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Retirement Annuity Mutual Funds
Prospectus/April 30, 1996
This prospectus describes six Funds that receive payments from the
variable accounts of your variable annuity contract. Each of these
Funds has different investment objectives and policies.
IDS Life Capital Resource Fund is a stock fund.
IDS Life Special Income Fund is a bond fund.
IDS Life Managed Fund is a managed fund.
IDS Life Moneyshare Fund is a money market fund. An investment in
Moneyshare Fund is neither insured nor guaranteed by the U.S.
government and there can be no assurance that the Fund will be able
to maintain a stable net asset value of $1 per share.
IDS Life International Equity Fund is an international stock fund.
IDS Life Aggressive Growth Fund is a stock fund investing primarily
in common stocks of small and medium-size companies.
This prospectus contains facts that can help you decide if the
Funds are the right investment for you. Read this along with your
variable annuity prospectus before you invest and keep both
prospectuses for future reference.
Additional facts about the Funds are in a Statement of Additional
Information (SAI), filed with the Securities and Exchange
Commission. The SAI, dated April 30, 1996, is incorporated here by
reference. For a free copy, contact IDS Life Insurance Company
(IDS Life).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IDS LIFE IS NOT A FINANCIAL INSTITUTION, AND THE SECURITIES IT
OFFERS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, NOR ARE THEY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
IDS Life Investment Series, Inc.
IDS Life Capital Resource Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
IDS Life Special Income Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
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Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN 55440-0010
612-671-3733
TTY: 800-285-8846
800-633-4003
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Table of contents
The Funds in brief
Goals and types of Fund investments
Manager and distributor
Variable accounts
Sales charge and expenses
Sales charge
Expenses
Performance
Financial highlights
Total returns
Yield calculation
Key terms
Investment policies and risk
Facts about investments and their risks
Alternative investment options
Valuing assets
How to invest, transfer or redeem shares
How to invest
How to transfer among variable accounts
Redeeming shares
Distributions and taxes
Dividend and capital gain distributions
Taxes
How the Funds are organized
Shares
Voting rights
Shareholder meetings
Portfolio managers
Directors and officers
Investment manager
Administrative services agreement
Investment advisory agreements
About American Express Financial Corporation
General information
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The Funds in brief
Goals and types of Fund investments
Capital Resource Fund's goal is capital appreciation, and it
invests primarily in U.S. common stocks.
Special Income Fund's goal is to provide a high level of current
income while conserving the value of the investment for the longest
period of time. It invests primarily in investment-grade bonds.
Managed Fund's goal is maximum total investment return through a
combination of capital growth and current income. It invests
primarily in stocks, convertible securities, bonds and money market
instruments.
Moneyshare Fund's goal is to provide maximum current income
consistent with liquidity and conservation of capital. It invests
in money market securities.
International Equity Fund's goal is capital appreciation, and it
invests primarily in common stocks of foreign issuers.
Aggressive Growth Fund's goal is capital appreciation, and it
invests primarily in common stocks of small- and medium-size
companies.
Because any investment involves risk, achieving these goals cannot
be guaranteed. Only the contract owners can change the goals. See
"Voting rights."
Manager and distributor
The Funds are managed by IDS Life, a subsidiary of American Express
Financial Corporation (AEFC). AEFC has an agreement with IDS Life
to furnish investment advice for the Funds managed by IDS Life.
Variable accounts
You may not buy (nor will you own) shares of the Fund directly.
You invest by buying a variable annuity and allocating your
purchase payments among the variable accounts that invest in the
Funds.
Sales charge and expenses
Sales charge
There is no sales charge for the sale or redemption of fund shares,
but there may be charges associated with your redemption (surrender
or withdrawal) of your annuity contract. Any charges that apply to
the variable accounts and your annuity contract are described in
the variable annuity prospectus.
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Expenses
The Funds pay IDS Life a fee for managing their investment
portfolios. The Funds pay AEFC for administrative and accounting
services. The Funds also pay certain nonadvisory expenses. See
"Investment manager" and "Administrative services agreement" under
"How the Funds are organized."
Performance
Financial highlights
<TABLE>
<CAPTION>
Capital Resource Fund
Financial highlights
Fiscal year ended August 31,
Per share income and capital changes*
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71 $15.97 $14.71
Income (loss) from investment operations:
Net investment income .29 .29 .23 .21 .40 .52 .39 .31 .52 .61
Net gains (losses) on securities (both realized
and unrealized) 3.70 1.56 1.89 1.75 6.61 (2.06) 5.38 (2.54) 4.23 2.87
Total from investment operations 3.99 1.85 2.12 1.96 7.01 (1.54) 5.77 (2.23) 4.75 3.48
Less distributions:
Dividends from net investment income (.29) (.29) (.23) (.21) (.40) (.52) (.39) (.31) (.52) (.61)
Distributions from realized gains (2.71) (2.71) (1.21) (1.00) (1.00) (.57) (.27) (.11) (2.49) (1.61)
Total distributions (3.00) (3.00) (1.44) (1.21) (1.40) (1.09) (.66) (.42) (3.01) (2.22)
Net asset value, end of year $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71 $15.97
Ratios/supplemental data
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net assets, end of year
(in millions) $3,845 $2,899 $2,308 $1,681 $1,191 $ 702 $ 660 $ 454 $ 493 $ 301
Ratio of expenses to average
daily net assets .69% .68% .68% .70% .70% .70% .73% .69% .59% .54%
Ratio of net income to average
daily net assets 1.22% 1.20% 0.94% 0.91% 1.94% 2.69% 2.22% 2.01% 2.94% 3.74%
Portfolio turnover rate
(excluding short-term
securities) 88% 85% 65% 63% 74% 82% 42% 111% 171% 115%
Total return** 17.18% 7.61% 8.87% 8.54% 40.68% (7.79)% 38.72% (12.59)% 30.32% 23.90%
*For a share outstanding throughout the year. Rounded to the nearest cent.
**Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
</TABLE>
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<TABLE>
<CAPTION>
Special Income Fund
Financial highlights
Fiscal year ended August 31,
Per share income and capital changes*
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09 $11.91 $11.34
___________________________________________________________________________________________________________________________
Income (loss) from investment operations:
Net investment income .88 .84 .85 .90 .97 .99 1.03 1.03 1.08 1.16
Net gains (losses) on securities (both
realized and unrealized) .56 (.99) .82 .54 .62 (1.01) .23 (.21) (.56) 1.26
___________________________________________________________________________________________________________________________
Total from investment operations 1.44 (.15) 1.67 1.44 1.59 (.02) 1.26 .82 .52 2.42
___________________________________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.87) (.85) (.85) (.90) (.97) (.99) (1.03) (1.03) (1.08) (1.16)
Distributions from realized gains (.02) (.02) - - - - - - (.26) (.69)
Excess distributions from net investment
income (.02) (.01) - - - - - - - -
___________________________________________________________________________________________________________________________
Total distributions (.91) (.88) (.85) (.90) (.97) (.99) (1.03) (1.03) (1.34) (1.85)
___________________________________________________________________________________________________________________________
Net asset value, end of period $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09 $11.91
___________________________________________________________________________________________________________________________
Ratios/supplemental data
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net assets, end of year
(in millions) $1,703 $1,559 $1,551 $1,136 $ 800 $ 641 $ 565 $ 428 $ 409 $ 307
Ratio of expenses to
average daily net assets .68% .67% .69% .71% .70% .71% .73% .69% .58% .55%
Ratio of net income to
average daily net assets 8.08% 7.20% 7.41% 8.22% 9.31% 9.42% 9.37% 9.45% 9.11% 10.27%
Portfolio turnover rate
(excluding short-term
securities) 56% 57% 77% 92% 97% 118% 132% 169% 101% 170%
___________________________________________________________________________________________________________________________
Total return** 13.75% (1.30)% 15.47% 13.96% 16.54% (0.12)% 12.19% 7.76% 4.48% 23.17%
___________________________________________________________________________________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
</TABLE>
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<TABLE>
<CAPTION>
Managed Fund
Financial highlights
Fiscal period ended August 31,
Per share income and capital changes*
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87 $11.34 $10.10 $10.00
Income (loss) from investment operations:
Net investment income .40 .47 .49 .56 .58 .65 .48 .42 .45 .16
Net gains(losses) on securities (both
realized and unrealized) 1.20 (.26) 1.60 .95 2.11 (.67) 2.25 (1.47) 1.45 .10
Total from investment operations 1.60 .21 2.09 1.51 2.69 (.02) 2.73 (1.05) 1.90 .26
Less distributions:
Dividends from net investment income (.40) (.47) (.49) (.56) (.58) (.65) (.48) (.42) (.45) (.16)
Distributions from net realized gains -- (.41) (.36) (.46) (.45) (.48) (.04) - (.21) -
Total distributions (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52) (.42) (.66) (.16)
Net asset value, end of period $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $ 9.87 $11.34 $10.10
Ratios/supplemental data
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period (in millions) $3,044 $2,499 $1,858 $1,169 $ 810 $ 545 $ 462 $ 381 $ 340 $ 48
Ratio of expenses to average daily net
assets .68% .68% .69% .71% .70% .71% .73% .69% .67% .64%***
Ratio of net income to average
daily net assets 2.96% 3.46% 3.70% 4.35% 4.86% 5.42% 5.06% 4.42% 4.10% 4.48%***
Portfolio turnover rate (excluding
short-term securities) 72% 79% 58% 50% 52% 37% 69% 62% 48% 10%
Total return+ 11.94% 1.51% 16.33% 12.14% 25.24% (0.23)% 28.47% (9.06)% 19.13% 2.55%
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from April 30, 1986 to Aug. 31, 1986.
***Adjusted to an annual basis.
+Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
</TABLE>
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<TABLE>
<CAPTION>
Moneyshare Fund
Financial highlights
Fiscal year ended August 31,
Per share income and capital changes*
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
_________________________________________________________________________________________________________________________
Income from investment operations:
Net investment income .05 .03 .03 .04 .07 .08 .09 .07 .06 .07
_________________________________________________________________________________________________________________________
Total from investment
operations .05 .03 .03 .04 .07 .08 .09 .07 .06 .07
_________________________________________________________________________________________________________________________
Less distributions:
Dividends from net investment
income (.05) (.03) (.03) (.04) (.07) (.08) (.09) (.07) (.06) (.07)
_________________________________________________________________________________________________________________________
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
_________________________________________________________________________________________________________________________
Ratios/supplemental data
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net assets, end of year
(in millions) $ 227 $ 179 $ 180 $ 246 $ 285 $ 274 $ 160 $ 102 $ 67 $ 61
_________________________________________________________________________________________________________________________
Ratio of expenses to average
daily net assets .59% .57% .60% .60% .57% .62% .54% .58% .54% .62%
_________________________________________________________________________________________________________________________
Ratio of net income to average
daily net assets 5.23% 3.12% 2.67% 3.93% 6.55% 7.85% 8.68% 6.77% 5.87% 7.00%
_________________________________________________________________________________________________________________________
Total return** 5.27% 3.15% 2.73% 3.98% 6.77% 8.18% 8.99% 7.01% 6.01% 7.20%
_________________________________________________________________________________________________________________________
*For a share outstanding throughout the year. Rounded to the nearest cent.
**Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
</TABLE>
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<TABLE>
<CAPTION>
International Equity Fund
Financial highlights
Fiscal period ended August 31,
Per share income and capital changes*
1995 1994 1993 1992**
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.91 $11.60 $10.01 $10.00
_____________________________________________________________________________________________
Income from investment operations:
Net investment income .17 .14 .15 .05
Net gains (losses) on securities (both
realized and unrealized) (.37) 1.61 1.81 .01
_____________________________________________________________________________________________
Total from investment operations (.20) 1.75 1.96 .06
_____________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.16) (.08) (.15) (.05)
Distributions from realized gains - (.29) (.22) -
Excess distributions from realized gains - (.07) - -
_____________________________________________________________________________________________
Total distributions (.16) (.44) (.37) (.05)
_____________________________________________________________________________________________
Net asset value, end of period $12.55 $12.91 $11.60 $10.01
_____________________________________________________________________________________________
Ratios/supplemental data
1995 1994 1993 1992**
Net assets, end of period (in millions) $1,442 $1,111 $ 291 $ 39
_____________________________________________________________________________________________
Ratio of expenses to average
daily net assets 1.03% .98% 1.10% 1.57%***
Ratio of net income to average
daily net assets 1.56% 1.09% 1.37% 0.93%***
Portfolio turnover rate (excluding
short-term securities) 38% 51% 62% 22%
_____________________________________________________________________________________________
Total return# (1.77%) 15.11% 19.76% 0.55%
_____________________________________________________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 13, 1992 to Aug. 31, 1992.
***Adjusted to an annual basis.
#Total return does not reflect payment of the expenses that apply to the variable accounts
or any annuity charges.
</TABLE>
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<TABLE>
<CAPTION>
Aggressive Growth Fund
Financial highlights
Fiscal period ended August 31,
Per share income and capital changes*
1995 1994 1993 1992**
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.46 $11.68 $9.00 $10.00
_____________________________________________________________________________________________
Income (loss) from investment operations:
Net investment income .08 .01 .02 .02
Net gains (losses) on securities (both
realized and unrealized) 2.98 (.22) 2.68 (1.00)
_____________________________________________________________________________________________
Total from investment operations 3.06 (.21) 2.70 (0.98)
_____________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.08) (.01) (.02) (.02)
_____________________________________________________________________________________________
Net asset value, end of period $14.44 $11.46 $11.68 $ 9.00
_____________________________________________________________________________________________
Ratios/supplemental data
1995 1994 1993 1992**
Net assets, end of period (in millions) $1,412 $ 763 $ 299 $ 57
_____________________________________________________________________________________________
Ratio of expenses to average
daily net assets .70% .69% .75% .98%***
Ratio of net income to average
daily net assets 0.72% 0.14% 0.28% 0.21%***
Portfolio turnover rate (excluding
short-term securities) 116% 59% 55% 28%
_____________________________________________________________________________________________
Total return# 26.80% (1.77)% 29.98% (9.76)%
_____________________________________________________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 13, 1992 to Aug. 31, 1992.
***Adjusted to an annual basis.
#Total return does not reflect payment of the expenses that apply to the variable accounts or
any annuity charges.
</TABLE>
The information in these tables has been audited by KPMG Peat
Marwick LLP, independent auditors. The independent auditors'
report and additional information about the performance of the
Funds is contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
Total returns
Average annual total returns as of Aug. 31, 1995
Purchase 1 year 5 years 10 years
made ago ago ago
Capital Resource
Fund +17.2% +16.0% +14.2%
S&P 500 +21.3 +15.1 +15.2
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PAGE 11
Cumulative total returns as of Aug. 31, 1995
Purchase 1 year 5 years 10 years
made ago ago ago
Capital Resource
Fund +17.2% +109.6% +278.5%
S&P 500 +21.3 +102.2 +310.8
Average annual total returns as of Aug. 31, 1995
Purchase 1 year 5 years 10 years
made ago ago ago
Special Income Fund +13.8% +11.5% +10.3%
Lehman Aggregate
Bond Index +11.0 + 9.6 + 9.9
Cumulative total returns as of Aug. 31, 1995
Purchase 1 year 5 years 10 years
made ago ago ago
Special Income Fund +13.8% +72.2% +167.5%
Lehman Aggregate
Bond Index +11.0 +57.8 +157.6
Average annual total returns as of Aug. 31, 1995
Since
Purchase 1 year 5 Years inception
made ago ago April 30, 1986
Managed Fund +11.9% +13.2% +11.0%
S&P 500 +21.3 +15.1 +13.3
Cumulative total returns as of Aug. 31, 1995
Since
Purchase 1 year 5 Years inception
made ago ago April 30, 1986
Managed Fund +11.9% + 85.6% +164.4%
S&P 500 +21.3 +102.2 +220.7
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Average annual total returns as of Aug. 31, 1995
Since
Purchase 1 year inception
made ago Jan. 13, 1992
International
Equity Fund -1.8% + 8.9%
Morgan Stanley
Capital International
World Index +8.8 +10.2
Cumulative total returns as of Aug. 31, 1995
Since
Purchase 1 year inception
made ago Jan. 13, 1992
International
Equity Fund -1.8% +36.2%
Morgan Stanley
Capital International
World Index +8.8 +42.3
Average annual total returns as of Aug. 31, 1995
Since
Purchase 1 year inception
made ago Jan. 13, 1992
Aggressive Growth
Fund +26.8% +11.0%
S&P 500 +21.3 +11.7
Cumulative total returns as of Aug. 31, 1995
Since
Purchase 1 year inception
made ago Jan. 13, 1992
Aggressive Growth
Fund +26.8% +46.1%
S&P 500 +21.3 +49.2
These examples show total returns from hypothetical investments in
each Fund. These returns are compared to those of popular indexes
for the same periods. The results do not reflect the expenses that
apply to the variable accounts or the annuity contract. Inclusion
of these charges would reduce total return for all periods shown.
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PAGE 13
For purposes of calculation, information about each Fund assumes
the deduction of applicable fund expenses, makes no adjustments for
taxes that may have been paid on the reinvested income and capital
gains and covers a period of widely fluctuating securities prices.
Returns shown should not be considered a representation of the
Fund's future performance.
Each Fund's investments may be different from those in the indexes.
The indexes reflect reinvestment of all distributions and changes
in market prices, but exclude brokerage commissions or other fees.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance.
The Morgan Stanley Capital International World Index, compiled from
a composite of securities listed on the markets of North America,
Europe, Australasia and the Far East is widely recognized by
investors as the measurement index for portfolios that invest in
the major markets of the world.
Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities
and mortgage-backed securities. The index is frequently used as a
general measure of bond market performance. However, the
securities used to create the index may not be representative of
the bonds held in Special Income Fund.
Yield calculation
Special Income Fund may calculate a 30-day annualized yield by
dividing:
o net investment income per share deemed earned during a 30-day
period by
o the net asset value per share on the last day of the period,
and
o converting the result to a yearly equivalent figure.
This yield calculation does not include any annuity charges or
contingent deferred sales charges, which would reduce the yield
quoted.
A fund's yield varies from day to day, mainly because share values
and net asset values (which are calculated daily) vary in response
to changes in interest rates. Net investment income normally
changes much less in the short run. Thus, when interest rates rise
and share values fall, yield tends to rise. When interest rates
fall, yield tends to follow.
Moneyshare Fund calculates annualized simple and compound yields
based on a seven-day period.
Past yields should not be considered an indicator of future yields.
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PAGE 14
Key terms
Average annual total return - The annually compounded rate of
return over a given time period (usually two or more years) --
total return for the period converted to an equivalent annual
figure.
Capital gains or losses - Increase or decrease in value of the
securities the funds hold. Gains are realized when securities that
have increased in value are sold. A fund also may have unrealized
gains or losses when securities increase or decrease in value but
are not sold.
Close of business - Normally 3 p.m. Central time each business day
(any day the New York Stock Exchange is open).
Distributions - Payments to the variable accounts of two types:
investment income (dividends) and realized net long-term capital
gains (capital gains distributions).
Investment income - Dividends and interest earned on securities
held by the funds.
Net asset value (NAV) - Value of a single fund share. It is the
total market value of all of a fund's investments and other assets,
less any liabilities, divided by the number of shares outstanding.
The NAV is the price the variable account receives when it sells
shares. It usually changes from day to day, and is calculated at
the close of business. For Special Income Fund, NAV generally
declines as interest rates increase and rises as interest rates
decline.
Total return - Sum of all returns for a given period, assuming
reinvestment of all distributions. Calculated by taking the total
value of shares at the end of the period (including shares acquired
by reinvestment), less the price of shares purchased at the
beginning of the period.
Variable accounts - The separate accounts or subaccounts, each of
which invests in shares of one of the funds.
Yield - Net investment income earned per share for a specified time
period, divided by the net asset value at the end of the period.
Investment policies and risk
Capital Resource Fund - Under normal market conditions, Capital
Resource Fund invests primarily in U.S. common stocks and other
securities convertible into common stock. The portfolio manager
selects investments believed to have potential for capital growth.
The Fund also may invest in preferred stocks, bonds, debt
securities, foreign securities, money market instruments and
derivative instruments.
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PAGE 15
Special Income Fund - Under normal market conditions, Special
Income Fund invests primarily in debt securities. At least 50% of
its net assets are invested in corporate bonds of the four highest
ratings, in other corporate bonds the investment manager believes
have the same investment qualities and in government bonds.
The Fund also may invest in corporate bonds with lower ratings,
convertible securities, preferred stocks, derivative instruments,
money market instruments and foreign bonds.
Managed Fund - Under normal market conditions, Managed Fund invests
at least 50% of its total assets in common stocks. The Fund also
invests in preferred stocks, convertible securities, warrants,
bonds and money market instruments. Ordinarily, investments other
than common stock would constitute 50% or less of the Fund's
portfolio. However, under unusual market conditions, the Fund may
invest any portion of its assets in securities other than common
stocks. This allows the investment manager flexibility to best
achieve the Fund's goal. This might occur, for example, when
interest rates are high but are expected to decline significantly.
The Fund also may invest in derivative instruments and foreign
securities.
Moneyshare Fund - Under normal market conditions, Moneyshare Fund
invests primarily in high-quality, short-term, debt securities and
other money market instruments denominated in U.S. dollars. The
Fund intends to maintain a constant net asset value of $1 per
share, although there is no assurance it will be able to do so.
The Fund will not purchase any security with a remaining maturity
of more than 13 months and will maintain a dollar-weighted average
portfolio maturity of 90 days or less. The Fund also may invest in
foreign securities. For a description of money market securities,
see Appendix C in the SAI.
International Equity Fund - Under normal market conditions,
International Equity Fund invests at least 65% of its total assets
in foreign equity securities having a potential for superior
growth. Superior means fund performance better than the Morgan
Stanley Capital International World Index.
The Fund's investments will be primarily in common stocks and
securities convertible into common stocks of foreign issuers.
However, if the investment manager believes they have more
potential for capital growth, the Fund may invest in bonds issued
or guaranteed either by countries that are members of the
Organization for Economic Cooperation and Development (OECD) or by
international agencies such as the World Bank or the European
Investment Bank. These bonds will not be purchased unless, in the
judgment of the investment manager, they are comparable in quality
to bonds rated AA by Standard & Poor's Corporation (S&P).
The percentage of fund assets invested in particular countries or
regions of the world will change according to their political
stability and economic condition. Ordinarily, the Fund will invest
in companies domiciled in at least three foreign countries.
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PAGE 16
Normally, investments in U.S. issuers will constitute less than 20%
of the Fund's portfolio. However, as a temporary measure, the Fund
may invest any portion of its assets in securities of U.S. issuers
that appear to have greater potential for superior growth than
foreign securities. U.S. investments would include common stocks,
convertible securities and corporate and government bonds.
The bonds must bear one of the four highest ratings given by
Moody's Investors Service, Inc. (Moody's) or S&P or must be of
comparable quality. The Fund also may invest in money market
instruments and derivative instruments. No more than 5% of the
Fund's total assets may be invested in options on individual
securities.
Aggressive Growth Fund - Under normal market conditions, Aggressive
Growth Fund invests primarily in common stocks of U.S. and foreign
companies that are small- and medium-size growth companies. Many
of these companies emphasize technological innovation or
productivity improvements.
The Fund invests in warrants to purchase common stock, debt
securities or in securities of large, well-established companies
when the portfolio manager believes those investments offer the
best opportunity for capital growth. The Fund also may invest in
foreign securities, derivative instruments and money market
instruments.
The various types of investments the portfolio managers use to
achieve investment performance are described in more detail in the
next section and in the SAI.
Facts about investments and their risks
Common stocks: Stock prices are subject to market fluctuations.
Stocks of smaller or foreign companies or stocks of companies
experiencing significant growth and operating in areas of financial
and technological change may be subject to more abrupt or erratic
price movements than stocks of larger, established companies or the
stock market as a whole. Also, small companies often have limited
product lines, smaller markets or fewer financial resources.
Therefore, some of the securities in which a fund invests involve
substantial risk and may be considered speculative.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Convertible securities: These securities generally are preferred
stocks or bonds that can be exchanged for other securities, usually
common stock, at prestated prices. When the trading price of the
common stock makes the exchange likely, the convertible securities
trade more like common stock.
Debt securities: The price of an investment grade bond fluctuates
as interest rates change or if its credit rating is upgraded or
downgraded.
<PAGE>
PAGE 17
Debt securities below investment grade: The price of these bonds
may react more to the ability of a company to pay interest and
principal when due than to changes in interest rates. They have
greater price fluctuations, are more likely to experience a default
and sometimes are referred to as "junk bonds." Reduced market
liquidity for these bonds may occasionally make it more difficult
to value them. In valuing bonds, a fund relies both on independent
rating agencies and the investment manager's credit analysis.
Securities that are subsequently downgraded in quality may continue
to be held and will be sold only when the fund's investment manager
believes it is advantageous to do so.
<TABLE><CAPTION>
Bond ratings and holdings for fiscal year ended Aug. 31, 1995
For Special Income Fund
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
<S> <C> <C> <C>
23.11% AAA Highest quality 1.29%
2.58 AA High quality .08
9.68 A Upper medium grade .21
19.91 BBB Medium grade .45
14.29 BB Moderately speculative .09
10.04 B Speculative 1.51
.65 CCC Highly speculative .13
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
3.89 Unrated Unrated securities .13
Bond ratings and holdings for fiscal year ended Aug. 31, 1995
For Managed Fund
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
5.47% AAA Highest quality .06%
1.52 AA High quality --
2.05 A Upper medium grade .04
3.56 BBB Medium grade .06
2.68 BB Moderately speculative .01
1.79 B Speculative .24
.17 CCC Highly speculative .05
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.10 Unrated Unrated securities .64
</TABLE>
(See Appendix to the SAI for further information regarding
ratings.)
Debt securities sold at a deep discount: Some bonds are sold at
deep discounts because they do not pay interest until maturity.
They include zero coupon bonds and PIK (pay-in-kind) bonds. To
comply with tax laws, a fund has to recognize a computed amount of
<PAGE>
PAGE 18
interest income and pay dividends to shareholders even though no
cash has been received. In some instances, a fund may have to sell
securities to have sufficient cash to pay the dividends.
Mortgage-backed securities: All Funds except Moneyshare may invest
in U.S. government securities representing part ownership of pools
of mortgage loans. A pool, or group, of mortgage loans issued by
such lenders as mortgage bankers, commercial banks and savings and
loan associations, is assembled and mortgage pass-through
certificates are offered to investors through securities dealers.
In pass-through certificates, both principal and interest payments,
including prepayments, are passed through to the holder of the
certificate. Prepayments on underlying mortgages result in a loss
of anticipated interest, and the actual yield (or total return) to
the Fund, which is influenced by both stated interest rates and
market conditions, may be different than the quoted yield on the
certificates.
Foreign investments: Securities of foreign companies and
governments may be traded in the United States, but often they are
traded only on foreign markets. Frequently, there is less
information about foreign companies and less government supervision
of foreign markets. Foreign investments are subject to political
and economic risks of the countries in which the investments are
made including the possibility of seizure or nationalization of
companies, imposition of withholding taxes on income, establishment
of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a
foreign market, the local currency may be purchased using a forward
contract in which the price of the foreign currency in U.S. dollars
is established on the date the trade is made, but delivery of the
currency is not made until the securities are received. As long as
the fund holds foreign currencies or securities valued in foreign
currencies, the price of a fund share will be affected by changes
in the value of the currencies relative to the U.S. dollar.
Because of the limited trading volume in some foreign markets,
efforts to buy or sell a security may change the price of the
security and it may be difficult to complete the transaction. Each
Fund, except International Equity Fund may invest up to 25% of its
total assets at the time of purchase in securities of foreign
issuers.
Derivative instruments: For all Funds except Moneyshare, the
portfolio managers may use derivative instruments in addition to
securities to achieve investment performance. Derivative
instruments include futures, options and forward contracts. Such
instruments may be used to maintain cash reserves while remaining
fully invested, to offset anticipated declines in values of
investments, to facilitate trading, to reduce transaction costs or
to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily
change in price based on or derived from a security, a currency, a
group of securities or currencies or an index. A number of
strategies or combination of instruments can be used to achieve the
desired investment performance characteristics. A small change in
<PAGE>
PAGE 19
the value of the underlying security, currency or index will cause
a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow a portfolio manager to change the
investment performance characteristics very quickly and at lower
costs. Risks include losses of premiums, rapid changes in prices,
defaults by other parties and inability to close such instruments.
A fund will use derivative instruments only to achieve the same
investment performance characteristics it could achieve by directly
holding those securities and currencies permitted under the
investment policies. The Fund's custodian will maintain, in a
segregated account, cash or liquid high-grade debt securities that
are marked to market daily and are at least equal in value to the
Fund's obligations to the extent such obligations are not covered.
No more than 5% of each 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. For
further information, see the options and futures appendixes in the
SAI.
Securities and derivative instruments that are illiquid: Illiquid
means the security or derivative instrument cannot be sold quickly
in the normal course of business. Some investments cannot be
resold to the U.S. public because of their terms or government
regulations. All securities and derivative instruments, however,
can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. Each
portfolio manager will follow guidelines established by the board
of directors and consider relevant factors such as the nature of
the security and the number of likely buyers when determining
whether a security is illiquid. No more than 10% of each Fund's
net assets (zero for Moneyshare) will be held in securities and
derivative instruments that are illiquid.
Money market instruments: For all Funds except Moneyshare, short-
term debt securities rated in the top two grades are used to meet
daily cash needs and at various times to hold assets until better
investment opportunities arise. Generally, less than 25% of each
of Capital Resource, International Equity, Aggressive Growth,
Special Income and Managed Fund's total assets are in these money
market instruments. However, for temporary defensive purposes
these investments could exceed that amount for a limited period of
time.
The investment policies described above may be changed by the board
of directors.
Lending portfolio securities: Each Fund may lend its securities to
earn income so long as borrowers provide collateral equal to the
market value of the loans. The risks are that borrowers will not
provide collateral when required or return securities when due.
Unless a majority of the outstanding voting securities approve
otherwise, loans may not exceed 30% of a Fund's net assets.
<PAGE>
PAGE 20
Alternative investment options
In the future, the board of the Funds may determine for operating
efficiencies to use a master/feeder structure. Under that
structure, the Fund's investment portfolio would be managed by
another investment company with the same goal as the Fund, rather
than investing directly in a portfolio of securities.
Valuing assets
Moneyshare Fund's securities are valued at amortized cost. In
valuing assets of Capital Resource, International Equity,
Aggressive Growth, Special Income and Managed Funds:
o Securities and assets with available market values are valued
on that basis.
o Securities maturing in 60 days or less are valued at amortized
cost.
o Securities and assets without readily available market values
are valued according to methods selected in good faith by the
board of directors.
o Assets and liabilities denominated in foreign currencies are
translated daily into U.S. dollars at a rate of exchange set
as near to the close of the day as practicable.
How to invest, transfer or redeem shares
How to invest
You may invest in the Funds only by buying a variable annuity
contract. For further information concerning maximum and minimum
payments and submitting and acceptance of your application, see
your annuity prospectus.
How to transfer among variable accounts
You can transfer all or part of your value in a variable account to
one or more of the other variable accounts with different
investment objectives. Please refer to your variable annuity
prospectus for more information about transfers.
Redeeming shares
The Funds will buy (redeem) any shares presented by the variable
accounts. Surrender or withdrawal details are described in your
variable annuity prospectus.
Payment generally will be mailed within seven days of the
redemption request. The amount may be more or less than the amount
invested. Shares will be redeemed at net asset value at the close
of business on the day the request is accepted at the Minneapolis
office. If the request arrives after the close of business, the
price per share will be the net asset value at the close of
business on the next business day.
<PAGE>
PAGE 21
Distributions and taxes
The Funds distribute to shareholders (the variable accounts) net
investment income and net capital gains. They do so to qualify as
regulated investment companies and to avoid paying corporate income
and excise taxes.
Dividend and capital gain distributions
Capital Resource, International Equity, Aggressive Growth and
Managed Funds distribute their net investment income (dividends and
interest earned on securities held by the Fund, less operating
expenses) to shareholders (the variable accounts) at the end of
each calendar quarter. For Special Income and Moneyshare Funds,
net investment income is distributed monthly. Net realized capital
gains, if any, from selling securities are distributed at the end
of the calendar year. Before they are distributed, both net
investment income and net capital gains are included in the value
of each share. After they are distributed, the value of each share
drops by the per-share amount of the distribution. (Since the
distributions are reinvested, the total value of the holdings will
not change.) The reinvestment price is the net asset value at
close of business on the day the distribution is paid.
Taxes
The Internal Revenue Service has issued final regulations relating
to the diversification requirements under section 817(h) of the
Internal Revenue Code. Each Fund intends to comply with these
requirements.
Federal income taxation of variable accounts, life insurance
companies and annuities is discussed in your annuity prospectus.
Income received by International Equity Fund may be subject to
foreign tax and withholding. Tax conventions between certain
countries and the United States may reduce or eliminate those
taxes.
How the Funds are organized
IDS Life Investment Series, Inc., formerly known as IDS Life
Capital Resource Fund, Inc., is a series mutual fund. It has three
series of stock representing three separate, diversified funds -
Capital Resource, International Equity and Aggressive Growth Funds.
IDS Life Investment Series, Inc. was incorporated in Nevada on
April 27, 1981, but changed its state of incorporation to Minnesota
on June 13, 1986. Capital Resource Fund began operations on Aug.
31, 1982. International Equity and Aggressive Growth Funds began
operations on Jan. 13, 1992. IDS Life Special Income Fund, Inc.
and IDS Life Moneyshare Fund, Inc. were originally incorporated in
Nevada on April 27, 1981, but changed their state of incorporation
to Minnesota on June 13, 1986. IDS Life Managed Fund, Inc. was
incorporated in Minnesota on March 5, 1985.
<PAGE>
PAGE 22
Each Fund is an open-end investment company or series of an open-
end investment company registered under the Investment Company Act
of 1940, as amended. The headquarters of the Funds is IDS Tower
10, Minneapolis, MN 55440-0010. The Funds are part of the IDS
MUTUAL FUND GROUP, a family of funds that began in 1940.
Shares
A fund is owned by the variable accounts, its shareholders. All
shares issued by each Fund are of the same class -- capital stock.
Par value is 1 cent per share ($.001 for Managed Fund). Both full
and fractional shares can be issued.
Voting rights
For a discussion of the rights of annuity contract owners
concerning the voting of shares held by the variable accounts,
please see your annuity prospectus. All shares have equal voting
rights. In any matter requiring the vote of shareholders (the
fund's management and fundamental policies), IDS Life and its
affiliates will ask for instructions from the person with voting
rights. The number of votes you have is in proportion to the
amount you have allocated to each variable account. Your
instructions will be weighted in the same proportion and IDS Life
and its affiliates will vote them that way. We will vote those
shares for which we do not receive instructions, and those shares
for which we have voting rights, in the same proportion as the
shares for which we have received instructions.
Shareholder meetings
The Funds do not hold annual shareholder meetings. However, the
directors may call meetings at their discretion, or on demand by
holders of 10% or more of the outstanding shares, to elect or
remove directors. Meetings of the shareholders also may be called
on demand by the holders of 3% or more of the outstanding shares of
each Fund if no meeting has been held during the preceding 15
months.
Portfolio managers
Capital Resource Fund
Curt Weaver joined AEFC in 1979 and serves as senior portfolio
manager. He has managed this Fund since 1987. He also serves as a
member of the Growth Income team.
Special Income Fund
Steve Merrell joined AEFC in 1988 as a quantitative investment
analyst. He became portfolio manager of this Fund in January 1995.
From 1990 to 1991, Steve worked for JP Morgan Futures, Inc.
marketing futures-based investment strategies. Rejoining AEFC in
1991 as an associate portfolio manager, Steve was promoted to
portfolio manager in 1993. He manages a number of fixed-income
portfolios and also works as part of a team with IDS Global Bond
Fund.
<PAGE>
PAGE 23
Managed Fund
Mike Ducar joined AEFC in 1974 and serves as senior portfolio
manager. He has managed the equity portfolio of this Fund since
1991. He had served as director-investment research and vice
president of investment services. He also is a member of IDS
Growth Income team.
Deb Pederson joined AEFC in 1986 and serves as portfolio manager.
She has managed the fixed income portfolio of this Fund since
January 1994. She also manages the fixed income portfolio of IDS
Life Series Fund, Inc. - Managed Portfolio and the low grade
invested assets of IDS Life, IDS Life Insurance Company of New York
and American Enterprise Life Insurance Company.
Moneyshare Fund
Terry Fettig joined AEFC in 1986. He serves as portfolio manager
for this Fund, IDS Cash Management Fund and IDS Tax-Free Money
Fund. From 1986 to 1992 he was a fixed income securities analyst.
From 1992 to 1993 he was an associate portfolio manager.
International Equity Fund
Peter Lamaison joined AEFC in 1981 and serves as president and
chief executive officer of IDS International, Inc. and senior
portfolio manager. He has managed this Fund since 1992. He also
serves as portfolio manager of IDS International Fund.
Wes Wadman joined AEFC in 1964 and serves as executive vice
president of IDS International, Inc. and as executive vice
president of IDS Advisory Group Inc. He has served as portfolio
manager of this Fund since its inception.
Paul Hopkins joined AEFC in 1992 and serves as chief investment
officer and executive vice president of IDS International, Inc. He
was appointed to the portfolio management team of this Fund in
January 1994. He also serves as portfolio manager of IDS
International Fund. Prior to joining AEFC, he was director of
international equities for Bankers Trust.
Aggressive Growth Fund
Marty Hurwitz joined AEFC in 1987 and serves as portfolio manager.
He was appointed to manage this Fund in January 1995. He has
managed IDS Life Series Fund, Inc. - Equity Portfolio since July
1993 and also manages accounts for IDS Advisory Portfolio
Management Group.
Directors and officers
Shareholders elect a board of directors who oversee the operations
of the Funds and choose its officers. Its officers are responsible
for day-to-day business decisions based on policies set by the
board. The board has named an executive committee that has
authority to act on its behalf between meetings. The directors
<PAGE>
PAGE 24
also serve on the boards of all of the other funds in the IDS
MUTUAL FUND GROUP. On Aug. 31, 1995, the Fund's directors and
officers did not own any shares of the Funds.
Directors and officers of the Funds
President and interested director
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
Independent directors
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board and chief executive officer, The Valspar
Corporation.
Interested directors who are officers and/or employees of AEFC
David R. Hubers
President and chief executive officer, AEFC.
James A. Mitchell
Executive vice president, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Vice president of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.<PAGE>
PAGE 25
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Refer to the SAI for the directors' and officers' biographies.
Investment manager
Each Fund pays IDS Life for managing its portfolio and serving as
transfer agent.
Under its Investment Management Services Agreement, IDS Life
determines which securities will be purchased, held or sold
(subject to the direction and control of the Fund's board of
directors). Under the current agreement, the Funds pay IDS Life a
fee for these services based on the average daily net assets of
each Fund, as follows:
Capital Resource Fund
Assets Annual rate at
(billions) each asset level
First $1 0.630%
Next $1 0.615
Next $1 0.600
Next $3 0.585
Over $6 0.570
Special Income Fund
Assets Annual rate at
(billions) each asset level
First $1 0.610%
Next $1 0.595
Next $1 0.580
Next $3 0.565
Next $3 0.550
Over $9 0.535
Managed Fund
Assets Annual rate at
(billions) each asset level
First $0.5 0.630%
Next $0.5 0.615
Next $1 0.600
Next $1 0.585
Next $3 0.570
Over $6 0.550
<PAGE>
PAGE 26
Moneyshare Fund
Assets Annual rate at
(billions) each asset level
First $1 0.510%
Next $0.5 0.493
Next $0.5 0.475
Next $0.5 0.458
Over $2.5 0.440
International Equity Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.870%
Next $0.25 0.855
Next $0.25 0.840
Next $0.25 0.825
Next $1 0.810
Over $2 0.795
Aggressive Growth Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.650%
Next $0.25 0.635
Next $0.25 0.620
Next $0.25 0.605
Next $1 0.590
Over $2 0.575
For the fiscal year ended Aug. 31, 1995, under the prior and
current agreements, Capital Resource Fund paid IDS Life a total
investment management fee of .63% of its average daily net assets.
Special Income Fund paid .63%, Managed Fund paid .63%, Moneyshare
Fund paid .54%, International Equity Fund paid .87% and Aggressive
Growth Fund paid .63%. Under this Agreement, each Fund also pays
taxes, brokerage commissions and nonadvisory expenses. Total fees
and expenses for fiscal year 1995 were .69% for Capital Resource
Fund, .68% for Special Income Fund, .68% for Managed Fund, .59% for
Moneyshare Fund, 1.03% for International Equity Fund and .70% for
Aggressive Growth Fund.
Administrative Services Agreement
Under an Administrative Services Agreement, each Fund pays AEFC for
administration and accounting services as follows:
Capital Resource Fund
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next $1 0.045
Next $1 0.040
Next $3 0.035
Over $6 0.030<PAGE>
PAGE 27
Special Income Fund
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next $1 0.045
Next $1 0.040
Next $3 0.035
Next $3 0.030
Over $9 0.025
Managed Fund
Assets Annual rate at
(billions) each asset level
First $0.5 0.040%
Next $0.5 0.035
Next $1 0.030
Next $1 0.025
Next $3 0.020
Over $6 0.020
Moneyshare Fund
Assets Annual rate at
(billions) each asset level
First $1 0.030%
Next $0.5 0.027
Next $0.5 0.025
Next $0.5 0.022
Over $2.5 0.020
International Equity Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next $0.25 0.055
Next $0.25 0.050
Next $0.25 0.045
Next $1 0.040
Over $2 0.035
Aggressive Growth Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next $0.25 0.055
Next $0.25 0.050
Next $0.25 0.045
Next $1 0.040
Over $2 0.035
<PAGE>
PAGE 28
Investment advisory agreements
IDS Life and AEFC have an Investment Advisory Agreement under which
AEFC executes purchases and sales and negotiates brokerage as
directed by IDS Life. For its services, IDS Life pays AEFC a fee
based on a percentage of each Fund's average daily net assets for
the year. This fee is equal to 0.50% for International Equity Fund
and 0.25% for each remaining fund.
AEFC has a Sub-investment Advisory Agreement with IDS
International, Inc. (International), a wholly owned subsidiary of
AEFC.
International's principal place of business is located at IDS Tower
10, Minneapolis, MN 55440-0010, while it also conducts investment
advisory business in London, England. International has had assets
under management since 1981. International determines the
securities that will be purchased, held or sold and executes
purchases and sales for International Equity Fund as directed by
AEFC. For its services, AEFC pays International a fee equal on an
annual basis to 0.50% of International Equity Fund's average daily
net assets.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also
insurance, annuities, investment certificates and a broad range of
financial management services.
Besides managing investments for all publicly offered funds in the
IDS MUTUAL FUND GROUP, AEFC also manages investments for itself and
its subsidiaries, IDS Certificate Company and IDS Life. Total
assets under management on Aug. 31, 1995 were more than $124
billion.
IDS Life is a stock life insurance company organized in 1957 under
the laws of the State of Minnesota and located at IDS Tower 10,
Minneapolis, MN 55440-0010. IDS Life conducts a conventional life
insurance business in the District of Columbia and all states
except New York.
Other AEFC subsidiaries provide investment management and related
services for pension, profit sharing, employee savings and
endowment funds of businesses and institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It 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. The Funds may pay brokerage
commissions to broker-dealer affiliates of American Express and
AEFC.
<PAGE>
PAGE 29
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN
55440-0010
Managed by IDS Life Insurance Company
<PAGE>
PAGE 30
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS Life Investment Series, Inc.
IDS Life Capital Resource Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
IDS Life Special Income Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
April 30, 1996
This Statement of Additional Information (SAI), is not a
prospectus. It should be read together with the Funds' prospectus
and the financial statements contained in the Funds' Annual Report
which, if not included with your prospectus, may be obtained
without charge.
This SAI is dated April 30, 1996, and it is to be used with the
Funds' prospectus dated April 30, 1996. It is also to be used with
the Funds' Annual Report for the fiscal year ended Aug. 31, 1995.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
800-633-4003
612-671-3733
<PAGE>
PAGE 31
TABLE OF CONTENTS
Goals and Investment Policies........................See Prospectus
Additional Investment Policies................................p. 4
Portfolio Transactions........................................p. 21
Brokerage Commissions Paid to Brokers
Affiliated with IDS Life......................................p. 25
Performance Information.......................................p. 28
Valuing Each Fund's Shares....................................p. 31
Investing in the Funds........................................p. 33
Redeeming Shares..............................................p. 34
Capital Loss Carryover........................................p. 34
Taxes.........................................................p. 35
Agreements with IDS Life and American Express Financial
Corporation...................................................p. 35
Directors and Officers........................................p. 40
Custodian.....................................................p. 46
Independent Auditors..........................................p. 46
Financial Statements....................See Annual Report and p. 46
Prospectus....................................................p. 47
Appendix A: Description of Corporate Bond Ratings and
Additional Information on Investment Policies
for Investments of Capital Resource and Special
Income Funds.....................................p. 48
Appendix B: Foreign Currency Transactions for Investments
of all Funds except Moneyshare...................p. 50
Appendix C: Description of Money Market Securities...........p. 55
Appendix D: Options and Stock Index Futures Contracts for
Investments of Capital Resource, International
Equity, Aggressive Growth and Managed Funds......p. 57
Appendix E: Options and Interest Rate Futures Contracts
for Investments of Special Income and Managed
Funds............................................p. 65
<PAGE>
PAGE 32
Appendix F: Mortgage-backed securities and Additional
Information on Investment Policies for all
Funds except Moneyshare..........................p. 71
Appendix G: Dollar-Cost Averaging............................p. 74
<PAGE>
PAGE 33
ADDITIONAL INVESTMENT POLICIES
In addition to the investment goals and policies presented in the
prospectus, each Fund has the investment policies stated below.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Capital Resource agree to a change, Capital Resource will not:
'Invest more than 5% of its total assets, at market value, 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. Up to 25% of the Fund's total assets may be
invested without regard to this 5% limitation.
'Purchase securities of an issuer if the directors and officers of
the Fund, American Express Financial Corporation (AEFC) and IDS
Life Insurance Company (IDS Life) hold more than a certain
percentage of the issuer's outstanding securities. If the holdings
of all officers and directors of the Fund, AEFC and IDS Life who
own more than 0.5% of an issuer's securities are added together,
and if in total they own more than 5%, the Fund will not purchase
securities of that issuer.
'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 the Fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The Fund has not borrowed in the past and has no
present intention to borrow.
'Lend portfolio securities in excess of 30% of the Fund's net
assets, at market value. The current policy of the Fund's board of
directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans, the fund gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board of directors. 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. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities.
'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. It may be considered an underwriter under
securities laws when it sells restricted securities.
<PAGE>
PAGE 34
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of a Fund's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'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.
'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.
'Make cash loans if the total commitment amount exceeds 5% of the
fund's total assets.
Unless changed by the board of directors, the following policies
apply to Capital Resource, Capital Resource will not:
'Buy on margin or sell short, except it may enter into stock index
futures contracts.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral programs.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest more than 5% of its net assets in warrants. If required by
law, no more than 2% of the Fund's net assets may be invested in
warrants not listed on an exchange.
'Invest more than 10% of the Fund's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
repurchase agreements with maturities greater than seven days, non-
negotiable fixed-time deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
<PAGE>
PAGE 35
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board of directors, will evaluate
relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the
clearance and settlement procedures for the paper.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The Fund may purchase short-term U.S. and
Canadian government securities. The Fund may purchase short-term
corporate notes and obligations rated in the top two
classifications by Moody's and S&P or the equivalent. The Fund may
invest in bank obligations including negotiable certificates of
deposit (CDs), non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit of banks or savings and loan
associations having capital, surplus and undivided profits (as of
the date of its most recently published annual financial
statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to that Fund's limitations on foreign investments.
The Fund may use repurchase agreements with broker-dealers
registered under the Securities Exchange Act of 1934 and with
commercial U.S. banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the Fund's
ability to liquidate the security involved could be impaired.
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). A Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund's custodian will maintain,
in a segregated account, cash or liquid high-grade debt securities
that are marked to market daily and are at least equal in value to
the Fund's commitments to purchase the securities. When-issued
securities or forward commitments are subject to market
fluctuations and they may affect the fund's total assets the same
as owned securities.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of International Equity agree to a change, International Equity
will not:
'Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
<PAGE>
PAGE 36
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the Fund's total assets may be
invested without regard to this 5% limitation.
'Purchase securities of an issuer if the directors and officers of
the Fund, AEFC and IDS Life hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all
officers and directors of the Fund, AEFC and IDS Life who own more
than 0.5% of an issuer's securities are added together, and if in
total they own more than 5%, the Fund will not purchase securities
of that issuer.
'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 the Fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The Fund has not borrowed in the past and has no
present intention to borrow.
'Lend portfolio securities in excess of 30% of the Fund's net
assets, at market value. The current policy of the Fund's board of
directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans, the Fund gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board of directors. 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. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities.
'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. It may be considered an underwriter under
securities laws when it sells restricted securities.
'Concentrate in any one industry. According to the present
interpretation by the SEC, this means no more than 25% of a Fund's
total assets, based on current market value at time of purchase,
can be invested in any one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'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.
<PAGE>
PAGE 37
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'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.
'Make a loan of any part of its assets to AEFC, to its directors
and officers or to its own directors and officers.
'Issue senior securities, except to the extent that borrowing from
banks, lending its securities, or entering into repurchase
agreements or options or futures contracts may be deemed to
constitute issuing a senior security.
Unless changed by the board of directors, the following policies
apply to International Equity, International Equity will not:
'Buy on margin or sell short, except it may enter into stock index
futures contracts.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral programs.
'Invest more than 5% of its net assets in securities of domestic or
foreign companies, including any predecessors, that have a record
of less than three years continuous operations.
'Pledge or mortgage its assets beyond 15% of total assets. If the
Fund were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its net assets in warrants. If required by
law, no more than 2% of the Fund's net assets may be invested in
warrants not listed on an exchange.
'Invest in securities of investment companies except by purchase in
the open market where the dealer's or sponsor's profit is the
regular commission. If any such investment is ever made, not more
than 10% of the Fund's net assets, at market, will be so invested.
To the extent the Fund were to make such investments, the
shareholders may be subject to duplicate advisory, administrative
and distribution fees.
'Invest more than 10% of the Fund's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
<PAGE>
PAGE 38
reason or another may no longer have a readily available market,
repurchase agreements with maturities greater than seven days, non-
negotiable fixed-time deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board of directors, will evaluate
relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the
clearance and settlement procedures for the paper.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. On a day-to-day basis, the Fund also may
maintain a portion of its assets in currencies of countries other
than the United States, Canada and the United Kingdom. As a
temporary investment, during periods of weak or declining market
values for the securities the Fund invests in, any portion of its
assets may be converted to cash (in foreign currencies or U.S.
dollars) or to short-term debt securities. The Fund may purchase
short-term U.S. and Canadian government securities. The Fund may
invest in short-term obligations of the U.S. government (and its
agencies and instrumentalities) and of the Canadian and United
Kingdom governments. The Fund may purchase short-term corporate
notes and obligations rated in the top two classifications by
Moody's and S&P or the equivalent. The Fund also may purchase high
grade notes and obligations of U.S. banks (including their branches
located outside of the United States and U.S. branches of foreign
banks). The Fund may invest in bank obligations including
negotiable certificates of deposit (CDs), non-negotiable fixed-time
deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided
profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent
in the instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to that Fund's limitations on foreign investments.
The Fund may use repurchase agreements with broker-dealers
registered under the Securities Exchange Act of 1934 and with
commercial U.S. banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the Fund's
ability to liquidate the security involved could be impaired.
<PAGE>
PAGE 39
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). A Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund's custodian will maintain,
in a segregated account, cash or liquid high-grade debt securities
that are marked to market daily and are at least equal in value to
the Fund's commitments to purchase the securities. When-issued
securities or forward commitments are subject to market
fluctuations and they may affect the Fund's total assets the same
as owned securities.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Aggressive Growth agree to a change, Aggressive Growth will not:
'Invest more than 5% of its total assets, at market value, 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. Up to 25% of the Fund's total assets may be
invested without regard to this 5% limitation.
'Purchase securities of an issuer if the directors and officers of
the Fund, AEFC and IDS Life hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all
officers and directors of the Fund, AEFC and IDS Life who own more
than 0.5% of an issuer's securities are added together, and if in
total they own more than 5%, the Fund will not purchase securities
of that issuer.
'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 the Fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The Fund has not borrowed in the past and has no
present intention to borrow.
'Lend portfolio securities in excess of 30% of the Fund's net
assets, at market value. The current policy of the Fund's board of
directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans, the Fund gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board of directors. 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. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities.
<PAGE>
PAGE 40
'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. It may be considered an underwriter under
securities laws when it sells restricted securities.
'Concentrate in any one industry. According to the present
interpretation by the SEC, this means no more than 25% of a Fund's
total assets, based on current market value at time of purchase,
can be invested in any one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'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.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'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.
'Make a loan of any part of its assets to AEFC, to its directors
and officers or to its own directors and officers.
Unless changed by the board of directors, the following policies
apply to Aggressive Growth, Aggressive Growth will not:
'Buy on margin or sell short, except it may enter into stock index
futures contracts.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral programs.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest more than 5% of its total assets in securities of domestic
or foreign companies, including any predecessors, that have a
record of less than three years continuous operations.
'Pledge or mortgage its assets beyond 15% of total assets. If the
Fund were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
<PAGE>
PAGE 41
'Invest more than 5% of its net assets in warrants. If required by
law, no more than 2% of the Fund's net assets may be invested in
warrants not listed on an exchange.
'Invest more than 10% of the Fund's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
repurchase agreements with maturities greater than seven days, non-
negotiable fixed-time deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board of directors, will evaluate
relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the
clearance and settlement procedures for the paper.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The Fund may purchase short-term U.S. and
Canadian government securities. The Fund may purchase short-term
corporate notes and obligations rated in the top two
classifications by Moody's and S&P or the equivalent. The Fund may
invest in bank obligations including negotiable certificates of
deposit (CDs), non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit of banks or savings and loan
associations having capital, surplus and undivided profits (as of
the date of its most recently published annual financial
statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to that Fund's limitations on foreign investments.
The Fund may use repurchase agreements with broker-dealers
registered under the Securities Exchange Act of 1934 and with
commercial U.S. banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the Fund's
ability to liquidate the security involved could be impaired.
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). A Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund's custodian will maintain,<PAGE>
PAGE 42
in a segregated account, cash or liquid high-grade debt securities
that are marked to market daily and are at least equal in value to
the Fund's commitments to purchase the securities. When-issued
securities or forward commitments are subject to market
fluctuations and they may affect the Fund's total assets the same
as owned securities.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Special Income agree to a change, Special Income will not:
'Invest more than 5% of its total assets, at market value, 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. Up to 25% of the Fund's total assets may be
invested without regard to this 5% limitation.
'Purchase securities of an issuer if the directors and officers of
the fund, AEFC and IDS Life hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all
officers and directors of the Fund, AEFC and IDS Life who own more
than 0.5% of an issuer's securities are added together, and if in
total they own more than 5%, the Fund will not purchase securities
of that issuer.
'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 the Fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The Fund has not borrowed in the past and has no
present intention to borrow.
'Lend portfolio securities in excess of 30% of the Fund's net
assets, at market value. The current policy of the Fund's board of
directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans, the Fund gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board of directors. 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. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities.
'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. It may be considered an underwriter under
securities laws when it sells restricted securities.<PAGE>
PAGE 43
'Concentrate in any one industry. According to the present
interpretation by the SEC, this means no more than 25% of a Fund's
total assets, based on current market value at time of purchase,
can be invested in any one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'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.
'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.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
Unless changed by the board of directors, the following policies
apply to Special Income, Special Income will not:
'Buy on margin or sell short, except it may enter into interest
rate futures contracts.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral programs.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest more than 5% of its net assets in warrants. If required by
law, no more than 2% of the fund's net assets may be invested in
warrants not listed on an exchange.
'Invest more than 10% of the Fund's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
loans and loan participations, repurchase agreements with
maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
<PAGE>
PAGE 44
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board of directors, will evaluate
relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the
clearance and settlement procedures for the paper.
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 if the
borrower defaults or becomes insolvent and may offer less legal
protection to the fund in the event of fraud or misrepresentation.
In addition, loan participations involve a risk of insolvency of
the lender or other financial intermediary.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The Fund may purchase short-term U.S. and
Canadian government securities. The Fund may purchase short-term
corporate notes and obligations rated in the top two
classifications by Moody's and S&P or the equivalent. The Fund may
invest in bank obligations including negotiable certificates of
deposit (CDs), non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit of banks or savings and loan
associations having capital, surplus and undivided profits (as of
the date of its most recently published annual financial
statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to that Fund's limitations on foreign investments.
The Fund may use repurchase agreements with broker-dealers
registered under the Securities Exchange Act of 1934 and with
commercial U.S. banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the Fund's
ability to liquidate the security involved could be impaired.
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). A Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund's custodian will maintain,
in a segregated account, cash or liquid high-grade debt securities
that are marked to market daily and are at least equal in value to
the fund's commitments to purchase the securities. When-issued
securities or forward commitments are subject to market
fluctuations and they may affect the fund's total assets the same
as owned securities.
<PAGE>
PAGE 45
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Moneyshare agree to a change, Moneyshare will not:
'Invest more than 5% of its total assets, at market value, 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.
'Buy on margin or sell short.
'Invest in a company to control or manage it.
'Purchase securities of an issuer if the directors and officers of
the Fund, AEFC and IDS Life hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all
officers and directors of the Fund, AEFC and IDS Life who own more
than 0.5% of an issuer's securities are added together, and if in
total they own more than 5%, the Fund will not purchase securities
of that issuer.
'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 the fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The Fund has not borrowed in the past and has no
present intention to borrow.
'Lend portfolio securities in excess of 30% of the Fund's net
assets, at market value. The current policy of the Fund's board of
directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans, the Fund gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board of directors. 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. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities.
'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. It may be considered an underwriter under
securities laws when it sells restricted securities.
'Invest in exploration or development programs, such as oil, gas or
mineral programs.
<PAGE>
PAGE 46
'Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal
bonds, or industrial revenue bonds.
'Make cash loans. However, the Fund does make short-term
investments which it may have an agreement with the seller to
reacquire (See Appendix C).
'Invest in an investment company beyond 5% of its total assets
taken at market and then only on the open market where the dealer's
or sponsor's profit is limited to the regular commission. However,
the Fund will not purchase or retain the securities of other open-
end investment companies.
'Buy or sell real estate, commodities or commodity contracts.
'Intentionally invest more than 25% of the Fund's assets taken at
market value in any particular industry, except with respect to
investing in U.S. government or agency securities and bank
obligations. Investments are varied according to what is judged
advantageous under different economic conditions.
Unless changed by the board of directors, the following policies
apply to Moneyshare, Moneyshare will not:
'Invest in securities that are not readily marketable (whether or
not registration or the filing of a notification under the
Securities Act of 1933, or the taking of similar action under other
securities laws relating to the sale of securities is required).
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The Fund may purchase short-term U.S. and
Canadian government securities. The Fund may purchase short-term
corporate notes and obligations rated in the top two
classifications by Moody's and S&P or the equivalent. The fund may
invest in bank obligations including negotiable certificates of
deposit (CDs), non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit of banks or savings and loan
associations having capital, surplus and undivided profits (as of
the date of its most recently published annual financial
statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to that Fund's limitations on foreign investments.
The Fund may use repurchase agreements with broker-dealers
registered under the Securities Exchange Act of 1934 and with
commercial U.S. banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the Fund's
ability to liquidate the security involved could be impaired. The
security acquired by the Fund in a repurchase agreement can be any
security the Fund can purchase directly and it may have a maturity
of more than 13 months.
The Fund may invest in commercial paper rated in the highest rating
category by at least two nationally recognized statistical rating
organizations (or by one, if only one rating is assigned) and in<PAGE>
PAGE 47
unrated paper determined by the board of directors to be of
comparable quality. The Fund also may invest up to 5% of its
assets in commercial paper receiving the second highest rating or
in unrated paper determined to be of comparable quality.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Managed agree to a change, Managed will not:
'Invest more than 5% of its total assets, at market value, 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. Up to 25% of the Fund's total assets may be
invested without regard to this 5% limitation.
'Purchase securities of an issuer if the directors and officers of
the Fund, AEFC and IDS Life hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all
officers and directors of the Fund, AEFC and IDS Life who own more
than 0.5% of an issuer's securities are added together, and if in
total they own more than 5%, the Fund will not purchase securities
of that issuer.
'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 the Fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The Fund has not borrowed in the past and has no
present intention to borrow.
'Lend portfolio securities in excess of 30% of the Fund's net
assets, at market value. The current policy of the Fund's board of
directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans, the Fund gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board of directors. 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. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities.
'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. It may be considered an underwriter under
securities laws when it sells restricted securities.<PAGE>
PAGE 48
'Concentrate in any one industry. According to the present
interpretation by the SEC, this means no more than 25% of a Fund's
total assets, based on current market value at time of purchase,
can be invested in any one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'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.
'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.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'Make a loan of any part of its assets to AEFC, to its directors
and officers or to its own directors and officers.
'Issue senior securities, except to the extent that borrowing from
banks, lending its securities, or entering into repurchase
agreements or options or futures contracts may be deemed to
constitute issuing a senior security.
Unless changed by the board of directors, the following policies
apply to Managed, Managed will not:
'Buy on margin or sell short, except it may enter into stock index
futures and interest rate futures contracts.
'Invest in a company to control or manage it.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest more than 5% of its total assets in securities of domestic
or foreign companies, including any predecessors, that have a
record of less than three years continuous operations.
'Pledge or mortgage its assets beyond 15% of total assets. If the
Fund were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its net assets in warrants. If required by
law, no more than 2% of the Fund's net assets may be invested in
warrants not listed on an exchange.
<PAGE>
PAGE 49
'Invest in a company if its investments would result in the total
holdings of all the funds in the IDS MUTUAL FUND GROUP being in
excess of 15% of that company's issued shares.
'Invest more than 10% of the Fund's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
loans and loan participations, repurchase agreements with
maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board of directors, will evaluate
relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the
clearance and settlement procedures for the paper.
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 if the
borrower defaults or becomes insolvent and may offer less legal
protection to the fund in the event of fraud or misrepresentation.
In addition, loan participations involve a risk of insolvency of
the lender or other financial intermediary.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The Fund may purchase short-term U.S. and
Canadian government securities. The Fund may purchase short-term
corporate notes and obligations rated in the top two
classifications by Moody's and S&P or the equivalent. The Fund may
invest in bank obligations including negotiable certificates of
deposit (CDs), non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit of banks or savings and loan
associations having capital, surplus and undivided profits (as of
the date of its most recently published annual financial
statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
<PAGE>
PAGE 50
will be subject to that Fund's limitations on foreign investments.
The Fund may use repurchase agreements with broker-dealers
registered under the Securities Exchange Act of 1934 and with
commercial U.S. banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the Fund's
ability to liquidate the security involved could be impaired.
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). A Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund's custodian will maintain,
in a segregated account, cash or liquid high-grade debt securities
that are marked to market daily and are at least equal in value to
the Fund's commitments to purchase the securities. When-issued
securities or forward commitments are subject to market
fluctuations and they may affect the Fund's total assets the same
as owned securities.
For a discussion on corporate bond ratings and additional
information on investment policies, see Appendix A. For a
discussion on foreign currency transactions, see Appendix B. For a
discussion on money market securities, see Appendix C. For a
discussion on options and stock index futures contracts, see
Appendix D. For a discussion on options and interest rate futures
contracts, see Appendix E. For a discussion on dollar-cost
averaging, see Appendix F.
PORTFOLIO TRANSACTIONS
Subject to policies set by the board of directors, AEFC, IDS
International, Inc. (International) and IDS Life are authorized to
determine, consistent with the Funds' investment goals and
policies, which securities will be purchased, held or sold. In
determining where buy and sell orders are to be placed, AEFC,
International and IDS Life have been directed to use their best
efforts to obtain the best available price and the most favorable
execution except where otherwise authorized by the board of
directors. IDS Life intends to direct AEFC and International to
execute trades and negotiate commissions on its behalf. These
services are covered by the Investment Advisory Agreement between
AEFC and IDS Life and the Sub-Investment Advisory Agreement between
AEFC and International. When AEFC and International act on IDS
Life's behalf for the Funds, they follow the rules described here
for IDS Life.
On occasion, it may be desirable for Capital Resource,
International Equity, Aggressive Growth, Special Income or Managed
Funds 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 boards of directors have adopted a policy authorizing
IDS Life to do so to the extent authorized by law, if IDS Life
determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services
<PAGE>
PAGE 51
provided by a broker or dealer, viewed either in the light of that
transaction or IDS Life's, AEFC's or International's overall
responsibilities to the funds in the IDS MUTUAL FUND GROUP.
Research provided by brokers supplements AEFC's and International's
own research activities. Research services include economic data
on, and analysis of: the U.S. economy and specific industries
within the economy; information about specific companies, including
earning 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 includes
the research, portfolio management and trading functions and such
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, IDS
Life must follow procedures authorized by the board of directors.
To date, three procedures have been authorized. One procedure
permits IDS Life 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
IDS Life, 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 the
security. The commission paid generally includes compensation for
research services. The third procedure permits IDS Life, in order
to obtain research and brokerage services, to cause each fund to
pay a commission in excess of the amount another broker might have
charged.
IDS Life has advised the Funds that it is necessary to do business
with a number of brokerage firms on a continuing basis to obtain
such services as: handling of large orders; willingness of a
broker to risk its own money by taking a position in a security;
and specialized handling of a particular group of securities that
only certain brokers may be able to offer. As a result of this
arrangement, some portfolio transactions may not be effected at the
lowest commission, but IDS Life believes it may obtain better
overall execution. IDS Life has assured the Funds that under all
three procedures the amount of commission paid will be reasonable
and competitive in relation to the value of the brokerage services
performed or research provided.
All other transactions shall be placed on the basis of obtaining
the best available price and the most favorable execution. In so
doing, if, in the professional opinion of the person responsible
<PAGE>
PAGE 52
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 IDS Life, AEFC and International in providing advice
to all the funds in the IDS MUTUAL FUND GROUP and other accounts
advised by IDS Life, AEFC and International, even though it is not
possible to relate the benefits to any particular fund or account.
Normally, the securities of Special Income and Moneyshare Funds are
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.
Each investment decision made for each fund is made independently
from any decision made for another fund in the IDS MUTUAL FUND
GROUP or other account advised by AEFC or any AEFC subsidiary.
When a fund buys or sells the same security as another fund or
account, AEFC or International 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 a fund, the fund hopes to gain an overall
advantage in execution. AEFC and International have assured the
Funds they will continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC and International make a comprehensive
review of the broker-dealers and the overall reasonableness of
their commissions. The review evaluates execution, operational
efficiency and research services.
The Funds have paid the following brokerage commissions:
<TABLE><CAPTION>
Fiscal year ended Capital International Aggressive Special
Aug. 31, Resource Equity Growth Income Managed
<S> <C> <C> <C> <C> <C>
1993 2,957,827 820,299 225,254 14,954 1,487,314
1994 5,296,360 3,039,515 756,105 19,938 2,543,362
1995 7,692,690 2,466,949 2,171,645 34,918 3,072,774
</TABLE>
Transactions amounting to $238,069,000, $447,000 $16,231,000 and
$42,271,000 with related commissions of $235,915, $1,076 $58,533
and $75,531 were directed to brokers by Capital Resource,
International Equity, Aggressive Growth and Managed Funds,
respectively, because of research services received for the fiscal
year ended Aug. 31, 1995.
Capital Resource Fund's acquisition during the fiscal year ended
Aug. 31, 1995, of securities of its regular brokers or dealers or
of the parents of those brokers or dealers that derived more than
15% of gross revenue from securities-related activities is
presented below:
<PAGE>
PAGE 53
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Goldman Sachs $ 998,252
First Chicago 32,093,050
Aggressive Growth Fund's acquisition during the fiscal year ended
Aug. 31, 1995, of securities of its regular brokers or dealers or
of the parents of those brokers or dealers that derived more than
15% of gross revenue from securities-related activities is
presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Goldman Sachs $7,786,367
Salomon Brothers 6,140,000
Merrill Lynch 2,472,422
Special Income Fund's acquisition during the fiscal year ended
Aug. 31, 1995, of securities of its regular brokers or dealers or
of the parents of those brokers or dealers that derived more than
15% of gross revenue from securities-related activities is
presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
First Chicago $2,571,250
BankAmerica 7,769,925
Salomon Brothers 4,983,888
Moneyshare Fund's acquisition during the fiscal year ended
Aug. 31, 1995, of securities of its regular brokers or dealers or
of the parents of those brokers or dealers that derived more than
15% of gross revenue from securities-related activities is
presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Goldman Sachs $7,956,074
Merrill Lynch 5,769,581
Managed Fund's acquisition during the fiscal year ended Aug. 31,
1995, of securities of its regular brokers or dealers or of the
parents of those brokers or dealers that derived more than 15% of
gross revenue from securities-related activities is presented
below:
<PAGE>
PAGE 54
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
BankAmerica $14,125,000
First Chicago 25,350,000
Goldman Sachs 3,693,533
Salomon Brothers 10,329,092
Aggressive Growth Fund did not acquire securities of its regular
brokers or dealers or of the parents of those brokers or dealers
that derived more than 15% of gross revenue from securities-related
activities during the fiscal year ended Aug. 31, 1995.
Because certain groups of bonds have different yields, Special
Income Fund may do some short-term trading. As a result, the
portfolio turnover rate may be greater than 100% annually which may
be higher than the rate of other funds with similar goals. A
turnover rate of 100% would occur, for example, if all the
securities in the Fund's portfolio were replaced in the period of
one year. The Fund's turnover rate was 57% in fiscal year ended
Aug. 31, 1994 and 56% in fiscal year ended Aug. 31, 1995.
The portfolio turnover rate for Capital Resource Fund was 85% in
fiscal year ended Aug. 31, 1994 and 88% in fiscal year ended Aug.
31, 1995. The portfolio turnover rate for Managed Fund was 79% in
fiscal year ended Aug. 31, 1994 and 72% in fiscal year ended Aug.
31, 1995.
The portfolio turnover rate for International Equity Fund was 51%
in fiscal year ended Aug. 31, 1994 and 38% in fiscal year ended
Aug. 31, 1995. The portfolio turnover rate for Aggressive Growth
Fund was 59% in fiscal year ended Aug. 31, 1994 and 116% in fiscal
year ended Aug. 31, 1995.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE
Affiliates of American Express Company (American Express) (of which
IDS Life is a wholly owned indirect subsidiary) may engage in
brokerage and other securities transactions on behalf of Capital
Resource, International Equity, Aggressive Growth, Special Income
and Managed Funds in accordance with procedures adopted by the
Funds' boards of directors and to the extent consistent with
applicable provisions of the federal securities laws. IDS Life
will use an American Express affiliate only if (i) IDS Life
determines that a 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.
AEFC may direct brokerage to compensate an affiliate. AEFC will
receive research on South Africa from New Africa Advisors, a
wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100%
<PAGE>
PAGE 55
of IDS Capital Holdings Inc. which in turn owns 40% of Sloan
Financial Group. New Africa Advisors will send research to AEFC
and in turn American Express Financial Corporation will direct
trades to a particular broker. The broker will have an agreement
to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the
services rendered.
No brokerage commissions were paid by Moneyshare Fund to brokers
affiliated with IDS Life for the fiscal year ended Aug. 31, 1995.
Information about brokerage commissions paid by Capital Resource
Fund for the last three fiscal years to brokers affiliated with IDS
Life is contained in the following table:
<TABLE><CAPTION>
For the Fiscal Year Ended Aug. 31,
1995 1994 1993
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
<S> <C> <C> <C> <C> <C> <C>
Lehman (1) None --% --% $ 71,398 $ 79,780
Brothers,
Inc.
The Robinson (2) None -- -- 6,300 None
Humphrey
Company, Inc.
American (3) $829,258 10.78 17.30 412,316 245,330
Enterprise
Investment
Services, Inc.
</TABLE>
(1) Under common control with AEFC as a subsidiary of American
Express until May 31, 1994.
(2) Under common control with AEFC as an indirect subsidiary of
American Express until July 30, 1993.
(3) Wholly owned subsidiary of AEFC.
Information about brokerage commissions paid by International
Equity Fund during the last three fiscal periods to brokers
affiliated with IDS Life is contained in the following table:
<TABLE><CAPTION>
For the Fiscal Period Ended Aug. 31,
1995 1994 1993
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
<S> <C> <C> <C> <C> <C> <C>
American (1) None --% --% $4,372 None
Enterprise
Investment
Services, Inc.
</TABLE>
(1) Wholly owned subsidiary of AEFC.
<PAGE>
PAGE 56
Information about brokerage commissions paid by Aggressive Growth
Fund for the last three fiscal periods to brokers affiliated with
IDS Life is contained in the following table:
<TABLE><CAPTION>
For the Fiscal Period Ended Aug. 31,
1995 1994 1993
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
<S> <C> <C> <C> <C> <C> <C>
Lehman (1) None --% --% $15,342 $ 7,748
Brothers,
Inc.
The Robinson (2) None -- -- 3,150 None
Humphrey
Company, Inc.
American (3) $222,443 10.24 15.96 41,833 30,150
Enterprise
Investment
Services, Inc.
</TABLE>
(1) Under common control with AEFC as a subsidiary of American
Express until May 31, 1994.
(2) Under common control with AEFC as an indirect subsidiary of
American Express until July 30, 1993.
(3) Wholly owned subsidiary of AEFC.
Information about brokerage commissions paid by Special Income Fund
during the last three fiscal years to brokers affiliated with IDS
Life is contained in the following table:
<TABLE><CAPTION>
For the Fiscal Year Ended Aug. 31,
1995 1994 1993
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
<S> <C> <C> <C> <C> <C> <C>
American (1) None --% --% $666 None
Enterprise
Investment
Services, Inc.
</TABLE>
(1) Wholly owned subsidiary of AEFC.
Information about brokerage commissions paid by Managed Fund during
the last three fiscal years to brokers affiliated with IDS Life is
contained in the following table:
<PAGE>
PAGE 57
<TABLE><CAPTION>
For the Fiscal Year Ended Aug. 31,
1995 1994 1993
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
<S> <C> <C> <C> <C> <C> <C>
Lehman (1) None --% --% $ 86,076 $ 48,467
Brothers,
Inc.
The Robinson (2) None -- -- 24,338 None
Humphrey
Company, Inc.
American (3) 131,456 4.28 9.01 127,304 177,107
Enterprise
Investment
Services, Inc.
</TABLE>
(1) Under common control with AEFC as a subsidiary of American
Express until May 31, 1994.
(2) Under common control with AEFC as an indirect subsidiary of
American Express until July 30, 1993.
(3) Wholly owned subsidiary of AEFC.
PERFORMANCE INFORMATION
Each Fund may quote various performance figures to illustrate past
performance. Average annual total return and current yield
quotations used by a fund are based on standardized methods of
computing performance as required by the SEC. An explanation of
these and any other methods used by each Fund to compute
performance follows below.
Average annual total return
Each Fund may calculate average annual total return for certain
periods by finding the average annual compounded rates of return
over the period that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Aggregate total return
Each Fund may calculate aggregate total return for certain periods
representing the cumulative change in the value of an investment in
a fund over a specified period of time according to the following
formula:
<PAGE>
PAGE 58
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 and Distribution yield
Special Income Fund may calculate an annualized yield 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 8.48% for the 30-day period ended
Aug. 31, 1995.
The Fund's yield, calculated as described above according to the
formula prescribed by the SEC, is a hypothetical return based on
market value yield to maturity for the Fund's securities. It is
not necessarily indicative of the amount which was or may be paid
to the contract owners. Actual amounts paid to contract owners are
reflected in the distribution yield.
Distribution yield is calculated according to the following
formula:
D x F = DY
NAV 30
where: D = sum of dividends for 30 day period
NAV = beginning of period net asset value
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 7.71% for the 30-day period ended
Aug. 31, 1995.
<PAGE>
PAGE 59
Moneyshare Fund calculates annualized simple and compound yields
based on a seven-day period.
The simple yield is calculated by determining the net change in the
value of a hypothetical account having a balance of one share at
the beginning of the seven-day period, dividing the net change in
account value by the value of the account at the beginning of the
period to obtain the return for the period, and multiplying that
return by 365/7 to obtain an annualized figure. The value of the
hypothetical account includes the amount of any declared dividends,
the value of any shares purchased with any dividend paid during the
period and any dividends declared for such shares. The Fund's
yield does not include any realized or unrealized gains or losses.
Moneyshare Fund calculates its compound yield according to the
following formula:
Compound Yield = (return for seven day period + 1) 365/7 - 1
Moneyshare Fund's simple annualized yield was 5.06% and its
compound yield was 5.19% for the seven days ended Aug. 31, 1995,
the last business day of the Fund's fiscal year. The Fund's simple
yield was 5.25% and the compound yield was 5.39% for the seven days
ended Sept. 30, 1995.
Yield, or rate of return, on Moneyshare Fund shares may fluctuate
daily and does not provide a basis for determining future yields.
However, it may be used as one element in assessing how the Fund is
meeting its goal. When comparing an investment in the Fund with
savings accounts and similar investment alternatives, you must
consider that such alternatives often provide an agreed to or
guaranteed fixed yield for a stated period of time, whereas the
fund's yield fluctuates. In comparing the yield of one money
market fund to another, you should consider each fund's investment
policies, including the types of investments permitted.
REMEMBER THAT THESE YIELDS ARE THE RETURN TO THE SHAREHOLDER (THE
VARIABLE ACCOUNTS), NOT TO THE VARIABLE ANNUITY CONTRACT OWNER.
SEE YOUR ANNUITY PROSPECTUS FOR A DISCUSSION OF THE DIFFERENCES.
In sales material and other communications, the Funds may quote,
compare or refer to rankings, yields or returns as published by
independent statistical services or publishers and publications
such as The Bank Rate Monitor National Index, Barron's, Business
Week, Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report,
Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
<PAGE>
PAGE 60
VALUING EACH FUND'S SHARES
On Aug. 31, 1995, the computation of the value of an individual
share looked like this:
Capital Resource Fund
Net asset value
Net assets Shares outstanding of one share
$3,844,714,112 divided by 157,440,979 = $24.42
International Equity Fund
Net asset value
Net assets Shares outstanding of one share
$1,441,877,605 divided by 114,884,903 = $12.55
Aggressive Growth Fund
Net assets Shares outstanding of one share
$1,411,892,608 divided by 97,796,581 = $14.44
Special Income Fund
Net asset value
Net assets Shares outstanding of one share
$1,703,199,284 divided by 147,091,617 = $11.58
Managed Fund
Net asset value
Net assets Shares outstanding of one share
$3,044,216,656 divided by 205,056,931 = $14.85
Capital Resource, International Equity, Aggressive Growth, Special
Income and Managed Funds' portfolio securities are valued as
follows as of the close of business of the New York Stock Exchange:
'Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and asked
prices on the exchange where the security is primarily traded and
if none exists, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are
valued at the last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which
a last-quoted sales price is not readily available, and other
securities traded over-the-counter but not included in the NASDAQ
National Market System, are valued at the mean of the closing bid
and asked prices.
<PAGE>
PAGE 61
'Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
'Foreign securities traded outside the United States are generally
valued as of the time their trading is complete which is usually
different from the close of the New York Stock 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 New York Stock Exchange that will not be
reflected in the computation of a fund's net asset value. If
events materially affecting the value of such securities occur
during such period, these securities will be valued at their fair
value according to procedures decided upon in good faith by the
funds' boards of directors.
'Short-term securities maturing more than 60 days from the
valuation date are valued at the readily available market price or
approximate market value based on current interest rates. Short-
term securities maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at
amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at
acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the
maturity date.
'Securities without a readily available market price, bonds other
than convertibles and other assets are valued at fair value as
determined in good faith by the boards of directors. The boards of
directors are responsible for selecting methods they believe
provide fair value. When possible, bonds are valued by a pricing
service independent from a 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.
Moneyshare Fund intends to use its best efforts to maintain a
constant net asset value of $1 per share although there is no
assurance it will be able to do so. Accordingly, the Fund uses the
amortized cost method in valuing its portfolio.
Short-term securities maturing in 60 days or less 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. It does not take into
consideration unrealized capital gains or losses. All of the
securities in the Fund's portfolio will be valued at their
amortized cost.
<PAGE>
PAGE 62
In addition, Moneyshare Fund must abide by certain conditions. It
must only invest in securities of high quality which present
minimal credit risks as determined by the board of directors. This
means that the rated commercial paper in the Fund's portfolio will
be issues that have been rated in the highest rating category by at
least two nationally recognized statistical rating organizations
(or by one if only one rating is assigned) and in unrated paper
determined by the Fund's board of directors to be comparable. The
fund must also purchase securities with original or remaining
maturities of 13 months or less, and maintain a dollar-weighted
average portfolio maturity of 90 days or less. In addition, the
board of directors must establish procedures designed to stabilize
the Fund's price per share for purposes of sales and redemptions at
$1 to the extent that it is reasonably possible to do so. These
procedures include review of the Fund's portfolio securities by the
Board, at intervals deemed appropriate by it, to determine whether
the Fund's net asset value per share computed by using the
available market quotations deviates from a share value of $1 as
computed using the amortized cost method. The board must consider
any deviation that appears, and if it exceeds 0.5%, it must
determine what action, if any, needs to be taken. If the board
determines that a deviation exists that may result in a material
dilution of the holdings of the variable accounts or investors, or
in other unfair consequences for such people, it must undertake
remedial action that it deems necessary and appropriate. Such
action may include withholding dividends, calculating net asset
value per share for purposes of sales and redemptions in kind, and
selling portfolio securities before maturity in order to realize
capital gain or loss or to shorten average portfolio maturity.
In other words, while the amortized cost method provides certainty
and consistency in portfolio valuation, it may, from time to time,
result in valuations of portfolio securities that are either
somewhat higher or lower than the prices at which the securities
could be sold. This means that during times of declining interest
rates, the yield on Moneyshare Fund's shares may be higher than if
valuations of portfolio securities were made based on actual market
prices and estimates of market prices. Accordingly, if use of the
amortized cost method were to result in a lower portfolio value at
a given time, a prospective investor in the Fund would be able to
obtain a somewhat higher yield than if portfolio valuation were
based on actual market values. The Variable Accounts, on the other
hand, would receive a somewhat lower yield than they would
otherwise receive. The opposite would happen during a period of
rising interest rates.
The New York Stock Exchange, AEFC, IDS Life and the Funds will be
closed on the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
INVESTING IN THE FUNDS
You cannot buy shares of the Funds directly. The only way you can
invest in the Funds at the current time is by buying an annuity
contract and directing the allocation of part or all of your net <PAGE>
PAGE 63
purchase payment to the variable accounts, which will invest in
shares of Capital Resource, International Equity, Aggressive
Growth, Special Income, Moneyshare or Managed Funds. Please read
the Funds' prospectus along with your annuity prospectus for
further information.
Sales Charges and Surrender or Withdrawal Charges
The Funds do not assess sales charges, either when they sell or
when they redeem securities. The surrender or withdrawal charges
that may be assessed under your annuity contract are described in
your annuity prospectus, as are the other charges that apply to
your annuity contract and to the variable accounts.
REDEEMING SHARES
The Funds will redeem any shares presented by a shareholder
(variable account) for redemption. The variable accounts' policies
on when or whether to buy or redeem fund shares are described in
your annuity prospectus.
During an emergency, the boards of directors can suspend the
computation of net asset value, stop accepting payments for
purchase of shares or suspend the duty of the Funds to redeem
shares for more than 7 days. Such emergency situations would occur
if:
'The New York Stock Exchange closes for reasons other than the
usual weekend and holiday closings or trading on the Exchange is
restricted,
'Disposal of a 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
'The Securities and Exchange Commission, under the provisions of
the Investment Company Act of 1940, as amended, declares a period
of emergency to exist.
Should a Fund stop selling shares, the directors 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 contract owners.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, International Equity Fund,
Aggressive Growth Fund, Special Income Fund and Managed Fund had
capital loss carryover at Aug. 31, 1995 of $11,050,244,
$29,350,034, $20,031,747 and $47,700,266, respectively, which, if
not offset by subsequent capital gains, will expire in 2000 through
2004. It is unlikely the board of directors will authorize a
distribution of any net realized capital gain for these Funds until
the capital loss carryover has been offset or expires except as
required by IRS rules.
<PAGE>
PAGE 64
TAXES
International Equity Fund may be subject to U.S. taxes resulting
from holdings in a passive foreign investment company (PFIC). A
foreign corporation is a PFIC when 75% or more of its gross income
for the taxable year is passive income or if 50% or more of the
average value of its assets consists of assets that produce or
could produce passive income.
AGREEMENTS WITH IDS LIFE AND AMERICAN EXPRESS FINANCIAL CORPORATION
Investment Management Services Agreement
Each Fund has an Investment Management Services Agreement with IDS
Life. The Funds have retained IDS Life to, among other things,
counsel and advise the Funds and their directors in connection with
the formulation of investment programs designed to accomplish the
Funds' investment objectives, and to determine, consistent with the
Funds' investment objectives and policies, which securities in IDS
Life's discretion shall be purchased, held or sold, subject always
to the direction and control of the boards of directors. The Funds
do not maintain their own research departments or record-keeping
services. These services are provided by IDS Life under the
Investment Management Services Agreement.
The Agreement provides that, in addition to paying its own
management fee, brokerage costs and certain taxes, each Fund pays
IDS Life an amount equal to the cost of certain expenses incurred
and paid by IDS Life in connection with the Fund's operations.
For its services, IDS Life is paid a fee based on the following
schedules:
Capital Resource
assets Annual rate at
(billions) each asset level
First $1 0.630%
Next $1 0.615
Next $1 0.600
Next $3 0.585
Over $6 0.570
International Equity
assets Annual rate at
(billions) each asset level
First $0.25 0.870%
Next $0.25 0.855
Next $0.25 0.840
Next $0.25 0.825
Next $1 0.810
Over $2 0.795
<PAGE>
PAGE 65
Aggressive Growth
assets Annual rate at
(billions) each asset level
First $0.25 0.650%
Next $0.25 0.635
Next $0.25 0.620
Next $0.25 0.605
Next $1 0.590
Over $2 0.575
Special Income
assets Annual rate at
(billions) each asset level
First $1 0.610%
Next $1 0.595
Next $1 0.580
Next $3 0.565
Next $3 0.550
Over $9 0.535
Moneyshare
assets Annual rate at
(billions) each asset level
First $1 0.510%
Next $0.5 0.493
Next $0.5 0.475
Next $0.5 0.458
Over $2.5 0.440
Managed
assets Annual rate at
(billions) each asset level
First $0.5 0.630%
Next $0.5 0.615
Next $1 0.600
Next $1 0.585
Next $3 0.570
Over $6 0.550
On Aug. 31, 1995, the daily rate applied to the Fund's assets on an
annual basis, was 0.608% for Capital Resource, 0.836% for
International Equity, 0.617% for Aggressive Growth, 0.604% for
Special Income, 0.510% for Moneyshare and 0.602% for Managed. 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 prior and current
agreements, the total amount paid for Capital Resource was
$20,450,401 for the fiscal year ended August 31, 1995, $16,497,309
for fiscal year 1994, and $13,224,140 for fiscal year 1993.
<PAGE>
PAGE 66
Under the prior and current agreements, the total amount paid for
International Equity was $10,869,439 for the fiscal year ended
August 31, 1995, $6,212,919 for fiscal year 1994, and $1,032,456
for fiscal year 1993.
Under the prior and current agreements, the total amount paid for
Aggressive Growth was $6,579,414 for the fiscal year ended August
31, 1995, $3,298,361 for fiscal year 1994, and $1,091,156 for
fiscal year 1993.
Under the prior and current agreements, the total amount paid for
Special Income was $9,542,823 for the fiscal year ended August 31,
1995, $10,547,321 for fiscal year 1994, and $8,479,379 for fiscal
year 1993.
Under the prior and current agreements, the total amount paid for
Moneyshare was $1,041,050 for the fiscal year ended August 31,
1995, $936,246 for fiscal year 1994, and $1,141,272 for fiscal year
1993.
Under the prior and current agreements, the total amount paid for
Managed was $16,720,930 for the fiscal year ended August 31, 1995,
$14,142,061 for fiscal year 1994, and $5,471,820 for fiscal year
1993.
Under the current Agreement, the expenses of IDS Life that each
Fund has agreed to reimburse are: taxes, brokerage commissions,
custodian fees and expenses, audit expenses, cost of items sent to
contract owners, postage, fees and expenses paid to directors who
are not officers or employees of IDS Life or AEFC fees and expenses
of attorneys, costs of fidelity and surety bonds, SEC registration
fees, expenses of preparing prospectuses and of printing and
distributing prospectuses to existing contract owners, losses due
to theft or other wrong doing or due to liabilities not covered by
bond or agreement, expenses incurred in connection with lending
portfolio securities of the funds and expenses properly payable by
the funds, approved by the boards of directors. All other expenses
are borne by IDS Life.
Under a current and prior agreement:
Capital Resource paid nonadvisory expenses of $1,289,211 for the
fiscal year ended August 31, 1995, $898,844 for fiscal year 1994,
and $570,424 for fiscal year 1993;
International Equity paid nonadvisory expenses of $1,758,233 for
the fiscal year ended August 31, 1995, $653,810 for fiscal year
1994, and $236,716 for fiscal year 1993;
Aggressive Growth paid nonadvisory expenses of $397,865 for the
fiscal year ended August 31, 1995, $228,325 for fiscal year 1994,
and $165,191 for fiscal year 1993;
<PAGE>
PAGE 67
Special Income paid nonadvisory expenses of $527,883 for the fiscal
year ended August 31, 1995, $452,235 for fiscal year 1994, and
$451,014 for fiscal year 1993;
Moneyshare paid nonadvisory expenses of $68,790 for the fiscal year
ended August 31, 1995, $49,909 for fiscal year 1994, and $124,855
for fiscal year 1993; and
Managed paid nonadvisory expenses of $1,006,486 for the fiscal year
ended August 31, 1995, $737,946 for fiscal year 1994, and $530,656
for fiscal year 1993.
Administrative Services Agreement
The Funds have an Administrative Services Agreement with AEFC.
Under this agreement, the Funds pay AEFC for providing
administration and accounting services. The fee is calculated as
follows:
Capital Resource
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next $1 0.045
Next $1 0.040
Next $3 0.035
Over $6 0.030
International Equity
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next $0.25 0.055
Next $0.25 0.050
Next $0.25 0.045
Next $1 0.040
Over $2 0.035
Aggressive Growth
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next $0.25 0.055
Next $0.25 0.050
Next $0.25 0.045
Next $1 0.040
Over $2 0.035
<PAGE>
PAGE 68
Special Income
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next $1 0.045
Next $1 0.040
Next $3 0.035
Next $3 0.030
Over $9 0.025
Moneyshare
Assets Annual rate at
(billions) each asset level
First $1 0.030%
Next $0.5 0.027
Next $0.5 0.025
Next $0.5 0.022
Over $2.5 0.020
Managed
Assets Annual rate at
(billions) each asset level
First $0.5 0.040%
Next $0.5 0.035
Next $1 0.030
Next $1 0.025
Next $3 0.020
Over $6 0.020
On Aug. 31, 1995, the daily rate applied to Capital Resource was
equal to 0.043% on an annual basis.
On Aug. 31, 1995, the daily rate applied to International Equity
was equal to 0.049% on an annual basis.
On Aug. 31, 1995, the daily rate applied to Aggressive Growth was
equal to 0.049% on an annual basis.
On Aug. 31, 1995, the daily rate applied to Special Income was
equal to 0.048% on an annual basis.
On Aug. 31, 1995, the daily rate applied to Moneyshare was equal to
0.030% on an annual basis.
On Aug. 31, 1995, the daily rate applied to Managed was equal to
0.031% on an annual basis.
Investment Advisory Agreements
IDS Life and AEFC have an Investment Advisory Agreement under which
AEFC executes purchases and sales and negotiates brokerage as
directed by IDS Life. For its services, IDS Life pays AEFC a fee
<PAGE>
PAGE 69
based on a percentage of each Fund's average daily net assets for
the year. This fee is equal to 0.50% for International Equity Fund
and 0.25% for each remaining fund.
AEFC has a Sub-Investment Advisory Agreement with IDS
International, Inc. under which AEFC pays IDS International, Inc. a
fee equal on an annual basis to 0.50% of International Equity
Fund's daily net assets for providing investment advice for the
Fund.
For the fiscal year ended Aug. 31, 1993, IDS Life paid AEFC
$5,025,362 for its services in connection with Capital Resource
Fund. For fiscal year 1994, the amount was $6,382,698 and for
fiscal year 1995 it was $8,118,175.
For the fiscal period ended Aug. 31, 1993, IDS Life paid AEFC
$569,659 for its services in connection with International Equity
Fund. For fiscal year 1994, the amount was $3,468,822 and for
fiscal year 1995 it was $4,947,617.
For the fiscal period ended Aug. 31, 1993, IDS Life paid AEFC
$415,541 for its services in connection with Aggressive Growth
Fund. For fiscal year 1994, the amount was $1,276,540 and for
fiscal year 1995 it was $2,589,057.
For the fiscal year ended Aug. 31, 1993, IDS Life paid AEFC
$3,222,653 for its services in connection with Special Income Fund.
For fiscal year 1994, the amount was $4,080,208 and for fiscal year
1995 it was $3,806,813.
For the fiscal year ended Aug. 31, 1993, IDS Life paid AEFC
$879,494 for its services in connection with Moneyshare Fund. For
fiscal year 1994, the amount was $433,482 and for fiscal year 1995
it was $494,845.
For the fiscal year end Aug. 31, 1993, IDS Life paid AEFC
$3,669,394 for its services in connection with Managed Fund. For
fiscal year 1994, the amount was $5,471,820 and for fiscal year
1995 it was $6,674,716.
Information concerning other funds advised by IDS Life or AEFC is
contained in the prospectus.
DIRECTORS AND OFFICERS
The following is a list of the Fund's directors who also are
directors of all other funds in the IDS MUTUAL FUND GROUP. All
shares have cumulative voting rights when voting on the election of
directors.
<PAGE>
PAGE 70
Lynne V. Cheney+'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin and the Interpublic Group of Companies, Inc.
(advertising).
Robert F. Froehlke+
Born in 1922.
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers**
Born in 1943.
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Previously, senior vice president, finance and chief financial
officer of AEFC.
Heinz F. Hutter+
Born in 1929.
P.O. Box 5724
Minneapolis, MN
President and chief operating officer, Cargill, Incorporated
(commodity merchants and processors) from February 1991 to
September 1994. Executive vice president from 1981 to February
1991.
Anne P. Jones+
Born in 1935.
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
<PAGE>
PAGE 71
Melvin R. Laird+
Born in 1922.
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Chairman of the board, COMSAT
Corporation, former nine-term congressman, secretary of defense and
presidential counsellor. Director, Martin Marietta Corp.,
Metropolitan Life Insurance Co., The Reader's Digest Association,
Inc., Science Applications International Corp., Wallace Reader's
Digest Funds and Public Oversight Board (SEC Practice Section,
American Institute of Certified Public Accountants).
James A. Mitchell**
Born in 1941.
2900 IDS Tower
Minneapolis, MN
Executive Vice President, AEFC. Director, chairman of the board
and chief executive officer, IDS Life.
William R. Pearce+*
Born in 1927.
901 S. Marquette Ave.
Minneapolis, MN
President of all funds in the IDS MUTUAL FUND GROUP since June
1993. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).
Edson W. Spencer
Born in 1926.
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Chairman of the
board, Mayo Foundation (healthcare). Former chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise
Cascade Corporation (forest products) and CBS Inc. Member of
International Advisory Councils, Robert Bosch (Germany) and NEC
(Japan).
John R. Thomas**
Born in 1937.
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
PAGE 72
Wheelock Whitney+
Born in 1926.
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele
Born in 1934.
1101 S. 3rd St.
Minneapolis, MN
Chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging),
Donaldson Company (air cleaners & mufflers) and General Mills, Inc.
(consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the fund.
**Interested person by reason of being an officer, director,
employee and/or shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
OFFICERS WHO ALSO ARE OFFICERS AND/OR EMPLOYEES OF AEFC
Peter J. Anderson
Born in 1942.
IDS Tower 10
Minneapolis, MN
Vice president-investments of all funds in the IDS MUTUAL FUND
GROUP. Director and senior vice president-investments of AEFC.
Melinda S. Urion
Born in 1953.
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the IDS MUTUAL FUND GROUP. Vice
president and corporate controller of AEFC. Director and executive
vice president and controller of IDS Life Insurance Company.
Besides Mr. Pearce, who is president, the fund's other officer is:
Leslie L. Ogg
Born in 1938.
901 S. Marquette Ave.
Minneapolis, MN
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.<PAGE>
PAGE 73
Members of the board who are not officers of the Fund or of AEFC
receive an annual fee of $2,900. They also receive attendance and
other fees, the cost of which the Fund shares with the other funds
in the IDS MUTUAL FUND GROUP. These fees include attendance of
meetings of the Board, $1,000; meetings of the Contracts Committee,
$750; meetings of the Audit, Executive or Investment Review
Committees, $500; meetings of the Personnel Committee, $300; out-
of-state, $500; and Chair of the Contracts Committee, $5,000.
Expenses for attending those meetings are also reimbursed. Upon
retirement, or earlier if for approved reasons, the independent
directors receive monthly payments equal to 1/2 of the annual fee
divided by 12 for as many months as the director served on the
board up to 120 months or until the date of death. There are no
death benefits and the plan is not funded.
During the fiscal year that ended August 31, 1995, the members of
the board, for attending up to 30 meetings, received the following
compensation, in total, from all funds in the IDS MUTUAL FUND
GROUP.
<TABLE><CAPTION>
Life Capital Resource
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
<S> <C> <C> <C> <C>
Lynne V. Cheney $3,834 $ 935 $1,875 $70,000
Robert F. Froehlke 3,898 3,718 1,875 72,600
Heinz F. Hutter 3,471 598 906 61,300
(Part of Year)
Anne P. Jones 3,860 953 1,875 71,000
Donald M. Kendall 3,759 8,161 1,875 67,000
Melvin R. Laird 3,859 3,620 1,875 71,000
Lewis W. Lehr 3,840 5,552 1,828 70,200
Edson W. Spencer 3,920 2,684 1,000 73,600
Wheelock Whitney 3,848 1,935 1,875 70,600
C. Angus Wurtele 3,464 584 1,859 61,000
(Part of Year)
Life International Equity
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
Lynne V. Cheney $1,584 $145 $875 $70,000
Robert F. Froehlke 1,648 558 875 72,600
Heinz F. Hutter 1,450 92 423 61,300
(Part of Year)
Anne P. Jones 1,610 134 875 71,000
Donald M. Kendall 1,509 706 875 67,000
Melvin R. Laird 1,609 399 875 71,000
Lewis W. Lehr 1,590 515 853 70,200
Edson W. Spencer 1,670 243 467 73,600
Wheelock Whitney 1,598 246 875 70,600
C. Angus Wurtele 1,443 90 868 61,000
(Part of Year)
<PAGE>
PAGE 74
Life Aggressive Growth
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
Lynne V. Cheney $1,000 $ 73 $500 $70,000
Robert F. Froehlke 1,065 272 500 72,600
Heinz F. Hutter 887 46 242 61,300
(Part of Year)
Anne P. Jones 1,026 58 500 71,000
Donald M. Kendall 925 26 500 67,000
Melvin R. Laird 1,025 105 500 71,000
Lewis W. Lehr 1,007 58 488 70,200
Edson W. Spencer 1,087 18 267 73,600
Wheelock Whitney 1,015 94 500 70,600
C. Angus Wurtele 881 45 496 61,000
(Part of Year)
Life Special Income
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
Lynne V. Cheney $2,334 $ 649 $1,000 $70,000
Robert F. Froehlke 2,398 2,554 1,000 72,600
Heinz F. Hutter 2,054 415 483 61,300
(Part of Year)
Anne P. Jones 2,360 634 1,000 71,000
Donald M. Kendall 2,259 4,637 1,000 67,000
Melvin R. Laird 2,359 2,213 1,000 71,000
Lewis W. Lehr 2,340 3,221 975 70,200
Edson W. Spencer 2,420 1,543 533 73,600
Wheelock Whitney 2,348 1,247 1,000 70,600
C. Angus Wurtele 2,047 404 992 61,000
(Part of Year)
Life Moneyshare
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
Lynne V. Cheney $500 $ 73 $125 $70,000
Robert F. Froehlke 565 268 125 72,600
Heinz F. Hutter 387 46 60 61,300
(Part of Year)
Anne P. Jones 526 51 125 71,000
Donald M. Kendall 425 0 125 67,000
Melvin R. Laird 525 79 125 71,000
Lewis W. Lehr 507 0 122 70,200
Edson W. Spencer 587 0 67 73,600
Wheelock Whitney 515 65 125 70,600
C. Angus Wurtele 381 45 124 61,000
(Part of Year)
<PAGE>
PAGE 75
Life Managed
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
Lynne V. Cheney $3,250 $ 718 $1,625 $70,000
Robert F. Froehlke 3,315 2,840 1,625 72,600
Heinz F. Hutter 2,950 461 785 61,300
(Part of Year)
Anne P. Jones 3,276 710 1,625 71,000
Donald M. Kendall 3,175 5,128 1,571 67,000
Melvin R. Laird 3,275 2,505 1,625 71,000
Lewis W. Lehr 3,257 3,615 1,557 70,200
Edson W. Spencer 3,337 1,765 867 73,600
Wheelock Whitney 3,265 1,402 1,625 70,600
C. Angus Wurtele 2,943 449 1,612 61,000
(Part of Year)
</TABLE>
On Aug. 31, 1995, the Fund's directors and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
year ended Aug. 31, 1995, no director or officer earned more than
$60,000 from any one Fund. All directors and officers as a group
earned $369,502, including $96,058 of retirement plan expense, from
these Funds.
CUSTODIAN
The Funds' securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN, 55402-2307, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities
with sub-custodians or in central depository systems as allowed by
federal law.
INDEPENDENT AUDITORS
The Funds' financial statements contained in their Annual Report,
as of and for, the year ended Aug. 31, 1995, are audited by
independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center,
90 S. Seventh St., Minneapolis, MN 55402-3900. IDS Life has
agreed that it will send a copy of this report and the Semiannual
Report to every annuity contract owner having an interest in the
funds. The independent auditors also provide other accounting and
tax-related services as requested by the Funds.
FINANCIAL STATEMENTS
The Independent Auditors' Report and Financial Statements,
including Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the 1995 Annual Report to
the shareholders of Capital Resource, International Equity,
Aggressive Growth, Special Income, Moneyshare and Managed Funds,
pursuant to Section 30(d) of the Investment Company Act of 1940, as
amended, are hereby incorporated in this Statement of Additional
Information by reference. No other portion of the Annual Report,
however, is incorporated by reference.
<PAGE>
PAGE 76
PROSPECTUS
The prospectus dated April 30, 1996, is hereby incorporated in this
Statement of Additional Information by reference.
<PAGE>
PAGE 77
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS AND ADDITIONAL INFORMATION ON
INVESTMENT POLICIES FOR INVESTMENTS OF CAPITAL RESOURCE AND SPECIAL
INCOME FUNDS
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa,
A, Baa, Ba, B, Caa, Ca, C and D. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of the desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Fund's objectives and policies. When assessing the risk
involved in each non-rated security, the Fund will consider the
financial condition of the issuer or the protection afforded by the
terms of the security.
<PAGE>
PAGE 78
Definitions of Zero-Coupon and Pay-In-Kind Securities
A zero-coupon security is a security that is sold at a deep
discount from its face value and makes no periodic interest
payments. The buyer of such a security receives a rate of return
by gradual appreciation of the security, which is redeemed at face
value on the maturity date.
A pay-in-kind security is a security in which the issuer has the
option to make interest payments in cash or in additional
securities. The securities issued as interest usually have the
same terms, including maturity date, as the pay-in-kind securities.
<PAGE>
PAGE 79
APPENDIX B
FOREIGN CURRENCY TRANSACTIONS FOR INVESTMENTS OF ALL FUNDS EXCEPT
MONEYSHARE
Since investments in foreign companies usually involve currencies
of foreign countries, and since the Fund may hold cash and cash-
equivalent investments in foreign currencies, the value of the
Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by changes in currency exchange rates and exchange
control regulations. Also, the Fund may incur costs in connection
with conversions between various currencies.
Spot Rates and Forward Contracts. The Fund conducts its foreign
currency exchange transactions either at the spot (cash) rate
prevailing in the foreign currency exchange market or by entering
into forward currency exchange contracts (forward contracts) as a
hedge against fluctuations in future foreign exchange rates. A
forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days
from the contract date, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit
requirements. No commissions are charged at any stage for trades.
The Fund may enter into forward contracts to settle a security
transaction or handle dividend and interest collection. When the
Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency or has been notified of a
dividend or interest payment, it may desire to lock in the price of
the security or the amount of the payment in dollars. By entering
into a forward contract, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between different currencies from the date the
security is purchased or sold to the date on which payment is made
or received or when the dividend or interest is actually received.
The Fund also may enter into forward contracts when management of
the Fund believes the currency of a particular foreign country may
suffer a substantial decline against another currency. It may
enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of
some or all of the fund's portfolio securities denominated in such
foreign currency. The precise matching of forward contract amounts
and the value of securities involved generally will not be possible
since the future value of such securities in foreign currencies
more than likely will change between the date the forward contract
is entered into and the date it matures. The projection of short-
term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly
uncertain. The Fund will not enter into such forward contracts or
maintain a net exposure to such contracts when consummating the
<PAGE>
PAGE 80
contracts would obligate the Fund to deliver an amount of foreign
currency in excess of the value of the Fund's portfolio securities
or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to
the value of the Fund's total assets committed to consummating
forward contracts entered into under the second circumstance set
forth above. If the value of the securities declines, additional
cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency or
retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract
with the same currency trader obligating it to buy, on the same
maturity date, the same amount of foreign currency.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction,
it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date
the Fund enters into a forward contract for selling foreign
currency and the date it enters into an offsetting contract for
purchasing the foreign currency, the fund will realize a gain to
the extent the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to buy exceeds the price of the
currency it has agreed to sell.
It is impossible to forecast what the market value of portfolio
securities will be at the expiration of a contract. Accordingly,
it may be necessary for the Fund to buy additional foreign currency
on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to
sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of
the foreign currency received on the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund
is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the
transactions described above. This method of protecting the value
of the Fund's portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange
that can be achieved at some point in time. Although such forward
contracts tend to minimize the risk of loss due to a decline in
value of hedged currency, they tend to limit any potential gain
that might result should the value of such currency increase.
<PAGE>
PAGE 81
Although the Fund values its assets each business day in terms of
U.S. dollars, it does not intend to convert its foreign currencies
into U.S. dollars on a daily basis. It will do so from time to
time, and shareholders should be aware of currency conversion
costs. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference
(spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the
dealer.
Options on Foreign Currencies. The Fund may buy put and write
covered call options on foreign currencies for hedging purposes.
For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may buy
put options on the foreign currency. If the value of the currency
does decline, the Fund will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on its portfolio which otherwise would
have resulted.
As in the case of other types of options, however, the benefit to
the Fund derived from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs.
In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types
of hedging purposes. For example, when the Fund anticipates a
decline in the dollar value of foreign-denominated securities due
to adverse fluctuations in exchange rates, it could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of portfolio
securities will be fully or partially offset by the amount of the
premium received.
As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and
the Fund would be required to buy or sell the underlying currency
at a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which
might otherwise have been obtained from favorable movements on
exchange rates.<PAGE>
PAGE 82
All options written on foreign currencies will be covered. An
option written on foreign currencies is covered if the Fund holds
currency sufficient to cover the option or has an absolute and
immediate right to acquire that currency without additional cash
consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An
option writer could lose amounts substantially in excess of its
initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies are traded through financial
institutions acting as market-makers, although foreign currency
options also are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this
entire amount could be lost.
Foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby
reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter
market, potentially permitting the fund to liquidate open positions
at a profit prior to exercise or expiration, or to limit losses in
the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature
of the foreign currency market, possible intervention by
governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in certain foreign countries for
the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options
The Fund may enter into currency futures contracts to sell
currencies. It also may buy put and write covered call options on
currency futures. Currency futures contracts are similar to <PAGE>
PAGE 83
currency forward contracts, except that they are traded on
exchanges (and have margin requirements) and are standardized as to
contract size and delivery date. Most currency futures call for
payment of delivery in U.S. dollars. The Fund may use currency
futures for the same purposes as currency forward contracts,
subject to CFTC limitations, including the limitation on the
percentage of assets that may be used, described in the prospectus.
All futures contracts are aggregated for purposes of the percentage
limitations.
Currency futures and options on futures values can be expected to
correlate with exchange rates, but will not reflect other factors
that may affect the values of the Fund's investments. A currency
hedge, for example, should protect a Yen-denominated bond against a
decline in the Yen, but will not protect the Fund against price
decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency
will change in response to many factors other than exchange rates,
it may not be possible to match the amount of a forward contract to
the value of the Fund's investments denominated in that currency
over time.
The Fund will not use leverage in its options and futures
strategies. The Fund will hold securities or other options or
futures positions whose values are expected to offset its
obligations. The Fund will not enter into an option or futures
position that exposes the fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or
(ii) cash, receivables and short-term debt securities with a value
sufficient to cover its potential obligations.
<PAGE>
PAGE 84
APPENDIX C
DESCRIPTION OF MONEY MARKET SECURITIES
Certificates of Deposit -- A certificate of deposit is a negotiable
receipt issued by a bank or savings and loan association in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited, plus interest, on the date specified on the
certificate.
Time Deposit -- A time deposit is a non-negotiable deposit in a
bank for a fixed period of time.
Bankers' Acceptances -- A bankers' acceptance arises from a short-
term credit arrangement designed to enable businesses to obtain
funds to finance commercial transactions. It is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount
of funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees to
pay the face value of the instrument on its maturity date.
Commercial Paper -- Commercial paper is generally defined as
unsecured short-term notes issued in bearer form by large well-
known corporations and finance companies. Maturities on commercial
paper range from one day to nine months.
Commercial paper rated A by Standard & Poor's Corporation has the
following characteristics: Liquidity ratios are better than the
industry average. Long-term senior debt rating is "A" or better.
The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with
allowances made for unusual circumstances. Typically, the issuer's
industry is well established, the issuer has a strong position
within its industry and the reliability and quality of management
is unquestioned. Issuers rated A are further rated by use of
numbers 1, 2 and 3 to denote relative strength within this highest
classification.
A Prime rating is the highest commercial paper rating assigned by
Moody's Investors Services Inc. Issuers rated Prime are further
rated by use of numbers 1, 2 and 3 to denote relative strength
within this highest classification. Among the factors considered
by Moody's in assigning ratings for an issuer are the following:
(1) management; (2) economic evaluation of the industry and an
appraisal of speculative type risks which may be inherent in
certain areas; (3) competition and customer acceptance of products;
(4) liquidity; (5) amount and quality of long-term debt; (6) ten
year earnings trends; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8)
recognition by management of obligations which may be present or
may arise as a result of public interest questions and preparations
to meet such obligations.
<PAGE>
PAGE 85
Letters of Credit -- A letter of credit is a short-term note issued
in bearer form with a bank letter of credit which provides that the
bank pay to the bearer the amount of the note upon presentation.
U.S. Treasury Bills -- Treasury bills are issued with maturities of
any period up to one year. Three-month and six-month bills are
currently offered by the Treasury on 13-week and 26-week cycles
respectively and are auctioned each week by the Treasury. Treasury
bills are issued in book entry form and are sold only on a discount
basis, i.e. the difference between the purchase price and the
maturity value constitutes interest income for the investor. If
they are sold before maturity, a portion of the income received may
be a short-term capital gain.
U.S. Government Agency Securities -- Federal agency securities are
debt obligations which principally result from lending programs of
the U.S. government. Housing and agriculture have traditionally
been the principal beneficiaries of Federal credit programs, and
agencies involved in providing credit to agriculture and housing
account for the bulk of the outstanding agency securities.
Repurchase Agreements -- A repurchase agreement involves the
acquisition of securities by the Portfolio, with the concurrent
agreement by a bank (or securities dealer if permitted by law or
regulation), to reacquire the securities at the portfolio's cost,
plus interest, within a specified time. The Portfolio thereby
receives a fixed rate of return on this investment, one that is
insulated from market and rate fluctuations during the holding
period. In these transactions, the securities acquired by the
Portfolio have a total value equal to or in excess of the value of
the repurchase agreement and are held by the Portfolio's custodian
until required. Pursuant to guidelines established by the Fund's
board of directors, the creditworthiness of the other party to the
transaction is considered and the value of those securities held as
collateral is monitored to ensure that such value is maintained at
the required level.
If AEFC becomes aware that a security owned by a Fund is downgraded
below the second highest rating, AEFC will either sell the security
or recommend to the Fund's board of directors why it should not be
sold.
<PAGE>
PAGE 86
APPENDIX D
OPTIONS AND STOCK INDEX FUTURES CONTRACTS FOR INVESTMENTS OF
CAPITAL RESOURCE, INTERNATIONAL EQUITY, AGGRESSIVE GROWTH AND
MANAGED FUNDS
Capital Resource, International Equity, Aggressive Growth and
Managed Funds may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market. The fund may
enter into stock index futures contracts traded on any U.S. or
foreign exchange. The Fund also may buy or write put and call
options on these futures and on stock indexes. Options in the
over-the-counter market will be purchased only when the investment
manager believes a liquid secondary market exists for the options
and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid
secondary market does not exist, the Fund could be required to buy
or sell securities at disadvantageous prices, thereby incurring
losses. Managed Fund also may enter into interest rate futures
contracts - see Appendix E.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash or securities of equivalent value (in the case of a
put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In
addition, the buyer generally pays a broker a commission. The
writer receives a premium, less another commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price. The risk of
the writer is potentially unlimited, unless the option is covered.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
fund and its shareholders by improving the fund's liquidity and by
helping to stabilize the value of its net assets.
<PAGE>
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Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, a fund pays a
premium and a commission. It then pays a second commission on the
purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a fund for investment
purposes. Options permit a fund to experience the change in the
value of a security with a relatively small initial cash
investment. The risk a fund assumes when it buys an option is the
loss of the premium. To be beneficial to a fund, the price of the
underlying security must change within the time set by the option
contract. Furthermore, the change must be sufficient to cover the
premium paid, the commissions paid both in the acquisition of the
option and in a closing transaction or in the exercise of the
option and subsequent sale (in the case of a call) or purchase (in
the case of a put) of the underlying security. Even then, the
price change in the underlying security does not ensure a profit
since prices in the option market may not reflect such a change.
Writing covered options. Each Fund will write covered options when
it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with each fund's
goal.
'All options written by a fund will be covered. For covered call
options, if a decision is made to sell the security, each fund will
attempt to terminate the option contract through a closing purchase
transaction.
'Each Fund will deal only in standard option contracts traded on
national securities exchanges or those that may be quoted on NASDAQ
(a system of price quotations developed by the National Association
of Securities Dealers, Inc.)
'Each Fund will write options only as permitted under applicable
laws or regulations, such as those that limit the amount of total
assets subject to the options. Some regulations also affect
the Custodian. When a covered option is written, the Custodian
segregates the underlying securities, and issues a receipt. There
are certain rules regarding banks issuing such receipts that may
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restrict the amount of covered call options written. Furthermore,
each fund is limited to pledging not more than 15% of the cost of
its total assets.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since each Fund
is taxed as a regulated investment company under the Internal
Revenue Code, any gains on options and other securities held less
than three months must be limited to less than 30% of its annual
gross income.
If a covered call option is exercised, the security is sold by the
Fund. The premium received upon writing the option is added to the
proceeds received from the sale of the security. The Fund will
recognize a capital gain or loss based upon the difference between
the proceeds and the security's basis. Premiums received from
writing outstanding options are included as a deferred credit in
the Statement of Assets and Liabilities and adjusted daily to the
current market value.
Options on many securities are listed on options exchanges. If a
Fund writes listed options, it will follow the rules of the options
exchange. The Custodian will segregate the underlying securities
and issue a receipt. There are certain rules regarding issuing
such receipts that may restrict the amount of covered call options
written. Further the Funds are limited to pledging not more than
15% of the cost of their total assets. Options are valued at the
close of the New York Stock Exchange. An option listed on a
national exchange or NASDAQ will be valued at the last-quoted sales
price or, if such a price is not readily available, at the mean of
the last bid and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They currently
include contracts on the Standard & Poor's 500 Stock Index (S&P 500
Index) and other broad stock market indexes such as the New York
Stock Exchange Composite Stock Index and the Value Line Composite
Stock Index, as well as narrower sub-indexes such as the S&P 100
Energy Stock Index and the New York Stock Exchange Utilities Stock
Index. A stock index assigns relative values to common stocks
included in the index and the index fluctuates with the value of
the common stocks so included.
A futures contract is a legal agreement between a buyer or seller
and the clearinghouse of a futures exchange in which the parties
agree to make a cash settlement on a specified future date in an
amount determined by the stock index on the last trading day of the
contract. The amount is a specified dollar amount (usually $100 or
$500) multiplied by the difference between the index value on the
last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 Index assigns relative weightings to the common stocks
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included in the Index, and the Index fluctuates with changes in the
market values of those stocks. In the case of S&P 500 Index
futures contracts, the specified multiple is $500. Thus, if the
value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a
stock index futures contract specifies that no delivery of the
actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.
For example, excluding any transaction costs, if a fund enters into
one futures contract to buy the S&P 500 Index at a specified future
date at a contract value of 150 and the S&P 500 Index is at 154 on
that future date, the fund will gain $500 x (154-150) or $2,000.
If the fund enters into one futures contract to sell the S&P 500
Index at a specified future date at a contract value of 150 and the
S&P 500 Index is at 152 on that future date, the fund will lose
$500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would
be paid or received by the Fund upon entering into stock index
futures contracts. However, the Fund would be required to deposit
with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. Treasury bills equal to
approximately 5% of the contract value. This amount is known as
initial margin. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve
borrowing funds by the Fund to finance the transactions. Rather,
the initial margin is in the nature of a performance bond or good-
faith deposit on the contract that is returned to the fund upon
termination of the contract, assuming all contractual obligations
have been satisfied.
Subsequent payments, called variation margin, to and from the
broker would be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short
positions in the contract more or less valuable, a process known as
marking to market. For example, when a fund enters into a contract
in which it benefits from a rise in the value of an index and the
price of the underlying stock index has risen, the fund will
receive from the broker a variation margin payment equal to that
increase in value. Conversely, if the price of the underlying
stock index declines, the fund would be required to make a
variation margin payment to the broker equal to the decline in
value.
How These Funds Would Use Stock Index Futures Contracts. The Funds
intend to use stock index futures contracts and related options for
hedging and not for speculation. Hedging permits a fund to gain
rapid exposure to or protect itself from changes in the market.
For example, a fund may find itself with a high cash position at
the beginning of a market rally. Conventional procedures of
purchasing a number of individual issues entail the lapse of time
and the possibility of missing a significant market movement. By
using futures contracts, the Fund can obtain immediate exposure to
the market and benefit from the beginning stages of a rally. The
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buying program can then proceed and once it is completed (or as it
proceeds), the contracts can be closed. Conversely, in the early
stages of a market decline, market exposure can be promptly offset
by entering into stock index futures contracts to sell units of an
index and individual stocks can be sold over a longer period under
cover of the resulting short contract position.
A Fund may enter into contracts with respect to any stock index or
sub-index. To hedge the Fund's portfolio successfully, however,
the fund must enter into contracts with respect to indexes or sub-
indexes whose movements will have a significant correlation with
movements in the prices of the Fund's individual portfolio
securities.
Special Risks of Transactions in Stock Index Futures Contracts.
1. Liquidity. Each Fund may elect to close some or all of its
contracts prior to expiration. The purpose of making such a move
would be to reduce or eliminate the hedge position held by the
fund. The Fund may close its positions by taking opposite
positions. Final determinations of variation margin are then made,
additional cash as required is paid by or to the Fund, and the Fund
realizes a gain or a loss.
Positions in stock index futures contracts may be closed only on an
exchange or board of trade providing a secondary market for such
futures contracts. For example, futures contracts transactions can
currently be entered into with respect to the S&P 500 Stock Index
on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange and the
Value Line Composite Stock Index on the Kansas City Board of Trade.
Although the Funds intend to enter into futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary
market will exist for any particular contract at any particular
time. In such event, it may not be possible to close a futures
contract position, and in the event of adverse price movements, the
Fund would have to make daily cash payments of variation margin.
Such price movements, however, will be offset all or in part by the
price movements of the securities subject to the hedge. Of course,
there is no guarantee the price of the securities will correlate
with the price movements in the futures contract and thus provide
an offset to losses on a futures contract.
2. Hedging Risks. There are several risks in using stock index
futures contracts as a hedging device. One risk arises because the
prices of futures contracts may not correlate perfectly with
movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors
may close the contracts through offsetting transactions which could
distort the normal relationship between the index and futures
markets. Second, the margin requirements in the futures market are
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lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does
the securities market. Increased participation by speculators in
the futures market also may cause temporary price distortions.
Because of price distortion in the futures market and because of
imperfect correlation between movements in stock indexes and
movements in prices of futures contracts, even a correct forecast
of general market trends may not result in a successful hedging
transaction over a short period.
Another risk arises because of imperfect correlation between
movements in the value of the stock index futures contracts and
movements in the value of securities subject to the hedge. If this
occurred, a fund could lose money on the contracts and also
experience a decline in the value of its portfolio securities.
While this could occur, the investment manager believes that over
time the value of the Fund's portfolio will tend to move in the
same direction as the market indexes and will attempt to reduce
this risk, to the extent possible, by entering into futures
contracts on indexes whose movements it believes will have a
significant correlation with movements in the value of the fund's
portfolio securities sought to be hedged. It is also possible that
if the Fund has hedged against a decline in the value of the stocks
held in its portfolio and stock prices increase instead, the Fund
will lose part or all of the benefit of the increased value of its
stock which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the
Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may
be, but will not necessarily be, at increased prices which reflect
the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index
futures contracts are similar to options on stock except that
options on futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a stock index
futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise
price at any time during the period of the option. If the option
is closed instead of exercised, the holder of the option receives
an amount that represents the amount by which the market price of
the contract exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price of the option on the futures
contract. If the option does not appreciate in value prior to the
exercise date, the fund will suffer a loss of the premium paid.
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. Such options would be used in the same manner
as options on futures contracts.
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SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES
CONTRACTS AND OPTIONS ON STOCK INDEXES. As with options on stocks,
the holder of an option on a stock index futures contract or on a
stock index may terminate a position by selling an option covering
the same contract or index and having the same exercise price and
expiration date. The ability to establish and close out positions
on such options will be subject to the development and maintenance
of a liquid secondary market. The funds will not purchase options
unless the market for such options has developed sufficiently, so
that the risks in connection with options are not greater than the
risks in connection with stock index futures contracts transactions
themselves. Compared to using futures contracts, purchasing
options involves less risk to the funds because the maximum amount
at risk is the premium paid for the options (plus transaction
costs). There may be circumstances, however, when using an option
would result in a greater loss to a fund than using a futures
contract, such as when there is no movement in the level of the
stock index.
TAX TREATMENT. As permitted under federal income tax laws, each
Fund intends to identify futures contracts as mixed straddles and
not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Fund being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and stock indexes is currently
unclear, although the Funds' tax advisers currently believe marking
to market is not required. Depending on developments, a fund may
seek Internal Revenue Service (IRS) rulings clarifying questions
concerning such treatment. Certain provisions of the Internal
Revenue Code may also limit a fund's ability to engage in futures
contracts and related options transactions. For example, at the
close of each quarter of the Fund's taxable year, at least 50% of
the value of its assets must consist of cash, government securities
and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived
from sales of securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, a fund may
be required to defer closing out a contract beyond the time when it
might otherwise be advantageous to do so. The fund also may be
restricted in purchasing put options for the purpose of hedging
underlying securities because of applying the short sale holding
period rules with respect to such underlying securities.
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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.
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APPENDIX E
OPTIONS AND INTEREST RATE FUTURES CONTRACTS FOR INVESTMENTS OF
SPECIAL INCOME AND MANAGED FUNDS
The Funds may buy or write options traded on any U.S. or foreign
exchange or in the over-the-counter market. The Fund may enter
into interest rate futures contracts traded on any U.S. or foreign
exchange. The Fund also may buy or write put and call options on
these futures. Options in the over-the-counter market will be
purchased only when the investment manager believes a liquid
secondary market exists for the options and only from dealers and
institutions the investment manager believes present a minimal
credit risk. Some options are exercisable only on a specific date.
In that case, or if a liquid secondary market does not exist, the
fund could be required to buy or sell securities at disadvantageous
prices, thereby incurring losses. Managed Fund also may enter into
stock index futures contracts - see Appendix D.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a stock
at a set price for the length of the contract. A person who writes
a put option agrees to buy the security at the set price if the
purchaser wants to exercise the option, no matter what the market
value of the security is at that time. An option is covered if the
writer owns the security (in the case of a call) or sets aside the
cash (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less another commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
fund and its shareholders by improving the fund's liquidity and by
helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
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market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, the fund pays a
premium and a commission. It then pays a second commission on the
purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a fund for investment
purposes. Options permit the fund to experience the change in the
value of a security with a relatively small initial cash
investment. The risk the fund assumes when it buys an option is
the loss of the premium. To be beneficial to the fund, 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.
Writing covered options. A fund will write covered options when it
feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the fund's
goal.
'All options written by the fund will be covered. For covered call
options if a decision is made to sell the security, the fund will
attempt to terminate the option contract through a closing purchase
transaction.
'The fund will write options only as permitted under applicable
laws or regulations, such as those that limit the amount of total
assets subject to the options.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since a fund is
taxed as a regulated investment company under the Internal Revenue
Code, any gains on options and other securities held less than
three months must be limited to less than 30% of its annual gross
income.
If a covered call option is exercised, the security is sold by the
fund. The fund will recognize a capital gain or loss based upon
the difference between the proceeds and the security's basis.
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Options on many securities are listed on options exchanges. If a
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 or NASDAQ will
be valued at the last-quoted sales price or, if such a price is not
readily available, at the mean of the last bid and asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contract markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by the fund entering into a futures contract purchase
for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the fund immediately
is paid the difference and realizes a gain. If the offsetting
purchase price exceeds the sale price, the fund pays the difference
and realizes a loss. Similarly, closing out a futures contract
purchase is effected by the fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the
fund realizes a gain, and if the offsetting sale price is less than
the purchase price, the fund realizes a loss. At the time a
futures contract is made, a good-faith deposit called initial
margin is set up within a segregated account at the fund's
custodian bank. The initial margin deposit is approximately 1.5%
of a contract's face value. Daily thereafter, the futures contract
is valued and the payment of variation margin is required so that
each day the fund would pay out cash in an amount equal to any
decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal
commission is paid, which is generally lower than the commission on
a comparable transaction in the cash markets.
The purpose of a futures contract, in the case of a portfolio
holding long-term debt securities, is to gain the benefit of
changes in interest rates without actually buying or selling long-
term debt securities. For example, if a fund owned long-term bonds
and interest rates were expected to increase, it might enter into
futures contracts to sell securities which would have much the same
effect as selling some of the long-term bonds it owned. Futures
contracts are based on types of debt securities referred to above,
which have historically reacted to an increase or decline in
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interest rates in a fashion similar to the debt securities the fund
owns. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
fund's futures contracts would increase at approximately the same
rate, thereby keeping the net asset value of the fund from
declining as much as it otherwise would have. If, on the other
hand, the fund held cash reserves and interest rates were expected
to decline, the fund might enter into interest rate futures
contracts for the purchase of securities. If short-term rates were
higher than long-term rates, the ability to continue holding these
cash reserves would have a very beneficial impact on the fund's
earnings. Even if short-term rates were not higher, the fund would
still benefit from the income earned by holding these short-term
investments. At the same time, by entering into futures contracts
for the purchase of securities, the fund could take advantage of
the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the fund's cash
reserves could then be used to buy long-term bonds on the cash
market. The fund could accomplish similar results by selling bonds
with long maturities and investing in bonds with short maturities
when interest rates are expected to increase or by buying bonds
with long maturities and selling bonds with short maturities when
interest rates are expected to decline. But by using futures
contracts as an investment tool, given the greater liquidity in the
futures market than in the cash market, it might be possible to
accomplish the same result more easily and more quickly.
Successful use of futures contracts depends on the investment
manager's ability to predict the future direction of interest
rates. If the investment manager's prediction is incorrect, the
fund would have been better off had it not entered into futures
contracts.
OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to
buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and
sell a security on a set date, an option on a futures contract
merely entitles its holder to decide on or before a future date
(within nine months of the date of issue) whether to enter into
such a contract. If the holder decides not to enter into the
contract, all that is lost is the amount (premium) paid for the
option. Furthermore, because the value of the option is fixed at
the point of sale, there are no daily payments of cash to reflect
the change in the value of the underlying contract. However, since
an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily
and that change is reflected in the net asset value of the fund.
Risks. There are risks in engaging in each of the management tools
described above. The risk a fund assumes when it buys an option is
the loss of the premium paid for the option. Purchasing options
also limits the use of monies that might otherwise be available for
long-term investments.
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The risk involved in writing options on futures contracts the fund
owns, or on securities held in its portfolio, is that there could
be an increase in the market value of such contracts or securities.
If that occurred, the option would be exercised and the asset sold
at a lower price than the cash market price. To some extent, the
risk of not realizing a gain could be reduced by entering into a
closing transaction. The fund could enter into a closing
transaction by purchasing an option with the same terms as the one
it had previously sold. The cost to close the option and terminate
the fund's obligation, however, might be more or less than the
premium received when it originally wrote the option. Furthermore,
the fund might not be able to close the option because of
insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities
subject to futures contracts may not correlate perfectly with the
behavior of the cash prices of the fund's portfolio securities.
The correlation may be distorted because the futures market is
dominated by short-term traders seeking to profit from the
difference between a contract or security price and their cost of
borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
Another risk is that the fund's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the movements
take place. For example, if the fund sold futures contracts for
the sale of securities in anticipation of an increase in interest
rates, and interest rates declined instead, the fund would lose
money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, each
fund intends to identify futures contracts as mixed straddles and
not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the fund being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes is currently unclear,
although the funds' tax advisers currently believe marking to
market is not required. Depending on developments, a fund may seek
Internal Revenue Service (IRS) rulings clarifying questions
concerning such treatment. Certain provisions of the Internal
Revenue Code may also limit a fund's ability to engage in futures
contracts and related options transactions. For example, at the
close of each quarter of the fund's taxable year, at least 50% of
the value of its assets must consist of cash, government securities
and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived
from sales of securities held less than three months.
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The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, a fund may
be required to defer closing out a contract beyond the
time when it might otherwise be advantageous to do so. The fund
also may be restricted in purchasing put options for the purpose of
hedging underlying securities because of applying the short sale
holding period rules with respect to such underlying securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the fund's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 100
APPENDIX F
MORTGAGE-BACKED SECURITIES AND ADDITIONAL INFORMATION ON INVESTMENT
POLICIES FOR ALL FUNDS EXCEPT MONEYSHARE
GNMA Certificates
The Government National Mortgage Association (GNMA) is a wholly
owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. GNMA certificates are
mortgage-backed securities of the modified pass-through type, which
means that both interest and principal payments (including
prepayments) are passed through monthly to the holder of the
certificate. Each certificate evidences an interest in a specific
pool of mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by
the Veterans Administration. The National Housing Act provides
that the full faith and credit of the United States is pledged to
the timely payment of principal and interest by GNMA of amounts due
on these certificates. GNMA is empowered to borrow without
limitation from the U.S. Treasury, if necessary, to make such
payments.
Underlying Mortgages of the Pool. Pools consist of whole mortgage
loans or participations in loans. The majority of these loans are
made to purchasers of 1-4 member family homes. The terms and
characteristics of the mortgage instruments generally are uniform
within a pool but may vary among pools. For example, in addition
to fixed-rate fixed-term mortgages, the Fund may purchase pools of
variable rate mortgages, growing equity mortgages, graduated
payment mortgages and other types.
All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers
also establish credit standards and underwriting criteria for
individual mortgages included in the pools. In addition, many
mortgages included in pools are insured through private mortgage
insurance companies.
Average Life of GNMA Certificates. The average life of GNMA
certificates varies with the maturities of the underlying mortgage
instruments which have maximum maturities of 30 years. The average
life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities as the result of
prepayments or refinancing of such mortgages. Such prepayments are
passed through to the registered holder with the regular monthly
payments of principal and interest.
As prepayment rates vary widely, it is not possible to accurately
predict the average life of a particular pool. It is customary in
the mortgage industry in quoting yields on a pool of 30-year
mortgages to compute the yield as if the pool were a single loan
that is amortized according to a 30-year schedule and that is
<PAGE>
PAGE 101
prepaid in full at the end of the 12th year. For this reason, it
is standard practice to treat GNMA certificates as 30-year
mortgage-backed securities which prepay fully in the 12th year.
Calculation of Yields. Yields on pass-through securities are
typically quoted based on the maturity of the underlying
instruments and the associated average life assumption.
Actual pre-payment experience may cause the yield to differ from
the assumed average life yield. When mortgage rates drop, pre-
payments will increase, thus reducing the yield. Reinvestment of
pre-payments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a fund. The
compounding effect from reinvestments of monthly payments received
by the fund will increase the yield to shareholders compared to
bonds that pay interest semi-annually. The yield also may be
affected if the certificate was issued at a premium or discount,
rather than at par. This also applies after issuance to
certificates trading in the secondary market at a premium or
discount.
"When-Issued" GNMA Certificates. Some U.S. government securities
may be purchased on a "when-issued" basis, which means that it may
take as long as 45 days after the purchase before the securities
are delivered to the fund. Payment and interest terms, however,
are fixed at the time the purchaser enters into the commitment.
However, the yield on a comparable GNMA certificate when the
transaction is consummated may vary from the yield on the GNMA
certificate at the time that the when-issued transaction was made.
A fund does not pay for the securities or start earning interest on
them until the contractual settlement date. When-issued securities
are subject to market fluctuations and they may affect the fund's
gross assets the same as owned securities.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA
certificates outstanding has grown rapidly. The size of the market
and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA certificates a
highly liquid instrument. Prices of GNMA certificates are readily
available from securities dealers and depend on, among other
things, the level of market interest rates, the certificate's
coupon rate and the prepayment experience of the pool of mortgages
underlying each certificate.
Stripped mortgage-backed securities. Generally, there are two
classes of stripped mortgage-backed securities: Interest Only (IO)
and Principal Only (PO). IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities.
POs entitle the holder to receive distributions consisting of all
or a portion of the principal of the underlying pool of mortgage
loans or mortgage-backed securities. The cash flows and yields on
IOs and POs are extremely sensitive to the rate of principal
<PAGE>
PAGE 102
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 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.
Managed and Special Income Funds may invest in securities called
"inverse floaters". Inverse floaters are created by underwriters
using the interest payments on securities. A portion of the
interest received is paid to holders of instruments based on
current interest rates for short-term securities. What is left
over, less a servicing fee, is paid to holders of the 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.
All Funds except Moneyshare may purchase some securities in advance
of when they are issued. Price and rate of interest are set on the
date the commitments are given but no payment is made or interest
earned until the date the securities are issued, usually within two
months, but other terms may be negotiated. The commitment requires
the Fund to buy the security when it is issued so the commitment is
valued daily the same way as owning a security would be valued.
The Fund's custodian will maintain, in a segregated account, cash
or liquid high-grade debt securities that are marked to market
daily and are at least equal in value to the Fund's commitments to
purchase the securities. The Fund may sell the commitment just
like it can sell a security. Frequently, the Fund has the
opportunity to sell the commitment back to the institution that
plans to issue the security and at the same time enter into a new
commitment to purchase a when-issued security in the future. For
rolling its commitment forward, the portfolio realizes a gain or
loss on the sale of the current commitment or receives a fee for
entering into the new commitment.
Managed and Special Income Funds may purchase mortgage-backed
security (MBS) put spread options and write covered MBS call spread
options. MBS spread options are based upon the changes in the
price spread between a specified mortgage-backed security and a
like-duration Treasury security. MBS spread options are traded in
the OTC market and are of short duration, typically one to two
months. The portfolio would buy or sell covered MBS call spread
options in situations where mortgage-backed securities are expected
to under perform like-duration Treasury securities.
<PAGE>
PAGE 103
APPENDIX G
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the unit value 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
units 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 units lower
than the average price of units 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
contract owners who can continue investing through changing market
conditions to acquire units to meet long term goals.
Dollar-cost averaging
Regular Market Value of an Accumulation
Investment Accumulation Unit Units Acquired
$100 $ 6 16.7
100 4 25.0
100 4 25.0
100 6 16.7
100 5 20.0
$500 $25 103.4
Average market price of an accumulation unit over 5 periods: $5
($25 divided by 5).
The average price you paid for each accumulation unit: $4.84
($500 divided by 103.4).
<PAGE>
PAGE 104
The board of directors and shareholders
IDS Life Investment Series, Inc.
IDS Life Capital Resource Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
IDS Life Special Income Fund, Inc.
IDS Life Moneyshare Fund, Inc. and
IDS Life Managed Fund, Inc.:
We have audited the accompanying statements of assets and
liabilities, including the schedules of investments in securities,
of IDS Life Capital Resource Fund, IDS Life International Equity
Fund, IDS Life Aggressive Growth Fund, IDS Life Special Income
Fund, Inc., IDS Life Moneyshare Fund, Inc. and IDS Life Managed
Fund, Inc. as of August 31, 1995, and the related statements of
operations for the year then ended and the statements of changes in
net assets for each of the years in the two-year period ended
August 31, 1995. We have also audited the financial highlights for
each of the years in the ten-year period ended August 31, 1995 for
IDS Life Capital Resource Fund, IDS Life Special Income Fund, Inc.,
and IDS Life Moneyshare Fund, Inc., each of the years in the nine-
year period ended August 31, 1995 and the period from April 30,
1986 (commencement of operations) to August 31, 1986 for IDS Life
Managed Fund, Inc., and for each of the years in the three year
period ended August 31, 1995 and the period from January 13, 1992
(commencement of operations) to August 31, 1992 for IDS Life
International Equity Fund and IDS Life Aggressive Growth Fund.
These financial statements and the financial highlights are the
responsibility of Fund management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements 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. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and
sold but not received or delivered, and securities on loan, we
request confirmations from brokers and, where replies are not
received, we carry out other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
<PAGE>
PAGE 105
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of IDS Life Capital Resource Fund, IDS Life
International Equity Fund, IDS Life Aggressive Growth Fund, IDS
Life Special Income Fund, Inc., IDS Life Moneyshare Fund, Inc., and
IDS Life Managed Fund, Inc. at August 31, 1995 and the results of
their operations for the year then ended, the changes in their net
assets for each of the years in the two-year period ended August
31, 1995, and the financial highlights for the periods stated in
the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 6, 1995
<PAGE>
PAGE 106
<TABLE>
<CAPTION>
Statements of assets and liabilities
Retirement Annuity Mutual Funds
August 31, 1995
Capital International Aggresive
Resource Equity Growth
Fund Fund Fund
Assets
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated
issuers (identified cost, $3,255,807,155;
$1,395,745,865 and $1,088,650,661, respectively) $3,622,612,161 $1,469,504,893 $1,417,982,369
Investments in securities of affiliated issuers
(identified cost, $272,811,155 for Capital
Resource Fund ) 254,420,213 -- --
Cash in bank on demand deposit (including foreign cash
of $4,163,659 for International Equity Fund) 16,044,568 2,195,160 520,902
Receivable for investment securities sold 25,165,723 3,275,322 6,226,347
Dividends and accrued interest receivable 5,277,316 4,765,340 396,544
Unrealized appreciation on forward foreign currency contracts
held, at value (Notes 1 and 4) -- 8,485,163 --
U.S. government securities held as collateral for
securities loaned (Note 6) 4,671,913 23,309,792 --
Receivable (for capital stock sold) from:
IDS Life accounts 367,206,996 2,420,087 518,782
IDS Life of New York accounts 17,524,595 123,071 --
___________________________________________________________________________________________________________________________________
Total assets 4,312,923,485 1,514,078,828 1,425,644,944
___________________________________________________________________________________________________________________________________
Liabilities
___________________________________________________________________________________________________________________________________
Dividends payable to separate accounts (Note 1) 394,283,931 5,845,560 3,030,321
Payable for investment securities purchased 49,717,392 16,202,707 9,783,895
Accrued investment management and services fee 2,121,101 1,088,468 786,110
Unrealized depreciation on forward foreign currency contracts
held, at value (Notes 1 and 4) 5,674 -- --
Payable for securities loaned (Note 6) 20,924,413 48,000,642 --
Payable (for capital stock redeemed) to:
IDS Life accounts 695,296 --
IDS Life of New York accounts 4 408,399 3,642
Other accrued expenses 461,562 655,447 148,368
___________________________________________________________________________________________________________________________________
Total liabilities 468,209,373 72,201,223 13,752,336
___________________________________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $3,844,714,112 $1,441,877,605 $1,411,892,608
___________________________________________________________________________________________________________________________________
Represented by
___________________________________________________________________________________________________________________________________
Capital stock - authorized 10,000,000,000
shares for each Fund of $.01 par value; outstanding,
157,440,979; 114,884,903 and 97,796,581 shares,
respectively $ 1,574,410 $ 1,148,849 $ 977,966
Additional paid-in capital 3,495,760,104 1,373,310,256 1,112,105,991
Undistributed (excess of distributions over) net
investment income (1,844,321) (6,056,376) (7,866)
Accumulated net realized gain (loss) on investments
in securities 810,735 (8,742,222) (30,514,798)
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies (Note 4) 348,413,184 82,217,098 329,331,315
___________________________________________________________________________________________________________________________________
Total - representing net assets applicable to outstanding
capital stock $3,844,714,112 $1,441,877,605 $1,411,892,608
___________________________________________________________________________________________________________________________________
Net asset value per share of outstanding capital stock $ 24.42 $ 12.55 $ 14.44
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 107
Statements of assets and liabilities (continued)
Retirement Annuity Mutual Funds
August 31, 1995
Special Moneyshare Managed
Income Fund Fund
Fund
Assets
___________________________________________________________________________________________________________________________________
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated
issuers (identified cost, $1,623,992,075;
$227,727,812 and $2,614,336,243, respectively) $1,681,272,841 $ 227,727,812 $3,042,488,703
Cash in bank on demand deposit -- 136,860 3,097,375
Receivable for investment securities sold 3,471,965 -- 5,618,995
Dividends and accrued interest receivable 27,660,103 100,897 13,067,325
U.S. government securities held as collateral for
securities loaned (Note 6) 674,883 -- 28,664,118
Receivable (for capital stock sold) from:
IDS Life accounts 10,572,061 1,085,129 11,653,859
IDS Life of New York accounts 461,852 40,415 699,250
___________________________________________________________________________________________________________________________________
Total assets 1,724,113,705 229,091,113 3,105,289,625
___________________________________________________________________________________________________________________________________
Liabilities
___________________________________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 349,418 -- --
Dividends payable to separate accounts (Note 1) 11,683,525 974,856 19,999,666
Payable for investment securities purchased 5,096,427 1,000,000 7,422,789
Accrued investment management and services fee 925,069 102,129 1,631,878
Payable for securities loaned (Note 6) 2,668,883 -- 31,475,788
Payable (for capital stock redeemed) to:
IDS Life accounts -- -- 32,857
IDS Life of New York accounts -- -- 59,548
Other accrued expenses 191,099 73,162 450,443
___________________________________________________________________________________________________________________________________
Total liabilities 20,914,421 2,150,147 61,072,969
___________________________________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $1,703,199,284 $ 226,940,966 $3,044,216,656
___________________________________________________________________________________________________________________________________
Represented by
___________________________________________________________________________________________________________________________________
Capital stock - authorized 10,000,000,000
shares for each Fund of $.01 par value ($.001 for
Managed Fund); outstanding, 147,091,617;
226,959,381 and 205,056,931 shares, respectively $ 1,470,916 $ 2,269,594 $ 205,057
Additional paid-in capital 1,669,150,899 224,672,331 2,664,574,250
Undistributed (excess of distributions over) net
investment income 415,998 -- (613,294)
Accumulated net realized loss on investments
in securities (25,134,380) (959) (48,116,897)
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies 57,295,851 -- 428,167,540
___________________________________________________________________________________________________________________________________
Total - representing net assets applicable to outstanding
capital stock $1,703,199,284 $ 226,940,966 $3,044,216,656
___________________________________________________________________________________________________________________________________
Net asset value per share of outstanding capital stock $ 11.57 $ 1.00 $ 14.85
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 108
Statements of operations
Retirement Annuity Mutual Funds
Year ended August 31, 1995
Capital International Aggressive
Resource Equity Growth
Fund Fund Fund
___________________________________________________________________________________________________________________________________
Income:
Investment income
Dividends (net of foreign taxes withheld of $367,254;
$2,782,744 and $30,97
6, respectively) $ 52,672,124 $ 22,808,667 $ 3,029,303
Dividends earned from affiliates 73,500 576,615 --
Interest 9,370,757 9,092,400 11,735,370
___________________________________________________________________________________________________________________________________
Total income 62,116,381 32,477,682 14,764,673
___________________________________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 20,450,401 10,869,439 6,579,414
Administrative services fee 702,000 301,873 277,355
Custodial fees and expenses 328,177 1,308,202 86,886
Directors and officers compensation 123,448 46,111 27,781
Printing and postage 444,136 236,868 168,851
Audit fees 26,245 22,427 20,827
Registration fees 350,000 135,311 87,952
Other 17,205 9,314 5,568
___________________________________________________________________________________________________________________________________
Total expenses 22,441,612 12,929,545 7,254,634
___________________________________________________________________________________________________________________________________
Investment income - net 39,674,769 19,548,137 7,510,039
___________________________________________________________________________________________________________________________________
Realized and unrealized gain (loss) on investments - net
___________________________________________________________________________________________________________________________________
Net realized gain (loss) on security transactions (including
$20,337,932 realized loss on investments of affiliated issuers
for Capital Resource Fund) (Note 3) 383,173,382 (8,690,223) 6,179,373
Net realized loss on foreign currency transactions (38,216) (8,288,964) (445)
___________________________________________________________________________________________________________________________________
Net realized gain (loss) on investments 383,135,166 (16,979,187) 6,178,928
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 128,698,908 (6,548,017) 270,146,371
___________________________________________________________________________________________________________________________________
Net gain (loss) on investments 511,834,074 (23,527,204) 276,325,299
___________________________________________________________________________________________________________________________________
Net increase (decrease) in net assets resulting
from operations $ 551,508,843 $ (3,979,067) $ 283,835,338
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 109
Statements of operations
Retirement Annuity Mutual Funds
Year ended August 31, 1995
Special Moneyshare Managed
Income Fund Fund
Fund
___________________________________________________________________________________________________________________________________
Income:
Investment income
Dividends (net of foreign taxes withheld of $25,287; $0 and
$362,702, respectively) $ 1,414,894 $ -- $ 33,078,010
Interest (net of foreign taxes withheld of $150,104 for
Special Income Fund) 132,087,292 11,299,524 64,084,649
___________________________________________________________________________________________________________________________________
Total income 133,502,186 11,299,524 97,162,659
___________________________________________________________________________________________________________________________________
Expenses (Note 2):
Investment management and services fee 9,542,823 1,041,050 16,720,930
Admninstrative services fee 347,753 27,729 403,957
Custodial fees and expenses 152,386 27,498 225,382
Directors and officers compensation 67,338 6,896 97,928
Printing and postage 214,416 16,476 382,915
Audit fees 26,481 16,753 24,681
Registration fees 54,233 133 260,089
Other 13,029 1,034 15,491
___________________________________________________________________________________________________________________________________
Total expenses 10,418,459 1,137,569 18,131,373
___________________________________________________________________________________________________________________________________
Investment income - net 123,083,727 10,161,955 79,031,286
___________________________________________________________________________________________________________________________________
Realized and unrealized gain (loss) on investments - net
___________________________________________________________________________________________________________________________________
Net realized loss on security transactions (including
$617,500 realized gain on investments of affiliated
issuers for Managed Fund) (Note3) (19,788,125) (152) (45,928,261)
Net realized loss on foreign currency transactions (229,649) -- (5,845)
Net realized gain on closed or expired options
contracts written (Note 5) 580,156 -- --
Net realized loss on closed interest rate futures contracts (550,296) -- (3,491,434)
___________________________________________________________________________________________________________________________________
Net realized loss on investments (19,987,914) (152) (49,425,540)
Net change in unrealized appreciation or depreciation of
investments and on translation of assets and liabilities
in foreign currencies 94,905,201 -- 293,779,938
___________________________________________________________________________________________________________________________________
Net gain (loss) on investments 74,917,287 (152) 244,354,398
___________________________________________________________________________________________________________________________________
Net increase in net assets resulting from operations $ 198,001,014 $ 10,161,803 $ 323,385,684
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 110
<TABLE>
<CAPTION>
Statements of changes in net assets
Retirement Annuity Mutual Funds
Year ended August 31,
Capital Resource Fund International Equity Fund
1995 1994 1995 1994
Operations and distributions
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Investment income - net $ 39,674,769 $ 30,730,527 $ 19,548,137 $ 7,630,484
Net realized gain (loss) on investments 383,135,166 300,809,352 (16,979,187) 24,648,901
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies 128,698,908 (135,555,243) (6,548,017) 63,468,345
___________________________________________________________________________________________________________________________________
Net increase (decrease) in net assets
resulting from operations 551,508,843 195,984,636 (3,979,067) 95,747,730
___________________________________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income (39,584,237) (30,730,527) (17,257,772) (2,495,587)
Net realized gain on investments (383,078,138) (300,690,606) -- (24,648,901)
Excess distributions of net
investment income (Note 1) (52,587) (14,735) -- --
Excess distributions of net realized
gain (Note 1) (977,300) -- -- (5,473,905)
___________________________________________________________________________________________________________________________________
Total distributions (423,692,262) (331,435,868) (17,257,772) (32,618,393)
___________________________________________________________________________________________________________________________________
Capital share transactions (Note 7)
___________________________________________________________________________________________________________________________________
Proceeds from sales 436,224,431 426,174,442 360,572,294 731,788,058
Reinvested distributions at net asset value 423,692,262 331,435,868 17,257,772 32,618,393
Payments for redemptions (42,461,613) (31,015,165) (26,008,343) (7,151,829)
___________________________________________________________________________________________________________________________________
Increase in net assets from capital
share transactions 817,455,080 726,595,145 351,821,723 757,254,622
___________________________________________________________________________________________________________________________________
Total increase in net assets 945,271,661 591,143,913 330,584,884 820,383,959
___________________________________________________________________________________________________________________________________
Net assets at beginning of year 2,899,442,451 2,308,298,538 1,111,292,721 290,908,762
___________________________________________________________________________________________________________________________________
Net assets at end of year $3,844,714,112 $2,899,442,451 $1,441,877,605 $1,111,292,721
___________________________________________________________________________________________________________________________________
Undistributed (excess of distributions over)
net investment income $ (1,844,321) $ (90,532) $ (6,056,376) $ 1,561,858
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 111
Statements of changes in net assets
Retirement Annuity Mutual Funds
Year ended August 31,
Aggressive Growth Fund Special Income Fund
1995 1994 1995 1994
Operations and distributions
___________________________________________________________________________________________________________________________________
Investment income - net $ 7,510,039 $ 699,372 $ 123,083,727 $ 117,482,199
Net realized gain (loss) on investments 6,178,928 (31,561,811) (19,987,914) 20,195,502
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies 270,146,371 16,989,673 94,905,201 (163,872,465)
___________________________________________________________________________________________________________________________________
Net increase (decrease) in net assets
resulting from operations 283,835,338 (13,872,766) 198,001,014 (26,194,764)
___________________________________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income (7,502,171) (707,260) (121,683,870) (119,630,572)
Net realized gain on investments -- -- (2,300,916) (2,399,451)
Excess distributions of net investment
income (Note 1) (7,442) (7,868) (2,378,142) (1,451,679)
___________________________________________________________________________________________________________________________________
Total distributions (7,509,613) (715,128) (126,362,928) (123,481,702)
___________________________________________________________________________________________________________________________________
Capital share transactions (Note 7)
___________________________________________________________________________________________________________________________________
Proceeds from sales 383,256,895 482,655,450 86,906,199 200,309,350
Reinvested distributions at net asset value 7,509,613 715,128 126,362,928 123,481,702
Payments for redemptions (17,849,325) (5,228,787) (140,624,932) (166,515,324)
___________________________________________________________________________________________________________________________________
Increase in net assets from capital share
transactions 372,917,183 478,141,791 72,644,195 157,275,728
___________________________________________________________________________________________________________________________________
Total increase in net assets 649,242,908 463,553,897 144,282,281 7,599,262
___________________________________________________________________________________________________________________________________
Net assets at beginning of year 762,649,700 299,095,803 1,558,917,003 1,551,317,741
___________________________________________________________________________________________________________________________________
Net assets at end of year $1,411,892,608 $ 762,649,700 $1,703,199,284 $1,558,917,003
___________________________________________________________________________________________________________________________________
Undistributed (excess of distributions over) net
investment income $ (7,866) $ (7,868) $ 415,998 $ (1,399,857)
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 112
Statements of changes in net assets
Retirement Annuity Mutual Funds
Year ended August 31,
Moneyshare Fund Managed Fund
1995 1994 1995 1994
Operations and distributions
___________________________________________________________________________________________________________________________________
Investment income - net $ 10,161,955 $ 5,413,679 $ 79,031,286 $ 75,979,672
Net realized gain (loss) on investments (152) (681) (49,425,540) 72,533,563
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies -- -- 293,779,938 (113,344,204)
___________________________________________________________________________________________________________________________________
Net increase in net assets resulting from
operations 10,161,803 5,412,998 323,385,684 35,169,031
___________________________________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income (10,161,955) (5,413,679) (78,601,919) (75,894,536)
Net realized gain on investments -- -- (198,282) (71,974,644)
Excess distributions of net investment
income (Note 1) (126) -- -- --
___________________________________________________________________________________________________________________________________
Total distributions (10,162,081) (5,413,679) (78,800,201) (147,869,180)
___________________________________________________________________________________________________________________________________
Capital share transactions (Note 7)
___________________________________________________________________________________________________________________________________
Proceeds from sales 113,426,072 54,005,120 265,867,838 629,387,611
Reinvested distributions at net asset value 10,162,081 5,413,679 78,800,201 147,869,180
Payments for redemptions (75,889,680) (59,822,520) (44,391,869) (23,003,414)
___________________________________________________________________________________________________________________________________
Increase (decrease) in net assets from
capital share transactions 47,698,473 (403,721) 300,276,170 754,253,377
___________________________________________________________________________________________________________________________________
Total increase (decrease) in net assets 47,698,195 (404,402) 544,861,653 641,553,228
___________________________________________________________________________________________________________________________________
Net assets at beginning of year 179,242,771 179,647,173 2,499,355,003 1,857,801,775
___________________________________________________________________________________________________________________________________
Net assets at end of year $ 226,940,966 $ 179,242,771 $3,044,216,656 $2,499,355,003
___________________________________________________________________________________________________________________________________
Undistributed (excess of distributions over)
net investment income $ -- $ -- $ (613,294) $ 859,703
___________________________________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 113
___________________________________________________________________
1. Summary of significant accounting policies
Each Fund is registered under the Investment Company Act of 1940 as
amended (the 1940 Act), as a diversified, open-end management
investment company. Shares of each Fund are sold through the
purchase of an annuity contract offered by IDS Life Insurance
Company (IDS Life) or its affiliates.
The significant accounting policies followed by the Funds are
summarized as follows:
Valuation of securities
Securities traded on national securities exchanges or included in
the NASDAQ National Market System are valued at the last quoted
sales price at the close of each business day; securities traded
over-the-counter but not included in the NASDAQ National Market
System and securities for which a last quoted sales price is not
readily available are valued at the mean of the bid and asked
prices. Bonds and other securities are valued at fair value as
determined by the board of directors when market quotations are not
readily available. Determination of fair value involves, among
other things, references to market indexes, matrixes and data from
independent brokers. Short-term securities in Capital Resource
Fund, International Equity Fund, Aggressive Growth Fund, Special
Income Fund and Managed Fund maturing in more than 60 days from the
valuation date are valued at the market price or approximate market
value based on the current interest rates; those maturing in 60
days or less are valued at amortized cost. Pursuant to Rule 2a-7
of the 1940 Act, all securities in Moneyshare Fund are valued at
amortized cost which approximates market value in order to maintain
a constant net asset value of $1 per share.
Option transactions
In order to produce incremental earnings, protect gains and
facilitate buying and selling of securities for investment
purposes, the Funds may buy and sell put and call options and write
covered call options on portfolio securities and write cash-secured
puts. The risk in writing a call option is that the Funds give up
the opportunity for profit if the market price of the security
increases. The risk in writing a put option is that the Funds 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
Funds pay a premium whether or not the option is exercised. The
Funds also have the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.
The Funds also may write over-the-counter options where the
completion of the obligation is dependent upon the credit standing
of the other party.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Funds will realize a gain or loss
upon expiration or closing of the option transaction. When an
option is exercised the proceeds on sales for a written call
option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the
amount of premium received or paid.
<PAGE>
PAGE 114
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Funds may buy and sell stock index and interest rate
futures contracts. The Funds also may buy or write put and call
options on futures contracts. Risks of entering into futures
contracts and related options include the possibility that there
may be an illiquid market and 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 Funds may be 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 Funds each
day. The variation margin payments are equal to the daily changes
in the contract value and recorded as unrealized gains and losses.
The Funds recognize a realized gain or loss when the contract is
closed or expires.
Foreign currency translations and forward foreign currency
contracts Securities and other assets and liabilities denominated
in foreign currencies are translated daily into U.S. dollars at the
closing rate of exchange. Foreign currency amounts related to the
purchase or sale of securities, income and expenses are translated
at the exchange rate on the transaction date. In the statement of
operations, net realized gains or losses from foreign currency
transactions may arise from sales of foreign currency, closed
forward contracts, exchange gains or losses realized between the
trade date and settlement dates on securities transactions, and
other translation gains or losses on dividends, interest income and
foreign withholding taxes.
The Funds also may enter into forward foreign currency exchange
contracts for operational purposes. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the
Funds and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an
independent pricing service. The Funds are subject to the credit
risk that the other party will not complete the obligations of the
contract.
Illiquid securities
At Aug. 31, 1995, investments in securities for Special Income Fund
included issues that are illiquid. The Funds currently limit
investments in illiquid securities to 10% of the net assets, at
market value, at the time of purchase. The aggregate value of such
securities at Aug. 31, 1995, was $10,233,991, which represents 0.6
percent of net assets for Special Income Fund. Pursuant to
guidelines adopted by the board of directors, certain unregistered
securities are determined to be liquid and are not included within
the limitations specified above.
Federal income taxes
Since each Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to the Variable
Accounts, no provision for income or excise taxes is required.
Each Fund is treated as a separate entity for federal income tax
purposes.<PAGE>
PAGE 115
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, the timing and amount of market
discount recognized as ordinary income, foreign tax credits 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. The effect on dividend
distributions of certain book-to-tax differences is presented as
"excess distributions" in the statement of changes in net assets.
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) are recorded by the Funds.
On the Statements of Assets and Liabilities, due to permanent
book-to-tax differences, undistributed net investment income and
accumulated net realized gain (loss) have been increased
(decreased), resulting in net reclassification adjustments to
additional paid-in capital as follows:
<TABLE>
<CAPTION>
Capital International Aggressive Special
Resource Equity Growth Income Moneyshare Managed
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Undistributed net investment income $(1,791,734) $(9,908,599) $(424) $2,794,140 $126 $(1,902,364)
Accumulated net realized gain (loss) 1,788,035 8,236,965 444 (2,793,728) (126) 1,897,869
_______________________________________________________________________________________________________________________
Additional paid-in capital reduction
(increase) $ (3,699) 1,671,634) $ 20 $ 412 $ -- $ (4,495)
_______________________________________________________________________________________________________________________
</TABLE>
Dividends
At Aug. 31, 1995, dividends were declared of $2.782 per share for
Capital Resource Fund, $.051 for International Equity Fund, $.031
for Aggressive Growth Fund, $.080 for Special Income Fund, $.004
for Moneyshare Fund and $.098 for Managed Fund payable Sept. 1,
1995. Distributions to the Variable Accounts are recorded as of the
close of business on the record date and are payable on the first
business day following the record date. Dividends from net
investment income are declared daily and paid monthly for Special
Income Fund and Moneyshare Fund and declared and paid quarterly for
Capital Resource Fund, International Equity Fund, Aggressive Growth
Fund and Managed Fund. Capital gain distributions (if any) will be
made annually. However, an additional capital gain distribution
may be made during the fiscal year in order to comply with the
Internal Revenue Code, as applicable to regulated investment
companies.
Other
Security transactions are accounted for on the date the securities
are purchased or sold. Dividend income is recognized on the
ex-dividend date and interest income, including amortization of
premium and discount on a level yield basis, is accrued daily.
<PAGE>
PAGE 116
___________________________________________________________________
2. Investment management and services agreement
Under the terms of a prior agreement that ended March 19, 1995,
Capital Resource Fund, International Equity Fund, Aggressive Growth
Fund, Special Income Fund and Managed Fund paid IDS Life a fee for
managing its investments, recordkeeping and other specified
services. The fee was a percentage of each Fund's average daily
net assets consisting of a group asset charge in reducing
percentages from 0.46% to 0.32% annually on the combined net assets
of all non-money market funds in the IDS MUTUAL FUND GROUP and an
individual annual asset charge of 0.25% of average daily net assets
for each Fund, except International Equity Fund. International
Equity Fund's individual annual asset charge was 0.50%.
Also under the terms of a prior agreement, the investment
management and services fee for Moneyshare Fund was paid to IDS
Life. The fee was computed on a graduated fee scale equal on an
annual basis to 0.54% of the first $1 billion of average daily net
assets and scaled down thereafter in reducing percentages of each
succeeding $500 million to 0.46% of all average daily net assets in
excess of $2.5 billion.
Effective March 20, 1995, the Funds entered into a new agreement
with IDS Life for managing investments, recordkeeping and other
services that are based solely on the assets of each Fund. The
management fee is a percentage of each Fund's average daily net
assets in reducing percentages from 0.63% to 0.57% annually for
Capital Resource, 0.87% to 0.795% for International Equity, 0.65%
to 0.575% for Aggressive Growth, 0.61% to 0.535% for Special
Income, 0.51% to 0.44% for Moneyshare and 0.63% to 0.55% for
Managed.
IDS Life, in turn, pays to American Express Financial Corporation
(AEFC) a fee based on a percentage of each Fund's average daily net
assets for the year. This fee is equal to 0.50% for International
Equity Fund and 0.25% for each remaining fund. In addition to
paying its own management fee, brokerage commissions, taxes and
costs of certain legal services, each Fund will reimburse IDS Life
an amount equal to the cost of certain expenses incurred and paid
by IDS Life in connection with each Fund's operations. The Funds
also pay custodian fees to American Express Turst Company, an
affiliate of IDS Life. The reimbursement paid by Moneyshare Fund
will be limited to 0.25% of the Fund's average daily net assets.
Also effective March 20, 1995, the Funds entered into an
Administrative Services Agreement with AEFC. Under this agreement,
each Fund pays AEFC for administration and accounting services at a
percentage of each Fund's average daily net assets in reducing
percentages from 0.05% to 0.03% annually for Capital Resource,
0.06% to 0.035% for International Equity, 0.06% to 0.035% for
Aggressive Growth, 0.05% to 0.025% for Special Income, 0.03% to
0.02% for Moneyshare and 0.04% to 0.02% for Managed.
<PAGE>
PAGE 117
The Funds have a retirement plan for its independent directors.
Upon retirement, directors receive monthly payments equal to
one-half of the retainer fee for as many months as they served as a
director up to 120 months. There are no death benefits. The plan
is not funded but the Funds recognizes the cost of payments during
the time the directors serve on the Board. The retirement plan
expense for the year ended Aug. 31, 1995 amounted to $34,211 for
Capital Resource Fund, $12,333 for International Equity Fund,
$6,265 for Aggressive Growth Fund, $16,913 for Special Income Fund,
$90 for Moneyshare Fund and $26,246 for Managed Fund.
___________________________________________________________________
3. Securities transactions
For the year ended Aug. 31, 1995, cost of purchases and proceeds
from sales of securities aggregated, respectively, $1,557,902,434
and $1,509,500,672 for Moneyshare Fund; cost of purchases and
proceeds from sales of securities (other than short-term
obligations) aggregated, respectively, $3,290,598,747 and
$2,793,528,177 for Capital Resource Fund; $796,997,285 and
$428,353,414 for International Equity Fund; $1,309,099,586 and
$1,001,772,351 for Aggressive Growth Fund; $822,023,049 and
$803,674,931 for Special Income Fund; $1,944,561,485 and
$1,703,214,649 for Managed Fund. Net realized gains (losses) on
investment sales are determined on the basis of identified costs.
Brokerage commissions paid to brokers affiliated with IDS Life were
1,057,532 for Capital Resource Fund, $375,342 for Aggressive Growth
Fund and $226,262 for Managed Fund for the year ended Aug. 31,
1995.
___________________________________________________________________
4. Forward foreign currency contracts
At Aug. 31, 1995, Capital Resource Fund and International Equity
Fund had entered into forward foreign currency exchange contracts
that obligate the Funds to deliver currencies at a specified future
date. The gross unrealized appreciation (depreciation) on these
contracts is included in the accompanying financial statements. The
terms of the open contracts are as follows:
<PAGE>
PAGE 118
Capital Resource Fund
___________________________________________________________________
Currency to Currency to Unrealized
Exchange date be delivered be received depreciation
___________________________________________________________________
Sept. 5, 1995 1,548,461 2,071,500 $ 5,674
U.S. Dollar Canadian Dollar
___________________________________________________________________
International Equity Fund
Currency to Currency to Unrealized
Exchange date be delivered be received depreciation
___________________________________________________________________
Sept. 1, 1995 1,017,258 100,708,594 $12,851
U.S. Dollar Japanese Yen
Sept. 6, 1995 869,172 560,765 --
U.S. Dollar British Pound
Sept. 9, 1995 3,845,354 2,490,031 19,173
U.S. Dollar British Pound
Sept. 29, 1995 2,943,451 14,932,714 16,013
U.S. Dollar French Franc
Sept. 29, 1995 441,902 2,237,039 1,449
U.S. Dollar French Franc
Oct. 31, 1995 44,760,040 38,152,097 832,471
Swiss Franc U.S. Dollar
Nov. 30, 1995 11,090,820,000 118,000,000 3,149,559
Japanese Yen U.S. Dollar
June 28, 1996 2,685,237,500 33,100,000 4,453,647
Japanese Yen U.S. Dollar
__________
$8,485,163
___________________________________________________________________
___________________________________________________________________
5. Options contracts written
The number of contracts and premium amounts associated with option
contracts written by Special Income Fund during the year ended Aug.
31, 1995 is as follows:
Puts Calls
Contracts Premiums Contracts Premium
___________________________________________________________________
Balance Aug. 31, 1994 -- $ -- -- $ --
___________________________________________________________________
Opened 450 164,437 2700 415,719
Closed or expired (250) (84,187) (700) (285,719)
Exercised (200) (80,250) (2,000) (130,000)
___________________________________________________________________
Balance Aug. 31, 1995 -- $ -- -- $ --
<PAGE>
PAGE 119
___________________________________________________________________
6. Lending of portfolio securities
<TABLE><CAPTION>
Presented below is information regarding securities on loan at Aug. 31, 1995.
Capital International Special
Resource Equity Income Managed
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Value of securities on loan to brokers $20,147,414 $46,880,312 $2,566,350 $30,872,386
_______________________________________________________________________________________________________________________
Collateral received for securities loaned:
Cash $16,252,500 $24,690,850 $1,994,000 $ 2,811,670
U.S. Government Securities, at value 4,671,913 23,309,792 674,883 28,664,118
_______________________________________________________________________________________________________________________
Total collateral received for securities
loaned $20,924,413 $48,000,642 $2,668,883 $31,475,788
_______________________________________________________________________________________________________________________
</TABLE>
For the year ended Aug. 31, 1995, income from security lending
transactions amounted to $327,293, $444,845, $51,926 and $402,142
for Capital Resource Fund, International Equity Fund, Special
Income Fund and Managed Fund, respectively, and has been included
with interest income in the statement of operations.
The risks related to security lending transactions are the borrower
may not provide additional collateral when required or return the
securities when due.
___________________________________________________________________
7. Capital share transactions
Transactions in shares of each Fund for the years ended Aug. 31,
1995 and 1994 were as follows:
<TABLE><CAPTION>
Number of shares: Year ended Aug. 31, 1995
_______________________________________________________________________________________________________________________
Capital International Aggressive Special
Resource Equity Growth Income Moneyshare Managed
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Shares at beginning of year 123,760,195 86,049,715 66,571,368 141,040,088 179,257,043 183,064,969
Sold 18,048,365 29,602,833 32,035,435 7,654,880 113,435,448 19,490,950
Issued for reinvested
distributions 17,356,230 1,338,365 638,223 11,415,969 10,162,908 5,727,716
Redeemed (1,723,811) (2,106,010) (1,448,445) (13,019,320) (75,896,018) (3,226,704)
_______________________________________________________________________________________________________________________
Net increase 33,680,784 28,835,188 31,225,213 6,051,529 47,702,338 21,991,962
_______________________________________________________________________________________________________________________
Shares at end of year 157,440,979 114,884,903 97,796,581 147,091,617 226,959,381 205,056,931
_______________________________________________________________________________________________________________________
Number of shares: Year ended Aug. 31, 1994
_______________________________________________________________________________________________________________________
Capital International Aggressive Special
Resource Equity Growth Income Moneyshare Managed
______________________________________________________________________________________________________________________
Shares at beginning of year 93,921,903 25,082,644 25,614,230 128,401,403 179,660,778 129,702,882
Sold 17,017,814 58,988,542 41,343,092 16,667,636 54,009,530 44,299,470
Issued for reinvested
distributions 14,130,743 2,534,743 61,199 10,704,857 5,414,112 10,732,030
Redeemed (1,310,265) (556,214) (447,153) (14,733,808) (59,827,377) (1,669,413)
_______________________________________________________________________________________________________________________
Net increase (decrease) 29,838,292 60,967,071 40,957,138 12,638,685 (403,735) 53,362,087
_______________________________________________________________________________________________________________________
Shares at end of year 123,760,195 86,049,715 66,571,368 141,040,088 179,257,043 183,064,969
_______________________________________________________________________________________________________________________
/TABLE
<PAGE>
PAGE 120
___________________________________________________________________
8. Tax loss carryforward
For federal income tax purposes, International Equity Fund,
Aggressive Growth Fund, Special Income Fund and Managed Fund had
capital loss carryovers at Aug. 31, 1995 of $11,050,244,
$29,350,034, $20,031,747 and 47,700,266, respectively, which, if
not offset by subsequent capital gains, will expire in 2000 through
2004. It is unlikely the board of directors will authorize a
distribution of any net realized gain for a Fund until its capital
loss carryover has been offset or expires.
___________________________________________________________________
9. Financial highlights
The tables below show certain important information for evaluating
each fund's results.
<PAGE>
PAGE 121
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
August 31, 1995 investments compared to total net assets)
Capital Resource Fund
Investment in securities of unaffiliated issuers
Bonds (2.4%)
Issuer Principal Value(a)
Amount
__________________________________________________________________________________
<S> <C> <C>
Foreign (0.9%)
Cemex (U.S. Dollar)
4.25% Cv 1997 20,000,000 (e) $ 16,800,000
Rogers Communication (U.S. Dollar)
Zero Coupon Cv with attached put
5.51% 2013 50,000,000 (g) 17,062,500
Total 33,862,500
__________________________________________________________________________________
Health care services (0.5%)
Service Corp Intl
6.50% Cv 2001 12,000,000 19,695,000
__________________________________________________________________________________
Media (1.0%)
Comcast
1.125% Cv 2007 75,000,000 39,750,000
__________________________________________________________________________________
Total bonds
(Cost: $89,146,099) $ 93,307,500
__________________________________________________________________________________
Common & preferred stocks & warrants (89.9%)
Issuer Shares Value(a)
__________________________________________________________________________________
Aerospace & defense (0.4%)
General Dynamics 300,000 $ 15,787,500
__________________________________________________________________________________
Airlines (0.6%)
Southwest Airlines 850,000 21,993,750
__________________________________________________________________________________
Automotive & related (0.5%)
General Motors 400,000 18,800,000
__________________________________________________________________________________
Banks and savings & loans (5.2%)
Bank of New York 300,000 13,050,000
First Chicago
$5.50 Cv Pfd 1,492,700 32,093,050
NBD Bancorp 700,000 25,025,000
Northern Trust 1,350,000 60,750,000
Norwest 700,000 21,087,500
State Street Boston 1,324,200 48,829,875
Total 200,835,425
__________________________________________________________________________________
Beverages & tobacco (5.6%)
American Brands 1,000,000 42,000,000
RJR Nabisco 4,200,000 119,700,000
UST 2,000,000 54,500,000
Total 216,200,000
__________________________________________________________________________________
Chemicals (0.7%)
Browning Ferris
$7.25 Cv Pfd 225,000 8,015,625
Sigma-Aldrich 400,000 19,200,000
Total 27,215,625
__________________________________________________________________________________
Computers & office equipment (11.4%)
Apple Computer 2,000,000 86,000,000
Automatic Data Processing 800,000 52,000,000
Compaq Computer 300,000 (b) 14,325,000
First Data 400,000 23,350,000
Fiserv 800,000 (b) 22,800,000
FTP Software 205,000 (b) 4,766,250
<PAGE>
PAGE 122
Hewlett-Packard 250,000 20,000,000
HNC Software 300,000 (b) 7,462,500
Hummingbird Communications 250,000 (b) 8,218,750
Network General 300,000 (b) 10,556,250
Novell 3,900,000 (b) 70,200,000
Pitney Bowes 1,000,000 40,625,000
Policy Mgmt Systems 600,000 (b) 29,700,000
Reynolds & Reynolds Cl A 1,100,000 35,337,500
Technology Solutions 300,000 (b) 4,687,500
Transaction Systems 250,000 (b) 6,125,000
VIASOFT 295,000 (b) 3,097,500
Total 439,251,250
__________________________________________________________________________________
Energy (1.0%)
Mobil 250,000 23,812,500
Unocal 500,000 14,562,500
Total 38,375,000
__________________________________________________________________________________
Financial services (2.7%)
Block (H&R) 1,450,000 56,550,000
Travelers 1,000,000 48,000,000
Total 104,550,000
__________________________________________________________________________________
Food (4.2%)
General Mills 945,000 48,785,625
Kellogg 102,900 6,945,750
Nabisco Holdings Cl A 525,000 15,028,125
Pioneer Hi-Bred Intl 500,000 21,500,000
Quaker Oats 400,000 13,900,000
Tootsie Roll 800,000 31,900,000
Wrigley, Wm Jr 500,000 22,562,500
Total 160,622,000
__________________________________________________________________________________
Foreign (6.1%)
Amway Asia Pacific 300,000 11,925,000
Amway Japan Ltd ADR 500,000 (b) 9,000,000
Astra 850,000 (b) 28,191,100
Femsa Coke 1,100,000 (b,f) 25,437,500
Fulcrum 60,000 (b) 1,230,000
Groupo Casa Autrey ADR 1,000,000 17,250,000
Moore 500,000 (f) 10,437,500
News Corp Ltd ADR 520,000 11,830,000
News Corp Ltd ADR Pfd 260,000 5,265,000
Panamerican Beverages 127,500 3,793,125
Renaissance Energy 125,000 (b) 2,734,695
Repsol S. A. ADR 300,000 9,487,500
Reuters Holdings ADR 300,000 15,712,500
Rogers Communication Cl B 1,600,000 (b) 16,384,896
Royal Dutch Petroleum 110,000 13,117,500
Seagram Ltd 600,000 22,200,000
Sony ADR 450,000 24,806,250
Tamro 1,500,000 6,087,000
Total 234,889,566
__________________________________________________________________________________
Health care (5.3%)
Benson Eyecare 850,000 (b) 7,862,500
Bristol-Myers Squibb 300,000 20,587,500
Centocor 1,500,000 (b) 18,187,500
Genentech 500,000 (b) 23,562,500
Guidant 400,000 (f) 10,100,000
IVAX 750,000 19,218,750
Mylan Labs 1,178,850 26,966,194
Stryker 900,000 37,575,000
Warner-Lambert 300,000 27,112,500
Watson Pharmaceuticals 300,000 (b) 12,412,500
Total 203,584,944
__________________________________________________________________________________
Health care services (6.5%)
Beverly Enterprises 1,300,000 (b) 17,225,000
Cardinal Health 1,172,800 62,744,800
Caremark Intl 1,000,000 20,750,000
Charter Medical 825,000 (b) 16,603,125
Foundation Health 500,000 (b) 17,312,500
<PAGE>
PAGE 123
Gulf South Medical Supply 250,000 (b) 7,062,500
Health Management Systems 300,000 (b) 9,225,000
Horizon Healthcare 250,000 (b) 5,468,750
Retirement Care 250,000 (b) 4,187,500
Service Corp Intl 470,000 16,450,000
Stewart Enterprises Cl A 700,000 22,312,500
United Healthcare 1,000,000 42,250,000
Universal Health Services Cl B 260,300 (b) 8,947,813
Total 250,539,488
__________________________________________________________________________________
Household products (1.1%)
Dial Arizona 400,000 9,600,000
Newell 1,000,000 25,000,000
Playtex Products 600,000 (b) 5,925,000
Total 40,525,000
__________________________________________________________________________________
Industrial machines & services (3.9%)
Caterpillar 400,000 26,850,000
General Signal 700,000 24,850,000
Giddings & Lewis Wisc 1,250,000 20,468,750
Greenfield Industries 400,000 13,500,000
Illinois Tool Works 250,000 15,312,500
Stewart & Stevenson 300,000 9,562,500
WMX Technologies 1,300,000 38,187,500
Total 148,731,250
__________________________________________________________________________________
Industrial transportation (0.4%)
Arnold Industries 800,000 14,300,000
__________________________________________________________________________________
Insurance (5.5%)
ACE Limited 1,000,000 30,750,000
Aetna Life & Casualty 300,000 20,475,000
American Intl Group 450,000 36,281,250
Horace Mann Educators 1,000,000 28,375,000
Reliance Group Holdings 50,000 393,750
UNUM 2,000,000 96,000,000
Total 212,275,000
__________________________________________________________________________________
Leisure time & entertainment (2.1%)
Carnival Cl A 400,000 8,700,000
Circus Circus Enterprises 341,700 (b) 11,190,675
Gaylord Entertainment Cl A 315,000 8,741,250
Harrah's Entertainment 400,000 (b) 12,750,000
Intl Game Technology 1,100,000 15,675,000
Primadonna Resorts 900,000 (b) 18,225,000
Station Casinos 300,000 (b) 5,812,500
Total 81,094,425
__________________________________________________________________________________
Media (12.7%)
ACS Enterprises 400,000 (b) 7,250,000
American Telecasting 350,000 (b) 3,762,500
Comcast Cl A 1,850,000 39,312,500
Cox Communications 600,000 (b) 11,850,000
Dun & Bradstreet 564,100 32,647,287
Gannett 675,000 36,112,500
Information Resources 600,000 (b) 7,725,000
Jacor Communications 551,000 (b) 9,160,375
Liberty Media Cl A 1,925,000 (b) 51,132,812
Marvel Entertainment Group 1,500,000 (b) 21,562,500
People's Choice TV 300,000 (b) 5,775,000
Reader's Digest Cl A 2,000,000 92,500,000
Tele-Communications Cl A 5,225,000 (b) 96,662,500
Time Warner 1,000,000 42,125,000
Turner Broadcasting Cl B 950,000 29,212,500
Viacom Wts C 350,000 (b) 1,487,500
Total 488,277,974
__________________________________________________________________________________
Metals (--%)
Webco Industries 141,700 (b) 921,050
__________________________________________________________________________________
Multi-Industry (2.1%)
General Electric 725,000 42,684,375
Interim Services 325,000 (b) 8,450,000
<PAGE>
PAGE 124
Minnesota Mining & Manufacturing 300,000 16,387,500
Romac 63,300 (b) 1,028,625
Westinghouse Electric 1,000,000 13,625,000
Total 82,175,500
__________________________________________________________________________________
Paper & packaging (1.7%)
Champion Intl 300,000 16,987,500
Crown Cork & Seal 300,000 (b) 13,500,000
Kimberly-Clark 300,000 19,162,500
Stone Container 750,000 (b) 16,312,500
Total 65,962,500
__________________________________________________________________________________
Restaurants & lodging (0.6%)
Darden Restaurants 750,000 (b) 7,687,500
McDonald's 400,000 14,600,000
Total 22,287,500
__________________________________________________________________________________
Retail (5.6%)
Arbor Drugs 500,000 9,375,000
Federated Department Stores 700,000 (b) 18,900,000
Food Lion Cl A 3,000,000 17,250,000
Josten's 300,000 7,200,000
May Department Stores 300,000 12,712,500
Perrigo 650,000 (b) 8,775,000
Quality Food Centers 825,000 20,418,750
Rite Aid 600,000 16,800,000
Ross Stores 300,000 4,800,000
Walgreen 1,550,000 37,975,000
Wal-Mart Stores 2,500,000 61,562,500
Total 215,768,750
__________________________________________________________________________________
Telecommunication equipment & services (0.8%)
NEXTEL Communications Cl A 1,750,000 (b) 31,281,250
__________________________________________________________________________________
__________________________________________________________________________________
Textiles & apparel (0.4%)
Liz Claiborne 600,000 13,650,000
__________________________________________________________________________________
Utilities - telephone (2.8%)
AT & T 500,000 28,250,000
MCI Communications 600,000 14,437,500
Pacific Telesis Group 650,000 18,443,750
U.S. West 875,000 38,062,500
Windstar 500,000(b) 6,687,500
Total 105,881,250
__________________________________________________________________________________
Total common & preferred stocks & warrants
(Cost: $3,093,132,392) $3,455,775,997
__________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (1.9%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
__________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (--%)
Federal Home Loan Mtge Corp Disc Nts
09-08-95 5.69% $ 600,000 $ 599,337
Federal Natl Mtge Assn Disc Nts
09-11-95 5.68 700,000 698,902
Total 1,298,239
__________________________________________________________________________________
Commercial paper (1.9%)
A.I. Credit
09-11-95 5.74 4,600,000 4,592,704
AT & T
09-21-95 5.75 4,200,000 4,186,653
<PAGE>
PAGE 125
Bell Atlantic
09-14-95 5.74 9,700,000 9,679,964
Ciesco
09-13-95 5.75 6,500,000 6,487,607
Colgate Palmolive
09-19-95 5.76 7,000,000 (c) 6,979,945
Goldman Sachs
09-12-95 5.75 1,000,000 998,252
Metlife Funding
09-21-95 5.75 6,000,000 5,980,900
Pepsico
09-28-95 5.76 2,500,000 (c) 2,489,275
Pitney Bowes
09-20-95 5.75 3,100,000 3,090,625
Reed Elsevier
09-12-95 5.75 9,800,000 (c) 9,782,872
Safeco Credit
09-13-95 5.76 4,900,000 4,890,625
Sandoz
09-22-95 5.75 3,900,000 (c) 3,886,964
SW Bell Telephone
09-08-95 5.76 1,300,000 1,298,549
Toyota Motor
09-01-95 5.75 4,400,000 4,400,000
Transamerica Financial
09-27-95 5.77 3,500,000 3,485,490
Total 72,230,425
__________________________________________________________________________________
Total short-term securities
(Cost: $73,528,664) $ 73,528,664
__________________________________________________________________________________
Total investments in securities of unaffiliated issuers
(Cost: $3,255,807,155) $3,622,612,161
__________________________________________________________________________________
Investments in securities of affiliated issuers (d)
Common stocks (6.6%)
Issuer Shares Value(a)
__________________________________________________________________________________
Bolle America 325,000(b) 2,884,375
Career Horizons 525,000(b) 13,125,000
CIBER 340,000(b) 7,990,000
Community Psych Centers 2,629,300 30,894,275
Coram Healthcare 3,875,000(b) 18,890,625
DAKA Intl 300,000(b) 7,987,500
Envoy 600,000(b) 6,300,000
FPA Medical Management 400,000(b) 4,400,000
HCC Insurance 500,000(b) 15,500,000
Health Management 650,000(b,f) 8,815,625
Insurance Auto Auctions 1,100,000(b) 14,025,000
NBTY 1,425,000(b) 8,460,938
Norton McNaughton 715,000(b) 15,193,750
Owens & Minor 2,100,000 30,450,000
PMT Services 475,000(b) 8,906,250
Regency Health Services 1,100,000(b) 12,650,000
Renaissance Solutions 350,000(b) 6,912,500
Spiegel Cl A 810,000 9,618,750
SysteMed 1,275,000(b) 8,128,125
Ventritex 1,150,000(b) 23,287,500
__________________________________________________________________________________
Total investments in securities of affiliated issuers
(Cost: $272,811,155) $ 254,420,213
__________________________________________________________________________________
Total investments in securities
(Cost: $3,528,618,310)(h) $3,877,032,374
__________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Commercial paper sold within terms of a private placement memorandum, exempt from
registration under section 4(2) of the Securities Act of 1933, as amended, and may be
sold only to dealers in that program or other "accredited investors." These securities
have been determined to be liquid under guidelines established by the board of directors.
(d) Investments representing 5% or more of the outstanding voting securities of the issuer.
<PAGE>
PAGE 126
(e) Represents a security sold under Rule 144A which is exempt from registration under the
Securities Act of 1933, as amended. This security has been determined to be liquid under
guidelines established by the board of directors.
(f) Security is partially or fully on loan. See Note 6 to the financial statements.
(g) For zero coupon bonds, the interest rate disclosed represents the annualized effective
yield on the date of acquisition.
(h) At Aug. 31, 1995, the cost of securities for federal income tax purposes was $3,537,538,476
and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation ..................................... $ 435,636,636
Unrealized depreciation ..................................... (96,142,738)
__________________________________________________________________________________
Net unrealized appreciation ................................. $ 339,493,898
__________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 127
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
August 31, 1995 investments compared to total net assets)
International Equity Fund
__________________________________________________________________________________
Common stocks (91.8%)
Issuer Shares Value(a)
__________________________________________________________________________________
<S> <C> <C>
Argentina (1.0%)
Multi-industry conglomerates
Perez Naviera B shares 3,047,940 $ 14,453,331
__________________________________________________________________________________
Australia (4.1%)
Banks and savings & loans (0.7%)
Westpac Banking 2,616,000 9,833,544
__________________________________________________________________________________
Energy (0.5%)
Broken Hill Proprietary 516,516 7,494,647
__________________________________________________________________________________
Industrial transportation (0.8%)
Brambles Inds 1,183,616 11,905,993
__________________________________________________________________________________
Metals (1.6%)
CRA 736,800 11,798,378
Pasminco 9,132,600 11,534,474
___________
Total 23,332,852
__________________________________________________________________________________
Paper & packaging (0.5%)
Amcor 925,000 7,203,900
__________________________________________________________________________________
Brazil (0.6%)
Communications equipment
Telebras ADR 203,800(c) 8,585,075
__________________________________________________________________________________
Canada (1.7)
Aerospace & defense (0.5%)
Bombardier Cl B 600,800 7,327,102
__________________________________________________________________________________
Communications equipment (0.3%)
BCE Mobile 150,300(b) 4,687,430
__________________________________________________________________________________
Electronics (0.5%)
Northern Telecom 177,300 6,515,775
__________________________________________________________________________________
Energy (0.4%)
Rennaissance Energy 255,300(b) 5,585,341
__________________________________________________________________________________
Chile (0.6%)
Utilities - telephone
Telefonos de Chile 116,000 8,468,000
__________________________________________________________________________________
Denmark (0.8%)
Utilities - telephone
TeleDanmark B Shares 220,000 11,552,420
__________________________________________________________________________________
France (8.1%)
Automotive & related (0.4%)
Peugeot 44,305(b) 5,856,678
__________________________________________________________________________________
Banks and savings & loans (1.8%)
Banque Nationale de Paris 122,600 5,029,542
Credit Commercial de France 494,930 21,068,470
______________
Total 26,098,012
__________________________________________________________________________________
Building materials (0.5%)
Lafarge-Coppee (Bearer) 92,614 6,919,748
Lafarge-Coppee Bonus Shares 9,261 691,945
______________
Total 7,611,693
__________________________________________________________________________________
Energy (2.0%)
Societe Nationale Elf Aquitaine 259,820 19,026,359
Total Petroleum Cl B 157,500(c) 9,251,865
_________
Total 28,278,224
__________________________________________________________________________________
<PAGE>
PAGE 128
Financial services (0.4%)
Cie de Suez 131,900 5,437,182
__________________________________________________________________________________
Food (0.7%)
Danone 61,000 10,009,978
__________________________________________________________________________________
Insurance (0.5%)
Union des Assurances Federales 65,000 6,582,745
__________________________________________________________________________________
Metals (0.4%)
Usinor Sacilor 392,840(b) 6,453,968
__________________________________________________________________________________
Multi-industry conglomerates (1.4%)
Lyonnaise des Eaux Dumez 207,000 19,892,700
__________________________________________________________________________________
Germany (1.5%)
Banks and savings & loans (0.9%)
Commerzbank 55,000 12,440,065
__________________________________________________________________________________
Chemicals (0.4%)
Henkel Pfd Shares 13,250 5,058,108
__________________________________________________________________________________
Retail (0.2%)
Karstadt 14,040 6,240,204
__________________________________________________________________________________
Hong Kong (2.5%)
Multi-industry conglomerates (1.6%)
Hutchison Whampoa 2,897,000 13,957,746
Swire Pacific Cl A 1,200,000 8,990,400
___________
Total 22,948,146
__________________________________________________________________________________
Real estate (0.5%)
Sun Hung Kai Properties 941,000 6,837,306
__________________________________________________________________________________
Retail (0.4%)
Dairy Farm Intl 5,500,000(c) 5,115,000
__________________________________________________________________________________
Indonesia (0.2%)
Multi-industry conglomerates
India Fund 350,000 3,412,500
__________________________________________________________________________________
Italy (2.2%)
Insurance (0.6%)
INA 5,993,800 8,295,419
__________________________________________________________________________________
Communications equipment (1.6%)
Stet Risp 2,900,000 7,084,700
Telecom Italia 5,256,000 8,441,136
Telecom Italia Mobil 5,256,000 7,742,088
______________
Total 23,267,924
__________________________________________________________________________________
Japan (28.8%)
Banks and savings & loans (3.8%)
Fuji Bank 391,000 8,198,488
Mitsubishi Bank 185,000(c) 3,784,545
Sakura Bank 1,000,000 10,637,000
Sanwa Bank 883,000 16,889,141
Sumitomo Trust & Banking 1,148,000 15,617,392
____________
Total 55,126,566
__________________________________________________________________________________
Building materials (4.7%)
Asahi Glass 720,000 8,174,160
Daiwa Kosho Lease 880,000 8,568,560
JGC 200,300(c) 2,376,559
NGK Spark Plug 1,280,000(c) 16,888,320
Nihon Cement 1,429,000 9,134,168
Raito Kogyo 424,000 9,107,520
Sho-Bond 180,000(b,c) 5,909,940
Tostem 225,000 7,042,275
___________
Total 67,201,502
__________________________________________________________________________________
Chemicals (0.9%)
Sekisui Chemical 1,014,000 12,757,134
__________________________________________________________________________________
<PAGE>
PAGE 129
Electronics (5.5%)
Hitachi 1,022,000(b) 11,184,768
Kyocera 165,000 14,581,875
Rohm 319,000(c) 19,675,282
TDK 400,000 20,579,600
Yokogawa Electric 1,370,000 12,891,700
___________
Total 78,913,225
__________________________________________________________________________________
Health care (1.1%)
Banyu Pharmaceuticals 433,000 4,782,918
Sankyo Pharmaceuticals 465,000 10,368,570
____________
Total 898,000 15,151,488
__________________________________________________________________________________
Industrial equipment & services (1.8%)
Mitsubishi Heavy Inds 2,000,000 14,298,000
Secom 170,000 11,180,730
____________
Total 25,478,730
__________________________________________________________________________________
Insurance (1.1%)
Tokio Marine & Fire 1,381,000 16,385,565
__________________________________________________________________________________
Leisure time & entertainment (0.3%)
Sega Enterprises 110,400(c) 4,799,198
__________________________________________________________________________________
Metals (0.6%)
Hitachi Metals 718,000 8,371,880
__________________________________________________________________________________
Paper & packaging (0.7%)
Nippon Paper Inds 1,530,000 9,764,460
__________________________________________________________________________________
Real estate (1.7%)
Mitsubishi Estates 620,000 7,292,440
Mitsui Fudosan 1,300,000 16,754,400
____________
Total 24,046,840
__________________________________________________________________________________
Retail (1.6%)
Amway Japan 52,000 1,882,868
Autobocs Seven 40,000(b) 4,132,320
Family Mart 31,500 1,385,465
Ito-Yokado 132,000 7,034,412
Marui 472,000 8,303,896
___________
Total 22,738,961
__________________________________________________________________________________
Telecommunications (1.1%)
DDI 1,800 15,207,896
__________________________________________________________________________________
Transportation (0.7%)
Nippon Express 1,184,000 10,220,288
__________________________________________________________________________________
Wire & cable (2.4%)
Nippon Denso 800,000 14,401,600
NTN 1,261,000 8,422,219
Sumitomo Electric Inds 950,000 12,340,500
___________
Total 35,164,319
__________________________________________________________________________________
Miscellaneous (0.8%)
Itochu 1,848,000 11,490,864
__________________________________________________________________________________
Malaysia (2.6%)
Banks and savings & loans (0.3%)
Malayan Banking 603,500 4,958,356
__________________________________________________________________________________
Building materials (0.6%)
United Engineers 1,370,000 9,169,410
__________________________________________________________________________________
Leisure time & entertainment (0.3%)
Resorts World 809,000 4,214,890
__________________________________________________________________________________
Multi-industry conglomerates (0.7%)
Sime Darby 3,720,000 9,467,400
__________________________________________________________________________________
Utilities - telephone (0.7%)
Telekom Malaysia 1,497,000 10,499,958
__________________________________________________________________________________
<PAGE>
PAGE 130
Mexico (1.1%)
Building materials (0.9%)
Cemex & Telmex Series A ADR 75,000 649,995
Cemex & Telmex Series B ADR 1,130,000 5,193,644
Empresas ICA Sociedad Controladora ADR 553,500(c) 6,642,000
___________
Total 12,485,639
__________________________________________________________________________________
Financial services (0.1%)
Banorte Series C 828,000(b) 1,253,146
__________________________________________________________________________________
Retail (0.1%)
Benavides B Shares 586,900 748,001
__________________________________________________________________________________
Netherlands (4.5%)
Chemicals (1.1%)
Akzo Nobel 140,260 16,546,192
__________________________________________________________________________________
Food (1.1%)
Unilever 127,000 15,661,640
__________________________________________________________________________________
Industrial equipment & services (0.2%)
Stork VMF 116,035 2,928,143
__________________________________________________________________________________
Insurance (0.9%)
Intl Nederlanden Groep 227,055 12,619,490
__________________________________________________________________________________
Media (1.2%)
Elsevier 1,400,000 17,707,200
__________________________________________________________________________________
New Zealand (1.2%)
Paper & packaging
Carter Holt Harvey 3,851,000 8,764,876
Fletcher Challenge 3,263,100 8,869,106
___________
Total 17,633,982
__________________________________________________________________________________
Norway (0.5%)
Energy (0.3%)
Saga Petroleum Cl A 343,860 4,315,443
__________________________________________________________________________________
Industrial transportation (0.2%)
First Olsen Tankers 408,000(b) 3,116,712
__________________________________________________________________________________
Philippines (0.4%)
Utilities - telephone
Philippines Long Distance Telephone ADR 99,900(c) 6,281,213
__________________________________________________________________________________
Singapore (4.1%)
Automotive & related (0.8%)
Cycle & Carriage 1,306,000 11,945,982
__________________________________________________________________________________
Banks and savings & loan (1.2%)
Development Bank Singapore 539,500(b) 6,149,221
Overseas Union Bank 1,714,350 10,613,541
___________
Total 16,762,762
__________________________________________________________________________________
Beverages & tobacco (0.7%)
Fraser & Neave 916,600 10,383,245
__________________________________________________________________________________
Industrial equipment & services (0.5%)
Sembawang Shipyard 1,243,000 7,127,362
__________________________________________________________________________________
Industrial transportation (0.9%)
Keppel 1,647,000 13,210,587
__________________________________________________________________________________
Spain (4.3%)
Banks and savings & loans (1.8%)
Argentaria Bancaria de Espana 380,000 14,514,860
Banco Popular de Espana 70,000 10,773,490
___________
Total 25,288,350
__________________________________________________________________________________
Energy (0.9%)
Repsol 414,000 12,990,906
__________________________________________________________________________________
Telecommunications (1.6%)
Telefonica 1,669,800 22,635,809
__________________________________________________________________________________
<PAGE>
PAGE 131
Sweden (1.7%)
Industrial equipment & services
Asea B Free Shares 94,500 8,366,463
Ericsson (LM) B Free 750,000(b) 16,034,250
____________
Total 24,400,713
__________________________________________________________________________________
Switzerland (2.7%)
Banks and savings & loans (1.3%)
Swiss Bank 113,500(b) 19,381,374
__________________________________________________________________________________
Health care (1.4%)
Sandoz 28,500 20,554,799
__________________________________________________________________________________
Thailand (0.5%)
Banks and savings & loans
Siam Commercial Bank 616,000 6,636,784
__________________________________________________________________________________
United Kingdom (16.1%)
Banks and savings & loans (1.7%)
Natl Westminster 2,611,744 23,853,058
__________________________________________________________________________________
Beverages & tobacco (1.7%)
BAT Inds 1,310,000 10,246,820
Guinness 1,780,000 13,563,600
_____________
Total 23,810,420
__________________________________________________________________________________
Health care (1.7%)
Glaxo Holdings 1,643,800 19,541,494
SmithKline Beecham 580,065 5,383,583
______________
Total 24,925,077
__________________________________________________________________________________
Leisure time & entertainment (1.5%)
Rank Organisation 3,225,000 22,071,900
__________________________________________________________________________________
Machinery (1.8%)
Siebe 2,530,000 26,112,130
__________________________________________________________________________________
Metals (0.8%)
RTZ 907,000 12,288,943
__________________________________________________________________________________
Multi-industry conglomerates (2.0%)
Ampolex 3,953,821 9,331,018
BTR 2,000,000 10,584,000
Framlington Maghreb Fund Units 50,000(b) 2,281,250
Hanson 2,172,800 7,300,608
___________
Total 29,496,876
__________________________________________________________________________________
Retail (2.6%)
Argyll Group 3,230,000 17,645,490
Kingfisher 1,128,095 7,965,479
Next 1,958,100 11,729,019
____________
Total 37,339,988
__________________________________________________________________________________
Transportation (1.4%)
British Airways 3,050,000 20,163,550
__________________________________________________________________________________
Utilities - telephone (0.9%)
Vodafone Group 3,328,995 13,688,827
__________________________________________________________________________________
Total common stocks
(Cost: $1,250,927,329) $1,324,276,435
__________________________________________________________________________________
Other (0.1%)
Japan
Fujitsu
Warrants 11,000 $ 1,342,020
__________________________________________________________________________________
Total other
(Cost: $2,036,136) $ 1,342,020
__________________________________________________________________________________
<PAGE>
PAGE 132
Bond (0.5%)
Issuer Principal Value (a)
Amount
__________________________________________________________________________________
Renong
(U.S. Dollar)
2.50% Cv 2005 $6,000,000(d) $ 7,125,000
(Cost $6,005,618)
__________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (9.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
__________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.4%)
Federal Natl Mtge Assn
09-05-95 5.68% $ 900,000 $ 899,435
09-12-95 5.67 4,300,000 4,292,576
___________
Total 5,192,011
__________________________________________________________________________________
Commercial paper (9.1%)
Banc One Milwaukee
09-19-95 5.74 3,700,000 3,688,069
Barclays U.S. Funding
09-29-95 5.75 5,700,000 5,674,686
BBV Finance (Delaware)
09-21-95 5.76 6,000,000 5,980,900
CAFCO
09-22-95 5.75 2,500,000 2,491,658
Cargill
09-22-95 5.74 5,000,000 4,983,317
09-22-95 5.77 5,000,000 4,983,317
Ciesco LP
09-27-95 5.75 5,900,000 5,875,626
CIT Group
09-06-95 5.79 3,900,000 3,896,885
09-29-95 5.79 5,900,000 5,873,614
Colgate Palmolive
09-18-95 5.78 2,700,000(e) 2,692,669
09-28-95 5.77 4,300,000(e) 4,281,521
Commerzbank
09-15-95 5.76 8,000,000 7,982,173
Deutsche Bank Financial
09-11-95 5.76 2,800,000 2,795,551
Harris Bank
09-18-95 5.77 6,500,000 6,500,000
Intel
09-26-95 5.74 4,200,000 4,183,346
Lilly (Eli)
10-02-95 5.76 6,500,000 6,467,984
Metlife
09-21-95 5.76 10,200,000 10,167,530
Natl Bank Detroit Canada
09-28-95 5.75 2,000,000 1,991,420
PACCAR Financial
09-20-95 5.75 5,000,000 4,984,905
Penney (JC) Funding
09-11-95 5.76 3,700,000 3,694,111
09-20-95 5.76 2,700,000 2,691,835
PepsiCo
09-29-95 5.77 900,000 895,989
Pitney Bowes Credit
10-10-95 5.68 4,000,000 3,972,454
SAFECO Credit
09-14-95 5.80 3,700,000 3,692,291
Southern California Gas
10-11-95 5.77 2,500,000 2,484,083
Toyota Motor
09-05-95 5.76 6,900,000 6,895,607
Transamerica Financial
09-27-95 5.77 6,400,000 6,373,468
<PAGE>
PAGE 133
USL Capital
10-06-95 5.76 4,400,000 4,375,531
U S WEST
09-07-95 5.94 1,000,000 998,887
___________
Total 131,569,427
__________________________________________________________________________________
Total short-term securities
(Cost: $136,776,782) $ 136,761,438
__________________________________________________________________________________
Total investments in securities
(Cost: $1,395,745,865)(f) $1,469,504,893
__________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Security is partially or fully on loan. See Note 6 to the financial statements.
(d) Represents a security sold under Rule 144A, which is exempt from registration under
the Securities Act of 1933, as amended. This security has been determined to be liquid
under guidelines established by the board of directors.
(e) Commercial paper sold within terms of a private placement memorandum, exempt from
registration under section 4(2) of the Securities Act of 1933, as amended, and may be
sold only to dealers in that program or other "accredited investors." This security has
been determined to be liquid under guidelines established by the board of directors.
(f) At Aug. 31, 1995, this also represents the cost of securities for federal income tax
purposes. The aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 127,406,605
Unrealized depreciation (53,647,577)
__________________________________________________________________________________
Net unrealized appreciation $ 73,759,028
__________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 134
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
August 31, 1995 investments compared to total net assets)
Aggressive Growth Fund
__________________________________________________________________________________
Bond (0.3 %)
Issuer Principal Value(a)
Amount
__________________________________________________________________________________
<S> <C> <C>
Boston Chicken
Zero Coupon Cv with attached put
8.00% 2015 $20,000,000 (e) $ 4,675,000
(Cost: $4,249,115)
__________________________________________________________________________________
Common & preferred stocks (87.9%)
Issuer Shares Value(a)
__________________________________________________________________________________
<S> <C> <C>
Aerospace & defense (0.5%)
Loral 140,000 7,665,000
__________________________________________________________________________________
Automotive & related (0.3%)
Titan Wheel Intl 157,600 4,215,800
__________________________________________________________________________________
Banks and savings & loans (2.9%)
Bank of Boston 280,000 12,320,000
Citicorp 175,000 11,615,625
First Fidelity Bancorporation 120,000 7,845,000
Green Tree Financial 160, 000 9,320,000
Total 41,100,625
__________________________________________________________________________________
Beverages & tobacco (0.7%)
Canandaigua Wine 210,000 (b) 9,922,500
__________________________________________________________________________________
Building materials (1.2%)
Centex 250,000 7,312,500
Tyco Intl 150,000 8,868,750
Total 16,181,250
__________________________________________________________________________________
Chemicals (2.1%)
Air Products & Chem 130,000 6,971,250
IMC Global 120,000 7,590,000
Praxair 310,000 8,060,000
U.S. Filter 350,000 (b) 7,700,000
Total 30,321,250
__________________________________________________________________________________
Communications equipment (5.2%)
ADC Telecommunications 280,000 (b) 10,850,000
See accompanying notes to investments in securities.
Andrew 110,000 (b) 6,407,500
Ascend Communications 100,000 (b) 6,450,000
BroadBand Technologies 220,000 (b) 5,390,000
Cascade Communications 100,000 (b) 4,550,000
EIS Intl 330,000 (b) 6,228,750
General Instrument 180,000 (b) 6,570,000
Mobile Telecommunication Technologies 225,000 (b) 6,918,750
Stratacom 140,000 (b) 6,860,000
Tellabs 275,000 (b) 12,856,250
Total 73,081,250
__________________________________________________________________________________
Computers & office equipment (19.4%)
American Management Systems 375,000 (b) 9,562,500
Broadway & Seymour 370,000 (b) 10,498,750
Ceridian 210,000 (b) 9,187,500
Cisco Systems 485,000 (b) 31,828,125
Computer Sciences 180,000 (b) 10,845,000
Computron Software 12,700 (b) 241,300
First Data 130,000 7,588,750
Gateway 2000 250,000 (b) 6,656,250
Informix 280,000 (b) 7,840,000
<PAGE>
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Intersolv 290,000 (b) 5,727,500
Key Tronic 300,000 (b) 4,575,000
Komag 110,000 (b) 6,847,500
Macromedia 150,000 (b) 7,462,500
Mercury Interactive 270,000 (b) 6,108,750
MicroAge 440,000 (b) 5,170,000
Minnesota Educational Computing 230,000 (b) 6,670,000
National Data 225,000 5,793,750
NETCOM 190,000 (b) 7,101,250
Network General 250,000 (b) 8,796,875
Novell 300,000 (b) 5,400,000
Oracle 450,000 (b) 18,056,250
Parametric Technology 280,000 (b) 15,470,000
Sanmina 150,000 (b) 6,825,000
Sierra On-line 270,000 (b) 10,530,000
Silicon Graphics 180,000 (b) 7,605,000
Softkey Intl 190,000 (b) 7,576,250
Sterling Software 200,000 (b) 8,925,000
Storemedia 106,700 (b) 4,428,050
Symantec 220,000 (b) 6,352,500
Synopsys 115,000 (b) 6,670,000
3Com 300,000 (b) 11,700,000
Wonderware 180,000 (b) 6,210,000
Total 274,249,350
__________________________________________________________________________________
Electronics (11.5%)
AVX 231,900 (b) 7,362,825
Applied Materials 90,000 (b) 9,360,000
Atmel 260,000 (b) 8,222,500
Credence Systems 210,000 (b) 7,402,500
Cypress Semiconductor 140,000 (b) 6,387,500
GaSonics Intl 150,000 (b) 5,212,500
Intel 125,000 7,671,875
Integrated Device Technology 240,000 (b) 13,830,000
ITI Technologies 260,000 (b) 7,280,000
ITEL 185,000 (b) 6,983,750
KLA Instruments 80,000 (b) 6,840,000
LAM Research 100,000 (b) 6,025,000
Linear Technology 120,000 9,720,000
Maxim Integrated Products 140,000 (b) 10,675,000
Microchip Technologies 250,000 (b) 9,500,000
Micron Technology 220,000 16,912,500
Molex 180,000 7,740,000
Plasma & Materials Technologies 80,000 (b) 1,520,000
Vishay Intertechnology 130,000 (b) 5,265,000
Xilinx 180,000 (b) 7,717,500
Total 161,628,450
__________________________________________________________________________________
Energy (0.5%)
Noble Affiliates 240,000 6,630,000
__________________________________________________________________________________
Energy equipment and services (1.6%)
Baker Hughes 350,000 7,875,000
Fluor 130,000 7,605,000
Global Marine 1,100,000 (b) 7,425,000
Total 22,905,000
__________________________________________________________________________________
Financial services (3.1%)
ADVANTA A 20,000 827,500
ADVANTA B 200,000 7,475,000
First Financial Management 50,000 4,506,250
Olympic Financial 300,000 (b) 6,862,500
Paychex 360,000 14,760,000
Price (T. Rowe) Associates 75,000 3,562,500
Salomon 160,000 6,140,000
Total 44,133,750
__________________________________________________________________________________
Foreign (7.1%)
Astra A 205,000 6,799,030
Autoliv 120,000 (b) 7,252,680
Danka Business Systems 400,000 12,100,000
Loewen Group 210,000 8,032,500
Nera Telecom 42,000 (b) 1,372,875
Nokia Preferred 350,000 (b) 24,281,250
Renaissance Energy 275,000 (b) 6,016,329
<PAGE>
PAGE 136
SAP Preferred 75,000 11,104,650
Schlumberger 120,000 7,740,000
Seagram 210,000 7,770,000
Teva Pharmaceutical ADR 200,000 7,575,000
Total 100,044,314
__________________________________________________________________________________
Health care (9.1%)
Amgen 170,000 (b) 8,138,750
AMSCO Intl 400,000 (b) 7,150,000
Arrow Intl 150,000 6,150,000
Autoimmune 291,500 (b) 4,190,312
Biogen 140,000 (b) 7,665,000
Biomet 450,000 (b) 7,312,500
CliniCom 325,000 (b) 6,987,500
Cordis 110,000 (b) 8,497,500
Emisphere Technologies 252,400 (b) 1,956,100
Forest Labs 164,100 (b) 7,343,475
Gensia 300,000 (b) 1,687,500
Gilead Sciences 275,000 (b) 5,981,250
IDEXX Laboratories 850,000 (b) 28,793,750
Medtronic 90,000 8,493,750
SciClone Pharmaceuticals 602,100 (b) 5,268,375
Sequus Pharmaceuticals 353,300 (b) 4,637,062
Target Therapeutics 160,000 (b) 7,800,000
Total 128,052,824
__________________________________________________________________________________
Health care services (5.2%)
Caremark Intl 350,000 7,262,500
Curative Technologies 140,000 (b) 1,837,500
Foundation Health 106,800 (b) 3,697,950
HBO & Company 532,000 29,260,000
Medaphis 250,000 (b) 5,781,250
Patterson Dental 250,000 (b) 6,500,000
PhyCor 180,000 (b) 7,515,000
Physician Resources Group 275,000 (b) 4,846,875
Stewart Enterprises 220,000 7,012,500
Total 73,713,575
__________________________________________________________________________________
Industrial equipment & services (4.9%)
Case 200,000 7,550,000
Cincinnati Milacron 225,000 7,453,125
Computational Systems 85,000 (b) 1,317,500
Energy Biosystems
8% Cv Pfd 35,000 (b,c) 1,627,500
KEMET 120,000 (b) 6,840,000
Lincoln Electric 250,000 (b) 7,406,250
Littlefuse 215,000 (b) 7,148,750
Sanifill 300,000 (b) 9,562,500
Thermo Electron 300,000 (b) 12,937,500
United Waste Systems 200,000 (b) 7,750,000
Total 69,593,125
__________________________________________________________________________________
Insurance (0.6%)
Horace Mann Educators 275,000 7,803,125
__________________________________________________________________________________
Leisure time & entertainment (1.3%)
Ride 421,700 (b) 7,379,750
Station Casinos 385,000 (b) 7,459,375
3DO 300,000 (b) 3,862,500
Total 18,701,625
__________________________________________________________________________________
Media (1.3%)
Infinity Broadcasting Cl A 225,000 (b) 8,071,875
Thomas Nelson 53,400 1,361,700
Viacom Cl B 170,000 (b) 8,266,250
Total 17,699,825
__________________________________________________________________________________
Multi-industry conglomorates (0.8%)
Kelly Services 250,000 7,187,500
Veeco Instruments 206,000 (b) 4,635,000
Total 11,822,500
__________________________________________________________________________________
<PAGE>
PAGE 137
Paper & packaging (1.0 %)
Crown Cork & Seal 175,000 (b) 7,875,000
Stone Container 300,000 6,525,000
Total 14,400,000
__________________________________________________________________________________
Restaurants & lodging (1.3%)
Applebee's Intl 150,000 4,500,000
Boston Chicken 50,000 (b) 1,200,000
Hospitality Franchise 260,000 (b) 12,187,500
Total 17,887,500
__________________________________________________________________________________
Retail (5.3%)
CUC Intl 460,000 (b) 15,697,500
Egghead 500,000 (b) 6,000,000
Family Dollar Stores 400,000 7,300,000
Federated Dept Stores 260,000 (b) 7,020,000
General Nutrition 184,200 (b) 7,690,350
Jostens 330,000 7,920,000
Office Depot 210,000 (b) 6,536,250
Rite Aid 260,000 7,280,000
Viking Office Products 270,000 (b) 9,720,000
Total 75,164,100
__________________________________________________________________________________
Textiles & apparel (0.5%)
Nine West Group 175,000 (b) 7,459,375
__________________________________________________________________________________
Utilities - telephone (0.5%)
Palmer Wireless 300,000 (b) 6,900,000
__________________________________________________________________________________
Total common & preferred stocks
(Cost: $912,331,536) $1,241,276,113
__________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (12.2%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
__________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.3%)
Federal Home Loan Mtge Corp Disc Nts
09-20-95 5.66% $4,500,000 $ 4,486,605
__________________________________________________________________________________
Certificate of Deposit (0.4 %)
NationsBank Nts
09-12-95 5.75 5,600,000 5,587,527
__________________________________________________________________________________
Commercial paper (11.5%)
Amer General
09-13-95 5.76 8,100,000 8,084,529
10-11-95 5.77 8,200,000 8,147,702
Avco
09-27-95 5.75 3,900,000 3,883,860
CAFCO
09-05-95 5.75 7,300,000 7,295,352
09-14-95 5.75 5,000,000 4,989,672
10-26-95 5.75 6,000,000 5,947,750
Cargill
09-05-95 5.75 4,900,000 4,896,897
09-22-95 5.77 5,000,000 4,983,317
CIT Group
09-26-95 5.76 8,400,000 8,366,575
Commerzbank U.S. Finance
10-03-95 5.76 2,200,000 2,188,795
CPC Intl
09-21-95 5.89 9,700,000(d) 9,665,850
Dresdner U.S. Finance
09-06-95 5.83 7,000,000 6,993,743
Fleet Funding
09-19-95 5.75 7,000,000(d) 6,979,945
Goldman Sachs
09-12-95 5.75 7,800,000 7,786,367
<PAGE>
PAGE 138
Household Finance
09-12-95 5.78 8,500,000 8,485,066
Lilly (Eli)
10-13-95 5.70 7,500,000 7,444,951
Merrill Lynch
11-07-95 5.76 2,500,000 2,472,422
Metlife Funding
09-01-95 5.75 7,600,000 7,600,000
Mobil Australia
10-31-95 5.79 3,500,000(d) 3,465,366
Motorola
09-14-95 5.75 4,200,000 4,191,325
Norfolk Southern
09-18-95 5.96 1,100,000(d) 1,096,370
Pacific Mutual
09-06-95 5.76 1,100,000 1,099,123
Penney J.C. Funding
09-11-95 5.76 900,000 898,568
PepsiCo
09-29-95 5.77 6,500,000 6,471,032
Pitney Bowes Credit
10-10-95 5.68 6,000,000 5,958,681
Safeco Credit
09-07-95 5.95 6,000,000 5,992,379
Sandoz
10-24-95 5.75 5,500,000 5,451,149
11-20-95 5.78 3,500,000 3,454,010
Southwestern Bell Capital
10-05-95 5.67 3,000,000(d) 2,981,881
USL Capital
10-12-95 5.77 1,800,000 1,788,253
US WEST
09-08-95 5.92 2,900,000 2,896,194
Total 161,957,124
__________________________________________________________________________________
Total short-term securities
(Cost: $172,070,010) $ 172,031,256
__________________________________________________________________________________
Total investments in securities
(Cost: $1,088,650,661)(f) $1,417,982,369
__________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Represents securities sold under Rule 144A, which are exempt from registration
under the Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the board of directors.
(d) Commerical paper sold within terms of a private placement memorandum, exempt from
registration under section 4(2) of the Securities Act of 1933, as amended, and may be
sold only to dealers in that program or other "accredited investors." These securities
have been determined to be liquid under guidelines established by the board of directors.
(e) For zero coupon bonds, the interest rate disclosed represents the annualized effective
yield on the date of acquisition.
(f) At Aug. 31, 1995, the cost of securities for federal income tax purposes was
$1,089,815,426 and the aggregate gross unrealized appreciation and depreciation based on
that cost was:
Unrealized appreciation...................................... $ 337,503,485
Unrealized depreciation...................................... (9,336,542)
__________________________________________________________________________________
Net unrealized appreciation.................................. $ 328,166,943
__________________________________________________________________________________
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
August 31, 1995 investments compared to total net assets)
Special Income Fund
Bonds (92.8%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (14.0%)
Resolution Financial Trust Company Strips
Zero Coupon 8.03% 2015 70,000,000(k) $ 17,949,400
Resolution Funding 8.125 2019 7,065,000 8,083,278
U.S. Treasury Bonds 7.25 2016 12,700,000 13,415,518
7.50 2016 40,000,000 43,398,400
8.125 2019 50,000,000 57,973,500
U.S. Treasury Notes 6.375 2002 14,000,000 14,136,080
7.50 2001 50,000,000 53,405,500
7.875 1996 30,000,000 30,300,300
Total 238,661,976
___________________________________________________________________________________________________________________________________
Mortgage backed securities (18.2%)
Federal Home Loan Mtge Corp 8.00 2024 4,876,823 4,983,528
8.00 2024 5,802,648 5,929,610
9.00 2007 14,724,221 15,437,462
9.00 2025 4,653,507 4,858,541
Collateralized Mtge Obligation 7.00 2022 10,455,000 10,046,210
7.00 2022 12,940,000 12,417,095
8.50 2022 10,000,000 10,731,400
Inverse Floater 2.90 2023 6,101,857(g) 3,193,773
Inverse Floater 3.56 2024 16,150,000(g) 7,957,912
Federal Natl Mtge Assn 6.00 2024 9,727,651 9,128,817
6.50 2023 70,216,631 67,539,973
6.50 2010 14,589,673 14,393,587
8.00 2021 898,870 918,250
8.00 2022 5,994,391 6,123,630
8.50 2007 15,338,113 15,922,648
8.50 2023 12,287,226 12,701,920
9.00 2005 31,173,102 32,702,454
9.00 2024 12,895,107 13,459,267
Inverse Floater 3.76 2023 7,244,751(g) 4,388,581
Inverse Floater 1.75 2021 10,977,637(g) 6,630,822
Government Natl Mtge Assn 6.00 2023 19,644,461 18,355,392
6.00 2024 24,024,378 22,447,899
Adjustable Rate Mortgage 6.00 2024 9,544,390(i) 9,699,486
Total 309,968,257
___________________________________________________________________________________________________________________________________
Airlines (1.1%)
AMR 9.50 2001 4,500,000 4,920,660
See accompanying notes to investments in securities.
Delta Air Lines
Sr Deb 10.375 2011 6,250,000 7,316,687
Reno Air
Cv 9.00 2002 1,000,000(d,h) 995,000
United Air Lines 10.67 2004 4,500,000 5,229,990
Total 18,462,337
___________________________________________________________________________________________________________________________________
Automotive & related (2.2%)
Ford Motor Credit 7.50 2003 5,000,000 5,181,850
GMAC 5.95 1998 10,000,000 9,829,500
7.85 1997 20,000,000 20,614,400
Mascotech 4.50 2003 3,500,000 2,616,250
Total 38,242,000
___________________________________________________________________________________________________________________________________
Banks and savings & loans (1.1%)
BankAmerica 7.50 2002 7,500,000 7,769,925
Fleet/Norstar Fin'l 9.00 2001 5,000,000 5,537,250
9.90 2001 5,000,000 5,716,350
Total 19,023,525
<PAGE>
PAGE 140
___________________________________________________________________________________________________________________________________
Building materials (1.3%)
Centex 9.05 1996 5,000,000 5,092,100
Georgia-Pacific 8.125 2023 5,000,000 4,990,750
MDC Holding 11.125 2003 2,500,000 2,246,875
Masco 9.00 2001 5,000,000 5,572,950
Peters (JM) 12.75 2002 1,380,000 1,243,725
Southdown
Sub Nts 14.00 2001 3,000,000 3,382,500
Total 22,528,900
___________________________________________________________________________________________________________________________________
Chemicals (0.7%)
G-I Holdings
Zero Coupon
Sub Nts 11.37 1998 4,000,000(k) 2,910,000
General Chemical 9.25 2003 5,000,000 4,975,000
Huntsman 11.00 2004 3,500,000 3,845,625
Total 11,730,625
___________________________________________________________________________________________________________________________________
Computers & office equipment (0.2%)
Conner Peripherals
Cv 6.50 2002 3,000,000 2,610,000
___________________________________________________________________________________________________________________________________
Electronics (0.2%)
Berg Electronics 11.375 2003 3,000,000 3,165,000
___________________________________________________________________________________________________________________________________
Energy (2.9%)
Atlantic Richfield 8.75 2032 10,000,000 11,652,300
Mesa Capital 12.75 1998 5,000,000(j) 4,625,000
Occidental Petroleum 10.98 2000 5,000,000 5,820,150
with attached put 9.25 2019 8,725,000 10,332,319
Oryx Energy 10.00 2001 5,000,000 5,456,250
PDV America 7.875 2003 7,500,000 6,853,050
Triton Energy
Zero Coupon 9.75 1996 5,000,000(l) 4,525,000
Total 49,264,069
___________________________________________________________________________________________________________________________________
Energy equipment & services (0.2%)
McDermott 9.375 2002 3,000,000 3,378,150
___________________________________________________________________________________________________________________________________
Financial services (1.8%)
Developers Div Realty 7.00 1999 1,500,000 1,520,625
First Union REIT
Sub Nts 8.875 2003 4,000,000 3,560,000
GPA Delaware 8.75 1998 3,000,000 2,670,000
Household Finance 9.55 2000 6,500,000 7,250,685
Liberty Property Trust
Cv 8.00 2001 1,250,000 1,268,750
Malan Realty REIT
Cv 9.50 2004 2,750,000 2,437,187
Olympic Financial 13.00 2000 6,500,000 6,865,625
Salomon 8.91 1998 4,800,000 4,983,888
Total 30,556,760
___________________________________________________________________________________________________________________________________
Food (0.1%)
Specialty Foods 11.25 2003 1,000,000(d) 995,000
Zero Coupon 13.00 1999 1,000,000(d,l) 515,000
Total 1,510,000
___________________________________________________________________________________________________________________________________
Foreign (21.3%)(c)
Aegon
(Euro Dollar) Cv 4.75 2004 1,175,000 1,421,750
Alcan Aluminum
(U.S. Dollar) 8.875 2022 6,750,000 7,338,398
Banca Italy N.Y.
(U.S. Dollar) 8.25 2007 5,000,000 5,206,600
Carter Holt Harvey
(U.S. Dollar) 8.875 2004 5,000,000 5,636,150
City of Helsinki
(U.S. Dollar) Sr Nts 7.95 2006 2,000,000(e) 1,889,200
(U.S. Dollar) 8.40 2007 1,800,000(e) 1,768,500
(U.S. Dollar) 8.45 2006 1,200,000(e) 1,176,000
(U.S. Dollar) 8.70 2006 1,600,000(e) 1,596,480
(U.S. Dollar) 9.20 2006 1,500,000(e) 1,524,750
<PAGE>
PAGE 141
Doman Industries
(U.S. Dollar) 8.75 2004 5,000,000 4,856,250
Ford Capital BV
(U.S. Dollar) 9.875 2002 5,000,000 5,814,700
Govt of Canada
(Canadian Dollar) 7.82 2001 17,000,000 14,229,289
Govt of Poland
(U.S. Dollar) Stepup Nts 3.25 2014 38,000,000(j) 23,251,250
(U.S. Dollar) 7.75 2000 7,000,000(d) 7,000,000
(U.S. Dollar) Stepup Nts 2.75 2024 15,000,000(j) 6,581,250
Groupe Videotron
(U.S. Dollar) 10.625 2005 2,000,000 2,110,000
Guang Dong Enterprise
(U.S. Dollar) 8.75 2003 7,500,000(d) 6,756,000
Gulf Canada Resources
(U.S. Dollar) 9.00 1999 5,000,000 5,075,000
Hydro Quebec
(U.S. Dollar) 8.50 2029 20,000,000 21,634,600
Korea Electric Power
(U.S. Dollar) 7.75 2013 3,100,000 3,132,395
MacMillan Bloedel
(U.S. Dollar) 8.50 2004 7,500,000 8,123,025
Mexican U.S. Series C
(U.S. Dollar) 6.938 2019 4,000,000(b,g) 2,845,000
Mexican Cetes
(Mexican Peso)
Zero Coupon
Treasury Bill -- 1996 79,102,180 10,662,104
Treasury Bill -- 1996 152,704,770 21,081,199
Treasury Bill -- 1996 40,277,580 5,663,431
Ogden
(Euro Dollar) Cv 6.00 2002 2,200,000 2,021,250
Petronas
(U.S. Dollar) Cv 7.75 2015 10,000,000(d) 10,203,700
Philip Long Distance Telephone
(U.S. Dollar) 10.625 2004 2,500,000 2,675,000
Province of Quebec
(U.S. Dollar) 11.00 2015 2,500,000 2,996,475
PT Indah Kiat Pulp & Paper
(U.S. Dollar) 11.875 2002 5,000,000 5,156,250
Pueblo Extra Int'l
(U.S. Dollar) Sr Nts 9.50 2003 4,000,000 3,840,000
Qantas Air
(U.S. Dollar) 7.50 2003 7,500,000(d) 7,494,375
Repap New Brunswick
(U.S. Dollar) 10.625 2005 2,000,000 2,027,500
Republic of Argentina
(U.S. Dollar) 4.25 2023 25,000,000 11,796,875
(U.S. Dollar) 7.125 2023 10,000,000 5,712,500
(U.S. Dollar) 7.31 2005 34,300,000 20,987,313
Republic of Brazil
(U.S. Dollar) 4.00 2014 35,113,500 17,447,020
(U.S. Dollar) 4.00 2024 10,000,000 4,543,750
(U.S. Dollar) 5.187 2024 7,500,000(j) 4,298,438
(U.S. Dollar) 6.06 2001 9,500,000 7,855,313
(U.S. Dollar) 6.75 2012 5,000,000 2,640,625
(U.S. Dollar) 7.25 2006 10,000,000 6,200,000
Republic of Columbia
(U.S. Dollar) 7.25 2004 5,300,000 4,851,885
Republic of Italy
(U.S. Dollar) 6.875 2023 7,500,000 6,760,800
Rogers Cable Systems
(Canadian Dollar) 9.65 2014 2,700,000 1,684,106
Rogers Cantel Mobile
(U.S. Dollar) 10.75 2001 3,000,000 3,108,750
Tarkett
(U.S. Dollar) 9.00 2002 4,000,000(d) 4,050,000
Telecom Argentina
(U.S. Dollar) 8.375 2000 5,000,000(d) 4,400,000
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000(d) 10,285,700
United Kingdom Treasury
(British Pound) 8.00 2003 9,500,000 14,740,010
United Mexican States
(U.S. Dollar) 8.50 2002 9,000,000 7,957,620
WMC Finance USA
(U.S. Dollar) 7.25 2013 10,000,000 9,898,900
Total 362,007,476
<PAGE>
PAGE 142
___________________________________________________________________________________________________________________________________
Furniture & appliances (0.6%)
Black & Decker 6.625 2000 10,000,000 9,950,000
___________________________________________________________________________________________________________________________________
Health care (0.1%)
Chiron
Cv 1.90 2000 1,400,000 1,263,500
___________________________________________________________________________________________________________________________________
Health care services (1.8%)
Amerisource Distribution
Pay-in-kind -- 2005 1,996,339(m) 2,138,578
Charter Medical
Sr Sub Nt 11.25 2004 5,000,000(d) 5,400,000
Columbia/HCA Healthcare 7.69 2025 6,500,000 6,559,735
Foundation Health 7.75 2003 3,250,000 3,309,800
Hillhaven 10.125 2001 3,000,000 3,266,250
Tenet Healthcare
Sr Sub Nt 10.125 2005 8,800,000 9,262,000
Total 29,936,363
___________________________________________________________________________________________________________________________________
Household products (0.3%)
Revlon Consumer Products 9.375 2001 2,500,000 2,481,250
Sweetheart Cup
Sr Sub Nt 9.625 2000 2,000,000 1,975,000
Total 4,456,250
___________________________________________________________________________________________________________________________________
Industrial machines & services (1.0%)
ADT Operations 9.25 2003 3,500,000 3,626,875
Case 7.25 2005 5,000,000 5,052,200
Clark Equipment 9.75 2001 5,000,000 5,623,750
IDEX 9.75 2002 3,000,000 3,172,500
Total 17,475,325
___________________________________________________________________________________________________________________________________
Industrial transportation (0.3%)
CSX 9.23 1998 5,000,000 5,315,950
___________________________________________________________________________________________________________________________________
Insurance (1.3%)
Americo Life 9.25 2005 4,500,000 4,156,875
NAC Re
Cv 5.25 2002 2,000,000(d,e) 1,975,000
Nationwide CSN Trust 9.875 2025 6,500,000(d) 7,245,355
Nationwide Mutual 7.50 2024 4,000,000(d) 3,726,000
New England Mutual
Credit Sensitive Nts 7.875 2024 5,000,000(d) 4,756,750
Total 21,859,980
___________________________________________________________________________________________________________________________________
Leisure time & entertainment (0.8%)
Bally's Park Place Funding
1st Mtge 9.25 2004 3,500,000 3,294,375
GNF Bally 10.625 2003 2,450,000 2,128,438
MGM Grand Hotel Finance 12.00 2002 3,000,000 3,296,250
Premier Parks 12.00 2003 2,500,000 2,525,000
Trump Taj Mahal
Pay-in-kind -- 1999 3,627,187(m) 3,046,837
Total 14,290,900
___________________________________________________________________________________________________________________________________
Media (4.4%)
Ackerley Communications
Sr Secured Nts 10.75 2003 2,500,000(d) 2,628,125
Adelphia Communications 12.50 2002 3,000,000 3,093,750
Benedek Broadcast
Sr Nts 11.875 2005 1,875,000(d) 1,980,469
Cablevision Systems 10.75 2004 2,000,000 2,132,500
Continental Cablevision
Sr Deb 8.875 2005 5,000,000 5,031,250
Cox Communications 7.625 2025 10,000,000 9,865,100
News America Holdings 7.50 2000 7,000,000 7,140,000
8.875 2023 7,000,000 7,691,250
12.00 2001 5,000,000 5,581,250
Paramount Communications 7.00 2003 2,500,000 2,381,325
Scandinavian Broadcasting
Cv 7.25 2005 5,000,000(d) 5,437,500
Time Warner Entertainment 8.375 2033 7,500,000 7,509,375
6.835 2000 2,500,000(j) 2,521,875
<PAGE>
PAGE 143
7.975 2004 1,500,000 1,524,375
8.11 2006 3,000,000 3,063,750
8.18 2007 3,000,000 3,060,000
Zero Coupon Cv 6.59 2012 4,750,000(k) 1,603,125
ViaCom Intl 8.00 2006 3,000,000 2,925,000
Total 75,170,019
___________________________________________________________________________________________________________________________________
Metals (0.8%)
Magma Copper 12.00 2001 5,000,000 5,531,250
Sahaviriya
Cv 3.50 2005 3,000,000(d,h) 3,030,000
Santa Fee Gold 8.375 2005 5,000,000 4,956,250
Total 13,517,500
___________________________________________________________________________________________________________________________________
Multi-industry (0.5%)
Fairchild Industries 12.25 1999 2,000,000 2,037,500
Mark IV Industries 8.75 2003 3,500,000 3,587,500
Tally
Zero Coupon 12.25 1998 1,750,000(l) 1,225,000
Tally Mfg & Technology 10.75 2003 2,500,000 2,500,000
Total 9,350,000
___________________________________________________________________________________________________________________________________
Natural gas (1.2%)
Tenneco Credit 9.625 2001 10,000,000 11,242,000
Transco Energy 9.875 2020 6,000,000 7,267,500
Transtexas Gas
Sr Secured Nts 11.50 2002 2,500,000 2,631,250
Total 21,140,750
___________________________________________________________________________________________________________________________________
Paper & packaging (3.1%)
Chesapeake 9.875 2003 5,000,000 5,826,700
Crown Cork & Seal 8.00 2023 5,000,000 5,072,100
Federal Paperboard 10.00 2011 6,000,000 7,271,100
Gaylord
Zero Coupon 11.23 1996 5,500,000(l) 5,500,000
Owens Illinois 11.00 2003 5,000,000 5,475,000
Plastic Container 10.75 2001 2,000,000 2,052,500
Pope & Talbot 8.375 2013 4,000,000 3,739,480
Sapi
Cv 7.50 2002 2,000,000(d) 2,062,500
Scotia Pacific Holding 7.95 2015 6,822,720 6,971,250
Silgan
Sr Sub Nt 11.75 2002 2,000,000 2,112,500
Zero Coupon 13.25 1995 2,000,000(l) 1,862,500
Stone Container 9.875 2001 3,000,000 2,977,500
12.625 1998 1,500,000 1,650,000
Total 52,573,130
___________________________________________________________________________________________________________________________________
Restaurants & lodging (0.2%)
Hammons (John Q) Hotel 8.875 2004 3,400,000 3,221,500
___________________________________________________________________________________________________________________________________
Retail (2.0%)
Dairy Mart Stores 10.25 2004 1,500,000 1,261,875
Eye Care Ctr
Cv 12.00 2003 3,000,000(d) 2,550,000
Kroger 9.25 2005 3,000,000 3,240,000
Pathmark Stores 9.625 2003 5,000,000 5,000,000
Penn Traffic 9.625 2005 6,000,000 4,860,000
Penney (JC) 9.05 2001 5,000,000 5,563,650
Pep Boys
Cv 4.00 1999 1,500,000 1,410,000
Ralph's Grocery 10.45 2004 3,500,000 3,430,000
Revco 9.125 2000 2,000,000 2,085,000
Stop & Shop 9.75 2002 3,000,000 3,243,750
Super-Rite Foods
Sr Sub Nts 10.625 2002 2,000,000 2,170,000
Total 34,814,275
___________________________________________________________________________________________________________________________________
Telecommunications equipment & services (0.8%)
Celcaribe 13.50 2004 3,150,000(d,k) 2,384,750
CenCall Communications
Zero Coupon 16.48 1999 4,000,000(l) 2,075,000
Comcast Cellular
Zero Coupon with attached put 9.53 1995 5,500,000(k) 4,104,375
<PAGE>
PAGE 144
Panamsat
Sr Nts 9.75 2000 3,000,000 3,120,000
U.S. Cellular
Zero Coupon with attached put 6.00 2015 3,400,000(k) 1,202,750
Total 12,886,875
___________________________________________________________________________________________________________________________________
Textiles & apparel (0.9%)
Dominion Textiles 8.875 2003 4,000,000 3,985,000
JP Stevens 9.00 2017 2,500,000 2,475,000
VF 9.50 2001 5,000,000 5,663,100
WestPoint Stevens 8.75 2001 2,500,000 2,471,875
Total 14,594,975
___________________________________________________________________________________________________________________________________
Utilities - electric (4.9%)
Arizona Public Service 8.75 2024 2,500,000 2,690,800
Boston Edison 9.875 2020 5,000,000 5,647,600
Cleveland Electric 9.50 2005 6,000,000 6,112,260
Long Island Lighting 9.625 2024 9,000,000 9,326,340
Louisiana Power & Light
Sale Lease-Backed Obligation 10.67 2017 2,500,000 2,664,750
Midland Cogeneration Venture 10.33 2002 2,010,227 2,078,072
10.33 2002 1,731,663(d) 1,790,107
11.75 2005 5,000,000 5,206,250
North Atlantic Energy 9.05 2002 4,718,000 4,930,310
Pacific Gas & Electric 7.25 2026 6,000,000 5,778,120
RGS Funding AEGCO
Sale Lease-Backed Obligation 9.82 2022 2,483,988 3,010,767
RGS Funding IME
Sale Lease-Backed Obligation 9.82 2022 2,485,315 3,012,375
Sithe Independent Funding 9.00 2013 7,500,000(d) 8,080,050
Texas-New Mexico Power 11.25 1997 5,000,000 5,143,750
1st Mtge 9.25 2000 3,500,000 3,648,750
Texas Utilities 9.70 2002 6,000,000 6,934,320
Texas Utilities Electric
1st Mtge 9.75 2021 6,350,000 7,365,683
Total 83,420,304
___________________________________________________________________________________________________________________________________
Utilities - telephone (1.7%)
Bell Telephone Company of Pennsylvania 7.375 2033 10,000,000 9,794,400
GTE 10.25 2020 7,000,000 8,112,370
Geotek Comm
Zero Coupon Cv 7.10 2005 5,000,000(d,k) 2,500,000
New England Tel & Tel 9.00 2031 7,500,000 8,357,625
Total 28,764,395
___________________________________________________________________________________________________________________________________
Miscellaneous (0.8%)
Coty 10.25 2005 1,500,000(h) 1,554,375
KinderKare Learning Center 10.375 2001 3,000,000 3,108,750
Samsonite 11.125 2005 2,500,000(d) 2,553,125
Standard Credit Card 8.625 2002 6,590,000 6,813,442
Total 14,029,692
___________________________________________________________________________________________________________________________________
Total bonds
(Cost: $1,516,490,971) $1,579,140,758
___________________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 145
<TABLE>
<CAPTION>
Common & preferred stocks and warrants (0.7%)
________________________________________________________________________________________
Issuer Shares Value(a)
________________________________________________________________________________________
<S> <C> <C>
ABN Amro Holdings
6% Cv 41,100 $ 1,502,040
Celcaribe 276,420(b,d) 359,346
Envirodyne Industries 90,890(b) 397,644
Federated Department Stores
Warrants Exp 02-15-96 6,000(b) 25,875
First Chicago
2.875% Cm Cv 42,500 2,571,250
First Nationwide Bank
11.50% 25,000 2,687,500
Great Bay Power 30,222(b) 249,332
Methanex 200,000(b) 1,475,000
Nat'l Health Investors
8.50% Cv 40,000 1,065,000
Purity Supreme
Warrants Exp 08-06-97 8,664(b,e) 173
Security Pacific
1.75% Cv 73,500 1,745,625
Southdown
Warrants Exp 10-15-96 30,000(b,e) 135,000
Specialty Foods 15,000(b) 26,250
Triangle Wire Cable 84,444(b,e) 168,888
_______________________________________________________________________________________
Total common & preferred stocks & warrants
(Cost: $17,777,944) $12,408,923
_______________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 146
<TABLE>
<CAPTION>
Short-term securities (5.3%)
_______________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
_______________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.4%)
Federal Home Loan Mtge Corp Disc Notes 5.66 800,000 $ 797,610
09-20-95
Federal Natl Mtge Assn Disc Notes
09-26-95 5.68 5,900,000 5,876,728
Total 6,674,338
_______________________________________________________________________________________
Commercial paper (4.7%)
Alabama Power
09-19-95 5.73 4,900,000 4,885,961
Albertson's
09-14-95 5.73 5,200,000 5,189,240
American General
10-11-95 5.74 4,200,000 4,173,213
AT&T Capital
09-21-95 5.72 5,800,000 5,781,569
Avco Financial
09-27-95 5.73 5,500,000 5,477,239
10-04-95 5.73 7,400,000 7,361,131
Barclays US Funding
09-28-95 5.72 4,000,000 3,982,840
CAFCO
09-05-95 5.73 3,100,000 3,098,026
Cargill
09-25-95 5.73 1,400,000(f) 1,394,652
USL Capital
10-03-95 5.72 3,400,000 3,382,713
Intel Corp
09-05-95 5.74 6,600,000 6,595,791
Metlife Fund
09-05-95 5.72 3,100,000 3,098,030
Motorola
09-12-95 5.73 7,500,000 7,486,869
Paccar Financial
10-05-95 5.73 5,000,000 4,972,942
Pacific Mutual Life
09-06-95 5.74 11,900,000 11,890,513
Penney (JC) Funding
09-20-95 5.73 600,000 598,186
Total 79,368,915
_______________________________________________________________________________________
Letter of credit (0.2%)
First Chicago
Commed Fuel
10-05-95 5.75 3,700,000 3,679,907
_______________________________________________________________________________________
Total short-term securities
(Cost: $89,723,160) $ 89,723,160
_______________________________________________________________________________________
Total investments in securities
(Cost: $1,623,992,075)(m) $1,681,272,841
_______________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing. For long-term debt securities, items identified are
in default as to payment of interest or principal.
(c) Foreign securities values are stated in U.S. dollars; principal amounts are denominated
in the currency indicated.
(d) Represents securities sold under Rule 144A, which are exempt from registration under the
Securities Act of 1933, as amended. These securities have been determined to be liquid under
guidelines established by the board of directors.
(e) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the
financial statements). Information concerning such security holdings at Aug. 31, 1995, is as
follows:
<PAGE>
PAGE 147
Security Acquisition Purchase
date cost
_______________________________________________________________________________________
City of Helsinki
7.95% 2006 02-07-95 $1,851,900
8.40% 2007 02-07-95 1,739,592
8.45% 2006 02-07-95 1,153,368
8.70% 2006 02-07-95 1,565,584
9.20% 2006 02-07-95 1,500,000
NAC Re Cv
5.25% 2002 01-20-94 1,870,000
Purity Supreme Warrants
Exp 08-06-97 07-29-92 -
Southdown Warrants
Exp 10-15-96 10-30-91 90,000
Triangle Wire Cable 01-13-92 2,000,018
_______________________________________________________________________________________
(f) Commercial paper sold within terms of a private placement memorandum, exempt from
registration under section 4(2) of the Securities Act of 1933, as amended, and may be
sold only to dealers in that program or other "accredited investors." These securities
have been determined to be liquid under guidelines established by the board of directors.
(g) 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 the
LIBOR (London InterBank Offered Rate) Index. Interest rate disclosed is the rate in effect
on Aug. 31, 1995.
(h) Security is partially or fully on loan. See Note 6 to the financial statements.
(i) Adjustable rate mortgage; interest rate varies to reflect current market conditions;
shown is the effective rate on Aug. 31, 1995.
(j) Interest rate varies to reflect current market conditions; rate shown is the effective
rate on Aug. 31, 1995.
(k) For zero coupon bonds, the interest rate disclosed represents the annualized effective
yield on the date of acquisition.
(l) For zero coupon bonds, the interest rate disclosed represents the annualized effective
yield from the date of acquisition to interest reset date shown in the maturity year column.
(m) Pay-in-kind securities are securities in which the issuer has the option to make interest
payments in cash or in additional securities. These securities issued as interest usually have
the same terms, including maturity date, as the pay-in-kind securities.
(n) At Aug. 31, 1995, the cost of securities for federal income tax purposes was $1,623,974,298
and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . $77,448,997
Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . .(20,150,454)
_______________________________________________________________________________________
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . $57,298,543
_______________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 148
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
August 31, 1995 investments compared to total net assets)
Moneyshare Fund
__________________________________________________________________________________________
Short-term securities
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
__________________________________________________________________________________________
<S> <C> <C> <C>
Commercial paper (73.2%)
Automotive & related (1.6%)
USL Capital
10-12-95 5.77 $3,600,000 $ 3,576,507
__________________________________________________________________________________________
Banks and savings & loans (9.1%)
ABN AMRO North Amer Finance
10-13-95 5.71 5,000,000 4,967,158
10-13-95 5.72 2,000,000 1,986,817
Bank of New York
06-03-96 6.41 1,000,000 1,000,000
BBV Finance Delaware
11-03-95 5.80 3,100,000 3,068,915
Deutsche Bank Financial
09-21-95 5.75 2,700,000 2,691,420
Harris Trust Bank Notes
09-18-95 5.77 3,000,000 3,000,000
Societe Generale
10-26-95 5.77 4,000,000 3,965,045
Total 20,679,355
__________________________________________________________________________________________
Commercial finance (1.9%)
Ciesco LP
09-21-95 5.92 3,000,000 2,990,283
09-27-95 5.75 1,400,000 1,394,216
Total 4,384,499
__________________________________________________________________________________________
Energy (2.4%)
Chevron Transport
09-07-95 5.77 5,400,000(b) 5,394,834
__________________________________________________________________________________________
Financial services (31.9%)
Associates North Amer
10-12-95 5.79 1,200,000 1,192,155
Beneficial
01-23-96 5.84 1,000,000(c) 1,000,000
CIT Group Holdings
09-06-95 5.79 6,900,000 6,894,490
Commercial Credit
09-01-95 5.75 7,700,000 7,700,000
Fleet Funding
09-19-95 5.75 1,300,000(b) 1,296,276
09-25-95 5.79 4,900,000(b) 4,881,217
10-27-95 5.79 3,800,000(b) 3,766,129
General Electric Capital Services
10-02-95 5.76 6,000,000 5,970,395
10-16-95 5.72 4,000,000 3,971,800
Goldman Sachs
09-15-95 5.96 3,000,000 2,993,152
10-18-95 5.76 5,000,000 4,962,922
Merrill Lynch
09-15-95 5.80 3,100,000 3,093,044
10-23-95 5.77 2,200,000 2,181,823
11-07-95 5.76 500,000 494,714
Nat'l Australia Funding
10-05-95 5.70 6,700,000 6,664,386
PACCAR Financial
11-29-95 5.75 3,300,000 3,253,742
Transamerica Finance
10-23-95 5.78 5,000,000 4,958,689
10-27-95 5.77 4,100,000 4,063,519
USAA Capital
09-22-95 5.73 3,000,000 2,990,078
Total 72,328,531
<PAGE>
PAGE 149
__________________________________________________________________________________________
Health care (3.9%)
Amgen
11-17-95 5.80 5,000,000 4,938,828
Lilly (Eli)
10-02-95 5.75 4,000,000 3,980,298
Total 8,919,126
__________________________________________________________________________________________
Insurance (6.9%)
American General
09-12-95 5.76 5,700,000(b) 5,690,020
Aon
10-23-95 5.75 1,600,000 1,586,827
11-06-95 5.94 2,300,000 2,275,543
Safeco Credit
09-12-95 5.73 6,000,000 5,989,587
Total 15,541,977
__________________________________________________________________________________________
Retail (2.3%)
Penney (JC)
09-06-95 5.75 5,300,000 5,295,789
__________________________________________________________________________________________
Soaps & cosmetics(4.1%)
Colgate Palmolive
09-18-95 5.77 4,300,000(b) 4,288,324
10-20-95 5.75 5,000,000(b) 4,961,413
Total 9,249,737
__________________________________________________________________________________________
Transportation (1.1%)
Consolidated Rail
09-22-95 5.96 2,600,000(b) 2,591,097
__________________________________________________________________________________________
Utilities - electric (4.1%)
Bayshore Fuel
10-11-95 5.77 9,400,000 9,340,258
__________________________________________________________________________________________
Utilities - telephone (3.9%)
AT&T Capital
10-16-95 5.71 4,900,000 4,865,455
Southwestern Bell Capital
09-12-95 5.88 4,000,000(b) 3,992,911
Total 8,858,366
__________________________________________________________________________________________
Total commercial paper
(Cost: $166,160,076) $166,160,076
__________________________________________________________________________________________
Letters of credit (23.2%)
Domestic (6.1%)
Bank of Amer
Aes Baarbers Point
10-20-95 5.78 5,000,000 4,961,004
Bank of New York
River Fuel
09-14-95 5.78 5,000,000(b) 4,989,636
First Chicago
Commed Fuel
09-18-95 5.74 4,000,000 3,989,271
Total 13,939,911
<PAGE>
PAGE 150
__________________________________________________________________________________________
International (17.1%)
Banque Pariabas
75 State Street
10-04-95 5.77 4,600,000 4,575,670
Barclays Bank
Banco Real
10-25-95 5.72 3,000,000 2,974,260
10-25-95 6.10 2,000,000 1,981,700
Credit Agricole
Louis Dreyfus
09-08-95 5.77 3,800,000 3,795,737
09-11-95 5.76 1,000,000 998,400
09-26-95 5.76 800,000 796,800
Credit Suisse
Pasimco Finance
09-11-95 5.75 1,500,000 1,497,604
Pemex Capital
09-05-95 5.91 2,500,000 2,498,358
09-27-95 5.85 3,500,000 3,485,213
10-05-95 5.74 5,000,000 4,972,894
Societe Generale
JMG Funding
10-24-95 5.75 4,000,000 3,966,139
Union Bank of Switzerland
River Fuel Trust
09-14-95 5.75 7,200,000(b) 7,185,050
Total 38,727,825
__________________________________________________________________________________________
Total letters of credit
(Cost: $52,667,736) $ 52,667,736
__________________________________________________________________________________________
Certificates of deposit (3.9%)
Domestic (3.0%)
Nationsbank of North Carolina
09-12-95 5.75 6,900,000 6,900,000
__________________________________________________________________________________________
International (0.9%)
Societe Generale Callable
06-13-96 6.30 1,000,000 1,000,000
Societe Generale Yankee
09-03-96 6.05 1,000,000 1,000,000
Total 2,000,000
__________________________________________________________________________________________
Total certificates of deposit
(Cost: $8,900,000) $ 8,900,000
__________________________________________________________________________________________
Total investments in securities
(Cost: $227,727,812)(d) $227,727,812
__________________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Commercial paper sold within terms of a private placement memorandum, exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, and may be
sold only to dealers in that program or other "accredited investors." These securities
have been determined to be liquid under guidelines established by the board of directors.
(c) Interest rate varies to reflect current market conditions; rate shown is the effective
rate on Aug 31, 1995.
(d) At Aug. 31, 1995, this cost also represents the cost of securities for federal income
tax purposes.
</TABLE>
<PAGE>
PAGE 151
<TABLE>
<CAPTION>
Investments in securities
Retirement Annuity Mutual Funds (Percentages represent value of
August 31, 1995 investments compared to total net assets)
Managed Fund
Bonds (22.8%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
__________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (5.8%)
U.S. Treasury Bond 8.875% 2017 $32,450,000 $ 40,241,894
6.25 2023 14,000,000 13,141,100
U.S. Treasury Notes
5.125 1998 11,500,000 11,265,110
5.375 1998 25,000,000 24,656,250
5.50 1996 10,400,000(g) 10,388,352
5.625 1997 30,200,000 30,090,072
5.75 2003 20,500,000 19,826,985
7.50 2001 1,666,000 1,779,471
7.50 2005 4,400,000(g) 4,761,900
7.75 2000 20,100,000 21,381,576
Total 177,532,710
__________________________________________________________________________________
Mortgage-backed securities (4.0%)
Federal Home Loan Mtge Corp 8.00 2024 5,157,635 5,270,484
Trust Series Z 6.00 2023 5,552,100(j) 4,436,683
Trust Series Z 6.50 2023 5,206,629(j) 4,178,320
Federal Natl Mtge Assn 6.00 2024 6,905,669 6,480,556
6.50 2010 11,676,650 11,519,716
6.50 2023 2,728,590 2,624,576
Trust Series Z 7.00 2016 4,960,470(j) 4,741,019
7.40 2004 10,000,000(g) 10,541,400
8.00 2022 6,502,390 6,642,582
8.50 2023 8,191,767 8,468,239
9.00 2024 4,993,055 5,211,501
Trust Series Z 6.00 2024 6,564,024(j) 4,870,834
Trust Series Z 7.00 2019 5,953,203(j) 5,705,490
Trust Series Z 7.00 2022 12,952,948(j) 12,135,099
Trust Series Z 7.50 2014 6,436,972(j) 6,106,691
Governmant Natl Mtge Assn 7.00 2024 25,322,003 24,942,173
Total 123,875,363
__________________________________________________________________________________
Aerospace & defense (--%)
Alliant Tech Systems
Sr Sub Nts 11.75 2003 700,000 761,250
__________________________________________________________________________________
Automotive & related (0.3%)
GMAC 5.95 1998 7,000,000 6,899,690
8.375 1997 1,400,000 1,444,282
Total 8,343,972
__________________________________________________________________________________
Banks and savings & loans (0.4%)
First USA Bank 6.88 1996 6,700,000 6,749,982
Riggs Natl
Sub Nts 8.50 2006 4,900,000 4,808,125
Total 11,558,107
__________________________________________________________________________________
Building materials (0.2%)
Georgia Pacific 8.125 2023 3,000,000 2,994,450
Owens Corning Fiberglass 9.375 2012 1,500,000 1,697,100
Schuller Int'l Group 10.875 2004 1,750,000 1,929,375
Total 6,620,925
__________________________________________________________________________________
Communications equipment (0.3%)
Celcaribe
Zero Coupon 2.14 2004 1,450,000(d,f) 1,254,250
Cencel 10.125 1999 3,100,000(h) 1,608,125
Comcast Cellular
Zero Coupon attached put 9.45 2000 5,000,000(f) 3,731,250
U.S. Cellular
Zero Coupon Cv attached put 6.00 2015 10,000,000(f) 3,537,500
Total 10,131,125
<PAGE>
PAGE 152
__________________________________________________________________________________
Computers & office equipment (0.7%)
Conner Peripherals
Cv 6.75 2001 10,000,000 8,700,000
Silicon Graphics
Zero Coupon Cv attached put 4.15 2013 20,000,000(d,f) 13,750,000
Total 22,450,000
__________________________________________________________________________________
Energy (0.3%)
Parker & Parsley 8.25 2007 4,200,000 4,279,422
Standard Oil 9.00 2019 4,000,000 4,331,400
Total 8,610,822
__________________________________________________________________________________
Financial services (1.5%)
Associates Corp NA 7.25 1998 10,000,000 10,252,800
AVCO Financial 7.25 1999 4,750,000 4,869,272
Corporate Property Investors 7.18 2013 2,200,000(d) 2,065,206
General Electric Capital 8.65 2018 1,000,000 1,016,580
GPA Delaware 8.75 1998 1,900,000 1,691,000
Int'l Lease Finance 9.82 1995 2,000,000 2,021,280
Olympic Financial 13.00 2000 2,000,000 2,112,500
Salomon Brothers 6.75 2006 4,000,000 3,630,880
Salomon-Oracle ELK
Cv Pfd 7.25 1996 15,010,000(i) 6,698,212
Salomon Hewlett-Packard ELK
Cv Pfd 5.25 1997 10,000,000(i) 9,912,500
Total 44,270,230
__________________________________________________________________________________
Foreign (2.5%)(c)
Bank of China
(U.S. Dollar) 8.25 2014 2,500,000 2,307,100
Carter Holt Harvey
(U.S. Dollar) 8.375 2015 4,500,000 4,871,295
Doman Inds
(U.S. Dollar) 8.75 2004 2,000,000 1,942,500
Gov't Certificates of Israel
(U.S. Dollar) 9.25 2001 3,000,000 3,268,200
Hydro Quebec
(Canadian Dollar) 10.875 2001 2,500,000 2,085,443
(U.S. Dollar) 9.50 2030 2,500,000 2,996,925
KFW Int'l Finance
(U.S. Dollar) 8.00 2010 4,000,000 4,382,560
LeGrand
(U.S. Dollar) 8.50 2025 1,800,000 1,995,714
Mexican U.S. Series D
(U.S. Dollar) 6.25 2019 1,500,000(k) 910,313
(U.S. Dollar) 7.25 2019 1,500,000(k) 1,066,875
Petronas
(U.S. Dollar) 7.75 2015 6,000,000(d) 6,122,220
Phillipines Long Distance Telephone
(U.S. Dollar) 10.625 2004 1,400,000 1,498,000
Poland
(Euro Dollar) Stepup 3.25 2014 4,600,000 2,814,625
PT Inda Kiat Pulp & Paper
(U.S. Dollar) 11.875 2002 2,500,000 2,578,125
Quno
(U.S. Dollar) 9.125 2005 2,500,000 2,475,000
Republic of Argentina
(U.S. Dollar) 7.312 2005 7,000,000(k) 4,283,125
Republic of Brazil
(U.S. Dollar) 4.00 2014 1,040,400(k) 516,949
(U.S. Dollar) 6.75 2012 1,600,000 845,000
Republic of Colombia
(U.S. Dollar) 7.25 2004 5,000,000 4,577,250
Republic of Italy
(U.S. Dollar) 6.875 2023 5,000,000 4,507,200
Republic of New Brunswick
(U.S. Dollar) 10.625 2005 1,400,000(g) 1,419,250
Roche Holding
(U.S. Dollar) Cv attached put 6.65 2010 30,000,000(d,f) 11,700,000
Rogers Cable System
(Canadian Dollar) 9.65 2014 5,000,000 3,118,715
Telekom Malaysia
(U.S. Dollar) 7.875 2025 3,000,000(d) 3,085,710
Total 75,368,094
<PAGE>
PAGE 153
__________________________________________________________________________________
Health care (0.5%)
Johnson & Johnson 8.00 1998 10,000,000 10,227,400
Schering-Plough
Zero Coupon 7.31 1996 5,000,000(d,f) 4,638,850
Total 14,866,250
__________________________________________________________________________________
Health care services (0.4%)
Charter Medical
Sr Sub 11.25 2004 2,000,000(d) 2,160,000
Foundation Health
Sr Nts 7.75 2003 6,600,000 6,721,440
La Petite Holdings 9.625 2001 1,200,000 1,045,500
Tenet Healthcare
Sr Sub 10.125 2005 2,000,000 2,105,000
Total 12,031,940
__________________________________________________________________________________
Household products (0.1%)
Sweetheart Cup 9.625 2000 2,000,000 1,975,000
__________________________________________________________________________________
Industrial equipment & services (0.2%)
Case 7.25 2005 5,000,000 5,052,200
__________________________________________________________________________________
Insurance (0.6%)
Aetna Life & Casualty 7.25 2023 4,200,000 3,815,406
Nationwide Mutual 7.50 2024 4,000,000(d) 3,726,000
New England Mutual
Credit Sensitive Nts 7.875 2024 2,000,000(d) 1,902,700
Principal Mutual 8.00 2044 2,500,000(d) 2,341,900
SunAmerica 7.34 2005 5,000,000 5,084,650
Total 16,870,656
__________________________________________________________________________________
Leisure time & entertainment (0.1%)
Alliance Entertainment 11.25 2005 1,000,000(d) 1,003,750
Premier Parks 12.00 2003 1,400,000 1,414,000
Trump Tajmahal
Zero Coupon Pay-in-kind -- 1999 2,250,000(i) 1,890,000
Total 4,307,750
__________________________________________________________________________________
Media (1.8%)
Aldelphia Communications 9.875 2005 1,500,000 1,381,875
America Media Oper 11.625 2004 875,000 900,156
Benedek Broadcasting 11.875 2005 1,575,000(d) 1,663,594
Comcast
Cv 3.375 2005 10,000,000 10,312,500
Cv 1.125 2007 10,000,000 5,300,000
Cox Communication 7.625 2025 5,000,000 4,932,550
News America Holdings 7.50 2000 4,000,000 4,080,000
Paramount Communications 7.00 2003 2,000,000 1,905,060
TCI Communications 8.75 2015 3,000,000 3,129,990
Tele-Communications 7.875 2013 1,150,000 1,095,467
8.75 2023 1,500,000 1,493,670
Time Warner
Zero Coupon Cv 6.62 2012 41,900,000(f) 14,141,250
Viacom Intl 8.00 2006 4,000,000 3,900,000
Total 54,236,112
__________________________________________________________________________________
Multi-industry conglomerates (0.2%)
Crane 7.25 1999 2,000,000 2,022,560
Fairchild Inds 12.25 1999 1,600,000 1,630,000
Tally Inds 5.00 1998 2,500,000(h) 1,750,000
Total 5,402,560
__________________________________________________________________________________
Paper & packaging (0.4%)
Container 10.75 2002 2,500,000 2,640,625
Gaylord 3.10 1996 2,150,000(h) 2,150,000
Pope and Talbot 8.375 2013 3,800,000 3,552,506
Stone Container 9.875 2001 2,500,000 2,481,250
Total 10,824,381
<PAGE>
PAGE 154
__________________________________________________________________________________
Retail (0.3%)
Grand Union 12.00 2004 1,700,000 1,623,500
Penn Traffic 9.625 2005 3,500,000 2,835,000
Pep Boys 7.00 2005 4,200,000 4,196,430
Ralphs Grocery 10.45 2004 1,500,000 1,470,000
Total 10,124,930
__________________________________________________________________________________
Restaurants & lodging (--%)
Flagstar 10.875 2002 1,500,000 1,381,875
__________________________________________________________________________________
Utilities - electric (1.0%)
Alabama Power 9.00 2024 2,200,000 2,375,516
Arizona Public Service
Sale-Leased Obligation Bond 8.00 2015 3,600,000 3,578,112
California Energy 9.875 2003 1,000,000(g) 1,011,250
Cleveland Electric Illuminating 9.50 2005 2,000,000 2,037,420
Commonwealth Edison 8.375 2023 5,000,000 5,223,900
Jersey Central Power & Light 6.75 2025 7,200,000 6,394,104
Long Island Lighting 9.75 2021 2,500,000 2,633,975
Salton Sea 7.84 2010 1,325,000(d) 1,316,758
Sithe Independent Funding 9.00 2013 1,500,000(d) 1,616,010
Texas Utilities 5.875 1998 5,000,000 4,937,250
Total 31,124,295
__________________________________________________________________________________
Utilities-gas (0.5%)
ARKLA 9.875 1997 5,000,000 5,216,700
Coastal 10.25 2004 2,500,000 2,989,700
Transcontinental Energy 9.375 2001 5,000,000 5,568,750
Transtexas Gas
Sr Sub 11.50 2002 2,000,000 2,105,000
Total 15,880,150
__________________________________________________________________________________
Utilities - telephone (0.3%)
AT&T
Zero Coupon Cv 0.00 1999 5,000,000(d,f) 4,250,000
GTE Florida 9.625 2030 3,200,000 3,388,864
Total 7,638,864
__________________________________________________________________________________
Miscellaneous (0.4%)
Coty 10.25 2005 1,500,000(g) 1,554,375
KinderKare Learning Center 10.375 2001 2,750,000 2,849,688
Carco Auto
Asset-Backed Obligation 7.875 1998 3,325,000 3,370,320
Standard Credit Card Trust 5.95 2004 3,000,000 2,860,260
8.625 2002 1,750,000 1,809,336
Samsonite 11.125 2005 750,000(d,g) 765,937
Total 13,209,916
__________________________________________________________________________________
Total bonds
(Cost: $669,059,203) $694,449,477
__________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Common & preferred stocks (66.4%)
Issuer Shares Value(a)
__________________________________________________________________________________
<S> <C> <C>
Aerospace & defense (4.6%)
Allied Signal 350,000 $ 15,531,250
Boeing 70,000 4,462,500
General Dyamics 150,000 7,893,750
Loral 500,000 27,375,000
Northrop Grumman 250,000 15,218,750
Raytheon 400,000 32,350,000
United Technologies 450,000 37,518,750
Total 140,350,000
__________________________________________________________________________________
Automotive & related (0.3%)
General Motors 200,000 9,400,000
__________________________________________________________________________________
<PAGE>
PAGE 155
Banks and savings & loans (1.4%)
BankAmerica 250,000 14,125,000
First Chicago 400,000 25,350,000
First Nationwide
$11.50 Pfd 20,000 2,150,000
Total 41,625,000
__________________________________________________________________________________
Beverages & tobacco (0.8%)
Coca-Cola 400,000 25,700,000
__________________________________________________________________________________
Building materials (1.6%)
Clayton Homes 800,000 18,900,000
Tyco Int'l 500,000 29,562,500
Total 48,462,500
__________________________________________________________________________________
Chemicals (0.7%)
DuPont (EI) 150,000 9,806,250
Morton Int'l 250,000 8,125,000
Praxair 100,000 2,600,000
Total 20,531,250
__________________________________________________________________________________
Communications equipment (2.7%)
ADC Telecommunications 230,000(b) 8,912,500
DSC Communcation 420,000(b,g) 22,050,000
General Instrument 300,000(b) 10,950,000
Motorola 360,000 26,910,000
Scientific Atlanta 650,000 13,000,000
Total 81,822,500
__________________________________________________________________________________
Computers & office equipment (5.7%)
American Power Conversion 1,000,000(b,g) 16,750,000
Compaq Computer 500,000(b) 23,875,000
Computer Associates 350,000 24,325,000
Hewlett Packard 350,000 28,000,000
Int'l Business Machines 200,000 20,675,000
Microsoft 230,000(b) 21,275,000
Oracle Systems 275,000(b) 11,034,375
Xerox 230,000(g) 27,772,500
Total 173,706,875
__________________________________________________________________________________
Electronics (2.5%)
Intel 690,000(g) 42,348,750
Vishay Intertechnology 800,000(b) 32,400,000
Total 74,748,750
__________________________________________________________________________________
Energy (3.4%)
Amoco 600,000 38,250,000
Exxon 450,000 30,937,500
Mobil 300,000 28,575,000
Noble Affiliates 200,000 5,525,000
Total 103,287,500
__________________________________________________________________________________
Financial services (2.7%)
Aimco 110,000 2,255,000
Federal National Mortgage 240,000 22,890,000
First Financial Management 300,000 27,037,500
Travelers 650,000 31,200,000
Total 83,382,500
__________________________________________________________________________________
Food (0.4%)
ConAgra 300,000 11,362,500
__________________________________________________________________________________
Foreign (c) (5.7%)
ASEA Class A 200,000(b) 17,816,400
News Corp Ltd ADR 600,000(g) 13,650,000
Nokia Preferred 490,000(b) 33,993,750
Northern Telcom 700,000 25,725,000
Royal Dutch Petroleum 320,000(g) 38,160,000
Singer 600,000 17,475,000
Tele Danmark 600,000(b) 15,975,000
Total 400,000 11,900,000
Total 174,695,150<PAGE>
PAGE 156
__________________________________________________________________________________
Furniture & appliances (0.5%)
Black & Decker 500,000 16,187,500
__________________________________________________________________________________
Health care (1.5%)
American Home Products 20,000 1,540,000
Merck 330,000 16,458,750
Pfizer 550,000 27,156,250
Total 45,155,000
__________________________________________________________________________________
Health care services (3.0%)
Beverly Enterprises 400,000(b) 5,300,000
Cardinal Distribution 150,000 8,025,000
Columbia/HCA Healthcare 650,000(g) 30,550,000
PacifiCare Health
Systems Class B 350,000(b) 20,037,500
United Healthcare 620,000 26,195,000
Total 90,107,500
__________________________________________________________________________________
Household products (1.7%)
Gillette 600,000 25,050,000
Proctor & Gamble 400,000 27,750,000
Total 52,800,000
__________________________________________________________________________________
Industrial equipment & services (3.4%)
Caterpillar 450,000 30,206,250
Deere 150,000 12,825,000
Illinois Tool Works 250,000 15,312,500
Stewart & Stevenson 500,000 15,937,500
WMX Technologies 500,000 14,687,500
York Int'l 300,000 13,350,000
Total 102,318,750
__________________________________________________________________________________
Industrial transportation (1.3%)
Federal Express 170,000(b) 12,197,500
Norfolk Southern 160,000 11,320,000
Union Pacific 255,000 16,702,500
Total 40,220,000
__________________________________________________________________________________
Insurance (1.6%)
General Re 170,000 25,266,250
Unum 500,000 24,000,000
Total 49,266,250
__________________________________________________________________________________
Leisure time & entertainment (0.1%)
Disney (Walt) 50,000 2,806,250
__________________________________________________________________________________
Media (3.5%)
American Greetings Cl A 100,000 3,075,000
CBS 300,000(g) 23,925,000
Comcast
Class SPL 750,000 16,031,250
Tele-Communications Cl A 900,000(b) 16,650,000
Time Warner 600,000 25,275,000
Turner Broadcasting Cl B 700,000 21,525,000
Total 106,481,250
__________________________________________________________________________________
Metals (1.1%)
Alumax 400,000(b) 13,650,000
Freeport Copper Cl B 500,000(b) 11,687,500
Ucar Intl 300,000(b) 8,250,000
Total 33,587,500
__________________________________________________________________________________
Multi-industry conglomerates (5.0%)
ALCO Standard 180,000(g) 14,490,000
ALCO Standard
2.375% Cv Pfd 100,000 8,987,500
6.50% Cv Pfd 129,250 10,469,250
Emerson Electric 360,000 25,695,000
General Electric 1,050,000 61,818,750
<PAGE>
PAGE 157
Manpower 200,000 5,750,000
Olsten 380,000 13,775,000
Westinghouse Electric 900,000 12,262,500
Total 153,248,000
__________________________________________________________________________________
Paper & packaging (0.8%)
Crown Cork & Seal 550,000(b,g) 24,750,000
__________________________________________________________________________________
Real Estate Investment Trust (2.8%)
Bay Apartment 150,000 3,131,250
Dean Witter 460,000(g) 23,460,000
Duke Realty 220,000 6,490,000
Equity Residential 130,000 3,835,000
First Industrial 140,000 2,782,500
Healthcare Property 150,000 4,856,250
Merry Land & Investment 130,000 2,795,000
Nationwide Health 150,000 5,868,750
Oasis 140,000 3,167,500
Paragon 220,000 3,877,500
RFS Hotel 350,000 4,987,500
ROC Communities 250,000 5,531,250
Shurgard Storage Center 150,000 3,637,500
Storage USA 100,000 2,937,500
Summit Properties 190,000 3,467,500
Weeks 200,000 5,100,000
Total 85,925,000
__________________________________________________________________________________
Restaurants & lodging (0.9%)
McDonalds 400,000 14,600,000
Wendy's Int'l 600,000 11,775,000
Total 26,375,000
__________________________________________________________________________________
Retail (2.3%)
CUC Int'l 840,000(b) 28,665,000
Home Depot 480,000 19,140,000
OfficeMax 300,000(b) 7,050,000
Pep Boys 500,000 13,750,000
Total 68,605,000
__________________________________________________________________________________
Utilities-electric (1.5%)
California Energy 500,000(b,g) 10,437,500
Cinergy 400,000 10,250,000
FPL Group 200,000 7,775,000
Northern States Power 200,000 8,525,000
SCE 600,000 9,975,000
Total 46,962,500
__________________________________________________________________________________
Utilities-gas (0.4%)
Enron 350,000 11,768,750
__________________________________________________________________________________
Utilities - telephone (2.5%)
Airtouch Communications 570,000(b) 18,525,000
Century Telephone 200,000 5,575,000
LIN Broadcasting 200,000(b) 25,700,000
MCI Communications 600,000 14,437,500
MFS Communications
2.68% Cv Pfd 305,873 12,668,880
Total 76,906,380
__________________________________________________________________________________
Total common & preferred stocks
(Cost: $1,615,117,355) $2,022,545,155
__________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 158
<TABLE>
<CAPTION>
Put options purchased (0.4%)
Issuer Number Exercise Expiration Value(a)
of price date
contracts
<S> <C> <C> <C> <C>
S&P 500 2,000 $ 540 December 1995 $ 1,225,000
2,000 545 December 1995 1,450,000
6,000 550 December 1995 4,875,000
2,000 555 December 1995 1,900,000
2,000 560 December 1995 2,300,000
Total put options purchased
(Cost: $16,368,500) $11,750,000
__________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (10.3%)
__________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
__________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.2%)
Federal Natl Mtge Assn Disc Notes
09-05-95 5.68% $5,000,000 $4,996,861
__________________________________________________________________________________
Commercial paper (10.1%)
ABN Amro North Amer Finance
10-13-95 5.72 2,600,000 2,581,684
Amer General Finance
09-12-95 5.76 6,500,000(e) 6,488,620
09-13-95 5.76 8,700,000 8,683,383
Amgen
10-13-95 5.78 6,300,000 6,257,811
Aon
10-10-95 5.75 5,300,000 5,264,350
AT&T Capital
10-23-95 5.75 7,000,000 6,939,350
AVCO Financial Services
09-27-95 5.75 2,600,000 2,589,240
10-26-95 5.78 8,400,000 8,324,021
Barclays U.S. Funding
09-29-95 5.74 1,000,000 995,559
BBV Finance Delaware
09-18-95 5.76 7,000,000 6,981,026
11-15-95 5.82 6,500,000 6,419,862
Becton Dickinson Real Estate
09-20-95 5.76 3,600,000 3,589,113
Bell Atlantic Network Funding
09-28-95 5.75 3,500,000 3,485,038
CAFCO
09-12-95 5.70 3,100,000 3,093,705
Cargill Financial
09-05-95 5.75 3,500,000 3,497,783
CIT Group Holdings
09-06-95 5.79 1,600,000 1,598,722
09-29-95 5.79 4,600,000 4,579,428
Ciesco LP
09-27-95 5.75 3,200,000 3,186,780
Commerzbank U.S. Finance
09-15-95 5.75 5,800,000 5,787,076
10-03-95 5.76 9,000,000 8,954,160
Consolidated Rail
09-08-95 5.76 10,000,000(e) 9,988,839
CPC Intl
09-25-95 5.95 7,400,000(e) 7,368,901
Credit Agricole USA
10-16-95 5.77 5,700,000 5,656,854
Deutsche Bank Financial
09-22-95 5.75 5,100,000 5,082,953
Dresdner U.S.
09-06-95 5.83 6,000,000 5,994,637
Dun & Bradstreet
10-31-95 5.74 7,800,000 7,722,815
<PAGE>
PAGE 159
Gateway Fuel
10-23-95 5.77 1,700,000 1,685,003
General Electric Capital Services
10-10-95 5.79 4,500,000 4,471,920
Goldman Sachs Group
09-12-95 5.75 3,700,000 3,693,533
Household Finance
10-05-95 5.77 7,800,000 7,757,715
Lincoln Natl
09-28-95 5.74 5,300,000(e) 5,277,382
Metlife Funding
09-12-95 5.75 9,600,000 9,583,221
Mobil Australia Finance
09-05-95 5.76 7,300,000(e) 7,295,344
09-26-95 5.77 3,600,000 3,585,625
Natl Australia Funding
09-19-95 5.77 4,100,000 4,088,223
Norfolk Southern
09-18-95 5.96 8,447,000(e) 8,419,124
11-08-95 5.73 5,000,000(e) 4,944,033
PACCAR Financial
09-14-95 5.91 3,300,000 3,291,586
11-29-95 5.75 4,700,000 4,631,733
Pitney Bowes Credit
09-20-95 5.75 3,900,000 3,888,206
10-03-95 5.77 3,400,000 3,382,652
11-06-95 5.73 6,000,000 5,934,787
Reed Elsevier
10-02-95 5.75 8,300,000 8,259,118
SAFECO
09-25-95 5.75 4,800,000 4,779,352
10-02-95 5.76 3,400,000 3,381,191
Sandoz
09-21-95 5.75 4,000,000 3,987,333
11-17-95 5.80 7,600,000 7,503,835
Southern California Gas
10-11-95 5.76 6,200,000 6,160,527
Southwest Bell Capital
09-05-95 5.75 5,000,000 4,996,822
10-25-95 5.76 5,000,000(e) 4,957,175
Sysco
09-08-95 5.74 9,000,000(e) 8,989,990
Toyota Motor Credit
09-29-95 5.75 5,300,000 5,276,421
Transamerica Finance
09-21-95 5.71 2,700,000 2,690,308
UBS Finance
09-22-95 5.74 7,000,000 6,976,643
USAA Capital
10-24-95 5.78 4,200,000 4,163,350
USL Capital
09-07-95 5.75 12,800,000 12,787,797
10-06-95 5.75 800,000 795,551
Total 308,747,210
__________________________________________________________________________________
Total short-term securities
(Cost: $313,791,185) $ 313,744,071
__________________________________________________________________________________
Total investments in securities
(Cost: $2,614,336,243)(m) $3,042,488,703
__________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Foreign securities values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(d) Represents securities sold under Rule 144A, which are exempt from registration under
the Securities Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the board of directors.
(e) Commercial paper sold within terms of a private placement memorandum, exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, and may be
sold only to dealers in that program or other "accredited investors." These securities
have been determined to be liquid under guidelines established by the board of directors.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized effective
yield on the date of acquistion.
(g) Security is partially or fully on loan. See Note 6 to the financial statements.
(h) For these securities, the interest rate disclosed represents the annualized effective
yield on the date of acquistion to interest reset date shown in the maturity year column.
<PAGE>
PAGE 160
(i) ELKS are equity-linked securities that are structured as an interest-bearing debt
security of a brokerage firm and linked to the common stock of another company. The
terms of ELKS differ from those of ordinary debt securities in that the principal amount
received at maturity is not fixed, but is based on the price of the common stock the ELK
is linked to. The principal amount disclosed equals the current estimated future value
of the amount to be received upon maturity.
(j) This security is a collateralized mortgage obligation that pays no interest or principal
during its initial accrual period until payment of a previous series within the trust have
been paid off. Interest is accrued at an effective yield.
(k) Interest rate varies to reflect current market conditions; rate shown is the effective
rate on Aug. 31, 1995.
(l) Pay-in-Kind securities are securities in which the issuer has the option to make interest
payments in cash or in additional securities. These securities issued as interest usually
have the same terms, including maturity date, as the pay-in-Kind securities.
(m) At Aug. 31, 1995, the cost of securities for federal income tax purposes was $2,613,371,435
and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation....................................... $ 452,064,016
Unrealized depreciation....................................... (22,946,748)
___________________________________________________________________________________
Unrealized appreciation....................................... $ 492,117,268
___________________________________________________________________________________
</TABLE>
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PAGE 161
STATEMENT OF DIFFERENCES
Difference Description
1) Headings. 1) The headings in the
prospectus are placed
in a strip at the top
of the page.
2) Footnotes for charts and 2) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
3) Printed copies. 3) One six version prospectus is
wrapped with three non-
proprietary funds: INVESCO
Variable Investment Funds -
Industrial Income Portfolio;
Janus Aspen Series - Worldwide
Growth Portfolio; and Twentieth
Century: TCI Portfolios, Inc. -
TCI Growth.
The other six version
prospectus is not wrapped.
