<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. 36 (File No. 2-73115) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 38 (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, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<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(a) Sales charge and expenses
(b) The Funds in brief
(c) The Funds in brief
3(a) Financial highlights
(b) NA
(c) Performance; Sales charge
(d) Performance
4(a) The Funds in brief; Investment policies and risk; How the Funds are
organized
(b) Investment policies and risk
(c) Facts about investments and their risks
5(a) Directors and officers
(b)(i) About American Express Financial Corporation; Investment advisory
agreements; Investment manager
(b)(ii) Investment manager; Investment advisory agreements
(b)(iii) Investment manager; Investment advisory agreements
(c) Portfolio managers
(d) Administrative services agreement
(e) Investment manager; About American Express Financial Corporation
(f) Investment manager
(g) About American Express Financial Corporation
5A(a) *
(b) *
6(a) How the Funds are organized: Shares; Voting rights; How to invest,
transfer or redeem shares
(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 Variable accounts; How to invest
(a) NA
(b) Performance: Key terms; Investment policies and their risks: Valuing
assets; Sales charge
(c) NA
(d) NA
(e) NA
(f) NA
(g) NA
8(a) Redeeming shares
(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) Additional Investment Policies
(d) Portfolio Transactions
14(a) Directors and officers**; Directors and officers
(b) Directors and officers
(c) Directors and officers
15(a) NA
(b) NA
(c) Directors and officers
16(a)(i) About American Express Financial Corporation**; Manager and
distributor**; Investment manager**; Administrative service
agreement**; Investment advisory agreements**
(a)(ii) Agreements with IDS Life and American Express Financial Corporation
(a)(iii) Agreements with IDS Life and American Express Financial Corporation
(b) Agreements with IDS Life and American Express Financial Corporation
(c) NA
(d) Agreements with IDS Life and American Express Financial Corporation-
Administrative services agreement
(e) NA
(f) NA
(g) NA
(h) Custodian; Independent Auditors
(i) Custodian; Investment manager**
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's are organized: Shares and Voting rights**
(b) NA
19(a) Investing in the Funds
(b) Valuing Each Fund's Shares; Investing in the Funds
(c) NA
20 Taxes
21(a) NA
(b) NA
(c) NA
22(a) Performance Information (for money market funds only)
(b) Performance Information: Calculation of Total Return and/or Yield
(for all funds except money market funds)
23 Financial Statements
*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, 1998
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 not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. Although the Fund seeks to perserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
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, 1998, 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
<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
Year 2000
<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.
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.
<PAGE>
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."
Performance
<TABLE>
<CAPTION>
Capital Resource Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $27.97 $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17 $15.06
beginning of period
Income from investment operations:
Net investment income (loss) .11 .16 .30 .29 .29 .23 .21 .40 .52 .39
Net gains (losses) (both (.54) 6.45 1.22 3.70 1.56 1.89 1.75 6.61 (2.06) 5.38
realized and unrealized)
Total from investment (.43) 6.61 1.52 3.99 1.85 2.12 1.96 7.01 (1.54) 5.77
operations
Less distributions:
Dividends from net (.11) (.15) (.29) (.29) (.29) (.23) (.21) (.40) (.52) (.39)
investment income
Distributions from (.63) (4.05) (.07) (2.71) (2.71) (1.21) (1.00) (1.00) (.57) (.27)
realized gains
Excess distributions from -- (.01) (.01) -- -- -- -- -- -- --
net investment income
Total distributions (.74) (4.21) (.37) (3.00) (3.00) (1.44) (1.21) (1.40) (1.09) (.66)
Net asset value,end $26.80 $27.97 $25.57 $24.42 $23.43 $24.58 $23.90 $23.15 $17.54 $20.17
of period
Ratios/supplemental data
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $4,453 $4,867 $4,372 $3,845 $2,899 $2,308 $1,681 $1,191 $702 $660
period (in millions)
Ratio of expenses to .66% .67% .68% .69% .68% .68% .70% .70% .70% .73%
average daily net assets
Ratio of net income (loss) to .34% .61% 1.15% 1.22% 1.20% .94% .91% 1.94% 2.69% 2.22%
average daily net assets
Portfolio turnover rate 68% 110% 131% 88% 85% 65% 63% 74% 82% 42%
(excluding short-term
securities)
Total return(b) (1.7%) 28.5% 6.2% 17.2% 7.6% 8.9% 8.5% 40.7% (7.8%) 38.7%
Average brokerage $.0536 $.0492 $.0565 -- -- -- -- -- -- --
commission rate (c)
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>
<TABLE>
<CAPTION>
Special Income Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.99 $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11 $10.88
Income from investment operations:
Net investment income (loss) .88 .85 .88 .88 .84 .85 .90 .97 .99 1.03
Net gains (losses) (both
realized and unrealized) (.68) .52 (.07) .56 (.99) .82 .54 .62 (1.01) .23
Total from investment .20 1.37 .81 1.44 (.15) 1.67 1.44 1.59 (.02) 1.26
operations
Less distributions:
Dividends from net (.85) (.84) (.85) (.87) (.85) (.85) (.90) (.97) (.99) (1.03)
investment income
Distributions from (.26) (.07) -- (.02) (.02) -- -- -- -- --
realized gains
Excess distributions from
net investment income -- (.01) -- (.02) (.01) -- -- -- -- --
Total distributions (1.11) (.92) (.85) (.91) (.88) (.85) (.90) (.97) (.99) (1.03)
Net asset value,
end of period $11.08 $11.99 $11.54 $11.58 $11.05 $12.08 $11.26 $10.72 $10.10 $11.11
Ratios/supplemental data:
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of
period (in millions) $1,852 $1,923 $1,912 $1,703 $1,559 $1,551 $1,136 $800 $641 $565
Ratio of expenses to
average daily net assets .67% .68% .68% .68% .67% .69% .71% .70% .71% .73%
Ratio of net income (loss) to
average daily net assets 7.39% 7.18% 7.47% 8.08% 7.20% 7.41% 8.22% 9.31% 9.42% 9.37%
Portfolio turnover rate
(excluding short-term
securities) 48% 73% 56% 56% 57% 77% 92% 97% 118% 132%
Total return(b) 1.5% 12.2% 5.8% 13.8% (1.3%) 15.5% 14.0% 16.5% (.1%) 12.2%
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>
<TABLE>
<CAPTION>
Managed Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.87 $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08 $9.87
Income from investment operations:
Net investment income (loss) .49 .46 .46 .40 .47 .49 .56 .58 .65 .48
Net gains (losses) (both
realized and unrealized) (.12) 3.93 1.15 1.20 (.26) 1.60 .95 2.11 (.67) 2.25
Total from investment .37 4.39 1.61 1.60 .21 2.09 1.51 2.69 (.02) 2.73
operations
Less distributions:
Dividends from net (.48) (.45) (.46) (.40) (.47) (.49) (.56) (.58) (.65) (.48)
investment income
Distributions from (1.50) (1.06) -- -- (.41) (.36) (.46) (.45) (.48) (.04)
realized gains
Excess distributions from
net investment income (.01) (.01) -- -- -- -- -- -- -- --
Total distributions (1.99) (1.52) (.46) (.40) (.88) (.85) (1.02) (1.03) (1.13) (.52)
Net asset value,
end of period $17.25 $18.87 $16.00 $14.85 $13.65 $14.32 $13.08 $12.59 $10.93 $12.08
Ratios/supplemental data
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $4,413 $4,445 $3,482 $3,044 $2,499 $1,858 $1,169 $810 $545 $462
period (in millions)
Ratio of expenses to
average daily net assets .64% .64% .65% .68% .68% .69% .71% .70% .71% .73% .
Ratio of net income (loss) to
average daily net assets 2.56% 2.65% 2.94% 2.96% 3.46% 3.70% 4.35% 4.86% 5.42% 5.06%
Portfolio turnover rate
(excluding short-term 50% 72% 85% 72% 79% 58% 50% 52% 37% 69%
securities)
Total return(b) 1.7% 27.5% 11.0% 11.9% 1.5% 16.3% 12.1% 25.2% (.2%) 28.5%
Average brokerage $.0295 $.0334 $.0606 -- -- -- -- -- -- --
commission rate (c)
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>
<TABLE>
<CAPTION>
Moneyshare Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
beginning of period
Income from investment operations:
Net investment income .05 .05 .05 .05 .03 .03 .04 .07 .08 .09
(loss)
Less distributions:
Dividends from net (.05) (.05) (.05) (.05) (.03) (.03) (.04) (.07) (.08) (.09)
investment income
Net asset value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
end of period
Ratios/supplemental data
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $428 $421 $288 $227 $179 $180 $246 $285 $274 $160
period (in millions)
Ratio of expenses to .57% .57% .56% .59% .57% .60% .60% .57% .62% .54%
average daily net assets
Ratio of net income 5.13% 4.97% 5.02% 5.23% 3.12% 2.67% 3.93% 6.55% 7.85% 8.68%
(loss) to average daily
net assets
Total return(b) 5.3% 5.1% 5.2% 5.3% 3.2% 2.7% 4.0% 6.8% 8.2% 9.0%
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>
<TABLE>
<CAPTION>
International Equity Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996 1995 1994 1993 1992b
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $14.09 $13.30 $12.55 $12.91 $11.60 $10.01 $10.00
beginning of period
Income from investment operations:
Net investment income (loss) .14 .18 .20 .17 .14 .15 .05
Net gains (losses) (both .42 1.06 1.01 (.37) 1.61 1.81 .01
realized and unrealized)
Total from investment operations .56 1.24 1.21 (.20) 1.75 1.96 .06
Less distributions:
Dividends from net (.15) (.17) (.44) (.16) (.08) (.15) (.05)
investment income
Distributions from (.19) (.28) (.02) -- (.29) (.22) --
realized gains
Excess distributions (.06) -- -- -- (.07) -- --
from realized gains
Total distributions (.40) (.45) (.46) (.16) (.44) (.37) (.05)
Net asset value, end $14.25 $14.09 $13.30 $12.55 $12.91 $11.60 $10.01
of period
Ratios/supplemental data
1998 1997 1996 1995 1994 1993 1992b
Net assets, end of $2,023 $2,105 $1,874 $1,442 $1,111 $291 $39
period (in millions)
Ratio of expenses to .94% .97% .96% 1.03% .98% 1.10% 1.57%c
average daily net assets
Ratio of net income (loss) to .94% 1.30% 1.28% 1.56% 1.09% 1.37% .93%c
average daily net assets
Portfolio turnover rate 86% 91% 58% 38% 51% 62% 22%
(excluding short-term
securities)
Total return(d) 4.1% 9.3% 9.6% (1.8%) 15.1% 19.8% .6%
Average brokerage $.0218 $.0187 $.0186 -- -- -- --
commission rate(e)
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>
<TABLE>
<CAPTION>
Aggressive Growth Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996 1995 1994 1993 1992b
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.17 $16.04 $14.44 $11.46 $11.68 $9.00 $10.00
Income from investment operations:
Net investment income . 01 .08 .10 .08 .01 .02 .02
(loss)
Net gains (losses) (both
realized and unrealized) (2.57) 2.84 1.60 2.98 (.22) 2.68 (1.00)
Total from investment (2.56) 2.92 1.70 3.06 (.21) 2.70 (.98)
operations
Less distributions:
Dividends from net (.01) (.08) (.10) (.08) (.01) (.02) (.02)
investment income
Distributions from (1.49) (1.71) -- -- -- -- --
realized gains
Excess distributions (.01) -- -- -- -- -- --
from realized gains
Total distributions (1.51) (1.79) (.10) (.08) (.01) (.02) (.02)
Net asset value,
end of period $13.10 $17.17 $16.04 $14.44 $11.46 $11.68 $9.00
Ratios/supplemental data
1998 1997 1996 1995 1994 1993 1992b
Net assets, end of
period (in millions) $1,976 $2,427 $1,941 $1,412 $763 $299 $57
Ratio of expenses to
average daily net assets .66% .68% .69% .70% .69% .75% .98%(c)
Ratio of net income (loss) to
average daily net assets .08% .47% .65% .72% .14% .28% .21%(c)
Portfolio turnover rate
(excluding short-term 176% 218% 189% 116% 59% 55% 28%
securities)
Total return(d) (16.4%) 18.6% 11.8% 26.8% (1.8%) 30.0% (9.8%)
Average brokerage $.0540 $.0430 $.0531 -- -- -- --
commission rate(e)
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>
<TABLE><CAPTION>
Growth Dimensions Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996b
<S> <C> <C> <C>
Net asset value,
beginning of period $12.95 $9.94 $10.00
Income from investment operations:
Net investment income (loss) .08 .10 .03
Net gains (losses) (both
realized and unrealized) .34 3.01 (.06)
Total from investment operations .42 3.11 (.03)
Less distributions:
Dividends from net investment income (.08) (.10) (.03)
Net asset value,
end of period $13.29 $12.95 $9.94
Ratios/supplemental data
1998 1997 1996b
Net assets, end of period
(in millions) $1,960 $1,307 $171
Ratio of expenses to
average daily net assets .69% .72% 1.04%c
Ratio of net income (loss) to
average daily net assets .59% 1.04% 1.69%c
Portfolio turnover rate
(excluding short-term
securities) 34% 29% 4%
Total return(d) 3.2% 31.4% (.2%)
Average brokerage commission rate(e) $.0369 $.0321 $.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 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>
<TABLE><CAPTION>
Global Yield Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996b
<S> <C> <C> <C>
Net asset value,
beginning of period $10.32 $10.08 $10.00
Income from investment operations:
Net investment income (loss) .60 .51 .12
Net gains (losses) (both
realized and unrealized) (.21) .14 .07
Total from investment operations .39 .65 .19
Less distributions:
Dividends from net investment income (.58) (.41) (.11)
Distributions from realized gains (.04) -- --
Total distributions (.62) (.41) (.11)
Net asset value,
end of period $10.09 $10.32 $10.08
Ratios/supplemental data
1998 1997 1996b
Net assets, end of period $183 $119 $21
(in millions)
Ratio of expenses to .95% .97% 1.77%c
average daily net assets
Ratio of net income (loss) to 5.81% 5.66% 4.96%c
average daily net assets
Portfolio turnover rate 14% 36% 4%
(excluding short-term
securities)
Total return(d) 3.8% 6.5% 2.0%
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income Advantage Fund
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
1998 1997 1996b
<S> <C> <C> <C>
Net asset value,
beginning of period $10.39 $9.77 $10.00
Income from investment operations:
Net investment income (loss) .95 .88 .18
Net gains (losses) (both
realized and unrealized) (.80) .62 (.23)
Total from investment operations .15 1.50 (.05)
Less distributions:
Dividends from net investment income (.95) (.88) (.18)
Distributions from realzied gains (.05) -- --
Total distributions (1.00) (.88) (.18)
Net asset value,
end of period $9.54 $10.39 $9.77
Ratios/supplemental data
1998 1997 1996b
Net assets, end of period
(in millions) $564 $320 $49
Ratio of expenses to
average daily net assets .69% .69% 1.53%c
Ratio of net income (loss) to
average daily net assets 9.21% 8.88% 8.14%c
Portfolio turnover rate
(excluding short-term 66% 104% 22%
securities)
Total return(d) 1.0% 16.8% (.5%)
</TABLE>
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.
<PAGE>
Total returns
Average annual total returns as of Aug. 31, 1998
Purchase 1 year 5 years 10 years
made ago ago ago
- ---------------------------- ------------------ -------------------- -----------
Capital Resource Fund -1.67% +11.02% +13.63%
S&P 500 +8.00% +18.19% +17.01%
Cumulative total returns as of Aug. 31, 1998
Purchase 1 year 5 years 10 years
made ago ago ago
- ---------------------------- ------------------ -------------------- -----------
Capital Resource Fund -1.67% + 68.68% +258.73%
S&P 500 +8.00% +130.65% +381.28%
Average annual total returns as of Aug. 31, 1998
Purchase 1 year 5 years 10 years
made ago ago ago
- ---------------------------- ------------------ -------------------- -----------
Special Income Fund + 1.54% +6.25% +8.81%
Lehman Brothers Aggregate
Bond Index +10.57% +6.71% +9.26%
Cumulative total returns as of Aug. 31, 1998
Purchase 1 year 5 years 10 years
made ago ago ago
- ---------------------------- ------------------ -------------------- -----------
Special Income Fund + 1.54% +35.41% +132.68%
Lehman Brothers Aggregate
Bond Index +10.57% +38.40% +142.45%
Average annual total returns as of Aug. 31, 1998
Purchase 1 year 5 years 10 years
made ago ago ago
- ---------------------------- ------------------ -------------------- -----------
Managed Fund +1.74% +10.36% +13.11%
S&P 500 +8.00% +18.19% +17.01%
Cumulative total returns as of Aug. 31, 1998
Purchase 1 year 5 years 10 years
made ago ago ago
- ---------------------------- ------------------ -------------------- -----------
Managed Fund +1.74% + 63.72% +242.81%
S&P 500 +8.00% +130.65% +381.28%
<PAGE>
Average annual total returns as of Aug. 31, 1998
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- ---------------------------- ------------------ -------------------- -----------
International Equity Fund +4.09% + 7.06% + 8.26%
Morgan Stanley Capital
International World Index +4.13% +11.38% +11.51%*
Cumulative total returns as of Aug. 31, 1998
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- ---------------------------- ------------------ -------------------- -----------
International Equity Fund +4.09% +40.68% + 69.41%
Morgan Stanley Capital
International World Index +4.13% +71.44% +105.27%*
Average annual total returns as of Aug. 31, 1998
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- ---------------------------- ------------------ -------------------- -----------
Aggressive Growth Fund -16.40% + 6.75% + 7.59%
S&P 500 + 8.00% +18.19% +16.50%*
Cumulative total returns as of Aug. 31, 1998
Since
Purchase 1 year 5 years inception
made ago ago Jan. 13, 1992
- ---------------------------- ------------------ -------------------- -----------
Aggressive Growth Fund -16.40% + 38.60% + 62.57%
S&P 500 + 8.00% +130.65% +174.17%*
Average annual total returns as of Aug. 31, 1998
Purchase 1 year Since inception
made ago May 1, 1996
- ---------------------------- ------------------ --------------------------------
Growth Dimensions Fund +3.19% +13.72%
S&P 500 +8.00% +19.64%
Lipper Growth Fund Index +2.15% +13.55%
* Measurement period began Jan. 31, 1992.
<PAGE>
Cumulative total returns as of Aug. 31, 1998
Purchase 1 year Since inception
made ago May 1, 1996
- ---------------------------- ------------------ --------------------------------
Growth Dimensions Fund +3.19% +35.24%
S&P 500 +8.00% +52.62%
Lipper Growth Fund Index +2.15% +34.83%
Average annual total returns as of Aug. 31, 1998
Purchase 1 year Since inception
made ago May 1, 1996
- ---------------------------- ------------------ --------------------------------
Global Yield Fund +3.82% +5.38%
Salomon Brothers Global
Govt. Bond Composite Index +8.21% +5.10%
Lipper Global Income Fund
Index +1.52% +5.23%
Cumulative total returns as of Aug. 31, 1998
Purchase 1 year Since inception
made ago May 1, 1996
- ---------------------------- ------------------ --------------------------------
Global Yield Fund +3.82% +13.05%
Salomon Brothers Global
Govt. Bond Composite Index +8.21% +12.35%
Lipper Global Income Fund
Index +1.52% +12.68%
Average annual total returns as of Aug. 31, 1998
Purchase 1 year Since inception
made ago May 1, 1996
- ---------------------------- ------------------ --------------------------------
Income Advantage Fund + 1.03% +7.07%
Lehman Brothers Aggregate
Bond Index +10.57% +9.28%
Cumulative total returns as of Aug. 31, 1998
Purchase 1 year Since inception
made ago May 1, 1996
- ---------------------------- ------------------ --------------------------------
Income Advantage Fund + 10.3% +17.30%
Lehman Brothers Aggregate
Bond Index +10.57% +23.15%
<PAGE>
These examples show total returns from hypothetical investments in each Fund.
These returns are compared to those of popular indexes for the same periods. The
results do not reflect the expenses that apply to the variable accounts or the
annuity contract. Inclusion of these charges would reduce total return for all
periods shown.
For purposes of calculation, information about each Fund assumes the deduction
of applicable fund expenses, makes no adjustments for taxes that may have been
paid on the reinvested income and capital gains and covers a period of widely
fluctuating securities prices. Returns shown should not be considered a
representation of the Fund's future performance.
Each Fund's investments may be different from those in the indexes. The indexes
reflect reinvestment of all distributions and changes in market prices, but
exclude brokerage commissions or other fees.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. The 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 Brothers 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.
Yield calculation
Special Income, Global Yield and Income Advantage Funds may calculate a 30-day
annualized yield by dividing:
<PAGE>
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.
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.
<PAGE>
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 or in other corporate
bonds the investment manager believes have the same investment qualities and in
government bonds.
The Fund also may invest in corporate bonds with lower ratings, convertible
securities, preferred stocks, derivative instruments, money market instruments
and foreign bonds.
Managed Fund - Under normal market conditions, Managed Fund invests at least 50%
of its total assets in common stocks. The Fund also invests in preferred stocks,
convertible securities, warrants, bonds and money market instruments.
Ordinarily, investments other than common stock would constitute 50% or less of
the Fund's portfolio. However, under unusual market conditions, the Fund may
invest any portion of its assets in securities other than common stocks. This
allows the investment manager flexibility to best achieve the Fund's goal. This
might occur, for example, when interest rates are high but are expected to
decline significantly.
The Fund also may invest in derivative instruments and foreign securities.
Moneyshare Fund - Under normal market conditions, Moneyshare Fund invests
primarily in high-quality, short-term, debt securities and other money market
instruments denominated in U.S. dollars. The Fund intends to maintain a constant
net asset value of $1 per share, although there is no assurance it will be able
to do so. The Fund will not purchase any security with a remaining maturity of
more than 13 months and will maintain a dollar-weighted average portfolio
maturity of 90 days or less. The Fund also may invest in foreign securities. For
a description of money market securities, see Appendix C in the SAI.
International Equity Fund - Under normal market conditions, International Equity
Fund invests at least 65% of its total assets in foreign equity securities
having a potential for superior growth. Superior means fund performance better
than the Morgan Stanley Capital International World Index.
The Fund's investments will be primarily in common stocks and securities
convertible into common stocks of foreign issuers. However, if the investment
manager believes they have more potential for capital growth, the Fund may
invest in bonds issued or
<PAGE>
guaranteed either by countries that are members of the Organization for Economic
Cooperation and Development (OECD) or by international agencies such as the
World Bank or the European Investment Bank. These bonds will not be purchased
unless, in the judgment of the investment manager, they are comparable in
quality to bonds rated AA by Standard & Poor's Corporation (S&P).
The percentage of fund assets invested in particular countries or regions of the
world will change according to their political stability and economic condition.
Ordinarily, the Fund will invest in companies domiciled in at least three
foreign countries.
Normally, investments in U.S. issuers will constitute less than 20% of the
Fund's portfolio. However, as a temporary measure, the Fund may invest any
portion of its assets in securities of U.S. issuers that appear to have greater
potential for superior growth than foreign securities. U.S. investments would
include common stocks, convertible securities and corporate and government
bonds.
The bonds must bear one of the four highest ratings given by Moody's Investors
Service, Inc. (Moody's) or S&P or must be of comparable quality. The Fund also
may invest in money market instruments and derivative instruments. No more than
5% of the Fund's total assets may be invested in options on individual
securities.
Aggressive Growth Fund - Under normal market conditions, Aggressive Growth Fund
invests primarily in common stocks of U.S. and foreign companies that are small-
and medium-size growth companies. Many of these companies emphasize
technological innovation or productivity improvements.
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.
<PAGE>
Income Advantage Fund - Under normal market conditions, Income Advantage Fund
invests primarily in debt securities below investment grade issued by U.S. and
foreign corporations. Most of these will be rated BBB, BB or B by S&P or Moody's
equivalent.
However, the Fund may invest in debt securities with lower ratings, including
those in default. Other investments include investment-grade bonds, convertible
securities, stocks, derivative instruments and money market instruments. The
Fund may invest up to 10% of its total assets in common stocks, preferred stocks
that do not pay dividends and warrants to purchase common stocks.
The various types of investments the portfolio managers use to achieve
investment performance are described in more detail in the next section and in
the SAI.
Facts about investments and their risks
Common stocks: Stock prices are subject to market fluctuations. Stocks of
smaller or foreign companies or stocks of companies experiencing significant
growth and operating in areas of financial and technological change may be
subject to more abrupt or erratic price movements than stocks of larger,
established companies or the stock market as a whole. Also, small companies
often have limited 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, 1998
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>
28.34% AAA Highest quality 0.53%
3.64 AA High quality --
10.72 A Upper medium grade --
15.54 BBB Medium grade 0.29
17.32 BB Moderately speculative 0.43
12.96 B Speculative 0.81
1.26 CCC Highly speculative 1.18
-- CC Poor quality --
-- C Lowest quality --
0.08 D In default --
5.45 Unrated Unrated securities 2.21
Bond ratings and holdings for fiscal year ended Aug. 31, 1998
for Managed Fund
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
14.65% AAA Highest quality 0.03%
1.11 AA High quality --
3.66 A Upper medium grade --
4.82 BBB Medium grade 0.05
4.35 BB Moderately speculative 0.04
4.32 B Speculative 0.09
0.13 CCC Highly speculative 0.11
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.80 Unrated Unrated securities 1.48
<PAGE>
Bond ratings and holdings for fiscal year ended Aug. 31, 1998
for Global Yield Fund
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
54.51% AAA Highest quality 0.18%
5.55 AA High quality --
8.13 A Upper medium grade --
9.64 BBB Medium grade --
11.76 BB Moderately speculative 0.04
0.97 B Speculative 0.15
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.75 Unrated Unrated securities 1.38
Bond ratings and holdings for fiscal year ended Aug. 31, 1998
for Income Advantage Fund
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest AEFC
--% AAA Highest quality 0.11%
-- AA High quality --
0.02 A Upper medium grade --
0.74 BBB Medium grade --
13.66 BB Moderately speculative --
62.56 B Speculative 2.49
5.41 CCC Highly speculative 4.83
-- CC Poor quality --
-- C Lowest quality --
0.28 D In default --
12.77 Unrated Unrated securities 5.34
</TABLE>
(See Appendix A 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: There are risks when investing in securities of foreign
companies and governments in addition to those assumed when investing in
domestic securities. These risks are classified as country risk, currency risk,
and custody risk. Each can adversely affect the value of an investment. Country
risk includes the political, economic, and other conditions of a country. These
conditions include lack of publicly available information, less government
oversight, the possibility of government-imposed restrictions, even the
nationalization of assets. Currency risk results from the constantly changing
exchange rate between local currency and the U.S. dollar. Whenever the Fund
holds securities valued in local currency or holds the currency, changes in the
exchange rate add or subtract from the asset value of the Fund. Custody risk
refers to the process of clearing and settling trades. It also covers holding
securities with local agents and depositories. Low trading volumes and volatile
prices in less developed markets make trades harder to complete and settle.
Local agents are held only to the standard of care of the local market.
Governments or trade groups may compel local agents to hold securities in
designated depositories that are not subject to independent evaluation. The less
developed a country's securities market is, the greater the likelihood of
problems occurring. The risks of foreign investments are managed carefully but
the Fund cannot guarantee against losses that might result from them. Each Fund,
except International Equity and Global Yield Funds may invest up to 25% (Growth
Dimensions Fund 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
<PAGE>
premiums, rapid changes in prices, defaults by other parties and inability to
close such instruments. A fund will use derivative instruments only to achieve
the same investment performance characteristics it could achieve by directly
holding those securities and currencies permitted under the investment policies.
The Fund's custodian will maintain, in a segregated account, cash or liquid
high-grade debt securities that are marked to market daily and are at least
equal in value to the Fund's obligations to the extent such obligations are not
covered. No more than 5% of each Fund's net assets can be used at any one time
for good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions. For further information, see the
options and futures appendixes in the SAI.
Securities and derivative instruments that are illiquid: Illiquid means the
security or derivative instrument cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. All securities and derivative instruments,
however, can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. Each portfolio manager
will follow guidelines established by the board of directors and consider
relevant factors such as the nature of the security and the number of likely
buyers when determining whether a security is illiquid. No more than 10% of each
Fund's net assets (zero for Moneyshare) will be held in securities and
derivative instruments that are illiquid.
Money market instruments: For all Funds except Moneyshare, short-term debt
securities rated in the top two grades are used to meet daily cash needs and at
various times to hold assets until better investment opportunities arise.
Generally, less than 25% of each of Capital Resource, International Equity,
Aggressive Growth, Special Income, Managed, Growth Dimensions, Global Yield and
Income Advantage Fund's total assets are in these money market instruments.
However, for temporary defensive purposes these investments could exceed that
amount for a limited period of time.
The investment policies described above may be changed by the board of
directors.
Lending portfolio securities: Each Fund may lend its securities to earn income
so long as borrowers provide collateral equal to the market value of the loans.
The risks are that borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting securities
approve otherwise, loans may not exceed 30% of a Fund's net assets.
Alternative investment options
In the future, the board of the Funds may determine for operating efficiencies
to use a master/feeder structure. Under that structure, the Fund's investment
portfolio would be managed by another investment company with the same goal as
the Fund, rather than investing directly in a portfolio of securities.
Valuing assets
Moneyshare Fund's securities are valued at amortized cost. In valuing assets of
Capital Resource, International Equity, Aggressive Growth, Special Income,
Managed, Growth Dimensions, Global Yield and Income Advantage Funds:
o Securities and assets with available market values are valued on that basis.
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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
Joseph M. Barsky joined AEFC in 1979 and serves as vice president - mutual fund
equities and 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 American Express
Asset Management International Inc.
Special Income Fund
Steven C. Merrell joined AEFC in 1988 as a quantitative investment analyst. He
became portfolio manager of this Fund in January 1995. He also manages the Total
Return Portfolio. From 1990 to 1991, Steven worked for JP Morgan Futures, Inc.
marketing futures-based investment strategies. He rejoined AEFC in 1991 as a
portfolio manager.
Managed Fund
Alfred 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.
Deborah L. Pederson joined AEFC in 1986 as an analyst. She currently serves as
vice president and senior portfolio manager. She has managed the fixed income
portfolio of this Fund since January 1994.
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.
International Equity Fund
Peter Lamaison joined AEFC in 1981 and serves as senior portfolio manager. He
also serves as president, chief executive officer and chief investment officer
of American Express Asset Management International Inc. He also serves as
portfolio manager of IDS International Fund.
<PAGE>
Aggressive Growth Fund
Martin G. 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 M. 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
Michael Ng joined AEFC in 1994 and has served as portfolio manager of this Fund
since July 1998. He also manages IDS Global Balanced Fund. Prior to joining
AEFC, he was a fixed income analyst for the St. Paul Companies.
Income Advantage Fund
Jack Utter joined AEFC in 1962 and serves as vice president and 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,
except for James A. Mitchell, who only serves the nine IDS Life funds. On Aug.
31, 1998, 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.
Retired chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
<PAGE>
Heinz F. Hutter
Retired 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
Retired 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*
President 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.
Vice president
Frederick C. Quirsfeld*
Vice president, AEFC.
<PAGE>
Treasurer
Matthew N. Karstetter*
Vice president, 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
Managed Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.5 0.630%
Next $0.5 0.615
Next $1 0.600
Next $1 0.585
Next $3 0.570
Over $6 0.550
<PAGE>
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
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
<PAGE>
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, 1998, Capital Resource Fund paid IDS Life a
total investment management fee of 0.61% of its average daily net assets.
Special Income Fund paid 0.61%, Managed Fund paid 0.59%, Moneyshare Fund paid
0.52%, International Equity Fund paid 0.83%, Aggressive Growth Fund paid 0.60%,
Growth Dimensions Fund paid 0.63%, Global Yield Fund paid 0.85% and Income
Advantage Fund paid 0.63%. Under this Agreement, each Fund also pays taxes,
brokerage commissions and nonadvisory expenses. Total fees and expenses for
fiscal year 1998 were 0.66% for Capital Resource Fund, 0.67% for Special Income
Fund, 0.64% for Managed Fund, 0.57% for Moneyshare Fund, 0.94% for International
Equity Fund, 0.66% for Aggressive Growth Fund, 0.69% for Growth Dimensions Fund,
0.95% 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
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
<PAGE>
Growth Dimensions Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.050%
Next $1 0.045
Next $1 0.040
Next $3 0.035
Over $6 0.030
Global Yield Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.060%
Next $0.25 0.055
Next $0.25 0.050
Next $0.25 0.045
Over $1 0.040
Income Advantage Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.050%
Next $1 0.045
Next $1 0.040
Next $3 0.035
Next $3 0.030
Over $9 0.025
Investment advisory agreements
IDS Life and AEFC have an Investment Advisory Agreement under which AEFC
executes purchases and sales and negotiates brokerage as directed by IDS Life.
For its services, IDS Life pays AEFC a fee based on a percentage of each Fund's
average daily net assets for the year. This fee is equal to 0.35% for
International Equity Fund and 0.25% for each remaining fund.
AEFC has a Sub-investment Advisory Agreement with American Express Asset
Management 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
0.35% of International Equity Fund's average daily net assets.
<PAGE>
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, 1998
were more than $184 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.
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which would have a material impact on the operations of a fund. The Funds have
no computer systems of their own but are dependent upon the systems maintained
by AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification of existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each of its critical systems
by the end of 1998 and to continue compliance efforts through 1999. Year 2000
readiness of other third parties whose system failures could have an impact on a
fund's operations currently is being evaluated. The companies or governments in
which each Fund invests also may be adversely affected by Year 2000 issues. This
may affect the value of a fund's investments. The potential materiality of any
impact is not known at this time.
<PAGE>
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, 1998
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, 1998, and it is to be used with the Funds' prospectus
dated Oct. 30, 1998. It is also to be used with the Funds' Annual Report for the
fiscal year ended Aug. 31, 1998.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
(612) 671-3733
(800) 437-0602
TTY: 800-285-8846
<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
Taxes p.39
Agreements with IDS Life and American Express Financial
Corporation p.39
Directors and Officers p.47
Custodian p.53
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
Appendix H: Investing in Foreign Securities p.78
<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 opportunity for
<PAGE>
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.
<PAGE>
`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.
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
<PAGE>
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 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 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. 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 mortgage-backed securities and additional
information on investment policies, see Appendix F. For a discussion on
dollar-cost averaging, see Appendix G. For a discussion on investing in foreign
securities, see Appendix H.
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies set by the board of directors, AEFC, American Express Asset
Management 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 that does
<PAGE>
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>
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
1998 7,319,583 6,012,897 6,553,128 85,301 2,698,065 1,172,182 4,211
</TABLE>
<PAGE>
Transactions amounting to $9,605,000, $159,081,000, $343,000 and $100,809,000
with related commissions of $13,480, $287,958, $330 and $90,351 were directed to
brokers by Capital Resource, Aggressive Growth, Growth Dimensions and Managed
Funds, respectively, because of research services received for the fiscal year
ended Aug. 31, 1998.
Capital Resource Fund's acquisition during the fiscal year ended Aug. 31, 1998,
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
Morgan Stanley $68,814,329
Travelers Group 55,468,750
International Equity Fund's acquisition during the fiscal year ended Aug. 31,
1998 of securities of its regular brokers or dealers or of the parents of those
brokers or dealers that derived more than 15% of gross revenue from
securities-related activities is presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
First Chicago $8,195,859
Merrill Lynch 2,383,440
Aggressive Growth Fund's acquisition during the fiscal year ended Aug. 31, 1998,
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 $10,233,547
Merrill Lynch 5,071,848
Salomon 10,242,475
<PAGE>
Special Income Fund's acquisition during the fiscal year ended Aug. 31, 1998, 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 $ 2,781,935
Morgan (JP) 12,387,764
Morgan Stanley 6,951,204
Salomon 5,077,000
Moneyshare Fund's acquisition during the fiscal year ended Aug. 31, 1998, 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 $ 2,999,679
Bear Stearns 11,500,280
First Chicago 4,957,910
Merrill Lynch 19,254,468
Morgan Stanley 5,997,696
Managed Fund's acquisition during the fiscal year ended Aug. 31, 1998, 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 $26,172,750
First Chicago 5,750,466
Goldman Sachs 1,689,032
Merrill Lynch 12,722,010
Morgan (JP) 4,622,300
Morgan Stanley 49,353,125
Salomon 4,176,160
Travelers Group 86,371,876
<PAGE>
Growth Dimensions Fund's acquisition during the fiscal year ended Aug. 31, 1998
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 $20,150,859
First Chicago 2,586,072
Goldman Sachs 8,147,095
Merrill Lynch 9,040,688
Morgan Stanley 22,817,982
Travelers Group 37,807,499
Global Yield Fund's acquisition during the fiscal year ended Aug. 31, 1998 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
Morgan (JP) $924,460
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, 1998.
The portfolio turnover rate for Capital Resource Fund was 68% in fiscal year
ended Aug. 31, 1998 and 110% in fiscal year ended 1997. The portfolio turnover
rate for Managed Fund was 50% in fiscal year ended Aug. 31, 1998 and 72% in
fiscal year ended 1997.
The portfolio turnover rate for International Equity Fund was 86% in fiscal year
ended Aug. 31, 1998 and 91% in fiscal year ended 1997. The portfolio turnover
rate for Aggressive Growth Fund was 176% in fiscal year ended Aug. 31, 1998 and
218% in fiscal year ended 1997.
The portfolio turnover rate for Special Income Fund was 48% in fiscal year ended
Aug. 31, 1998 and 73% in fiscal year ended 1997. The portfolio turnover rate for
Growth Dimensions Fund was 34% in fiscal year ended Aug. 31, 1998 and 29% in
fiscal year ended 1997.
The portfolio turnover rate for Global Yield fund was 14% in fiscal year ended
Aug. 31, 1998 and 36% in fiscal year ended 1997. The portfolio turnover rate for
Income Advantage Fund was 66% in fiscal year ended Aug. 31, 1998 and 104% in
fiscal year ended 1997.
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,
<PAGE>
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.
No brokerage commissions were paid by Moneyshare Fund to brokers affiliated with
IDS Life for the fiscal year ended Aug. 31, 1998.
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:
<TABLE><CAPTION>
For the Fiscal Year Ended Aug. 31,
1998 1997 1996
---------------------------------------------------- ---------------- -----------------
Percentage of
Aggregate
Aggregate Percent of Dollar Amount Aggregate Dollar Aggregate
Dollar Amount Aggregate of Transactions Amount of Dollar Amount
of Commissions Brokerage Involving Commissions Paid of Commissions
Fund Paid to Broker Commissions Payment of to Broker Paid to Broker
Commissions
- ---- -------------- ----------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Capital
Resource $630,669 8.62% 16.12% $817,190 $841,159
International
Equity None None None None None
Aggressive
Growth 414,129 6.34 10.72 183,327 245,269
Special Income None None None None None
Managed 123,736 4.59 6.89 227,619 76,269
Growth
Dimensions 129,771 11.07 11.47 20,404 212
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.
<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, 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
<PAGE>
Special Income Fund's annualized yield was 7.98%, Global Yield Fund's was 4.72%
and Income Advantage Fund's was 10.99% for the 30-day period ended Aug. 31,
1998.
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to the 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 8.01%, Global Yield Fund's was
4.74% and Income Advantage Fund's was 11.05% for the 30-day period ended Aug.
31, 1998.
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) x (365/7)] - 1
Moneyshare Fund's simple annualized yield was 5.20% and its compound yield was
5.07% for the seven days ended Aug. 31, 1998, the last business day of the
Fund's fiscal year.
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, 1998, the computation of the value of an individual share looked
like this:
<TABLE>
<CAPTION>
Capital Resource Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
<S> <C> <C>
$4,452,906,129 divided by 166,148,138 = $26.80
International Equity Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$2,022,733,332 divided by 141,929,530 = $14.25
Aggressive Growth Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$1,975,591,374 divided by 150,788,780 = $13.10
Special Income Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$1,852,495,857 divided by 167,124,308 = $11.08
Managed Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$4,412,953,457 divided by 255,784,848 = $17.25
Growth Dimensions Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$1,959,524,639 divided by 147,461,467 = $13.29
<PAGE>
Global Yield Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$183,337,432 divided by 18,170,417 = $10.09
Income Advantage Fund
Net assets Shares outstanding Net asset value of one share
- ---------- ------------------ ----------------------------
$564,280,997 divided by 59,149,923 = $9.54
</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 Funds are valued on any normal business day, Monday through Friday, that the
NYSE is open. The NYSE is closed on the following holidays: New Year's Day,
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
INVESTING IN THE FUNDS
You cannot buy shares of the Funds directly. The only way you can invest in the
Funds at the current time is by buying an annuity contract and directing the
allocation of part or all of your net purchase payment to the variable accounts,
which will invest in shares of Capital Resource, International Equity,
Aggressive Growth, Special Income, Moneyshare, Managed, Growth Dimensions,
Global Yield or Income Advantage funds. Please read the Funds' prospectus along
with your annuity prospectus for further information.
Sales Charges and Surrender or Withdrawal Charges
The Funds do not assess sales charges, either when they sell or when they redeem
securities. The surrender or withdrawal charges that may be assessed under your
annuity contract are described in your annuity prospectus, as are the other
charges that apply to your annuity contract and to the variable accounts.
Shares of the Fund may not be held by persons who are residents of, or domiciled
in, Brazil. The Fund reserves the right to redeem accounts of shareholders who
establish residence or domicile in Brazil.
REDEEMING SHARES
The Funds will redeem any shares presented by a shareholder (variable account)
for redemption. The variable accounts' policies on when or whether to buy or
redeem fund shares are described in your annuity prospectus.
During an emergency, the boards of directors can suspend the computation of net
asset value, stop accepting payments for purchase of shares or suspend the duty
of the Funds to redeem shares for more than 7 days. Such emergency situations
would occur if:
`The New York Stock Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted,
`Disposal of a fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
`The Securities and Exchange Commission, under the provisions of the Investment
Company Act of 1940, as amended, declares a period of emergency to exist.
<PAGE>
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.
For its services, IDS Life is paid a fee based on the following schedules:
Capital Resource Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.630%
Next $1 0.615
Next $1 0.600
Next $3 0.585
Over $6 0.570
<PAGE>
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
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
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
<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
Growth Dimensions Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.630%
Next $1 0.615
Next $1 0.600
Next $3 0.585
Over $6 0.570
Global Yield Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.840%
Next $0.25 0.825
Next $0.25 0.810
Next $0.25 0.795
Over $1 0.780
Income Advantage Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.620%
Next $1 0.605
Next $1 0.590
Next $3 0.575
Next $3 0.560
Over $9 0.545
On Aug. 31, 1998, the daily rate applied to the Fund's assets on an annual
basis, was 0.605% for Capital Resource, 0.828% for International Equity, 0.609%
for Aggressive Growth, 0.603% for Special Income, 0.510% for Moneyshare, 0.592%
for Managed, 0.623% for Growth Dimensions, 0.840% for Global Yield and 0.620%
for Income Advantage. The fee is calculated for each calendar day on the basis
of net assets as of the close of business two business days prior to the day for
which the calculation is made.
The management fee is paid monthly. Under the current agreement, the total
amount paid for Capital Resource was $31,852,411 for the fiscal year ended Aug.
31, 1998, $27,562,075 for the fiscal year ended 1997, and $26,046,720 for the
fiscal year 1996.
<PAGE>
Under the current agreement, the total amount paid for International Equity was
$18,268,846 for the fiscal year ended Aug. 31, 1998, $16,844,405 for the fiscal
year ended 1997, and $13,990,974 for the fiscal year 1996.
Under the current agreement, the total amount paid for Aggressive Growth was
$15,625,616 for the fiscal year ended Aug. 31, 1998, $13,049,949 for the fiscal
year ended 1997, and $10,459,512 for the fiscal year 1996.
Under the current agreement, the total amount paid for Special Income was
$11,816,239 for the fiscal year ended Aug. 31, 1998, $11,582,416 for the fiscal
year ended 1997, and $11,311,856 for the fiscal year 1996.
Under the current agreement, the total amount paid for Moneyshare was $2,041,502
for the fiscal year ended Aug. 31, 1998, $1,845,243 for the fiscal year ended
1997, and $1,283,789 for the fiscal year 1996.
Under the current agreement, the total amount paid for Managed was $28,641,618
for the fiscal year ended Aug. 31, 1998, $23,778,006 for the fiscal year ended
1997, and $19,987,805 for the fiscal year 1996.
Under the current agreement, the total amount paid for Growth Dimensions was
$11,769,360 for the fiscal year ended Aug. 31, 1998, $4,581,562 for the fiscal
year ended 1997, and $153,340 for the fiscal year ended 1996.
Under the current agreement, the total amount paid for Global Yield was
$1,338,718 for the fiscal year ended Aug. 31, 1998, $576,997 for the fiscal year
ended 1997, and $26,039 for the fiscal year ended 1996.
Under the current agreement, the total amount paid for Income Advantage was
$2,988,028 for the fiscal year ended Aug. 31, 1998, $1,070,942 for the fiscal
year ended 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.
Under the current agreement:
Capital Resource paid nonadvisory expenses of $691,029 for the fiscal year ended
Aug. 31, 1998, $1,216,304 for the fiscal year ended 1997, and $1,237,584 for the
fiscal year ended 1996.
International Equity paid nonadvisory expenses of $1,494,878 for the fiscal year
ended Aug. 31, 1998, $1,971,367 for the fiscal year ended 1997, and $1,439,851
for the fiscal year 1996.
<PAGE>
Aggressive Growth paid nonadvisory expenses of $389,523 for the fiscal year
ended Aug. 31, 1998, $595,678 for the fiscal year ended 1997, and $555,212 for
the fiscal year 1996.
Special Income paid nonadvisory expenses of $306,961 for the fiscal year ended
Aug. 31, 1998, $470,062 for the fiscal year ended 1997, and $534,757 for the
fiscal year 1996.
Moneyshare paid nonadvisory expenses of $90,399 for the fiscal year ended Aug.
31, 1998, $112,930 for the fiscal year ended 1997, and $134,008 for the fiscal
year 1996.
Managed paid nonadvisory expenses of $694,841 for the fiscal year ended Aug. 31,
1998, $781,442 for the fiscal year ended 1997, and $857,900 for the fiscal year
1996.
Growth Dimensions paid nonadvisory expenses of $379,620 for the fiscal year
ended Aug. 31, 1998, $311,923 for the fiscal year ended 1997, and $88,000 for
the fiscal year ended 1996.
Global Yield paid nonadvisory expenses of $73,014 for the fiscal year ended Aug.
31, 1998, $53,806 for the fiscal year ended 1997, and $26,994 for the fiscal
year ended 1996.
Income Advantage paid nonadvisory expenses of $82,924 for the fiscal year ended
Aug. 31, 1998, $29,848 for the fiscal year ended 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 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
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
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
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
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
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
<PAGE>
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
On Aug. 31, 1998, the daily rate applied to Capital Resource was equal to 0.042%
on an annual basis.
On Aug. 31, 1998, the daily rate applied to International Equity was equal to
0.046% on an annual basis.
On Aug. 31, 1998, the daily rate applied to Aggressive Growth was equal to
0.046% on an annual basis.
On Aug. 31, 1998, the daily rate applied to Special Income was equal to 0.048%
on an annual basis.
On Aug. 31, 1998, the daily rate applied to Moneyshare was equal to 0.030% on an
annual basis.
On Aug. 31, 1998, the daily rate applied to Managed was equal to 0.027% on an
annual basis.
On Aug. 31, 1998 the daily rate applied to Growth Dimensions was equal to 0.047%
on an annual basis.
On Aug. 31, 1998 the daily rate applied to Global Yield was equal to 0.060% on
an annual basis.
On Aug. 31, 1998 the daily rate applied to Income Advantage was equal to 0.050%
on an annual basis.
<PAGE>
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
Management International Inc. under which AEFC pays American Express Asset
Management International Inc. a fee equal on an annual basis to 0.35% of
International Equity Fund's daily net assets for providing investment advice for
the Fund.
For the fiscal year ended Aug. 31, 1998, IDS Life paid AEFC $13,148,180 for its
services in connection with Capital Resource Fund. For fiscal year 1997, the
amount was $11,405,895 and for fiscal year 1996 it was $10,767,468.
For the fiscal period ended Aug. 31, 1998, IDS Life paid AEFC $7,744,185 for its
services in connection with International Equity Fund. For fiscal year 1997, the
amount was $7,127,500 and for fiscal year 1996 it was $5,895,097.
For the fiscal period ended Aug. 31, 1998, IDS Life paid AEFC $6,496,353 for its
services in connection with Aggressive Growth Fund. For fiscal year 1997, the
amount was $5,385,048 and for fiscal year 1996 it was $4,281,869.
For the fiscal year ended Aug. 31, 1998, IDS Life paid AEFC $4,869,052 for its
services in connection with Special Income Fund. For fiscal year 1997, the
amount was $4,808,246 and for fiscal year 1996 it was $4,698,757.
For the fiscal year ended Aug. 31, 1998, IDS Life paid AEFC $995,844 for its
services in connection with Moneyshare Fund. For fiscal year 1997, the amount
was $907,423 and for fiscal year 1996 it was $621,885.
For the fiscal year end Aug. 31, 1998, IDS Life paid AEFC $12,132,138 for its
services in connection with Managed Fund. For fiscal year 1997, the amount was
$10,013,842 and for fiscal year 1996 it was $8,355,352.
For fiscal year ended Aug. 31, 1998, IDS Life paid AEFC $4,691,961 for its
services in connection with Growth Dimensions Fund. For fiscal year 1997, the
amount was $1,821,928 and for fiscal year 1996 it was $61,016.
For fiscal year ended Aug. 31, 1998, IDS Life paid AEFC $395,622 for its
services in connection with Global Yield Fund. For fiscal year 1997, the amount
was $172,596 and for fiscal year 1996 it was $7,771.
For fiscal year ended Aug. 31, 1998, IDS Life paid AEFC $1,190,430 for its
services in connection with Income Advantage Fund. For fiscal year 1997, the
amount was $431,464 and for fiscal year 1996 it was $17,890.
Information concerning other funds advised by IDS Life or AEFC is contained in
the prospectus.
<PAGE>
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, except for James A. Mitchell, who only
serves the nine 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 and Union
Pacific Resources.
David R. Hubers+**
Born in 1943.
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Heinz F. Hutter+'
Born in 1929.
P.O. Box 5724
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935.
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
<PAGE>
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. Retired vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931.
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Pacific Corp. (electric power) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926.
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937.
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
Wheelock Whitney+
Born in 1926.
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
<PAGE>
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
President 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.
Frederick C. Quirsfeld
Born in 1947.
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
<PAGE>
Matthew N. Karstetter
Born in 1961.
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.
Members of the board who are not officers of the Fund or of AEFC receive an
annual fee of $2,800 for IDS Life Capital Resource Fund, $1,200 for IDS Life
International Equity Fund, $1,400 for IDS Life Aggressive Growth Fund, $1,100
for IDS Life Special Income Fund, $200 for IDS Life Moneyshare Fund, $2,600 for
IDS Life Managed Fund, $800 for IDS Life Growth Dimensions Fund, $100 for IDS
Life Global Yield Fund and $200 for IDS Life Income Advantage Fund. The Chair of
the Contracts Committee receives an additional $83. 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
between $1 and $27. Expenses for attending meetings are reimbursed.
During the fiscal year that ended Aug. 31, 1998, the members of the board, for
attending up to 26 meetings, received the following compensation, in total, from
all funds in the IDS MUTUAL FUND GROUP.
Capital Resource Fund
<TABLE>
<CAPTION>
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $3,700 $0 $0 $98,400
Lynne V. Cheney 3,720 0 0 92,400
Robert F. Froehlke 1,050 0 0 29,100
Heinz F. Hutter 3,750 0 0 101,400
Anne P. Jones 3,791 0 0 96,900
Melvin R. Laird 672 0 0 16,400
Alan K. Simpson 3,564 0 0 84,400
Edson W. Spencer 3,942 0 0 112,900
Wheelock Whitney 3,796 0 0 104,400
C. Angus Wurtele 3,850 0 0 107,400
<PAGE>
International Equity Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $2,100 $0 $0 $98,400
Lynne V. Cheney 2,028 0 0 92,400
Robert F. Froehlke 650 0 0 29,100
Heinz F. Hutter 2,150 0 0 101,400
Anne P. Jones 2,100 0 0 96,900
Melvin R. Laird 390 0 0 16,400
Alan K. Simpson 1,888 0 0 84,400
Edson W. Spencer 2,342 0 0 112,900
Wheelock Whitney 2,200 0 0 104,400
C. Angus Wurtele 2,250 0 0 107,400
Aggressive Growth Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $2,233 $0 $0 $98,400
Lynne V. Cheney 2,169 0 0 92,400
Robert F. Froehlke 650 0 0 29,100
Heinz F. Hutter 2,283 0 0 101,400
Anne P. Jones 2,243 0 0 96,900
Melvin R. Laird 390 0 0 16,400
Alan K. Simpson 2,029 0 0 84,400
Edson W. Spencer 2,475 0 0 112,900
Wheelock Whitney 2,333 0 0 104,400
C. Angus Wurtele 2,383 0 0 107,400
Special Income Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $2,000 $0 $0 $98,400
Lynne V. Cheney 1,922 0 0 92,400
Robert F. Froehlke 625 0 0 29,100
Heinz F. Hutter 2,050 0 0 101,400
Anne P. Jones 1,994 0 0 96,900
Melvin R. Laird 372 0 0 16,400
Alan K. Simpson 1,783 0 0 84,400
Edson W. Spencer 2,242 0 0 112,900
Wheelock Whitney 2,100 0 0 104,400
C. Angus Wurtele 2,150 0 0 107,400
<PAGE>
Moneyshare Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $1,000 $0 $0 $98,400
Lynne V. Cheney 862 0 0 92,400
Robert F. Froehlke 325 0 0 29,100
Heinz F. Hutter 1,050 0 0 101,400
Anne P. Jones 937 0 0 96,900
Melvin R. Laird 160 0 0 16,400
Alan K. Simpson 735 0 0 84,400
Edson W. Spencer 1,242 0 0 112,900
Wheelock Whitney 1,100 0 0 104,400
C. Angus Wurtele 1,150 0 0 107,400
Managed Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $3,333 $0 $0 $98,400
Lynne V. Cheney 3,331 0 0 92,400
Robert F. Froehlke 875 0 0 29,100
Heinz F. Hutter 3,383 0 0 101,400
Anne P. Jones 3,407 0 0 96,900
Melvin R. Laird 549 0 0 16,400
Alan K. Simpson 3,182 0 0 84,400
Edson W. Spencer 3,575 0 0 112,900
Wheelock Whitney 3,433 0 0 104,400
C. Angus Wurtele 3,483 0 0 107,400
Growth Dimensions Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $1,367 $0 $0 $98,400
Lynne V. Cheney 1,251 0 0 92,400
Robert F. Froehlke 300 0 0 29,100
Heinz F. Hutter 1,417 0 0 101,400
Anne P. Jones 1,333 0 0 96,900
Melvin R. Laird 143 0 0 16,400
Alan K. Simpson 1,125 0 0 84,400
Edson W. Spencer 1,608 0 0 112,900
Wheelock Whitney 1,467 0 0 104,400
C. Angus Wurtele 1,517 0 0 107,400
<PAGE>
Global Yield Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $900 $0 $0 $98,400
Lynne V. Cheney 756 0 0 92,400
Robert F. Froehlke 300 0 0 29,100
Heinz F. Hutter 950 0 0 101,400
Anne P. Jones 831 0 0 96,900
Melvin R. Laird 143 0 0 16,400
Alan K. Simpson 630 0 0 84,400
Edson W. Spencer 1,142 0 0 112,900
Wheelock Whitney 1,000 0 0 104,400
C. Angus Wurtele 1,050 0 0 107,400
Income Advantage Fund
Board compensation
Pension or Total Cash
Aggregate Retirement benefits Estimated annual compensation from
Board member compensation from accrued as fund benefit on retirement the IDS MUTUAL FUND
the fund expenses* GROUP
- -------------------------------------------------------------------------------------------------------------
H. Brewster Atwater, Jr. $ 967 $0 $0 $98,400
Lynne V. Cheney 827 0 0 92,400
Robert F. Froehlke 300 0 0 29,100
Heinz F. Hutter 1,017 0 0 101,400
Anne P. Jones 903 0 0 96,900
Melvin R. Laird 143 0 0 16,400
Alan K. Simpson 701 0 0 84,400
Edson W. Spencer 1,208 0 0 112,900
Wheelock Whitney 1,067 0 0 104,400
C. Angus Wurtele 1,117 0 0 107,400
</TABLE>
On Aug. 31, 1998, 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 in a central depository systems as allowed by federal law.
The custodian has entered into a sub-custodian arrangement with the Morgan
Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth Floor,
Brooklyn, NY 11201-2775. As part of this arrangement, securities purchased
outside the United States are maintained in the custody of various foreign
branches of Morgan Stanley or in such other financial institutions as may be
permitted by law and by the Fund's sub-custodian agreement.
<PAGE>
INDEPENDENT AUDITORS
The Funds' financial statements contained in their Annual Report, as of and for
the year ended Aug. 31, 1998, 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 1998 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, 1998, 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.
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APPENDIX D
OPTIONS AND STOCK INDEX FUTURES CONTRACTS FOR INVESTMENTS OF CAPITAL RESOURCE,
INTERNATIONAL EQUITY, AGGRESSIVE GROWTH, MANAGED, GROWTH DIMENSIONS AND GLOBAL
YIELD FUNDS
Capital Resource, International Equity, Aggressive Growth, Managed, Growth
Dimensions and Global Yield funds may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market. The Fund may enter into
stock index futures contracts traded on any U.S. or foreign exchange. The Fund
also may buy or write put and call options on these futures and on stock
indexes. Options in the over-the-counter market will be purchased only when the
investment manager believes a liquid secondary market exists for the options and
only from dealers and institutions the investment manager believes present a
minimal credit risk. Some options are exercisable only on a specific date. In
that case, or if a liquid secondary market does not exist, the Fund could be
required to buy or sell securities at disadvantageous prices, thereby incurring
losses. Managed and Global Yield Funds also may enter into interest rate futures
contracts - see Appendix E.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition, the
buyer generally pays a broker a commission. The writer receives a premium, less
another commission, at the time the option is written. The cash received is
retained by the writer whether or not the option is exercised. A writer of a
call option may have to sell the security for a below-market price if the market
price rises above the exercise price. A writer of a put option may have to pay
an above-market price for the security if its market price decreases below the
exercise price. The risk of the writer is potentially unlimited, unless the
option is covered.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts may benefit a fund and its shareholders by
improving the fund's liquidity and by helping to stabilize the value of its net
assets.
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.
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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
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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
<PAGE>
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 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.
<TABLE>
<CAPTION>
Dollar-cost averaging
- ---------------------------------- ------------------------------- -------------------------------
Regular Market Value of an Accumulation
Investment Accumulation Unit Units Acquired
- ---------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
$100 $ 6 16.7
100 4 25.0
100 4 25.0
100 6 16.7
100 5 20.0
--- - ----
$500 $ 25 103.4
</TABLE>
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>
APPENDIX H
INVESTING IN FOREIGN SECURITIES
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below and those described in
the prospectus, which are not typically associated with investing in United
States securities. Foreign companies are not generally subject to uniform
accounting and auditing and financial reporting standards comparable to those
applicable to domestic companies. Additionally, many foreign stock markets,
while growing in volume of trading activity, have substantially less volume than
the New York Stock Exchange, and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the United States and at times, volatility of price can be greater
than in the United States. Further, foreign markets have different clearance,
settlement, registration and communication procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in such procedures could result in temporary periods when
assets of the Fund are uninvested and no return is earned thereon. The inability
of the Fund is to make intended security purchases due to such problems could
cause the Fund to miss attractive investment opportunities. Payment for
securities without delivery may be required in certain foreign markets and, when
participating in new issues, some foreign countries require payment to be made
in advance of issuance (at the time of issuance, the market value of the
security may be more or less than the purchase price). Some foreign markets also
have compulsory depositories (i.e., the Fund does not have a choice as to where
the securities are held). Fixed commissions on some foreign stock exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Fund will endeavor to achieve the most favorable net results on its portfolio
transactions. Further, the Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. It may
be more difficult for the Funds' agents to keep currently informed about
corporate actions such as stock dividends or other matters which may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delays or loss of certificates for portfolio securities.
In addition, with respect to certain foreign countries, there is the possibility
of nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability, diplomatic developments which
could affect United States investments in those countries, or other unforeseen
actions by regulatory bodies (such as changes to settlement or custody
procedures). Investments in foreign securities may also entail certain risks,
such as possible currency blockages or transfer restrictions, and the difficulty
of enforcing rights in other countries.
<PAGE>
Independent auditors' report
The board and shareholders
IDS Life Investment Series, Inc.
IDS Life Capital Resource Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
IDS Life Growth Dimensions Fund
IDS Life Special Income Fund, Inc.
IDS Life Special Income Fund
IDS Life Global Yield Fund
IDS Life Income Advantage Fund
IDS Life Moneyshare Fund, Inc. and
IDS Life Managed Fund, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of IDS Life Capital
Resource Fund, IDS Life International Equity Fund, IDS Life Aggressive
Growth Fund, IDS Life Growth Dimensions Fund, (funds within IDS Life
Investment Series, Inc.), IDS Life Special Income Fund, IDS Life Global
Yield Fund, IDS Life Income Advantage Fund, (funds within IDS Special
Income Fund, Inc.), IDS Life Moneyshare Fund, Inc. and IDS Life Managed
Fund, Inc. as of August 31, 1998, 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, 1998. 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.
<PAGE>
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, 1998 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 2, 1998
(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, 1998
Assets
Capital Special Managed
Resource Income Fund
Fund Fund
Investments in securities, at value (Note 1):
(identified cost, $4,053,368,238; $1,904,303,295
<S> <C> <C> <C>
and $3,871,789,904, respectively) $4,460,701,762 $1,850,562,244 $4,332,663,001
Cash in bank on demand deposit -- 794,698 139,174
Receivable for investment securities sold 3,248,153 1,072,493 129,695,226
Dividends and accrued interest receivable 8,057,738 31,098,966 29,307,968
U.S. government securities held as collateral for securities loaned (Note 5) -- 22,365,000 159,159,316
Receivable for capital stock sold -- 11,533,058 23,127,220
---------- ---------- ----------
Total assets 4,472,007,653 1,917,426,459 4,674,091,905
------------- ------------- -------------
Liabilities
Disbursements in excess of cash on demand deposit 6,232,350 -- --
Dividends payable to shareholders (Note 1) 1,839,472 12,432,657 34,492,118
Payable for investment securities purchased -- 1,109,297 17,203,999
Accrued investment management and services fee 2,862,119 1,052,751 2,562,557
Payable upon return of securities loaned (Note 5) -- 50,209,000 202,771,316
Payable for capital stock redeemed 7,703,093 8,207 3,730,800
Other accrued expenses 464,490 118,690 377,658
------- ------- -------
Total liabilities 19,101,524 64,930,602 261,138,448
---------- ---------- -----------
Net assets applicable to outstanding capital stock $4,452,906,129 $1,852,495,857 $4,412,953,457
============== ============== ==============
Represented by
Capital stock-- $.01 par value ($.001 for Managed Fund) (Note 1) 1,661,481 $ 1,671,243 $ 255,785
Additional paid-in capital 3,644,567,525 1,904,887,594 3,525,904,643
Undistributed (excess of distributions over) net investment income (61,479) 2,105,989 (4,408,797)
Accumulated net realized gain (loss) 399,405,078 (2,282,277) 430,440,937
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 407,333,524 (53,886,692) 460,760,889
----------- ----------- -----------
Total-- representing net assets applicable to outstanding capital stock $4,452,906,129 $1,852,495,857 $4,412,953,457
============== ============== ==============
Shares outstanding 166,148,138 167,124,308 255,784,848
----------- ----------- -----------
Net asset value per share of outstanding capital stock 26.80 $ 11.08 $ 17.25
----- -------------- --------------
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, 1998
Assets
Moneyshare International Aggressive
Fund Equity Growth
Fund Fund
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers
(identified cost, $414,439,143; $1,784,464,426 and $1,968,936,492,
<S> <C> <C> <C>
respectively) $414,439,143 $2,074,353,693 $1,862,836,555
Investments in securities of affiliated issuers
(identified cost, $6,730,104 and $32,832,754 for
International Equity and Aggressive Growth Fund, respectively) -- 4,195,625 33,617,500
Cash in bank on demand deposit 33,476 76,525 1,101,727
Receivable for investment securities sold -- 14,947,311 108,040,646
Dividends and accrued interest receivable 417,201 5,255,680 481,535
U.S. government securities held as collateral for securities loaned (Note 5) -- 3,132,899 7,217,275
Receivable for capital stock sold 14,925,238 1,631,354 --
---------- --------- ---------
Total assets 429,815,058 2,103,593,087 2,013,295,238
----------- ------------- -------------
Liabilities
Dividends payable to shareholders (Note 1) 1,723,652 6,669,450 --
Payable for investment securities purchased -- -- 10,834,483
Accrued investment management and services fee 172,653 1,662,686 1,322,650
Unrealized depreciation on foreign currency contracts held,
at value (Notes 1 and 4) -- 273,806 --
Payable upon return of securities loaned (Note 5) -- 69,253,899 18,739,275
Payable for capital stock redeemed 3,328 2,700,548 6,610,797
Other accrued expenses 54,425 299,366 196,659
------ ------- -------
Total liabilities 1,954,058 80,859,755 37,703,864
--------- ---------- ----------
Net assets applicable to outstanding capital stock $427,861,000 $2,022,733,332 $1,975,591,374
============ ============== ==============
Represented by
Capital stock-- $.01 par value (Note 1) 4,278,972 $ 1,419,295 $ 1,507,888
Additional paid-in capital 423,584,477 1,723,096,956 1,943,883,384
Undistributed net investment income 82 214,312 3,239
Accumulated net realized gain (loss) (2,531) 10,584,503 135,512,054
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies (Note 4) -- 287,418,266 (105,315,191)
--------- ----------- ------------
Total-- representing net assets applicable to outstanding capital stock $427,861,000 $2,022,733,332 $1,975,591,374
============ ============== ==============
Shares outstanding 427,897,200 141,929,530 150,788,780
----------- ----------- -----------
Net asset value per share of outstanding capital stock 1.00 $ 14.25 $ 13.10
---- -------------- --------------
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, 1998
Assets
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Investments in securities, at value (Note 1):
(identified cost, $187,428,732;
<S> <C> <C> <C>
$1,815,972,190 and $601,080,818, respectively) $183,718,732 $1,961,007,872 $552,733,505
Cash in bank on demand deposit 147,716 50,624 6,761
Receivable for investment securities sold -- 6,648,880 1,535,442
Dividends and accrued interest receivable 3,417,219 1,637,673 11,833,289
U.S. government securities held as collateral for securities loaned (Note 5) -- 828,703 --
Receivable for capital stock sold 664,806 -- 4,681,752
------- ------- ---------
Total assets 187,948,473 1,970,173,752 570,790,749
----------- ------------- -----------
Liabilities
Dividends payable to shareholders (Note 1) 736,378 2,154,086 5,141,703
Payable for investment securities purchased 1,998,146 535,387 --
Accrued investment management and services fee 141,437 1,234,928 335,552
Payable upon return of securities loaned (Note 5) 1,600,000 828,703 --
Payable for capital stock redeemed 116,627 5,883,918 1,017,438
Other accrued expenses 18,453 12,091 15,059
------ ------ ------
Total liabilities 4,611,041 10,649,113 6,509,752
--------- ---------- ---------
Net assets applicable to outstanding capital stock $183,337,432 $1,959,524,639 $564,280,997
============ ============== ============
Represented by
Capital stock-- $.01 par value (Note 1) 181,704 $ 1,474,615 $ 591,499
Additional paid-in capital 187,331,731 1,810,614,824 605,839,817
Excess of distributions over net investment income (411,170) (7) (332,628)
Accumulated net realized gain (loss) (71,071) 2,399,525 6,529,622
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies (3,693,762) 145,035,682 (48,347,313)
---------- ----------- -----------
Total-- representing net assets applicable to outstanding capital stock $183,337,432 $1,959,524,639 $564,280,997
============ ============== ============
Shares outstanding 18,170,417 147,461,467 59,149,923
---------- ----------- ----------
Net asset value per share of outstanding capital stock 10.09 $ 13.29 $ 9.54
----- -------------- ------------
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, 1998
Investment income
Capital Special Managed
Resource Income Fund
Fund Fund
Income:
<S> <C> <C> <C>
Dividends $ 44,443,777 $ 1,856,543 $ 31,831,037
Interest 8,383,813 154,326,976 122,984,994
Less foreign taxes withheld (214,949) (125,183) (385,029)
-------- -------- --------
Total income 52,612,641 156,058,336 154,431,002
---------- ----------- -----------
Expenses (Note 2):
Investment management services fee 31,852,411 11,816,239 28,641,618
Administrative services fees and expenses 2,029,480 876,835 1,359,170
Custodian fees and expenses 328,095 158,414 369,853
Compensation of board members and officers 31,834 17,237 28,553
Printing and postage 305,350 52,272 272,265
Audit fees 21,500 22,500 20,000
Other 4,250 56,538 4,170
----- ------ -----
Total expenses 34,572,920 13,000,035 30,695,629
---------- ---------- ----------
Investment income (loss)-- net 18,039,721 143,058,301 123,735,373
---------- ----------- -----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 448,373,910 379,614 433,249,764
Financial futures contracts -- (687,706) --
Foreign currency transactions -- (157,326) (10,370)
Options contracts written (Note 7) -- -- 105,167
- ------ ----- -------
Net realized gain (loss) on investments 448,373,910 (465,418) 433,344,561
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies $(503,365,840) (110,599,748) (467,198,242)
------------- ------------ ------------
Net gain (loss) on investments and foreign currencies (54,991,930) (111,065,166) (33,853,681)
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations (36,952,209) $ 31,993,135 $ 89,881,692
=========== ============= =============
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, 1998
Investment income
Moneyshare International Aggressive
Fund Equity Growth
Fund Fund
Income:
Dividends (including $78,882 earned from affiliates for
<S> <C> <C> <C>
International Equity Fund) $ -- $33,054,646 $ 6,490,529
Interest 22,552,009 10,400,206 12,679,011
Less foreign taxes withheld -- (1,960,004) (7,270)
------ ---------- ------
Total income 22,552,009 41,494,848 19,162,270
---------- ---------- ----------
Expenses (Note 2):
Investment management services fee 2,041,502 18,268,846 15,625,616
Administrative services fees and expenses 113,091 1,029,683 1,164,742
Custodian fees and expenses 42,511 1,363,589 265,933
Compensation of board members and officers 8,561 18,097 19,190
Printing and postage 21,860 92,813 86,329
Audit fees 16,000 19,500 16,500
Other 1,467 879 1,571
----- --- -----
Total expenses 2,244,992 20,793,407 17,179,881
--------- ---------- ----------
Investment income (loss)-- net 20,307,017 20,701,441 1,982,389
---------- ---------- ---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $3,140,112 realized gain
on investments of affiliated issuers for
Aggressive Growth Fund) (Note 3) (1,891) 11,787,106 142,497,874
Foreign currency transactions -- 9,143,804 (19,534)
Options contracts written (Note 7) -- -- (3,551,587)
----- ----- ----------
Net realized gain (loss) on investments (1,891) 20,930,910 138,926,753
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies -- 46,999,648 (522,716,812)
---------- ------------
Net gain (loss) on investments and foreign currencies (1,891) 67,930,558 (383,790,059)
------ ---------- ------------
Net increase (decrease) in net assets resulting from operations $20,305,126 $88,631,999 $(381,807,670)
=========== =========== =============
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, 1998
Investment income
Global Growth Income
Yield Dimensions Advantage
Fund Fund Fund
Income:
<S> <C> <C> <C>
Dividends $ -- $ 16,368,424 $ 3,987,806
Interest 10,645,586 7,650,296 42,887,953
Less foreign taxes withheld (2,737) (123,538) --
------ -------- ------
Total income 10,642,849 23,895,182 46,875,759
---------- ---------- ----------
Expenses (Note 2):
Investment management services fee 1,338,718 11,769,360 2,988,028
Administrative services fees and expenses 87,290 819,952 207,131
Custodian fees and expenses 49,528 348,830 52,039
Compensation of board members and officers 7,701 11,526 8,248
Printing and postage 802 1,361 4,001
Audit fees 13,000 15,000 14,000
Other 1,983 2,903 4,636
----- ----- -----
Total expenses 1,499,022 12,968,932 3,278,083
--------- ---------- ---------
Investment income (loss)-- net 9,143,827 10,926,250 43,597,676
--------- ---------- ----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (721,325) 13,922,546 6,264,774
Foreign currency transactions (11,280) -- --
Options contracts written (Note 7) -- 209,821 --
----- ------- -----
Net realized gain (loss) on investments (732,605) 14,132,367 6,264,774
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies (4,143,433) (31,064,162) (57,363,291)
---------- ----------- -----------
Net gain (loss) on investments and foreign currencies (4,876,038) (16,931,795) (51,098,517)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations $ 4,267,789 $ (6,005,545) $ (7,500,841)
=========== ============== ============
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
Capital Resource Fund Special Income Fund
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 18,039,721 $ 27,736,768 $ 143,058,301 $ 138,447,393
Net realized gain (loss) on investments 448,373,910 64,476,008 (465,418) 36,389,635
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (503,365,840) 1,057,213,832 (110,599,748) 48,544,163
------------ ------------- ------------ ----------
Net increase (decrease) in net assets resulting
from operations (36,952,209) 1,149,426,608 31,993,135 223,381,191
----------- ------------- ---------- -----------
Distributions to shareholders from:
Net investment income (19,551,462) (25,649,850) (138,696,945) (136,327,556)
Net realized gain (108,000,072) (671,576,858) (42,097,397) (11,869,083)
Excess distributions of net investment
income (Note 1) (60,536) (2,087,182) -- (1,098,015)
------- ---------- ------ ----------
Total distributions (127,612,070) (699,313,890) (180,794,342) (149,294,654)
------------ ------------ ------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 94,373,230 93,527,775 111,114,932 80,830,509
Reinvested distributions at net asset value 127,612,070 699,313,890 180,794,342 149,294,654
Payments for redemptions (471,105,969) (748,232,170) (213,929,824) (292,741,712)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital
share transactions (249,120,669) 44,609,495 77,979,450 (62,616,549)
------------ ---------- ---------- -----------
Total increase (decrease) in net assets (413,684,948) 494,722,213 (70,821,757) 11,469,988
Net assets at beginning of year 4,866,591,077 4,371,868,864 1,923,317,614 1,911,847,626
------------- ------------- ------------- -------------
Net assets at end of year $4,452,906,129 $4,866,591,077 $1,852,495,857 $1,923,317,614
============== ============== ============== ==============
Undistributed (excess of distributions over)
net investment income $ (61,479) $ 1,511,741 $ 2,105,989 $ 2,658,045
-------------- -------------- -------------- --------------
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
Managed Fund Moneyshare Fund
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 123,735,373 $ 106,188,571 $ 20,307,017 $ 18,045,404
Net realized gain (loss) on investments 433,344,561 349,723,816 (1,891) 75
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (467,198,242) 533,911,315 -- --
------------ ----------- ----- -----
Net increase (decrease) in net assets resulting 89,881,692 989,823,702 20,305,126 18,045,479
---------- ----------- ---------- ----------
from operations
Distributions to shareholders from:
Net investment income (120,816,343) (103,963,520) (20,307,015) (18,045,405)
Net realized gain (354,443,189) (229,851,535) -- --
Excess distributions of net investment
income (Note 1) (2,711,871) (2,233,237) -- --
---------- ---------- ----- -----
Total distributions (477,971,403) (336,048,292) (20,307,015) (18,045,405)
------------ ------------ ----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 164,843,111 165,143,091 372,906,239 381,728,848
Reinvested distributions at net asset value 477,971,403 336,048,292 20,307,015 18,045,405
Payments for redemptions (286,373,658) (192,281,775) (386,699,143) (266,545,406)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital
share transactions 356,440,856 308,909,608 6,514,111 133,228,847
----------- ----------- --------- -----------
Total increase (decrease) in net assets (31,648,855) 962,685,018 6,512,222 133,228,921
Net assets at beginning of year 4,444,602,312 3,481,917,294 421,348,778 288,119,857
------------- ------------- ----------- -----------
Net assets at end of year $4,412,953,457 $4,444,602,312 $427,861,000 $421,348,778
============== ============== ============ ============
Undistributed (excess of distributions over)
net investment income $ (4,408,797) $ (2,919,030) $ 82 $ 80
-------------- -------------- ------------ ------------
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
International Equity Fund Aggressive Growth Fund
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 20,701,441 $ 26,417,287 $ 1,982,389 $ 10,202,090
Net realized gain (loss) on investments 20,930,910 28,172,219 138,926,753 211,414,428
Net change in unrealized appreciation
(depreciation) of investments and on translation
of assets and liabilities in foreign currencies 46,999,648 124,342,284 (522,716,812) 167,575,911
---------- ----------- ------------ -----------
Net increase (decrease) in net assets resulting 88,631,999 178,931,790 (381,807,670) 389,192,429
---------- ----------- ------------ -----------
from operations
Distributions to shareholders from:
Net investment income (21,412,151) (24,686,010) (1,982,434) (10,201,144)
Net realized gain (27,841,143) (39,674,522) (212,438,792) (213,792,618)
Excess distributions of net investment
income (Note 1) (8,929,492) (611,057) (1,274,187) --
---------- -------- ---------- -----
Total distributions (58,182,786) (64,971,589) (215,695,413) (223,993,762)
----------- ----------- ------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 131,026,007 187,607,054 123,640,158 221,900,102
Reinvested distributions at net asset value 58,182,786 64,971,589 215,695,413 223,993,762
Payments for redemptions (301,899,906) (136,014,005) (193,668,539) (124,759,988)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital
share transactions (112,691,113) 116,564,638 145,667,032 321,133,876
------------ ----------- ----------- -----------
Total increase (decrease) in net assets (82,241,900) 230,524,839 (451,836,051) 486,332,543
Net assets at beginning of year 2,104,975,232 1,874,450,393 2,427,427,425 1,941,094,882
------------- ------------- ------------- -------------
Net assets at end of year $2,022,733,332 $2,104,975,232 $1,975,591,374 $2,427,427,425
-------------- -------------- -------------- --------------
Undistributed net investment income $ 214,312 $ 710,710 $ 3,239 $ 45
-------------- -------------- -------------- --------------
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
Global Yield Fund Growth Dimensions Fund
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 9,143,827 $ 3,905,294 $ 10,926,250 $ 7,598,882
Net realized gain (loss) on investments (732,605) (728,768) 14,132,367 (11,294,834)
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (4,143,433) 320,947 (31,064,162) 176,292,119
---------- ------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations 4,267,789 3,497,473 (6,005,545) 172,596,167
--------- --------- ---------- -----------
Distributions to shareholders from:
Net investment income (8,768,516) (2,750,769) (10,926,249) (7,598,890)
Net realized gain (557,107) -- -- --
-------- ----- ----- -----
Total distributions (9,325,623) (2,750,769) (10,926,249) (7,598,890)
---------- ---------- ----------- ----------
Capital share transactions (Note 6)
Proceeds from sales 64,799,779 95,993,878 683,285,147 971,525,218
Reinvested distributions at net asset value 9,325,623 2,750,769 10,926,249 7,598,890
Payments for redemptions (4,907,859) (1,244,579) (24,581,947) (8,114,944)
---------- ---------- ----------- ----------
Increase (decrease) in net assets from capital
share transactions 69,217,543 97,500,068 669,629,449 971,009,164
---------- ---------- ----------- -----------
Total increase (decrease) in net assets 64,159,709 98,246,772 652,697,655 1,136,006,441
Net assets at beginning of year 119,177,723 20,930,951 1,306,826,984 170,820,543
----------- ---------- ------------- -----------
Net assets at end of year $183,337,432 $119,177,723 $1,959,524,639 $1,306,826,984
============ ============ ============== ==============
Undistributed (excess of distributions over)
net investment income $ (411,170) $ 6,277 $ (7) $ (8)
------------ ------------ -------------- --------------
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
Income Advantage Fund
1998 1997
<S> <C> <C>
Investment income (loss)-- net $ 43,597,676 $ 15,331,448
Net realized gain (loss) on investments 6,264,774 1,950,076
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (57,363,291) 9,362,691
----------- ---------
Net increase (decrease) in net assets resulting
from operations (7,500,841) 26,644,215
---------- ----------
Distributions to shareholders from:
Net investment income (43,596,675) (15,331,448)
Net realized gain (1,952,622) --
---------- -----
Total distributions (45,549,297) (15,331,448)
----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 262,609,367 247,490,767
Reinvested distributions at net asset value 45,549,297 15,331,448
Payments for redemptions (11,144,825) (2,655,838)
----------- ----------
Increase (decrease) in net assets from capital
share transactions 297,013,839 260,166,377
----------- -----------
Total increase (decrease) in net assets 243,963,701 271,479,144
Net assets at beginning of year 320,317,296 48,838,152
----------- ----------
Net assets at end of year $564,280,997 $320,317,296
============ ============
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 the current interest rates; those maturing in 60
days or less are valued at amortized cost. Pursuant to Rule 2a-7 of the
1940 Act, all securities in Moneyshare Fund are valued at amortized cost
which approximates market value in order to maintain a constant net asset
value of $1 per share.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Funds,
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 at the closing prices on their primary
exchanges 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, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses
realized between the trade date and settlement date 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 Aug. 31, 1998, investments in securities for Special Income Fund,
Managed Fund, Global Yield Fund and Income Advantage Fund included issues
that are illiquid. The Funds currently limit investments in illiquid
securities to 10% of the net assets, at market value, at the time of
purchase. The aggregate value of such securities at Aug. 31, 1998, was
$10,349,400, $4,122,675, $287,400 and $7,783,258 that represents 0.56%,
0.09%, 0.16% and 1.38% of net assets for Special Income Fund, Managed
Fund, Global Yield 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% limitation
specified above.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by Managed
Fund on a forward-commitment or when-issued basis can take place one month
or more after the transaction date. During this period, such securities
are subject to market fluctuations and they may affect the Fund's net
assets the same as owned securities. The Fund designates cash or liquid
high-grade short-term debt securities at least equal to the amount of its
commitment. As of Aug. 31, 1998, the Fund had entered into outstanding
when-issued or forward commitments of $16,951,758.
<PAGE>
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:
<TABLE>
<CAPTION>
Capital Special
Resource Income Managed
<S> <C> <C> <C>
Accumulated net realized gain (loss) $ 943 $ 4,913,412 $ 1,696,926
Undistributed net investment income (943) (4,913,412) (1,696,926)
Additional paid-in-capital reduction
(increase) $ -- $ -- $ --
International Aggressive
Moneyshare Equity Growth
Accumulated net realized gain (loss) $ -- $(9,631,844) $(1,277,426)
Undistributed net investment income -- 9,143,804 1,277,426
Additional paid-in-capital reduction
(increase) $ -- $ 488,040 $ --
Global Growth Income
Yield Dimensions Advantage
Accumulated net realized gain (loss) $ $792,758 $ -- $ 267,963
Undistributed net investment income (792,758) -- (267,963)
Additional paid-in capital reduction
(increase) $ -- $ -- $ --
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Retirement Annuity Mutual Funds
Dividends
At Aug. 31, 1998, dividends declared for each Fund payable Sept. 2, 1998
are as follows:
Capital Resource $0.011
Special Income $0.075
Managed $0.135
Moneyshare $0.004
International Equity $0.047
Aggressive Growth $0.000
Global Yield $0.041
Growth Dimensions $0.015
Income Advantage $0.088
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 securities are
purchased or sold. Dividend income is recognized on the ex-dividend date
or upon receipt of ex-dividend notification in the case of certain foreign
securities. For U.S. dollar denominated bonds, interest income includes
level-yield amortization of premium and discount. For foreign bonds, the
Funds amortize premium and original issue discount daily and market
discount is recognized at the time of sale.
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.
AEFC has a Sub-investment Advisory Agreement with American Express Asset
Management International Inc. (International), a wholly-owned subsidiary of
AEFC.
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 Aug. 31, 1998, cost of purchases and proceeds from sales
of securities aggregated, respectively, $2,535,389,882 and $2,545,391,177
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 $3,392,115,018 $3,662,409,190
Special Income 1,006,423,770 870,647,840
Managed 2,285,966,654 2,500,287,438
International Equity 1,735,317,785 1,929,735,002
Aggressive Growth 4,057,741,572 4,301,034,829
Global Yield 91,167,984 20,321,463
Growth Dimensions 1,274,151,174 587,685,446
Income Advantage 575,810,940 298,630,282
Net realized gains and losses on investment sales are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with IDS Life for the year
ended Aug. 31, 1998 are as follows:
Capital Resource $630,669
Managed 123,736
Aggressive Growth 414,129
Growth Dimensions 129,771
<PAGE>
4
Foreign currency
contracts
At Aug. 31, 1998, International Equity Fund had entered into a foreign
currency exchange contract that obligates the Fund to deliver currency at
a specified future date. The unrealized appreciation and/or depreciation
on this contract is included in the accompanying financial statements. See
"Summary of significant accounting policies." The terms of the open
contract are as follows:
International Equity Fund
<TABLE>
<CAPTION>
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
<S> <C> <C> <C> <C>
Sept. 2, 1998 11,640,426 11,366,620 $-- $273,806
British Pound U.S. Dollar
</TABLE>
<PAGE>
5
Lending of portfolio
securities
Presented below is information regarding securities on loan at Aug. 31,
1998.
<TABLE>
<CAPTION>
Special International
Income Managed Equity
<S> <C> <C> <C>
Value of securities on loan to brokers $48,130,564 $195,313,416 $65,831,625
Collateral received for securities loaned:
Cash $27,844,000 $ 43,612,000 $66,121,000
U.S. government securities, at value 22,365,000 159,159,316 3,132,899
Total collateral received for securities
loaned $50,209,000 $202,771,316 $69,253,899
Aggressive Global Growth
Growth Yield Dimensions
Value of securities on loan to brokers $16,525,725 $1,560,000 $734,375
Collateral received for securities loaned:
Cash $11,522,000 $1,600,000 $ --
U.S. government securities, at value 7,217,275 -- 828,703
Total collateral received for securities
loaned $18,739,275 $1,600,000 $828,703
</TABLE>
Income from securities lending amounted to $443,961, $420,247, $690,866,
$1,182,691, $1,007,722, $17,874 and $70,609 for Capital Resource, Special
Income, Managed, International Equity, Aggressive Growth, Global Yield and
Growth Dimensions, respectively, for the year ended Aug. 31, 1998.
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.)
<PAGE>
Notes to financial statements
Retirement Annuity Mutual Funds
6
Capital share
transactions
Transactions in shares of each Fund for the years ended Aug. 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
Year ended Aug. 31, 1998
Capital Special
Resource Income Managed
<S> <C> <C> <C>
Sold 3,111,763 9,406,202 8,609,654
Issued for reinvested
distributions 4,593,438 15,335,152 26,654,679
Redeemed (15,545,239) (18,015,220) (15,015,022)
Net increase (decrease) (7,840,038) 6,726,134 20,249,311
Year ended Aug. 31, 1998
International Aggressive
Moneyshare Equity Growth
Sold 372,938,041 8,581,401 7,220,136
Issued for reinvested
distributions 20,308,748 4,293,695 13,613,493
Redeemed (386,732,614) (20,393,377) (11,448,329)
Net increase (decrease) 6,514,175 (7,518,281) 9,385,300
Year ended Aug. 31, 1998
Global Growth Income
Yield Dimensions Advantage
Sold 6,193,224 47,550,647 25,022,142
Issued for reinvested 894,227 493,421 4,401,276
distributions
Redeemed (470,748) (1,469,624) (1,093,400)
Net increase (decrease) 6,616,703 46,574,444 28,330,018
Year ended Aug. 31, 1997
Capital Special
Resource Income Managed
Sold 3,671,546 6,809,483 9,338,045
Issued for reinvested 28,934,823 12,551,003 19,555,272
distributions
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 18,046,948 4,698,005 14,394,788
distributions
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 267,366 622,770 1,512,556
distributions
Redeemed (120,645) (663,937) (261,858)
Net increase (decrease) 9,477,128 83,706,957 25,821,560
</TABLE>
<PAGE>
7
Options
contracts
written
The number of contracts and premium amounts associated with options
contracts written by Aggressive Growth Fund during the year ended Aug. 31,
1998 is as follows:
<TABLE>
<CAPTION>
Calls
Contracts Premium
<S> <C> <C>
Balance Aug. 31, 1997 6,350 $ 1,388,808
Opened 14,490 4,597,593
Closed or expired (15,840) (5,469,024)
Exercised (5,000) (517,377)
Balance Aug. 31, 1998 -- $ --
See "Summary of significant accounting policies."
The number of contracts and premium amounts associated with options
contracts written by Growth Dimensions Fund during the year ended Aug. 31, 1998
is as follows:
Calls
Contracts Premium
Balance Aug. 31, 1997 -- $ --
Opened 2,300 226,496
Closed or expired (2,300) (226,496)
Balance Aug. 31, 1998 -- $ --
See "Summary of significant accounting policies."
The number of contracts and premium amounts associated with options
contracts written by Managed Fund during the year ended Aug. 31, 1998 is as
follows:
Calls
Contracts Premium
Balance Aug. 31, 1997 6,350 $ 1,793,640
Opened 350 206,755
Closed or expired (214) (105,167)
Exercised (6,486) (1,895,228)
Balance Aug. 31, 1998 -- $ --
See "Summary of significant accounting policies."
</TABLE>
8
Financial
highlights
"Financial highlights" showing per share data and selected financial
information are presented on pages 5-13 of the prospectus.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Capital Resource Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Common stocks (96.6%)
Issuer Shares Value(a)
Airlines (0.4%)
AMR 300,000(b) $16,350,000
Automotive & related (3.2%)
Dana 600,000 23,512,500
Federal-Mogul 1,300,000 69,387,500
Lear 1,200,000(b) 48,675,000
Total 141,575,000
Banks and savings & loans (3.1%)
Norwest 500,000 14,875,000
State Street 1,250,000 65,078,125
Washington Mutual 1,800,000 57,600,000
Total 137,553,125
Beverages & tobacco (1.9%)
Coca-Cola 1,300,000 84,662,500
Building materials & construction (2.4%)
Masco3,000,000 69,000,000
Sherwin-Williams 1,500,000 35,812,500
Total 104,812,500
Chemicals (0.8%)
Du Pont (EI) de Nemours 650,000 37,496,875
Communications equipment & services (1.1%)
Lucent Technologies 700,000 49,612,500
Computers & office equipment (14.5%)
Automatic Data Processing 600,000 38,250,000
BMC Software 1,600,000(b) 67,700,000
Cambridge Technology
Partners 500,000(b) 16,250,000
Cisco Systems 900,000(b) 73,687,500
Compaq Computer 1,500,000 41,906,250
Computer Sciences 800,000 45,250,000
Edwards (JD) & Co 500,000(b) 20,250,000
Hewlett-Packard 800,000 38,850,000
Intl Business Machines 600,000 67,575,000
Microsoft 900,000(b) 86,343,750
Network Associates 1,200,000(b) 38,700,000
Parametric Technology 2,000,000(b) 20,500,000
PeopleSoft 1,000,000(b) 28,125,000
Platinum Technology 1,500,000(b) 28,125,000
Solectron 800,000(b) 33,050,000
Total 644,562,500
Electronics (2.4%)
Intel 650,000 46,271,875
Texas Instruments 1,250,000 59,609,375
Total 105,881,250
Energy (4.8%)
Anadarko Petroleum 1,200,000 34,500,000
Exxon1,300,000 85,068,750
Mobil400,000 27,650,000
Royal Dutch Petroleum 700,000(c) 27,825,000
Tosco1,700,000 37,400,000
Total212,443,750
Energy equipment & services (0.9%)
Halliburton 600,000 15,937,500
Schlumberger 300,000(c) 13,143,750
Transocean Offshore 400,000 9,825,000
Total 38,906,250
Financial services (5.7%)
Associates First Capital
Cl A 600,000 35,475,000
Franklin Resources 1,000,000 32,250,000
Household Intl 1,200,000 44,325,000
MBNA 1,200,000 28,200,000
Morgan Stanley, Dean
Witter, Discover & Co 1,000,000 58,062,500
Travelers Group 1,250,000 55,468,750
Total 253,781,250
Health care (7.2%)
American Home Products 1,400,000 70,175,000
Bristol-Myers Squibb 800,000 78,300,000
Guidant 500,000 30,875,000
Merck & Co 700,000 81,156,250
Pfizer 650,000 60,450,000
Total 320,956,250
Health care services (1.1%)
United Healthcare 1,415,000 51,116,875
Household products (3.6%)
Colgate-Palmolive 750,000 54,093,750
Gillette 1,600,000 65,800,000
Procter & Gamble 500,000 38,250,000
Total 158,143,750
Industrial equipment & services (2.3%)
Illinois Tool Works 1,500,000 72,656,250
Ingersoll-Rand 800,000 31,800,000
Total 104,456,250
Insurance (6.7%)
ACE 3,300,000(c) 95,700,000
American Intl Group 750,000 57,984,375
Lincoln Natl 300,000 25,800,000
Progressive Corp 750,000 73,078,125
SunAmerica 750,000 46,453,125
Total 299,015,625
Leisure time & entertainment (1.5%)
Carnival Cl A 2,250,000 64,968,750
Media (3.4%)
CBS 2,500,000 65,000,000
Clear Channel
Communications 1,000,000(b) 45,000,000
MediaOne Group 1,000,000(b) 41,000,000
Total151,000,000
Multi-industry conglomerates (7.2%)
Apollo Group Cl A 700,000(b) 21,262,500
Emerson Electric 500,000 28,500,000
General Electric 2,000,000 160,000,000
Tyco Intl 2,000,000(c) 111,000,000
Total 320,762,500
Paper & packaging (2.1%)
Crown Cork & Seal 1,000,000 32,750,000
Earthshell 400,000(b) 2,125,000
Sealed Air 600,000(b) 21,600,000
Willamette Inds 1,500,000 36,937,500
Total 93,412,500
Restaurants & lodging (0.9%)
Wendy's Intl 2,000,000 40,125,000
Retail (18.2%)
American Stores 1,150,000 33,350,000
Circuit City Stores 1,000,000 30,875,000
CVS 1,400,000 50,925,000
Dayton Hudson 1,800,000 64,800,000
Dollar General 1,450,000 38,968,750
Gap 1,600,000 81,700,000
Home Depot 1,300,000 50,050,000
Kohl's 1,800,000(b) 81,787,500
Meyer (Fred) 1,000,000(b) 39,312,500
Office Depot 1,357,950(b) 34,627,725
Rite Aid 2,000,000 72,375,000
Safeway 2,600,000(b) 102,375,000
Wal-Mart Stores 2,200,000 129,250,000
Total 810,396,475
Utilities -- gas (0.2%)
Enron200,000 8,462,500
Utilities -- telephone (1.1%)
AT&T 1,000,000 50,125,000
Total common stocks
(Cost: $3,893,232,385) $4,300,578,975
Short-term securities (3.6%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.6%)
Federal Home Loan Mtge Corp Disc Nts
10-02-98 5.47% $15,600,000 $15,526,788
10-02-98 5.46 10,600,000 10,550,345
Total26,077,133
Commercial paper (3.0%)
ABB Treasury Center USA
10-28-98 5.54 5,000,000(d) 4,954,219
Barclays U.S. Funding
09-29-98 5.52 3,800,000 3,783,744
BellSouth Capital Funding
09-16-98 5.53 7,800,000(d) 7,782,125
CAFCO
10-21-98 5.57 9,600,000(d) 9,522,294
Commerzbank U.S. Finance
09-14-98 5.52 6,500,000 6,487,090
Deutsche Bank Financial
10-16-98 5.57 7,600,000 7,545,013
Fleet Funding
09-09-98 5.58 600,000(d) 599,260
09-18-98 5.54 6,100,000(d) 6,084,128
Gannett
09-08-98 5.52 8,900,000(d) 8,890,482
Glaxo Wellcome
09-22-98 5.53 6,600,000(d) 6,578,787
GTE Funding
09-09-98 5.54 7,500,000 7,490,800
Household Finance
09-24-98 5.54 8,000,000 7,971,787
Morgan Stanley, Dean Witter, Discover & Co
09-16-98 5.53 5,800,000 5,786,684
10-14-98 5.55 5,000,000 4,965,145
Natl Australia Funding (Delaware)
09-10-98 5.52 5,700,000 5,692,162
Natl Rural Utilities
10-14-98 5.54 8,500,000 8,444,160
New Center Asset Trust
11-13-98 5.57 5,500,000 5,436,463
Pfizer
09-14-98 5.52 15,000,000(d)14,970,208
Toyota Motor Credit
09-21-98 5.53 2,600,000 2,592,041
USAA Capital
09-01-98 5.57 1,000,000 1,000,000
Xerox
09-28-98 5.52 7,500,000 7,469,062
Total 134,045,654
Total short-term securities
(Cost: $160,135,853) $160,122,787
Total investments in securities
(Cost: $4,053,368,238)(e) $4,460,701,762
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. As of Aug. 31, 1998, the
value of foreign securities represented 5.6% of net assets.
(d) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$4,055,640,417 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation................................$749,811,611
Unrealized depreciation................................(344,750,266)
Net unrealized appreciation............................$405,061,345
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Retirement Annuity Mutual Funds
Special Income Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Bonds (90.4%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (26.2%)
Argentina Govt Natl
(U.S. Dollar)
<S> <C> <C> <C>
09-19-27 9.75% $12,000,000(c,d) $8,040,000
City of Moscow
(U.S. Dollar) Zero Coupon
12-31-98 21.80 6,153,151(c,f) 3,899,252
Govt of Algeria
(U.S. Dollar)
03-04-00 7.13 2,181,818(c) 1,810,909
09-04-06 7.13 3,272,727(c) 1,963,637
Govt of Canada
(Canadian Dollar)
03-01-01 10.50 17,000,000(c) 11,949,342
Govt of Equador
(U.S. Dollar)
02-27-15 6.63 14,711,580(c) 4,156,021
Govt of Poland
(Polish Zloty)
06-12-02 12.00 18,900,000(c) 4,315,626
Govt of Russia
(Russian Ruble)
09-27-00 14.00 25,337,218(c) 288,245
12-15-20 6.63 14,700,000(c) 1,470,000
(Russian Ruble) Zero Coupon
01-27-99 -- 46,597,000(b,c,f) 702,468
05-05-99 -- 7,747,000(b,c,f) 116,789
(U.S. Dollar)
07-24-05 8.75 4,000,000(c,e) 790,000
06-24-28 12.75 11,250,000(c,e) 2,615,625
12-29-49 6.63 12,861,844(c) 1,704,194
Province of Mendoza
(U.S. Dollar)
09-04-07 10.00 4,000,000(c,e) 3,261,480
Republic of Argentina
(Argentine Peso)
07-10-02 8.75 5,000,000(c) 2,750,000
07-10-02 8.75 17,000,000(c,e) 9,350,000
02-12-07 11.75 9,000,000(c) 5,287,500
Republic of Korea
(U.S. Dollar)
04-15-08 8.88 17,550,000(c,d) 12,400,637
Resolution Funding Corp
10-15-19 8.13 38,059,000 49,418,850
United Kingdom Treasury
(British Pound)
06-10-03 8.00 9,500,000(c) 17,427,361
United Mexican States
(U.S. Dollar)
05-15-26 11.50 8,000,000(c,d) 6,710,000
U.S. Treasury
11-30-99 5.63 14,000,000 14,088,060
11-15-00 5.75 5,000,000 5,077,950
05-15-02 7.50 6,170,000 6,676,310
06-30-02 6.25 17,000,000 17,706,690
08-15-02 6.38 10,900,000 11,419,385
03-31-03 5.50 7,500,000 7,651,425
08-15-04 7.25 23,200,000 25,783,088
11-15-05 5.88 40,000,000 41,894,800
07-15-06 7.00 30,000,000 33,592,500
05-15-16 7.25 12,700,000 15,306,548
11-15-16 7.50 46,750,000 57,721,758
08-15-19 8.13 42,200,000 56,069,451
02-15-21 7.88 3,700,000 4,836,566
08-15-27 6.38 32,500,000(d) 36,955,750
Total 485,208,217
Mortgage-backed securities (6.1%)
Federal Home Loan Mtge Corp
05-01-07 9.00 5,756,232 5,959,484
03-01-13 5.50 4,834,729 4,742,869
08-01-24 8.00 5,152,251 5,347,831
01-01-25 9.00 1,407,172 1,486,537
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
03-15-22 7.00 10,455,000 10,898,292
04-15-22 8.50 10,000,000 10,805,600
07-15-22 7.00 12,940,000 13,849,035
Federal Natl Mtge Assn
09-01-07 8.50 6,139,612 6,352,841
11-01-21 8.00 494,138 514,986
04-01-22 8.00 3,275,410 3,413,534
04-01-23 8.50 5,952,694 6,249,317
06-01-24 9.00 6,057,938 6,458,246
02-01-27 7.50 14,028,903 14,410,348
Federal Natl Mtge Assn
Collateralized Mtge Obligation
05-18-26 5.00 10,000,000 9,447,987
Govt Natl Mtge Assn
06-20-24 7.38 4,628,847(j) 4,721,424
07-20-27 6.50 8,352,651(j) 8,502,269
Total 113,160,600
Aerospace & defense (0.6%)
BE Aerospace
Sr Sub Nts Series B
02-01-06 9.88 5,000,000 5,268,750
Compass Aerospace
Sr Sub Nts
04-15-05 10.13 1,635,000(e) 1,651,350
K&F Inds
Sr Sub Nts Series B
10-15-07 9.25 2,000,000 1,980,000
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,710,000 1,825,425
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 1,250,000 1,295,313
Total 12,020,838
Airlines (0.3%)
AMR
05-15-01 9.50 4,500,000 4,928,715
Automotive & related (1.2%)
Arvin Capital
Company Guaranty
02-01-27 9.50 5,000,000 5,779,200
Ford Motor Credit
01-15-03 7.50 5,000,000 5,347,100
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 3,000,000 2,887,500
MSX Intl
Company Guaranty
01-15-08 11.38 2,450,000 2,376,500
Trident Automotive
Sr Sub Nts Series B
12-15-05 10.00 5,300,000 5,618,000
Total 22,008,300
Banks and savings & loans (5.0%)
Alfa-Russia Finance
(U.S. Dollar) Medium-term Nts Bank Guaranty
07-28-00 10.38 10,000,000(c) 500,000
Banca Commercial Italian
(U.S. Dollar)
07-15-07 8.25 5,000,000(c) 5,727,300
BankBoston Capital
Company Guaranty Series B
12-15-26 8.25 5,000,000 5,387,100
Crestar Capital
Company Guaranty
12-15-26 8.16 5,000,000 5,459,500
Cullen/Frost Capital
Series A
02-01-27 8.42 5,000,000 5,524,365
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 9,000,000(c,e) 5,509,890
Fleet/Norstar Financial Group
Sub Nts
06-15-01 9.90 5,000,000 5,548,950
12-01-01 9.00 5,000,000 5,500,350
Greenpoint Capital
Company Guaranty
06-01-27 9.10 2,500,000 2,869,925
Mellon Capital
Company Guaranty Series A
12-01-26 7.72 2,000,000 2,079,900
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 13,400,000(h) 12,387,764
Provident Cos
03-15-38 7.41 11,000,000 11,472,229
Provident Trust
Company Guaranty
04-15-28 8.29 5,500,000(e) 5,855,520
Union Planters Bank
Sub Nts
03-15-18 6.50 5,000,000 4,985,800
US Capital
02-01-27 8.41 3,500,000(e) 3,913,840
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 3,000,000 3,239,790
Wilshire Financial Services
Series B
08-15-04 13.00 6,000,000 6,352,500
Total 92,314,723
Building materials & construction (0.3%)
Masco
10-01-01 9.00 5,000,000 5,483,000
Commercial finance (0.1%)
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 2,000,000(c) 1,847,500
Communications equipment & services (3.4%)
American Cellular
Sr Nts
05-15-08 10.50 4,500,000(e) 4,100,625
Celcaribe
(U.S. Dollar)
03-15-04 13.50 1,450,000(c,e) 2,617,250
(U.S. Dollar) Sr Nts
03-15-04 13.50 1,700,000(c) 1,742,500
Comcast Cellular Holdings
Sr Nts Series B
05-01-07 9.50 3,000,000 2,913,750
Facilicom Intl
Sr Nts Series B
01-15-08 10.50 4,250,000 4,090,625
IXC Communications
Sr Sub Nts
04-15-08 9.00 2,000,000 1,820,000
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-08 12.78 3,000,000(g) 1,537,500
Level 3 Communications
Sr Nts
05-01-08 9.13 4,500,000 4,027,500
MJD Communications
05-01-08 9.50 1,000,000(e) 1,012,500
Nextel Communications
Zero Coupon Sr Disc Nts
01-15-04 10.13 4,000,000(g) 4,040,000
NTL
Zero Coupon
04-01-08 .84 6,000,000(e,g) 5,632,368
Zero Coupon Sr Nts Series B
02-01-06 11.50 5,000,000(g) 3,950,000
PhoneTel Technologies
Sr Nts
12-15-06 12.00 8,500,000 8,521,250
RCN
Zero Coupon Sr Disc Nts Series B
02-15-08 9.80 2,870,000(g) 1,643,075
TCI Telecommunications
Sr Nts
02-15-28 7.13 2,000,000 2,062,064
Tele Communictions Intl
Cv Sub Deb
02-15-06 4.50 2,000,000 1,907,500
Telehub Communications
Zero Coupon
07-31-05 13.88 2,500,000(e,g) 1,675,000
US West Capital Funding
Company Guaranty
07-15-28 6.88 9,250,000 9,185,158
Total 62,478,665
Computers & office equipment (1.0%)
Bell Technology Group
Sr Nts
05-01-05 13.00 3,410,000(e) 3,478,200
Hewlett-Packard
Zero Coupon Cv Sub Nts
10-15-17 3.13 10,000,000(e,f) 5,224,999
Ingram Micro
Zero Coupon Cv
06-09-18 5.38 4,700,000(e,f) 1,697,875
Learning
Cv Sr Nts
11-01-00 5.50 6,000,000 5,175,000
PSINet
Sr Nts Series B
02-15-05 10.00 1,005,000 947,213
Read-Rite
Sub Nts
09-01-04 6.50 2,450,000 1,301,563
Total 17,824,850
Electronics (0.6%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 8,500,000(c,e) 5,833,125
Thomas & Betts
01-15-06 6.50 4,500,000 4,586,400
Total 10,419,525
Energy (3.8%)
Forcenergy
Sr Sub Nts
11-01-06 9.50 2,100,000 1,971,375
Gulf Canada Resources
(U.S. Dollar)
08-15-99 9.00 5,000,000(c) 5,117,700
Honam Oil Refinery
(U.S. Dollar)
10-15-05 7.13 9,000,000(c,e) 6,722,910
Lodestar Holdings
(U.S. Dollar) Sr Nts
05-15-05 11.50 5,000,000(c,e) 4,225,000
Occidental Petroleum
Medium-term Nts
06-01-00 10.98 5,000,000 5,442,850
Medium-term Nts
with attached put
08-01-19 9.25 8,725,000 11,079,529
Oryx Energy
04-01-01 10.00 5,000,000 5,424,750
PDV America
Sr Nts
08-01-03 7.88 7,500,000 5,936,850
Pennzoil
Cv
08-15-08 4.95 1,200,000 1,158,000
R & B Falcon
04-15-08 6.95 5,000,000 4,927,350
Roil
(U.S. Dollar)
12-05-02 12.78 5,748,000(c,k) 1,724,400
Swift Energy
Cv Sub Nts
11-15-06 6.25 1,090,000 904,700
Transamerica Energy
06-15-02 11.50 1,000,000(d) 668,750
Zero Coupon
06-15-07 13.26 2,100,000(g) 1,134,000
Union Pacific Resources
05-15-28 7.15 7,500,000 7,136,925
USX
03-01-08 6.85 6,500,000 6,576,765
Total 70,151,854
Energy equipment & services (0.7%)
DI Inds
Sr Nts
07-01-07 8.88 2,250,000 1,991,250
Global Marine
09-01-07 7.13 10,000,000 10,609,200
Pride Intl
Zero Coupon Cv Sub Deb
04-24-18 5.84 4,700,000(f) 1,128,000
Total 13,728,450
Financial services (2.4%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 2,750,000(c) 3,190,825
Arcadia Financial
Sr Nts
03-15-07 11.50 3,645,000 3,043,575
Beneficial
Medium-term Nts
02-18-13 6.25 10,000,000 10,174,200
Ford Capital
05-15-02 9.88 5,000,000 5,726,200
Household Finance
04-01-00 9.55 6,500,000 6,892,145
Ohio Savings Capital
Company Guaranty
06-03-27 9.50 5,000,000(e) 5,838,050
Salomon
Medium-term Sr Nts Series D
10-06-99 6.99 5,000,000 5,077,000
SASCO
02-25-28 6.76 2,500,000 2,539,125
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 4,350,000(c) 1,783,500
Total 44,264,620
Food (0.3%)
Ameriserve Food Distributions
Company Guaranty
07-15-07 10.13 2,500,000 2,300,000
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 4,750,000(c,e) 2,968,750
Total 5,268,750
Furniture & appliances (0.3%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 5,000,000 5,243,750
Health care (0.8%)
Athena Neurosciences
Cv
11-15-04 4.75 1,600,000(e) 1,784,000
Dura Pharmaceuticals
Cv Sub Nts
07-15-02 3.50 2,700,000 2,058,750
Lilly (Eli)
01-01-36 6.77 10,000,000 10,434,000
Total 14,276,750
Health care services (2.1%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 250,000 241,875
Columbia/HCA Healthcare
06-15-25 7.69 4,260,000 3,909,402
Equity Corp Intl
Cv Sub Db
12-31-04 4.50 1,000,000 1,108,750
Fountain View
Sr Sub Nts
04-15-08 11.25 2,150,000(e) 2,117,750
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,500,000(e) 2,025,000
Novacare
Cv Sub Deb
01-15-00 5.50 4,000,000 3,790,000
Owens & Minor
Company Guaranty
06-01-06 10.88 4,550,000 4,800,250
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,125,000(e) 922,500
Service Corp Intl
03-15-20 6.30 11,000,000 11,189,970
Tenet Healthcare
Sr Sub Nts
12-01-08 8.13 9,000,000(e) 8,866,620
Total 38,972,117
Household products (0.2%)
Revlon Consumer Products
Sr Nts
02-01-06 8.13 4,250,000 4,085,313
Industrial equipment & services (1.7%)
AGCO
Sr Sub Nts
03-15-06 8.50 1,025,000 1,003,219
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 3,000,000 3,011,250
Case
08-01-05 7.25 5,475,000 5,853,925
Clark Equipment
03-01-01 9.75 5,000,000 5,439,250
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000(e) 1,185,188
Packaged Ice
Sr Nts
02-01-05 9.75 8,525,000(e) 8,439,749
Purina Mills
Sr Sub Nts
03-15-10 9.00 1,475,000(e) 1,482,375
Terex
Sr Sub Nts
04-01-08 8.88 3,800,000(e) 3,614,750
Tyco Intl
Zero Coupon Cv Sub Nts
07-06-10 6.50 1,350,000(f) 1,989,563
Total 32,019,269
Insurance (2.4%)
Americo Life
Sr Sub Nts
06-01-05 9.25 4,500,000 4,561,875
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 3,500,000 4,040,050
Nationwide CSN Trust
02-15-25 9.88 10,500,000(e) 13,020,840
New England Mutual
02-15-24 7.88 5,000,000(e) 5,712,700
SAFECO Capital
Company Guaranty
07-15-37 8.07 10,000,000 11,004,900
Veritas Holdings
(U.S. Dollar) Sr Nts
12-15-03 9.63 2,545,000(c) 2,665,888
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 3,750,000(c,e) 4,355,625
Total 45,361,878
Leisure time & entertainment (2.9%)
Coast Hotels & Casino
Company Guaranty Series B
12-15-02 13.00 1,600,000 1,802,000
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 3,400,000 3,310,750
Icon Fitness
Zero Coupon Sr Disc Nts Series B
11-15-06 15.91 8,130,000(g) 813,000
Loews Cineplex Entertainment
Sr Sub Nts
08-01-08 8.88 4,500,000 4,275,000
Premier Parks
Sr Nts
04-01-06 9.25 2,150,000 2,042,500
Zero Coupon Sr Disc Nts
04-01-08 10.00 5,250,000(g) 3,097,500
SFX Entertainment
Company Guaranty Series B
02-01-08 9.13 945,000 902,475
Speedway Motorsports
08-15-07 8.50 4,000,000 4,060,000
Time Warner
02-01-24 7.57 20,000,000 21,000,000
Sr Nts
01-15-28 6.95 5,000,000 4,889,300
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 2,500,000 2,781,250
United Artists Theatres
Series 1995A
07-01-15 9.30 4,774,060 4,768,093
Total 53,741,868
Media (4.4%)
Australis Media
(U.S. Dollar)
11-01-00 14.00 916,899(c) 693,151
(U.S. Dollar) Zero Coupon
05-15-03 15.75 10,081,770(c,g) 151,227
Cox Communications
06-15-25 7.63 10,000,000 10,996,100
CSC Holdings
Sr Sub Debs
05-15-16 10.50 5,000,000 5,880,000
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 8,000,000(c,e) 5,424,240
Groupe Videotron
(U.S. Dollar) Sr Nts
02-15-05 10.63 2,000,000(c) 2,192,500
Grupo Televisa
(U.S. Dollar) Sr Nts Series A
05-15-03 11.38 250,000(c) 231,250
Heritage Media
Sr Sub Nts
02-15-06 8.75 2,000,000 2,105,000
Lamar Advertising
Company Guaranty
12-01-06 9.63 1,350,000 1,407,375
Liberty Group Operating
Company Guaranty
02-01-08 9.38 3,750,000 3,646,875
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,700,000(c) 1,806,250
News America Holdings
10-15-12 10.13 10,000,000 11,639,500
Rogers Cablesystems
(Canadian Dollar)
01-15-14 6.56 2,700,000(c) 1,804,040
TCI Communications
08-01-15 8.75 5,000,000 6,015,950
Time Warner
08-15-04 7.98 1,500,000 1,631,505
08-15-06 8.11 3,000,000 3,297,990
08-15-07 8.18 3,000,000 3,331,350
Time Warner Entertainment
Sr Nts
07-15-33 8.38 2,500,000 2,931,250
TV Azteca
(U.S. Dollar)
02-15-07 10.50 2,500,000(c) 1,962,500
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 5,750,000(c,k,n) 8,625,000
Viacom Intl
07-01-03 7.00 2,500,000 2,500,200
Sub Deb
07-07-06 8.00 3,000,000 2,981,250
Total 81,254,503
Metals (2.1%)
Alcan Aluminum
(U.S. Dollar)
01-15-22 8.88 6,750,000(c) 7,448,423
Bar Technologies
Company Guaranty
04-01-01 13.50 4,500,000(e) 4,905,000
EnviroSource
Sr Nts
06-15-03 9.75 890,000 884,438
Sr Nts Series B
06-15-03 9.75 2,100,000 2,086,875
Grupo Minero Mexico
(U.S. Dollar) Company Guaranty Series A
04-01-08 8.25 5,000,000(c) 4,037,500
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 5,000,000(c,e) 4,350,000
NSM Steel
Company Guaranty
02-01-06 12.00 3,325,000 2,481,281
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 2,000,000(c) 2,000,860
WMC Finance USA
(U.S. Dollar)
11-15-13 7.25 10,000,000(c) 10,960,499
Total 39,154,876
Miscellaneous (4.8%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 4,500,000 4,775,625
Advance Stores
Sr Sub Nts
04-15-08 10.25 3,700,000(e) 3,589,000
AMSC Acquisition
Company Guaranty Series B
04-01-08 12.25 2,500,000 1,700,000
Azteca Holdings
(U.S. Dollar)
06-15-02 11.00 3,500,000(c) 2,913,750
Bistro Trust
Sub Nts
12-31-02 9.50 10,000,000(e) 10,119,899
BTI Telecommunications
Sr Nts
09-15-07 10.50 1,200,000 1,170,000
California Infrastructure
Southern California Edison
03-25-02 6.14 9,235,000 9,310,542
Chattem
Company Guaranty Series B
04-01-08 8.88 2,200,000 2,090,000
Colonial Capital
Company Guaranty Series A
01-15-27 8.92 3,000,000 3,426,780
CTI Holdings
(U.S. Dollar) Zero Coupon Sr Nts
04-15-08 11.59 3,325,000(c,e,g) 1,866,156
Delphes 2
(U.S. Dollar)
05-05-09 7.75 4,500,000(c,e) 4,027,500
Doskocil Mfg
Sr Sub Nts
09-15-07 10.13 5,000,000 5,187,500
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 4,884,139
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c,e) 2,318,750
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 3,600,000(c,e) 1,764,216
Jasmine Submarine Telecom
(U.S. Dollar) Sr Nts
05-30-11 8.48 2,399,000(c,e) 1,935,753
Michael Petroleum
Sr Nts
04-01-05 11.50 1,250,000(e) 1,214,063
NSM Steel
Company Guaranty
02-01-08 12.25 5,300,000 3,710,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,775,000 1,888,156
Pindo Deli Finance Mauritius
(U.S. Dollar) Company Guaranty
10-01-07 10.75 2,200,000(c) 946,000
PLD Telekom
(U.S. Dollar)
06-01-04 14.00 5,000,000(c) 4,500,000
PTC Intl Finance
(U.S. Dollar) Zero Coupon Company Guaranty
07-01-07 10.75 6,000,000(c,g) 4,050,000
Telesystem Intl Wireless
(U.S. Dollar) Zero Coupon Sr Disc Nts Series B
06-30-07 13.47 11,000,000(c,g) 6,600,000
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 5,500,000(c,e) 5,788,750
Total 89,776,579
Multi-industry conglomerates (1.1%)
Pierce Leahy
Sr Sub Nts
07-15-06 11.13 812,000(e) 893,200
Prime Succession
Sr Sub Nts
08-15-04 10.75 2,125,000 2,170,156
Tenneco
06-15-07 7.63 6,000,000 6,655,740
USI American Holdings
Sr Nts Series B
12-01-06 7.25 5,000,000 5,145,800
Westinghouse Electric
06-01-01 8.88 5,000,000 5,311,300
Total 20,176,196
Municipal bonds (0.4%)
New Jersey Economic Development Authority
State Pension Funding
Revenue Bond (MBIA Insured)
02-15-29 7.43 7,000,000(l) 8,211,700
Paper & packaging (2.2%)
APP Intl Finance
(U.S. Dollar)
10-01-05 11.75 5,000,000(c) 2,575,000
Chesapeake
05-01-03 9.88 5,000,000 5,790,150
Crown Cork & Seal
04-15-23 8.00 5,000,000 5,272,450
Gaylord Container
Sr Nts
06-15-07 9.75 2,200,000 1,930,500
Sr Nts Series B
06-15-07 9.38 5,000,000 4,312,500
Graham Packaging/GPC Capital
Sr Sub Nts
01-15-08 8.75 2,500,000(e) 2,375,000
Owens-Illinois
Sr Nts
05-15-04 7.85 5,000,000 5,224,750
Repap New Brunswick
(U.S. Dollar) Sr Nts
04-15-05 10.63 2,000,000(c) 1,735,000
Riverwood Intl
Company Guaranty
04-01-08 10.88 3,750,000 3,450,000
Silgan Holdings
06-01-09 9.00 4,125,000 4,176,563
Stone Container
Sr Sub Deb
04-01-02 12.25 3,000,000 3,026,250
Total 39,868,163
Restaurants & lodging (0.3%)
Extended Stay America
Sr Sub Nts
03-15-08 9.15 4,750,000 4,601,563
Signature Resorts
Sr Nts
05-15-06 9.25 1,900,000 1,793,125
Total 6,394,688
Retail (1.7%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-08 10.00 4,850,000(e,g) 2,934,250
Dayton Hudson
12-01-22 8.50 3,000,000 3,335,910
Eye Care Centers of America
Sr Nts
10-01-03 12.00 3,000,000 3,180,000
Sr Sub Nts
05-01-08 9.13 4,000,000(e) 3,865,000
Kroger
Sr Nts
07-15-06 8.15 3,000,000 3,318,240
Rite Aid
Cv Sub Nts
09-15-02 5.25 1,400,000(e) 1,694,000
Wal-Mart CRAVE Trust
07-17-06 7.00 12,850,202(e) 13,275,158
Total 31,602,558
Textiles & apparel (0.4%)
Texon Intl
(Deutsche Mark) Sr Nts
02-01-08 3.11 4,000,000(c) 1,774,088
VF Corp
05-01-01 9.50 5,000,000 5,492,100
Total 7,266,188
Transportation (0.7%)
Greater Beijing
(U.S. Dollar) Sr Nts
06-15-04 9.75 3,500,000(c,e) 1,400,000
06-15-07 10.00 5,000,000(c,e) 1,900,000
Navigator Gas Transportation
(U.S. Dollar)
06-30-07 10.50 3,000,000(c,e) 2,925,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 12.00 10,000,000(c,e) 6,500,000
Total 12,725,000
Utilities -- electric (5.8%)
AEP Generating
Series F
12-07-22 9.82 2,484,218 2,752,737
Boston Edison
06-01-20 9.88 5,000,000 5,509,600
Cleveland Electric Illuminating
07-01-00 7.19 5,000,000 5,112,250
07-01-04 7.67 2,000,000 1,980,000
1st Mtge Series B
05-15-05 9.50 6,000,000 7,013,820
CMS Energy
Sr Nts
05-15-02 8.13 5,000,000 5,217,700
Connecticut Light & Power
1st Mtge Series C
06-01-02 7.75 5,000,000 5,207,400
Espirito Santo - Escelsa
(U.S. Dollar)
07-15-07 10.00 3,000,000(c) 2,052,570
Hydro-Quebec
(U.S. Dollar) Local Govt Guaranty Series 1989HH
12-01-29 8.50 20,000,000(c) 24,136,799
Indiana & Michigan Power
Sale Lease-backed Obligation Series F
12-07-22 9.82 2,484,213 2,752,732
Korea Electric Power
(U.S. Dollar)
02-01-27 7.00 6,200,000(c) 3,931,234
Midland Cogeneration
Series 1991-C
07-23-02 10.33 1,268,720 1,354,359
Midland Funding
Series 1994-C
07-23-02 10.33 1,092,910 1,166,681
Series A
07-23-05 11.75 5,000,000 5,818,750
Natl Power
(U.S. Dollar) Foreign Govt Guaranty
12-15-16 8.40 7,500,000(c) 4,369,875
Sithe Independence Funding
Series A
12-30-13 9.00 7,500,000 9,054,075
Texas Utilities Electric
Medium-term Nts 1st Mtge Series B
03-01-02 9.70 6,000,000 6,744,720
Texas-New Mexico Power
1st Mtge Series U
09-15-00 9.25 3,500,000 3,648,750
TU Electric Capital
Company Guaranty
01-30-37 8.18 10,000,000 10,231,100
Total 108,055,152
Utilities -- telephone (4.0%)
Bell Atlantic
08-01-31 9.00 7,500,000 8,484,075
Bell Telephone of Pennsylvania
03-15-33 7.38 10,000,000 10,445,200
Call-Net Enterprises
(U.S. Dollar) Sr Nts
08-15-08 8.00 3,625,000(c) 3,316,875
CCPR Services
Company Guaranty
02-01-07 10.00 1,500,000 1,395,000
Colt Telecom Group
(Deutsche Mark) Cv
08-06-05 1.12 3,600,000(c) 1,842,322
Geotek Communications
Zero Coupon Cv Sr Sub Nts
02-15-01 12.00 4,135,000(b,g) 5,169
Zero Coupon Sr Disc Nts Series B
07-15-05 18.87 4,513,000(b,g) 451,300
Grupo Iusacell
(U.S. Dollar)
07-15-04 10.00 1,500,000(c) 1,222,500
GTE
11-01-20 10.25 7,000,000 7,833,770
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,600,000 1,502,000
McLeod USA
Sr Nts
03-15-08 8.38 1,535,000 1,439,063
Metrocall
Sr Sub Nts
10-01-07 10.38 3,000,000 2,820,000
MetroNet Communications
Zero Coupon Sr Disc Nts
06-15-08 10.03 3,800,000(e,g) 2,037,750
Omnipoint
Sr Nts
08-15-06 11.63 10,000,000 9,750,000
Philippine Long Distance Telephone
(U.S. Dollar) Medium-term Nts Series E
03-06-07 7.85 3,000,000(c,d,e) 2,024,460
03-06-17 8.35 3,000,000(c,e) 1,740,630
Rogers Cantel
(U.S. Dollar)
06-01-08 9.38 4,650,000(c) 4,743,000
U S WEST Communications
11-10-26 7.20 6,000,000 6,123,540
WorldCom
04-01-07 7.75 7,000,000 7,572,670
Total 74,749,324
Total bonds
(Cost: $1,726,458,655) $1,674,044,479
Common stocks (--%)
Issuer Shares Value(a)
BayCorp Holdings 28(b) $154
Intermedia Communications 1,560(b) 38,805
Nextel Communications Cl A 6,197(b) 111,933
Specialty Foods 15,000(b) 300
Total common stocks
(Cost: $156,781) $151,192
Preferred stocks & other (1.3%)
Issuer Shares Value(a)
American Mobile Satellite
Warrants 2,500 $ 17,500
Bar Technologies
Warrants 4,500 247,500
Celcaribe
Warrants 276,420(b,e,c) 1,105,680
Dairy Mart
Warrants 10,000(e) 5,000
Finova Finance Trust
5.50% Cv 14,750 969,813
Geotek Communications
Warrants 250,000(m) --
Glenborough Realty Trust
7.75% Cv Series A 94,575 1,915,143
Houston Inds
7.00% Cv 27,200 1,944,800
Ingersoll-Rand
6.75% Cv 87,000 1,865,063
KMC Telecom Holdings
Warrants 3,000 15,000
Lincoln Natl
7.75% Cm Cv 27,975 699,375
MediaOne Group
6.25% Cv 34,500 1,914,750
Nakornthai Strip Mill
Warrants 3,355,391 3
Newell Financial Trust I
5.25% Cm Cv 5,000(e) 285,625
Owens-Illinois
Cv 20,000 792,500
Paxson Communications
12.50% Pay-in-kind 40,640(n) 4,023,360
Price Communications
Warrants 23,048 414,864
Sprint
8.25% Cv 23,925 1,410,080
Suiza Capital
5.50% Cm Cv 21,800(e) 942,850
Tosco Financing Trust
5.75% Cv 25,000 1,153,125
Tower Automotive Capital
6.75% Cv 40,000 1,810,000
Tribune/TLC
6.25% Cv 41,625 811,688
Unifi Communications
Warrants 7,000 70
Wendys Financing
5.00% Cm Cv Series A 38,000 1,900,000
Total preferred stocks & other
(Cost: $25,555,947) $24,243,789
Short-term securities (8.2%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (1.3%)
Federal Home Loan Mtge Corp Disc Nts
09-04-98 5.48% $15,000,000 $14,993,175
09-17-98 5.49 10,200,000 10,175,203
Total25,168,378
Commercial paper (6.9%)
Abbott Laboratories
09-28-98 5.52 5,500,000 5,477,312
Associates Corp North America
09-16-98 5.52 4,700,000 4,689,229
10-09-98 5.54 10,500,000 10,438,930
Barclays U.S. Funding
09-29-98 5.52 10,000,000 9,957,222
Deutsche Bank Financial
10-21-98 5.56 5,100,000 5,059,528
Fleet Funding
10-09-98 5.57 5,800,000(i) 5,766,144
10-13-98 5.56 5,000,000(i) 4,967,800
Ford Motor Credit
10-14-98 5.55 5,700,000 5,658,834
Gannett
09-10-98 5.52 1,000,000(i) 998,625
Gateway Fuel
09-03-98 5.58 3,100,000 3,099,044
Goldman Sachs Group
10-13-98 5.56 2,800,000 2,781,935
Heinz (HJ)
10-14-98 5.54 1,000,000 993,431
Morgan Stanley, Dean Witter, Discover & Co
10-14-98 5.55 7,000,000 6,951,204
Natl Australia Funding (Delaware)
09-10-98 5.52 7,200,000 7,190,100
09-21-98 5.53 1,000,000 996,939
Norwest
09-18-98 5.52 5,000,000 4,987,014
Pacific Life Insurance
09-10-98 5.52 3,700,000 3,694,913
Reed Elsevier
09-22-98 5.53 5,400,000(i) 5,382,643
09-22-98 5.56 5,000,000(i) 4,982,776
09-25-98 5.53 4,900,000(i) 4,882,001
Rohm & Haas
09-29-98 5.56 7,300,000 7,268,602
Sara Lee
09-21-98 5.53 6,400,000 6,380,444
SmithKline Beecham
09-25-98 5.52 5,000,000 4,981,667
Toyota Motor Credit
10-09-98 5.55 5,500,000 5,468,069
USAA Capital
09-01-98 5.57 3,900,000 3,900,000
Total 126,954,406
Total short-term securities
(Cost: $152,131,912) $152,122,784
Total investments in securities
(Cost: $1,904,303,295)(o) $1,850,562,244
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. As of Aug. 31,
1998, the value of foreign securities represented 17.0% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(e) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) 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.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1998.
(i) 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.
(j) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 1998.
(k) 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, 1998, is as follows:
Security Acquisition Purchase
date cost
Roil
(U.S. Dollar) 12.78% 2002 05-15-98 $5,575,560
Veninfotel
(U.S. Dollar) Cv Pay-in-kind 10.00% 2002 03-05-97 thru 07-23-97 5,750,000
(l) The following abbreviation is used in portfolio descriptions to identify the
insurer of the issue:
MBIA -- Municipal Bond Investors Assurance
(m) Negligible market value.
(n) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(o) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$1,899,984,000 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation..............................$113,170,763
Unrealized depreciation..............................(162,592,519)
Net unrealized depreciation.........................$ (49,421,756)
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Retirement Annuity Mutual Funds
Managed Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Common stocks (54.3%)
Issuer Shares Value(a)
Aerospace & defense (1.0%)
AlliedSignal 390,000 $13,381,875
Boeing 205,000 6,342,188
Lockheed Martin 90,000 7,869,375
United Technologies 225,000 16,326,562
Total 43,920,000
Airlines (0.8%)
Southwest Airlines 2,100,000 37,406,250
Automotive & related (0.7%)
Tower Automotive 1,722,600(b) 31,545,113
Banks and savings & loans (3.6%)
BankAmerica 350,000 22,421,875
Citicorp 230,000 24,868,750
First Union 325,000 15,762,500
Norwest 325,000 9,668,750
Washington Mutual 1,875,000 60,000,000
Wells Fargo & Co 95,000 26,778,125
Total 159,500,000
Beverages & tobacco (1.6%)
Coca-Cola 680,000 44,285,000
Philip Morris 665,000 27,639,063
Total 71,924,063
Building materials & construction (2.2%)
American Standard 666,900(b) 26,092,463
Cemex Cl B 2,100,000(b,c) 5,066,968
Martin Marietta
Materials 1,140,672 48,621,144
Masco750,000 17,250,000
Total 97,030,575
Communications equipment & services (2.1%)
ADC Telecommunications 910,000(b) 20,190,625
Ericsson (LM) ADR Cl B 1,250,000(c) 26,718,750
Globalstar
Telecommunications 565,590(b) 7,529,417
Loral Space &
Communications 693,700(b) 11,012,487
Northern Telecom 550,000(c,d) 26,262,500
Total 91,713,779
Computers & office equipment (6.2%)
American Power
Conversion 1,450,000(b) 39,150,000
Cisco Systems 562,500(b) 46,054,687
Compaq Computer 1,350,000 37,715,625
Computer Associates Intl 400,000 10,800,000
Hewlett-Packard 425,000 20,639,063
Microsoft 657,800(b) 63,107,687
Network Associates 625,000(b) 20,156,250
Paymentech 653,900(b) 7,478,981
Solectron 700,000(b) 28,918,750
Total 274,021,043
Electronics (1.7%)
Intel 700,000 49,831,250
Maxim Integrated
Products 600,000(b) 16,500,000
Texas Instruments 200,000 9,537,500
Total 75,868,750
Energy (1.1%)
Anadarko Petroleum 650,000 18,687,500
Royal Dutch Petroleum 700,000(c) 27,825,000
Total 46,512,500
Energy equipment & services (0.2%)
R&B Falcon 880,000(b) 7,920,000
Financial services (4.6%)
Fannie Mae 600,000 34,087,500
Household Intl 688,320 25,424,820
MBNA 1,275,000 29,962,500
Morgan Stanley, Dean Witter,
Discover & Co 850,000 49,353,125
Travelers Group 1,482,500 65,785,938
Total 204,613,883
Food (0.7%)
U.S. Foodservice 868,955(b) 32,205,645
Furniture & appliances (0.4%)
Leggett & Platt 946,800 18,995,175
Health care (6.1%)
Amgen550,000(b) 33,481,250
Boston Scientific 175,000(b) 12,118,750
Bristol-Myers Squibb 245,000 23,979,375
Elan ADR 687,200(b,c,d)40,372,999
Merck & Co 885,000 102,604,687
Pfizer 400,000 37,200,000
SmithKline Beecham ADR 300,000(c) 17,062,500
United States Surgical 823 32,869
Total 266,852,430
Health care services (2.3%)
AmeriSource Health Cl A 250,000(b) 11,765,625
Cardinal Health 175,000 15,312,500
HEALTHSOUTH
Rehabilitation 1,200,000(b) $22,725,000
Service Corp Intl 600,000 20,325,000
United Healthcare 900,000 32,512,500
Total 102,640,625
Household products (1.6%)
Gillette 750,000 30,843,750
Procter & Gamble 500,000 38,250,000
Total 69,093,750
Industrial equipment & services (0.6%)
Illinois Tool Works 530,000 25,671,875
Insurance (0.5%)
Travelers Property
Casualty Cl A 625,000 20,585,938
UNUM 1,000 44,000
Total 20,629,938
Leisure time & entertainment (1.1%)
Disney (Walt) 900,000 24,693,750
Mattel 750,000 24,281,250
Total 48,975,000
Media (1.2%)
Time Warner 550,000 44,206,250
Univision Communications
Cl A 275,000(b) 7,321,875
Total 51,528,125
Multi-industry conglomerates (4.8%)
AccuStaff 1,062,200(b) 13,277,500
Cendant 700,000(b) 8,093,750
Century Business Services 650,000(b) 12,431,250
Emerson Electric 475,000 27,075,000
General Electric 1,150,000 92,000,000
Tyco Intl 1,050,000(c) 58,275,000
Total 211,152,500
Paper & packaging (0.0%)
Asia Pulp & Paper 1,000(b,c) 5,188
Restaurants & lodging (0.4%)
Extended Stay America 2,200,000(b) 19,250,000
Retail (4.9%)
Consolidated Stores 300,000(b) 9,450,000
Dollar General 367,772 9,883,886
Home Depot 1,395,000 53,707,500
Nordstrom 350,000 10,478,125
OfficeMax 1,287,300(b) 13,516,650
Republic Inds 1,874,915(b) $33,162,559
Rite Aid 800,000 28,950,000
Safeway 240,000(b) 9,450,000
Wal-Mart Stores 830,000 48,762,499
Total 217,361,219
Utilities -- telephone (3.9%)
AirTouch Communications 1,175,000(b) 66,093,750
BCE 500,000(c) 16,093,750
Hyperion Telecommunications
Cl A 337,700(b) 3,039,300
MCI Communications 550,000 27,500,000
U S WEST Communications
Group 325,000 16,900,000
WorldCom 1,000,000 40,937,500
Total 170,564,300
Total common stocks
(Cost: $1,907,639,038) $2,396,901,726
Preferred stocks & other (1.5%)
Issuer Shares Value(a)
Allegiance Telecom
Warrants 2,450 $4,900
American Mobile Satellite
Warrants 2,000 14,000
Concentric Network
13.50% Pay-in-kind 1,000(b,f,j) 930,000
KMC Telecom Holdings
Warrants 2,800 14,000
Lincoln Natl
7.75% Cm Cv 27,975(b) 699,375
Loral Space & Communications
6.00% Cv 400,000(j) 20,000,000
Mexico Value
Rights 1,000(c,e) --
Newell Financial Trust
5.25% Cm Cv 5,000(j) 285,625
Omnipoint
7.00% Cv 240,000(j) 7,950,000
Pinto Totta Intl Finance
7.77% 50,000(c,j) 4,493,750
Primus Telecommunications
Warrants 2,300 46,000
Sinclair Capital
11.63% 30,000 3,356,250
Tribune/TLC
6.25% Cv 41,625(b) 811,688
Unifi Communications
Warrants 2,000 20
UNUM
3.25% Cv 632,602 28,783,391
Total preferred stocks & other
(Cost: $74,016,038) $67,388,999
<PAGE>
<TABLE>
<CAPTION>
Bonds (36.1%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (11.1%)
Argentina Govt Natl
(U.S. Dollar)
<S> <C> <C> <C>
09-19-27 9.75% $6,150,000(c,d) $4,120,500
Argentine Republic
(Argentine Peso)
02-12-07 11.75 2,000,000(c) 1,175,000
(U.S. Dollar)
03-31-23 5.75 3,750,000(c,m) 2,264,063
City of Moscow
(U.S. Dollar) Zero Coupon
12-31-98 21.80 3,691,890(c,k) 2,339,550
Govt of Algeria
(U.S. Dollar)
03-04-00 7.13 727,273(c) 603,636
09-04-06 7.13 1,090,909(c) 654,546
Govt of Poland
(U.S. Dollar)
10-27-24 6.69 3,000,000(c,m) 2,818,124
Govt of Russia
(Russian Ruble)
09-27-00 14.00 30,008,878(c) 341,391
12-15-20 6.63 17,300,000(c) 1,730,000
(U.S. Dollar)
07-24-05 8.75 2,000,000(c,j) 395,000
06-24-28 12.75 4,500,000(c,j) 1,046,250
(U.S. Dollar) Zero Coupon
12-29-49 6.63 77,278(c,k,o) 10,239
Govt Trust Certs Israel
11-15-01 9.25 1,961,325 2,038,994
People's Republic of China
(U.S. Dollar)
07-03-01 7.38 2,000,000(c,d) 2,062,332
01-15-96 9.00 2,500,000(c,d) 2,472,050
Republic of Brazil
(U.S. Dollar)
04-15-14 8.00 3,190,578(c) 1,643,147
Republic of Panama
(U.S. Dollar)
02-13-02 7.88 1,000,000(c,j) 903,260
09-30-27 8.88 2,000,000(c) 1,510,000
Resolution Funding Corp
Zero Coupon
07-15-20 6.56 5,000,000(k) 1,459,200
United Mexican States
(U.S. Dollar) Series A
12-31-19 6.25 4,000,000(c) 2,855,000
U.S. Treasury
02-28-99 5.88 88,000,000 88,330,000
01-31-00 5.38 25,000,000 25,105,000
02-15-00 8.50 20,000,000 20,949,000
03-31-01 6.38 109,000,000(d) 112,552,309
08-15-03 5.75 43,300,000(d) 44,631,908
02-15-04 5.88 12,500,000 13,010,125
10-15-06 6.50 21,000,000 22,875,090
11-15-16 7.50 54,000,000 66,673,260
08-15-22 7.25 1,000,000 1,234,490
08-15-23 6.25 2,000,000 2,213,860
11-15-24 7.50 20,000,000 25,648,600
TIPS
07-15-02 3.63 10,000,000(h) 10,127,904
Zero Coupon
05-15-05 6.46 18,000,000(k) 12,850,920
11-15-21 6.26 35,000,000(k) 9,738,050
Total 488,382,798
Mortgage-backed securities (5.4%)
Citicorp Credit Card Master Trust
10-07-04 5.95 3,000,000 3,042,630
Federal Home Loan Mtge Corp
08-01-24 8.00 3,209,026 3,330,840
11-01-25 6.50 7,595,603 7,666,623
Federal Natl Mtge Assn
07-01-04 7.40 10,000,000 10,993,600
01-01-09 5.50 7,237,514 7,143,788
01-01-09 5.50 14,136,474 13,953,407
03-01-10 6.00 17,000,000(o) 16,941,519
06-01-10 6.50 7,517,440 7,630,502
08-01-11 8.50 6,941,930 7,235,291
04-01-13 6.00 16,644,526 16,611,240
04-01-22 8.00 3,552,987 3,702,817
04-01-23 8.50 3,968,600 4,166,355
05-01-23 6.50 2,108,972 2,135,946
05-01-24 6.00 5,553,972 5,525,257
06-01-24 9.00 2,345,666 2,500,668
02-01-25 8.50 2,249,598 2,344,126
05-01-25 8.50 2,814,543 2,932,810
09-01-25 6.50 4,897,774 4,935,928
11-01-25 7.50 6,679,704 6,865,333
02-01-26 7.00 7,894,648 8,042,515
07-01-26 7.50 6,355,406 6,530,053
02-01-27 7.50 6,944,307 7,133,123
03-01-28 6.00 14,860,212 14,625,569
04-01-28 6.00 19,942,270 19,626,517
Collateralized Mtge Obligation
Trust Series Z
02-25-24 6.00 7,854,501(i) 7,328,092
Govt Natl Mtge Assn
12-01-08 7.00% $13,714,645 $14,074,654
05-15-24 7.00 19,741,748 20,180,409
Merrill Lynch Mtge Investors
Series 1995-C2 Cl E
06-15-21 8.15 1,232,782(j,m) 1,201,770
Series 1996-C2 Cl D
12-21-28 6.96 7,500,000 7,647,150
Total 236,048,532
Aerospace & defense (0.2%)
BE Aerospace
Sr Sub Nts Series B
02-01-06 9.88 2,500,000 2,634,375
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 690,000 736,575
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 1,000,000 1,036,250
Northrop-Grumman
03-01-06 7.00 3,750,000 3,886,800
Total 8,294,000
Airlines (0.2%)
Continental Airlines
Series 1974B
01-02-17 6.90 5,000,000 5,199,500
Series 1996A
04-15-15 6.94 4,901,592 5,202,843
Total 10,402,343
Automotive & related (0.1%)
Arvin Capital
Company Guaranty
02-01-27 9.50 3,000,000 3,467,520
MSX Intl
Company Guaranty
01-15-08 11.38 1,485,000 1,440,450
Total 4,907,970
Banks and savings & loans (2.1%)
Alfa-Russia Finance
(U.S. Dollar) Medium-term Nts Bank Guaranty
07-28-00 10.38 3,000,000(c) 150,000
Banco General
(U.S. Dollar)
08-01-02 7.70 3,750,000(c,j) 3,549,488
BankAmerica
Sub Nts Series B
12-31-26 7.70 3,700,000(j) 3,750,875
Capital One Bank
05-15-08 6.70% $5,300,000 $5,359,519
Corp Andina de Fomento
(U.S. Dollar)
02-01-03 7.10 5,200,000(c) 5,195,268
Crestar Capital
Company Guaranty
12-15-26 8.16 7,000,000 7,643,300
Cullen/Frost Capital
Series A
02-01-27 8.42 3,200,000 3,535,594
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 8,500,000(c,j) 5,203,785
Firstar Capital
Company Guaranty Series B
12-15-26 8.32 3,000,000 3,367,380
Fleet Financial Group
Sub Deb
01-15-28 6.88 2,200,000 2,206,666
Greenpoint Capital
Company Guaranty
06-01-27 9.10 2,000,000 2,295,940
Mellon Capital
Company Guaranty Series A
12-01-26 7.72 1,800,000 1,871,910
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 5,000,000(m) 4,622,300
Norwest
Sr Medium-term Nts Series G
09-15-02 6.38 5,800,000 5,970,636
Provident Cos
03-15-38 7.41 5,000,000 5,214,650
Provident Trust
Company Guaranty
04-15-28 8.29 5,500,000(j) 5,855,519
Riggs Natl
Sub Nts
02-01-06 8.50 4,900,000 5,016,375
Union Planters Bank
Sub Nts
03-15-18 6.50 10,000,000 9,971,599
Union Planters Capital
Company Guaranty
12-15-26 8.20 5,000,000 5,388,950
US Capital
02-01-27 8.41 3,000,000(j) 3,354,720
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 2,900,000 3,131,797
Wilshire Financial Services
Series B
08-15-04 13.00 1,500,000 1,588,125
Total 94,244,396
Building materials & construction (0.2%)
Southdown
Sr Sub Nts Series B
03-01-06 10.00 1,400,000 1,520,750
Tyco Intl Group
(U.S. Dollar) Company Guaranty
06-15-28 7.00 8,000,000(c) 8,150,480
Total 9,671,230
Chemicals (0.1%)
USA Waste Services
Sr Nts
10-01-07 7.13 4,500,000 4,778,955
Commercial finance (0.0%)
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 1,600,000(c) 1,478,000
Communications equipment & services (0.8%)
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 11.94 2,450,000(l) 1,084,125
Celcaribe
(U.S. Dollar)
03-15-04 13.50 1,450,000(c,j) 2,617,250
Facilicom Intl
Sr Nts Series B
01-15-08 10.50 1,000,000 962,500
GST Telecom/GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 2,000,000(j,l) 1,160,000
Iridium LLC/Capital
Company Guaranty Series C
07-15-05 11.25 630,000 516,600
IXC Communications
Sr Sub Nts
04-15-08 9.00 2,000,000 1,820,000
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.88 4,600,000 4,462,000
Zero Coupon Sr Disc Nts Series B
08-01-00 11.74 2,000,000(l) 1,582,500
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-03 12.68 2,800,000(l) 1,435,000
Level 3 Communications
Sr Nts
05-01-08 9.13 4,500,000 4,027,500
Microcell Telecommunications
(Canadian Dollar) Zero Coupon Sr Disc Nts Series B
10-15-02 5.98 3,040,000(c,l) 1,158,498
MJD Communications
05-01-08 9.50 1,000,000(j) 1,012,500
NTL
Zero Coupon Sr Nts
04-01-03 9.78 3,825,000(j,l) 2,165,906
PhoneTel Technologies
Sr Nts
12-15-06 12.00 3,000,000 3,007,500
RCN
Zero Coupon Sr Disc Nts Series B
02-15-03 9.80 2,400,000(l) 1,374,000
TCI Telecommunications
Sr Nts
02-15-28 7.13 1,300,000 1,340,342
Triton Communications
Zero Coupon Sr Disc Sub Nts
05-01-03 10.86 4,000,000(j,l) 2,155,000
Vialog
Company Guaranty
11-15-01 12.75 5,000,000 5,062,500
Total 36,943,721
Computers & office equipment (0.1%)
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 2,000,000(j) 1,780,000
Learning
Cv Sr Nts
11-01-00 5.50 1,000,000 862,500
Total 2,642,500
Electronics (0.2%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 4,000,000(c,j) 2,745,000
Prestolite Electric
Company Guaranty
02-01-08 9.63 6,000,000 6,037,500
Total 8,782,500
Energy (0.7%)
ESI Tractebel Acquisitions
12-30-11 7.99 1,250,000(j) 1,268,375
Forcenergy
Sr Sub Nts
11-01-06 9.50 1,000,000 938,750
Honam Oil Refinery
(U.S. Dollar)
10-15-05 7.13 5,750,000(c,j) 4,295,193
Lodestar Holdings
(U.S. Dollar) Sr Nts
05-15-05 11.50 5,000,000(c,j) 4,225,000
Parker & Parsley Petroleum
Sr Nts
08-15-07 8.25 4,200,000 4,562,040
Roil
(U.S. Dollar)
12-05-02 12.78 4,790,000(c,n) 1,437,000
Tatneft Finance
(U.S. Dollar) Company Guaranty
10-29-02 9.00 2,600,000(c,j) 468,000
USX
03-01-08 6.85 12,000,000 12,141,720
Total 29,336,078
Energy equipment & services (0.3%)
DI Inds
Sr Nts
07-01-07 8.88 1,500,000 1,327,500
Foster Wheeler
11-15-05 6.75 6,100,000 6,378,099
Global Marine
09-01-07 7.13 4,500,000 4,774,140
Northern Offshore ASA
(U.S. Dollar) Company Guaranty
05-15-05 10.00 2,000,000(c,j) 1,700,000
Pool Energy Services
Sr Sub Nts
04-01-08 8.63 1,000,000(j) 877,500
Total 15,057,239
Financial services (0.8%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 1,750,000(c) 2,030,525
Arcadia Financial
Sr Nts
03-15-07 11.50 1,575,000 1,315,125
Associates Corp of North America
Sr Nts
10-15-02 6.38 10,000,000 10,288,100
Avco Financial Services
Sr Nts
07-15-99 7.25 4,750,000 4,826,238
Bat-Crave-800
08-12-00 6.68 5,000,000(j) 5,079,450
08-12-00 6.86 3,000,000 3,047,580
Salomon
Sr Nts
01-15-06 6.75 4,000,000 4,176,160
Wilmington Trust
05-01-08 6.63 3,200,000 3,323,296
Total 34,086,474
Food (0.1%)
Ameriserve Food Distributions
Company Guaranty
10-15-06 8.88% $1,000,000 $933,750
07-15-07 10.13 1,750,000 1,610,000
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 1,200,000(c,j) 750,000
Total 3,293,750
Furniture & appliances (0.1%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 1,500,000 1,573,125
Lifestyle Furnishings
Company Guaranty
08-01-06 10.88 2,150,000 2,378,438
Total 3,951,563
Health care (0.1%)
Alaris Medical Systems
Company Guaranty
12-01-06 9.75 3,600,000 3,640,500
Watson Pharmaceuticals
Sr Nts
05-15-08 7.13 2,550,000 2,602,352
Total 6,242,852
Health care services (0.6%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 2,000,000(d) 1,935,000
Fountain View
Sr Sub Nts
04-15-08 11.25 2,150,000(j) 2,117,750
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,000,000(j) 1,620,000
Manor Care
Sr Nts
06-15-06 7.50 6,000,000 6,513,540
Owens & Minor
Company Guaranty Sr Sub Nts
06-01-06 10.88 1,200,000 1,266,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,125,000(j) 922,500
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 1,000,000 960,000
Physician Sales & Service
Company Guaranty
10-01-07 8.50 1,050,000 1,031,625
Tenet Healthcare
Sr Nts
12-01-03 8.63 2,500,000 2,562,500
Sr Sub Nts
12-01-08 8.13 6,300,000(j) 6,206,634
Total 25,135,549
Household products (0.1%)
Revlon Consumer Products
Sr Nts
02-01-06 8.13 2,750,000 2,643,438
Industrial equipment & services (0.5%)
AGCO
Sr Sub Nts
03-15-06 8.50 800,000 783,000
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 2,000,000 2,007,500
Case
08-01-05 7.25 5,000,000 5,346,050
Goss Graphic Systems
Sr Sub Nts
10-15-06 12.00 3,000,000 2,880,000
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000(j) 1,185,188
Packaged Ice
Sr Nts
02-01-05 9.75 6,300,000(j) 6,237,000
Terex
Sr Sub Nts
04-01-08 8.88 2,100,000(j) 1,997,625
Total 20,436,363
Insurance (1.8%)
American General Institute Capital
Company Guaranty Series A
12-01-45 7.57 14,350,000(j) 15,018,854
American United Life Insurance
03-30-26 7.75 2,500,000(j,n) 2,685,675
Americo Life
Sr Sub Nts
06-01-05 9.25 1,600,000 1,622,000
Arkwright CSN Trust
08-15-26 9.63 3,000,000(j) 3,745,380
Conseco Financing Trust
Company Guaranty
11-15-26 8.70 3,800,000 4,385,846
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 3,000,000 3,462,900
Leucadia Natl
Sr Sub Nts
10-15-06 7.88 5,000,000 5,349,800
Metropolitan Life Insurance
11-01-25 7.80 6,900,000(j) 7,758,015
Minnesota Mutual Life
09-15-25 8.25 2,700,000(j) 3,230,928
Nationwide CSN Trust
02-15-25 9.88 9,000,000(j) 11,160,720
New England Mutual
02-15-24 7.88 2,000,000(j) 2,285,080
Principal Mutual
03-01-44 8.00 2,500,000(j) 2,807,375
SAFECO Capital
Company Guaranty
07-15-37 8.07 5,000,000 5,502,450
SunAmerica
08-30-05 7.34 5,000,000 5,392,800
Veritas Holdings
(U.S. Dollar) Sr Nts
12-15-03 9.63 2,386,000(c) 2,499,335
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 3,750,000(c,j) 4,355,625
Total 81,262,783
Leisure time & entertainment (0.7%)
AMC Entertainment
Sr Sub Nts
03-15-09 9.50 2,000,000 1,972,500
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 2,000,000 2,037,500
Premier Parks
Sr Nts
04-01-06 9.25 1,250,000(d) 1,187,500
Zero Coupon Sr Disc Nts
04-01-03 10.00 3,000,000(l) 1,770,000
Regal Cinemas
Sr Sub Nts
06-01-08 9.50 3,000,000(j) 2,868,750
Riviera Holdings
Company Guaranty
08-15-04 10.00 2,250,000 2,199,375
SFX Entertainment
Company Guaranty Series B
02-01-08 9.13 945,000 902,475
Time Warner
02-01-24 7.57 5,900,000 6,195,000
Sr Nts
01-15-28 6.95 5,000,000 4,889,300
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 1,000,000 862,500
United Artists Theatres
Series 1995A
07-01-15 9.30 1,909,624 1,907,237
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 2,410,000 2,428,075
Total 29,220,212
Media (1.8%)
Adelphia Communications
Sr Nts Series B
02-01-08 8.38 3,000,000 2,940,000
Antenna TV
08-01-07 9.00 3,000,000 2,928,750
CBS
Sr Nts
05-20-05 7.15 5,000,000 5,135,650
Central Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.38 3,675,000(c) 3,219,006
Cox Communications
11-15-15 7.25 5,000,000 5,304,000
06-15-25 7.63 5,000,000 5,498,050
CSC Holdings
Sr Nts
07-15-08 7.25 5,000,000 4,825,750
Sr Sub Nts
11-01-05 9.25 2,000,000 2,092,500
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 5,000,000(c,j) 3,390,150
Grupo Televisa
(U.S. Dollar) Sr Nts
05-15-06 11.88 1,250,000(c) 1,125,000
Lamar Advertising
Company Guaranty
12-01-06 9.63 1,100,000 1,146,750
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,350,000(c) 1,434,375
Outdoor Systems
Company Guaranty
10-15-06 9.38 2,500,000 2,565,625
06-15-07 8.88 10,000,000 10,200,000
Rogers Cablesystems
(Canadian Dollar)
01-15-14 9.65 5,000,000(c) 3,340,815
TCI Communications
08-01-15 8.75 3,850,000 4,632,282
Tele-Communications
02-15-23 8.75 3,500,000 3,852,170
Time Warner Entertainment
Sr Nts
07-15-33 8.38 10,000,000 11,725,000
Viacom
Sub Debs
07-07-06 8.00 4,000,000 3,975,000
Viacom Intl
Sub Debs Series A
07-01-03 7.00 2,000,000 2,000,160
Total 81,331,033
Metals (0.3%)
Grupo Minero Mexico
(U.S. Dollar) Company Guaranty Series A
04-01-08 8.25 4,750,000(c) 3,835,625
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 3,000,000(c,j) 2,610,000
NSM Steel
Company Guaranty
02-01-06 12.00 3,250,000 2,425,313
P & L Coal Holdings
Sr Nts
05-15-08 8.88 3,000,000(j) 2,902,500
Pen Holdings
Sr Nts
06-15-08 9.88 3,000,000(j) 2,951,250
Total 14,724,688
Miscellaneous (2.0%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 2,000,000 2,122,500
AMSC Acquisition
Company Guaranty Series B
04-01-08 12.25 2,000,000 1,360,000
APP Finance VI Mauritius
(U.S. Dollar) Zero Coupon Cv
11-18-12 10.48 85,000,000(c,k) 10,731,249
Bistro Trust
Sub Nts
12-31-02 9.50 12,000,000(j) 12,143,879
BTI Telecommunications
Sr Nts
09-15-07 10.50 1,000,000 975,000
Chattem
Company Guaranty Series B
04-01-08 8.88 2,200,000 2,090,000
Coty
Sr Sub Nts
05-01-05 10.25 1,500,000 1,644,375
Delphes 2
(U.S. Dollar)
05-05-09 7.75 9,000,000(c,j) 8,055,000
First Empire Capital
Company Guaranty
02-01-27 8.23 4,000,000 4,512,960
Golden Sky Systems
Sr Sub Nts
08-01-06 12.38 1,500,000(j) 1,477,500
Grant Geophysical
Company Guaranty Series B
02-15-08 9.75 1,925,000 1,758,969
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c,j) 2,318,750
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 4,000,000(c,j) 1,960,240
Jasmine Submarine Telecom
(U.S. Dollar) Sr Nts
05-30-11 8.48 1,775,260(c,j) 1,432,457
JTM Inds
Sr Sub Nts
04-15-08 10.00 2,760,000(j) 2,742,750
M & I Capital
Company Guaranty
12-01-26 7.65 5,700,000 6,212,373
Murrin Murrin Holdings
(U.S. Dollar) Sr Nts
08-31-07 9.38 1,000,000(c) 835,000
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 2,000,000 2,275,000
Ormet
Company Guaranty
08-15-08 11.00 2,700,000(j) 2,625,750
Oshkosh Truck
Company Guaranty
03-01-08 8.75 3,000,000 2,958,750
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,125,000 1,196,719
SC Intl
09-01-07 9.25 1,950,000 1,974,375
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 1,350,000 1,297,688
United Utilities
(U.S. Dollar)
04-01-08 6.45 5,000,000(c) 5,081,730
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 2,700,000(c,j) 2,841,750
Vesta Capital
01-15-27 8.53 5,000,000(j) 5,044,650
Total 87,669,414
Multi-industry conglomerates (0.7%)
American Eco
Company Guaranty
05-15-08 9.63 4,000,000(j) 3,725,000
Coltec Inds
Sr Nts
04-15-08 7.50 5,000,000(j) 4,918,750
Crane
06-15-99 7.25 2,000,000 2,027,460
Hutchison Whampo Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 1,250,000(c,j) 882,475
(U.S. Dollar) Company Guaranty Series B
08-01-17 7.45 1,275,000(c,j) 948,205
Pierce Leahy
Company Guaranty
05-15-08 8.13 4,050,000(j) 3,766,500
Sr Sub Nts
07-15-06 11.13 812,000(j) 893,200
Prime Succession
Sr Sub Nts
08-15-04 10.75 1,275,000 1,302,094
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,350,000 3,447,686
Westinghouse Electric
06-01-01 8.88 9,750,000 10,357,035
Total 32,268,405
Paper & packaging (0.5%)
Ball
Sr Sub Nts
08-01-08 8.25 1,750,000 1,710,625
Gaylord Container
Sr Nts
06-15-07 9.75 1,750,000 1,535,625
Sr Nts Series B
06-15-07 9.38 3,250,000 2,803,125
Graham Packaging/GPC Capital
Sr Sub Nts
01-15-08 8.75 2,000,000(j) 1,900,000
Owens-Illinois
Sr Nts
05-15-07 8.10 4,350,000 4,559,061
Quno Corp
(U.S. Dollar) Sr Nts
05-15-05 9.13 2,500,000(c) 2,556,250
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 1,200,000(c,j) 1,125,000
04-15-05 10.63 3,000,000(c) 2,602,500
Riverwood Intl
Company Guaranty Sr Nts
04-01-06 10.25 2,000,000(d) 1,875,000
Silgan Holdings
06-01-09 9.00 1,650,000 1,670,625
Total 22,337,811
Restaurants & lodging (0.2%)
Extended Stay America
Sr Sub Nts
03-15-08 9.15 4,000,000 3,875,000
Signature Resorts
Sr Nts
05-15-06 9.25 3,000,000 2,831,250
Total 6,706,250
Retail (0.6%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 2,900,000(j,l) 1,754,500
CEX Holdings
Sr Sub Nts
06-01-08 9.63 3,000,000(j) 2,808,750
Maxim Group
Company Guaranty Series B
10-15-07 9.25 2,500,000 2,534,375
Meyer (Fred)
Company Guaranty
03-01-08 7.45 6,075,000 6,099,543
Pep Boys - Manny, Moe & Jack
06-01-05 7.00 4,200,000 4,398,828
Pueblo Xtra Intl
Sr Nts
08-01-03 9.50 1,000,000 973,750
United Stationers Supply
Sr Sub Nts
04-15-08 8.38 5,000,000(j) 4,881,250
Wal-Mart CRAVE Trust
07-17-06 7.00 4,283,401(j) 4,425,053
Total 27,876,049
Textiles & apparel (0.2%)
Galey & Lord
Company Guaranty
03-01-08 9.13 3,000,000 2,602,500
Loomis Fargo
01-15-04 10.00 500,000 481,250
Steel Heddle Mfg
Sr Sub Nts
06-01-08 10.63 1,200,000(j) 1,177,500
Westpoint Stevens
Sr Nts
06-15-08 7.88 3,250,000(j) 3,180,938
Total 7,442,188
Transportation (0.4%)
Atlas Air Series C
01-02-10 8.01 10,000,000 10,131,800
Enterprises Shipholding
(U.S Dollar) Sr Nts
05-01-08 8.88 3,250,000(c,j) 2,794,545
Greater Beijing
(U.S. Dollar) Sr Nts
06-15-04 9.75 5,120,000(c,j) 2,048,000
Stena Line
(U.S. Dollar) Sr Nts
06-01-08 10.63 1,000,000(c) 991,250
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 12.00 5,000,000(c,j) 3,250,000
Total 19,215,595
Utilities -- electric (1.9%)
Alabama Power
1st Mtge
12-01-24 9.00 2,200,000 2,408,824
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 3,600,000 4,011,948
CalEnergy
Sr Nts
09-15-06 9.50 1,325,000 1,421,063
Cleveland Electric Illuminating
07-01-04 7.67 6,500,000 6,435,000
1st Mtge Series B
05-15-05 9.50 7,000,000 8,182,789
CMS Energy
Sr Nts
05-15-02 8.13 5,000,000 5,217,700
11-15-04 7.63 2,500,000 2,597,450
Comp Paranaense De Energ
(U.S. Dollar)
05-02-05 9.75 2,000,000(c,j) 1,700,260
Connecticut Light & Power
1st Mtge Series C
06-01-02 7.75 5,000,000 5,207,400
El Paso Electric
1st Mtge Series D
02-01-06 8.90 2,750,000 2,963,125
Espirito Santo - Escelsa
(U.S. Dollar)
07-15-07 10.00 4,400,000(c) 3,010,436
Israel Electric
(U.S. Dollar) Sr Nts
12-15-06 7.25 2,700,000(c) 2,721,222
Jersey Central Power & Light
1st Mtge
11-01-25 6.75 7,200,000 6,914,160
Korea Electric Power
(U.S. Dollar)
12-01-03 6.38 4,000,000(c) 2,622,360
Public Services Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 2,600,000(g) 2,672,150
Salton Sea Funding
Series C
05-30-10 7.84 1,325,000 1,448,503
Sithe Independence Funding
Series A
12-30-13 9.00 1,500,000 1,810,815
Texas Utilities Electric
08-01-07 7.17 5,000,000 5,296,300
TU Electric Capital
Company Guaranty
01-30-37 8.18 5,000,000 5,115,550
Virginia Electric & Power
02-01-07 6.75 5,000,000 5,214,700
Western Massachusetts Electric
1st Mtge Series B
07-01-01 7.38 2,750,000 2,818,008
Wisconsin Electric Power
12-01-95 6.88 2,800,000 2,902,900
Total 82,692,663
Utilities -- gas (0.2%)
Columbia Gas System
Series E
11-28-10 7.32 7,000,000 7,508,970
Utilities -- telephone (1.0%)
360 Communications
04-01-09 7.60 3,000,000 3,273,390
Airtouch Communications
05-01-08 6.65 10,000,000 10,227,499
Call-Net Enterprises
(U.S. Dollar) Sr Nts
08-15-08 8.00 1,750,000(c) 1,601,250
Geotek Communications
Zero Coupon Cv Sr Sub Nts
02-15-01 12.00 1,655,000(b,k) 2,069
Grupo Iusacell
(U.S. Dollar)
07-15-04 10.00 1,250,000(c) 1,018,750
Hyperion Telecommunications
Sr Nts Series B
09-01-04 12.25 1,500,000 1,470,000
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,000,000 938,750
06-01-08 8.60 3,000,000 2,835,000
McLeod USA
Sr Nts
03-15-08 8.38 2,300,000 2,156,250
Metrocall
Sr Sub Nts
11-01-07 9.75 1,000,000 920,000
MetroNet Communications
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-08 4.92 2,300,000(c,j,k) 1,233,375
Philippine Long Distance Telephone
(U.S. Dollar) Medium-term Nts Series E
03-06-07 7.85 1,500,000(c,j) 1,012,230
03-06-17 8.35 1,500,000(c,j) 870,315
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 2,300,000 2,254,000
Rogers Cantel
(U.S. Dollar)
06-01-08 9.38 2,800,000(c) 2,856,000
U S WEST Communications
11-10-26 7.20 5,000,000 5,102,950
WorldCom
04-01-07 7.75 4,000,000 4,327,240
Sr Nts
01-15-04 9.38 2,614,000 2,708,758
Total 44,807,826
Total bonds
(Cost: $1,613,538,296) $1,591,824,138
Short-term securities (6.3%)
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
09-04-98 5.48% $14,100,000 $14,093,584
09-04-98 5.50 8,600,000 8,596,080
09-17-98 5.49 8,400,000 8,379,579
Total 31,069,243
Commercial paper (5.5%)
ABB Treasury Center USA
09-17-98 5.56 9,100,000(p) 9,077,715
Abbott Laboratories
09-28-98 5.52 7,400,000 7,369,475
Barclays U.S. Funding
09-29-98 5.52 15,000,000 14,935,833
CAFCO
09-10-98 5.56 4,900,000(p) 4,893,238
09-17-98 5.55 8,000,000(p) 7,980,373
Cargill
09-16-98 5.51 15,000,000 14,965,625
Ciesco LP
10-15-98 5.58 8,000,000(p) 7,943,131
Coca-Cola
09-16-98 5.50 5,500,000 5,487,442
CXC
10-05-98 5.56 6,600,000(p) 6,565,592
Deutsche Bank Financial
10-23-98 5.56 14,200,000 14,081,016
Fleet Funding
10-14-98 5.56 2,500,000(p) 2,483,517
General Electric Capital
11-10-98 5.56 8,500,000 8,405,787
Glaxo Wellcome
09-22-98 5.53 8,500,000(p) 8,472,680
Goldman Sachs Group
10-13-98 5.56 1,700,000 1,689,032
GTE Funding
09-21-98 5.57 7,900,000 7,875,642
Merrill Lynch
10-16-98 5.56 3,900,000 3,873,090
Motorola
09-24-98 5.56 8,100,000 8,071,434
11-10-98 5.55 10,000,000 9,866,044
Natl Australia Funding (Delaware)
09-15-98 5.55 11,400,000 11,375,572
Natl Rural Utilities
09-28-98 5.54 7,800,000 7,767,708
Norwest
09-18-98 5.52 6,600,000 6,582,858
Paccar Financial
09-03-98 5.55 9,100,000 9,097,204
09-04-98 5.52 6,000,000 5,997,250
Reed Elsevier
09-22-98 5.56 10,000,000(p) 9,965,551
Rohm & Haas
09-29-98 5.56 6,600,000 6,571,613
Siemens
09-28-98 5.52 10,000,000 9,958,750
SmithKline Beecham
09-25-98 5.52 6,600,000 6,575,800
U S WEST Communications
10-29-98 5.57 11,950,000 11,840,707
Xerox
09-28-98 5.52 10,000,000 9,958,750
Total 239,728,429
Letter of credit (0.1%)
First Chicago-
Commed Fuel
10-23-98 5.60 5,800,000 5,750,466
Total short-term securities
(Cost: $276,596,532) $276,548,138
Total investments in securities
(Cost: $3,871,789,904)(q) $4,332,663,001
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. As of Aug. 31,
1998, the value of foreign securities represented 8.9% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(e) Negligible market value.
(f) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(g) The following abbreviation is used in portfolio descriptions to identify the
insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
(h) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semiannual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(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; similar to a zero coupon bond.
(j) 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.
(k) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(l) 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.
(m) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1998.
(n) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Aug. 31, 1998, is as follows:
Security Acquisition Cost
dates
American United Life Insurance*
7.75% 2026 02-13-96 $2,500,000
Roil
(U.S. Dollar) 12.78% 2002 05-15-98 4,646,300
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(o) At Aug. 31, 1998, the cost of securities purchased, including interest
purchased, on a when-issued basis was $16,927,149.
(p) 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.
(q) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$3,871,868,107 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.......................................$755,308,074
Unrealized depreciation.......................................(294,513,180)
Net unrealized appreciation...................................$460,794,894
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Moneyshare Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
Certificates of deposit (4.1%)
Bank of Montreal Yankee
05-10-99 5.75% $1,000,000 $999,671
Canadian Imperial Bank Yankee
09-02-98 5.58 5,000,000 4,999,999
10-14-98 5.57 5,000,000 5,000,000
04-01-99 5.75 1,500,000 1,499,571
Credit Agricole Yankee
05-19-99 5.75 1,000,000 999,437
U.S. Bank Minneapolis
10-21-98 5.62 3,100,000 3,100,000
04-23-99 5.80 1,000,000 1,000,000
Total certificates of deposit
(Cost: $17,598,678) $17,598,678
Commercial paper (83.6%)
Automotive & related (4.5%)
Daimler-Benz
11-06-98 5.59 5,400,000 5,345,550
11-16-98 5.58 4,300,000 4,250,254
Ford Motor Credit
10-21-98 5.56 4,900,000 4,862,501
Toyota Motor Credit
10-09-98 5.55 5,000,000 4,970,972
Total 19,429,277
Banks and savings & loans (13.0%)
Bank of America
10-22-98 6.00 2,000,000 1,999,866
02-26-99 5.67 1,000,000 999,813
BBV Finance (Delaware)
01-20-99 5.60 8,400,000 8,220,037
Commerzbank U.S. Finance
09-14-98 5.52 4,500,000 4,491,063
10-16-98 5.57 8,400,000 8,342,250
10-20-98 5.53 3,200,000 3,176,088
Deutsche Bank Financial
10-16-98 5.57 4,300,000 4,270,330
Natl Australia Funding (Delaware)
09-15-98 5.58 8,000,000 7,982,873
NBD Bank Canada
10-16-98 5.58 8,900,000 8,838,701
Westpac Capital
11-30-98 5.60 7,300,000 7,199,625
Total 55,520,646
Broker dealers (1.1%)
UBS Finance (Delaware)
09-14-98 5.54 4,900,000 4,890,233
Chemicals (2.5%)
Rohm & Haas
10-20-98 5.58 10,600,000 10,520,214
Commercial finance (9.4%)
CAFCO
10-21-98 5.58 5,000,000(b) 4,961,667
11-09-98 5.58 7,300,000(b) 7,223,046
Ciesco LP
11-13-98 5.58 9,200,000(b) 9,097,208
New Center Asset Trust
09-03-98 5.59 4,400,000 4,398,658
10-27-98 5.58 10,400,000 10,310,860
11-18-98 5.58 4,300,000 4,248,665
Total 40,240,104
Communications equipment & services (1.5%)
US WEST Communications
10-29-98 5.57 6,500,000 6,442,298
Electronics (2.3%)
Siemens
09-28-98 5.52 10,000,000 9,958,750
Energy (1.2%)
Chevron Transport
11-13-98 5.51 5,000,000(b) 4,944,135
Financial services (18.0%)
Associates Corp North America
09-16-98 5.52 5,300,000 5,287,854
Barclays U.S. Funding
09-29-98 5.52 5,600,000 5,576,044
Bear Stearns
10-02-98 5.58 5,500,000 5,473,904
11-19-98 5.61 6,100,000 6,026,376
Delaware Funding
09-10-98 5.58 5,500,000(b) 5,492,369
Household Finance
10-08-98 5.56 5,000,000 4,971,633
Merrill Lynch
09-04-98 5.60 5,000,000 4,997,728
09-18-98 5.59 5,000,000 4,987,156
10-07-98 5.56 3,300,000 3,281,784
11-20-98 5.67 1,000,000 987,800
11-27-98 5.59 2,000,000(c) 2,000,000
01-19-99 5.60 1,000,000(c) 1,000,000
01-25-99 5.60 2,000,000(c) 2,000,000
Morgan Stanley Dean Witter
11-25-98 5.61 1,000,000(c) 1,000,000
Morgan Stanley, Dean Witter, Discover & Co
09-04-98 5.58 5,000,000 4,997,696
Paccar Financial
09-04-98 5.52 7,000,000 6,996,792
09-10-98 5.54 800,000 798,896
Salomon Smith Barney
10-16-98 5.58 11,200,000 11,123,000
Total 76,999,032
Health care (1.2%)
SmithKline Beecham
09-25-98 5.52 5,000,000 4,981,667
Industrial equipment & services (1.2%)
ABB Treasury Center USA
10-28-98 5.54 5,000,000(b) 4,956,538
Insurance (1.4%)
American General Finance
11-12-98 5.60 6,000,000(b) 5,933,880
Media (6.3%)
Gannett
09-11-98 5.52 4,000,000(b) 3,993,889
Reed Elsevier
09-22-98 5.53 5,100,000(b) 5,083,608
09-22-98 5.56 5,000,000(b) 4,983,931
10-19-98 5.58 2,800,000(b) 2,779,467
11-02-98 5.58 10,000,000(b) 9,905,105
Total 26,746,000
Metals (1.6%)
Alcoa Aluminum Co of America
11-05-98 5.58 5,000,000 4,950,347
11-12-98 5.60 2,100,000 2,076,858
Total 7,027,205
Miscellaneous (8.8%)
CXC
10-01-98 5.56 5,000,000(b) 4,977,000
10-07-98 5.59 5,000,000(b) 4,972,350
10-13-98 5.58 6,200,000(b) 6,160,217
10-28-98 5.60 3,800,000(b) 3,766,728
Fleet Funding
10-09-98 5.55 7,900,000(b) 7,853,969
10-09-98 5.57 5,000,000(b) 4,970,814
10-09-98 5.58 4,900,000(b) 4,871,294
Total 37,572,372
Multi-industry conglomerates (1.4%)
General Electric Capital
09-25-98 5.62 2,000,000 1,992,667
10-15-98 5.60 4,000,000 3,972,915
Total 5,965,582
Utilities -- electric (6.5%)
Alabama Power
10-27-98 5.58 13,600,000 13,483,644
Duke Energy
11-05-98 5.58 8,000,000 7,920,412
11-06-98 5.58 6,500,000 6,434,339
Total 27,838,395
Utilities -- telephone (1.8%)
GTE Funding
09-09-98 5.54 7,900,000 7,890,309
Total commercial paper
(Cost: $357,856,637) $357,856,637
Letters of credit (9.1%)
Credit Agricole-
Louis Dreyfus
09-16-98 5.56 5,000,000 4,988,417
10-09-98 5.54 8,000,000 7,953,218
Dresdner Bank-
ContiFinancial
09-01-98 5.57 5,000,000 5,000,000
09-03-98 5.52 6,100,000 6,098,129
First Chicago-
Commed Fuel
10-26-98 5.59 5,000,000 4,957,910
Toronto Dominion Bank-
Presbyterian Healthcare Services
09-16-98 5.53 5,000,000 4,988,479
Union Bank Switzerland-
River Fuel Trust
09-04-98 5.58 5,000,000(b) 4,997,675
Total letters of credit
(Cost: $38,983,828) $38,983,828
Total investments in securities
(Cost: $414,439,143)(d) $414,439,143
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 either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1998.
(d) Also represents the cost of securities for federal income tax purposes at
Aug. 31, 1998.
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
International Equity Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Common stocks (89.2%)
Issuer Shares Value(a)
Brazil (0.3%)
Energy (0.2%)
Petroleo Brasileiro ADR 105,860(b,c)$1,106,312
Utilities -- electric (0.1%)
Centrais Eletricas
Brasileiras ADR 41,400(b) 302,510
Canada (5.1%)
Banks and savings & loans (1.1%)
Toronto-Dominion Bank 837,200 21,295,560
Communications equipment & services (2.0%)
Newbridge Networks 214,600(b) 4,013,954
Northern Telecom 748,000 35,717,000
Total 39,730,954
Energy (1.0%)
Petro-Canada 2,038,300 19,418,546
Multi-industry conglomerates (1.0%)
Bombardier Cl B 1,977,600 21,163,900
France (16.9%)
Banks and savings & loans (4.9%)
Banque Natl de Paris 1,505,931 99,739,768
Communications equipment & services (2.8%)
Alcatel Alsthom 347,195 56,236,632
Energy (2.3%)
Total Petroleum Cl B 474,936 46,236,966
Household products (3.4%)
Rhone-Poulenc Cl A 1,434,084 69,101,624
Leisure time & entertainment (2.0%)
Accor178,153 41,154,073
Utilities -- electric (1.5%)
Suez Lyonnaise des Eaux 187,756(b) 30,952,984
Germany (9.7%)
Banks and savings & loans (3.7%)
Bayerische Vereinsbank 980,990 $75,025,232
Industrial equipment & services (5.0%)
Mannesmann 1,120,210 101,278,522
Multi-industry conglomerates (1.0%)
Viag 31,458(b) 19,765,782
Italy (14.3%)
Banks and savings & loans (8.9%)
Banca Intesa 10,662,896(c) 50,533,597
Credito Italiano 12,552,100 60,460,955
Instituto Bancario
San Paolo di Torino 4,600,714 67,871,573
Total 178,866,125
Utilities -- telephone (5.4%)
Telecom Italia 11,760,400 58,677,339
Telecom Italia (New) 6,654,586 51,515,812
Total 110,193,151
Japan (6.2%)
Building materials & construction (0.5%)
Daiwa House Inds 1,350,000(b) 10,828,350
Computers & office equipment (0.9%)
Fujitsu 1,840,000(c) 18,676,920
Electronics (2.4%)
Fujikura 2,290,000(c) 7,883,554
Matsushita Communication
Industrial 240,000(b) 8,091,984
Rohm 226,000 23,100,522
Tokyo Electron 435,000 10,035,146
Total 49,111,206
Financial services (0.6%)
Sumitomo Realty &
Development 3,941,000 12,028,720
Health care (0.6%)
Takeda Chemical Inds 460,000(b) 12,048,550
Media (1.2%)
Sony 330,000 24,150,357
Mexico (0.3%)
Beverages & tobacco (0.3%)
Fomento Economico
Mexicano ADR 245,000(e) $4,195,625
Panamerican Beverages Cl A 180,000 2,868,750
Total 7,064,375
Financial services (--%)
Grupo Financiero
Bancomer Cl B 4,884,800 612,593
Netherlands (6.0%)
Industrial equipment & services (1.9%)
Philips Electronics 590,833 38,645,559
Insurance (4.1%)
ING Groep 1,417,657(c) 83,725,688
Russia (--%)
Utilities -- electric
Mosenergo ADR 478,692(b,c) 658,202
Singapore (0.6%)
Building materials & construction
Singapore Technologies
Engineering 13,566,000 11,783,428
Spain (2.3%)
Banks and savings & loans
Argentaria 2,411,012 46,350,018
Sweden (0.9%)
Banks and savings & loans
Nordbanken Holding 3,183,828 19,024,964
Switzerland (8.6%)
Banks and savings & loans (5.2%)
Credit Suisse Group 188,892 33,206,741
UBS 227,059 73,534,374
Total 106,741,115
Health care (3.4%)
Novartis 44,345 $69,162,209
United Kingdom (17.7%)
Health care (1.8%)
SmithKline Beecham 3,108,985 36,715,559
Household products (1.2%)
Unilever 2,580,482 24,223,759
Industrial equipment & services (0.4%)
Hays PLC 618,000(b) 8,132,262
Multi-industry conglomerates (4.4%)
General Electric 8,040,371 52,429,650
Williams 6,173,405(b) 36,374,937
Total 88,804,587
Retail (2.5%)
Great Universal Stores 4,172,385 50,497,959
Utilities -- telephone (7.4%)
Cable & Wireless
Communications 2,402,430(b) 21,142,827
Orange 6,443,730(b) 76,907,851
Vodafone 3,827,015(b) 53,278,555
Total 151,329,233
Total common stocks
(Cost: $1,543,227,345) $1,801,884,254
Banca Intesa
Warrants 10,662,896 $10,547,737
Henkel KGaA 643,000 51,552,589
Total preferred stock & other
(Cost: $33,356,949) $62,100,326
Short-term securities (10.6%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (3.1%)
Federal Home Loan Mtge Corp Disc Nts
09-03-98 5.49% $12,800,000 $12,796,110
09-04-98 5.50 14,600,000 14,593,345
09-17-98 5.49 13,200,000 13,167,909
09-21-98 5.48 7,600,000 7,576,947
Federal Natl Mtge Assn Disc Nt
09-14-98 5.47 15,000,000 14,970,425
Total 63,104,736
Commercial paper (7.1%)
Abbott Laboratories
09-28-98 5.52 5,700,000 5,676,487
AIG Funding
10-08-98 5.57 3,600,000 3,578,883
Associates Corp North America
09-01-98 5.84 11,800,000 11,799,999
Barclays U.S. Funding
09-29-98 5.52 10,000,000 9,957,222
BellSouth Capital Funding
09-25-98 5.53 2,800,000(d) 2,789,733
CAFCO
09-17-98 5.55 4,800,000(d) 4,788,224
Cargill
09-16-98 5.51 10,000,000 9,977,083
Ciesco LP
10-15-98 5.58 8,600,000(d) 8,538,866
Colgate-Palmolive
09-28-98 5.53 6,200,000(d) 6,174,425
CXC
10-07-98 5.56 4,700,000 4,674,009
Fleet Funding
10-09-98 5.55 8,100,000(d) 8,052,804
10-13-98 5.56 6,000,000(d) 5,961,360
GTE Funding
09-03-98 5.56 1,400,000 1,399,568
Heinz (HJ)
09-23-98 5.56% $12,400,000 $12,358,171
Intl Lease Finance
10-14-98 5.57 6,800,000 6,735,243
Merrill Lynch
10-16-98 5.56 2,400,000 2,383,440
Motorola
09-24-98 5.56 5,600,000 5,580,215
Natl Rural Utilities
10-27-98 5.58 5,000,000 4,935,717
Paccar Financial
09-10-98 5.54 700,000 699,034
Reed Elsevier
09-22-98 5.53 7,000,000(d) 6,977,501
09-25-98 5.53 3,500,000(d) 3,487,143
SmithKline Beecham
09-25-98 5.52 7,000,000 6,974,334
Toyota Motor Credit
09-21-98 5.53 4,800,000 4,785,307
Xerox
09-28-98 5.52 5,000,000 4,979,375
Total 143,264,143
Letter of credit (0.4%)
First Chicago-
Commed Fuel
10-06-98 5.55 8,240,000 8,195,859
Total short-term securities
(Cost: $214,610,236) $214,564,738
Total investments in securities
(Cost: $1,791,194,530)(f) $ 2,078,549,318
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements. Foreign security values are stated in U.S. dollars.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 5 to financial statements.
(d) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended Aug. 31, 1998 are as follows:
<TABLE>
<CAPTION>
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
Fomento Economico
<S> <C> <C> <C> <C> <C> <C>
Mexicano ADR* $6,730,104 $-- $-- $6,730,104 $78,882 $4,195,625
</TABLE>
*Issuer was not an affiliate for the entire year ended Aug. 31, 1998.
(f) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$1,791,194,530 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation......................................$414,801,370
Unrealized depreciation......................................(127,446,582)
Net unrealized appreciation..................................$287,354,788
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
Aggressive Growth Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Common stocks (78.1%)
Issuer Shares Value(a)
Aerospace & defense (0.3%)
Hexcel 452,600(b) $4,384,563
Howmet Intl 108,500(b) 1,085,000
Total 5,469,563
Airlines (0.6%)
Comair Holdings 500,000 12,718,750
Automotive & related (2.1%)
Central Parking 320,000 13,220,000
Danaher 400,000 14,500,000
Federal-Mogul 250,000 13,343,750
Total 41,063,750
Banks and savings & loans (1.2%)
Astoria Financial 270,000 9,720,000
Creditrust 260,000(b) 3,786,250
Washington Mutual 300,000 9,600,000
Total 23,106,250
Beverages & tobacco (0.2%)
Whitman 200,000 3,100,000
Building materials & construction (0.5%)
Cemex Cl B 600,000(b) 1,447,705
Consolidated Capital 585,000(b) 7,531,875
Total 8,979,580
Chemicals (0.4%)
Allied Waste Inds 400,000(b) 7,600,000
Commercial finance (0.8%)
Finova Group 350,000 15,618,750
Communications equipment & services (2.5%)
Advanced Fibre
Communications 850,000(b) 6,056,250
American Tower Cl A 750,000(b) 11,812,500
Ascend Communications 250,000(b) 8,750,000
Aspect Telecommunications 420,000(b) 10,001,250
Northern Telecom 126,540(c) 6,042,285
PairGain Technologies 700,000(b) 6,168,750
Total 48,831,035
Computers & office equipment (22.6%)
ABR Information Services 300,000(b) 4,350,000
American Management
Systems 660,000(b) 17,655,000
At Home Corp Series A 100,000(b) 2,850,000
BMC Software 380,000(b) 16,078,750
Cisco Systems 225,000(b) 18,421,875
Compuware 450,000(b) 20,446,875
E*TRADE Group 450,000(b) $7,481,250
Echelon 750,000(b) 3,750,000
Edwards (JD) & Co 500,000(b) 20,250,000
Electronic Arts 380,000(b) 14,487,500
Envoy100,000(b) 2,175,000
Fiserv 475,000(b) 18,525,000
FORE Systems 700,000(b) 12,075,000
Intuit 325,000(b) 11,110,938
JDA Software Group 550,000(b) 6,600,000
Keane290,000(b) 12,180,000
Legato Systems 710,000(b) 24,938,750
Manhattan Associates 300,000(b) 3,375,000
Maxtor 1,800,000(b) 12,262,500
Mercury Interactive 425,000(b) 14,290,625
Metzler Group 610,000(b) 17,080,000
MicroStrategy 80,000(b) 2,335,000
Network Associates 923,625(b) 29,786,905
Parametric Technology 500,000(b) 5,125,000
PeopleSoft 400,000(b) 11,250,000
Pervasive Software 412,500(b) 3,196,875
Platinum Software 275,000(b) 3,300,000
Policy Management
Systems 560,000(b) 23,380,000
PSINet 400,000(b) 4,200,000
Rational Software 425,000(b) 4,728,125
Renaissance Worldwide 925,000(b) 9,250,000
Safeguard Scientifics 400,000(b) 9,650,000
Secure Computing 1,100,000(b,f) 7,012,500
Software.net 315,000(b) 2,716,875
Spyglass 130,000(b) 1,381,250
Sterling Commerce 450,000(b) 14,850,000
SunGard Data Systems 500,000(b) 15,843,750
Systems & Computer
Technology 750,000(b) 10,218,750
Visio 365,000(b) 7,665,000
Whittman-Hart 850,000(b) 15,937,500
Xylan 325,000(b,d) 4,956,250
Total 447,167,843
Electronics (1.7%)
Maxim Integrated Products 200,000(b) 5,500,000
Micron Electronics 200,000(b) 2,350,000
Micron Technology 400,000(b) 9,100,000
SLI 498,500(b) 6,854,375
Uniphase 240,000(b) 9,585,000
Total 33,389,375
Energy (0.3%)
Tesoro Petroleum 434,950(b) 5,599,981
Energy equipment & services (0.1%)
Varco Intl 340,800(b) 2,428,200
Financial services (1.6%)
CIT Group Cl A 500,000 12,843,750
CMAC Investment 109,700 4,223,450
Heller Financial 446,000 8,808,500
Knight/Trimark Group Cl A 750,000 4,968,750
Total 30,844,450
Furniture & appliances (0.4%)
Ethan Allen Interiors 238,500 7,751,250
Health care (5.6%)
ALZA 150,000(b) 5,400,000
Arterial Vascular
Engineering 400,000(b) 14,000,000
Dura Pharmaceuticals 525,000(b) 8,662,500
Elan ADR 400,000(b,c,d)23,500,000
Guidant 170,000 10,497,500
Horizon Medical Products 127,500(b) 892,500
Sofamor Danek Group 160,000(b) 13,350,000
Watson Pharmaceuticals 775,000(b) 34,923,438
Total 111,225,938
Health care services (5.1%)
HBO & Co 2,519,000 53,528,750
Health Management
Associates Cl A 1,350,000(b) 24,384,375
Health Management
Systems 1,250,000(b,f) 8,125,000
Sunrise Assisted Living 425,000(b) 11,209,375
Total Renal Care Holdings 200,000(b) 3,800,000
Total 101,047,500
Household products (1.7%)
ServiceMaster 712,500 14,917,969
Steiner Leisure 840,000(b,c,f)18,480,000
Total 33,397,969
Industrial equipment & services (1.4%)
Catalytica 670,000(b) 6,909,375
Iron Mountain 540,000(b) 12,690,000
Terex 450,000(b) 7,087,500
Total 26,686,875
Insurance (2.4%)
ACE 300,000(c) 8,700,000
Nationwide Financial
Services Cl A 250,000 11,171,875
Protective Life 300,000 9,262,500
SunAmerica 300,000 18,581,250
Total 47,715,625
Leisure time & entertainment (1.8%)
Harley-Davidson 460,000 14,173,750
SFX Entertainment Cl A 370,000(b) 11,608,750
SportsLine USA 200,000(b) 3,975,000
Travel Services Intl 280,000(b) 6,090,000
Total 35,847,500
Media (8.9%)
Capstar Broadcasting Cl A 490,900(b) 8,314,619
CBS 447,000 11,622,000
Chancellor Media 675,000(b) 24,089,062
Clear Channel
Communications 350,000(b) 15,750,000
Getty Images 300,000(b) 4,237,500
Jacor Communications 300,000(b) 17,700,000
Outdoor Systems 2,025,000(b) 47,081,249
Sinclair Broadcast
Group Cl A 769,500 12,360,094
Snyder Communications 600,000(b) 18,075,000
Univision Communications
Cl A 17,600(b) 468,600
Young & Rubicam 525,000(b) 16,045,313
Total 175,743,437
Miscellaneous (0.9%)
24/7 Media 220,000(b) 1,485,000
Convergys 300,000(b) 3,731,250
Crown Castle Intl 700,000(b) 5,687,500
Cumulus Media Cl A 600,000(b) 6,300,000
SOFTWORKS 40,000(b) 170,000
Total 17,373,750
Multi-industry conglomerates (4.4%)
AccuStaff 162,400(b) 2,030,000
Apollo Group Cl A 475,000(b) 14,428,125
Global Imaging Systems 600,000(b) 6,225,000
Interim Services 700,000(b) 14,350,000
Mail-Well 300,000(b) 4,987,500
Robert Half Intl 275,000(b) 13,200,000
Tyco Intl 440,000(c) 24,420,000
Veterinary Centers of
America 420,000(b) 6,930,000
Total 86,570,625
Restaurants & lodging (0.2%)
Silverleaf Resorts 392,700(b) 3,190,688
Retail (7.0%)
Barnes & Noble 200,000(b) 5,412,500
Consolidated Stores 400,000(b) 12,600,000
Costco Cos 400,000(b) 18,825,000
Dollar General 130,300 3,501,813
Dollar Tree Stores 100,000(b) 2,900,000
Kohl's 450,000(b) 20,446,875
Office Depot 749,200(b) 19,104,600
Rexall Sundown 450,000(b,d) 8,212,500
Rite Aid 500,000 18,093,750
Safeway 500,000(b) 19,687,500
Staples 375,000(b) 10,171,875
Total 138,956,413
Textiles & apparel (0.8%)
Abercrombie & Fitch 300,000(b) $12,900,000
Steve Madden 570,000(b) 3,811,875
Total 16,711,875
Transportation (0.2%)
Coach USA 185,300(b) 4,875,706
Utilities -- telephone (2.5%)
COLT Telecom Group ADR 65,000(b,c) 9,360,000
MGC Communications 377,500(b) 3,255,938
Orbital Sciences 380,000(b) 7,125,000
STAR Telecommunications 676,600(b) 7,104,300
WorldCom 550,000(b) 22,515,624
Total 49,360,862
Total common stocks
(Cost: $1,633,433,710) $1,542,373,540
Preferred stocks (1.9%)
Issuer Shares Value(a)
Federal-Mogul Finance Trust
7.00% Cm Cv 69,000 $4,381,500
Intermedia Communications
7.00% Cv 452,000 8,983,500
SBH-Cincinnati Bell 216,200 10,242,475
6.25% Cv
Suiza Capital
5.50% Cm Cv 302,500(g) 13,083,125
Total preferred stocks
(Cost: $45,950,203) $36,690,600
Bonds (0.9%)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Bea Systems
Cv Sub Nts
06-15-05 4.00% $10,000,000(g) $8,300,000
Continucare
Cv Sr Sub Nts
10-31-02 8.00 4,000,000(c) 2,445,000
Financial Federal
Cv Sub Nts
05-01-05 4.50 9,500,000(g) 7,647,500
Total bonds
(Cost: $23,365,739) $18,392,500
</TABLE>
Short-term securities (15.1%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (2.5%)
Federal Home Loan Mtge Corp Disc Nts
09-04-98 5.48% $3,700,000 $3,698,317
09-08-98 5.49 15,000,000 14,984,045
10-02-98 5.46 30,000,000 29,859,466
Total 48,541,828
Commercial paper (12.6%)
Ameritech Capital Funding
09-11-98 5.52 9,000,000(e) 8,986,250
Barclays U.S. Funding
09-08-98 5.55 9,100,000 9,090,180
CAFCO
09-17-98 5.55 5,000,000(e) 4,987,733
10-21-98 5.57 4,700,000(e) 4,661,957
Ciesco LP
10-06-98 5.55 8,000,000 7,957,222
Coca-Cola
09-16-98 5.50 12,000,000 11,972,600
CXC
10-15-98 5.56 4,000,000(e) 3,973,013
Delaware Funding
09-18-98 5.57 7,700,000(e) 7,679,929
Deutsche Bank Financial
10-19-98 5.57 5,000,000 4,961,977
10-21-98 5.56 6,000,000 5,952,386
10-23-98 5.56 15,400,000 15,270,959
Fleet Funding
10-15-98 5.55 3,500,000(e) 3,476,429
Ford Motor Credit
10-14-98 5.55 5,300,000 5,261,722
10-21-98 5.56 10,000,000 9,917,637
Gannett
09-08-98 5.52 10,000,000(e) 9,989,306
Goldman Sachs Group
10-13-98 5.56 10,300,000 10,233,547
GTE Funding
09-02-98 5.52 6,000,000 5,999,082
09-09-98 5.54 2,100,000 2,097,424
09-16-98 5.54 4,000,000 3,990,800
Heinz (HJ)
10-02-98 5.53 10,200,000 10,151,780
Merrill Lynch
10-07-98 5.56 5,100,000 5,071,848
Natl Australia Funding (Delaware)
09-10-98 5.52 7,100,000 7,090,237
09-15-98 5.56 9,200,000 9,180,144
Natl Rural Utilities
09-28-98 5.54 12,900,000 12,846,593
New Center Asset Trust
10-13-98 5.55 10,000,000 9,935,716
11-13-98 5.57 3,900,000 3,854,946
Norwest
09-18-98 5.52 12,200,000 12,168,314
Paccar Financial
09-04-98 5.52 8,000,000 7,996,333
Pacific Life Insurance
09-10-98 5.52 9,100,000 9,087,488
Proctor & Gamble
09-25-98 5.53 4,400,000 4,383,867
Siemens
09-28-98 5.52 3,300,000 3,286,388
USAA Capital
10-09-98 5.53 7,000,000 6,959,362
Xerox Credit
09-10-98 5.53 5,000,000 4,993,113
09-11-98 5.52 7,000,000 6,989,305
Total 250,455,587
Total short-term securities
(Cost: $299,019,594) $298,997,415
Total investments in securities
(Cost: $2,001,769,246)(h) $1,896,454,055
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. As of Aug. 31, 1998, the
value of foreign securities represented 4.7% of net assets.
(d) Security is partially or fully on loan. See Note 4 to the financial
statements.
(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, 1998 are as follows:
<TABLE>
<CAPTION>
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
Health Management
<S> <C> <C> <C> <C> <C> <C>
Systems* $ -- $13,565,943 $ -- $13,565,943 $-- $ 8,125,000
Secure Computing* -- 12,952,228 -- 12,952,228 -- 7,012,500
Steiner Leisure 7,506,250 -- 1,191,667 6,314,583 -- 18,480,000
Total $7,506,250 $26,518,171 $1,191,667 $32,832,754 $-- $33,617,500
</TABLE>
*Issuer was not an affiliate for the entire year ended Aug. 31, 1998.
(g) 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.
(h) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$2,006,686,237 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation..............................$ 258,004,512
Unrealized depreciation...............................(368,236,694)
Net unrealized depreciation..........................$(110,232,182)
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
Retirement Annuity Mutual Funds
Global Yield Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Bonds (89.7%)(b)
Issuer Coupon Principal Value(a)
Rate amount
Argentina (2.2%)
Comp Nav Perez Companc
(U.S. Dollar)
01-30-04 9.00% $1,000,000(d) $820,000
Province of Mendoza
(U.S. Dollar)
09-04-07 10.00 1,000,000(d) 815,370
Republic of Argentina
(Japanese Yen)
03-27-01 5.50 110,000,000 800,327
(U.S. Dollar)
03-31-05 6.69 1,425,000 929,456
01-30-17 11.38 1,000,000 725,000
Total 4,090,153
Bermuda (0.2%)
Central Euro Media
(Deutsche Mark) Sr Nts Series RG
08-15-04 4.45 750,000 311,318
Brazil (1.7%)
Espirito Santo - Escelsa
(U.S. Dollar)
07-15-07 10.00 1,000,000 684,190
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 1,500,000(d) 1,017,045
Republic of Brazil
(U.S. Dollar)
05-15-27 10.13 2,300,000 1,334,000
Total 3,035,235
Cayman Islands (0.2%)
Roil
(U.S. Dollar)
12-05-02 12.78 958,000(h) 287,400
Canada (3.3%)
Govt of Canada
(Canadian Dollar)
02-01-06 7.00 2,000,000 1,375,916
06-01-23 8.00 4,200,000 3,450,429
Rogers Communication
(Canadian Dollar) Sr Nts
07-15-07 6.37 2,000,000 1,179,714
Total 6,006,059
Denmark (2.9%)
Govt of Denmark
(Danish Krone)
05-15-03 8.00 7,700,000 1,316,277
03-15-06 8.00 7,500,000 1,341,750
11-10-24 7.00 15,000,000 2,691,210
Total 5,349,237
France (0.3%)
Govt of France
(European Currency Unit)
04-25-05 7.50% 400,000 $536,367
Germany (7.2%)
Federal Republic of Germany
(Deutsche Mark)
11-11-04 7.50 5,430,000 3,658,685
06-20-16 6.00 5,700,000 3,742,500
07-04-27 6.50 8,300,000 5,770,343
Total 13,171,528
Greece (0.8%)
Hellenic Republic
(Greek Drachma)
03-21-00 9.80 477,000,000 1,518,916
Hong Kong (1.1%)
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 1,000,000(d) 612,210
Hutchison Whampo Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 2,000,000(d) 1,411,960
Total 2,024,170
Indonesia (0.3%)
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 1,300,000 533,000
Israel (0.5%)
Israel Electric
(U.S. Dollar) Sr Nts
12-15-26 7.88 1,000,000(d) 982,780
Italy (4.1%)
Govt of Italy
(Italian Lira)
09-15-01 7.75 2,450,000,000 1,548,400
01-01-04 8.50 5,340,000,000 3,663,240
11-01-26 7.25 3,050,000,000 2,232,600
Total 7,444,240
Japan (0.8%)
Sony
(U.S. Dollar)
03-04-03 6.13 1,500,000 1,525,590
Malaysia (0.6%)
Petronas
(U.S. Dollar)
08-15-15 7.75% $2,000,000 $1,185,020
Mexico (2.9%)
Banco Nacional de Comercio Exterior
(U.S. Dollar)
02-02-04 7.25 2,000,000(g) 1,560,000
United Mexican States
(British Pound) Medium-term Nts Series E
05-30-02 8.75 750,000 1,084,357
(U.S. Dollar)
09-15-16 11.38 2,150,000 1,827,499
05-15-26 11.50 1,050,000 880,688
Total 5,352,544
Norway (2.3%)
Govt of Norway
(Norwegian Krone)
01-31-99 9.00 32,200,000 4,142,144
Panama (0.5%)
Banco General
(U.S. Dollar)
08-01-02 7.70 1,000,000(d) 946,530
Peru (0.5%)
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 1,000,000 1,000,430
Philippines (0.4%)
Philippine Long Distance Telephone
(U.S. Dollar) Medium-term Nts Series E
03-06-07 7.85 1,200,000(d) 809,784
Poland (0.8%)
Govt of Poland
(U.S. Dollar)
10-27-14 4.00 2,000,000(e) 1,545,000
Russia (0.2%)
Govt of Russia
(U.S. Dollar)
06-10-03 11.75 1,000,000(d) 246,250
Tatneft Finance
(U.S. Dollar) Company Guaranty
10-29-02 9.00 800,000(d) 144,000
Total 390,250
Slovenia (1.8%)
Republic of Slovenia
(Deutsche Mark)
06-16-04 5.75% 5,500,000 $3,317,050
South Korea (0.9%)
Korea Development Bank
(U.S. Dollar)
05-15-06 7.25 1,500,000 999,330
Republic of Korea
(U.S. Dollar)
04-15-08 8.88 1,000,000 706,589
Total 1,705,919
Spain (1.6%)
Govt of Spain
(Spanish Peseta)
04-30-99 9.40 200,000,000 1,387,600
04-30-06 8.80 170,000,000 1,454,520
Total 2,842,120
Sweden (3.0%)
Govt of Sweden
(Swedish Krona)
02-09-05 6.00 15,000,000 1,987,095
08-15-07 8.00 16,600,000 2,529,093
Paulson Enterprenad
(Swedish Krona)
12-15-00 8.29 9,000,000 1,066,590
Total 5,582,778
United Kingdom (9.5%)
Colt Telecom Group
(Deutsche Mark)
07-31-08 4.25 1,500,000 733,515
IPC Magazines Group
(British Pound)
03-15-08 9.63 500,000(d) 704,046
United Kingdom Treasury
(British Pound)
03-03-00 9.00 2,000,000 3,468,243
06-07-02 7.00 1,000,000 1,741,781
06-10-03 8.00 1,350,000 2,476,520
12-07-05 8.50 1,500,000 2,962,727
09-08-06 7.75 1,500,000 2,880,320
08-25-17 8.75 1,000,000 2,362,927
Total 17,330,079
United States (38.5%)
California Infrastructure
Pacific Gas & Electric
(U.S. Dollar)
06-25-03 6.16 1,050,000 1,077,279
Citicorp
(Deutsche Mark)
09-19-09 6.25% 3,000,000 $1,887,294
DTE Burns Harbor LLC
(U.S. Dollar) Sr Nts
01-30-03 6.57 1,300,000(d) 1,299,610
Federal Natl Mtge Assn
(U.S. Dollar)
02-15-08 5.75 2,000,000 2,024,640
07-01-13 6.00 2,000,000 1,995,360
02-01-27 7.50 763,079 784,049
03-01-27 7.50 1,575,192 1,618,479
06-01-27 7.50 1,507,954 1,549,393
Federated Dept Stores
(U.S. Dollar)
02-15-28 7.00 1,500,000 1,501,785
First Union-
Lehman Brothers Cl A3
(U.S. Dollar) Series 1997-C1
04-18-29 7.50 1,150,000 1,187,375
Firstar Capital
(U.S. Dollar) Company Guaranty Series B
12-15-26 8.32 1,000,000 1,122,460
Ford Motor Credit
(U.S. Dollar)
09-10-02 6.55 3,000,000 3,112,170
GTE North
(U.S. Dollar) Series F
02-15-10 6.38 2,000,000 2,038,160
MGM Grand
(U.S. Dollar)
02-01-05 6.95 1,500,000 1,489,200
Morgan (JP)
(U.S. Dollar) Sr Sub Medium-term Nts Series A
02-15-12 4.00 1,000,000 924,460
Nationwide CSN Trust
(U.S. Dollar)
02-15-25 9.88 1,500,000(d) 1,860,120
New York Life Insurance
(U.S. Dollar)
12-15-23 7.50 1,000,000(d) 1,029,800
Railcar Leasing
(U.S. Dollar)
01-15-13 7.13% $3,000,000(d)$3,224,430
Texas Utilities Electric
(U.S. Dollar)
08-01-07 7.17 2,000,000 2,118,520
TU Electric Capital
(U.S. Dollar) Company Guaranty
01-30-37 8.18 1,000,000 1,023,110
U.S. Treasury
(U.S. Dollar)
02-15-00 5.88 4,500,000 4,550,670
11-15-01 7.50 1,650,000 1,769,031
02-15-05 7.50 5,600,000 6,334,328
11-15-16 7.50 11,975,000 14,785,413
02-15-27 6.63 2,500,000 2,926,225
TIPS
01-15-07 3.38% 3,000,000(f) 2,987,934
USX
(U.S. Dollar)
03-01-08 6.85 2,000,000 2,023,620
Watson Pharmaceuticals
(U.S. Dollar) Sr Nts
05-15-08 7.13 1,200,000 1,224,636
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 1,000,000(d) 1,161,500
Total 70,631,051
Venezuela (0.4%)
Govt of Venezuela
(U.S. Dollar) Series B
03-31-07 6.75 428,572(e) 177,857
(U.S. Dollar) Series DM
03-31-07 2.42 2,801,000(e) 619,161
Total 797,018
Total bonds
(Cost: $168,103,710) $164,393,710
Short-term securities (10.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (6.5%)
Federal Home Loan Mtge Corp Disc Nts
09-04-98 5.48% $2,700,000 $2,698,772
09-04-98 5.50 1,400,000 1,399,362
09-17-98 5.49 4,100,000 4,090,031
10-02-98 5.46 1,200,000 1,194,379
10-02-98 5.47 1,900,000 1,891,083
Federal Natl Mtge Assn Disc Nt
09-14-98 5.47 600,000 598,817
Total 11,872,444
Commerical paper (4.0%)
Colgate-Palmolive
09-28-98 5.53 700,000(c) 697,113
Fleet Funding
09-18-98 5.54% $500,000(c) $498,699
Heinz (HJ)
10-16-98 5.53 6,300,000 6,256,766
Total 7,452,578
Total short-term securities
(Cost: $19,325,022) $19,325,022
Total investments in securities
(Cost: $187,428,732)(i) $183,718,732
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) 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) 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) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1998.
(f) 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.
(g) Security is partially or fully on loan. See Note 5 to the financial
statements.
(h) 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, 1998, is as follows:
Security Acquisition Cost
dates
Roil
(U.S. Dollar) 12.78% 2002 05-15-98 $929,260
(i) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$187,436,745 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.....................................$ 8,458,811
Unrealized depreciation.....................................(12,176,824)
Net unrealized depreciation.................................$(3,718,013)
(This annual report is not part of the prospectus.)
<PAGE>
Retirement Annuity Mutual Funds
Growth Dimensions Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Common stocks (93.6%)
Issuer Shares Value(a)
Aerospace & defense (0.5%)
United Technologies 141,000 $10,231,313
Airlines (2.2%)
AMR 524,100(b) 28,563,450
Southwest Airlines 786,600 14,011,313
Total 42,574,763
Automotive & related (0.4%)
Ford Motor 196,600 8,650,400
Banks and savings & loans (5.8%)
BankAmerica 314,550 20,150,859
Citicorp 165,700 17,916,313
Norwest 1,310,400 38,984,400
State Street 524,100 27,285,956
Wachovia 131,000 9,603,938
Total 113,941,466
Beverages & tobacco (1.3%)
Coca-Cola 393,200 25,607,150
Chemicals (2.5%)
Monsanto 250,600 13,704,688
Waste Management 786,200(b) 34,691,075
Total 48,395,763
Communications equipment & services (2.9%)
Lucent Technologies 366,700 25,989,863
Northern Telecom 331,100(c) 15,810,025
Tellabs 340,800(b) 14,398,800
Total 56,198,688
Computers & office equipment (13.3%)
America Online 157,300 12,888,769
Automatic Data
Processing 157,300 10,027,875
BMC Software 392,726(b) 16,617,219
Cisco Systems 720,600(b) 58,999,124
Compaq Computer 966,100 26,990,419
EMC 152,700(b) 6,900,131
Hewlett-Packard 393,600 19,114,200
Intl Business Machines 314,600 35,431,824
Microsoft 471,800(b) 45,263,312
Network Associates 262,100(b) 8,452,725
PeopleSoft 249,500(b) 7,017,188
Xerox150,600 13,224,563
Total 260,927,349
Electronics (2.3%)
Intel 470,800 33,515,075
Texas Instruments 235,600 11,235,175
Total 44,750,250
Energy (3.0%)
Exxon 301,200 $19,709,775
Mobil 262,100 18,117,663
Royal Dutch Petroleum 521,400(c) 20,725,650
Total 58,553,088
Energy equipment & services (1.0%)
Halliburton 287,4007,634,063
Schlumberger 282,900(c) 12,394,556
Total 20,028,619
Financial services (6.0%)
Associates First
Capital Cl A 196,731 11,631,720
Fannie Mae 287,600 16,339,275
MBNA 655,300 15,399,550
Merrill Lynch & Co 52,600 3,471,600
Morgan Stanley, Dean Witter,
Discover & Co 392,990 22,817,982
Paychex 274,850 10,444,300
Travelers Group 852,000 37,807,499
Total 117,911,926
Health care (11.4%)
Boston Scientific 155,000(b) 10,733,750
Bristol-Myers Squibb 380,800 37,270,800
Elan ADR 262,000(b,c,d)15,392,500
Johnson & Johnson 266,400 18,381,600
Medtronic 265,400 13,634,925
Merck & Co 262,100 30,387,219
Pfizer 615,800 57,269,399
Schering-Plough 262,000 22,532,000
SmithKline Beecham ADR 96,200(c) 5,471,375
Warner-Lambert 175,100 11,425,275
Total 222,498,843
Health care services (3.5%)
Cardinal Health 275,10024,071,249
HBO & Co 786,400 16,711,000
HEALTHSOUTH
Rehabilitation 366,600(b) 6,942,488
Service Corp Intl 288,000 9,756,000
United Healthcare 327,500 11,830,938
Total 69,311,675
Household products (1.7%)
Gillette 471,600 19,394,550
Procter & Gamble 169,800 12,989,700
Total 32,384,250
Industrial equipment & services (1.1%)
Deere & Co 351,400 11,574,237
Illinois Tool Works 196,500 9,517,969
Total 21,092,206
Insurance (3.2%)
ACE 943,300(c) $27,355,700
Allstate 138,100 5,178,750
American Intl Group 294,112 22,738,573
UNUM 162,100 7,132,400
Total 62,405,423
Leisure time & entertainment (0.5%)
Disney (Walt) 93,000 2,551,688
Mattel 219,200 7,096,600
Mirage Resorts 32,333(b) 480,953
Total 10,129,241
Media (5.2%)
CBS 786,640 20,452,640
Clear Channel
Communications 262,000(b) 11,790,000
Gannett 524,086 30,921,074
New York Times Cl A 379,500 11,005,500
Time Warner 340,600 27,375,725
Total 101,544,939
Multi-industry conglomerates (7.1%)
AccuStaff 344,300(b) 4,303,750
Emerson Electric 484,800 27,633,600
General Electric 982,700 78,615,999
Tyco Intl 524,372(c) 29,102,646
Total 139,655,995
Restaurants & lodging (1.1%)
Marriott Intl Cl A 785,80022,051,513
Retail (10.4%)
Costco Cos 196,400(b) 9,243,075
CVS 589,800 21,453,975
Dayton Hudson 707,400 $25,466,400
Home Depot 524,200 20,181,700
Kroger 262,400(b) 11,808,000
Safeway 1,061,200(b) 41,784,750
Tandy235,700 12,860,381
Wal-Mart Stores 1,048,600 61,605,249
Total 204,403,530
Textiles & apparel (--%)
Nike Cl B 22,200 770,063
Utilities -- electric (1.1%)
CMS Energy 393,500 16,649,969
Duke Energy 90,600 5,651,175
Total 22,301,144
Utilities -- gas (0.8%)
El Paso Energy 655,600 16,267,075
Utilities -- telephone (5.1%)
AirTouch Communications 261,800(b) 14,726,250
BellSouth 655,300 44,929,007
Cincinnati Bell 293,500 6,897,250
U S WEST Communications
Group 432,800 22,505,600
WorldCom 288,300(b) 11,802,281
Total 100,860,388
Total common stocks
(Cost: $1,688,411,378) $1,833,447,060
Short-term securities (6.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (1.6%)
Federal Home Loan Mtge Corp Disc Nts
09-03-98 5.49% $10,600,000 $10,596,778
09-04-98 5.48 5,600,000 5,597,452
09-11-98 5.48 10,200,000 10,184,530
09-23-98 5.49 5,300,000 5,282,316
Total 31,661,076
Commercial paper (4.8%)
Albertson's
09-02-98 5.56 5,800,000 5,799,107
Ameritech Capital Funding
09-10-98 5.53 9,500,000 9,486,914
Barclays U.S. Funding
09-08-98 5.55 5,400,000 5,394,173
Ciesco LP
10-06-98 5.55 5,000,000 4,973,264
Fleet Funding
09-18-98 5.54 4,600,000(e) 4,588,031
Glaxo Wellcome
09-22-98 5.53 4,700,000(e) 4,684,893
Goldman Sachs Group
10-13-98 5.56 8,200,000 8,147,095
GTE Funding
09-16-98 5.54 2,300,000 2,294,710
Heinz (HJ)
10-16-98 5.53 4,000,000 3,972,550
Merrill Lynch
10-07-98 5.56 5,600,000 5,569,088
Motorola
09-24-98 5.56 2,500,000 2,491,183
Natl Australia Finance (Delaware)
09-21-98 5.53% $8,500,000 $8,473,981
Paccar Financial
09-17-98 5.54 2,700,000 2,693,376
Pacific Life Insurance
09-10-98 5.52 3,900,000 3,894,638
Reed Elsevier
09-22-98 5.56 3,200,000(e) 3,189,715
Rohm & Haas
09-29-98 5.56 2,300,000 2,290,108
Siemens
09-28-98 5.52 5,400,000 5,377,725
USAA Capital
09-01-98 5.57 5,000,000 5,000,000
Xerox Credit
09-10-98 5.53 5,000,000 4,993,113
Total 93,313,664
Letter of credit (0.1%)
First Chicago-
Commed Fuel
10-06-98 5.55 2,600,000 2,586,072
Total short-term securities
(Cost: $127,560,812) $127,560,812
Total investments in securities
(Cost: $1,815,972,190)(f) $1,961,007,872
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. As of Aug. 31, 1998, the
value of foreign securities represented 6.4% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(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, 1998, the cost of securities for federal income tax purposes was
$1,816,031,876 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation...................................$243,950,503
Unrealized depreciation....................................(98,974,507)
Net unrealized appreciation...............................$144,975,996
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Retirement Annuity Mutual Funds
Income Advantage Fund
Aug. 31, 1998
(Percentages represent
value of investments
compared to net assets)
Bonds (85.0%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (0.4%)
Argentina Govt Natl
(U.S. Dollar)
<S> <C> <C> <C>
09-19-27 9.75% $700,000(c) $469,000
Govt of Russia
(Russian Ruble)
12-15-20 6.63 2,000,000(c) 200,000
Republic of Argentina
(Argentine Peso)
07-10-02 8.75 1,000,000(c,e) 550,000
Republic of Korea
(U.S. Dollar)
04-15-08 8.88 1,250,000(c) 883,236
United Mexican States
(U.S. Dollar)
05-15-26 11.50 500,000(c) 419,375
Total 2,521,611
Aerospace & defense (1.0%)
Compass Aerospace
Sr Sub Nts
04-15-05 10.13 1,550,000(e) 1,565,500
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,560,000 1,665,300
Sequa
10-15-99 9.63 2,500,000 2,562,500
Total 5,793,300
Automotive & related (1.9%)
EV Intl
Company Guaranty Series A
03-15-07 11.00 2,500,000 2,100,000
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 2,000,000 1,925,000
HDA Parts System
Sr Sub Nts with Rights
08-01-05 12.00 1,000,000(e) 986,250
MSX Intl
Company Guaranty
01-15-08 11.38 1,725,000 1,673,250
Oxford Automotive
Company Guaranty
06-15-07 10.13 3,250,000 3,274,375
Sr Sub Nts
06-15-07 10.13 1,000,000(e) 1,007,500
Total 10,966,375
Banks and savings & loans (0.6%)
Alfa-Russia Finance
(U.S. Dollar) Medium-term Nts Bank Guaranty
07-28-00 10.38 500,000(c) 25,000
CEI Citicorp Holdings
(Argentine Peso)
02-14-07 11.25 500,000(c,e) 286,485
Wilshire Financial Services
01-01-04 13.00 2,300,000 2,438,000
Series B
08-15-04 13.00 450,000 476,438
Total 3,225,923
Building materials & construction (0.3%)
Schuff Steel
Sr Nts
06-01-08 10.50 2,100,000(e) 1,884,750
Commercial finance (0.3%)
Advance Holding
Zero Coupon
04-15-03 12.88 400,000(e,g) 224,000
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 1,725,000(c) 1,593,469
Total 1,817,469
Communications equipment & services (15.0%)
21st Century Telecom Group
Zero Coupon Sr Disc Nts
02-15-03 12.25 1,500,000(g) 750,000
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 12.06 4,950,000(g) 2,190,375
American Cellular
Sr Nts
05-15-08 10.50 4,000,000(e) 3,645,000
Bestel
(U.S. Dollar) Zero Coupon
05-15-01 12.75 2,850,000(c,e,g) 1,645,875
Birch Telecom
06-15-08 14.00 2,000,000(e) 2,005,000
BTI Telecommunications
Sr Nts
09-15-07 10.50 700,000 682,500
Caprock Communications
Sr Nts
07-15-08 12.00 3,000,000(e) 2,973,750
Coaxial Communications/Phoenix
Company Guaranty
08-15-06 10.00 2,500,000(e) 2,428,125
Comcast Cellular Holdings
Sr Nts Series B
05-01-07 9.50 5,000,000 4,856,250
EchoStar DBS
Company Guaranty
07-01-02 12.50 2,000,000 2,175,000
EchoStar Satellite Broadcasting
Zero Coupon Sr Disc Nts
03-15-00 12.65 2,150,000(g) 1,951,125
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 1,250,000(c) 1,268,750
06-15-08 10.88 2,000,000(c,e) 1,987,500
Facilicom Intl
Sr Nts Series B
01-15-08 10.50% $500,000 $481,250
Globalstar LP/Capital
Sr Nts
02-15-04 11.38 1,250,000 978,125
06-15-04 11.25 1,000,000 800,000
06-01-05 11.50 400,000(e) 320,000
GST Equipment Funding
Sr Nts
05-01-07 13.25 750,000 847,500
GST Telecom/GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 3,000,000(e,g) 1,740,000
GST Telecommunications
Sr Sub Nts
11-15-07 12.75 750,000 841,875
ICO Global Communications
08-01-05 15.00 4,000,000 3,680,000
Iridium LLC/Capital
Company Guaranty Series A
07-15-05 13.00 1,000,000 925,000
Company Guaranty Series C
07-15-05 11.25 510,000 418,200
Company Guaranty Series D
07-15-05 10.88 2,800,000 2,296,000
IXC Communications
Sr Sub Nts
04-15-08 9.00 2,550,000 2,320,500
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.88 3,700,000 3,588,999
Zero Coupon Sr Disc Nts Series B
08-01-00 9.19 3,250,000(g) 2,571,563
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-03 12.68 1,500,000(g) 768,750
Level 3 Communications
Sr Nts
05-01-08 9.13 2,250,000 2,013,750
Microcell Telecommunications
(Canadian Dollar) Zero Coupon Sr Disc Nts Series B
10-15-02 5.98 1,210,000(c,g) 461,113
(U.S. Dollar) Zero Coupon Sr Disc Nts Series B
12-01-01 11.13 1,000,000(c,g) 671,250
MJD Communications
05-01-08 9.50 600,000(e) 607,500
Nextel Communications
Zero Coupon Sr Disc Nts
01-15-99 8.67 2,500,000(g) 2,525,000
02-15-99 11.84 500,000(g) 485,625
Northeast Optic Network
Sr Nts
08-15-08 12.75 2,000,000 1,990,000
NTL
Sr Nts Series B
02-15-07 10.00 2,000,000 2,052,500
Zero Coupon Sr Nts Series B
02-01-01 8.94 5,000,000(g) 3,949,999
Pathnet
04-15-08 12.25% $1,400,000(e) $1,288,000
PhoneTel Technologies
Sr Nts
12-15-06 12.00 2,130,000 2,135,325
Price Comm Cellular Holdings
Sr Nts
08-15-08 11.25 1,500,000 1,515,000
RCN
Zero Coupon Sr Disc Nts Series B
02-15-03 9.80 1,200,000(g) 687,000
Satelites Mexicanos
(U.S. Dollar) Sr Nts
11-01-04 10.13 2,000,000(c,e) 1,500,000
Telehub Communications
Zero Coupon
07-31-01 13.88 3,000,000(e,g) 2,010,000
Triton Communications
Zero Coupon Sr Disc Sub Nts
05-01-03 10.86 4,000,000(e,g) 2,155,000
Unisite
Zero Coupon Sub Nts
12-15-00 13.00 1,000,000(d,g) 1,000,000
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 2,700,000(c,e) 2,841,750
Vialog
Company Guaranty
11-15-01 12.75 3,720,000 3,766,500
Total 84,792,324
Computers & office equipment (2.6%)
American Business Information
Sr Sub Nts
06-15-08 9.50 3,000,000(e) 2,936,250
Anacomp
Sr Sub Nts Series B
04-01-04 10.88 2,000,000 2,005,000
Bell Technology Group
Sr Nts
05-01-05 13.00 2,050,000(e) 2,091,000
Concentric Network
Sr Nts
12-15-07 12.75 600,000 608,250
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 2,250,000(e) 2,002,500
Decisionone Holdings
Zero Coupon
08-01-02 9.88 1,425,000(g) 748,125
PSINet
Sr Nts Series B
02-15-05 10.00 1,700,000 1,602,250
Unisys
Sr Nts
10-15-04 11.75 2,000,000 2,292,500
Verio
Sr Nts
04-01-05 10.38 500,000(e) 480,000
Total 14,765,875
Electronics (0.2%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 1,500,000(c,e) 1,029,375
Energy (5.7%)
Anker Coal Group
Sr Nts Series B
10-01-07 9.75 1,300,000 1,144,000
Belco Oil & Gas
Sr Sub Nts Series B
09-15-07 8.88 600,000 498,000
Canadian Forest Oil
(U.S. Dollar) Company Guaranty
09-15-07 8.75 1,000,000(c) 900,000
Clark R&M
Sr Sub Nts
11-15-07 8.88 1,400,000 1,260,000
Costilla Energy
Sr Nts
10-01-06 10.25 3,000,000 2,707,500
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 1,500,000 1,438,125
Forcenergy
Sr Sub Nts
11-01-06 9.50 500,000 469,375
Sr Sub Nts Series B
02-15-07 8.50 750,000 660,000
Houston Exploration
Sr Sub Nts Series B
01-01-08 8.63 1,450,000 1,393,813
HS Resources
Company Guaranty
11-15-06 9.25 1,000,000 976,250
Sr Sub Nts
12-01-03 9.88 1,400,000 1,324,750
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
11-01-04 11.75 2,250,000(c,e) 1,777,500
Lodestar Holdings
(U.S. Dollar) Sr Nts
05-15-05 11.50 3,000,000(c,e) 2,535,000
Michael Petroleum
Sr Nts
04-01-05 11.50 500,000(e) 485,625
Nuevo Energy
Sr Sub Nts
06-01-08 8.88 3,000,000(e) 2,820,000
Ocean Energy
Sr Sub Nts
07-01-08 8.38 2,250,000(e) 2,025,000
Panda Global Energy
(U.S. Dollar) Company Guaranty
04-15-04 12.50% $4,245,000(e) $3,565,800
Rayovac
Sr Sub Nts Series B
11-01-06 10.25 912,000 984,960
Roil
(U.S. Dollar)
12-05-02 12.78 1,916,000(c,d) 574,800
Tesoro Petroleum
Sr Sub Nts
07-01-08 9.00 2,150,000(e) 2,104,312
Transamerica Energy
06-15-02 11.50 2,200,000 1,471,250
Zero Coupon
06-15-99 17.13 2,400,000(g) 1,296,000
Total 32,412,060
Energy equipment & services (1.7%)
Bayard Drilling Technologies
Sr Nts
06-30-05 11.00 700,000(e) 679,000
Dailey Intl
Company Guaranty Series B
02-15-08 9.50 1,000,000 878,750
DI Inds
Sr Nts
07-01-07 8.88 1,000,000 885,000
Grant Geophysical
Company Guaranty Series B
02-15-08 9.75 1,225,000 1,119,344
Northern Offshore ASA
(U.S. Dollar) Company Guaranty
05-15-05 10.00 3,400,000(c,e) 2,890,000
Plains Resources
Company Guaranty Series D
03-15-06 10.25 1,000,000 997,500
Seven Seas Petroleum
Sr Nts
05-15-05 12.50 2,000,000(e) 1,925,000
Total 9,374,594
Financial services (1.7%)
Arcadia Financial
Sr Nts
03-15-07 11.50 4,580,000 3,719,300
Gemini Inds
12-23-01 13.50 1,500,000(d) 1,500,000
Ocwen Asset Investment
Sr Nts
07-01-05 11.50 3,000,000(e) 2,640,000
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 3,000,000(b,c) 1,230,000
Tri Polyta Finance BV
(U.S. Dollar) Zero Coupon Company Guaranty
12-01-03 10.25 2,100,000(b,c,f) 750,750
Total 9,840,050
Food (2.1%)
Ameriserve Food Distributions
Company Guaranty
07-15-07 10.13 1,300,000 1,196,000
Aurora Foods
Sr Sub Nts Series B
02-15-07 9.88 400,000 417,000
Sr Sub Nts Series D
02-15-07 9.88 2,000,000 2,085,000
CFP Holdings
Sr Nts Series B
01-15-04 11.63 900,000 562,500
Chiquita Brands Intl
Sr Nts
01-15-04 9.63 1,000,000 1,031,250
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 1,250,000(b,c,e) 781,250
Gorges/Quik to Fix Food
Sr Sub Nts Series B
12-01-06 11.50 2,250,000 630,000
RAB Enterprises
Sr Nts
05-01-05 10.50 2,400,000(e) 2,364,000
Specialty Foods
Sr Nts Series B
08-15-01 10.25 1,100,000 983,125
Stroh Brewery
Sr Sub Nts
07-01-06 11.10 3,261,000(b) 1,646,805
Total 11,696,930
Furniture & appliances (0.2%)
Lifestyle Furnishings
Company Guaranty
08-01-06 10.88 1,000,000 1,106,250
Health care (0.4%)
Alaris Medical
Zero Coupon Sr Disc Nts
08-01-03 11.12 4,000,000(e,g) 2,295,000
Health care services (2.7%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 5,500,000 5,321,250
Fountain View
Sr Sub Nts
04-15-08 11.25 950,000(e) 935,750
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,000,000(e) 1,620,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,775,000(e) 1,455,500
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 2,250,000 2,160,000
Physician Sales & Service
Company Guaranty
10-01-07 8.50 2,250,000 2,210,625
Tenet Healthcare
Sr Nts
01-15-05 8.00 1,500,000 1,546,365
Total 15,249,490
Household products (0.5%)
Coty
Sr Sub Nts
05-01-05 10.25 1,000,000 1,096,250
Revlon Worldwide
Zero Coupon Sr Disc Nts Series B
03-15-01 10.59 2,000,000(f) 1,450,000
Total 2,546,250
Industrial equipment & services (2.2%)
Clark Materials Handling
Company Guaranty
11-15-06 10.75 1,500,000 1,552,500
Sr Nts
11-15-06 10.75 750,000(e) 776,250
Goss Graphic Systems
Sr Sub Nts
10-15-06 12.00 2,500,000 2,400,000
Grove Holdings LLC
Zero Coupon
05-01-03 11.63 1,000,000(e,g) 461,250
Grove Inds LLC
05-01-10 14.50 675,000(e) 675,000
Motor & Gears
Sr Nts Series D
11-15-06 10.75 2,750,000 2,725,938
Purina Mills
Sr Sub Nts
03-15-10 9.00 575,000(e) 577,875
Thermadyne Holdings
Zero Coupon
06-01-03 12.49 3,000,000(e,g) 1,500,000
Thermadyne Mfg LLC/Capital
Sr Sub Nts
06-01-08 9.88 2,000,000(e) 1,900,000
Total 12,568,813
Insurance (0.7%)
Americo Life
Sr Sub Nts
06-01-05 9.25 2,000,000 2,027,500
Veritas Holdings
(U.S. Dollar) Sr Nts
12-15-03 9.63 1,591,000(c) 1,666,573
Total 3,694,073
Leisure time & entertainment (4.3%)
Affinity Group Holding
Sr Nts
04-01-07 11.00% $1,500,000 $1,567,500
Coast Hotels & Casino
Company Guaranty Series B
12-15-02 13.00 1,900,000 2,139,875
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 1,500,000 1,460,625
Hollywood Theaters
Company Guaranty
08-01-07 10.63 1,100,000 1,120,625
Icon Health & Fitness
Sr Sub Nts Series B
07-15-02 13.00 1,000,000 630,000
Zero Coupon Sr Disc Nts Series B
11-15-01 14.00 2,250,000(g) 225,000
IHF Holdings
Zero Coupon Sr Disc Nts Series B
11-15-99 6.56 3,000,000(b,g) 600,000
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 2,000,000 2,037,500
Premier Cruises
Sr Nts
03-15-08 11.00 2,000,000(b,e) 1,455,000
Premier Parks
Sr Nts
04-01-06 9.25 800,000 760,000
Riviera Holdings
Company Guaranty
08-15-04 10.00 1,250,000 1,221,875
SFX Entertainment
Company Guaranty Series B
02-01-08 9.13 370,000 353,350
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 2,550,000 2,199,375
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 1,200,000 1,335,000
United Artists Theatres
Series 1995A
07-01-15 9.30 1,670,928 1,668,840
Sr Sub Nts
04-15-08 9.75 2,000,000(d,e) 1,954,999
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 1,525,000 1,536,438
Zero Coupon Company Guaranty
11-15-05 10.00 600,000 531,000
Waterford Gaming/LLC
Sr Nts
11-15-03 12.75 1,230,000 1,339,163
Total 24,136,165
Media (10.1%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 2,000,000 2,122,500
Adelphia Communications
Zero Coupon Sr Nts Pay-in-kind Series B
02-15-04 9.50 356,875(f,i) 376,949
Sr Nts Series B
02-01-08 8.38 4,500,000 4,410,000
Australis Holdings
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-00 12.80 2,260,000(b,c,g) 113,000
Australis Media
(U.S. Dollar)
11-01-00 14.00 616,647(c) 466,170
(U.S. Dollar) Zero Coupon
05-15-00 14.06 47,958(b,c,g) 719
05-15-00 12.25 4,500,000(b,c,g) 67,500
Benedek Communications
Zero Coupon Sr Disc Nts
05-15-01 11.89 1,250,000(g) 995,313
Big City Radio
Zero Coupon Company Guaranty
03-15-01 11.25 2,000,000(g) 1,455,000
Big Flower Press
Sr Sub Nts
07-01-07 8.88 1,000,000 991,250
Capstar Broadcasting
Zero Coupon Sr Disc Nts
02-01-02 7.49 1,000,000(e,g) 753,750
CBS Radio
Pay-in-kind Sub Deb
01-15-09 11.38 1,052,800(i) 1,179,136
Central Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.38 2,150,000(c) 1,883,228
Chancellor Media
Sr Sub Nts
10-01-04 9.38 1,500,000 1,522,500
Sr Sub Nts Series B
12-15-07 8.13 1,250,000 1,200,000
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 2,250,000(c,e) 1,525,568
Grupo Televisa
(U.S. Dollar) Sr Nts
05-15-06 11.88 2,250,000(c) 2,025,000
Jacor Communications
Company Guaranty
12-15-06 9.75 3,250,000 3,534,375
James Cable Partners LP
Sr Nts Series B
08-15-04 10.75 2,000,000 2,040,000
Liberty Group Operating
Company Guaranty
02-01-08 9.38 1,000,000 972,500
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 2,750,000(c) 2,921,875
OpTel
Sr Nts Series B
02-15-05 13.00% $2,250,000 $2,396,250
Outdoor Systems
Company Guaranty
06-15-07 8.88 3,875,000 3,952,500
Paxson Communications
Sr Sub Nts
10-01-02 11.63 1,750,000 1,815,625
Pegasus Media & Communications
Series B
07-01-05 12.50 1,500,000 1,650,000
Sr Nts Series B
10-15-05 9.63 750,000 744,375
Pratama Datakom Asia
(U.S. Dollar) Company Guaranty Sr Nts
07-15-05 12.75 1,400,000(c,e) 346,500
Price Communications Wireless
Sr Nts
12-15-06 9.13 3,000,000(e) 2,722,499
Sr Sub Nts
07-15-07 11.75 2,500,000 2,678,125
Radio Unica
Zero Coupon Sr Disc Nts
08-01-02 11.74 2,000,000(e,g) 1,187,500
Spanish Broadcasting Systems
Zero Coupon Sr Nts
06-15-02 12.50 1,000,000 1,090,000
Telemundo Holdings
Zero Coupon Sr Disc Nts
08-15-03 11.50 4,000,000(e,g) 2,140,000
Telewest Communication
(U.S. Dollar) Debs
10-01-06 9.63 1,500,000(c) 1,477,500
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 1,000,000(c,d,i) 1,500,000
Viacom Intl
Sub Deb
07-07-06 8.00 2,500,000 2,484,375
Total 56,741,582
Metals (2.8%)
Bar Technologies
Company Guaranty
04-01-01 13.50 1,500,000(e) 1,635,000
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00 1,500,000(c) 1,471,875
EnviroSource
Sr Nts
06-15-03 9.75 3,000,000 2,981,250
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 1,750,000(c,e) 1,623,125
Great Lakes Acquisition
Zero Coupon
05-15-03 13.12 1,500,000(e,g) 800,625
Great Lakes Carbon
Sr Sub Nts Pay-in-kind
05-15-08 10.25 2,125,000(e,i) 2,124,999
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 1,000,000(c,e) 870,000
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 1,000,000 1,096,250
NSM Steel
Company Guaranty
02-01-06 12.00 1,650,000 1,231,313
02-01-08 12.25 1,200,000 840,000
Sheffield Steel
1st Mtge Series B
12-01-05 11.50 1,000,000 980,000
Total 15,654,437
Miscellaneous (6.8%)
AMSC Acquisition
Company Guaranty Series B
04-01-08 12.25 1,500,000 1,020,000
Autopistas Del Sol
(U.S. Dollar) Sr Nts
08-01-09 10.25 1,500,000(c,e) 1,102,500
Bistro Trust
Sub Nts
12-31-02 9.50 1,000,000(e) 1,011,990
Comforce Operating
Sr Nts Series B
12-01-07 12.00 1,400,000 1,477,000
Crown Castle Intl
Zero Coupon Sr Disc Nts
11-15-02 10.01 2,250,000(g) 1,305,000
CTI Holdings
(U.S. Dollar) Zero Coupon Sr Nts
04-15-03 11.50 950,000(c,e,g) 533,188
Day Intl Group
Company Guaranty
03-15-08 9.50 500,000 466,250
Golden Sky Systems
Sr Sub Nts
08-01-06 12.38 3,000,000(e) 2,955,000
Isle of Capri/Capital
1st Mtge Series B
08-31-04 13.00 2,750,000 2,825,625
JTM Inds
Sr Sub Nts
04-15-08 10.00 2,705,000(e) 2,688,094
Knology Holdings
Zero Coupon Sr Disc Nts
10-15-02 12.46 1,500,000(g) 811,875
Morris Materials Handling
Sr Nts
04-01-08 9.50 2,000,000(e) 1,695,000
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 2,475,000 2,815,313
NTEX
(U.S. Dollar) Sr Nts
06-01-06 11.50 1,400,000(c,e) 1,358,000
Ormet
Company Guaranty
08-15-08 11.00 3,500,000(e) 3,403,749
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 5,190,000 5,520,862
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 1,500,000 1,468,125
Resource America
Sr Nts
08-01-04 12.00 1,000,000 997,500
SC Intl
09-01-07 9.25 2,200,000 2,227,500
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 900,000 865,125
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 750,000 791,250
XCL
05-01-04 13.50 1,000,000(e) 1,080,000
Total 38,418,946
Multi-industry conglomerates (1.5%)
Communications & Power Inds
Sr Sub Nts Series B
08-01-05 12.00 1,000,000 1,093,750
Jordan Inds
Zero Coupon Sr Sub Debs Series B
04-01-02 11.75 1,608,386(g) 1,041,430
Pierce Leahy
Company Guaranty
05-15-08 8.13 3,625,000(e) 3,371,250
Prime Succession
Sr Sub Nts
08-15-04 10.75 2,675,000 2,731,844
Total 8,238,274
Paper & packaging (4.1%)
Bear Island LLC/Finance
Sr Nts Series B
12-01-07 10.00 1,550,000 1,550,000
BPC Holding
Sr Nts Series B Pay-in-kind
06-15-06 12.50 1,600,000(i) 1,726,000
Doman Inds
(U.S. Dollar)
03-15-04 8.75 1,500,000(c) 1,290,000
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 350,000(c) 269,500
Gaylord Container
Sr Nts
06-15-07 9.75 1,800,000 1,579,500
02-15-08 9.88 3,750,000 2,910,937
Graham Packaging Capital
Zero Coupon Sr Disc Nts
01-15-03 10.03 1,500,000(e,g) 892,500
Grupo Industrial Durango
(U.S. Dollar)
08-01-03 12.63 1,000,000(c) 755,000
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 1,200,000(c,e) 1,125,000
04-15-05 10.63 3,250,000(c) 2,819,375
Riverwood Intl
Company Guaranty
08-01-07 10.63 500,000 484,375
Company Guaranty Sr Nts
04-01-06 10.25 3,250,000 3,046,875
Silgan Holdings
06-01-09 9.00 825,000 835,313
Stone Container
Sr Nts
08-01-16 12.58 2,000,000 2,162,500
Stone Container Finance - Canada
(U.S. Dollar) Company Guaranty
08-15-06 11.50 1,500,000(c,e) 1,584,375
Total 23,031,250
Restaurants & lodging (0.5%)
American Restaurant Group
Sr Nts
02-15-03 11.50 1,000,000(e) 1,016,250
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 1,550,000 1,588,750
Total 2,605,000
Retail (3.5%)
Advance Stores
Sr Sub Nts
04-15-08 10.25 800,000(e) 776,000
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 2,900,000(e,g) 1,754,500
CEX Holdings
Sr Sub Nts
06-01-08 9.63 2,500,000(e) 2,340,625
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 3,000,000 2,827,500
Fred Meyer
Zero Coupon Sr Sub Debs Pay-in-kind
06-15-07 13.63 9(f,i) 11
Jitney-Jungle Stores of America
Company Guaranty Sr Nts
03-01-06 12.00 1,500,000 1,635,000
Maxim Group
Company Guaranty Series B
10-15-07 9.25% $1,500,000 $1,520,625
Musicland Group
Company Guaranty Series B
03-15-08 9.88 1,750,000 1,697,500
Pathmark Stores
Sr Sub Nts
05-01-03 9.63 1,500,000 1,443,750
Sub Nts
06-15-02 11.63 3,500,000 3,395,000
Pueblo Xtra Intl
Sr Nts
08-01-03 9.50 900,000 876,375
Sr Nts Series C
08-01-03 9.50 1,000,000 973,750
United Auto Group
Sr Sub Nts Series A
07-15-07 11.00 750,000 710,625
Total 19,951,261
Textiles & apparel (2.2%)
Anvil Knitwear
Sr Nts Series B
03-15-07 10.88 1,500,000 1,518,750
Galey & Lord
Company Guaranty
03-01-08 9.13 1,000,000 867,500
GFSI
Sr Sub Nts Series B
03-01-07 9.63 4,000,000(e) 4,130,000
GFSI Holdings
Zero Coupon Sr Disc Nts Series B
09-15-04 11.38 1,700,000(g) 1,734,000
Hosiery Corp of America
Sr Sub Nts
08-01-02 13.75 1,000,000 1,060,000
Pillowtex
Company Guaranty Sr Sub Nts Series B
12-15-07 9.00 500,000 496,875
Polysindo Intl Finance
(U.S. Dollar) Zero Coupon Company Guaranty
06-15-06 6.89 1,495,000(b,c,f) 373,750
Steel Heddle Group
Zero Coupon
06-01-03 13.74 1,600,000(e,g) 780,000
Steel Heddle Mfg
Sr Sub Nts
06-01-08 10.63 1,200,000(e) 1,177,500
Total 12,138,375
Transportation (1.0%)
American Architectural
Company Guaranty
12-01-07 11.75 1,000,000 1,010,000
Enterprises Shipholding
(U.S. Dollar) Sr Nts
05-01-08 8.88 1,600,000(c,e) 1,375,776
Global Ocean Carriers
Sr Nts
07-15-07 10.25% $2,500,000 $2,103,125
Greater Beijing
(U.S. Dollar) Sr Nts
06-15-04 9.75 350,000(c,e) 140,000
06-15-07 10.00 500,000(c,e) 190,000
Trico Marine Services
Company Guaranty Sr Nts Series F
08-01-05 8.50 1,000,000 905,000
Total 5,723,901
Utilities -- electric (0.1%)
Espirito Santo - Escelsa
(U.S. Dollar)
07-15-07 10.00 900,000(c) 615,771
Utilities -- gas (0.3%)
Bellwether Exploration
Sr Nts
04-01-07 10.88 1,000,000 993,750
Empire Gas
Sr Nts
07-15-99 7.00 1,000,000(h) 850,000
Total 1,843,750
Utilities -- telephone (7.6%)
CCPR Services
Company Guaranty
02-01-07 10.00 4,250,000 3,952,500
Colt Telecommunications Group
(U.S. Dollar) Zero Coupon
12-15-01 5.72 1,000,000(c,g) 970,000
Geotek Communications
Zero Coupon Cv Sr Sub Nts
02-15-01 7.84 500,000(b,f) 625
Zero Coupon Sr Disc Nts Series B
07-15-00 11.80 1,128,000(b,g) 112,800
Grupo Iusacell
(U.S. Dollar)
07-15-04 10.00 600,000(c) 489,000
Hyperion Telecommunications
Sr Nts Series B
09-01-04 12.25 2,000,000 1,960,000
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,975,000 1,854,031
Zero Coupon Sr Disc Nts Series B
07-15-02 9.51 3,125,000(g) 2,156,250
ITC Deltacom
Sr Nts
06-01-07 11.00 1,528,000 1,680,800
03-01-08 8.88 1,600,000 1,616,000
McLeod USA
Sr Nts
03-15-08 8.38 1,345,000 1,260,938
Metrocall
Sr Sub Nts
10-01-07 10.38% $1,750,000 $1,645,000
MetroNet Communications
(U.S. Dollar) Sr Nts
08-15-07 12.00 750,000(c) 849,375
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-02 10.74 1,300,000(c,g) 872,625
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 4,300,000(c,e,g) 2,305,874
NEXTLINK Communications
Sr Nts
04-15-06 12.50 1,000,000 1,112,500
Omnipoint Communications
Sr Nts
02-17-06 8.94 1,891,685(e,h) 1,797,100
08-15-06 11.63 2,750,000 2,681,250
Pagemart Nationwide
Zero Coupon Sr Disc Nts
02-01-00 12.51 2,500,000(g) 2,212,500
Peoples Telephone
Sr Nts
07-15-02 12.25 1,500,000 1,691,250
Philippine Long Distance Telephone
(U.S. Dollar) Medium-term Nts Series E
03-06-07 7.85 750,000(c,e) 506,115
03-06-17 8.35 750,000(c,e) 435,158
PLD Telekom
(U.S. Dollar)
06-01-04 14.00 100,000(c) 90,000
Poland Telecom Finance
(U.S. Dollar) Company Guaranty
12-01-07 14.00 2,225,000(c,e) 2,225,000
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 1,175,000 1,151,500
Sr Nts Series B
05-15-08 9.88 2,500,000 2,275,000
Pronet
Sr Sub Nts
06-15-05 11.88 2,000,000 2,080,000
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 1,225,000(c) 1,365,875
WorldCom
Sr Nts
01-15-04 9.38 1,699,000 1,760,589
Total 43,109,655
Total bonds
(Cost: $525,053,401) $479,788,879
</TABLE>
Common stocks (0.2%)
Issuer Shares Value(a)
Core Capital 22,223(d) $444,460
Global TeleSystems Group 10,900(b) 348,800
Nextel Communications Cl A 2,323(b) 41,959
OpTel2,250(b,e) 9,000
Wilshire Real Estate
Investment Trust 30,000 405,000
Total common stocks
(Cost: $1,365,800) $1,249,219
Preferred stocks & other (8.3%)
Issuer Shares Value(a)
21st Century Telecom Group
13.75% Pay-in-kind 414(b,j) $351,900
Warrants 400 22,000
Allegiance Telecom
Warrants 4,950 9,900
American Mobile Satellite
Warrants 1,500 10,500
American Restaurant Group
12.00% Pay-in-kind 500(b,j) 515,000
APP Finance II Mauritius Cl B
12.00% 4,075(c) 1,833,750
Australis Holdings
Warrants 1,760(c) 18
Belco Oil & Gas
6.50% Cv 40,000 705,000
Capstar Broadcasting
12.00% Pay-in-kind 10,000(b,j) 1,130,000
Century Maintenance
13.25% Pay-in-kind 20,000(b,e,j)2,002,499
Chesapeake Energy
7.00% Cv 10,000 240,000
Clark Material Handling
13.00% Pay-in-kind 1,500(b,e,j)1,498,125
Communications & Power Inds
14.00% Pay-in-kind
Series B 28,687(b,j) 3,126,883
Concentric Network
13.50% Pay-in-kind 2,500(b,e,j)2,325,000
Warrants 600 42,000
Core Capital
10.00% Cv Series A/I 22,223(d) 558,909
CSC Holdings
11.125% Pay-in-kind
Series M 41,729(b,j) 4,694,513
EchoStar Communications
12.125% Pay-in-kind
Series B 1,366(j) 1,475,280
Fairfield Mfg
11.25% Pay-in-kind 1,300(j) 1,300,000
Geotek Communications
Warrants 40,000(k) --
Hyperion Telecommunications
12.875% Pay-in-kind Series B549(b,j) 516,060
Intermedia Communications
13.50% Pay-in-kind Series B14,180(b,j)1,598,795
Iridium World Communications
Warrants 1,700 $212,500
IXC Communications
12.50% Pay-in-kind Series B 563(b,j) 592,628
Jitney-Jungle Stores of America
Cl A 15.00% 15,000(b) 2,362,500
Kelley Oil & Gas
2.625% Cv 37,500 707,813
KMC Telecom Holdings
Warrants 1,500 7,500
Knology Holdings
Warrants 1,500 6,000
Liberty Group Publishing
14.75% Cv 77,754(b) 1,759,184
MetroNet Communications
Warrants 750 24,184
Nakornthai Strip Mill
Warrants 759,711(c,k) --
Nebco Evans Holdings
11.25% Pay-in-kind 20,898(b,j) 1,546,452
Nextel Communications
11.125% Pay-in-kind Series E1,057(b,j)1,004,150
NTL
13.00% Pay-in-kind Series B3,492(b,e,j)3,911,040
Paxson Communications
12.50% Pay-in-kind
Exchangeable 24,150(b,j) 2,390,849
Pegasus Communications
12.75% Pay-in-kind 7,450(b,j) 864,200
12.75% Pay-in-kind Series A 129(b,j) 140,933
Poland Telecom
Warrants 2,225(c) 133,500
Price Communications
Warrants 4,472 80,496
Primus Telecommunications
Warrants 1,175 23,500
RSL Communications
Warrants 1,250 125,000
SFX Broadcasting
12.625% Pay-in-kind Series E9,386(j) 1,068,831
SGW Holding
12.75% Cv Series A 9,677(b,e) 99,992
12.50% Pay-in-kind
Series B 11,273(b,j) 193,332
Warrants 250(e) 79,188
Sinclair Capital
11.625% 20,000 2,237,500
Unifi Communications
Warrants 1,000 10
Unisite
Warrants 500(d,k) --
Unisite Cl C
Warrants 540(d) 250,090
Vialog
Warrants 3,720 130,200
Warren (SD)
14.00% Series B 67,000(b) 3,174,124
Total preferred stocks & other
(Cost: $50,048,038) $47,081,828
Short-term securities (4.4%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (1.7%)
Federal Home Loan Mtge Corp Disc Nts
09-03-98 5.49% $2,400,000 $2,399,271
09-17-98 5.49 3,500,000 3,491,492
09-21-98 5.48 1,500,000 1,495,450
10-02-98 5.46 1,800,000 1,791,568
Federal Natl Mtge Assn Disc Nt
09-14-98 5.47 400,000 399,211
Total 9,576,992
Commercial paper (2.7%)
Ciesco LP
10-06-98 5.55 5,100,000 5,072,729
Colgate-Palmolive
09-28-98 5.53 1,100,000(l) 1,095,463
Commerzbank U.S. Finance
09-23-98 5.53 2,300,000 2,292,255
Delaware Funding
09-25-98 5.55 1,300,000(l) 1,295,207
Fleet Funding
10-09-98 5.57% $1,200,000(l)$1,192,995
GTE Funding
09-14-98 5.55 1,300,000 1,297,404
09-16-98 5.54 700,000 698,390
Heinz (HJ)
10-16-98 5.53 1,100,000 1,092,451
Paccar Financial
09-03-98 5.55 1,000,000 999,693
Total 15,036,587
Total short-term securities
(Cost: $24,613,579) $24,613,579
Total investments in securities
(Cost: $601,080,818)(m) $552,733,505
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, 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. As of Aug. 31,
1998, the value of foreign securities represented 12.6% of net assets.
(d) 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, 1998, is as follows:
Security Acquisition Cost
dates
Core Capital
Common 10-31-97 $44,460
Preferred 10.00% Cv Series A/I 10-31-97 555,575
Gemini Inds
13.50% 2001 12-23-96 1,500,000
Roil
(U.S. Dollar) 12.78% 2002 05-15-98 1,858,520
Unisite
13.00% Zero Coupon Sub Nts 2000 12-18-97 1,000,000
Warrants 12-17-97 --
Unisite Cl C
Warrants 12-17-97 250,090
United Artist Theatres
9.75% Sr Sub Notes 2008 04-21-98 2,000,000
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 1,000,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(e) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) 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.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1998.
(i) Pay-in-kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. The
securities issued as interest or dividends usually have the same terms,
including maturity date, as the pay-in-kind securities.
(j) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(k) Negligible market value.
(l) 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.
(m) At Aug. 31, 1998, the cost of securities for federal income tax purposes was
$600,455,842 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation...............................$ 7,437,052
Unrealized depreciation.................................(55,159,389)
Net unrealized depreciation............................$(47,722,337)
(This annual report is not part of the prospectus.)
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements filed as part of this Post-Effective Amendment to the
Registration Statement:
Independent Auditor's report dated Oct. 2, 1998.
Statements:
Statements of Assets and Liabilities, Aug. 31, 1998.
Statements of Operations for the year ended Aug. 31, 1998.
Statements of Changes in Net Assets for the year ended Aug. 31,
1998 and the year ended Aug. 31, 1997.
Notes to Financial Statements.
Investments in Securities, as of Aug. 31, 1998.
Notes to Investments in Securities.
(b) Exhibits:
(1) Articles of Incorporation as amended Nov. 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 Jan. 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, on behalf
of IDS Life Aggressive Growth Fund, IDS Life Capital Resource Fund and
IDS Life International Equity Fund, 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 Insurance Company and
American Express Financial Corporation dated Oct. 14, 1998, is filed
electronically herewith.
<PAGE>
(5)(d) Investment Advisory Agreement between American Express Financial
Corporation Inc. and American Express Asset Management International
Inc. for IDS Life International Equity Fund dated April 9, 1998, is
filed electronically herewith.
(5)(e) Administrative Services Agreement, dated March 20, 1995, between IDS
Life Investment Series, Inc., on behalf of IDS Life Aggressive Growth
Fund, IDS Life Capital Resource Fund and IDS Life International Equity
Fund, 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)(f) 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 are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
(8)(a) Custodian Agreement dated March 20, 1995, between IDS Life Investment
Series, Inc., on behalf of IDS Life Aggressive Growth Fund, IDS Life
Capital Resource Fund and IDS Life International Equity Fund, 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.
(9)(b) License Agreement between Registrant and IDS Financial Corporation,
dated Jan. 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.
<PAGE>
(10) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
(11) Independent Auditors' Consent is filed electronically herewith.
(12) None.
(13) Investment Letter of IDS Life Insurance Company dated Oct. 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 Jan. 7, 1998, to sign Amendments to
this Registration Statement is filed electronically herewith.
(18)(b) Officers' Power of Attorney, dated Nov. 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.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class October 1, 1998
Capital Stock Ten
($.01 par)
<PAGE>
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. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
Directors and officers of IDS Life Insurance Company who are directors and/or
officers of one or more other companies:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Timothy V. Bechtold, American Express Financial IDS Tower 10 Vice President
Executive Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David J. Berry, IDS Tower 10
Vice President Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Executive Vice President Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
American Express Financial Senior Vice President and
Corporation Chief Marketing Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Express Financial Vice President
Corporation
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Investment Officer
of New York Albany, NY 12205
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President Minneapolis, MN 55440 and Assistant Secretary
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Express Partners Vice President and
Life Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
North Dakota Public Vice President and
Employee Payment Company Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director Minneapolis, MN 55440
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Financial Director, President and
Corporation Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and President Minneapolis, MN 55440
American Centurion Life Director
Assurance Company
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Director and President
Corporation
American Express Financial Senior Vice President
Advisors Inc.
American Express Financial Director and Senior Vice
Corporation President
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
<PAGE>
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of Director and President
New Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Financial Vice President
Corporation
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Director and Executive Vice Insurance Company Minneapolis, MN 55440
President
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James A. Mitchell, AMEX Assurance Company IDS Tower 10 Director
Director, Chairman of the Minneapolis, MN 55440
Board and Chief Executive
Officer
American Enterprise Director
Investment Services Inc.
American Express Financial Executive Vice President
Advisors Inc.
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
American Express Financial Director and Executive
Corporation Vice President
American Express Service Director and Senior Vice
Corporation President
American Express Tax and Director
Business Services Inc.
IDS Certificate Company Director
IDS Plan Services of Director
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Executive Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
American Express Trust Vice President
Company
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Executive Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
American Express Financial Director and Senior Vice
Corporation President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, American Centurion Life IDS Tower 10 Director, Chairman and
Director and Executive Vice Assurance Company Minneapolis, MN 55440 President
President
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
American Express Financial Senior Vice President and
Corporation Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Express Financial Vice President
Corporation
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Director and Vice President
Inc.
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Assistant Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President, General Insurance Company Minneapolis, MN 55440 General Counsel and
Counsel and Secretary Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Express Financial Vice President and
Corporation Assistant General Counsel
<PAGE>
Item 28. Business and Other Connections of Investment Advisor (IDS Life Insurance Company)
(Continued)
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Philip C. Wentzel, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Controller Insurance Company Minneapolis, MN 55440 Controller
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Controller, Risk Management
</TABLE>
Item 29. The Fund has no principal underwriter.
Item 30. American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440-0010
Item 31. Not Applicable.
Item 32. (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 27th day of Oct., 1998.
IDS LIFE INVESTMENT SERIES, INC.
By /s/ William R. Pearce
William R. Pearce, Chief Executive Officer
By /s/ John R. Thomas
John R. Thomas, Chief Financial 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 27th day of Oct., 1998.
Signature Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/s/ John R. Thomas* Director
John R. Thomas
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
<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 Jan. 7, 1998, and filed
electronically herewith.
/s/ William R. Pearce
William R. Pearce
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 36
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 prospectus.
Part B.
Statement 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 5(c): Investment Advisory Agreement between IDS Life Insurance
Company and American Express Financial Corporation dated Oct.
14, 1998.
Exhibit 5(d): Investment Advisory Agreement between American Express Financial
Corporation Inc. and American Express Asset Management
International Inc. for IDS Life International Equity Fund dated
April 9, 1998.
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 Jan. 7, 1998.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Agreement effective the 14th day of October, 1998, by and between IDS Life
Insurance Company (IDS Life) and American Express Financial Corporation (AEFC).
WHEREAS IDS Life has heretofore organized five companies, and such companies
have been registered as investment companies under the Investment Company Act of
1940 (such companies being referred to collectively as the "Funds" and
individually as the "Fund"), and may in the future organize one or more
additional Funds;
WHEREAS AEFC has a staff of experienced investment personnel and facilities for
the kind of investment portfolio contemplated for such Fund or Funds;
NOW THEREFORE, it is mutually agreed:
1. Funds to Which Applicable. This agreement shall only be effective to
any Fund in respect of which:
a. IDS Life has notified AEFC in writing to include such Fund
under the terms of this agreement; and
b. IDS Life has an existing legal duty to provide investment
management for such Fund; and
c. To the extent required by the Investment Company Act of 1940,
this agreement has been approved by a vote of the persons
having an interest in such Fund or an exemptive order from
such requirement of approval has been obtained from the
Securities and Exchange Commission; and continuance of its
applicability is approved as required by the Investment
Company Act of 1940; and
d. The applicability of this agreement has not been terminated as
provided in paragraph 8 hereof.
2. Investment Advice. AEFC will continuously keep under observation the
investment portfolio and investment objectives of any Fund covered by
the terms of this agreement and will, with respect to each such Fund,
continuously furnish to IDS Life (1) assistance and advice in
investment planning, (2) recommendations as to particular purchases and
sales of securities, and (3) information as to economic and market
factors and other information relating to the investment plans of and
the particular investment held in any such Fund.
<PAGE>
3. Information Furnished to AEFC. IDS Life shall furnish such information
to AEFC as to holdings, purchases, and sales of securities under its
management and investment portfolio requirements as will reasonably
enable AEFC to furnish the investment advice under this agreement.
4. Furnishing Advice, Information and Notices. The advice, information,
reports, etc., furnished under this agreement to IDS Life and any
notice under this agreement shall be furnished to the President of IDS
Life or to the person or persons designated in writing by him or by a
person to whom he has delegated the authority to so designate. Any
information or notice provided to AEFC under the terms of this
agreement shall be furnished to the President of AEFC or to the person
or persons designated in writing by him or by a person to whom he has
delegated the authority to so designate.
5. Purchase and Sale of Securities. IDS Life may, in its discretion,
direct purchase or sale orders to AEFC which will then place any such
order with a broker or brokers or negotiate such executions. All
transactions will be executed in a manner and in accordance with the
procedures and standards as set forth in, or as established in
accordance with, the investment management agreement between IDS Life
and such Fund. IDS Life shall furnish AEFC with information concerning
such procedures and standards, and any amendments thereto; and AEFC
will maintain records to assure that such transactions have been
executed in accordance therewith. It is understood that IDS Securities
Corporation, a subsidiary of AEFC and a member firm of the Pacific
Stock Exchange, may participate in brokerage commissions generated by
any security transactions under this agreement, and that other broker
dealer affiliates of AEFC may be used to the extent consistent with
Section 15(f) of the Investment Company Act of 1940 and other
applicable provisions of the Federal securities laws.
6. Compensation to AEFC. The fee for the services provided by this
agreement will be determined as follows:
a. The Fund shall pay the Company a fee for each calendar day of
each year equal to the total of 1/365th (1/366th in each leap
year) of a percentage of the net assets of the Fund as shown
on attached Schedule A, to be computed for each such day on
the basis of net assets as of the close of business on the next
preceding full business day. In the case of the suspension of
the computation of asset value, the said fee for each day
during such suspension shall be computed as of the close of
business on the last full business day on which the net assets
were computed. As used herein, "net assets" as of the close of
a full business day shall include all transactions in shares of
the Fund recorded on the books of the Fund for that day.
<PAGE>
b. The foregoing fee shall be paid on a monthly basis in cash by
IDS Life to AEFC within five (5) business days after the last
day of each month.
7. Miscellaneous.
a. IDS Life recognizes that AEFC now renders and may continue to
render investment advice and other services to other persons
which may or may not have investment policies and investments
similar to those of the Funds included herein, and that AEFC
manages its own investments and those of certain subsidiaries.
AEFC shall be free to render such investment advice and other
services, and IDS Life hereby consents thereto. This agreement
is separate from any agreement IDS Life and AEFC may have
concerning investment advice in respect of certain separate
accounts of IDS Life.
b. It is understood and agreed that in furnishing the investment
advice and other services as herein provided neither AEFC, nor
any officer, director, employee, or agent thereof shall be
held liable to IDS Life or Funds included herein or creditors
for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance
of its duties, or reckless disregard of its obligations and
duties under the terms of this agreement. It is further
understood and agreed that AEFC may rely upon information
furnished to it reasonably believed to be accurate and
reliable and that, except as hereinabove provided, AEFC shall
not be accountable for any loss suffered by IDS Life or Funds
included herein by the reason of the latter's action or
nonaction on the basis of any advice or recommendation of
AEFC, its officers, directors or agents.
8. Renewal and Termination.
a. As to any Fund which (1) is a registered investment company
under the Investment Company Act of 1940, and (2) this
agreement has become applicable as provided in Section 1
above, this agreement, unless terminated pursuant to paragraph
b, c, or d below, shall continue in effect from year to year,
provided its continued applicability is specifically approved
at least annually (i) by the Board of Directors of said Fund
or by a vote of the holders of a majority of the outstanding
votes of the Fund and (ii) by vote of a majority of the
Directors who are not parties to this agreement or interested
persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval. As used in this
paragraph, the term "interested person" shall have the same
meaning as set forth in the Investment Company Act of 1940, as
amended.
<PAGE>
b. The applicability of this agreement to any Fund which is a
registered investment company within the meaning of the
Investment Company Act of 1940 may be terminated by sixty days
written notice to either AEFC or IDS Life.
c. AEFC or IDS Life may terminate this agreement or the
applicability of this agreement to any Fund by giving sixty
days written notice to the other party.
d. This agreement shall terminate, as to any Fund which is a
registered investment company under the Investment Company Act
of 1940, in the event of its assignment, the term "assignment"
for this purpose having the same meaning set forth in the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the parties hereto have executed the foregoing agreement on
the day and year first above written.
IDS LIFE INSURANCE COMPANY ATTEST:
By: /s/ Pamela J. Moret By: /s/ Mary Jo Olson
Name: /s/ Pamela J. Moret Name: /s/ Mary Jo Olson
Title: Executive Vice President, Variable Title: Assistant Secretary
Assets
AMERICAN EXPRESS FINANCIAL
CORPORATION ATTEST:
By: /s/ William A. Stoltzmann By: /s/ Mary Jo Olson
Name: /s/ William A. Stoltzmann Name: /s/ Mary Jo Olson
Title: Vice President Title: Assistant Secretary
<PAGE>
SCHEDULE A
FUND PERCENTAGE OF
NET ASSETS
IDS Life Investment Series, Inc.
o IDS Life Capital Resource Fund 0.25%
o IDS Life Aggressive Growth Fund 0.25%
o IDS Life Growth Dimensions Fund 0.25%
o IDS Life International Equity Fund 0.35%
IDS Life Special Income Fund, Inc.
o IDS Life Special Income Fund 0.25%
o IDS Life Global Yield Fund 0.25%
o IDS Life Income Advantage Fund 0.25%
IDS Life Moneyshare Fund, Inc. 0.25%
IDS Life Managed Fund, Inc. 0.25%
IDS Life Series Fund, Inc.
o Equity Portfolio 0.25%
o Income Portfolio 0.25%
o Money Market Portfolio 0.25%
o Managed Portfolio 0.25%
o Government Securities Portfolio 0.25%
o International Equity Portfolio 0.35%
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Agreement effective as of the 9th day of April, 1998, by and between American
Express Financial Corporation Inc. ("AEFC") and American Express Asset
Management International Inc. ("International").
Whereas each of the Funds and Portfolios listed in Exhibit A (individually a
"Fund" and collectively the "Funds"), has been registered as an investment
company under the Investment Company Act of 1940; and
Whereas International has a staff of experienced investment personnel and
facilities for the kind of investment portfolio contemplated for the Funds;
NOW THEREFORE, it is mutually agreed with respect to each Fund:
1. Information Furnished to International. AEFC shall furnish such information
to International as to holdings, purchases, and sales of securities under its
management and investment portfolio requirements as will reasonably enable
International to furnish investment advice under this agreement. Any information
or notice provided to International under the terms of this agreement shall be
furnished to the President of International or to the person or persons
designated in writing by him or by a person to whom he has delegated the
authority to so designate.
2. Purchase and Sale of Securities. Subject to the supervision and approval of
AEFC and of the Fund's Board of Directors/Trustees (the "Board"), International
shall determine, consistent with the Fund's investment objectives and policies,
which securities (including both domestic and foreign securities) in
International's discretion shall be purchased, held or sold and to execute or
cause the execution of purchase and sell orders, provided that AEFC shall be
responsible for investing and reinvesting all of the Fund's cash and cash items
held by the Fund's U.S. custodian. All transactions will be executed in a manner
and in accordance with the procedures and standards as set forth in, or as
established in accordance with, the Investment Management Services Agreement
between the investment manager and the Fund. AEFC shall furnish International
with information concerning such procedures and standards, and any amendments
thereto, and International will maintain records to assure that such
transactions have been executed in accordance therewith.
3. Compensation to International. As compensation for its services, AEFC shall
pay International a fee as described in Exhibit A. AEFC shall pay this fee to
International on a monthly basis in cash within five (5) business days after the
last day of each month.
4. IMRO Provisions.
a. The IMRO required statements, disclosures and other provisions set forth in
Exhibit B shall be considered an integral part of this agreement.
<PAGE>
b. The Securities Brokerage Policy set forth in Exhibit C shall be considered an
integral part of this agreement.
5. Miscellaneous.
a. AEFC recognizes that International now renders and may continue to render
investment advice and other services to other persons which may or may not have
investment policies and investments similar to those of the Fund, and that
International may manage its own investments. International shall be free to
render such investment advice and other services, and AEFC hereby consents
thereto.
b. It is understood and agreed that in furnishing investment advice and other
services as herein provided, neither International nor any officer, director,
employee, or agent thereof shall be held liable to AEFC or the Fund or creditors
for errors of judgment or for anything except willful misfeasance, bad faith, or
gross negligence in the performance of its duties, or reckless disregard of its
obligations and duties under the terms of this agreement. It is further
understood and agreed that International may rely upon information furnished to
it reasonably believed to be accurate and reliable and that, except as
hereinabove provided, International shall not be accountable for any loss
suffered by AEFC or the Fund by the reason of the latter's action or nonaction
on the basis of any advice or recommendation of International, its officers,
directors or agents.
6. Renewal and Termination.
This agreement, unless terminated pursuant to paragraph b, c, or d below, shall
continue in effect from year to year, provided its continued applicability is
specifically approved at least annually (i) by the Board of the Fund or by a
vote of the holders of a majority of the outstanding votes of the Fund and (ii)
by vote of a majority of the Board members who are not parties to this agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. As used in this paragraph, the term
"interested person" shall have the same meaning as set forth in the Investment
Company Act of 1940, as amended.
b. This agreement may be terminated at any time, without penalty, by the Board
of the Fund or by vote of the holders of a majority of the Fund's outstanding
shares, on sixty days' written notice to AEFC or to International.
c. AEFC or International may terminate this agreement by giving sixty days
written notice to the other party.
d. This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning set forth in the
Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the foregoing agreement as
of the day and year first above written.
AMERICAN EXPRESS FINANCIAL CORPORATION
Attest: /s/ Timothy S. Meehan BY: /s/ Peter J. Anderson
---------------------------- --------------------------------
Secretary Senior Vice President -
Investment Operations
AMERICAN EXPRESS ASSET MANAGEMENT
INTERNATIONAL INC.
Attest: /s/ Timothy S. Meehan BY: /s/ Peter L. Lamaison
---------------------------- --------------------------------
Secretary President and Chief Executive
Officer
<PAGE>
EXHIBIT A
American Express Financial Corporation shall pay American Express Asset
Management International Inc. a fee equal on an annual basis as follows:
Fund Fee
Emerging Markets Portfolio 0.50% of daily net assets
World Growth Portfolio 0.35% of daily net assets
IDS International Fund, Inc. 0.35% of daily net assets
IDS Life International Equity Fund 0.35% of daily net assets
American Express Financial Corporation shall pay this compensation to American
Express International Inc. in arrears on a monthly basis.
<PAGE>
Exhibit B
Attachment to
Investment Advisory Agreement
WHEREAS: American Express Asset Management International Inc. , (International)
of 11th Floor, Dashwood House, 69 Old Broad Street, London, United Kingdom, ECZM
IQS, is a Member of the Investment Management Regulatory Organisation (IMRO), a
Self-Regulatory Organisation established by virtue of the United Kingdom's
Financial Services Act 1986 (FSA).
WHEREAS: IMRO requires International to incorporate certain statements,
disclosures and other provisions into its investment advisory agreements.
NOW THEREFORE: International and American Express Financial Corporation (AEFC)
hereby agree that the following IMRO required statements, disclosures and other
provisions form an Attachment to the Investment Advisory Agreement effective as
between International and AEFC as of the 9th day of April, 1998 with regard to
each Fund listed in Exhibit A.
I. Appointment of International
A. AEFC appoints International and International accepts such
appointment to determine in its discretion, but consistent with the
Fund's investment objectives and policies and subject to the
supervision and approval of AEFC and of the Fund's Board, which
securities (including both domestic and foreign securities) shall be
purchased, held or sold and to execute or cause the execution of
purchase and sell orders.
B. International represents and warrants that it is an Authorised
Person by virtue of it being a Member of IMRO, and in so being a Member
is regulated by that body in its conduct of investment business.
II. Incorporation of Prospectus and Statement of Additional Information
The Prospectus and Statement of Additional Information for the Fund are
hereby incorporated and shall be seen as forming part of this
Attachment.
III. Portfolio Transactions and Commissions/Relevant Arrangements
International is responsible for seeing that the Fund's securities
transactions are effected, for choosing the executing firms, and for
determining the brokerage commissions to be paid to such firms in a
manner and in accordance with the procedures and standards as set forth
in, or as established in accordance with, the Investment Management
Services Agreement between the investment manager and the Fund. With
regard to these executions, International will seek to secure
<PAGE>
best execution, defined as the best net results for the Fund, taking
into consideration such factors as price, commission, dealer spread,
size of order, difficulty of execution, operational facilities of the
executing firm involved, that firm's risk in positioning a block of
securities and the overall benefits of supplemental investment research
provided by such firm.
To the extent that any such securities transactions may be effected for
the Fund with or through the agency of a person who provides such
services under any relevant arrangement, as defined in IMRO Chapter IV,
Rule 6.01, such transactions will be effected so as to seek to secure
for the Fund best execution of the transactions disregarding any
benefit which might enure directly or indirectly from the services or
benefits provided under that arrangement, since such arrangements will
relate solely to transactions in markets and on exchanges where
commission rates are fixed
IV. Investment
A. In currency transactions a movement of the exchange rate may have a
separate effect, unfavorable as well as favorable, on the gain or loss
otherwise experienced on the investment.
B. Services provided by International may relate to Investments Not
Readily Realisable. When such securities are not readily realisable;
there can be no certainty that market makers will be prepared to deal
in them, nor may they have proper information for determining their
current value.
C. The Fund may invest in units in Collective Investment Schemes which,
for the purposes of IMRO, are Unregulated Collective Investment
Schemes.
D. The Fund may not acquire or dispose of units in a Collective
Investment Scheme either operated or advised by International or by an
Associate, as defined by IMRO, of International.
E. The Fund may not contain securities of which an issue or offer for
sale was underwritten, managed or arranged by International during the
preceding twelve months. The Fund may, however, contain securities of
which an issue or offer for sale was underwritten, managed or arranged
by an Associate of International during the preceding twelve months
F. Subject to the extent permitted or not prohibited by any applicable
law and subject to procedures established by the Fund's Board and AEFC,
International may effect transactions on behalf of the Fund with an
Associate. In all Portfolio transactions so effected by International,
International could be deemed by IMRO
<PAGE>
either to be effecting a transaction in which International has a
direct or indirect material interest, or a transaction which may
involve a conflict with International's duty to the Fund.
G. International may not commit the Fund to an obligation to underwrite
any issue or offer for the sale of securities, but under certain
securities laws the Fund may be deemed to be an underwriter where it
purchases securities directly from the issuer and later resells them.
H. International may not commit the Fund to supplement funds in the
Portfolio either by borrowing on its behalf or by committing it to a
contract of performance which may have required it to supplement the
funds.
I. Prior to effecting any transactions on behalf of the Fund in Options
or Futures, IMRO requires International to send AEFC the applicable
IMRO disclosures and agreements. International will therefore forward
the necessary disclosures and agreements to AEFC, and no such
transaction as mentioned in this paragraph I will be effected until
such agreements have been executed
J. In the event that Contracts for Differences are considered a
possible investment vehicle, the appropriate disclosures and agreements
between International and AEFC will be forwarded.
K. AEFC will inform International of any restrictions regarding the
markets in which transactions may be effected.
V. Administration
A. International shall not, under any circumstance, act as custodian or
trustee for the Fund, nor hold money, nor be the registered holder of
the Fund's registered investments nor be the custodian of documents or
other evidence of title.
B. American Express Trust Company, an Associate of International, acts
as Custodian with respect to the Fund. American Express Trust Company
has a subcustodial agreement with Morgan Stanley Trust Company, an
entity not an Associate of International. It is International's
understanding that money will be deposited with Morgan Stanley Trust
Company in the account name of American Express Trust Company, that
investments, documents of title, certificates evidencing title to
investments and other property belonging to the Fund may be lent to a
third party in accordance with a resolution of the Fund's Board but
that money may not be borrowed on the Fund's behalf against the
investments documents, certificates or property hereinabove mentioned.
<PAGE>
With respect to the Fund, International understands that Morgan Stanley
Trust Company has procedures for accounting to the Fund regarding
income received and rights conferred in respect of the investments
held.
International accepts no responsibility for the default of any such
Custodian so appointed by the Fund.
The Board of the Fund will exercise all voting rights conferred on the
owners of the securities in the Fund.
C. International shall furnish to AEFC monthly written reports on the
valuation of the Fund, including both securities and cash and showing
all investments, receipts, disbursements and other transactions
involving the Fund during the accounting period and also showing the
assets of the Fund held at the end of the period and their market
values. Such reports do not include any measurement of performance
D. International has in operation a written procedure for the effective
consideration and proper handling of complaints. Any complaint by, or on behalf
of, the Fund should be sent in writing to:
Peter L. Lamaison
American Express Asset Management International Inc.
11th Floor
Dashwood House
69 Old Broad Street
London, United Kingdom ECZM IQS
Direct complaint can also be made to IMRO. In the event of the
inability of International to meet its liabilities to the Fund
compensation may be available by virtue of the fund established under
the Financial Services (Compensation of Investors) Rules 1988
VI. Termination
Termination will be without prejudice to the completion of transactions
initiated prior to such termination, said transactions being completed
according to their terms. Termination shall occur in accordance with
procedures established in the Investment Advisory Agreement.
VII. Investment Management Fees
Pursuant to the IMRO provisions regarding the supplement and abatement
of fees, International hereby acknowledges that for the performance of
services contemplated by the Investment Advisory Agreement, it will
receive only the
<PAGE>
compensation set out in the Investment Advisory Agreement. Such
compensation shall be payable in accordance with the agreed provisions
regarding compensation to International.
In circumstances where International effects a transaction on behalf of
the Fund with an Associate, that Associate may receive commissions;
such commissions, however, would not supplement or abate
International's above-mentioned agreed compensation.
VIII. Miscellaneous
A. Non-Private Investor: In accordance with IMRO International hereby
deems AEFC a Non-Private Investor (as such term is defined by IMRO) in
relation to all investment advisory services to be provided by
International under the Investment Advisory Agreement
B. Calls: Under the terms of the Investment Advisory Agreement
International has the right for itself, its representatives, or its
employees to make calls to AEFC at appropriate times, with the caller
identifying himself/herself at the start of the conversation
IN WITNESS WHEREOF, the parties have executed this Attachment as of the 9th day
of April, 1998.
American Express Financial Corporation
By: /s/ Peter J. Anderson
Title: Director and Senior Vice President - Investment Operations
American Express Asset Management International Inc.
By: /s/ Peter L. Lamaison
Title: President and Chief Executive Officer
<PAGE>
Exhibit C
AMERICAN EXPRESS ASSET MANAGEMENT INTERNATIONAL INC.
SECURITIES BROKERAGE POLICY
American Express Asset Management International Inc. ("AEAMI") provides its
Securities Brokerage Policy, together with any and all disclosure requirements
thereto, to all clients at least annually. In the event that any significant
policy changes occur before AEAMI sends the next annual policy statement, an
updated securities brokerage policy will be provided to all clients.
AEAMI seeks to comply with the guidelines established by each of its clients.
Such guidelines generally give AEAMI the discretionary authority to determine
the brokers and dealers through which transactions are to be effected. AEAMI
will seek to select brokers and dealers who will deal in terms which are the
best available for the client, taking into consideration such factors as price,
commission, dealer spread, size of order, difficulty of execution, reliability,
integrity, financial soundness, operational and execution capabilities of the
executing broker/dealer involved, the risk in positioning a block of securities
and the overall benefits of supplemental investment research. Purchases and
sales of over-the-counter securities are executed with primary market makers for
such securities, except where AEAMI believes that a better combination of price
and execution may otherwise be provided to the client. Clients also may direct
AEAMI to effect a portion of their transactions through specific broker/dealers.
In these cases, clients should be aware that such directed arrangements may
result in less favorable executions than those achieved for clients who do not
so direct.
Under certain circumstances, AEAMI may participate in soft commission
arrangements with broker/dealers whereby services are provided for the benefit
of AEAMI's clients in anticipation of receiving a certain amount of trading
business. The soft commission services provided include assessment of political,
economical, industrial, technical, market, industry and company factors and/or
conditions. All of the soft commission services received by AEAMI are used to
assist in the investment management decision making process and client
investment services. The broker/dealer services provided, enable AEAMI to obtain
special products and services essential to the management of client funds. In
the event AEAMI has entered into a soft commission arrangement, the affected
client's annual brokerage report will include the following: (i) the percentage
of the total commission paid under any soft commission arrangement; (ii) the
value (on a cost price basis) of disclosable softing services received by AEAMI
expressed as a percentage of the total commission paid (whether or not paid
under a soft commission agreement); (iii) a summary of disclosable softing
services received by AEAMI; (iv) a list of counterparties to the soft commission
arrangement; (v) the total commission paid from the portfolio of the affected
client; (vi) information on any Value Added Tax cash
<PAGE>
reclaims received which relate to soft commission paid by the affected client;
and (vii) confirmation that AEAMI's soft commission agreement has not changed,
or if a change has occurred, a current copy of the soft commission agreement.
To: American Express Asset Management International Inc. (International)
On behalf of the Funds listed below, I hereby acknowledge receipt of the
Attachment (drafted to comply with the United Kingdom's Investment
Management Regulatory Organisation) to the Investment Advisory
Agreement presently effective between International and American Express
Financial Corporation.
Emerging Markets Portfolio;
World Growth Portfolio;
IDS International Fund, Inc.; and
IDS Life International Equity Fund.
Signed: /s/ Leslie L. Ogg
Leslie L. Ogg
Title: Vice President, General Counsel and Secretary
Date: 5/28/98
<PAGE>
Opinion of Counsel
October 27, 1998
IDS Life Investment Series, Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of IDS Life
Investment Series, Inc. (the Company) and all necessary certificates, permits,
minute books, documents and records of the Company, and the applicable statutes
of the State of Minnesota, and it is my opinion that the shares sold in
accordance with applicable federal and state securities laws will be legally
issued, fully paid, and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/ Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268
<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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS LIFE CAPITAL RESOURCE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 4053368238
<INVESTMENTS-AT-VALUE> 4460701762
<RECEIVABLES> 11305891
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4472007653
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19101524
<TOTAL-LIABILITIES> 19101524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3646229006
<SHARES-COMMON-STOCK> 166148138
<SHARES-COMMON-PRIOR> 173988176
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 61479
<ACCUMULATED-NET-GAINS> 399405078
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 407333524
<NET-ASSETS> 4452906129
<DIVIDEND-INCOME> 44228828
<INTEREST-INCOME> 8383813
<OTHER-INCOME> 0
<EXPENSES-NET> 34572920
<NET-INVESTMENT-INCOME> 18039721
<REALIZED-GAINS-CURRENT> 448373910
<APPREC-INCREASE-CURRENT> (503365840)
<NET-CHANGE-FROM-OPS> (36952209)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19611998
<DISTRIBUTIONS-OF-GAINS> 108000072
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3111763
<NUMBER-OF-SHARES-REDEEMED> 15545239
<SHARES-REINVESTED> 4593438
<NET-CHANGE-IN-ASSETS> (413684948)
<ACCUMULATED-NII-PRIOR> 1511741
<ACCUMULATED-GAINS-PRIOR> 59030297
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31852411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34572920
<AVERAGE-NET-ASSETS> 5230611157
<PER-SHARE-NAV-BEGIN> 27.97
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> (0.54)
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> .63
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 26.80
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 1791194530
<INVESTMENTS-AT-VALUE> 2078549318
<RECEIVABLES> 21834345
<ASSETS-OTHER> 3209424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2103593087
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80859755
<TOTAL-LIABILITIES> 80859755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1724516251
<SHARES-COMMON-STOCK> 141929530
<SHARES-COMMON-PRIOR> 149447811
<ACCUMULATED-NII-CURRENT> 214312
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10584503
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 287418266
<NET-ASSETS> 2022733332
<DIVIDEND-INCOME> 31103142
<INTEREST-INCOME> 10391706
<OTHER-INCOME> 0
<EXPENSES-NET> 20793407
<NET-INVESTMENT-INCOME> 20701441
<REALIZED-GAINS-CURRENT> 20930910
<APPREC-INCREASE-CURRENT> 46999648
<NET-CHANGE-FROM-OPS> 88631999
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30341643
<DISTRIBUTIONS-OF-GAINS> 27841143
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8581401
<NUMBER-OF-SHARES-REDEEMED> 20393377
<SHARES-REINVESTED> 4293695
<NET-CHANGE-IN-ASSETS> (82241900)
<ACCUMULATED-NII-PRIOR> 710710
<ACCUMULATED-GAINS-PRIOR> 27126580
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18268846
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20793407
<AVERAGE-NET-ASSETS> 2200566525
<PER-SHARE-NAV-BEGIN> 14.09
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> .42
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> .25
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 14.25
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS LIFE AGGRESSIVE GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 2001769246
<INVESTMENTS-AT-VALUE> 1896454055
<RECEIVABLES> 108522181
<ASSETS-OTHER> 8319002
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2013295238
<PAYABLE-FOR-SECURITIES> 10834483
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26869381
<TOTAL-LIABILITIES> 37703864
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1945391272
<SHARES-COMMON-STOCK> 150788780
<SHARES-COMMON-PRIOR> 141403480
<ACCUMULATED-NII-CURRENT> 3239
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 135512054
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (105315191)
<NET-ASSETS> 1975591374
<DIVIDEND-INCOME> 6483259
<INTEREST-INCOME> 12679011
<OTHER-INCOME> 0
<EXPENSES-NET> 17179881
<NET-INVESTMENT-INCOME> 1982389
<REALIZED-GAINS-CURRENT> 138926753
<APPREC-INCREASE-CURRENT> (522716812)
<NET-CHANGE-FROM-OPS> (381807670)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3256621
<DISTRIBUTIONS-OF-GAINS> 212438792
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7220136
<NUMBER-OF-SHARES-REDEEMED> 11448329
<SHARES-REINVESTED> 13613493
<NET-CHANGE-IN-ASSETS> (451836051)
<ACCUMULATED-NII-PRIOR> 45
<ACCUMULATED-GAINS-PRIOR> 210301519
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15625616
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17179881
<AVERAGE-NET-ASSETS> 2584380077
<PER-SHARE-NAV-BEGIN> 17.17
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (2.57)
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 1.49
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 13.10
<EXPENSE-RATIO> .66
<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-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 1815972190
<INVESTMENTS-AT-VALUE> 1961007872
<RECEIVABLES> 8286553
<ASSETS-OTHER> 879327
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1970173752
<PAYABLE-FOR-SECURITIES> 535387
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10113726
<TOTAL-LIABILITIES> 10649113
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1812089439
<SHARES-COMMON-STOCK> 147461467
<SHARES-COMMON-PRIOR> 100887023
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7
<ACCUMULATED-NET-GAINS> 2399525
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 145035682
<NET-ASSETS> 1959524639
<DIVIDEND-INCOME> 16244886
<INTEREST-INCOME> 7650296
<OTHER-INCOME> 0
<EXPENSES-NET> 12968932
<NET-INVESTMENT-INCOME> 10926250
<REALIZED-GAINS-CURRENT> 14132367
<APPREC-INCREASE-CURRENT> (31064162)
<NET-CHANGE-FROM-OPS> (6005545)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10926249
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47550647
<NUMBER-OF-SHARES-REDEEMED> 1469624
<SHARES-REINVESTED> 493421
<NET-CHANGE-IN-ASSETS> 652697655
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 8
<OVERDIST-NET-GAINS-PRIOR> 11732842
<GROSS-ADVISORY-FEES> 11769360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12968932
<AVERAGE-NET-ASSETS> 1866556670
<PER-SHARE-NAV-BEGIN> 12.95
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 13.29
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> IDS LIFE MANAGED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 3871789904
<INVESTMENTS-AT-VALUE> 4332663001
<RECEIVABLES> 182130414
<ASSETS-OTHER> 159298490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4674091905
<PAYABLE-FOR-SECURITIES> 17203999
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 243934449
<TOTAL-LIABILITIES> 261138448
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3526160428
<SHARES-COMMON-STOCK> 255784848
<SHARES-COMMON-PRIOR> 235535537
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 4408797
<ACCUMULATED-NET-GAINS> 430440937
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 460760889
<NET-ASSETS> 4412953457
<DIVIDEND-INCOME> 31446008
<INTEREST-INCOME> 122984994
<OTHER-INCOME> 0
<EXPENSES-NET> 30695629
<NET-INVESTMENT-INCOME> 123735373
<REALIZED-GAINS-CURRENT> 433344561
<APPREC-INCREASE-CURRENT> (467198242)
<NET-CHANGE-FROM-OPS> 89881692
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 123528214
<DISTRIBUTIONS-OF-GAINS> 354443189
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8609654
<NUMBER-OF-SHARES-REDEEMED> 15015022
<SHARES-REINVESTED> 26654679
<NET-CHANGE-IN-ASSETS> (31648855)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 349842639
<OVERDISTRIB-NII-PRIOR> 2919030
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28641618
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 30695629
<AVERAGE-NET-ASSETS> 4826409263
<PER-SHARE-NAV-BEGIN> 18.87
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> (.12)
<PER-SHARE-DIVIDEND> .49
<PER-SHARE-DISTRIBUTIONS> 1.50
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 17.25
<EXPENSE-RATIO> .63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> IDS LIFE MONEYSHARE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 414439143
<INVESTMENTS-AT-VALUE> 414439143
<RECEIVABLES> 15342439
<ASSETS-OTHER> 33476
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 429815058
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1954058
<TOTAL-LIABILITIES> 1954058
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 427863449
<SHARES-COMMON-STOCK> 427897200
<SHARES-COMMON-PRIOR> 421383025
<ACCUMULATED-NII-CURRENT> 82
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2531
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 427861000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22552009
<OTHER-INCOME> 0
<EXPENSES-NET> 2244992
<NET-INVESTMENT-INCOME> 20307017
<REALIZED-GAINS-CURRENT> (1891)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20305126
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20307015
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 372938041
<NUMBER-OF-SHARES-REDEEMED> 386732614
<SHARES-REINVESTED> 20308748
<NET-CHANGE-IN-ASSETS> 6512222
<ACCUMULATED-NII-PRIOR> 80
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 640
<GROSS-ADVISORY-FEES> 2041502
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2244992
<AVERAGE-NET-ASSETS> 396135143
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .00
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> IDS LIFE SPECIAL INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 1904303295
<INVESTMENTS-AT-VALUE> 1850562244
<RECEIVABLES> 43704517
<ASSETS-OTHER> 23159698
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1917426459
<PAYABLE-FOR-SECURITIES> 1109297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63821305
<TOTAL-LIABILITIES> 64930602
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1906558837
<SHARES-COMMON-STOCK> 167124308
<SHARES-COMMON-PRIOR> 160398174
<ACCUMULATED-NII-CURRENT> 2105989
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2282277
<ACCUM-APPREC-OR-DEPREC> (53886692)
<NET-ASSETS> 1852495857
<DIVIDEND-INCOME> 1856543
<INTEREST-INCOME> 154201793
<OTHER-INCOME> 0
<EXPENSES-NET> 13000035
<NET-INVESTMENT-INCOME> 143058301
<REALIZED-GAINS-CURRENT> (465418)
<APPREC-INCREASE-CURRENT> (110599748)
<NET-CHANGE-FROM-OPS> 31993135
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 138696945
<DISTRIBUTIONS-OF-GAINS> 42097397
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9406202
<NUMBER-OF-SHARES-REDEEMED> 18015220
<SHARES-REINVESTED> 15335152
<NET-CHANGE-IN-ASSETS> (70821757)
<ACCUMULATED-NII-PRIOR> 2658045
<ACCUMULATED-GAINS-PRIOR> 35367126
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11816239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13000035
<AVERAGE-NET-ASSETS> 1937006892
<PER-SHARE-NAV-BEGIN> 11.99
<PER-SHARE-NII> .88
<PER-SHARE-GAIN-APPREC> (0.68)
<PER-SHARE-DIVIDEND> .85
<PER-SHARE-DISTRIBUTIONS> .26
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 11.08
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> IDS LIFE GLOBAL YIELD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 187428732
<INVESTMENTS-AT-VALUE> 183718732
<RECEIVABLES> 4082025
<ASSETS-OTHER> 147716
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 187948473
<PAYABLE-FOR-SECURITIES> 1998146
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2612895
<TOTAL-LIABILITIES> 4611041
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 187513435
<SHARES-COMMON-STOCK> 18170417
<SHARES-COMMON-PRIOR> 11553714
<ACCUMULATED-NII-CURRENT> 411170
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 71071
<ACCUM-APPREC-OR-DEPREC> (3693762)
<NET-ASSETS> 183337432
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10642849
<OTHER-INCOME> 0
<EXPENSES-NET> 1499022
<NET-INVESTMENT-INCOME> 9143827
<REALIZED-GAINS-CURRENT> (732605)
<APPREC-INCREASE-CURRENT> (4143433)
<NET-CHANGE-FROM-OPS> 4267789
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8768516
<DISTRIBUTIONS-OF-GAINS> 557107
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6193224
<NUMBER-OF-SHARES-REDEEMED> 470748
<SHARES-REINVESTED> 894227
<NET-CHANGE-IN-ASSETS> 64159709
<ACCUMULATED-NII-PRIOR> 6277
<ACCUMULATED-GAINS-PRIOR> 425883
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1338718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1499022
<AVERAGE-NET-ASSETS> 157386238
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> (0.21)
<PER-SHARE-DIVIDEND> .58
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> IDS LIFE INCOME ADVANTAGE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 601080818
<INVESTMENTS-AT-VALUE> 552733505
<RECEIVABLES> 18050483
<ASSETS-OTHER> 6761
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 570790749
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6509752
<TOTAL-LIABILITIES> 6509752
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 606431316
<SHARES-COMMON-STOCK> 59149923
<SHARES-COMMON-PRIOR> 30819905
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 332628
<ACCUMULATED-NET-GAINS> 6529622
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (48347313)
<NET-ASSETS> 564280997
<DIVIDEND-INCOME> 3987806
<INTEREST-INCOME> 42887953
<OTHER-INCOME> 0
<EXPENSES-NET> 3278083
<NET-INVESTMENT-INCOME> 43597676
<REALIZED-GAINS-CURRENT> 6264774
<APPREC-INCREASE-CURRENT> (57363291)
<NET-CHANGE-FROM-OPS> (7500841)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 43596675
<DISTRIBUTIONS-OF-GAINS> 1952622
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25022142
<NUMBER-OF-SHARES-REDEEMED> 1093400
<SHARES-REINVESTED> 4401276
<NET-CHANGE-IN-ASSETS> 243963701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1949507
<OVERDISTRIB-NII-PRIOR> 65666
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2988028
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3278083
<AVERAGE-NET-ASSETS> 473577029
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> .95
<PER-SHARE-GAIN-APPREC> (.80)
<PER-SHARE-DIVIDEND> .95
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.54
<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 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney 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/ James A. Mitchell /s/ C. Angus Wurtele
James A. Mitchell C. Angus Wurtele
