should the Fund distribute securities, a shareholder may incur brokerage
fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash. If
you are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties, and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please consult your selling agent or write American
Express Client Service Corporation, P.O. Box 534, Minneapolis, MN 55440-0534, or
call 800-437-3133. Your authorization must be received at least five days before
the date you want your payments to begin. The initial payment must be at least
$50. Payments will be made on a monthly, bimonthly, quarterly, semiannual, or
annual basis. Your choice is effective until you change or cancel it.
<PAGE>
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you will have to send in
a separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had total capital loss carryovers of
$110,883,075 at the end of the most recent fiscal year, that if not offset by
subsequent capital gains will expire as follows:
2002 2004 2005 2007
---- ---- ---- ----
$36,620,656 $ 2,605,564 $ 8,441,939 $ 63,214,916
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
If you buy shares in the Fund and then exchange into another fund, it is
considered a redemption and subsequent purchase of shares. Under the tax laws,
if this exchange is done within 91 days, any sales charge waived on Class A
shares on a subsequent purchase of shares applies to the new shares acquired in
the exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
For example:
You purchase 100 shares of one fund having a public offering price of $10.00 per
share. With a sales load of 4.75%, you pay $47.50 in sales load. With a NAV of
$9.525 per share, the value of your investment is $952.50. Within 91 days of
purchasing that fund, you decide to exchange out of that fund, now at a NAV of
$11.00 per share, up from the original NAV of $9.525, and purchase into a second
fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $47.50 paid as a sales
<PAGE>
load when calculating your tax gain or loss in the sale of the first fund
shares. So instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a
$147.50 gain ($1,100.00 - $952.50). You can include the $47.50 sales load in the
calculation of your tax gain or loss when you sell shares in the second fund.
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a redemption of shares and may result in a gain or loss for tax
purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
plus the amount of the initial sales charge applied to the amount exchanged
exceeds annual contribution limitations. For example: If you were to exchange
$2,000 in Class A shares from a nonqualified account to an IRA without
considering the 4.75% ($95) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations. You
should consult your tax advisor for further details about this complex subject.
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.
Capital gain distributions, if any, received by shareholders should be treated
as long-term capital gains regardless of how long they owned their shares.
Short-term capital gains earned by the Fund are paid to shareholders as part of
their ordinary income dividend and are taxable. A special 28% rate on capital
gains may apply to sales of precious metals, if any, owned directly by the Fund.
A special 25% rate on capital gains may apply to investments in REITs.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Nov. 30 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
AGREEMENTS
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, AEFC,
subject to the policies set by the board, provides investment management
services.
For its services, AEFC is paid a fee based on the following schedule. Each class
of 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 rate applied to the
Fund's net assets was equal to 0.443% on an annual basis. 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.
The management fee is paid monthly. Under the agreement, the total amount paid
was $25,735,619 for fiscal year 1999, $26,484,165 for fiscal year 1998, and
$26,174,871 for fiscal year 1997.
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 shares; office expenses;
postage of confirmations except purchase confirmations; 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.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $877,797 for fiscal year 1999, $300,758 for fiscal year 1998, and
$126,648 for fiscal year 1997.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate at
(billions) each asset level
--------- ----------------
First $1.0 0.040%
Next 1.0 0.035
Next 1.0 0.030
Next 3.0 0.025
Next 3.0 0.020
Over 9.0 0.020
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.031% on an annual basis. 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. Under the
agreement, the Fund paid fees of $1,787,976 for fiscal year 1999, $1,827,691 for
fiscal year 1998, and $1,803,799 for fiscal year 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's 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. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A is $19.50 per year, for Class B is $20.50 per year, for Class C is
$20.00 per year and for Class Y is $17.50 per year. The fees paid to AECSC may
be changed by the board without shareholder approval.
DISTRIBUTION AGREEMENT
American Express Financial Advisors Inc. is the Fund's principal underwriter
(distributor). The Fund's shares are offered on a continuous basis.
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to the Distributor daily. These charges amounted to $10,944,123
for fiscal year 1999. After paying commissions to personal financial advisors,
and other expenses, the amount retained was $1,651,135. The amounts were
$10,756,783 and $1,732,359 for fiscal year 1998, and $8,673,516 and $1,506,603
for fiscal year 1997.
<PAGE>
Part of the sales charge may be paid to selling dealers who have agreements with
the Distributor. Distributor will retain the balance of the sales charge. At
times the entire sales charge may be paid to selling dealers.
SHAREHOLDER SERVICE AGREEMENT
With respect to Class Y shares, the Fund pays a fee for service provided to
shareholders by financial advisors and other servicing agents. The fee is
calculated at a rate of 0.10% of average daily net assets. During the most
recent fiscal year, the Fund also paid a shareholder service fee with respect to
Class A and Class B shares at a rate of 0.175% of average daily net assets. The
Shareholder Service Agreement for Class A and Class B shares was converted to a
Plan and Agreement of Distribution effective July 1, 1999.
PLAN AND AGREEMENT OF DISTRIBUTION
For Class A, Class B and Class C shares, to help defray the cost of distribution
and servicing not covered by the sales charges received under the Distribution
Agreement, the Fund and the Distributor entered into a Plan and Agreement of
Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund pays a fee up to actual expenses incurred at an annual rate of up to
0.25% of the Fund's average daily net assets attributable to Class A shares and
up to 1.00% for Class B and Class C shares. Each class has exclusive voting
rights on the Plan as it applies to that class. In addition, because Class B
shares convert to Class A shares, Class B shareholders have the right to vote on
any material change to the expenses charged under the Class A plan.
Expenses covered under this Plan include sales commissions, business, employee
and financial advisor expenses charged to distribution of Class A, Class B and
Class C shares; and overhead appropriately allocated to the sale of Class A,
Class B and Class C shares. These expenses also include costs of providing
personal service to shareholders. A substantial portion of the costs are not
specifically identified to any one of the American Express mutual funds.
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 such 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, or by vote of a majority of the outstanding
voting securities of the relevant class of shares 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 the other
disinterested board members. No board member who is not an interested person,
has any direct or indirect financial interest in the operation of the Plan or
any related agreement. For the most recent fiscal year, the Fund paid fees of
$5,577,985 for Class A shares and $2,610,960 for Class B shares. For Class A
shares, these fees were based on the 0.25% fee in effect as of July 1, 1999. The
Plan was not effective with respect to Class A shares prior to July 1, 1999. For
Class B shares, these fees were based on the 1.00% fee in effect as of July 1,
1999 and the 0.75% fee in effect prior thereto. 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 U.S. Bank National Association, 180
E. Fifth St., St. Paul, MN 55101-1631, 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.
<PAGE>
ORGANIZATIONAL INFORMATION
The Fund is an open-end management investment company. The Fund headquarters are
at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
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.
AMERICAN EXPRESS FINANCIAL CORPORATION
AEFC has been a provider of financial services since 1894. Its family of
companies offers not only mutual funds but also insurance, annuities, investment
certificates and a broad range of financial management services.
In addition to managing assets of more than $105 billion for the American
Express Funds, AEFC manages investments for itself and its subsidiaries, IDS
Certificate Company and IDS Life Insurance Company. Total assets under
management as of the end of the most recent fiscal year were more than $180
billion.
The Distributor serves individuals and businesses through its nationwide network
of more than 600 supervisory offices, more than 3,800 branch offices and more
than 9,400 financial advisors.
<PAGE>
<TABLE>
<CAPTION>
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED AMERICAN EXPRESS FUNDS*
Date of Form of State of Fiscal
Fund Organization Organization Organization Year End Diversified
<S> <C> <C> <C> <C> <C>
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Bond Fund, Inc. 6/27/74, 6/31/86*** Corporation NV/MN 8/31 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Discovery Fund, Inc. 4/29/81, 6/13/86*** Corporation NV/MN 7/31 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Equity Select Fund, Inc.** 3/18/57, 6/13/86*** Corporation NV/MN 11/30 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Global Series, Inc. 10/28/88 Corporation MN 10/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Emerging Markets Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Global Balanced Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Global Bond Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Global Growth Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Innovations Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Growth Series, Inc. 5/21/70, 6/13/86*** Corporation NV/MN 7/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Growth Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Research Opportunities Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP High Yield Tax-Exempt Fund, 12/21/78, 6/13/86** Corporation NV/MN 11/30 Yes
Inc.
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP International Fund, Inc. 7/18/84 Corporation MN 10/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP European Equity Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP International Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Investment Series, Inc. 1/18/40, 6/13/86*** Corporation NV/MN 9/30
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Diversified Equity Income Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Mutual Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Managed Series, Inc. 10/9/84 Corporation MN 9/30
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Managed Allocation Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Blue Chip Advantage Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP International Equity Index Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Mid Cap Index Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Nasdaq 100 Index Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP S&P 500 Index Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Small Company Index Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Total Stock Market Index Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Money Market Series, Inc. 8/22/75, 6/13/86*** Corporation NV/MN 7/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Cash Management Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP New Dimensions Fund, Inc. 2/20/68, 6/13/86*** Corporation NV/MN 7/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Growth Dimensions Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP New Dimensions Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Progressive Fund, Inc. 4/23/68, 6/13/86*** Corporation NV/MN 9/30 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Selective Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 5/31 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Stock Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 9/30 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Strategy Series, Inc. 1/24/84 Corporation MN 3/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Equity Value Fund** Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Focus 20 Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Small Cap Advantage Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Strategy Aggressive Fund** Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Tax-Exempt Series, Inc. 9/30/76, 6/13/86*** Corporation NV/MN 11/31
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Intermediate Tax-Exempt Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Tax-Exempt Bond Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Tax-Free Money Fund, Inc. 2/29/80, 6/13/86*** Corporation NV/MN 12/31 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP California Tax-Exempt Trust 4/7/86 Business MA 6/30
Trust****
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP California Tax-Exempt Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30
Trust****
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Insured Tax-Exempt Fund Yes
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Massachusetts Tax-Exempt Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Michigan Tax-Exempt Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Minnesota Tax-Exempt Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP New York Tax-Exempt Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
AXP Ohio Tax-Exempt Fund No
---------------------------------------- -------------------- ------------------ ------------ --------- -----------
</TABLE>
<PAGE>
* At the shareholders meeting held on June 16, 1999, shareholders of the
existing funds (except for AXP Small Cap Advantage Fund) approved the name
change from IDS to AXP. In addition to substituting AXP for IDS, the
following series changed their names: IDS Growth Fund, Inc. to AXP Growth
Series, Inc., IDS Managed Retirement Fund, Inc. to AXP Managed Series,
Inc., IDS Strategy Fund, Inc. to AXP Strategy Series, Inc., and IDS
Tax-Exempt Bond Fund, Inc. to AXP Tax-Exempt Series, Inc.
** At the shareholders meeting held on Nov. 9, 1994, IDS Equity Plus Fund,
Inc. changed its name to IDS Equity Select Fund, Inc. At that same time IDS
Strategy Aggressive Equity Fund changed its name to IDS Strategy Aggressive
Fund, and IDS Strategy Equity Fund changed its name to IDS Equity Value
Fund.
*** Date merged into a Minnesota corporation incorporated on 4/7/86.
**** Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
trust itself is unable to meet its obligations.
<PAGE>
BOARD MEMBERS AND OFFICERS
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. They serve 15 Master Trust
portfolios and 60 American Express mutual funds.
Peter J. Anderson**
Born in 1942
200 AXP Financial Center
Minneapolis, MN
Senior vice president - investments and director of AEFC. Vice president -
investments of the Fund.
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.
Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN
Chairman and chief executive officer of the Fund. Chairman, Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.
Lynne V. Cheney
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and EXCIDE Corporation (auto parts and batteries).
David R. Hubers**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Heinz F. Hutter'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
<PAGE>
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), and Amnex,
Inc. (communications).
William R. Pearce+'
Born in 1927
2050 One Financial Plaza
Minneapolis, MN
RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management
committee. Retired vice chairman of the board, Cargill, Incorporated (commodity
merchants and processors). Former chairman, American Express Funds.
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Visiting lecturer and Director of The Institute of Politics, Harvard University.
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC. President of the Fund.
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of investment review committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. In addition to Mr. Carlson, who
is chairman of the board, Mr. Thomas, who is president and Mr.
Anderson who is vice president, the Fund'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 Fund.
Officers who also are officers and employees of AEFC:
Frederick C. Quirsfeld
Born in 1947
200 AXP Financial Center
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
John M. Knight
Born in 1952
200 AXP Financial Center
Minneapolis, MN
Vice president - investment accounting of AEFC. Treasurer for the Fund.
COMPENSATION FOR BOARD MEMBERS
During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 26 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
Total cash compensation
from American Express
Aggregate compensation Aggregate compensation Funds and Preferred
Board member from the Fund from the Portfolio Master Trust Group
------------------------ ------------------------- ----------------------
<S> <C> <C> <C>
H. Brewster Atwater, Jr. $ 2,175 $ 3,175 $ 118,275
Lynne V. Cheney 1,921 2,989 102,225
Heinz F. Hutter 1,900 2,900 101,700
Anne P. Jones 1,999 3,070 106,625
William R. Pearce 1,358 2,008 74,475
Alan K. Simpson 1,921 2,989 102,225
C. Angus Wurtele 2,275 3,275 124,275
</TABLE>
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Norwest Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties 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.
<PAGE>
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.
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.
<PAGE>
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
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.
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>
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD AND SHAREHOLDERS
AXP HIGH YIELD TAX-EXEMPT FUND, INC.
We have audited the accompanying statement of assets and liabilities of AXP High
Yield Tax-Exempt Fund, Inc. as of November 30, 1999, and the related statement
of operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period ended November 30, 1999, and
the financial highlights for each of the years in the five-year period ended
November 30, 1999. 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 audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AXP High Yield Tax-Exempt Fund,
Inc. as of November 30, 1999, and the results of its operations, 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.
KPMG LLP
Minneapolis, Minnesota
January 7, 2000
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AXP HIGH YIELD TAX-EXEMPT FUND, INC.
<TABLE>
<CAPTION>
NOV. 30, 1999
-----------------------------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in Tax-Free High Yield Portfolio (Note 1) $5,433,095,941
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------------------------------
Dividends payable to shareholders 6,008,743
Accrued distribution fee 43,710
Accrued service fee 16
Accrued transfer agency fee 7,599
Accrued administrative services fee 4,558
Other accrued expenses 90,951
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 6,155,577
-----------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $5,426,940,364
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
-----------------------------------------------------------------------------------------------------------------------
Capital stock-- $.01 par value (Note 1) $ 12,499,324
Additional paid-in capital 5,344,927,934
Undistributed net investment income 233,909
Accumulated net realized gain (loss) (Note 4) (149,200,550)
Unrealized appreciation (depreciation) on investments 218,479,747
-----------------------------------------------------------------------------------------------------------------------
Total-- representing net assets applicable to outstanding capital stock $5,426,940,364
-----------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares: Class A $5,110,460,186
Class B $ 310,690,143
Class Y $ 5,790,035
Net asset value per share of outstanding capital stock: Class A shares 1,177,039,848 $ 4.34
Class B shares 71,562,975 $ 4.34
Class Y shares 1,329,624 $ 4.35
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
AXP HIGH YIELD TAX-EXEMPT FUND, INC.
<TABLE>
<CAPTION>
YEAR ENDED NOV. 30, 1999
------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest $ 376,860,450
------------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Expenses allocated from Tax-Free High Yield Portfolio 26,111,169
Distribution fee
Class A 5,577,985
Class B 2,610,960
Transfer agency fee 2,484,010
Incremental transfer agency fee
Class A 269,172
Class B 32,641
Service fee
Class A 5,659,881
Class B 300,864
Class Y 2,498
Administrative services fees and expenses 1,787,976
Compensation of board members 15,508
Printing and postage 437,874
Registration fees 120,501
Audit fees 12,000
Other 16,470
------------------------------------------------------------------------------------------------------------------------
Total expenses 45,439,509
Earnings credits on cash balances (Note 2) (104,220)
------------------------------------------------------------------------------------------------------------------------
Total net expenses 45,335,289
------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 331,525,161
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Security transactions (29,738,220)
Financial futures contracts (4,549,195)
------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (34,287,415)
Net change in unrealized appreciation (depreciation) on investments (400,328,060)
------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (434,615,475)
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (103,090,314)
========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
AXP HIGH YIELD TAX-EXEMPT FUND, INC.
<TABLE>
<CAPTION>
YEAR ENDED NOV. 30, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS AND DISTRIBUTIONS
-----------------------------------------------------------------------------------------------------------------------
Investment income (loss)-- net $ 331,525,161 $ 332,169,566
Net realized gain (loss) on investments (34,287,415) (5,082,151)
Net change in unrealized appreciation (depreciation) on investments (400,328,060) 61,776,386
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (103,090,314) 388,863,801
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (316,514,834) (320,696,664)
Class B (15,198,150) (11,052,190)
Class Y (146,846) (291,004)
-----------------------------------------------------------------------------------------------------------------------
Total distributions (331,859,830) (332,039,858)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
-----------------------------------------------------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 2,427,018,443 2,190,389,184
Class B shares 117,997,999 103,906,651
Class Y shares 32,471,874 15,951,744
Reinvestment of distributions at net asset value
Class A shares 216,707,335 217,522,599
Class B shares 12,147,187 8,764,909
Class Y shares 8,234 705
Payments for redemptions
Class A shares (2,844,128,938) (2,525,842,128)
Class B shares (Note 2) (65,500,854) (35,324,448)
Class Y shares (34,066,205) (17,386,399)
-----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (137,344,925) (42,017,183)
-----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (572,295,069) 14,806,760
Net assets at beginning of year 5,999,235,433 5,984,428,673
-----------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 5,426,940,364 $5,999,235,433
-----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income $ 233,909 $ 568,578
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AXP HIGH YIELD TAX-EXEMPT FUND, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The Fund has 10 billion
authorized shares of capital stock.
The Fund offers Class A, Class B and Class Y shares.
- Class A shares are sold with a front-end sales charge.
- Class B shares may be subject to a contingent deferred sales charge and
automatically convert to Class A shares during the ninth calendar year of
ownership.
- Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
INVESTMENT IN TAX-FREE HIGH YIELD PORTFOLIO
The Fund invests all of its assets in Tax-Free High Yield Portfolio (the
Portfolio), a series of Tax-Free Income Trust (the Trust), an open-end
investment company that has the same objectives as the Fund. The Portfolio
invests primarily in medium- and lower-quality tax-exempt 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 the 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 as of Nov. 30, 1999 was 99.99%.
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).
<PAGE>
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 substantially 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.
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.
<PAGE>
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with American Express Financial Corporation (AEFC) to
provide administrative services. Under an 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. A minor portion of additional administrative service expenses
paid by the Fund are consultants' fees and fund office expenses. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees and any
other expenses properly payable by the Fund and approved by the board.
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 for this service as follows:
- Class A $19.50
- Class B $20.50
- Class Y $17.50
Under terms of a prior agreement that ended Jan. 31, 1999, the Fund paid a
transfer agency fee at an annul rate per shareholder account of $15.50 for Class
A and $16.50 for Class B. Under terms of a prior agreement that ended March 31,
1999, the Fund paid a transfer agency fee at an annual rate per shareholder
account of $15.50 for Class Y.
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution (the Plan), the Fund pays a distribution fee at an
annual rate up to 0.25% of the Fund's average daily net assets attributable to
Class A shares and up to 1.00% for Class B shares. The Plan went into effect
July 1, 1999. Under terms of a prior Plan and Agreement of Distribution (the
Prior Plan) that ended June 30, 1999, the Fund paid a distribution fee for Class
B shares at an annual rate up to 0.75% of average daily net assets. The Prior
Plan was not effective with respect to Class A shares.
<PAGE>
Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares. Under terms of a prior agreement that
ended June 30, 1999, the Fund paid a shareholder service fee for Class A and
Class B shares at a rate of 0.175% of average daily net assets. Effective July
1, 1999, the agreement for Class A and Class B shares was converted to the Plan
and Agreement of Distribution discussed above.
Sales charges received by the Distributor for distributing Fund shares were
$10,404,130 for Class A and $539,993 for Class B for the year ended Nov. 30,
1999.
During the year ended Nov. 30, 1999, the Fund's transfer agency fees were
reduced by $104,220 as a result of earnings credits from overnight cash
balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOV. 30, 1999
----------------------------------------------------------------
CLASS A CLASS B CLASS Y
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold 534,033,995 25,822,169 7,179,293
Issued for reinvested distributions 47,780,178 2,682,823 1,838
Redeemed (626,523,698) (14,523,453) (7,443,522)
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (44,709,525) 13,981,539 (262,391)
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED NOV. 30, 1998
----------------------------------------------------------------
CLASS A CLASS B CLASS Y
---------------------------------------------------------------------------------------------------------------------
Sold 468,619,472 22,219,938 3,428,457
Issued for reinvested distributions 46,549,715 1,875,641 151
Redeemed (539,880,213) (7,554,155) (3,697,495)
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (24,711,026) 16,541,424 (268,887)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund has a capital loss carryover of
$110,883,075 as of Nov. 30, 1999, that will expire in 2002 through 2007 if not
offset by subsequent capital gains. It is unlikely the board will authorize a
distribution of any net realized capital gains until the available capital loss
carryover has been offset or expires.
5. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express mutual funds, permits
borrowings up to $200 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or
the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to
90 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.05%
per annum. The Fund had no borrowings outstanding during the year ended Nov. 30,
1999.
<PAGE>
6. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED NOV. 30,
-----------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
-----------------------------------------------------------------------------------------------------------------------
CLASS A
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.68 $4.64 $4.56 $4.66 $4.18
-----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .26 .26 .27 .27 .28
Net gains (losses) (both realized and unrealized) (.34) .04 .08 (.10) .48
-----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.08) .30 .35 .17 .76
-----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.26) (.27) (.27) (.28)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.34 $4.68 $4.64 $4.56 $4.66
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $5,110 $5,722 $5,785 $6,001 $6,316
-----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .74% .70% .70% .70% .68%
-----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 5.73% 5.56% 5.85% 6.02% 6.31%
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 16% 14% 4% 9% 14%
-----------------------------------------------------------------------------------------------------------------------
Total return(c) (1.86%) 6.67% 7.86% 4.02% 18.64%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
(c) Total return does not reflect payment of a sales charge.
<PAGE>
Fiscal period ended Nov. 30,
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
------------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS Y
1999 1998 1997 1996 1995(b) 1999 1998 1997 1996 1995(b)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $4.68 $4.64 $4.56 $4.66 $4.46 $4.68 $4.64 $4.56 $4.66 $4.46
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23 .22 .23 .24 .19 .26 .26 .27 .28 .22
Net gains (losses) (both realized
and unrealized) (.34) .04 .08 (.10) .20 (.33) .04 .08 (.10) .20
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.11) .26 .31 .14 .39 (.07) .30 .35 .18 .42
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.23) (.22) (.23) (.24) (.19) (.26) (.26) (.27) (.28) (.22)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.34 $4.68 $4.64 $4.56 $4.66 $4.35 $4.68 $4.64 $4.56 $4.66
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in millions) $311 $270 $190 $138 $71 $6 $7 $9 $21 $25
------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.50% 1.45% 1.46% 1.46% 1.48%(d) .64% .62% .61% .53% .54%(d)
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average daily net assets 4.99% 4.81% 5.06% 5.29% 5.36%(d) 5.77% 5.63% 5.88% 6.15% 6.32%(d)
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 16% 14% 4% 9% 14% 16% 14% 4% 9% 14%
------------------------------------------------------------------------------------------------------------------------------------
Total return(e) (2.58%) 5.85% 7.08% 3.22% 9.02% (1.56%) 6.73% 7.96% 4.22% 9.15%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
<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, 1999, the related statement
of operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period ended November 30, 1999.
These financial statements are the responsibility of portfolio management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tax-Free High Yield Portfolio
as of November 30, 1999, and the results of its operations and the changes in
its net assets for the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG LLP
Minneapolis, Minnesota
January 7, 2000
<PAGE>
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
TAX-FREE HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
NOV. 30, 1999
--------------------------------------------------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $5,078,490,354) $5,298,793,350
Accrued interest receivable 107,840,921
Receivable for investment securities sold 108,162,361
--------------------------------------------------------------------------------------------------------------------------
Total assets 5,514,796,632
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------------------------------------------------
Disbursements in excess of cash on demand deposit 20,022,442
Payable for investment securities purchased 60,767,096
Accrued investment management services fee 66,191
Other accrued expenses 40,986
--------------------------------------------------------------------------------------------------------------------------
Total liabilities 80,896,715
--------------------------------------------------------------------------------------------------------------------------
Net assets $5,433,899,917
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
TAX-FREE HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED NOV. 30, 1999
--------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest $ 376,929,579
--------------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 25,735,619
Compensation of board members 23,565
Custodian fees 249,607
Audit fees 36,000
Other 98,696
--------------------------------------------------------------------------------------------------------------------------
Total expenses 26,143,487
Earnings credits on cash balances (Note 2) (28,204)
--------------------------------------------------------------------------------------------------------------------------
Total net expenses 26,115,283
--------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 350,814,296
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
--------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Security transactions (Note 3) (29,764,364)
Financial futures contracts (4,549,924)
--------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (34,314,288)
Net change in unrealized appreciation (depreciation) on investments (400,370,743)
--------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (434,685,031)
--------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (83,870,735)
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
TAX-FREE HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED NOV. 30, 1999 1998
--------------------------------------------------------------------------------------------------------------------------
OPERATIONS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income (loss)-- net $ 350,814,296 $ 348,535,304
Net realized gain (loss) on investments (34,314,288) (5,085,468)
Net change in unrealized appreciation (depreciation) on investments (400,370,743) 61,787,273
--------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (83,870,735) 405,237,109
Net contributions (withdrawals) from partners (487,924,306) (387,941,646)
--------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (571,795,041) 17,295,463
Net assets at beginning of year 6,005,694,958 5,988,399,495
--------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $5,433,899,917 $6,005,694,958
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<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 tax-exempt bonds
and other debt obligations. The declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio.
The Portfolio's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
<PAGE>
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.
<PAGE>
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by the Portfolio on
a forward-commitment or when-issued basis can take place one month or more after
the transaction date. During this period, such securities are subject to market
fluctuations, and they may affect the Portfolio's net assets the same as owned
securities. The Portfolio designates cash or liquid high-grade debt securities
at least equal to the amount of its commitment. As of Nov. 30, 1999, 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 an Investment Management Services
Agreement with AEFC to manage its portfolio. Under this agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.49% 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, 1999, the Portfolio's custodian fees were reduced
by $28,204 as a result of earnings credits from overnight cash balances. The
Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
<PAGE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $930,880,531 and $1,021,532,823, respectively, for the
year ended Nov. 30, 1999. For the same period, the portfolio turnover rate was
16%. Realized gains and losses are determined on an identified cost basis.
4. INTEREST RATE FUTURES CONTRACTS
As of Nov. 30, 1999, investments in securities included securities valued at
$1,852,510 that were pledged as collateral to cover initial margin deposits on
970 open purchase contracts. The market value of the open purchase contracts as
of Nov. 30, 1999 was $101,226,313 with a net unrealized loss of $1,817,255. See
"Summary of significant accounting policies."
<PAGE>
INVESTMENTS IN SECURITIES
TAX-FREE HIGH YIELD PORTFOLIO
NOV. 30, 1999
(Percentages represent value of investments compared to net assets)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (97.5%)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
ALABAMA (0.3%)
Baldwin County Eastern Shore Health Care Authority
Hospital Revenue Bonds Thomas Hospital Series 1991
04-01-16 8.50% $4,765,000 $5,099,789
Camden Industrial Development Board Solid Waste Disposal
Revenue Bonds MacMillan Bloedel Series 1991A A.M.T.
04-01-19 7.75 8,500,000 8,850,965
-------------
Total 13,950,754
--------------------------------------------------------------------------------------------------------------------------
ALASKA (0.2%)
Industrial Development & Exploration Authority
Electric Power Revenue Bonds
Upper Lynn Canal Regional Power
Series 1997 A.M.T.
01-01-18 5.80 830,000 726,723
01-01-32 5.88 1,800,000 1,527,372
North Slope Borough General Obligation Bonds
Zero Coupon Series 1994B (CGIC Insured)
06-30-04 7.05 7,000,000(d) 5,594,540
06-30-05 7.15 7,000,000(d) 5,298,650
-------------
Total 13,147,285
--------------------------------------------------------------------------------------------------------------------------
ARIZONA (1.3%)
Chandler Industrial Development Authority
Beverly Enterprises Series 1994
09-01-08 7.63 2,540,000 2,589,174
Flagstaff Industrial Development Authority
Lifecare Revenue Bonds Northern Arizona
Senior Living Community Series 1998
09-01-28 6.20 5,020,000 4,388,785
09-01-38 6.30 6,165,000 5,340,616
Maricopa County Hospital System Revenue Bonds
Samaritan Health Services Series 1981
01-01-08 12.00 255,000 372,231
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Maricopa County Industrial Development Authority
Multi-family Housing Revenue Bonds Series B
07-01-26 7.38% $2,270,000 $2,540,811
Maricopa County Industrial Development Authority
Senior Living Facilities Revenue Bonds Series 1997A
04-01-27 7.88 15,000,000 15,320,100
Maricopa County Pollution Control Refunding
Revenue Bonds Palo Verde Public Service
08-15-23 6.38 3,500,000 3,373,405
Navajo Industrial Development Authority Revenue Bonds
Stone Container Corporation Series 1997 A.M.T.
06-01-27 7.20 3,000,000 3,136,770
Peoria Industrial Development Authority
Refunding Revenue Bonds
Sierra Winds Lifecare Community Series 1999A
08-15-29 6.38 5,700,000 5,108,112
Phoenix Industrial Development Authority
Refunding Revenue Bonds Christian Care Apartments
01-01-26 6.50 9,525,000 9,316,117
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 6,826,750
Pima County Industrial Development Authority
Multi-family Housing Revenue Bonds
Las Villas Kino Apartments Series 1998 A.M.T.
08-01-30 6.25 3,920,000 3,582,488
Pima County Industrial Development Authority
Revenue Bonds LaPosada Park Centre Series 1996A
05-15-27 7.00 5,750,000 5,643,223
Scottsdale Industrial Development Authority
Beverly Enterprises Series 1994
09-01-08 7.63 2,805,000 2,861,072
-------------
Total 70,399,654
--------------------------------------------------------------------------------------------------------------------------
ARKANSAS (0.2%)
Pope County Solid Waste Disposal Revenue Bonds
Arkansas Power & Light Series 1991 A.M.T.
01-01-21 8.00 3,250,000 3,377,628
Washington County District #5
General Obligation Refunding Improvement Bonds
02-01-09 7.00 7,135,000 6,764,907
-------------
Total 10,142,535
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
CALIFORNIA (9.0%)
ABAG Financial Authority for Nonprofit Corporations
Certificate of Participation International School
Series 1996
05-01-26 7.38% $8,000,000 $8,249,280
Anaheim Public Financing Authority Lease
Capital Appreciation Revenue Bonds
Zero Coupon (FSA Insured)
09-01-23 5.94 25,865,000(d) 6,149,662
09-01-26 5.65 20,000,000(d) 3,945,800
09-01-29 5.95 12,800,000(d) 2,105,088
09-01-31 5.77 24,500,000(d) 3,554,460
09-01-36 5.73 10,000,000(d) 1,057,600
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) 24,164,000
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 4,429,550
East Bay Municipal Utility District
Water Systems Revenue Bonds Inverse Floater
(MBIA Insured)
06-01-08 6.42 15,500,000(c) 15,639,500
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue Bonds Series 1995A (MBIA Insured)
01-01-35 5.00 41,070,000 34,909,499
Fresno Health Facility Refunding Revenue Bonds
Holy Cross Health System (MBIA Insured)
12-01-13 5.63 3,000,000 3,031,140
Irwindale Redevelopment Agency Subordinate Lien
Tax Allocation Bonds
12-01-26 7.05 5,750,000 6,037,443
Lake Elsinore Public Finance Authority
Local Agency Revenue Bonds Series 1997F
09-01-20 7.10 11,930,000 12,189,000
Los Angeles County Pre-refunded Certificates of
Participation
05-01-15 6.71 20,000,000 21,049,400
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding Revenue Bonds
Delta Airlines
11-01-25 6.35% $13,000,000 $12,893,010
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding Revenue Bonds
United Airlines Series 1984
11-15-21 8.80 11,650,000 12,281,081
Los Angeles Water & Power Electric Plant
Refunding Revenue Bonds Series 1992
02-01-20 6.38 10,000,000 10,374,500
Millbrae Residential Facility Revenue Bonds
Magnolia of Millbrae Series 1997A A.M.T.
09-01-27 7.38 2,500,000 2,516,175
Northern California Power Agency Geothermal #3
Revenue Bonds
07-01-09 5.00 49,635,000 49,537,172
Novato Community Facility District #1 Vintage Oaks
Public Improvement Special Tax Refunding Bonds
08-01-21 7.25 5,000,000 5,201,100
Oceanside Certificate of Participation Refunding Bonds
Oceanside Civic Center (MBIA Insured)
08-01-19 5.25 7,000,000 6,543,390
Orange County Special Tax Community Facilities Bonds
Aliso Veijo District 88-1 Series 1992A
08-15-18 7.35 6,000,000 6,579,300
Pleasanton Joint Powers Financing Authority Reassessment
Revenue Bonds Series 1993A
09-02-12 6.15 4,350,000 4,431,650
Sacramento Cogeneration Authority
Pre-refunded Revenue Bonds Procter & Gamble
Series 1995
07-01-14 6.50 3,800,000 4,208,880
Sacramento Cogeneration Authority
Revenue Bonds Procter & Gamble Series 1995
07-01-21 6.50 8,000,000 8,860,800
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (FSA Insured)
11-15-05 7.12 15,800,000(c) 16,767,750
11-15-06 7.32 16,400,000(c) 17,425,000
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Sacramento Municipal Utility District Electric
Refunding Revenue Bonds Series 1993D
Inverse Floater (MBIA Insured)
11-15-15 7.77% $15,000,000(c) $14,812,500
Sacramento Power Authority Cogeneration
Revenue Bonds Campbell Soup Series 1995
07-01-22 6.00 25,000,000 24,043,000
San Joaquin Hills Orange County Transportation
Corridor Agency Senior Lien Toll Road Revenue Bonds
01-01-32 6.75 14,785,000 16,062,128
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) 2,082,420
01-15-25 5.03 43,510,000(d) 9,451,677
01-15-26 5.51 30,000,000(d) 6,132,900
01-15-27 5.51 6,670,000(d) 1,283,108
01-15-32 5.41 21,500,000(d) 3,032,360
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) 12,994,065
San Jose Redevelopment Agency Merged Area
Tax Allocation Bonds Series 1993 Inverse Floater
(MBIA Insured)
08-01-14 7.41 33,600,000(c) 32,634,000
Santa Nella County Water District Improvement
Limited Obligation Refunding Improvement Bonds
Series 1998
09-02-28 6.25 2,760,000 2,559,238
Sierra Unified School District Fresno County
Certificate of Participation Capital Funding
Refunding Bonds Series 1993
03-01-18 6.13 6,470,000 6,333,742
South Tahoe Joint Powers Financing Authority
Refunding Revenue Bonds South Tahoe Area #1
Series 1995B
10-01-28 6.00 9,900,000 9,455,886
Southern California Public Power Authority
Power Revenue Bonds Palo Verde
Series 1993 Inverse Floater (FGIC Insured)
07-01-17 6.92 20,000,000(c) 20,225,000
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Ukiah Unified School District
Mendocino County Certificates of Participation
Series 1993
09-01-10 6.00% $5,000,000 $5,202,300
University of California Refunding Revenue Bonds
Multiple Purpose Project (AMBAC Insured)
09-01-16 5.25 6,000,000 5,766,840
West Sacramento Financing Authority
Special Tax Revenue Bonds Series 1999F
09-01-29 6.10 9,500,000 8,621,060
--------------
Total 484,823,454
--------------------------------------------------------------------------------------------------------------------------
COLORADO (7.5%)
Arapahoe County Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
04-01-09 8.00 4,000,000 4,288,720
Arapahoe County Public Highway Authority Capital
Improvement Trust Fund E-470 Highway
Pre-refunded Revenue Bonds
08-31-26 7.00 22,000,000 24,990,899
Aurora Centretech Metropolitan District
Arapahoe County Series 1987B
12-01-23 10.53 5,699,785 6,083,210
Bowles Metropolitan District General Obligation Bonds
Series 1995
12-01-15 7.75 15,500,000 17,598,080
Briargate Public Building Authority
Landowner Assessment Lien Bonds Series 1985A
12-15-00 10.25 3,880,190(f) 3,565,507
Castle Rock Ranch Public Facility Improvement
Revenue Bonds Series 1996
12-01-17 6.25 10,000,000 10,038,600
Colorado Springs Hospital Revenue Bonds
Memorial Hospital Series 1990
12-15-10 7.88 5,000,000 5,189,750
Colorado Springs Utilities System
Pre-refunded Revenue Bonds Series 1991C
11-15-15 6.50 1,505,000 1,595,676
Colorado Springs Utilities System
Refunding Revenue Bonds Series 1991C
11-15-15 6.50 24,895,000 26,259,743
11-15-21 6.75 30,000,000 31,851,677
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Dawson Ridge Metropolitan District
Refunding Revenue Bonds
Zero Coupon Series B Escrowed to Maturity
10-01-22 5.21% $40,000,000(d) $8,881,200
Denver City & County Airport Systems Revenue Bonds
Series 1991A A.M.T.
11-15-23 8.75 10,000,000 10,871,741
Denver City & County Airport Systems Revenue Bonds
Series 1991D A.M.T.
11-15-21 7.75 8,650,000 9,236,541
Denver City & County Airport Systems Revenue Bonds
Series 1992A
11-15-25 7.25 20,975,000 22,953,781
Denver City & County Airport Systems Revenue Bonds
Series 1992B A.M.T.
11-15-23 7.25 20,500,000 21,954,421
Denver City & County Airport Systems Revenue Bonds
Series 1994A
11-15-12 7.50 5,000,000 5,510,400
Denver City & County Airport Systems Revenue Bonds
Series 1994A A.M.T.
11-15-23 7.50 19,340,000 21,315,016
Denver City & County GVR Metropolitan District
General Obligation Refunding Bonds Series 1991
12-01-06 8.00 1,385,000 1,594,412
Denver City & County GVR Metropolitan District
General Obligation Refunding Bonds Series 1995B
12-01-06 11.00 730,000 695,924
Denver Special Facility Airport Revenue Bonds
United Air Lines Series A A.M.T.
10-01-32 6.88 25,400,000 25,281,889
Denver Urban Renewal Authority Tax Increment
Revenue BondsDowntown Denver Redevelopment
Adams Mark Hotel Series 1989 A.M.T.
09-01-15 8.00 15,800,000 17,535,156
09-01-16 8.00 1,785,000 1,981,029
09-01-17 8.00 1,930,000 2,141,953
Denver Urban Renewal Authority Tax Increment
Revenue Bonds South Broadway Montgomery Ward
Urban Renewal Series 1992
05-01-16 8.50 13,415,000 14,478,810
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Denver West Metropolitan District
General Obligation Bonds Series 1996
06-01-16 6.50% $2,560,000 $2,632,218
Denver West Metropolitan District
General Obligation Refunding Improvement Bonds
Series 1995
12-01-14 7.00 4,230,000 4,512,014
Eagle Bend Metropolitan District #2
Limited General Obligation Bonds
12-01-18 6.88 7,500,000 7,480,275
Edgewater Redevelopment Authority
Tax Increment Refunding Revenue Bonds
Edgewater Redevelopment Series 1999
12-01-08 5.50 3,615,000 3,392,605
Educational & Cultural Facilities Authority Revenue Bonds
Bolder County Day School Series 1999
09-01-24 6.75 4,720,000 4,589,539
Hotchkiss Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
09-01-09 8.00 1,500,000 1,610,145
Housing Finance Authority Single Family Program
Senior Bonds Series 1991B (FGIC Insured)
08-01-11 7.25 1,295,000(g) 1,334,174
02-01-18 7.30 1,180,000 1,213,960
Lowry Economic Redevelopment Authority
Revenue Bonds Series 1996
12-01-10 7.50 19,000,000 20,978,659
Lowry Economic Redevelopment Authority
Series A
12-01-10 7.00 3,600,000 3,872,628
Saddle Rock Metropolitan District Limited Tax
General Obligation Bonds Series 1997
12-01-16 7.63 5,300,000 5,383,793
State Health Facilities Authority Retirement Facilities
Revenue Bonds Liberty Heights Zero Coupon
Escrowed to Maturity
07-15-22 7.50 81,465,000(d) 19,373,192
State Health Facility Authority Hospital Improvement
Refunding Revenue Bonds
Parkview Episcopal Medical Center Series 1995
09-01-25 6.13 7,000,000 6,685,700
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Superior Metropolitan District #2 Limited Tax
General Obligation Refunding Bonds
MDC Holdings Series 1994B
12-01-13 8.25% $2,580,000 $2,989,317
12-01-13 8.50 12,000,000 12,901,560
Thornton Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
09-01-09 8.00 4,500,000 4,824,810
Trailmark Metropolitan District
General Obligation Bonds
Series 1999B
12-01-18 5.80 5,000,000 4,585,550
Westminster Industrial Development Revenue Bonds
Dillion Real Estate-Kroger
04-01-09 8.00 3,500,000 3,757,005
--------------
Total 408,011,279
--------------------------------------------------------------------------------------------------------------------------
CONNECTICUT (0.2%)
State Development Authority Pollution Control
Refunding Revenue Bonds Conneticut Light & Power
Series 1993B A.M.T.
09-01-28 5.95 10,000,000 8,954,600
--------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA (0.7%)
General Obligation Refunding Bonds Series 1994A
(MBIA Insured)
06-01-10 6.00 27,875,000 29,817,887
06-01-11 6.10 7,580,000 8,138,722
Housing Finance Agency Multi-family Mortgage
Revenue Bonds Temple Courts Section 8
Series 1985 (FHA Insured)
02-01-22 12.00 1,300,000 1,446,133
--------------
Total 39,402,742
--------------------------------------------------------------------------------------------------------------------------
FLORIDA (4.8%)
Arbor Greene Community Development District
Special Assessment Revenue Bonds Series 1996
05-01-18 7.60 4,880,000 5,078,226
Arbor Greene Community Development District
Special Assessment Revenue Bonds Series 1998
05-01-19 6.30 1,390,000 1,315,593
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Brooks of Bonita Springs Community
Development District Special Assessment
District Capital Improvement Revenue Bonds
Series 1998A
05-01-19 6.20% $11,200,000 $10,480,736
Brooks of Bonita Springs Community
Development District Special Assessment
District Capital Improvement Revenue Bonds
Series 1998B
05-01-06 5.65 1,070,000 1,030,945
Championsgate Community Development District
Capital Improvement Revenue Bonds Series 1998A
05-01-20 6.25 2,840,000 2,653,923
Championsgate Community Development District
Capital Improvement Revenue Bonds Series 1998B
05-01-05 5.70 1,515,000 1,470,338
Charlotte County Development Authority 1st Mortgage
Refunding Revenue Bonds
Royal Palm Retirement Centre Series 1991
03-01-14 9.50 3,830,000 4,032,416
Crossings at Fleming Island Community Development
District Special Assessment Bonds Series 1995
05-01-16 8.25 9,810,000 10,430,090
Crossings at Fleming Island Community Development
District Utility Revenue Bonds Series 1994
10-01-19 7.38 12,945,000 13,379,564
Crossings at Fleming Island Community Development
District Utility Revenue Bonds Series 1999
10-01-25 6.75 6,000,000 5,884,320
Department of Transportation Turnpike Revenue Bonds
Series 1991A (AMBAC Insured)
07-01-20 6.25 20,000,000 20,612,599
Grand Haven Community Development District
Special Assessment Bonds Flagler County
Series 1997A
05-01-02 6.30 4,400,000 4,407,524
Grand Haven Community Development District
Special Assessment Revenue Bonds
Series 1998A
05-01-19 6.90 1,000,000 998,860
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Heritage Harbor Community Development District
Special Assessment Revenue Bonds
Series 1997B
05-01-03 6.00% $1,135,000 $1,124,842
05-01-05 5.75 1,650,000 1,617,644
Heritage Palms Community Development District
Capital Improvement Revenue Bonds
Series 1998
11-01-03 5.40 3,635,000 3,534,965
Hillsborough County Housing Finance Authority
Multi-family Housing Revenue Bonds
Park Springs Apartments A.M.T. V.R.
07-01-39 6.00 9,300,000 8,591,619
Hillsborough County Utility Refunding Revenue Bonds
Series 1991A
08-01-14 7.00 24,000,000 25,106,230
Hillsborough County Utility Refunding Revenue Bonds
Series 1991A (MBIA Insured)
08-01-16 6.50 24,760,000 25,993,295
Lakewood Ranch Community Development District #1
Manatec County Benefit Special Assessment Bonds
Series 1998
05-01-17 7.30 3,180,000 3,082,469
Lakewood Ranch Community Development District #1
Special Assessment Bonds Series 1994
05-01-14 8.25 2,175,000 2,292,820
Miami Health Facility Authorization Revenue Bonds
Inverse Floater (AMBAC Insured)
08-15-15 7.04 3,500,000(c) 3,097,500
North Springs Improvement Special Assessment
District Revenue Bonds Heron Bay Series 1997
05-01-19 7.00 3,000,000 3,045,420
North Springs Improvement Special Assessment
District Revenue Bonds Parkland Isles Series 1997B
05-01-05 6.25 2,500,000 2,473,900
Orange County Housing Finance Authority
Multi-family Housing Revenue Bonds
Dunwoodie Apartments Series 1999E A.M.T.
07-01-35 6.50 6,020,000 5,545,985
Palm Beach County Health Facilities Authority Hospital
Revenue Bonds Good Samaritan Health Series 1993
10-01-22 6.30 3,750,000 4,020,825
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Palm Beach County Housing Finance Authority
Multi-family Revenue Bonds Lake Delray
Series A A.M.T.
01-01-31 6.40% $14,000,000 $13,023,500
Polk County Industrial Development Authority 1st Mortgage
Refunding Revenue Bonds Spring Haven II
12-01-14 8.75 5,760,000 6,114,874
Port Everglades Port Authority Revenue Bonds Junior Lien
09-01-16 5.00 18,635,000 17,161,903
River Ridge Community Development District
Special Assessment Revenue Bonds Series 1998
05-01-08 5.75 3,100,000 2,974,109
Riverwood Community Development District
Charlotte County Special Assessment Revenue Bonds
Series 1992A-B
05-01-12 8.50 460,000 477,324
05-01-14 8.50 4,925,000 5,110,476
State Housing Finance
Revenue Bonds Westbrook Apartments
Series U-1 A.M.T.
01-01-39 6.45 4,880,000 4,432,504
Stoneybrook Community Development District
Capital Improvement Revenue Bonds
Lee County Series 1998A
05-01-19 6.10 1,660,000 1,537,326
Stoneybrook Community Development District
Capital Improvement Revenue Bonds
Lee County Series 1998B
05-01-08 5.70 1,180,000 1,129,024
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 4,027,422
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 2,915,000 2,695,005
Sumter County Village Community Development
District #1 Capital Improvement Revenue Bonds
Series 1992
05-01-12 8.40 535,000 558,230
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Sunrise Utility System Refunding & Improvement
Revenue Bonds
10-01-18 10.75% $5,000,000 $5,271,250
Village Center Community Development District
Sub Recreational Revenue Bonds
Series 1998C
01-01-19 7.38 2,640,000 2,524,236
Village Center Community District Recreational
Revenue Bonds Series 1996B
01-01-17 8.25 2,695,000 2,802,800
Village Community Development District #2
Special Assessment District Revenue Bonds
Series 1996
05-01-17 7.63 4,830,000 4,963,646
Volusia County Industrial Development Authority
1st Mortgage Refunding Revenue Bonds Series 1996
11-01-26 7.63 10,925,000 12,690,917
--------------
Total 258,797,194
--------------------------------------------------------------------------------------------------------------------------
GEORGIA (2.6%)
Americus-Sumter County Hospital Authority
Refunding Revenue Bonds South Georgia
Methodist Home for the Aging Obligated Group
Magnolia Manor Series 1999
05-15-29 6.38 5,500,000 4,957,205
Atlanta Special Purpose Facility Revenue Bonds
Delta Air Lines Series 1989B A.M.T.
12-01-18 7.90 13,500,000 13,794,435
12-01-19 6.25 8,685,000 8,458,061
Atlanta Water & Wastewater Refunding Revenue
Bonds Series 1999A (FGIC Insured)
11-01-38 5.00 29,275,000 24,466,288
Colquitt County Development Authority Revenue Bonds
Zero Coupon Escrowed to Maturity
12-01-21 6.87 46,350,000(d) 10,308,704
Effingham County Pollution Control Revenue Bonds
Fort Howard Series 1988
10-01-05 7.90 19,850,000 20,330,569
Fulco Hospital Authority Revenue Anticipation Certificate
Georgia Baptist Health Care Systems Series 1992A
09-01-22 6.38 20,300,000 21,594,531
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(h) 7,368,560
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Municipal Electric Authority Power Revenue Bonds
Series L
01-01-20 5.00% $1,150,000 $993,830
Rockdale County Development Authority Solid Waste
Disposal Revenue Bonds Visy Paper Series 1993 A.M.T.
01-01-26 7.50 10,000,000 10,348,300
Savannah Economic Development Authority
1st Mortgage Revenue Bonds Zero Coupon Series 1991A
12-01-21 5.40 13,730,000(d) 3,053,689
Savannah Economic Development Authority
Revenue Bonds Zero Coupon Escrowed to Maturity
12-01-21 6.87 64,220,000(d) 14,283,170
--------------
Total 139,957,342
--------------------------------------------------------------------------------------------------------------------------
HAWAII (0.4%)
City & County of Honolulu Refunding & Improvement
General Obligation Bonds Series 1993B Inverse Floater
09-07-06 6.52 10,000,000(c) 10,300,000
09-11-08 6.82 10,000,000(c) 10,300,000
--------------
Total 20,600,000
--------------------------------------------------------------------------------------------------------------------------
ILLINOIS (8.4%)
Bradley Kankakee County Tax Increment
Refunding Revenue Bonds Series 1993
12-01-12 8.40 5,590,000 6,063,138
Broadview Cook County Senior Lien Tax Increment
Revenue Bonds Series 1993
07-01-13 8.25 10,995,000 12,576,851
Chicago Board of Education Unlimited General
Obligation Bonds Capital Appreciation School Reform
Zero Coupon Series B-1 (FGIC Insured)
12-01-29 5.20 25,000,000 3,798,500
Chicago Board of Education Unlimited General
Obligation Bonds School Reform Series 1997A
(AMBAC Insured)
12-01-22 5.25 5,000,000 4,529,650
Chicago Board of Education School Reform
Unlimited Tax General Obligation Refunding Bonds
Zero Coupon Series 1999A (FGIC Insured)
12-01-28 5.30 31,500,000(d) 5,097,645
12-01-29 5.30 30,500,000(d) 4,634,170
12-01-30 5.30 36,135,000(d) 5,140,565
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Chicago Capital Appreciation Unlimited
General Obligation Bonds City Colleges
Zero Coupon (FGIC Insured)
01-01-36 6.26% $32,670,000(d) $3,447,338
Chicago General Obligation Bonds
Series 1991 (AMBAC Insured)
01-01-16 6.00 6,170,000 6,478,377
Chicago General Obligation Bonds
Series 1994A (AMBAC Insured)
01-01-22 5.88 17,850,000 18,698,232
Chicago General Obligation Refunding Bonds
Series 1995A (AMBAC Insured)
01-01-18 5.50 20,000,000 19,419,400
Chicago O'Hare International Airport
General Airport Refunding Revenue Bonds Series 1993A
01-01-16 5.00 14,450,000 12,930,149
Chicago O'Hare International Airport
General Airport Revenue Bonds Series 1990A A.M.T.
01-01-16 7.50 21,000,000 21,479,009
01-01-18 6.00 29,000,000 29,625,239
Chicago O'Hare International Airport
Special Facility Revenue Bonds United Airlines
Series 1999A
09-01-16 5.35 5,000,000 4,355,550
Chicago O'Hare International Airport
Special Revenue Bonds (FGIC Insured) A.M.T.
11-01-25 7.88 17,750,000 18,453,788
Chicago O'Hare International Airport
Special Revenue Bonds A.M.T.
01-01-17 7.50 32,250,000 32,988,202
Chicago O'Hare International Airport
Special Revenue Facility Bonds Delta Airlines
Series 1992
05-01-18 6.45 10,000,000 9,997,200
Chicago Ridge Special Service Area #1 Unlimited
Ad Valorem Tax Bonds Series 1990
12-01-08 9.00 2,700,000 2,881,143
Chicago Wastewater Transmission Revenue Bonds
Series 1994 (MBIA Insured)
01-01-24 6.38 22,500,000 24,509,474
Cook County Bedford Park Senior Lien Tax Increment
Revenue Bonds
01-01-06 7.00 990,000 1,021,838
01-01-12 7.38 1,700,000 1,762,458
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Cook County Bedford Park Senior Lien Tax Increment
Revenue Bonds Mark IV Series 1992
03-01-12 9.75% $1,675,000 $1,873,136
Development Finance Authority Lifecare Revenue Bonds
Presbyterian Homes Series 1996B
09-01-31 6.40 6,700,000 6,829,444
Development Finance Authority Pollution Control
Refunding Revenue Bonds Central Illinois
Public Service 2nd Series 1993B
06-01-28 5.90 2,500,000 2,414,175
Development Finance Authority Pollution Control
Refunding Revenue Bonds Commonwealth Edison
Series 1994
01-15-09 5.70 2,000,000 2,077,680
01-15-14 5.85 4,500,000 4,626,180
DuPage County Tax Increment Revenue Bonds
Series 1997
01-01-17 7.88 4,690,000 5,020,926
Educational Facilities Authority Refunding Revenue Bonds
Lewis University Series 1996
10-01-26 6.13 8,780,000 8,307,197
Educational Facilities Authority Refunding Revenue Bonds
Loyola University of Chicago Series 1993
Inverse Floater (FGIC Insured)
07-01-12 7.57 11,000,000(c) 11,745,580
Granite City Madison County Hospital
Refunding Revenue Bonds St. Elizabeth Medical Center
Series 1989A
06-01-08 8.13 2,920,000 2,899,210
Health Facilities Authority Refunding Revenue Bonds
Morris Hospital
12-01-23 6.13 3,005,000 2,909,681
Health Facilities Authority Refunding Revenue Bonds
University of Chicago Series 1993 Inverse Floater
(MBIA Insured)
08-15-14 8.02 10,000,000(c) 9,850,000
Health Facilities Authority Revenue Bonds
Sarah Bush Lincoln Health Center Series 1992
05-15-12 7.25 2,000,000 2,164,400
05-15-22 7.25 2,000,000 2,164,400
Health Facilities Authority Revenue Bonds
Sarah Bush Lincoln Health Center Series 1996B
02-15-22 5.75 2,915,000 2,653,233
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Health Facility Authority Revenue Bonds
South Suburban Hospital Series 1992
02-15-09 7.00% $4,000,000 $4,357,743
02-15-18 7.00 5,000,000 5,504,594
Hodgkins General Obligation Tax Increment Bonds
Series 1991
12-01-09 9.50 11,200,000 12,453,216
Hodgkins General Tax Increment Bonds
Series 1995A
12-01-13 7.63 9,000,000 9,557,280
Huntley Special Tax Bonds
Series 1998
02-01-25 6.75 2,450,000 2,352,539
Huntley Special Tax Bonds
Series 1999
03-01-28 6.30 2,305,000 2,107,185
Lakemoor Special Tax Revenue Bonds
Series 1997
03-01-27 7.80 9,000,000 9,240,750
Lansing Tax Increment Refunding Revenue Bonds
Landings Redevelopment Area Limited Sales
Tax Pledge Series 1992
12-01-08 7.00 10,000,000 10,590,400
Marion General Obligation Hospital Alternate
Revenue Source Bonds Series 1991
12-01-16 7.50 3,800,000 4,093,892
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) 1,822,980
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) 3,920,249
06-15-28 6.61 41,900,000(d) 7,143,950
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) 3,947,056
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
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 $7,489,584
Schaumburg Special Assessment District
Revenue Bonds Woodfield Road
Series 1998
12-01-28 6.75 3,403,000 3,088,120
State Development Finance Authority Pollution Control
Refunding Revenue Bonds Illinois Power
Series 1991A
07-01-21 7.38 19,250,000 20,849,868
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) 1,833,800
State Development Finance Authority Retirement Housing
Revenue Bonds Zero Coupon Escrowed to Maturity
04-15-20 7.75 68,000,000(d) 17,651,440
State Health Facilities Authority Refunding Revenue Bonds
Edwards Hospital Series 1993A
02-15-19 6.00 6,350,000 6,097,842
State Health Facilities Authority Refunding Revenue Bonds
Masonic Medical Center Series 1993
10-01-19 5.50 2,000,000 1,784,760
Tinley Park Cook & Will Counties Limited Sales Tax
Revenue Bonds Series 1988
11-01-99 10.25 895,000(f) 321,520
Tinley Park Cook & Will Counties Unlimited Ad Valorem
Tax Bonds of Special Service
12-01-99 10.65 80,000 79,921
12-01-00 10.65 90,000 83,601
12-01-01 10.65 100,000 91,890
12-01-02 10.65 110,000 101,079
12-01-03 10.65 120,000 110,268
12-01-04 10.65 135,000 124,052
12-01-05 10.65 150,000 137,835
12-01-06 10.65 165,000 151,619
12-01-07 10.65 185,000 169,997
--------------
Total 452,682,188
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
INDIANA (2.3%)
Brazil 1st Mortgage Revenue Bonds Hoosier Care II
Series 1990
06-01-20 10.38% $4,025,000 $4,177,990
Carmel Retirement Rental Housing Refunding
Revenue Bonds Beverly Enterprises Series 1992
12-01-08 8.75 6,275,000 6,743,554
Development Finance Authority Environmental
Improvement Refunding Revenue Bonds USX Corporation
Series 1996
07-15-30 6.25 2,000,000 1,889,520
East Chicago Elementary School Building Lake County
1st Mortgage Refunding Bonds Series 1996
01-05-16 6.25 8,000,000 8,472,160
Hanover 1st Mortgage Revenue Bonds Hoosier Care II
Series 1990
06-01-20 10.38 6,590,000 6,837,125
Health Facility Authority Hospital Revenue Bonds
Community Hospital of Anderson Series 1993
01-01-23 6.00 10,000,000 9,417,100
Health Facility Authority Hospital Revenue Bonds
Union Hospital Series 1993 (MBIA Insured)
09-01-18 5.13 10,000,000 8,949,500
Health Facility Finance Authority Hospital Revenue Bonds
Hancock Memorial Series 1996
08-15-17 6.13 2,295,000 2,239,576
La Porte County Hospital Authority Hospital Refunding
Revenue Bonds La Porte Hospital Series 1993
03-01-12 6.25 5,070,000 5,083,993
03-01-23 6.00 2,990,000 2,809,912
Lawrenceburg Pollution Control Refunding Revenue Bonds
Methodist Hospital Series 1989
09-01-08 6.50 15,555,000 15,897,988
Marion County Hospital Authority Refunding Revenue Bonds
Methodist Hospital Series 1989 (MBIA Insured)
09-01-13 6.50 4,115,000 4,164,709
Rockport Pollution Control Refunding Revenue Bonds
Indiana Michigan Electric Series B
03-01-16 7.60 5,500,000 5,726,105
St. Joseph County Hospital Facility Revenue Bonds
Memorial Hospital of South Bend
06-01-10 9.40 1,770,000 2,154,302
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Vincennes Economic Development
Improvement Refunding Revenue Bonds
Southwest Regional Youth Facilities Series 1999
01-01-24 6.25% $24,535,000 $22,659,546
Vincennes Economic Development
Revenue Bonds Southwest Indiana
Regional Youth Village Facility Series 1993
01-01-24 8.50 16,575,000 18,276,092
--------------
Total 125,499,172
--------------------------------------------------------------------------------------------------------------------------
IOWA (0.6%)
Keokuk Hospital Facilities Refunding Revenue Bonds
Keokuk Area Hospital Series 1991
12-01-21 7.63 5,350,000 5,770,029
Muscatine Electric Refunding Revenue Bonds Series 1986
01-01-05 6.00 10,845,000 10,859,315
01-01-06 6.00 11,330,000 11,344,955
01-01-07 5.00 2,250,000 2,231,393
01-01-08 5.00 5,100,000 5,019,930
--------------
Total 35,225,622
--------------------------------------------------------------------------------------------------------------------------
KANSAS (0.2%)
Manhattan Health Care Facility Revenue Bonds
Meadowlark Hills Retirement Community
Series 1999A
05-15-28 6.50 1,500,000 1,378,305
State Development Financing Authority
Multi-family Revenue Bonds
Tiffany Gardens Apartments A.M.T.
09-01-29 6.75 5,100,000 4,795,683
Wyandotte County Kansas City Multi-family
Housing Revenue Bonds Park Victoria Apartments
Series 1998 A.M.T.
08-01-28 6.25 4,980,000 4,591,859
--------------
Total 10,765,847
--------------------------------------------------------------------------------------------------------------------------
KENTUCKY (1.0%)
Development Finance Authority Hospital Facility
Revenue Bonds St. Luke Hospital Series 1989B
10-01-19 6.00 22,695,000 23,184,985
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Economic Development Finance Authority Hospital
Refunding Revenue & Improvement Bonds
Appalachian Regional Hospital Series 1997
10-01-22 5.88% $5,000,000 $4,043,600
Jefferson County Student Housing Industrial Building
Revenue Bonds Collegiate Housing Foundation
Series 1999A
09-01-29 7.13 4,000,000 3,943,480
Muhlenberg County Hospital Refunding Revenue Bonds
Muhlenberg Community Hospital Series 1996
07-01-10 6.75 8,535,000 8,382,224
Turnpike Authority Economic Road Development
Refunding Revenue Bonds Series 1993 Inverse Floater
(AMBAC Insured)
06-06-12 7.84 15,000,000(c) 15,112,500
--------------
Total 54,666,789
--------------------------------------------------------------------------------------------------------------------------
LOUISIANA (2.7%)
Calcasieu Parish Industrial Development Pollution Control
Refunding Revenue Bonds Gulf State Utilities
Series 1992
10-01-12 6.75 10,500,000 10,657,710
Energy & Power Authority Refunding Revenue Bonds
Rodemacher Unit #2 Series 1991 (FGIC Insured)
01-01-13 6.00 28,000,000 28,335,160
Hodge Village Combined Utility System Revenue Bonds
Stone Container Series 1990 A.M.T.
03-01-10 9.00 23,000,000 23,591,560
New Orleans Audubon Park Commission Aquarium
Revenue Bonds Series 1992A
04-01-12 8.00 7,100,000 7,764,205
Public Facilities Authority Revenue Bonds
Glen Retirement Systems Series 1995
12-01-15 6.50 1,000,000 995,570
12-01-25 6.70 1,500,000 1,510,035
Southern Louisiana Port Commission Terminal
Refunding Revenue Bonds GATX Terminal Series 1993
03-01-23 7.00 13,180,000 13,668,714
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light 2nd Series 1984
12-01-14 8.00 29,155,000 30,032,566
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
St. Charles Parish Pollution Control Revenue Bonds
Louisiana Power & Light Series 1991 A.M.T.
06-01-21 7.50% $20,700,000 $21,511,026
West Feliciana Parish Demand Pollution Control
Revenue Bonds Gulf State Utilities Series 1985B
05-01-15 9.00 6,000,000 6,260,520
--------------
Total 144,327,066
--------------------------------------------------------------------------------------------------------------------------
MAINE (0.2%)
Finance Authority Multi-family Housing Revenue
Obligation Securities Huntington Common
Series 1997A
09-01-27 7.50 5,000,000 4,756,600
Kennebunk Special Obligation Revenue Bonds
Series 1999A
07-01-24 7.00 4,750,000 4,402,300
--------------
Total 9,158,900
--------------------------------------------------------------------------------------------------------------------------
MARYLAND (0.8%)
Frederick County Economic Refunding Revenue Bonds
Alumax Series 1992
04-01-17 7.25 9,880,000 10,325,292
Frederick County Obligation Special Tax Revenue Bonds
Urbana Community Development Authority Series 1998
07-01-25 6.63 6,000,000 5,719,680
Harford County Industrial Development Revenue Bonds
Dorsey
04-16-05 8.00 449,000 450,248
Prince George's County Hospital Revenue Bonds
Dimensions Health Series 1992
07-01-17 7.25 11,400,000 12,377,436
07-01-22 7.00 7,000,000 7,557,900
State Transportation Authority Facility
Capital Appreciation Revenue Bonds
Zero Coupon Series 1992 (FGIC Insured)
07-01-10 6.33 3,000,000(d) 1,708,440
07-01-11 6.33 6,700,000(d) 3,589,391
State Transportation Authority Facility
Revenue Bonds Zero Coupon
Series 1992 (FGIC Insured)
07-01-12 6.35 5,000,000(d) 2,507,300
--------------
Total 44,235,687
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
MASSACHUSETTS (2.7%)
Bay Transportation Authority Refunding Revenue Bonds
Series 1994A (MBIA Insured)
03-01-12 6.00% $8,000,000 $8,277,781
Health & Educational Facilities Authority
Revenue Bonds Berkshire Health Systems
Series C
10-01-11 5.90 1,700,000 1,623,245
10-01-20 6.00 4,000,000 3,764,360
Health & Educational Facilities Authority
Revenue Bonds Beverly Hospital Inverse Floater
(MBIA Insured)
06-18-20 7.92 8,000,000(c) 7,380,000
Health & Educational Facilities Authority
Revenue Bonds Charlton Memorial Hospital
Series 1991B
07-01-13 7.25 6,455,000 6,848,884
Health & Educational Facilities Authority
Revenue Bonds Holyoke Hospital
Series B
07-01-15 6.50 500,000 493,515
Industrial Finance Agency Pollution Control
Refunding Revenue Bonds Eastern Edison
Series 1993
08-01-08 5.88 4,250,000 4,124,795
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991A
07-01-15 9.00 18,885,000 20,284,756
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991B A.M.T.
07-01-15 9.25 24,700,000 26,532,247
Municipal Wholesale Electric Power
Supply System Pre-refunded Revenue Bonds
Series 1992B
07-01-17 6.75 10,130,000 10,886,407
Municipal Wholesale Electric Power
Supply System Revenue Bonds
Series 1993A Inverse Floater (AMBAC Insured)
07-01-18 7.12 6,500,000(c) 5,703,750
State Health & Educational Facilities Authority
Refunding Revenue Bonds Christopher House
Series 1999A
01-01-29 6.88 5,000,000 4,718,850
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
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 $2,038,220
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 4,538,865
Water Resource Authority General
Refunding Revenue Bonds Series 1992B
11-01-15 5.50 22,175,000 21,488,462
Water Resource Authority General
Revenue Bonds Series 1992A
07-15-19 6.50 3,500,000 3,770,550
Water Resource Authority General
Revenue Bonds Series 1993B-95B
(MBIA Insured)
12-01-25 5.00 9,000,000 7,780,140
Water Resource Authority General
Revenue Bonds Series B (MBIA Insured)
03-01-22 5.00 10,000,000 8,779,600
--------------
Total 149,034,427
--------------------------------------------------------------------------------------------------------------------------
MICHIGAN (4.0%)
Chippewa Valley Schools Unlimited Tax
General Obligation Refunding Bonds
Series 1998 (AMBAC Insured)
05-01-23 4.75 14,240,000 11,916,886
Concord Academy Certificate of Participation Series 1998
10-01-19 7.00 1,000,000 918,830
Countryside Charter School
Full Term Certificates of Participation
Berrien County Series 1999
04-01-29 7.00 2,635,000 2,426,888
Crawford County Economic Development Corporation
Environmental Improvement Revenue Bonds
Weyerhaeuser Series 1991A
07-15-07 7.13 10,800,000 11,798,676
Detroit Unlimited Tax General Obligation Bonds
Series 1993
04-01-14 6.35 5,510,000 5,757,179
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Detroit Unlimited Tax General Obligation Bonds
Series 1995A
04-01-15 6.80% $1,375,000 $1,518,853
Lincoln Consolidated School District Unlimited Tax
General Obligation Refunding Bonds (FGIC Insured)
05-01-18 5.85 6,455,000 6,817,425
Livingston Academy Certificate of Participation
Series 1999
05-01-27 7.00 3,080,000 2,863,661
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 36,470,367
Midland County Economic Development Corporation
Pollution Control Limited Obligation Refunding Revenue
Bonds Midland Cogeneration Series 1990C
07-23-09 8.50 18,900,000 19,488,168
Plymouth Educational Center Certificates of Participation
07-01-29 7.00 7,875,000 7,498,181
State Hospital Finance Authority
Hospital Pre-refunded Revenue Bonds
McLaren Obligated Group Series 1991A
09-15-21 7.50 7,500,000 8,047,875
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995
01-01-26 6.70 3,000,000 2,820,990
State Hospital Finance Authority
Refunding Revenue Bonds
Detroit Medical Center
Series 1993A
08-15-18 6.50 10,000,000 9,343,500
State Hospital Finance Authority
Refunding Revenue Bonds
Greater Detroit Sinai Hospital Series 1995
01-01-16 6.63 2,750,000 2,615,580
State Hospital Finance Authority
Revenue Bonds Central Michigan Community Hospital
10-01-27 6.25 2,095,000 1,957,819
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Ford Motor
Series 1991A
02-01-06 7.10 16,400,000 18,277,308
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Strategic Fund Environmental Improvement Limited
Obligation Refunding Revenue Bonds
Crown Paper Company Series 1997B
08-01-12 6.25% $1,100,000 $923,604
Strategic Fund Limited Obligation Refunding
Revenue Bonds Detroit Edison
Series 1995AA (MBIA Insured)
09-01-25 6.40 12,000,000 12,227,280
Strategic Fund Limited Obligation Refunding
Revenue Bonds Great Lakes Pulp & Fibre
Series 1994 A.M.T.
12-01-27 5.00 23,933,770 16,753,639
Summit Academy Certificates of Participation
Junior High School Facility Series 1999
09-01-29 7.00 4,000,000 3,669,760
Summit Academy Certificates of Participation Series 1998
09-01-18 7.00 2,500,000 2,325,100
Troy City Downtown Development Authority
County of Oakland Development Bonds
Series 1995A (Asset Guaranty)
11-01-18 6.38 1,000,000 1,022,040
Van Buren Township Tax Increment Revenue Bonds
Series 1994
10-01-16 8.40 3,955,000 4,341,483
Wayne Charter County Special Airport Facilities
Revenue Bonds Northwest Airlines Series 1999 A.M.T.
12-01-29 6.00 8,235,000 7,401,289
Wayne County Special Airport Facilities
Refunding Revenue Bonds Northwest Airlines Series 1995
12-01-15 6.75 11,265,000 11,325,718
Wayne Charter County Airport Facilities
Revenue Bonds Detroit Metropolitan Wayne County Airport
Series 1998B (MBIA Insured)
12-01-23 4.88 9,940,000 8,382,700
--------------
Total 218,910,799
--------------------------------------------------------------------------------------------------------------------------
MINNESOTA (4.6%)
Anoka County Housing & Redevelopment Authority
Revenue Bonds Epiphany Assisted Living LLC
12-01-29 7.40 4,000,000 3,952,520
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Becker Solid Waste Disposal Facility Revenue Bonds
Liberty Paper Series 1994B A.M.T.
08-01-15 9.00% $16,800,000 $17,175,480
Bloomington Health Care Facility Revenue Bonds
Friendship Village of Bloomington Series 1992
04-01-02 8.50 2,385,000(g) 2,452,519
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 4,804,823
Duluth Economic Development Authority Health Care
Facilities Pre-refunded Revenue Bonds Benedictine
Health System St. Mary's Medical Center
Series 1990
02-15-20 8.38 8,300,000 8,539,621
Fergus Falls Health Care Facilities Revenue Bonds
LRHC Long-term Care Facility Series 1995
12-01-25 6.50 1,530,000 1,531,408
Fridley Senior Housing Revenue Bonds
Banfill Crossing Homes Series 1999
09-01-34 6.75 7,000,000 6,590,430
International Falls Solid Waste Disposal Revenue
Bonds Boise Cascade Series 1990 A.M.T.
01-01-15 7.75 10,000,000 10,208,100
Little Canada Multi-family Housing Revenue Bonds
Housing Alternatives Development Company
Series 1997A
12-01-27 6.25 1,755,000 1,655,737
Mahtomedi Multi-family Housing Revenue Bonds
Briarcliff A.M.T.
06-01-36 7.35 1,995,000 2,002,481
Maplewood Elder Care Facilities Revenue Bonds Care
Institute Series 1994
01-01-24 7.75 8,000,000 7,884,320
Maplewood Multi-family Housing Refunding Revenue
Bonds Carefree Cottages of Maplewood III
Series 1995 A.M.T.
11-01-32 7.20 4,905,000 4,784,729
Mille Lacs Capital Improvement Authority Infrastructure
Revenue Bonds Series 1992A
11-01-12 9.25 4,150,000 4,756,855
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Minneapolis Housing & Healthcare Facility Revenue Bonds
Augustana Chapel View Homes Incorporated Series 1997
06-01-22 6.70% $1,885,000 $1,792,786
06-01-27 6.75 2,640,000 2,510,666
Richfield Multi-family Housing Refunding Revenue
Bonds Village Shores Apartments Series 1996
08-01-31 7.63 4,895,000 4,859,511
Robbinsdale Multi-family Housing Revenue Bonds
Copperfield Hill Series 1996A
12-01-31 7.35 3,500,000 3,407,705
Rochester Multi-family Housing Development
Revenue Bonds Wedum Shorewood Campus
06-01-36 6.60 10,000,000 9,302,100
Roseville Housing Facilities Nursing Home
Refunding Revenue Bonds College Properties
Series 1998
10-01-28 5.88 7,500,000 6,346,125
Sartell Health Care & Housing Facilities Revenue Bonds
The Foundation for Health Care Continuums
Series 1999A
09-01-29 6.63 4,000,000 3,721,200
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Series 1992
01-01-18 5.75 32,210,000 31,223,085
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) 3,794,715
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) 4,621,925
01-01-23 6.74 27,500,000(d) 6,822,750
01-01-24 6.75 19,960,000(d) 4,651,079
01-01-25 6.75 27,500,000(d) 6,017,275
01-01-26 6.75 27,500,000(d) 5,649,325
01-01-27 6.75 12,450,000(d) 2,407,083
St. Louis Park Health Care Facilities
Revenue Bonds Healthsystem Minnesota
Obligated Group Series 1993 Inverse Floater
(AMBAC Insured)
07-01-05 5.43 10,200,000(c) 9,881,250
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
St. Louis Park Health Care Facilities
Revenue Bonds Healthsystem Minnesota Obligated Group
Series 1993B Inverse Floater (AMBAC Insured)
07-01-13 5.73% $18,000,000(c) $16,132,500
St. Louis Park Multi-family Housing Refunding
Revenue Bonds Park Boulevard Towers
Series 1996A
04-01-31 7.00 11,350,000 11,334,224
St. Paul Housing & Redevelopment Authority Health
Care Facilities Revenue Bonds Lyngblomsten
Care Center Series 1993A
11-01-06 7.13 1,465,000 1,460,942
11-01-17 7.13 2,550,000 2,573,282
St. Paul Housing & Redevelopment Authority Health
Care Facilities Revenue Bonds Lyngblomsten
Multi-family Rental Housing Series 1993B
11-01-24 7.00 2,665,000 2,588,461
St. Paul Port Authority Redevelopment Multi-family
Refunding Revenue Bonds Burlington Apartments
Series A (GNMA Insured)
05-01-31 5.75 14,355,000 13,655,194
St. Paul Port Authority Redevelopment Multi-family
Subordinate Refunding Revenue Bonds
Burlington Apartments Series A
02-01-31 8.63 3,770,000 3,683,705
St. Paul Port Authority Revenue Bonds
Hotel Facilities Radisson Kellogg 2nd Series 1999
08-01-29 7.38 6,500,000 6,428,045
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 1,928,302
Washington County Housing & Redevelopment
Authority Refunding Revenue Bonds Woodbury
Multi-family Housing Series 1996
12-01-23 6.95 4,740,000 4,658,614
--------------
Total 247,790,872
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
MISSISSIPPI (0.9%)
Gulfport Urban Renewal
Multi-family Housing Revenue Bonds
Woodchase Apartments Series 1998 A.M.T.
12-01-28 6.75% $3,075,000 $2,754,216
Harrison County Waste Water Management District
Refunding Bonds Series 1986
02-01-15 5.00 4,250,000 4,003,755
Jackson Industrial Development Revenue Bonds Dorsey
04-16-05 8.00 392,000 394,952
Long Beach Urban Renewal Multi-family Housing
Revenue Bonds Long Beach Square Apartments
Series 1998 A.M.T.
08-01-28 6.75 3,830,000 3,484,534
Lowndes County Solid Waste Disposal Pollution Control
Refunding Revenue Bonds Weyerhaeuser Series 1989
Inverse Floater
04-01-22 8.80 4,000,000(c) 4,259,760
Lowndes County Solid Waste Disposal Pollution Control
Revenue Bonds Weyerhaeuser Series 1989 A.M.T.
12-01-05 7.88 12,250,000 12,642,734
State Business Finance Pollution Control Revenue Bonds
System Energy Resources Series 1999
05-01-22 5.90 12,900,000 11,398,053
State Hospital Refunding Revenue Bonds University
of Mississippi Medical Center Educational Building
Series 1998B (AMBAC Insured)
12-01-23 5.50 12,650,000 11,896,693
--------------
Total 50,834,697
--------------------------------------------------------------------------------------------------------------------------
MISSOURI (0.5%)
Regional Convention & Sports Complex Authority Bonds
St. Louis Sponsor Series 1991B
08-15-21 7.00 5,810,000 6,294,322
Sikeston Electric System Refunding Revenue Bonds
Series 1992 (MBIA Insured)
06-01-02 5.80 4,165,000 4,303,778
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 16,204,957
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
St. Louis Regional Convention & Sports Complex Authority
Pre-refunded Revenue Bonds Series 1991C
08-15-21 7.90% $125,000 $132,588
St. Louis Regional Convention & Sports Complex Authority
Refunding Revenue Bonds Series 1991C
08-15-21 7.90 2,575,000 2,867,340
--------------
Total 29,802,985
--------------------------------------------------------------------------------------------------------------------------
NEBRASKA (--%)
Omaha Public Power District Electric System
Revenue Bonds Series 1986A
02-01-15 6.00 1,370,000 1,389,509
--------------------------------------------------------------------------------------------------------------------------
NEVADA (0.8%)
Clark County Collateralized Pollution Control Revenue Bonds
Nevada Power A.M.T.
10-01-09 7.80 11,850,000 12,187,014
Clark County Industrial Development Revenue Bonds
Nevada Power Series 1990 A.M.T.
06-01-20 7.80 5,000,000 5,150,550
Clark County Passenger Facility Charge Airport
Refunding Revenue Bonds
Las Vegas McCarran International Airport
Series 1998 (MBIA Insured)
07-01-22 4.75 9,000,000 7,539,750
Las Vegas Redevelopment Agency Tax Increment
Subordinate Lien Revenue Bonds Series 1994A
06-15-10 6.00 2,000,000 2,016,040
06-15-14 6.10 2,750,000 2,731,603
Las Vegas Special Improvement District #707
Local Improvement Bonds
Summerlin Area Series 1996
06-01-16 7.10 5,925,000 6,155,186
Washoe County Hospital Revenue Bonds
Washoe Medical Center Series 1993A
06-01-15 6.00 7,250,000 7,228,250
--------------
Total 43,008,393
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
NEW HAMPSHIRE (2.2%)
Business Financial Authority Pollution Control
& Solid Waste Disposal Refunding Revenue Bonds
Crown Paper Company Series 1996
01-01-22 7.75% $4,255,000 $3,865,327
Business Financial Authority Pollution Control
Refunding Revenue Bonds United Illuminating
Series 1993A
10-01-33 5.88 13,200,000 11,942,568
Higher Education & Health Facilities Authority
Lifecare Revenue Bonds Rivermead at Peterborough
Retirement Community Series 1998
07-01-18 5.63 1,365,000 1,167,635
07-01-28 5.75 2,500,000 2,078,625
Industrial Development Authority Pollution Control
Revenue Bonds State Public Service Series 1991B
05-01-21 7.50 51,485,000 53,006,382
Industrial Development Authority Pollution Control
Revenue Bonds State Public Service Series 1991C A.M.T.
05-01-21 7.65 25,000,000 25,771,500
Industrial Development Authority Pollution Control
Revenue Bonds United Illuminating Series 1989A A.M.T.
12-01-14 8.00 8,000,000 8,251,040
State Higher Education & Health Facility Authority Hospital
Revenue Bonds Hitchcock Clinic Series 1994
(MBIA Insured)
07-01-24 6.00 13,000,000 12,834,640
State Turnpike System Refunding Revenue Bonds
Series 1999A (FGIC Insured)
04-01-29 4.75 3,000,000 2,446,260
--------------
Total 121,363,977
--------------------------------------------------------------------------------------------------------------------------
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 9,174,500
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
NEW MEXICO (1.9%)
Albuquerque Health Care System Revenue Bonds
Lovelace Medical Fund
03-01-11 10.25% $55,000 $55,769
Bernalillo County Muti-family Housing Revenue Bonds
Series 1997D
04-01-27 7.70 14,770,000 14,568,833
Farmington Pollution Control Refunding Revenue Bonds
Series 1996A-B
12-01-16 6.30 10,000,000 9,874,900
Farmington Pollution Control Refunding Revenue Bonds
Series 1997A
10-01-20 6.95 4,000,000 4,042,000
Farmington Pollution Control Refunding Revenue Bonds
State Public Service San Juan Series 1994A
08-15-23 6.40 30,650,000 30,096,461
Farmington Power Refunding Revenue Bonds
Generating Division
01-01-13 9.88 5,000,000 6,200,500
Las Vegas Hospital Facility Refunding Revenue Bonds
Northeastern Regional Hospital Series 1987
08-01-13 9.63 5,195,000 5,234,482
Lordsberg Pollution Control Refunding Revenue Bonds
Phelps Dodge
04-01-13 6.50 20,000,000 20,239,800
Sandoval County Multi-family Housing
Refunding Revenue Bonds Meadowlark Apartments
Series 1998A A.M.T.
07-01-38 6.38 11,300,000 10,537,815
Sandoval County Multi-family Housing
Refunding Revenue Bonds Meadowlark Apartments
Series 1998B A.M.T.
07-01-01 6.38 1,000,000 992,530
Santa Fe County Lifecare Revenue Bonds
El Castillo Retirement Series 1998A
05-15-15 5.50 1,000,000 879,140
05-15-25 5.63 2,500,000 2,058,350
--------------
Total 104,780,580
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
NEW YORK (7.2%)
Battery Park City Authority Refunding Revenue Bonds
Series 1993A
11-01-10 5.50% $9,940,000 $10,074,687
Dormitory Authority New York City University System
Consolidated 2nd Generation Resource Revenue Bonds
Series 1990C
07-01-16 6.00 27,230,000 27,115,089
07-01-17 5.00 20,820,000 18,226,869
Dormitory Authority New York City University System
Consolidated 2nd Generation Resource Revenue Bonds
Series 1990D
07-01-09 7.00 5,000,000 5,491,400
Dormitory Authority New York Court Facility Lease
Revenue Bonds Series 1993A
05-15-16 5.38 11,000,000 10,254,200
Dormitory Authority New York State
University Education Facility Revenue Bonds
Series 1993A
05-15-13 5.50 24,530,000 24,552,322
Huntington Housing Authority Senior Housing
Facilities Revenue Bonds Gurwin Jewish Senior
Residences Series 1999A
05-01-39 6.00 2,000,000 1,793,880
Long Island Power Authority
Revenue Bonds Series A
12-01-26 5.25 8,445,000 7,439,876
12-01-29 5.50 1,000,000 914,020
New York & New Jersey Port Authority Special
Obligation Revenue Bonds KIAC Partners
4th Series 1996 A.M.T.
10-01-19 6.75 3,500,000 3,600,310
New York City General Obligation Bonds Series 1992B
02-01-00 7.40 30,000,000 30,166,500
New York City General Obligation Bonds Series 1996F-G
02-01-19 5.75 5,500,000 5,325,870
02-01-20 5.75 2,325,000 2,238,905
New York City General Obligation Bonds Series 1998H
08-01-22 5.00 15,000,000 12,904,350
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
New York City Industrial Development Agency
Civic Facilities Revenue Bonds Touro College
Series 1999A
06-01-29 6.35% $6,250,000 $5,893,875
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series 1994B Inverse Floater (MBIA Insured)
06-15-09 6.42 15,500,000(c) 15,383,750
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds Series A
06-15-21 6.25 55,500,000 56,537,849
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds Series B
06-15-17 5.00 6,255,000 5,676,538
New York City Unlimited Tax General Obligation
Bonds Series 1996G
02-01-17 5.75 20,000,000 19,592,600
New York City Unlimited Tax General Obligation
Bonds Series 1998F
08-01-23 5.00 7,235,000 6,196,054
New York City Unlimited Tax General Obligation
Pre-refunded Bonds Series 1994B-1
08-15-16 7.00 16,500,000 18,276,225
North Hempstead Unlimited Tax General Obligation
Various Purpose Bonds Series 1998A
(FGIC Insured)
01-15-23 4.75 3,100,000 2,598,172
Port Authority Special Project Bonds La Guardia
Airport Passenger Terminal
Continental & Eastern Airlines A.M.T.
12-01-06 9.00 2,645,000 2,782,223
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 9,256,544
12-01-15 9.13 17,500,000 18,437,825
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
State Dormitory Authority New York City University System
Consolidated 2nd Generation Resource Revenue Bonds
Series 1994A
07-01-18 5.75% $5,500,000 $5,395,445
State Housing Finance Agency Service Contract Obligation
Revenue Bonds Series 1995A
03-15-25 6.50 12,475,000 13,729,484
State Housing Finance Agency State University Construction
Refunding Bonds Series 1986A
05-01-13 6.50 3,500,000 3,880,625
State Medical Facilities Finance Agency
Mental Health Services Improvement Refunding
Revenue Bonds Series 1993D
08-15-23 5.25 15,000,000 13,173,150
State Medical Facilities Finance Agency
Mental Health Services Improvement Refunding
Revenue Bonds Series 1993F
02-15-19 5.25 5,790,000 5,182,803
State Urban Development Capital Correctional
Facilities Refunding Revenue Bonds Series 1994A
01-01-21 5.25 12,110,000 10,752,832
State Urban Development Correctional Facility
Refunding Revenue Bonds Series A
01-01-16 5.50 2,750,000 2,598,393
State Urban Development Correctional Facility
Revenue Bonds Series 6
01-01-25 5.38 9,000,000 8,060,760
State Urban Development Correctional Facility
Sub Lien Revenue Bonds Series 1996
07-01-26 5.60 6,630,000 6,138,850
--------------
Total 389,642,275
--------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA (3.7%)
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1986A
01-01-17 5.00 6,500,000 6,006,630
01-01-18 4.00 8,675,000 6,906,428
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1988A
01-01-26 6.00 1,940,000 1,985,415
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1989A
01-01-10 7.50% $29,160,000 $33,487,842
01-01-11 5.50 37,800,000 36,077,454
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1991A
01-01-19 5.75 55,000,000 49,743,099
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1993B
01-01-12 6.25 24,655,000 24,727,732
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1994B
01-01-07 7.25 5,000,000 5,441,750
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series B
01-01-09 6.13 10,000,000 10,191,100
Eastern Municipal Power Agency Power System
Revenue Bonds Series 1993D
01-01-13 5.88 2,300,000 2,225,526
Municipal Power Agency #1 Catawba Electric
Revenue Bonds Series 1993
Inverse Floater (MBIA Insured)
01-01-12 7.22 7,400,000(c) 7,326,000
01-01-20 7.42 15,000,000(c) 13,462,500
State Medical Care Community Hospital Refunding
Revenue Bonds Pitt County Memorial Hospital
Series 1998A (MBIA Insured)
12-01-28 4.75 5,730,000 4,650,755
--------------
Total 202,232,231
--------------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA (0.3%)
Fargo Hospital Refunding Revenue & Improvement Bonds
Dakota Hospital Series 1992
11-15-12 6.88 3,000,000 3,235,650
11-15-22 7.00 4,250,000 4,597,140
Ward County Health Care Facilities
Refunding Revenue Bonds Trinity Group Series 1996A
07-01-26 6.25 6,110,000 5,880,142
Ward County Health Care Facilities Refunding
Revenue Bonds Trinity Obligated Group
Series 1996B
07-01-21 6.25 4,000,000 3,876,440
--------------
Total 17,589,372
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
OHIO (2.7%)
Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Cleveland Electric Company Series 1997B
08-01-20 6.00% $10,000,000 $9,242,700
Bellefontaine Hospital Facility
Refunding Revenue Bonds
Mary Rutan Health Association of Logan County
Series 1993
12-01-13 6.00 5,330,000 4,985,256
Butler County Hospital Facility Improvement
Refunding Revenue Bonds
Fort Hamilton-Hughes Memorial Center
Series 1991
01-01-10 7.50 9,800,000 10,182,396
Carroll Water & Sewer District
Unlimited Tax General Obligation Bonds
12-01-10 6.25 1,795,000 1,798,303
Carroll Water & Sewer District
Water System Improvement Unlimited Tax
General Obligation Bonds
12-01-10 6.25 7,855,000 7,940,541
Cleveland Parking Facilities Improvement
Revenue Bonds Series 1992
09-15-22 8.10 15,000,000 16,651,800
Coshocton County Solid Waste Disposal
Refunding Revenue Bonds
Stone Container Series 1992
08-01-13 7.88 17,500,000 18,553,150
Cuyahoga County Health Care Facilities
Lifecare Refunding Revenue Bonds
Judson Retirement Community Series 1996A
11-15-13 7.25 2,080,000 2,092,126
Cuyahoga County Health Care Facilities
Refunding Revenue Bonds
Judson Retirement Community Series A
11-15-18 7.25 4,130,000 4,154,078
Erie County Hospital Improvement Refunding
Revenue Bonds Firelands Community Hospital
Series 1992
01-01-15 6.75 6,540,000 6,736,396
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Franklin County Health Care Facilities
Refunding Revenue Bonds
Lutheran Senior City Incorporated
Series 1999
12-15-28 6.13% $4,705,000 $4,079,658
Franklin County Multi-family Housing
Refunding Revenue Bonds
Jefferson Chase Apartments Series 1998B A.M.T.
11-01-35 6.40 1,465,000 1,341,032
Franklin County Multi-family Housing
Refunding Revenue Bonds
West Bay Apartments A.M.T.
12-01-25 6.38 8,365,000 7,904,925
Lorain County Independent Living & Hospital Facilities
Refunding Revenue Bonds Elyria United Methodist
Series 1996C
06-01-22 6.88 3,100,000 3,089,460
Marion County Health Care Facilities
Improvement Refunding Revenue Bonds
United Church Homes Series 1993
11-15-10 6.38 1,880,000 1,840,144
Marion County Health Care Facilities
Refunding & Improvement Revenue Bonds
United Church Homes Series 1993
11-15-15 6.30 1,800,000 1,730,016
State Water & Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995
08-01-25 7.70 13,000,000 13,960,440
State Water & Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Ohio Edison Series 1993A
05-15-29 5.95 13,300,000 12,135,053
State Water Development Authority Pollution Control
Refunding Revenue Bonds Toledo Edison
Series 1994A A.M.T.
10-01-23 8.00 10,000,000 10,789,700
Water Development Authority Pollution Control
Revenue Bonds Ohio Edison A.M.T.
10-01-23 8.10 10,000,000 10,220,200
--------------
Total 149,427,374
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
OKLAHOMA (1.1%)
Grand River Dam Authority Refunding Revenue Bonds
Series 1987
06-01-12 5.00% $10,105,000 $9,749,809
Hinton Economic Development Authority
Certificate of Participation
Dominion Leasing Series 1990A
07-01-15 9.75 19,090,000 20,722,958
Hinton Economic Development Authority
Certificate of Participation
Series 1994
07-01-15 8.75 11,135,000 11,958,545
Jackson County Hospital Authority
Refunding Revenue Bonds
Jackson County Memorial Hospital Series 1994
08-01-15 7.30 6,580,000 6,609,939
Midwest City Memorial Hospital Authority Hospital
Revenue Bonds Series 1992
04-01-22 7.38 7,815,000 8,431,838
Stillwater Medical Center Authority
Hospital Revenue Bonds Series 1997B
05-15-19 6.50 1,750,000 1,690,990
--------------
Total 59,164,079
--------------------------------------------------------------------------------------------------------------------------
OREGON (0.6%)
Clackamas County Hospital Facilities Authority
Revenue Bonds Senior Living Facility
Mary's Woods at Marylhurst Series 1999A
05-15-29 6.63 4,000,000 3,752,480
State Health Housing Educational & Cultural Facilities
Authority Revenue Bonds Oregon Baptist Retirement
Homes-Weidler Retirement Center Series 1995
11-15-26 8.00 7,565,000 7,947,411
Western Generation Agency Revenue Bonds
Wauna Cogeneration Series 1994A
01-01-21 7.13 13,600,000 14,066,072
Western Generation Agency Revenue Bonds
Wauna Cogeneration Series 1994B A.M.T.
01-01-16 7.40 9,000,000 9,426,150
--------------
Total 35,192,113
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
PENNSYLVANIA (3.6%)
Allegheny County Industrial Development Authority
Environment Improvement Revenue Bonds
USX Corporation Series 1994A
12-01-20 6.70% $6,000,000 $6,067,260
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995
05-01-25 7.63 7,500,000 8,046,150
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995A
07-15-25 7.75 21,150,000 22,848,556
Beaver County Industrial Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Toledo Edison Series 1995A
05-01-20 7.75 14,000,000 15,161,300
Beaver County Industrial Development Authority
Pollution Control Revenue Bonds
Toledo Edison-Beaver Valley Series 1995
05-01-20 7.63 11,700,000 12,551,994
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 1,965,380
06-01-16 5.75 3,000,000 2,841,000
Convention Center Authority Refunding Revenue Bonds
Philadelphia Series 1994A
09-01-19 6.75 5,300,000 5,554,188
Delaware County Authority 1st Mortgage Revenue Bonds
Riddle Village Series 1996
06-01-26 7.00 10,000,000 9,811,100
Delaware County Authority Revenue Bonds
Health Systems Catholic Health East Series 1998A
(AMBAC Insured)
11-15-26 4.88 20,600,000 16,976,048
Harrisburg Dauphin County General Obligation Bonds
Zero Coupon Series 1997F (AMBAC Insured)
09-15-20 5.50 3,000,000(d) 842,910
09-15-21 5.52 1,000,000(d) 263,210
09-15-22 5.52 1,000,000(d) 247,030
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Montgomery County Higher Education & Health Authority
Retirement Community Revenue Bonds G.D.L. Farms
Series A
01-01-20 9.50% $3,000,000 $3,073,260
Montgomery County Higher Education & Health Authority
Revenue Bonds Temple Continuing Care Center
Series 1999
07-01-29 6.75 10,000,000 9,128,800
Philadelphia Gas Works Revenue Bonds Series 13
06-15-21 7.70 4,150,000 4,438,176
Philadelphia Municipal Authority Lease
Refunding Revenue Bonds Series 1993D
07-15-13 6.25 2,500,000 2,523,325
07-15-17 6.30 1,550,000 1,551,457
Philadelphia Water & Sewer Revenue Bonds Series 16
08-01-10 7.50 13,200,000 14,124,924
08-01-18 7.00 14,000,000 14,610,680
Philadelphia Water & Wastewater Revenue Bonds
Series 1993 (FSA Insured)
06-15-15 5.50 11,000,000 11,058,196
State Department of General Services
Certificate of Participation
Series 1994A (AMBAC Insured)
07-01-15 5.00 25,000,000 22,490,250
Wilkins Industrial Development Authority Revenue Bonds
Retirement Community Longwood at Oakmont
Series 1991A
01-01-21 10.00 8,495,000 9,229,903
--------------
Total 195,405,097
--------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA (1.0%)
Cherokee County Spring City Industrial Development
Revenue Bonds Knitting Cluett Peabody
09-01-09 7.40 5,200,000 5,932,160
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 4,403,839
Piedmont Municipal Power Agency Electric
Refunding Revenue Bonds Series 1986B
01-01-24 5.75 7,550,000 6,568,500
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Piedmont Municipal Power Agency Electric
Refunding Revenue Bonds Series 1998A
01-01-25 4.75% $5,000,000 $4,077,700
Public Service Authority Electric System
Expansion Revenue Bonds Santee Cooper
Series 1991D
07-01-31 6.63 14,975,000 16,055,596
Public Service Authority Electric System
Revenue Bonds Santee Cooper
Series 1993A Inverse Floater (MBIA Insured)
06-28-13 7.55 17,700,000(c) 17,346,000
--------------
Total 54,383,795
--------------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA (0.6%)
Heartland Consumers Power District Electric System
Refunding Revenue Bonds Series 1986
01-01-10 6.00 10,205,000 10,673,410
Sioux Falls Multi-family Housing Revenue Bonds
Series 1996A
12-01-34 7.50 12,200,000 12,370,922
State Lease Revenue Trust Certificates Series 1993
(CGIC Insured)
09-01-17 6.70 7,260,000 8,054,607
--------------
Total 31,098,939
--------------------------------------------------------------------------------------------------------------------------
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 14,583,785
Nashville & Davidson Counties Health & Education
Facilities Board Revenue Bonds
Zero Coupon Escrowed to Maturity
06-01-21 5.38 29,109,000(d) 7,356,718
--------------
Total 21,940,503
--------------------------------------------------------------------------------------------------------------------------
TEXAS (7.4%)
Alliance Airport Authority Special Facility Revenue Bonds
American Airlines Series 1990 A.M.T.
12-01-29 7.50 37,400,000 38,916,195
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Austin Combined Utilities System Refunding Revenue Bonds
Series 1986
11-15-13 5.00% $19,985,000 $18,632,016
Board of Regents of the University System General
Refunding Revenue Bonds Series 1986
08-15-07 6.50 2,565,000 2,757,272
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1990A A.M.T.
02-01-20 8.13 13,205,000 13,518,223
Brazos River Authority Collateralized Pollution Control
Revenue Bonds Texas Utility Electric
Series 1991A A.M.T.
03-01-21 7.88 24,450,000 25,595,972
Carrol Independent School District
Unlimited General Obligation Bonds Series 1998A
(Permanent School Fund Guarantee)
02-15-23 4.50 5,825,000 4,669,320
Castlewood Municipal Utility District Water &
Sewer Systems Unlimited Tax & Refunding Revenue Bonds
Series 1997
04-01-14 6.75 2,820,000 2,839,063
Colony Municipal Utility District #1 Denton County
Series 1980
08-01-07 9.25 1,000,000 1,272,630
Crowley Independent School District
Unlimited General Obligation Bonds
(Permanent School Fund Guarantee)
08-01-27 5.13 6,000,000 5,257,020
Cypress Hill Municipal Utility District #1
General Obligation Bonds
09-01-22 5.30 2,045,000 1,783,751
Dallas & Fort Worth International Airport Special Facility Revenue Bonds
American Airlines Series 1990 A.M.T.
11-01-25 7.50 26,200,000 27,163,898
Dallas & Fort Worth International Airport Special Facility Revenue Bonds
American Airlines Series 1999 A.M.T.
05-01-35 6.38 11,415,000 11,018,785
Dallas & Fort Worth International Airport Special Facility Revenue Bonds Delta
Air Lines Series 1991 A.M.T.
11-01-26 7.13 13,500,000 13,779,180
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Denison Hospital Authority Hospital Revenue Bonds
Texoma Medical Center Series 1994
08-15-24 7.10% $3,950,000 $4,224,771
Harris County Health Facilities Hospital Revenue Bonds
Memorial Hospital Series 1992
06-01-15 7.13 16,000,000 17,092,960
Harris County Industrial Development Marine Terminal
Refunding Revenue Bonds GATX Terminal Series 1992
02-01-22 6.95 15,000,000 15,444,750
Hidalgo County Health Services Corporation
Hospital Revenue Bonds Mission Hospital
Series 1996
08-15-26 6.88 7,880,000 7,981,731
Houston Water & Sewer System Junior Lien
Capital Appreciation Refunding Revenue Bonds
Zero Coupon Series 1998A (FSA Insured)
12-01-25 5.34 30,000,000(d) 6,039,900
Interstate Municipal Utility District
Unlimited Tax Bonds Harris County Series 1996
09-01-21 6.75 3,020,000 3,095,077
Karnes County Public Facility Lease Revenue Bonds
03-01-15 9.20 15,270,000 18,458,834
Katy Development Authority Metro Contract
Revenue Bonds Sales Tax
Series 1999A
06-01-09 5.75 14,755,000 14,089,992
Keller Independent School District
Unlimited General Obligation Bonds
(Permanent School Fund Guarantee)
08-15-30 5.00 8,345,000 7,117,951
Kings Manor Municipal Utility District
Waterworks & Sewer Systems Combination
Unlimited Tax & Revenue Bonds Series 1995
03-01-18 6.88 2,470,000 2,590,882
Lubbock Health Facilities Development
Corporation Fixed Rate 1st Mortgage Revenue Bonds
Carillon Series 1999A
07-01-29 6.50 20,145,000 17,945,770
Midland County Hospital District Revenue Bonds Series 1992
06-01-16 7.50 3,025,000 3,257,169
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
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 $4,567,445
Montgomery County Municipal Utility District #42
Unlimited General Obligation Bonds
Waterworks & Sewer Systems
09-01-23 6.88 2,035,000 2,035,163
Municipal Power Agency
Refunding Revenue Bonds (MBIA Insured)
09-01-09 5.25 8,000,000 8,090,640
Municipal Power Agency
Revenue Bonds
09-01-13 5.50 7,410,000 7,324,933
North Central Health Facilities Development Revenue
Bonds Retirement Facility Northwest Senior Housing
Series 1999A
11-15-29 7.50 15,000,000 14,463,750
North Tollway Authority Revenue Bonds
Dallas North Tollway System (FGIC Insured)
01-01-29 4.75 5,000,000 4,080,100
Rio Grande City Consolidated Independent School District
Public Facilities Lease Revenue Bonds Series 1995
07-15-10 6.75 4,000,000 4,198,440
Sabine River Authority Collateralized Pollution Control Revenue Bonds Texas
Utilities Electric Series 1990A A.M.T.
02-01-20 8.13 30,500,000 31,224,070
WestSide 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 18,399,420
Wichita County Health Facilities Development
Refunding Revenue Bonds
Rolling Meadows Series 1998A
01-01-28 6.25 23,425,000 20,833,024
--------------
Total 399,760,097
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
UTAH (1.9%)
Carbon County Solid Waste Disposal
Refunding Revenue Bonds Sunnyside
Cogeneration Series 1999A A.M.T.
08-15-23 7.10% $12,840,000 $12,757,952
Carbon County Solid Waste Disposal Refunding Revenue Bonds Sunnyside
Cogeneration Zero Coupon Series 1999B A.M.T.
08-15-24 6.82 3,920,000(d) 645,546
Eagle Mountain Special Assessment
Revenue Bonds Special Improvement
District #98-1 Series 1999
12-15-12 6.25 12,105,000 11,204,146
Housing Finance Agency Single Family Mortgage
Senior Bonds Series 1991C (FGIC Insured)
07-01-11 7.30 235,000 241,625
07-01-16 7.35 185,000 190,062
Hurricane Health Facilities Development Revenue Bonds
Mission Health Services Series 1990
07-01-20 10.50 7,500,000 7,870,725
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series 1993B Inverse Floater
07-01-11 7.57 7,600,000(c) 7,619,000
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series 1996C (MBIA Insured)
07-01-17 5.70 46,000,000 45,374,859
Intermountain Power Agency Power Supply
Refunding Revenue Bonds Series F (AMBAC Insured)
07-01-13 5.00 5,000,000 4,744,350
Intermountain Power Agency Power Supply
Revenue Bonds Series 1987A (MBIA Insured)
07-01-12 5.00 8,000,000 7,688,880
Tooele County Pollution Control Refunding Revenue Bonds
Laidlaw Environmental Services Incorporated
Series 1997A A.M.T.
07-01-27 7.55 4,000,000 4,198,080
--------------
Total 102,535,225
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
VIRGINIA (0.8%)
Fairfax County Economic Development Authority
Educational Facilities Revenue Bonds
Browne Academy Series 1998
10-01-08 6.00% $1,385,000 $1,323,645
10-01-23 6.45 5,200,000 4,781,244
Fairfax County Redevelopment & Housing Authority
Multi-family Housing Revenue Bonds
Burkeshire Commons Series 1996
10-01-36 7.60 13,055,000 13,659,054
Hopewell City Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Stone Container Series 1992
05-01-10 8.25 3,170,000 3,385,877
Housing Development Authority Commonwealth
Mortgage Bonds Series 1992A
01-01-33 7.15 11,890,000 12,197,951
Prince William County Service Authority Water & Sewer
Systems Refunding Revenue Bonds
Series 1997 (FGIC Insured)
07-01-29 4.75 1,875,000 1,532,269
Upper Occoquan Sewer Authority Regional Sewer
Revenue Bonds Series 1995A (MBIA Insured)
07-01-29 4.75 9,500,000 7,763,495
--------------
Total 44,643,535
--------------------------------------------------------------------------------------------------------------------------
WASHINGTON (2.7%)
Central Puget Sound Regional Transit Authority
Sales Tax Revenue Bonds (FGIC Insured)
02-01-28 4.75 12,000,000 9,756,360
Chelan County Public Utility District #1
Capital Appreciation Bonds
Columbia River Rock Island Highway
Zero Coupon Series 1997A
06-01-27 5.74 22,685,000(d) 4,137,290
06-01-29 5.74 24,595,000(d) 3,945,284
King County Housing Authority Pooled Housing
Refunding Revenue Bonds Series 1995A
03-01-26 7.20 4,000,000 4,003,840
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Longview Industrial Development Corporation Solid Waste
Revenue Bonds Weyerhauser Series 1991 A.M.T.
02-01-13 7.45% $20,000,000 $20,832,200
Public Power Supply System Nuclear Project #1
Refunding Revenue Bonds Bonneville Power Administration
Series 1993A Inverse Floater (FSA Insured)
07-01-11 7.72 25,000,000(c) 26,250,000
Public Power Supply System Nuclear Project #1
Revenue Bonds Series 1990A
07-01-17 6.00 38,875,000 39,332,947
Public Power Supply System Nuclear Project #2
Revenue Bonds Series 1994A
07-01-11 5.38 10,000,000 9,935,700
Snohomish County Public Utilitiy District #1
Generation System Revenue Bonds Series 1986A
01-01-20 5.00 17,750,000 15,999,318
State General Obligation
Refunding Revenue Bonds
Zero Coupn Series 1997A
07-01-19 5.95 16,260,000(d) 4,945,642
State Housing Finance Commission
Refunding Revenue Bonds Horizon House
Series 1995A (Asset Guaranty)
07-01-17 6.00 3,700,000 3,751,763
07-01-27 6.13 3,845,000 3,927,014
--------------
Total 146,817,358
--------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA (1.3%)
Kanawha County Pollution Control
Revenue Bonds Union Carbide Series 1984
08-01-04 7.35 3,000,000 3,273,540
Mason County Pollution Control
Refunding Revenue Bonds Appalachian Power
Series 1992J
10-01-22 6.60 25,000,000 25,231,251
Pea Ridge Public Service District Sewer
Refunding Revenue Bonds Series 1990
05-01-20 9.25 2,505,000 2,632,404
Princeton Hospital Revenue Bonds
Community Hospital Association
Series 1999
05-01-29 6.10 5,095,000 4,616,681
See accompanying notes to investments in securities.
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AND COUPON PRINCIPAL VALUE(a)
TITLE OF ISSUE(b,e) RATE AMOUNT
<S> <C> <C> <C>
Putnam County Pollution Control Revenue Bonds
Appalachian Power Series C
07-01-19 6.60% $10,600,000 $10,808,502
School Building Authority Capital Improvement
Revenue Bonds Series 1991A
07-01-21 6.00 20,785,000 21,336,426
South Charleston Pollution Control Refunding
Revenue Bonds Union Carbide Series 1985
08-01-05 7.63 3,000,000 3,330,900
--------------
Total 71,229,704
--------------------------------------------------------------------------------------------------------------------------
WISCONSIN (0.8%)
Health & Educational Facilities Authority
Revenue Bonds FH Healthcare Development
Series 1999
11-15-28 6.25 10,000,000 9,230,600
Health & Educational Facilities Authority
Revenue Bonds St. Clare Hospital
02-15-22 7.00 12,115,000 12,939,547
Madison Industrial Development
Refunding Revenue Bonds Madison Gas & Electric
Series 1992B
10-01-27 6.70 19,300,000 20,224,469
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 2,677,708
--------------
Total 45,072,324
--------------------------------------------------------------------------------------------------------------------------
WYOMING (0.2%)
Natrona County Hospital Revenue Bonds
Wyoming Medical Center
09-15-10 8.13 6,500,000 6,833,580
State Farm Loan Board Capital Facilities
Revenue Bonds Series 1994
04-01-24 6.10 5,000,000 4,986,900
--------------
Total 11,820,480
--------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $5,078,490,354) $5,298,793,350
--------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $5,078,490,354)(i) $5,298,793,350
==========================================================================================================================
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
--------------------------------------------------------------------------------
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, 1999. Inverse floaters in the aggregate represent 6.12% of
the Portfolio's net assets as of Nov. 30, 1999.
(d) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- As of Nov. 30, 1999, the value of
securities subject to alternative minimum tax represented 16.73%
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
(f) Non-income producing. Item identified is in default as to payment of
interest and/or principal.
<PAGE>
(g) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 4 to the financial statements):
<TABLE>
<CAPTION>
Type of security Notional amount
--------------------------------------------------------------------------------
<S> <C>
PURCHASE CONTRACTS
Municipal Bonds, December 1999 $63,700,000
Municipal Bonds, March 2000 33,300,000
</TABLE>
(h) At Nov. 30, 1999, the cost of securities purchased, including interest
purchased, on a when-issued basis was $7,669,520.
(i) At Nov. 30, 1999, the cost of securities for federal income tax purposes was
$5,078,735,893 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation $318,804,534
Unrealized depreciation (98,747,077)
--------------------------------------------------------------------------------
Net unrealized appreciation $220,057,457
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on your year-end statement.
AXP High Yield Tax-Exempt Fund, Inc.
Fiscal year ended Nov. 30, 1999
CLASS A
EXEMPT-INTEREST DIVIDENDS -- TAXABLE STATUS EXPLAINED BELOW.
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ......................... $0.02039
Jan. 25, 1999 ......................... 0.02404
Feb. 25, 1999 ......................... 0.02359
March 24, 1999 ........................ 0.01877
April 26, 1999 ........................ 0.02378
May 27, 1999 .......................... 0.02278
June 23, 1999 ......................... 0.01948
July 26, 1999 ......................... 0.02299
Aug. 26, 1999 ......................... 0.02157
Sept. 22, 1999 ........................ 0.01940
Oct. 25, 1999 ......................... 0.02351
Nov. 23, 1999 ......................... 0.02016
TOTAL DISTRIBUTIONS ................... $0.26046
</TABLE>
<PAGE>
CLASS B
EXEMPT-INTEREST DIVIDENDS -- TAXABLE STATUS EXPLAINED BELOW.
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ......................... $0.01768
Jan. 25, 1999 ......................... 0.02076
Feb. 25, 1999 ......................... 0.02059
March 24, 1999 ........................ 0.01615
April 26, 1999 ........................ 0.02060
May 27, 1999 .......................... 0.01982
June 23, 1999 ......................... 0.01698
July 26, 1999 ......................... 0.01989
Aug. 26, 1999 ......................... 0.01870
Sept. 22, 1999 ........................ 0.01693
Oct. 25, 1999 ......................... 0.02051
Nov. 23, 1999 ......................... 0.01755
TOTAL DISTRIBUTIONS ................... $0.22616
</TABLE>
<PAGE>
CLASS Y
EXEMPT-INTEREST DIVIDENDS -- TAXABLE STATUS EXPLAINED BELOW.
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ......................... $0.02065
Jan. 25, 1999 ......................... 0.02439
Feb. 25, 1999 ......................... 0.02392
March 24, 1999 ........................ 0.01912
April 26, 1999 ........................ 0.02370
May 27, 1999 .......................... 0.02270
June 23, 1999 ......................... 0.01984
July 26, 1999 ......................... 0.02204
Aug. 26, 1999 ......................... 0.02221
Sept. 22, 1999 ........................ 0.01928
Oct. 25, 1999 ......................... 0.02420
Nov. 23, 1999 ......................... 0.02081
TOTAL DISTRIBUTIONS ................... $0.26286
</TABLE>
FEDERAL TAXATION
Exempt-interest dividends are exempt from federal income taxes and should not be
included in shareholders' gross income.
OTHER TAXATION
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
<PAGE>
SOURCE OF INCOME BY STATE
Percentages of income from municipal securities earned by the Fund from various
states during the year ended Nov. 30, 1999 are listed below.
<TABLE>
<S> <C> <C> <C>
Alabama 0.299% Nebraska 0.024
Alaska 0.235 Nevada 0.821
Arizona 1.330 New Hampshire 2.259
Arkansas 0.141 New Jersey 0.141
California 8.955 New Mexico 1.922
Colorado 7.251 New York 7.946
Connecticut 0.159 North Carolina 3.502
Florida 4.813 North Dakota 0.305
Georgia 2.090 Ohio 3.321
Hawaii 0.426 Oklahoma 1.232
Idaho 0.009 Oregon 0.617
Illinois 8.132 Pennsylvania 4.032
Indiana 2.454 Puerto Rico 0.532
Iowa 0.657 South Carolina 1.135
Kansas 0.116 South Dakota 0.555
Kentucky 0.939 Tennessee 0.420
Louisiana 2.840 Texas 7.471
Maine 0.130 Utah 2.020
Maryland 0.774 Virginia 0.752
Massachusetts 3.119 Washington 2.714
Michigan 4.884 Washington, DC 0.617
Minnesota 4.235 West Virginia 1.186
Mississippi 0.915 Wisconsin 0.673
Missouri 0.670 Wyoming 0.230
</TABLE>
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation, dated October 17, 1988, filed as Exhibit 1
to Registrant's Post-Effective Amendment No. 19 to Registration
Statement No. 2-63552, are incorporated by reference.
(b) By-laws, as amended Feb 14, 1991, filed as Exhibit 2 to Registrant's
Post-Effective Amendment No. 20 to Registration Statement No. 2-63552,
are incorporated by reference.
(c) Stock certificate, filed as Exhibit 4 to Registrant's Registration
Statement No. 2-63552, on February 9, 1979, is incorporated by
reference.
(d) Investment Management Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 5 to Registrant's Post-Effective Amendment
No. 34 to Registration Statement No. 2-63552, is incorporated by
reference. The agreement was assumed by the Portfolio when the Fund
adopted the master/feeder structure.
(e) Distribution Agreement, dated July 8, 1999, between AXP Utilities
Income Fund, Inc. and American Express Financial Advisors Inc. is
incorporated by reference to Exhibit (e) to AXP Utilities Income Fund,
Inc. Post-Effective Amendment No. 22, to Registration Statement No.
33-20872 filed on or about August 27, 1999. Registrant's Distribution
Agreement differs from the one incorporated by reference only by the
fact that Registrant is one executing party.
(f) All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
(g)(1) Custodian Agreement between Registrant and First National Bank of
Minneapolis, dated August 16, 1979, filed electronically as Exhibit
8(a) to Registrant's Post-Effective Amendment No. 34 to Registration
Statement No. 2-63552, is incorporated by reference.
(g)(2) Addendum to the Custodian Agreement between Registrant, First Bank
National Association and American Express Financial Corporation, dated
May 13, 1996 filed electronically as Exhibit 8(b) to Registrant's
Post-Effective Amendment No. 34 to Registration Statement No. 2-63552,
is incorporated by reference.
(h)(1) Administrative Services Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(e) to Registrant's Post-Effective
Amendment No. 34 to Registration Statement No. 2-63552, is
incorporated by reference.
(h)(2) Agreement and Declaration of Unitholders between Registrant and
Strategist Tax-Free Income Fund, Inc., dated May 13, 1996, filed
electronically as Exhibit 9(f) to Registrant's Post-Effective
Amendment No. 34 to Registration Statement No. 2-63552, is
incorporated by reference.
(h)(3) License Agreement between Registrant and IDS Financial Corporation
dated January 25, 1988, filed as Exhibit 9(c) to Registrant's
Post-Effective Amendment No. 21 to Registration Statement No. 2-63552,
is incorporated by reference.
(h)(4) License Agreement, dated June 17, 1999, between the American Express
Funds and American Express Company, filed electronically on or about
September 23, 1999, as Exhibit (h)(4) to AXP Stock Fund, Inc's.
Post-Effective Amendment No. 98 to Registration Statement No. 2-11358,
is incorporated by reference.
<PAGE>
(h)(5) Plan and Agreement of Merger, dated April 10, 1986, filed
electronically as Exhibit No. 9 to Registrant's Post-Effective
Amendment No. 13 to Registration Statement No. 2-63552, is
incorporated by reference.
(h)(6) Class Y Shareholder Service Agreement between IDS Precious Metals Fund,
Inc. and American Express Financial Advisors Inc., dated May 9, 1997,
filed electronically on or about May 27, 1997 as Exhibit 9(e) to IDS
Precious Metals Fund, Inc.'s Post-Effective Amendment No. 30 to
Registration Statement No. 2-93745, is incorporated by reference.
Registrant's Class Y Shareholder Service Agreement differs from the one
incorporated by reference only by the fact that Registrant is one
executing party.
(h)(7) Transfer Agency Agreement between Registrant and American Express
Client Service Corporation, dated March 9, 2000 is filed electronically
herewith.
(i) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
(j) Independent Auditors' Consent is filed electronically herewith.
(k) Omitted Financial Statements: Not Applicable.
(l) Initial Capital Agreements: Not Applicable.
(m)(1) Plan and Agreement of Distribution dated July 1, 1999, between AXP
Discovery Fund, Inc. and American Express Financial Advisors Inc. is
incorporated by reference: to Exhibit (m) to AXP Discovery Fund, Inc.
Post-Effective Amendment No. 36 to Registration Statement No. 2-72174
filed on or about July 30, 1999. Registrant's Plan and Agreement of
Distribution differs from the one incorporated by reference only by
the fact that Registrant is one executing party.
(m)(2) Plan and Agreement of Distribution For Class C Shares dated March 9,
2000 between AXP Bond Fund, Inc. and American Express Financial
Advisors Inc. is incorporated by reference to Exhibit (m)(2) to AXP
Bond Fund, Inc.'s Post-Effective Amendment No. 51 to Registration
Statement File No. 2-51586 filed on or about June 26, 2000.
Registrant's Plan and Agreement of Distribution for Class C Shares
differs from the one incorporated by reference only by the fact that
Registrant is one executing party.
(n) Rule 18f-3 Plan, dated March 2000, is incorporated by reference to
Exhibit (n) to AXP Bond Fund Inc.'s Post-Effective Amendment No. 51 to
Registration Statement File No. 2-51586 filed on or about June 26,
2000.
(o) Reserved.
(p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed
electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP
Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to
Registration Statement No. 33-30770 is incorporated by reference.
(p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment
advisor and principal underwriter filed electronically on or about
March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series,
Inc.'s Post-Effective Amendment No. 24 to Registration Statement No.
33-30770 is incorporated by reference.
(q)(1) Directors' Power of Attorney dated January 13, 2000, is incorporated
by reference to Exhibit (p)(1) to Registrant's Post-Effective
Amendment No. 38, filed on or about Jan. 28, 2000.
<PAGE>
(q)(2) Officers' Power of Attorney dated January 13, 2000, is incorporated by
reference to Exhibit (p)(2) to Registrant's Post-Effective Amendment
No. 38, filed on or about Jan. 28, 2000.
(q)(3) Trustees' Power of Attorney dated January 13, 2000, is incorporated by
reference to Exhibit (p)(3) to Registrant's Post-Effective Amendment
No. 38, filed on or about Jan. 28, 2000.
(q)(4) Officers' Power of Attorney dated January 13, 2000, is incorporated by
reference to Exhibit (p)(4) to Registrant's Post-Effective Amendment
No. 38, filed on or about Jan. 28, 2000.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Item 26. Business and Other Connections of Investment Adviser (American Express Financial Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more
other companies:
<S> <C> <C> <C>
Name and Title Other company(s) Address Title within other
company(s)
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and Vice President
Company
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Peter J. Anderson, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
IDS Life Series Fund, Inc. Director
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Futures Corporation Director and President
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Karl J. Breyer, American Express Financial IDS Tower 10 Senior Vice President
Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440
Vice President
American Express Financial Director
Advisors Japan Inc.
American Express Minnesota Director
Foundation
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
President and Chief Marketing
Officer
IDS Life Insurance Company Executive Vice President
Kenneth I. Chenaut American Express Company American Express Tower President and Chief
Director World Financial Center Operating Officer
New York, NY 10285
James E. Choat, American Centurion Life IDS Tower 10 Executive Vice President
Director and Senior Vice Assurance Company Minneapolis, MN 55440
President
American Enterprise Life Director, President and
Insurance Company Chief Executive Officer
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Executive Vice President
of New York Albany, NY 12205
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President - Retail
Vice President - Retail Advisors Inc. Minneapolis, MN 55440 Distribution Services
Distribution Services
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
Peter A. Gallus American Express Financial IDS Tower 10 Vice President-Investment
Vice President-Investment Advisors Inc. Minneapolis, MN 55440 Administration
Administration
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.
Teresa A. Hanratty American Express Financial IDS Tower 10 Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President-Field Management
President-Field Management
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
Brian M. Heath American Express Financial IDS Tower 10 Senior Vice President and
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Sales Manager
President and General Sales
Manager
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
American Express Asset Vice President
Management International
Inc.
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
Debra A. Hutchinson American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
James M. Jensen, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Controller-Advice and
Controller-Advice and Retail Retail Distribution Group
Distribution Group
IDS Life Insurance Company Vice President
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
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President - Insurance Products
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. Insurance Products
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, Chief Executive
Officer and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director and Chairman of
of New York Albany, NY 12205 the Board
John M. Knight American Express Financial IDS Tower 10 Vice President
Advisors Minneapolis, MN 55440
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President-Direct and
President-Direct and Interactive Group
Interactive Group
Kurt A Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief U.S. Advisors Inc. Minneapolis, MN 55440 U.S. Economist
Economist
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President -
Vice President - Distribution Advisors Inc. Minneapolis, MN 55440 Distribution Channel
Channel Marketing Marketing
Timothy J. Masek American Express Financial IDS Tower 10 Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Global Research
of Global Research
Sarah A. Mealey, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Director
Corporation
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
Investors Syndicate Director, Chairman of the
Development Corporation Board and President
Shashank B. Modak American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Pamela J. Moret, American Express Financial IDS Tower 10 Senior Vice President -
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 Investment Products
President - Investment
Products
American Express Trust Vice President
Company
IDS Certificate Company Director
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 Enterprise Director
Investment Services, Inc.
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-Consumer
Vice President-Consumer Advisors Inc. Minneapolis, MN 55440 Marketing
Marketing
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
Vice President-Compensation Advisors Inc. Minneapolis, MN 55440 President-Compensation
Services and ARD Product Services and ARD Product
Distribution Distribution
Public Employee Payment Director and President
Company
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
James M. Punch, American Express Financial IDS Tower 10 Vice President - Branded
Vice President - Branded Advisors Inc. Minneapolis, MN 55440 Platform Project
Platform Project
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Senior Vice President and
Director and Senior Vice Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager
President
American Express Financial Senior Vice President
Advisors Inc.
Rollyn C. Renstrom, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Rebecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Stephen W. Roszell, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
American Express Trust Director
Company
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
Theresa M. Sapp American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Director, Senior Vice Minneapolis, MN 55440
President and Chief Financial
Officer
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and President
Company
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Assistant Insurance Company Minneapolis, MN 55440 General Counsel and
General Counsel Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
James J. Strauss, American Express Financial IDS Tower 10 Vice President
Vice President and General Advisors Inc. Minneapolis, MN 55440
Auditor
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Keith N. Tufte American Express Financial IDS Tower 10 Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Equity Research
of Equity Research
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
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>
Item 27. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for
the following investment companies:
AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery
Fund, Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.;
AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth
Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International
Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP
Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP New
Dimensions Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive
Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series
Trust; AXP Stock Fund, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt
Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund,
Inc., Growth Trust; Growth and Income Trust; Income Trust; Tax-Free
Income Trust; World Trust; IDS Certificate Company; Strategist Income
Fund, Inc.; Strategist Growth Fund, Inc.; Strategist Growth and Income
Fund, Inc.; Strategist World Fund, Inc. and Strategist Tax-Free Income
Fund, Inc.
(b) As to each director, officer or partner of the principal underwriter:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President-Investment Vice President-Investments
IDS Tower 10 Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American Express None
IDS Tower 10 Retirement Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President - Mutual Fund None
IDS Tower 10 Equities
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice President-Ohio/Indiana None
Suite 100
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President-Los Angeles None
Suite 900, E. Westside Twr Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Nonproprietary None
IDS Tower 10 Products
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President - San None
1333 N. California Blvd., Suite 200 Francisco Area
Walnut Creek, CA 94596
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Corporate Senior Vice President None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice President - Third None
IDS Tower 10 Party Distribution
Minneapolis, MN 55440
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President-Retail - Retail None
IDS Tower 10 Distribution Services
Minneapolis, MN 55440
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas/ None
Suite 200 Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
Colleen Curran Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Arthur E. Delorenzo Group Vice President - Upstate None
4 Atrium Drive, #100 New York
Albany, NY 12205
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Douglas K. Dunning Vice President-Assured Assets None
IDS Tower 10 Product Development and Management
Minneapolis, MN 55440
James P. Egge Group Vice President-Western None
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Phillip W. Evans Group Vice President-Rocky None
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President-Mutual Fund Equity None
IDS Tower 10 Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President - International None
IDS Tower 10
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Gateway None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
Peter A. Gallus Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Senior Vice President-Field None
Suites 6&7 Management
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston Metro None
Two Constitution Plaza
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
Brian M. Heath Senior Vice President and General None
Suite 150 Sales Manager
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President-Incentive None
IDS Tower 10 Management
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Tennessee None
30 Burton Hills Blvd. Valley
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Debra A. Hutchinson Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
James M. Jensen Vice President and None
IDS Tower 10 Controller-Advice and Retail
Minneapolis, MN 55440 Distribution Group
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President-Business None
IDS Tower 10 Development
Minneapolis, MN 55440
Ora J. Kaine Vice President-Financial Advisory None
IDS Tower 10 Services
Minneapolis, MN 55440
Linda B. Keene Vice President-Market Development None
IDS Tower 10
Minneapolis, MN 55440
Raymond G. Kelly Group Vice President-North Texas None
Suite 250
801 East Campbell Road
Richardson, TX 75081
Richard W. Kling Senior Vice President-Insurance None
IDS Tower 10 Products
Minneapolis, MN 55440
John M. Knight Vice President-Investment Treasurer
IDS Tower 10 Accounting
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Direct and Interactive
Minneapolis, MN 55440 Group
Mitre Kutanovski Group Vice President-Chicago Metro None
Suite 680
8585 Broadway
Merrillville, IN 48410
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President-Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
<PAGE>
Fred A. Mandell Vice President-Distribution None
IDS Tower 10 Channel Marketing
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Timothy J. Masek Vice President and Director of None
IDS Tower 10 Global Research
Minnapolis, MN 55440
Sarah A. Mealey Vice President-Mutual Funds None
IDS Tower 10
Minneapolis, MN 55440
Paula R. Meyer Vice President-Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
Shashank B. Modak Vice President - Technology Leader None
IDS Tower 10
Minneapolis, MN 55440
Pamela J. Moret Senior Vice President-Investment None
IDS Tower 10 Products and Vice
Minneapolis, MN 55440 President-Variable Assets
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Consumer Marketing None
IDS Tower 10
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President-Advisory Business None
IDS Tower 10 Systems
Minneapolis, MN 55440
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Marc A. Parker Group Vice None
10200 SW Greenburg Road President-Portland/Eugene
Suite 110
Portland, OR 97223
Carla P. Pavone Vice President-Compensation None
IDS Tower 10 Services and ARD Product
Minneapolis, MN 55440 Distribution
Thomas P. Perrine Senior Vice President-Group None
IDS Tower 10 Relationship Leader/American
Minneapolis, MN 55440 Express Technologies Financial
Services
Susan B. Plimpton Vice President-Marketing Services None
IDS Tower 10
Minneapolis, MN 55440
Larry M. Post Group Vice President-Philadelphia None
One Tower Bridge Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Diana R. Prost Group Vice None
3030 N.W. Expressway President-Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
James M. Punch Vice President Branded Platform None
IDS Tower 10 Project
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President-Fixed Income Vice President - Fixed Income
IDS Tower 10 Investments
Minneapolis, MN 55440
Rollyn C. Renstrom Vice President-Corporate Planning None
IDS Tower 10 and Analysis
Minneapolis, MN 55440
R. Daniel Richardson III Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial Advisory
Minneapolis, MN 55440 Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
Diane M. Ruebling Group Vice President-Central None
Suite 200, Bldg. B California/Western Nevada
2200 Douglas Blvd.
Roseville, CA 95661
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Theresa M. Sapp Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President-Arizona/Las None
Suite 205 Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief None
IDS Tower 10 Financial Officer
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President-Quality and None
IDS Tower 10 Service Support
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern Iowa None
466 Westdale Mall Area
Cedar RapIDS, IA 52404
Bridget Sperl Vice President-Geographic Service None
IDS Tower 10 Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - Marketing Offer None
IDS Tower 10 Development
Minneapolis, MN 55440
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President and General Auditor None
IDS Tower 10
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President-Channel Development None
IDS Tower 10
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President Board Member
IDS Tower 10
Minneapolis, MN 55440
Keith N. Tufte Vice President and Director of None
IDS Tower 10 Equity Research
Minneapolis, MN 55440
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President-Detroit Metro None
8115 East Jefferson Avenue
Detroit, MI 48214
Donald F. Weaver Group Vice President-Greater None
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President - Alliance None
1010 Main St. Suite 2B Group
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
Rande L. Zellers Group Vice President-Gulf States None
1 Galleria Blvd., Suite 1900
Metairie, LA 70001
</TABLE>
Item 27 (c). Not Applicable
Item 28. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant, AXP High Yield Tax-Exempt Fund Inc. certifies that it meets
all of the requirements for effectiveness of this Registration Statement under
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
13th day of June, 2000.
AXP HIGH YIELD TAX-EXEMPT FUND, INC.
By /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer
By /s/ John M. Knight
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to its
Registration Statement has been signed below by the following persons in the
capacities indicated on the 13th day of June, 2000.
Signature Capacity
Director
Peter J. Anderson
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson** Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ William R. Pearce* Director
William R. Pearce
/s/ Alan K. Simpson* Director
Alan K. Simpson
<PAGE>
Signature Capacity
/s/ John R. Thomas* Director
John R. Thomas
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (q)(1), to Registrant's Post-Effective Amendment No.
38, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (q)(2), to Registrant's Post-Effective Amendment No.
38, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
SIGNATURES
Pursuant to the requirement 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 the State of
Minnesota, on the 13th day of June, 2000.
TAX-FREE INCOME TRUST
By /s/ Arne H. Carlson****
Arne H. Carlson, Chief Executive Officer
By /s/ John M. Knight
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 13th day of June, 2000.
Signatures Capacity
________________________________ Trustee
Peter J. Anderson
/s/ H. Brewster Atwater, Jr.*** Trustee
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson*** Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney*** Trustee
Lynne V. Cheney
/s/ David R. Hubers*** Trustee
David R. Hubers
/s/ Heinz F. Hutter*** Trustee
Heinz F. Hutter
/s/ Anne P. Jones*** Trustee
Anne P. Jones
/s/ William R. Pearce*** Trustee
William R. Pearce
/s/ Alan K. Simpson*** Trustee
Alan K. Simpson
/s/ John R. Thomas*** Trustee
John R. Thomas
/s/ C. Angus Wurtele*** Trustee
C. Angus Wurtele
<PAGE>
*** Signed pursuant to Trustees Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (q)(3), to Registrant's Post-Effective Amendment No.
38, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**** Signed pursuant to Officers Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (q)(4), to Registrant's Post-Effective Amendment No.
38, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 39
TO REGISTRATION STATEMENT NO. 2-63552
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.
Exhibits
The signatures.
