American
Express(R)
Variable
Portfolio
Funds
References to "Fund" throughout this annual report refer to AXP VP-Bond Fund,
AXP VP-Capital Resource Fund, AXP VP-Cash Management Fund, AXP VP-Extra Income
Fund, AXP VP-Global Bond Fund, AXP VP-International Fund, AXP VP-Managed Fund,
AXP VP-New Dimensions Fund and AXP VP-Strategy Aggressive Fund, singularly or
collectively as the context requires.
1999 ANNUAL REPORT
AMERICAN EXPRESS Financial Advisors
(This annual report includes a prospectus that describes in detail the Funds'
objectives, investment strategies, 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 American Express Variable Portfolio (AXP VP) Funds provide several
alternatives to consider for investment through your annuity contracts.
<PAGE>
Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 6
AXP Variable Portfolio -- Bond Fund 7
From the Portfolio Manager 7
The 10 Largest Holdings 8
The Fund's Long-term Performance 9
AXP Variable Portfolio -- Capital Resource Fund 10
From the Portfolio Manager 10
The 10 Largest Holdings 11
The Fund's Long-term Performance 12
AXP Variable Portfolio -- Cash Management Fund 13
From the Portfolio Manager 13
AXP Variable Portfolio -- Extra Income Fund 14
From the Portfolio Managers 14
The 10 Largest Holdings 15
The Fund's Long-term Performance 16
AXP Variable Portfolio -- Global Bond Fund 17
From the Portfolio Manager 17
The 10 Largest Holdings 18
The Fund's Long-term Performance 19
AXP Variable Portfolio -- International Fund 20
From the Portfolio Manager 20
The 10 Largest Holdings 21
The Fund's Long-term Performance 22
AXP Variable Portfolio-- Managed Fund 23
From the Portfolio Managers 23
The 10 Largest Holdings 24
The Fund's Long-term Performance 25
AXP Variable Portfolio-- New Dimensions Fund 26
From the Portfolio Manager 26
The 10 Largest Holdings 27
The Fund's Long-term Performance 28
AXP Variable Portfolio-- Strategy Aggressive Fund 29
From the Portfolio Managers 29
The 10 Largest Holdings 30
The Fund's Long-term Performance 31
All Funds
Independent Auditors' Report 32
Financial Statements 33
Notes to Financial Statements 44
Investments in Securities 55
(This annual report is not part of the prospectus.)
ANNUAL REPORT - 1999
<PAGE>
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Funds 4p
AXP Variable Portfolio --
Blue Chip Advantage Fund 5p
Goal 5p
Investment Strategy 5p
Risks 6p
Past Performance 6p
Management 6p
AXP Variable Portfolio-- Bond Fund 7p
Goal 7p
Investment Strategy 7p
Risks 8p
Past Performance 9p
Management 10p
AXP Variable Portfolio --
Capital Resource Fund 11p
Goal 11p
Investment Strategy 11p
Risks 12p
Past Performance 13p
Management 14p
AXP Variable Portfolio --
Cash Management Fund 15p
Goal 15p
Investment Strategy 15p
Risks 16p
Past Performance 17p
Management 17p
AXP Variable Portfolio --
Diversified Equity Income Fund 18p
Goal 18p
Investment Strategy 18p
Risks 19p
Past Performance 19p
Management 19p
AXP Variable Portfolio-- Extra Income Fund 20p
Goal 20p
Investment Strategy 20p
Risks 21p
Past Performance 22p
Management 23p
AXP Variable Portfolio-- Federal Income Fund 24p
Goal 24p
Investment Strategy 24p
Risks 25p
Past Performance 25p
Management 25p
AXP Variable Portfolio --
Global Bond Fund 26p
Goal 26p
Investment Strategy 26p
Risks 27p
Past Performance 28p
Management 29p
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
AXP Variable Portfolio -- Growth Fund 30p
Goal 30p
Investment Strategy 30p
Risks 31p
Past Performance 31p
Management 31p
AXP Variable Portfolio -- International Fund 32p
Goal 32p
Investment Strategy 32p
Risks 33p
Past Performance 34p
Management 35p
AXP Variable Portfolio -- Managed Fund 36p
Goal 36p
Investment Strategy 36p
Risks 37p
Past Performance 38p
Management 39p
AXP Variable Portfolio --
New Dimensions Fund 40p
Goal 40p
Investment Strategy 40p
Risks 41p
Past Performance 42p
Management 43p
AXP Variable Portfolio --
Small Cap Advantage Fund 44p
Goal 44p
Investment Strategy 44p
Risks 45p
Past Performance 45p
Management 45p
AXP Variable Portfolio --
Strategy Aggressive Fund 46p
Goal 46p
Investment Strategy 46p
Risks 47p
Past Performance 48p
Management 49p
Fees and Expenses 50p
Shareholder Fees 50p
Annual Fund Operating Expenses 50p
Buying and Selling Shares 52p
Valuing Fund Shares 52p
Purchasing Shares 52p
Transferring/Selling Shares 52p
Distributions and Taxes 53p
About the Company 54p
Financial Highlights 56p
(This annual report is not part of the prospectus.)
ANNUAL REPORT - 1999
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
The past 12 months was a period of recovery for financial assets, especially
U.S. stocks. As a result, all of the American Express(R) Variable Portfolio
Funds generated positive performance during the fiscal year, which ran from
September 1998 through August 1999.
I also want to report the results of a shareholder meeting held by American
Express Funds this past June. Shareholders approved several proposals advanced
by management, including:
o The election of board members and the selection of KPMG LLP as independent
auditors.
o Change in the funds' names from "IDS" to "AXP" as well as changes in several
individual fund names.
o A new shareholder service and distribution plan.
o Changes with respect to fundamental investment policies.
No other business was presented at the meeting, which was concluded by a report
to shareholders from the Investment Department of American Express Financial
Corporation.
Thanks to all of you for your effort in reviewing the proxy material and voting
your proxies.
Arne H. Carlson
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
(icon of) Steven C. Merrell
Steven C. Merrell
Portfolio manager
From the Portfolio Manager
AXP VP -- Bond Fund (formerly known as IDS Life Special Income Fund)
An unsettled environment for bonds resulted in a modestly positive performance
by the Fund during the past fiscal year. For the 12 months -- September 1998
through August 1999 -- the Fund's value increased 2.40%. (This figure does not
reflect expenses that apply to the variable accounts, subaccounts, the variable
annuity or life insurance contracts.)
At the outset of the period, most sectors of the bond market were still feeling
the effects of a "flight to quality" that stemmed from economic turmoil in Asia,
Russia and parts of Latin America. That condition resulted in a price boost for
U.S. Treasury bonds at the expense of corporate, mortgage-backed and
emerging-market (developing foreign economies such as Korea, Mexico and Russia)
issues.
But by autumn, the mood of the market began to change. Encouraged by three
reductions in short-term interest rates by the Federal Reserve, investors began
to venture outside the ultra-safe world of Treasuries. The result was generally
rising prices for corporate and mortgage-backed holdings that continued through
until February. From that point, all sectors of the U.S. bond market struggled
in the face of a rise in long-term interest rates, a trend that dominated the
second half of the fiscal year.
For the Fund, the ultimate result was up-and-down performance for most of the 12
months as various sectors of the market either gained or lost ground. The best
stretch came over the winter, when low-grade corporate and emerging-market bonds
enjoyed a welcome recovery. As those bonds rebounded, I took that opportunity to
reduce holdings in those sectors and shift more assets into higher-grade
corporate issues and cash reserves. The ultimate result was a more
conservatively positioned portfolio. At the end of the period, most of the
assets were in corporate bonds, followed by mortgage-backed and Treasury issues.
On an overall basis, the portfolio mix was 67% investment-grade securities, 33%
low grade.
As the new fiscal year begins, the investment environment continues to be
buffeted by conflicting factors: the ongoing strength of the U.S. economy
accompanied by low inflation, improving outlooks in several foreign countries, a
Federal Reserve Board that has demonstrated a willingness to raise interest
rates, and concern about the impact of the Y2K computer problem. In the end, I
expect it will take at least a few months before things are sorted out, after
which I think bonds, especially corporate issues, can look forward to better
performance.
Steven C. Merrell
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The 10 Largest Holdings
AXP VP -- Bond Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Hydro-Quebec 1.25% $21,912,837
8.50% 2029
Time Warner 1.10 19,288,461
7.57% 2024
Conseco .86 14,965,217
7.60% 2001
Wells Fargo .84 14,780,354
6.63% 2004
KPNQwest .82 14,287,499
8.13% 2009
Florida Windstrom .80 14,079,257
7.13% 2019
Bank One .78 13,608,018
6.00% 2009
Qwest Communications Intl .74 12,865,064
7.50% 2008
Speedway Motorsports .68 11,940,000
8.50% 2007
Countrywide Home Loan .67 11,804,399
6.85% 2004
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 8.54% of net assets
American Express Variable Portfolio Funds
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's Long-term Performance
AXP VP -- Bond Fund
How $10,000 has grown in AXP VP - Bond Fund
$30,000
X $21,239
AXP-VP
Bond Fund
$20,000
X Lehman Brothers
Aggregate Bond Index
$10,000
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Average annual total return (as of Aug. 31, 1999)
1 year 5 years 10 years
+2.40% +7.03% +7.82%
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.
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.
Lehman Brothers Aggregate Bond Index is an unmanaged index made up of a
representative list of government, corporate, asset-backed and mortgage-backed
securities. The index is frequently used as a general measure of bond market
performance. The index reflects reinvestment of all distributions and changes in
market prices, but excludes brokerage commissions or other fees. However, the
securities used to create the index may not be representative of the bonds held
in the Fund.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
(picture of) Joseph M. Barsky
Joseph M. Barsky
Portfolio manager
From the Portfolio Manager
AXP VP -- Capital Resource Fund (formerly known as IDS Life Capital Resource
Fund)
The Fund took advantage of a powerful rally by the stock market to post an
exceptionally strong gain during the past fiscal year. For the 12 months --
September 1998 through August 1999 -- the Fund's value increased 40.12%. (This
figure does not reflect expenses that apply to the variable accounts,
subaccounts, the variable annuity or life insurance contracts.)
When the period began last fall, stock investors were still licking their wounds
suffered during a late-summer nosedive that took the market down by nearly 20%
and cut some stocks' prices in half. But, with the remarkable resilience that
has been its hallmark in recent years, the market soon righted itself and set
out to regain the lost ground.
Supported along the way by three reductions in short-term interest rates by the
Federal Reserve Board, stocks not only recouped their losses by fall's end but
went on to establish a new all-time high by early January. From that point, a
steady rise in long-term interest rates kept stocks off balance at times.
Overall, though, the market did manage a small advance over the second half of
the fiscal year.
Working in the Fund's favor was the strength of large-capitalization growth
stocks representing companies with strong, if not dominant, positions in their
industries. Especially productive were technology stocks, including Cisco
Systems, EMC, Texas Instruments, Solectron, IBM and Intel, all of which were
among the Fund's larger holdings during the 12 months. Another substantial area
of investment was retailing, which saw Wal-Mart, Circuit City and The Gap make
healthy gains. The results for financial services stocks, a relatively small
exposure for the Fund, were mixed but, on the whole, positive.
I made only modest changes to the portfolio over the period, adding somewhat to
technology while reducing financial services a bit. Last winter, I added more
economically sensitive stocks in anticipation of stronger earnings growth.
Throughout the year, I kept cash reserves quite low, preferring to keep the vast
majority of the portfolio invested in stocks.
While key factors such as solid economic growth, generally healthy corporate
profits and low inflation remain in place as the current fiscal year begins, the
possibility of higher interest rates could trouble the stock market over the
near term. Once that cloud clears, however, I think stocks will be in good
position to advance.
Joseph M. Barsky
American Express Variable Portfolio Funds
(This annual report is not part of the prospectus.)
<PAGE>
The 10 Largest Holdings
AXP VP -- Capital Resource Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Tyco Intl 4.15% $233,018,750
General Electric 3.30 185,315,625
Intl Business Machines 2.77 155,703,124
Microsoft 2.47 138,843,750
Intel 2.34 131,500,000
Unisys 2.30 129,000,000
Solectron 2.23 125,200,000
Texas Instruments 2.19 123,093,750
Illinois Tool Works 2.08 116,906,250
Home Depot 2.01 113,081,250
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 25.84% of net assets
(This annual report is not part of the prospectus. ANNUAL REPORT - 1999
<PAGE>
The Fund's Long-term Performance
AXP VP -- Capital Resource Fund
How $10,000 has grown in AXP VP - Capital Resource Fund
$50,000
$40,000
X $36,320
AXP VP-Capital
Resource Fund
X S&P 500 Index
$30,000
$20,000
$10,000
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Average annual total return (as of Aug. 31, 1999)
1 year 5 years 10 years
+40.12% +17.10% +13.77%
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 Index (S&P 500 Index).
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.
The S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
<PAGE>
(picture of) Terry Fettig
Terry Fettig
Portfolio manager
From the Portfolio Manager
AXP VP -- Cash Management Fund (formerly known as IDS Life Moneyshare Fund)
The Fund's yield declined somewhat during the fiscal year (September 1998
through August 1999), reflecting a drop in short-term interest rates over the
period. For the period, the Fund generated a return of 4.72% and the 7-day yield
was 4.73%.* In keeping with its objective, the Fund maintained a $1 per share
price throughout the 12 months. (An investment in the fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. 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.)
Despite ongoing solid economic growth, inflation remained remarkably low during
the past 12 months. In recent years, these factors led the Federal Reserve Board
to leave short-term interest rates virtually unchanged. But last fall, with
financial chaos in Asia, Russia and parts of Latin America threatening to
severely restrict lending worldwide, the Fed reduced rates three times in less
than three months.
(By way of background, the Fed usually adjusts short-term interest rates based
on the condition of the economy and the inflation outlook. When the economy
appears weak and inflation is low, the Fed often lowers rates to stimulate
economic growth. When the economy is strong, the Fed often raises rates to reign
in economic growth and thereby keep inflation in check.)
In response to the Fed's rate cuts, issuers of commercial paper -- the core of
the Fund's investment portfolio -- also lowered the interest on their
securities. Therefore, the yield on the Fund declined as well. To mitigate that
trend, I added more longer-term securities, a strategy that increases the
portfolio's average maturity and, in turn, the yield.
By summer, though, with the economy still rolling along, the Fed decided to
reverse course. The result was two interest-rate increases, one in June and
another in late August.
Looking toward the new fiscal year, I think the Fed may find it necessary to
push up short-term rates a bit more before it is comfortable with the state of
the economy and the inflation outlook. Should that prove true, I would expect
the Fund's yield to rise accordingly in the months ahead.
Terry Fettig
*The yield quotation more closely reflects the current earnings of the money
market fund than the total return quotation. This yield is based on the 7-day
yield as of Aug. 31, 1999.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
(picture of) Jack Utter
Jack Utter
Portfolio manager
(picture of) Scott Schroepfer
Scott Schroepfer
Portfolio manager
From the Portfolio Managers
AXP VP -- Extra Income Fund (formerly known as IDS Life Income Advantage Fund)
The Fund recovered from a bad start to generate a positive result for the past
fiscal year. For the 12 months -- September 1998 through August 1999 -- the
Fund's value increased 2.61%. (This figure does not reflect expenses that apply
to the variable accounts, subaccounts, the variable annuity or life insurance
contracts.)
When the period began last fall, high-yield bonds were stuck in their worst
slump since 1990. With many smaller markets in Asia, Latin America and Eastern
Europe in near free-fall as a result of the economic malaise dubbed the `Asian
flu,' investors sought the sanctuary of U.S. Treasury bonds. At the same time,
they abandoned high-yield issues, which saw their prices sink in response.
Reflecting the difficult environment, the Fund's value declined by more than 6%
during September and October.
Meanwhile, the Federal Reserve was busy cutting short-term interest rates to try
to bring some stability to the financial markets. The effort paid off rather
quickly as the high-yield sector reversed direction in November and, by spring,
had more than made up the ground it lost during the fall.
The second half of the fiscal year, however, turned out to be a struggle much of
the time as a rise in long-term interest rates put pressure on bond prices. The
high-yield sector held up relatively well, however, despite a heavy supply of
new issues and investors' reluctance to own securities on the riskier end of the
investment scale.
Looking at the Fund's holdings, a substantial portion of the portfolio remained
invested in four areas: telecommunications, paper/packaging, media and energy.
Trading was modest during the period, and we made no major allocation shifts.
As the new fiscal year begins, the investment fundamentals remain reasonably
good for high-yield bonds; the economy continues to chug along, and inflation
has yet to rise meaningfully. On the other hand, concerns about the Fed's
actions on interest rates could keep the market off balance. All in all, though,
we think the odds are that we'll see improving performance as the current period
progresses.
Jack Utter
Scott Schroepfer
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
The 10 Largest Holdings
AXP VP -- Extra Income Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
AMFM 1.29% $8,255,999
8.00% 2008
EchoStar DBS 1.13 7,199,999
9.38% 2009
Trump Atlantic City Assn/Funding 1.02 6,493,000
11.25% 2006
Nextel Partners .95 6,059,999
13.60% 2004
Abbey Healthcare Group .89 5,663,750
9.50% 2002
Outsourcing Solutions .87 5,576,199
11.00% 2006
Outdoor Systems .84 5,332,863
8.88% 2007
Motor & Gears .81 5,184,375
10.75% 2006
CSC Holdings .77 4,915,700
11.13% Pay-in-kind Series M Preferred
Pierce Leahy Command .75 4,779,063
8.13% 2008
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 9.32% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The Fund's Long-term Performance
AXP VP -- Extra Income Fund
How $10,000 has grown in AXP VP - Extra Income Fund
$20,000
X Merrill Lynch High Yield Bond Index
X $12,040
AXP VP-Extra Income Fund
X Lehman Brothers
Aggregate Bond Index
$10,000
6/1/96 8/96 8/97 8/98 8/99
Average annual total return (as of Aug. 31, 1999)
Since
1 year inception*
+2.61% +5.71%
*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 Lehman Brothers Aggregate Bond Index and
the Merrill Lynch High Yield Bond Index.
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.
Lehman Brothers Aggregate Bond Index is an unmanaged index made up of a
representative list of government, corporate, asset-backed and mortgage-backed
securities. The index is frequently used as a general measure of bond market
performance. The index reflects reinvestment of all distributions and changes in
market prices, but excludes brokerage commissions or other fees.
Merrill Lynch High Yield Bond Index provides a broad-based measure of
performance of the non-investment grade U.S. domestic bond market. The index
currently captures close to $200 billion of the outstanding debt of domestic
market issuers rated below investment grade but not in default. The index is
"rule-based," which means there is a defined list of criteria that a bond must
meet in order to qualify for inclusion in the index.
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
(picture of) Ray Goodner
Ray Goodner
Portfolio manager
From the Portfolio Manager
AXP VP-- Global Bond Fund (formerly known as IDS Life Global Yield Fund)
An up-and-down environment for bonds resulted in a modest gain by the Fund
during the past fiscal year. For the 12 months -- September 1998 through August
1999 -- the Fund's value appreciated 2.50%. (This figure does not reflect
expenses that apply to the variable accounts, subaccounts, the variable annuity
or life insurance contracts.)
The period got off to a strong start, as a decline in long-term interest rates
boosted bond values in the U.S. and Europe, where the great majority of the
assets were invested. Although rates soon leveled off, major-market bonds held
their own during the winter, while emerging-market bonds rebounded nicely from
their debacle in the late summer of last year.
At that point, the going got more difficult. Driven by fear of potentially
higher inflation stemming from remarkably strong economic growth in the U.S.,
long-term interest rates began a steady climb through the end of the period.
Because rising rates depress bond prices, the Fund's U.S. holdings lost value.
In addition, depreciation of the euro, Europe's common currency, reduced returns
on some investments in that region.
Throughout the year, U.S. bonds, chiefly Treasury issues, made up the bulk of
the Fund's investments (more than half at times), followed by European and a
relatively modest amount of emerging-market issues. Early in 1999, the Fund
avoided yen-denominated Japanese bonds, which continued to struggle in the face
of ongoing economic weakness. But in the summer, when I assumed management of
the Fund, I built up a small position to take advantage of what appeared to be
an improving outlook for Japan. Lastly, in addition to emphasizing bonds
denominated in U.S. dollars to try to minimize any negative impact from
depreciating foreign currencies, the Fund's duration -- a function of the
average maturity of the Fund's holdings -- was reduced to lessen the negative
effect of a rise in interest rates.
Looking toward the current fiscal year, the U.S. and European bond markets
continue to be concerned about the possibility of still-higher interest rates.
Because it may take several months before the interest-rate question is
resolved, I plan to stick to a conservative investment approach that centers on
generating income and preserving bond values. In addition, I plan to increase
exposure to the Japanese and European currencies to capitalize on an expected in
the value of the dollar.
Ray Goodner
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The 10 Largest Holdings
AXP VP -- Global Bond Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Allgemeine Hypo Bank 8.04% $15,882,391
5.00% 2009
Govt of Norway 3.12 6,161,077
7.00% 2001
United Kingdom Treasury 3.09 6,100,132
8.00% 2003
Federal Republic of Germany 3.08 6,078,792
8.00% 2002
Govt of Italy 2.62 5,170,836
8.50% 2004
United Kingdom Treasury 2.53 5,003,780
8.50% 2005
Govt of Denmark 1.95 3,844,916
7.00% 2024
Govt of Sweden 1.91 3,767,400
6.00% 2005
Govt of Sweden 1.87 3,691,056
8.00% 2007
Govt of Canada 1.81 3,564,117
8.00% 2023
Excludes U.S. Treasury and government agency holdings.
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."
(icon of) pie chart
The 10 holdings listed here
make up 30.02% of net assets
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's Long-term Performance
AXP VP-- Global Bond Fund
How $10,000 has grown in AXP VP - Global Bond Fund
$20,000
X $11,612
AXP VP-Global Bond Fund
X Lipper Global Income Fund Index
X Salomon Brothers World Government Bond Index
$10,000
6/1/96 8/96 8/97 8/98 8/99
Average annual total return (as of Aug. 31, 1999)
Since
1 year inception*
+2.50% +4.52%
*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 World Government Bond Index. Recently the Fund's portfolio
manager recommended that the Fund change its comparative index from the Salomon
Brothers Global Government Bond Composite Index to the Salomon Brothers World
Government Bond Index. The portfolio manager made this recommendation because
the new index more closely represented the Fund's holdings and information for
the index was more readily available. We would normally include both the Salomon
Brothers Global Government Bond Composite Index and the Salomon Brothers World
Government Bond Index in this transition year, however, information for the
Salomon Brothers Global Government Bond Composite Index is no longer available.
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.
Salomon Brothers World Government Bond Index, is an unmanaged market
capitalization weighted benchmark, tracks the performance of the 17 government
bond markets around the world. It is widely recognized by investors as a
measurement index for portfolios of government bond securities. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Lipper Global Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
(picture of) Peter Lamaison
Peter Lamaison
Portfolio Manager
From the Portfolio Manager
AXP VP -- International Fund (formerly known as IDS Life International Equity
Fund)
Generally strong stock markets in Europe and Japan provided the basis for a
productive fiscal year for the Fund. Over the 12 months -- September 1998
through August 1999 -- the Fund's value increased by 22.18%. (This figure does
not reflect expenses that apply to the variable accounts, subaccounts, the
variable annuity or life insurance contracts.)
The period actually got off to a bad start, as financial woes in several
emerging economies and the collapse of a so-called "hedge" fund fostered worries
that stock markets around the globe might come under heavy selling pressure.
European markets were particularly affected, causing the Fund to lose more than
8% of its value in September 1998.
But, thanks in large part to repeated interest-rate cuts in the United States
and Europe, those concerns quickly faded, allowing the markets and the Fund to
begin advancing. In fact, by the end of October, the Fund had made up all of the
lost ground and was on its way to recording four straight months of solid gains.
After a retreat in February, the Fund finished the fiscal year with gains in
five of the final six months.
The clear majority of the portfolio (up to about 80% at the peak) remained
invested in European markets during the 12 months. They included the United
Kingdom, France, Italy, Germany, Spain, Switzerland and the Netherlands. For the
most part, I concentrated on stocks of companies undergoing corporate
restructuring -- strengthening their business positions through cost reduction
and other streamlining efforts. As for specific stock sectors, the greatest
emphasis was on banking and telecommunications, which at times accounted for as
much as 40% of the investments.
As for changes to the portfolio, I substantially added to holdings in Japan as
the period progressed, a move that proved quite productive as both the Japanese
market and the currency appreciated nicely. Also, about mid-year I reduced the
exposure to telecommunications stocks and added to positions in cyclical
(economically sensitive) stocks to take advantage of improving business fortunes
in many parts of the world.
Looking toward the current fiscal year, the bulk of the portfolio remains
invested in Europe, which continues to impress me as having good potential for
stronger economic growth and, thus, appreciating stock prices.
Peter Lamaison
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
The 10 Largest Holdings
AXP VP -- International Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Ericsson (LM) Cl B (Sweden) 4.00% $88,869,407
Mannesmann (Germany) 3.99 88,502,669
General Electric (United Kingdom) 3.80 84,456,857
Total Petroleum Cl B (France) 3.44 76,473,598
Banque Natl de Paris (France) 3.39 75,184,512
Shell Transport & Trading (United Kingdom) 3.32 73,732,627
UBS (Switzerland) 3.01 66,769,572
Lafarge (France) 2.87 63,706,097
Fortis (Netherlands) 2.77 61,610,429
Nippon Telegraph & Telephone (Japan) 2.63 58,520,518
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 33.22% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The Fund's Long-term Performance
AXP VP -- International Fund
How $10,000 has grown in AXP VP - International Fund
$30,000
X MSCI World Index
X $20,809
AXP VP-
International
Fund
$20,000
X Lipper International Fund Index
X MSCI EAFE Index
$10,000
2/1/92 8/92 8/93 8/94 8/95 8/96 8/97 8/98 8/99
Average annual total return (as of Aug. 31, 1999)
Since
1 year 5 years inception*
+22.18% +8.35% +10.07%
*Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the Morgan Stanley Capital International EAFE
Index (MSCI EAFE Index), the Lipper International Fund Index and the Morgan
Stanley Capital International World Index (MSCI World Index). Recently, the
Fund's portfolio manager recommended that the Fund change its comparative index
from the MSCI World Index to the MSCI EAFEIndex. The portfolio manager made this
recommendation because the new index more closely represents the Fund's
holdings. We will include both the MSCIWorld Index to the MSCI EAFEIndex in this
transition year. In the future, however, we will only include the MSCIEAFEIndex.
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.
The MSCI 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.
MSCIEAFE Index is an unmanaged index compiled from a composite of securities
markets of Europe, Australia and the Far East, is widely recognized by investors
in foreign markets as the measurement index for portfolios of non-North American
securities. The index reflects reinvestment of all distributions and changes in
market prices, but excludes brokerage commissions or other fees.
Lipper International Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
MSCI World Index, an unmanaged market index, compiled from a composite of over
1,500 companies listed on the stock exchanges of North America, Europe, New
Zealand and the Far East, is widely recognized by investors as the measurement
index for portfolios of global securities. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees.
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
(picture of) Alfred Henderson
Alfred Henderson
Portfolio Manager
(picture of) David Kuplic
David Kuplic
Portfolio Manager
From the Portfolio Managers
AXP VP -- Managed Fund (formerly known as IDS Life Managed Fund)
A strong rebound by the U.S. stock market set the stage for a substantial gain
by the Fund during the past fiscal year. For the 12 months -- September 1998
through August 1999 -- the Fund's value appreciated 22.98%. (This figure does
not reflect expenses that apply to the variable accounts, subaccounts, the
variable annuity or life insurance contracts.)
When the period began last fall, the stock market was in the final phase of a
sharp downturn. But, with another display of the remarkable resilience it has
shown in recent years, the market quickly came to life and, buoyed by three
reductions in short-term interest rates by the Federal Reserve, mounted a
furious five-month rally. From that point, gains became tougher to come by, as a
steady rise in long-term interest rates presented a periodic stumbling block.
The Fund's stock holdings followed a similar course, as they racked up strong
gains early in the fiscal year before tailing off. Leading the way were holdings
among large-capitalization stocks, particularly in the technology, health care,
consumer products and financial services groups. Prominent performers included
Nokia, MCI WorldCom, Merck, Microsoft, Washington Mutual, Intel, Cisco Systems
and Morgan Stanley Dean Witter.
On the bond side, the performance pattern was similar to that of the stock
holdings. Thanks to declining interest rates during the first several months of
the period, bonds, chiefly U.S. Treasury issues, enjoyed rising prices. Then,
when interest rates rose as investors grew increasingly concerned that the
still-strong economy could lead to higher inflation, bonds suffered considerable
price erosion. For the period as a whole, bonds comprised 30%-35% of the
portfolio, with stocks making up the rest.
Looking toward the current fiscal year, the economy remains strong, corporate
profits look healthy and inflation appears to still be under control. On the
negative side are interest rates, which are up considerably from a year ago and
could climb higher in the months ahead. If that happens, chances are that stocks
and bonds will find it difficult to make much progress.
Alfred Henderson
David Kuplic
(This annual report is not part of the prospectus.) ANNUAL REPORt - 1999
<PAGE>
The 10 Largest Holdings
AXP VP -- Managed Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Microsoft 2.75% $138,843,749
General Electric 2.64 133,090,312
Cisco Systems 2.40 121,214,843
Tyco Intl 2.21 111,507,070
MCI WorldCom 1.99 100,368,750
Home Depot 1.79 90,159,375
Amgen 1.73 87,346,874
Citigroup 1.72 86,653,124
Solectron 1.67 84,118,749
Intel 1.59 80,132,813
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 20.49% of net assets
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's Long-term Performance
AXP VP -- Managed Fund
How $10,000 has grown in AXP VP - Managed Fund
$50,000
$40,000
X S&P 500 Index
X $32,818
AXP VP-Managed Fund
$30,000
$20,000
$10,000
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Average annual total return (as of Aug. 31, 1999)
1 year 5 years 10 years
+22.98% +14.68% +12.62%
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 Index (S&P 500 Index).
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.
The S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
(picture of) Gordon M. Fines
Gordon M. Fines
Portfolio Manager
From the Portfolio Manager
AXP VP -- New Dimensions Fund (formerly known as IDS Life Growth Dimensions
Fund)
A powerful surge by the U.S. stock market paved the way for a substantial gain
by the Fund during the past fiscal year. For the 12 months -- September 1998
through August 1999 -- the Fund's value increased 42.61%. (This figure does not
reflect expenses that apply to the variable accounts, subaccounts, the variable
annuity or life insurance contracts.)
The U.S. stock market was still licking its wounds from a late-summer tumble
when the period began. But, with ongoing reports of solid economic growth and
low inflation, stocks eventually regained their footing and, supported by three
reductions in short-term interest rates by the Federal Reserve Board during the
fall, mounted a furious rally. The positive performance continued until
February, when concerns about a potential increase in the inflation rate and a
slowdown in corporate profits caused the market to retreat.
From that point, gains became more difficult to come by as a rise in long-term
interest rates kept stocks off balance much of the time. Still, the market did
manage to make a little progress during the final months of the period.
For the Fund, whose performance generally tracked that of the market as a whole
over the 12 months, its emphasis on technology, health care, financial services
and retailing stocks paid off well. Looking at specific stocks, General
Electric, Cisco Systems, Microsoft, Wal-Mart, Pfizer, IBM and Safeway -- all
among the Fund's largest holdings -- made particularly strong contributions. For
the most part, large-capitalization growth stocks were at the forefront of the
market's advances. That worked to the Fund's advantage, as those issues form the
core of its investment portfolio.
Looking at changes to the portfolio, I added a modest amount of utility stocks
early in the period. Beyond that, I trimmed the exposure to technology-related
stocks with especially high valuations and added a bit to cyclical, or
economically sensitive, holdings.
As the new fiscal year begins, recent increases in short-term interest rates by
the Federal Reserve have created considerable uneasiness in the stock market. On
the positive side, though, the economy appears healthy, corporate profits appear
to be generally good and inflation has yet to show clear signs of heading
higher.
Gordon M. Fines
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
The 10 Largest Holdings
AXP VP -- New Dimensions Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Intl Business Machines 5.36% $189,820,793
Cisco Systems 4.67 165,333,655
Wal-Mart Stores 3.43 121,527,030
General Electric 3.39 119,814,975
Microsoft 2.87 101,531,806
Texas Instruments 2.54 90,038,974
Intel 2.48 87,644,750
Tyco Intl 2.18 77,166,895
Time Warner 2.15 75,937,794
MCI WorldCom 1.96 69,258,225
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 31.03% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The Fund's Long-term Performance
AXP VP -- New Dimensions Fund
How $10,000 has grown in AXP VP - New Dimensions Fund
$30,000
$20,000 X $19,162 AXP-VP
New Dimensions Fund
X S&P 500 Index
X Liper Growth Fund Index
$10,000
6/1/96 8/96 8/97 8/98 8/99
Average annual total return (as of Aug. 31, 1999)
Since
1 year inception*
+42.61% +21.27%
*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 Index (S&P 500
Index) and the Lipper Growth Fund Index.
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.
The S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
Lipper Growth Fund Index, an unmanaged index published by Lipper Analytical
Services, Inc., includes 30 funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
(picture of) Louis Giglio
Louis Giglio
Portfolio Manager
(picture of) Jacob E. Hurwitz
Jacob E. Hurwitz
Portfolio Manager
(picture of) Kent A. Kelley
Kent A. Kelley
Portfolio Manager
From the Portfolio Managers
AXP VP -- Strategy Aggressive Fund (formerly known as IDS Life Aggressive Growth
Fund)
A strong rebound by the stock market set the stage for a substantial gain by the
Fund during the fiscal year. For the 12 months -- September 1998 through August
1999 -- the Fund's value appreciated 35.27%. (This figure does not reflect
expenses that apply to the variable accounts, subaccounts, the variable annuity
or life insurance contracts.)
The period began with stocks trying to regroup from a steep, late-summer decline
that drove down the broad market by nearly 20% and cut prices on certain stocks
roughly in half. Soon, supported by three reductions in short-term interest
rates by the Federal Reserve Board during the fall, stocks mounted a roaring
rally that, by the end of November, made up the lost ground and ultimately
propelled the market to an all-time high in early January. From that point, the
market found the going tougher as a steady rise in long-term interest rates
presented a periodic hurdle.
Consistent with the pattern of recent years, stocks of large, fast-growing
companies ("large-caps") most often led the market's resurgence. While that at
times worked to the disadvantage of this Fund, which emphasizes small- and
mid-cap stocks, the overall positive tone of the market was good for Fund
performance. The biggest contributors to the Fund's gain were technology-related
stocks, which, because of additional investments and price run-ups among several
holdings, made up the largest portion of the Fund's portfolio. Most of the rest
of the portfolio was spread among stocks in the health care, retailing,
financial services and media sectors.
Concurrent with a change in management of the Fund, the portfolio underwent
considerable changes during the final months of the fiscal year. Most notable
were a shift in concentration from small-cap to mid-capitalization issues and a
greater concentration of assets in the top 10 holdings. In all cases, my stock
selections focused on two ongoing criteria: strong earnings growth and
high-quality management.
What didn't change in the portfolio restructuring, however, was the Fund's heavy
exposure to technology-related stocks, which, in our view, continue to offer the
greatest number of companies with rapid earnings growth. While that doesn't
guarantee positive Fund performance in the current fiscal year, we're confident
that, over the long term, this approach will prove rewarding.
Louis Giglio
Jacob E. Hurwitz
Kent A. Kelly
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The 10 Largest Holdings
AXP VP -- Strategy Aggressive Fund
Percent Value
(of net assets) (as of Aug. 31, 1999)
Cisco Systems 4.43% $103,074,999
VeriSign 2.63 61,196,562
Tyco Intl 2.15 50,149,687
JDS Uniphase 2.08 48,406,924
Univision Communications Cl A 1.92 44,618,750
Knight/Trimark Group Cl A 1.78 41,461,499
PMC-Sierra 1.69 39,431,999
COLT Telecom Group ADR 1.57 36,539,624
Kohl's 1.42 32,988,749
WinStar Communications 1.33 31,046,438
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 21% of net assets
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's Long-term Performance
AXP VP -- Strategy Aggressive Fund
How $10,000 has grown in AXP VP - Strategy Aggressive Fund
$40,000
$30,000
X S&P 500 Index
X $22,021
AXP VP-
Stategy
Aggressive Fund
X Russell Midcap Growth Index
$20,000
$10,00
2/1/92 8/92 8/93 8/94 8/95 8/96 8/97 8/98 8/99
Average annual total return (as of Aug. 31, 1999)
Since
1 year 5 years inception*
+35.27% +13.85% +10.88%
*Inception date was Jan. 13, 1992.
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 Index (S&P 500
Index) and the Russell Midcap Growth Index.
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.
The S&P 500 Index, 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. However, the S&P 500 Index companies are generally larger than
those in which the Fund invests.
Russell Midcap Growth Index, an unmanaged list of common stocks, measures the
performance of the 800 smallest companies in the Russell 1000 Index,
representing approximately 35% of the total market capitalization of the Russell
1000 Index.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
The financial statements contained in Post-Effective Amendment #40 to
Registration Statement No. 2-73115 filed on or about October 28, 1999, are
incorporated herein by reference.
<PAGE>
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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.
<PAGE>
American Express Variable
Portfolio Funds
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS Financial Advisors
S-6466 R (10/99)
