<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 35 (File No. 2-73115) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 37 (File No. 811-3218) X
IDS LIFE INVESTMENT SERIES, INC.
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
X on October 30, 1997 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.
<PAGE>
CROSS REFERENCE SHEET
Cross reference sheet for the Retirement Annuity Mutual Funds 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.
PART A
Item No. Location in Prospectus
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
(g) NA
8(a) NA
(b) NA
(c) NA
(d) NA
9 None
<PAGE>
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 fund is 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 is located in annual report.
**Designates location in the prospectus, which is hereby incorporated by
reference in the Statement of Additional Information.
<PAGE>
Retirement Annuity Mutual Funds
Prospectus/October 30, 1997
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, 1997, 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 SEC 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 bank or financial institution,
and the securities it offers are not deposits or obligations of, or guaranteed
or endorsed by, any bank or financial institution, nor are they insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
<PAGE>
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]
[800-437-0602]
[TTY: 800-285-8846]
[800-422-3542]
[800-333-3437]
<PAGE>
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>
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.
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.
<PAGE>
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.
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."
<PAGE>
Performance
Financial highlights
Capital Resource Fund
Financial highlights
Fiscal year ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71
of period
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Income from investment
operations: .16 .30 .29 .29 .23 .21 .40 .52 .39 .31
Net investment income (loss)
Net gains (losses) on
securities (both realized 6.45 1.22 3.70 1.56 1.89 1.75 6.61 (2.06) 5.38 (2.54)
and unrealized)
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total from investment
operations 6.61 1.52 3.99 1.85 2.12 1.96 7.01 (1.54) 5.77 (2.23)
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Less distributions:
Dividends from net (.15) (.29) (.29) (.29) (.23) (.21) (.40) (.52) (.27) (.31)
investment income
Distributions from realized (4.05) (.07) (2.71) (2.71) (1.21) (1.00) (1.00) (.57) (.27) (.11)
gains
Excess distributions from
net (.01) (.01) -- -- -- -- -- -- -- --
investment income
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total distributions (4.21) (.37) (3.00) (3.00) (1.44) (1.21) (1.40) (1.09) (.66) (.42)
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Net asset value, end of $27.97 $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06
period
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets (end of period)
(in millions) $4,867 $4,372 $3,845 $2,899 $2,308 $1,681 $1,191 $702 $660 $454
Ratio of expenses to
average .67% .68% .69% .68% .68% .70% .70% .70% .73% .69%
daily net assets
Ratio of net income (loss)
to average daily net assets .61% 1.15% 1.22% 1.20% .94% .91% 1.94% 2.69% 2.22% 2.01%
Portfolio turnover rate
(excluding short-term 110% 131% 88% 85% 65% 63% 74% 82% 42% 111%
securities)
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total returnb 28.47% 6.15% 17.18% 7.61% 8.87% 8.54% 40.68% (7.79%) 38.72% (12.59%)
Average brokerage $.0492 $.0565 -- -- -- -- -- -- -- --
commission ratec
- ----------------------------- --------- ---------- -------- -------- -------- -------- --------- ---------- -------- ----------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
c Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charges. The comparability of this information may be affected by
the fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
<PAGE>
Special Income Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09
period
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Income from investment operations:
Net investment income (loss) .85 .88 .88 .84 .85 .90 .97 .99 1.03 1.03
Net gains (losses) on securities
(both realized and unrealized) .52 (.07) .56 (.99) .82 .54 .62 (1.01) .23 (.21)
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Total from investment operations 1.37 .81 1.44 (.15) 1.67 1.44 1.59 (.02) (1.26) .82
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Less distributions:
Dividends from net investment (.84) (.85) (.87) (.85) (.85) (.90) (.97) (.99) (1.03) (1.03)
income
Distributions from realized gains (.07) -- (.02) (.02) -- -- -- -- -- --
Excess distributions from net
investment income (.01) -- (.02) (.01) -- -- -- -- -- --
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Total distributions (.92) (.85) (.91) (.88) (.85) (.90) (.97) (.99) (1.03) (1.03)
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Net asset value, end of period $11.99 $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of period
(in millions) $1,923 $1,912 $1,703 $1,559 $1,551 $1,136 $800 $641 $565 $428
Ratio of expenses to average
daily net assets .68% .68% $.68% .67% .69% .71% .70% .71% .73% .69%
Ratio of net income to average
daily net assets 7.18% 7.47% 8.08% 7.20% 7.41% 8.22% 9.31% 9.42% 9.37% 9.45%
Portfolio turnover rate (excluding
short-term securities) 73% 56% 56% 57% 77% 92% 97% 118% 132% 169%
- ----------------------------------- -------- --------- -------- ---------- ------- -------- -------- -------- ------- --------
Total returnb 12.24% 7.08% 13.75% (1.30)% 15.47% 13.96% 16.54% (.12)% 12.19% 7.76%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
Managed Fund
Financial highlights
Fiscal year ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87 $11.34
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Income from investment operations:
Net investment income .46 .46 .40 .47 .49 .56 .58 .65 .48 .42
Net gains (losses) on securities
(both realized and unrealized) 3.93 1.15 1.20 (.26) 1.60 .95 2.11 (.67) 2.25 (1.47)
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Total from investment operations 4.39 1.61 1.60 .21 2.09 1.51 2.69 (.02) 2.73 (1.05)
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Less distributions:
Dividends from net investment (.45) (.46) (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52) (.42)
income
Distributions from realized gains (1.06) -- -- (.41) (.36) (.46) (.45) (.48) (.04) --
Excess Distributions from
net investment income (.01) -- -- -- -- -- -- -- -- --
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Total distributions (1.52) (.46) (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52) (.42)
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Net asset value, end of period $18.87 $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of period
(in millions) $4,445 $3,482 $3,044 $2,499 $1,858 $1,169 $810 $545 $462 $381
Ratio of expenses to average
daily net assets .64% .65% .68% .68% .69% .71% .70% .71% .73% .69%
Ratio of net income (loss) to
average daily net assets 2.65% 2.94% 2.96% 3.46% 3.70% 4.35% 4.86% 5.42% 5.06% 4.42%
Portfolio turnover rate (excluding
short-term securities)
72% 85% 72% 79% 58% 50% 52% 37% 69% 62%
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
Total returnb 28.54% 10.95% 11.94% 1.51% 16.33% 12.14% 25.24% (.23)% 28.47% (9.06)%
Average brokerage commission ratec $.0334 $0.0606 -- -- -- -- -- -- -- --
- ----------------------------------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ---------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
c Effective fiscal year 1996, the Fund is required to disclose an average brokerage commission rate per share
for security trades on which commissions are charges. The comparability of
this information may be affected by the fact that commission rates per
share vary significantly among foreign countries.
</TABLE>
<PAGE>
Moneyshare Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
period
- ----------------------------------- -------- ------- ------- -------- ------- -------- ------- ------- ------- --------
Income from investment operations:
Net investment income (loss) .05 .05 .05 .03 .03 .04 .07 .08 .09 .07
- ----------------------------------- -------- ------- ------- -------- ------- -------- ------- ------- ------- --------
Less distributions:
Dividends from net investment (.05) (.05) (.05) (.03) (.03) (.04) (.07) (.08) (.09) (.07)
income
- ----------------------------------- -------- ------- ------- -------- ------- -------- ------- ------- ------- --------
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
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of period
(in millions) $421 $288 $227 $179 $180 $246 $285 $274 $160 $102
Ratio of expenses to average
daily net assets .57% .56% .59% .57% .60% .60% .57% .62% .54% .58%
Ratio of net income (loss) to
average daily net assets 4.97% 5.02% 5.23% 3.12% 2.67% 3.93% 6.55% 7.85% 8.68% 6.77%
- ----------------------------------- -------- ------- ------- -------- ------- -------- ------- ------- ------- --------
Total returnb 5.06% 5.16% 5.27% 3.15% 2.73% 3.98% 6.77% 8.18% 8.99% 7.01%
- ----------------------------------- -------- ------- ------- -------- ------- -------- ------- ------- ------- --------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
International Equity Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992**
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $13.30 $12.55 $12.91 $11.60 $10.01 $10.00
period
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (loss) .18 .20 .17 .14 .15 .05
Net gains (losses) on securities
(both realized and unrealized 1.06 1.01 (.37) 1.61 1.81 .01
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total from investment operations 1.24 1.21 (.20) 1.75 1.96 .06
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment (.17) (.44) (.16) (.08) (.15) (.05)
income
Distributions from realized gains (.28) (.02) -- (.29) (.22) --
Excess distributions from -- -- -- (.07) -- --
realized gains
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.45) (.46) (.16) (.44) (.37) (.05)
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of period $14.09 $13.30 $12.55 $12.91 $11.60 $10.01
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992b
Net assets, end of period
(in millions) $2,105 $1,874 $1,442 $1,111 $291 $39
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Ratio of expenses to average
daily net assets .97% .96% 1.03$ .98% 1.10% 1.57%c
Ratio of net income (loss) to
average daily net assets 1.30% 1.28% 1.56% 1.09% 1.37% 0.93%c
Portfolio turnover rate (excluding
short-term securities) 91% 58% 38% 51% 62% 22%
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total returnd 9.34% 9.64% (1.77%) 15.11% 19.76% 0.55%
Average brokerage commission ratee $.0187 $.0186 -- -- -- --
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from Jan. 13, 1992 to Aug. 31, 1992.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges. e Effective fiscal year 1996, the
Fund is required to disclose an average brokerage commission rate per share
for security trades on which commissions are charges. The comparability of
this information may be affected by the fact that commission rates per
share vary significantly among foreign countries.
</TABLE>
<PAGE>
Aggressive Growth Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $16.04 $14.44 $11.46 $11.68 $9.00 $10.00
period
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (loss) .08 .10 .08 .01 .02 .02
Net gains (losses) on securities
(both realized and unrealized) 2.84 .60 2.98 (.22) 2.68 (1.00)
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total from investment operations 2.92 1.70 3.06 (.21) 2.70 (.98)
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment (.08) (.10) (.08) (.01) (.02) (.02)
income
Distributions from realized gains (1.71) -- -- -- -- --
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (1.79) (.10) (.08) (.01) (.02) (.02)
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of period 17.17 $16.04 $14.44 $11.46 $11.68 $9.00
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992b
Net assets, end of period
(in millions) $2,427 $1,941 $1,412 $763 $299 $57
Ratio of expenses to average .
daily net assets .68% .69% .70% .69% .75% 98%c
Ratio of net income to average
daily net assets .47% .65% .72% .14% .28% .21%c
Portfolio turnover rate (excluding
short-term securities) 218% 189% 116% 59% 55% 28%
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total returnd 18.60% 11.82% 26.80% (1.77)% 29.98% (9.76)%
Average brokerage commission ratee $.0430 $.0531 -- -- -- --
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from Jan. 13, 1992 to Aug. 31, 1992.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges. e Effective fiscal year 1996, the
Fund is required to disclose an average brokerage commission rate per share
for security trades on which commissions are charges. The comparability of
this information may be affected by the fact that commission rates per
share vary significantly among foreign countries.
</TABLE>
<PAGE>
Growth Dimension Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changesa
1997 1996b
Net asset value, beginning of period $9.94 $10.00
- ----------------------------------------- -------- -----------
Income from investment operations:
Net investment income .10 .03
Net gains (losses) on securities
(both realized and unrealized) 3.01 (.06)
- ----------------------------------------- -------- -----------
Total from investment operations 3.11 (.03)
- ----------------------------------------- -------- -----------
Less distributions:
Dividends from net investment income (.10) (.03)
- ----------------------------------------- -------- -----------
Net asset value, end of period $12.95 $9.94
- ----------------------------------------- -------- -----------
Ratios/supplemental data
1997 1996b
Net assets, end of period (in millions) $1,307 $171
- ----------------------------------------- -------- -----------
Ratio of expenses to average
daily net assets .72% 1.047%c
Ratio of net income (loss) to average
daily net assets 1.04% 1.69%c
Portfolio turnover rate (excluding
short-term securities) 29% 4%
- ----------------------------------------- -------- -----------
Total returnd 31.35% (.22)%
Average brokerage commission ratee $.0321 $0.0559
- ----------------------------------------- -------- -----------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from May 1, 1996 to Aug. 31, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges. e Effective fiscal year 1996, the
Fund is required to disclose an average brokerage commission rate per share
for security trades on which commissions are charges. The comparability of
this information may be affected by the fact that commission rates per
share vary significantly among foreign countries.
<PAGE>
Global Yield Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changesa
1997 1996b
Net asset value, beginning of period $10.08 $10.00
- ----------------------------------------- -------- -----------
Income from investment operations:
Net investment income (loss) .51 .12
Net gains on securities
(both realized and unrealized) .14 .07
- ----------------------------------------- -------- -----------
Total from investment operations .65 .19
- ----------------------------------------- -------- -----------
Less distributions:
Dividends from net investment income (.41) (.11)
- ----------------------------------------- -------- -----------
Net asset value, end of period $10.32 $10.08
- ----------------------------------------- -------- -----------
Ratios/supplemental data
1997 1996b
Net assets, end of period (in millions) $119 $21
- ----------------------------------------- -------- -----------
Ratio of expenses to average
daily net assets .97% 1.77%c
Ratio of net income to average
daily net assets 5.66% 4.96%c
Portfolio turnover rate (excluding
short-term securities) 36% 4%
- ----------------------------------------- -------- -----------
Total returnd 6.47% 1.95%
- ----------------------------------------- -------- -----------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from May 1, 1996 to Aug. 31, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
Income Advantage Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changesa
1997 1996b
Net asset value, beginning of period $9.77 $10.00
- ----------------------------------------- -------- -----------
Income from investment operations:
Net investment income (loss) .88 .18
Net gains (losses) on securities
(both realized and unrealized) .62 (.23)
- ----------------------------------------- -------- -----------
Total from investment operations 1.50 (.05)
- ----------------------------------------- -------- -----------
Less distributions:
Dividends from net investment income .88 (.18)
- ----------------------------------------- -------- -----------
Net asset value, end of period $10.39 $9.77
- ----------------------------------------- -------- -----------
Ratios/supplemental data
1997 1996b
Net assets, end of period (in millions) $320 $49
- ----------------------------------------- -------- -----------
Ratio of expenses to average
daily net assets .69% 1.53%c
Ratio of net income to average
daily net assets 8.88% 8.14%c
Portfolio turnover rate (excluding
short-term securities) 104% 22%
- ----------------------------------------- -------- -----------
Total returnd 16.78% (.48)%
- ----------------------------------------- -------- -----------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from May 1, 1996 to Aug. 31, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
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, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
Capital Resource Fund +28.47% +13.36% +12.32%
S&P 500 +40.63% +19.73% +13.86%
<PAGE>
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
Capital Resource Fund +28.47% + 87.21% +219.62%
S&P 500 +40.63% +146.03% +266.31%
Average annual total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
Special Income Fund +12.24% +9.28% +9.59%
Lehman Aggregate Bond
Index +10.01% +6.80% +9.05%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
Special Income Fund +12.24% +55.81% +149.87%
Lehman Aggregate Bond
Index +10.01% +38.92% +137.89%
Average annual total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
Managed Fund +28.54% +13.51% +11.93%
S&P 500 +40.63% +19.73% +13.86%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
Managed Fund +28.54% + 88.52% +208.61%
S&P 500 +40.63% +146.03% +266.31%
Average annual total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- ------------
International
Equity Fund + 9.34% +10.22% + 9.12%
Morgan Stanley
Capital International
World Index +22.84% +14.98% +12.88%*
<PAGE>
Cumulative total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- ------------
International
Equity Fund + 9.34% + 62.68% +63.58%
Morgan Stanley
Capital International
World Index +22.84% +100.93% +97.13%*
Average annual total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- ------------
Aggressive Growth Fund +18.60% +16.51% +12.45%
S&P 500 +40.63% +19.73% +18.08%*
Cumulative total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- ------------
Aggressive Growth Fund +18.60% +114.71% + 93.75%
S&P 500 +40.63% +146.03% +153.88%*
Average annual total returns as of Aug. 31, 1997
Purchase 1 year Since inception
made ago May 1, 1996
- --------------------------- ----------------- ---------------------------------
Growth Dimensions +31.35% +22.47%
S&P 500 +40.63% +28.81%
Lipper Growth Fund Index +34.46% +22.62%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year Since inception
made ago May 1, 1996
- --------------------------- ----------------- ---------------------------------
Growth Dimensions +31.35% +31.06%
S&P 500 +40.63% +41.32%
Lipper Growth Fund Index +34.46% +31.97%
<PAGE>
Average annual total returns as of Aug. 31, 1997
Purchase 1 year Since inception
made ago May 1, 1996
- --------------------------- ----------------- ---------------------------------
Global Yield +6.47% +6.34%
Salomon Brothers Global
Govt. Bond Composite Index +0.68% +2.86%
Lipper Global
Income Fund Index +7.66% +8.16%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year Since inception
made ago May 1, 1996
- --------------------------- ----------------- ---------------------------------
Global Yield +6.47% + 8.55%
Salomon Brothers Global
Govt. Bond Composite Index +0.68% + 3.85%
Lipper Global
Income Fund Index +7.66% +11.13%
Average annual total returns as of Aug. 31, 1997
Purchase 1 year Since inception
made ago May 1, 1996
- --------------------------- ----------------- ---------------------------------
Income Advantage +16.78% +11.92%
Lehman Aggregate Bond
Index +10.01% + 8.34%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year Since inception
made ago May 1, 1996
- --------------------------- ----------------- ---------------------------------
Income Advantage +16.78% +16.22%
Lehman Aggregate Bond
Index +10.01% +11.39%
* Measurement period began Jan. 31, 1992
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>
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 index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
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, an unmanaged 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 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 Global Income Fund Index, an unmanaged 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.
<PAGE>
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).
Investment income - Dividends and interest earned on securities held by the
funds.
<PAGE>
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
<PAGE>
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.
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.
<PAGE>
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.
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. 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.
<PAGE>
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.
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.
<PAGE>
Bond ratings and holdings for fiscal year ended Aug. 31, 1997
For Special Income Fund
<TABLE>
<CAPTION>
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
<S> <C> <C> <C>
29.76% AAA Highest quality 0.79%
3.78 AA High quality --
11.28 A Upper medium grade 0.02
13.32 BBB Medium grade 0.10
15.43 BB Moderately speculative 1.04
9.36 B Speculative 0.92
0.74 CCC Highly speculative 0.17
-- CC Poor quality --
0.01 C Lowest quality --
-- D In default --
4.91 Unrated Unrated securities 1.87
Bond ratings and holdings for fiscal year ended Aug. 31, 1997
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
12.77% AAA Highest quality 0.08%
1.20 AA High quality --
3.62 A Upper medium grade --
4.45 BBB Medium grade 0.03
3.53 BB Moderately speculative 0.03
2.20 B Speculative 0.13
0.10 CCC Highly speculative 0.07
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
2.16 Unrated Unrated securities 1.82
</TABLE>
<PAGE>
Bond ratings and holdings for fiscal year ended Aug. 31, 1997
For Global Yield Fund
<TABLE>
<CAPTION>
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
<S> <C> <C> <C>
54.30% AAA Highest quality 0.64%
4.73 AA High quality --
2.65 A Upper medium grade 0.09
3.43 BBB Medium grade --
12.08 BB Moderately speculative --
0.57 B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.88 Unrated Unrated securities 1.15
Bond ratings and holdings for fiscal year ended Aug. 31, 1997
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
0.73% AAA Highest quality 0.08%
0.03 AA High quality --
-- A Upper medium grade --
0.71 BBB Medium grade --
18.16 BB Moderately speculative 0.36
58.59 B Speculative 1.71
5.45 CCC Highly speculative 2.16
0.15 CC Poor quality --
-- C Lowest quality --
-- D In default --
9.83 Unrated Unrated securities 5.52
</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 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.
<PAGE>
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.
The Fund may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
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 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
<PAGE>
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.
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.
<PAGE>
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 (except bonds) and assets with available market values are valued
on that basis.
o Securities maturing in 60 days or less are valued at amortized cost.
o Bonds are valued according to methods selected by the board.
o Assets without readily available market values are valued according to
methods selected in good faith by the board.
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.
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.
<PAGE>
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.
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.
<PAGE>
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
Joe Barsky joined AEFC in 1979 and serves as senior portfolio manager. He served
as portfolio manager of IDS Equity Select Fund from 1983 to 1997. He also serves
as vice president and senior portfolio manager of IDS Equity Advisors, a
division of IDS Advisory Group, Inc.
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 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.
<PAGE>
Moneyshare Fund
Terry Fettig joined AEFC in 1986. He serves as portfolio manager for this Fund,
IDS Cash Management Fund, IDS Intermediate Tax-Exempt Fund, IDS Life Money
Market Portfolio 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 1984 and began serving as portfolio manager of
this fund in September 1997. In addition, he is chief investment officer of IDS
International Inc. and chairman of IDS Fund Management Ltd., both based in
London.
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.
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
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.
Directors and officers
Shareholders elect a board 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, 1997, the Fund's directors and officers did not own any shares of the
Funds.
<PAGE>
Independent board members and officers
Chairman of the Board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
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.
Alan K. Simpson
Former United States senator for Wyoming.
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.
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
Presidentt, treasurer and corporate secretary of Board Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
<PAGE>
James A. Mitchell*
Executive vice president, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Treasurer
Melinda S. Urion*
Senior vice president and chief financial officer, AEFC.
Refer to the SAI for the directors' and officers' biographies.
* Interested persons as defined by the Investment Company Act of 1940.
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
<PAGE>
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
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
<PAGE>
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, 1997, 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 0.59%, Moneyshare Fund paid
0.51%, International Equity Fund paid 0.83%, Aggressive Growth Fund paid 0.61%,
Growth Dimensions Fund paid 0.63%, Global Yield Fund paid 0.84% and Income
Advantage Fund paid 0.62%. Under this Agreement, each Fund also pays taxes,
brokerage commissions and nonadvisory expenses. Total fees and expenses for
fiscal year 1997 were 0.67% for Capital Resource Fund, 0.68% for Special Income
Fund, 0.64% for Managed Fund, 0.57% for Moneyshare Fund, 0.97% for International
Equity Fund, 0.68% for Aggressive Growth Fund, 0.72% for Growth Dimensions Fund,
0.97% for Global Yield Fund and 0.69% for Income Advantage 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>
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>
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.
<PAGE>
AEFC has a Sub-investment Advisory Agreement with American Express Asset
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, 1997
were more than $165 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>
Retirement Annuity Mutual Funds
Prospectus/October 30, 1997
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, 1997, 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 SEC 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 bank or financial institution,
and the securities it offers are not deposits or obligations of, or guaranteed
or endorsed by, any bank or 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
<PAGE>
IDS Life Special Income Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN 55440-0010
800-633-4003
TTY: 800-285-8846
<PAGE>
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>
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>
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 changesa
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06 $17.71
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Income from investment
operations:
Net investment (loss) .16 .30 .29 .29 .23 .21 .40 .52 .39 .31
Net gains (losses) on
securities (both 6.45 1.22 3.70 1.56 1.89 1.75 6.61 (2.06) 5.38 (2.54)
realized and unrealized)
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Total from investment
operations 6.61 1.52 3.99 1.85 2.12 1.96 7.01 (1.54) 5.77 (2.23)
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Less distributions:
Dividends from net
investment income (.15) (.29) (.29) (.29) (.23) (.21) (.40) (.52) (.39) (.31)
Distributions from
realized gains (4.05) (.07) (2.71) (2.71) (1.21) (1.00) (1.00) (.57) (.27) (.11)
Excess distributions
from net investment (.01) (.01) -- -- -- -- -- -- -- --
income
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Total distributions (4.21) (.37) (3.00) (3.00) (1.44) (1.21) (1.40) (1.09) (.66) (.42)
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Net asset value, end of $27.97 $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06
period
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets (end of
period) 4,867 $4,372 $3,845 $2,899 $2,308 $1,681 $1,191 $702 $660 $454
(in millions)
Ratio of expenses to
average daily net assets .67% .68% .69% .68% .68% .70% .70% .70% .73% .69%
Ratio of net income to
average daily net assets .61% 1.15% 1.22% 1.20% .94% .91% 1.94% 2.69% 2.22% 2.01%
Portfolio turnover rate
(excluding short-term
securities) 110% 131% 88% 85% 65% 63% 74% 82% 42% 111%
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Total returnb 28.47% 6.15% 17.18% 7.61% 8.87% 8.54% 40.68% (7.79%) 38.72% (12.59%)
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
Average brokerage
commission ratec $.0492 $0.0565 -- -- -- -- -- -- -- --
- ------------------------- ------- ------- -------- ------- ------- ------- ------- -------- ------- --------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the variable accounts or any
annuity charges.
c Effective fiscal year 1996, the Fund is required to disclose an average brokerage commission rate
per share for security trades on which commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
<PAGE>
Special Income Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88 $11.09
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Income from investment
operations:
Net investment income .85 .88 .88 .84 .85 .90 .97 .99 1.03 1.03
(loss)
Net gains (losses) on
securities (both .52 (.07) .56 (.99) .82 .54 .62 (1.01) .23 (.21)
realized and unrealized)
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Total from investment 1.37 .81 1.44 (.15) 1.67 1.44 1.59 (.02) (1.26) .82
operations
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Less distributions:
Dividends from net
investment income (.84) (.85) (.87) (.85) (.85) (.90) (.97) (.99) (1.03) (1.03)
Distributions from
realized gains (.07) -- (.02) (.02) -- -- -- -- -- --
Excess distributions
from net investment (.01) -- (.02) (.01) -- -- -- -- -- --
income
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Total distributions (.92) (.85) (.91) (.88) (.85) (.90) (.97) (.99) (1.03) (1.03)
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Net asset value, end of $11.99 $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88
period
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets' end of period
(in millions) $1.923 $1,912 $1,703 $1,559 $1,551 $1,136 $800 $641 $565 $428
Ratio of expenses to
average daily net assets .68% .68% $.68% .67% .69% .71% .70% .71% .73% .69%
Ratio of net income to
average daily net assets 7.18% 7.47% 8.08% 7.20% 7.41% 8.22% 9.31% 9.42% 9.37% 9.45%
Portfolio turnover rate
(excluding short-term 73% 56% 56% 57% 77% 92% 97% 118% 132% 169%
securities)
- -------------------------- ------- ------- ------- -------- ------- ------- -------- ------ -------- -------
Total returnb 12.24% 7.08% 13.75% (1.30)% 15.47% 13.96% 16.54% (.12)% 12.19% 7.76%
a For a share outstanding throughout the period. Rounded to the nearest cent
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
Managed Fund
Financial highlights
Fiscal year ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of year $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87 $11.34
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Income from investment
operations:
Net investment income .46 .46 .40 .47 .49 .56 .58 .65 .48 .42
(loss)
Net gains (losses) on
securities (both 3.93 1.15 1.20 (.26) 1.60 .95 2.11 (.67) 2.25 (1.47)
realized and unrealized)
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Total from investment
operations 4.39 1.61 1.60 .21 2.09 1.51 2.69 (.02) 2.73 (1.05)
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Less distributions:
Dividends from net
investment income (.45) (.46) (.40) (.47) (.49) (.56) (.58) (.65) (.48) (.42)
Distributions from
realized gains (1.06) -- -- (.41) (.36) (.46) (.45) (.48) (.04) --
Excess Distributions
from net investment (.01)
income
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Total distributions (1.52) (.46) (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52) (.42)
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Net asset value, end of $18.87 $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87
period
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of
period $4,445 $3,482 $3,044 $2,499 $1,858 $1,169 $810 $545 $462 $381
(in millions)
Ratio of expenses to
average daily net assets .64% .65% .68% .68% .69% .71% .70% .71% .73% .69%
Ratio of net income
(loss) to average daily 2.65% 2.94% 2.96% 3.46% 3.70% 4.35% 4.86% 5.42% 5.06% 4.42%
net assets
Portfolio turnover rate
(excluding short-term
securities) 72% 85% 72% 79% 58% 50% 52% 37% 69% 62%
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
Total returnb 28.54% 10.95% 11.94% 1.51% 16.33% 12.14% 25.24% (.23)% 28.47% (9.06)%
Average brokerage
commission ratec $.0334 $0.0606 -- -- -- -- -- -- -- --
- ------------------------- ------- -------- ------- -------- ------- ------- -------- ------ -------- -------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
c Effective fiscal year 1996, the Fund is required to disclose an average brokerage commission rate per share for
security trades on which commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
<PAGE>
Moneyshare Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
(loss)
- ------------------------- ------- ------- -------- ------- ------- -------- ------- ------- ------- --------
Less distributions:
Dividends from net
investment income (.05) (.05) (.05) (.03) (.03) (.04) (.07) (.08) (.09) (.07)
- ------------------------- ------- ------- -------- ------- ------- -------- ------- ------- ------- --------
Net asset value, end of $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
period
- ------------------------- ------- ------- -------- ------- ------- -------- ------- ------- ------- --------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets' end of
period $4.21 $288 $227 $179 $180 $246 $285 $274 $160 $102
(in millions)
Ratio of expenses to
average daily net assets .57% .56% .59% .57% .60% .60% .57% .62% .54% .58%
Ratio of net income
(loss) to average daily 4.97% 5.02% 5.23% 3.12% 2.67% 3.93% 6.55% 7.85% 8.68% 6.77%
net assets
- ------------------------- ------- ------- -------- ------- ------- -------- ------- ------- ------- --------
Total returnb 5.06% 5.16% 5.27% 3.15% 2.73% 3.98% 6.77% 8.18% 8.99% 7.01%
- ------------------------- ------- ------- -------- ------- ------- -------- ------- ------- ------- --------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the variable accounts or any
annuity charges.
</TABLE>
<PAGE>
International Equity Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $13.30 $12.55 $12.91 $11.60 $10.01 $10.00
of period
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations: .18 .20 .17 .14 .15 .05
Net investment income (loss)
Net gains (losses) on
securities (both realized 1.06 1.01 (.37) 1.61 1.81 .01
and unrealized)
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total from investment 1.24 1.21 (.20) 1.75 1.96 .06
operations
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net (.17) (.44) (.16) (.08) (.15) (.05)
investment income
Distributions from realized (.28) (.02) -- (.29) (.22) --
gains
Excess distributions from
realized gains -- -- -- (.07) -- --
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total distributions (.45) (.46) (.16) (.44) (.37) (.05)
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of $14.09 $13.30 $12.55 $12.91 $11.60 $10.01
period
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992b
Net assets, end of period
(in millions) $2,105 $1,874 $1,442 $1,111 $291 $39
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of expenses to average
daily net assets .97% .96% 1.03$ .98% 1.10% 1.57%c
Ratio of net income (loss)
to average 1.30% 1.28% 1.56% 1.09% 1.37% 0.93%c
daily net assets
Portfolio turnover rate
(excluding short-term 91% 58% 38% 51% 62% 22%
securities)
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total returnd 9.34% 9.64% (1.77%) 15.11% 19.76% .55%
Average brokerage commission $.0187 $0.0186 -- -- -- --
ratee
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from Jan. 13, 1992 to Aug. 31, 1992.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
e Effective fiscal year 1996, the Fund is required to disclose an average brokerage commission rate
per share for security trades on which commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
<PAGE>
Aggressive Growth Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital
changesa
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $16.04 $14.44 $11.46 $11.68 $9.00 $10.00
of period
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations: .08 .10 .08 .01 .02 .02
Net investment income(loss)
Net gains (losses) on
securities 2.84 1.60 2.98 (.22) 2.68 (1.00)
(both realized and
unrealized)
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total from investment 2.92 1.70 3.06 (.21) 2.70 (.98)
operations
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net (.08) (.10) (.08) (.01) (.02) (.02)
investment income
Distribution from realized (1.71) -- -- -- -- --
gains
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total distributions (1.79) -- -- -- -- --
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of $17.17 $16.04 $14.44 $11.46 $11.68 $9.00
period
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratios/supplemental data
1997 1996 1995 1994 1993 1992b
Net assets, end of period
(in millions) $2,427 $1,941 $1,412 $763 $299 $57
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of expenses to average
daily net assets .68% .69% .70% .69% .75% .98%c
Ratio of net income (loss)
to average daily net assets .47% .65% .72% .14% .28% .21%c
Portfolio turnover rate
(excluding short-term 218% 189% 116% 59% 55% 28%
securities)
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total returnd 18.60% 11.82% 26.80% (1.77)% 29.98% (9.76)%
Average brokerage commission $.0430 $.0531 -- -- -- --
ratee
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Commencement of operations. Period from Jan. 13, 1992 to Aug. 31, 1992.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
e Effective fiscal year 1996, the Fund is required to disclose an average brokerage commission rate
per share for security trades on which commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly among foreign
countries.
</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.
<PAGE>
Total returns
Average annual total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
+28.47% +13.36% +12.32%
Capital Resource Fund
S&P 500 +40.63% +19.73% +13.86%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
+28.47% +87.21% +219.62%
Capital Resource Fund
S&P 500 +40.63% +146.03% +266.31%
Average annual total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
+12.24% +9.28% +9.59%
Special Income Fund
Lehman Aggregate Bond +10.01% +6.80% +9.05%
Index
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- -----------
+12.24% +55.81% +149.87%
Special Income Fund
Lehman Aggregate Bond +10.01% +38.92% +137.89%
Index
Average annual total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
+28.54% +13.51% +11.93%
Managed Fund
S&P 500 +40.63% +19.73% +13.86%
Cumulative total returns as of Aug. 31, 1997
Purchase 1 year 5 years 10 years
made ago ago ago
- --------------------------- ----------------- -------------------- ------------
+28.54% +88.52% +208.61%
Managed Fund
S&P 500 +40.63% +146.03% +266.31%
<PAGE>
Average annual total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- -------------
International
Equity Fund +9.34% +10.22% +9.12%
Morgan Stanley
Capital International
World Index +22.84% +14.98% +12.87%*
Cumulative total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- -------------
International
Equity Fund +9.34% +62.68% +63.58%
Morgan Stanley
Capital International
World Index +22.84% +100.93% +97.13%*
Average annual total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- -------------
Aggressive Growth Fund +18.60% +16.51% +12.45%
S&P 500 +40.63% +19.73% +18.08%*
Cumulative total returns as of Aug. 31, 1997
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- --------------------------- ----------------- -------------------- ------------
Aggressive Growth Fund +18.60% +114.71% +93.75%
S&P 500 +40.63% +146.03% +153.88%*
* Measurement period started Jan. 31, 1992.
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.
<PAGE>
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 index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
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.
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.
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.
<PAGE>
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, 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal year ended Aug. 31, 1997
For Special Income Fund
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
<S> <C> <C> <C>
29.76% AAA Highest quality 0.79%
3.78 AA High quality --
11.28 A Upper medium grade 0.02
13.32 BBB Medium grade 0.10
15.43 BB Moderately speculative 1.04
9.36 B Speculative 0.92
0.74 CCC Highly speculative 0.17
-- CC Poor quality --
0.01 C Lowest quality --
-- D In default --
4.91 Unrated Unrated securities 1.87
Bond ratings and holdings for fiscal year ended Aug. 31, 1997
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
12.77% AAA Highest quality 0.08%
1.20 AA High quality --
3.62 A Upper medium grade --
4.45 BBB Medium grade 0.03
3.53 BB Moderately speculative 0.03
2.20 B Speculative 0.13
0.10 CCC Highly speculative 0.07
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
2.16 Unrated Unrated securities 1.82
</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 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.
<PAGE>
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.
The Fund may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
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 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
<PAGE>
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.
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 (except bonds) and assets with available market values are valued
on that basis.
o Securities maturing in 60 days or less are valued at amortized cost.
<PAGE>
o Bonds are valued according to methods selected by the board.
o Assets without readily available market values are valued according to
methods selected in good faith by the board.
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.
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.
<PAGE>
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.
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.
<PAGE>
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
Joe Barsky joined AEFC in 1979 and serves as senior portfolio manager. He served
as portfolio manager of IDS Equity Select Fund from 1983 to 1997. He also serves
as vice president and senior portfolio manager of IDS Equity Advisors, a
division of IDS Advisory Group, Inc.
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 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, IDS Intermediate Tax-Exempt Fund, IDS Life Money
Market Portfolio 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.
<PAGE>
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 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, 1997, the Fund's directors and officers did not own any shares of the
Funds.
Independent board Members and officers
Chairman of the Board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
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.
Alan K. Simpson
Former United States senator for Wyoming.
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.
<PAGE>
Officer
Vice President, general counsel and secretary
Leslie L. Ogg
President, treasurer and corporate secretary of Board Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
James A. Mitchell*
Executive vice president, AEFC.
Officers associated with AEFC
Vice President
Peter J. Anderson*
Senior vice president, AEFC.
Treasurer
Melinda S. Urion*
Senior vice president and chief financial officer, AEFC.
Refer to the SAI for the directors' and officers' biographies.
*Interested persons as defined by the Investment Company Act of 1940.
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:
<PAGE>
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
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
<PAGE>
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, 1997, 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 0.59%, 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 1997 were
0.67% for Capital Resource Fund, 0.68% for Special Income Fund, 0.64% for
Managed Fund, 0.57% for Moneyshare Fund, 0.97% for International Equity Fund and
0.68% 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
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
<PAGE>
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
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.
<PAGE>
AEFC has a Sub-investment Advisory Agreement with American Express Asset
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, 1997
were more than $165 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>
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, 1997
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, 1997, and it is to be used with the Funds' prospectus
dated Oct. 30, 1997. It is also to be used with the Funds' Annual Report for the
fiscal year ended Aug. 31, 1997.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
[(612) 671-3733]
[(800) 437-0602]
[(800) 422-3542]
[(800) 333-3437]
<PAGE>
TABLE OF CONTENTS
Goals and Investment Policies See Prospectus
Additional Investment Policies p. 4
Portfolio Transactions p. 27
Brokerage Commissions Paid to Brokers
Affiliated with IDS Life p. 31
Performance Information p. 32
Valuing Each Fund's Shares p. 35
Investing in the Funds p. 38
Redeeming Shares p. 38
Capital Loss Carryover p. 39
Taxes p. 39
Agreements with IDS Life and American Express Financial
Corporation p. 39
Directors and Officers p. 47
Custodian p. 54
Independent Auditors p. 54
Financial Statements See Annual Report and p. 54
Prospectus p. 54
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. 55
Appendix B: Foreign Currency Transactions for Investments
of all funds except Moneyshare p. 57
Appendix C: Description of Money Market Securities p. 61
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. 63
<PAGE>
Appendix E: Options and Interest Rate Futures Contracts
for Investments of Special Income, Managed,
Global Yield and Income Advantage Funds p. 69
Appendix F: Mortgage-backed securities and Additional
Information on Investment Policies for all
Funds except Moneyshare. p. 74
Appendix G: Dollar-Cost Averaging p. 77
<PAGE>
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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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
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.
<PAGE>
'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 the Fund 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.
'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
<PAGE>
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 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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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
<PAGE>
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.
'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 the Fund 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 policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
'Invest more than 5% of its net assets in warrants.
<PAGE>
'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 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>
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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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>
'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 the Fund 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 policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
'Invest more than 5% of its net assets in warrants.
'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
<PAGE>
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, 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.
<PAGE>
'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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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.
'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 the Fund 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.
<PAGE>
'Invest more than 10% of its total assets in securities of investment companies.
'Invest more than 5% of its net assets in warrants.
'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 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>
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 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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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>
'Invest in exploration or development programs, such as oil, gas or mineral
leases.
'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 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.
<PAGE>
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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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>
'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.
'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.
<PAGE>
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.
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.
<PAGE>
'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.
'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 receives the market price in
cash, U.S. government securities, letters of credit or such other collateral as
may be permitted by regulatory agencies and approved by the board. If the market
price of the loaned securities goes up, the Fund will get additional collateral
on a daily basis. The risks are that the borrower may not provide additional
collateral when required or return the securities when due. During the existence
of the loan, the Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be made unless the
investment manager believes the opportunity for additional income outweighs the
risks.
<PAGE>
Unless changed by the board of directors, Growth Dimensions, will not:
'Buy on margin or sell short, but the Fund 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 policy, collateral arrangements for margin
deposits on a futures contract 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.
'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.
'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.
<PAGE>
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.
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 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.
<PAGE>
'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 receives the market price in
cash, U.S. government securities, letters of credit or such other collateral as
may be permitted by regulatory agencies and approved by the board. If the market
price of the loaned securities goes up, the Fund will get additional collateral
on a daily basis. The risks are that the borrower may not provide additional
collateral when required or return the securities when due. During the existence
of the loan, the Fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. 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 the Fund 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 policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
'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.
<PAGE>
'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, 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.
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
<PAGE>
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.
'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.
<PAGE>
'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:
'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 policy, collateral arrangements for margin deposits
on a futures contract 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 the Fund 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.
'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 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 guidelines established by the board of directors,
will evaluate relevant factors such
<PAGE>
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.
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.
<PAGE>
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; 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
<PAGE>
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 or sells for its own account, rather
than acting on behalf of another client. AEFC does not pay the dealer
commissions. Instead, the dealer's profit, if any, is the difference, or spread,
between the dealer's purchase and sale price for the security.
Each investment decision made for each fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by AEFC or any AEFC subsidiary.
When a fund buys or sells the same security as another fund or account, AEFC or
International carries out the purchase or sale in a way the fund agrees in
advance is fair. Although sharing in large transactions may adversely affect the
price or volume purchased or sold by a fund, the fund hopes to gain an overall
advantage in execution. AEFC and International have assured the Funds they will
continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC and International make a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions. The review
evaluates execution, operational efficiency and research services.
The Funds have paid the following brokerage commissions:
<TABLE>
<CAPTION>
Fiscal year Capital International Aggressive Special Growth Income
ended Aug. 31, Resource Equity Growth Income Managed Dimensions Advantage
- ---------------- ----------- ------------ ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 --
1997 9,778,626 6,013,492 7,958,360 168,718 3,490,303 657,014 1,668
</TABLE>
<PAGE>
Transactions amounting to $196,046,000, $82,868,000 and $96,952,000 with related
commissions of $345,738, $147,390 and $120,222 were directed to brokers by
Capital Resource, Aggressive Growth and Managed Funds, respectively, because of
research services received for the fiscal year ended Aug. 31, 1997.
Capital Resource Fund's acquisition during the fiscal year ended Aug. 31, 1997,
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 of America $14,510,291
First Chicago 6,978,282
Merrill Lynch 8,349,859
Morgan Stanley 50,059,625
Travelers Group 60,325,000
Aggressive Growth Fund's acquisition during the fiscal year ended Aug. 31, 1997,
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 of America $10,336,119
Merrill Lynch 6,162,991
Charles Schwab 16,975,000
Special Income Fund's acquisition during the fiscal year ended Aug. 31, 1997, 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 $ 8,067,825
J. P. Morgan 12,991,300
Morgan Stanley 8,241,669
Salomon Brothers 5,054,450
Moneyshare Fund's acquisition during the fiscal year ended Aug. 31, 1997, 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>
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Bank of America $21,111,291
First Chicago 6,978,282
Goldman Sachs 19,450,863
Merrill Lynch 19,175,447
J. P. Morgan 1,999,458
Morgan Stanley 24,933,626
Managed Fund's acquisition during the fiscal year ended Aug. 31, 1997, 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 of America $ 3,594,809
Goldman Sachs 3,884,508
J. P. Morgan 4,847,500
Morgan Stanley 67,943,525
Salomon Brothers 3,905,000
Travelers Group 103,325,000
Growth Dimensions Fund's acquisition during the fiscal year ended Aug. 31, 1997
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 of America $ 6,436,462
Morgan Stanley 20,552,613
Travelers Group 19,234,150
International Equity Fund's acquisition during the fiscal year ended Aug. 31,
1997 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 of America $13,503,843
Morgan Stanley 19,063,711
Nations Bank 7,531,326
Credit Suisse First Boston 31,161,934
<PAGE>
Global Yield Fund's acquisition during the fiscal year ended Aug. 31, 1997 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
Lehman Brothers $1,171,832
J. P. Morgan 969,500
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, 1997.
The portfolio turnover rate for Capital Resource Fund was 110% in fiscal year
ended Aug. 31, 1997 and 131% in fiscal year ended Aug. 31, 1996. The portfolio
turnover rate for Managed Fund was 72% in fiscal year ended Aug. 31, 1997 and
85% in fiscal year ended Aug. 31, 1996.
The portfolio turnover rate for International Equity Fund was 91% in fiscal year
ended Aug. 31, 1997 and 58% in fiscal year ended Aug. 31, 1996. The portfolio
turnover rate for Aggressive Growth Fund was 218% in fiscal year ended Aug. 31,
1997 and 189% in fiscal year ended Aug. 31, 1996.
The portfolio turnover rate for Special Income Fund was 73% in fiscal year ended
Aug. 31, 1997 and 56% in fiscal year ended Aug. 31, 1996. The portfolio turnover
rate for Growth Dimensions Fund was 29% in fiscal year ended Aug. 31, 1997 and
4% in fiscal year ended Aug. 31, 1996.
The portfolio turnover rate for Global Yield fund was 36% in fiscal year ended
Aug. 31, 1997 and 4% in fiscal year ended Aug. 31, 1996. The portfolio turnover
rate for Income Advantage Fund was 104% in fiscal year ended Aug. 31, 1997 and
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 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
<PAGE>
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, 1997.
Information about brokerage commissions paid by the Funds to American Enterprise
Investment Services, Inc., a wholly-owned subsidiary of AEFC, for the last three
fiscal years are contained in the following table:
For the Fiscal Year Ended Aug. 31,
<TABLE>
<CAPTION>
1997 1996 1995
Percentage of
Aggregate
Aggregate Dollar Percent of Dollar Amount Aggregate Aggregate
Amount of Aggregate of Transactions Dollar Amount Dollar Amount
Commissions Paid Brokerage Involving of Commissions of Commissions
Fund to Broker Commissions Payment of Paid to Broker Paid to Broker
Commissions
Capital
<S> <C> <C> <C> <C> <C>
Resource $817,190 8.36% 15.58% $841,159 $829,258
International
Equity. None None None None None
Aggressive
Growth 183,327 2.31 3.89 245,269 222,443
Special Income None None None None None
Managed 227,619 6.64 8.05 76,269 131,456
Growth
Dimensions 20,404 3.15 2.84 212 None
Global Yield None None None None None
Income
Advantage None None None None None
</TABLE>
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:
<PAGE>
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Aggregate total return
Each Fund may calculate aggregate total return for certain periods representing
the cumulative change in the value of an investment in a fund over a specified
period of time according to the following formula:
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 6.76%, Global Yield Fund's was 3.04%
and Income Advantage Fund's was 8.63% for the 30-day period ended Aug. 31, 1997.
<PAGE>
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to the contract owners. Actual amounts paid to
contract owners are reflected in the distribution yield.
Distribution yield is calculated according to the following formula:
D x F = DY
NAV 30
where: D = sum of dividends for 30 day period
NAV = beginning of period net asset value
F = annualizing factor
DY = distribution yield
Special Income Fund's distribution yield was 7.23%, Global Yield Fund's was
3.19% and Income Advantage Fund's was 9.30% for the 30-day period ended Aug. 31,
1997.
Moneyshare Fund calculates annualized simple and compound yields based on a
seven-day period.
The simple yield is calculated by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of the
seven-day period, dividing the net change in account value by the value of the
account at the beginning of the period to obtain the return for the period, and
multiplying that return by 365/7 to obtain an annualized figure. The value of
the hypothetical account includes the amount of any declared dividends, the
value of any shares purchased with any dividend paid during the period and any
dividends declared for such shares. The Fund's yield does not include any
realized or unrealized gains or losses.
Moneyshare Fund calculates its compound yield according to the following
formula:
Compound Yield = (return for seven day period + 1) 365/7 - 1
Moneyshare Fund's simple annualized yield was 5.11% and its compound yield was
5.24% for the seven days ended Aug. 31, 1997, the last business day of the
Fund's fiscal year. The Fund's simple yield was 5.11% and the compound yield was
5.24% for the seven days ended Sept. 30, 1997.
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.
<PAGE>
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, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Daily, Kiplinger's
Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund
Forecaster, Newsweek, The New York Times, Personal Investor, 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, 1997, the computation of the value of an individual share looked
like this:
<TABLE>
<CAPTION>
Capital Resource Fund
Net asset value
Net assets Shares outstanding of one share
<S> <C> <C> <C> <C>
$4,866,591,077 divided by 173,988,176 = $27.97
International Equity Fund
Net asset value
Net assets Shares outstanding of one share
$2,104,975,232 divided by 149,447,811 = $14.09
Aggressive Growth Fund
Net asset value
Net assets Shares outstanding of one share
$2,427,427,425 divided by 141,403,480 = $17.17
Special Income Fund
Net asset value
Net assets Shares outstanding of one share
$1,923,317,614 divided by 160,398,174 = $11.99
Managed Fund
Net asset value
Net assets Shares outstanding of one share
$4,444,602,312 divided by 235,535,537 = $18.87
Growth Dimensions Fund
Net asset value
Net assets Shares outstanding of one share
$1,306,826,984 divided by 100,887,023 = $12.95
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Global Yield Fund
Net asset value
Net assets Shares outstanding of one share
<S> <C> <C> <C> <C>
$119,177,723 divided by 11,553,714 = $10.32
Income Advantage Fund
Net asset value
Net assets Shares outstanding of one share
$320,317,296 divided by 30,819,905 = $10.39
</TABLE>
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 acquisition date are valued
at amortized cost. Amortized cost is an approximation of
<PAGE>
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 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
<PAGE>
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 Exchange, AEFC, IDS Life and the Funds will be closed on the following
holidays: New Year's Day, 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.
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.
<PAGE>
CAPITAL LOSS CARRYOVER
For federal income tax purposes, Growth Dimensions Fund had capital loss
carryover at Aug. 31, 1997 of $11,186,489 which, if not offset by subsequent
capital gains, will expire in 2004 to 2006. 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.
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 0.063%
Next $1 0.615
Next $1 0.600
Next $3 0.585
Over $6 0.570
<PAGE>
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
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
<PAGE>
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
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, 1997, the daily rate applied to the Fund's assets on an annual
basis, was 0.603% for Capital Resource, 0.827% for International Equity, 0.603%
for Aggressive Growth, 0.603% for Special Income, 0.510% for Moneyshare, 0.592%
for Managed, 0.626% for Growth Dimensions, 0.811% 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.
<PAGE>
The management fee is paid monthly. Under the prior and current agreements, the
total amount paid for Capital Resource was $27,562,075 for the fiscal year ended
Aug. 31, 1997, $26,046,720 for the fiscal year ended 1996, and $20,450,401 for
the fiscal year 1995.
Under the prior and current agreements, the total amount paid for International
Equity was $16,844,405 for the fiscal year ended Aug. 31, 1997, $13,990,974 for
the fiscal year ended 1996, and $10,869,439 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Aggressive
Growth was $13,049,949 for the fiscal year ended Aug. 31, 1997, $10,459,512 for
the fiscal year ended 1996, and $6,579,414 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Special Income
was $11,582,416 for the fiscal year ended Aug. 31, 1997, $11,311,856 for the
fiscal year ended 1996 and $9,542,823 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Moneyshare was
$1,845,243 for the fiscal year ended Aug. 31, 1997, $1,283,789 for the fiscal
year ended 1996, and $1,041,050 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Managed was
$23,778,006 for the fiscal year ended Aug. 31, 1997, $19,987,805 for the fiscal
year ended 1996, and $16,720,930 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Growth
Dimensions was $4,581,562 for the fiscal year ended Aug. 31, 1997, and $153,340
for the fiscal year ended 1996.
Under the prior and current agreements, the total amount paid for Global Yield
was $576,997 for the fiscal year ended Aug. 31, 1997, and $26,039 for the fiscal
year ended 1996.
Under the prior and current agreements, the total amount paid for Income
Advantage was $1,070,942 for the fiscal year ended Aug. 31, 1997, and $44,245
for the fiscal year ended 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.
<PAGE>
Under a current and prior agreement:
Capital Resource paid nonadvisory expenses of $1,216,304 for the fiscal year
ended Aug. 31, 1997, $1,237,584 for the fiscal year ended 1996, and $1,289,211
for the fiscal year 1995.
International Equity paid nonadvisory expenses of $1,971,367 for the fiscal year
ended Aug. 31, 1997, $1,439,851 for the fiscal year ended 1996, and $1,758,233
for the fiscal year 1995.
Aggressive Growth paid nonadvisory expenses of $595,678 for the fiscal year
ended Aug. 31, 1997, $555,212 for the fiscal year ended 1996, and $397,865 for
the fiscal year 1995.
Special Income paid nonadvisory expenses of $470,062 for the fiscal year ended
Aug. 31, 1997, $534,757 for the fiscal year ended 1996, and $527,883 for the
fiscal year 1995.
Moneyshare paid nonadvisory expenses of $112,930 for the fiscal year ended Aug.
31, 1997, $134,008 for the fiscal year ended 1996, and $68,790 for the fiscal
year 1995.
Managed paid nonadvisory expenses of $781,442 for the fiscal year ended Aug. 31,
1997, $857,900 for the fiscal year ended 1996, and $1,006,486 for the fiscal
year 1995.
Growth Dimensions paid nonadvisory expenses of $311,923 for the fiscal year
ended Aug. 31, 1997, and $88,000 for the fiscal year ended 1996.
Global Yield paid nonadvisory expenses of $53,806 for the fiscal year ended Aug.
31, 1997, and $26,994 for the fiscal year ended 1996.
Income Advantage paid nonadvisory expenses of $29,848 for the fiscal year ended
Aug. 31, 1997, and $61,600 for the fiscal year ended 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
<PAGE>
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
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
<PAGE>
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
On Aug. 31, 1997, the daily rate applied to Capital Resource was equal to 0.041%
on an annual basis.
On Aug. 31, 1997, the daily rate applied to International Equity was equal to
0.046% on an annual basis.
On Aug. 31, 1997, the daily rate applied to Aggressive Growth was equal to
0.044% on an annual basis.
<PAGE>
On Aug. 31, 1997, the daily rate applied to Special Income was equal to 0.048%
on an annual basis.
On Aug. 31, 1997, the daily rate applied to Moneyshare was equal to 0.030% on an
annual basis.
On Aug. 31, 1997, the daily rate applied to Managed was equal to 0.027% on an
annual basis.
On Aug. 31, 1997 the daily rate applied to Growth Dimensions was equal to 0.049%
on an annual basis.
On Aug. 31, 1997 the daily rate applied to Global Yield was equal to 0.050% on
an annual basis.
On Aug. 31, 1997 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 American Express Asset
International Inc. under which AEFC pays American Express Asset 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, 1997, IDS Life paid AEFC $11,405,895 for its
services in connection with Capital Resource Fund. For fiscal year 1996, the
amount was $10,767,468 and for fiscal year 1995 it was $8,118,175.
For the fiscal period ended Aug. 31, 1997, IDS Life paid AEFC $7,127,500 for its
services in connection with International Equity Fund. For fiscal year 1996, the
amount was $5,895,097 and for fiscal year 1995 it was $4,947,617.
For the fiscal period ended Aug. 31, 1997, IDS Life paid AEFC $5,385,048 for its
services in connection with Aggressive Growth Fund. For fiscal year 1996, the
amount was $4,281,869 and for fiscal year 1995 it was $2,589,057.
For the fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $4,808,246 for its
services in connection with Special Income Fund. For fiscal year 1996, the
amount was $4,698,757 and for fiscal year 1995 it was $3,806,813.
For the fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $907,423 for its
services in connection with Moneyshare Fund. For fiscal year 1996, the amount
was $621,885 and for fiscal year 1995 it was $494,845.
<PAGE>
For the fiscal year end Aug. 31, 1997, IDS Life paid AEFC $10,013,842 for its
services in connection with Managed Fund. For fiscal year 1996, the amount was
$8,355,352 and for fiscal year 1995 it was $6,674,716.
For fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $1,821,928 for its
services in connection with Growth Dimensions Fund. For fiscal year 1996, the
amount was $61,016.
For fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $172,596 for its
services in connection with Global Yield Fund. For fiscal year 1996, the amount
was $7,771.
For fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $431,464 for its
services in connection with Income Advantage Fund. For fiscal year 1996, the
amount was $17,890.
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. They serve 15 Master Trust
Portfolios and 47 IDS and IDS Life funds. All shares have cumulative voting
rights when voting on the election of directors.
H. Brewster Atwater, Jr.
Born in 1931.
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
Lynne V. Cheney'
Born in 1941.
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and FPL Group, Inc. (holding company for Florida Power and Light).
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.
<PAGE>
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.
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
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931.
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Pacific Corp. (electric power).
<PAGE>
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 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).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer 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.
In addition to Mr. Pearce, who is chairman, and Mr. Thomas, who is president,
the fund's other officer is:
Leslie L. Ogg
Born in 1938.
901 S. Marquette Ave.
Minneapolis, MN
<PAGE>
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Funds.
Officers who also are officers and/or employees of AEFC:
Peter J. Anderson
Born in 1942.
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Funds.
Melinda S. Urion
Born in 1953.
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
Executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Funds.
Members of the board who are not officers of the Fund or of AEFC receive an
annual fee of $3,200 for IDS Life Capital Resource Fund, $1,500 for IDS Life
International Equity Fund and IDS Life Aggressive Growth Fund, $1,400 for IDS
Life Special Income Fund, $200 for IDS Life Moneyshare Fund, $2,600 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.
During the fiscal year that ended Aug. 31, 1997, the members of the board, for
attending up to 32 meetings, received the following compensation, in total, from
all funds in the IDS MUTUAL FUND GROUP.
<PAGE>
Life Capital Resource
<TABLE>
<CAPTION>
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $3,331 $0 $0 $ 83,100
(part of year) 4,097 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 4,131 0 0 103,800
Heinz F. Hutter 4,166 0 0 105,500
Anne P. Jones 4,383 0 0 110,800
Melvin R. Laird 4,113 0 0 97,800
Alan K. Simpson 2,670 0 0 62,400
(part of year)
Edson W. Spencer 4,527 0 0 127,000
Wheelock Whitney 4,216 0 0 108,700
C. Angus Wurtele 4,241 0 0 109,900
Life International Equity
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, $1,965 $0 $0 $83,100
Jr.
(part of year) 2,330 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 2,427 0 0 103,800
Heinz F. Hutter 2,462 0 0 105,500
Anne P. Jones 2,585 0 0 110,800
Melvin R. Laird 2,346 0 0 97,800
Alan K. Simpson 1,524 0 0 62,400
(part of year)
Edson W. Spencer 2,824 0 0 127,000
Wheelock Whitney 2,512 0 0 108,700
C. Angus Wurtele 2,537 0 0 109,900
Life Aggressive Growth
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, $1,965 $0 $0 $83,100
Jr.
(part of year) 2,317 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 2,415 0 0 103,800
Heinz F. Hutter 2,450 0 0 105,500
Anne P. Jones 2,572 0 0 110,800
Melvin R. Laird 2,333 0 0 97,800
Alan K. Simpson 1,524 0 0 62,400
(part of year)
Edson W. Spencer 2,811 0 0 127,000
Wheelock Whitney 2,500 0 0 108,700
C. Angus Wurtele 2,525 0 0 109,900
</TABLE>
<PAGE>
Life Special Income
<TABLE>
<CAPTION>
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $1,881 $0 $0 $83,100
(part of year) 2,246 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 2,347 0 0 103,800
Heinz F. Hutter 2,382 0 0 105,500
Anne P. Jones 2,498 0 0 110,800
Melvin R. Laird 2,262 0 0 97,800
Alan K. Simpson 1,453 0 0 62,400
(part of year)
Edson W. Spencer 2,743 0 0 127,000
Wheelock Whitney 2,432 0 0 108,700
C. Angus Wurtele 2,457 0 0 109,900
Life Moneyshare
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, $ 869 $0 $0 $83,100
Jr.
(part of year) 953 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 1,102 0 0 103,800
Heinz F. Hutter 1,137 0 0 105,500
Anne P. Jones 1,182 0 0 110,800
Melvin R. Laird 969 0 0 97,800
Alan K. Simpson 593 0 0 62,400
(part of year)
Edson W. Spencer 1,498 0 0 127,000
Wheelock Whitney 1,187 0 0 108,700
C. Angus Wurtele 1,212 0 0 109,900
Life Managed
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, $2,757 $0 $0 $83,100
Jr.
(part of year) 3,383 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 3,445 0 0 103,800
Heinz F. Hutter 3,480 0 0 105,500
Anne P. Jones 3,655 0 0 110,800
Melvin R. Laird 3,399 0 0 97,800
Alan K. Simpson 2,169 0 0 62,400
(part of year)
Edson W. Spencer 3,841 0 0 127,000
Wheelock Whitney 3,530 0 0 108,700
C. Angus Wurtele 3,555 0 0 109,900
</TABLE>
<PAGE>
Growth Dimensions
<TABLE>
<CAPTION>
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $784 $0 $0 $83,100
(part of year) 839 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 993 0 0 103,800
Heinz F. Hutter 1,018 0 0 105,500
Anne P. Jones 1,066 0 0 110,800
Melvin R. Laird 856 0 0 97,800
Alan K. Simpson 522 0 0 62,400
(part of year)
Edson W. Spencer 1,379 0 0 127,000
Wheelock Whitney 1,068 0 0 108,700
C. Angus Wurtele 1,093 0 0 109,900
Global Yield
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, $784 $0 $0 $83,100
Jr.
(part of year) 839 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 993 0 0 103,800
Heinz F. Hutter 1,018 0 0 105,500
Anne P. Jones 1,066 0 0 110,800
Melvin R. Laird 856 0 0 97,800
Alan K. Simpson 522 0 0 62,400
(part of year)
Edson W. Spencer 1,379 0 0 127,000
Wheelock Whitney 1,068 0 0 108,700
C. Angus Wurtele 1,093 0 0 109,900
Income Advantage
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on the IDS MUTUAL FUND
the fund expenses* retirement GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, $784 $0 $0 $83,100
Jr.
(part of year) 839 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 993 0 0 103,800
Heinz F. Hutter 1,018 0 0 105,500
Anne P. Jones 1,066 0 0 110,800
Melvin R. Laird 856 0 0 97,800
Alan K. Simpson 522 0 0 62,400
(part of year)
Edson W. Spencer 1,379 0 0 127,000
Wheelock Whitney 1,068 0 0 108,700
C. Angus Wurtele 1,093 0 0 109,900
On Aug. 31, 1997, the Fund's directors and officers as a group owned less than 1% of the outstanding
shares.
</TABLE>
<PAGE>
*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, 1997, 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 1997 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, 1997, is hereby incorporated in this Statement of
Additional Information by reference.
<PAGE>
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.
<PAGE>
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>
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 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.
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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.
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.
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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.
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.
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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 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.
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
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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>
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.
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
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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
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.
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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. 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 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.
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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 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.
<PAGE>
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 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.
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
<PAGE>
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.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
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 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
<PAGE>
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 payments (including repayments) 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.
<PAGE>
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.
<PAGE>
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 technique 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, including times when
the price of their units falls or the market declines, to accumulate 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>
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 Special Income Fund
IDS Life Moneyshare Fund, Inc.
IDS Life Managed Fund, Inc.
Oct. 30, 1997
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, 1997, and it is to be used with the Funds' prospectus
dated Oct. 30, 1997. It is also to be used with the Funds' Annual Report for the
fiscal year ended Aug. 31, 1997.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
800-633-4003
<PAGE>
TABLE OF CONTENTS
Goals and Investment Policies See Prospectus
Additional Investment Policies p. 4
Portfolio Transactions p. 18
Brokerage Commissions Paid to Brokers
Affiliated with IDS Life p. 22
Performance Information p. 23
Valuing Each Fund's Shares p. 26
Investing in the Funds p. 28
Redeeming Shares p. 29
Taxes p. 29
Agreements with IDS Life and American Express Financial
Corporation p. 29
Directors and Officers p. 35
Custodian p. 40
Independent Auditors p. 41
Financial Statements See Annual Report and p. 41
Prospectus p. 41
Appendix A: Description of Corporate Bond Ratings and
Additional Information on Investment Policies
for Investments of Capital Resource and Special
Income Funds p. 42
Appendix B: Foreign Currency Transactions for Investments
of all Funds except Moneyshare p. 44
Appendix C: Description of Money Market Securities p. 48
Appendix D: Options and Stock Index Futures Contracts for
Investments of Capital Resource, International
Equity, Aggressive Growth and Managed Funds p. 50
Appendix E: Options and Interest Rate Futures Contracts for
Investments of Special Income and Managed Funds p. 56
<PAGE>
Appendix F: Mortgage-backed securities and Additional
Information on Investment Policies for all
Funds except Moneyshare p. 61
Appendix G: Dollar-Cost Averaging p. 64
<PAGE>
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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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
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.
<PAGE>
'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 the Fund 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.
'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
<PAGE>
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 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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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>
'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.
'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 the Fund 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 policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
'Invest more than 5% of its net assets in warrants.
'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.
<PAGE>
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 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.
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,
<PAGE>
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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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.
<PAGE>
'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 the Fund 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 policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
'Invest more than 5% of its net assets in warrants.
'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.
<PAGE>
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 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)
<PAGE>
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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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.
'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 the Fund 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.
<PAGE>
'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 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
<PAGE>
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 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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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.
'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).
<PAGE>
'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 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.
<PAGE>
'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 receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board 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.
'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.
<PAGE>
'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.
'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.
<PAGE>
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.
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
<PAGE>
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 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 lowest commission, but IDS
Life believes it may obtain better overall
<PAGE>
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.
The Funds have paid the following brokerage commissions:
<TABLE>
<CAPTION>
Fiscal year Capital International Aggressive Special
ended Aug. 31, Resource Equity Growth Income Managed
- --------------------- ---------------- ----------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
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
1997 9,778,626 6,013,492 7,958,360 168,718 3,490,303
</TABLE>
Transactions amounting to $196,046,000, $82,868,000 and $96,952,000 with related
commissions of $345,738, $147,390 and $120,222 were directed to brokers by
Capital Resource, Aggressive Growth and Managed Funds, respectively, because of
research services received for the fiscal year ended Aug. 31, 1997.
<PAGE>
Capital Resource Fund's acquisition during the fiscal year ended Aug. 31, 1997,
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
Name of Issuer of Fiscal Year
- -------------------------- --------------------------
Bank of America $14,510,291
First Chicago 6,978,282
Merrill Lynch 8,349,859
Morgan Stanley 50,059,625
Travelers Group 60,325,000
International Equity Fund's acquisition during the fiscal year ended Aug. 31,
1997 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
Name of Issuer of Fiscal Year
- -------------------------- --------------------------------
Bank of America $13,503,843
Morgan Stanley 19,063,711
Nations Bank 7,531,326
Credit Suisse First Boston 31,161,934
Aggressive Growth Fund's acquisition during the fiscal year ended Aug. 31, 1997,
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
Name of Issuer of Fiscal Year
- -------------------------- --------------------------------
Bank of America $10,336,119
Merrill Lynch 6,162,991
Charles Schwab 16,975,000
Special Income Fund's acquisition during the fiscal year ended Aug. 31, 1997, 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
Name of Issuer of Fiscal Year
- -------------------------- --------------------------------
J. P. Morgan $12,991,300
Goldman Sachs 8,067,825
Morgan Stanley 8,241,669
Salomon Brothers 5,054,450
<PAGE>
Moneyshare Fund's acquisition during the fiscal year ended Aug. 31, 1997, 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>
Value of Securities Owned at End
Name of Issuer of Fiscal Year
- -------------------------- --------------------------------
Bank of America $21,111,291
First Chicago 4,864,001
Goldman Sachs 19,450,863
Merrill Lynch 19,175,447
J. P. Morgan 1,999,458
Morgan Stanley 24,933,626
Managed Fund's acquisition during the fiscal year ended Aug. 31, 1997, 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
Name of Issuer of Fiscal Year
- -------------------------- --------------------------------
Bank of America $3,594,809
Goldman Sachs 3,884,508
J. P. Morgan 4,847,500
Morgan Stanley 67,943,525
Solomon Brothers 3,905,000
Travelers Group 103,325,000
The portfolio turnover rate for Capital Resource Fund was 110% in fiscal year
ended Aug. 31, 1997 and 131% in fiscal year ended Aug. 31, 1996. The portfolio
turnover rate for Managed Fund was 72% in fiscal year ended Aug. 31, 1997 and
85% in fiscal year ended Aug. 31, 1996.
The portfolio turnover rate for International Equity Fund was 91% in fiscal year
ended Aug. 31, 1997 and 58% in fiscal year ended Aug. 31, 1996. The portfolio
turnover rate for Aggressive Growth Fund was 218% in fiscal year ended Aug. 31,
1997 and 189% in fiscal year ended Aug. 31, 1996.
The Portfolio turnover rate for Special Income was 73% in fiscal year ended Aug.
31, 1997 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 performing similar brokerage and other services for the Fund and (ii)
the affiliate charges the Fund commission rates consistent
<PAGE>
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, 1997.
Information about brokerage commissions paid by the Funds to American Enterprise
Investment Services, Inc., a wholly-owned subsidiary of AEFC, for the last three
fiscal years is contained in the following table:
For the Fiscal Year Ended Aug. 31,
<TABLE>
<CAPTION>
1997 1996 1995
Percentage of
Aggregate
Aggregate Dollar Percent of Dollar Amount Aggregate Aggregate
Amount of Aggregate of Transactions Dollar Amount Dollar Amount
Commissions Paid Brokerage Involving of Commissions of Commissions
Fund to Broker Commissions Payment of Paid to Broker Paid to Broker
Commissions
<S> <C> <C> <C> <C> <C>
Capital $817,190 8.36% 15.58% $841,159 $829,258
Resource
International None None None None None
Equity.
Aggressive 183,327 2.31 3.89 245,269 222,443
Growth
Special Income None None None None None
Managed 227,619 6.64 8.05 76,269 131,456
</TABLE>
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.
<PAGE>
Average annual total return
Each Fund may calculate average annual total return for certain periods by
finding the average annual compounded rates of return over the period that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the end of the period
(or fractional portion thereof)
Aggregate total return
Each Fund may calculate aggregate total return for certain periods representing
the cumulative change in the value of an investment in a fund over a specified
period of time according to the following formula:
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 6.76% for the 30-day period ended Aug. 31, 1997.
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.
<PAGE>
Distribution yield is calculated according to the following formula:
D x F = DY
NAV 30
where: D = sum of dividends for 30 day period
NAV = beginning of period net asset value
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 7.23% for the 30-day period ended Aug. 31,
1997.
Moneyshare Fund calculates annualized simple and compound yields based on a
seven-day period.
The simple yield is calculated by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of the
seven-day period, dividing the net change in account value by the value of the
account at the beginning of the period to obtain the return for the period, and
multiplying that return by 365/7 to obtain an annualized figure. The value of
the hypothetical account includes the amount of any declared dividends, the
value of any shares purchased with any dividend paid during the period and any
dividends declared for such shares. The Fund's yield does not include any
realized or unrealized gains or losses.
Moneyshare Fund calculates its compound yield according to the following
formula:
Compound Yield = (return for seven day period + 1) 365/7 - 1
Moneyshare Fund's simple annualized yield was 5.11% and its compound yield was
5.24% for the seven days ended Aug. 31, 1997, the last business day of the
Fund's fiscal year. The Fund's simple yield was 5.11% and the compound yield was
5.24% for the seven days ended Sept. 30, 1997.
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, CDA Technologies, Donoghue's Money Morningstar,
Market Fund Report,
<PAGE>
Financial Services Week, Financial Times, Financial World, Forbes, Fortune,
Global Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, 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, 1997, the computation of the value of an individual share looked
like this:
Capital Resource Fund
<TABLE>
<CAPTION>
Net assets Shares outstanding Net asset value of one share
<S> <C> <C> <C> <C>
$4,866,591,077 divided by 173,988,176 = $27.97
International Equity Fund
Net assets Shares outstanding Net asset value of one share
$2,104,975,232 divided by 149,447,811 = $14.09
Aggressive Growth Fund
Net assets Shares outstanding Net asset value of one share
$2,427,427,425 divided by 141,403,480 = $17.17
Special Income Fund
Net assets Shares outstanding Net asset value of one share
$1,923,317,614 divided by 160,398,174 = $11.99
Managed Fund
Net assets Shares outstanding Net asset value of one share
$4,444,602,312 divided by 235,535,537 = $18.87
</TABLE>
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>
'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 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
<PAGE>
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 Exchange, AEFC, IDS Life and the Funds will be closed on the following
holidays: New Year's Day, 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 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.
<PAGE>
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.
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.
<PAGE>
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
Next $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
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
<PAGE>
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, 1997 the daily rate applied to the Fund's assets on an annual basis,
was 0.603% for Capital Resource, 0.827% for International Equity, 0.603% for
Aggressive Growth, 0.603% for Special Income, 0.510% for Moneyshare and 0.592%
for Managed. The fee is calculated for each calendar day on the basis of net
assets as of the close of business two business days prior to the day for which
the calculation is made.
The management fee is paid monthly. Under the prior and current agreements, the
total amount paid for Capital Resource was $27,562,075 for the fiscal year ended
Aug. 31, 1997, $26,046,720 for the fiscal year ended 1996 and $20,450,401 for
the fiscal year 1995.
Under the prior and current agreements, the total amount paid for International
Equity was $16,844,405 for the fiscal year ended Aug. 31, 1997, $13,990,974 for
the fiscal year ended 1996, $10,869,439 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Aggressive
Growth was $13,049,949 for the fiscal year ended Aug. 31, 1997, $10,459,512 for
the fiscal year ended 1996, and $6,579,414 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Special Income
was $11,582,416 for the fiscal year ended Aug. 31, 1997, $11,311,856 for the
fiscal year ended 1996, and $9,542,823 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Moneyshare was
$1,845,243 for the fiscal year ended Aug. 31, 1997, $1,283,789 for the fiscal
year ended 1996, and $1,041,050 for the fiscal year 1995.
Under the prior and current agreements, the total amount paid for Managed was
$23,778,006 for the fiscal year ended Aug. 31, 1997, $19,987,805 for the fiscal
year ended 1996, and $16,720,930 for the fiscal year 1995.
<PAGE>
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 $1,216,304 for the fiscal year
ended Aug. 31, 1997, 1,237,584 for the fiscal year ended 1996, and $1,289,211
for the fiscal year 1995.
International Equity paid nonadvisory expenses of $1,971,367 for the fiscal year
ended Aug. 31, 1997, $1,439,851 for the fiscal year ended 1996, and $1,758,233
for the fiscal year 1995.
Aggressive Growth paid nonadvisory expenses of $595,678 for the fiscal year
ended Aug. 31, 1997, $555,212 for the fiscal year ended 1996, and $397,865 for
the fiscal year 1995.
Special Income paid nonadvisory expenses of $470,062 for the fiscal year ended
Aug. 31, 1997, $534,757 for the fiscal year ended 1996, and $527,883 for the
fiscal year 1995.
Moneyshare paid nonadvisory expenses of $112,930 for the fiscal year ended Aug.
31, 1997, $134,008 for the fiscal year ended 1996, and $68,790 for the fiscal
year 1995.
Managed paid nonadvisory expenses of $781,442 for the fiscal year ended Aug. 31,
1997, $857,900 for the fiscal year ended 1996, and $1,006,486 for the fiscal
year 1995.
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
<PAGE>
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
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
<PAGE>
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, 1997, the daily rate applied to Capital Resource was equal to 0.041%
on an annual basis.
On Aug. 31, 1997, the daily rate applied to International Equity was equal to
0.046% on an annual basis.
On Aug. 31, 1997, the daily rate applied to Aggressive Growth was equal to
0.044% on an annual basis.
On Aug. 31, 1997, the daily rate applied to Special Income was equal to 0.048%
on an annual basis.
On Aug. 31, 1997, the daily rate applied to Moneyshare was equal to 0.030% on an
annual basis.
On Aug. 31, 1997, the daily rate applied to Managed was equal to 0.027% 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 American Express Asset
International Inc. under which AEFC pays American Express Asset 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, 1997, IDS Life paid AEFC $11,405,895 for its
services in connection with Capital Resource Fund. For fiscal year 1996, the
amount was $10,767,468 and for fiscal year 1995 it was $8,118,175.
For the fiscal period ended Aug. 31, 1997, IDS Life paid AEFC $7,127,500 for its
services in connection with International Equity Fund. For fiscal year 1996, the
amount was $5,895,097 and for fiscal year 1995 it was $4,947,617.
<PAGE>
For the fiscal period ended Aug. 31, 1997, IDS Life paid AEFC $5,385,048 for its
services in connection with Aggressive Growth Fund. For fiscal year 1996, the
amount was $4,281,869 and for fiscal year 1995 it was $2,589,057.
For the fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $4,808,246 for its
services in connection with Special Income Fund. For fiscal year 1996, the
amount was $4,698,757 and for fiscal year 1995 it was $3,806,813.
For the fiscal year ended Aug. 31, 1997, IDS Life paid AEFC $907,423 for its
services in connection with Moneyshare Fund. For fiscal year 1996, the amount
was $621,885 and for the fiscal year 1995 it was $494,845.
For the fiscal year end Aug. 31, 1997, IDS Life paid AEFC $10,013,842 for its
services in connection with Managed Fund. For fiscal year 1996, the amount was
$8,355,352, and for the fiscal year 1995 it was $6,674,716.
Information concerning other funds advised by IDS Life or AEFC is contained in
the prospectus.
DIRECTORS AND OFFICERS
The following is a list of the Fund's directors. They serve 15 Master Trust
Portfolios and 47 IDS and IDS Life funds. All shares have cumulative voting
rights when voting on the election of directors.
H. Brewster Atwater, Jr.
Born in 1931.
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
Lynne V. Cheney'
Born in 1941.
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and FPL Group, Inc. (holding company for Florida Power and Light) and
the Interpublic Group of Companies, Inc. (advertising).
<PAGE>
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.
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
Chairman of the Board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
<PAGE>
Alan K. Simpson'
Born in 1931.
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Pacific Corp. (electric power).
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 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).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer of the funds.
**Interested person by reason of being an officer, director, employee and/or
shareholder of AEFC or American Express.
<PAGE>
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman, and Mr. Thomas, who is president,
the fund's other officers are:
Leslie L. Ogg
Born in 1938.
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the funds.
Peter J. Anderson
Born in 1942.
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the funds.
Melinda S. Urion
Born in 1953.
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
Executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Funds.
Members of the board who are not officers of the Fund or of AEFC receive an
annual fee of $3,200 for IDS Life Capital Resource Fund, $1,500 for IDS Life
International Equity Fund and IDS Life Aggressive Growth Fund, $1,400 for IDS
Life Special Income Fund, $200 for IDS Life Moneyshare Fund and $2,600 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, 1997, the members of the board, for
attending up to 32 meetings, received the following compensation, in total, from
all funds in the IDS MUTUAL FUND GROUP.
<PAGE>
Life Capital Resource
<TABLE>
<CAPTION>
Board Compensation
Pension or Estimated Total Cash
Aggregate Retirement annual compensation
compensation benefits accrued benefit on from the IDS
Board member from the fund as Fund expenses* retirement MUTUAL FUND GROUP
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, $3,331 $0 $0 $ 83,100
Jr.
(part of year) 4 ,097 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 4,131 0 0 103,800
Heinz F. Hutter 4,166 0 0 105,500
Anne P. Jones 4,383 0 0 110,800
Melvin R. Laird 4,113 0 0 97,800
Alan K. Simpson 2,670 0 0 62,400
(part of year)
Edson W. Spencer 4,527 0 0 127,000
Wheelock Whitney 4,216 0 0 108,700
C. Angus Wurtele 4,241 0 0 109,900
Life International Equity
Board Compensation
Pension or Estimated Total Cash
Aggregate Retirement annual compensation
compensation benefits accrued benefit on from the IDS
Board member from the fund as Fund expenses* retirement MUTUAL FUND GROUP
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
H. Brewster Atwater, $1,965 $0 $0 $ 83,100
Jr.
(part of year) 2,330 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 2,427 0 0 103,800
Heinz F. Hutter 2,462 0 0 105,500
Anne P. Jones 2,585 0 0 110,800
Melvin R. Laird 2,346 0 0 97,800
Alan K. Simpson 1,524 0 0 62,400
(part of year)
Edson W. Spencer 2,824 0 0 127,000
Wheelock Whitney 2,512 0 0 108,700
C. Angus Wurtele 2,537 0 0 109,900
Life Aggressive Growth
Board Compensation
Pension or Estimated Total Cash
Aggregate Retirement annual compensation
compensation benefits accrued benefit on from the IDS
Board member from the fund as Fund expenses* retirement MUTUAL FUND GROUP
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
H. Brewster Atwater, $1,965 $0 $0 $ 83,100
Jr.
(part of year) 2,317 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 2,415 0 0 103,800
Heinz F. Hutter 2,450 0 0 105,500
Anne P. Jones 2,572 0 0 110,800
Melvin R. Laird 2,333 0 0 97,800
Alan K. Simpson 1,524 0 0 62,400
(part of year)
Edson W. Spencer 2,811 0 0 127,000
Wheelock Whitney 2,500 0 0 108,700
C. Angus Wurtele 2,525 0 0 109,900
</TABLE>
<PAGE>
Life Special Income
<TABLE>
<CAPTION>
Board Compensation
Pension or Estimated Total Cash
Aggregate Retirement annual compensation
compensation benefits accrued benefit on from the IDS
Board member from the fund as Fund expenses* retirement MUTUAL FUND GROUP
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, $1,881 $0 $0 $ 83,100
Jr.
(part of year) 2,246 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 2,347 0 0 103,800
Heinz F. Hutter 2,382 0 0 105,500
Anne P. Jones 2,498 0 0 110,800
Melvin R. Laird 2,262 0 0 97,800
Alan K. Simpson 1,453 0 0 62,400
(part of year)
Edson W. Spencer 2,743 0 0 127,000
Wheelock Whitney 2,432 0 0 108,700
C. Angus Wurtele 2,457 0 0 109,900
Life Moneyshare
Board Compensation
Pension or Estimated Total Cash
Aggregate Retirement annual compensation
compensation benefits accrued benefit on from the IDS
Board member from the fund as Fund expenses* retirement MUTUAL FUND GROUP
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
H. Brewster Atwater, $ 869 $0 $0 $ 83,100
Jr.
(part of year) 953 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 1,102 0 0 103,800
Heinz F. Hutter 1,137 0 0 105,500
Anne P. Jones 1,182 0 0 110,800
Melvin R. Laird 969 0 0 97,800
Alan K. Simpson 593 0 0 62,400
(part of year)
Edson W. Spencer 1,498 0 0 127,000
Wheelock Whitney 1,187 0 0 108,700
C. Angus Wurtele 1,212 0 0 109,900
Life Managed
Board Compensation
Pension or Estimated Total Cash
Aggregate Retirement annual compensation
compensation benefits accrued benefit on from the IDS
Board member from the fund as Fund expenses* retirement MUTUAL FUND GROUP
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
H. Brewster Atwater, $2,757 $0 $0 $ 83,100
Jr.
(part of year) 3,383 0 0 96,600
Lynne V. Cheney
Robert F. Froehlke 3,445 0 0 103,800
Heinz F. Hutter 3,480 0 0 105,500
Anne P. Jones 3,655 0 0 110,800
Melvin R. Laird 3,399 0 0 97,800
Alan K. Simpson 2,169 0 0 62,400
(part of year)
Edson W. Spencer 3,841 0 0 127,000
Wheelock Whitney 3,530 0 0 108,700
C. Angus Wurtele 3,555 0 0 109,900
</TABLE>
<PAGE>
On Aug. 31, 1997, the Fund's directors and officers as a group owned less than
1% of the outstanding shares.
*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, 1997, 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 1997 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, 1997, is hereby incorporated in this Statement of
Additional Information by reference.
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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.
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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 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.
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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.
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.
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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.
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.
<PAGE>
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 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>
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.
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
<PAGE>
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>
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.
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
<PAGE>
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
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
<PAGE>
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 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
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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 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
<PAGE>
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 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.
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
<PAGE>
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.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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>
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 technique 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 including times when
the price of their units falls or the market declines, to accumulate 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>
Independent auditors' report
Section start title
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.
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, 1997, and the related statements of operations
for the year then ended and the statements of changes in net assets for
each of the years in the two-year period ended August 31, 1997 (for the
year ended August 31, 1997 and the 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 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, 1997 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 3, 1997
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities
Retirement Annuity Mutual Funds
Aug. 31, 1997
Assets
Capital Special Managed
Resource Income Fund
Fund Fund
Investments in securities, at value (Note 1):
(identified cost, $3,980,733,551; $1,889,664,358
<S> <C> <C> <C>
and $3,639,926,267, respectively) $4,891,433,490 $1,946,572,667 $4,568,716,057
Cash in bank on demand deposit 302,428 -- --
Receivable for investment securities sold 30,594,896 44,130,752 31,907,719
Dividends and accrued interest receivable 3,923,061 28,166,638 22,291,766
Unrealized appreciation on foreign currency contracts
held, at value (Notes 1 and 4) 61,480 -- --
U.S. government securities held as collateral for
securities loaned (Note 5) -- 24,146,993 551,386
Receivable (for capital stock sold) from:
IDS Life accounts 193,848 6,566,682 15,900,392
IDS Life of New York accounts 35,022 391,520 1,036,150
------ ------- ---------
Total assets 4,926,544,225 2,049,975,252 4,640,403,470
------------- ------------- -------------
Liabilities
Disbursements in excess of cash on demand deposit -- 547,023 1,221,267
Dividends payable to shareholders (Note 1) 5,993,053 10,678,759 26,406,711
Payable for investment securities purchased 30,675,361 51,578,563 31,461,569
Accrued investment management and services fee 2,565,142 997,790 2,237,998
Payable upon return of securities loaned (Note 5) 12,875,400 62,764,368 131,622,136
Payable (for capital stock redeemed) to:
IDS Life accounts 7,229,054 -- --
IDS Life of New York accounts 339,704 -- --
Other accrued expenses 275,434 91,135 213,352
Open option contracts written, at value
(premium received, $1,793,640 for Managed Fund) (Note 8) -- -- 2,638,125
---------
Total liabilities 59,953,148 126,657,638 195,801,158
Net assets applicable to outstanding capital stock $4,866,591,077 $1,923,317,614 $4,444,602,312
============== ============== ==============
Represented by
Capital stock -- $.01 par value ($.001 for
Managed Fund) (Note 1) $ 1,739,882 $ 1,603,982 $ 235,536
Additional paid-in capital 3,893,609,793 1,826,975,405 3,169,484,036
Undistributed (excess of distributions over)
net investment income 1,511,741 2,658,045 (2,919,030)
Accumulated net realized gain (loss) (Note 1) 59,030,297 35,367,126 349,842,639
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (Note 7) 910,699,364 56,713,056 927,959,131
----------- ---------- -----------
Total-- representing net assets applicable to outstanding
capital stock $4,866,591,077 $1,923,317,614 $4,444,602,312
============== ============== ==============
Shares outstanding 173,988,176 160,398,174 235,535,537
----------- ----------- -----------
Net asset value per share of outstanding capital stock $ 27.97 $ 11.99 $ 18.87
--------------- -------------- --------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities (continued)
Retirement Annuity Mutual Funds
Aug. 31, 1997
Assets
Moneyshare International Aggressive
Fund Equity Growth
Fund Fund
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated
issuers (identified cost, $424,442,329;
<S> <C> <C> <C>
$2,088,502,822 and $1,972,833,122, respectively) $424,442,329 $2,328,905,486 $2,383,342,188
Investments in securities of affiliated issuers
(identified cost, $19,447,426 for Aggressive Growth Fund) -- -- 26,373,000
Cash in bank on demand deposit 78,871 728,811 24,059
Receivable for investment securities sold -- 21,351,133 70,658,928
Dividends and accrued interest receivable 477,569 8,733,453 722,925
Unrealized appreciation on foreign currency contracts
held, at value (Notes 1 and 4) -- 245 --
Receivable (for capital stock sold) from:
IDS Life accounts 1,273,506 5,339,786 318,435
IDS Life of New York accounts 67,000 346,078 27,330
------ ------- ------
Total assets 426,339,275 2,365,404,992 2,481,466,865
----------- ------------- -------------
Liabilities
Dividends payable to shareholders (Note 1) 1,711,510 9,639,173 428,574
Payable for investment securities purchased -- 952,778 41,298,250
Accrued investment management and services fee 181,283 1,554,698 1,246,731
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) -- 214,557 24,996
Payable upon return of securities loaned (Note 5) -- 247,741,700 5,080,000
Payable (for capital stock redeemed) to:
IDS Life accounts 2,702,102 1,498 4,110,458
IDS Life of New York accounts 361,609 -- 259,319
Other accrued expenses 33,993 325,356 183,987
Open option contracts written, at value
(premium received, $1,388,808 for Aggressive
Growth Fund) (Note 8) -- -- 1,407,125
---------
Total liabilities 4,990,497 260,429,760 54,039,440
--------- ----------- ----------
Net assets applicable to outstanding capital stock $421,348,778 $2,104,975,232 $2,427,427,425
============ ============== ==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 4,213,830 $ 1,494,478 $ 1,414,035
Additional paid-in capital 417,135,508 1,835,224,846 1,798,310,205
Undistributed (excess of distributions over)
net investment income 80 710,710 45
Accumulated net realized gain (loss) (Note 1) (640) 27,126,580 210,301,519
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies -- 240,418,618 417,401,621
----------- -----------
Total-- representing net assets applicable to outstanding
capital stock $ 421,348,778 $2,104,975,232 $2,427,427,425
============== ============== ==============
Shares outstanding 421,383,025 149,447,811 141,403,480
----------- ----------- -----------
Net asset value per share of outstanding capital stock $ 1.00 $ 14.09 $ 17.17
-------------- -------------- --------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of assets and liabilities (continued)
Retirement Annuity Mutual Funds
Aug. 31, 1997
Assets
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Investments in securities, at value (Note 1):
(identified cost, $117,728,549;
<S> <C> <C> <C>
$1,134,607,460 and $304,285,101, respectively) $118,241,227 $1,310,707,304 $313,301,079
Cash in bank on demand deposit 1,060,848 150,145 --
Receivable for investment securities sold -- 4,186,017 186,193
Dividends and accrued interest receivable 1,641,436 1,963,661 5,690,732
Unrealized appreciation on foreign currency
contracts held, at value (Notes 1 and 4) 23,220 -- --
U.S. government securities held as collateral for
securities loaned (Note 5) -- 6,958,705 --
Receivable (for capital stock sold) from:
IDS Life accounts 87,176 6,351,154 3,271,724
IDS Life of New York accounts 1,059,787 400,423 230,387
--------- ------- -------
Total assets 122,113,694 1,330,717,409 322,680,115
----------- ------------- -----------
Liabilities
Disbursements in excess of cash on demand deposit -- -- 7,527
Dividends payable to shareholders (Note 1) 280,313 2,909,732 2,159,728
Payable for investment securities purchased 1,273,853 10,010,815 45
Accrued investment management and services fee 82,101 704,144 161,948
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) 28,162 -- --
Payable upon return of securities loaned (Note 5) 1,250,000 10,201,705 --
Other accrued expenses 21,542 64,029 33,571
------ ------ ------
Total liabilities 2,935,971 23,890,425 2,362,819
--------- ---------- ---------
Net assets applicable to outstanding capital stock $119,177,723 $1,306,826,984 $320,317,296
============ ============== ============
Represented by
Capital stock-- $.01 par value (Note 1) $ 115,537 $ 1,008,870 $ 308,199
Additional paid-in capital 118,180,355 1,141,451,120 309,109,278
Undistributed (excess of distributions over)
net investment income 6,277 (8) (65,666)
Accumulated net realized gain (loss) (Notes 1 and 9) 425,883 (11,732,842) 1,949,507
Unrealized appreciation (depreciation) on investments and on
translation of assets and liabilities in foreign currencies 449,671 176,099,844 9,015,978
------- ----------- ---------
Total-- representing net assets applicable to outstanding
capital stock $119,177,723 $1,306,826,984 $320,317,296
============ ============== ============
Shares outstanding 11,553,714 100,887,023 30,819,905
---------- ----------- ----------
Net asset value per share of outstanding capital stock $ 10.32 $ 12.95 $ 10.39
------------ -------------- ------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of operations
Retirement Annuity Mutual Funds
Year ended Aug. 31, 1997
Investment income
Capital Special Managed
Resource Income Fund
Fund Fund
Income:
Dividends (including $435,835 and $145,750 earned from affiliates
<S> <C> <C> <C>
for Capital Resource and Managed Fund, respectively) $ 44,674,562 $ 474,635 $ 34,600,019
Interest 14,067,291 150,977,479 97,389,698
Less: Foreign taxes withheld (272,964) (11,455) (71,871)
-------- ------- -------
Total income 58,468,889 151,440,659 131,917,846
---------- ----------- -----------
Expenses (Note 2):
Investment management services fee 27,562,075 11,582,416 23,778,006
Administrative services fees and expenses 1,953,742 940,788 1,169,827
Custodian fees and expenses 604,179 264,656 295,211
Compensation of board members and officers 40,064 26,687 26,786
Printing and postage 478,654 139,786 372,567
Audit fees 21,500 22,500 20,000
Other 71,907 16,433 66,878
------ ------ ------
Total expenses 30,732,121 12,993,266 25,729,275
---------- ---------- ----------
Investment income (loss)-- net 27,736,768 138,447,393 106,188,571
---------- ----------- -----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $134,318,039 realized
loss and $2,894,485 realized gain on sale of
affiliated issuers for Capital Resource and
Managed Fund, respectively) (Note 3) 64,475,744 43,978,029 348,491,781
Financial futures contracts (Note 7) -- (8,426,777) (783,611)
Foreign currency transactions 264 17,027 8,186
Option contracts written (Note 8) -- 821,356 2,007,460
------- ---------
Net realized gain (loss) on investments 64,476,008 36,389,635 349,723,816
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 1,057,213,832 48,544,163 533,911,315
------------- ---------- -----------
Net gain (loss) on investments and foreign currencies 1,121,689,840 84,933,798 883,635,131
------------- ---------- -----------
Net increase (decrease) in net assets resulting from
operations $1,149,426,608 $223,381,191 $989,823,702
============== ============ ============
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31, 1997
Investment income
Moneyshare International Aggressive
Fund Equity Growth
Fund Fund
Income:
<S> <C> <C> <C>
Dividends $ -- $ 42,877,831 $ 7,822,483
Interest 20,122,843 7,526,377 17,045,569
Less: Foreign taxes withheld -- (4,207,743) (14,613)
---------- -------
Total income 20,122,843 46,196,465 24,853,439
---------- ---------- ----------
Expenses (Note 2):
Investment management services fee 1,845,243 16,844,405 13,049,949
Administrative services fees and expenses 119,266 963,406 1,005,722
Custodian fees and expenses 44,493 1,699,611 326,936
Compensation of board members and officers 11,878 20,502 22,594
Printing and postage 30,410 191,324 212,633
Audit fees 16,000 19,500 16,500
Other 10,149 40,430 17,015
------ ------ ------
Total expenses 2,077,439 19,779,178 14,651,349
--------- ---------- ----------
Investment income (loss)-- net 18,045,404 26,417,287 10,202,090
========== ========== ==========
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $4,391,759 realized loss
on investments of affiliated issuers for Aggressive
Growth Fund) (Note 3) 75 29,339,612 210,634,853
Foreign currency transactions -- (1,167,393) 665
Option contracts written (Note 8) -- -- 778,910
-------
Net realized gain (loss) on investments 75 28,172,219 211,414,428
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies -- 124,342,284 167,575,911
----------- -----------
Net gain (loss) on investments and foreign currencies 75 152,514,503 378,990,339
-- ----------- -----------
Net increase (decrease) in net assets resulting from operations $18,045,479 $178,931,790 $389,192,429
=========== ============ ============
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of operations (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31, 1997
Investment income
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Income:
<S> <C> <C> <C>
Dividends $ -- $ 7,954,434 $ 484,593
Interest 4,590,818 4,945,738 16,033,475
Less: Foreign taxes withheld (12,536) (45,109) --
------- -------
Total income 4,578,282 12,855,063 16,518,068
--------- ---------- ----------
Expenses (Note 2):
Investment management services fee 576,997 4,581,562 1,070,942
Administrative services fees and expenses 42,185 362,696 85,830
Custodian fees and expenses 20,296 253,733 776
Compensation of board members and officers 15,225 13,625 10,090
Printing and postage 3,494 25,275 4,982
Audit fees 13,000 15,000 14,000
Other 1,791 4,290 --
----- -----
Total expenses 672,988 5,256,181 1,186,620
------- --------- ---------
Investment income (loss)-- net 3,905,294 7,598,882 15,331,448
--------- --------- ----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (76,735) (11,294,834) 1,950,076
Foreign currency transactions (652,033) -- --
--------
Net realized gain (loss) on investments (728,768) (11,294,834) 1,950,076
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 320,947 176,292,119 9,362,691
------- ----------- ---------
Net gain (loss) on investments and foreign currencies (407,821) 164,997,285 11,312,767
-------- ----------- ----------
Net increase (decrease) in net assets resulting from
operations $3,497,473 $172,596,167 $26,644,215
========== ============ ===========
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Retirement Annuity Mutual Funds
Year ended Aug. 31,
Operations and distributions 1997 1996 1997 1996
Capital Resource Fund Special Income Fund
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 27,736,768 $ 49,437,780 $ 138,447,393 $ 140,371,676
Net realized gain (loss) on investments 64,476,008 679,462,201 36,389,635 32,869,470
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies 1,057,213,832 (494,927,652) 48,544,163 (49,126,958)
Net increase (decrease) in net assets resulting
from operations 1,149,426,608 233,972,329 223,381,191 124,114,188
Distributions to shareholders from:
Net investment income (25,649,850) (47,593,459) (136,327,556) (135,814,306)
Net realized gain (671,576,858) (10,771,339) (11,869,083) --
Excess distributions of net investment
income (Note 1) (2,087,182) (1,869,994) (1,098,015) --
Total distributions (699,313,890) (60,234,792) (149,294,654) (135,814,306)
Capital share transactions (Note 6)
Proceeds from sales 93,527,775 410,478,022 80,830,509 214,108,604
Reinvested distributions at net asset value 699,313,890 60,234,792 149,294,654 135,814,306
Payments for redemptions (748,232,170) (117,295,599) (292,741,712) (129,574,450)
Increase (decrease) in net assets from capital
share transactions 44,609,495 353,417,215 (62,616,549) 220,348,460
Total increase (decrease) in net assets 494,722,213 527,154,752 11,469,988 208,648,342
Net assets at beginning of period 4,371,868,864 3,844,714,112 1,911,847,626 1,703,199,284
Net assets at end of period $4,866,591,077 $4,371,868,864 $1,923,317,614 $1,911,847,626
Undistributed (excess of distributions over)
net investment income $ 1,511,741 $ (2,086,918) $ 2,658,045 $ (2,119,837)
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31,
Operations and distributions 1997 1996 1997 1996
Managed Fund Moneyshare Fund
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 106,188,571 $ 98,305,594 $ 18,045,404 $ 12,658,921
Net realized gain (loss) on investments 349,723,816 275,882,292 75 325
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies 533,911,315 (34,119,724) -- --
----------- -----------
Net increase (decrease) in net assets resulting
from operations 989,823,702 340,068,162 18,045,479 12,659,246
----------- ----------- ---------- ----------
Distributions to shareholders from:
Net investment income (103,963,520) (97,692,300) (18,045,405) (12,658,921)
Net realized gain (229,851,535) -- -- --
Excess distributions of net investment
income (Note 1) (2,233,237) (784,045) -- --
---------- --------
Total distributions (336,048,292) (98,476,345) (18,045,405) (12,658,921)
------------ ----------- ----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 165,143,091 203,558,285 381,728,848 247,288,271
Reinvested distributions at net asset value 336,048,292 98,476,345 18,045,405 12,658,921
Payments for redemptions (192,281,775) (105,925,809) (266,545,406) (198,768,626)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital share
transactions 308,909,608 196,108,821 133,228,847 61,178,566
----------- ----------- ----------- ----------
Total increase (decrease) in net assets 962,685,018 437,700,638 133,228,921 61,178,891
Net assets at beginning of period 3,481,917,294 3,044,216,656 288,119,857 226,940,966
------------- ------------- ----------- -----------
Net assets at end of period $4,444,602,312 $3,481,917,294 $421,348,778 $288,119,857
============== ============== ============ ============
Undistributed (excess of distributions over)
net investment income $ (2,919,030) $ (2,225,051) $ 80 $ (714)
-------------- -------------- ------------ ------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
Retirement Annuity Mutual Funds
Year ended Aug. 31,
Operations and distributions 1997 1996 1997 1996
International Equity Fund Aggressive Growth Fund
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 26,417,287 $ 21,510,160 $ 10,202,090 $ 11,060,108
Net realized gain (loss) on investments 28,172,219 89,338,162 211,414,428 243,201,058
Net change in unrealized appreciation
(depreciation) of investments and on translation
of assets and liabilities in foreign currencies 124,342,284 33,859,236 167,575,911 (79,505,605)
----------- ---------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations 178,931,790 144,707,558 389,192,429 174,755,561
----------- ----------- ----------- -----------
Distributions to shareholders from:
Net investment income (24,686,010) (15,453,784) (10,201,144) (11,052,242)
Net realized gain (39,674,522) (23,947,543) (213,792,618) --
Excess distributions of net investment
income (Note 1) (611,057) (18,917,064) -- (7,244)
-------- ----------- ------
Total distributions (64,971,589) (58,318,391) (223,993,762) (11,059,486)
----------- ----------- ------------ -----------
Capital share transactions (Note 6)
Proceeds from sales 187,607,054 335,601,053 221,900,102 388,624,475
Reinvested distributions at net asset value 64,971,589 58,318,391 223,993,762 11,059,486
Payments for redemptions (136,014,005) (47,735,823) (124,759,988) (34,177,762)
------------ ----------- ------------ -----------
Increase (decrease) in net assets from capital share
transactions 116,564,638 346,183,621 321,133,876 365,506,199
----------- ----------- ----------- -----------
Total increase (decrease) in net assets 230,524,839 432,572,788 486,332,543 529,202,274
Net assets at beginning of period 1,874,450,393 1,441,877,605 1,941,094,882 1,411,892,608
------------- ------------- ------------- -------------
Net assets at end of period $2,104,975,232 $1,874,450,393 $2,427,427,425 $1,941,094,882
============== ============== ============== ==============
Undistributed (excess of distributions over)
net investment income $ 710,710 $ (1,731,277) $ 45 $ (9,476)
-------------- -------------- -------------- --------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets (continued)
Retirement Annuity Mutual Funds
Operations and distributions
Global Yield Growth Dimensions Fund
For the period For the period
Year ended from May 1, 1996* Year ended from May 1, 1996*
Aug. 31, 1997 to Aug. 31, 1996 Aug. 31, 1997 to Aug. 31, 1996
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 3,905,294 $ 154,190 $ 7,598,882 $ 413,128
Net realized gain (loss) on investments and
foreign currencies (728,768) (3,709) (11,294,834) (438,008)
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies 320,947 128,724 176,292,119 (192,275)
------- ------- ----------- --------
Net increase (decrease) in net assets resulting
from operations 3,497,473 279,205 172,596,167 (217,155)
--------- ------- ----------- --------
Distributions to shareholders from:
Net investment income (2,750,769) (144,078) (7,598,890) (413,128)
---------- -------- ---------- --------
Capital share transactions (Note 6)
Proceeds from sales 95,993,878 20,834,514 971,525,218 171,304,119
Reinvested distributions at net asset value 2,750,769 144,078 7,598,890 413,128
Payments for redemptions (1,244,579) (182,768) (8,114,944) (266,421)
---------- -------- ---------- --------
Increase (decrease) in net assets from capital share
transactions 97,500,068 20,795,824 971,009,164 171,450,826
---------- ---------- ----------- -----------
Total increase (decrease) in net assets 98,246,772 20,930,951 1,136,006,441 170,820,543
Net assets at beginning of period 20,930,951 -- 170,820,543 --
---------- -----------
Net assets at end of period $119,177,723 $20,930,951 $1,306,826,984 $170,820,543
============ =========== ============== ============
Undistributed (excess of distributions over)
net investment income $ 6,277 $ -- $ (8) $ --
------------ ----------- -------------- ------------
*Commencement of operations.
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
Retirement Annuity Mutual Funds
Operations and distributions
Income Advantage Fund
For the period
Year ended from May 1, 1996*
Aug. 31, 1997 to Aug. 31, 1996
<S> <C> <C>
Investment income (loss)-- net $ 15,331,448 $ 582,774
Net realized gain (loss) on investments 1,950,076 (66,235)
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies 9,362,691 (346,713)
--------- --------
Net increase (decrease) in net assets
resulting from operations 26,644,215 169,826
---------- -------
Distributions to shareholders from:
Net investment income (15,331,448) (582,774)
----------- --------
Capital share transactions (Note 6)
Proceeds from sales 247,490,767 48,762,664
Reinvested distributions at net asset value 15,331,448 582,774
Payments for redemptions (2,655,838) (94,338)
---------- -------
Increase (decrease) in net assets from capital share
transactions 260,166,377 49,251,100
----------- ----------
Total increase (decrease) in net assets 271,479,144 48,838,152
Net assets at beginning of period 48,838,152 --
----------
Net assets at end of period $320,317,296 $48,838,152
============ ===========
Undistributed (excess of distributions over)
net investment income $ (65,666) $ (2,641)
------------ -----------
*Commencement of operations.
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Notes to financial statements
Retirement Annuity Mutual Funds
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. Each Fund has 10 billion authorized shares
of capital stock.
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; and
Income Advantage invests primarily in long-term, high-yielding,
high-risk debt securities below investment grade issued by U.S. and
foreign corporations.
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
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities in all Funds, except Moneyshare Fund, maturing in more than 60
days from the valuation date are valued at the market price or approximate
market value based on current interest rates; those maturing in 60 days or
less are valued at amortized cost. 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,
except Moneyshare Fund, may buy and sell put and call options and write
covered call options on portfolio securities and write cash-secured puts.
The risk in writing a call option is that the Funds give up the
opportunity for profit if the market price of the security increases. The
risk in writing a put option is that the Funds may incur a loss if the
market price of the security decreases and the option is exercised. The
risk in buying an option is that the Funds pay a premium whether or not
the option is exercised. The Funds also have the additional risk of not
being able to enter into a closing transaction if a liquid secondary
market does not exist. The Funds also may write over-the-counter options
where the completion of the obligation is dependent upon the credit
standing of the other party.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Funds will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the purchase
cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Funds, except Moneyshare Fund, may buy and sell financial futures
contracts. The Funds also may buy or write put and call options on futures
contracts. Risks of entering into futures contracts and related options
include the possibility that there may be an illiquid market and a change
in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Funds may be required to
deposit either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Funds each day. The variation margin
payments are equal to the daily changes in the contract value and recorded
as unrealized gains and losses. The Funds recognize a realized gain or
loss when the contract is closed or expires.
Foreign currency translations and 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.
The Funds, except Moneyshare Fund, 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.
Illiquid securities
At August 31, 1997, investments in securities for Special Income Fund,
Managed Fund, and Income Advantage Fund included issues that are illiquid.
The Funds currently limit investments in illiquid securities to 10% of the
Funds' net assets, at market value, at the time of purchase. The aggregate
value of such securities at August 31, 1997, was $14,494,750, $7,015,025,
and $5,730,000 representing 0.75%, 0.16% and 1.79% of net assets for
Special Income Fund, Managed 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 10%
limitations specified above.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by Special
Income and Growth Dimensions 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 short-term debt securities at least
equal to the amount of its commitment. As of August 31, 1997, each Fund
had entered into outstanding when-issued or forward-commitments of
$11,289,859 and $1,691,907, respectively.
Federal 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, as a result of permanent
book-to-tax differences, accumulated net realized gain (loss) and
undistributed net investment income have been increased (decreased),
resulting in net reclassification adjustments to additional paid-in
capital by the following:
Capital Special
Resource Income Managed
Accumulated net realized gain (loss) $(3,587,374) $(3,981,721) $763,957
Undistributed net investment income 3,598,923 3,756,060 (685,793)
--------- --------- --------
Additional paid-in capital reduction
(increase) $ 11,549 $ (225,661) $ 78,164
International Aggressive
Moneyshare Equity Growth
Accumulated net realized gain (loss) $ (795) $ (833,727) $ (8,783)
Undistributed net investment income 795 1,321,767 8,575
--- --------- -----
Additional paid-in capital reduction
(increase) $ -- $ 488,040 $ (208)
Global Growth Income
Yield Dimensions Advantage
Accumulated net realized gain (loss) $1,148,248 $ -- $ 63,025
Undistributed net investment income (1,148,248) -- (63,025)
---------- -------
Additional paid-in capital reduction
(increase) $ -- $ -- $ --
(This annual report is not part of the prospectus.)
<PAGE>
Notes to financial statements
Retirement Annuity Mutual Funds
Dividends
At August 31, 1997, dividends declared for each Fund payable September 2,
1997 are as follows:
Capital Resource $0.034
Special Income $0.067
Managed $0.113
Moneyshare $0.004
International Equity $0.065
Aggressive Growth $0.003
Global Yield $0.025
Growth Dimensions $0.029
Income Advantage $0.073
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:
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 a fee 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%
Additional administrative service expenses paid by the Funds are office
expenses, consultants' fees and compensation of officers and employees.
Under this agreement, the Funds also pay taxes, audit and certain legal
fees, registration fees for shares, compensation of board members,
corporate filing fees, organizational expenses and any other expenses
properly payable by the Funds and approved by the board.
3
Securities
transactions
For the year ended August 31, 1997, cost of purchases and proceeds from
sales of securities aggregated, respectively, $2,580,671,804 and
$2,446,053,427 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 $4,808,127,134 $5,295,121,224
Special Income 1,244,414,433 1,417,224,715
Managed 2,830,408,146 2,726,080,794
International Equity 1,915,009,774 1,735,935,615
Aggressive Growth 4,399,536,393 4,045,793,081
Global Yield 101,954,398 20,044,688
Growth Dimensions 1,050,813,720 188,569,293
Income Advantage 416,789,541 169,597,415
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 August 31, 1997 are as follows:
Capital Resource $817,190
Managed 227,619
Aggressive Growth 183,327
Growth Dimensions 20,404
4
Foreign currency
contracts
At August 31, 1997, Capital Resource Fund, International Equity Fund,
Aggressive Growth Fund and Global Yield Fund had entered into 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. See Summary of significant accounting policies. The terms of
the open contracts are as follows:
Capital Resource Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09-03-97 10,443,575 6,997,276 $61,480 $ --
Swiss Franc U.S. Dollar
International Equity Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09-02-97 12,725,810 20,419,707 $-- $214,557
British Pound U.S. Dollar
09-03-97 85,074,648 704,068 245 --
Japanese Yen U.S. Dollar
$245 $214,557
Aggressive Growth Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09-02-97 1,525,282 2,040,511 $-- $24,996
Global Yield Fund
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
09-18-97 1,023,018 120,000,000 $ -- $28,162
U.S. Dollar Japanese Yen
10-02-97 3,000,000 2,204,550 23,220 --
Australian Dollar U.S. Dollar
$23,220 $28,162
<PAGE>
<TABLE>
<CAPTION>
5
Lending of portfolio
securities
Presented below is information regarding securities on loan at August 31,1997.
Capital Special
Resource Income Managed
<S> <C> <C> <C>
Value of securities on loan to brokers $12,727,175 $61,620,585 $127,419,985
Collateral received for securities loaned:
Cash $12,875,400 $38,617,375 $131,070,750
U.S. government securities, at value -- 24,146,993 551,386
Total collateral received for securities
loaned $12,875,400 $62,764,368 $131,622,136
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
International Aggressive Global Growth
Equity Growth Yield Dimensions
<S> <C> <C> <C> <C>
Value of securities on loan to brokers $226,233,918 $4,806,050 $1,183,000 $11,655,125
Collateral received for securities loaned:
Cash $247,741,700 $5,080,000 $1,250,000 $3,243,000
U.S. government securities, at value -- -- -- 6,958,705
Total collateral received for securities
loaned $247,741,700 $5,080,000 $1,250,000 $10,201,705
Income from securities lending amounted to $301,534, $170,821, $823,950,
$1,433,414, $139,889, $1,561 and $46,435 for Capital Resource, Special Income,
Managed, International Equity, Aggressive Growth, Global Yield and Growth
Dimensions, respectively, for the year ended August 31, 1997.
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.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to financial statements
Retirement Annuity Mutual Funds
6
Capital share
transactions
Transactions in shares of each Fund for the years ended August 31, 1997 and 1996
were as follows:
Year ended Aug. 31, 1997
Capital Special
Resource Income Managed
<S> <C> <C> <C>
Sold 3,671,546 6,809,483 9,338,045
Issued for reinvested
distributions 28,934,823 12,551,003 19,555,272
Redeemed (29,616,371) (24,673,816) (10,968,268)
Net increase (decrease) 2,989,998 (5,313,330) 17,925,049
Year ended Aug. 31, 1997
International Aggressive
Moneyshare Equity Growth
Sold 381,761,377 13,555,355 13,876,397
Issued for reinvested
distributions 18,046,948 4,698,005 14,394,788
Redeemed (266,568,205) (9,718,319) (7,863,764)
Net increase (decrease) 133,240,120 8,535,041 20,407,421
Year ended Aug. 31, 1997
Global Growth Income
Yield Dimensions Advantage
Sold 9,330,407 83,748,124 24,570,862
Issued for reinvested
distributions 267,366 622,770 1,512,556
Redeemed (120,645) (663,937) (261,858)
Net increase (decrease) 9,477,128 83,706,957 25,821,560
Year ended Aug. 31, 1996
Capital Special
Resource Income Managed
Sold 15,763,681 18,199,129 13,012,081
Issued for reinvested
distributions 2,332,581 11,583,367 6,196,744
Redeemed (4,539,063) (11,162,609) (6,655,268)
Net increase (decrease) 13,557,199 18,619,887 12,553,557
Year ended Aug. 31, 1996
International Aggressive
Moneyshare Equity Growth
Sold 247,309,082 25,280,136 24,647,795
Issued for reinvested
distributions 12,659,993 4,329,590 675,192
Redeemed (198,785,551) (3,581,859) (2,123,509)
Net increase (decrease) 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 (decrease) 2,076,586 17,180,066 4,998,345
*Inception date was May 1, 1996.
</TABLE>
<PAGE>
7
Interest rate
futures contracts
At August 31, 1997, investments in securities for Special Income Fund included
securities valued at $8,695,620 that were pledged as collateral to cover initial
margin deposits on 100 open sales contracts. The market value of the open sales
contracts at August 31, 1997 was $10,903,125 with a net unrealized loss of
$134,375. See Summary of significant accounting policies.
8
Options
contracts
written
The number of contracts and premium amounts associated with option contracts
written by Special Income Fund during the year ended August 31, 1997 is as
follows:
Puts Calls
Contracts Premium Contracts Premium
Balance Aug. 31, 1996 -- $ -- -- $ --
Opened 2,250 486,200 79,950 1,082,982
Closed or expired (2,250) (486,200) (78,966) (778,746)
Exercised -- -- (984) (304,236)
---- --------
Balance Aug. 31, 1997 -- $ -- -- $ --
See Summary of significant accounting policies.
The number of contracts and premium amounts associated with option
contracts written by Managed Fund during the year ended August 31, 1997 is as
follows:
Puts Calls
Contracts Premium Contracts Premium
Balance Aug. 31, 1996 -- $ -- 2,300 $ 396,260
Opened 415 211,206 17,815 5,716,277
Closed or expired (150) (88,312) (6,505) (2,830,940)
Exercised (265) (122,894) (7,260) (1,487,957)
Balance Aug. 31, 1997 -- $ -- 6,350 $1,793,640
See Summary of significant accounting policies.
The number of contracts and premium amounts associated with option contracts
written by Aggressive Growth Fund during the year ended August 31, 1997 is as
follows:
Calls
Contracts Premium
Balance Aug. 31, 1996 -- $ --
Opened 13,170 2,863,719
Closed or expired (6,800) (1,474,911)
Exercised -- --
Balance Aug. 31, 1997 6,370 $1,388,808
See Summary of significant accounting policies.
9
Capital loss
carryover
For federal income tax purposes, Growth Dimensions Fund had a capital loss
carryover at August 31, 1997 of $11,186,489 that will expire in 2004 to 2006 if
not offset by subsequent capital gains. It is unlikely the board will authorize
a distribution of any net realized capital gains for a Fund until its capital
loss carryover has been offset or expires.
"Financial highlights" showing per share data and selected information are
presented on pages 5-13 of the prospectus.
10
Financial
highlights
"Financial highlights" showing per share data and selected information are
presented on pages 5-13 of the prospectus.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Notes to financial statements
Retirement Annuity Mutual Funds
Capital Resource Fund (Percentages represent value of
Aug. 31, 1997 investments compared to net assets)
Common stocks (95.1%)
Issuer Shares Value(a)
Aerospace & defense (1.1%)
Boeing 1,000,000 $ 54,437,500
Automotive & related (1.5%)
Chrysler 700,000 24,587,500
General Motors 100,000 6,275,000
Lear 876,200(b) 40,140,912
Total 71,003,412
Banks and savings & loans (6.3%)
BankBoston 850,000 70,656,250
KeyCorp 800,000 48,500,000
Norwest 800,000 45,950,000
State Street 1,658,400 82,712,700
Washington Mutual 1,000,000 59,875,000
Total 307,693,950
Beverages & tobacco (0.4%)
Coca-Cola 300,000 17,193,750
Building materials & construction (3.3%)
Sherwin-Williams 2,500,000 68,593,750
Tyco Intl 1,200,000(e) 94,125,000
Total 162,718,750
Chemicals (2.8%)
BetzDearborn 1,000,000 65,187,500
Praxair 1,300,000 69,468,750
Total 134,656,250
Communications equipment & services (1.6%)
Ascend Communications 800,000(b) 33,950,000
Motorola 600,000 44,025,000
Total 77,975,000
Computers & office equipment (9.1%)
Adaptec 1,300,000(b) 62,400,000
Cambridge Technology
Partners 700,000(b) 22,575,000
Cisco Systems 300,000(b) 22,612,500
Compaq Computer 1,500,000(b) 98,250,000
First Data 700,000 28,743,750
Microsoft 650,000(b) 85,921,875
Parametric Technology 782,100(b) 36,318,769
Solectron 2,000,000(b) 83,750,000
Total 440,571,894
Electronics (7.3%)
AMP 380,000 19,000,000
Analog Devices 1,500,000(b) 49,687,500
Intel 700,000 64,487,500
KLA-Tencor 750,000(b) 53,156,250
Molex 1,500,000 58,687,500
Teradyne 1,000,000(b) 55,687,500
Thomas & Betts 1,000,000 $ 56,000,000
Total 356,706,250
Energy (5.3%)
Anadarko Petroleum 369,200 27,113,125
Exxon 900,000 55,068,750
Mobil 600,000 43,650,000
Noble Affiliates 1,100,000 51,012,500
Tosco 1,500,000 49,593,750
Unocal 800,000 31,250,000
Total 257,688,125
Energy equipment & services (1.1%)
Transocean Offshore 550,000 52,284,375
Environmental services (1.8%)
USA Waste Service 2,100,000(b) 88,200,000
Financial services (3.6%)
Associates First Capital
Cl A 450,000 26,128,125
Franklin Resources 500,000 38,687,500
Morgan Stanley, Dean Witter,
Discover & Co 1,040,200 50,059,625
Travelers Group 950,000 60,325,000
Total 175,200,250
Food (2.0%)
ConAgra 800,000 51,450,000
Quaker Oats 1,000,000 47,000,000
Total 98,450,000
Health care (7.2%)
ALZA 1,000,000(b) 29,000,000
Baxter Intl 1,200,000 63,825,000
Boston Scientific 500,000(b) 35,250,000
Bristol-Myers Squibb 600,000 45,600,000
Guidant 730,000 64,103,125
Lilly (Eli) 350,000 36,618,750
Merck & Co 400,000 36,725,000
Pfizer 675,000 37,378,125
Total 348,500,000
Health care services (1.1%)
Tenet Healthcare 2,000,000(b) 54,500,000
Household products (2.1%)
Gillette 700,000 57,968,750
Procter & Gamble 350,000 46,571,875
Total 104,540,625
Industrial equipment & services (4.7%)
AGCO 1,200,000 39,000,000
Deere & Co 1,500,000 84,000,000
Illinois Tool Works 1,400,000 67,725,000
UCAR Intl 800,000(b) 37,750,000
Total 228,475,000
Insurance (3.3%)
American Intl Group 600,000 56,625,000
Progressive Corp Ohio 800,000 79,200,000
SunAmerica 500,000 26,937,500
Total 162,762,500
Leisure time & entertainment (1.8%)
Carnival Cl A 2,000,000 87,625,000
Multi-industry conglomerates (5.3%)
Emerson Electric 1,000,000 54,687,500
General Electric 1,500,000 93,750,000
Minnesota Mining & Mfg 500,000 44,937,500
Westinghouse Electric 2,500,000 64,375,000
Total 257,750,000
Paper & packaging (3.5%)
Crown Cork & Seal 1,200,000 61,050,000
Intl Paper 600,000 31,650,000
Sealed Air 250,000(b) 12,968,750
Willamette Inds 800,000 63,800,000
Total 169,468,750
Restaurants & lodging (1.0%)
Hilton Hotels 1,500,000 46,031,250
Retail (10.0%)
American Stores 2,200,000 52,112,500
AutoZone 1,000,000(b) 28,250,000
Circuit City Stores 1,700,000 60,562,500
CVS 500,000 28,187,500
Kohl's 839,200(b) 57,852,350
Office Depot 2,000,000(b) 36,875,000
Pep Boys-Manny,
Moe & Jack 1,000,000 26,500,000
Rite Aid 1,500,000 75,093,750
Safeway 1,000,000(b) 50,937,500
Wal-Mart Stores 2,000,000 71,000,000
Total 487,371,100
Transportation (0.7%)
Union Pacific 500,000 32,468,750
Foreign (7.2%) (f)
ACE 1,300,000 108,062,500
Baan 300,000(b,e) 18,075,000
Mid Ocean 500,000 28,375,000
Novartis 20,000 28,320,962
Royal Dutch Petroleum 1,100,000$ 55,825,000
Schlumberger 800,000 60,950,000
SmithKline Beecham ADR 1,200,000 51,975,000
Total 351,583,462
Total common stocks
(Cost: $3,714,236,431) $4,625,855,943
Other (-- %)
Issuer Shares Value(a)
Viacom
Warrants 350,000 $2,734
Total other
(Cost: $908,625) $2,734
Short-term securities (5.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.5%)
Federal Home Loan Mtge Corp Disc Nt
09-11-97 5.42% $ 11,600,000 $ 11,579,120
Federal Natl Mtge Assn Disc Nt
09-16-97 5.46 11,900,000 11,869,430
Total 23,448,550
Commercial paper (4.5%)
American General
09-02-97 5.52 17,200,000(c)17,192,117
Associates Corp North America
10-09-97 5.53 9,900,000 9,839,610
Beneficial
09-26-97 5.54 17,000,000 16,929,747
BHP Finance
09-23-97 5.50 7,900,000 7,871,139
BOC Group
09-09-97 5.56 5,900,000(c) 5,890,970
CAFCO
09-19-97 5.54 7,200,000(c) 7,177,920
10-17-97 5.54 7,200,000(c) 7,147,200
Ciesco LP
09-04-97 5.53 1,300,000 1,299,005
10-29-97 5.57 10,100,000(c)10,003,306
CIT Group Holdings
09-03-97 5.52 4,500,000 4,497,250
Commercial Credit
09-18-97 5.52 2,800,000 2,791,902
10-03-97 5.55 12,000,000 11,937,553
Commerzbank U.S. Finance
09-10-97 5.52 600,000 598,992
09-11-97 5.53 4,000,000 3,992,667
Deutsche Bank Financial
09-15-97 5.52% 12,100,000 12,070,422
09-18-97 5.52 24,300,000 24,229,462
Fleet Funding
10-06-97 5.55 5,000,000(c) 4,971,633
Gannett
10-15-97 5.53 5,500,000(c) 5,461,347
General Electric Capital
09-10-97 5.52 18,500,000 18,468,966
09-11-97 5.52 5,000,000 4,990,833
Household Finance
09-05-97 5.51 4,500,000 4,495,890
Kellogg
10-06-97 5.53 1,600,000 1,590,956
Lincoln Natl
10-01-97 5.55 13,000,000(c)12,930,687
MCI Communications
10-31-97 5.56 3,572,000(c) 3,536,682
Merrill Lynch
10-08-97 5.54 8,400,000 8,349,859
Natl Bank Detroit
09-25-97 5.53 5,000,000 4,980,103
SBC Communications Capital
09-08-97 5.56 2,800,000 2,795,689
Toyota Motor Credit
09-05-97 5.52 4,600,000 4,595,783
Total 220,637,690
Letters of credit (0.5%)
Bank of America-
Formosa Plastics
10-09-97 5.56% 14,600,000 14,510,291
First Chicago-
Commed Fuel
09-08-97 5.56 6,990,000 6,978,282
Total 21,488,573
Total short-term securities
(Cost: $265,588,495) $ 265,574,813
Total investment in securities
(Cost: $3,980,733,551) (g) $4,891,433,490
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Retirement Annuity Mutual Funds
Capital Resource Fund
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
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) Transactions with companies that were affiliates during the year ended Aug.
31, 1997 were as follows:
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
<S> <C> <C> <C> <C> <C>
Apple Computer $351,119,690 $ -- $ 351,119,690 $-- $ --
Arbour Health Care 10,510,400 560,160 11,070,560 -- --
Coram Healthcare 53,056,518 525,635 53,582,153 -- --
Data Processing Res 7,191,913 1,980,000 9,171,913 -- --
Fulcrum 12,349,507 -- 12,349,507 -- --
Giddings & Lewis 35,781,980 -- 35,781,980 -- 63,000
Highlands Insurance Group 11,771,851 -- 11,771,851 -- --
New England Business
Services 16,439,262 -- 16,439,262 -- 52,960
Novell 271,423,011 -- 271,423,011 -- --
Owens & Minor 36,989,691 -- 36,989,691 -- 135,000
PRI Automation -- 14,108,748 14,108,748 -- --
PacifiCare Health Systems Cl B 69,745,990 -- 69,745,990 -- --
Primadonna Resorts 29,029,535 -- 29,029,535 -- --
Quality Food Centers 19,161,528 -- 19,161,528 -- --
Secure Computing 16,450,748 -- 16,450,748 -- --
Station Casinos 24,837,880 -- 24,837,880 -- --
Tootsie Roll Inds 31,269,770 1,968,777 33,238,547 -- 184,875
---------- --------- ---------- -------
$997,129,274 $74,468,470 $1,071,597,744 $-- $435,835
(e) Security is partially or fully on loan. See Note 5 to the financial
statements.
(f) Foreign security values are stated in U.S. dollars.
(g) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$3,983,261,108 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation............................................$936,257,938
Unrealized depreciation.............................................(28,085,556)
-----------
Net unrealized appreciation........................................$908,172,382
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds
Special Income Fund (Percentages represetn value of
Aug. 31, 1997 investments compared to net assets)
Bonds (86.0%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (14.8%)
U.S. Treasury
<S> <C> <C> <C> <C>
5.875% 2005 $50,000,000(f) $ 48,401,000
6.375 2002 10,900,000(f) 10,975,210
7.00 2006 30,000,000 31,180,200
7.25 2016 12,700,000(g) 13,478,764
7.50 2016 40,000,000 43,513,600
7.50 2002 6,170,000 6,489,483
7.875 2021 3,700,000 4,210,341
8.125 2019 42,200,000(g) 49,114,470
TIPS 3.375 2007 17,179,010(m) 16,878,377
3.625 2002 4,998,400(m) 5,001,499
Resolution Funding 8.125 2019 48,059,000 55,526,888
Total 284,769,832
Mortgage-backed securities (7.8%)
Federal Home Loan Mtge Corp 8.00 2024 7,940,284 8,199,000
8.50 2026-27 26,976,158 28,183,071
9.00 2007-25 10,881,291 11,392,085
Collateralized Mtge Obligation 7.00 2022 23,395,000 22,933,109
8.50 2022 10,000,000 10,747,900
Federal Natl Mtge Assn 7.50 2027 19,652,487 19,858,838
8.00 2021-22 5,241,764 5,423,653
8.50 2007-23 17,073,552 17,935,439
9.00 2024 8,396,115 9,023,640
Govt Natl Mtge Assn 6.50 2027 9,980,519(h) 10,127,629
7.00 2024 6,524,519(h) 6,716,177
Total 150,540,541
Aerospace & defense (0.8%)
Airplanes GPA 10.875 2019 2,750,000 3,128,125
Alliant Techsystems
Sr Sub Nts 11.75 2003 3,000,000 3,311,250
BE Aerospace 9.875 2006 5,000,000 5,175,000
L-3 Comm 10.375 2007 1,710,000(d) 1,829,700
Newport News Shipbuilding 8.625 2006 1,250,000 1,293,750
Total 14,737,825
Airlines (0.3%)
AMR 9.50 2001 4,500,000 4,901,220
Automotive & related (2.5%)
Arvin Inds 9.50 2027 5,000,000 5,234,700
Ford Motor Credit 7.50 2003 5,000,000 5,170,350
General Motors Acceptance 7.85 1997 20,000,000 20,089,800
Medium-term Nts 5.95 1998 10,000,000 10,022,000
Hayes Wheels Intl 9.125 2007 3,000,000(d) 3,045,000
Mascotech 4.50 2003 3,500,000 3,263,750
Tower Automotive
Cv 5.00 2004 1,500,000(d) 1,621,875
Total 48,447,475
Banks and savings & loans (2.4%)
BankBoston Capital 8.25 2026 5,000,000 5,093,800
Crestar Capital Trust 8.16 2026 5,000,000 5,054,900
First Nationwide Holdings 10.625 2003 2,940,000 3,226,650
Fleet/Norstar Financial 9.00 2001 5,000,000 5,419,550
9.90 2001 5,000,000 5,527,350
Greenpoint Financial 9.10 2027 2,500,000(d) 2,591,550
Morgan (JP)
Sr Sub Nts Series A 4.00 2012 13,400,000(i) 12,991,300
US Trust Capital Trust 8.41 2027 3,500,000(d) 3,578,330
Washington Mutual 8.375 2027 3,000,000(d) 3,071,070
Total 46,554,500
Building materials & construction (0.6%)
Masco 9.00 2001 5,000,000 5,416,650
McQuay (AAF)
Sr Nts 8.875 2003 6,670,000 6,736,700
Total 12,153,350
Chemicals (0.4%)
General Chemical 9.25 2003 5,000,000 5,137,500
ISP Holdings 9.75 2002 1,733,000 1,845,645
Total 6,983,145
Communications equipment & services (0.8%)
CenCall Communications
Zero Coupon Cv 22.79 1999 4,000,000(k) 3,400,000
Comcast Cellular 9.50 2007 3,000,000(d) 3,097,500
GST Telecommunications
Zero Coupon 2.48 2000 1,745,000(k) 1,396,000
Intl Cabletel
Zero Coupon 11.48 2001 5,000,000(d,k) 3,675,000
Price Comm Cellular
Zero Coupon 13.50 2007 6,700,000(d,k) 3,601,250
Total 15,169,750
Computers & office equipment (0.4%)
Read-Rite 6.50 2004 2,450,000 2,572,500
Softkey Intl
Cv 5.50 2000 5,000,000(d) 4,400,000
Total 6,972,500
Electronics (0.2%)
Thomas & Betts 6.50 2006 4,500,000(d) 4,334,085
Energy (1.8%)
Forcenergy
Sr Sub Nts 9.50 2006 2,100,000 2,189,250
Occidental Petroleum
Medium-term Nts 10.98 2000 5,000,000 5,547,900
with attached put 9.25 2019 8,725,000 10,332,756
Oryx Energy 10.00 2001 5,000,000 5,463,400
PDV America 7.875 2003 7,500,000 7,703,175
Transamerica Energy 11.50 2002 1,500,000(d) 1,458,750
Zero Coupon 13.00 2002 2,100,000(d,k) 1,596,000
Total 34,291,231
Energy equipment & services (0.1%)
DI Inds 8.875 2007 2,250,000(f) 2,244,375
Financial services (1.1%)
First Union REIT
Sub Nts 8.875 2003 4,000,000 4,100,000
GPA Delaware 8.75 1998 1,500,000 1,531,875
Household Finance
Sr Sub Nts 9.55 2000 6,500,000 6,970,470
Malan Realty REIT
Cv 9.50 2004 170,000(d) 170,850
Salomon Brothers Holdings
Medium-term Nts 6.99 1999 5,000,000 5,054,450
Sasco 6.76 2028 2,500,000 2,507,031
Total 20,334,676
Food (0.1%)
Ameriserve Food 10.125 2007 2,500,000(d) 2,568,750
Furniture & appliances (0.3%)
Interface 9.50 2005 5,000,000(d) 5,300,000
Health care (0.7%)
Dade Intl
Sr Sub Nts 11.125 2006 3,000,000 3,375,000
Lilly (Eli) 6.77 2036 10,000,000 9,553,300
Total 12,928,300
Health care services (2.0%)
Columbia/HCA Healthcare 7.69 2025 4,260,000 4,182,596
Magellan Health Services
Sr Sub Nts 11.25 2004 5,000,000(d) 5,543,750
Merit Behavioral 11.50 2005 2,000,000(d) 2,175,000
Novacare
Sub Deb 5.50 2000 3,000,000 2,861,250
Owens & Minor
Sr Sub Nts 10.875 2006 2,000,000 2,190,000
Tenet Healthcare
Sr Nts 8.625 2003 4,000,000 4,170,000
Sr Sub Nts 10.125 2005 11,800,000 12,950,500
Vencor 8.625 2007 4,000,000(d) 4,005,000
Total 38,078,096
Household products (0.5%)
Revlon Consumer Products 9.375 2001 2,500,000 2,587,500
Revlon Worldwide
Zero Coupon 12.00 1998 5,000,000(j) 4,825,000
Sweetheart Cup
Sr Sub Nts 9.625 2000 2,000,000 2,010,000
Total 9,422,500
Industrial equipment & services (1.0%)
AGCO 8.50 2006 2,800,000(d) 2,933,000
Borg-Warner Security 9.625 2007 2,200,000 2,249,500
Case 7.25 2005 5,475,000 5,526,794
Clark Equipment 9.75 2001 5,000,000 5,420,200
IDEX 9.75 2002 3,000,000 3,116,250
Total 19,245,744
Insurance (2.0%)
Americo Life 9.25 2005 4,500,000 4,511,250
Executive Risk Capital Trust 8.675 2027 3,500,000(d) 3,635,275
Nationwide Mutual
Credit Sensitive Nts 9.875 2025 10,500,000(d) 11,744,145
New England Mutual
Credit Sensitive Nts 7.875 2024 5,000,000(d) 5,058,200
SAFECO Capital Trust 8.07 2037 10,000,000(d) 9,953,500
Zurich Capital Trust 8.38 2037 3,750,000(d) 3,922,313
Total 38,824,683
Leisure time & entertainment (1.4%)
Coast Hotels 13.00 2002 1,600,000(d) 1,790,000
E & S Holdings
Sr Sub Nts 10.375 2006 1,500,000(d) 1,515,000
Hammons (John Q.) Hotels 8.875 2004 3,400,000 3,442,500
HMH Properties 8.875 2007 4,600,000(d) 4,680,500
Plitt Theatres 10.875 2004 5,000,000 5,312,500
Speedway Motorsports 8.50 2007 4,000,000(d) 4,030,000
Trump Atlantic City Funding 11.25 2006 2,500,000 2,440,625
Trump Holdings
Sr Nts 15.50 2005 2,500,000 2,900,000
Total 26,111,125
Media (5.1%)
Ackerley Communications
Sr Secured Nts 10.75 2003 2,500,000(d) 2,668,750
American Telecasting
Zero Coupon 9.66 2000 4,000,000(k) 1,190,000
Australis Media
Zero Coupon 11.03 2003 10,000,000(k) 7,950,000
Cablevision Systems 10.50 2016 5,000,000 5,600,000
Cox Communications 7.625 2025 10,000,000 10,027,000
Heritage Media Services 8.75 2006 2,000,000 2,140,000
Lamar Advertising 9.625 2006 1,350,000 1,427,625
News America Holdings 10.125 2012 10,000,000 11,563,600
People's Choice TV
Zero Coupon 10.43 2000 5,000,000(k) 1,700,000
Time Warner Entertainment 7.975 2004 1,500,000 1,569,240
8.11 2006 3,000,000 3,175,560
8.18 2007 3,000,000 3,195,120
8.375 2033 2,500,000(d) 2,634,350
9.15 2023 17,000,000 19,415,020
United Artist Theatre 9.30 2015 4,870,638(d) 4,712,342
Univision Network
Zero Coupon Sub Nts 15.18 2002 14,390,000(k) 14,677,800
Viacom Intl 7.00 2003 2,500,000 2,377,200
8.00 2006 3,000,000 2,932,500
Total 98,956,107
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Metals (0.5%)
<S> <C> <C> <C> <C>
Bar Technologies 13.50 2001 4,500,000(d) 4,680,000
Santa Fe Gold 8.375 2005 5,000,000 5,200,000
Total 9,880,000
Multi-industry conglomerates (1.2%)
Mark IV Inds 8.75 2003 3,500,000 3,640,000
Pierce Leahy 11.125 2006 812,000 913,500
Prime Succession Acquisition 10.75 2004 2,125,000(d) 2,342,813
Tenneco 7.625 2007 6,000,000 6,112,980
USI American Holdings
Sr Nts 7.25 2006 5,000,000(d) 4,868,300
Westinghouse Electric 8.875 2001 5,000,000 5,279,500
Total 23,157,093
Paper & packaging (2.5%)
APP Intl Finance 11.75 2005 5,000,000 5,275,000
Chesapeake 9.875 2003 5,000,000 5,651,100
Crown Cork & Seal 8.00 2023 5,000,000 4,999,300
Gaylord Container 9.75 2007 2,200,000(d) 2,238,500
Sr Sub Deb 12.75 2005 5,500,000 6,015,625
Owens-Illinois 7.85 2004 5,000,000 5,116,300
Riverwood Intl 10.625 2007 3,375,000(d) 3,806,250
Scotia Pacific Holding 7.95 2015 6,233,083 6,345,030
Silgan Holdings 9.00 2009 4,125,000(d) 4,197,188
Stone Container
Sr Nts 12.625 1998 1,500,000 1,571,250
Sr Sub Nts 12.25 2002 3,000,000 3,097,500
Total 48,313,043
Retail (2.1%)
Costco
Zero Coupon Cv 14.37 2017 10,000,000(d,j) 5,262,500
Dairy Mart Convenience Stores
Sr Sub Nts 10.25 2004 1,500,000 1,507,500
Dayton Hudson 8.50 2022 3,000,000 3,198,030
Eye Care Center 12.00 2003 3,000,000 3,270,000
Kroger 8.15 2006 3,000,000 3,210,000
9.25 2005 3,000,000 3,127,500
Penn Traffic
Sr Nts 8.625 2003 3,500,000 2,913,750
Pueblo Xtra Intl
Sr Nts 9.50 2003 3,230,000 3,165,400
Wal-Mart Stores 7.00 2006 14,014,294(d) 14,155,978
Total 39,810,658
Textiles & apparel (0.5%)
Dominion Textiles 9.25 2006 1,000,000 1,047,500
VF 9.50 2001 5,000,000 5,470,450
Westpoint Stevens 8.75 2001 2,500,000 2,596,875
Total 9,114,825
Transportation (0.4%)
CSX
Medium-term Nts 9.23 1998 5,000,000 5,068,750
Navigator Gas Transport 10.50 2007 3,000,000(d) 3,075,000
Total 8,143,750
Utilities -- electric (5.2%)
Boston Edison 9.875 2020 5,000,000 5,454,500
Cleveland Electric Illuminating 7.19 2000 5,000,000(d) 5,025,800
7.67 2004 2,000,000 2,033,540
9.50 2005 6,000,000 6,522,900
CMS Energy 8.125 2002 5,000,000 5,067,800
Connecticut Lighting & Power 7.75 2002 5,000,000(d) 5,034,400
Long Island Lighting 8.625 2004 3,000,000 3,141,300
9.625 2024 6,000,000 6,294,180
Midland Cogeneration Venture 10.33 2002 1,569,738 1,724,750
10.33 2002 1,352,214(d) 1,485,746
11.75 2005 5,000,000 5,868,750
Niagara Mohawk Power 7.75 2006 10,500,000 10,570,560
RGS Funding AEGCO
Sale Lease-backed Obligation 9.82 2022 2,484,619 3,027,955
RGS Funding IME
Sale Lease-backed Obligation 9.82 2022 2,484,616 3,027,952
Sithe Independent Funding 9.00 2013 7,500,000(d) 8,296,725
Texas-New Mexico Power
1st Mtge 9.25 2000 3,500,000 3,679,375
Texas Utilities 9.70 2002 6,000,000 6,683,340
Texas Utilities Electric
1st Mtge 9.75 2021 6,350,000 7,377,112
Texas Utility Electric Captial 8.175 2037 10,000,000 10,099,800
Total 100,416,485
Utilities -- telephone (2.9%)
Bell Telephone of Pennsylvania 7.375 2033 10,000,000 9,772,300
CCPR Services 10.00 2007 1,500,000(d) 1,518,750
Geotek Communications
Cv 12.00 2001 4,135,000(e) 3,514,750
Zero Coupon 18.71 2005 5,000,000(d,k) 3,000,000
GTE 10.25 2020 7,000,000 7,902,230
New England Tel & Tel 9.00 2031 7,500,000 8,195,550
Omnipoint 11.625 2006 10,000,000(d) 9,775,000
U S WEST Communications 7.20 2026 6,000,000 5,712,300
Worldcom 7.75 2007 7,000,000 7,272,230
Total 56,663,110
Miscellaneous (0.9%)
Adams Outdoor Advertising 10.75 2006 4,500,000 4,893,750
Outsourcing Solutions
Nts 11.00 2006 1,775,000(d) 1,952,500
Petersburg
Zero Coupon 14.80 2004 5,000,000(d,j) 4,337,500
Unifi Communications
Warrants 14.00 2004 7,000,000(d) 6,921,250
Total 18,105,000
Municipal bonds (0.4%) (n)
New Jersey Economic Development Authority
Pension Obligation Revenue Bond
(MBIA Insured) 7.425 2029 7,000,000 7,177,100
Foreign (22.3%)(c)
Alcan Aluminum
(U.S. Dollar) 8.875 2022 6,750,000 7,265,767
ALFA Bank
(U.S. Dollar) 11.28 1997 5,000,000(i) 5,000,000
Avtobank
(U.S. Dollar) Zero Coupon 10.98 1997 5,000,000(d,j) 5,000,000
Azteca Holdings
(U.S. Dollar) 11.00 2002 3,500,000(d) 3,657,500
BAA Euro
(British Pound) 5.75 2006 2,000,000 3,658,408
Banca Italy N.Y.
(U.S. Dollar) 8.25 2007 5,000,000 5,349,450
Celcaribe
Zero Coupon Cv 5.96 1998 1,450,000(d,k) 2,320,000
Zero Coupon Cv 16.23 1998 1,700,000(k) 1,632,000
Cia Latino Americana
(U.S. Dollar) 11.625 2004 2,350,000(d) 2,496,875
City of Moscow
(U.S. Dollar) Zero Coupon 10.96 1997 5,000,000(j) 4,812,000
Dao Heng Bank
(U.S. Dollar) Sub Nts 7.75 2007 5,500,000(d) 5,506,545
Deutsche Finance Netherlands
(U.S. Dollar) Zero Coupon 18.62 2017 7,440,000(d,j) 3,394,500
DGS Intl Finance
(U.S. Dollar) 10.00 2007 3,750,000(d) 3,675,000
Dominion Textiles
(U.S. Dollar) 8.875 2003 4,000,000 4,110,000
Ecuador
(U.S. Dollar) 6.06 2015 14,216,280 9,986,937
Escelsa
(U.S. Dollar) 10.00 2007 3,000,000(d) 2,988,750
Ford Capital
(U.S. Dollar) 9.875 2002 5,000,000 5,664,150
FSW Intl
(U.S. Dollar) 12.50 2006 2,750,000(d) 2,653,750
Global Telesystems
(U.S. Dollar) 8.75 2000 5,000,000(d) 5,075,000
Govt of Algeria
(U.S. Dollar) 7.06 2006 6,000,000 5,310,000
Govt of Bulgaria
(U.S. Dollar) 6.31 2011 3,000,000(i) 2,302,500
Govt of Canada
(Canadian Dollar) 7.64 2001 17,000,000 14,290,527
Govt of Poland
(Polish Zloty) 12.00 2002 18,900,000 3,942,540
(U.S. Dollar) 2.75 2024 10,000,000(i) 5,750,000
(U.S. Dollar) 4.00 2014 5,000,000(i) 4,231,250
Govt of Russia
(Russian Ruble) Zero Coupon 28.22 1998 37,164,000,000(j) 5,834,748
(Russian Ruble) Zero Coupon 19.74 1998 33,189,506,444(j) 5,210,753
(U.S. Dollar) Zero Coupon 6.60 2029 4,750,000(j,l) 3,725,805
(U.S. Dollar) Zero Coupon 10.82 2020 17,000,000(j,l) 12,091,250
Greater Beijing
(U.S. Dollar) 9.25 2004 3,500000(d) 3,444,945
(U.S. Dollar) 9.50 2007 5,000,000(d) 4,893,950
Grupo Industrial Durango 12.625 2003 4,000,000 4,510,000
Grupo Iusacell Sa De
(U.S. Dollar) 10.00 2004 1,500,000(d) 1,530,000
Grupo Televisa
(U.S. Dollar) 11.375 2003 250,000 274,375
(U.S. Dollar) 13.25 2008 4,000,000(k) 2,910,000
Groupe Videotron
(U.S. Dollar) 10.625 2005 2,000,000 2,240,000
Guangdong Enterprises
(U.S. Dollar) 8.875 2007 3,600,000(d) 3,624,228
Gulf Canada Resources
(U.S. Dollar) 9.00 1999 5,000,000 5,225,000
Hidroelec Piedra Aguila
(U.S. Dollar) 10.625 2001 5,000,000(d) 5,356,250
Honam Oil Refinery 7.125 2005 9,000,000(d) 8,984,160
Hutchison Whampoa
(U.S. Dollar) 7.50 2027 3,850,000(d) 3,725,145
Hydro Quebec
(U.S. Dollar) 8.50 2029 20,000,000 22,387,800
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 10,000,000(d) 10,176,900
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 5,000,000(d) 5,337,500
Jasmine Submarine Telecom
(U.S. Dollar) 8.48 2011 7,400,000(d) 7,267,244
MDC Communications
(U.S. Dollar) 10.50 2006 1,700,000 1,823,250
Mexican Cetes
(Mexican Peso) Zero Coupon 20.59 1998 48,250,000(j) 5,214,378
(Mexican Peso) Zero Coupon 19.05 1998 42,580,000(j) 4,668,471
(U.S. Dollar) 11.50 2026 8,000,000 9,464,000
Ministry Finance Russia
(U.S. Dollar) 9.25 2001 12,100,000(d) 12,402,500
Natl Power
(U.S. Dollar) 8.40 2016 7,500,000 7,625,700
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 3,000,000(d) 2,847,120
(U.S. Dollar) 8.35 2017 3,000,000(d) 2,818,020
Polysindo Intl Finance 11.375 2006 2,300,000 2,553,000
Province of Mendoza
(U.S. Dollar) 10.00 2007 4,000,000(d) 3,975,000
PTC Intl Finance
(U.S. Dollar) Zero Coupon 10.75 2007 6,000,000 (d) 3,825,000
Repap New Brunswick
(U.S. Dollar) 9.875 2000 2,000,000 2,005,000
Republic of Argentina
(U.S. Dollar) 8.75 2002 11,000,000(d) 10,815,937
Republic of Brazil
(U.S. Dollar) 10.125 2027 10,000,000 9,750,000
Republic of Italy
(U.S. Dollar) 6.875 2023 7,500,000 7,283,025
Republic of Panama
(U.S. Dollar) 7.875 2002 2,500,000(d) 2,490,050
Republic of South Africa
(South African Rand) 2.60 2005 48,500,000 9,299,914
Rogers Cablesystems
(Canadian Dollar) 9.65 2014 2,700,000 2,021,962
Rogers Cantel Mobile
(U.S. Dollar) 9.375 2008 4,650,000 4,987,125
(U.S. Dollar) 11.125 2002 1,000,000 1,037,500
Rostelecom (AO)
(U.S. Dollar) 9.375 2000 5,000,000(e) 5,000,000
Southern Peru Copper
(U.S. Dollar) 7.90 2007 2,000,000(d) 2,041,760
State of Isreal
(U.S. Dollar) 6.375 2005 3,700,000 3,562,064
Taiwan Semiconductor
(U.S. Dollar) Zero Coupon 6.39 2002 1,920,000(d,j) 2,054,400
Tarkett Intl
(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) 10,256,800
Telesystem Intl Wireless
(U.S. Dollar) Zero Coupon 12.19 2007 11,000,000(d,k) 6,462,500
Tjiwa Kimia Finance Mauritius
(U.S. Dollar) 10.00 2004 4,350,000(d) 4,263,000
TV Azteca
(U.S. Dollar) 10.50 2007 2,500,000 2,625,000
United Kingdom Treasury
(British Pound) 8.00 2003 9,500,000 16,051,266
Veninfotel
(U.S. Dollar) Cv Pay-in-kind 10.00 2002 5,750,000(e,o) 5,980,000
WMC Finance
(U.S. Dollar) 7.25 2013 10,000,000 9,932,600
Zhuhai Highway
(U.S. Dollar) 12.00 2008 10,000,000(d) 11,300,000
Total 429,314,844
Total bonds
(Cost: $1,595,797,923) $1,653,965,718
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds (Percentages represent value of
Special Income Fund investments compared to net assets)
Common stocks (0.1%)
Issuer Shares Value(a)
Celcaribe 276,420(b,c,d)$1,105,680
Great Bay Power 28(b) 228
Methanex 200,000(b) 1,675,000
Specialty Foods 15,000(b) 5,625
Triangle Wire & Cable 84,444(b,e,p) --
Total common stocks
(Cost: $5,160,744) $2,786,533
Preferred stock and other (0.8%)
Issuer Shares Value(a)
American Communications Services
Warrants 6,000(d) $ 360,000
Bar Technologies
Warrants 4,500(d) 180,000
Dairy Mart
Warrants 10,000(d) 20,000
Evergreen Media
6.00% 25,000(d) 1,425,000
Eye Care Center
Warrants 3,000(d) 12,375
First Nationwide Bank
11.50% 25,000 2,850,000
Geotek
Warrants 250,000(d) 250,000
Intermedia Communication
7.00% 120,000 3,525,000
Natl Australia Bank
7.875% 124,000 3,541,750
Paxson Communications
12.50% Pay-in-kind 36,000 3,888,000
Price Communications
Warrants 23,048 230
Unifi Communications
Warrants 7,000 140,000
Total preferred stock and other
(Cost: $15,054,345) $16,192,355
Short-term securities (14.2%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.3%)
Federal Home Loan Mtge Corp Disc Nt
09-16-97 5.42% $ 7,000,000 $ 6,982,084
Commercial paper (13.9%)
A. I. Credit
10-14-97 5.48 10,000,000 9,928,198
10-21-97 5.48 5,000,000 4,958,514
American General Finance
09-15-97 5.50 16,500,000 16,459,667
AT&T
09-08-97 5.47 3,400,000 3,395,350
Associates Corp of North America
10-06-97 5.50 19,300,000 19,183,279
Barclays U.S. Funding
10-01-97 5.52 7,700,000 7,662,253
BBV Finance
09-25-97 5.48 8,500,000 8,466,359
Beneficial
09-26-97 5.51 4,500,000 4,481,404
BOC Group
09-23-97 5.50 12,300,000 12,254,900
Commercial Credit
09-18-97 5.48 11,900,000 11,865,582
Fleet Funding
09-11-97 5.50 13,100,000(q)13,075,983
10-10-97 5.50 600,000(q) 596,241
Ford Motor Credit
09-22-97 5.50 11,800,000 11,758,536
Gannett
09-16-97 5.51 5,100,000(q) 5,086,730
General Electric Capital
09-26-97 5.50 5,500,000 5,477,313
Goldman Sachs Group
09-25-97 5.50 8,100,000 8,067,825
Household Finance
09-05-97 5.48 10,000,000 9,990,867
10-08-97 5.50 11,600,000 11,530,883
Kredietbank North America Finance
09-03-97 5.50 10,200,000 10,193,767
Metlife Funding
10-17-97 5.50 12,200,000 12,105,876
Morgan Stanley Group
10-15-97 5.50 8,300,000 8,241,669
Natl Australia Funding (Delaware)
09-15-97 5.54 7,200,000 7,179,729
10-07-97 5.49 7,000,000 6,959,435
Natl Bank Detroit
09-12-97 5.50 4,100,000 4,091,857
New Center Asset Trust
09-24-97 5.50 21,600,000 21,517,500
Northern States Power
09-22-97 5.55 6,600,000 6,574,143
Novartis Finance
09-02-97 5.48 5,900,000(q) 5,897,306
Pacific Mutual
09-26-97 5.51 7,800,000 7,767,766
Reed Elsevier
11-21-97 5.51 5,200,000(q) 5,133,145
SBC Communications Capital
10-23-97 5.50 6,800,000(q) 6,743,900
Total 266,645,977
Total short-term securities
(Cost: $273,651,346) $273,628,061
Total investments in securities
(Cost: $1,889,664,358)(r) $1,946,572,667
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
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. 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) 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, 1997, is as follows:
Security Acquisition Purchase
date cost
Geotek Communications
12.00% Cv 2001 03-04-96 $4,135,000
Rostelecom (AO)
9.375% 2000 04-28-97 5,000,000
Triangle Wire & Cable
Common stock 01-13-92 2,000,018
Veninfotel
(U.S. Dollar) 10.00% Cv
Pay-in-kind 2002 03-05-97 thru 07-23-97 5,750,000
(f) Security is partially or fully on loan. See Note 5 to the financial
statements.
(g) Partially pledged as initial margin deposit on the following open interest
rate futures contracts (See Note 7 to the financial statements):
Type of security Notional amount
Sales contracts
U.S. Treasury Notes Sept. 1997 $10,000,000
(h) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 1997.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1997.
(j) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(k) 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.
(l) At Aug. 31, 1997, the cost of securities purchased, including interest
purchased, on a when-issued basis was $11,289,859.
(m) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semi-annual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(n) The following abbreviation is used in portfolio descriptions to identify the
issuer or issue: MBIA--Municipal Bond Investors Assurance
(o) Pay-in-kind securities are securities in which the issuer has the options to
make interest or dividend payments in cash or in additional securities. These
securities issued as interest or dividends, usually have the same terms,
including maturity date, as the pay-in-kind securities.
(p) Negligible market value.
(q) 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.
(r) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$1,885,308,462 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation............................................$78,666,794
Unrealized depreciation............................................(17,402,589)
Net unrealized appreciation........................................$61,264,205
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
Managed Fund (Percentages represent value of
Aug. 31, 1997 investments compared to net assets)
Common stocks (67.0%)
Issuer Shares Value(a)
Aerospace & defense (3.3%)
Allied Signal 375,000 $ 30,960,938
Boeing 1,135,000 61,786,562
Lockheed Martin 177,802 18,435,845
United Technologies 450,000 35,128,125
Total 146,311,470
Airlines (0.5%)
Southwest Airlines 840,000 23,520,000
Automotive & related (0.8%)
Tower Automotive 836,300 37,528,962
Banks and savings & loans (3.8%)
Citicorp 290,000 37,011,250
KeyCorp 675,000 40,921,875
Norwest 735,000 42,216,562
Washington Mutual 850,000 50,893,750
Total 171,043,437
Beverages & tobacco (1.9%)
Coca-Cola 730,000 41,838,125
Philip Morris 945,000 41,225,625
Total 83,063,750
Building materials & construction (1.9%)
American Standard 370,000 17,390,000
Clayton Homes 993,750 16,707,422
Tyco Intl 625,000 49,023,437
Total 83,120,859
Communications equipment & services (0.9%)
ADC Telecommunications 590,000(b) 21,903,750
Loral Space Communication1,041,800(b) 18,231,500
Total 40,135,250
Computers & office equipment (9.9%)
American Power Conversion1,500,000(b) 39,375,000
Cisco Systems 300,000(b) 22,612,500
Compaq Computer 1,705,000(b) 111,677,500
Computer Associates 650,000 43,468,750
First Data 740,000 30,386,250
First USA Paymentech 361,900(b) 10,992,712
Hewlett Packard 700,000 42,918,750
Ikon Office Solutions 1,000(g) 26,000
Learning 1,069,500(b,l) 15,574,593
Microsoft 375,000(b) 49,570,313
Oracle Systems 412,500(b) 15,726,563
Solectron 1,100,000(b) 46,062,500
3 Com 250,000(b) 12,484,375
Total 440,875,806
Electronics (4.9%)
Analog Devices 800,000 26,500,000
Intel 1,240,000 114,235,000
KLA-Tencor 435,000(l) 30,830,625
Maxim Integrated Products 300,000(b) 20,737,500
Microchip Technology 650,000(l) 26,284,375
Total 218,587,500
Energy (1.0%)
Amoco 115,000 10,874,688
Anadarko Petroleum 250,000 18,359,375
Apache 440,000(g) 17,462,500
Total 46,696,563
Energy equipment & services (0.8%)
ENSCO Intl 551,200 35,001,200
Financial services (3.9%)
Federal Natl Mortgage 590,000 25,960,000
Green Tree Financial 400,000 17,575,000
Morgan Stanley,
Dean Witter & Discover 1,300,000 62,562,500
Travelers Group 1,025,000 65,087,500
Total 171,185,000
Food (0.4%)
ConAgra 270,000 17,364,375
Health care (4.1%)
Amgen 200,000(b) 9,912,500
Boston Scientific 483,500(b) 34,086,750
Bristol-Myers Squibb 220,000 16,720,000
Medtronic 225,000 20,334,375
Merck 800,000 73,450,000
Pfizer 520,000 28,795,000
Total 183,298,625
Health care services (3.6%)
AmeriSource Health Cl A 600,000 30,037,500
Cardinal Health 242,500 16,065,625
HEALTHSOUTH 1,350,000 33,665,625
Oxford Health Plans 210,000(b) 15,356,250
Service Corp Intl 1,000,000 32,000,000
United Healthcare 700,000 34,037,500
Total 161,162,500
Household products (1.3%)
Gillette 250,000 20,703,125
Proctor & Gamble 283,515 37,725,215
Total 58,428,340
Industrial equipment & services (1.6%)
Deere & Co 700,000 39,200,000
Illinois Tool Works 660,000 31,927,500
Total 71,127,500
Insurance (1.7%)
PennCorp Financial Group 800,000(g) $25,650,000
Terra Nova Hldgs 500,000 11,312,500
Travelers Property Casualty950,000 38,237,500
UNUM 200 8,250
Total 75,208,250
Leisure time & entertainment (1.3%)
Disney (Walt) 350,000 26,884,375
Mattel 900,000 30,093,750
Total 56,978,125
Media (0.8%)
CS Wireless Systems 550(b,o) --
Time Warner 675,000 34,762,500
Total 34,762,500
Metals (1.1%)
Freeport Copper Cl B 250,000 7,000,000
Martin Marietta Materials1,144,622 39,990,231
Total 46,990,231
Multi-industry conglomerates (2.3%)
Emerson Electric 475,000 25,976,563
General Electric 1,200,000 75,000,000
Total 100,976,563
Paper & packaging (1.1%)
Crown Cork & Seal 117,350 5,970,181
Kimberly-Clark 500,000 23,718,750
Owens-Illinois 505,000(b) 17,580,313
Total 47,269,244
Restaurants & lodging (0.6%)
Extended Stay America 2,064,000 27,606,000
Retail (2.4%)
CUC Intl 650,000(b) 15,275,000
Dollar General 265,375 10,996,477
Home Depot 697,500 32,913,281
Office Max 1,287,300 19,068,131
Wal-Mart Stores 830,000 29,465,000
Total 107,717,889
Transportation (0.3%)
Union Pacific 175,000 11,364,063
Utilities -- gas (0.5%)
Sonat 485,000 24,159,062
Utilities -- telephone (1.6%)
AirTouch Communications 1,121,500(b) 37,920,719
MCI Communications 600,000 17,100,000
WorldCom 500,000 14,968,750
Total 69,989,469
Foreign (8.7%)(c)
BCE 1,380,000(g) 39,071,250
Belle 33,000,000(b) 5,176,446
Companhia Paranaense
de Energia ADR 830,500 11,938,437
Elan ADR 537,200(b,g) 24,442,600
Ericsson Cl B 1,175,000 48,982,813
Kimberly-Clark de Mexico 2,000,000 8,956,566
Nokia ADR 130,000 10,075,000
Northern Telecom 560,000 55,510,000
Novartis 10,000(b) 14,160,481
Petroleo Brasileiro-
Petrobras ADR 540,000(b) 14,310,000
Republic Inds 1,699,915(b) 41,754,162
Royal Dutch Petroleum 700,000 35,525,000
SmithKline Beecham 950,000 41,146,875
Telecomunicacoes
Brasileiras-Telebras 145,000 17,110,000
Telecel-Communicacaoes
Pessoais 129,000(b) 9,401,038
Uniao de Bancos
Brasileriros ADR 300,000(b,g) 10,500,000
Total 388,060,668
Total common stocks
(Cost: $2,084,370,889) $2,979,533,201
Preferred stock & other (2.5%)
First Nationwide
$11.50 20,000 2,280,000
Globalstar Telecom
6.50% Cv 170,000(b) 11,645,000
IKON Office Solutions
$5.04% Cv 349,250 24,294,703
Loral Space Communication
6.00% Cv 400,000(b,d) 21,750,000
Mexico Value
Rights 1,000(o) --
Pinto Totta Intl Finance
7.77% 50,000(b,d) 4,969,850
Sinclair Capital
11.625% 30,000 3,292,500
Time Warner
10.25% Pay-in-kind 6,785(k) 7,717,938
Unifi Communications
Warrants 2,000(d) 40,000
UNUM
$2.34 Cv 450,000(b) 34,593,750
Total preferred stock & other
(Cost: $102,546,757) $110,583,741
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Bonds (27.3%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (6.0%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.375% 1997-98 $58,000,000 $ 57,919,100
5.75 2003 35,300,000 34,398,085
5.875 2004 12,500,000(g) 12,234,250
5.875 1999 50,000,000 50,010,000
6.375 2001 70,000,000 70,471,800
6.50 2005 9,000,000 9,069,210
7.25 2022 15,000,000 15,992,700
7.875 2004 5,000,000 5,437,600
Zero Coupon 6.46 2005 18,000,000(f) 11,046,600
Total 266,579,345
Mortgage-backed securities (5.2%)
Federal Home Loan Mtge Corp 6.50 2025 8,577,844 8,327,200
8.00 2024 4,305,050 4,446,901
8.50 2026 8,767,734 9,160,002
Collateralized Mtge Obligation
Trust Series Z 6.50 2023 5,927,377(i) 5,248,514
Federal Natl Mtge Assn 5.50 2009 24,788,728 23,757,021
6.00 2024 6,080,975 5,758,501
6.50 2010-25 16,891,894 16,606,022
7.00 2003-26 9,511,936 9,419,354
7.40 2004 10,000,000 10,483,100
7.50 2025-27 27,492,669 27,803,548
8.00 2022 4,967,861 5,140,246
8.50 2023-25 16,615,234 17,415,554
8.50 2011 10,000,000 10,467,000
9.00 2024 3,251,021 3,494,002
Collateralized Mtge Obligation
Trust Series Z 6.00 2024 7,398,196(i) 5,926,029
7.00 2022 14,893,378(i) 14,539,693
Govt Natl Mtge Assn 7.00 2008-24 39,340,087 39,457,628
Merrill Lynch Mtge Investors 6.96 2028 7,500,000 7,313,672
8.21 2021 1,722,325 1,704,026
Standard Credit Card 5.95 2004 3,000,000 2,902,620
Total 229,370,633
Aerospace & defense (0.2%)
Airplanes GPA 10.875 2019 1,750,000 1,990,625
Alliant Techsystems
Sr Sub Nts 11.75 2003 700,000 772,625
BE Aerospace 9.875 2006 2,500,000 2,587,500
L-3 Communications 10.375 2007 690,000(d) 738,300
Newport News Shipbuilding
Sr Nts 8.625 2006 1,000,000 1,035,000
Northrup-Grumman 7.00 2006 3,750,000 3,712,237
Total 10,836,287
Airlines (0.2%)
Continental Airlines 6.94 2015 5,000,000 4,923,950
Northwest Airlines 8.07 2015 1,982,925 2,067,001
8.97 2015 982,308 1,039,065
Total 8,030,016
Automotive & related (0.2%)
Arvin Inds 9.50 2027 3,000,000 3,140,820
General Motors Acceptance
Medium-term Nts 5.95 1998 7,000,000 7,009,870
Total 10,150,690
Banks and savings & loans (1.2%)
BankAmerica 7.70 2026 3,700,000(d) 3,594,809
Crestar Capital Trust 8.16 2026 7,000,000 7,076,860
First Empire 8.23 2027 4,000,000 4,068,320
First Nationwide Holdings
Sr Sub Nts 10.625 2003 3,970,000 4,357,075
Firststar Capital Trust 8.32 2026 3,000,000 3,096,930
Greenpoint Financial 9.10 2027 2,000,000(d) 2,073,240
Mellon Capital 7.72 2026 1,800,000 1,764,900
Morgan (JP)
Medium-term Nts 4.00 2012 5,000,000 4,847,500
Norwest
Sr Nts 6.375 2002 5,800,000 5,783,818
Riggs Natl
Sub Nts 8.50 2006 4,900,000 5,077,625
Union Planters Trust 8.20 2026 5,000,000 4,993,450
U.S. Trust Capital Trust 8.41 2027 3,000,000(d) 3,067,140
Washington Mutual 8.375 2027 2,900,000(d) 2,968,701
Total 52,770,368
Building materials & construction (0.1%)
McQuay (AAF)
Sr Nts 8.875 2003 3,000,000 3,030,000
Owens Corning Fiberglass 9.375 2012 1,500,000 1,687,530
Southdown 10.00 2006 1,400,000 1,522,500
Total 6,240,030
Communications equipment & services (0.1%)
Geotek Communications
Cv 12.00 2001 1,655,000(m) 1,406,750
GST Telecommunications
Zero Coupon Cv 5.25 2000 550,000(h) 440,000
Jordan Inds 9.875 2007 1,600,000(d) 1,592,000
Zero Coupon 11.75 2007 2,000,000(d) 1,447,500
Unifi 14.00 2004 2,000,000(d) 1,977,500
Total 6,863,750
Computers & office equipment (0.3%)
Softkey
Cv 5.50 2000 15,000,000 13,200,000
Electronics (0.1%)
Advanced Micro Devices 11.00 2003 3,000,000(g) 3,375,000
Energy (0.2%)
Forcenergy
Sr Sub Nts 9.50 2006 1,000,000 1,042,500
Parker & Parsley Petroleum 8.25 2007 4,200,000 4,537,007
UNC
Sr Nts 9.125 2003 2,300,000 2,409,250
Total 7,988,757
Energy equipment & services (0.2%)
DI Inds 8.875 2007 1,500,000 1,496,250
Foster Wheeler 6.75 2005 6,100,000 5,990,322
Total 7,486,572
Financial services (0.9%)
Associates Corp North America 6.375 2002 10,000,000 9,936,800
AVCO Financial Services 7.25 1999 4,750,000 4,846,853
Bat-Crave-800 6.68 2000 5,000,000(d) 4,990,500
6.86 2000 3,000,000 2,994,300
Corporate Property Investors 7.18 2013 2,200,000(d) 2,127,488
DVI
Sr Nts 9.875 2004 3,000,000 3,060,000
GPA Delaware 8.75 1998 1,000,000 1,021,250
Homeside 11.25 2003 1,625,000 1,909,375
KFW Intl Finance 8.00 2010 4,000,000 4,397,480
Salomon 6.75 2006 4,000,000 3,905,000
Total 39,189,046
Food ( --%)
Ameriserv Food
Sr Sub Nts 10.125 2007 1,750,000(d) 1,798,125
Furniture & appliances (0.2%)
Interface 9.50 2005 3,500,000 3,710,000
Life Style Furnishings 10.875 2006 3,150,000 3,484,687
Total 7,194,687
Health care (--%)
IMED 9.75 2006 1,600,000(d) 1,646,000
Health care services (0.6%)
Columbia/HCA Healthcare 7.69 2025 2,300,000 2,258,209
La Petite Holdings 9.625 2001 2,185,000 2,223,238
Magellan Health Services
Sr Sub Nts Cl A 11.25 2004 2,000,000 2,217,500
Manor Care 7.50 2006 6,000,000 6,165,660
Merit Behavioral 11.50 2005 1,300,000 1,413,750
Owens & Minor 10.875 2006 1,200,000 1,314,000
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 2,000,000 2,030,000
Tenet Healthcare
Sr Nts 8.625 2003 2,500,000 2,606,250
Sr Sub Nts 10.125 2005 2,000,000 2,195,000
Vencor
Sr Sub Nts 8.625 2007 3,500,000(d) 3,504,375
Total 25,927,982
Household products (--%)
Sweetheart Cup
Sr Sub Nts 9.625 2000 2,000,000 2,010,000
Industrial equipment & services (0.2%)
AGCO 8.50 2006 2,200,000 2,304,500
Borg-Warner Security 9.625 2007 1,300,000 1,329,250
Case 7.25 2005 5,000,000 5,047,300
Total 8,681,050
Insurance (1.3%)
American United Life 7.75 2026 2,500,000(m) 2,408,275
Americo Life 9.25 2005 1,600,000 1,604,000
Arkwright 9.625 2026 3,000,000(d) 3,396,780
Conseco Finance Trust 8.70 2026 3,800,000 3,935,318
Executive Risk Capital Trust 8.675 2027 3,000,000 3,115,950
Leucadia Nat'l
Sr Sub Nts 7.875 2006 5,000,000 5,039,650
Met Life 7.80 2025 6,900,000(d) 6,922,356
Minnesota Mutual Life 8.25 2025 2,700,000(d) 2,895,669
Nationwide Mutual
Credit Sensitive Nts 9.875 2025 9,000,000(d) 10,066,410
New England Mutual
Credit Sensitive Nts 7.875 2024 2,000,000(d) 2,023,280
Principal Mutual 8.00 2044 2,500,000(d) 2,530,750
SAFECO Capital Trust 8.07 2037 5,000,000(d) 4,976,750
SunAmerica
Medium term Nts 7.34 2005 5,000,000 5,102,600
Zurich Capital Trust 8.38 2037 3,750,000(d) 3,922,313
Total 57,940,101
Leisure time & entertainment (0.3%)
AMC Entertainment 9.50 2009 2,000,000(d) 2,017,500
Plitt Theatres 10.875 2004 3,000,000 3,187,500
Riviera Holdings 10.00 2004 2,250,000 2,221,875
Time Warner 9.15 2023 5,000,000 5,710,300
Total 13,137,175
Media (1.2%)
Cablevision Systems 9.25 2005 3,000,000 3,127,500
Cox Communications 7.25 2015 5,000,000 4,890,700
7.625 2025 5,000,000 5,013,500
CS Wireless Systems 11.38 2006 2,000,000 535,000
Lamar Advertising 9.625 2006 1,100,000 1,163,250
MDC Communications
Sr Sub Nts 10.50 2006 1,350,000 1,447,875
News American Holdings 7.50 2000 4,000,000 4,089,680
7.75 2045 10,000,000 9,645,400
Outdoor Systems
Sr Sub Nts 9.375 2006 2,500,000 2,618,750
Tele-Communications 8.75 2023 3,500,000 3,568,180
Time Warner Entertainment 8.375 2033 5,000,000 5,268,700
United Artist Theatre 9.30 2015 1,948,255 1,884,937
Universal Outdoor
Sr Sub Nts 9.75 2006 2,500,000 2,668,750
Viacom Intl 7.00 2003 2,000,000 1,901,760
8.00 2006 4,000,000 3,910,000
Total 51,733,982
Metals (0.1%)
Bayou Steel 10.25 2001 2,750,000 2,842,813
Ryerson Tull 8.50 2001 4,000,000 4,150,000
Total 6,992,813
Multi-industry conglomerates (0.4%)
Crane 7.25 1999 2,000,000 2,034,280
Pierce Leahy 11.125 2006 812,000(d) 913,500
Prime Succession 10.75 2004 1,275,000 1,405,687
USI American Holdings
Sr Nts 7.25 2006 3,350,000 3,261,761
Westinghouse Electric 8.875 2001 9,750,000 10,295,025
Total 17,910,253
Paper & packaging (0.3%)
Gaylord Container 12.75 2005 2,150,000 2,351,563
9.75 2007 1,750,000(d) 1,780,625
Owens-Illinois 8.10 2007 4,350,000 4,508,601
Riverwood Intl
Sr Nts 10.25 2006 2,000,000 2,000,000
Silgan Holdings 9.00 2009 1,650,000(d) 1,678,875
Total 12,319,664
Retail (0.2%)
Bruno's
Sr Sub Nts 10.50 2005 200,000 173,000
Pep Boys - Manny,
Moe & Jack 7.00 2005 4,200,000 4,194,414
Wal-Mart Stores 7.00 2006 4,671,431(d) 4,718,659
Total 9,086,073
Textiles & apparel (--%)
Dominion Textiles 9.25 2006 2,000,000 2,095,000
Utilities -- electric (1.9%)
Alabama Power 9.00 2024 2,200,000 2,400,222
Arizona Public Service
Sale Lease-backed Obligation 8.00 2015 3,600,000 3,781,188
Cal Energy
Sr Nts 9.50 2006 1,325,000 1,417,750
California Energy
Sr Nts 9.875 2003 1,000,000 1,072,500
Cleveland Electric Illuminating 7.67 2004 6,500,000 6,609,005
9.50 2005 7,000,000 7,610,050
CMS Energy 8.125 2002 5,000,000 5,067,800
Connecticut Light & Power 7.75 2002 5,000,000(d) 5,034,400
El Paso Electric 8.90 2006 2,750,000 2,942,500
First Palo Verde Funding 10.15 2016 1,413,000 1,497,780
Jersey Central Power & Light 6.75 2025 7,200,000 6,522,984
Long Island Lighting 9.75 2021 2,500,000 2,655,350
Niagara Mohawk Power 7.75 2006 5,500,000 5,536,960
Public Services Electric & Gas 6.75 2016 2,600,000 2,504,580
Salton Sea 7.84 2010 1,325,000 1,363,504
Sithe Independent Funding 9.00 2013 1,500,000 1,659,345
TU Electric 8.175 2037 5,000,000 5,049,900
Utilities -- electric (continued)
Texas Utilities Electric 5.875 1998 5,000,000 5,000,700
7.17 2007 5,000,000 4,950,750
Virginia Electric Power 6.75 2007 5,000,000 4,934,700
Western Massachusetts Electric 7.375 2001 2,750,000 2,721,318
Wisconsin Electric Power 6.875 2095 2,800,000 2,594,060
Total 82,927,346
Utilities -- gas (0.3%)
Columbia Gas Systems 7.32 2010 7,000,000 7,007,350
Transcontinental Energy 9.375 2001 5,000,000 5,458,650
Total 12,466,000
Utilities -- telephone (0.4%)
360 Communications 7.60 2009 3,000,000 3,064,560
Primus Telecommunications Group
with Warrants 11.75 2004 2,300,000 2,380,500
U S WEST Communications 7.20 2026 5,000,000 4,760,250
Worldcom 7.75 2007 4,000,000 4,155,560
9.375 2004 2,614,800 2,804,373
Total 17,165,243
Miscellaneous (0.6%)
Adams Outdoor Advertising 10.75 2006 3,000,000 3,262,500
American General 7.57 2045 4,350,000(d) 4,146,072
Coty 10.25 2005 1,500,000 1,597,500
Hyperion Telecommunication 12.25 2004 1,500,000(d) 1,545,000
Marshall & Ilsley Capital Trust 7.65 2026 5,700,000 5,562,630
Norcal Waste Systems
Sr Nts 13.25 2005 2,000,000 2,237,500
Outsourcing Solutions 11.00 2006 1,125,000 1,237,500
SC Intl Services 9.25 2007 4,000,000(d) 4,010,000
Talton Holdings 11.00 2007 2,000,000(d) 2,100,000
Total 25,698,702
Foreign (4.4%)(c)
ALFA Bank
(U.S. Dollar) 11.28 1997 3,000,000(j) 3,000,000
Antenna TV
(U.S. Dollar) 9.00 2007 3,000,000(d) 2,925,000
Banco General
(U.S. Dollar) 7.70 2004 3,750,000(d) 3,715,050
CAF
(U.S. Dollar) 7.10 2003 5,200,000 5,231,408
Celcaribe
(U.S. Dollar) Zero Coupon Cv 10.31 1998 1,450,000(d,h) 2,320,000
China Light & Power
(U.S. Dollar) 7.50 2006 7,000,000 7,154,700
CIA Latino Americana
(U.S. Dollar) 11.625 2004 875,000(d) 929,688
City of Moscow
(U.S. Dollar) 9.50 2000 5,000,000(d) 5,143,750
(U.S. Dollar) Zero coupon 11.00 1997 2,000,000(f) 1,924,800
Comp Paranaense de Energ
(U.S. Dollar) 9.75 2005 2,000,000(d) 2,067,500
Dao Heng Bank
(U.S. Dollar) 7.75 2007 3,900,000(d) 3,904,641
DGS Intl Finance
(U.S. Dollar) 10.00 2007 1,200,000(d) 1,176,000
Espirito Santos Centrais
(U.S. Dollar) 10.00 2007 2,400,000(d) 2,391,000
Govt Certificates of Israel
(U.S. Dollar) 9.25 2001 2,513,492 2,643,289
Govt of Algeria
(U.S. Dollar) 7.06 2006 2,000,000 1,770,000
Govt of Poland
(U.S. Dollar) 6.94 2024 3,000,000(j) 2,926,890
(U.S. Dollar) 3.75 2014 9,950,000(j) 8,420,187
Greater Beijing
(U.S. Dollar) 9.25 2004 4,500,000(d) 4,429,215
(U.S. Dollar) 9.50 2007 2,500,000(d) 2,446,975
Grupo Iusacell Sa De
(U.S. Dollar) 10.00 2004 1,250,000(d) 1,275,000
Grupo Televisa
Sr Nts 11.875 2006 1,250,000(d) 1,409,375
Guangdong Enterprises
(U.S. Dollar) 8.875 2007 2,000,000(d) 2,013,460
Honam Oil Refinery
(U.S. Dollar) 7.125 2005 5,750,000(d) 5,739,880
Hutchinson Whampo
(U.S. Dollar) 7.50 2027 5,500,000(d) 5,321,635
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 4,000,000(d) 4,070,760
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 3,000,000(d) 3,202,500
Israel Electric
(U.S. Dollar) 7.25 2006 2,700,000 2,710,584
Jasmine Submarine Telecom
(U.S. Dollar) 8.48 2011 2,900,000(d) 2,847,974
Lloyds Bank
(U.S. Dollar) 6.00 2049 9,250,000(j) 8,529,888
Mexican Cetes
(Mexican Peso) Zero Coupon 20.44 1998 17,030,000(f) 1,867,169
Midland Bank
(U.S. Dollar) 6.06 2049 9,250,000(j) 8,556,250
Ministry Finance Russia
(U.S. Dollar) 9.25 2001 2,050,000 (d) 2,101,250
Peoples Republic of China
(U.S. Dollar) 7.375 2001 2,000,000 2,042,500
(U.S. Dollar) 9.00 2096 2,500,000 2,826,025
Petronas
(U.S. Dollar) Cv 7.75 2015 6,000,000 6,164,160
Petrozuata Finance
(U.S. Dollar) 8.22 2017 7,000,000(d) 7,327,950
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 1,500,000(d) 1,423,560
(U.S. Dollar) 8.35 2017 1,500,000(d) 1,409,010
Pohang Iron & Steel
(U.S. Dollar) 7.125 2006 8,000,000 7,838,800
Polysindo Intl Finance
(U.S. Dollar) 11.375 2006 1,825,000 2,025,750
Pt Indah Kiat
(U.S. Dollar) 10.00 2007 3,600,000(d) 3,465,000
Quno Corp
(U.S. Dollar) 9.125 2005 2,500,000 2,612,500
Ras Laffan
(U.S. Dollar) 8.29 2014 6,000,000(d) 6,318,300
Repap New Brunswick
(U.S. Dollar) 10.625 2005 3,000,000 2,850,000
Republic of Argentina
(U.S. Dollar) 5.50 2023 5,000,000(j) 3,668,750
(U.S. Dollar) 8.75 2002 3,500,000(d) 3,441,434
Republic of Israel
(U.S. Dollar) 6.375 2005 1,850,000 1,781,032
Republic of Panama
(U.S.Dollar) 7.875 2002 1,000,000(d) 996,020
Rogers Cable System
(Canadian Dollar) 9.65 2014 5,000,000 3,744,375
Rogers Cantel Mobile
(U.S. Dollar) 9.375 2008 2,800,000 3,003,000
Rostelecom (AO)
(U.S. Dollar) 9.375 2000 3,200,000(m) 3,200,000
Telekom Malaysia
(U.S. Dollar) 7.875 2025 3,000,000(d) 3,077,040
United Mexican States
(U.S. Dollar) 6.25 2019 4,000,000 3,205,000
Veritas Holdings
(U.S. Dollar) 9.625 2003 3,750,000(d) 3,918,750
Zhuhai Highway
(U.S. Dollar) 12.00 2008 5,000,000(d) 5,650,000
Total 196,154,774
Total bonds
(Cost: $1,189,338,495) $1,214,965,464
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Short-term securities (5.9%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.1%)
Federal Home Loan Mtge Corp Disc Nt
10-07-97 5.46% $ 3,000,000 $ 2,982,805
Certificate of deposit (0.7%)
ABN Yankee
04-21-98 6.22 30,000,000 29,991,419
Commercial paper (5.0%)
ABB Treasury Center USA
10-07-97 5.55 2,700,000(e) 2,683,684
A. I. Credit
10-09-97 5.66 10,00,000 9,936,248
AIG Funding
11-18-97 5.55 8,450,000 8,342,579
American General Capital
09-03-97 5.54 13,900,000(e)13,891,505
American General Finance
09-16-97 5.54 11,000,000 10,971,275
Ameritech
10-20-97 5.65 10,000,000 9,918,768
BBV Finance (Delaware)
09-25-97 5.50 5,300,000 5,279,024
BellSouth Telecommunications
10-09-97 5.53 4,900,000 4,870,056
Beneficial
10-10-97 5.54 10,000,000 9,937,247
CAFCO
09-29-97 5.53 2,300,000(e) 2,289,439
CIT Group Holdings
09-18-97 5.54 4,900,000 4,885,776
10-24-97 5.55 10,500,000 10,411,611
Campbell Soup
11-18-97 5.54 5,950,000(e) 5,874,361
Cargill Global
09-09-97 5.55 2,200,000(e) 2,196,639
11-03-97 5.56 10,000,000(e) 9,896,417
Commerical Credit
09-12-97 5.52 7,300,000 7,285,554
Commerzbank U.S. Finance
09-11-97 5.53 6,400,000 6,388,267
Deutsche Bank Financial
09-16-97 5.51 4,700,000 4,687,815
Goldman Sachs Group
09-25-97 5.52 3,900,000 3,884,508
Household Finance
09-04-97 5.53 1,300,000 1,299,007
MCI Communications
09-22-97 5.73 5,400,000(e) 5,378,328
09-23-97 5.63 5,000,000(e) 4,979,228
May Department Stores
09-22-97 5.53 5,400,000 5,381,025
Morgan Stanley Group
10-08-97 5.55 5,100,000 5,066,876
Natl Australia Funding (Delaware)
10-07-97 5.52 4,600,000 4,573,343
Paccar Financial
10-01-97 5.53 4,800,000 4,776,491
Pacific Mutual
09-26-97 5.53 7,900,000 7,867,353
Pfizer
09-02-97 5.50 7,500,000(e) 7,496,575
09-08-97 5.51 6,700,000(e) 6,690,821
Reed Elsevier
11-05-97 5.56 5,400,000(e) 5,342,370
SBC Communications Capital
09-04-97 5.57 15,100,000(e)15,085,835
09-24-97 5.51 8,200,000 8,168,737
USAA Capital
10-01-97 5.64 8,000,000 7,957,869
Total 223,694,631
Letters of credit (0.1%)
Bank of America-
AES Barbers Point
10-17-97 5.53 3,100,000 3,077,308
Federal Home Loan Bank
09-18-97 5.61 3,900,000 3,887,488
Total 6,964,796
Total short-term securities
(Cost: $263,670,126) $ 263,633,651
Total investments in securities
(Cost: $3,639,926,267)(p) $4,568,716,057
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Managed Fund
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) 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.
(j) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1997.
(k) 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.
(l) At Aug. 31, 1997, securities valued at $24,611,875 were held to cover open
call options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
KLA-Tencor 135,000 $65 Sept. 1997 $ 978,750
Learning 200,000 10 Oct. 1997 900,000
Microchip Technology 300,000 40 Sept. 1997 759,375
Total $2,638,125
(m) 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, 1997 is as follows:
Security Aquisition Purchase
date cost
American United Life*
7.75% 2026 02-13-96 $2,500,000
Geotek Communications
12.00% Cv 2001 03-04-96 2,000,000
Rostelecom (AO)
9.375% 2000 08-14-97 3,200,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(n) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that were affiliates during the year
ended Aug. 31, 1997 are as follows:
Issuer Beginning Purchase Sales Ending Dividend
cost cost cost cost income
Advanta Cl A* $-- $64,584,408 $64,584,408 $-- $145,750
*Issuer was not an affiliate for the entire period ended Aug. 31, 1997.
(o) Negligible market value.
(p) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$3,642, 177,685 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation...........................................$974,283,074
Unrealized depreciation............................................(47,744,702)
-----------
Net unrealized appreciation.......................................$926,538,372
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Moneyshare Fund (Percentages represent value of
Aug. 31, 1997 investments compared to net assets)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.5%)
Federal Home Loan Bank
01-28-98 5.78% $ 2,000,000 $ 2,000,000
Total U.S. government agency
(Cost: $2,000,000) 2,000,000
Certificates of deposit (7.3%)
ABN Amro Yankee
09-23-97 5.53 6,000,000 5,999,953
05-15-98 6.08 1,000,000 999,865
Bank of New York
03-03-98 5.83 3,000,000 2,999,563
Canadian Imperial Bank Yankee
09-02-97 5.54 3,300,000 3,300,003
11-03-97 5.57 10,300,000 10,300,000
Societe Generale
12-16-97 5.73 3,000,000 3,000,000
12-24-97 5.54 4,000,000 3,999,110
Total certificates of deposit
(Cost: $30,598,494) 30,598,494
Commercial paper (73.9%)
Banks and savings and loans (5.8%)
Commerzbank U.S. Finance
10-24-97 5.55 8,200,000 8,131,473
First Bank Minneapolis
10-24-97 5.53 3,000,000(c) 2,999,738
03-06-98 5.55 2,000,000(c) 1,999,602
Harris Trust
09-10-97 5.52 4,300,000 4,300,000
Morgan Guaranty Trust
06-22-98 6.01 2,000,000 1,999,458
NBD Bancorp
09-16-97 5.57 5,000,000 4,986,967
Total 24,417,238
Commercial finance (7.8%)
CAFCO
09-19-97 5.55 5,000,000(b) 4,984,667
09-29-97 5.54 600,000(b) 597,245
11-07-97 5.60 2,000,000(b) 1,978,802
Ciesco LP
09-16-97 5.57 7,300,000(b) 7,280,971
10-17-97 5.59 10,000,000(b) 9,926,266
10-28-97 5.59 4,000,000(b) 3,963,748
New Center Asset Trust
09-08-97 5.55 4,000,000 3,994,500
Total 32,726,199
Financial services (25.6%)
Associates Corp North America
09-18-97 5.63 5,000,000 4,985,354
10-09-97 5.53 5,400,000 5,367,060
Commercial Credit
09-12-97 5.52 7,000,000 6,986,148
09-18-97 5.52 7,900,000 7,877,151
Goldman Sachs Group
09-03-97 5.64 6,500,000 6,495,977
09-19-97 5.54 8,000,000 7,975,511
09-26-97 5.53 5,000,000 4,979,375
Household Finance
09-04-97 5.56 5,000,000 4,996,181
09-05-97 5.52 6,500,000 6,494,063
10-28-97 5.56 3,000,000 2,972,958
Merrill Lynch
09-30-97 5.57 2,000,000 1,990,493
10-16-97 5.60 2,500,000(c) 2,500,000
10-20-97 5.58 6,300,000 6,250,734
11-04-97 5.59 6,500,000 6,434,220
05-26-98 5.58 2,000,000(c) 2,000,000
Morgan Stanley Group
10-06-97 5.57 5,000,000 4,971,685
10-08-97 5.56 4,400,000 4,373,831
10-14-97 5.55 4,900,000 4,866,251
10-15-97 5.56 8,000,000 7,943,676
10-20-97 5.55 2,800,000 2,778,183
Paccar Financial
09-10-97 5.53 4,700,000 4,692,102
Total 107,930,953
Food (6.3%)
CPC Intl
10-20-97 5.57 6,500,000(b) 6,449,446
11-05-97 5.60 13,600,000(b)13,460,283
Campbell Soup
11-17-97 5.50 4,000,000(b) 3,953,653
11-18-97 5.55 2,600,000(b) 2,568,396
Total 26,431,778
Household products (2.4%)
Clorox
09-09-97 5.57 7,160,000 7,149,021
Kimberly Clark
09-29-97 5.54 3,200,000(b) 3,185,333
Total10,334,354
Industrial equipment & services (0.9%)
ABB Treasury Center (USA)
09-04-97 5.63 3,700,000(b) 3,697,138
Insurance (7.4%)
A.I. Credit
09-17-97 5.55 3,100,000 3,091,475
AIG Funding
11-18-97 5.56 7,700,000 7,606,231
American General Finance
09-17-97 5.64 5,000,000 4,986,100
Lincoln Natl
09-09-97 5.58 5,000,000(b) 4,992,320
10-01-97 5.54 2,700,000(b) 2,686,824
10-02-97 5.55 5,800,000 5,770,758
St. Paul Companies
09-15-97 5.52 2,000,000 1,995,120
Total 31,128,828
Media (3.4%)
Gannett
10-14-97 5.56 5,470,000(b) 5,432,325
Reed Elsevier
09-16-97 5.63 4,600,000(b) 4,587,944
11-21-97 5.58 4,400,000(b) 4,344,104
Total 14,364,373
Multi-industry conglomerates (4.0%)
BOC Group
09-23-97 5.55 6,100,000 6,077,593
General Electric
09-25-97 5.50 5,800,000 5,776,961
General Electric Capital
09-19-97 5.64 5,000,000 4,984,556
Total 16,839,110
Retail (2.4%)
May Department Stores
10-21-97 5.60 10,400,000 10,317,228
Miscellaneous (7.9%)
Beneficial
10-10-97 5.54 6,300,000 6,260,538
CIT Group Holdings
09-18-97 5.54 7,100,000 7,079,390
10-24-97 5.56 5,000,000 4,957,910
Fleet Funding
09-10-97 5.54 3,900,000(b) 3,893,434
09-11-97 5.53 5,900,000(b) 5,889,183
09-23-97 5.55 5,100,000(b) 5,081,232
Total 33,161,687
Total commercial paper
(Cost: $311,348,886) 311,348,886
Letters of credit (19.1%)
ABN Amro-
Formosa Plastics
09-02-97 5.70 5,000,000 4,997,658
Bank of America-
AES Barbers Point
10-10-97 5.55 2,300,000 2,285,593
Bank of America-
Formosa Plastics
10-09-97 5.57 2,000,000 1,987,711
10-16-97 5.57 5,000,000 4,963,967
Bank of America-
Minmetals
09-03-97 5.55 10,000,000 9,993,867
11-06-97 5.60 1,900,000 1,880,153
Bank of New York-
River Fuel Trust 2
10-03-97 5.58 9,400,000(b) 9,350,906
Barclays-
Banco Real
09-08-97 5.56 6,900,000 6,890,461
10-06-97 5.91 2,000,000 1,988,181
Barclays-
Banco Serfin
10-20-97 5.63 5,000,000 4,960,758
10-16-97 5.58 5,000,000 4,963,967
Credit Suisse-
Chinatex
10-21-97 5.57 5,000,000 4,960,133
Credit Suisse-
COFCO
09-11-97 5.65 6,500,000 6,487,932
Credit Suisse-
Sunkyong America
10-27-97 5.58 5,000,000 4,955,694
First Chicago-
Commed Fuel
10-17-97 5.56 4,900,000 4,864,001
Societe Generale-
Nafinsa
10-16-97 5.56 5,000,000 4,963,967
Total letters of credit
(Cost: $80,494,949) 80,494,949
Total investments in securities
(Cost: $424,442,329)(d) $424,442,329
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Moneyshare Fund
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(c) Interest rate varies to reflect current market conditions; rate shown is the
effective rate on Aug. 31, 1997.
(d) Also represents the cost of securities for federal income tax purposes at
Aug. 31, 1997.
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
International Equity Fund (Percentages represent value of
Aug. 31, 1997 investments compared to net assets)
Common stocks (93.5%)
Issuer Shares Value(a)
Argentina (0.3%)
Utilities -- telephone
Telfonica de Argentina ADR 159,000(c)$ 5,515,313
Australia (4.1%)
Banks and savings & loans (1.3%)
Westpac Banking 4,592,000(c) 26,638,784
Building materials & construction (0.5%)
Pacific Dunlop 4,363,000 11,227,648
Metals (2.0%)
MIM Holdings 11,369,625(b) 13,626,017
Pasminco 10,647,382(b) 19,281,578
WMC Limited 1,962,743 9,957,447
Total 42,865,042
Paper & packaging (0.3%)
Amcor 925,000(c) 5,604,082
Austria (0.4%)
Machinery
Boehler-Uddeholm 107,600(d) 8,421,275
Brazil (1.5%)
Communications equipment & services (0.5%)
Telecomunicacoes
Brasileiras-Telebras ADR 95,000 11,210,000
Energy (0.6%)
Petroleo Brasileiro ADR 480,000(b,c)12,720,000
Utilities -- electric (0.4%)
Centrais Eletricas
Brasileiras 366,000(b,c) 7,842,869
Canada (2.8%)
Aerospace & defense (0.5%)
Bombardier Cl B 600,800(b) 11,659,089
Communications equipment & services (0.6%)
BCE Mobile 350,300(b) 12,712,958
Electronics (1.2%)
Northern Telecom 250,000 24,781,250
Energy (0.5%)
Petro-Canada 590,000(b) 10,196,220
Chili (0.2%)
Utilities -- telephone
Cia de
Telecomunicaciones
de Chile 150,000 4,509,375
Finland (1.2%)
Communications equipment & services
Nokia Cl A 340,400(b) 26,272,430
France (8.6%)
Banks and savings & loans (1.9%)
Banque Nationale de Paris 957,990 40,834,635
Building materials & construction (1.0%)
Lafarge 330,251(b) 21,305,815
Energy (2.0%)
Societe Nationale
Elf Aquitaine 197,303(b) 21,918,226
Total Petroleum Cl B 231,310(b) 21,660,806
Total 43,579,032
Industrial equipment & services (1.3%)
Michelin 481,996(c) 27,049,905
Leisure time & entertainment (1.3%)
Accor 178,153 26,681,023
Utilities -- electric (1.1%)
SGS THOMSON
Microelectronics 242,730(b) 22,410,640
Germany (4.7%)
Automotive & related (1.1%)
Daimler-Benz 304,000(b) 22,730,545
Chemicals (0.7%)
Hoechst 386,500 15,295,167
Communications equipment & services (0.9%)
Deutsche Telekom 930,676(b,c)18,556,819
Leisure time & entertainment (1.0%)
Adidas 176,647 21,279,824
Miscellaneous (1.0%)
SGL Carbon 161,434(b) 20,028,367
Hong Kong (7.7%)
Banks and savings & loans (2.2%)
HSBC Holdings 1,532,800 46,679,243
Multi-industry conglomerates (2.5%)
Guangdong Investment 4,860,000(b) 5,863,731
Hutchison Whampoa 1,449,000 12,060,197
Shanghai Industrial
Holdings 3,995,000(b,c)26,291,371
Swire Pacific Cl A 1,200,000 9,174,785
Total 53,390,084
Real estate (2.4%)
Cheung Kong Holdings 3,624,000(b) 38,346,729
New World Development 1,920,000 11,966,707
Total 50,313,436
Retail (0.6%)
China Merchants
Holdings Intl 3,800,000(b) 12,013,677
Israel (0.2%)
Health care
Teva Pharmaceutical Inds 95,000(c) 4,975,625
Italy (8.4%)
Banks and savings & loans (2.7%)
Credito Italiano 15,010,000(b,c)31,036,102
Instituto Bancario
San Paolo di Torino 3,671,146(b,c)25,579,998
Total 56,616,100
Communications equipment & services (2.8%)
Telecom Italia 2,920,000 17,335,561
Telecom Italia Risp 11,760,400 41,505,333
Total 58,840,894
Energy (2.9%)
Ente Nazionale Idrocarburi10,837,802(c) 60,474,350
Japan (14.1%)
Automotive & related (0.7%)
Mitsubishi Motors 2,477,000(b) 14,344,570
Banks and savings & loans (0.7%)
Sanwa Bank 603,000(b) 7,482,936
Sumitomo Bank 500,000(b) 7,362,978
Total 14,845,914
Communications equipment & services (0.7%)
DDI 2,800(b) 14,593,588
Electronics (4.9%)
Casio Computer 2,415,000(b,c)20,978,282
Mitsumi Electric 1,050,000(b,c)22,672,182
NEC 2,700,000(b) 30,155,117
Sony 330,000(b,c)28,665,977
Total 102,471,558
Health care (0.6%)
Eisai 645,000(b,c)12,219,648
Industrial equipment & services (2.4%)
DAI Nippon Printing 1,070,000(b) 22,307,342
Secom400,000(b) 28,359,876
Total 50,667,218
Machinery (0.9%)
Kurita Water Inds 774,000(b) 20,362,523
Metals (0.9%)
Fujikura 2,290,000(b) 19,134,642
Real estate (1.4%)
Sumitomo Realty &
Development 3,733,000(b) 29,616,931
Retail (0.9%)
Takashimaya 1,670,000(b) 18,513,339
Malaysia (1.7%)
Automotive & related (0.1%)
Perushaan Otomobil
Nasional 729,000(b) 2,119,367
Banks and savings & loans (0.4%)
Malayan Banking 1,371,000(b) 9,097,016
Utilities -- electric (1.2%)
Tenega Nasional 543,000(b) 1,615,767
Tokyo Electron 435,000(b) 23,571,871
Total 25,187,638
Mexico (1.5%)
Beverages & tobacco (0.7%)
Formento Economico
Mexicano Series B 1,225,000 8,500,385
Panamerican Beverages 180,000 5,411,250
Total 13,911,635
Communications equipment & services (0.8%)
Telefonos de Mexico
Series L ADR 387,500 17,776,563
Netherlands (9.6%)
Chemicals (1.1%)
Akzo Nobel 155,340(b) 24,078,273
Energy (1.3%)
Royal Dutch Petroleum 520,626(b) 26,421,737
Financial services (1.7%)
ING Groep 814,427 35,444,695
Furniture & appliances (4.6%)
Philips Electronics 1,363,933(b) 97,054,882
Retail (0.9%)
Vendex Intl 382,523(b) 19,149,664
Peru (0.3%)
Communications equipment & services (0.1%)
Telefonica del Peru ADR 82,000(b) 1,916,750
Financial services (0.2%)
Credicorp 235,000(c) 4,949,688
Philippines (0.7%)
Electronics (0.1%)
Manila Electric 806,000(b) 2,713,006
Utilities -- telephone (0.6%)
Philippines Long Distance
Telephone ADR 435,800(c) 11,003,950
Russia (1.1%)
Energy (0.5%)
Lukoil ADR 125,000(b,c)11,321,250
Utilities -- electric (0.6%)
Mosenergo ADR 275,000(b) 12,337,302
Singapore (2.4%)
Banks and savings & loan (1.0%)
Oversea -- Chinese Banking 906,000(b) 7,072,974
United Overseas Bank 1,685,000(b) 13,043,002
Total 20,115,976
Real estate (1.3%)
City Developments 2,145,000(b) 13,552,595
Keppel Land 5,420,000(b) 14,128,216
Total 27,680,811
Transportation (0.1%)
Singapore Airlines 390,000(b) 2,838,240
Spain (1.0%)
Communications equipment & services
Telefonica de Espana 847,087(c) 21,952,458
Sweden (3.4%)
Industrial equipment & services
ABB AB Class B Shaes 1,500,000(b) 21,802,878
Ericsson (LM) B Free 1,196,080 49,802,502
Total 71,605,380
Switzerland (5.8%)
Financial services (1.1%)
Credit Suisse Group 188,892(b) 22,681,251
Health care (4.7%)
Novartis 34,630(b) 49,037,746
Roche Holding 5,833 49,174,856
Total 98,212,602
Taiwan (0.6%)
Chemicals (0.3%)
Nan Ya Plastics 1,971,360(b) 5,148,049
Electronics (0.3%)
Compal Electronics 1,340,000(b) 6,438,717
United Kingdom (11.1%)
Banks and savings & loans (0.7%)
Lloyds TSB 1,268,186(b) 14,867,097
Communications equipment & services (1.0%)
British
Telecommmunications 3,159,638 20,467,228
Energy (1.4%)
Shell Transport & Trading 4,431,460(b) 29,963,171
Food (1.3%)
Unilever 999,973(b) 27,701,812
Health care (2.8%)
Glaxo Wellcome 1,864,046 37,327,465
SmithKline Beecham Cl A 2,389,862(b) 20,750,914
Total 58,078,379
Multi-industry conglomerates (0.1%)
Framlington Maghreb
Fund Units 29,400(b) 1,958,040
Retail (1.1%)
Great Universal Stores 2,265,040(b) 23,027,581
Transportation (0.9%)
British Airways 629,025 6,558,187
NFC 5,774,420 12,499,552
Total 19,057,739
Utilities -- electric (1.8%)
BG 8,864,369(b) 38,807,569
Venezuela (0.1%)
Communications equipment & services
Compania Anonima Nacional Telefonos
de Venezuela ADR 51,000(b) 2,103,750
Total common stocks
(Cost: $1,733,257,501) $1,969,190,713
Preferred stock & other (1.4%)
Issuer Shares Value(a)
BNP
Warrants 347,900 $ 3,746,883
Henkel KGaA 529,920(c) 26,738,140
Total preferred stock & other
(Cost: $25,956,890) $30,485,023
Short-term securities (15.6%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
Commercial paper (14.5%)
AIG Funding
11-18-97 5.55% $ 7,200,000 $ 7,108,470
Alabama Power
10-15-97 5.57 8,800,000 8,735,296
American General
09-03-97 5.54 11,800,000(e)11,792,789
AT&T
09-08-97 5.50 2,200,000 2,196,991
Ameritech
09-12-97 5.60 10,000,000 9,978,903
10-20-97 5.65 5,000,000 4,959,384
Ameritech Capital Funding
10-24-97 5.55 11,800,000(e)11,695,235
Associates Corp North America
09-12-97 5.54 5,200,000 5,189,672
10-09-97 5.53 9,000,000 8,945,100
Avco Financial
09-29-97 5.64 4,700,000 4,676,881
BOC Group
09-15-97 5.55 10,000,000 9,975,555
Beneficial
10-10-97 5.53 4,100,000 4,074,318
CAFCO
11-04-97 5.57 15,000,000(e)14,842,271
Campbell Soup
11-17-97 5.49 10,200,000(e)10,071,933
Cargill Global
09-09-97 5.52 1,400,000(e) 1,397,869
11-03-97 5.56 9,800,000(e) 9,698,488
Ciesco LP
09-18-97 5.54 15,000,000(e)14,956,379
Commercial Credit
09-17-97 5.54 7,400,000 7,379,613
09-18-97 5.52 12,000,000 11,965,293
Commerzbank U.S. Finance
09-10-97 5.52 5,700,000 5,690,421
Fleet Funding
09-11-97 5.53 18,700,000(e)18,665,717
Gannett
09-16-97 5.53 11,500,000(e)11,470,078
General Electric Capital Services
09-19-97 5.53 1,800,000 1,794,500
Household Finance
09-09-97 5.52 3,400,000 3,394,806
Kredietbank North America Finance
09-17-97 5.52 1,400,000 1,396,157
Lincoln Natl
09-22-97 5.53 3,700,000(e) 3,687,022
May Department Stores
09-22-97 5.53 7,600,000 7,573,294
Metlife Funding
09-17-97 5.53 14,300,000 14,260,603
Morgan Stanley Group
10-08-97 5.55 6,800,000 6,755,835
10-15-97 5.55 7,900,000 7,844,380
10-22-97 5.55 4,500,000 4,463,496
Natl Australia Funding (Delaware)
09-15-97 5.61 11,300,000 11,268,186
10-07-97 5.52 7,700,000 7,655,378
Natl Bank Detroit
10-24-97 5.56 7,600,000 7,531,326
New Center
09-04-97 5.50 10,000,000 9,992,403
Paccar Financial
09-11-97 5.52 1,700,000 1,696,883
Pitney Bowes
10-20-97 5.75 800,000 793,383
Reed Elsevier
09-05-97 5.61 12,100,000(e)12,086,423
Siemens Capital
09-10-97 5.52 7,500,000 7,487,396
Total 305,148,127
Letters of credit (1.1%)
Bank of America-
AES Barbers Point
10-10-97 5.55 6,400,000 6,356,547
10-17-97 5.53 7,200,000 7,147,296
Barclays Bank-
Banco Real
09-08-97 5.53 2,100,000 2,097,097
Credit Suisse-
COFCO
09-11-97 5.57 8,500,000 8,480,683
Total 24,081,623
Total short-term securities
(Cost: $329,288,431) $ 329,229,750
Total investments in securities
(Cost: $2,088,502,822)(f) $2,328,905,486
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
International Equity Fund
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, 1997, the cost of securities for federal income tax purposes was
$2,089,705,426 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation...........................................$322,558,404
Unrealized depreciation............................................(83,358,344)
-----------
Net unrealized appreciation.......................................$239,200,060
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
Aggressive Growth Fund (Percentages represent value of
Aug. 31, 1997 investements compared to net assets)
Investments in securities of unaffiliated issuers
Common stocks (90.1%)
Issuer Shares Value(a)
Aerospace & defense (1.8%)
AAR 185,500 $ 6,225,843
Hexcel 426,550(b) 11,863,422
Kellstrom Inds 195,000(b) 2,998,125
Precision Castparts 193,000 12,472,625
Rohr 348,000(b) 9,417,750
Total 42,977,765
Automotive & related (0.8%)
Budget Group Cl A 330,000(b) 9,693,750
Cummins Engine 140,000 10,771,250
Tota l20,465,000
Banks and savings & loans (1.3%)
SouthTrust 200,000 8,950,000
TCF Financial 170,000 9,063,125
Washington Mutual 220,000 13,172,500
Total 31,185,625
Beverages & tobacco (0.4%)
JR Cigar 310,000 9,920,000
Building materials & construction (1.6%)
Tyco Intl 500,000 39,218,750
Chemicals (2.4%)
Crompton & Knowles 520,000 13,130,000
Morton Intl 380,000 12,635,000
Praxair 225,000 12,023,438
USA Waste Service 500,000(b) 21,000,000
Total 58,788,438
Communications equipment & services (1.6%)
ADC Telecommunications 350,000(b) 12,993,750
Brightpoint 232,800(b) 8,730,000
DSC Communications 550,000(b) 16,018,750
Total 37,742,500
Computers & office equipment (13.6%)
3Com 229,000(b) 11,435,688
Adaptec 241,000(b) 11,568,000
America Online 105,000(b) 6,772,500
Bay Networks 400,000(b) 14,150,000
BEA Systems 320,000(b) 5,880,000
BMC Inds 162,000 5,042,250
BMC Software 240,000(b) 15,030,000
Cadence Design Systems 271,000(b) 12,889,438
Cambridge Technology
Partners 35,000(b) 1,128,750
Cisco Systems 200,000(b) 15,075,000
Computer Horizons 300,000(b) 11,925,000
Data General 375,000(b) 13,476,562
E Trade Group 325,000(b) 10,440,625
Fiserv 350,000(b) 15,750,000
Galileo Intl 440,000(b) 11,632,500
Keane 97,000(b,c) 5,698,750
Legato Systems 155,000(b) 4,417,500
Lycos 200,000(b) 6,262,500
McAfee Associates 225,000(b) 12,740,625
Oracle 358,500(b) 13,667,812
PLATINUM Technology 420,000(b) 9,975,000
Quantum 206,000(b) 7,222,875
Sanmina 160,000(b,g)12,680,000
Security Dynamics
Technologies 300,000(b) 11,793,750
Sequent Computer Systems 300,000(b) 8,456,250
Solectron 260,000(b) 10,887,500
Sterling Commerce 333,000(b) 11,009,812
Storage Technology 250,000(b) 12,734,375
Structural Dynamics
Research 500,000(b) 13,281,250
Transition Systems 481,000(b) 9,199,125
Veritas Software 235,000(b) 14,834,375
Vestcom Intl 180,000(b) 2,925,000
Total 329,982,812
Electronics (9.4%)
Advanced Lighting
Technologies 220,000(b) 5,280,000
Analog Devices 500,000(b) 16,562,500
Applied Materials 140,000 13,212,500
CIENA 300,000(b,c)14,325,000
Credence Systems 375,000(b) 17,648,438
Cymer 100,000 9,087,500
Integrated Silicon Solution 55,000(b) 804,375
Kent Electronics 400,000(b) 14,975,000
KLA-Tencor 500,000(b,c)35,437,500
Kulicke & Soffa Inds 65,000(b) 2,985,938
Lattice Semiconductor 170,000(b) 10,826,875
Linear Technology 155,000 10,162,188
Maxim Integrated Products 300,000(b) 20,737,500
Photronics 100,000(b) 5,900,000
PRI Automation 220,000(b,c)11,770,000
Tektronix 67,000 3,722,688
Teradyne 300,000(b) 16,706,250
Transcrypt Intl 295,000(b) 5,457,500
Xilinx 253,000(b) 12,017,500
Total 227,619,252
Energy (1.2%)
Anadarko Petroleum 86,100 6,322,969
Newfield Exploration 52,350(b) 1,344,741
Pogo Producing 300,000 13,012,500
Sun 250,000 9,718,750
Total 30,398,960
Energy equipment & services (7.3%)
Baker Hughes 273,000 11,568,375
Camco Intl 200,000 13,775,000
Coflexip 225,000 11,235,938
Cooper Cameron 330,000(b) 21,408,750
Diamond Offshore Drilling 350,000 19,118,750
EVI 250,000(b) 13,140,625
Falcon Drilling 450,000(b) 14,175,000
Key Energy Group 300,000(b) 7,762,500
Lone Star Technologies 500,000(b) 20,406,250
Marine Drilling 600,000(b) 14,400,000
Parker Drilling 978,000(b) 12,897,375
Santa Fe Intl 208,400(b) 9,325,900
Smith Intl 120,000 8,730,000
Total 177,944,463
Financial services (3.3%)
Associates First
Capital Cl A 205,000 11,902,812
Franklin Resources 160,000 12,380,000
Paychex 295,000 10,103,750
PMT Services 688,000(b) 11,610,000
Providian Financial 475,000 17,693,750
Schwab (Charles) 400,000 16,975,000
Total 80,665,312
Food (0.5%)
Delta & Pine Land 300,000 11,025,000
Furniture & appliances (1.1%)
Furniture Brands Intl 569,000(b) 10,028,625
Leggett & Platt 375,000 16,125,000
Total 26,153,625
Health care (4.6%)
ALZA 450,000(b) 13,050,000
Arterial Vascular
Engineering 270,000(b) 9,990,000
Biogen 300,000(b) 11,812,500
ChiRex 378,000(b) 7,418,250
Dura Pharmaceuticals 97,000(b) 3,455,625
Guidant 140,000 12,293,750
IDEXX Laboratories 861,000(b) 16,197,562
Stryker 300,000 11,981,250
Tecnol Medical Products 412,500(b) 8,868,750
Watson Pharmaceuticals 300,000(b) 15,768,750
Total 110,836,437
Health care services (5.6%)
Access Health 442,000(b) 13,812,500
American Oncology Resources 750,000(b) 10,265,625
FPA Medical Management 460,100(b) 13,342,900
HBO & Co 729,000 52,214,625
Health Management
Associates Cl A 600,000(b) 17,737,500
Healthcare Recoveries 75,000(b) 1,321,875
HEALTHSOUTH 250,000(b) 6,234,375
Henry Schein 294,000(b) 10,473,750
Stewart Enterprises 275,000 10,862,500
Total 136,265,650
Household products (0.8%)
Action Performance Cos 355,000(b) 11,581,875
Premark Intl 246,000 7,318,500
Total 18,900,375
Industrial equipment & services (1.7%)
AGCO 324,000 10,530,000
Integrated Process
Equipment 250,000(b) 8,250,000
Terex 476,000(b) 10,293,500
UCAR Intl 250,000(b) 11,796,875
Total 40,870,375
Insurance (1.0%)
Frontier Insurance Group 360,000 12,600,000
Nationwide Financial
Services Cl A 47,200 1,309,800
SunAmerica 200,000 10,775,000
Total 24,684,800
Leisure time & entertainment (1.0%)
Carnival Cl A 240,000 10,515,000
Galoob Toys 427,000(b) 8,860,250
Imax 175,000(b) 4,178,125
Total 23,553,375
Media (2.2%)
Clear Channel
Communications 206,000(b) 13,995,125
Evergreen Media Cl A 350,000(b) 16,756,250
Outdoor Systems 900,000(b) 23,793,750
Total 54,545,125
Metals (0.5%)
Reynolds Metals 175,000 12,370,313
Multi-industry conglomerates (3.3%)
Corrections Corporation
of America 300,000(b) 11,100,000
Crane 260,000 11,472,500
Electronics for Imaging 235,000(b) 12,572,500
Mayne Nickless 675,000 3,861,169
NCO Group 217,500(b) 8,156,250
Registry 198,600(b) 9,110,775
Staffmark 25,000(b) 703,125
Westinghouse Electric 900,000 23,175,000
Total 80,151,319
Restaurants & lodging (1.2%)
CapStar Hotel 600,000(b) 19,650,000
Papa John's Intl 158,200(b) 5,398,575
Ryan's Family Steak Houses 512,000(b) 4,736,000
Total 29,784,575
Retail (9.9%)
Barnes & Noble 200,000(b) 9,287,500
Bed Bath & Beyond 300,000(b) 9,300,000
Cole Natl Cl A 150,000(b) 6,684,375
Costco Cos 600,000(b) 21,637,500
Dayton Hudson 113,000 6,441,000
Family Dollar Stores 1,000,000 21,250,000
Jostens 156,400 3,773,150
Kohl's 325,000(b) 22,404,687
Kroger 372,000(b) 11,206,500
Men's Wearhouse 429,000(b) 15,578,062
Michaels Stores 590,000(b) 14,418,125
Office Depot 709,000(b) 13,072,187
Pier 1 Imports 750,000 12,750,000
Rexall Sundown 345,000(b) 11,988,750
Rite Aid 350,000 17,521,875
Safeway 250,000(b) 12,734,375
Stein Mart 214,000(b) 5,992,000
Tiffany & Co 200,000 9,050,000
Walgreen 360,000 9,697,500
Williams-Sonoma 150,000(b) 6,712,500
Total 241,500,086
Textiles & apparel (0.5%)
Jones Apparel Group 225,000(b) 11,292,188
Transportation (3.8%)
Airborne Freight 180,000(c) 8,865,000
American Freightways 463,000(b) 7,408,000
Caliber System 300,000 12,525,000
CNF Transportation 450,000 16,256,250
Expeditors Intl of
Washington 247,000 9,046,375
Hvide Marine Cl A 300,000(b) 9,262,500
Kansas City Southern Inds 150,000 11,231,250
Keppel 1,000,000 2,606,682
US Xpress Enterprises 307,000(b) 5,890,562
Yellow 259,400(b) 8,138,675
Total 91,230,294
Utilities -- telephone (3.4%)
Brooks Fiber Properties 350,000(b) 11,768,750
General Cable 273,000(b) 9,452,625
LCI Intl 750,000(b) 18,000,000
Nextel Communications Cl A 520,000(b) 13,032,500
Omnipoint 400,000(b) 8,375,000
USLD Communications 500,000(b,c) 7,687,500
WorldCom 450,000(b) 13,471,875
Total 81,788,250
Foreign (4.3%) (h)
ASM Lithography Holding 184,400(b) 15,674,000
Banco de Galicia-Buenos
Aires ADR 252,000(g) 7,500,937
BioChem Pharmaceuticals 400,000(b) 10,375,000
CBT Group ADR 100,000(b,c) 6,500,000
Check Point Software
Technologies 266,550(b) 6,863,663
Creative Technology 550,000(b) 10,587,500
Elan ADR 300,000(b,g)13,650,000
Millicom Intl Cellular 228,000(b) 11,628,000
Newbridge Networks 280,000(b) 12,740,000
Teledata Communications 250,000(b) 8,625,000
Total 104,144,100
Total common stocks of unaffiliated issuers
(Cost: $1,776,013,994) $2,186,004,764
Bonds (0.4%)
Issuer Principal Value(a)
amount
Level One Communications
4% 2004 $ 5,500,000(d) $ 6,008,750
Thermolase
4.375% 2004 2,500,000(d) 2,590,625
Total bonds
(Cost: $8,074,895) $8,599,375
Short-term securities (7.8%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
Commercial paper (7.4%)
Albertson's
09-08-97 5.50 9,100,000 9,087,533
American General
09-15-97 5.53 1,600,000 1,596,089
AT&T
09-19-97 5.52 10,000,000 9,969,444
Avco Financial Services
09-15-97 5.56 2,600,000 2,593,067
Barclays U.S. Funding
09-16-97 5.53 10,500,000 10,472,680
Beneficial
09-10-97 5.53 5,200,000 5,191,261
09-26-97 5.54 11,500,000 11,452,476
CAFCO
09-15-97 5.54 3,000,000(e) 2,992,653
Commercial Credit
10-03-97 5.55 10,000,000 9,947,961
Deutsche Bank Financial
09-16-97 5.51 4,200,000 4,189,112
Fleet Funding
09-09-97 5.52 700,000(e) 698,931
Ford Motor Credit
09-22-97 5.53 6,300,000 6,277,862
General Electric Capital
09-10-97 5.52 12,000,000 11,979,870
Lincoln Natl
09-19-97 5.53 9,200,000(e) 9,171,889
Merrill Lynch
10-08-97 5.54 6,200,000 6,162,991
New Center Asset Trust
09-24-97 5.53 13,400,000 13,348,819
Pacific Mutual Life Insurance
09-18-97 5.50 7,400,000 7,378,597
Pfizer
09-12-97 5.52 6,500,000(e) 6,487,114
Pioneer Hi-Bred Intl
09-09-97 5.52 3,600,000 3,594,500
09-12-97 5.52 6,000,000 5,988,083
Reed Elsevier
09-05-97 5.61 4,500,000(e) 4,494,951
SBC Communications Capital
09-04-97 5.49 2,300,000(e) 2,298,256
Societe Generale North America
09-04-97 5.52 4,200,000 4,196,792
Southern California Gas
09-19-97 5.53 9,700,000(e) 9,670,307
St. Paul Companies
09-29-97 5.52 1,300,000(e) 1,294,053
Sysco
09-16-97 5.53 4,700,000(e) 4,687,793
Toyota Motor Credit
09-02-97 5.50% $6,100,000$ 6,097,219
09-16-97 5.50 7,100,000 7,081,627
Total 178,401,930
Letters of credit (0.4%)
Bank of America-
AES Barbers Point
10-10-97 5.55 9,000,000 8,938,894
Bank of America-
Formosa Plastics
09-12-97 5.51 1,400,000 1,397,225
Total 10,336,119
Total short-term securities
(Cost: $188,744,233) $ 188,738,049
Total investments in securities of unaffiliated issuers
(Cost: $1,972,833,122) $2,383,342,188
Investments in securities of affiliated issuers(f)
Common stock (1.1%)
Issuer Shares Value(a)
Dave & Buster's 378,000(b)$ 12,190,500
Steiner Leisure 465,000(b) 14,182,500
Total investments in securities of affiliated issuer
(Cost: $19,447,426) $ 26,373,000
Total investments in securities
(Cost: $1,992,280,548)(i) $2,409,715,188
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) At Aug. 31, 1997, securities valued at $29,883,750 were held to cover open
call options written as follows:
Issuer Shares Exercise Expiration Value (a)
price date
Airborne Freight 180,000 $50 Oct. 1997 $ 405,000
CBT Group ADR 10,000 70 Oct. 1997 37,500
CIENA 100,000 50 Oct. 1997 337,500
Keane 27,000 65 Oct. 1997 97,875
KLA-Tencor 150,000 75 Sept. 1997 314,250
PRI Automation 20,000 60 Oct. 1997 65,000
USLD Communications 150,000 15 Sept. 1997 150,000
Total $1,407,125
(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) 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, 1997 are as follows:
Issuer Beginning Purchases Sales Ending Dividend
cost cost cost cost income
<S> <C> <C> <C> <C> <C>
Emisphere Technologies* $ -- $ 9,453,520 $ 9,453,520 $ -- $--
Heftel Broadcasting* 12,266,622 -- 12,266,622 -- --
Dave & Busters* -- 11,941,176 -- 11,941,176 --
Steiner Leisure* -- 7,961,250 455,000 7,506,250 --
Total $12,266,622 $29,355,946 $22,175,142 $19,447,426 $--
*Issuer was not an affiliate for the entire year.
(g) Security is partially or fully on loan. See Note 5 to the financial
statements.
(h) Foreign security values are stated in U.S. dollars.
(i) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$1,994,417,821 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation...........................................$431,844,358
Unrealized depreciation............................................(16,546,991)
-----------
Net unrealized appreciation.......................................$415,297,367
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Retirement Annuity Mutual Funds
Global Yield Fund (Percentages represent value of
August 31, 1997 investments compared to net assets)
Bonds (82.6%) (b)
Issuer Coupon Maturity Principal Value(a)
rate year amount
Argentina (5.9%)
Argentina Republic
<S> <C> <C> <C> <C>
(Argentine Peso) 8.75 % 2002 $ 1,500,000(c) $1,474,900
(Japenese Yen) 5.50 2001 110,000,000 959,200
(U.S. Dollar) 6.75 2005 1,455,000(d) 1,384,069
(U.S. Dollar) 11.375 2017 1,000,000 1,167,000
Perez Companc
(U.S. Dollar) 9.00 2004 1,000,000(c) 1,043,750
Providence of Mendoza
(U.S. Dollar) 10.00 2007 1,000,000(c) 993,750
Total 7,022,669
Australia (2.1%)
Govt of Australia
(Australian Dollar) 10.00 2007 680,000 620,464
Queensland Tresury
(Australian Dollar) 8.00 2003 2,410,000 1,913,711
Total 2,534,175
Brazil (0.8%)
Espirito Santo Centrais
(U.S. Dollar) 10.00 2007 1,000,000(c) 996,250
Canada (4.2%)
Govt of Canada
(Canadian Dollar) 8.00 2023 4,200,000 3,560,693
Rogers Communication
(Canandian Dollar) 8.75 2007 2,000,000 1,432,943
Total 4,993,636
Denmark (2.1%)
Govt of Denmark
(Danish Krone) 8.00 2003-06 15,200,000 2,481,640
France (0.4%)
Govt of France
(European Currency Unit) 7.50 2005 400,000 483,840
Germany (3.7%)
Federal Republic of Germany
(Deutsche Mark) 6.00 2016 4,300,000 2,330,169
(Deutsche Mark) 7.50 2004 3,430,000 2,140,639
Total 4,470,808
Hong Kong (0.8%)
Dao Heng Bank
(U.S. Dollar) Sub Nts 7.75 2007 1,000,000(c) 1,001,190
Indonesia (1.1%)
Tjiwi Kimia
(U.S. Dollar) 10.00 2004 1,300,000(c) 1,274,000
Israel (0.9%)
Israel Electric
(U.S. Dollar) Sr Nts 7.875 2026 1,000,000(c) 1,020,840
Italy (3.2%)
Govt of Italy
(Italian Lira) 7.75 2001 2,450,000,000 1,460,053
(Italian Lira) 8.50 2004 3,820,000,000 2,374,970
Total 3,835,023
Mexico (3.3%)
BNCE
(U.S. Dollar) 7.25 2004 2,000,000 1,865,000
United Mexican States
(Japanese Yen) 5.00 1998 30,000,000 256,200
(U.S. Dollar) 11.375 2016 550,000 635,938
(U.S. Dollar) 11.50 2026 1,050,000 1,242,150
Total 3,999,288
Panama (0.8%)
Banco General
(U.S. Dollar) 7.70 2002 1,000,000(c) 990,680
Peru (0.9%)
Southern Peru Copper
(U.S. Dollar) 7.90 2007 1,000,000(c) 1,020,880
Philippines (1.0%)
Philippine Long Distance
Telephone (U.S. Dollar) 7.85 2007 1,200,000(c) 1,138,848
Russia (0.9%)
Ministry Finance Russia
(U.S. Dollar) 9.25 2001 1,000,000(c) 1,025,000
South Korea (1.2%)
Korea Development Bank
(U.S. Dollar) 7.25 2006 1,500,000 1,475,175
Spain (1.1%)
Govt of Spain
(Spanish Peseta) 8.00 2004 179,000,000 1,305,506
Supra National (0.6%)
Asian Development Bank
(Japanese Yen) 5.00 2003 69,000,000 670,734
Sweden (2.8%)
Govt of Sweden
(Swedish Krona) 8.00 2007 16,600,000 2,318,993
Paulson Enteprenad
(Swedish Krona) 8.29 2000 9,000,000 1,029,568
Total 3,348,561
United Kingdom (8.7%)
United Kingdom Treasury
(British Pound) 7.00 2002 1,000,000 1,620,948
(British Pound) 7.75 2006 1,500,000 2,529,470
(British Pound) 8.00 2003 2,100,000 3,548,175
(British Pound) 8.50 2005 1,500,000 2,638,918
Total 10,337,511
United States (33.7%)
EES Coke Battery
(U.S. Dollar) Series A 7.125 2002 1,500,000(c) 1,501,170
Federal Natl Mtge Assn
(U.S. Dollar) 7.50 2027 4,934,839 4,986,655
Federal Natl Mtge Assn Global
(Australian Dollar) 6.50 2002 2,730,000 2,043,616
First Union--
Lehman Brothers Commercial Mortgage Trust
(U.S. Dollar) Obligation Series 1997--C1 7.50 2029 1,150,000 1,171,832
Firstar Capital Trust
(U.S. Dollar) 8.32 2026 1,000,000(c) 1,032,310
Nationwide Trust
(U.S. Dollar) Credit Sensitive Nts 9.875 2025 1,500,000(c) 1,677,735
New York Life Insurance
(U.S. Dollar) 7.50 2023 1,000,000(c) 973,030
Morgan (JP)
(U.S. Dollar) Sr Sub Nts Series A 4.00 2012 1,000,000(d) 969,500
Railcar Leasing
(U.S. Dollar) Series A2 7.125 2013 3,000,000(c) 3,037,890
Texas Electric Utility
(U.S. Dollar) 7.17 2007 2,000,000 1,980,300
TU Electric Capital
(U.S. Dollar) 8.175 2037 1,000,000(d) 1,009,980
U.S. Treasury
(U.S. Dollar) 5.875 2000 4,500,000 4,483,125
(U.S. Dollar) 7.50 2001-16 10,525,000 11,327,275
(U.S. Dollar) TIPS 3.375 2007 3,031,590(e) 2,978,537
Zurich Capital Trust
(U.S. Dollar) 8.38 2037 1,000,000(c) 1,045,950
Total 40,218,905
Venezuela (2.4%)
Govt of Venezuela
(U.S. Dollar) Series DM 4.19 2007 3,000,627(d) 1,508,115
(U.S. Dollar) Series B 6.75 2007 476,190(d) 445,833
(U.S. Dollar) Series A 6.75 2007 952,381(d) 891,667
Total 2,845,615
Total bonds
(Cost: $97,978,096) $98,490,774
Short-term securities (16.6%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (4.7%)
Federal Home Loan Mtge Corp Disc Nt
9-19-97 5.42% $2,600,000 $2,592,200
9-12-97 5.45 3,000,000 2,994,117
Total 5,586,317
Commercial paper (11.9%)
Albertson's
9-18-97 5.52 3,600,000 3,589,531
Bell Atlantic
9-19-97 5.53 1,500,000 1,495,400
Campbell Soup
9-18-97 5.49 1,500,000 1,495,670
Commerzbank U.S. Finance
9-10-97 5.52 4,400,000 4,392,605
Deutsche Bank Financial
9-11-97 5.52 1,700,000 1,696,878
Siemens Capital
9-25-97 5.52 1,500,000 1,494,052
Total 14,164,136
Total short-term securities
(Cost: $19,750,453) $ 19,750,453
Total investments in securities
(Cost: $117,728,549) (f) $118,241,227
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Global Yield Fund
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) 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.
(d) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1997.
(e) U.S. Treasury inflation--protection securities (TIPS) are securities in
which the principal amount is adjusted for inflation and the semi-annual
interest payments equal a fixed percentage of the inflation--adjusted principal
amount.
(f) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$117,832,581 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.............................................$1,782,376
Unrealized depreciation.............................................(1,373,730)
----------
Net unrealized appreciation (depreciation).. ...................... $ 408,646
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
Growth Dimensions Fund (Percentages represent value of
August 31, 1997 investments compared to net assets)
Common stocks (89.1%)
Issuer Shares Value(a)
Aerospace & defense (3.5%)
Boeing 469,100 $ 25,536,631
Rockwell Intl 82,200 4,932,000
United Technologies 195,400 15,253,413
Total 45,722,044
Airlines (1.5%)
AMR 190,600(c) 19,202,950
Automotive & related (0.2%)
Chrysler 68,500 2,406,062
Banks and savings & loans (7.6%)
BankAmerica 97,800 6,436,462
Barnett Banks 136,800(b) 9,319,500
Citicorp 293,200 37,419,650
Norwest 488,700 28,069,706
State Street 361,700 18,039,788
Total 99,285,106
Beverages & tobacco (1.3%)
Coca-Cola 300,900 17,245,331
Building materials & construction (1.2%)
Tyco Intl 205,336 16,106,042
Chemicals (3.3%)
Monsanto 594,100 23,986,788
Solutia 86,720(c,f) 1,642,260
Praxair 127,000 6,786,563
USA Waste Service 244,300(c) 10,260,600
Total 42,676,211
Communications equipment & services (1.8%)
ADC Telecommunications 214,900(c) 7,978,163
Motorola 56,700 4,160,362
Tellabs 195,400(c) 11,662,938
Total 23,801,463
Computers & office equipment (13.3%)
Cisco Systems 371,300(c) 27,986,738
Compaq Computer 537,450(c) 35,202,975
Computer Associates Intl 156,400 10,459,250
Computer Sciences 97,800(c) 7,273,875
Data General 39,100(c) 1,405,156
First Data 198,600 8,155,012
Hewlett-Packard 332,300 20,374,144
Intl Business Machines 48,900 4,932,787
Microsoft 218,400(c) 28,869,750
Oracle 439,900(c) 16,771,188
Parametric Technology 180,100(c) 8,363,394
Western Digital 97,700(c) 4,701,812
Total 174,496,081
Electronics (3.8%)
AMP 39,100 1,955,000
Applied Materials 29,300(c) 2,765,187
Intel 436,800 40,240,200
Texas Instruments 39,100 4,442,738
Total 49,403,125
Energy (2.1%)
Exxon 195,500 11,962,156
Mobil 195,400 14,215,350
Unocal 46,900 1,832,031
Total 28,009,537
Energy equipment & services (0.8%)
Schlumberger 136,800 10,422,450
Financial services (4.1%)
Associates First Capital Cl A58,600 3,402,462
Household Intl 26,500 2,939,844
MBNA 352,200 13,537,688
Morgan Stanley Group 293,090 14,104,956
Travelers Group 302,900 19,234,150
Total 53,219,100
Food (2.4%)
ConAgra 420,300 27,030,544
Pioneer Hi-Bred Intl 48,930 4,192,689
Total 31,223,233
Health care (8.0%)
Amgen 151,200 7,493,850
Boston Scientific 112,400(c) 7,924,200
Johnson & Johnson 371,800 21,076,412
Lilly (Eli) 63,600 6,654,150
Medtronic 171,000 15,454,125
Merck & Co 195,500 17,949,344
Pfizer 503,400 27,875,775
Total 104,427,856
Health care services (2.8%)
Cardinal Health 166,100 11,004,125
HBO & Co 136,800 9,798,300
HEALTHSOUTH 215,200(c) 5,366,550
Service Corp Intl 136,700 4,374,400
United Healthcare 136,900 6,656,763
Total 37,200,138
Household products (2.5%)
Gillette 224,100 18,558,281
Procter & Gamble 101,500 13,505,844
Total 32,064,125
Industrial equipment & services (2.8%)
Deere & Co 518,000 29,008,000
Illinois Tool Works 146,500 7,086,938
Total 36,094,938
Insurance (1.8%)
American Intl Group 146,575 13,833,016
SunAmerica 83,000 4,471,625
UNUM 117,200 4,834,500
Total 23,139,141
Leisure time & entertainment (1.7%)
Marriott Intl 254,200 16,920,187
Mirage Resorts 195,733(c) 5,248,091
Total 22,168,278
Media (0.4%)
Belo (AH) Cl A 28,400 1,217,650
Gannett 43,943 4,281,696
Total 5,499,346
Metals (1.2%)
Aluminum Co of America 195,500 16,079,875
Multi-industry conglomerates (6.8%)
AccuStaff 136,900(c) 3,636,406
Emerson Electric 371,300 20,305,469
General Electric 742,700 46,418,750
Minnesota Mining & Mfg 138,100 12,411,738
Westinghouse Electric 254,140 6,544,105
Total 89,316,468
Restaurants & lodging (0.8%)
HFS 97,800(c) 5,446,237
Promus Hotel 127,100(c) 4,933,069
Total 10,379,306
Retail (2.6%)
CUC Intl 136,900(c) 3,217,150
CVS 117,300 6,612,787
Kroger 117,400(c) 3,536,675
Safeway 332,200(c) 16,921,438
Wal-Mart Stores 97,800 3,471,900
Total 33,759,950
Utilities -- electric (0.7%)
CMS Energy 273,600 9,832,500
Utilities -- gas (0.5%)
El Paso Natural Gas 112,400 6,322,500
Utilities -- telephone (2.2%)
AirTouch Communications 134,600(c) 4,551,163
BellSouth 391,000 17,204,000
WorldCom 215,200(c) 6,442,550
Total 28,197,713
Foreign (7.4%)(d)
ACE 195,400 16,242,625
Elan ADR 88,100(b,c) 4,008,550
Ericsson (LM) ADR Cl B 420,300 17,521,256
Northern Telecom 195,400 19,369,025
Royal Dutch Petroleum 390,900 19,838,175
SmithKline Beecham ADR 448,900 19,442,981
Total 96,422,612
Total common stocks
(Cost: $988,022,644) $1,164,123,481
Short-term securities (11.2%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.7%)
Federal Home Loan Mtge Corp Disc Nts
09-16-97 5.44% $ 4,600,000 $ 4,588,227
09-19-97 5.42 5,000,000 4,985,000
Total 9,573,227
Commercial paper (10.5%)
AT&T
09-08-97 5.51 1,365,000 1,363,133
Bell Atlantic Network Funding
09-19-97 5.54 1,500,000 1,495,400
BellSouth
10-09-97 5.53 5,600,000 5,565,778
BOC Group
09-23-97 5.54 12,000,000 11,956,000
Cargill Global Funding
09-09-97 5.55 7,900,000(e) 7,887,930
Ciesco LP
09-12-97 5.56 11,700,000 11,676,720
09-22-97 5.52 5,700,000 5,680,007
09-25-97 5.53 5,200,000 5,179,307
CIT Group
09-02-97 5.53 4,600,000 4,597,892
Commerzbank U.S. Finance
09-10-97 5.53 4,900,000 4,891,765
Duke Power
09-12-97 5.53 3,800,000 3,792,453
Fleet Funding
09-09-97 5.53 3,600,000(e) 3,594,500
10-10-97 5.56 2,300,000(e) 2,285,541
Gannett
10-03-97 5.52 5,000,000(e) 4,974,122
10-15-97 5.54 6,500,000(e) 6,454,319
Kellogg
09-03-97 5.50 6,200,000 6,196,232
10-02-97 5.53 5,500,000 5,472,271
Lincoln Natl
10-01-97 5.55 3,900,000(e) 3,880,933
10-10-97 5.61 600,000(e) 595,848
Morgan Stanley Group
10-20-97 5.55 1,200,000 1,190,650
10-22-97 5.56 5,300,000 5,257,007
Pacific Mutual Life
09-18-97 5.50 3,500,000 3,489,877
Pfizer
09-05-97 5.48 3,000,000(e) 2,997,275
SBC Communications Capital
09-04-97 5.50 3,600,000(e) 3,597,270
09-24-97 5.52 7,500,000(e) 7,471,406
Siemens Capital
09-26-97 5.51 3,500,000 3,485,615
Southern California Gas
09-10-97 5.56 2,700,000(e) 2,694,835
Toyota Motor Credit
09-05-97 5.53 6,800,000 6,793,767
USAA Capital
09-18-97 5.53 2,500,000 2,492,743
Total 137,010,596
Total short-term securities
(Cost: $146,584,816) $ 146,583,823
Total investments in securities
(Cost: $1,134,607,460)(g) $1,310,707,304
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Growth Dimensions Fund
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Security is partially or fully on loan. See Note 5 to the financial
statements.
(c) Non-income producing.
(d) Foreign security values are stated in U.S. dollars.
(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, 1997, the cost of securities purchased on a when-issued basis
was $1,691,907.
(g) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$1,135,114,579 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation............................................$183,312,791
Unrealized depreciation..............................................(7,720,066)
----------
Net unrealized appreciation (depreciation).........................$175,592,725
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds
Income Advantage Fund (Percentages represent value of
Aug. 31, 1997 investments compared to net assets)
Bonds (87.3%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U. S. government obligations (0.7%)
<S> <C> <C> <C> <C>
Resolution Funding Corp 5.42 % 2019 $10,000,000 $2,322,400
Aerospace & defense (0.3%)
L-3 Communications
Sr Sub Nts 10.375 2007 1,010,000(d) 1,080,700
Automotive & related (1.0%)
Hayes Wheels 9.125 2007 1,000,000(d) 1,015,000
Oxford Auto
Sr Sub Nts 10.125 2007 2,000,000(d) 2,055,000
Total 3,070,000
Banks and savings & loans (1.5%)
First Nationwide Holdings
Sr Sub Nts 10.625 2003 2,930,000(i) 3,215,675
Wilshire Financial Services 13.00 2004 1,500,000 1,486,875
Total 4,702,550
Beverages & tobacco (1.1%)
Stroh Brewery
Sr Sub Nts 11.10 2006 3,261,000 3,387,364
Chemicals (0.3%)
Freedom Chemical
Sr Sub Nts 10.625 2006 900,000 949,500
Communications equipment & services (15.5%)
CCPR Services 10.00 2007 1,750,000 1,771,875
Clearnet Communications
Zero Coupon Sr Disc Nts 11.23 2000 3,750,000(f) 2,812,500
Comcast Cellular
Sr Nts 9.50 2007 3,000,000(d) 3,097,500
Geotek Communications
Zero Coupon Series B 11.75 2000 1,250,000(f) 750,000
Globalstar
Sr Nts 11.25 2004 1,250,000 1,246,875
Globalstar
Sr Nts 11.375 2004 1,500,000(d) 1,507,500
GST Equipment Funding
Sr Nts 13.25 2007 750,000(d) 823,125
GST Telecommunications
Zero Coupon Sr Disc Nt 13.03 2000 1,000,000(f) 665,000
Hyperion Telecommunications
Sr Nts 12.25 2004 500,000(d) 515,000
Intermedia Communications of Florida
Zero Coupon Sr Disc Nts 11.34 2002 2,000,000(d,f) 1,245,000
Intl Cabletel
Zero Coupon Sr Nts 10.82 2001 1,500,000(f) 1,102,500
Ionica
Zero Coupon with Warrants 15.00 2002 2,500,000(f) 1,362,500
ITC Deltacom
Sr Nts 11.00 2007 2,350,000(d) 2,479,250
Jordan Telecommunications Products 9.875 2007 800,000(d) 796,000
Zero Coupon Sr Sub Deb 11.75 2007 1,000,000(f) 723,750
Metrocall
Sr Sub Nts 10.375 2007 1,750,000 1,732,500
Metronet Communications
Sr Nts with Warrants 12.00 2007 500,000 535,000
Nextlink Communications
Sr Nts 12.50 2006 1,000,000 1,107,500
NTL
Sr Nts 10.00 2007 2,000,000 2,072,500
Omnipoint 11.625 2006 3,250,000 3,176,875
Optel
Sr Nts 13.00 2005 2,250,000 2,165,625
Pagemart Nationwide
Zero Coupon 12.51 2000 2,500,000(f) 1,975,000
Peoples Telephone 12.25 2002 750,000 782,812
Phonetel Technologies
Sr Nts 12.00 2006 1,880,000 1,912,900
Price Communications Cellular
Zero Coupon with Warrants 11.18 2002 1,300,000(d,f) 698,750
Primus Telecommunications Group
with Warrants 11.75 2004 1,175,000 1,216,125
Pronet
Sr Sub Nts 11.875 2005 2,000,000 2,090,000
RSL Communications
Sr Nts with Warrants 12.25 2006 1,750,000 1,824,375
Teleport Communications
Zero Coupon Sr Disc Nts 7.58 2001 4,250,000(f) 3,166,250
Unifi Communications
with Rights 14.00 2004 1,000,000(d) 988,750
Winstar Equipment 12.50 2004 1,500,000(d) 1,522,500
Worldcom
Sr Nts 9.375 2004 1,699,620 1,822,842
Total 49,688,679
Computers & office equipment (1.5%)
Anacomp
Sr Sub Nts 10.875 2004 2,000,000 2,076,040
Unisys
Sr Nts 11.75 2004 2,525,000 2,790,125
Total 4,866,165
Electronics (0.5%)
Advanced Micro Devices
Sr Nts 11.00 2003 1,400,000 1,575,000
Energy (3.0%)
Costilla Energy
Sr Nts 10.25 2006 2,250,000 2,345,625
Energy Corp of America
Sr Sub Nts 9.50 2007 1,000,000(d) 997,500
Forcenergy
Sr Sub Nts 8.50 2007 1,500,000 1,483,125
Sr Sub Nts 9.50 2006 500,000 521,250
Harcor Energy
Sr Nts Series B 14.875 2002 500,000 592,500
Rayovac 10.25 2006 1,750,000 1,850,625
Statia Terminals
1st Mtge 11.75 2003 325,000 343,687
Transamerica Energy 11.50 2002 1,400,000(d) 1,361,500
Total 9,495,812
Energy equipment & services (0.7%)
Dailey Petroleum
Sr Nts 9.75 2007 500,000(d) 510,000
Plains Resource 10.25 2006 1,000,000(d) 1,067,500
Pride Petroleum Services
Sr Nts 9.375 2007 750,000 791,250
Total 2,368,750
Financial services (0.5%)
Gemini 13.50 2001 1,500,000(i,j) 1,500,000
Food (2.1%)
Ameriserv Food 10.125 2007 800,000(d) 822,000
Aurora Foods 9.875 2007 2,000,000(d) 2,045,000
Gorges/Quik to Fix Food
Sr Sub Nts Series B 11.50 2006 2,250,000 2,348,438
MBW Foods
Sr Sub Nts 9.875 2007 400,000(d) 407,000
Specialty Foods
Sr Nts 10.25 2001 1,100,000 1,082,125
Total 6,704,563
Furniture & appliances (0.3%)
Lifestyle Furnishings 10.875 2006 1,000,000 1,106,250
Health care (0.3%)
La Petite Holdings 9.625 2001 1,100,000 1,119,250
Health care services (3.8%)
Magellan Health Services
Sr Sub Nts Cl A 11.25 2004 2,000,000 2,217,500
Merit Behavioral 11.50 2005 910,000 989,625
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 3,250,000 3,298,750
Regency Health Services 9.875 2002 1,000,000 1,102,500
12.25 2003 500,000 575,000
Tenet Healthcare
Sr Sub Nts 10.125 2005 500,000 548,750
Sr Sub Nts 8.625 2007 1,500,000 1,565,430
Vencor 8.625 2007 1,750,000(d) 1,752,188
Total 12,049,743
Household products (0.6%)
Revlon Worldwide
Zero Coupon Sr Disc Nts 14.43 2001 1,500,000(e) 1,063,125
Syratech
Sr Nts 11.00 2007 750,000 806,250
Total 1,869,375
Industrial equipment & services (1.5%)
Borg-Warner Security
Sr Sub Nts 9.625 2007 1,900,000 1,942,750
Clark Materials Handling
Sr Nts 10.75 2006 1,500,000 1,578,750
Motors & Gears
Sr Nts 10.75 2006 1,250,000 1,312,500
Total 4,834,000
Insurance (0.8%)
Integon Capital 10.75 2027 1,000,000 1,220,000
Reliance Group Holdings 9.00 2000 1,250,000 1,303,125
Total 2,523,125
Leisure time & entertainment (7.2%)
Affinity Group
Sr Nts 11.00 2007 1,000,000 1,075,000
AMC Entertainment
Sr Sub Nts 9.50 2009 2,500,000(d) 2,521,875
Coast Hotels & Casino
1st Mtge 13.00 2002 1,400,000 1,566,250
Coleman Escrow-1
Zero Coupon Sr Disc Nts 14.99 2001 2,500,000(d,e) 1,650,000
Coleman Escrow-2
Zero Coupon Sr Disc Nts 17.37 2001 750,000(d,e) 451,875
HMH Properties 8.875 2007 700,000(d) 712,250
Hollywood Theatres 10.625 2007 600,000(d) 621,000
Icon Fitness
Zero Coupon Sr Disc Nts 14.22 2001 2,000,000(f) 1,087,500
Lodgenet Entertainment
Sr Nts with Rights 10.25 2006 2,000,000 2,035,000
Plitt Theatres 10.875 2004 2,250,000 2,390,625
PRT Funding
Sr Nts 11.625 2004 1,000,000 825,000
Riviera 10.00 2004 1,250,000 1,234,375
Trump Atlantic City Funding
1st Mtge 11.25 2006 2,550,000 2,489,437
Trump Holdings
Sr Nts 15.50 2005 1,200,000 1,392,000
United Artist Theatre
Pass Thru Certificates 9.30 2015 1,704,730 1,649,327
Waterford Gaming
Sr Nts 12.75 2003 1,300,000 1,436,500
Total 23,138,014
Media (10.8%)
Adams Outdoor Advertising
Sr Nts 10.75 2006 2,000,000 2,175,000
Adelphia Communications
Sr Nts Pay-in-kind 9.50 2004 2,618,750(g) 2,527,094
American Telecasting
Zero Coupon Sr Disc Nts 60.63 1999 2,000,000(f) 660,000
Benedek Communications
Zero Coupon Sr Disc Nts 11.89 2001 1,250,000(f) 800,000
CBS8.875 2022 750,000 774,743
Echostar Satellite Broadcasting 8.25 2001 7,045 6,834
Zero Coupon Sr Disc Nts 12.18 2000 2,150,000(f) 1,612,500
Echostar DBS 12.50 2002 2,000,000(d) 2,045,000
Heritage Media Services
Sr Sub Nts 8.75 2006 3,250,000 3,477,500
Jacor Communications 9.75 2006 2,250,000 2,390,625
James Cable 10.75 2004 2,000,000(d) 2,035,000
Marcus Cable
Zero Coupon Sr Disc Nts 6.57 1999 1,000,000(f) 890,000
Outdoor Systems
Sr Nts 8.875 2007 1,000,000(d) 1,020,000
Paxson Communications
Sr Sub Nts 11.625 2002 1,750,000 1,907,500
Pegasus Media & Communications
Cl B 12.50 2005 1,500,000 1,665,000
People's Choice TV
Zero Coupon Cv with Warrants 15.20 2000 3,100,000(f) 1,054,000
Price Communications Wireless 11.75 2007 2,500,000(d) 2,606,250
United Intl Holdings
Zero Coupon Sr Disc Nts Series A 10.94 1999 2,850,000(e) 2,258,625
Universal Outdoor
Sr Sub Nts Series B 9.75 2006 3,000,000 3,202,500
Viacom Intl
Sub Deb 8.00 2006 1,500,000 1,466,250
Total 34,574,421
Metals (1.3%)
Envirosource
Sr Nts 9.75 2003 3,000,000 2,996,250
Maxxam Group Holdings
Sr Nts Series B 12.00 2003 1,000,000 1,072,500
Total 4,068,750
Multi-industry conglomerates (1.6%)
Poindexter (JB) 12.50 2004 750,000 793,125
Jordan Inds 11.75 2002 1,608,386(d,i) 876,570
Prime Succession 10.75 2004 2,675,000 2,949,188
Westinghouse Electric 8.625 2012 500,000 523,750
Total 5,142,633
Paper & packaging (6.0%)
BPC Holding
Sr Nts Pay-in-kind 12.50 2006 600,000(g) 657,000
Bway
Sr Sub Nts 10.25 2007 500,000(d) 535,625
Crown Paper
Sr Sub Nts 11.00 2005 3,250,000 3,436,875
Gaylord Container 9.75 2007 800,000(d) 814,000
Sr Sub Disc Deb 12.75 2005 3,525,000 3,855,469
Repap Wisconsin
Sr Nts 9.25 2002 2,000,000 2,100,000
Riverwood Intl
Sr Nts 10.25 2006 2,250,000 2,250,000
Sr Nts 10.625 2006 500,000(d) 507,500
Silgan
Sr Sub Nts 9.00 2009 825,000(d) 839,438
Stone Container 11.875 2016 1,000,000 1,091,250
Sweetheart Cup
Sr Sub Nts 10.50 2003 2,000,000 1,975,000
Warren (SD)
Sr Nts 12.00 2004 1,000,000 1,125,000
Total 19,187,157
Restaurants & lodging (0.5%)
Prime Hospitality
Sr Sub Nts 9.75 2007 1,550,000 1,639,125
Retail (3.0%)
Dairy Mart Convenience Stores
Sr Sub Nts Series A 10.25 2004 1,000,000 1,005,000
Penn Traffic
Sr Nts 8.625 2003 1,750,000 1,456,875
Pathmark Stores
Sub Nts 11.625 2002 3,500,000 3,517,500
Pueblo Xtra Intl
Sr Nts 9.50 2003 2,100,000(d) 2,058,000
Ralphs Grocery
Sr Nts 10.45 2004 1,500,000 1,631,250
Total 9,668,625
Textiles & apparel (0.5%)
Anvil Knitwear
Sr Nts 10.875 2007 1,500,000(d) 1,522,500
Utilities -- electric (1.2%)
California Energy
Sr Nts 9.50 2006 2,200,000 2,354,000
Cleveland Electric\Toledo Edison 7.67 2004 1,500,000(d) 1,525,155
Total 3,879,155
Utilities -- gas (0.2%)
Empire Gas 7.00 2004 750,000(i) 720,000
Miscellaneous (6.8%)
Deeptech Intl
Sr Nts 12.00 2000 1,000,000 1,065,000
Dyersburg
Sr Sub Nts 9.75 2007 250,000(d) 252,500
Global Ocean Carriers
Sr Nts 10.25 2007 2,500,000 2,487,500
Iridium LLC Capital
Sr Nts with Warrants 13.00 2005 1,700,000 1,895,500
Isle of Capri Capital 13.00 2004 1,250,000(d) 1,264,062
Norcal Waste Systems
Sr Nts 13.25 2005 2,475,000(i) 2,768,906
North Atlantic Trading 11.00 2004 1,500,000(d) 1,578,750
Outsourcing Solutions 11.00 2006 2,075,000 2,282,500
Precise Technology 11.125 2007 500,000(d) 490,000
Resource America 12.00 2004 1,000,000(d) 1,017,500
SC Intl 9.25 2007 2,000,000(d) 2,005,000
Talton Holdings 11.00 2007 750,000(d) 787,500
Viasystems
Sr Sub Nts 9.75 2007 600,000(d) 615,000
Wells Aluminum
Sr Nts 10.125 2005 2,250,000(d) 2,317,500
XCL
with Warrants 13.50 2004 1,000,000(d) 1,020,000
Total 21,847,218
Foreign (12.2%)(c)
Australis Holdings
(U.S. Dollar) Zero Coupon 14.99 2002 1,760,000(f) 1,381,600
Australis Media
(U.S. Dollar) Zero Coupon with Warrants 14.80 2003 4,500,000(f,h) 3,577,500
Australis Media
(U.S. Dollar) Zero Coupon with Warrants 10.00 2003 10,851(f,h) 8,545
Autopistas Delsol
(U.S. Dollar) Sr Nts 10.25 2009 1,500,000(d) 1,533,750
Call-Net Enterprises
(U.S. Dollar) Zero Coupon Sr Disc Nts 9.34 2007 500,000(f) 325,000
CEI Citicorp Holdings
(Argentine Peso) Series B 11.25 2007 500,000(d) 513,750
City of Moscow
(U.S. Dollar) 9.50 2000 1,000,000(d) 1,028,750
(U.S. Dollar) 10.50 1997 1,000,000 962,400
Doman Inds
(U.S. Dollar) Zero Coupon 8.75 2004 1,000,000(f) 985,000
Espirito Santo Centrais
(U.S. Dollar) Sr Nts 10.00 2007 900,000(d) 896,625
Fresh Del Monte Produce
(U.S. Dollar) 10.00 2003 3,100,000 3,282,125
Greater Beijing
(U.S. Dollar) Sr Nts 9.25 2004 350,000(d) 344,494
(U.S. Dollar) Sr Nts 9.50 2007 500,000(d) 489,395
Grupo Iusacell
(U.S. Dollar) Sr Nts 10.00 2004 600,000(d) 612,000
Grupo Televisa
(U.S. Dollar) Sr Nts 11.875 2006 2,250,000 2,536,875
Guangdong Enterprises
(U.S. Dollar) Sr Nts 8.875 2007 400,000(d) 402,692
Gulf Canada Resources
(U.S. Dollar) 9.25 2004 1,000,000 1,057,500
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 1,500,000(d) 1,526,535
MDC Communications Corp
(U.S. Dollar) 10.50 2006 1,750,000 1,876,875
Mexican Cetes
(Mexican Peso) 9.25 1998 8,520,800 934,221
Newsquest Capital
(U.S. Dollar) Series B 11.00 2006 1,500,000 1,627,500
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 750,000(d) 711,780
(U.S. Dollar) 8.35 2017 750,000(d) 704,505
PLD Telekom
(U.S. Dollar)
Zero Coupon with Warrants 3.85 2004 100,000(f) 86,750
Repap New Brunswick
(U.S. Dollar) 9.875 2000 1,200,000 1,203,000
Repap New Brunswick
(U.S. Dollar) 10.625 2005 750,000 712,500
Republic of Argentina
(Argentine Peso) Zero Coupon 8.75 2002 1,000,000(d,f) 983,267
Telewest
(U.S. Dollar) 9.625 2006 1,500,000 1,575,000
Stone Container
(U.S. Dollar) 11.50 2006 1,500,000(d) 1,567,500
Tjiwi Kimia Finance
(U.S. Dollar) 10.00 2004 1,000,000(d) 980,000
Veninfotel
Cv Pay-in-kind 10.00 2002 2,000,000(j,k) 2,080,000
Veritas Holdings
(U.S. Dollar) 9.625 2003 2,500,000(d) 2,612,500
Total 39,119,934
Total bonds
(Cost: $272,221,019) $279,720,758
Common stocks (0.1%)
Issuer Shares Value(a)
Globalstar 7,000(b) $271,687
HarCor Energy 20,000(b) 101,250
Optel 2,250(d) 23
Total common stocks
(Cost: $312,916) $372,960
</TABLE>
<PAGE>
Preferred stock & other (6.9%)
Issuer Shares Value(a)
American Communications Services
Warrants 350 $ 21,000
American Radio Systems
11.375% Pay-in-kind 10,237(b,g) 1,197,729
APP Intl Finance
12.00% Series B 2,250(b,i) 2,238,750
Australis Holdings
Warrants 1,760(f,j) 53
Cablevision Systems
11.125% Pay-in-kind 32,811(b,g) 3,592,804
Clark-Schwebel
12.50% 110(b,d,g) 541,502
Communications & Power Inds
14.00% Pay-in-kind 25,000(b,g) 2,500,000
Fairfield Manufacturing
11.25% Pay-in-kind 1,000(b,g) 1,050,000
Geotek Communications
Warrants 40,000 40,000
Globalstar Communications
Warrants 1,500(d) 133,125
Intermedia Communications
13.50% Pay-in-kind 10,430(b,g) 1,183,805
IXC Communications
12.50% Pay-in-kind 500(g) 527,500
Jordan Telecommunications Products
13.25% Cv Pay-in-kind 200(d,g) 206,000
North Atlantic Trading
12.00% Pay-in-kind 15,000(b,d,g) 397,500
NS Group
Warrants 575 149,674
NTL
12.00% Pay-in-kind 500(d,g) 575,000
Paxson Communications
12.50% Pay-in-kind 4,280(b,g) 462,240
Pegasus Media & Communications
12.75% 14,950(b) 1,562,275
Price Communications
Warrants 4,472 45
RSL Communications
Warrants 1,250 68,750
SDW Holdings
15.00% 50,000(b,j) 2,150,000
SFX Broadcasting
12.625% 2,500(b) 280,000
SGW Holdings
12.50% Pay-in-kind 250(b,d) 250,000
12.75% 9,677(b,d) 100,002
Sig Capital Trust I
9.50% 500(b,d) 500,000
Sinclair Capital
11.625% 20,000 2,195,000
Unifi Communications
Warrants 1,000 20,000
Total preferred stock & other
(Cost: $20,486,559) $21,942,754
Short-term securities (3.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U. S. government agency (1.7%)
Federal Home Loan Mtge Corp Disc Nt
09-11-97 5.44% $2,300,000 $2,295,845
10-07-97 5.46 3,000,000 2,982,805
Total 5,278,650
Commercial paper (1.4%)
Lincoln Natl
09-19-97 5.53 900,000(k) 897,250
Paccar Financial
09-05-97 5.52% 1,700,000 1,698,442
09-09-97 5.52 2,000,000 1,996,944
Total 4,592,636
Letter of credit (0.4%)
Student Loan Marketing Assn
09-30-97 5.56 1,400,000 1,393,321
Total short-term securities
(Cost: $11,264,607) $ 11,264,607
Total investments in securities
(Cost: $304,285,101)(l) $313,301,079
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
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, item identified is in
default as to payment of interest and/or principal.
(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 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, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(f) 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.
(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) Pay-in-kind securities are securities in which the issuer makes interest
payments in additional securities. These securities usually have the same terms
as the original holdings.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1997.
(j) 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, 1997, is as follows:
Security Acquisition Purchase
date cost
Gemini
13.50% 2001 12-23-96 1,500,000
SDW Holdings*
15.00% Preferred 03-04-97 1,787,500
Veninfotel
10.00% 2002 03-05-97 thru 07-23-97 2,000,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(k) 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.
(l) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$303,994,808 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation...........................................$11,447,685
Unrealized depreciation............................................(2,141,414)
----------
Net unrealized depreciation........................................$9,306,271
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
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. 3, 1997.
Statements:
Statements of Assets and Liabilities, Aug. 31, 1997.
Statements of Operations for the year ended Aug. 31, 1997.
Statements of Changes in Net Assets for the year ended Aug. 31, 1997 and
the year ended Aug. 31, 1996.
Notes to Financial Statements.
(b) Exhibits:
(1) Articles of Incorporation as amended November 10, 1994, filed
electronically as Exhibit 1 to Registrant's Post-Effective Amendment No. 34 to
Registration Statement No. 2-73115, 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. 25 to Registration Statement
No. 2-73115, 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. 30 to Registration Statement
No. 2-73115, is incorporated herein by reference.
(5)(b) Investment Management Services Agreement between Registrant, on
behalf of IDS Life Growth Dimensions Fund and IDS Life Insurance Company dated
April 11, 1996, filed electronically as Exhibit 5(b) to Registrant's
Post-Effective Amendment No. 33 to Registration Statement No. 2-73115, is
incorporated herein by reference.
(5)(c) Investment Advisory Agreement between IDS Life and IDS/American
Express Inc. (IDS) dated July 11, 1984, filed electronically as Exhibit No. 5(d)
to Registrant's Post-Effective Amendment No. 25 to Registration Statement No.
2-73115, is incorporated herein by reference.
(5)(d) Addendum to Investment Advisory Agreement between IDS Life and
American Express Financial Corporation for IDS Life International Equity Fund,
dated January 1, 1995, filed electronically as Exhibit 5(d) to Registrant's
Post-Effective Amendment No. 34 to Registration Statement No. 2-73115, is
incorporated herein by reference.
<PAGE>
(5)(e) Sub-Investment Advisory Agreement between IDS and IDS International,
Inc. for IDS Life International Equity Fund, dated Jan. 13, 1992, filed
electronically as Exhibit No. 5(e) to Registrant's Post-Effective Amendment No.
25 to Registration Statement No. 2-73115, is incorporated herein by reference.
(5)(f) Administrative Services Agreement, dated March 20, 1995, between IDS
Life Investment Series, Inc. and American Express Financial Corporation, filed
electronically as Exhibit No. 5(d) to Registrant's Post-Effective Amendment No.
30 to Registration Statement No. 2-73115, is incorporated herein by reference.
(5)(g) Administrative Services Agreement, dated April 11, 1996, between IDS
Life Investment Series, Inc. on behalf of IDS Life Growth Dimensions Fund and
American Express Financial Corporation, filed electronically as Exhibit 5(f) to
Registrant's Post-Effective Amendment No. 34 to Registration Statement No.
2-73115, is incorporated herein by reference.
(6) Not Applicable.
(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
1 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 l 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 of 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 of
age 65.
(8)(a) Custodian Agreement dated March 20, 1995, between IDS Life
Investment Series, Inc. and American Express Trust Company, filed electronically
as Exhibit No. 8(a) to Registrant's Post-Effective Amendment No. 30 to
Registration Statement No. 2-73115, is incorporated herein by reference.
(8)(b) Custodian Agreement dated April 11, 1996, between IDS Life
Investment Series, Inc. on behalf of IDS Life Growth Dimensions Fund and
American Express Trust Company, filed electronically as Exhibit 8(b) to
Registrant's Post-Effective Amendment No. 34 to Registration Statement No.
2-73115, is incorporated herein by reference.
(8)(c) Custody Agreement between Morgan Stanley Trust Company and IDS Bank
& Trust dated May 1993, is filed electronically as Exhibit 8(b) to Registrant's
Post-Effective Amendment No. 32 to Registration Statement No. 2-73115, is
incorporated herein by reference.
(9)(a) Plan and Agreement of Merger between IDS Life Capital Resource
Minnesota, Inc. and IDS Life Capital Resource Fund, Inc. dated April 10, 1986,
filed electronically as Exhibit No. 9(a) to Registrant's Post-Effective
Amendment No. 25 to Registration Statement No. 2-73115, is incorporated herein
by reference.
<PAGE>
(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. 25 to Registration Statement No. 2-73115, is
incorporated herein by reference.
(10) Opinion and consent of counsel as to the legality of the securities being
registered, is filed electronically herewith.
(11) Independent Auditor's Consent, filed electronically herewith.
(12) None.
(13) Investment Letter of IDS Life Insurance Company dated October l3,
l98l, filed electronically as Exhibit 13 to Registrant's Post-Effective
Amendment No. 25 to Registration Statement No. 2-73115, 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. 16 to Registration Statement No. 2-73115 is
incorporated herein by reference.
Addendum to the schedule for computation of each performance quotation filed as
Exhibit 16 to Post-Effective Amendment No. 24 to Registration Statement No.
2-73115 is incorporated herein by reference.
(17) Financial Data Schedules, are filed electronically herewith.
(18)(a) Directors' Power of Attorney, dated January 8, 1997, to sign Amendments
to this Registration Statement, filed electronically herewith.
(18)(b) Officers' Power of Attorney, dated November 1, 1995, to sign
Amendments to this Registration Statement, is filed electronically as Exhibit
No. 18(b) to Registrant's Post-Effective Amendment No. 32 to Registration
Statement No. 2-73115, 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.
<PAGE>
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class October 1, 1997
Capital Stock Ten
($.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 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>
<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-Risk
Minneapolis, MN 55440 Government Relations
American Express Financial Corporation Vice President-Risk
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 Vice President and
Nevada Inc. 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C>
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
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 Director, 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C> <C>
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 Insurance Co. IDS Tower 10 Vice President-Investments
Minneapolis, MN 55440
American Express Financial Advisors Vice President-Insurance
Investments
American Express Financial Corporation Vice President-Insurance
Investments
American Partners Life Insurance Co. Director and Vice
President-Investments
AMEX Assurance Co. Vice President-Investments
IDS Certificate Company Vice President-Investments
IDS Life Variable Annuity Funds A&B Vice President-Investments
IDS Property Casualty Insurance Co. Vice President-Investment
Officer
Investors Syndicate Development Corp. Director and Vice
President-Investments
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C> <C>
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 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. Ext. 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 Director and President
Nevada Inc.
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C> <C>
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 of New York P.O. Box 5144 Director, Chairman of the
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. Ext. Director and Vice
Albany, NY 12203 President-Product
Development
American Express Financial Advisors IDS Tower 10 Vice President-IPG
Minneapolis, MN 55440 Product Development
American Express Financial Corporation Vice President-IPG
Product Development
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C> <C>
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 & Business Director
Services Inc.
AMEX Assurance Co. Director
IDS Certificate Company Director
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C> <C>
American Partners Life Insurance Co. 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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life)(cont'd)
<S> <C> <C>
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Life Investment Series, 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, 1997.
IDS LIFE INVESTMENT SERIES, INC.
By /s/ Melinda S. Urion
Melinda S. Urion, Treasurer
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
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, 1997.
Signature Capacity
/s/ William R. Pearce* Chief Executive Officer
William R. Pearce and Chairman of the Board
/s/ John R. Thomas* President and Director
John R. Thomas
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/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
<PAGE>
Signature Capacity
/s/ James A. Mitchell* Director
James A. Mitchell
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated January 8, 1997, filed
electronically herewith.
_________________________________
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. 32
by:
_________________________________
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 35
TO REGISTRATION STATEMENT NO. 2-73115
This post-effective amendment contains the following papers and documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectuses.
Part B.
Statements of Additional Information.
Financial Statements.
Part C.
Other information.
The signatures.
<PAGE>
IDS Life Investment Series, Inc.
File No. 2-73115/811-3218
EXHIBIT INDEX
Exhibit 10: Opinion and Consent of Counsel.
Exhibit 11: Independent Auditors' Consent.
Exhibit 17: Financial Data Schedules.
Exhibit 18(a): Directors' Power of Attorney, dated January 8, 1997.
<PAGE>
October 29, 1997
IDS Life Investment Series, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:
(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
10,000,000,000 shares, all of $.01 par value, that such shares may be
issued as full or fractional shares;
(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation of
the Company and upon redemption shall have the status of authorized and
unissued shares;
(c) That the Company registered on or about October 13, 1981, an indefinite
number of shares pursuant to Rule 24f-2; and
(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.
I hereby consent that the foregoing opinion may be used in connection with this
Post-Effective Amendment.
Very truly yours,
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268
LLO/KB/rdh
<PAGE>
Independent auditors' consent
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.
IDS Life Managed Fund, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 29, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS LIFE CAPITAL RESOURCE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 3980733551
<INVESTMENTS-AT-VALUE> 4891433490
<RECEIVABLES> 34746827
<ASSETS-OTHER> 363908
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4926544225
<PAYABLE-FOR-SECURITIES> 30675361
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29277787
<TOTAL-LIABILITIES> 59953148
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3895349675
<SHARES-COMMON-STOCK> 173988176
<SHARES-COMMON-PRIOR> 170998178
<ACCUMULATED-NII-CURRENT> 1511741
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 59030297
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 910699364
<NET-ASSETS> 4866591077
<DIVIDEND-INCOME> 44401598
<INTEREST-INCOME> 14067291
<OTHER-INCOME> 0
<EXPENSES-NET> 30732121
<NET-INVESTMENT-INCOME> 27736768
<REALIZED-GAINS-CURRENT> 64476008
<APPREC-INCREASE-CURRENT> 1057213832
<NET-CHANGE-FROM-OPS> 1149426608
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25649850
<DISTRIBUTIONS-OF-GAINS> 671576858
<DISTRIBUTIONS-OTHER> 2087182
<NUMBER-OF-SHARES-SOLD> 3671546
<NUMBER-OF-SHARES-REDEEMED> 29616371
<SHARES-REINVESTED> 28934823
<NET-CHANGE-IN-ASSETS> 494722213
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 669718521
<OVERDISTRIB-NII-PRIOR> 2086918
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27562075
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 30732121
<AVERAGE-NET-ASSETS> 4574891848
<PER-SHARE-NAV-BEGIN> 25.57
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 6.45
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> 4.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.97
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS LIFE INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 2088502822
<INVESTMENTS-AT-VALUE> 2328905486
<RECEIVABLES> 35770450
<ASSETS-OTHER> 729056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2365404992
<PAYABLE-FOR-SECURITIES> 952778
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 259476982
<TOTAL-LIABILITIES> 260429760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1836719324
<SHARES-COMMON-STOCK> 149447811
<SHARES-COMMON-PRIOR> 140912770
<ACCUMULATED-NII-CURRENT> 710710
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27126580
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 240418618
<NET-ASSETS> 2104975232
<DIVIDEND-INCOME> 38670088
<INTEREST-INCOME> 7526377
<OTHER-INCOME> 0
<EXPENSES-NET> 19779178
<NET-INVESTMENT-INCOME> 26,417,287
<REALIZED-GAINS-CURRENT> 28172219
<APPREC-INCREASE-CURRENT> 124342284
<NET-CHANGE-FROM-OPS> 178931790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24686010
<DISTRIBUTIONS-OF-GAINS> 39674522
<DISTRIBUTIONS-OTHER> 611057
<NUMBER-OF-SHARES-SOLD> 13555355
<NUMBER-OF-SHARES-REDEEMED> 9718319
<SHARES-REINVESTED> 4698005
<NET-CHANGE-IN-ASSETS> 230524839
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 39462610
<OVERDISTRIB-NII-PRIOR> 1731277
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16844405
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19779178
<AVERAGE-NET-ASSETS> 2042023324
<PER-SHARE-NAV-BEGIN> 13.30
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> (.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.09
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS LIFE AGGRESSIVE GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 1992280548
<INVESTMENTS-AT-VALUE> 2409715188
<RECEIVABLES> 71727618
<ASSETS-OTHER> 24059
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2481466865
<PAYABLE-FOR-SECURITIES> 41298250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12741190
<TOTAL-LIABILITIES> 54039440
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1799724240
<SHARES-COMMON-STOCK> 141403480
<SHARES-COMMON-PRIOR> 120996059
<ACCUMULATED-NII-CURRENT> 45
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 210301519
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 417401621
<NET-ASSETS> 2427427425
<DIVIDEND-INCOME> 7807870
<INTEREST-INCOME> 17045569
<OTHER-INCOME> 0
<EXPENSES-NET> 14651349
<NET-INVESTMENT-INCOME> 10202090
<REALIZED-GAINS-CURRENT> 211414428
<APPREC-INCREASE-CURRENT> 167575911
<NET-CHANGE-FROM-OPS> 389192429
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10201144
<DISTRIBUTIONS-OF-GAINS> 213792618
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13876397
<NUMBER-OF-SHARES-REDEEMED> 7863764
<SHARES-REINVESTED> 14394788
<NET-CHANGE-IN-ASSETS> 486332543
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 212688492
<OVERDISTRIB-NII-PRIOR> 9476
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13049949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14651349
<AVERAGE-NET-ASSETS> 2160520705
<PER-SHARE-NAV-BEGIN> 16.04
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.84
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 1.71
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.17
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> IDS LIFE GROWTH DIMENSIONS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 1134607460
<INVESTMENTS-AT-VALUE> 1310707304
<RECEIVABLES> 12901255
<ASSETS-OTHER> 7108850
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1330717409
<PAYABLE-FOR-SECURITIES> 10010815
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13879610
<TOTAL-LIABILITIES> 23890425
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1142459990
<SHARES-COMMON-STOCK> 100887023
<SHARES-COMMON-PRIOR> 17180066
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 8
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 11732842
<ACCUM-APPREC-OR-DEPREC> 176099844
<NET-ASSETS> 1306826984
<DIVIDEND-INCOME> 7909325
<INTEREST-INCOME> 4945738
<OTHER-INCOME> 0
<EXPENSES-NET> 5256181
<NET-INVESTMENT-INCOME> 7598882
<REALIZED-GAINS-CURRENT> (11294834)
<APPREC-INCREASE-CURRENT> 176292119
<NET-CHANGE-FROM-OPS> 172596167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7598890
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83748124
<NUMBER-OF-SHARES-REDEEMED> 663937
<SHARES-REINVESTED> 622770
<NET-CHANGE-IN-ASSETS> 20930951
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 438008
<GROSS-ADVISORY-FEES> 4581562
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5256181
<AVERAGE-NET-ASSETS> 730773335
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 3.01
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.95
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>1
<NAME> IDS LIFE MANAGED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 3639926267
<INVESTMENTS-AT-VALUE> 4568716057
<RECEIVABLES> 71136027
<ASSETS-OTHER> 511386
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4670403470
<PAYABLE-FOR-SECURITIES> 31461569
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164339589
<TOTAL-LIABILITIES> 195801158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3169719572
<SHARES-COMMON-STOCK> 235535537
<SHARES-COMMON-PRIOR> 217610488
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 29190030
<ACCUMULATED-NET-GAINS> 349842639
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 927959131
<NET-ASSETS> 4444602312
<DIVIDEND-INCOME> 34528148
<INTEREST-INCOME> 97389698
<OTHER-INCOME> 0
<EXPENSES-NET> 25729275
<NET-INVESTMENT-INCOME> 106188571
<REALIZED-GAINS-CURRENT> 349723816
<APPREC-INCREASE-CURRENT> 533911315
<NET-CHANGE-FROM-OPS> 989823702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (106186757)
<DISTRIBUTIONS-OF-GAINS> (229851535)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9338045
<NUMBER-OF-SHARES-REDEEMED> 10968268
<SHARES-REINVESTED> 19555272
<NET-CHANGE-IN-ASSETS> 962685018
<ACCUMULATED-NII-PRIOR> 98305594
<ACCUMULATED-GAINS-PRIOR> 275882292
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23778006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25729275
<AVERAGE-NET-ASSETS> 4015606730
<PER-SHARE-NAV-BEGIN> 16.00
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> 3.93
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> (1.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.87
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS LIFE MONEYSHARE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 424442329
<INVESTMENTS-AT-VALUE> 424442329
<RECEIVABLES> 1818075
<ASSETS-OTHER> 78871
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 426339275
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4990497
<TOTAL-LIABILITIES> 4990497
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 421349338
<SHARES-COMMON-STOCK> 421383025
<SHARES-COMMON-PRIOR> 288142905
<ACCUMULATED-NII-CURRENT> 80
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (640)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 421348778
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20122843
<OTHER-INCOME> 0
<EXPENSES-NET> 2077439
<NET-INVESTMENT-INCOME> 18045404
<REALIZED-GAINS-CURRENT> 75
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18045479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18045405
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 381761377
<NUMBER-OF-SHARES-REDEEMED> 266568205
<SHARES-REINVESTED> 18046948
<NET-CHANGE-IN-ASSETS> 133228921
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 714
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1845243
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2077439
<AVERAGE-NET-ASSETS> 364219488
<PER-SHARE-NAV-BEGIN> 1
<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
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS LIFE SPECIAL INCOME FUND
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 1889664358
<INVESTMENTS-AT-VALUE> 1946572667
<RECEIVABLES> 79255592
<ASSETS-OTHER> 24146993
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2049975252
<PAYABLE-FOR-SECURITIES> 51578563
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75079075
<TOTAL-LIABILITIES> 126657638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1828579387
<SHARES-COMMON-STOCK> 160398174
<SHARES-COMMON-PRIOR> 165711504
<ACCUMULATED-NII-CURRENT> 2658045
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 35367126
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 56713056
<NET-ASSETS> 1923317614
<DIVIDEND-INCOME> 474635
<INTEREST-INCOME> 150966024
<OTHER-INCOME> 0
<EXPENSES-NET> 151440659
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 36389635
<APPREC-INCREASE-CURRENT> 48544163
<NET-CHANGE-FROM-OPS> 223381191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 136327556
<DISTRIBUTIONS-OF-GAINS> 11869083
<DISTRIBUTIONS-OTHER> 1098015
<NUMBER-OF-SHARES-SOLD> 6809483
<NUMBER-OF-SHARES-REDEEMED> 24673816
<SHARES-REINVESTED> 12551003
<NET-CHANGE-IN-ASSETS> 11469988
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2119837
<OVERDISTRIB-NII-PRIOR> 14828295
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11582416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12993266
<AVERAGE-NET-ASSETS> 1928582083
<PER-SHARE-NAV-BEGIN> 11.54
<PER-SHARE-NII> 0.85
<PER-SHARE-GAIN-APPREC> 0.52
<PER-SHARE-DIVIDEND> 0.84
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS LIFE GLOBAL YIELD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 117728549
<INVESTMENTS-AT-VALUE> 118241227
<RECEIVABLES> 2788399
<ASSETS-OTHER> 1084068
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122113694
<PAYABLE-FOR-SECURITIES> 1273853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1662118
<TOTAL-LIABILITIES> 2935971
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118295892
<SHARES-COMMON-STOCK> 11533714
<SHARES-COMMON-PRIOR> 2076586
<ACCUMULATED-NII-CURRENT> 6277
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 425883
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 449671
<NET-ASSETS> 119177723
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4578282
<OTHER-INCOME> 0
<EXPENSES-NET> 672988
<NET-INVESTMENT-INCOME> 3905294
<REALIZED-GAINS-CURRENT> (728768)
<APPREC-INCREASE-CURRENT> 320947
<NET-CHANGE-FROM-OPS> 3497473
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2750769
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9330407
<NUMBER-OF-SHARES-REDEEMED> 120645
<SHARES-REINVESTED> 267366
<NET-CHANGE-IN-ASSETS> 271479144
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6403
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 576997
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 672988
<AVERAGE-NET-ASSETS> 69227919
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS LIFE INCOME ADVANTAGE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 304285101
<INVESTMENTS-AT-VALUE> 313301079
<RECEIVABLES> 9379036
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 322680115
<PAYABLE-FOR-SECURITIES> 45
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2362774
<TOTAL-LIABILITIES> 2362819
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 309417477
<SHARES-COMMON-STOCK> 30819905
<SHARES-COMMON-PRIOR> 17295879
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1949507
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9015978
<NET-ASSETS> 320317296
<DIVIDEND-INCOME> 484593
<INTEREST-INCOME> 16033475
<OTHER-INCOME> 0
<EXPENSES-NET> 1186620
<NET-INVESTMENT-INCOME> 15331448
<REALIZED-GAINS-CURRENT> 1950076
<APPREC-INCREASE-CURRENT> 9362691
<NET-CHANGE-FROM-OPS> 26644215
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15331448)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24570862
<NUMBER-OF-SHARES-REDEEMED> (261858)
<SHARES-REINVESTED> 1512556
<NET-CHANGE-IN-ASSETS> 271479144
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1070942
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1186620
<AVERAGE-NET-ASSETS> 173059751
<PER-SHARE-NAV-BEGIN> 9.77
<PER-SHARE-NII> .88
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> (.88)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
DIRECTORS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Life Investment Series, Inc. 2-73115 811-3218
IDS Life Managed Fund, Inc. 2-96367 811-4252
IDS Life Moneyshare Fund, Inc. 2-72584 811-3190
IDS Life Special Income Fund, Inc. 2-73113 811-3219
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ James A. Mitchell
H. Brewster Atwater, Jr. James A. Mitchell
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ Robert F. Froehlke /s/ Alan K. Simpson
Robert F. Froehlke Alan K. Simpson
/s/ David R. Hubers /s/ Edson W. Spencer
David R. Hubers Edson W. Spencer
/s/ Heinz F. Hutter /s/ John R. Thomas
Heinz F. Hutter John R. Thomas
/s/ Anne P. Jones /s/ Wheelock Whitney
Anne P. Jones Wheelock Whitney
/s/ Melvin R. Laird /s/ C. Angus Wurtele
Melvin R. Laird C. Angus Wurtele
