<PAGE>
Retirement Annuity Mutual Funds
(prospectus enclosed)
1998 annual report
AMERICAN
EXPRESS
Financial
Advisors
(This annual report includes a prospectus that describes in detail the Fund's,
objectives, investment policies, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
Managed by IDS Life Insurance Company
<PAGE>
The Retirement Annuity Mutual Funds provide several alternatives to consider for
investment through your annuity contracts.
<PAGE>
Contents
1998 annual report
From the chairman 4
Capital Resource Fund 5
From the portfolio manager 5
The Fund's ten largest holdings 6
The Fund's long-term performance 7
Special Income Fund 8
From the portfolio manager 8
The Fund's ten largest holdings 9
The Fund's long-term performance 10
Managed Fund 11
From the portfolio manager 11
The Fund's ten largest holdings 12
The Fund's long-term performance 13
Moneyshare Fund 14
From the portfolio manager 14
International Equity Fund 15
From the portfolio manager 15
The Fund's ten largest holdings 16
The Fund's long-term performance 17
Aggressive Growth Fund 18
From the portfolio manager 18
The Fund's ten largest holdings 19
The Fund's long-term performance 20
Global Yield Fund 21
From the portfolio manager 21
The Fund's ten largest holdings 22
The Fund's long-term performance 23
Growth Dimensions Fund 24
From the portfolio manager 24
The Fund's ten largest holdings 25
The Fund's long-term performance 26
Income Advantage Fund 27
From the portfolio manager 27
The Fund's ten largest holdings 28
The Fund's long-term performance 29
All Funds 30
Independent auditors' report 30
Financial statements 31
Notes to financial statements 42
Investments in securities 59
1998 prospectus
The Funds in brief 3p
Sales charge and expenses 4p
Performance 5p
Investment policies and risks 21p
How to invest, transfer or redeem shares 32p
Distributions and taxes 33p
How the Funds are organized 34p
About American Express Financial Corporation 47p
The purpose of this annual report is to tell investors how the Funds
performed.
(icon of) one open book inside of another
The prospectus, which is bound into the middle of this annual report,
describes the Funds in detail.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
From the chairman
The past 12 months was an extremely volatile period for financial assets,
especially U.S. stocks. In the end, though, most of the IDS Life Retirement
Annuity Mutual Funds registered positive performance during the period,
which ran from September 1997 through August 1998.
While the financial markets can experience substantial swings on a
short-term basis, historically they have provided attractive returns over
the long term. A focus on long-term financial objectives and a balanced
investment program are good guidelines for investing in today's economic
environment.
The IDS Life Retirement Annuity Mutual Funds allow you to take advantage of
long-term opportunities through a variety of investment avenues. Your
American Express financial advisor can tell you about the role each fund
can play in meeting your long-term financial objectives.
Your advisor also can help make sure your investment and protection
strategies continue to fit your financial situation. As your objectives and
time horizons change, talk to your advisor about the broad range of
American Express products and services designed to help you meet a variety
of investment and protection needs.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
(This annual report is not part of the prospectus.)
<PAGE>
From the portfolio manager
A gain well into double digits was erased at the end of the past fiscal
year, pushing the Fund's performance into slightly negative territory for
the period as a whole. The loss came to 1.7% for the fiscal year --
September 1997 through August 1998. (This figure does not reflect expenses
that apply to the variable accounts, subaccounts, or the annuity contract.)
Supported by the positive fundamentals of solid economic growth, low
inflation, falling long-term interest rates and good corporate profits, the
market got off to a strong start last September. The good times came to an
abrupt end in October, though, when a financial crisis in Southeast Asia
sent shock waves through stock markets worldwide.
That set the tone for the rest of the fiscal year, as investors' mood
swings whipsawed the U.S. market on an almost daily basis. Still, by
mid-summer, the Fund's performance was solidly in the plus column, led by
its core holdings among large-capitalization U.S. issues, especially those
of retailers and computer software companies.
But as the period wound down, the "Asian flu" spread to other markets,
particularly Russia and Latin America. That quickly re-ignited fears that
the profits of U.S. companies would ultimately suffer, which in turn
spawned a wave of stock selling that drove down the market by nearly 20%
over the final six weeks of the period. For the Fund, the final four
trading days were especially dramatic as its value fell by approximately
15%.
Looking at shifts in the Fund's portfolio, early in the period I sold some
technology stocks that appeared vulnerable to the Asian situation, then
added some back last summer after prices dropped. Those purchases were
largely funded by a reduction in financial services stocks. I left the
substantial exposure to consumer cyclical stocks -- including retailers in
the food, clothing, home improvement and drug businesses -- virtually
unchanged. I kept cash reserves quite low -- well under 5% -- throughout
the year, a reflection of my underlying bullish outlook for stocks.
Although I expect little, if any, let up in market volatility, I continue
to believe that the pluses outweigh the minuses for stock investors. In my
view, the key continues to be finding companies that will be able to
deliver consistently good profits in an unsettled global investment
environment.
Joseph M. Barsky
(picture of) Joseph M. Barsky
Joseph M. Barsky
Portfolio Manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Capital Resource Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
General Electric 3.59% $160,000,000
Wal-Mart Stores 2.90 129,250,000
Tyco Intl 2.49 111,000,000
Safeway 2.30 102,375,000
ACE 2.16 95,700,000
Microsoft 1.94 86,343,750
Exxon 1.91 85,068,750
Coca-Cola 1.90 84,662,500
Kohl's 1.84 81,787,500
Gap 1.83 81,700,000
</TABLE>
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 22.86% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Capital Resource Fund
How $10,000 has grown in Capital Resource Fund
$40,000
S&P 500
Capital
Resource
Fund
$35,873
$30,000
$20,000
$10,000
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total returns
(as of Aug. 31, 1998)
1 year 5 years 10 years
-1.67% +11.02% +13.63%
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Standard & Poor's 500 Stock Index (S&P
500).
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Special Income Fund
From the portfolio manager
A major downturn in smaller foreign markets late in the period eroded much
of the Fund's previous gain, leaving it with a modest advance over the past
12 months. For the fiscal year -- September 1997 through August 1998 -- the
Fund's value increased 1.5%. (This figure does not reflect expenses that
apply to the variable accounts, subaccounts, or the annuity contract.)
Thanks to remarkably low inflation, long-term interest rates in the U.S.
declined substantially in the period, boosting bond prices along the way.
The Fund's performance was enhanced thanks to its longer-than-average
duration, a strategy that increases the Fund's sensitivity to interest-rate
changes.
The great majority of the investments (about 90%) were in U.S. bonds,
including government and corporate issues. The best performers were U.S.
Treasury bonds, which benefited the most from the interest-rate decline.
Corporate bond holdings, including high-yield, or junk, issues, performed
well early in the period, then slacked off as concerns emerged about the
possibility of an economic slowdown in the U.S.
But it was the holdings in emerging markets (smaller markets in developing
foreign countries) that did the real damage. Sparked by financial turmoil
in Southeast Asia, emerging market bonds as a whole first suffered a sharp
decline last fall. That was followed by several months of relative
stability, then another sizable sell-off this past August. Although the
Fund had, at the peak, only 15% of its assets in emerging markets, chiefly
Russia and Latin America, the severity of the decline was enough to be a
notable drag on overall performance.
As for changes to the Fund's portfolio, I reduced the exposure to certain
U.S. mortgage-backed bonds, whose performance lags when interest rates come
down. Most of that money went into U.S. Treasury bonds and corporate bonds,
which performed better in the falling-rate environment.
Looking to the current fiscal year, I remain optimistic about the
environment for bonds, especially U.S. government issues. Beyond that, I
think the worst is probably over for the emerging markets, whose bonds
continue to provide above-average income for the Fund. Therefore, barring
any major negative surprises, I expect better overall results for the Fund
in the months ahead.
Steven C. Merrell
(picture of) Steven C. Merrell
Steven C. Merrell
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Special Income Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
Hydro-Quebec 1.30% $24,136,799
8.50% 2029
Time Warner 1.13 21,000,000
7.57% 2024
United Kingdom Treasury .94 17,427,361
8.00% 2003
Wal-Mart CRAVE Trust .72 13,275,158
7.00% 2006
Nationwide CSN Trust .70 13,020,840
9.88% 2025
Republic of Korea .67 12,400,637
8.88% 2008
Morgan (JP) .67 12,387,764
4.00% 2012
Govt of Canada .65 11,949,342
10.50% 2001
News America Holdings .63 11,639,500
10.13% 2012
Provident Cos .62 11,472,229
7.41% 2038
</TABLE>
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 8.03% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Special Income Fund
How $10,000 has grown in Special Income Fund
Special
Income
Fund
$23,268
$20,000
Lehman Brothers
Aggregate Bond Index
$10,000
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total returns
(as of Aug. 31, 1998)
1 year 5 years 10 years
+1.54% +6.25% +8.81%
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Lehman Brothers Aggregate Bond Index.
The Lehman Brothers Aggregate Bond Index is made up of a representative
list of government and corporate bonds as well as asset-backed securities
and mortgage-backed securities. The index is frequently used as a general
measure of bond market performance. However, the securities used to create
the index may not be representative of the bonds held in Special Income
Fund.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Managed Fund
From the portfolio manager
A steep decline in the U.S. stock market late in the fiscal year turned a
very rewarding period into a modestly positive one for the Fund. For the
12 months as a whole - September 1997 through August 1998 - the Fund's
value appreciated 1.7%. (This figure does not reflect expenses that apply
to the variable accounts, subaccounts, or the annuity contract.)
Buoyed by ongoing low inflation, falling long-term interest rates and
solid economic growth, the stock market responded with a sharp rally at
the outset of the period. Although that strong start was reversed in
October by fallout from financial turmoil in Asia, stocks enjoyed another
strong spurt in February and March, followed by another in early summer.
But by mid-July, spreading problems in other foreign markets, particularly
Russia and Latin America, again had investors concerned that U.S.
companies would soon experience a fall-off in profits. This time, the
stock-selling that ensued was longer-lasting, and eventually resulted in
the Fund losing nearly 12% in August.
The U.S. bond market enjoyed considerably more consistent performance, as
an overall decline in long-term interest rates drove up bond values,
especially U.S. Treasury issues. However, bonds issued in smaller foreign
markets were hard hit. While the Fund had only modest holdings in those
markets, the severity of the downturn did hurt performance. On the other
hand, the long duration structure of our bond holdings in the U.S. (a long
duration makes the value of the Fund's bonds more sensitive to
interest-rate swings) enhanced performance for most of the 12 months.
Given our belief that the prospects for U.S. stock gains appeared less
positive, last winter we shifted more money into U.S. bonds, especially
Treasury issues, bringing the asset mix to approximately 65% stocks and 35%
bonds. Our stock emphasis remained on large U.S. companies with consistent
earnings growth and relatively little vulnerability to problems stemming
from emerging markets. Most of the Fund's stock investments focused on the
technology, financial services, health care and consumer products sectors.
Looking ahead, we think that the investment fundamentals continue to favor
U.S. stocks and bonds. However, potential gains will likely be accompanied
by substantial market volatility.
Alfred Henderson
(picture of) Alfred Henderson
Alfred Henderson
Portfolio Manager
Deborah L. Pederson
(picture of) Deborah L. Pederson
Deborah L. Pederson
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Managed Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
Merck & Co 2.33% $102,604,687
General Electric 2.09 92,000,000
AirTouch Communications 1.50 66,093,750
Travelers Group 1.49 65,785,938
Microsoft 1.43 63,107,687
Washington Mutual 1.36 60,000,000
Tyco Intl 1.32 58,275,000
Home Depot 1.22 53,707,500
Intel 1.13 49,831,250
Morgan Stanley, Dean Witter, Discover & Co 1.12 49,353,125
</TABLE>
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 14.99% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Managed Fund
How $10,000 has grown in Managed Fund
$40,000
Managed
Fund
$34,281
S&P 500
$30,000
$20,000
$10,000
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total returns
(as of Aug. 31, 1998)
1 year 5 years 10 years
+1.74% +10.36% +13.11%
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Standard & Poor's 500 Stock Index (S&P
500).
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Moneyshare Fund
From the portfolio manager
Moneyshare Fund's yield was little changed during the past 12 months
(September 1997 through August 1998), reflecting largely stable short-term
interest rates over the period.
For the seven-day period ended Aug. 31, 1998, the Fund's compound
annualized yield was 5.20%, and the simple annualized yield was 5.07%. In
keeping with its objective, the Fund maintained a $1 per share price
throughout the 12 months. (Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the Fund. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.)
With inflation remaining subdued and the economy showing no signs of either
overheating or falling into recession, the Federal Reserve Board (the Fed)
elected to leave short-term interest rates unchanged through the period.
Concern about potentially higher inflation was also eased by the financial
crises in several foreign markets, which many observers believed would
eventually restrain U.S. economic growth and, thus, temper a possible
increase in consumer prices. Short-term interest rates did rise briefly in
early January and July without prompting by the Fed, but quickly returned
to their previous levels.
Because I was expecting the Fed to raise rates slightly, I kept the average
maturity of the Fund's investments at about 40 days. This strategy is based
on the fact that the longer the Fund's average maturity, the longer it
takes the Fund's yield to respond to a change in interest rates. Therefore,
when rates rise, a shorter maturity allows me to more quickly add new,
higher-yielding investments, which modestly increases the income paid to
shareholders. On the other hand, should rates decline, a shorter maturity
results in slightly less income. As always, the entire portfolio remained
invested in first-rated commercial paper, bank letters of credit and
certificates of deposit.
Looking to the current fiscal year, at this point (mid-September) it
appears that the Fed is likely to leave short-term interest rates
unchanged. Given that, I intend to extend the average maturity slightly,
while retaining enough flexibility to take advantage of any brief rate
spikes occurring independently in the marketplace.
Terry Fettig
(picture of) Terry Fettig
Terry Fettig
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
International Equity Fund
From the portfolio manager
A sharp decline in foreign stock markets late in the period wiped out much
of what had been a substantial gain by the Fund. Still, for the fiscal year
as a whole -- September 1997 through August 1998 -- the Fund's value did
increase by 4.1%. (This figure does not reflect expenses that apply to the
variable accounts, subaccounts, or the annuity contract.)
The period got off to a very strong start, as several markets, including
those in Europe, Hong Kong and Southeast Asia, rallied strongly. However,
the environment changed abruptly the next month, as a currency crisis in
Southeast Asia ultimately led to major downturns in financial markets
worldwide, especially in the so-called emerging markets of Asia, Latin
America and Eastern Europe.
For the next several months, the "Asian flu" dissipated somewhat, allowing
some emerging markets to recover their footing and, in certain cases, even
regain a bit of lost ground. By contrast, Europe was a star performer
during that time, as strengthening economies and healthy corporate profits
drove stock prices higher. But in August, the emerging markets suffered a
serious relapse that quickly spread around the globe. In the end, the Fund
was forced to give back most of what it had gained during the previous 11
months.
Fortunately for the Fund's performance, the great majority of its holdings
(up to approximately 80%) was concentrated in Europe over the period,
including the United Kingdom, Italy, France, the Netherlands, Germany and
Switzerland. Much of the time, those markets performed quite positively,
while weathering the downturns relatively well. The primary investment
theme in Europe was corporate restructuring -- focusing on companies that
were strengthening their business positions through cost reduction and
other streamlining efforts.
Looking toward the current fiscal year, I believe European markets continue
to be in the best position to advance. Therefore, I expect to keep the bulk
of the portfolio invested there. As for the emerging markets, while the
worst may be over, uncertainty continues to cloud the outlook. Should those
markets experience additional downturns, the fallout could again spread to
the larger, more established markets. Still, in the end, I believe time
remains firmly on the side of the patient investor.
Peter Lamaison
(picture of) Peter Lamaison
Peter Lamaison
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
International Equity Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
Mannesmann (Germany) 5.01% $101,278,522
Banque Natl de Paris (France) 4.93 99,739,768
ING Groep (Netherlands) 4.14 83,725,688
Orange (United Kingdom) 3.80 76,907,851
Bayerische Vereinsbank (Germany) 3.71 75,025,232
UBS (Switzerland) 3.63 73,534,374
Novartis (Switzerland) 3.42 69,162,209
Rhone-Poulenc Cl A (France) 3.42 69,101,624
Instituto Bancario San Paolo di Torino (Italy) 3.35 67,871,573
Credito Italiano (Italy) 2.99 60,460,955
</TABLE>
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 38.40% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
International Equity Fund
How $10,000 has grown in International Equity Fund
$20,000
International
Equity Fund
Morgan Stanley $16,933
Capital International
World Index
$10,000
1/31/92 8/92 '93 '94 '95 '96 '97 '98
Average annual total returns
(as of Aug. 31, 1998)
Since
1 year 5 years inception*
+4.09% +7.06% +8.26%
*Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Morgan Stanley Capital International
World Index (World Index).
The 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.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Aggressive Growth Fund
From the portfolio manager
Small-capitalization stocks faced an extremely volatile and often difficult
environment during the past 12 months. As a result, the Fund's value
depreciated 16.4% over its fiscal year -- September 1997 through August
1998. (This figure does not reflect expenses that apply to the variable
accounts, subaccounts, or the annuity contract.)
The period began on a positive note, as small-cap stocks powered their way
to a big gain last September. But from that point, the downs outweighed the
ups, as financial turmoil in many foreign markets raised concerns that U.S.
companies doing business in those parts of the world would experience a
drop-off in earnings.
Most vulnerable, it was assumed, would be technology-related companies, a
substantial component of the small-cap sector and the largest area of
investment for the Fund. Soon, the worries spread to smaller stocks as a
whole, causing investors to shift increasingly toward the perceived safety
of larger-cap issues.
The first big hit to the U.S. market came last October, a result of shock
waves created by a financial meltdown in Asia. The second storm hit home in
July, as by that time Russia and Latin America had also come under severe
pressure. The result was that the stock market, as measured by the Dow
Jones Industrial Average, dropped nearly 20% during the final six weeks of
the period.
Nevertheless, at times during the fiscal year, market psychology would
suddenly turn positive, allowing small stocks to reassert themselves and,
temporarily at least, outperform big stocks. But over the long run, this
only added to the volatility, which resulted in fluctuations in the Fund's
monthly performance of as much as 8%.
In response to the conditions, I reduced the Fund's holdings of stocks
representing companies, both foreign and domestic, with ties to Asia,
especially in the technology and electronics areas. In fact, by last
January, all foreign stocks had been eliminated from the portfolio. Prior
to that, I also substantially raised the cash reserves in the Fund, again
to provide a buffer against further fallout from the Asian situation.
Looking ahead, should the U.S. stock market manage to gain ground, I think
small stocks, with their relatively attractive valuations, are in good
position to advance. Still, considerable volatility is likely to accompany
any upturn we may experience.
Martin G. Hurwitz
(picture of) Martin G. Hurwitz
Martin G. Hurwitz
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Aggressive Growth Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
HBO & Co 2.71% $53,528,750
Outdoor Systems 2.38 47,081,249
Watson Pharmaceuticals 1.77 34,923,438
Network Associates 1.51 29,786,905
Legato Systems 1.26 24,938,750
Tyco Intl 1.24 24,420,000
Health Management Associates Cl A 1.23 24,384,375
Chancellor Media 1.22 24,089,062
Elan ADR 1.19 23,500,000
Policy Management Systems 1.18 23,380,000
</TABLE>
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 15.69% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Aggressive Growth Fund
How $10,000 has grown in Aggressive Growth Fund
$20,000 S&P 500
Aggressive
Growth Fund
$16,245
$10,000
1/31/92 8/92 '93 '94 '95 '96 '97 '98
Average annual total returns
(as of Aug. 31, 1998)
Since
1 year 5 years inception*
-16.40% +6.75% +7.59%
*Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Standard & Poor's 500 Stock Index (S&P
500).
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Global Yield Fund
From the portfolio manager
Despite two sharp sell-offs in emerging market bonds, the Fund managed to
generate positive results during the past 12 months. For the fiscal year --
September 1997 through August 1998 -- the Fund's value appreciated 3.8%.
(This figure does not reflect expenses that apply to the variable accounts,
subaccounts, or the annuity contact.)
With low inflation prevailing in the U.S. and Europe, long-term interest
rates followed an overall declining path through much of the period,
boosting bond values in the process. Because the portfolio was concentrated
in those markets and had a longer-than-average duration -- an investment
strategy that increases its sensitivity to interest-rate changes -- the
Fund enjoyed especially good performance from the rate drop.
The only real trouble spot was the emerging markets, where 10%-15% of the
portfolio was invested. Problems began last fall, when a financial crisis
in Southeast Asia sent many emerging markets into a nosedive. After several
months of relative stability, those markets experienced another substantial
sell-off this past August. Although the Fund's emerging-market investments
were comparatively small and concentrated mainly in Latin America, the
downturns did detract from performance.
As has long been the case for the Fund, I kept the majority of assets
invested in U.S. bonds and foreign government bonds denominated in dollars
or hedged back into dollars. (This strategy lessens the portfolio's
exposure to changes in currency values, which can help or hurt the Fund's
return.) Based on the expectation that the dollar would remain strong
against most foreign currencies, which it did for the most part, I wanted
to limit any potential erosion of the Fund's gain. Also beneficial to
performance was a decision to virtually eliminate exposure to bonds issued
in Japan, whose economy remained in recession.
As the new fiscal year begins, my outlook is still a positive one,
essentially because the low-inflation trend that has buoyed bonds in most
major markets remains in place. Assuming that continues, as I expect,
interest rates are unlikely to rise and, in fact, may even decline a bit
more in the U.S. and Europe. Therefore, I'm maintaining the emphasis on
those markets and, in particular, government bonds.
Michael Ng
(picture of) Michael Ng
Michael Ng
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Global Yield Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
U.S. Treasury 8.06% $14,785,413
7.50% 2016
U.S. Treasury 3.46 6,334,328
7.50% 2005
Federal Republic of Germany 3.15 5,770,343
6.50% 2027
U.S. Treasury 2.48 4,550,670
5.875% 2000
Govt of Norway 2.26 4,142,144
9.00% 1999
Federal Republic of Germany 2.04 3,742,500
6.00% 2016
Govt of Italy 2.00 3,663,240
8.50% 2004
Federal Republic of Germany 2.00 3,658,685
7.50% 2004
United Kingdom Treasury 1.89 3,468,243
9.00% 2000
Govt of Canada 1.88 3,450,429
8.00% 2023
</TABLE>
Note: Certain foreign investment risks include: changes in currency
exchange rates, adverse political or economic order, and lack of similar
regulatory requirements followed by U.S. companies.
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 29.22% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Global Yield Fund
How $10,000 has grown in Global Yield Fund
Global Yield
Fund
Lipper Global $11,305
Income Fund Index
$10,000 Salomon Brothers
Global Government
Bond Composite Index
5/96 8/96 11/96 2/97 5/97 8/97 11/97 2/98 5/98 8/98
Average annual total returns
(as of Aug. 31, 1998)
1 year Since
inception*
+3.82% +5.38%
*Inception date was May 1, 1996.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Lipper Global Income Fund Index and
the Salomon Brothers Global Government Bond Composite Index.
The 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.
The 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.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Growth Dimensions Fund
From the portfolio manager
A sharp downturn in the U.S. stock market this past August severely
penalized the Fund's overall performance for the fiscal year. Still, the
Fund did generate positive results, as its value increased 3.2% for the
period -- September 1997 through August 1998. (This figure does not reflect
expenses that apply to the variable accounts, subaccounts, or the annuity
contract.)
The period got off to a strong start, as falling long-term interest rates
enhanced what was already a positive environment for stocks. But in
October, currencies and stock markets in Asia went into a virtual
free-fall. The result was severely weakened economies in many countries
that had been substantial buyers of U.S. goods, particularly
technology-related products. This situation immediately cast doubt on
American companies' ability to sustain their earnings growth and,
consequently, spawned a wave of stock-selling.
Despite that cloud of concern, a steady decline in long-term interest rates
and ongoing reports of tame inflation and solid economic growth provided
support for stocks through the winter. But in August the "Asian flu," which
by then had spread to several other foreign markets, hit home again,
driving down the U.S. stock market by nearly 15% through the end of the
month.
The Fund's performance pattern generally followed that of the broad market,
although its fluctuations were somewhat more dramatic. As has been the case
for some time, I kept most of the Fund's assets invested in
large-capitalization stocks in the technology/telecommunications, health
care and financial/business services sectors, which continued to generate
much of corporate America's greatest earnings growth. For the most part, I
avoided foreign stocks. I did moderately reduce holdings in the technology
sector last fall in light of the Asian turmoil, but that was the only
notable change to the portfolio during the 12 months.
As we begin a new fiscal year, two of the three driving factors for the
stock market -- inflation and long-term interest rates -- remain
encouragingly low. The third -- corporate earnings -- is more in doubt, as
the fallout from foreign economies continues. Therefore, I plan to continue
to concentrate investments in stocks of large, domestic companies that
appear best able to generate consistent earnings growth.
Gordon M. Fines
(picture of) Gordon M. Fines
Gordon M. Fines
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Growth Dimensions Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
General Electric 4.01% $78,615,999
Wal-Mart Stores 3.14 61,605,249
Cisco Systems 3.01 58,999,124
Pfizer 2.92 57,269,399
Microsoft 2.31 45,263,312
BellSouth 2.29 44,929,007
Safeway 2.13 41,784,750
Norwest 1.99 38,984,400
Travelers Group 1.93 37,807,499
Bristol-Myers Squibb 1.90 37,270,800
</TABLE>
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 25.63% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Growth Dimensions Fund
How $10,000 has grown in Growth Dimensions Fund
$20,000
S&P 500
Growth Dimensions
Fund
$13,524
Lipper Growth
Fund Index
$10,000
5/96 8/96 11/96 2/97 5/97 8/97 11/97 2/98 5/98 8/98
Average annual total returns
(as of Aug. 31, 1998)
1 year Since
inception*
+3.19% +13.72%
*Inception date was May 1, 1996.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Standard & Poor's 500 Stock Index
(S&P 500) and Lipper Growth Fund Index.
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance.
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.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Income Advantage Fund
From the portfolio manager
A sharp decline in high-yield bond values late in the fiscal year eroded
much of the Fund's gain for the period, leaving the Fund with a modest
advance overall. For the fiscal year -- September 1997 through August 1998
-- the Fund's value increased 1.0%. (This figure does not reflect expenses
that apply to the variable accounts, subaccounts, or the annuity contract.)
Sparked mainly by ongoing reports of low inflation, long-term interest
rates followed a generally declining path during the 12 months. Bond prices
in the U.S. responded, as they naturally do when rates fall, by moving
higher, augmenting the Fund's return. For high-yield bonds, the positive
environment was, until mid-summer, complemented by solid, ongoing economic
growth and generally healthy corporate profits.
It was at that point that concerns arose about the ability of the economy
and U.S. companies to sustain their growth in the wake of worsening
problems in several emerging markets overseas. Most affected by the
potential slump, they reasoned, would be issuers of high-yield bonds. The
result was substantial selling and a steep price decline in the high-yield
sector through the end of the period. That, combined with the Fund's
relatively minor holdings among emerging market bonds themselves,
principally in Latin America and Asia, nearly wiped out the gain generated
by the Fund over the first 10 months of the fiscal year.
On the positive side, demand for high-yield bonds remained healthy for most
of the year, the chief exception being late in the period when the emerging
markets crisis drove investors toward the perceived safe haven offered by
U.S. Treasury bonds.
Concurrently, the supply of high-yield issues was unusually great. Although
the Fund's holdings were spread over a wide range of business sectors,
three substantial areas of investment -- media, telecommunications and
gaming -- provided the best overall performance.
Although tame inflation and low long-term interest rates continue to work
in bonds' favor, questions about how strong the economy and, ultimately,
corporate profits will continue to cloud the outlook for the high-yield
sector. My expectation is that the positive view will win out, allowing for
better results in the current fiscal year.
Jack Utter
(picture of) Jack Utter
Jack Utter
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Income Advantage Fund
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
<S> <C> <C>
Outsourcing Solutions .98% $5,520,862
11.00% 2006
Abbey Healthcare Group .94 5,321,250
9.50% 2002
Comcast Cellular Holdings .86 4,856,250
9.50% 2007
CSC Holdings .83 4,694,513
11.13% Pay-in-kind Series M Preferred
Adelphia Communications .78 4,410,000
8.38% 2008
GFSI .73 4,130,000
9.63% 2007
CCPR Services .70 3,952,500
10.00% 2007
Outdoor Systems .70 3,952,500
8.88% 2007
NTL .70 3,949,999
8.94% 2001
NTL .69 3,911,040
13.00% Pay-in-kind Series B Preferred
</TABLE>
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(icon of) pie chart
The ten holdings listed here make up 7.91% of the Fund's net assets
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Income Advantage Fund
How $10,000 has grown in Income Advantage Fund
$20,000
Income
Advantage
Fund
$11,730
Lehman Brothers
Aggregate Bond Index
$10,000
5/96 8/96 11/96 2/97 5/97 8/97 11/97 2/98 5/98 8/98
Average annual total returns
(as of Aug. 31, 1998)
1 year Since
inception*
+1.03% +7.05%
*Inception date was May 1, 1996.
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Lehman Brothers Aggregate Bond Index.
The 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
Income Advantage Fund. The index reflects reinvestment of all distributions
and changes in market prices, but excludes brokerage commissions or other
fees.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
The financial statements contained in Post-Effective Amendment #36 to
Registration Statement No. 2-73115 filed on or about October 28, 1998 are
incorporated herein by reference.
<PAGE>
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Retirement Annuity Mutual Funds
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN
EXPRESS
Financial
Advisors
S-6466 P (10/98)
PRINTED WITH
SOY INK
<PAGE>
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue
strip at the top
of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described to
annual report. the left of the text.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
