<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 30 (File No. 2-72584) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 32 (File No. 811-3190) X
IDS LIFE MONEYSHARE FUND, INC.
IDS Tower 10, Minneapolis, MN 55440-0010 (612) 330-9283
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810, Minneapolis, MN
55402-3268
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on October 30, 1996 pursuant to paragraph (b) of rule 485
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
_____This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section
24(f) of the Investment Company Act of 1940. Registrant filed its
24f-2 Notice for the fiscal year ended Aug. 31, 1996, on or about
Oct. 30, 1996.
<PAGE>
PAGE 2
CROSS REFERENCE SHEET
Cross reference sheet showing the location in the prospectus and
Statement of Additional Information of the information called for
by the items enumerated in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE>
<CAPTION>
PART A
Item No. Location in Prospectus
<C> <C>
1 Cover page of prospectus
2 The funds in brief; Sales charge and expenses
3(a) Performance
(b) NA
(c) Performance
(d) Performance
4(a) The funds in brief; Investment policies and risk; How the funds are organized
(b) Investment policies and risk
(c) Investment policies and risk
5(a) How the funds are organized
(b) How the funds are organized; About AEFC
(b)(i) About AEFC
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio managers
(d) The funds in brief
(e) How the funds are organized: Investment manager
(f) NA
(g) How the funds are organized: Investment manager
5A(a) *
(b) *
6(a) How the funds are organized: Shares; Voting rights
(b) NA
(c) NA
(d) NA
(e) Cover page
(f) Distribution and taxes: Dividends and capital gain distributions
(g) Distribution and taxes: Taxes
(h) NA
7(a) NA
(b) Performance: Key terms; Investment policies and their risks: Valuing assets
(c) NA
(d) NA
(e) NA
(f) NA
8(a) NA
(b) NA
(c) NA
(d) NA
9 None
<PAGE>
PAGE 3
PART B
Item No. Location in Statement of Additional Information
10 Cover page of SAI
11 Table of contents
12 NA
13(a) Additional Investment Policies; all appendices except Dollar Cost Averaging
(b) Additional Investment Policies
(c) "Unless changed by the board of directors..." in Additional Investment Policies
(d) Portfolio Turnover, last 2 paragraphs of Portfolio Transactions
14(a) Directors and officers of the fund**; Directors and officers
(b) Directors and officers
(c) Directors and officers (last paragraph)
15(a) NA
(b) NA
(c) Directors and Officers** (last paragraph)
16(a)(i) How the funds are organized**; About IDS Life and AEFC**
(a)(ii) Agreements with IDS Life and AEFC
(a)(iii) Agreements with IDS Life and AEFC
(b) Agreements with IDS Life and AEFC
(c) NA
(d) None
(e) NA
(f) NA
(g) NA
(h) Custodian; Independent Auditors
(i) Custodian
17(a) Portfolio Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with IDS Life
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Portfolio Transactions
18(a) How the fund is organized: Shares and Voting rights**
(b) NA
19(a) Investing in the Funds
(b) Valuing Fund Shares; Investing in the Funds
(c) NA
20 Taxes
21(a) NA
(b) NA
(c) NA
22(a) Performance Information: Calculation of Yield
(b) Performance Information: Calculation of Total Return and/or Yield
23 NA
*Designates information located in annual report.
**Designates location in the prospectus, which is hereby incorporated by reference in the Statement of Additional Information.
/TABLE
<PAGE>
PAGE 4
Retirement Annuity Mutual Funds
Prospectus/October 30, 1996
This prospectus describes nine 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.
IDS Life Growth Dimensions Fund is a stock fund.
IDS Life Global Yield Fund is a bond fund.
IDS Life Income Advantage Fund is a bond fund.
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 (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI, dated October 30, 1996, is
incorporated here by reference. For a free copy, contact
Retirement Annuity Mutual Funds at the address below.
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 INSURANCE COMPANY (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.
<PAGE>
PAGE 5
IDS Life Investment Series, Inc.
IDS Life Capital Resource Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
IDS Life Growth Dimensions Fund
IDS Life Special Income Fund, Inc.
IDS Life Special Income Fund
IDS Life Global Yield Fund
IDS Life Income Advantage Fund
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN 55440-0010
612-671-3733
TTY: 800-285-8846
<PAGE>
PAGE 6
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 risks
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
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.
<PAGE>
PAGE 7
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.
Growth Dimensions Fund's goal is long-term growth of capital, and
it invests primarily in common stocks of U.S. and foreign companies
showing potential for significant growth.
Global Yield Fund's goal is high total return through income and
growth of capital, and it invests primarily in debt securities of
U.S. and foreign issuers.
Income Advantage Fund's goal is to provide high current income as
its primary goal and capital growth as its secondary goal, and it
invests primarily in long-term, high-yielding, high risk debt
securities below investment grade issued by U.S. and foreign
corporations.
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.
<PAGE>
PAGE 8
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 Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71 $15.97
Income from investment operations:
Net investment income .30 .29 .29 .23 .21 .40 .52 .39 .31 .52
Net gains (losses) on securities (both realized
and unrealized) 1.22 3.70 1.56 1.89 1.75 6.61 (2.06) 5.38 (2.54) 4.23
Total from investment operations 1.52 3.99 1.85 2.12 1.96 7.01 (1.54) 5.77 (2.23) 4.75
Less distributions:
Dividends from net investment income (.29) (.29) (.29) (.23) (.21) (.40) (.52) (.39) (.31) (.52)
Distributions from realized gains (.07) (2.71) (2.71) (1.21) (1.00) (1.00) (.57) (.27) (.11) (2.49)
Excess distributions from net
investment income (.01) -- -- -- -- -- -- -- -- --
Total distributions (.37) (3.00) (3.00) (1.44) (1.21) (1.40) (1.09) (.66) (.42) (3.01)
Net asset value, end of period $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of year
(in millions) $4,372 $3,845 $2,899 $2,308 $1,681 $1,191 $ 702 $ 660 $ 454 $ 493
Ratio of expenses to average
daily net assets .68% .69% .68% .68% .70% .70% .70% .73% .69% .59%
Ratio of net income to average
daily net assets 1.15% 1.22% 1.20% .94% .91% 1.94% 2.69% 2.22% 2.01% 2.94%
Portfolio turnover rate
(excluding short-term
securities) 131% 88% 85% 65% 63% 74% 82% 42% 111% 171%
Total return** 6.15% 17.18% 7.61% 8.87% 8.54% 40.68% (7.79)% 38.72% (12.59)% 30.32%
Average brokerage commission rate*** $0.0565 -- -- -- -- -- -- -- -- --
*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.
***Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold. See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 9
<TABLE>
<CAPTION>
Special Income Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09 $11.91
__________________________________________________________________________________________________________________________
Income (loss) from investment operations:
Net investment income .88 .88 .84 .85 .90 .97 .99 1.03 1.03 1.08
Net gains (losses) on securities (both
realized and unrealized) (.07) .56 (.99) .82 .54 .62 (1.01) .23 (.21) (.56)
___________________________________________________________________________________________________________________________
Total from investment operations .81 1.44 (.15) 1.67 1.44 1.59 (.02) 1.26 .82 .52
___________________________________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.85) (.87) (.85) (.85) (.90) (.97) (.99) (1.03) (1.03) (1.08)
Distributions from realized gains - (.02) (.02) - - - - - - (.26)
Excess distributions from net investment
income - (.02) (.01) - - - - - - -
___________________________________________________________________________________________________________________________
Total distributions (.85) (.91) (.88) (.85) (.90) (.97) (.99) (1.03) (1.03) (1.34)
___________________________________________________________________________________________________________________________
Net asset value, end of period $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09
___________________________________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period
(in millions) $1,912 $1,703 $1,559 $1,551 $1,136 $ 800 $ 641 $ 565 $ 428 $ 409
Ratio of expenses to
average daily net assets .68% .68% .67% .69% .71% .70% .71% .73% .69% .58%
Ratio of net income to
average daily net assets 7.47% 8.08% 7.20% 7.41% 8.22% 9.31% 9.42% 9.37% 9.45% 9.11%
Portfolio turnover rate
(excluding short-term
securities) 56% 56% 57% 77% 92% 97% 118% 132% 169% 101%
___________________________________________________________________________________________________________________________
Total return** 7.08% 13.75% (1.30)% 15.47% 13.96% 16.54% (.12)% 12.19% 7.76% 4.48%
Average brokerage commission rate*** $0.0546 -- -- -- -- -- -- -- -- --
___________________________________________________________________________________________________________________________
*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.
***Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold. See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 10
<TABLE>
<CAPTION>
Managed Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<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
Income from investment operations:
Net investment income .46 .40 .47 .49 .56 .58 .65 .48 .42 .45
Net gain (losses) on securities (both
realized and unrealized) 1.15 1.20 (.26) 1.60 .95 2.11 (.67) 2.25 (1.47) 1.45
Total from investment operations 1.61 1.60 .21 2.09 1.51 2.69 (.02) 2.73 (1.05) 1.90
Less distributions:
Dividends from net investment income (.46) (.40) (.47) (.49) (.56) (.58) (.65) (.48) (.42) (.45)
Distributions from net realized gains -- -- (.41) (.36) (.46) (.45) (.48) (.04) -- (.21)
Total distributions (.46) (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52) (.42) (.66)
Net asset value, end of period $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $ 9.87 $11.34
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period (in millions) $3,482 $3,044 $2,499 $1,858 $1,169 $ 810 $ 545 $ 462 $ 381 $ 340
Ratio of expenses to average daily net
assets .65% .68% .68% .69% .71% .70% .71% .73% .69% .67%
Ratio of net income to average
daily net assets 2.94% 2.96% 3.46% 3.70% 4.35% 4.86% 5.42% 5.06% 4.42% 4.10%
Portfolio turnover rate (excluding
short-term securities) 85% 72% 79% 58% 50% 52% 37% 69% 62% 48%
Total return** 10.95% 11.94% 1.51% 16.33% 12.14% 25.24% (.23)% 28.47% (9.06)% 19.13%
Average brokerage commission rate*** $0.0606 -- -- -- -- -- -- -- -- --
*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.
***Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold. See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 11
<TABLE>
<CAPTION>
Moneyshare Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $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 .05 .03 .03 .04 .07 .08 .09 .07 .06
_________________________________________________________________________________________________________________________
Less distributions:
Dividends from net investment
income (.05) (.05) (.03) (.03) (.04) (.07) (.08) (.09) (.07) (.06)
_________________________________________________________________________________________________________________________
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
_________________________________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period
(in millions) $ 288 $ 227 $ 179 $ 180 $ 246 $ 285 $ 274 $ 160 $ 102 $ 67
_________________________________________________________________________________________________________________________
Ratio of expenses to average
daily net assets .56% .59% .57% .60% .60% .57% .62% .54% .58% .54%
_________________________________________________________________________________________________________________________
Ratio of net income to average
daily net assets 5.02% 5.23% 3.12% 2.67% 3.93% 6.55% 7.85% 8.68% 6.77% 5.87%
_________________________________________________________________________________________________________________________
Total return** 5.16% 5.27% 3.15% 2.73% 3.98% 6.77% 8.18% 8.99% 7.01% 6.01%
_________________________________________________________________________________________________________________________
*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>
<PAGE>
PAGE 12
<TABLE>
<CAPTION>
International Equity Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992**
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.55 $12.91 $11.60 $10.01 $10.00
__________________________________________________________________________________________________
Income from investment operations:
Net investment income .20 .17 .14 .15 .05
Net gains (losses) on securities (both
realized and unrealized) 1.01 (.37) 1.61 1.81 .01
__________________________________________________________________________________________________
Total from investment operations 1.21 (.20) 1.75 1.96 .06
__________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.44) (.16) (.08) (.15) (.05)
Distributions from realized gains (.02) -- (.29) (.22) --
Excess distributions from realized gains -- -- (.07) -- --
__________________________________________________________________________________________________
Total distributions (.46) (.16) (.44) (.37) (.05)
__________________________________________________________________________________________________
Net asset value, end of period $13.30 $12.55 $12.91 $11.60 $10.01
__________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992**
Net assets, end of period (in millions) $1,874 $1,442 $1,111 $ 291 $ 39
__________________________________________________________________________________________________
Ratio of expenses to average
daily net assets .96% 1.03% .98% 1.10% 1.57%***
Ratio of net income to average
daily net assets 1.28% 1.56% 1.09% 1.37% 0.93%***
Portfolio turnover rate (excluding
short-term securities) 58% 38% 51% 62% 22%
__________________________________________________________________________________________________
Total return# 9.64% (1.77%) 15.11% 19.76% 0.55%
Average brokerage commission rate## $0.0186 -- -- -- --
__________________________________________________________________________________________________
*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.
## Beginning in Fiscal 1996, the Fund is required to disclose an average brokerage commission
rate. The rate is calculated by dividing the total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period by the total number of related
shares purchased and sold. See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 13
<TABLE>
<CAPTION>
Aggressive Growth Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992**
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.44 $11.46 $11.68 $9.00 $10.00
_________________________________________________________________________________________________
Income (loss) from investment operations:
Net investment income .10 .08 .01 .02 .02
Net gains (losses) on securities (both
realized and unrealized) 1.60 2.98 (.22) 2.68 (1.00)
_________________________________________________________________________________________________
Total from investment operations 1.70 3.06 (.21) 2.70 (.98)
_________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.10) (.08) (.01) (.02) (.02)
_________________________________________________________________________________________________
Net asset value, end of period $16.04 $14.44 $11.46 $11.68 $ 9.00
_________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992**
Net assets, end of period (in millions) $1,941 $1,412 $ 763 $ 299 $ 57
_________________________________________________________________________________________________
Ratio of expenses to average
daily net assets .69% .70% .69% .75% .98%***
Ratio of net income to average
daily net assets .65% .72% .14% .28% .21%***
Portfolio turnover rate (excluding
short-term securities) 189% 116% 59% 55% 28%
_________________________________________________________________________________________________
Total return# 11.82% 26.80% (1.77)% 29.98% (9.76)%
Average brokerage commission rate $0.0531 -- -- -- --
_________________________________________________________________________________________________
*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.
## Beginning in Fiscal 1996, the Fund is required to disclose an average brokerage commission
rate. The rate is calculated by dividing the total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period by the total number of related
shares purchased and sold. See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 14
<TABLE>
<CAPTION>
Growth Dimensions Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996**
<S> <C>
Net asset value, beginning of period $10.00
___________________________________________________
Income from investment operations:
Net investment income .03
Net gains (losses) on securities (both
realized and unrealized) (.06)
___________________________________________________
Total from investment operations (.03)
___________________________________________________
Less distributions:
Dividends from net investment income (.03)
___________________________________________________
Net asset value, end of period $9.94
___________________________________________________
Ratios/supplemental data
1996**
Net assets, end of period (in millions) $171
___________________________________________________
Ratio of expenses to average
daily net assets 1.047%***
Ratio of net income to average
daily net assets 1.69%***
Portfolio turnover rate (excluding
short-term securities) 4%
___________________________________________________
Total return# (.22)%
Average brokerage commission rate## $0.0559
___________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from May 1, 1996 to Aug. 31, 1996.
***Adjusted to an annual basis.
#Total return does not reflect payment of the expenses that apply to the variable accounts or
any annuity charges.
##Beginning in Fiscal 1996, the Fund is required to disclose an average brokerage commission
rate. The rate is calculated by dividing the total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period by the total number of related
shares purchased and sold. See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 15
<TABLE>
<CAPTION>
Global Yield Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996**
<S> <C>
Net asset value, beginning of period $10.00
___________________________________________________
Income from investment operations:
Net investment income .12
Net gains on securities (both
realized and unrealized) .07
___________________________________________________
Total from investment operations .19
___________________________________________________
Less distributions:
Dividends from net investment income (.11)
___________________________________________________
Net asset value, end of period $10.08
___________________________________________________
Ratios/supplemental data
1996**
Net assets, end of period (in millions) $21
___________________________________________________
Ratio of expenses to average
daily net assets 1.77%***
Ratio of net income to average
daily net assets 4.96%***
Portfolio turnover rate (excluding
short-term securities) 4%
___________________________________________________
Total return# 1.95%
___________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from May 1, 1996 to Aug. 31, 1996.
***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>
<PAGE>
PAGE 16
<TABLE>
<CAPTION>
Income Advantage Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996**
<S> <C>
Net asset value, beginning of period $10.00
___________________________________________________
Income from investment operations:
Net investment income .18
Net gains (losses) on securities (both
realized and unrealized) (.23)
___________________________________________________
Total from investment operations (.05)
___________________________________________________
Less distributions:
Dividends from net investment income (.18)
___________________________________________________
Net asset value, end of period $9.77
___________________________________________________
Ratios/supplemental data
1996**
Net assets, end of period (in millions) $49
___________________________________________________
Ratio of expenses to average
daily net assets 1.53%***
Ratio of net income to average
daily net assets 8.14%***
Portfolio turnover rate (excluding
short-term securities) 22%
___________________________________________________
Total return# (.48)%
___________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from May 1, 1996 to Aug. 31, 1996.
***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, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Capital Resource
Fund +6.15% +9.60% +12.48%
S&P 500 +16.47% +13.11% +13.14%
<PAGE>
PAGE 17
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Capital Resource
Fund + 6.15% +58.16% +224.23%
S&P 500 +16.47% +85.23% +243.95%
Average annual total returns as of Aug. 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Special Income Fund +7.08% +9.61% +8.81%
Lehman Aggregate
Bond Index +4.25% +7.49% +8.18%
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Special Income Fund +7.08% +58.20% +132.59%
Lehman Aggregate
Bond Index +4.25% +43.54% +119.72%
Average annual total returns as of Aug. 31, 1996
Purchase 1 year 5 Years 10 Years
made ago ago Ago
Managed Fund +10.95% +10.46% +11.08%
S&P 500 +16.47% +13.11% +13.14%
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year 5 Years 10 Years
made ago ago Ago
Managed Fund +10.95% +64.45% +186.07%
S&P 500 +16.47% +85.23% +243.95%
<PAGE>
PAGE 18
Average annual total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
International
Equity Fund +9.64% + 9.02%
Morgan Stanley
Capital International
World Index +1.17% +43.91%
Cumulative total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
International
Equity Fund +9.64% +49.29%
Morgan Stanley
Capital International
World Index +1.17% + 8.16%
Average annual total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
Aggressive Growth
Fund +11.82% +11.15%
S&P 500 +16.47% +13.10%
Cumulative total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
Aggressive Growth
Fund +11.82% +63.36%
S&P 500 +16.47% +77.10%
<PAGE>
PAGE 19
Average annual total returns as of Aug. 31, 1996
Purchase Since inception
Made April 30, 1996
Growth Dimensions -0.22%
S&P 500 -0.33%
Lipper Growth Fund Index -1.85%
Cumulative total returns as of Aug. 31, 1996
Purchase Since inception
Made April 30, 1996
Growth Dimensions -0.22%
S&P 500 -0.33%
Lipper Growth Fund Index -1.85%
Average annual total returns as of Aug. 31, 1996
Purchase Since inception
Made April 30, 1996
Global Yield +1.95%
Salomon Brothers Global
Govt. Bond Composite Index +3.15%
Lipper General World
Income Fund Index +3.38%
Cumulative total returns as of Aug. 31, 1996
Purchase Since inception
Made April 30, 1996
Global Yield +1.95%
Salomon Brothers Global
Govt. Bond Composite Index +3.15%
Lipper General World
Income Fund Index +3.38%
Average annual total returns as of Aug. 31, 1996
Purchase Since inception
Made April 30, 1996
Income Advantage -0.48%
Lehman Aggregate Bond Index +1.25%
<PAGE>
PAGE 20
Cumulative total returns as of Aug. 31, 1996
Purchase Since inception
Made April 30, 1996
Income Advantage -0.48%
Lehman Aggregate Bond Index +1.25%
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.
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 an unmanaged
representative list of government and corporate bonds as well as
asset-backed 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 or Income
Advantage Funds. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage
commissions or other fees.
Lipper Growth Fund Index, published by Lipper Analytical Services,
Inc., includes 30 funds that are generally similar to Growth
Dimensions Fund, although some funds in the index may have somewhat
different investment policies or objectives.
Salomon Brothers Global Government Bond Composite Index is a
representative list of government bonds of 17 countries throughout
the world. The index is a general measure of government bond
performance. Performance is expressed in the U.S. dollar as well
<PAGE>
PAGE 21
as the currencies of governments making up the index. The bonds
included in the index may not be the same as those in the Global
Yield Fund.
Lipper General World Income Fund Index, published by Lipper
Analytical Services, Inc., includes 30 funds that are generally
similar to Global Yield Fund, although some funds in the index may
have somewhat different investment policies or objectives.
Yield calculation
Special Income, Global Yield and Income Advantage Funds 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.
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). <PAGE>
PAGE 22
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, Global Yield and Income
Advantage funds, 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 risks
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.
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.
<PAGE>
PAGE 23
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.
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.
<PAGE>
PAGE 24
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.
Growth Dimensions Fund - Under normal market conditions, Growth
Dimensions Fund invests primarily in common stocks of U.S. and
foreign corporations showing potential for significant growth.
These companies usually operate in areas where dynamic economic and
technological changes are occurring. They also may exhibit
excellence in technology, marketing or management. Other
investments include debt securities, preferred stocks, derivative
instruments and money market instruments.
Global Yield Fund - Global Yield Fund invests primarily in debt
securities of U.S. and foreign issuers so under normal market
conditions at least 80% of the Fund's net assets will be
investment-grade corporate or government debt securities including
money market instruments of issuers located in at least three
different countries.
The Fund also invests in debt securities below investment grade,
convertible securities, common stocks and derivative instruments.
The Fund may not purchase securities rated lower than B by Moody's
or S&P.
Since the Fund is a non-diversified mutual fund, it may concentrate
its investments in securities of fewer issuers than would a
diversified fund. Accordingly, the Fund may have more risk than
funds that have broader diversification.
Income Advantage Fund - Under normal market conditions, Income
Advantage Fund invests primarily in debt securities below
investment grade issued by U.S. and foreign corporations. Most of
these will be rated BBB, BB or B by S&P or Moody's equivalent.
However, the Fund may invest in debt securities with lower ratings,
including those in default. Other investments include investment-
grade bonds, convertible securities, stocks, derivative instruments
and money market instruments. The Fund may invest up to 10% of its
total assets in common stocks, preferred stocks that do not pay
dividends and warrants to purchase common stocks.
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
<PAGE>
PAGE 25
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.
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, 1996
For Special Income Fund
<S> <C> <C> <C>
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
34.04% AAA Highest quality 0.04%
4.82 AA High quality 0.06
11.55 A Upper medium grade 0.08
16.97 BBB Medium grade 0.20
14.58 BB Moderately speculative --
8.99 B Speculative 0.12
0.63 CCC Highly speculative 0.67
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
2.09 Unrated Unrated securities 0.92
<PAGE>
PAGE 26
Bond ratings and holdings for fiscal year ended Aug. 31, 1996
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
14.97 AAA Highest quality 0.02%
1.75 AA High quality 0.01
3.30 A Upper medium grade --
4.33 BBB Medium grade --
2.88 BB Moderately speculative --
2.21 B Speculative 0.01
0.12 CCC Highly speculative 0.20
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.46 Unrated Unrated securities 1.22
Bond ratings and holdings for fiscal year ended Aug. 31, 1996
For Global Yield 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
58.99% AAA Highest quality --%
6.12 AA High quality --
3.35 A Upper medium grade --
1.29 BBB Medium grade --
6.53 BB Moderately speculative --
0.72 B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
-- Unrated Unrated securities --
Bond ratings and holdings for fiscal year ended Aug. 31, 1996
For Income Advantage 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
--% AAA Highest quality --%
-- AA High quality --
-- A Upper medium grade --
-- BBB Medium grade --
20.01 BB Moderately speculative --
53.61 B Speculative --
9.31 CCC Highly speculative 3.63%
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
3.63 Unrated Unrated securities --
</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 <PAGE>
PAGE 27
comply with tax laws, a fund has to recognize a computed amount of
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 and Global Yield Funds may invest
up to 25% (Growth Dimensions may invest up to 30%) 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
<PAGE>
PAGE 28
desired investment performance characteristics. A small change in
the value of the underlying security, currency or index will cause
a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow 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, Managed, Growth Dimensions, Global Yield and Income
Advantage 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 29
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, Managed, Growth Dimensions,
Global Yield and Income Advantage 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 30
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, Managed
and Growth Dimensions 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, Moneyshare,
Global Yield and Income Advantage 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 and Global Yield Funds 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 four
series of stock representing four separate, diversified funds -
Capital Resource, International Equity, Aggressive Growth and
Growth Dimensions 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. IDS Life Special
Income Fund, Inc. is a series mutual fund. It has three series of
stock representing two separate, diversified funds - Special Income
and Income Advantage Funds and one separate non-diversified fund -
Global Yield Fund. 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 31
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. He rejoined AEFC in
1991 as a portfolio manager. He has served as debt securities
specialist for the assets of Total Return Portfolio and its
predecessor fund since December 1995.
<PAGE>
PAGE 32
Managed Fund
Alfred A. Henderson joined AEFC in 1996 and serves as senior
portfolio manager. From 1995-1996 he was a portfolio manager at
Montgomery Asset Management. From 1992-1995 he was a senior
portfolio manager at Husic Capital Management. Prior to that he
was vice president and portfolio manager at Alliance Capital
Management Corporation.
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.
Growth Dimensions Fund
Gordon Fines joined AEFC in 1981 and serves as portfolio manager of
this Fund and has served as vice president and senior portfolio
manager of Growth Trends Portfolio and its predecessor fund since
1991. Mr. Fines also leads the Growth Team for AEFC. From 1985 to
1991, he was portfolio manager of IDS Managed Retirement Fund.
<PAGE>
PAGE 33
Global Yield Fund
Ray Goodner joined AEFC in 1977 and serves as portfolio manager of
this Fund and as vice president and senior portfolio manager of
World Income Portfolio. He began his career in portfolio
management in 1980. He has managed the assets of World Income
Portfolio and its predecessor fund since 1989. Since 1985 he also
has served as portfolio manager of Quality Income Portfolio and its
predecessor fund.
Income Advantage Fund
[/R]
Jack Utter joined AEFC in 1962 and serves as senior portfolio
manager. He also has managed the assets of High Yield Portfolio
and its predecessor fund since 1985.
Dave Gilson joined AEFC in 1989 and serves as associate manager of
this Fund. He served as an analyst for all equity mutual funds
from 1989 to 1993 and served as an analyst on the High-Yield
Research Team from Aug. 1993 to April 1996.
[/R]
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
also serve on the boards of all of the other funds in the IDS
MUTUAL FUND GROUP. On Aug. 31, 1996, 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.
<PAGE>
PAGE 34
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, 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.
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
<PAGE>
PAGE 35
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
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
<PAGE>
PAGE 36
Growth Dimensions 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
Global Yield Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.840%
Next $0.25 0.825
Next $0.25 0.810
Next $0.25 0.795
Over $1 0.780
Income Advantage Fund
Assets Annual rate at
(billions) each asset level
First $1 0.620%
Next $1 0.605%
Next $1 0.590%
Next $3 0.575%
Next $3 0.560%
Over $9 0.545%
For the fiscal year ended Aug. 31, 1996, Capital Resource Fund paid
IDS Life a total investment management fee of 0.60% of its average
daily net assets. Special Income Fund paid 0.60%, Managed Fund
paid 0.60%, Moneyshare Fund paid 0.51%, International Equity Fund
paid 0.83%, Aggressive Growth Fund paid 0.61%, Growth Dimensions
Fund paid 0.84%, Global Yield Fund paid 0.62% and Income Advantage
Fund paid 0.63%. Under this Agreement, each Fund also pays taxes,
brokerage commissions and nonadvisory expenses. Total fees and
expenses for fiscal year 1996 were 0.68% for Capital Resource Fund,
0.68% for Special Income Fund, 0.65% for Managed Fund, 0.56% for
Moneyshare Fund, 0.96% for International Equity Fund, 0.69% for
Aggressive Growth Fund, 1.04% for Growth Dimensions Fund, 1.77% for
Global Yield Fund and 1.53% for Income Advantage Fund. The ratios
disclosed above for Global Yield Fund, Growth Dimensions Fund and
Income Advantage Fund have been adjusted to an annual basis.
Administrative Services Agreement
Under an Administrative Services Agreement, each Fund pays AEFC for
administration and accounting services as follows:
<PAGE>
PAGE 37
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
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
<PAGE>
PAGE 38
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
Growth Dimensions 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
Global Yield 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
Over $1 0.040
Income Advantage 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
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 0.35% 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<PAGE>
PAGE 39
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, 1996 were more than $138
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.
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN
55440-0010
Managed by IDS Life Insurance Company
<PAGE>
PAGE 40
Retirement Annuity Mutual Funds
Prospectus/October 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 (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI, dated October 30, 1996, is
incorporated here by reference. For a free copy, contact
Retirement Annuity Mutual Funds at the address below.
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 INSURANCE COMPANY (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.
<PAGE>
PAGE 41
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN 55440-0010
612-671-3733
800-633-4003
TTY: 800-285-8846
<PAGE>
PAGE 42
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 risks
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
<PAGE>
PAGE 43
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.
<PAGE>
PAGE 44
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 period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71 $15.97
Income from investment operations:
Net investment income .30 .29 .29 .23 .21 .40 .52 .39 .31 .52
Net gains (losses) on securities (both realized
and unrealized) 1.22 3.70 1.56 1.89 1.75 6.61 (2.06) 5.38 (2.54) 4.23
Total from investment operations 1.52 3.99 1.85 2.12 1.96 7.01 (1.54) 5.77 (2.23) 4.75
Less distributions:
Dividends from net investment income (.29) (.29) (.29) (.23) (.21) (.40) (.52) (.39) (.31) (.52)
Distributions from realized gains (.07) (2.71) (2.71) (1.21) (1.00) (1.00) (.57) (.27) (.11) (2.49)
Excess distributions from net investment income (.01) - - - - - - - - -
Total distributions (.37) (3.00) (3.00) (1.44) (1.21) (1.40) (1.09) (.66) (.42) (3.01)
Net asset value, end of period $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period
(in millions) $4,372 $3,845 $2,899 $2,308 $1,681 $1,191 $ 702 $ 660 $ 454 $ 493
Ratio of expenses to average
daily net assets .68% .69% .68% .68% .70% .70% .70% .73% .69% .59%
Ratio of net income to average
daily net assets 1.15% 1.22% 1.20% .94% .91% 1.94% 2.69% 2.22% 2.01% 2.94%
Portfolio turnover rate
(excluding short-term
securities) 1.31% 88% 85% 65% 63% 74% 82% 42% 111% 171%
Total return** 6.15% 17.18% 7.61% 8.87% 8.54% 40.68% (7.79)% 38.72% (12.59)% 30.32%
Average brokerage commission rate*** $0.565 - - - - - - - - -
*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.
***Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold.
</TABLE>
<PAGE>
PAGE 45
<TABLE>
<CAPTION>
Special Income Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09 $11.91
____________________________________________________________________________________________________________________________
Income from investment operations:
Net investment income .88 .88 .84 .85 .90 .97 .99 1.03 1.03 1.08
Net gains (losses) on securities (both
realized and unrealized) (.07) .56 (.99) .82 .54 .62 (1.01) .23 (.21) (.56)
____________________________________________________________________________________________________________________________
Total from investment operations .81 1.44 (.15) 1.67 1.44 1.59 (.02) 1.26 .82 .52
____________________________________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.85) (.87) (.85) (.85) (.90) (.97) (.99) (1.03) (1.03) (1.08)
Distributions from realized gains - (.02) (.02) - - - - - - (.26)
Excess distributions from net investment
income - (.02) (.01) - - - - - - -
____________________________________________________________________________________________________________________________
Total distributions (.85) (.91) (.88) (.85) (.90) (.97) (.99) (1.03) (1.03) (1.34)
____________________________________________________________________________________________________________________________
Net asset value, end of period $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09
____________________________________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period
(in millions) $1,912 $1,703 $1,559 $1,551 $1,136 $ 800 $ 641 $ 565 $ 428 $ 409
Ratio of expenses to
average daily net assets .68% .68% .67% .69% .71% .70% .71% .73% .69% .58%
Ratio of net income to
average daily net assets 7.47% 8.08% 7.20% 7.41% 8.22% 9.31% 9.42% 9.37% 9.45% 9.11%
Portfolio turnover rate
(excluding short-term
securities) 56% 56% 57% 77% 92% 97% 118% 132% 169% 101%
____________________________________________________________________________________________________________________________
Total return** 7.08% 13.75% (1.30)% 15.47% 13.96% 16.54% (.12)% 12.19% 7.76% 4.48%
Average brokerage commission rate*** $0.0546 - - - - - - - - -
___________________________________________________________________________________________________________________________
*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.
***Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold.
</TABLE>
<PAGE>
PAGE 46
<TABLE>
<CAPTION>
Managed Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87 $11.34 $10.10
Income from investment operations:
Net investment income .46 .40 .47 .49 .56 .58 .65 .48 .42 .45
Net gains(losses) on securities (both
realized and unrealized) 1.15 1.20 (.26) 1.60 .95 2.11 (.67) 2.25 (1.47) 1.45
Total from investment operations 1.61 1.60 .21 2.09 1.51 2.69 (.02) 2.73 (1.05) 1.90
Less distributions:
Dividends from net investment income (.46) (.40) (.47) (.49) (.56) (.58) (.65) (.48) (.42) (.45)
Distributions from net realized gains - - (.41) (.36) (.46) (.45) (.48) (.04) - (.21)
Total distributions (.46) (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52) (.42) (.66)
Net asset value, end of period $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $ 9.87 $11.34
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period (in millions) $3,482 $3,044 $2,499 $1,858 $1,169 $ 810 $ 545 $ 462 $ 381 $ 340
Ratio of expenses to average daily net
assets .65% .68% .68% .69% .71% .70% .71% .73% .69% .67%
Ratio of net income to average
daily net assets 2.94% 2.96% 3.46% 3.70% 4.35% 4.86% 5.42% 5.06% 4.42% 4.10%
Portfolio turnover rate (excluding
short-term securities) 85% 72% 79% 58% 50% 52% 37% 69% 62% 48%
Total return** 10.95% 11.94% 1.51% 16.33% 12.14% 25.24% (0.23)% 28.47% (9.06)% 19.13%
Average brokerage commission rate*** $0.0606 - - - - - - - - -
*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.
***Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold.
</TABLE>
<PAGE>
PAGE 47
<TABLE>
<CAPTION>
Moneyshare Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $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 .05 .03 .03 .04 .07 .08 .09 .07 .06
_________________________________________________________________________________________________________________________
Less distributions:
Dividends from net investment
income .05 (.05) (.03) (.03) (.04) (.07) (.08) (.09) (.07) (.06)
_________________________________________________________________________________________________________________________
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
_________________________________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period
(in millions) $288 $ 227 $ 179 $ 180 $ 246 $ 285 $ 274 $ 160 $ 102 $ 67
Ratio of expenses to average
daily net assets .56% .59% .57% .60% .60% .57% .62% .54% .58% .54%
Ratio of net income to average
daily net assets 5.02% 5.23% 3.12% 2.67% 3.93% 6.55% 7.85% 8.68% 6.77% 5.87%
Total return** 5.16% 5.27% 3.15% 2.73% 3.98% 6.77% 8.18% 8.99% 7.01% 6.01%
_________________________________________________________________________________________________________________________
*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>
<PAGE>
PAGE 48
<TABLE>
<CAPTION>
International Equity Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992**
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.55 $12.91 $11.60 $10.01 $10.00
_____________________________________________________________________________________________________
Income from investment operations:
Net investment income .20 .17 .14 .15 .05
Net gains (losses) on securities (both
realized and unrealized) 1.01 (.37) 1.61 1.81 .01
_____________________________________________________________________________________________________
Total from investment operations 1.21 (.20) 1.75 1.96 .06
_____________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.44) (.16) (.08) (.15) (.05)
Distributions from realized gains - (.29) (.22) -
Excess distributions from realized gains (.02) - (.07) - -
_____________________________________________________________________________________________________
Total distributions (.46) (.16) (.44) (.37) (.05)
_____________________________________________________________________________________________________
Net asset value, end of period $13.30 $12.55 $12.91 $11.60 $10.01
_____________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992**
Net assets, end of period (in millions) $1,874 $1,442 $1,111 $ 291 $ 39
_____________________________________________________________________________________________________
Ratio of expenses to average
daily net assets .96% 1.03% .98% 1.10% 1.57%***
Ratio of net income to average
daily net assets 1.28 1.56% 1.09% 1.37% 0.93%***
Portfolio turnover rate (excluding
short-term securities) 58% 38% 51% 62% 22%
Total return# 9.64% (1.77%) 15.11% 19.76% 0.55%
Average brokerage commission rate## $0.0186 - - - -
_____________________________________________________________________________________________________
*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.
##Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold.
</TABLE>
<PAGE>
PAGE 49
<TABLE>
<CAPTION>
Aggressive Growth Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
1996 1995 1994 1993 1992**
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.44 $11.46 $11.68 $9.00 $10.00
_____________________________________________________________________________________________________
Income (loss) from investment operations:
Net investment income .10 .08 .01 .02 .02
Net gains (losses) on securities (both
realized and unrealized) 1.60 2.98 (.22) 2.68 (1.00)
_____________________________________________________________________________________________________
Total from investment operations 1.70 3.06 (.21) 2.70 (.98)
_____________________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.10) (.08) (.01) (.02) (.02)
_____________________________________________________________________________________________________
Net asset value, end of period $16.04 $14.44 $11.46 $11.68 $ 9.00
_____________________________________________________________________________________________________
Ratios/supplemental data
1996 1995 1994 1993 1992**
Net assets, end of period (in millions) $1,941 $1,412 $ 763 $ 299 $ 57
_____________________________________________________________________________________________________
Ratio of expenses to average
daily net assets .69% .70% .69% .75% .98%***
Ratio of net income to average
daily net assets .65% .72% .14% .28% .21%***
Portfolio turnover rate (excluding
short-term securities) 189% 116% 59% 55% 28%
Total return# 11.82% 26.80% (1.77)% 29.98% (9.76)%
Average brokerage commission rate## $0.0531 _ _ _ _
_____________________________________________________________________________________________________
*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.
##Beginning in fiscal 1996, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of related shares purchased and sold.
</TABLE>
The information on these tables has been audited by KPMG Peat
Marwick LLP, independent auditors. The independent auditors'
report and additional information about the performance of each
Fund are 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, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Capital Resource
Fund +6.15% +9.60% +12.48%
S&P 500 +16.47% +13.11% +13.14%
<PAGE>
PAGE 50
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Capital Resource
Fund +6.15% +58.16% +224.23%
S&P 500 +16.47% +85.23% +243.95%
Average annual total returns as of Aug. 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Special Income Fund +7.08% +9.83% +8.92%
Lehman Aggregate
Bond Index +4.25% +7.49% +8.18%
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year 5 years 10 years
made ago ago ago
Special Income Fund +7.08% +59.79% +134.94%
Lehman Aggregate
Bond Index +4.25% +43.54% +119.72%
Average annual total returns as of Aug. 31, 1996
Purchase 1 year 5 Years 10 years
made ago ago ago
Managed Fund +10.95% +10.46% +11.08%
S&P 500 +16.47% +13.11% +13.14%
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year 5 Years 10 years
made ago ago ago
Managed Fund +10.95% +65.45% +186.07%
S&P 500 +16.47% +85.23% +243.95%
<PAGE>
PAGE 51
Average annual total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
International +9.64% +9.02%
Equity Fund
Morgan Stanley +1.17 +8.16%
Capital International
World Index
Cumulative total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
International +9.64% +49.29%
Equity Fund
Morgan Stanley +1.17% +43.91%
Capital International
World Index
Average annual total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
Aggressive Growth +11.82% +11.15%
Fund
S&P 500 +16.47% +13.10%
Cumulative total returns as of Aug. 31, 1996
Since
Purchase 1 year inception
made ago Jan. 13, 1992
Aggressive Growth
Fund +11.82% +63.36%
S&P 500 +16.47% +77.10%
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.
<PAGE>
PAGE 52
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 an unmanaged
representative list of government and corporate bonds as well as
asset-backed 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. The index
reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions or other fees.
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.<PAGE>
PAGE 53
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 risks
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.
<PAGE>
PAGE 54
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.
<PAGE>
PAGE 55
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 56
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, 1996
For Special Income Fund
<S> <C> <C> <C>
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
34.04% AAA Highest quality 0.04%
4.82 AA High quality 0.06
11.55 A Upper medium grade 0.08
16.97 BBB Medium grade 0.20
14.58 BB Moderately speculative -
8.99 B Speculative 0.12
0.63 CCC Highly speculative 0.67
- CC Poor quality -
- C Lowest quality -
- D In default -
2.09 Unrated Unrated securities 0.92
Bond ratings and holdings for fiscal year ended Aug. 31, 1996
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
14.97% AAA Highest quality 0.02%
1.75 AA High quality 0.01
3.30 A Upper medium grade -
4.33 BBB Medium grade -
2.88 BB Moderately speculative -
2.21 B Speculative 0.01
0.12 CCC Highly speculative 0.20
- CC Poor quality -
- C Lowest quality -
- D In default -
1.46 Unrated Unrated securities 1.22
</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 57
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 58
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 59
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.
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PAGE 60
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. 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.
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.<PAGE>
PAGE 61
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. He rejoined AEFC in
1991 as a portfolio manager. He has served as debt securities
specialist for the assets of Total Return Portfolio and its
predecessor fund since December 1995.
Managed Fund
Alfred A. Henderson joined AEFC in 1996 and serves as senior
portfolio manager. From 1995-1996 he was a portfolio manager at
Montgomery Asset Management. From 1992-1995 he was a senior
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PAGE 62
portfolio manager at Husic Capital Management. Prior to that he
was vice president and portfolio manager at Alliance Capital
Management Corporation.
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
also serve on the boards of all of the other funds in the IDS
MUTUAL FUND GROUP. On Aug. 31, 1996, the Fund's directors and
officers did not own any shares of the Funds.
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PAGE 63
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, 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.
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PAGE 64
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
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PAGE 65
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, 1996, Capital Resource Fund paid
IDS Life a total investment management fee of 0.60% of its average
daily net assets. Special Income Fund paid 0.60%, Managed Fund
paid 0.60%, Moneyshare Fund paid 0.51%, International Equity Fund
paid 0.83% and Aggressive Growth Fund paid 0.61%. Under this
Agreement, each Fund also pays taxes, brokerage commissions and
nonadvisory expenses. Total fees and expenses for fiscal year 1996
were 0.68% for Capital Resource Fund, 0.68% for Special Income
Fund, 0.65% for Managed Fund, 0.56% for Moneyshare Fund, 0.96% for
International Equity Fund and 0.69% 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 66
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
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PAGE 67
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 0.35% 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, 1996 were more than $138
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 68
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN
55440-0010
Managed by IDS Life Insurance Company
<PAGE>
PAGE 69
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 Growth Dimensions Fund
IDS Life Special Income Fund, Inc.
IDS Life Special Income Fund
IDS Life Global Yield Fund
IDS Life Income Advantage Fund
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
Oct. 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 Oct. 30, 1996, and it is to be used with the
Funds' prospectus dated Oct. 30, 1996. It is also to be used with
the Funds' Annual Report for the fiscal year ended Aug. 31, 1996.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
(612) 671-3733
<PAGE>
PAGE 70
TABLE OF CONTENTS
Goals and Investment Policies........................See Prospectus
Additional Investment Policies................................p. 4
Portfolio Transactions........................................p. 31
Brokerage Commissions Paid to Brokers
Affiliated with IDS Life......................................p. 35
Performance Information.......................................p. 39
Valuing Each Fund's Shares....................................p. 42
Investing in the Funds........................................p. 45
Redeeming Shares..............................................p. 45
Capital Loss Carryover........................................p. 46
Taxes.........................................................p. 46
Agreements with IDS Life and American Express Financial
Corporation...................................................p. 47
Directors and Officers........................................p. 54
Custodian.....................................................p. 60
Independent Auditors..........................................p. 60
Financial Statements....................See Annual Report and p. 60
Prospectus....................................................p. 60
Appendix A: Description of Corporate Bond Ratings and
Additional Information on Investment Policies
for Investments of Capital Resource, Special
Income, Global Yield and Income Advantage
Funds............................................p. 61
Appendix B: Foreign Currency Transactions for Investments
of all funds except Moneyshare...................p. 63
Appendix C: Description of Money Market Securities...........p. 68
Appendix D: Options and Stock Index Futures Contracts for
Investments of Capital Resource, International
Equity, Aggressive Growth, Managed, Growth
Dimensions and Global Yield Funds................p. 70
Appendix E: Options and Interest Rate Futures Contracts
for Investments of Special Income, Managed,
Global Yield and Income Advantage Funds..........p. 78
<PAGE>
PAGE 71
Appendix F: Mortgage-backed securities and Additional
Information on Investment Policies for all
Funds except Moneyshare..........................p. 84
Appendix G: Dollar-Cost Averaging............................p. 87
<PAGE>
PAGE 72
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 73
'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, 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 leases.
'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 74
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 75
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 76
'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, 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 leases.
'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 77
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 78
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 79
'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, 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 leases.
'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 80
'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 81
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 82
'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, 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 leases.
'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 83
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 84
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 leases.
<PAGE>
PAGE 85
'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, 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 86
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 87
'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, 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 88
'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 89
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 Growth Dimensions agree to a change, Growth Dimensions will not:
'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.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund has no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Fund's total assets may be invested without
regard to this 5% limitation.
<PAGE>
PAGE 90
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of
this policy, real estate includes real estate limited partnerships.
'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 a loan of any part of its assets to AEFC, to the directors
and officers of AEFC or to its own directors and officers.
'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
directors and officers 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.
'Lend portfolio securities in excess of 30% of its net assets. The
current policy of the Fund's board 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. If the market price
of the loaned securities goes up, the Fund will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the Fund
receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be
made unless the investment manager believes the opportunity for
additional income outweighs the risks.
Unless changed by the board of directors, Growth Dimensions, will
not:
'Buy on margin or sell short, but it may make margin payments in
connection with transactions in stock index futures contracts.
'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 the purpose of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
<PAGE>
PAGE 91
'Invest more than 10% of its assets in securities of investment
companies.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'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 the New York or American Stock Exchange.
'Invest more than 10% of its 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, 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, 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 make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). Under normal market
conditions, the Fund does not intend to commit more than 5% of its
total assets to these practices. The 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.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The cash-equivalent investments the fund
may use are short-term U.S. and Canadian government securities and<PAGE>
PAGE 92
negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided
profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent
in the instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to the limitations on foreign investments described
in the prospectus. The Fund also may purchase short-term corporate
notes and obligations rated in the top two classifications by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's
Corporation (S&P) or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial 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.
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives,
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.
Unless a holder of a majority of the outstanding shares (as defined
in the section entitled "Voting rights" of the prospectus) of
Global Yield agree to change, Global Yield will not:
'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.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund has no present intention to borrow.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'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
<PAGE>
PAGE 93
by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of
this policy, real estate includes real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the 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 a loan of any part of its assets to American Express
Financial Corporation (AEFC), to the directors and officers of AEFC
or to its own directors and officers.
'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
directors and officers 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.
'Lend portfolio securities in excess of 30% of its net assets. The
current policy of the Fund's board 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. If the market price
of the loaned securities goes up, the Fund will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the Fund
receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be
made unless the investment manager believes the opportunity for
additional income outweighs the risks.
'Issue senior securities, except to the extent that borrowing from
banks and using options, foreign currency forward contracts or
future contracts (as discussed elsewhere in the Fund's prospectus
and SAI) may be deemed to constitute issuing a senior security.
Unless changed by the board of directors, Global Yield, will not:
'Buy on margin or sell short, but it may make margin payments in
connection with transactions in futures contracts.
'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 94
'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.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'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 the New York or American Stock Exchange.
'Invest more than 10% of its 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, 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, 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 in case of
default or insolvency of the borrower 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.
<PAGE>
PAGE 95
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). Under normal market
conditions, the Fund does not intend to commit more than 5% of its
total assets to these practices. The 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.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The cash-equivalent investments the Fund
may use are short-term U.S. and Canadian government securities and
negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided
profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent
in the instance of a foreign branch of a U.S. bank) at the date of
investment. The Fund also may purchase short-term notes and
obligations (rated in the top two classifications by Moody's
Investors Service, Inc. (Moody's) or Standard & Poor's Corporation
(S&P) or the equivalent) of U.S. and foreign banks and corporations
and may use repurchase agreements with broker-dealers registered
under the Securities Exchange Act of 1934 and with commercial
banks. 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. As a temporary
investment, during periods of weak or declining market values for
the securities in which the Fund invests, any portion of its assets
may be converted to cash (in foreign currencies or U.S. dollars) or
to the kinds of short-term debt securities discussed in this
paragraph.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Income Advantage agree to change, Income Advantage will not:
'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.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund has no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.<PAGE>
PAGE 96
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Fund's total assets may be invested without
regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of
this policy, real estate includes real estate limited partnerships.
'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.
'Lend portfolio securities in excess of 30% of its net assets. The
current policy of the Fund's board of directors (the "board") 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. If the market price of the loaned securities goes up, the
Fund will get additional collateral on a daily basis. The risks
are that the borrower may not provide additional collateral when
required or return the securities when due. During the existence
of the loan, the Fund receives cash payments equivalent to all
interest or other distributions paid on the loaned securities. A
loan will not be made unless the investment manager believes the
opportunity for additional income outweighs the risks.
'Issue senior securities, except this restriction shall not be
deemed to prohibit the Fund from borrowing from banks, using
options or futures contracts, lending its securities or entering
into repurchase agreements.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Fund's total assets, based on
current market value at the time of purchase, can be invested in
any one industry.
Unless changed by the board of directors, Income Advantage, will
not:
<PAGE>
PAGE 97
'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 10% of its total assets in securities of
investment companies.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest in a company to control or manage it.
'Buy on margin or sell short, except they may enter into interest
rate future contracts.
'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
directors and officers 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.
'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 the New York or American Stock Exchange.
'Invest more than 10% of its 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 participation, 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, 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
<PAGE>
PAGE 98
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 participation and interests in securitized loan pools
are interests in amounts owed by a corporate, governmental or other
borrower to a lender or consortium of lenders (typically banks,
insurance companies, investment banks, government agencies or
international agencies). Loans involve a risk of loss in case of
default or insolvency of the borrower and may offer less legal
protection to the Fund in the event of fraud or misrepresentation.
In addition, loan participation involve a risk of insolvency of the
lender or other financial intermediary.
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). Under normal market
conditions, the Fund does not intend to commit more than 5% of its
total assets to these practices. The 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.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The cash-equivalent investments the Fund
may use are short-term U.S. and Canadian government securities and
negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided
profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent
in the instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to the limitations on foreign investments described
in the prospectus. The Fund also may purchase short-term corporate
notes and obligations rated in the top two classifications by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's
Corporation (S&P) or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial 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.
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives,
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.<PAGE>
PAGE 99
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.
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any fund or trust for which it acts as investment
manager. AEFC carefully monitors compliance with its Code of
Ethics.
On occasion, it may be desirable for Capital Resource,
International Equity, Aggressive Growth, Special Income, Managed,
Growth Dimensions, Global Yield or Income Advantage 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
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;
<PAGE>
PAGE 100
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
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
<PAGE>
PAGE 101
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.
<TABLE>
<CAPTION>
The Funds have paid the following brokerage commissions:
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended Capital International Aggressive Special Growth
Aug. 31, Resource Equity Growth Income Managed Dimensions
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 --
1996 13,416,430 3,551,512 5,313,285 23,608 3,683,714 124,863
</TABLE>
Transactions amounting to $357,819,000 and $101,211,000 with
related commissions of $643,163 and $113,959 were directed to
brokers by Capital Resource and Managed Funds, respectively,
because of research services received for the fiscal year ended
Aug. 31, 1996.
Capital Resource Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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
Dean Witter $ 3,797,766
First Chicago 29,837,500
Goldman Sachs 11,580,733
Morgan Stanley 4,796,440
Aggressive Growth Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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 102
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Dean Witter $9,254,988
First Chigago 7,669,392
Morgan Stanley 9,949,935
Nations Bank 6,498,772
Special Income Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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
Bank America $ 7,575,675
Dean Witter 4,495,592
Goldman Sachs 12,923,931
Salomon Brothers 4,969,600
Moneyshare Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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 $3,994,550
Merrill Lynch 6,460,913
Managed Fund's acquisition during the fiscal year ended Aug. 31,
1996, 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
Dean Witter $32,572,295
Merrill Lynch 4,880,552
Morgan Stanley 54,995,728
Salomon Brothers 23,875,940
Growth Dimensions Fund's acquisition during the fiscal year ended
Aug. 31, 1996 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 103
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Morgan Stanley $1,040,950
International Equity Fund's acquisition during the fiscal year
ended Aug. 31, 1996 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
Dean Witter $ 7,961,280
Goldman Sachs 9,331,434
Merrill Lynch 12,588,765
Global Yield Fund and Income Advantage 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, 1996.
The portfolio turnover rate for Capital Resource Fund was 88% in
fiscal year ended Aug. 31, 1995 and 131% in fiscal year ended Aug.
31, 1996. The portfolio turnover rate for Managed Fund was 72% in
fiscal year ended Aug. 31, 1995 and 85% in fiscal year ended Aug.
31, 1996.
The portfolio turnover rate for International Equity Fund was 38%
in fiscal year ended Aug. 31, 1995 and 58% in fiscal year ended
Aug. 31, 1996. The portfolio turnover rate for Aggressive Growth
Fund was 116% in fiscal year ended Aug. 31, 1995 and 189% in fiscal
year ended Aug. 31, 1996.
The portfolio turnover rate for Special Income Fund was 56% in
fiscal year ended Aug. 31, 1995 and 56% in fiscal year ended Aug.
31, 1996. The portfolio turnover rate for Growth Dimensions Fund
was 40% in fiscal year ended Aug. 31, 1996.
The portfolio turnover rate for Global Yield fund was 4% in fiscal
year ended Aug. 31, 1996. The portfolio turnover rate for Income
Advantage Fund was 22% in fiscal year ended Aug. 31, 1996.
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,
Managed, Growth Dimensions, Global Yield and Income Advantage funds
<PAGE>
PAGE 104
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%
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, 1996.
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,
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
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
Lehman (1) None --% --% None $ 71,398
Brothers,
Inc.
The Robinson (2) None -- -- None 6,300
Humphrey
Company, Inc.
American (3) $841,159 6.27 10.58 $829,258 412,316
Enterprise
Investment
Services, Inc.
(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:<PAGE>
PAGE 105
FFor the Fiscal Period Ended Aug. 31,
1996 1995 1994
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
American (1) None --% --% None $4,732
Enterprise
Investment
Services, Inc.
(1) Wholly owned subsidiary of AEFC.
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:
For the Fiscal Period Ended Aug. 31,
1996 1995 1994
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
Lehman (1) None --% --% None $15,342
Brothers,
Inc.
The Robinson (2) None --% --% None 3,150
Humphrey
Company, Inc.
American (3) $245,269 4.62 8.01 $222,443 41,833
Enterprise
Investment
Services, Inc.
(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:
For the Fiscal Year Ended Aug. 31,
1996 1995 1994
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
American (1) None --% --% None $666
Enterprise
Investment
Services, Inc.
(1) Wholly owned subsidiary of AEFC.
<PAGE>
PAGE 106
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:
For the Fiscal Year Ended Aug. 31,
1996 1995 1994
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
Lehman (1) None --% --% None $ 86,076
Brothers,
Inc.
The Robinson (2) None --% --% None 24,338
Humphrey
Company, Inc.
American (3) $76,269 2.07 4.49 $131,456 127,304
Enterprise
Investment
Services, Inc.
(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 Growth Dimensions
during the last fiscal year to brokers affiliated with IDS Life is
contained in the following table:
For the Fiscal Year Ended Aug. 31,
1996
Aggregate Percent of
Dollar Aggregate Dollar
Amount of Percent of Amount of
Nature Commissions Aggregate Transactions
of Paid to Brokerage Involving Payment
Broker Affiliation Broker Commissions of Commissions
American (1) $212 0.17% 0.19%
Enterprise
Investment
Services, Inc.
(1) Wholly owned subsidiary of AEFC.
Information about brokerage commissions paid by Global Yield during
the last fiscal year to brokers affiliated with IDS Life is
contained in the following table:
<PAGE>
PAGE 107
For the Fiscal Year Ended Aug. 31,
1996
Aggregate Percent of
Dollar Aggregate Dollar
Amount of Percent of Amount of
Nature Commissions Aggregate Transactions
of Paid to Brokerage Involving Payment
Broker Affiliation Broker Commissions of Commissions
American (1) None --% --%
Enterprise
Investment
Services, Inc.
(1) Wholly owned subsidiary of AEFC.
Information about brokerage commissions paid by Income Advantage
during the last fiscal year to brokers affiliated with IDS Life is
contained in the following table:
For the Fiscal Year Ended Aug. 31,
1996
Aggregate Percent of
Dollar Aggregate Dollar
Amount of Percent of Amount of
Nature Commissions Aggregate Transactions
of Paid to Brokerage Involving Payment
Broker Affiliation Broker Commissions of Commissions
American (1) None --% --%
Enterprise
Investment
Services, Inc.
</TABLE>
(1) 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)
<PAGE>
PAGE 108
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:
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, Global Yield and Income Advantage Funds 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
Special Income Fund's annualized yield was 3.95%, Global Yield
Fund's was 4.15% and Income Advantage Fund's was 7.68% for the 30-
day period ended Aug. 31, 1996.
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
<PAGE>
PAGE 109
where: D = sum of dividends for 30 day period
NAV = beginning of period net asset value
F = annualizing factor
DY = distribution yield
Special Income Fund's distribution yield was 3.40%, Global Yield
Fund's was 3.97% and Income Advantage Fund's was 7.55% for the 30-
day period ended Aug. 31, 1996.
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 4.79% and its
compound yield was 4.90% for the seven days ended Aug. 31, 1996,
the last business day of the Fund's fiscal year. The Fund's simple
yield was 4.90% and the compound yield was 5.02% for the seven days
ended Sept. 30, 1996.
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
<PAGE>
PAGE 110
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.
VALUING EACH FUND'S SHARES
On Aug. 31, 1996, 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
$4,371,868,864 divided by 170,998,178 = $25.57
International Equity Fund
Net asset value
Net assets Shares outstanding of one share
$1,874,450,393 divided by 140,912,770 = $13.30
Aggressive Growth Fund
Net asset value
Net assets Shares outstanding of one share
$1,941,094,882 divided by 120,996,059 = $16.04
Special Income Fund
Net asset value
Net assets Shares outstanding of one share
$1,911,847,626 divided by 165,711,504 = $11.54
Managed Fund
Net asset value
Net assets Shares outstanding of one share
$3,481,917,294 divided by 217,610,488 = $16.00
Growth Dimensions Fund
Net asset value
Net assets Shares outstanding of one share
$170,820,543 divided by 17,180,066 = $ 9.94
Global Yield Fund
Net asset value
Net assets Shares outstanding of one share
$20,930,951 divided by 2,076,586 = $10.08
<PAGE>
PAGE 111
Income Advantage Fund
Net asset value
Net assets Shares outstanding of one share
$48,838,152 divided by 4,998,345 = $ 9.77
Capital Resource, International Equity, Aggressive Growth, Special
Income, Managed, Growth Dimensions, Global Yield and Income
Advantage 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.
'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
<PAGE>
PAGE 112
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.
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 <PAGE>
PAGE 113
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
purchase payment to the variable accounts, which will invest in
shares of Capital Resource, International Equity, Aggressive
Growth, Special Income, Moneyshare, Managed, Growth Dimensions,
Global Yield or Income Advantage 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.
<PAGE>
PAGE 114
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.
Shares of the Fund may not be held by persons who are residents of,
or domiciled in, Brazil. The Fund reserves the right to redeem
accounts of shareholders who establish residence or domicile in
Brazil.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, Growth Dimensions Fund and Income
Advantage Fund had capital loss carryover at Aug. 31, 1996 of
$428,324, and $63,594, respectively, which, if not offset by
subsequent capital gains, will expire in 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.
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.
<PAGE>
PAGE 115
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
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
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PAGE 116
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
Growth Dimensions
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 $9 0.570
Global Yield
assets Annual rate at
(billions) each asset level
First $.25 0.840%
Next $.25 0.825
Next $.25 0.810
Next $.25 0.795
Over $1 0.780
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PAGE 117
Income Advantage
assets Annual rate at
(billions) each asset level
First $1 0.620%
Next $1 0.605
Next $1 0.590
Next $3 0.575
Next $3 0.560
Over $9 0.545
On Aug. 31, 1996, the daily rate applied to the Fund's assets on an
annual basis, was 0.604% for Capital Resource, 0.824% for
International Equity, 0.609% for Aggressive Growth, 0.603% for
Special Income, 0.510% for Moneyshare, 0.598% for Managed, 0.630%
for Growth Dimensions, 0.840% for Global Yield and 0.620% for
Income Advantage. 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
$26,046,720 for the fiscal year ended August 31, 1996, $20,450,401
for the fiscal year 1995 and $16,497,309 for fiscal year 1994.
Under the prior and current agreements, the total amount paid for
International Equity was $13,990,974 for the fiscal year ended
August 31, 1996, $10,869,439 for the fiscal year 1995 and
$6,212,919 for fiscal year 1994.
Under the prior and current agreements, the total amount paid for
Aggressive Growth was $10,459,512 for the fiscal year ended August
31, 1996, $6,579,414 for the fiscal year 1995 and $3,298,361 for
fiscal year 1994.
Under the prior and current agreements, the total amount paid for
Special Income was $11,311,856 for the fiscal year ended August 31,
1996. $9,542,823 for the fiscal year 1995 and $10,547,321 for
fiscal year 1994.
Under the prior and current agreements, the total amount paid for
Moneyshare was $1,283,789 for the fiscal year ended August 31,
1996, $1,041,050 for the fiscal year 1995 and $936,246 for fiscal
year 1994.
Under the prior and current agreements, the total amount paid for
Managed was $19,987,805 for the fiscal year ended August 31, 1996,
$16,720,930 for the fiscal year 1995 and $14,142,061 for fiscal
year 1994.
Under the prior and current agreements, the total amount paid for
Growth Dimensions was $153,340 for the fiscal year ended August 31,
1996.
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PAGE 118
Under the prior and current agreements, the total amount paid for
Global Yield was $26,039 for the fiscal year ended August 31, 1996.
Under the prior and current agreements, the total amount paid for
Income Advantage was $44,245 for the fiscal year ended August 31,
1996.
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 $1,237,584 for the
fiscal year ended August 31, 1996, $1,289,211 for the fiscal year
1995 and $898,844 for fiscal year 1994.
International Equity paid nonadvisory expenses of $1,439,851 for
the fiscal year ended August 31, 1996, $1,758,233 for the fiscal
year 1995 and $653,810 for fiscal year 1994.
Aggressive Growth paid nonadvisory expenses of $555,212 for the
fiscal year ended August 31, 1996, $397,865 for the fiscal year
1995 and $228,325 for fiscal year 1994.
Special Income paid nonadvisory expenses of $534,757 for the fiscal
year ended August 31, 1996, $527,883 for the fiscal year 1995 and
$452,235 for fiscal year 1994.
Moneyshare paid nonadvisory expenses of $134,008 for the fiscal
year ended August 31, 1996, $68,790 for the fiscal year 1995 and
$49,909 for fiscal year 1994.
Managed paid nonadvisory expenses of $857,900 for the fiscal year
ended August 31, 1996, $1,006,486 for the fiscal year 1995 and
$737,946 for fiscal year 1994.
Growth Dimensions paid nonadvisory expenses of $88,000 for the
fiscal year ended August 31, 1996.
Global Yield paid nonadvisory expenses of $26,994 for the fiscal
year ended August 31, 1996.
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PAGE 119
Income Advantage paid nonadvisory expenses of $61,600 for the
fiscal year ended August 31, 1996.
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
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
<PAGE>
PAGE 120
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
Growth Dimensions
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
Global Yield
Assets Annual rate at
(billions) each asset level
First $.25 0.060%
Next $.25 0.055
Next $.25 0.050
Next $.25 0.045
Over $1 0.040
Income Advantage
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
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PAGE 121
On Aug. 31, 1996, the daily rate applied to Capital Resource was
equal to 0.041% on an annual basis.
On Aug. 31, 1996, the daily rate applied to International Equity
was equal to 0.045% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Aggressive Growth was
equal to 0.046% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Special Income was
equal to 0.048% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Moneyshare was equal to
0.030% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Managed was equal to
0.029% on an annual basis.
On Aug. 31, 1996 the daily rate applied to Growth Dimensions was
equal to 0.050% on an annual basis.
On Aug. 31, 1996 the daily rate applied to Global Yield was equal
to 0.060% on an annual basis.
On Aug. 31, 1996 the daily rate applied to Income Advantage was
equal to 0.050% 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
based on a percentage of each Fund's average daily net assets for
the year. This fee is equal to 0.35% 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, 1994, IDS Life paid AEFC
$6,382,698 for its services in connection with Capital Resource
Fund. For fiscal year 1995, the amount was $8,118,175 and for
fiscal year 1996 it was $10,767,468.
For the fiscal period ended Aug. 31, 1994, IDS Life paid AEFC
$3,468,822 for its services in connection with International Equity
Fund. For fiscal year 1995, the amount was $4,947,617 and for
fiscal year 1996 it was $5,895,097.
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PAGE 122
For the fiscal period ended Aug. 31, 1994, IDS Life paid AEFC
$1,276,540 for its services in connection with Aggressive Growth
Fund. For fiscal year 1995, the amount was $2,589,057 and for
fiscal year 1996 it was $4,281,869.
For the fiscal year ended Aug. 31, 1994, IDS Life paid AEFC
$4,080,208 for its services in connection with Special Income Fund.
For fiscal year 1995, the amount was $3,806,813 and for fiscal year
1996 it was $4,698,757.
For the fiscal year ended Aug. 31, 1994, IDS Life paid AEFC
$433,482 for its services in connection with Moneyshare Fund. For
fiscal year 1995, the amount was $494,845 and for fiscal year 1996
it was $621,885.
For the fiscal year end Aug. 31, 1994, IDS Life paid AEFC
$5,471,820 for its services in connection with Managed Fund. For
fiscal year 1995, the amount was $6,674,716 and for fiscal year
1996 it was $8,355,352.
For fiscal year ended Aug. 31, 1996, IDS Life paid AEFC $61,016 for
its services in connection with Growth Dimensions Fund.
For fiscal year ended Aug. 31, 1996, IDS Life paid AEFC $7,771 for
its services in connection with Global Yield Fund.
For fiscal year ended Aug. 31, 1996, IDS Life paid AEFC $17,890 for
its services in connection with Income Advantage Fund.
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.
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).
<PAGE>
PAGE 123
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
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
Anne P. Jones
Born in 1935.
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922.
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term congressman,
secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's
Digest Association, Inc., Science Applications International Corp.,
Wallace Reader's Digest Funds and Public Oversight Board (SEC
Practice Section, American Institute of Certified Public
Accountants).
<PAGE>
PAGE 124
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). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937.
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
Wheelock Whitney+
Born in 1926.
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele
Born in 1934.
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
<PAGE>
PAGE 125
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the funds.
**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.
Members of the board who are not officers of the Fund or of AEFC
receive an annual fee of $3200 for IDS Life Capital Resource Fund,
$1500 for IDS Life International Equity Fund and IDS Life
Aggressive Growth Fund, $1400 for IDS Life Special Income Fund,
$200 for IDS Life Moneyshare Fund, $2600 for IDS Life Managed Fund
and $100 for IDS Life Growth Dimensions Fund, IDS Life Global Yield
Fund and IDS Life Income Advantage Fund. The Chair of the
Contracts Committee receives an additional $90. Board Members
receive a $50 per day attendance fee for board meetings. The
attendance fee for meetings of the Contracts and Investment Review
Committee is $50; for meetings of the Audit Committee and Personnel
Committee $25 and for traveling from out-of-state $8. Expenses for
attending meetings are reimbursed.
The Fund pays no fees or expenses to board members until the assets
of the Fund reach $20 million.
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PAGE 126
During the fiscal year that ended Aug. 31, 1996, the members of the
board, for attending up to 23 meetings, received the following
compensation, in total, from all funds in the IDS MUTUAL FUND
GROUP.
<TABLE>
<CAPTION>
Life Capital Resource
Board compensation
<S> <C> <C> <C> <C>
Pension or
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 $4,151 $ 847 $2,000 $69,300
Robert F. Froehlke 4,145 4,019 2,000 69,100
Heinz F. Hutter 4,160 1,355 967 69,300
Anne P. Jones 4,190 927 2,000 70,800
Donald M. Kendall 2,741 9,144 2,000 46,000
(part of year)
Melvin R. Laird 4,242 3,982 2,000 72,900
Lewis W. Lehr 2,793 6,501 1,950 48,000
(part of year)
Edson W. Spencer 4,299 2,005 1,067 75,100
Wheelock Whitney 4,174 1,947 2,000 70,300
C. Angus Wurtele 4,091 1,439 1,983 66,800
Life International Equity
Board compensation
Pension or
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 $1,917 $ 518 $825 $69,300
Robert F. Froehlke 1,911 3,122 825 69,100
Heinz F. Hutter 1,927 841 399 69,300
Anne P. Jones 1,957 575 825 70,800
Donald M. Kendall 1,291 6,192 825 46,000
(part of year)
Melvin R. Laird 2,008 3,035 825 72,900
Lewis W. Lehr 1,343 5,413 804 48,000
(part of year)
Edson W. Spencer 2,066 1,996 440 75,100
Wheelock Whitney 1,941 1,286 825 70,300
C. Angus Wurtele 1,858 873 818 66,800
Life Aggressive Growth
Board compensation
Pension or
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 $1,567 $ 252 $750 $69,300
Robert F. Froehlke 1,561 1,728 750 69,100
Heinz F. Hutter 1,577 405 363 69,300
Anne P. Jones 1,607 283 750 70,800
Donald M. Kendall 991 5,266 750 46,000
(part of year)
Melvin R. Laird 1,658 1,667 750 72,900
Lewis W. Lehr 1,043 4,980 731 48,000
(part of year)
Edson W. Spencer 1,716 948 400 75,100
Wheelock Whitney 1,591 647 750 70,300
C. Angus Wurtele 1,508 422 744 66,800
<PAGE>
PAGE 127
Life Special Income
Board compensation
Pension or
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 $2,101 $113 $900 $69,300
Robert F. Froehlke 2,095 398 900 69,100
Heinz F. Hutter 2,110 180 435 69,300
Anne P. Jones 2,140 114 900 70,800
Donald M. Kendall 1,425 316 900 46,000
(part of year)
Melvin R. Laird 2,192 317 900 72,900
Lewis W. Lehr 1,476 -- 878 48,000
(part of year)
Edson W. Spencer 2,249 114 480 75,100
Wheelock Whitney 2,124 212 900 70,300
C. Angus Wurtele 2,041 193 893 66,800
Life Moneyshare
Board compensation
Pension or
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 $451 $174 $100 $69,300
Robert F. Froehlke 445 577 100 69,100
Heinz F. Hutter 460 275 48 69,300
Anne P. Jones 490 119 100 70,800
Donald M. Kendall 308 -- 100 46,000
(part of year)
Melvin R. Laird 542 -- 100 72,900
Lewis W. Lehr 359 -- 98 48,000
(part of year)
Edson W. Spencer 600 -- 53 75,100
Wheelock Whitney 475 119 100 70,300
C. Angus Wurtele 391 297 99 66,800
Life Managed
Board compensation
Pension or
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 $3,484 $ 857 $1,625 $69,300
Robert F. Froehlke 3,478 4,138 1,625 69,100
Heinz F. Hutter 3,493 1,374 785 69,300
Anne P. Jones 3,523 918 1,625 70,800
Donald M. Kendall 2,325 7,597 1,571 46,000
(part of year)
Melvin R. Laird 3,575 3,864 1,625 72,900
Lewis W. Lehr 2,376 5,625 1,557 48,000
(part of year)
Edson W. Spencer 3,633 2,065 867 75,100
Wheelock Whitney 3,508 1,908 1,625 70,300
C. Angus Wurtele 3,425 1,453 1,612 66,800
During the fiscal period from May 1, 1996 to August 31, 1996, for
Growth Dimensions, Global Yield and Income Advantage, the members
of the board received no compensation.
/TABLE
<PAGE>
PAGE 128
On Aug. 31, 1996, the Fund's directors and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
year ended Aug. 31, 1996, no director or officer earned more than
$60,000 from any one Fund. All directors and officers as a group
earned $351,207, including $105,932 of retirement plan expense,
from these Funds.
*The Fund had a retirement plan for its independent board members.
The plan was terminated April 30, 1996.
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, 1996, 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 1996 Annual Report to
the shareholders of Capital Resource, International Equity,
Aggressive Growth, Special Income, Moneyshare, Managed, Growth
Dimensions, Global Yield and Income Advantage 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.
PROSPECTUS
The prospectus dated Oct. 30, 1996, is hereby incorporated in this
Statement of Additional Information by reference.
<PAGE>
PAGE 129
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS AND ADDITIONAL INFORMATION ON
INVESTMENT POLICIES FOR INVESTMENTS OF CAPITAL RESOURCE, SPECIAL
INCOME, GLOBAL YIELD AND INCOME ADVANTAGE 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.
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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.
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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
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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.
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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
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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>
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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. Global Yield and Income Advantage funds may enter
into currency futures contracts to buy currencies.
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.
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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.
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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.
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APPENDIX D
OPTIONS AND STOCK INDEX FUTURES CONTRACTS FOR INVESTMENTS OF
CAPITAL RESOURCE, INTERNATIONAL EQUITY, AGGRESSIVE GROWTH, MANAGED,
GROWTH DIMENSIONS AND GLOBAL YIELD FUNDS
Capital Resource, International Equity, Aggressive Growth, Managed,
Growth Dimensions and Global Yield 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 and Global Yield Funds 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.
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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, MANAGED, GLOBAL YIELD AND INCOME ADVANTAGE 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 and Global Yield Funds
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.
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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 participation 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
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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
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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, Special Income, Global Yield and Income Advantage 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 Fund realizes a gain or loss on
the sale of the current commitment or receives a fee for entering
into the new commitment.
Managed, Special Income, Growth Dimensions, Global Yield and Income
Advantage 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.
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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).
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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.
Oct. 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 Oct. 30, 1996, and it is to be used with the
Funds' prospectus dated Oct. 30, 1996. It is also to be used with
the Funds' Annual Report for the fiscal year ended Aug. 31, 1996.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
800-633-4003
612-671-3733
<PAGE>
PAGE 157
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
Taxes.........................................................p. 35
Agreements with IDS Life and American Express Financial
Corporation...................................................p. 35
Directors and Officers........................................p. 41
Custodian.....................................................p. 46
Independent Auditors..........................................p. 47
Financial Statements....................See Annual Report and p. 47
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 158
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 159
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 160
'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, 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 161
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 162
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 163
'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, 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 164
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 165
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 166
'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, 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 167
'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 168
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 169
'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, 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 170
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 171
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 172
'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, 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 173
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 174
'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, 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 175
'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 176
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.
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any fund or trust for which it acts as investment
manager. AEFC carefully monitors compliance with its Code of
Ethics.
<PAGE>
PAGE 177
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
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
<PAGE>
PAGE 178
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
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.
<TABLE>
<CAPTION>
The Funds have paid the following brokerage commissions:
<S> <C> <C> <C> <C> <C>
Fiscal year ended Capital International Aggressive Special
Aug. 31, Resource Equity Growth Income Managed
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
1996 13,416,430 3,551,512 5,313,285 23,608 3,683,714
Transactions amounting to $357,819,000 and $101,211,000 with
related commissions of $643,163 and $113,959 were directed to
brokers by Capital Resource and Managed Funds, respectively,
because of research services received for the fiscal year ended
Aug. 31, 1996.
/TABLE
<PAGE>
PAGE 179
Capital Resource Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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
Dean Witter $ 3,797,766
First Chicago 29,837,500
Goldman Sachs 11,580,733
Morgan Stanley 4,796,440
International Equity Fund's acquisition during the fiscal year
ended Aug. 31, 1996 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
Dean Witter $ 7,961,280
Goldman Sachs 9,331,434
Merrill Lynch 12,588,765
Aggressive Growth Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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
Dean Witter $9,254,988
First Chicago 7,669,392
Morgan Stanley 9,949,935
Nations Bank 6,498,772
Special Income Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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
BankAmerica $ 7,575,675
Dean Witter 7,495,592
Goldman Sachs 12,923,931
Salomon Brothers 4,969,600
<PAGE>
PAGE 180
Moneyshare Fund's acquisition during the fiscal year ended
Aug. 31, 1996, 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 $3,994,550
Merrill Lynch 6,460,913
Managed Fund's acquisition during the fiscal year ended Aug. 31,
1996, 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
Dean Witter $32,572,295
Merrill Lynch 4,880,552
Morgan Stanley 54,995,728
Salomon Brothers 23,875,940
The portfolio turnover rate for Capital Resource Fund was 88% in
fiscal year ended Aug. 31, 1995 and 131% in fiscal year ended Aug.
31, 1996. The portfolio turnover rate for Managed Fund was 72% in
fiscal year ended Aug. 31, 1995 and 85% in fiscal year ended Aug.
31, 1996.
The portfolio turnover rate for International Equity Fund was 38%
in fiscal year ended Aug. 31, 1995 and 58% in fiscal year ended
Aug. 31, 1996. The portfolio turnover rate for Aggressive Growth
Fund was 116% in fiscal year ended Aug. 31, 1995 and 189% in fiscal
year ended Aug. 31, 1996.
The Portfolio turnover rate for Special Income was 56% in fiscal
year ended Aug. 31, 1995 and 56% in fiscal year ended Aug. 31,
1996.
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
<PAGE>
PAGE 181
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%
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,
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
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
Lehman (1) None --% --% None $ 71,398
Brothers,
Inc.
The Robinson (2) None -- -- None 6,300
Humphrey
Company, Inc.
American (3) $841,159 6.27 10.58 $829,258 412,316
Enterprise
Investment
Services, Inc.
(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:
<PAGE>
PAGE 182
For the Fiscal Period Ended Aug. 31,
1996 1995 1994
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
American (1) None --% --% None $4,372
Enterprise
Investment
Services, Inc.
(1) Wholly owned subsidiary of AEFC.
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:
For the Fiscal Period Ended Aug. 31,
1996 1995 1994
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
Lehman (1) None --% --% None $15,342
Brothers,
Inc.
The Robinson (2) None -- -- None 3,150
Humphrey
Company, Inc.
American (3) $245,269 4.62 8.01 $222,443 41,833
Enterprise
Investment
Services, Inc.
(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:
For the Fiscal Year Ended Aug. 31,
1996 1995 1994
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
American (1) None --% --% None $666
Enterprise
Investment
Services, Inc.
<PAGE>
PAGE 183
(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:
For the Fiscal Year Ended Aug. 31,
1996 1995 1994
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
Lehman (1) None --% --% None $ 86,076
Brothers,
Inc.
The Robinson (2) None -- -- None 24,338
Humphrey
Company, Inc.
American (3) $76,269 2.07 4.49 $131,456 127,304
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)
<PAGE>
PAGE 184
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:
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 3.95% for the 30-day period ended
Aug. 31, 1996.
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
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PAGE 185
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 3.40% for the 30-day period ended
Aug. 31, 1996.
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 4.79% and its
compound yield was 4.90% for the seven days ended Aug. 31, 1996,
the last business day of the Fund's fiscal year. The Fund's simple
yield was 4.90% and the compound yield was 5.02% for the seven days
ended Sept. 30, 1996.
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,
<PAGE>
PAGE 186
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.
VALUING EACH FUND'S SHARES
On Aug. 31, 1996, 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
$4,371,868,864 divided by 170,998,178 = $25.57
International Equity Fund
Net asset value
Net assets Shares outstanding of one share
$1,874,450,393 divided by 140,912,770 = $13.30
Aggressive Growth Fund
Net asset value
Net assets Shares outstanding of one share
$1,941,094,882 divided by 120,996,059 = $16.04
Special Income Fund
Net asset value
Net assets Shares outstanding of one share
$1,911,847,626 divided by 165,711,504 = $11.54
Managed Fund
Net asset value
Net assets Shares outstanding of one share
$3,481,917,294 divided by 217,610,488 = $16.00
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.
<PAGE>
PAGE 187
'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.
'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
<PAGE>
PAGE 188
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.
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.
<PAGE>
PAGE 189
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
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.
Shares of the Fund may not be held by persons who are residents of,
or domiciled in, Brazil. The Fund reserves the right to redeem
accounts of shareholders who establish residence or domicile in
Brazil.
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.
<PAGE>
PAGE 190
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 191
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, 1996, the daily rate applied to the Fund's assets on an
annual basis, was 0.604% for Capital Resource, 0.824% for
International Equity, 0.609% for Aggressive Growth, 0.603% for
Special Income, 0.510% for Moneyshare and 0.598% 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.
<PAGE>
PAGE 192
The management fee is paid monthly. Under the prior and current
agreements, the total amount paid for Capital Resource was
$26,046,720 for the fiscal year ended August 31, 1996, $20,450,401
for the fiscal year 1995 and $16,497,309 for fiscal year 1994.
Under the prior and current agreements, the total amount paid for
International Equity was $13,990,974 for the fiscal year ended
August 31, 1996, $10,869,439 for the fiscal year 1995 and
$6,212,919 for fiscal year 1994.
Under the prior and current agreements, the total amount paid for
Aggressive Growth was $10,459,512 for the fiscal year ended August
31, 1996, $6,579,414 for the fiscal year 1995 and $3,298,361 for
fiscal year 1994.
Under the prior and current agreements, the total amount paid for
Special Income was $11,311,856 for the fiscal year ended August 31,
1996, $9,542,823 for the fiscal year 1995 and $10,547,321 for
fiscal year 1994.
Under the prior and current agreements, the total amount paid for
Moneyshare was $1,283,789 for the fiscal year ended August 31,
1996, $1,041,050 for the fiscal year 1995 and $936,246 for fiscal
year 1994.
Under the prior and current agreements, the total amount paid for
Managed was $19,987,805 for the fiscal year ended August 31, 1996,
$16,720,930 for the fiscal year 1995 and $14,142,061 for fiscal
year 1994.
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 $1,237,584 for the
fiscal year ended August 31, 1996, $1,289,211 for the fiscal year
1995 and $898,844 for fiscal year 1994.
<PAGE>
PAGE 193
International Equity paid nonadvisory expenses of $1,439,851 for
the fiscal year ended August 31, 1996, $1,758,233 for the fiscal
year 1995 and $653,810 for fiscal year 1994.
Aggressive Growth paid nonadvisory expenses of $555,212 for the
fiscal year ended August 31, 1996, $397,865 for the fiscal year
1995 and $228,325 for fiscal year 1994.
Special Income paid nonadvisory expenses of $534,757 for the fiscal
year ended August 31, 1996, $527,883 for the fiscal year 1995 and
$452,235 for fiscal year 1994.
Moneyshare paid nonadvisory expenses of $134,008 for the fiscal
year ended August 31, 1996, $68,790 for the fiscal year 1995 and
$49,909 for fiscal year 1994.
Managed paid nonadvisory expenses of $857,900 for the fiscal year
ended August 31, 1996, $1,006,486 for the fiscal year 1995 and
$737,946 for fiscal year 1994.
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
<PAGE>
PAGE 194
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
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, 1996, the daily rate applied to Capital Resource was
equal to 0.041% on an annual basis.
On Aug. 31, 1996, the daily rate applied to International Equity
was equal to 0.045% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Aggressive Growth was
equal to 0.046% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Special Income was
equal to 0.048% on an annual basis.
<PAGE>
PAGE 195
On Aug. 31, 1996, the daily rate applied to Moneyshare was equal to
0.030% on an annual basis.
On Aug. 31, 1996, the daily rate applied to Managed was equal to
0.029% 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
based on a percentage of each Fund's average daily net assets for
the year. This fee is equal to 0.35% 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, 1994, IDS Life paid AEFC
$6,382,698 for its services in connection with Capital Resource
Fund. For fiscal year 1995, the amount was $8,118,175 and for
fiscal year 1996 it was $10,767,468.
For the fiscal period ended Aug. 31, 1994, IDS Life paid AEFC
$3,468,822 for its services in connection with International Equity
Fund. For fiscal year 1995, the amount was $4,947,617 and for
fiscal year 1996 it was $5,895,097.
For the fiscal period ended Aug. 31, 1994, IDS Life paid AEFC
$1,276,540 for its services in connection with Aggressive Growth
Fund. For fiscal year 1995, the amount was $2,589,057 and for
fiscal year 1996 it was $4,281,869.
For the fiscal year ended Aug. 31, 1994, IDS Life paid AEFC
$4,080,208 for its services in connection with Special Income Fund.
For fiscal year 1995, the amount was $3,806,813 and for fiscal year
1996 it was $4,698,757.
For the fiscal year ended Aug. 31, 1994, IDS Life paid AEFC
$433,482 for its services in connection with Moneyshare Fund. For
fiscal year 1995, the amount was $494,845 and for fiscal year 1996
it was $621,885.
For the fiscal year end Aug. 31, 1994, IDS Life paid AEFC
$5,471,820 for its services in connection with Managed Fund. For
fiscal year 1995, the amount was $6,674,716 and for fiscal year
1996 it was $8,355,352.
Information concerning other funds advised by IDS Life or AEFC is
contained in the prospectus.
<PAGE>
PAGE 196
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.
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
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
Anne P. Jones
Born in 1935.
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
<PAGE>
PAGE 197
Melvin R. Laird
Born in 1922.
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term congressman,
secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's
Digest Association, Inc., Science Applications International Corp.,
Wallace Reader's Digest Funds and Public Oversight Board (SEC
Practice Section, American Institute of Certified Public
Accountants).
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). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937.
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
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Wheelock Whitney+
Born in 1926.
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934.
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the funds.
**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.
<PAGE>
PAGE 199
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.
Members of the board who are not officers of the Fund or of AEFC
receive an annual fee of $3200 for IDS Life Capital Resource Fund,
$1500 for IDS Life International Equity Fund and IDS Life
Aggressive Growth Fund, $1400 for IDS Life Special Income Fund,
$200 for IDS Life Moneyshare Fund and $2600 for IDS Life Managed
Fund and the Chair of the Contracts Committee receives an
additional $90. Board members receive a $50 per day attendance fee
for board meetings. The attendance fee for meetings of the
Contracts and Investment Review Committee is $50; for meetings of
the Audit Committee and Personnel Committee $25 and for traveling
from out-of-state $8. Expenses for attending meetings are
reimbursed.
During the fiscal year that ended Aug. 31, 1996, the members of the
board, for attending up to 23 meetings, received the following
compensation, in total, from all funds in the IDS MUTUAL FUND
GROUP.
Life Capital Resource
<TABLE>
<CAPTION>
Board compensation
<S> <C> <C> <C> <C>
Pension or
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 $4,151 $ 847 $2,000 $69,300
Robert F. Froehlke 4,145 4,019 2,000 69,100
Heinz F. Hutter 4,160 1,355 967 69,300
Anne P. Jones 4,190 927 2,000 70,800
Donald M. Kendall 2,741 9,144 2,000 46,000
(part of year)
Melvin R. Laird 4,242 3,982 2,000 72,900
Lewis W. Lehr 2,793 6,501 1,950 48,000
(part of year)
Edson W. Spencer 4,299 2,005 1,067 75,100
Wheelock Whitney 4,174 1,947 2,000 70,300
C. Angus Wurtele 4,091 1,439 1,983 66,800
<PAGE>
PAGE 200
Life International Equity
Board compensation
Pension or
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 $1,917 $ 518 $825 $69,300
Robert F. Froehlke 1,911 3,122 825 69,100
Heinz F. Hutter 1,927 841 399 69,300
Anne P. Jones 1,957 575 825 70,800
Donald M. Kendall 1,291 6,192 825 46,000
(part of year)
Melvin R. Laird 2,008 3,035 825 72,900
Lewis W. Lehr 1,343 5,413 804 48,000
(part of year)
Edson W. Spencer 2,066 1,996 440 75,100
Wheelock Whitney 1,941 1,286 825 70,300
C. Angus Wurtele 1,858 873 818 66,800
Life Aggressive Growth
Board compensation
Pension or
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 $1,567 $ 252 $750 $69,300
Robert F. Froehlke 1,561 1,728 750 69,100
Heinz F. Hutter 1,577 405 363 69,300
Anne P. Jones 1,607 283 750 70,800
Donald M. Kendall 991 5,266 750 46,000
(part of year)
Melvin R. Laird 1,658 1,667 750 72,900
Lewis W. Lehr 1,043 4,980 731 48,000
(part of year)
Edson W. Spencer 1,716 948 400 75,100
Wheelock Whitney 1,591 647 750 70,300
C. Angus Wurtele 1,508 422 744 66,800
Life Special Income
Board compensation
Pension or
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 $2,101 $113 $900 $69,300
Robert F. Froehlke 2,095 398 900 69,100
Heinz F. Hutter 2,110 180 435 69,300
Anne P. Jones 2,140 114 900 70,800
Donald M. Kendall 1,425 316 900 46,000
(part of year)
Melvin R. Laird 2,192 317 900 72,900
Lewis W. Lehr 1,476 - 878 48,000
(part of year)
Edson W. Spencer 2,249 114 480 75,100
Wheelock Whitney 2,124 212 900 70,300
C. Angus Wurtele 2,041 193 893 66,800
<PAGE>
PAGE 201
Life Moneyshare
Board compensation
Pension or
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 $451 $174 $100 $69,300
Robert F. Froehlke 445 577 100 69,100
Heinz F. Hutter 460 275 48 69,300
Anne P. Jones 490 119 100 70,800
Donald M. Kendall 308 - 100 46,000
(part of year)
Melvin R. Laird 542 - 100 72,900
Lewis W. Lehr 359 - 98 48,000
(part of year)
Edson W. Spencer 600 - 53 75,100
Wheelock Whitney 475 119 100 70,300
C. Angus Wurtele 391 297 99 66,800
Life Managed
Board compensation
Pension or
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 $3,484 $ 857 $1,625 $69,300
Robert F. Froehlke 3,478 4,138 1,625 69,100
Heinz F. Hutter 3,493 1,374 785 69,300
Anne P. Jones 3,523 918 1,625 70,800
Donald M. Kendall 2,325 7,597 1,571 46,000
(part of year)
Melvin R. Laird 3,575 3,864 1,625 72,900
Lewis W. Lehr 2,376 5,625 1,557 48,000
(part of year)
Edson W. Spencer 3,633 2,065 867 75,100
Wheelock Whitney 3,508 1,908 1,625 70,300
C. Angus Wurtele 3,425 1,453 1,612 66,800
</TABLE>
On Aug. 31, 1996, the Fund's directors and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
year ended Aug. 31, 1996, no director or officer earned more than
$60,000 from any one Fund. All directors and officers as a group
earned $351,207, including $105,932 of retirement plan expense,
from these Funds.
*The Fund had a retirement plan for its independent board members.
The plan was terminated April 30, 1996.
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.
<PAGE>
PAGE 202
INDEPENDENT AUDITORS
The Funds' financial statements contained in their Annual Report,
as of and for, the year ended Aug. 31, 1996, 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 1996 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.
PROSPECTUS
The prospectus dated Oct. 30, 1996, is hereby incorporated in this
Statement of Additional Information by reference.
<PAGE>
PAGE 203
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 204
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 205
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 206
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 207
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 208
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 209
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 210
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 211
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 212
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.
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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.
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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
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PAGE 227
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 228
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>
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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 230
The board and shareholders
IDS Life Investment Series, Inc.
IDS Life Capital Resource Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
IDS Life Growth Dimensions Fund
IDS Life Special Income Fund, Inc.
IDS Life Special Income Fund
IDS Life Global Yield Fund
IDS Life Income Advantage Fund
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 Growth Dimensions
Fund, (funds within IDS Life Investment Series, Inc.), IDS Life
Special Income Fund, IDS Life Global Yield Fund, IDS Life Income
Advantage Fund, (funds within IDS Special Income Fund, Inc.), IDS
Life Moneyshare Fund, Inc. and IDS Life Managed Fund, Inc. as of
August 31, 1996, and the related statements of operations for the
year then ended (period from May 1, 1996, commencement of
operations, to August 31, 1996 for IDS Life Global Yield Fund, IDS
Life Growth Dimensions Fund and IDS Life Income Advantage Fund) and
the statements of changes in net assets for each of the years in
the two-year period ended August 31, 1996 (period from May 1, 1996,
commencement of operations, to August 31, 1996 for IDS Life Global
Yield Fund, IDS Life Growth Dimensions Fund and IDS Life Income
Advantage Fund). We have also audited the financial highlights for
each of the periods presented under the caption "financial
highlights" in the prospectus. 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
<PAGE>
PAGE 231
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements 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 Growth Dimensions Fund, IDS Life Special Income Fund, IDS Life
Global Yield Fund, IDS Life Income Advantage Fund, IDS Life
Moneyshare Fund, Inc., and IDS Life Managed Fund, Inc. at August
31, 1996 and the results of their operations, the changes in their
net assets, and the financial highlights for the periods stated in
the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 4, 1996
<PAGE>
PAGE 232
<TABLE>
<CAPTION>
Statements of assets and liabilities
Retirement Annuity Mutual Funds
Aug. 31, 1996
Capital Special Managed
Resource Income Fund
Fund Fund
Assets
<S> <C> <C> <C>
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated
issuers (identified cost, $3,835,104,082;
$1,892,810,877 and $3,101,548,672 respectively) $3,820,948,332 $1,899,362,473 $3,495,337,797
Investments in securities of affiliated issuers
(identified cost, $718,514,347 for Capital
Resource Fund) 586,155,325 -- --
Cash in bank on demand deposit 3,556,649 -- --
Receivable for investment securities sold 29,168,945 7,104,915 7,269,117
Dividends and accrued interest receivable 5,657,924 31,137,176 18,800,078
U.S. government securities held as collateral for
securities loaned (Note 5) 5,507,109 80,577,399 81,726,488
Receivable (for capital stock sold) from:
IDS Life accounts 6,028,950 3,699,449 18,319,658
IDS Life of New York accounts 352,173 184,891 1,192,629
Total assets 4,457,375,407 2,022,066,303 3,622,645,767
Liabilities
Disbursements in excess of cash on demand deposit -- 1,080,338 147,364
Dividends payable to separate accounts (Note 1) 12,755,722 5,354,016 25,728,303
Payable for investment securities purchased 32,850,675 13,829,021 23,415,132
Accrued investment management and services fee 2,174,764 961,210 1,726,152
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) 2,160 -- --
Payable upon return of securities loaned (Note 5) 36,920,831 87,150,399 89,000,988
Payable (for capital stock redeemed) to:
IDS Life accounts -- 1,500,057 --
Other accrued expenses 802,391 343,636 563,659
Open option contracts written, at value
(premium received $396,260 for Managed Fund)(Note 8) -- -- 146,875
Total liabilities 85,506,543 110,218,677 140,728,473
Net assets applicable to outstanding capital stock $4,371,868,864 $1,911,847,626 $ 3,481,917,294
Represented by
Capital stock -- authorized 10,000,000,000
shares for each Fund of $.01 par value ($.001 for
Managed Fund); outstanding, 170,998,178; 165,711,504;
and 217,610,488 shares, respectively $ 1,709,982 $ 1,657,115 $ 217,610
Additional paid-in capital 3,849,041,747 1,889,313,160 2,860,670,518
Undistributed (excess of distributions over)
net investment income (2,086,918) (2,119,837) (2,225,051)
Accumulated net realized gain (Note 1) 669,718,521 14,828,295 229,206,401
Unrealized appreciation (depreciation) of investments
and on translation of assets and liabilities in foreign
currencies (Notes 4 and 7) (146,514,468) 8,168,893 394,047,816
Total -- representing net assets applicable to outstanding
capital stock $4,371,868,864 $1,911,847,626 $ 3,481,917,294
Net asset value per share of outstanding capital stock $ 25.57 $ 11.54 $ 16.00
See accompanying notes to financial statements.
<PAGE>
PAGE 233
Statements of assets and liabilities (continued)
Retirement Annuity Mutual Funds
Aug. 31, 1996
Moneyshare International Aggressive
Fund Equity Growth
Fund Fund
Assets
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated
issuers (identified cost, $289,823,876;
$1,807,735,562 and $1,687,574,425, respectively) $289,823,876 $1,923,397,199 $1,933,326,459
Investments in securities of affiliated issuers
(identified cost, $12,266,622 for Aggressive
Growth Fund) -- -- 16,337,750
Cash in bank on demand deposit 165,948 -- 2,296,659
Receivable for investment securities sold -- 21,028,517 6,556,761
Dividends and accrued interest receivable 238,315 4,992,000 827,452
Unrealized appreciation on foreign currency contracts
held, at value (Notes 1 and 4) -- 593,005 2,927
U.S. government securities held as collateral for
securities loaned (Note 5) -- 59,000,960 --
Receivable (for capital stock sold) from:
IDS Life accounts 854,162 416,680 1,861,511
IDS Life of New York accounts 37,905 -- 189,380
Total assets 291,120,206 2,009,428,361 1,961,398,899
Liabilities
Disbursements in excess of cash on demand deposit -- 789,176 --
Dividends payable to separate accounts (Note 1) 1,140,557 -- 2,949,647
Payable for investment securities purchased -- 9,941,028 12,756,333
Accrued investment management and services fee 119,712 1,280,433 965,713
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) -- 237,387 1,371
Payable upon return of securities loaned (Note 5) -- 120,591,560 3,200,000
Payable (for capital stock redeemed) to:
IDS Life accounts 1,517,316 1,511,691 --
IDS Life of New York accounts 165,972 37,611 --
Other accrued expenses 56,792 589,082 430,953
Total liabilities 3,000,349 134,977,968 20,304,017
Net assets applicable to outstanding capital stock $288,119,857 $1,874,450,393 $ 1,941,094,882
Represented by
Capital stock -- authorized 10,000,000,000
shares for each Fund of $.01 par value;
outstanding, 288,142,905; 140,912,770;
and 120,996,059 shares, respectively $ 2,881,429 $ 1,409,128 $ 1,209,961
Additional paid-in capital 285,239,062 1,719,233,598 1,477,380,195
Excess of distributions over net investment income (714) (1,731,277) (9,476)
Accumulated net realized gain (Note 1) 80 39,462,610 212,688,492
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies (Note 4) -- 116,076,334 249,825,710
Total -- representing net assets applicable to outstanding
capital stock $288,119,857 $1,874,450,393 $ 1,941,094,882
Net asset value per share of outstanding capital stock $ 1.00 $ 13.30 $ 16.04
See accompanying notes to financial statements.
<PAGE>
PAGE 234
Statements of assets and liabilities (continued)
Retirement Annuity Mutual Funds
Aug. 31, 1996
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Assets
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated
issuers (identified cost, $20,233,203;
$176,570,345 and $47,521,218, respectively) $20,363,478 $176,378,070 $47,174,505
Cash in bank on demand deposit 200,979 69,043 92,161
Receivable for investment securities sold -- 156,228 --
Dividends and accrued interest receivable 370,383 155,874 972,889
Unrealized appreciation on foreign currency
contracts held, at value (Notes 1 and 4) 499 -- --
Receivable (for capital stock sold) from:
IDS Life accounts 14,719 4,023,395 863,997
IDS Life of New York accounts 493,826 315,490 61,598
Total assets 21,443,884 181,098,100 49,165,150
Liabilities
Dividends payable to separate accounts (Note 1) 55,712 372,537 248,752
Payable for investment securities purchased 417,862 9,744,050 --
Accrued investment management and services fee 12,144 71,760 20,632
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) 3,829 -- --
Other accrued expenses 23,386 89,210 57,614
Total liabilities 512,933 10,277,557 326,998
Net assets applicable to outstanding capital stock $20,930,951 $170,820,543 $48,838,152
Represented by
Capital stock -- authorized 10,000,000,000
shares for each Fund of $.01 par value;
outstanding, 2,076,586; 17,180,066;
and 4,998,345 shares, respectively $ 20,766 $ 171,801 $ 49,983
Additional paid-in-capital 20,775,058 171,279,025 49,201,117
Excess of distributions over net investment income -- -- (2,641)
Accumulated net realized gain (loss) (Notes 1 and 9) 6,403 (438,008) (63,594)
Unrealized appreciation (depreciation)
of investments and on translation
of assets and liabilities in foreign currencies (Note 4) 128,724 (192,275) (346,713)
Total -- representing net assets applicable to outstanding
capital stock $20,930,951 $170,820,543 $48,838,152
Net asset value per share of outstanding capital stock $ 10.08 $ 9.94 $ 9.77
See accompanying notes to financial statements.
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PAGE 235
Statements of operations
Retirement Annuity Mutual Funds
Year ended Aug. 31, 1996
Capital Special Managed
Resource Income Fund
Fund Fund
Income:
Investment income
Dividends (net of foreign taxes withheld of $404,294;
$22,791 and $621,728, respectively) $51,660,407 $ 656,439 $ 37,488,647
Dividends earned from affiliates for Capital Resource Fund 1,293,258 -- --
Interest (net of foreign taxes withheld of $266,948 for
Special Income Fund) 25,572,476 152,455,954 82,654,239
Total income 78,526,141 153,112,393 120,142,886
Expenses (Note 2):
Investment management services fee 26,046,721 11,311,856 19,987,805
Administrative services fee 1,804,056 894,104 991,587
Custodian fees and expenses 376,767 253,580 318,071
Compensation of board members and officers 101,543 41,114 91,790
Printing and postage 232,142 97,116 146,816
Audit fees 27,820 27,197 26,046
Registration fees 453,333 94,283 243,633
Other 45,979 21,467 31,544
Total expenses 29,088,361 12,740,717 21,837,292
Investment income -- net 49,437,780 140,371,676 98,305,594
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions (including
$53,981,593 realized loss on investments of affiliated
issuers for Capital Resource Fund) (Note 3) 679,436,528 38,984,702 275,660,376
Net realized gain (loss) on foreign currency transactions 25,673 (4,046,600) (43,075)
Net realized gain (loss) on closed or expired options contracts
written (Note 8) -- (105,126) 264,991
Net realized loss on closed interest rate futures contracts (Note 7) -- (1,963,506) --
Net realized gain on investments and foreign currency 679,462,201 32,869,470 275,882,292
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies (494,927,652) (49,126,958) (34,119,724)
Net gain (loss) on investments and foreign currency 184,534,549 (16,257,488) 241,762,568
Net increase in net assets resulting from operations $233,972,329 $124,114,188 $340,068,162
See accompanying notes to financial statements.
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PAGE 236
Statements of operations (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31, 1996
Moneyshare International Aggressive
Fund Equity Growth
Fund Fund
Income:
Investment income
Dividends (net of foreign taxes withheld of $0;
$6,054,323 and $111,812, respectively) $ -- $30,579,489 $ 4,969,838
Interest 14,076,718 7,178,696 17,913,461
Total income 14,076,718 37,758,185 22,883,299
Expenses (Note 2):
Investment management services fee 1,283,789 13,990,974 10,459,512
Administrative services fee 59,375 797,200 808,467
Custodian fees and expenses 20,401 1,115,809 263,639
Compensation of board members and officers 7,538 56,592 55,473
Printing and postage 6,572 51,683 82,128
Audit fees 15,688 19,000 22,539
Registration fees 16,574 193,152 114,494
Other 7,860 23,615 16,939
Total expenses 1,417,797 16,248,025 11,823,191
Investment income -- net 12,658,921 21,510,160 11,060,108
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions (including $5,434,742
realized loss on investments of affiliated issuers for
Aggressive Growth Fund) (Note 3) 325 72,152,375 243,203,290
Net realized gain (loss) on foreign currency transactions -- 17,185,787 (2,232)
Net realized gain on investments and foreign currency 325 89,338,162 243,201,058
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies -- 33,859,236 (79,505,605)
Net gain on investments and foreign currency 325 123,197,398 163,695,453
Net increase in net assets resulting from operations $12,659,246 $144,707,558 $174,755,561
See accompanying notes to financial statements.
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PAGE 237
Statements of operations (continued)
Retirement Annuity Mutual Funds
Period from May 1, 1996 to Aug. 31, 1996
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Income:
Investment income
Dividends $ -- $230,812 $ 10,739
Interest 209,083 435,825 681,448
Total income 209,083 666,637 692,187
Expenses (Note 2):
Investment management services fee 26,039 153,340 44,245
Administrative services fee 1,860 12,169 3,568
Custodian fees and expenses 11,738 65,000 40,000
Compensation of board members and officers 126 498 261
Printing and postage -- 8,000 5,000
Audit fees 12,000 10,000 11,000
Registration fees 2,683 4,076 5,083
Other 447 426 256
Total expenses 54,893 253,509 109,413
Investment income -- net 154,190 413,128 582,774
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 6,402 (438,008) (66,235)
Net realized loss on foreign currency transactions (10,111) -- --
Net realized loss on investments and foreign currency (3,709) (438,008) (66,235)
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 128,724 (192,275) (346,713)
Net gain (loss) on investments and foreign currency 125,015 (630,283) (412,948)
Net increase (decrease) in net assets resulting from operations $279,205 $(217,155) $169,826
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 238
<TABLE>
<CAPTION>
Statements of changes in net assets
Retirement Annuity Mutual Funds
Year ended Aug. 31,
Capital Resource Fund Special Income Fund
Operations and distributions 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Investment income -- net $ 49,437,780 $ 39,674,769 $140,371,676 $123,083,727
Net realized gain (loss) on investments
and foreign currency 679,462,201 383,135,166 32,869,470 (19,987,914)
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies (494,927,652) 128,698,908 (49,126,958) 94,905,201
Net increase in net assets resulting
from operations 233,972,329 551,508,843 124,114,188 198,001,014
Distributions to shareholders from:
Net investment income (47,593,459) (39,584,237) (135,814,306) (121,683,870)
Net realized gain (10,771,339) (383,078,138) -- (2,300,916)
Excess distributions of net investment
income (Note 1) (1,869,994) (52,587) -- (2,378,142)
Excess distributions of net realized
gain (Note 1) -- (977,300) -- --
Total distributions (60,234,792) (423,692,262) (135,814,306) (126,362,928)
Capital share transactions (Note 6)
Proceeds from sales 410,478,022 436,224,431 214,108,604 86,906,199
Reinvested distributions at net asset value 60,234,792 423,692,262 135,814,306 126,362,928
Payments for redemptions (117,295,599) (42,461,613) (129,574,450) (140,624,932)
Increase in net assets from capital share
transactions 353,417,215 817,455,080 220,348,460 72,644,195
Total increase in net assets 527,154,752 945,271,661 208,648,342 144,282,281
Net assets at beginning of period 3,844,714,112 2,899,442,451 1,703,199,284 1,558,917,003
Net assets at end of period $4,371,868,864 $3,844,714,112 $1,911,847,626 $1,703,199,284
Undistributed (excess of distributions over)
net investment income $ (2,086,918) $ (1,844,321) $ (2,119,837) $ 415,998
See accompanying notes to financial statements.
<PAGE>
PAGE 239
Statements of changes in net assets (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31, Managed Fund Moneyshare Fund
1996 1995 1996 1995
Operations and distributions
Investment income -- net $ 98,305,594 $79,031,286 $12,658,921 $10,161,955
Net realized gain (loss) on investments
and foreign currency 275,882,292 (49,425,540) 325 (152)
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies (34,119,724) 293,779,938 -- --
Net increase in net assets resulting
from operations 340,068,162 323,385,684 12,659,246 10,161,803
Distributions to shareholders from:
Net investment income (97,692,300) (78,601,919) (12,658,921) (10,161,955)
Net realized gain -- (198,282) -- --
Excess distributions of net investment
income (Note 1) (784,045) -- -- (126)
Total distributions (98,476,345) (78,800,201) (12,658,921) (10,162,081)
Capital share transactions (Note 6)
Proceeds from sales 203,558,285 265,867,838 247,288,271 113,426,072
Reinvested distributions at net asset value 98,476,345 78,800,201 12,658,921 10,162,081
Payments for redemptions (105,925,809) (44,391,869) (198,768,626) (75,889,680)
Increase in net assets from capital share
transactions 196,108,821 300,276,170 61,178,566 47,698,473
Total increase in net assets 437,700,638 544,861,653 61,178,891 47,698,195
Net assets at beginning of period 3,044,216,656 2,499,355,003 226,940,966 179,242,771
Net assets at end of period $3,481,917,294 $3,044,216,656 $288,119,857 $226,940,966
Excess of distributions over net
investment income $ (2,225,051) $ (613,294) $ (714) $ --
See accompanying notes to financial statements.
<PAGE>
PAGE 240
Statements of changes in net assets (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31,
International Equity Fund Aggressive Growth Fund
1996 1995 1996 1995
Operations and distributions
Investment income -- net $ 21,510,160 $ 19,548,137 $ 11,060,108 $ 7,510,039
Net realized gain (loss) on investments
and foreign currency 89,338,162 (16,979,187) 243,201,058 6,178,928
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies 33,859,236 (6,548,017) (79,505,605) 270,146,371
Net increase (decrease) in net assets resulting
from operations 144,707,558 (3,979,067) 174,755,561 283,835,338
Distributions to shareholders from:
Net investment income (15,453,784) (17,257,772) (11,052,242) (7,502,171)
Net realized gain (23,947,543) -- -- --
Excess distributions of net investment
income (Note 1) (18,917,064) -- (7,244) (7,442)
Total distributions (58,318,391) (17,257,772) (11,059,486) (7,509,613)
Capital share transactions (Note 6)
Proceeds from sales 335,601,053 360,572,294 388,624,475 383,256,895
Reinvested distributions at net asset value 58,318,391 17,257,772 11,059,486 7,509,613
Payments for redemptions (47,735,823) (26,008,343) (34,177,762) (17,849,325)
Increase in net assets from capital share
transactions 346,183,621 351,821,723 365,506,199 372,917,183
Total increase in net assets 432,572,788 330,584,884 529,202,274 649,242,908
Net assets at beginning of period 1,441,877,605 1,111,292,721 1,411,892,608 762,649,700
Net assets at end of period $1,874,450,393 $1,441,877,605 $1,941,094,882 $1,411,892,608
Excess of distributions over net
investment income $(1,731,277) $ (6,056,376) $ (9,476) $ (7,866)
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 241
<TABLE>
<CAPTION>
Statement of changes in net assets (continued)
Retirement Annuity Mutual Funds
Period from May 1, 1996 to Aug. 31, 1996
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Operations and distributions
<S> <C> <C> <C>
Investment income -- net $ 154,190 $ 413,128 $ 582,774
Net realized loss on investments
and foreign currency (3,709) (438,008) (66,235)
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies 128,724 (192,275) (346,713)
Net increase (decrease) in net assets resulting from operations 279,205 (217,155) 169,826
Distributions to shareholders from:
Net investment income (144,078) (413,128) (582,774)
Capital share transactions (Note 6)
Proceeds from sales 20,834,514 171,304,119 48,762,664
Reinvested distributions at net asset value 144,078 413,128 582,774
Payments for redemptions (182,768) (266,421) (94,338)
Increase in net assets from capital share transactions 20,795,824 171,450,826 49,251,100
Total increase in net assets 20,930,951 170,820,543 48,838,152
Net assets at beginning of period -- -- --
Net assets at end of period $20,930,951 $170,820,543 $48,838,152
Excess of distributions over net investment income $ -- $ -- $ (2,641)
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 242
1. Summary of significant accounting policies
Each Fund is registered under the Investment Company Act of 1940
(as amended) as a diversified, (non-diversified for Global Yield)
open-end management investment company.
The investment objectives of each Fund are as follows:
Capital Resource invests primarily in U.S. common stocks;
Special Income invests primarily in investment grade bonds;
Managed invests in stocks, convertible securities, bonds and
money market instruments;
Moneyshare invests in money market securities;
International Equity invests primarily in common stocks of
foreign issuers;
Aggressive Growth invests primarily in stocks of small- and
medium-sized companies;
Global Yield invests primarily in debt securities of U.S. and
foreign issuers;
Growth Dimensions invests primarily in common stocks of U.S.
and foreign companies showing potential for significant
growth;
Income Advantage invests primarily in long-term,
high-yielding, high risk debt securities below investment
grade issued by U.S. and foreign corporations; and
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:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
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 when market quotations are not readily
available. Determination of fair value involves, among other
things, references to market indexes, matrices and data from
independent brokers. Short-term securities in Capital Resource,
Special Income, Managed, International Equity, Aggressive Growth,
Global Yield, Growth Dimensions and Income Advantage Fund maturing
in more than 60 days from the valuation date are valued at the
<PAGE>
PAGE 243
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.
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.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by
Special Income and Managed Funds on a forward-commitment or
when-issued basis can take place one month or more after the
transaction date. During this period, such securities are subject
to market fluctuations and they may affect each Fund's net assets
the same as owned securities. Each Fund designates cash or liquid
high-grade debt securities at least equal to the amount of its
commitment. As of Aug. 31, 1996, each Fund had entered into
outstanding when-issued or forward commitment of $4,765,000 and
$1,786,875, respectively.
Foreign currency translations and 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 and 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.
<PAGE>
PAGE 244
Illiquid securities
At Aug. 31, 1996, investments in securities for Capital Resource
Fund, Special Income Fund, Managed Fund, Aggressive Growth Fund and
Income Advantage 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, 1996, was $28,250,000,
$21,413,174, $13,563,156, $2,915,130 and $363,125 that represents
0.65%, 1.12%, 0.39%, 0.15% and 0.75% of net assets for Capital
Resource Fund, Special Income Fund, Aggressive Growth Fund and
Income Advantage Fund, respectively. Pursuant to guidelines adopted
by the board, 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.
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 Special International Aggressive
Resource Income Managed Moneyshare Equity Growth
<S> <C> <C> <C> <C> <C> <C>
Undistributed net investment income $(216,924) $(7,093,205) $(1,441,006) $ (714) $ 17,185,787 $ (2,232)
Accumulated net realized gain (loss) 216,924 7,093,205 1,441,006 714 (17,185,787) 2,232
Additional paid-in capital reduction $ -- $ -- $ -- $ -- $ -- $ --
(increase)
</TABLE>
<PAGE>
PAGE 245
<TABLE>
<CAPTION>
Global Growth Income
Yield Dimensions Advantage
<S> <C> <C> <C>
Undistributed net investment income $ (10,112) $ -- $ (2,641)
Accumulated net realized gain (loss) 10,112 -- 2,641
Additional paid-in capital reduction $ -- $ -- $ --
(increase)
</TABLE>
Dividends
At Aug. 31, 1996, dividends declared for each Fund payable Sept. 3,
1996 are as follows:
Capital Resource $0.075
Special Income $0.032
Managed $0.119
Moneyshare $0.004
Aggressive Growth $0.024
Global Yield $0.028
Growth Dimensions $0.022
Income Advantage $0.050
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, Moneyshare, Global Yield and Income Advantage Funds and
declared and paid quarterly for Capital Resource, Managed,
International Equity, Aggressive Growth and Growth Dimensions
Funds. 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.
2. Investment management and services agreement
The Funds have entered into an agreement with IDS Life for managing
investments, record keeping 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 annually as follows:
<PAGE>
PAGE 246
Fund Percentage Range
Capital Resource 0.630% to 0.570%
Special Income 0.610% to 0.535%
Managed 0.630% to 0.550%
Moneyshare 0.510% to 0.440%
International Equity 0.870% to 0.795%
Aggressive Growth 0.650% to 0.575%
Global Yield 0.840% to 0.780%
Growth Dimensions 0.630% to 0.570%
Income Advantage 0.620% to 0.545%
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 0.35% 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 Trust 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.
The Funds have also 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 annually as
follows:
Fund Percentage Range
Capital Resource 0.050% to 0.030%
Special Income 0.050% to 0.025%
Managed 0.040% to 0.020%
Moneyshare 0.030% to 0.020%
International Equity 0.060% to 0.035%
Aggressive Growth 0.060% to 0.035%
Global Yield 0.060% to 0.040%
Growth Dimensions 0.050% to 0.030%
Income Advantage 0.050% to 0.025%
Prior to April 30, 1996, each Fund had a retirement plan for its
independent board members. The plan was terminated April 30, 1996.
The retirement plan expense for the year and the total liability
for the plan are as follows:
Fund Liability Expense
Capital Resource $68,788 $32,166
Special Income 33,310 1,957
Managed 54,003 29,799
Moneyshare 9,348 1,561
International Equity 26,377 23,851
Aggressive Growth 22,217 16,598
The liability will be paid out at some future date.
<PAGE>
PAGE 247
3. Securities transactions
For the year ended Aug. 31, 1996, cost of purchases and proceeds
from sales of securities aggregated, respectively, $1,792,551,302
and $1,730,455,563 for Moneyshare Fund. Cost of purchases and
proceeds from sales of securities (other than short-term
obligations) aggregated for each Fund are as follows:
Fund Purchases Proceeds
Capital Resource $5,216,876,015 5,213,727,372
Special Income 1,168,682,060 996,875,478
Managed 2,953,933,344 2,626,069,127
International Equity 1,128,945,972 909,271,649
Aggressive Growth 2,737,102,117 2,657,743,146
Global Yield 16,436,554 298,025
Growth Dimensions 138,616,596 2,142,434
Income Advantage 49,276,383 5,331,717
Net realized gains and losses on investment sales are determined on
an identified cost basis.
Brokerage commissions paid to brokers affiliated with IDS Life for
the year ended Aug. 31, 1996 are as follows:
Capital Resource $841,159
Managed 76,269
Aggressive Growth 245,269
Growth Dimensions 212
4. Foreign currency contracts
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 and/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.
At Aug. 31, 1996, Capital Resource Fund, Aggressive Growth Fund,
International Equity Fund and Global Yield Fund had entered into
forward foreign currency exchange contracts that obligate the Funds
to deliver currencies at a specified future date. The unrealized
appreciation and/or depreciation on these contracts is included in
the accompanying financial statements. The terms of the open
contracts are as follows:
<PAGE>
PAGE 248
<TABLE>
<CAPTION>
Capital Resource Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
<S> <C> <C> <C> <C>
09-02-96 4,033,800 629,200 $ -- $ 44
Norway Krona U.S. Dollar
09-02-96 8,077,600 1,259,272 -- 776
Norway Krona U.S. Dollar
09-03-96 3,389,826 26,208,782 -- 175
U.S. Dollar Hong Kong Dollar
09-04-96 6,069,000 945,555 -- 1,165
Norway Krona U.S. Dollar
_____ _____
$ -- $ 2,160
Aggressive Growth Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09-03-96 2,268,817 17,541,583 $ -- $ 117
U.S. Dollar Hong Kong Dollar
09-04-96 1,095,988 4,903,450 233 --
U.S. Dollar Finnish Mark
09-10-96 137,919 4,236,876 1,131 --
U.S. Dollar Belgian Francs
09-10-96 541,826 16,480,174 -- 960
U.S. Dollar Belgian Francs
09-10-96 207,881 6,325,200 -- 294
U.S. Dollar Belgian Francs
09-30-96 4,733,670 936,470 1,563 --
French Franc U.S. Dollar
______ ______
$ 2,927 $ 1,371
International Equity Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09-03-96 1,865,288 2,754,359 $ -- $ 4,172
U.S. Dollar Deutsche Mark
09-03-96 274,833 386,223 -- 332
U.S. Dollar Singapore Dollar
09-04-96 1,307,011 839,011 3,272 --
U.S. Dollar British Pound
09-04-96 212,252 298,639 -- --
U.S. Dollar Singapore Dollar
09-04-96 197,152 136,493 389 --
New Zealand Dollar U.S. Dollar
09-05-96 2,568,257 4,008,793 -- 2,055
British Pound U.S. Dollar
09-05-96 555,947,626 4,438,774 -- 6,495
Spanish Peseta U.S. Dollar
<PAGE>
PAGE 249
09-05-96 164,255 113,303 -- 90
New Zealand Dollar U.S. Dollar
09-30-96 41,289,818 8,159,076 4,270 --
French Franc U.S. Dollar
11-29-96 62,185,880 37,780,000 51,344 --
Dutch Guilder U.S. Dollar
11-29-96 272,177,550 54,490,000 533,730 --
French Franc U.S. Dollar
11-29-96 54,337,606 45,410,000 -- 224,243
Swiss Franc U.S. Dollar ________ ________
$593,005 $237,387
Global Yield Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09/03/96 417,363 2,115,740 $499 $ --
U.S. Dollar French Franc
09/17/96 301,615 32,300,000 -- 3,829
U.S. Dollar Japanese Yen
_______ ______
$499 $3,829
</TABLE>
5. Lending of portfolio securities
<TABLE>
<CAPTION>
Presented below is information regarding securities on loan at Aug. 31, 1996.
Capital Special International Aggressive
Resource Income Managed Equity Growth
<S> <C> <C> <C> <C> <C>
Value of securities on loan to brokers $35,458,995 $83,524,800 $85,649,095 $118,721,146 $3,000,000
Collateral received for securities loaned:
Cash $31,413,722 $ 6,573,000 $ 7,274,500 $ 61,590,600 $3,200,000
U.S. Government Securities, at value 5,507,109 80,577,399 81,726,488 59,000,960 --
Total collateral received for securities
loaned $36,920,831 $87,150,399 $89,000,988 $120,591,560 $3,200,000
</TABLE>
Income from securities lending amounted to $672,786, $327,354,
$217,534, $421,694 and $54,130 for Capital Resource, Special
Income, Managed, International Equity and Aggressive Growth,
respectively, for the year ended Aug. 31, 1996.
The risks to each Fund of securities lending are that the borrower
may not provide additional collateral when required or return the
securities when due.
<PAGE>
PAGE 250
6. Capital share transactions
Transactions in shares of each Fund for the years ended Aug. 31,
1996 and 1995 are as follows:
<TABLE><CAPTION>
Year ended Aug. 31, 1996
Capital Special International Aggressive
Resource Income Managed Moneyshare Equity Growth
<S> <C> <C> <C> <C> <C> <C>
Sold 15,763,681 18,199,129 13,012,081 247,309,082 25,280,136 24,647,795
Issued for reinvested
distributions 2,332,581 11,583,367 6,196,744 12,659,993 4,329,590 675,192
Redeemed (4,539,063) (11,162,609) (6,655,268) (198,785,551) (3,581,859) (2,123,509)
Net increase 13,557,199 18,619,887 12,553,557 61,183,524 26,027,867 23,199,478
Year ended Aug. 31, 1996
Global Growth Income
Yield * Dimensions * Advantage *
Sold 2,080,476 17,165,340 4,948,431
Issued for reinvested
distributions 14,337 41,469 59,529
Redeemed (18,227) (26,743) (9,615)
Net increase 2,076,586 17,180,066 4,998,345
* Inception date was May 1, 1996.
</TABLE>
<TABLE><CAPTION>
Year ended Aug. 31, 1995
Capital Special International Aggressive
Resource Income Managed Moneyshare Equity Growth
<S> <C> <C> <C> <C> <C> <C>
Sold 18,048,365 7,654,880 19,490,950 113,435,448 29,602,833 32,035,435
Issued for reinvested 17,356,230 11,415,969 5,727,716 10,162,908 1,338,365 638,223
distributions
Redeemed (1,723,811) (13,019,320) (3,226,704) (75,896,018) (2,106,010) (1,448,445)
Net increase 33,680,784 6,051,529 21,991,962 47,702,338 28,835,188 31,225,213
</TABLE>
7. Interest rate futures contracts
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.
At Aug. 31, 1996, investments in securities for Special Income Fund
included securities valued at $4,184,620 that were pledged as
collateral to cover initial margin deposits on 900 open sales
contracts. The market value of the open contracts at Aug. 31, 1996
was $96,103,125 with a net unrealized gain of $1,622,906.
<PAGE>
PAGE 251
8. Options contracts written
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.
The number of contracts and premium amounts associated with option
contracts written by Managed Fund during the year ended Aug. 31,
1996 is as follows:
Calls
Contracts Premuim
Balance Aug. 31, 1995 -- $ --
Opened 7,100 719,249
Closed or expired (4,000) (264,991)
Exercised (800) (57,998)
Balance Aug. 31, 1996 2,300 $ 396,260
9. Capital loss carryover
For federal income tax purposes, Growth Dimensions and Income
Advantage Fund, had capital loss carryovers at Aug. 31, 1996 of
$428,324 and $63,594 , respectively, which, if not offset by
subsequent capital gains, will expire in 2004. It is unlikely the
board will authorize a distribution of any net realized gain for a
Fund until its capital loss carryover has been offset or expires.
10. Financial highlights
"Financial highlights" showing per share data and selected
information are presented on pages 5 - 13 of the prospectus.
<PAGE>
PAGE 252
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Capital Resource Fund
Investments in securities of unaffiliated issuers
Common stocks (73.9%)
Issuer Shares Value(a)
__________________________________________________________________________________
<S> <C> <C>
Automotive & related (0.7%)
General Motors 575,000 $ 28,606,250
__________________________________________________________________________________
Banks and savings & loans (6.0%)
Associates First Capital Cl A 500,000 19,750,000
First Chicago 700,000 29,837,500
Great Western Financial 1,000,000 24,750,000
Mellon Bank 500,000 27,687,500
Norwest 700,000 26,337,500
SouthTrust 1,000,000 29,500,000
State Street Boston 1,900,000 102,837,500
Total 260,700,000
__________________________________________________________________________________
Building materials & construction (0.5%)
Weyerhaeuser 500,000 22,312,500
__________________________________________________________________________________
Chemicals (0.8%)
Betz Laboratories 230,100 11,303,662
Safety-Kleen 1,250,000 21,562,500
Total 32,866,162
__________________________________________________________________________________
Communications equipment & services (0.3%)
Brightpoint 350,000(b) 7,656,250
Geotek Communication 500,000(b) 4,562,500
Total 12,218,750
__________________________________________________________________________________
Computers & office equipment (5.0%)
BISYS Group 500,000(b) 17,937,500
Ceridian 500,000(b) 21,312,500
Checkfree 1,600,000(b) 26,600,000
Cylink 501,000(b) 7,295,813
Fiserv 1,150,000(b) 38,956,250
Hadco 187,500(b) 4,851,563
Infoseek 495,000(b) 3,155,625
Intuit 255,000(b) 9,307,500
Natl Processing 300,000(b) 5,137,500
Netscape Communications 125,000(b) 4,421,875
Network General 600,000(b) 10,200,000
Open Market 775,000(b) 10,850,000
Policy Mgmt Systems 347,100(b) 12,235,275
Solectron 371,200(b) 13,873,600
Sterling Commerce 500,000(b) 15,500,000
See accompanying notes to investments in securities
Wallace Computer Services 700,000 18,987,500
Total 220,622,501
__________________________________________________________________________________
Electronics (4.2%)
Microchip Technology 1,350,000(b) 49,612,500
Molex 160,300 5,269,863
Natl Semiconductor 1,600,000(b) 29,400,000
SCI Systems 550,000(b) 24,543,750
Sensormatic Electronics 3,200,000 58,800,000
Symbol Technologies 400,000(b) 17,800,000
Total 185,426,113
___________________________________________________________________________________
Financial services (0.8%)
AMRESCO 300,000 7,162,500
Insurance Auto Auctions 145,000(b) 1,286,875
MGIC Investment 400,000 25,350,000
Total 33,799,375
__________________________________________________________________________________
Health care (8.9%)
Abbott Laboratories 1,000,000 45,125,000
<PAGE>
PAGE 253
ALZA 2,850,000(b) 78,018,750
Baxter Intl 925,000 41,278,125
Diagnostic Products 275,600 10,231,650
Forest Labs 1,500,000(b) 61,687,500
Gilead Sciences 1,100,000(b) 26,675,000
STERIS 1,100,000(b) 33,825,000
U.S. Surgical 1,500,000 54,750,000
Watson Pharmaceuticals 1,300,000(b) 37,700,000
Total 389,291,025
__________________________________________________________________________________
Health care services (3.2%)
Gulf South Medical Supply 285,000(b) 6,198,750
Humana 1,600,000(b) 30,000,000
Tenet Healthcare 1,600,000(b) 33,600,000
United Healthcare 1,825,000 70,490,625
Total 140,289,375
__________________________________________________________________________________
Household products (0.4%)
Rubbermaid 700,000 18,550,000
__________________________________________________________________________________
Industrial equipment & services (4.7%)
AGCO 1,000,000 23,625,000
Barnett 350,000(b) 8,487,500
Fisher Scientific Intl 561,800 22,331,550
General Signal 2,000,000 80,250,000
Greenfield Inds 500,000 14,500,000
Illinois Tool Works 500,000 34,562,500
Superior Services 350,000(b) 5,687,500
USA Waste Services 500,000(b) 13,750,000
Total 203,194,050
__________________________________________________________________________________
Insurance (1.1%)
ACE 675,000 31,471,875
Everest Reinsurance Holdings 300,000 7,312,500
Reliance Group Holdings 500,000 3,937,500
Terra Nova Holdings 300,000 5,475,000
Total 48,196,875
__________________________________________________________________________________
Leisure time & entertainment (2.8%)
Carnival Cl A 1,525,000 43,081,250
Gaylord Entertainment Cl A 850,000 20,825,000
GTECH Holdings 1,125,000(b) 31,218,750
Harrah's Entertainment 1,000,000(b) 19,000,000
WMS Inds 400,000(b) 9,250,000
Total 123,375,000
__________________________________________________________________________________
Media (4.4%)
Deluxe 500,000 19,125,000
Digital Generation Systems 460,000(b) 3,737,500
Marvel Entertainment Group 438,400(b) 3,781,200
Reed Intl 600,000(f) 21,750,000
Time Warner 4,300,000 143,512,500
Total 191,906,200
__________________________________________________________________________________
Metals (0.2%)
Stillwater Mining 470,000(b) 9,635,000
__________________________________________________________________________________
Multi-industry conglomerates (2.7%)
Data Processing Resources 350,000(b) 6,475,000
Emerson Electric 500,000 41,875,000
Westinghouse Electric 4,300,000 70,412,500
Total 118,762,500
__________________________________________________________________________________
Paper & packaging (5.7%)
Champion Intl 1,110,000 47,730,000
Crown Cork & Seal 800,000 37,400,000
Fort Howard 650,000(b) 15,356,250
Intl Paper 600,000 24,000,000
James River 700,000 18,200,000
Kimberly-Clark 620,000 48,592,500
Stone Container 4,000,000 55,500,000
<PAGE>
PAGE 254
Total 246,778,750
__________________________________________________________________________________
Restaurants & lodging (0.5%)
Brinker Intl 1,500,000(b) 22,500,000
__________________________________________________________________________________
Retail (4.0%)
Arbor Drugs 730,000 15,147,500
Federated Department Stores 1,000,000(b) 34,625,000
Food Lion Cl A 3,500,000 30,187,500
General Nutrition 1,000,000(b) 14,750,000
Home Shopping Network 2,352,000(b) 25,284,000
K mart 4,200,000 42,000,000
Walgreen 420,000 13,860,000
Total 175,854,000
__________________________________________________________________________________
Textiles & apparel (0.4%)
Payless ShoeSource 500,000(b) 17,562,500
__________________________________________________________________________________
Utilities -- telephone (0.2%)
Nextel Communcations 627,900(b) 10,281,862
__________________________________________________________________________________
Foreign (12.1%) (h)
Amway Asia Pacific 1,500,000 45,937,500
Amway Japan ADR 488,047(f) 9,943,958
BAT Inds ADR 950,000(f) 12,587,500
CPT Telefonica del Peru-B 1,000,000 23,375,000
Daimler-Benz Aktieng 500,000(b) 27,250,000
Elsag Bailey Process Auto 1,100,000(b) 26,537,500
Grupo Casa Autrey ADR 1,000,000 23,750,000
Grupo Televisa 600,000(b) 18,225,000
Hafslund Nycomed 450,000 2,842,965
Mid Ocean 450,000 18,618,750
Moore 704,200 12,323,500
News Corp ADR 1,200,000 25,500,000
Reuters Holdings ADR 500,000(f) 34,937,500
Sandoz 29,000 34,507,124
Schibsted Group 740,000(e) 10,735,428
SGS - Thomson Microelectronics 1,600,000(b) 65,400,000
SmithKline Beecham ADR 500,000 29,125,000
Sony ADR 800,000 50,600,000
Swire Pacific Cl A 2,254,000 20,041,709
Tamro 1,400,000 9,170,476
Volkswagen 80,000 29,730,734
Total 531,139,644
__________________________________________________________________________________
Total common stocks
(Cost: $2,971,009,560) $3,043,868,432
__________________________________________________________________________________
Bonds (3.0%)
Issuer Principal Value(a)
amount
__________________________________________________________________________________
Computers & office equipment (1.2%)
Apple Computer
6% Cv 2001 50,000,000(e) $51,875,000
__________________________________________________________________________________
Electronics (0.6%)
SCI Systems
5% Cv 2006 25,000,000(e,i) 28,250,000
__________________________________________________________________________________
Retail (0.1%)
Home Shopping 4,000,000(e) 4,200,000
5.875% Cv 2006
__________________________________________________________________________________
Foreign (1.1%) (h)
Cemex(U.S. Dollar)
4.25% Cv 1997 25,000,000(e) 23,750,000
Rogers Communication(U.S. Dollar)
Zero Coupon Cv with attached put
5.50% 2013 65,000,000(g) 23,806,250
Total 47,556,250
__________________________________________________________________________________
Total bonds
(Cost: $128,212,712) $131,881,250
__________________________________________________________________________________
<PAGE>
PAGE 255
Preferred stocks & other (1.0%)
Issuer Shares Value(a)
__________________________________________________________________________________
AJL Peps Trust
$7.50 Cv 1,040,000(h) $19,630,000
Browning Ferris Inds
$7.25 Cv 826,600(b) 24,384,700
Viacom
Warrants 350,000 87,500
__________________________________________________________________________________
Total preferred stocks & other
(Cost: $48,521,544) $44,102,200
__________________________________________________________________________________
</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 (--%)
Federal Home Loan Mtge Corp Disc Nt
09-09-96 5.23% $ 400,000 $ 399,478
_____________________________________________________________________________________________________
Commercial paper (9.5%)
ABN AMRO North American Finance
10-11-96 5.52 15,000,000 14,903,545
American General Finance
09-17-96 5.41 5,900,000 5,884,355
10-07-96 5.36 10,000,000 9,941,485
Ameritech
09-17-96 5.43 4,400,000(c) 4,387,562
AVCO Financial Services
10-17-96 5.50 7,200,000 7,147,880
10-31-96 5.50 6,000,000 5,942,250
11-15-96 5.37 5,000,000 4,940,417
Beneficial
09-16-96 7.21 10,000,000 9,968,092
CAFCO
09-11-96 5.44 3,500,000 3,493,221
Cargill
09-23-96 5.47 11,500,000 11,457,150
10-01-96 5.36 12,300,000 12,243,652
10-23-96 5.50 5,000,000(c) 4,959,213
Chevron
09-16-96 5.45 5,000,000(c) 4,986,705
Ciesco LP
09-13-96 5.45 8,800,000 8,780,444
10-01-96 5.43 9,800,000 9,750,255
10-01-96 5.46 4,400,000 4,377,665
CPC Intl
09-20-96 5.40 5,900,000(c) 5,882,431
09-24-96 5.37 8,000,000(c) 7,969,523
09-26-96 5.45 5,000,000(c) 4,979,147
10-22-96 5.49 4,600,000(c) 4,563,049
Dean Witter
09-04-96 5.32 3,800,000 3,797,766
Deutsche Financial
10-16-96 5.32 18,400,000 18,271,578
Fleet Funding
09-13-96 5.34 5,400,000(c) 5,389,645
Gannett
10-15-96 5.52 9,600,000(c) 9,531,578
Goldman Sachs
09-09-96 5.50 1,600,000 1,597,524
09-10-96 5.47 10,000,000 9,983,209
Household Finance
09-19-96 5.44 10,000,000 9,967,465
Krediet Bank North America Finance
10-29-96 5.50 4,500,000 4,458,761
MetLife Funding
09-09-96 5.37 3,600,000 3,595,194
09-23-96 5.33 3,500,000 3,488,149
<PAGE>
PAGE 256
Mobil Australia Finance
09-18-96 5.45 9,000,000(c) 8,973,821
09-18-96 5.48 8,000,000(c) 7,976,730
10-02-96 5.49 8,000,000(c) 7,959,948
10-09-96 5.37 2,700,000(c) 2,683,734
Morgan Stanley
09-05-96 5.37 4,800,000 4,796,440
Natl Australia Funding
10-02-96 5.43 8,000,000 7,959,948
10-21-96 5.32 5,900,000 5,853,433
Northern States Power
10-07-96 5.37 6,500,000 6,462,645
Penney (JC) Funding
09-17-96 5.43 8,500,000 8,477,107
Pitney Bowes
10-08-96 5.52 9,200,000 9,145,501
10-09-96 5.49 4,700,000 4,658,145
10-17-96 5.51 6,040,000 5,996,277
12-06-96 5.53 6,100,000 6,007,673
Reed Elsevier
10-10-96 5.32 7,500,000(c) 7,456,000
SAFECO
09-20-96 5.40 3,500,000 3,489,578
09-23-96 5.40 6,000,000 5,977,771
09-25-96 5.41 8,000,000 7,967,513
10-02-96 5.44 1,900,000 1,890,223
Sandoz
09-11-96 5.41 2,600,000(c) 2,595,198
Siemens
09-12-96 5.31 10,800,000 10,780,956
Southwest Bell Capital
09-10-96 5.37 9,500,000 9,485,908
10-25-96 5.48 8,300,000(c) 8,228,665
Toyota Motor
10-04-96 5.32 11,000,000 10,945,147
Transamerica Financial
09-23-96 5.40 5,000,000 4,981,476
USAA Capital
09-19-96 5.41 7,700,000 7,675,036
U S WEST Communications
09-03-96 5.37 1,500,000 1,499,331
09-17-96 5.44 4,400,000 4,386,645
09-18-96 5.43 6,600,000 6,578,873
09-23-96 5.41 7,200,000 7,172,042
09-24-96 5.40 4,300,000 4,284,635
10-24-96 5.49 6,500,000 6,446,038
Total 415,431,347
______________________________________________________________________________________________________
Total short-term securities
(Cost: $415,937,255) $ 415,830,825
______________________________________________________________________________________________________
Total investments in securities of unaffiliated issuers
(Cost: $3,563,681,071) $3,635,682,707
____________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Investments in securities of affiliated issuers (d)
Common stocks (17.7%)
Issuer Shares Value(a)
__________________________________________________________________________________
<S> <C> <C>
Apple Computer 10,750,000 $ 260,687,500
Arbour Health Care 400,000(b) 8,600,000
Coram Healthcare 4,036,400(b) 15,641,050
Fulcrum 775,000(b,h) 9,493,750
Giddings & Lewis 2,100,000 27,300,000
Highlands Insurance Group 600,000(b) 11,400,000
New England Business Services 899,900 13,948,450
Novell 17,750,000(b) 185,265,625
Owens & Minor 3,000,000 31,500,000
PacifiCare Health Systems Cl B 942,500(b) 75,871,250
Primadonna Resorts 1,600,000(b) 32,400,000
Quality Food Centers 920,000(b) 28,750,000
Secure Computing 558,000(b) 7,393,500
Station Casinos 1,800,000(b) 20,925,000
Tootsie Roll Inds 1,194,200 42,244,825
<PAGE>
PAGE 257
_____________________________________________________________________________________________________
Total investments in securities of affiliated issuers
(Cost: $989,937,358) $ 771,420,950
_____________________________________________________________________________________________________
Total investments in securities
(Cost: $4,553,618,429)(j) $4,407,103,657
_____________________________________________________________________________________________________
Notes to investments in securities
(a)Securities are valued by procedures described in Note 1 to the financial statements.
(b)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." This security has been determined to be liquid under guidelines established by
the board.
(d)Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with
companies that are or were affiliates during the year ended Aug. 31, 1996 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Beginning Purchase Sales Ending Dividend
Affiliates cost cost cost cost income
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Apple Computer* $ 91,139,645 $259,980,045 $ -- $ 351,119,690 $ 501,000
Arbour Health Care* -- 10,510,400 -- 10,510,400 --
Bolle America* 2,824,375 698,730 3,523,105 -- --
Career Horizons* 9,467,323 -- 9,467,323 -- --
CIBER* 2,828,450 2,171,250 4,999,700 -- --
Community Pysch Centers* 33,918,844 18,155,811 52,074,655 -- --
Coram Healthcare* 52,219,037 837,481 -- 53,056,518 --
DAKA Intl* 6,397,825 -- 6,397,825 -- --
Envoy* 4,268,172 2,836,950 7,105,122 -- --
FPA Medical Mgmt* 3,933,025 1,350,000 5,283,025 -- --
Fulcrum* 780,070 13,673,745 2,104,308 -- --
Giddings & Lewis* 22,096,410 13,685,570 -- 12,349,507 --
Grupo & Casa Autrey ADR* 17,078,410 7,527,859 10,037,950 35,781,980 115,800
HCC Insurance* 10,264,148 -- 10,264,148 14,568,319 155,700
Health Mgmt* 9,692,225 -- 9,692,225 -- --
Highlands Insurance* -- 11,771,851 -- 11,771,851 --
Ins Auto* 23,503,773 310,000 21,874,213 1,939,560 --
NBTY* 14,207,505 -- 14,207,505 -- --
New England Bus Service* -- 16,439,262 -- 16,439,262 329,980
Norton McNaughton* 13,604,115 1,411,400 15,015,515 -- --
Novell* 73,399,475 198,023,536 -- 271,423,011 --
Owens & Minor* 26,235,901 10,753,790 -- 36,989,691 46,125
Pacificare* -- 69,745,990 -- 69,745,990 --
PMT Services* 4,691,250 -- 4,691,250 -- --
Primadonna* 19,977,242 16,435,403 7,383,110 29,029,535 --
Quality Food Centers* 17,947,178 5,986,850 4,772,500 19,161,528 --
Quality Systems* -- 6,188,620 6,188,620 -- --
Regency Health Services* 13,455,442 3,685,859 17,141,301 -- --
Renaissance Solutions* 4,869,644 -- 4,869,644 -- --
Rogers Comm B* 22,102,065 21,503,369 43,605,434 -- --
Romac* 1,010,305 4,781,259 5,791,564 -- --
Secure Computing* -- 24,235,270 7,784,522 16,450,748 --
Simware* -- 5,078,150 5,078,150 -- --
Spiegal Cl A* 10,264,425 5,537,850 15,802,275 -- 63,750
Station Casinos* 4,816,252 20,021,628 -- 24,837,880 --
SysteMed* 8,779,150 3,424,450 12,203,600 -- --
Tootsie Roll* 17,835,470 13,434,300 -- 31,269,770 80,903
Ventritex* 17,386,524 -- 17,386,524 -- --
__________________________________________________________________________________________________________
Total $560,993,675 $770,196,678 $324,745,113 $1,006,445,240 $1,293,258
_________________________________________________________________________________________________________
(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.
(f)Security is partially or fully on loan. See Note 5 to the financial statements.
(g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the
date of acquisition.
(h)Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated
in the currency indicated.
<PAGE>
PAGE 258
(i)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, 1996 is as follows:
Security Acquisition Purchase
date cost
________________________________________________________________________________________________________________
SCI Systems 04-17-96 $25,000,000
(j)At Aug. 31, 1996, the cost of securities for federal income tax purposes was $4,557,563,684 and the
aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . .$251,736,133
Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . .. (402,196,160)
________________________________________________________________________________________________________________
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . $(150,460,027)
________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 259
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentage represent value of
Aug. 31, 1996 investments compared to total net assets)
International Equity Fund
Common stocks (88.3%)
Issuer Shares Value(a)
<S> <C> <C>
Australia (3.9%)
Banks and savings & loans (0.9%)
Westpac Banking 3,488,000 (c) $17,121,528
Energy (0.4%)
Broken Hill Proprietary 531,568 (c) 7,235,464
Metals (2.3%)
CRA 654,905 (c) 9,949,611
MIM Holdings 5,095,000 6,524,295
Pasminco 9,403,382 13,899,524
WMC Limited 1,947,000 (c) 13,543,254
Total 43,916,684
Paper & packaging (0.3%)
Amcor 925,000 (c) 5,659,227
Austria (0.9%)
Energy (0.5%)
OMV 96,430 9,630,499
Machinery (0.4%)
Boehler-Uddeholm 107,600 (b,d) 8,390,186
Brazil (0.4%)
Communications equipment & services
Telebras ADR 110,000 8,181,250
Canada (0.9%)
Aerospace & defense (0.5%)
Bombardier Cl B 600,800 8,472,788
Communications equipment & services (0.4%)
BCE Mobile 250,300 (b) 7,407,218
Chile (0.1%)
Utilities -- electric
Empresa Nacional de Electric ADR 84,100 1,650,462
France (6.5%)
Automotive & related (0.6%)
Peugeot 100,300 (b) 11,489,458
Banks and savings & loans (1.9%)
See accompanying notes to investments in securities.
Banque Nationale de Paris 341,000 12,284,283
Credit Commercial de France 522,000 23,990,401
Total 36,274,684
Building materials & construction (1.0%)
Lafarge-Coppee (Bearer) 319,280 17,656,327
Lafarge-Coppee Bonus Shares 10,971 606,701
Total 18,263,028
Energy (0.9%)
Societe Nationale Elf Aquitaine 119,084 8,673,911
Total Petroleum Cl B 112,500 8,276,552
Total 16,950,463
Insurance (0.2%)
Union des Assurances Federales 33,000 3,786,698
Leisure time & entertainment (0.8%)
Accor 116,500 14,104,478
<PAGE>
PAGE 260
Multi-industry conglomerates (1.0%)
Lyonnaise des Eaux Dumez 207,000 18,143,80
Retail (0.1%)
Casino Guichard Perrachon 59,366 2,343,803
Germany (5.4%)
Automotive & related (0.9%)
Daimler-Benz 304,000 16,545,964
Chemicals (2.4%)
Bayer 446,010 (c) 15,861,008
Henkel KGaA 45,660 1,928,275
Henkel KGaA Pfd 410,940 16,896,313
Hoechst 302,000 (c) 10,590,763
Total 45,276,359
Leisure time & entertainment (0.2%)
Adidas (Bearer) 41,400 3,559,681
Utilities -- electric (0.4%)
RWE 206,000 (c) 7,502,551
Miscellaneous (1.5%)
Degussa 38,506 13,607,648
SGL Carbon 123,400 (d) 15,058,644
Total 28,666,292
Hong Kong (3.7%)
Banks and savings & loans (0.9%)
HSBC Holdings 1,022,800 17,659,570
Multi-industry conglomerates (1.4%)
Citic Pacific 1,340,000 5,892,394
Hutchison Whampoa 1,449,000 8,770,459
Swire Pacific Cl A 1,200,000 10,669,943
Total 25,332,796
Real estate (1.4%)
Cheung Kong Holdings 1,187,000 8,328,342
Henderson Land 1,024,000 8,012,415
Sun Hung Kai Properties 941,000 9,188,502
Total 25,529,259
Indonesia (0.1%)
Multi-industry conglomerates
India Fund 350,000 (b) 2,756,250
Italy (2.6%)
Communications equipment & services (1.1%)
Stet Risp 4,095,500 9,883,863
Telecom Italia 5,256,000 10,318,164
Total 20,202,027
Energy (1.0%)
Ente Nazionale Idrocarburi Spa 4,457,297 (c) 19,477,710
Insurance (0.5%)
INA 5,993,800 (c) 8,552,080
Japan (27.5%)
Banks and savings & loans (1.4%)
Sanwa Bank 977,000 (c) 17,263,390
Sumitomo Trust & Banking 700,000 8,310,325
Total 25,573,715
Building materials & construction (1.8%)
Nihon Cement 2,300,000 15,070,863
Taisei 2,900,000 18,388,549
Total 33,459,412
<PAGE>
PAGE 261
Communications equipment & services (1.0%)
Nippon Telegraph & Telecommunications 2,600 18,448,371
Electronics (7.0%)
Matsushita Electric 1,750,000 29,472,667
NEC 2,400,000 25,621,202
Omron 640,000 11,720,964
Rohm 270,000 16,176,146
Sanyo Electric 3,800,000 19,584,022
TDK 500,000 28,805,448
Total 131,380,449
Health care (1.4%)
Banyu Pharmaceuticals 600,000 7,840,972
Sankyo Pharmaceuticals 770,000 19,133,076
Total 26,974,048
Industrial equipment & services (3.4%)
DAI Nippon Printing 900,000 15,819,988
Kawasaki Heavy Inds 1,400,000 6,442,113
Mitsubishi Heavy Inds 2,800,000 22,135,098
Secom 310,000 19,827,903
Total 64,225,102
Insurance (0.9%)
Tokio Marine & Fire 1,500,000 17,117,614
Metals (1.4%)
Nippon Steel 8,436,000 26,707,009
Real estate (1.2%)
Mitsui Fudosan 1,800,000 22,197,679
Retail (1.0%)
Ito-Yokado 117,000 6,169,796
Marui 654,000 12,819,989
Total 18,989,785
Textiles & apparel (0.6%)
Onward Kashiyama 800,000 11,043,622
Transportation (1.6%)
Japan Airlines 1,985,000 (b) 14,797,073
Nippon Express 1,810,000 15,941,191
Total 30,738,264
Wire & cable (3.3%)
Nippon Denso 1,500,000 (b) 30,922,141
NTN 2,500,000 15,990,242
Sumitomo Electric Inds 1,025,000 13,583,655
Total 60,496,038
Miscellaneous (1.5%)
Itochu 2,600,000 15,768,451
Mitsubishi Material 2,505,000 12,103,118
Total 27,871,569
Korea (0.5%)
Electronics (0.2%)
Samsung Electronics 52,400 4,080,708
Utilities -- electric (0.3%)
Korea Electric Power ADR 300,000 (c) 6,375,000
Malaysia (1.7%)
Banks and savings & loans (0.2%)
Malayan Banking 471,000 4,477,617
Building materials & construction (0.4%)
United Engineers 945,000 6,709,386
<PAGE>
PAGE 262
Leisure time & entertainment (0.4%)
Resorts World 1,444,000 7,877,416
Multi-industry conglomerates (0.5%)
Sime Darby 2,818,000 9,551,583
Utilities -- telephone (0.2%)
Telekom Malaysia 496,000 4,377,056
Mexico (0.6%)
Banks and savings & loans (0.3%)
Banamex Series B 642,800 5,454,158
Building materials & construction (0.3%)
Empresas ICA Sociedad Controladora ADR 404,890 (c) 6,073,350
Netherlands (3.2%)
Chemicals (1.0%)
Akzo Nobel 152,621 17,744,916
Financial services (1.0%)
Ing Groep 567,637 17,688,405
Textiles & apparel (1.0%)
Gucci 289,944 (b) 19,643,002
Transportation (0.2%)
KLM Royal Dutch Airlines 160,700 4,426,490
New Zealand (0.5%)
Paper & packaging
Carter Holt Harvey 3,851,000 8,640,242
Fletcher Challenge Forest 230,203 317,841
Total 8,958,083
Norway (--%)
Industrial transportation
First Olsen Tankers 98,420 (b) 813,699
Peru (0.4%)
Communications equipment & services
Telefonica Del Peru ADR 350,000 8,181,250
Philippines (0.7%)
Financial services (0.3%)
Philippine Commercial Intl Bank 441,000 6,144,875
Utilities -- telephone (0.4%)
Philippines Long Distance Telephone ADR 131,900 (c) 7,897,513
Singapore (5.0%)
Automotive & related (0.7%)
Cycle & Carriage 1,306,000 12,530,916
Banks and savings & loan (1.1%)
Development Bank Singapore 539,500 (b) 6,326,759
Overseas Union Bank 1,978,000 13,777,114
Total 20,103,873
Beverages & tobacco (0.6%)
Fraser & Neave 1,099,000 11,091,542
Industrial equipment & services (0.3%)
Sembawang Shipyard 1,243,000 5,742,359
Industrial transportation (0.7%)
Keppel 1,647,000 12,525,158
Mutli-industry conglomerates (0.5%)
Straits Steamship 2,815,000 9,643,424
Real estate (1.1%)
City Developments 968,000 8,049,467
DBS Land 3,967,000 13,195,139
Total 21,244,606
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PAGE 263
Spain (1.6%)
Communications equipment & services (1.0%)
Telefonica 984,017 18,293,204
Energy (0.6%)
Repsol 364,000 11,831,128
Sweden (2.6%)
Industrial equipment & services (1.8%)
Asea B Free Shares 130,000 13,892,830
Ericsson (LM) B Free 825,000 19,239,622
Total 33,132,452
Machinery (0.8%)
Scania Cl A 302,373 (b) 8,032,852
Scania Cl B 294,220 (b) 7,838,465
Total 15,871,317
Switzerland (3.8%)
Banks and savings & loans (0.6%)
Swiss Bank 52,444 (b) 10,214,803
Financial services (1.0%)
CS Holdings 188,892 19,595,912
Health care (2.2%)
Sandoz 35,400 42,122,490
Taiwan (0.4%)
Multi-industry conglomerates
Taiwan Fund 322,800 (c) 7,585,800
Thailand (1.5%)
Banks and savings & loans (0.8%)
First Bangkok City Bank 4,332,500 6,634,435
Siam Commercial Bank616,0007,741,079
Total 14,375,514
Building materials & construction (0.4%)
TPI Polene 2,265,585 6,401,475
Financial services (0.3%)
Dhana Siam Finance 1,006,400 4,812,266
United Kingdom (13.8%)
Banks and savings & loans (1.3%)
Lloyds TSB 3,092,300 18,109,662
Natl Westminster 593,407 6,139,543
Total 24,249,205
Beverages & tobacco (0.2%)
Guinness 412 3,139,522
Building materials & construction (1.1%)
Redland 3,116,100 21,339,215
Electronics (0.8%)
Pemier Farnell 1,423,300 14,603,579
Energy (1.1%)
Shell Transport & Trading 1,394,200 20,270,864
Furniture & appliances (0.8%)
Emi Group 536,500 12,073,445
Thorn 536,500 3,259,243
Total 15,332,688
Health care (1.5%)
Glaxo Wellcome 1,593,600 22,846,490
Smith & Nephew 1,490,100 4,520,369
Total 27,366,859
<PAGE>
PAGE 264
Insurance (0.3%)
Sun Life 1,420,200 4,812,899
Leisure time & entertainment (1.3%)
Granada Group 1,795,800 24,441,219
Machinery (1.4%)
Siebe 1,853,400 26,527,672
Multi-industry conglomerates (0.1%)
Framlington Maghreb Fund Units 50,000 (b) 2,625,000
Paper & packaging (0.3%)
Smurfit Group 1,724,727 4,713,634
Retail (2.2%)
Great Universal Stores 1,969,700 20,040,659
Kingfisher 1,216,300 12,441,693
Next 927,812 8,411,234
Total 40,893,586
Transportation (1.4%)
British Airways 1,352,300 11,097,962
NFC 5,180,595 15,291,106
Total 26,389,068
Total common stocks
(Cost: $1,539,778,201) $1,655,602,691
Other (0.2%)
Issuer Shares Value (a)
Singapore
Keppel Warrants 1,233,000 $ 4,223,923
Total other
(Cost: $5,015,287) $ 4,223,923
Bond (0.4%)
Issuer and Principal Value (a)
coupon rate amount
Malaysia
Renong
(U.S. Dollar)
2.50% Cv 2005 $6,000,000 (d) $6,645,000
Total bond
(Cost $6,003,288) $6,645,000
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (13.7%)
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
09-12-96 5.24% $ 3,500,000 3,493,910
09-18-96 5.19 2,500,000 2,493,537
____________
Total 5,987,447
Commercial paper (13.4%)
Alabama Power
10-29-96 5.35 2,200,000 2,180,855
Avco Financial Services
10-22-96 5.49 1,300,000 1,289,557
BBV Finance
10-15-96 5.33 12,000,000 11,920,500
BellSouth Telephone
10-08-96 5.32 1,000,000 994,427
<PAGE>
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CAFCO
09-19-96 5.42 2,900,000 (e) 2,890,655
Cargill Global
10-23-96 5.48 6,000,000 (e) 5,951,056
Ciesco LP
09-25-96 5.27 9,000,000 8,967,187
11-06-96 5.39 7,400,000 7,321,992
Colgate Palmolive
09-26-96 5.28 5,900,000 (e) 5,877,587
Commerzbank US Finance
09-10-96 5.30 4,800,000 4,792,960
Dean Witter
10-03-96 5.32 8,000,000 7,961,280
First Chicago Natl Bank Detroit Canada
09-09-96 5.32 4,700,000 4,693,773
Fleet Funding
09-10-96 5.32 2,100,000 (e) 2,096,908
Ford Motor Credit
10-11-96 5.28 2,400,000 2,385,650
General Electric Capital
10-22-96 5.32 10,000,000 9,923,733
Goldman Sachs Group LP
10-18-96 5.34 9,400,000 9,331,434
Merrill Lynch
09-06-96 5.38 12,600,000 12,588,765
Mobil Australia Finance (Delaware)
09-23-96 5.28 7,600,000 (e) 7,574,508
Natl Australia Funding (Delaware)
09-23-96 5.26 6,000,000 5,979,913
10-07-96 5.34 9,800,000 9,746,718
Northern States Power
09-26-96 5.28 1,100,000 1,095,821
Pacific Mutual Life Insurance
09-23-96 5.30 6,100,000 6,079,423
Penney (JC) Funding
09-05-96 5.33 3,700,000 3,697,271
10-10-96 5.30 7,600,000 7,555,498
10-11-96 5.30 4,200,000 4,174,792
Pfizer
09-12-96 5.30 3,000,000 (e) 2,994,720
Pitney Bowes Credit
10-16-96 5.52 3,000,000 2,978,721
St. Paul Companies
09-13-96 5.31 12,800,000 (e) 12,775,595
09-18-96 5.31 2,600,000 (e) 2,593,136
Sandoz
09-03-96 5.42 3,900,000 3,898,252
09-04-96 5.32 5,000,000 (e) 4,997,061
Siemens
09-26-96 5.29 5,200,000 5,180,208
SmithKline Beecham
09-20-96 5.27 6,700,000 6,680,458
09-30-96 5.26 7,600,000 7,566,813
Sysco
09-17-96 5.30 3,800,000 (e) 3,790,525
Toyota Motor Credit
09-17-96 5.28 5,800,000 5,785,594
09-20-96 5.31 9,200,000 9,173,013
09-27-96 5.28 5,000,000 4,980,275
10-04-96 5.32 2,200,000 2,189,029
Transamerica Financial
09-18-96 5.30 7,900,000 7,879,144
USAA Capital
09-19-96 5.27 4,000,000 3,988,917
10-21-96 5.31 1,700,000 1,686,339
U S WEST Communications
09-18-96 5.43 2,900,000 2,890,717
09-24-96 5.40 7,100,000 7,074,629
10-23-96 5.30 4,000,000 3,968,508
Total 250,143,917
Letter of credit (--%)
First Chicago-
Commed Fuel
10-16-96 5.34 800,000 794,222
Total short-term securities
(Cost: $256,938,786) $ 256,925,586
<PAGE>
PAGE 266
Total investments in securities
(Cost: $1,807,735,562)(f) $1,923,397,199
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 5 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.
(e) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2)of the
Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security
has been determined to be liquid under guidelines established by the board.
(f) At Aug. 31, 1996, the cost of securities for federal income tax purposes was $1,809,367,950 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $180,593,648
Unrealized depreciation (66,564,399)
Net unrealized appreciation $114,029,249
</TABLE>
<PAGE>
PAGE 267
<TABLE><CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Aggressive Growth Fund
Investments in securities of unaffiliated issuers
Common & preferred stocks (75.1%)
Issuer Shares Value(a)
<S> <C> <C>
Airlines (--%)
AirNet Systems 36,300 (b) $ 435,600
Automotive & related (0.8%)
Miller Inds 480,000 (b) 16,080,000
Banks and savings & loans (4.6%)
Bank of Boston 173,000 9,125,750
Bank of New York 350,000 9,756,250
Barnett Banks 150,000 9,843,750
Cityscape Financial 228,000 (b) 6,270,000
Dime Bancorp 780,000 (b) 10,237,500
GreenPoint Financial 288,000 10,260,000
MBNA 370,000 11,238,750
SouthTrust 325,000 9,587,500
Washington Mutual 335,600 12,165,500
Total 88,485,000
Building materials & construction (1.0%)
Tyco Intl 459,300 19,405,425
Chemicals (1.9%)
IMC Global 330,000 14,190,000
Praxair 275,000 11,309,375
Safety-Kleen 591,800 10,208,550
Total 35,707,925
Communications equipment & services (1.8%)
Cascade Communications 100,000 6,812,500
Geotek Communications 247,700 (b) 2,260,263
Tellabs 170,000 (b) 10,773,750
Verifone 300,000 (b) 14,325,000
Total 34,171,513
Computers & office equipment (9.4%)
Broadway & Seymour 414,000 (b) 5,019,750
CCC Information Services Group 79,300 (b) 1,467,050
Cisco Systems 750,000 (b) 39,562,500
Computer Task Group 300,000 8,625,000
E*TRADE Group 150,000 (b) 1,575,000
Equifax 392,000 9,996,000
See accompanying notes to investments in securities.
First Data 250,000 19,500,000
Fiserv 303,000 (b) 10,264,125
Natl Processing 34,700 (b) 594,237
Network General 540,000 (b) 9,180,000
Oracle 637,500 (b) 22,471,875
Parametric Technology 430,000 (b) 19,470,938
PeopleSoft 120,000 (b) 9,210,000
Sungard Data Systems 385,000 (b) 16,458,750
Wall Data 383,100 (b) 9,481,725
Total 182,876,950
Electronics (2.8%)
ADT 243,900 (b) 4,786,537
Computer Products 563,000 (b) 10,978,500
Dynatech 260,000 (b) 10,205,000
Harman Intl 200,000 8,775,000
Symbol Technologies 216,000 (b) 9,612,000
Vitesse Semiconductor 330,000 (b) 10,518,750
Total 54,875,787
Energy (4.2%)
Barrett Resources 326,000 (b) 10,798,750
Brown (Tom) 275,000 (b) 4,400,000
<PAGE>
PAGE 268
Louisiana Land & Exploration 190,000 10,806,250
Nabors Inds 710,000 10,561,250
Noble Affiliates 250,000 10,031,250
Pogo Producing 325,000 11,090,625
Santa Fe Energy Resources 325,000 3,818,750
Swift Energy 490,000 (b) 12,188,750
United Meridian 190,600 (b) 7,576,350
Total 81,271,975
Energy equipment and services (4.0%)
Cooper Cameron 125,600 (b) 6,625,400
Diamond Offshore Drilling 125,000 (b) 6,375,000
Global Marine 1,100,000 (b) 15,812,500
Lone Star Technologies 606,600 (b) 9,933,075
Marine Drilling 1,155,000 (b) 10,106,250
Smith Intl 299,200 10,397,200
Sonat Offshore Drilling 184,800 10,094,700
Tidewater 215,000 8,250,625
Total 77,594,750
Financial services (4.1%)
ADVANTA Cl B 204,000 9,078,000
Franklin Resources 170,000 10,115,000
Green Tree Financial 240,000 8,340,000
Household Intl 126,000 9,985,500
Olympic Financial 425,000 (b) 10,412,500
Paychex 487,500 26,081,250
Winthrop Resources 200,000 4,950,000
Total 78,962,250
Furniture & appliances (0.7%)
Leggett & Platt 119,600 3,408,600
Miller (Herman) 273,900 10,275,530
Total 13,684,130
Health care (2.1%)
Boston Scientific 200,000 (b) 9,175,000
Guidant 202,400 10,271,800
Mentor 400,000 12,650,000
Vivus 267,000 (b) 9,345,000
Total 41,441,800
Health care services (3.9%)
Cardinal Health 160,000 11,740,000
HBO & Company 1,000,000 54,625,000
Vivra 335,000 (b) 10,091,875
Total 76,456,875
Household products (0.5%)
Estee Lauder 228,000 9,804,000
Industrial equipment & services (1.2%)
Energy Biosystems
8% Cv Pfd 35,000 (b,c) 1,436,715
Sanifill 259,600 (b) 12,038,950
United Waste Systems 350,000 (b) 10,325,000
Total 23,800,665
Insurance (1.2%)
AFLAC 285,000 9,796,875
Everest Reinsurance Holdings 209,400 5,104,125
UMUM 145,000 9,207,500
Total 24,108,500
Leisure time & entertainment (3.9%)
Harley-Davidson 280,000 11,480,000
Intl Game Technology 770,000 15,688,750
Marriott Intl 330,000 18,108,750
<PAGE>
PAGE 269
Mattel 250,000 6,593,750
Natl Education 795,000 14,409,375
WMS Inds 399,000 (b) 9,226,875
Total 75,507,500
Media (3.5%)
American Radio Systems 280,000 (b) 9,940,000
Belo (AH) Cl A 276,210 11,082,926
Clear Channel Communications 135,000 (b) 11,120,625
Emmis Broadcasting 217,600 (b) 11,369,600
Harcourt General 300,000 14,362,500
Outdoor Systems 254,500 (b) 10,752,625
Total 68,628,276
Metals (1.6%)
SGL Carbon 300,000 (b) 12,075,000
Titanium Metals 217,300 (b) 5,188,038
UCAR Intl 350,800 (b) 13,681,200
Total 30,944,238
Multi-industry conglomerates (0.5%)
Alco Standard 200,000 8,725,000
Paper & packaging (0.5%)
Sealed Air 270,000 (b) 10,226,250
Restaurants & lodging (3.8%)
Apple South 380,000 7,980,000
Applebee's Intl 400,000 11,600,000
CapStar Hotel 520,000 (b) 9,360,000
Hospitality Franchise System 400,000 23,950,000
Prime Hospitality 525,000 (b) 9,975,000
Sonic 430,000 (b) 10,105,000
Total 72,970,000
Retail (9.2%)
Albertson's 223,000 9,449,625
American Stores 245,000 10,075,625
Corporate Express 255,500 (b) 9,581,250
Dollar General 510,000 16,447,500
Fingerhut 320,000 4,280,000
Friedman's Cl A 317,000 (b) 6,657,000
Gap 330,000 11,550,000
Home Depot 182,000 9,668,750
Home Shopping Network 679,000 (b) 7,299,250
Lowe's 400,000 14,450,000
Pep Boys--Manny, Moe & Jack 290,000 9,715,000
Price Costo 500,000 (b) 9,937,500
Richfood Holdings Cl A 270,000 10,260,000
Safeway 280,000 (b) 10,150,000
Saks Holdings 300,000 (b) 10,237,500
TJX 550,000 17,600,000
Vons 231,000 (b) 10,221,750
Total 177,580,750
Textiles & apparel (0.5%)
Shaw Inds 684,000 10,260,000
Utilities -- electric (0.6%)
AES 300,000 10,650,000
Utilities -- gas (1.0%)
Seagull Energy 500,000 (b) 9,000,000
Sonat 243,000 10,722,375
Total 19,722,375
Utilities -- telephone (1.1%)
NEXTEL Communications 219,900 (b) 3,600,863
Tel-Save Holdings 445,000 (b) 10,235,000
WorldCom 345,000 (b) 7,245,000
Total 21,080,863
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PAGE 270
Foreign (4.7%) (h)
American Group 206,000 (b) 5,019,841
Banco de Galicia -- Buenos Aires 35,000 721,875
Barco 36,100 6,196,357
Bufete Industrial ADR 260,000 4,680,000
Coca-Cola FEMSA 350,000 9,187,500
Danka Business Systems 400,000 11,650,000
Empresas ICA Sociedad 900,000 (f) 13,500,000
Northern Telecommunications 200,000 9,975,000
Renaissance Energy 373,000 (b) 10,493,221
Schlumberger 70,000 5,906,250
Sun Intl Hotels 169,600 (b) 8,034,800
Swire Pacific 724,000 6,437,532
Total 91,802,376
Total common & preferred stocks
(Cost: $1,211,876,053) $1,457,260,773
Bonds (0.8%)
Issuer Principal Value(a)
amount
Park Electrochemical
7% 2006 $4,500,000 $ 3,577,500
Richy Electronics
7% Cv 2006 3,000,000 (g) 2,915,130
Thermo Electron
4.25% Cv 2003 7,500,000 (c) 8,962,500
Total bonds
(Cost: $15,000,000) $ 15,455,130
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (23.7%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
<S> <C> <C> <C>
U.S. government agencies (0.8%)
Federal Home Loan Bank
09-19-96 5.33% $12,000,000 $ 11,966,433
Federal Home Loan Mtge Corp Disc Nts
09-12-96 5.24 3,600,000 3,593,736
09-12-96 5.33 200,000 199,647
Total 15,759,816
Commercial paper (22.9%)
A.I. Credit
09-18-96 5.37 4,000,000 3,989,340
American General Finance
09-17-96 5.41 3,700,000 3,690,188
Ameritech Capital Funding
09-13-96 5.33 5,800,000 (d) 5,788,899
09-24-96 5.40 2,100,000 (d) 2,091,857
09-26-96 5.40 9,900,000 9,858,712
10-04-96 5.34 2,000,000 (d) 1,989,989
ANZ (Delaware)
11-06-96 5.39 13,900,000 13,753,471
AT&T
09-09-96 5.33 6,143,000 6,134,861
BBV Finance (Delaware)
09-13-96 5.30 6,700,000 6,687,225
11-22-96 5.37 8,000,000 7,896,111
CAFCO
09-19-96 5.42 17,600,000 (d) 17,543,287
10-24-96 5.31 5,300,000 5,257,453
Cargill
09-23-96 5.47 5,500,000 5,479,506
10-04-96 5.29 8,500,000 8,457,694
Cargill Global Funding
10-23-96 5.48 4,100,000 (d) 4,066,555
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Ciesco LP
09-03-96 5.42 10,000,000 9,995,517
09-11-96 5.35 4,000,000 3,993,498
10-21-96 5.31 11,600,000 (d) 11,511,953
CIT Group
10-08-96 5.34 11,400,000 11,331,263
Coca-Cola
10-15-96 5.37 15,000,000 (d) 14,893,090
CPC Intl
09-20-96 5.40 8,100,000 (d) 8,075,880
Dean Witter
10-03-96 5.30 9,300,000 9,254,988
Fleet Funding
09-06-96 5.37 11,700,000 (d) 11,689,567
Ford Motor Credit
09-05-96 5.39 10,000,000 9,992,569
Gannett
10-18-96 5.54 12,400,000 (d) 12,306,821
Goldman Sachs
09-27-96 5.33 7,700,000 7,669,392
Merrill Lynch
09-24-96 5.31 3,600,000 3,587,304
Metlife Funding
09-09-96 5.37 3,800,000 3,794,927
09-09-96 5.39 10,198,000 10,184,335
10-24-96 5.32 7,100,000 7,043,768
Mobil Australia Finance (Delaware)
10-02-96 5.49 10,000,000 (d) 9,949,935
Morgan Stanley Group
09-04-96 5.35 4,500,000 4,497,335
Natl Australia Funding (Delaware)
10-01-96 5.46 10,000,000 9,951,412
10-21-96 5.32 11,600,000 11,508,444
NationsBank
11-26-96 5.37 6,500,000 6,498,772
NBD Canada Schedule B
09-03-96 5.35 8,900,000 8,896,047
Northern States Power
10-07-96 5.37 8,400,000 8,351,725
10-10-96 5.30 7,400,000 7,356,669
Pacific Mutual
09-13-96 5.30 2,400,000 2,395,424
Penney (JC) Funding
09-05-96 5.33 6,400,000 6,395,280
09-17-96 5.43 7,500,000 7,479,800
09-24-96 5.41 3,100,000 3,088,465
Pitney Bowes Credit
10-17-96 5.51 8,000,000 7,942,088
SAFECO Credit
09-20-96 5.40 6,900,000 6,879,453
10-02-96 5.44 8,900,000 8,854,204
10-09-96 5.36 5,600,000 5,565,478
Sandoz
09-16-96 5.44 8,000,000 (d) 7,978,358
10-24-96 5.32 6,900,000 (d) 6,845,352
Siemens
09-06-96 5.41 4,600,000 4,595,883
09-18-96 5.44 9,100,000 9,072,394
09-25-96 5.32 7,500,000 7,472,396
09-26-96 5.29 8,900,000 8,866,126
Southwestern Bell Capital
10-25-96 5.48 10,000,000 (d) 9,914,055
Toyota Motor Credit
09-30-96 5.29 3,700,000 3,683,751
Transamerica Finance
09-16-96 5.44 8,000,000 7,978,359
10-22-96 5.32 4,000,000 3,967,295
USAA Capital
10-10-96 5.35 15,000,000 14,903,458
U S West Communications
10-23-96 5.30 6,000,000 5,952,762
Total 444,850,740
Total short-term securities
(Cost: $460,698,372) $ 460,610,556
Total investments in securities of unaffiliated issuers
(Cost: $1,687,574,425) $ 1,933,326,459
Investments in securities of affliated issuer (e)
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Common stock (0.8%)
Issuer Shares Value(a)
Heftel Broadcasting 457,000 (b) $ 16,337,750
Total investments in securities of affiliated issuer
(Cost: $12,266,622) $ 16,337,750
Total investments in securities
(Cost: $1,699,841,047) (i) $ 1,949,664,209
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Non-income producing.
(c) Represents securities sold under Rule 144A, which are 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.
(d) 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.
(e) Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with
companies that are or were affiliates during the year ended Aug. 31, 1996 are as follows:
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
Broadway & Seymour* $7,473,136 $ 3,357,042 $ 3,108,313 $ 7,721,865 $ --
Emispere Technologies* 1,902,405 2,850,206 4,752,611 -- --
Heftel Broadcasting* -- 12,266,622 -- 12,266,622 --
Manhattan Bagel Company* -- 9,548,438 9,548,438 -- --
ParcPlace* -- 7,878,837 7,878,837 -- --
Total $9,375,541 $35,901,145 $25,288,199 $19,988,487 $ --
*Issuer was not an affiliate for the entire fiscal year.
(f) Security is partially or fully in loan. See Note 6 to the financial statement.
(g) Identifies issuers considered to be illiquid as to their marketability (see Note 1 to the financial statements).
Information concerning such security holdings at Aug. 31, 1996 is as follows:
Acquisition Purchase
Security date cost
Richy Electronics 02-21-96 $3,000,000
(h) Foreign securities values are stated in U.S. dollars.
(i) At Aug. 31, 1996, the cost of securities for federal income tax purposes was $1,700,953,086 and the aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $277,122,954
Unrealized depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,411,831)
Net unrealized appreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $248,711,123
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Growth Dimensions Fund
Common stocks (79.5%)
Issuer Shares Value(a)
<S> <C> <C>
Aerospace & defense (4.6%)
Boeing 38,300 $ 3,466,150
Lockheed Martin 20,700 1,741,387
Raytheon 17,200 885,800
United Technologies 15,500 1,747,625
Total 7,840,962
Airlines (1.0%)
AMR 20,300 (b) 1,664,600
Automotive & related (1.0%)
Chrysler 61,900 1,802,837
Banks and savings & loans (5.1%)
Citicorp 62,000 5,161,500
Norwest 69,100 2,599,887
State Street Boston 16,200 876,825
Total 8,638,212
Beverages & tobacco (4.1%)
Anheuser-Busch 23,100 1,749,825
Coca-Cola 69,700 3,485,000
PepsiCo 61,400 1,765,250
Total 7,000,075
Building materials & construction (0.5%)
Tyco Intl 20,536 867,646
Chemicals (3.1%)
IMC Global 20,800 894,400
Monsanto 123,500 3,967,438
Praxair 10,900 448,262
Total 5,310,100
Communications equipment & services (1.7%)
ADC Telecommunications 20,400 (b) 1,157,700
Andrew Corp 19,000 (b) 845,500
Tellabs 13,800 (b) 874,575
Total 2,877,775
See accompanying notes to investments in securities.
Computers & office equipment (15.4%)
Ceridian 40,400 (b 1,722,050
Cisco Systems 97,600 (b) 5,148,400
Compaq Computer 5,300 (b) 300,112
Computer Associates Intl 33,300 1,748,250
Computer Sciences 24,800 (b) 1,736,000
First Data 45,000 3,510,000
Hewlett-Packard 39,500 1,728,125
Microsoft 21,200 (b) 2,597,000
Oracle 72,400 (b) 2,552,100
Parametric Technology 38,100 (b) 1,725,216
Reynolds & Reynolds Cl A 53,500 2,681,688
3Com 18,700 (b) 874,225
Total 26,323,166
Electronics (2.5%)
Intel 54,000 4,309,875
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Energy (1.8%)
Amoco 6,400 441,600
Exxon 11,000 895,125
Mobil 15,500 1,747,625
Total 3,084,350
Energy equipment & services (1.6%)
Fluor 27,400 1,753,600
Sonat Offshore Drilling 16,800 917,700
Total 2,671,300
Financial services (1.4%)
Household Intl 5,500 435,875
MBNA 28,100 853,538
Morgan Stanley Group 21,800 1,040,950
Total 2,330,363
Food (1.8%)
ConAgra 62,000 2,611,750
Pioneer Hi-Bred Intl 7,900 435,488
Total 3,047,238
Health care (9.9%)
Amgen 45,100(b) 2,627,075
Baxter Intl 10,100 450,712
Boston Scientific 19,000(b) 871,625
Guidant 17,400 883,050
Johnson & Johnson 70,300 3,462,275
Medtronic 33,400 1,736,800
Merck 39,600 2,598,750
Pfizer 60,800 4,316,800
Total 16,947,087
Health care services (1.0%)
Cardinal Health 11,900 873,163
HBO & Company 16,000 874,000
Total 1,747,163
Household products (2.5%)
Gillette 40,600 2,588,250
Procter & Gamble 19,600 1,741,950
Total 4,330,200
Industrial equipment & services (1.4%)
Case 3,100 141,050
Deere & Co 43,900 1,745,025
Illinois Tool Works 6,300 435,487
Total 2,321,562
Insurance (1.7%)
ACE 20,700 965,137
American Intl Group 18,350 1,743,250
UNUM 4,450 282,575
Total 2,990,962
Leisure time & entertainment (1.8%)
Marriott Intl 31,300 1,717,587
Mattel 16,200 427,275
Mirage Resorts 38,200 (b) 888,150
Total 3,033,012
Media (0.4%)
Belo (AH) Cl A 10,800 433,350
Infinity Broadcasting Cl A 4,700 (b) 128,663
Time Warner 3,950 131,831
Total 693,844
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PAGE 275
Metals (0.5%)
ALCOA 14,100 875,963
Multi-industry conglomerates (5.3%)
Alco Standard 29,700 1,295,662
Emerson Electric 30,900 2,587,875
General Electric 62,200 5,170,375
Total 9,053,912
Paper & packaging (--%)
Crown Cork & Seal 1,300 60,775
Restaurants & lodging (1.3%)
HFS 14,400 (b) 862,200
McDonald's 18,700 867,213
Promus Hotel 14,800 (b) 445,850
Total 2,175,263
Retail (3.4%)
Albertson's 36,800 1,559,400
Circuit City Stores 13,800 434,700
Federated Dept Stores 25,300 (b) 876,013
Home Depot 19,500 1,035,938
Kroger 2,100 (b) 88,987
Safeway 49,000 (b) 1,776,250
Total 5,771,288
Textiles & apparel (0.5%)
Nike Cl B 8,150 880,200
Utilities - telephone (1.0%)
Airtouch Communications 37,800 (b) 1,039,500
GTE 15,900 626,062
MFS Communications 2,650 (b) 112,294
Total 1,777,856
Foreign (3.2%)(c)
British Airways ADR 3,100 254,975
Ericsson (LM) ADR Cl B 33,800 779,513
Reuters Holdings ADR 12,400 866,450
Royal Dutch Petroleum 5,900 881,312
Schlumberger 10,300 869,063
SmithKline Beecham ADR 30,300 1,764,975
Total 5,416,288
Total common stocks
(Cost: $136,036,149) $135,843,874
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (23.7%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
<S> <C> <C> <C>
U.S. government agencies (11.2%)
Federal Home Loan Mtge Corp Disc Nts
09-05-96 5.16% $3,320,000 $ 3,317,625
09-12-96 5.23 4,200,000 4,192,706
09-17-96 5.24 6,500,000 6,483,977
09-18-96 5.19 2,400,000 2,393,796
Student Loan Mktg Assn Disc Nt
09-13-96 5.24 2,700,000 2,694,901
Total 19,083,005
Commercial paper (12.5%)
Alabama Power
09-05-96 5.35 3,200,000 3,197,631
Colgate-Palmolive
09-05-96 5.34 2,800,000 (d) 2,797,931
<PAGE>
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Mobil
09-23-96 5.27 2,900,000 (d) 2,890,273
PACCAR Financial
09-27-96 5.27 2,300,000 2,290,944
Sandoz
09-03-96 5.34 1,900,000 (d) 1,899,158
Siemens
09-26-96 5.29 2,100,000 2,092,007
Southern California Gas
09-19-96 5.31 3,500,000 3,490,228
Sysco
09-17-96 5.30 2,800,000 (d) 2,793,019
Total 21,451,191
Total short-term securities
(Cost: $40,534,196) $ 40,534,196
Total investments in securities
(Cost: $176,570,345)(e) $176,378,070
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Non-income producing.
(c) Foreign securities values are stated in U.S. dollars.
(d) 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.
(e) At Aug. 31, 1996, the cost of securities for federal income tax purposes was $176,580,030 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation...............................................................................................$2,235,602
Unrealized depreciation...............................................................................................(2,437,562)
Net unrealized depreciation............................................................................................($201,960)
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Special Income Fund
Bonds (91.1%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (13.1%)
Resolution Funding Corp 8.125% 2019 $ 48,059,000 $ 51,548,564
U.S. Treasury 5.875 2005 50,000,000(h) 46,449,000
6.375 2002 10,900,000 10,691,374
7.00 2006 30,000,000(h) 30,123,300
7.25 2016 12,700,000(i) 12,684,760
7.50 2016 40,000,000 40,959,600
7.875 2021 12,000,000 12,809,280
8.125 2019 42,200,000(i) 46,146,122
Total 251,412,000
________________________________________________________________________________________________________
Mortgage backed securities (19.2%)
Federal Home Loan Mtge Corp 8.00 2024 8,862,342 8,876,698
9.00 2007-25 14,153,924 14,560,733
Collateralized Mtge Obligation 7.00 2022 23,395,000 21,850,744
8.50 2022 10,000,000 10,428,000
Inverse Floater 4.17 2024 16,150,000(g) 8,970,679
4.26 2023 6,101,857(g) 2,871,351
Federal Natl Mtge Assn 6.00 2024-26 29,102,108 26,103,947
6.50 2010-25 102,920,899 95,216,704
7.00 2025 7,668,812 7,302,166
7.50 2025 52,541,380 51,359,199
8.00 2021-22 5,920,835 5,922,671
8.50 2007-23 21,423,448 21,991,649
9.00 2005-24 33,268,005 34,567,454
Collateralized Mtge Obligation
Inverse Floater 4.23 2024 13,627,812(g) 5,767,563
5.69 2023 7,244,751(g) 4,700,336
Government Natl Mtge Assn 6.00 2023-24 41,198,933 36,782,820
Adjustable Rate Mortgage 7.00 2024 7,812,375(j) 7,900,264
Structured Asset Securities Corp
Collateralized Mtge Obligation 6.76 2028 2,500,000 2,427,734
Total 367,600,712
_________________________________________________________________________________________________________
See accompanying notes to investments in securities.
_________________________________________________________________________________________________________
Aerospace & defense (0.7%)
Airplanes Cl D 10.875 2019 2,750,000 2,921,875
Alliant Techsystems
Sr Sub Nts 11.75 2003 3,000,000(d) 3,270,000
BE Aerospace 9.875 2006 5,000,000(d) 5,006,250
K&F Inds 10.375 2004 1,600,000(d) 1,620,000
Total 12,818,125
_________________________________________________________________________________________________________
Airlines (0.3%)
AMR 9.50 2001 4,500,000 4,862,610
_________________________________________________________________________________________________________
Automotive & related (2.0%)
Ford Motor Credit 7.50 2003 5,000,000 5,059,600
GMAC 7.85 1997 20,000,000 20,310,800
Medium-term Nts 5.95 1998 10,000,000 9,838,800
Mascotech
Cv 4.50 2003 3,500,000 2,703,750
Total 37,912,950
__________________________________________________________________________________________________________
Banks and savings & loans (1.0%)
BankAmerica 7.50 2002 7,500,000 7,575,675
Fleet/Norstar Financial 9.00 2001 5,000,000 5,363,600
9.90 2001 5,000,000 5,515,400
Total 18,454,675
___________________________________________________________________________________________________________
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Building materials & construction (0.8%)
AAF McQuay
Sr Nts 8.875 2003 10,000,000 9,700,000
Masco 9.00 2001 5,000,000 5,371,500
Total 15,071,500
___________________________________________________________________________________________________________
Chemicals (0.4%)
G-I Holdings
Sub Nts 10.00 2006 1,733,000(d) 1,687,509
Zero Coupon 11.37 1998 1,820,000(d,l) 1,531,075
General Chemical 9.25 2003 5,000,000 4,956,250
Total 8,174,834
_________________________________________________________________________________________________________
Communications equipment & services (1.3%)
American Communication Services
Zero Coupon 14.64 2000 3,000,000(d,m) 1,650,000
Celcaribe
Zero Coupon Cv 10.31 1998 1,450,000(d,m) 1,573,250
Zero Coupon Cv 14.66 1998 1,700,000(d,m) 1,394,000
CenCall Communications
Zero Coupon Cv 10.00 1999 4,000,000(m) 2,400,000
Comcast Cellular
Zero Coupon with attached put 9.53 1995 4,475,000(l) 3,121,313
GST Telecommunications
Zero Coupon 7.45 2000 1,745,000(d,m) 1,465,800
Intl Cabletel
Zero Coupon 12.04 2001 5,000,000(d,m) 2,937,500
Ionica 13.50 2006 6,435,000(d) 6,410,869
Shared Technologies
Zero Coupon 12.25 1999 4,000,000(d,m) 3,065,000
Total 24,017,732
_________________________________________________________________________________________________________
Computers & office equipment (0.3%)
Softkey Intl
Cv 5.50 2000 5,000,000(d) 4,025,000
Solectron 6.00 2006 2,000,000(d) 1,835,000
Total 5,860,000
_________________________________________________________________________________________________________
Electronics (0.2%)
Thomas & Betts 6.50 2006 4,500,000(d) 4,146,615
_________________________________________________________________________________________________________
Energy (2.3%)
Honam Oil 7.125 2005 9,000,000(d) 8,535,060
Occidental Petroleum
Medium-term Nts 10.98 2000 5,000,000 5,607,050
with attached put 9.25 2019 8,725,000 9,881,063
Oryx Energy 10.00 2001 5,000,000 5,372,300
PDV America 7.875 2003 7,500,000 7,153,050
Triton Energy
Zero Coupon 9.75 1996 5,000,000(m) 4,925,000
UNC
Sr Sub Nts 11.00 2006 3,000,000(d) 3,120,000
Total 44,593,523
_________________________________________________________________________________________________________
Financial services (1.8%)
Developers Div Realty 7.00 1999 1,500,000 1,531,875
First Union REIT
Sub Nts 8.875 2003 4,000,000 3,700,000
GPA Delaware 8.75 1998 1,500,000 1,500,000
Household Finance
Sr Sub Nts 9.55 2000 6,500,000 6,985,615
Malan Realty REIT
Cv 9.50 2004 2,300,000(d) 2,133,250
Olympic Financial 13.00 2000 6,500,000 7,085,000
Salomon Brothers Holdings
Medium-term Nts 6.99 1999 5,000,000 4,969,600
Standard Credit Card 8.625 2002 6,590,000 6,645,158
Total 34,550,498
__________________________________________________________________________________________________________
Food (0.2%)
Specialty Foods 11.25 2003 4,000,000(d,l) 3,355,000
Zero Coupon 13.00 1999 1,000,000(d,m) 416,250
<PAGE>
PAGE 279
Total 3,771,250
_________________________________________________________________________________________________________
Furniture & appliances (0.3%)
Interface 9.50 2005 5,000,000(d) 4,818,750
_________________________________________________________________________________________________________
Health care (0.6%)
Dade Intl
Sr Sub Nts 11.125 2006 3,000,000(e) 3,157,500
Eli Lilly 6.77 2036 10,000,000 8,786,600
Total 11,944,100
_________________________________________________________________________________________________________
Health care services (1.8%)
Columbia/HCA Healthcare 7.69 2025 6,500,000 6,301,620
Foundation Health 7.75 2003 3,250,000 3,267,940
Healthsource
Cv 5.00 2003 3,000,000(e) 2,291,250
Magellan Health
Sr Sub Nts 11.25 2004 5,000,000(d) 5,356,250
Merit Behavioral 11.50 2005 2,000,000(d) 2,097,500
Owens & Minor
Sr Sub Nts 10.875 2006 2,000,000 2,072,500
Tenet Healthcare
Sr Sub Nts 10.125 2005 11,800,000 12,699,750
Total 34,086,810
_________________________________________________________________________________________________________
Household products (0.2%)
Revlon Consumer Products 9.375 2001 2,500,000 2,525,000
Sweetheart Cup
Sr Sub Nts 9.625 2000 2,000,000 2,022,500
Total 4,547,500
_________________________________________________________________________________________________________
Industrial equipment & services (1.1%)
ADT Operations 9.25 2003 3,500,000 3,675,000
AGCO 8.50 2006 2,800,000(d) 2,789,500
Case 7.25 2005 5,475,000 5,317,648
Clark Equipment 9.75 2001 5,000,000 5,417,100
IDEX 9.75 2002 3,000,000 3,153,750
Total 20,352,998
_________________________________________________________________________________________________________
Industrial transportation (0.3%)
CSX
Medium-term Nts 9.23 1998 5,000,000 5,175,250
_________________________________________________________________________________________________________
Insurance (1.0%)
Americo Life 9.25 2005 4,500,000 4,291,875
Nationwide CSN Trust 9.875 2025 6,500,000(d) 6,939,270
Nationwide Mutual 7.50 2024 4,000,000(d) 3,523,680
New England Mutual
Credit Sensitive Nts 7.875 2024 5,000,000(d) 4,704,400
Total 19,459,225
_________________________________________________________________________________________________________
Leisure time & entertainment (1.4%)
AMF Group
Zero Coupon 12.25 2001 5,500,000(d,m) 3,210,625
Bally's Park Place Funding
1st Mtge 9.25 2004 6,500,000 6,865,625
Coast Hotels 13.00 2002 1,600,000(d) 1,712,000
Plitt Theatres 10.875 2004 5,000,000 5,118,750
Trump Atlantic City Funding 11.25 2006 7,500,000 7,200,000
Trump Holdings
Sr Nts 15.50 2005 2,500,000 2,878,125
Total 26,985,125
_________________________________________________________________________________________________________
Media (5.3%)
Ackerley Communications
Sr Secured Nts 10.75 2003 2,500,000(d) 2,637,500
American Telecasting
Zero Coupon 11.75 2000 4,000,000(e,m) 2,430,000
Cablevision Systems 10.50 2016 5,000,000 4,925,000
10.75 2004 2,000,000 2,050,000
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Continental Cablevision
Sr Sub Deb 8.875 2005 5,000,000 5,343,750
Cox Communications 7.625 2025 10,000,000 9,460,700
Echostar Satellite Broadcasting
Zero Coupon Cv 13.125 2000 8,300,000(d,m) 5,125,250
Heritage Media Services 8.75 2006 2,000,000 1,885,000
News America Holdings 8.875 2023 2,500,000 2,563,000
10.125 2012 10,000,000 11,016,400
12.00 2001 5,000,000 5,357,800
Outdoor Systems
Sr Sub Nts 11.41 2008 4,666,667 4,666,667
People's Choice TV
Zero Coupon 11.60 2000 5,000,000(m) 2,875,000
Scandinavian Broadcasting
Cv Sub Deb 7.25 2005 4,670,000 4,611,625
Time Warner Entertainment 6.21 2000 2,500,000 2,506,250
7.975 2004 1,500,000 1,478,745
8.11 2006 3,000,000 2,947,770
8.18 2007 3,000,000 2,948,910
8.375 2033 7,500,000(d) 7,128,150
9.15 2023 10,000,000 10,179,300
United Artist Theatre 9.30 2015 4,958,824(d) 4,524,927
ViaCom 7.00 2003 2,500,000 2,295,125
8.00 2006 3,000,000 2,760,000
Total 101,716,869
_________________________________________________________________________________________________________
Metals (0.8%)
Bar Technologies
Units 13.50 2001 4,500,000(d) 4,387,500
Magma Copper 12.00 2001 5,000,000 5,456,250
Santa Fe Gold 8.375 2005 5,000,000 4,868,750
Total 14,712,500
_________________________________________________________________________________________________________
Multi-industry conglomerates (0.5%)
Mark IV Inds 8.75 2003 3,500,000 3,513,125
Prime Succession Acquisition 10.75 2004 2,125,000(d) 2,188,750
Talley Inds
Zero Coupon 12.25 1998 1,503,000(m) 1,234,339
Talley Mfg & Technology
Sr Nts 10.75 2003 2,500,000 2,606,250
Total 9,542,464
________________________________________________________________________________________________________
Natural gas (0.9%)
Tenneco Credit 9.625 2001 10,000,000 10,893,700
Transco Energy 9.875 2020 6,000,000 6,878,460
Total 17,772,160
__________________________________________________________________________________________________________
Paper & packaging (2.7%)
APP Intl Finance 11.75 2005 7,000,000 7,122,500
Chesapeake 9.875 2003 5,000,000 5,576,100
Crown Cork & Seal 8.00 2023 5,000,000 4,757,350
Federal Paperboard 10.00 2011 6,000,000 7,149,840
Gaylord 12.75 1996 5,500,000 5,898,750
Grupo Industrial Durango 12.625 2003 4,000,000(h) 4,210,000
Plastic Container
Sr Secured Nts 10.75 2001 2,000,000 2,052,500
Pope & Talbot 8.375 2013 4,000,000 3,597,840
Scotia Pacific Holding 7.95 2015 6,547,986 6,425,015
Silgan
Sr Sub Nts 11.75 2002 2,000,000 2,092,500
13.25 2002 665,000 675,806
Stone Container
Sr Nts 12.625 1998 1,500,000 1,586,250
Total 51,144,451
_________________________________________________________________________________________________________
Restaurants & lodging (0.6%)
Flagstar 10.75 2001 8,750,000 7,743,750
10.875 2002 1,250,000(h) 1,100,000
Hammons (John Q) Hotel
1st Mtge 8.875 2004 3,400,000 3,204,500
Total 12,048,250
_________________________________________________________________________________________________________
Retail (3.0%)
American Stores 8.00 2026 10,000,000 9,776,400
<PAGE>
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Dairy Mart Convenience Stores
Sr Sub Nts 10.25 2004 1,500,000 1,413,750
Dayton Hudson 8.50 2022 3,000,000 2,907,690
Eye Care Center 12.00 2003 3,000,000 3,195,000
Jitney-Jungle Stores
Sr Nts 12.00 2006 2,000,000 2,102,500
Kroger 8.15 2006 3,000,000 3,037,500
9.25 2005 3,000,000 3,150,000
Musicland Stores 9.00 2003 6,500,000 3,737,500
Pathmark Stores 9.625 2003 5,000,000 4,725,000
Penn Traffic
Sr Nts 8.625 2005 3,500,000 2,905,000
Revco 9.125 2000 2,000,000 2,098,340
Stop & Shop 9.75 2002 3,000,000 3,288,750
Wal-Mart 7.00 2006 15,000,000(d) 14,743,050
Total 57,080,480
_________________________________________________________________________________________________________
Textiles & apparel (0.6%)
J.P. Stevens 9.00 2017 2,500,000 2,406,250
Polysindo Intl Finance 11.375 2006 2,300,000 2,323,000
VF 9.50 2001 5,000,000 5,432,850
Westpoint Stevens 8.75 2001 2,500,000 2,506,250
Total 12,668,350
_________________________________________________________________________________________________________
Utilities -- electric (4.3%)
Arizona Public Service 8.75 2024 2,500,000 2,595,500
Boston Edison 9.875 2020 5,000,000 5,365,750
Cleveland Electric 9.50 2005 6,000,000 5,867,340
Long Island Lighting 9.625 2024 9,000,000 8,886,150
Louisiana Power & Light
Sale Lease-backed Obligation 10.67 2017 2,500,000 2,674,050
Midland Cogeneration Venture 10.33 2002 1,801,240 1,884,548
10.33 2002 1,551,636 (d) 1,623,400
11.75 2005 5,000,000 5,281,250
Niagara Mohawk Power 7.75 2006 10,500,000 9,223,515
Pacific Gas & Electric 7.25 2026 6,000,000 5,354,940
RGS Funding AEGCO
Sale Lease-backed Obligation 9.82 2022 2,484,957 2,876,661
RGS Funding IME
Sale Lease-backed Obligation 9.82 2022 2,484,982 2,876,690
Sithe Independent Funding 9.00 2013 7,500,000(d) 7,318,950
Texas-New Mexico Power 11.25 1997 3,877,000 3,973,925
1st Mtge 9.25 2000 3,500,000 3,631,250
Texas Utilities 9.70 2002 6,000,000 6,635,940
Texas Utilities Electric
1st Mtge 9.75 2021 6,350,000 6,979,539
Total 83,049,398
_________________________________________________________________________________________________________
Utilities -- telephone (2.4%)
Arch Communications Group
Zero Coupon 10.875 2000 2,000,000(m) 1,065,000
Bell Telephone of Pennsylvania 7.375 2033 10,000,000 9,208,000
GTE 10.25 2020 7,000,000 7,935,270
Geotek Communications
Cv 12.00 2001 5,000,000(e) 5,500,000
Zero Coupon 14.90 2000 5,000,000(d,m) 3,112,500
New England Tel & Tel 9.00 2031 7,500,000 8,143,350
Omnipoint 11.625 2006 10,000,000(d) 10,087,500
Total 45,051,620
__________________________________________________________________________________________________________
Miscellaneous (0.8%)
Adams Outdoor Advertising 10.75 2006 4,500,000(e) 4,646,250
Coty 10.25 2005 1,500,000(h) 1,582,500
Kinder-Care Learning Centers 10.375 2001 3,000,000 3,153,750
Petersburg
Zero Coupon 20.83 2004 5,000,000(d,l) 3,925,000
Pierce Leahy 11.125 2006 1,250,000(d) 1,298,438
Total 14,605,938
_________________________________________________________________________________________________________
Foreign (18.9%)(c)
Alcan Aluminum
(U.S. Dollar) 8.875 2022 6,750,000 6,953,242
Argentina Bocon
(U.S. Dollar) Zero coupon 5.41 2001 5,000,000(l) 5,742,500
<PAGE>
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BAA
(British Pound) 5.75 2006 2,000,000 3,203,436
Banca Italy N.Y.
(U.S. Dollar) 8.25 2007 5,000,000 5,139,900
Carter Holt Harvey
(U.S. Dollar) 8.875 2004 5,000,000 5,333,650
City of Helsinki
(U.S. Dollar) 8.70 2006 1,600,000(d,e) 1,576,480
(U.S. Dollar) 9.20 2006 1,500,000(d,e) 1,506,000
Dominion Textiles
(U.S. Dollar) 8.875 2003 4,000,000 3,925,000
(U.S. Dollar) 9.25 2006 1,000,000 991,250
Financiera Ener Nacional
(U.S. Dollar) 9.375 2006 5,300,000(d) 5,273,500
Ford Capital BV
(U.S. Dollar) 9.875 2002 5,000,000 5,600,000
Govt of Canada
(Canadian Dollar) 7.64 2001 17,000,000 14,272,775
Govt of Poland
(Polish Zloty) Zero Coupon 3.23 1996 14,500,000(l) 5,223,639
(U.S. Dollar) 2.75 2024 16,500,000(k) 8,404,687
(U.S. Dollar) 3.75 2014 66,300,000(k) 52,335,562
Govt of Russia
(U.S. Dollar) 6.60 2049 8,000,000(n) 4,715,000
Govt of Venezuela
(U.S. Dollar) 6.375 2007 37,000,000(k) 28,582,500
Groupe Videotron
(U.S. Dollar) 10.625 2005 2,000,000 2,140,000
Grupo Televisa
Sr Nts 11.875 2006 7,250,000(d,h) 7,612,500
Zero Coupon 13.25 2001 6,500,000(d,m) 3,810,625
Gulf Canada Resources
(U.S. Dollar) 9.00 1999 5,000,000 5,118,750
Hydro Quebec
(U.S. Dollar) 8.50 2029 20,000,000 20,794,200
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 5,000,000(d) 5,093,750
Korea Electric Power
(U.S. Dollar) 7.75 2013 4,300,000 4,190,307
MacMillan Bloedel
(U.S. Dollar) 8.50 2004 7,500,000 7,746,300
Ogden Euro
(U.S. Dollar) Cv 6.00 2002 2,200,000 2,035,000
Petronas
(U.S. Dollar) Cv 7.75 2015 10,000,000(d) 9,738,400
Pueblo Extra Intl
(U.S. Dollar) Cv 9.50 2003 4,000,000 3,600,000
Reliance Inds
(U.S. Dollar) 8.125 2005 2,250,000(d) 2,156,242
Repap New Brunswick
(U.S. Dollar) 10.625 2005 2,000,000 1,925,000
Republic of Argentina
(U.S. Dollar) 6.31 2005 8,019,000 6,224,749
Republic of Brazil
(U.S. Dollar) C Bonds 8.00 2014 10,824,300 6,988,439
(U.S. Dollar) Inverse Floater 6.875 2012 12,500,000(g) 8,867,187
Republic of Columbia
(U.S. Dollar) 8.70 2016 6,000,000 5,435,460
Republic of Italy
(U.S. Dollar) 6.875 2023 7,500,000 6,661,050
(U.S. Dollar) Cv 5.00 2001 1,500,000 1,501,875
Republic of Slovenia
(U.S. Dollar) 7.00 2001 7,200,000(d) 7,185,600
Republic of South Africa
(South African Rand) 12.00 2005 89,500,000 16,923,090
Rogers Cable Systems
(Canadian Dollar) 9.65 2014 2,700,000 1,755,810
Rogers Cantel Mobile
(U.S. Dollar) 9.375 2008 4,650,000 4,562,812
11.125 2002 1,000,000 1,053,750
State of Isreal
(U.S. Dollar) 6.375 2005 3,700,000 3,413,139
Sumitomo Bank Intl Finance
(Japanese Yen) Cv 0.75 2001 200,000,000(d) 1,964,840
Tarkett
(U.S. Dollar) 9.00 2002 4,000,000(d) 4,055,000
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000(d) 9,694,900
United Kingdom Treasury
(British Pound) 8.00 2003 9,500,000 15,211,686
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United Mexican States
(U.S. Dollar) 11.50 2026 6,525,000 6,276,234
WMC Finance USA
(U.S. Dollar) 7.25 2013 10,000,000 9,473,300
Zhuhai Highway
(U.S. Dollar) 11.50 2008 10,000,000(d) 10,250,000
Total 362,239,116
_________________________________________________________________________________________________________
Total bonds
(Cost: $1,733,338,963) $1,742,248,378
_________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Stocks & other (0.5%)
_________________________________________________________________________________________________________
Issuer Shares Value(a)
_________________________________________________________________________________________________________
<S> <C> <C>
American Communications Services
Warrants 6,000(d) $ 390,000
Bar Technologies
Warrants 4,500(d) 225,000
Celcaribe
Common 276,420(b,d) 414,630
Dairy Mart Convenience Stores
Warrants 10,000 30,000
Eye Care Center
Warrants 3,000(d) 45,000
First Nationwide Bank
11.50% Pfd 25,000 2,725,000
Geotek
Warrants 250,000(d) 1,062,500
Great Bay Power
Common 28(b) 238
Methanex
Common 200,000(b) 1,537,500
Security Pacific
1.75% Cv Pfd 73,500 1,874,250
Southdown
Warrants 30,000(e) 221,250
Specialty Foods
Common 15,000(b) 7,500
Station Casinos
7% Cv Pfd 15,000 761,250
Triangle Wire & Cable
Common 84,444(b,e) 84,444
_________________________________________________________________________________________________________
Total stocks & other
(Cost: $11,722,689) $9,378,562
_________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (7.7%)
_________________________________________________________________________________________________________
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
09-19-96 5.19% $ 3,300,000 $ 3,290,995
10-10-96 5.31 2,000,000 1,988,267
Total 5,279,262
_________________________________________________________________________________________________________
Commercial paper (7.4%)
American General Finance
09-16-96 5.41 7,000,000 6,983,293
BBV Finance
09-13-96 5.30 2,700,000 2,694,852
BellSouth Telephone
09-03-96 5.42 2,600,000 2,598,834
CAFCO
09-19-96 5.43 19,600,000 19,536,843
<PAGE>
PAGE 284
CPC Intl
10-17-96 5.49 10,400,000(f) 10,324,715
Dean Witter
09-04-96 5.32 7,500,000 7,495,592
Fleet Funding
09-10-96 5.32 8,400,000(f) 8,387,633
Goldman Sachs
10-07-96 5.46 13,000,000 12,923,931
Metlife Funding
09-24-96 5.31 17,500,000 17,438,400
Michigan Consolidated Gas
09-11-96 5.30 5,100,000 5,091,772
Natl Australia Funding (Delaware)
10-07-96 5.33 3,000,000 2,983,689
Pacific Mutual Life
09-13-96 5.30 7,000,000 6,986,653
Penney (JC) Funding
10-11-96 5.30 900,000 894,598
SAFECO Credit
09-20-96 5.40 7,900,000 7,876,476
St. Paul Companies
09-13-96 5.30 1,100,000(f) 1,097,903
Siemens
09-18-96 5.44 1,400,000 1,395,652
Southern California Gas
09-18-96 5.30 7,000,000 6,981,520
Toyota Motor
10-04-96 5.32 500,000 497,507
USAA Capital
09-06-96 5.33 2,900,000 2,897,438
U S WEST Communications
09-12-96 5.39 17,400,000 17,368,970
Total 142,456,271
__________________________________________________________________________________________________________
Total short-term securities
(Cost: $147,749,225) $ 147,735,533
__________________________________________________________________________________________________________
Total investments in securities
(Cost: $1,892,810,877)(o) $1,899,362,473
__________________________________________________________________________________________________________
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b)Non-income producing. For long-term debt securities, 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 a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended.
This security has been determined to be liquid under guidelines established by the board.
(e) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements).
Informationconcerning such security holdings at Aug. 31, 1996, is as follows:
Security Acquisition Purchase
date cost
_________________________________________________________________________________________________________
Adams Outdoor Advertising
10.75% 2006 03-07-96 $4,518,173
American Telecasting
Zero Coupon
11.75% 2000 03-08-96 4,000,000
Dade Intl*
Sr Sub Nts
11.125% 2006 04-30-96 3,000,000
City of Helsinki
8.70% 2006 02-07-95 1,565,584
9.20% 2006 02-07-95 1,500,000
Geotek Communications
Cv
12% 2001 03-04-96 5,000,000
Healthsource*
5% 2003 06-28-96 3,000,000
Southdown
Warrants 10-30-91 90,000
Triangle Wire & Cable 01-13-92 2,000,018
*Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933,
as amended.
(f)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) ofthe
Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors."
<PAGE>
PAGE 285
This security has been determined to be liquid under guidelines established by the board.
(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, 1996. Inverse floaters in the aggregate represent 1.6% of the Fund's net assets as of Aug. 31, 1996.
(h) Security is partially or fully on loan. See Note 5 to the financial statements.
(i) Partially pledged as initial margin deposit on the following open interest rate futures contract (See Note 7 to the financial
statements):
Type of security Notional amount
_________________________________________________________________________________________________________
Sales contracts
U.S. Treasury Bonds Dec. 1996 $90,000,000
(j) Adjustable rate mortgage; interest rate varies to reflect current market conditions; shown is the effective rate on Aug. 31,
1996.
(k) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the
effective rate on Aug. 31, 1996.
(l) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition.
(m) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the
annualized effective yield from the date of acquisition to interest reset date disclosed.
(n) At Aug. 31, 1996, the cost securities purchased, including interest purchased, on a when-issued basis was $4,765,000.
(o)At Aug. 31, 1996, the cost of securities for federal income tax purposes was $1,889,734,786 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$50,129,252
Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,501,565)
________________________________________________________________________________________________________________________________
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,627,687
________________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 286
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared total net assets)
Global Yield Fund
Bonds (77.8%) (b)
Issuer Coupon Maturity Principal Value(a)
rate year amount
<S> <C> <C> <C> <C>
Argentina (2.5%)
Argentina Republic
(U.S. Dollar) 5.25% 2023 $ 250,000 (c) $ 133,438
6.31 2005 495,000 (c) 384,244
Total 517,682
Brazil (1.7%)
Republic of Brazil
(U.S. Dollar) 6.875 2012 500,000 (c) 354,687
Canada (4.9%)
Govt of Canada
(Canadian Dollar) 8.00 2023 1,200,000 884,539
10.50 2001 160,000 134,332
Total 1,018,871
Denmark (3.3%)
Govt of Denmark
(Danish Krone) 8.00 2003 3,700,000 688,696
France (4.4%)
Govt of France
(European Currency Unit) 7.25 2005 400,000 531,896
(French Franc) 1.28 2006 2,000,000 (c) 395,773
Total 927,669
Germany (9.1%)
Federal Republic of Germany
(Deutsche Mark) 6.00 2016 1,300,000 785,648
7.50 2004 1,530,000 1,115,490
Total 1,901,138
Italy (5.1%)
Govt of Italy
(Italian Lira) 8.50 2004 1,650,000,000 1,058,376
Japan (1.5%)
Japan Development Bank
(Japanese Yen) 5.00 1999 30,000,000 305,943
See accompanying notes to investments in securities.
Mexico (5.1%)
BNCE
(U.S. Dollar) 7.25 2004 600,000 504,000
United Mexican States
(Japanese Yen) 5.00 1998 30,000,000 285,478
(U.S. Dollar) 11.50 2026 300,000 288,563
Total 1,078,041
Spain (2.1%)
Govt of Spain
(Spanish Peseta) 8.00 2004 57,000,000 436,120
Supra National (3.5%)
Asian Development Bank
(Japanese Yen) 5.00 2003 69,000,000 723,909
Sweden (2.2%)
Govt of Sweden
(Swedish Kroan) 8.00 2007 3,100,000 462,474
<PAGE>
PAGE 287
United Kingdom (7.4%)
United Kingdom Treasury
(British Pound) 7.75 2006 1,000,000 1,542,178
United States (25.0%)
U.S. Treasury Bond
(U.S. Dollar) 7.50 2005-16 4,600,000 4,743,088
U.S. Treasury Note
(U.S. Dollar) 7.50 2001 500,000 516,360
Total 5,259,448
Total bonds
(Cost: $16,144,957) $16,275,232
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (19.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
<S> <C> <C> <C>
U.S. government agency (12.8%)
Federal Home Loan Mtge Corp Disc Nts
9-12-96 5.23% $ 200,000 $ 199,653
9-17-96 5.24 700,000 698,274
9-20-96 5.20 1,800,000 1,794,820
Total 2,692,747
Commercial paper (6.7%)
PACCAR Financial
9-25-96 5.27 800,000 797,083
Southern California Gas
9-18-96 5.30 600,000 598,416
Total 1,395,499
Total short-term securities
(Cost: $4,088,246) $ 4,088,246
Total investments in securities
(Cost: $20,233,203)(d) $20,363,478
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Foreign securities values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the
currency indicated.
(c) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is
the effective rate on Aug. 31, 1996.
(d) At Aug. 31, 1996, the cost of securities for federal income tax purposes was $20,230,282 and the aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $194,631
Unrealized depreciation (61,435)
Net unrealized appreciation $133,196
</TABLE>
<PAGE>
PAGE 288
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Income Advantage Fund
Bonds (86.2%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
<S> <C> <C> <C> <C>
Banks and savings & loans (0.7%)
First Nationwide 12.50% 2003 $ 350,000 (i) $ 363,125
Communications equipment & services (5.3%)
Comcast Cellular
Zero Coupon with attached put Series A 9.93 2000 400,000 (e) 279,000
Geotek Communications
Zero Coupon Cv Series B 13.30 2000 1,250,000 (f) 778,125
Intl Cable
Zero Coupon Cv Series B 12.05 2001 2,600,000 (f) 1,527,500
Total 2,584,625
Electronics (3.3%)
Advanced Micro Devices 11.00 2003 1,600,000 1,624,000
Energy (3.9%)
Kelley Oil & Gas
Cv Sub Nts 7.875 1999 600,000 552,750
UNC Resources
Sr Sub Nts 11.00 2006 1,300,000 1,352,000
Total 1,904,750
Financial services (3.3%)
Olympic Financial 13.00 2000 1,500,000 1,635,000
Food (0.9%)
Specialty Foods 10.25 2001 500,000 (d) 460,000
Furniture & appliances (3.1%)
Lifestyle Furnishings Intl 10.875 2006 1,500,000 (d) 1,513,125
Health care (2.1%)
La Petite Holdings 9.625 2001 1,100,000 1,023,000
Leisure time & entertainment (7.3%)
Coast Hotels & Casino
1st Mtge 13.00 2002 400,000 (d) 428,000
Marvel Holdings
Zero Coupon 12.44 1998 450,000 (e) 349,875
Plitt Theatres 10.875 2004 1,750,000 1,791,562
Trump Atlantic Funding
1st Mtge 11.25 2006 800,000 768,000
Trump Holdings
See accompanying notes to investments in securities.
Sr Secured Nts 15.50 2005 200,000 230,250
Total 3,567,687
Media (15.3%)
Echostar Satellite Broadcasting
Zero Coupon Cv 13.35 2000 2,000,000 (f) 1,235,000
<PAGE>
PAGE 289
People's Choice TV
Zero Coupon Cv with warrants 14.03 2000 2,100,000 (f) 1,207,500
United Artist Theatre 9.30 2015 1,735,596 (d) 1,583,731
United Intl Holdings
Zero Coupon 12.60 1999 600,000 (e) 393,000
Universal Outdoor 11.00 2003 1,100,000 1,168,750
Viacom 8.00 2006 1,500,000 1,380,000
Total 6,967,981
Metals (1.2%)
NS Group
Units with warrants 13.50 2003 575,000 564,937
Multi-industry conglomerates (1.3%)
Prime Succession 10.75 2004 620,000 638,600
Paper & packaging (10.1%)
BPC Holding
Sr Nts Pay-in-kind 12.50 2006 1,350,000 (g) 1,371,937
Gaylord 12.75 2005 525,000 563,063
Pacific Lumber 10.50 2003 1,440,000 1,404,000
Silgan
Sr Sub Nts 11.75 2002 1,500,000 1,569,375
Total 4,908,375
Restaurants & lodging (2.8%)
Alliance Gaming 12.875 2003 1,175,000 1,163,250
Flagstar 10.75 2001 250,000 221,250
Total 1,384,500
Retail (7.2%)
Jitney-Jungle Stores
Sr Nts 12.00 2006 1,650,000 1,734,563
Musicland Group 9.00 2003 950,000 546,250
Penn Traffic 8.625 2003 1,500,000 1,245,000
Total 3,525,813
Textiles & apparel (2.1%)
Polysindo Financial 11.375 2006 1,000,000 1,010,000
Utilities -- telephone (6.8%)
Mobile Telecommunications Technology 13.50 2002 1,775,000 1,810,500
Omnipoint 11.625 2006 1,500,000 (d) 1,513,125
Total 3,323,625
Miscellaneous (5.5%)
Norcal Waste Systems 12.75 2005 725,000 (d,h) 767,594
Pierce Leahy 11.125 2006 250,000 (d) 259,688
SC Intl 13.00 2005 1,500,000 1,640,625
Total 2,667,907
Foreign (5.0%)
Fresh Delmonte 10.00 2003 1,350,000(c) 1,265,625
(U.S. Dollar)
Repap New Brunswick
(U.S. Dollar) Sr Nts 10.625 2005 1,200,000(c) 1,155,000
Total 2,420,625
Total bonds
(Cost: $42,280,132) $42,087,675
</TABLE>
<TABLE>
<CAPTION>
Stocks & other (3.0%)
Issuer Shares Value(a)
<S> <C> <C>
American Communications Services
Warrants 350 22,750
Cablevision Systems
11.125% Pay-in-kind 13,311 (b,g) 1,251,233
<PAGE>
PAGE 290
Geotek Communications
Warrants 40,000 170,000
Total stocks & other
(Cost: $1,598,239) $1,443,983
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (7.4%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
<S> <C> <C> <C>
U.S. government agency (6.2%)
Federal Home Loan Mtge Corp Disc Nts
09-05-96 5.16% $800,000 $ 799,428
09-12-96 5.23 400,000 399,305
09-12-96 5.33 600,000 598,940
09-18-96 5.19 700,000 698,191
09-19-96 5.24 550,000 548,482
Total $3,044,346
Commercial paper (1.2%)
Paccar Financial
09-17-96 5.31 600,000 598,501
Total short-term securities
(Cost: $3,642,847) $ 3,642,847
Total investments in securities
(Cost: $47,521,218)(j)
$47,174,505
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b)Non-income producing. For long-term debt securities, items identified are in default as to payment of interest or principal.
(c)Foreign security values are stated in U.S. dollars; principal amounts are denominated in the currency indicated.
(d)Represents a security sold under Rule 144A, which are exempt from registration under the Securities Act of 1933, as amended.
This security has been determined to be liquid under guidelines established by the board.
(e) For zero coupon bonds that became coupon paying at a future date, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(f) For these zero coupon bonds, the interest rate disclosed represents the annualized effective yield from the date of acquisition
to interest reset date disclosed.
(g) Pay-in-kind securities are securities 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.
(h) Interest rate varies either based on a predetermined schedule or to reflect current market conditions, rate shown is the
effective rate on Aug. 31, 1996.
(i) Identifies issues considered to be illiquid as to either their marketability (see Note 1 to the financial statements).
Information concerning such security holdings at Aug. 31, 1996 is as folllows:
Acquisition Purchase
Security date cost
First Nationwide 05-22-96 $364,125
(j)At Aug. 31, 1996, the cost of securities for federal income tax purposes was $47,475,702 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$218,391
Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (519,588)
Net unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$(301,197)
</TABLE>
<PAGE>
PAGE 291
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Moneyshare Fund
________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
________________________________________________________________________________________________
<S> <C> <C> <C>
U. S. government agency (2.1%)
Federal Home Loan Bank
09-19-96 5.33% $6,000,000 $ 5,983,217
________________________________________________________________________________________________
Total U. S. government agency
(Cost: $5,983,217) 5,983,217
________________________________________________________________________________________________
Certificates of deposit (2.8%)
Eurodollar
ABN Amro Yankee
03-18-97 5.53 1,000,000 999,526
CIBC Yankee
01-09-97 5.50 1,000,000 1,000,000
03-20-97 5.71 1,000,000 1,000,000
Commerzbank Yankee
03-19-97 5.68 1,000,000 1,000,000
Deutsche Bank Yankee
03-21-97 5.73 1,000,000 1,000,000
Societe Generale Yankee
02-24-97 5.35 2,000,000 2,000,000
03-12-97 5.60 1,000,000 1,000,000
________________________________________________________________________________________________
Total certificates of deposit
(Cost: $7,999,526) 7,999,526
________________________________________________________________________________________________
Commercial paper (86.5%)
Automotive & related (3.7%)
Ford Motor Credit
10-04-96 5.33 2,700,000 2,686,485
10-11-96 5.28 4,000,000 3,976,083
Toyota Motor Credit
09-20-96 5.30 4,100,000 4,087,973
Total 10,750,541
________________________________________________________________________________________________
Banks and savings & loans (6.9%)
BBV Finance Delaware
10-15-96 5.33 8,800,000 8,741,700
11-22-96 5.37 4,100,000 4,049,806
First Union Bank
06-06-97 5.95 1,000,000 1,000,000
Kredietbank
10-29-96 5.50 5,000,000 4,955,504
PNC Bank
See accompanying notes to
investments in securities.
12-20-96 5.38 1,000,000 999,883
Total 19,746,893
________________________________________________________________________________________________
Beverages & tobacco (1.3%)
PepsiCo
10-10-96 5.31 3,800,000(b) 3,777,707
_______________________________________________________________________________________________
Broker dealers (5.3%)
Goldman Sachs Group
09-09-96 5.50 4,000,000 3,994,550
Merrill Lynch
10-11-96 5.31 6,500,000 6,460,913
Morgan Stanley Group
09-03-96 5.35 4,900,000 4,897,828
Total 15,353,291
_______________________________________________________________________________________________
<PAGE>
PAGE 292
Commercial finance (4.5%)
Ciesco LP
09-11-96 5.35 2,100,000 2,096,586
10-01-96 5.43 5,200,000 5,175,932
10-01-96 5.46 5,600,000 5,573,912
Total 12,846,430
_________________________________________________________________________________________________
Consumer finance (5.0%)
Avco Financial
10-30-96 5.49 5,000,000 4,954,833
11-01-96 5.51 4,100,000 4,061,587
Household Finance
10-01-96 5.47 5,500,000 5,474,330
Total 14,490,750
________________________________________________________________________________________________
Electronics (2.3%)
Siemens
09-18-96 5.44 6,600,000 6,582,213
________________________________________________________________________________________________
Energy (2.9%)
Chevron Transport
10-25-96 5.33 2,600,000(b) 2,579,027
Mobil Australia Finance
09-17-96 5.39 5,700,000(b) 5,685,600
Total 8,264,627
________________________________________________________________________________________________
Energy equipment & services (1.6%)
ABB Treasury
10-22-96 5.31 4,500,000(b) 4,465,745
________________________________________________________________________________________________
Financial services (23.1%)
American General Finance
09-27-96 5.42 6,500,000 6,473,821
Associates North America
09-09-96 5.40 5,000,000 4,993,287
Beneficial
09-12-96 5.39 4,500,000 4,491,975
09-26-96 5.31 1,900,000 1,892,741
CAFCO
09-19-96 5.42 4,600,000(b) 4,586,963
10-24-96 5.31 4,500,000 4,464,428
CIT Group Holdings
09-23-96 5.33 5,000,000 4,983,069
Fleet Funding
09-06-96 5.37 4,800,000(b) 4,795,720
General Electric Capital Services
10-21-96 5.32 6,000,000 5,955,120
10-22-96 5.32 6,000,000 5,954,240
Transamerica Financial
10-04-96 5.36 3,000,000 2,984,927
10-22-96 5.32 4,000,000 3,969,493
USAA Capital
10-08-96 5.32 7,000,000 6,960,913
10-21-96 5.31 4,000,000 3,970,137
Total 66,476,834
________________________________________________________________________________________________
Food (4.3%)
Cargill Global Funding
09-20-96 5.31 7,500,000 7,477,958
CPC Intl
10-17-96 5.49 5,000,000(b) 4,964,619
Total 12,442,577
________________________________________________________________________________________________
Health care (2.1%)
Sandoz
09-03-96 5.34 2,600,000(b) 2,598,847
09-11-96 5.39 3,500,000 3,494,268
Total 6,093,115
________________________________________________________________________________________________
Industrial equipment & services (1.7%)
Illinois Tool Works
10-08-96 5.47 5,000,000 4,971,447
________________________________________________________________________________________________
<PAGE>
PAGE 293
Insurance (6.5%)
Pacific Mutual Life
09-23-96 5.30 7,000,000 6,976,387
SAFECO Credit
10-07-96 5.36 3,900,000 3,878,676
11-25-96 5.39 8,100,000 7,996,865
Total 18,851,928
_______________________________________________________________________________________________
Media (3.0%)
Gannett
10-18-96 5.54 2,600,000(b) 2,581,037
Reed Elsevier
10-21-96 5.32 6,000,000(b) 5,955,120
Total 8,536,157
_______________________________________________________________________________________________
Retail (0.7%)
Penney (JC) Funding
09-05-96 5.33 2,100,000 2,098,451
_______________________________________________________________________________________________
Transportation (1.2%)
Consolidated Rail
10-08-96 5.34 3,600,000(b) 3,579,860
________________________________________________________________________________________________
Utilities -- gas (4.2%)
Ameritech
09-13-96 5.33 4,600,000(b) 4,591,196
Southern California Gas
11-07-96 5.37 7,500,000(b) 7,424,918
Total 12,016,114
_______________________________________________________________________________________________
Utilities -- telephone (6.2%)
Southwestern Bell
09-10-96 5.37 7,000,000 6,989,617
U S WEST Communications
09-17-96 5.44 6,000,000 5,984,728
09-23-96 5.40 4,900,000 4,883,220
Total 17,857,565
_______________________________________________________________________________________________
Total commercial paper
(Cost: $249,202,245) 249,202,245
_______________________________________________________________________________________________
Letters of credit (9.2 %)
Domestic (2.1%)
Bank of New York-
River Fuel
09-04-96 5.39 6,000,000(b) 5,996,420
_______________________________________________________________________________________________
Eurodollar (7.1%)
ABN Amro-
Sci Systems
10-08-96 5.33 4,000,000 3,977,495
Bank of Montreal-
Bancomer
10-04-96 5.32 3,200,000 3,183,922
Barclays Bank-
Banco Real
10-01-96 5.43 3,000,000 2,986,308
Credit Suisse-
Sinochem
09-04-96 5.34 4,000,000 3,997,627
Natl Westminster Bank-
Nebraska Higher Education
09-03-96 5.34 1,500,000 1,499,333
Societe Generale Yankee
09-03-96 5.32 5,000,000 4,997,783
Total 20,642,468
_______________________________________________________________________________________________
Total letters of credit
(Cost: $26,638,888) 26,638,888
_______________________________________________________________________________________________
Total investments in securities
(Cost: $289,823,876)(c) $289,823,876
________________________________________________________________________________________________
<PAGE>
PAGE 294
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." This security
has been determined to be liquid under guidelines established by the board.
(c) At Aug. 31, 1996, the cost also represents the cost of securities for federal income
tax purposes.
</TABLE>
<PAGE>
PAGE 295
<TABLE>
<CAPTION>
Investments in securities
Retirement Annuity Mutual Funds (Percentages represent value of
Aug. 31, 1996 investments compared to total net assets)
Managed Fund
Common & preferred stocks (64.8%)
Issuer Shares Value(a)
<S> <C> <C>
Aerospace & defense (4.4%)
Allied Signal 400,000 $ 24,700,000
Boeing 350,000 31,675,000
Litton Inds 512,900 (b) 23,913,962
Raytheon 800,000 41,200,000
United Technologies 285,000 32,133,750
Total 153,622,712
Airlines (0.4%)
Southwest Airlines 600,000 13,725,000
Banks and savings & loans (1.9%)
Citicorp 200,000 16,650,000
First Nationwide
$11.50 Pfd 20,000 2,180,000
Norwest 800,000 30,100,000
Washington Mutual 475,000 17,218,750
Total 66,148,750
Beverages & tobacco (3.4%)
Anheuser-Busch 400,000 30,300,000
Coca-Cola 720,000 36,000,000
PepsiCo 600,000 17,250,000
Philip Morris 380,000 (k) 34,105,000
Total 117,655,000
Building materials & construction (1.8%)
Clayton Homes 1,100,000 22,137,500
Tyco Intl 1,000,000 42,250,000
Total 64,387,500
Communications equipment & services (0.7%)
ADC Telecommunications 300,000 (b) 17,025,000
Loral Space Communication 600,000 (b) 8,475,000
Total 25,500,000
Computers & office equipment (6.8%)
American Power Conversion 2,050,000 (b) 28,187,500
Compaq Computer 675,000 (b) 38,221,875
Computer Associates 630,000 33,075,000
See accompanying notes to investments in securities.
First Data 400,000 31,200,000
Microsoft 225,000 (b,k) 27,562,500
Oracle Systems 800,000 (b) 28,200,000
3 Com 700,000 (b) 32,725,000
Xerox 300,000 16,462,500
Total 235,634,375
Electronics (1.1%)
Intel 470,000 37,511,875
Energy (1.6%)
Amoco 800,000 55,200,000
Financial services (7.1%)
American General Hospital 325,000 (b) 5,728,125
Bay Apartment 300,000 8,400,000
Dean Witter 400,000 20,000,000
Duke Realty 220,000 6,985,000
Equity Residential 275,000 9,728,125
Federal Natl Mortgage 600,000 18,600,000
Green Tree Financial 1,200,000 41,700,000
Health Care Property 200,000 6,775,000
<PAGE>
PAGE 296
MBNA 600,000 18,225,000
Nationwide Health 400,000 8,900,000
ROC Communities 300,000 7,200,000
Storage USA 200,000 6,500,000
Travelers 750,000 32,531,250
UNUM
$2.34 Cv Pfd 800,000 50,200,000
Weeks 200,000 5,725,000
Total 247,197,500
Food (1.0%)
ConAgra 400,000 16,850,000
Pioneer Hi-Bred 300,000 16,537,500
Total 33,387,500
Furniture & appliances (0.8%)
Black & Decker 700,000 27,650,000
Health care (4.5%)
American Home Products 540,000 31,995,000
Amgen 300,000 (b) 17,475,000
Boston Scientific 800,000 (b,g) 36,700,000
Medtronic 250,000 13,000,000
Merck 450,000 29,531,250
Pfizer 400,000 28,400,000
Total 157,101,250
Health care services (3.5%)
Cardinal Health 250,000 18,343,750
Columbia/HCA Healthcare 525,000 29,596,875
Manor Care 300,000 10,312,500
PacifiCare Health
Systems Cl B 310,000 (b,g) 24,955,000
Service Intl 300,000 16,912,500
United Healthcare 600,000 23,175,000
Total 123,295,625
Household products (1.3%)
Gillette 200,000 (k) 12,750,000
Proctor & Gamble 373,515 33,196,146
Total 45,946,146
Industrial equipment & services (3.1%)
American Standard 400,000 (b) 13,650,000
Deere & Co 800,000 31,800,000
General Signal 400,000 16,050,000
Hubbell 183,600 6,632,550
Illinois Tool Works 550,000 38,018,750
Total 106,151,300
Industrial transportation (0.7%)
Union Pacific 350,000 (g) 25,506,250
Insurance (0.9%)
PennCorp Financial Group 494,700 15,088,350
Travelers/Aetna 600,000 16,500,000
Total 31,588,350
Leisure time & entertainment (0.3%)
Disney (Walt) 200,000 11,400,000
Media (0.7%)
Time Warner 500,000 16,687,500
10.25% Pay-in-kind Pfd 6,133 (d,l) 6,178,997
Total 22,866,497
Metals (0.6%)
Freeport Copper Cl B 500,000 14,687,500
Newmont Mining 150,000 7,931,250
Total 22,618,750
<PAGE>
PAGE 297
Multi-industry conglomerates (4.3%)
ALCO Standard
6.50% Cv Pfd 129,250 11,002,406
Emerson Electric 560,000 46,900,000
General Electric 740,000 61,512,500
Olsten 700,000 19,512,500
Westinghouse Electric 700,000 11,462,500
Total 150,389,906
Paper & packaging (2.1%)
Crown Cork & Seal 775,000 36,231,250
Kimberly-Clark 450,000 35,268,750
Total 71,500,000
Retail (2.8%)
CUC Intl 1,000,000 (b,g) 34,375,000
Dollar General 657,100 21,191,475
Home Depot 530,000 28,156,250
Pep Boys -
Manny, Moe & Jack 400,000 13,400,000
Total 97,122,725
Utilities -- electric (1.4%)
CMS Energy 400,000 11,950,000
FPL Group 350,000 15,487,500
General Public Utilities 400,000 12,600,000
Pinnacle West Capital 300,000 8,625,000
Total 48,662,500
Utilities -- telephone (1.9%)
BCE 1,000,000 39,375,000
GTE 660,000 25,987,500
Total 65,362,500
Foreign (c) (5.7%)
ASEA Cl A 200,000 (b) 21,584,906
Ciba-Geigy 7,500 (b) 9,467,961
Ericsson Cl B 1,450,000 33,440,625
Northern Telecom 650,000 32,418,750
SGL Carbon 303,300 12,207,825
Sandoz Registered 25,000 (b) 29,747,521
SmithKline Beecham 430,000 25,047,500
TOTAL 950,000 35,268,750
Total 199,183,838
Total common & preferred stocks
(Cost: $1,849,748,900) $2,256,315,849
</TABLE>
<TABLE>
<CAPTION>
Bonds (30.5%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
<S> <C> <C> <C> <C>
U.S. government obligations (8.3%)
U.S. Treasury Bonds 7.25% 2016 $ 5,500,000 $ 5,493,400
7.50 2016 15,000,000 15,359,850
8.875 2017 12,000,000 14,054,880
U.S. Treasury Notes 5.125 1998 4,000,000 3,895,440
5.375 1997-98 113,000,000 111,504,330
5.75 2003 20,300,000 19,080,376
6.375 1999 15,000,000 14,956,050
6.75 1999 30,000,000 30,181,500
7.75 2000 56,000,000 57,933,120
7.875 2004 5,000,000 5,297,400
Resolution Funding Corp
Zero Coupon 6.62 2011 28,000,000 (f) 9,478,840
Total 287,235,186
<PAGE>
PAGE 298
Mortgage-backed securities (6.7%)
Federal Home Loan Mtge Corp 6.50 2025 34,143,716 31,647,127
8.00 2024 4,738,867 4,743,321
Collateralized Mtge Obligation
Trust Series Z 6.50 2023 5,555,327 (j) 4,234,826
Federal Natl Mtge Assn 5.50 2009 27,847,863 25,541,782
6.00 2024 6,524,369 5,853,598
6.50 2010-25 18,730,494 17,686,707
7.00 2026 9,719,308 9,254,628
7.40 2004 10,000,000 10,152,400
7.50 2025-26 34,153,766 33,385,307
8.00 2022 5,583,435 5,585,165
8.50 2023-25 20,572,306 20,958,037
9.00 2024 3,924,155 4,077,433
Collateralized Mtge Obligation
Trust Series Z 6.00 2024 6,968,401 (j) 4,912,235
7.00 2022 13,889,318 (j) 12,132,318
Govt Natl Mtge Assn 7.00 2008-24 44,203,586 42,676,979
Merrill Lynch Mtge Investors 8.29 2021 1,902,341 (d) 1,688,030
Total 234,529,893
Aerospace & defense (0.3%)
Airplanes Cl D 10.875 2019 1,750,000 1,859,375
Alliant Techsystems
Sr Sub Nts 11.75 2003 700,000 (d) 763,000
BE Aerospace 9.875 2006 2,500,000 (d) 2,503,125
Northrup-Grumman 7.75 2016 3,750,000 (d) 3,576,638
Total 8,702,138
Airlines (0.2%)
Continental Air 6.94 2015 5,100,000 (d,n) 4,861,881
Northwest Airlines 8.07 2015 2,000,000 1,995,060
8.97 2015 1,000,000 1,021,790
Total 7,878,731
Automotive & related (0.2%)
GMAC
Medium-term Nts 5.95 1998 7,000,000 6,917,120
8.375 1997 1,400,000 1,420,244
Total 8,337,364
Banks and savings & loans (0.6%)
First Nationwide Holdings
Sr Nts 12.50 2003 2,400,000 (n) 2,490,000
First USA Bank
Medium term Nts 6.88 1996 6,700,000 6,701,742
Norwest
Sr Nts 6.375 2002 5,800,000 5,580,006
Riggs Natl
Sub Nts 8.50 2006 4,900,000 4,942,875
Total 19,714,623
Building materials & construction (0.2%)
AAF McQuay
Sr Nts 8.875 2003 3,000,000 2,910,000
Owens Corning Fiberglass 9.375 2012 1,500,000 1,624,695
Schuller Intl Group 10.875 2004 1,750,000 1,894,375
Southdown 10.00 2006 1,400,000 (d) 1,394,750
Total 7,823,820
Communications equipment & services (0.5%)
Celcaribe
Zero Coupon Cv 10.31 1998 1,450,000 (d,h) 1,573,250
Comcast Cellular
Zero Coupon with attached put 9.53 2000 2,000,000 (f) 1,395,000
Geotek Communications
Cv 12.00 2001 2,000,000 (n) 2,200,000
GST Telecommunications
Zero Coupon Cv 5.25 2000 550,000 (d,h) 462,000
Ionica PLC 13.50 2006 2,020,000 2,012,425
Shared Technologies
Zero Coupon 12.25 1999 3,500,000 (d,h) 2,681,875
TCI Communications 7.875 2026 10,000,000 8,528,600
<PAGE>
PAGE 299
Total 18,853,150
Computers & office equipment (0.2%)
Softkey
Cv 5.50 2000 8,000,000 (d) 6,440,000
Energy (0.4%)
Honam Oil 7.125 2005 5,750,000 (d) 5,452,955
Parker & Parsley 8.25 2007 4,200,000 4,284,504
UNC
Sr Nts 9.125 2003 2,300,000 2,251,125
Sr Sub Nts 11.00 2006 1,900,000 (d,g) 1,976,000
Total 13,964,584
Energy equipment & services (0.2%)
Foster Wheeler 6.75 2005 8,600,000 8,072,562
Financial services (1.4%)
Associates Corp NA 6.375 2002 10,000,000 9,577,800
AVCO Financial 7.25 1999 4,750,000 4,805,385
Corporate Property Investors 7.18 2013 2,200,000 (d) 2,028,598
GPA Delaware 8.75 1998 1,000,000 1,000,000
Homeside 11.25 2003 2,500,000 (d) 2,646,875
KFW Intl Finance 8.00 2010 4,000,000 4,208,920
Olympic Financial 13.00 2000 2,000,000 2,180,000
Salomon Brothers 6.75 2006 4,000,000 3,640,040
Salomon Hewlett-Packard ELK
Cv Pfd 5.25 1997 8,752,500 (i) 10,500,000
Salomon-Oracle ELK
Cv Pfd 7.25 1996 9,803,628 (i) 9,735,900
Total 50,323,518
Furniture & appliances (0.2%)
Interface 9.50 2005 3,500,000 (d) 3,373,125
Life Style Furniture 10.875 2006 3,150,000 (d) 3,177,563
Total 6,550,688
Health care (0.9%)
Johnson & Johnson 8.00 1998 10,000,000 10,009,500
Maxxim Medical 10.50 2006 2,250,000 (d) 2,289,375
Roche Holdings
Zero Coupon 6.65 2010 30,000,000 (d,f) 13,162,500
Schering-Plough
Zero Coupon 7.31 1996 5,000,000 (d,f) 4,929,800
Total 30,391,175
Health care services (0.7%)
Columbia/HCA Healthcare 7.69 2025 3,600,000 3,490,128
Foundation Health
Sr Nts 7.75 2003 6,600,000 6,636,432
La Petite Holdings 9.625 2001 1,200,000 1,116,000
Magellan Health
Sr Sub Nts Cl A 11.25 2004 2,000,000 (d) 2,142,500
Manor Care 7.50 2006 6,000,000 5,929,620
Merit Behavioral 11.50 2005 1,300,000 (d) 1,363,375
Owens & Minor 10.875 2006 1,200,000 1,243,500
Tenet Healthcare
Sr Sub Nts 10.125 2005 2,000,000 2,152,500
Total 24,074,055
Household products (0.1%)
Sweetheart Cup
Sr Sub Nts 9.625 2000 2,000,000 2,022,500
Industrial equipment & services (0.2%)
AGCO 8.50 2006 2,200,000 (d) 2,191,750
Case 7.25 2005 5,000,000 4,856,300
Total 7,048,050
Insurance (1.0%)
American United Life 7.75 2026 2,500,000 (n) 2,256,025
Americo Life 9.25 2005 1,600,000 1,526,000
Arkwright 9.625 2026 3,000,000 (d) 3,018,810
<PAGE>
PAGE 300
Met Life 7.80 2025 6,900,000 (d) 6,422,520
MN Mutual Surplus 8.25 2025 2,700,000 (d) 2,769,390
Nationwide Mutual 7.50 2024 4,000,000 (d) 3,523,680
Credit Sensitive Nts 9.875 2025 5,000,000 (d) 5,337,900
New England Mutual
Credit Sensitive Nts 7.875 2024 2,000,000 (d) 1,881,760
Principal Mutual 8.00 2044 2,500,000 (d) 2,299,700
SunAmerica
Medium-term Nts 7.34 2005 5,000,000 4,878,350
Total 33,914,135
Leisure time & entertainment (0.2%)
Plitt Theatres 10.875 2004 3,000,000 3,071,250
Trump Atlantic City Associates 11.25 2006 2,250,000 2,160,000
Total 5,231,250
Media (1.5%)
Adelphia Communications 9.875 2005 1,500,000 1,391,250
Cablevision Systems 9.25 2005 3,000,000 2,880,000
Cox Communications 7.25 2015 5,000,000 4,634,350
7.625 2025 5,000,000 4,730,350
CS Wire 11.375 2001 500,000 (d) 960,000
Echostar Satellite Broadcasting
Zero Coupon Cv 13.125 2000 5,000,000 (d,f) 3,087,500
News American Holdings 7.50 2000 4,000,000 4,026,640
7.75 2045 10,000,000 8,782,200
Tele-Communications 8.75 2023 3,500,000 3,197,145
Time Warner 8.375 2033 5,000,000 (d) 4,752,100
9.15 2023 5,000,000 5,089,650
United Artist Theatre 9.30 2015 1,983,529 (d) 1,809,971
Universal Outdoor
Zero Coupon 9.95 2004 2,750,000 (d,f) 2,031,562
Viacom Intl 7.00 2003 2,000,000 1,836,100
8.00 2006 4,000,000 3,680,000
Total 52,888,818
Metals (0.1%)
Ryerson Tull 8.50 2001 4,000,000 4,010,000
Multi-industry conglomerates (0.1%)
Crane 7.25 1999 2,000,000 1,999,620
Prime Succession 10.75 2004 1,275,000 1,313,250
Talley Inds
Zero Coupon 11.19 1998 2,148,000 (h) 1,764,045
Total 5,076,915
Paper & packaging (0.2%)
Gaylord 12.75 2005 2,150,000 2,305,875
Pope & Talbot 8.375 2013 3,800,000 3,417,948
Total 5,723,823
Restaurants & lodging (--%)
Flagstar 10.875 2002 1,500,000 (g) 1,320,000
Retail (0.7%)
American Stores 8.00 2026 5,000,000 4,888,200
Bruno's
Sr Sub Nts 10.50 2005 250,000 255,625
Grand Union 12.00 2004 2,500,000 2,475,000
Jitney-Jungle Stores
Sr Nts 12.00 2006 2,500,000 2,628,125
Kash n' Karry Food Stores
Pay-in-kind 11.50 2003 3,000,000 (l) 3,000,000
Pep Boys - Manny,
Moe & Jack 7.00 2005 4,200,000 4,032,714
Wal-Mart 7.00 2006 5,000,000 (d) 4,914,350
White Rose Foods
Zero Coupon Sr Disc Nts 26.29 1998 1,000,000 (f) 691,250
Total 22,885,264
Textiles & apparel (0.1%)
Dominion Textiles 9.25 2006 2,000,000 1,982,500
Polysindo Intl Finance 11.375 2006 1,825,000 1,843,250
<PAGE>
PAGE 301
Total 3,825,750
Utilities -- electric (1.6%)
Alabama Power 9.00 2024 2,200,000 2,349,952
Arizona Public Service
Sale Lease-backed Obligation 8.00 2015 3,600,000 3,541,212
California Energy 9.875 2003 1,000,000 1,025,000
Cleveland Electric Illuminating 9.50 2005 7,000,000 6,845,230
Commonwealth Edison 8.375 2023 5,000,000 4,842,400
El Paso Electric 8.90 2006 2,750,000 2,750,000
First PV Funding 10.15 2016 3,000,000 3,024,630
Jersey Central Power & Light 6.75 2025 7,200,000 6,096,456
Long Island Lighting 9.75 2021 2,500,000 2,470,200
Niagara Mohawk Power 7.75 2006 5,500,000 4,831,365
Pacific Gas & Electric 7.25 2026 5,000,000 4,462,450
Public Services Electric & Gas 6.75 2016 2,600,000 2,319,928
Salton Sea 7.84 2010 1,325,000 (d) 1,248,521
Sithe Independent Funding 9.00 2013 1,500,000 (d) 1,463,790
Texas Utilities 5.875 1998 5,000,000 4,942,700
Wisconsin Electric Power 6.875 2095 2,800,000 2,405,928
Total 54,619,762
Utilities -- gas (0.5%)
ARKLA 9.875 1997 5,000,000 5,096,700
Coastal 10.25 2004 1,450,000 1,672,749
Columbia Gas 7.32 2010 7,000,000 6,508,950
Transcontinental Energy 9.375 2001 5,000,000 5,434,550
Total 18,712,949
Utilities -- telephone (0.1%)
MFS Telecommunications
Zero Coupon Cv 10.58 1999 3,000,000 (h) 2,437,500
Miscellaneous (0.4%)
Adams Outdoor Advertising 10.75 2006 1,700,000 (n) 1,755,250
Coty 10.25 2005 1,500,000 1,582,500
Kinder-Care Learning Centers 10.375 2001 2,750,000 2,890,937
Norcal Waste System
Sr Nts 12.50 2005 2,000,000 (d) 2,117,500
Pierce Leahy 11.125 2006 1,250,000 (d) 1,298,437
Standard Credit Card Trust 5.95 2004 3,000,000 2,785,200
8.625 2002 1,750,000 1,764,647
Total 14,194,471
Foreign (2.7%)(c)
Bank of China
(U.S. Dollar) 8.25 2014 2,500,000 2,321,600
CAF
(U.S. Dollar) 7.10 2003 5,200,000 5,028,764
China Light & Power
(U.S. Dollar) 7.50 2006 7,000,000 6,808,410
Clearnet Communications
(U.S. Dollar) Zero Coupon 14.75 2005 1,900,000 (h) 1,178,000
Financiero Ener Nacional
(U.S. Dollar) 9.375 2006 5,000,000 (d) 4,975,000
Govt Certificates of Israel
(U.S. Dollar) 9.25 2001 3,000,000 3,178,530
Govt of Poland
(U.S. Dollar) Step-up Nts 3.75 2014 14,950,000 (k) 11,801,156
Govt of Russia
(U.S. Dollar) 6.60 2049 3,000,000 (o) 1,768,125
Govt of Venezuela
(U.S. Dollar) 6.375 2007 1,500,000 (k) 1,158,750
Grupo Televisa
Sr Nts 11.875 2006 2,250,000 (d) 2,362,500
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 3,000,000 (d) 3,056,250
Korea Electric Power
(U.S. Dollar) 7.75 2013 2,100,000 2,046,429
Peoples Republic of China
(U.S.Dollar) 7.375 2001 2,000,000 1,996,920
(U.S. Dollar) 9.00 2096 2,500,000 2,367,900
Petronas
(U.S. Dollar) Cv 7.75 2015 6,000,000 (d) 5,843,040
Quno Corp
(U.S. Dollar) 9.125 2005 2,500,000 2,440,625
<PAGE>
PAGE 302
Reliance Inds
(U.S. Dollar) 8.125 2005 750,000 (d) 718,747
Repap New Brunswick
(U.S. Dollar) 10.625 2005 1,400,000 1,347,500
Republic of Argentina
(U.S. Dollar) 6.313 2005 3,960,000 (k) 3,073,950
Republic of Brazil
(U.S. Dollar) Inverse Floater 6.875 2012 2,000,000 (k) 1,418,750
Republic of Slovenia
(U.S. Dollar) 7.00 2001 3,600,000 (d) 3,592,800
Rogers Cable System
(Canadian Dollar) 7.06 2014 5,000,000 3,251,500
Rogers Cantel Mobile
(U.S. Dollar) 9.375 2008 2,800,000 2,747,500
State of Israel
(U.S. Dollar) 6.375 2005 1,850,000 1,706,570
Telekom Malaysia
(U.S. Dollar) 7.875 2025 3,000,000 (d) 2,908,470
United Mexican States
(U.S. Dollar) 11.50 2026 2,284,000 2,196,923
Usinor Sacilor
(U.S. Dollar) 7.25 2006 8,000,000 7,699,360
Zhuhai Highway
(U.S. Dollar) 11.50 2008 5,000,000 (d) 5,125,000
Total 94,119,069
Total bonds
(Cost: $1,073,683,580) $1,060,921,743
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (5.1%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
<S> <C> <C> <C>
U.S. government agency (0.1%)
Federal Home Loan Mtge Corp Disc Nts
09-12-96 5.24% $ 5,200,000 $ 5,190,941
Commercial paper (5.0%)
ANZ Delaware
11-06-96 5.39 6,000,000 5,936,750
AT&T
09-09-96 5.33 9,000,000 8,988,075
Associates North America
09-03-96 5.35 1,100,000 1,099,512
AVCO Financial Services
10-17-96 5.53 2,800,000 2,779,731
Barclays U.S. Funding
09-30-96 5.29 7,800,000 7,765,745
CAFCO
09-19-96 5.43 21,600,000 21,530,398
Cargill
10-01-96 5.36 5,800,000 5,773,429
10-04-96 5.29 10,000,000 9,950,228
CIT Group
09-23-96 5.33 8,500,000 8,471,218
Commercial Credit
09-24-96 5.33 5,500,000 5,480,567
10-03-96 5.32 7,000,000 6,966,056
Commerzbank U.S. Finance
09-10-96 5.30 7,000,000 6,989,733
Dean Witter
09-04-96 5.34 4,000,000 3,997,636
09-05-96 5.35 3,800,000 3,797,187
10-02-96 5.30 4,800,000 4,777,472
Merrill Lynch
09-27-96 5.34 4,900,000 4,880,522
Morgan Stanley Group
09-06-96 5.37 4,800,000 4,795,728
NBD Canada
09-13-96 5.30 7,900,000 7,884,937
Penney (JC) Funding
10-07-96 5.35 4,300,000 4,275,288
<PAGE>
PAGE 303
PepsiCo
10-10-96 5.31 2,200,000 (e) 2,187,093
Pfizer
09-11-96 5.33 14,400,000 (e) 14,376,680
09-26-96 5.26 6,200,000 (e) 6,176,536
Reed Elsevier
11-05-96 5.37 1,700,000 (e) 1,683,168
St. Paul Companies
09-18-96 5.30 7,600,000 (e) 7,579,936
Sandoz
09-20-96 5.33 3,700,000 (e) 3,689,106
Siemens
09-13-96 5.30 4,700,000 4,691,039
Toyota Motor Credit
09-13-96 5.30 1,400,000 1,397,331
USAA Capital
09-13-96 5.43 5,000,000 4,988,163
Total 172,909,264
Total short-term securities
(Cost: $178,116,192) $178,100,205
Total investments in securities
(Cost: $3,101,548,672)(p) $3,495,337,797
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency
indicated.
(d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended.
This security has been determined to be liquid under guidelines established by the board.
(e) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security
has been determined to be liquid under guidelines established by the board.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield from the date of acquisition.
(g) Security is partially or fully on loan. See Note 5 to the financial statements.
(h) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized
effective yield from the date of acquisition to interest reset date disclosed.
(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 either based on a predetermined schedule or to reflect current market conditions; rate shown is the
effective rate on Aug. 31,1996.
(l) Pay-in-kind securities are securities 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.
(m) At Aug. 31, 1996, securities valued at $20,980,000 were held to cover open call options written as follows:
Issuer Number of Exercise Expiration Value
contracts price date
Gillette 500 65 Sep. 1996 $ 50,000
Microsoft 500 135 Oct. 1996 62,500
Philip Morris 700 95 Sep. 1996 30,625
Philip Morris 600 100 Sep. 1996 3,750
Total $146,875
(n) 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, 1996, is as follows:
Aquisition Purchase
Security date cost
Adams Outdoor Advertising
10.75% 2006 03-05-96 $1,700,000
American United Life
7.75% 2026 02-13-96 2,500,000
Continental Air*
6.94% 2015 01-24-96 5,100,000
First Nationwide Holdings
12.50% Sr Nts 2003 04-12-96 2,372,712
Geotek Communications
12% Cv 2001 03-04-96 2,000,000
*Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended.
<PAGE>
PAGE 304
(o) At Aug. 31, 1996, the cost of securities purchased, including interest purchased, on a when-issued basis was $1,786,875.
(p) At Aug. 31, 1996, the cost of securities for federal income tax purposes was $3,100,838,074 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$442,557,644
Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(48,057,921)
Net unrealized appreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$394,499,723
</TABLE>
<PAGE>
PAGE 305
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) List of Financial Statements filed as part of this Post-
Effective Amendment to the Registration Statement:
Independent Auditor's Report dated Oct. 4, 1996.
Statements:
Statements of Assets and Liabilities, Aug. 31, 1996.
Statements of Operations for the year ended Aug. 31,
1996.
Statements of Changes in Net Assets for the year ended
Aug. 31, 1996 and the year ended Aug. 31, 1995.
Notes to financial Statements.
(b) Exhibits:
(1) Articles of Incorporation as amended October 13, 1989, filed
electronically as Exhibit No. 1 to Registrant's Post-Effective
Amendment No. 21 to Registration Statement No. 2-72584, is
incorporated herein by reference.
(2) By-Laws as amended January 12, 1989, filed electronically as
Exhibit No. 2 to Registrant's Post-Effective Amendment No. 21 to
Registration Statement No. 2-72584, is incorporated herein by
reference.
(3) Not Applicable.
(4) Form of stock certificate for common shares, is on file at the
Registrant's headquarters.
(5)(a) Investment Management Services Agreement between Registrant
and IDS Life Insurance Company dated March 20, 1995, filed
electronically as Exhibit No. 5(a) to Registrant's Post-Effective
Amendment No. 26 to Registration Statement No. 2-72584, is
incorporated herein by reference.
(5)(b) Investment Advisory Agreement between IDS Life and
IDS/American Express Inc. (IDS) dated July 11, 1984, and copy of
Addendum to the Investment Advisory Agreement for IDS Life
International Equity Fund, dated Jan. 8, 1992, filed electronically
as Exhibit No. 5(b) to Registrant's Post-Effective Amendment No. 21
to Registration Statement No. 2-72584, is incorporated herein by
reference.
(5)(c) Addendum to Investment Advisory Agreement between IDS Life
and American Express Financial Corporation for IDS Life
International Equity Fund, dated Janurary 1, 1995, filed
electronically herewith.
(5)(d) Administrative Services Agreement, dated March 20, 1995,
between IDS Life Moneyshare Fund, Inc. and American Express
Financial Corporation, filed electronically as Exhibit No. 5(c) to
Registrant's Post-Effective Amendment No. 26 to Registration
Statement No. 2-72584, is incorporated herein by reference.
(6) Not Applicable.<PAGE>
PAGE 306
(7) All employees who have attained age 21 and completed one year
of service are eligible to participate in a thrift plan. Entry
into the plan is Jan. 1 or July 2 following completion of the age
and service requirements. The Fund contributes each year an amount
equal to l5 percent of their annual salaries, the maximum amount
permitted under Section 404 (a) of the Internal Revenue Code, or up
to a maximum of 0.08 of 1 percent of the Fund's net income before
income taxes and other adjustments. Employees of the Registrant
become eligible to participate in a retirement plan on Jan. 1 or
July 1 following completion one year employment and attainment of
age 21. Contributions to the retirement plan cease no later than
the time at which the participant reaches the normal retirement age
of 65.
(8) Custodian Agreement between Registrant and American Express
Trust Company, dated March 20, 1995, filed electronically as
Exhibit No. 8 to Registrant's Post-Effective Amendment No. 26 to
Registration Statement No. 2-72584, is incorporated herein by
reference.
(9)(a) Plan and Agreement of Merger, dated April 10, 1986, filed
electronically as Exhibit No. 9(a) to Registrant's Post-Effective
Amendment No. 21 to Registration Statement No. 2-72584, is
incorporated herein by reference.
(9)(b) License Agreement between Registrant and IDS Financial
Corporation, dated January 25, 1988, filed electronically as
Exhibit No. 9(b) to Registrant's Post-Effective Amendment No. 21 to
Registration Statement No. 2-72584, is incorporated herein by
reference.
(10) Opinion of Richard J. O'Brien dated October 13, 1981, filed
electronically as Exhibit No. 10 to Registrant's Post-Effective
Amendment No. 21 to Registration Statement No. 2-72584, is
incorporated herein by reference.
(11) Independent Auditors' Consent, filed electronically herewith.
(12) None.
(13) Investment Letter of IDS Life Insurance Company, dated October
13, 1981, filed electronically as Exhibit No. 13 to Registrant's
Post-Effective Amendment No. 21 to Registration Statement No. 2-
72584, is incorporated herein by reference.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22 filed
as Exhibit 16 to Post-Effective Amendment No. 17 to Registration
Statement No. 2-72584 is incorporated herein by reference.
Addendum to the schedule for computation of each performance
quotation filed as Exhibit 16 to Post-Effective Amendment No. 20 to
Registration Statement No. 2-72584 is incorporated herein by
reference.
<PAGE>
PAGE 307
(17) Financial Data Schedule, filed electronically herewith.
(18)(a) Directors' Power of Attorney, dated November 10, 1994, to
sign Amendments to this Registration Statement, filed
electronically as Exhibit No. 18(a) to Registrant's Post-Effective
Amendment No. 26 to Registration Statement No. 2-72584, is
incorporated herein by reference.
(18)(b) Officers' Power of Attorney, dated November 1, 1995, to
sign Amendments to this Registration Statement, filed
electronically as Exhibit No. 18(b) to Registrant's Post-Effective
Amendment No. 28 to Registration Statement No. 2-72584, is
incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with
Registrant
IDS Life and its subsidiaries are the record holders of all
outstanding shares of IDS Life Investment Series, Inc., IDS Life
Special Income Fund, Inc., IDS Life Moneyshare Fund, Inc. and IDS
Life Managed Fund, Inc. All of such shares were purchased and
are held by IDS Life and its subsidiaries pursuant to instructions
from owners of variable annuity contracts issued by IDS Life and
its subsidiaries. Accordingly, IDS Life disclaims beneficial
ownership of all shares of each fund.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class October 1, 1996
Capital Stock Six
($.01 par)
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the
Fund shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that she or he
is or was a director, officer, employee or agent of the Fund, or is
or was serving at the request of the Fund as a director, officer,
employee or agent of another company, partnership, joint venture,
trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may
purchase liability insurance and advance legal expenses, all to the
fullest extent permitted by the laws of the State of Minnesota, as
now existing or hereafter amended.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act <PAGE>
PAGE 308
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Any indemnification hereunder shall not be exclusive of any other
rights of indemnification to which the directors, officers,
employees or agents might otherwise be entitled. No
indemnification shall be made in violation of the Investment
Company Act of 1940.
<PAGE>
PAGE 309
<TABLE><CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(IDS Life).
Directors and officers of IDS Life who are directors and/or officers of one or more other
companies:
Timothy V. Bechtold, Vice President--Risk Management Products
<S> <C> <C>
American Express Financial Advisors IDS Tower 10 Vice President-Risk
Minneapolis, MN 55440 Management Products
American Express Financial Corporation Vice President-Risk
Management Products
David J. Berry, Vice President
Robert M. Elconin, Vice President
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Government Relations
American Express Financial Corporation Vice President-
Government Relations
Morris Goodwin Jr., Vice President and Treasurer
American Centurion Life Assurance Co. 20 Madison Ave. Ext. Vice President and
Albany, NY 12203 Treasurer
American Enterprise Investment IDS Tower 10 Vice President and
Services Inc. Minneapolis, MN 55440 Treasurer
American Enterprise Life Insurance Co. Vice President and
Treasurer
American Express Financial Advisors Vice President and
Corporate Treasurer
American Express Financial Corporation Vice President and
Corporate Treasurer
American Express Insurance Agency of Nevada Inc. Vice President and
Treasurer
American Express Minnesota Foundation Vice President and
Treasurer
American Express Tax & Business Vice President and
Services Inc. Treasurer
American Partners Life Insurance Co. Vice President and
Treasurer
AMEX Assurance Co. Vice President and
Treasurer
IDS Advisory Group Inc. Vice President and
Treasurer
IDS Aircraft Services Corporation Vice President and
Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President and
Treasurer
<PAGE>
PAGE 310
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
IDS Certificate Company Vice President and
Treasurer
IDS Deposit Corp. Director, President
and Treasurer
IDS Futures Corporation Director
IDS Futures III Corporation Director
IDS Insurance Agency of Alabama Inc. Vice President and
Treasurer
IDS Insurance Agency of Arkansas Inc. Vice President and
Treasurer
IDS Insurance Agency of Massachusetts Inc. Vice President and
Treasurer
IDS Insurance Agency of New Mexico Inc. Vice President and
Treasurer
IDS Insurance Agency of North Carolina Inc. Vice President and
Treasurer
IDS Insurance Agency of Ohio Inc. Vice President and
Treasurer
IDS Insurance Agency of Wyoming Inc. Vice President and
Treasurer
IDS International, Inc. Vice President and
Treasurer
IDS Life Series Fund, Inc. Vice President and
Treasurer
IDS Life Variable Annuity Funds A&B Vice President and
Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Corporation Director, Vice President
and Treasurer
IDS Plan Services of California, Inc. Vice President and
Treasurer
IDS Property Casualty Insurance Co. Vice President and
Treasurer
IDS Real Estate Services, Inc Vice President and
Treasurer
IDS Realty Corporation Director, Vice President
and Treasurer
IDS Sales Support Inc. Director, Vice President
and Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Development Corp. Vice President and
Treasurer
National Computer Systems, Inc. 11000 Prairie Lakes Drive Director
Minneapolis, MN 55440
NCM Capital Management Group, Inc. 2 Mutual Plaza Director
501 Willard Street
Durham, NC 27701
Sloan Financial Group, Inc. Director
Lorraine R. Hart, Vice President--Investments
American Enterprise Life IDS Tower 10 Vice President-Investments
Insurance Company Minneapolis, MN 55440<PAGE>
PAGE 311
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
American Express Financial Advisors Vice President-Insurance
InvestmentsAmerican
Express Financial Corporation Vice President-Insurance
Investments
American Partners Life Insurance Co. Director and Vice
President-Investments
AMEX Assurance Company Vice President-Investments
IDS Certificate Company Vice President-Investments
IDS Life Series Fund, Inc. Vice President-Investments
IDS Life Variable Annuity Funds A and B Vice President-Investments
IDS Property Casualty Insurance Co. Vice President-Investment
Officer
Investors Syndicate Development Corp. Director and Vice
President-Investments
Michael J. Hogan, Director and Executive Vice President--Variable Assets
American Express Financial Advisors IDS Tower 10 Vice President-Variable
Minneapolis, MN 55440 Assets
American Express Financial Corporation Vice President-Variable
Assets
IDS Life Series Fund, Inc. Director
IDS Life Variable Annuity Funds A&B Manager
David R. Hubers, Director
American Express Financial Advisors IDS Tower 10 Chairman, Chief Executive
Minneapolis, MN 55440 Officer and President
American Express Financial Corporation Director, President and
Chief Executive Officer
American Express Service Corporation Director and Executive
Vice President
AMEX Assurance Co. Director
IDS Aircraft Services Corporation Director
IDS Certificate Company Director
IDS Plan Services of California, Inc. Director and President
IDS Property Casualty Insurance Co. Director
James M. Jensen, Vice President--Insurance Product Development
American Express Financial Advisors IDS Tower 10 Vice President- Life
Minneapolis, MN 55440 Products
American Express Financial Corporation Vice President- Life
Products
Richard W. Kling, Director and President
American Centurion Life Assurance Co. 20 Madison Ave. Extension Director
Albany, NY 12203
American Enterprise Life Insurance Co. IDS Tower 10 Director and Chairman of
Minneapolis, MN 55440 the Board
American Express Financial Advisors Senior Vice President-
Products
American Express Financial Corporation Director and Senior Vice
President- Products
American Express Insurance Agency of Nevada Inc. Director and President<PAGE>
PAGE 312
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
American Express Service Corporation Vice President
American Partners Life Insurance Co. Director and Chairman of
the Board
AMEX Assurance Co. Director and Chairman of
the Board
IDS Certificate Company Director and Chairman
of the Board
IDS Insurance Agency of Alabama Inc. Director and President
IDS Insurance Agency of Arkansas Inc. Director and President
IDS Insurance Agency of Massachusetts Inc. Director and President
IDS Insurance Agency of New Mexico Inc. Director and President
IDS Insurance Agency of North Carolina Inc. Director and President
IDS Insurance Agency of Ohio Inc. Director and President
IDS Insurance Agency of Wyoming Inc. Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Funds A&B Chairman of the Board of
Managers and President
IDS Property Casualty Insurance Co. Director and Chairman of
the Board
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
Paul F. Kolkman, Director and Executive Vice President
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Actuarial Finance
American Express Financial Corporation Vice President-
Actuarial Finance
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty Insurance Co. Director
Ryan R. Larson, Vice President
American Centurion Life Assurance Co. 20 Madison Ave. Extension Director and Vice
Albany, NY 12203 President-Product
Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 IPG Product Development
American Express Financial Corporation Vice President-
IPG Product Development
James A. Mitchell, Director, Chairman of the Board and Chief Executive Officer
American Enterprise Investment IDS Tower 10 Director
Services Inc. Minneapolis, MN 55440
American Express Financial Advisors Executive Vice President-
Marketing and Products
American Express Financial Corporation Director and Executive
Vice President-Marketing
and Products
American Express Service Corporation Senior Vice President
American Express Tax and Business Director
Services Inc.
AMEX Assurance Company Director
IDS Certificate Company Director<PAGE>
PAGE 313
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
IDS Plan Services of California, Inc. Director
IDS Property Casualty Insurance Co. Director
Barry J. Murphy, Director and Executive Vice President--Client Service
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Client Service
American Express Financial Corporation Director and Senior Vice
President-Client Service
James R. Palmer, Vice President--Taxes
American Express Financial Advisors IDS Tower 10 Vice President-Taxes
Minneapolis, MN 55440
American Express Financial Corporation Vice President-Taxes
IDS Aircraft Services Corporation Vice President
Stuart A. Sedlacek, Director and Executive Vice President--Assured Assets
American Centurion Life Assurance Co. IDS Tower 10 Director, Chairman of the
Minneapolis, MN 55440 Board and President
American Enterprise Life Insurance Co. Director and Executive
Vice President, Assured
Assets
American Express Financial Advisors Vice President-
Assured Assets
American Express Financial Corporation Vice President-
Assured Assets
American Partners Life Insurance Company Director and President
IDS Certificate Company Director and President
Investors Syndicate Development Corp. Chairman of the Board
and President
F. Dale Simmons, Vice President--Real Estate Loan Management and Assistant Treasurer
American Enterprise Life Insurance Co. IDS Tower 10 Vice President-Real
Minneapolis, MN 55440 Estate Loan Management
American Express Financial Advisors Vice President-Senior
Portfolio Manager,
Insurance Investments
American Express Financial Corporation Vice President-Senior
Portfolio Manager,
Insurance Investments
American Partners Life Insurance Co. Vice President-Real
Estate Loan Management
AMEX Assurance Company Vice President
IDS Certificate Company Vice President-Real
Estate Loan Management
IDS Partnership Services Corporation Vice President
IDS Real Estate Services Inc. Director and Vice President
IDS Realty Corporation Vice President
IDS Life Insurance Company of New York Box 5144 Vice President and
Albany, NY 12205 Assistant Treasurer
<PAGE>
PAGE 314
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
William A. Stoltzmann, Vice President, General Counsel and Secretary
American Enterprise Life Insurance Co. IDS Tower 10 Director, Vice President,
Minneapolis, MN 55440 General Counsel and
Secretary
American Express Financial Advisors Vice President and
Assistant General Counsel
American Express Financial Corporation Vice President and
Assistant General Counsel
American Partners Life Insurance Co. Director, Vice President
General Counsel and
Secretary
Melinda S. Urion, Director, Executive Vice President and Controller
American Enterprise Life Insurance Co. IDS Tower 10 Vice President and
Minneapolis, MN 55440 Controller
American Express Financial Advisors Senior Vice President and
Chief Financial Officer
American Express Financial Corporation Senior Vice President and
Chief Financial Officer
American Express Trust Company Director
American Partners Life Insurance Co. Director and Vice President
</TABLE>
Item 29. The Fund has no principal underwriter.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440-0010
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) The Registrant undertakes to file a post-
effective amendment using financial statements
which need not be certified, within four to six
months from the effective date of Registrant's
1933 Act Registration Statement.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 315
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, IDS Life Moneyshare
Fund, Inc. certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and State of Minnesota on the 29th day
of October, 1996.
IDS LIFE MONEYSHARE FUND, INC.
By
Melinda S. Urion, Treasurer
By /s/ William R. Pearce**
William R. Pearce, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on the 29th day
of October, 1996.
Signature Capacity
/s/ William R. Pearce* President, Principal
William R. Pearce Executive Officer and
Director
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ Robert F. Froehlke* Director
Robert F. Froehlke
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ Melvin R. Laird* Director
Melvin R. Laird
/s/ James A. Mitchell* Director
James A. Mitchell
<PAGE>
PAGE 316
Signature Capacity
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated November 10,
1994, filed electronically as Exhibit 18(a) to Registrant's Post-
Effective Amendment No. 26 by:
____________________________
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated November 1,
1995, filed electronically as Exhibit 18(b) to Registrant's Post-
Effective Amendment No. 28 by:
____________________________
Leslie L. Ogg
<PAGE>
PAGE 317
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 30
TO REGISTRATION STATEMENT NO. 2-72584
This post-effective amendment contains the following papers and
documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements
Part C.
Other information.
The signatures.
<PAGE>
PAGE 1
IDS Life Moneyshare Fund, Inc.
File No. 2-72584/811-3190
EXHIBIT INDEX
Exhibit 5(c): Addendum to Investment Advisory Agreement between
IDS Life and American Express Financial
Corporation for IDS Life International Equity
Fund, dated January 1, 1995.
Exhibit 11: Independent Auditor's Consent.
Exhibit 17: Financial Data Schedule.
<PAGE>
PAGE 1
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
The following provision is added to Section 6, Compensation to IDS,
of the Investment Advisory Agreement between IDS Life Insurance
Company (IDS Life) and IDS/American Express, Inc. (IDS) [now known
as IDS Financial Corporation] dated July 11, 1984. All other
provisions of this Investment Advisory Agreement remain in full
force and effect.
6. Compensation to IDS. In addition to the fee for services
provided under the Investment Advisory Agreement described above,
IDS Life Investment Series, Inc. for IDS Life International Equity
Fund shall pay IDS Life a fee for each calendar day of each year
equal to the total of 1/365th (1/366th in each leap year) of 0.10%
of the net assets of IDS Life International Equity Fund for a total
of 0.35% of the net assets of IDS Life International Equity Fund.
This additional 0.10% fee shall be paid on a monthly basis in cash
by IDS Life to IDS within five (5) business days after the last day
of each month.
IN WITNESS WHEREOF, the parties have executed this Addendum as of
this 1st day of January, 1995.
IDS LIFE INSURANCE COMPANY
Attest:/s/ Nancy Careaga By:/s/ Richard W. Kling
Nancy Careaga Richard W. Kling
Title: Assistant Secretary Title: President
AMERICAN EXPRESS FINANCIAL
CORPORATION
Attest:/s/ Colleen Curran By:/s/ William A. Stoltzmann
Colleen Curran William A. Stoltzmann
Title: Secretary Title: Vice President
<PAGE>
PAGE 1
Independent Auditors' Consent
___________________________________________________________________
The board and shareholders
IDS Life Investment Series, Inc.
IDS Life Special Income Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
We consent to the use of our reports included or incorporated
herein by reference, and to the references to our Firm under the
heading "FINANCIAL HIGHLIGHTS" in Part A and "INDEPENDENT AUDITORS"
in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 30, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
PAGE 1
<ARTICLE> 6
<NAME> IDS LIFE MONEYSHARE FUND
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 289823876
<INVESTMENTS-AT-VALUE> 289819464
<RECEIVABLES> 1130382
<ASSETS-OTHER> 238315
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 291115794
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3000349
<TOTAL-LIABILITIES> 3000349
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 288120491
<SHARES-COMMON-STOCK> 288142905
<SHARES-COMMON-PRIOR> 226959381
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (634)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4412)
<NET-ASSETS> 288115445
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14076718
<OTHER-INCOME> 0
<EXPENSES-NET> 1417797
<NET-INVESTMENT-INCOME> 12658921
<REALIZED-GAINS-CURRENT> 325
<APPREC-INCREASE-CURRENT> (4412)
<NET-CHANGE-FROM-OPS> 12654834
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12658921)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 247309082
<NUMBER-OF-SHARES-REDEEMED> (198,785,551)
<SHARES-REINVESTED> 12659993
<NET-CHANGE-IN-ASSETS> 61,174479
<ACCUMULATED-NII-PRIOR> 10161955
<ACCUMULATED-GAINS-PRIOR> (152)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1283789
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1417797
<AVERAGE-NET-ASSETS> 252395306
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<PAGE>
PAGE 2
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
