SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 40 (File No. 2-73115) [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42 (File No. 811-3218) [X]
AXP Variable Portfolio - Investment Series, Inc.
(Formerly known as IDS LIFE INVESTMENT SERIES, INC.)
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on Oct. 29, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
American Express(R) Variable Portfolio Funds
Prospectus/Oct. 29, 1999
AXPSM Variable Portfolio -- Blue Chip Advantage Fund
AXPSM Variable Portfolio -- Bond Fund
(formerly known as IDS Life Special Income Fund)
AXPSM Variable Portfolio -- Capital Resource Fund
(formerly known as IDS Life Capital Resource Fund)
AXPSM Variable Portfolio -- Cash Management Fund
(formerly known as IDS Life Moneyshare Fund)
AXPSM Variable Portfolio -- Diversified Equity Income Fund
AXPSM Variable Portfolio -- Extra Income Fund
(formerly known as IDS Life Income Advantage Fund)
AXPSM Variable Portfolio -- Federal Income Fund
AXPSM Variable Portfolio -- Global Bond Fund
(formerly known as IDS Life Global Yield Fund)
AXPSM Variable Portfolio -- Growth Fund
AXPSM Variable Portfolio --International Fund
(formerly known as IDS Life International Equity Fund)
AXPSM,Variable Portfolio -- Managed Fund
(formerly known as IDSLife Managed Fund)
AXPSM Variable Portfolio -- New Dimensions Fund
(formerly known as IDS Life Growth Dimensions Fund)
AXPSM Variable Portfolio -- Small Cap Advantage Fund
AXPSM Variable Portfolio -- Strategy Aggressive Fund
(formerly known as IDS Life Aggressive Growth Fund)
Please note that each Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
American Express Financial Advisors
Managed by IDS Life Insurance Company
<PAGE>
Table of Content
TAKE A CLOSER LOOK AT:
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
<PAGE>
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
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
<PAGE>
The Funds
References to "Fund" throughout this prospectus refer to AXP Variable Portfolio
- -- Blue Chip Advantage Fund, AXP Variable Portfolio -- Bond Fund, AXP Variable
Portfolio -- Capital Resource Fund, AXP Variable Portfolio -- Cash Management
Fund, AXP Variable Portfolio -- Diversified Equity Income Fund, AXP Variable
Portfolio -- Extra Income Fund, AXP Variable Portfolio -- Federal Income Fund,
AXP Variable Portfolio -- Global Bond Fund, AXP Variable Portfolio -- Growth
Fund, AXP Variable Portfolio -- International Fund, AXP Variable Portfolio --
Managed Fund, AXP Variable Portfolio -- New Dimensions Fund, AXP Variable
Portfolio -- Small Cap Advantage Fund and AXP Variable Portfolio -- Strategy
Aggressive Fund, singularly or collectively as the context requires.
Please remember that you may not buy (nor will you own) shares of the Fund
directly. You invest by buying a variable annuity or life insurance policy and
allocating your purchase payments to the variable subaccount or account (the
subaccount) that invests in the Fund.
<PAGE>
AXP Variable Portfolio -- Blue Chip Advantage Fund
GOAL
The Fund seeks to provide shareholders with a long-term total return exceeding
that of the U.S. stock market. Because any investment involves risk, achieving
this goal cannot be guaranteed.
INVESTMENT STRATEGY
Currently, the Standard & Poor's 500 Index (S&P 500 Index) is the unmanaged
market index used to measure total return of the U.S. stock market (the Fund may
change this market index from time to time). Accordingly, the Fund's assets
primarily are invested in common stocks of companies that are included in the
S&P 500 Index. To the extent practicable, the Fund's total assets are fully
invested in stocks with 65% of those being blue chip stocks. Blue chip stocks
are issued by companies with a market capitalization of at least $1 billion, an
established management, a history of consistent earnings and a leading position
within their respective industries. Although the Fund invests in common stocks
that comprise the S&P 500 Index, it is not an index fund, it will not own all of
the companies in the market index, and its results will likely differ from the
market index.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
equity investments by:
o Identifying companies that are included in the S&P 500 Index with:
-- effective management,
-- financial strength,
-- strong, sustainable earnings growth, and
-- competitive market position.
o Focusing on those companies that AEFC considers to be "blue chips."
o Establishing one or more industry classifications for each company (AEFC
will classify each company into one of at least 25 industries -- the
classifications may or may not be the same as the ones assigned by others).
o Assigning ratings to each company based on that company's merits and on its
industry grouping(s).
o Buying a diversified portfolio of securities. AEFC will over-weight certain
industry classifications based on AEFC's expectations for growth and for
expected market trends.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued,
-- the security has reached AEFC's price objective,
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company'
performance,
-- AEFC wishes to minimize potential losses (i.e., in a market
down-turn),
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the company or the security continues to meet the other standards
described above.
<PAGE>
Although not a primary investment strategy, the Fund also may invest in other
instruments such as derivative instruments (generally options and futures
contracts that are based on the S&P 500 Index) in order to remain fully invested
and money market securities.
During weak or declining markets, the Fund may
invest more of its assets in money market securities. Although the Fund
primarily will invest in these securities to avoid losses, this type of
investing also could prevent the Fund from achieving its investment objective.
During these times, AEFC may make frequent securities trades that could result
in increased fees and expenses.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/ semiannual reports.
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Style Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
The objective of the Fund is to provide shareholders with a long-term return
exceeding that of the U.S. stock market. Currently, the S&P 500 Index is the
market index used to measure total return of the U.S. stock market. However,
unlike the unmanaged index, the Fund's performance is affected by factors such
as the size of the Fund's portfolio, transaction costs, management fees and
expenses, brokerage commissions and fees, the extent and timing of cash flows in
and out of the Fund, stock selection, sector weightings, and other such factors.
As a result, once these factors are accounted for, the Fund may under-perform
the market index.
PAST PERFORMANCE
The Fund commenced operations in September 1999 and therefore performance
information is not available.
MANAGEMENT
Keith Tufte and James Johnson are primarily responsible for the day-to-day
operations of AXP Variable Portfolio -- Blue Chip Advantage Fund.
Keith Tufte joined AEFC in 1990. Besides managing this Fund, he has managed AXP
Blue Chip Advantage Fund and Aggressive Growth Portfolio since November 1998. He
also became director of research-equities in 1998. Prior to that he was
portfolio manager of Equity Income Portfolio.
James Johnson joined AEFC in 1994. Besides managing this Fund, he also is a
member of the portfolio management team for Total Return Portfolio. He began
managing portfolios for American Express Asset Management in 1996. Prior to
joining AEFC, he worked for Piper Capital Management as an equity quantitative
analyst.
The Fund was patterned after an existing retail fund managed by American Express
Financial Corporation (AEFC), the Fund's investment advisor. The Fund has
substantially the same investment policies, goals and objectives as the retail
fund. In addition, the Fund will be managed by the same portfolio managers and
will have substantially similar investment strategies, techniques and
characteristics as the retail fund. However, the Fund is not the same as the
retail fund. The Fund will have its own portfolio holdings and its own fees and
operating expenses. Therefore, the performance of the Fund may be greater or
less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Bond Fund
(formerly known as IDS Life Special Income Fund)
GOAL
The Fund seeks to provide shareholders with a high level of current income while
attempting to conserve the value of the investment and to continue a high level
of income for the longest period of time. Because any investment involves risk,
achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in bonds and other debt obligations.
Under normal market conditions, at least 65% of the Fund's total assets are
invested in bonds. Additionally, at least 50% of the Fund's investments will be
invested in (1) investment-grade corporate bonds, (2) unrated corporate bonds
that are believed to be of investment grade quality, and (3) government bonds
(including mortgage-backed securities). Although the Fund emphasizes high- and
medium-quality debt securities, it will assume some credit risk to achieve
higher dividends and/or capital appreciation (by buying junk bonds). As a
result, lower-quality bonds may comprise a large percentage of the Fund's
investments. The Fund may invest up to 25% of its total assets in foreign
investments.
The selection of debt obligations is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Considering opportunities and risks by reviewing interest rate and economic
forecasts.
o Investing more heavily in certain market sectors(for example, corporate
bonds and government bonds) based on AEFC's expectations for interest
rates.
o Identifying investment-grade U.S. and foreign bonds.
o Identifying below investment-grade U.S. and foreign bonds (junk bonds).
o Identifying securities that are expected to outperform other securities. In
this analysis, AEFCwill take risk factors into account (for example,
whether money has been set aside to cover the cost of principal and
interest payments).
o Identifying investments that contribute to the diversification of the Fund,
including both the number of issuers and the types of securities held in
the portfolio.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the interest rate or economic outlook changes,
-- the security is overvalued,
-- the issuer's credit rating declines or AEFC expects a decline (the
Fund may continue to own securities that are down-graded until AEFC
believes it is advantageous to sell),
-- the security has reached AEFC's price objective,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards
described above.
<PAGE>
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, common stocks, preferred stocks and
convertible securities. Additionally, the Fund may utilize derivative
instruments to produce incremental earnings, to hedge existing positions and to
increase flexibility.
During weak or declining markets, the Fund may invest more
of its assets in money market securities. Although the Fund primarily will
invest in these securities to avoid losses, this type of investing also could
prevent the Fund from achieving its investment objective. During these times,
AEFC may make frequent securities trades that could result in increased fees and
expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Call/Prepayment Risk
Credit Risk
Event Risk
Foreign/Emerging Markets Risk
Interest Rate Risk
Liquidity Risk
Market Risk
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity.
Credit Risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation (such as payments due on a bond or a note). The price of junk bonds
may react more to the ability of the issuing company to pay interest and
principal when due than to changes in interest rates. They have greater price
fluctuations and are more likely to experience a default.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country Risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
Emerging markets risk includes the dramatic pace of change (economic, social and
political) in these countries as well as the other considerations listed above.
These markets are in early stages of development and are extremely volatile.
They can be marked by extreme inflation, devaluation of currencies, dependence
on trade partners and hostile relations with neighboring countries.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This
term is generally associated with bond prices (when interest rates rise, bond
prices fall). In general, the longer the maturity of a debt obligation the
higher its yield and the greater the sensitivity to changes in interest rates.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to a recognized index.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Bond Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+9.04% +4.22% +17.54% +9.38% +15.84% -3.91% +22.30% +5.70% +8.83% +1.51%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +8.65% (quarter ending June 1995) and the lowest return for a
calendar quarter was -3.30% (quarter ending March 1990).
The Fund's year to date return as of Sept. 30, 1999 was +0.16%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
- --------------------------------------------------------------------------------
1 year 5 years 10 years
AXP VP -- Bond Fund +1.51% +6.53% +8.80%
Lehman Brothers Aggregate Bond Index +7.44% +6.97% +9.10%
- --------------------------------------------------------------------------------
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
MANAGEMENT
Steve Merrell makes the day-to-day investment decisions for AXP Variable
Portfolio -- Bond Fund. He joined AEFC in 1988. Between September 1990 and June
1991 he worked for J.P. Morgan in London. He currently serves as vice president
and senior portfolio manager. Besides managing this Fund since 1994, he also
serves as portfolio manager for Total Return Portfolio.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Capital Resource Fund
(formerly known as IDS Life Capital Resource Fund)
GOAL
The Fund seeks capital appreciation. Because any investment involves risk,
achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in U.S. common stocks and other
securities convertible into common stock. Additionally, the Fund may invest up
to 25% of its total assets in foreign investments.
The selection of U.S. common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Portfolio's investment advisor, chooses
investments by:
o Identifying larger companies with:
-- effective management,
-- financial strength,
-- competitive market or product position, and
-- earnings growth potential.
o Identifying securities that AEFC believes have good capital appreciation
potential.
o Considering opportunities and risks by reviewing interest rates and
economic forecasts.
o Buying a diversified portfolio of securities. AEFC will weight certain
sectors more heavily based on AEFC's expectations for growth and for
expected market trends.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the interest rate or economic outlook changes,
-- the security is overvalued relative to other potential investments,
-- the security has reached AEFC's price objective,
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards
described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities and debt obligations (of any
rating). Additionally, the Fund may utilize derivative instruments to produce
incremental earnings, to hedge existing positions and to increase flexibility.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund will invest in these securities
primarily to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the SAI and the
annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any investment you may lose money. Principal risks associated
with an investment in the Fund include:
Market Risk
Style Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
The Fund purchases stocks based on the expectation that the companies will have
strong growth in earnings. The price paid often reflects an expected rate of
growth. If that growth fails to occur, the price of the stock may decline
significantly and quickly.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to a recognized index.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Capital Resource Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+27.13% +0.67% +46.78% +4.09% +3.41% +1.17% +27.86% +7.97% +24.14% +24.12%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +26.20% (quarter ending December 1998) and the lowest return for a
calendar quarter was -15.33% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +3.99%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
- --------------------------------------------------------------------------------
AXP VP -- Capital Resource Fund +24.12% +16.56% +15.84%
S&P 500 Index +28.57% +24.01% +19.19%
- --------------------------------------------------------------------------------
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
The securities included in the index may not be the same as those held by the
Fund.
MANAGEMENT
Joseph M. Barsky manages the day-to-day operations of AXP Variable Portfolio --
Capital Resource Fund. He joined AEFC in 1979 and serves as vice
president-mutual fund equities and senior portfolio manager. He served as
portfolio manager of AXP Equity Select Fund from 1983 to 1997. He also serves as
vice president and senior portfolio manager of IDS Equity Advisors, a division
of American Express Asset Management Group Inc.
<PAGE>
AXP Variable Portfolio -- Cash Management Fund
(formerly known as IDS Life Moneyshare Fund)
GOAL
The Fund seeks to provide shareholders with maximum current income consistent
with liquidity and conservation of capital. Because any investment involves
risk, the Fund cannot guarantee this goal.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in money market instruments, such as
marketable debt obligations issued by the U.S. government or its agencies, bank
certificates of deposit, bankers' acceptances, letters of credit, and commercial
paper. The Fund may invest more than 25% of its total assets in U.S. banks, U.S.
branches of foreign banks and U.S. government securities. Additionally, the Fund
may invest up to 25% of its total assets in U.S. dollar denominated foreign
investments.
Because the Fund seeks to maintain a constant net asset value of $1.00 per
share, capital appreciation is not expected to play a role in the Fund's return.
The Fund's yield will vary from day-to-day.
The selection of short-term debt obligations is the primary decision in building
the investment portfolio. The Fund restricts its investments to instruments that
meet certain maturity and quality standards required by the SEC for money market
funds. For example, the Fund:
o limits its average portfolio maturity to ninety days or less;
o buys obligations with remaining maturities of 397 days or less; and
o buys only obligations that are denominated in U.S. dollars and present
minimal credit risk.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Considering opportunities and risks given current interest rates and
anticipated interest rates.
o Purchasing securities based on the timing of cash flows in and out of the
Fund.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the issuer's credit rating declines or AEFC expects a decline (the
Fund, in certain cases, may continue to own securities that are
down-graded until AEFC believes it is advantageous to sell),
-- political, economic, or other events could affect the issuer's
performance,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards
described above.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
Please remember that with any mutual fund investment you may lose money.
Although the Fund's share price has remained constant in the past, THE FUND
CANNOT GUARANTEE THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE. An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Principal risks
associated with an investment in the Fund include:
Credit Risk
Foreign Risk
Interest Rate Risk
Market Risk
Sector/Concentration Risk
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note).
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes in interest rates.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk). For example, if the Fund concentrates its investments
in banks, the value of these investments may be adversely affected by economic
or regulatory developments in the banking industry.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Cash Management Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+9.05% +7.98% +5.82% +3.28% +2.70% +3.80% +5.47% +5.06% +5.16% +5.14%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +2.34% (quarter ending June 1989) and the lowest return for a
calendar quarter was +0.47% (quarter ending March 1996).
The Fund's year to date return as of Sept. 30, 1999 was +3.41%.
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
- --------------------------------------------------------------------------------
AXP VP -- Cash Management Fund +5.14% +4.92% +5.33%
- --------------------------------------------------------------------------------
This table shows total returns from hypothetical investments in shares of the
Fund. The results do not reflect the expenses that apply to the variable
accounts or the policies. Inclusion of these charges would reduce total return
for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
YIELD INFORMATION
For current 7-day yield information, call 1-800-862-7919, option 3.
MANAGEMENT
Terry Fettig manages the day-to-day operations of AXP Variable Portfolio -- Cash
Management Fund. He joined AEFC in 1986 and currently serves as senior portfolio
manager. He also serves as portfolio manager for AXP Cash Management Fund, AXP
Intermediate Tax-Exempt Fund, IDS Life Series Fund -- Money Market Portfolio and
AXP Tax-Free Money Fund.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Diversified Equity Income Fund
GOAL
The Fund seeks to provide shareholders with a high level of current income and,
as a secondary goal, steady growth of capital. Because any investment involves
risk, achieving these goals cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in equity securities. Under normal
market conditions, the Fund will invest at least 65% of its net assets in
dividend-paying common and preferred stocks.
The selection of dividend-paying stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
equity investments by:
o Identifying companies with:
-- dividend-paying stocks,
-- effective management,
-- financial strength, and
-- moderate growth potential.
o Determining specific industry weightings within the following sectors:
-- Consumer cyclical -- Energy
-- Consumer stable -- Technology
-- Financial -- Industrial
o Identifying stocks that are selling at low prices in relation to:
-- current and projected earnings,
-- current and projected dividends, and
-- historic price levels.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued,
-- the security has reached AEFC's price objective,
-- the company has met AEFC's earnings and/or growth expectations, and
-- the company or the security continues to meet the other standards
described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as foreign securities, convertible securities, real estate
investment trusts, debt obligations (of any rating) and money market securities.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Sector/Concentration Risk
Inflation Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
PAST PERFORMANCE
The Fund commenced operations in September 1999 and therefore performance
information is not available.
MANAGEMENT
Kurt Winters manages the day-to-day operations of AXP Variable Portfolio --
Diversified Equity Income Fund. He is a senior portfolio manager at AEFC. He
joined AEFC in 1987. Kurt is responsible for overall portfolio management,
including the determination of the sectors in which the Fund will invest. A team
of research professionals makes investment decisions within those sectors. From
1992 to 1995, he managed IDS Life Series Fund -- Managed Portfolio. He also
manages AXP Discovery Fund and provides overall portfolio management for AXP
Equity Value Fund, AXP Progressive Fund, Balanced Portfolio, Equity Income
Portfolio and IDS Life Series Fund -- Equity Income Portfolio.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Extra Income Fund
(formerly known as IDS Life Income Advantage Fund)
GOAL
The Fund seeks to provide shareholders with high current income as its primary
goal and, as its secondary goal, capital growth.
INVESTMENT STRATEGY
The Fund invests primarily, and may invest all of its assets, in high-yielding,
high risk corporate bonds (junk bonds). These bonds may be issued by U.S. and
foreign companies and governments. The Fund may invest up to 25% of its total
assets in foreign investments.
The selection of debt obligations is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by: o Considering opportunities and risks by reviewing interest rate
and economic forecasts.
o Identifying securities and /or companies that:
-- have medium and low quality ratings,
-- have similar qualities, in AEFC's opinion, even though they are not
rated or have been given a different rating by a rating agency,
-- have growth potential,
-- have the potential for capital appreciation through credit upgrades.
o Buying securities that are expected to outperform other securities on a
risk-adjusted basis (i.e., after considering coupon, sinking fund
provision, call protection, and quality). AEFC believes that credit
selection is a primary concern and aggressively manages the Fund to earn a
high total return.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the interest rate or economic outlook changes,
-- a sector or industry is experiencing change,
-- a security's rating is changed,
-- the security is overvalued,
-- the company does not meet AEFC's performance expectations,
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards
described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, convertible securities, preferred
stocks and common stocks.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for long-term investors with above-average risk tolerance.
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Interest Rate Risk
Credit Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes in interest rates.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Extra Income Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+13.37% -4.41%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +5.87% (quarter ending September 1997) and the lowest return for a
calendar quarter was -9.38% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +3.92%.
Average Annual Total Returns (as of Dec. 31, 1998)
1 year Since inception
- -------------------------------------------------------------------------------
AXP VP -- Extra Income Fund -4.41% +5.24%a
Lehman Brothers Aggregate Bond Index +7.44% +7.73%b
Merrill Lynch High Yield Bond Index +3.66% +9.68%b
- --------------------------------------------------------------------------------
a Inception date was May 1, 1996.
b Measurement period started May 1, 1996.
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
<PAGE>
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. The securities included in
the indexes may not be the same as those held by the Fund.
MANAGEMENT
Jack Utter and Scott Schroepfer are primarily responsible for the day-to-day
operations of AXP Variable Portfolio -- Extra Income Fund.
Jack Utter, vice president and senior portfolio manager, joined AEFC in 1962.
Besides serving as co-manager of this Fund, he also has managed the assets of
High Yield Portfolio since 1985.
Scott Schroepfer, senior portfolio manager, joined AEFC in 1990. He became
co-manager of this Fund and AXP Extra Income Fund in March 1999. He also serves
as a portfolio manager of IDS Life Series Fund -- Managed Portfolio since 1995
and as an associate manager since 1994.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio managers and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Federal Income Fund
GOAL
The Fund seeks to provide shareholders with a high level of current income and
safety of principal consistent with an investment in U.S. government and
government agency securities. Because any investment involves risk, achieving
this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in debt obligations. Under normal
market conditions, at least 65% of the Fund's total assets are invested in
securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities. Although the Fund may invest in
any U.S. government securities, it is anticipated that U.S. government
securities representing part ownership in pools of mortgage loans
(mortgage-backed securities) will comprise a large percentage of the Fund's
investments. The Fund will utilize forward sale commitments for hedging
purposes. Additionally, the Fund will aggressively utilize derivative
instruments and when-issued securities to produce incremental earnings, to hedge
existing positions, and to increase flexibility. The Fund's potential losses
from the use of these instruments could extend beyond its initial investment.
The selection of debt obligations is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Considering opportunities and risks by reviewing credit characteristics and
the interest rate outlook.
o Identifying and buying securities that:
-- are high quality or have similar qualities, in AEFC's opinion, even
though they are not rated or have been given a lower rating by a
rating agency, and
-- have short or intermediate-term maturities.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the interest rate or economic outlook changes,
-- the security is overvalued,
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards
described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities and investment grade
non-governmental debt obligations.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
Additionally, the Fund's portfolio turnover may be affected by short-term
investment strategies. High portfolio turnover could result in increases in
transaction costs.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Correlation Risk
Interest Rate Risk
Call/Prepayment Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes in interest rates.
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity.
PAST PERFORMANCE
The Fund commenced operations in September 1999 and therefore performance
information is not available.
MANAGEMENT
Jim Snyder manages the day-to-day operations of AXP Variable Portfolio --
Federal Income Fund. Jim joined AEFC in 1989 and currently serves as vice
president and senior portfolio manager. Besides managing this Fund, he also
manages the assets of Government Income Portfolio.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Global Bond Fund
(formerly known as IDS Life Global Yield Fund)
GOAL
The Fund seeks to provide shareholders with high total return through income and
growth of capital. Because any investment involves risk, achieving this goal
cannot be guaranteed.
INVESTMENT STRATEGY
The Fund is a non-diversified mutual fund that invests primarily in debt
obligations of U.S. and foreign issuers. Under normal market conditions, at
least 80% of the Fund's net assets will be invested in investment-grade
corporate or government debt obligations including money market instruments of
issuers located in at least three different countries. Although the Fund
emphasizes high- and medium-quality debt securities, it will assume some credit
risk to achieve higher dividends and /or capital appreciation (by buying junk
bonds).
The selection of investment-grade government and corporate debt obligations is
the primary decision in building the portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Considering opportunities and risks by credit rating and currency.
o Identifying investment-grade U.S. and foreign bonds.
o Identifying below investment-grade U.S. and foreign bonds (junk bonds).
o Identifying bonds that can take advantage of currency movements and
interest rate differences among nations.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued, and
-- the security continues to meet the standards described above.
AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments (such as options and
forward contracts) to hedge against currency fluctuations. Although not a
primary investment strategy, the Fund also may invest in other instruments such
as money market securities.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund will invest in these securities
primarily to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
Please remember that with any mutual fund investment you may lose money. In
addition, since the Fund is a non-diversified mutual fund, it may concentrate
its investments in securities of fewer issuers than would a diversified fund.
Accordingly, the Fund may have more risk than mutual funds that have broader
diversification. Principal risks associated with an investment in the Fund
include:
Credit Risk
Foreign Risk
Interest Rate Risk
Market Risk
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes in interest rates.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Global Bond Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+3.87% +8.04%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +4.10% (quarter ending December 1996) and the lowest return for a
calendar quarter was -2.94% (quarter ending March 1997).
The Fund's year to date return as of Sept. 30, 1999 was -3.51%.
Average Annual Total Returns (as of Dec. 31, 1998)
1 year Since inception
- --------------------------------------------------------------------------------
AXP VP -- Global Bond Fund +8.04% +7.44%a
Salomon Brothers World Government Bond Index +15.30% +7.90%b
Lipper Global Income Fund Index +6.33% +7.33%b
- --------------------------------------------------------------------------------
a Inception date was May 1, 1996.
b Measurement period started May 1, 1996.
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
<PAGE>
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.
The securities included in the indexes may not be the same as those held by the
Fund.
MANAGEMENT
Ray Goodner, vice president and senior portfolio manager, manages the day-to-day
operations of AXP Variable Portfolio -- Global Bond Fund. He joined AEFC in
1997. He has served as portfolio manager of this Fund since July 1999 and has
managed the assets of AXP Global Bond Fund since 1989. He also manages Quality
Income Portfolio.
<PAGE>
AXP Variable Portfolio -- Growth Fund
GOAL
The Fund seeks to provide shareholders with long-term capital growth. Because
any investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund primarily invests in common stocks and securities convertible into
common stocks that appear to offer growth opportunities. These growth
opportunities could result from new management, market developments, or
technological superiority. The Fund may invest up to 25% of its total assets in
foreign investments.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Identifying companies that AEFC believes have above-average long-term
growth potential based on:
-- effective management,
-- financial strength,
-- competitive market or product position, and
-- technological advantage relative to other companies.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company's
performance,
-- AEFC identifies a more attractive opportunity, and
-- the company continues to meet the other standards described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, preferred stock, investment grade
debt obligations and convertible securities. Additionally, the Fund may utilize
derivative instruments to produce incremental earnings, to hedge existing
positions and to increase flexibility.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Style Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
AEFC purchases growth stocks based on the expectation that the companies will
have strong growth in earnings. The price paid often reflects an expected rate
of growth. If that growth fails to occur, the price of the stock may decline
significantly and quickly.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
PAST PERFORMANCE
The Fund commenced operations on September 1999 and therefore performance
information is not available.
MANAGEMENT Mitzi Malevich manages the day-to-day operations of AXP Variable
Portfolio -- Growth Fund. She joined AEFC in 1983 and currently serves as vice
president and senior portfolio manager. She also serves as portfolio manager of
Growth Portfolio and IDS Life Variable Annuity Funds A and B.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- International Fund
(formerly known as IDS Life International Equity Fund)
GOAL
The Fund seeks to provide shareholders with capital appreciation. Because any
investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in equity securities of foreign issuers
that offer strong growth potential. Under normal market conditions, at least 65%
of the Fund's total assets are invested in common stocks or convertible
securities of companies located in at least three foreign countries. The Fund
may invest in developed and in emerging markets.
The selection of geographic regions is the primary decision in building the
investment portfolio. The percentage of the Fund's total assets invested in
particular countries or regions will change according to their political
stability and economic condition.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Considering opportunities and risks within regions or countries.
o Identifying sectors or companies with strong growth potential.
o Selecting stocks of large companies that AEFC believes have the following
fundamental strengths:
-- financial strength,
-- high demand for their products or services, and
-- effective management.
o Identifying securities with sufficient liquidity in trading volume
(however, AEFC may invest up to 10% of the Fund's net assets in illiquid
securities).
AEFC decides how much to invest in various countries and local currencies, and
then buys securities that offer the best opportunity for long-term growth.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued,
-- the security has reached AEFC's price objective,
-- the company or the security continues to meet the standards described
above, and
-- the region or country is undergoing political, economic, or other
change.
AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments to hedge against currency
fluctuations. Although not a primary investment strategy, the Fund also may
invest in other instruments such as money market securities and debt securities
(of any rating).
<PAGE>
During weak or declining markets or when growth opportunities are unavailable,
the Fund may invest more of its assets in money market securities. Investments
in U.S. issuers generally will constitute less than 20% of the Fund's total
assets. If, however, investments in foreign securities appear to be relatively
unattractive in AEFC's judgment, as a temporary defensive strategy, the Fund may
invest any portion of its assets in securities of U.S. issuers appearing to
offer opportunities for superior growth. Although the Fund will invest in these
securities primarily to avoid losses, this type of investing also could prevent
the Fund from achieving its investment objective. During these times, AEFC may
make frequent securities trades that could result in increased fees and
expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
RISKS
This Fund is designed for long-term investors with above-average risk tolerance.
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Foreign/Emerging Markets Risk
Liquidity Risk
Style Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing, and financial reporting
standards), the possibility of government-imposed restrictions, and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social and
political) in emerging market countries as well as the other considerations
listed above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners and hostile relations with neighboring countries.
<PAGE>
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other investments
or forego an investment opportunity.
Style Risk
AEFC purchases growth stocks based on the expectation that the companies will
have strong growth in earnings. The price paid often reflects an expected rate
of growth. If that growth fails to occur, the price of the stock may decline
significantly and quickly.
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- International Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+32.80% -1.66% +11.33% +9.57% +2.73% +15.82%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +19.55% (quarter ending December 1998) and the lowest return for a
calendar quarter was -19.83% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +10.47%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years Since inception
- --------------------------------------------------------------------------------
AXP VP -- International Fund +15.82% +7.37% +9.40%a
MSCI EAFE Index +20.33% +9.50% +9.60%b
Lipper International Fund Index +12.66% +8.59% +10.46%b
MSCI World Index +24.80% +16.19% +14.37%b
- --------------------------------------------------------------------------------
a Inception date was Jan. 13, 1992.
b Measurement period started Feb. 1, 1992.
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
Morgan Stanley Capital International EAFE Index (MSCI EAFE) 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.
Morgan Stanley Capital International (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.
The securities included in the indexes may not be the same as those held by the
Fund.
MANAGEMENT
Peter Lamaison manages the day-to-day operations of AXP Variable Portfolio --
International Fund. He joined AEFC in 1981 and has since served as president,
chief executive officer and chief investment officer of American Express Asset
Management International Inc. He also serves as portfolio manager of AXP Global
Balanced Fund and AXP International Fund.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Managed Fund
(formerly known as IDS Life Managed Fund)
GOAL
The Fund seeks maximum total investment return through a combination of capital
growth and current income. Because any investment involves risk, achieving this
goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in a combination of equity and debt
securities. It will invest in a combination of common and preferred stocks,
convertible securities, bonds and other debt securities. Under normal market
conditions, at least 50% of the Fund's total assets are invested in common
stocks. Although the Fund emphasizes high- and medium-quality securities for the
debt portion of its portfolio, it will assume some credit risk to achieve higher
dividends and/or capital appreciation (by buying lower-quality bonds). The Fund
may invest up to 25% of its total assets in foreign investments.
The selection of common stocks and debt obligations are the primary decisions in
building the investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
equity investments by:
o Identifying companies with:
-- effective management,
-- financial strength,
-- competitive market position, and
-- growth potential.
o Considering opportunities and risks given overall market conditions and
industry outlook.
AEFC chooses debt obligations by:
o Considering opportunities and risks by reviewing interest rate and economic
forecasts.
o Identifying U.S. and foreign bonds that:
-- are investment-grade,
-- are below investment-grade (lower-quality bonds), and
-- are expected to outperform comparable investments on a risk-adjusted
basis (i.e., after considering coupon, sinking fund provision, call
protection, and quality).
o Identifying investments that contribute to portfolio diversification.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the interest rate or economic outlook changes,
-- the security is overvalued,
-- the issuer's credit quality declines or AEFC expects a decline (the
Fund may continue to own securities that are down-graded until AEFC
believes it is advantageous to sell),
-- the security has reached AEFC's price objective, and
-- AEFC identifies a more attractive opportunity.
<PAGE>
Although not a primary investment strategy, the Fund also may invest other
instruments such as money market securities. Additionally, the Fund may utilize
derivative instruments to produce incremental earnings, to hedge existing
positions and to increase flexibility.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Investments other than common stock will constitute 50%
or less of the Fund's total assets. However, under unusual market conditions,
the Fund may invest any portion of its assets in securities other than common
stocks. Although the Fund will invest in these securities primarily to avoid
losses, this type of investing also could prevent the Fund from achieving its
investment objective. During these times, AEFC may make frequent securities
trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the SAI and the
annual/semiannual reports.
RISKS
Please remember that with any investment you may lose money. Principal risks
associated with an investment in the Fund include:
Market Risk
Interest Rate Risk
Credit Risk
Foreign Risk
Liquidity Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes in interest rates.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
<PAGE>
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other investments
or forego an investment opportunity.
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to a recognized index.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Managed Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+25.02% +3.29% +29.63% +7.53% +12.33% -4.51% +24.21% +16.20% +19.50% +15.80%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +11.00% (quarter ending June 1997) and the lowest return for a
calendar quarter was -8.79% (quarter ending September 1990).
The Fund's year to date return as of Sept. 30, 1999 was +2.43%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years 10 years
- --------------------------------------------------------------------------------
AXP VP -- Managed Fund +15.80% +13.78% +14.45%
S&P 500 Index +28.57% +24.01% +19.19%
- --------------------------------------------------------------------------------
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
The securities included in the index may not be the same as those held by the
Fund.
MANAGEMENT
Alfred Henderson and David M. Kuplic are primarily responsible for the
day-to-day operations of AXP Variable Portfolio -- Managed Fund.
Alfred Henderson joined AEFC in 1996 and serves as senior portfolio manager. He
began managing the equity portfolio of this Fund in 1996. From 1995-1996 he was
a portfolio manager at Montgomery Asset Management. From 1992-1995 he was a
senior portfolio manager at Husic Capital Management.
David M. Kuplic, vice president and senior portfolio manager, joined AEFC in
1990 as a fixed income analyst. He began managing the fixed income portfolio of
this Fund in September 1999.
<PAGE>
AXP Variable Portfolio -- New Dimensions Fund
(formerly known as IDS Life Growth Dimensions Fund)
GOAL
The Fund seeks to provide shareholders with long-term growth of capital. Because
any investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund primarily invests in common stocks showing potential for significant
growth. These companies often operate in areas where dynamic economic and
technological changes are occurring. The Fund may invest up to 30% of its total
assets in foreign investments.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
investments by:
o Identifying companies that AEFC believes have above-average long-term
growth potential based on:
-- effective management,
-- financial strength, and
-- competitive market position.
o Considering opportunities and risks by reviewing interest rate and economic
forecasts both domestically and abroad.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to alternative investments,
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company's
performance,
-- AEFC wishes to minimize potential losses (i.e., in a market
down-turn), and
-- AEFC identifies a more attractive opportunity.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, preferred stock, debt obligations
(of any rating) and convertible securities. Additionally, the Fund may utilize
derivative instruments to produce incremental earnings, to hedge existing
positions and to increase flexibility.
During weak or declining markets or when growth opportunities are not available,
the Fund may invest more of its assets in money market securities. Although the
Fund primarily will invest in these securities to avoid losses, this type of
investing also could prevent the Fund from achieving its investment objective.
During these times, AEFC may make frequent securities trades that could result
in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Style Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
AEFC purchases growth stocks based on the expectation that the companies will
have strong growth in earnings. The price paid often reflects an expected rate
of growth. If that growth fails to occur, the price of the stock may decline
significantly and quickly.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- New Dimensions Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+24.37% +28.64%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +24.72% (quarter ending December 1998) and the lowest return for a
calendar quarter was -11.79% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +7.22%.
Average Annual Total Returns (as of Dec. 31, 1998)
1 year Since inception
- -------------------------------------------------------------------------------
AXP VP -- New Dimensions Fund +28.64% +24.29%a
S&P 500 Index +28.57% +25.39%b
Lipper Growth Fund Index +25.69% +23.73%b
- --------------------------------------------------------------------------------
a Inception date was May 1, 1996.
b Measurement period started May 1, 1996.
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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>
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. The securities included in the indexes may not be the same as
those held by the Fund.
MANAGEMENT
Gordon Fines manages the day-to-day operations of AXP Variable Portfolio -- New
Dimensions Fund. He joined AEFC in 1981 and currently serves as vice president
and senior portfolio manager. He also serves as portfolio manager of Growth
Trends Portfolio and leads the growth team for AEFC.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Small Cap Advantage Fund
GOAL
The Fund seeks to provide shareholders with long-term capital growth. Because
any investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund's assets primarily are invested in equity securities. Under normal
market conditions, at least 80% of the Fund's net assets are invested in equity
securities of small companies. These companies will often be those included in
the S&P SmallCap 600 Index or the Russell 2000 Index.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, employs an
active investment strategy that focuses on individual
stock selection.
AEFC manages the Fund to provide diversified exposure to the small cap segment
of the U.S. stock market. Under normal market conditions, it is expected that
the Fund will be fully invested in common stocks, and will typically hold
between 175 and 225 issues, across a wide range of industries.
AEFC buys stocks based on an analysis of valuation and earnings. This selection
discipline favors companies that exhibit:
o Attractive valuations, based on measures such as the ratio of stock price
to company earnings, free cash flow or book value; and
o Improving earnings, based on an analysis of trends in earnings forecasts
and prior period earnings that were better than expected, as well as a
qualitative assessment of the company's competitive market position.
AEFC will normally sell a stock holding if:
-- the stock's price moves above a reasonable valuation target; or
-- the company's financial performance fails to meet expectations.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities and debt securities (of any rating).
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund would invest in these securities
primarily to reduce risk, this type of investment also could prevent the Fund
from achieving its investment objective. During these times, AEFC may make
frequent securities trades that could result in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Small Company Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
PAST PERFORMANCE
The Fund commenced operations in September 1999 and therefore performance
information is not available.
MANAGEMENT
Jacob E. Hurwitz and Kent A. Kelley are primarily responsible for the day-to-day
management of AXP Variable Portfolio -- Small Cap Advantage Fund. They are both
principals and senior portfolio managers at Kenwood Capital Management LLC
(Kenwood), an indirect subsidiary of AEFC. Besides managing the assets of this
Fund, Kenwood manages the equity portion of Total Return Portfolio, the AXP
Small Cap Advantage Fund and a portion of AXP Strategy Aggressive Fund. Jake
Herwig and Kent Kelley also manage a portion of AXP Variable Portfolio --
Strategy Aggressive Fund.
From 1992 until the establishment of Kenwood in 1998, Jake Hurwitz served as
senior vice president and equity portfolio manager at Travelers Investment
Management Company (TIMCO) where he had primary responsibility for stock
selection and portfolio management for TIMCO's small- and mid-cap portfolios.
Prior to the establishment of Kenwood in 1998, Kent Kelley was chief executive
officer at TIMCO. From 1993 to 1995, Mr. Kelley served as TIMCO's president and
chief executive officer. As chief executive officer, he was responsible for all
portfolio management, research and trading operations.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio managers and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
AXP Variable Portfolio -- Strategy Aggressive Fund
(formerly known as IDS Life Aggressive Growth Fund)
GOAL
The Fund seeks to provide shareholders with capital appreciation. Because any
investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund primarily invests in securities of growth companies.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses
equity investments by:
o Considering opportunities and risks within growing industries and new
technologies.
o Selecting companies that AEFC believes have aggressive growth prospects.
o Identifying small and medium companies with:
-- effective management,
-- financial strength, and
-- competitive market position.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to other potential investments,
-- the security has reached AEFC's price objective,
-- the company's characteristics change,
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company's
performance,
-- AEFC wishes to minimize potential losses (i.e., in a market
down-turn),
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the company or the security continues to meet the other standards
described above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as foreign securities, money market securities, debt
obligations (of any rating) and convertible securities. Additionally, the Fund
may utilize derivative instruments to produce incremental earnings, to hedge
existing positions and to increase flexibility.
During weak or declining markets or when growth opportunities are unavailable,
the Fund may invest more of its assets in money market securities. Although the
Fund primarily will invest in these securities to avoid losses, this type of
investing also could prevent the Fund from achieving its investment objective.
During these times, AEFC may make frequent securities trades that could result
in increased fees and expenses. Additionally, the Fund's portfolio turnover rate
may be affected by short-term investment strategies. High portfolio turnover
could result in increases in transaction costs and may result in realized
capital gains.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Style Risk
Small Company Risk
Issuer Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
AEFC purchases growth stocks based on the expectation that the companies will
have strong growth in earnings. The price paid often reflects an expected rate
of growth. If that growth fails to occur, the price of the stock may decline
significantly and quickly.
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures or other factors.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- Strategy Aggressive Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+13.07% -6.31% +31.76% +16.22% +12.64% +2.62%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was +18.49% (quarter ending December 1998 and the lowest return for a
calendar quarter was -22.74% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +9.31%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year 5 years Since inception
- -------------------------------------------------------------------------------
AXP VP -- Strategy Aggressive Fund +2.62% +10.65% +10.81%a
S&P 500 Index +28.57% +24.01% +19.80%b
Russell Midcap Growth Index +17.86% +17.36% +15.21%b
- -------------------------------------------------------------------------------
a Inception date was Jan. 13, 1992.
b Measurement period started Feb. 1, 1992.
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
The securities included in the indexes may not be the same as those held by the
Fund.
MANAGEMENT
Louis Giglio, senior portfolio manager, began managing the day-to-day operations
of AXP Variable Portfolio -- Strategy Aggressive Fund in April 1998. He joined
AEFC in January 1994 as a senior equity analyst. He also serves as portfolio
manager for AXP Strategy Aggressive Fund, IDS Life Series Fund -- Equity
Portfolio and the World Technologies Portfolio. Prior to joining AEFC, he had
eight years of experience as a financial analyst with Bear, Stearns & Co. Inc.
covering the microcomputer software and computer services industries.
Jacob E. Herwitz and Kent A. Kelley began managing a portion of this Fund in
July 1999. Jake and Kent are both principals and senior portfolio managers at
Kenwood Capital Management LLC (Kenwood), an indirect subsidiary of AEFC which
manages the AXP Small Cap Advantage Fund, the AXP Variable Portfolio -- Small
Cap Advantage Fund, the equity portion of Total Return Portfolio, and a portion
of AXP Strategy Aggressive Fund.
From 1992 until 1998, Jake Hurwitz served as senior vice president and equity
portfolio manager at Travelers Investment Management Company (TIMCO) where he
had primary responsibility for stock selection and portfolio management for
TIMCO's small- and mid-cap portfolios.
Prior to 1998, Kent Kelley was chief executive officer at TIMCO. From 1993 to
1995, Mr. Kelley served as TIMCO's president and chief executive officer. As
chief executive officer, he was responsible for all portfolio management,
research and trading operations.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio managers and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
<PAGE>
Fees and Expenses
Fund investors pay various expenses. The summary below describes the fees and
expenses that you would pay if you buy a variable annuity or life insurance
policy and allocate your purchase payments to the subaccount that invests in the
Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Because the Fund is the underlying investment vehicle for a variable annuity or
life insurance policy, there is no sales charge for the purchase or sale of Fund
shares. However, there may be charges associated with your annuity contract or
life insurance policy, including those that may be associated with surrender or
withdrawal. Any charges that apply to the subaccount and your contract or policy
are described in the annuity or life insurance policy prospectus.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
o Management Fees
The Fund pays IDS Life Insurance Company (IDS Life) a fee for managing its
assets. AXP Variable Portfolio -- Blue Chip Advantage Fund, AXP Variable
Portfolio -- Diversified Equity Income Fund, AXP Variable Portfolio -- Federal
Income Fund, AXP Variable Portfolio -- Growth Fund and AXP Variable Portfolio --
Small Cap Advantage Fund commenced operations in September 1999.
Therefore, no management fees were paid for these Funds for the most recent
fiscal year. The fee schedule for each of these Funds is:
<TABLE>
<CAPTION>
AXP Variable Portfolio --
Blue Chip Advantage Fund and
AXP Variable Portfolio -- AXP Variable Portfolio --
Diversified Equity Income Fund Federal Income Fund
<S> <C> <C> <C> <C>
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $0.50 0.560% First $1.00 0.610%
Next 0.50 0.545 Next 1.00 0.595
Next 1.00 0.530 Next 1.00 0.580
Next 1.00 0.515 Next 3.00 0.565
Next 3.00 0.500 Next 3.00 0.550
Over 6.00 0.470 Over 9.00 0.535
AXP Variable Portfolio -- AXP Variable Portfolio --
Growth Fund Small Cap Advantage Fund
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $1.00 0.630% First $0.25 0.790%
Next 1.00 0.615 Next 0.25 0.770
Next 1.00 0.600 Next 0.25 0.750
Next 3.00 0.585 Next 0.25 0.730
Over 6.00 0.570 Next 1.00 0.710
Over 2.00 0.650
</TABLE>
<PAGE>
For the most recent fiscal year, the following management fees were paid as a
percentage of average daily net assets:
Fund Fee
- -------------------------------------------------------------------------------
AXP Variable Portfolio-- Bond Fund 0.60%
AXP Variable Portfolio-- Capital Resource Fund 0.60
AXP Variable Portfolio-- Cash Management Fund 0.51
AXP Variable Portfolio-- Extra Income Fund 0.62
AXP Variable Portfolio-- Global Bond Fund 0.84
AXP Variable Portfolio-- International Fund 0.83
AXP Variable Portfolio-- Managed Fund 0.59
AXP Variable Portfolio-- New Dimensions Fund 0.61
AXP Variable Portfolio-- Strategy Aggressive Fund 0.60
- -------------------------------------------------------------------------------
o Distribution (12b-1) Fees
The Fund has a plan under Rule 12b-1 of the Investment Company Act of 1940.
The Fund pays IDS Life an annual fee of up to 0.125% of average daily net
assets as payment for distributing its shares and providing shareholder
services. Because this fee is paid out of the Fund's assets on an on-going
basis, over time this fee will increase the cost of your investment and may
cost you more than paying other types of sales charges.
o Other Expenses
The Fund pays taxes, brokerage commissions and other nonadvisory expenses
including administrative and accounting services.
o Expense Limitation
Through Aug. 31, 2000, IDS Life and AEFC have agreed to waive certain fees
and reimburse expenses to the extent that total expenses exceed the
following percentage of Fund average daily net assets:
AXP Variable Portfolio-- Blue Chip Advantage Fund 0.950%
AXP Variable Portfolio -- Diversified Equity Income Fund 0.950
AXP Variable Portfolio-- Federal Income Fund 0.875
AXP Variable Portfolio-- Growth Fund 0.950
AXP Variable Portfolio-- Small Cap Advantage Fund 1.225
<PAGE>
Buying and Selling Shares
VALUING FUND SHARES
The net asset value (NAV) is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business of the New York Stock
Exchange, normally 3 p.m. Central Time (CT), each business day (any day the New
York Stock Exchange is open).
AXP Variable Portfolio -- Cash Management Fund's securities are valued at
amortized cost. In valuing assets of all other Funds, the Fund's investments are
valued based on market quotations, or where market quotations are not readily
available, based on methods selected in good faith by the board. If the Fund's
investment policies permit it to invest in securities that are listed on foreign
stock exchanges that trade on weekends or other days when the Fund does not
price its shares, the value of the Fund's underlying investments may change on
days when you could not buy or sell shares of the Fund. Please see the SAI for
further information.
PURCHASING SHARES
You may not buy (nor will you own) shares of the Fund directly. You invest by
buying a variable annuity or life insurance policy and allocating your purchase
payments to the subaccount that invests in the Fund. Your purchase price will be
the next NAV calculated after your request is received by the Fund or an
authorized insurance company.
For further information concerning minimum and maximum payments and submission
and acceptance of your application, see your annuity or life insurance policy
prospectus.
TRANSFERRING/SELLING SHARES
There is no sales charge for the sale of Fund shares, but there may be charges
associated with the surrender or withdrawal of your annuity contract or life
insurance policy. Any charges that apply to the subaccount and your contract or
policy are described in your annuity or life insurance policy prospectus.
You may transfer all or part of your value in a subaccount investing in shares
of the Fund to one or more of the other subaccounts investing in shares of other
funds with different investment objectives.
You may provide instructions to sell any shares you allocated to the
subaccounts. An authorized agent will mail your payment within seven days after
accepting your surrender or withdrawal request. The amount you receive may be
more or less than the amount you invested. Your sale price will be the next NAV
calculated after your request is received by the Fund or an authorized insurance
company.
Please refer to your annuity or life insurance policy prospectus for more
information about transfers among subaccounts as well as surrenders and
withdrawals.
<PAGE>
Distributions and Taxes
The Fund distributes to shareholders (subaccounts) dividends and capital gains
to qualify as a regulated investment company and to avoid paying corporate
income and excise taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund's net investment income is distributed to the shareholders
(subaccounts) as dividends. Capital gains are realized when a security is sold
for a higher price than was paid for it. Each realized capital gain or loss is
either long-term or short-term depending on the length of time the Fund held the
security. Realized capital gains or losses offset each other. The Fund offsets
any net realized capital gains by any available capital loss carryovers. Net
short-term capital gains are included in net investment income. Net realized
long-term capital gains, if any, are distributed by the end of the calendar year
as capital gain distributions.
REINVESTMENT
Since the distributions are automatically reinvested in additional Fund shares,
the total value of your holdings will not change. The reinvestment price is the
next calculated NAV after the distribution is paid.
TAXES
The Fund intends to comply with the regulations relating to the diversification
requirements under section 817(h) of the Internal Revenue Code.
Important: This information is a brief and selective summary of some of the tax
rules that apply to the Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
Federal income taxation of subaccounts, life insurance companies and annuities
or life insurance policies is discussed in your annuity or life insurance policy
prospectus.
<PAGE>
About the Company
BUSINESS STRUCTURE
Annuity or life insurance contract owners invest in a subaccount
Subaccount invests in the Fund
Sub-Advisor:
American Express Asset Management International Inc.
Subadvises AXP Variable Portfolio -- International Fund.
Kenwood Capital Management LLC Subadvises
AXP Variable Portfolio -- Small Cap Advantage Fund.
American Express Asset Mangement Group Inc.
Subadvises AXP Variable Portfolio -- Strategy Aggressive Fund.
Investment Advisor:
American Express Financial Corporation
Executes purchases and sales and negotiates brokerage as directed by IDS Life.
Administrative Services Agent:
American Express Financial Corporation Provides administrative and accounting
services for the Fund: receives a fee based on assets.
Investment Manager:
IDS Life Insurance Company Manages the Fund's investments and receives a fee
based on average daily net assets.
The Fund
Custodian:
American Express Trust Company Provides safekeeping of assets: receives a fee
that varies based on the number of securities held.
Sub-Custodian:
Bank of New York
<PAGE>
ABOUT IDS LIFE AND AEFC
IDS Life is a stock life insurance company organized in 1957 under the laws of
the State of Minnesota and located at IDS Tower 10, Minneapolis, MN 55440-0010.
IDS Life conducts a conventional life insurance business in the District of
Columbia and all states except New York.
IDS Life is a wholly-owned subsidiary of AEFC, located at IDS Tower 10,
Minneapolis, MN 55440-0010. The AEFC family of companies offers not only
insurance and annuities, but also mutual funds, investment certificates and a
broad range of financial management services. AEFC has been a provider of
financial services since 1894 and as of the end of the most recent fiscal year
managed more than $228 billion in assets.
AEFC is a wholly-owned subsidiary of American Express Company, a financial
services company with headquarters at American Express Tower, World Financial
Center, New York, NY 10285.
YEAR 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000. While Year 2000-related
computer problems could have a negative effect on the Fund, AEFC is working to
avoid such problems and to obtain assurances from service providers that they
are taking similar steps.
The companies, governments or international markets in which the Fund invests
also may be adversely affected by Year 2000 issues. To the extent a portfolio
holding is adversely affected by a Year 2000 processing issue, the Fund's return
could be adversely affected.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
AXP VP -- Bond Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.08 $11.99 $11.54 $11.58 $11.05
Income from investment operations:
Net investment income (loss) .79 .88 .85 .88 .88
Net gains (losses) (both realized
and unrealized) (.52) (.68) .52 (.07) .56
Total from investment operations .27 .20 1.37 .81 1.44
Less distributions:
Dividends from net investment income (.77) (.85) (.84) (.85) (.87)
Distributions from realized gains (.02) (.26) (.07) -- (.02)
Excess distributions from realized gains -- -- (.01) -- (.02)
Total distributions (.79) (1.11) (.92) (.85) (.91)
Net asset value, end of period $10.56 $11.08 $11.99 $11.54 $11.58
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1,750 $1,852 $1,923 $1,912 $1,703
Ratio of expenses to average daily net assets .68% .67% .68% .68% .68%
Ratio of net investment income (loss)
to average daily net assets 7.22% 7.39% 7.18% 7.47% 8.08%
Portfolio turnover rate
(excluding short-term securities) 68% 48% 73% 56% 56%
Total returnb 2.40% 1.54% 12.24% 5.82% 13.75%
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- Capital Resource Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $26.80 $27.97 $25.57 $24.42 $23.43
Income from investment operations:
Net investment income (loss) .06 .11 .16 .30 .29
Net gains (losses)(both realized 10.28 (.54) 6.45 1.22 3.70
and unrealized)
Total from investment operations 10.34 (.43) 6.61 1.52 3.99
Less distributions:
Dividends from net investment income (.06) (.11) (.15) (.29) (.29)
Distributions from realized gains (2.46) (.63) (4.05) (.07) (2.71)
Excess distributions from realized gains -- -- (.01) (.01) --
Total distributions (2.52) (.74) (4.21) (.37) (3.00)
Net asset value, end of period $34.62 $26.80 $27.97 $25.57 $24.42
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $5,621 $4,453 $4,867 $4,372 $3,845
Ratio of expenses to average daily net assets .66% .66% .67% .68% .69%
Ratio of net investment income (loss)
to average daily net assets .17% .34% .61% 1.15% 1.22%
Portfolio turnover rate
(excluding short-term securities) 56% 68% 110% 131% 88%
Total returnb 40.12% (1.67%) 28.47% 6.15% 17.18%
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- Cash Management Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income (loss) .05 .05 .05 .05 .05
Less distributions:
Dividends from net investment income (.05) (.05) (.05) (.05) (.05)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $690 $428 $421 $288 $227
Ratio of expenses to average daily net assets .56% .57% .57% .56% .59%
Ratio of net investment income (loss)
to average daily net assets 4.60% 5.13% 4.97% 5.02% 5.23%
Total returnb 4.72% 5.25% 5.05% 5.15% 5.27%
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- Extra Income Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996b
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.54 $10.39 $9.77 $10.00
Income from investment operations:
Net investment income (loss) .92 .95 .88 .18
Net gains (losses) (both realized (.69) (.80) .62 (.23)
and unrealized)
Total from investment operations .23 .15 1.50 (.05)
Less distributions:
Dividends from net investment income (.92) (.95) (.88) (.18)
Distributions from realized gains (.10) (.05) -- --
Total distributions (1.02) (1.00) (.88) (.18)
Net asset value, end of period $8.75 $9.54 $10.39 $9.77
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $638 $564 $320 $49
Ratio of expenses to average daily net assets .70% .69% .69% 1.53%c
Ratio of net investment income (loss)
to average daily net assets 10.17% 9.21% 8.88% 8.14%c
Portfolio turnover rate
(excluding short-term securities) 50% 66% 104% 22%
Total returnd 2.61% 1.03% 16.80% (.50%)
- ----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 1, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- Global Bond Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996b
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.09 $10.32 $10.08 $10.00
Income from investment operations:
Net investment income (loss) .55 .60 .51 .12
Net gains (losses) (both realized (.29) (.21) .14 .07
and unrealized)
Total from investment operations .26 .39 .65 .19
Less distributions:
Dividends from net investment income (.51) (.58) (.41) (.11)
Distributions from realized gains -- (.04) -- --
Total distributions (.51) (.62) (.41) (.11)
Net asset value, end of period $9.84 $10.09 $10.32 $10.08
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $197 $183 $119 $21
Ratio of expenses to average daily net assets .96% .95% .97% 1.77%c
Ratio of net investment income (loss)
to average daily net assets 5.36% 5.81% 5.66% 4.96%c
Portfolio turnover rate
(excluding short-term securities) 56% 14% 36% 4%
Total returnd 2.50% 3.82% 6.47% 2.00%
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 1, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- International Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.25 $14.09 $13.30 $12.55 $12.91
Income from investment operations:
Net investment income (loss) .12 .14 .18 .20 .17
Net gains (losses) (both realized 3.04 .42 1.06 1.01 (.37)
and unrealized)
Total from investment operations 3.16 .56 1.24 1.21 (.20)
Less distributions:
Dividends from net investment income (.07) (.15) (.17) (.44) (.16)
Distributions from realized gains (.08) (.19) (.28) (.02) --
Excess distributions from realized gains -- (.06) -- -- --
Total distributions (.15) (.40) (.45) (.46) (.16)
Net asset value, end of period $17.26 $14.25 $14.09 $13.30 $12.55
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2,221 $2,023 $2,105 $1,874 $1,442
Ratio of expenses to average daily net assets .94% .94% .97% .96% 1.03%
Ratio of net investment income (loss)
to average daily net assets .70% .94% 1.30% 1.28% 1.56%
Portfolio turnover rate
(excluding short-term securities) 102% 86% 91% 58% 38%
Total returnb 22.18% 4.09% 9.34% 9.64% (1.80%)
- ----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- Managed Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.25 $18.87 $16.00 $14.85 $13.65
Income from investment operations:
Net investment income (loss) .50 .49 .46 .46 .40
Net gains (losses) (both realized 3.29 (.12) 3.93 1.15 1.20
and unrealized)
Total from investment operations 3.79 .37 4.39 1.61 1.60
Less distributions:
Dividends from net investment income (.49) (.48) (.45) (.46) (.40)
Distributions from realized gains (1.71) (1.50) (1.06) -- --
Excess distributions from net investment income -- (.01) (.01) -- --
Total distributions (2.20) (1.99) (1.52) (.46) (.40)
Net asset value, end of period $18.84 $17.25 $18.87 $16.00 $14.85
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $5,046 $4,413 $4,445 $3,482 $3,044
Ratio of expenses to average daily net assets .63% .64% .64% .65% .68%
Ratio of net investment income (loss)
to average daily net assets 2.62% 2.56% 2.65% 2.94% 2.96%
Portfolio turnover rate
(excluding short-term securities) 44% 50% 72% 85% 72%
Total returnb 22.98% 1.74% 27.50% 11.01% 11.93%
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- New Dimensions Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996b
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.29 $12.95 $9.94 $10.00
Income from investment operations:
Net investment income (loss) .06 .08 .10 .03
Net gains (losses) (both realized 5.60 .34 3.01 (.06)
and unrealized)
Total from investment operations 5.66 .42 3.11 (.03)
Less distributions:
Dividends from net investment income (.06) (.08) (.10) (.03)
Distributions from realized gains (.02) -- -- --
Total distributions (.08) (.08) (.10) (.03)
Net asset value, end of period $18.87 $13.29 $12.95 $9.94
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3,538 $1,960 $1,307 $171
Ratio of expenses to average daily net assets .68% .69% .72% 1.04%c
Ratio of net investment income (loss)
to average daily net assets .34% .59% 1.04% 1.69%c
Portfolio turnover rate
(excluding short-term securities) 27% 34% 29% 4%
Total returnd 42.61% 3.19% 31.40% (.22%)
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 1, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP -- Strategy Aggressive Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.10 $17.17 $16.04 $14.44 $11.46
Income from investment operations:
Net investment income (loss) .05 .01 .08 .10 .08
Net gains (losses) (both realized 4.36 (2.57) 2.84 1.60 2.98
and unrealized)2
Total from investment operations 4.41 (2.56) 2.92 1.70 3.06
Less distributions:
Dividends from net investment income (.05) (.01) (.08) (.10) (.08)
Distributions from realized gains (1.00) (1.49) (1.71) -- --
Excess distributions from realized gains -- (.01) -- -- --
Total distributions (1.05) (1.51) (1.79) (.10) (.08)
Net asset value, end of period $16.46 $13.10 $17.17 $16.04 $14.44
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2,327 $1,976 $2,427 $1,941 $1,412
Ratio of expenses to average daily net assets .67% .66% .68% .69% .70%
Ratio of net investment income (loss)
to average daily net assets .31% .08% .47% .65% .72%
Portfolio turnover rate
(excluding short-term securities) 207% 176% 218% 189% 116%
Total returnb 35.27% (16.40%) 18.60% 11.82% 26.80%
- -----------------------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditors' report and additional information about the
performance of the Funds is contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
<PAGE>
Additional information about the Fund and its investments is available in the
Fund's SAI, annual and semiannual reports to shareholders. In the Fund's annual
report, you will find a discussion of market conditions and investment
strategies that significantly affected the Fund during the last fiscal year. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
the annual report or the semiannual report, or to make inquiries about the Fund,
contact American Express Variable Portfolio Funds.
American Express Variable Portfolio Funds
IDS Tower 10
Minneapolis, MN 55440-0010
800-437-0602
TTY: 800-285-8846
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.
Investment Company Act File #s:
AXP Variable Portfolio-- Blue Chip Advantage Fund 811-3218
AXP Variable Portfolio-- Bond Fund 811-3219
AXP Variable Portfolio-- Capital Resource Fund 811-3218
AXP Variable Portfolio-- Cash Management Fund 811-3190
AXP Variable Portfolio-- Diversified Equity Income Fund 811-4252
AXP Variable Portfolio-- Extra Income Fund 811-3219
AXP Variable Portfolio-- Federal Income Fund 811-3219
AXP Variable Portfolio-- Global Bond Fund 811-3219
AXP Variable Portfolio-- Growth Fund 811-3218
AXP Variable Portfolio-- International Fund 811-3218
AXP Variable Portfolio-- Managed Fund 811-4252
AXP Variable Portfolio-- New Dimensions Fund 811-3218
AXP Variable Portfolio-- Small Cap Advantage Fund 811-3218
AXP Variable Portfolio-- Strategy Aggressive Fund 811-3218
S-6466-99 R (10/99)
<PAGE>
American Express(R)
Variable Portfolio Funds
AXPSM Variable Portfolio -- New Dimensions Fund
(formerly known as IDS Life Growth Dimensions Fund)
PROSPECTUS/OCT. 29, 1999
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
American Express Financial Advisors
Managed by IDS Life Insurance Company
<PAGE>
Table of Contents
TAKE A CLOSER LOOK AT:
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 4p
Past Performance 5p
Management 6p
Fees and Expenses 6p
Shareholder Fees 6p
Annual Fund Operating Expenses 6p
Buying and Selling Shares 7p
Valuing Fund Shares 7p
Purchasing Shares 7p
Transferring/Selling Shares 7p
Distributions and Taxes 8p
About the Company 9p
Financial Highlights 11p
<PAGE>
The Fund
Please remember that you may not buy (nor will you own) shares of the Fund
directly. You invest by buying a variable annuity or life insurance policy and
allocating your purchase payments to the variable subaccount or account (the
subaccount) that invests in the Fund.
GOAL
The Fund seeks to provide shareholders with long-term growth of capital. Because
any investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund primarily invests in common stocks showing potential for significant
growth. These companies often operate in areas where dynamic economic and
technological changes are occurring. The Fund may invest up to 30% of its total
assets in foreign investments.
The selection of common stocks is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment advisor, chooses investments by:
o Identifying companies that AEFC believes have above-average long-term growth
potential based on:
-- effective management,
-- financial strength, and
-- competitive market position.
o Considering opportunities and risks by reviewing interest rate and economic
forecasts both domestically and abroad.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to alternative investments,
-- the company has met AEFC's earnings and/or growth expectations,
-- political, economic, or other events could affect the company's
performance,
-- AEFC wishes to minimize potential losses (i.e., in a market
down-turn), and
-- AEFC identifies a more attractive opportunity.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, preferred stock, debt obligations
(of any rating), and convertible securities. Additionally, the Fund may utilize
derivative instruments to produce incremental earnings, to hedge existing
positions and to increase flexibility.
<PAGE>
During weak or declining markets or when growth opportunities are not
available, the Fund may invest more of its assets in money market securities.
Although the Fund primarily will invest in these securities to avoid losses,
this type of investing also could prevent the Fund from achieving its investment
objective. During these times, AEFC may make frequent securities trades that
could result in increased fees and expenses.
For more information on strategies and holdings, see the Fund's SAI and the
annual/semiannual reports.
RISKS
This Fund is designed for investors with above-average risk tolerance. Please
remember that with any mutual fund investment you may lose money. Principal
risks associated with an investment in the Fund include:
Market Risk
Style Risk
Foreign Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Style Risk
AEFC purchases growth stocks based on the expectation that the companies will
have strong growth in earnings. The price paid often reflects an expected rate
of growth. If that growth fails to occur, the price of the stock may decline
significantly and quickly.
Foreign Risk
The following are all components of foreign risk:
Country risk includes the political, economic and other conditions of a country.
These conditions include lack of publicly available information, less government
oversight (including lack of accounting, auditing and financial reporting
standards), the possibility of government-imposed restrictions and even the
nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance varied for each full calendar year shown on the
chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund performed in the past does not indicate how the Fund will perform
in the future.
AXP VP -- New Dimensions Fund Performance (based on calendar years)
- --------------------------------------------------------------------------------
+24.37% +28.64%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was 24.72% (quarter ending December 1998) and the lowest return for a
calendar quarter was -11.79% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 1999 was +7.22%.
Average Annual Total Returns (as of Dec. 31, 1998)
1 year Since inception
- --------------------------------------------------------------------------------
AXP VP -- New Dimensions Fund +28.64% +24.29%a
S&P 500 Index +28.57% +25.39%b
Lipper Growth Fund Index +25.69% +23.73%b
- --------------------------------------------------------------------------------
a Inception date was May 1, 1996
b Measurement period started May 1, 1996.
This table shows total returns from a hypothetical investment in the Fund.
Comparison index returns are for the same periods. The results do not reflect
the expenses that apply to the variable accounts or the policies. Inclusion of
these charges would reduce total return for all periods shown.
For purposes of this calculation, information about the Fund assumes the
deduction of applicable fund expenses and makes no adjustments for taxes that
may have been paid on the reinvested income and capital gains.
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.
The securities included in the indexes may not be the same as those held by the
Fund.
<PAGE>
MANAGEMENT
Gordon Fines manages the day-to-day operations of AXP Variable Portfolio -- New
Dimensions Fund. He joined AEFC in 1981 and currently serves as vice president
and senior portfolio manager. He also serves as portfolio manager of Growth
Trends Portfolio and leads the growth team for AEFC.
The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment advisor. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.
Fees and Expenses
Fund investors pay various expenses. The summary below describes the fees and
expenses that you would pay if you buy a variable annuity or life insurance
policy and allocate your purchase payments to the subaccount that invests in the
Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Because the Fund is the underlying investment vehicle for a variable annuity or
life insurance policy, there is no sales charge for the purchase or sale of Fund
shares. However, there may be charges associated with your annuity contract or
life insurance policy, including those that may be associated with surrender or
withdrawal. Any charges that apply to the subaccount and your contract or policy
are described in the annuity or life insurance policy prospectus.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
o Management Fees
The Fund pays IDS Life Insurance Company (IDS Life) a fee for managing its
assets. For the most recent fiscal year, the following management fees were
paid as a percentage of average daily net assets: AXP Variable Portfolio --
New Dimensions Fund 0.61%
o Distribution (12b-1) Fees
The Fund has a plan under Rule 12b-1 of the Investment Company Act of 1940.
The Fund pays IDS Life an annual fee of up to 0.125% of average daily net
assets as payment for distributing its shares and providing shareholder
services. Because this fee is paid out of the Fund's assets on an on-going
basis, over time this fee will increase the cost of your investment and may
cost you more than paying other types of sales charges.
o Other Expenses
The Fund pays taxes, brokerage commissions and other nonadvisory expenses
including administrative and accounting services.
<PAGE>
Buying and Selling Shares
VALUING FUND SHARES
The net asset value (NAV) is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business of the New York Stock
Exchange, normally 3 p.m. Central Standard Time (CST), each business day (any
day the New York Stock Exchange is open).
The Fund's investments are valued based on market quotations, or where market
quotations are not readily available, based on methods selected in good faith by
the board. If the Fund's investment policies permit it to invest in securities
that are listed on foreign stock exchanges that trade on weekends or other days
when the Fund does not price its shares, the value of the Fund's underlying
investments may change on days when you could not buy or sell shares of the
Fund. Please see the SAI for further information.
PURCHASING SHARES
You may not buy (nor will you own) shares of the Fund directly. You invest by
buying a variable annuity or life insurance policy and allocating your purchase
payments to the subaccount that invests in the Fund. Your purchase price will be
the next NAV calculated after your request is received by the Fund or an
authorized insurance company.
For further information concerning minimum and maximum payments and submission
and acceptance of your application, see your annuity or life insurance policy
prospectus.
TRANSFERRING/SELLING SHARES
There is no sales charge for the sale of Fund shares, but there may be charges
associated with the surrender or withdrawal of your annuity contract or life
insurance policy. Any charges that apply to the subaccount and your contract or
policy are described in your annuity or life insurance policy prospectus.
You may transfer all or part of your value in a subaccount investing in shares
of the Fund to one or more of the other subaccounts investing in shares of other
funds with different investment objectives.
You may provide instructions to sell any shares you allocated to the
subaccounts. An authorized agent will mail your payment within seven days after
accepting your surrender or withdrawal request. The amount you receive may be
more or less than the amount you invested. Your sale price will be the next NAV
calculated after your request is received by the Fund or an authorized insurance
company.
Please refer to your annuity or life insurance policy prospectus for more
information about transfers among subaccounts as well as surrenders and
withdrawals.
<PAGE>
Distributions and Taxes
The Fund distributes to shareholders (subaccounts) dividends and capital gains
to qualify as a regulated investment company and to avoid paying corporate
income and excise taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund's net investment income is distributed to the shareholders
(subaccounts) as dividends. Capital gains are realized when a security is sold
for a higher price than was paid for it. Each realized capital gain or loss is
either long-term or short-term depending on the length of time the Fund held the
security. Realized capital gains or losses offset each other. The Fund offsets
any net realized capital gains by any available capital loss carryovers. Net
short-term capital gains are included in net investment income. Net realized
long-term capital gains, if any, are distributed by the end of the calendar year
as capital gain distributions.
REINVESTMENT
Since the distributions are automatically reinvested in additional Fund shares,
the total value of your holdings will not change. The reinvestment price is the
next calculated NAV after the distribution is paid.
TAXES
The Fund intends to comply with the regulations relating to the diversification
requirements under section 817(h) of the Internal Revenue Code.
Important: This information is a brief and selective summary of some of the tax
rules that apply to the Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
Federal income taxation of subaccounts, life insurance companies and annuities
or life insurance policies is discussed in your annuity or life insurance policy
prospectus.
<PAGE>
About the Company
BUSINESS STRUCTURE
Investment Advisor:
American Express Financial Corporation
Executes Purchases and sales negotiates brokerage as directed by IDS Life.
Administrative Services Agent:
American Express Financial Corporation
Provides administrative and accounting services for the Fund: receives a fee
based on assets.
Investment Manager:
IDS Life Insurance Company
Manages the Fund's investments and receives a fee based on average daily net
assets.
Annuity or live insurance contract owners invest in a subaccount
Subaccount invests in the Fund
The Fund
Custodian:
American Express Trust Company
Provides safekeeping of assets: receives a fee that varies based on the number
of securities held.
Sub-Custodian: Bank of New York
<PAGE>
ABOUT IDS LIFE AND AEFC
IDS Life is a stock life insurance company organized in 1957 under the laws of
the State of Minnesota and located at IDS Tower 10, Minneapolis, MN 55440-0010.
IDS Life conducts a conventional life insurance business in the District of
Columbia and all states except New York.
IDS Life is a wholly-owned subsidiary of AEFC, located at IDS Tower 10,
Minneapolis, MN 55440-0010. The AEFC family of companies offers not only
insurance and annuities, but also mutual funds, investment certificates and a
broad range of financial management services. AEFC has been a provider of
financial services since 1894 and as of the end of the most recent fiscal year
managed more than $228 billion in assets.
AEFC is a wholly-owned subsidiary of American Express Company, a financial
services company with headquarters at American Express Tower, World Financial
Center, New York, NY 10285.
YEAR 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000. While Year 2000-related
computer problems could have a negative effect on the Fund, AEFC is working to
avoid such problems and to obtain assurances from service providers that they
are taking similar steps.
The companies, governments or international markets in which the Fund invests
also may be adversely affected by Year 2000 issues. To the extent a portfolio
holding is adversely affected by a Year 2000 processing issue, the Fund's return
could be adversely affected.
<PAGE>
Financial Highlights
AXP VP -- New Dimensions Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998 1997 1996b
Net asset value, beginning of period $13.29 $12.95 $9.94 $10.00
Income from investment operations:
Net investment income (loss) .06 .08 .10 .03
Net gains (losses) (both realized and unrealized 5.60 .34 3.01 (.06)
Total from investment operations 5.66 .42 3.11 (.03)
Less distributions:
Dividends from net investment income (.06) (.08) (.10) (.03)
Distributions from realized gains (.02) -- -- --
Total distributions (.08) (.08) (.10) (.03)
Net asset value, end of period $18.87 $13.29 $12.95 $9.94
Ratios/supplemental data
Net assets, end of period (in millions) $3,538 $1,960 $1,307 $171
Ratio of expenses to average daily net assets .68% .69% .72% 1.04%c
Ratio of net investment income (loss)
to average daily net assets .34% .59% 1.04% 1.69%c
Portfolio turnover rate
(excluding short-term securities) 27% 34% 29% 4%
Total returnd 42.61% 3.19% 31.40% (.22%)
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 1, 1996.
c Adjusted to an annual basis.
d Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
The information in this table has been audited by KPMG LLP, independent
auditors. The independent auditor's report and additional information about the
performance of the Fund is contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
<PAGE>
<PAGE>
Additional information about the Fund and its investments is available in the
Fund's SAI, annual and semiannual reports to shareholders.
In the Fund's annual report, you will find a discussion of market conditions and
investment strategies that significantly affected the Fund during the last
fiscal year. The SAI is incorporated by reference in this prospectus. For a free
copy of the SAI, the annual report or the semiannual report, or to make
inquiries about the Fund, contact American Express Variable Portfolio Funds.
American Express Variable Portfolio Funds
IDS Tower 10
Minneapolis, MN 55440-0010
800-437-0602
TTY: 800-285-8846
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.
Investment Company Act File #811-3218
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXPSM Variable Portfolio - Income Series, Inc.
AXPSM Variable Portfolio - Bond Fund
AXPSM Variable Portfolio - Extra Income Fund
AXPSM Variable Portfolio - Federal Income Fund
AXPSM Variable Portfolio - Global Bond Fund
AXPSM Variable Portfolio - Investment Series, Inc.
AXPSM Variable Portfolio - Blue Chip Advantage Fund
AXPSM Variable Portfolio - Capital Resource Fund
AXPSM Variable Portfolio - Growth Fund
AXPSM Variable Portfolio - International Fund
AXPSM Variable Portfolio - New Dimensions Fund
AXPSM Variable Portfolio - Small Cap Advantage Fund
AXPSM Variable Portfolio - Strategy Aggressive Fund
AXPSM Variable Portfolio - Managed Series, Inc.
AXPSM Variable Portfolio - Diversified Equity Income Fund
AXPSM Variable Portfolio - Managed Fund AXPSM Variable
Portfolio - Money Market Series, Inc.
AXPSM Variable Portfolio - Cash Management Fund
(singularly and collectively, where the context requires, referred to as the
Fund)
Oct. 29, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the Financial Statements contained in the
most recent Annual Report to Shareholders (Annual Report) that may be obtained
from your financial advisor or by writing to American Express(R) Variable
Portfolio Funds, IDS Tower 10, Minneapolis, MN 55440-0010 or by calling
800-437-0602.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
TABLE OF CONTENTS
Fundamental Investment Policies.......................................p.3
Investment Strategies and Types of Investments.......................p.14
Information Regarding Risks and Investment Strategies................p.23
Security Transactions................................................p.46
Brokerage Commissions Paid to Brokers Affiliated with IDS Life.......p.49
Performance Information..............................................p.50
Valuing Fund Shares..................................................p.53
Selling Shares.......................................................p.55
Capital Loss Carryover...............................................p.55
Taxes................................................................p.55
Agreements...........................................................p.56
Organizational Information...........................................p.67
Board Members and Officers...........................................p.69
Compensation for Board Members.......................................p.72
Independent Auditors.................................................p.74
Appendix A: Description of Money Market Securities..................p.75
Appendix B: Description of Ratings..................................p.77
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
- -------------------------------------------------------------------------------
Throughout this SAI, the funds are referred to as follows:
AXP Variable Portfolio - Blue Chip Advantage Fund (Blue Chip Advantage)
AXP Variable Portfolio - Bond Fund (Bond)
AXP Variable Portfolio - Capital Resource Fund (Capital Resource)
AXP Variable Portfolio - Cash Management Fund (Cash Management)
AXP Variable Portfolio - Diversified Equity Income Fund (Diversified Equity
Income)
AXP Variable Portfolio - Extra Income Fund (Extra Income)
AXP Variable Portfolio - Federal Income Fund (Federal Income)
AXP Variable Portfolio - Global Bond Fund (Global Bond)
AXP Variable Portfolio - Growth Fund (Growth)
AXP Variable Portfolio - International Fund (International)
AXP Variable Portfolio - Managed Fund (Managed)
AXP Variable Portfolio - New Dimensions Fund (New Dimensions)
AXP Variable Portfolio - Small Cap Advantage Fund (Small Cap Advantage)
AXP Variable Portfolio - Strategy Aggressive Fund (Strategy Aggressive)
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
Blue Chip Advantage
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the Securities and Exchange Commission (SEC), this means no more than 25%
of the Fund's total assets, based on current market value at time of
purchase, can be invested in any one industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
<PAGE>
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of its net assets.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
Bond
o Invest more than 5% of its total assets, at market value, in securities of
any one company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the U.S.
government, its agencies, or instrumentalities. Up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of the Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The Fund will not
purchase additional securities at any time borrowing for temporary purposes
exceeds 5%.
o Lend Fund securities in excess of 30% of the Fund's net assets, at market
value.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of a Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
<PAGE>
Capital Resource
o Invest more than 5% of its total assets, at market value, in securities of
any one company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the U.S.
government, its agencies, or instrumentalities. Up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of the Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The Fund will not
purchase additional securities at any time borrowing for temporary purposes
exceeds 5%.
o Lend Fund securities in excess of 30% of the Fund's net assets, at market
value.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of a Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
Cash Management
o Invest more than 5% of its total assets, at market value, in securities of
any one company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the U.S.
government, its agencies, or instrumentalities.
o Buy on margin or sell short.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of the fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The Fund will not
purchase additional securities at any time borrowing for temporary purposes
exceeds 5%.
<PAGE>
o Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of the Fund's net assets, at market
value.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal bonds, or
industrial revenue bonds.
o Make cash loans. However, the Fund does make short-term investments which
it may have an agreement with the seller to reacquire
o Buy or sell real estate, commodities or commodity contracts.
o Intentionally invest more than 25% of the Fund's assets taken at market
value in any particular industry, except with respect to investing in U.S.
government or agency securities and bank obligations. Investments are
varied according to what is judged advantageous under different economic
conditions.
Diversified Equity Income
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
<PAGE>
o Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of its net assets.
Extra Income
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except as permitted under the Investment Company
Act of 1940.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at the time of purchase, can be invested in any one
industry.
Federal Income
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
<PAGE>
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of its net assets.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
Global Bond
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
<PAGE>
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make a loan of any part of its assets to AEFC, to the directors and
officers of AEFC or to its own directors and officers.
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except as permitted under the Investment Company
Act of 1940.
Growth
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of its net assets.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
<PAGE>
International
o Invest more than 5% of its total assets, at market value, in securities of
any one company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the U.S.
government, its agencies, or instrumentalities. Up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of the Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The Fund will not
purchase additional securities at any time borrowing for temporary purposes
exceeds 5%.
o Lend Fund securities in excess of 30% of the Fund's net assets, at market
value.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of a Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business.
o Make a loan of any part of its assets to AEFC, to its directors and
officers or to its own directors and officers.
o Issue senior securities, except as permitted under the Investment Company
Act of 1940.
Managed
o Invest more than 5% of its total assets, at market value, in securities of
any one company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the U.S.
government, its agencies, or instrumentalities. Up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of the Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The Fund will not
purchase additional securities at any time borrowing for temporary purposes
exceeds 5%.
<PAGE>
o Lend Fund securities in excess of 30% of the Fund's net assets, at market
value.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of a Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Make a loan of any part of its assets to AEFC, to its directors and
officers or to its own directors and officers.
o Issue senior securities, except as permitted under the Investment Company
Act of 1940.
New Dimensions
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
<PAGE>
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make a loan of any part of its assets to AEFC, to the directors and
officers of AEFC or to its own directors and officers.
o Lend Fund securities in excess of 30% of its net assets.
Small Cap Advantage
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of its net assets.
<PAGE>
Strategy Aggressive
o Invest more than 5% of its total assets, at market value, in securities of
any one company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the U.S.
government, its agencies, or instrumentalities. Up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of the Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The Fund will not
purchase additional securities at any time borrowing for temporary purposes
exceeds 5%.
o Lend Fund securities in excess of 30% of the Fund's net assets, at market
value.
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Concentrate in any one industry. According to the present interpretation by
the Securities and Exchange Commission (SEC), this means no more than 25%
of a Fund's total assets, based on current market value at time of
purchase, can be invested in any one industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business.
o Make a loan of any part of its assets to AEFC, to its directors and
officers or to its own directors and officers.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to adopt temporary defensive
positions and is authorized to attempt to hedge against certain types of risk,
these practices are left to the investment manager's sole discretion.
<TABLE>
<CAPTION>
- ----------------------------------------------- ----------------------------------------------------------------------
Investment strategies & types of investments: Allowable for
the Fund?
- ----------------------------------------------- ----------------------------------------------------------------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Diversified
Blue Chip Capital Cash Equity
Advantage Bond Fund Resource Management Income
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Agency and Government Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Borrowing yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Cash/Money Market Instruments yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Collateralized Bond Obligations yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Commercial Paper yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Common Stock yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Convertible Securities yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Corporate Bonds yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Debt Obligations yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Depositary Receipts yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Derivative Instruments yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Foreign Currency Transactions yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Foreign Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
High-Yield (High-Risk) Securities (Junk Bonds) no yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Illiquid and Restricted Securities yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Indexed Securities yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Inverse Floaters no yes no no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Investment Companies yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Lending of Portfolio Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Loan Participations yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Mortgage- and Asset-Backed Securities no yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Mortgage Dollar Rolls no yes no no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Municipal Obligations yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Preferred Stock yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Real Estate Investment Trusts yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Repurchase Agreements yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Reverse Repurchase Agreements yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Short Sales no no no no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Sovereign Debt yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Structured Products yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Variable- or Floating-Rate Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Warrants yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
When-Issued Securities yes yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes no yes
Securities
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
<PAGE>
- ----------------------------------------------- ----------------------------------------------------------------------
Investment strategies & types of investments: Allowable for
the Fund?
- ----------------------------------------------- ----------------------------------------------------------------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Federal
Extra Income Income Global Bond Growth International
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Agency and Government Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Borrowing yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Cash/Money Market Instruments yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Collateralized Bond Obligations yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Commercial Paper yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Common Stock yes no yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Convertible Securities yes no yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Corporate Bonds yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Debt Obligations yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Depositary Receipts yes no yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Derivative Instruments yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Foreign Currency Transactions yes no yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Foreign Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
High-Yield (High-Risk) Securities (Junk Bonds) yes no yes no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Illiquid and Restricted Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Indexed Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Inverse Floaters yes yes yes no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Investment Companies yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Lending of Portfolio Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Loan Participations yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Mortgage- and Asset-Backed Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Mortgage Dollar Rolls yes yes yes no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Municipal Obligations yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Preferred Stock yes no yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Real Estate Investment Trusts yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Repurchase Agreements yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Reverse Repurchase Agreements yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Short Sales no yes no no no
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Sovereign Debt yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Structured Products yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Variable- or Floating-Rate Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Warrants yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
When-Issued Securities yes yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes yes yes
Securities
- ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
<PAGE>
- ----------------------------------------------- --------------------------------------------------------
Investment strategies & types of investments: Allowable for
the Fund?
- ----------------------------------------------- --------------------------------------------------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
New Small Cap Strategy
Managed Dimensions Advantage Aggressive
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Agency and Government Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Borrowing yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Cash/Money Market Instruments yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Collateralized Bond Obligations yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Commercial Paper yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Common Stock yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Convertible Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Corporate Bonds yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Debt Obligations yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Depositary Receipts yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Derivative Instruments yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Foreign Currency Transactions yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Foreign Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
High-Yield (High-Risk) Securities (Junk Bonds) yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Illiquid and Restricted Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Indexed Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Inverse Floaters yes no no no
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Investment Companies yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Lending of Portfolio Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Loan Participations yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Mortgage- and Asset-Backed Securities yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Mortgage Dollar Rolls yes no no no
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Municipal Obligations yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Preferred Stock yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Real Estate Investment Trusts yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Repurchase Agreements yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Reverse Repurchase Agreements yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Short Sales no no no no
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Sovereign Debt yes yes no yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Structured Products yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Variable- or Floating-Rate Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Warrants yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
When-Issued Securities yes yes yes yes
- ----------------------------------------------- ------------- ------------- -------------- -------------
- ----------------------------------------------- ------------- ------------- -------------- -------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes yes
Securities
- ----------------------------------------------- ------------- ------------- -------------- -------------
</TABLE>
<PAGE>
The following are guidelines that may be changed by the board at any time:
Blue Chip Advantage
o The Fund may invest up to 20% of its total assets in foreign investments
included in the market index.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are
illiquid.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in stock index futures
contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
Bond Fund
o Under normal market conditions, at least 65% of the Fund's total assets
will be invested in bonds.
o At least 50% of the Fund's net assets will be invested in bonds rated
investment - grade, unrated corporate bonds that are believed to be of
investment grade quality, and government bonds.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may enter
into interest rate futures contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
Capital Resource
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
<PAGE>
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may enter
into stock index futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
Cash Management
o The Fund may invest up to 25% of its total assets in foreign investments.
o The Fund will not invest in securities that are not readily marketable.
o The Fund may invest in commercial paper rated in the highest rating
category by at least two nationally recognized statistical rating
organizations (or by one, if only one rating is assigned) and in unrated
paper determined by the board of directors to be of comparable quality. The
Fund also may invest up to 5% of its assets in commercial paper receiving
the second highest rating or in unrated paper determined to be of
comparable quality.
o Invest in an investment company beyond 5% of its total assets taken at
market and then only on the open market where the dealer's or sponsor's
profit is limited to the regular commission. However, the Fund will not
purchase or retain the securities of other open-end investment companies.
Diversified Equity Income
o Under normal market conditions, the Fund will invest at least 65% of its
net assets in dividend-paying common and preferred stocks.
o No more than 20% of the Fund's net assets may be invested in bonds below
investment grade unless the bonds are convertible securities.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
<PAGE>
Extra Income
o The Fund may invest up to 10% of its total assets in common stocks,
preferred stocks that do not pay dividends and warrants to purchase common
stocks.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are
illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
o The Fund will not buy on margin or sell short, except the Fund may enter
into interest rate future contracts.
Federal Income
o Under normal market conditions, at least 65% of the Fund's total assets
will be invested in securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin, but it may make margin payments in
connection with interest rate futures contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
Global Bond
o Under normal market conditions, at least 80% of the Fund's net assets will
be investment - grade corporate or government debt securities, including
money market instruments, of issuers located in at least three different
countries.
o The Fund may not purchase debt securities rated lower than B by Moody's
Investors Service Inc. or the equivalent.
<PAGE>
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, but the Fund may make margin
payments in connection with transactions in futures contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
Growth
o The Fund will not invest in bonds rated below investment grade.
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in stock index futures
contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
International
o Under normal market conditions, at least 65% of the Fund's total assets
will be invested in common stocks or securities convertible into common
stocks of issuers invested in at least three foreign countries.
o Normally, investments in U.S. issuers generally will constitute less than
20% of the Fund's
portfolio.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
<PAGE>
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may enter
into stock index futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest in securities of investment companies except by
purchase in the open market where the dealer's or sponsor's profit is the
regular commission. If any such investment is ever made, not more than 10%
of the Fund's net assets, at market, will be so invested.
Managed
o Under normal market conditions, the Fund invests at least 50% of its total
assets in common stocks.
o The Fund may invest up to 25% of its total assets in foreign investment.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except it may enter into
stock index futures and interest rate futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
New Dimensions
o The Fund may invest up to 30% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, but the Fund may make margin
payments in connection with transactions in stock index futures contracts.
o The Fund will not invest more than 10% of its assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
<PAGE>
Small Cap Advantage
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in derivative instruments.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
Strategy Aggressive
o The Fund may invest up to 25% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may enter
into stock index futures contracts.
o The Fund will not invest in a company to control or manage it.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
<PAGE>
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
<PAGE>
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
<PAGE>
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of money market securities and securities
ratings.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique
<PAGE>
investment characteristics in that they generally (i) have higher yields than
common stocks but lower yields than comparable non-convertible securities, (ii)
are less subject to fluctuation in value than the underlying stock since they
have fixed income characteristics, and (iii) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
<PAGE>
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend on, in whole or in part, (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
<PAGE>
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable gain or loss in the price of the
derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees for the length of the contract to sell the security at the
set price when the buyer wants to exercise the option, no matter what the market
price of the security is at that time. A person who buys a put option has the
right to sell a security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price if the
purchaser wants to exercise the option during the length of the contract, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
<PAGE>
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day an
investor would pay out cash in an amount equal to any decline in the contract's
value or receive cash equal to any increase. At the time a futures contract is
closed out, a nominal commission is paid, which is generally lower than the
commission on a comparable transaction in the cash market.
Future contracts may be based on various securities, securities indices (such as
the S&P 500 Index), foreign currencies and other financial instruments and
indices.
Options on Futures Contracts. Options on futures contracts give the holder
a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date (some futures are settled in cash), an option on a futures
contract merely entitles its holder to decide on or before a future date (within
nine months of the date of issue) whether to enter into a contract. If the
holder decides not to enter into the contract, all that is lost is the amount
(premium) paid for the option. Further, because the value of the option is fixed
at the point of sale, there are no daily payments of cash to reflect the change
in the value of the underlying contract. However, since an option gives the
buyer the right to enter into a contract at a set price for a fixed period of
time, its value does change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded
on national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred on futures contracts and on underlying securities identified as
hedged positions.
<PAGE>
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
Derivatives are risky investments.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities.
There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
<PAGE>
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by the forces of supply and
demand in the foreign exchange markets, actual or anticipated changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected by the intervention of U.S. or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments.
Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
<PAGE>
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy options on foreign currencies
for hedging purposes. For example, a decline in the dollar value of a foreign
currency in which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against the diminutions in the value of securities, the Fund
may buy options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
<PAGE>
As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put options, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
<PAGE>
Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities and Domestic Companies with Foreign Operations
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates
<PAGE>
for portfolio securities. In addition, with respect to certain foreign
countries, there is the possibility of nationalization, expropriation, the
imposition of additional withholding or confiscatory taxes, political, social,
or economic instability, diplomatic developments that could affect investments
in those countries, or other unforeseen actions by regulatory bodies (such as
changes to settlement or custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transition period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
<PAGE>
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time-consuming
negotiations and legal expense, and it may be difficult - or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
<PAGE>
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, the Fund will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
<PAGE>
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia). The interest on these
obligations is generally exempt from federal income tax. Municipal obligations
are generally classified as either "general obligations" or "revenue
obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
<PAGE>
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
<PAGE>
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price on the replacement date. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased prior to the scheduled
delivery date, the investor loses the opportunity to participate in the gain.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
<PAGE>
Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
<PAGE>
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets. In addition, when the Fund engages in forward commitment and
when-issued transactions (either purchases or sales), it relies on the
counterparty to consummate the transaction. The failure of the counterparty to
consummate the transaction may result in the Fund's losing the opportunity to
obtain a price and yield considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
<PAGE>
SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Subject to policies set by the board, IDS Life Insurance Company (IDS Life) is
authorized to determine, consistent with the Fund's investment goal and
policies, which securities will be purchased, held, or sold. In determining
where the buy and sell orders are to be placed, IDS Life has been directed to
use its best efforts to obtain the best available price and the most favorable
execution except where otherwise authorized by the board. IDS Life intends to
direct American Express Financial Corporation (AEFC) to execute trades and
negotiate commissions on its behalf. In selecting broker-dealers to execute
transactions, AEFC may consider the price of the security, including commission
or mark-up, the size and difficulty of the order, the reliability, integrity,
financial soundness, and general operation and execution capabilities of the
broker, the broker's expertise in particular markets, and research services
provided by the broker. These services are covered by the Investment Advisory
Agreement between IDS Life and AEFC. When AEFC acts on IDS Life's behalf, for
the Fund, it follows the guidelines stated below.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund or trust for which it
acts as investment manager.
The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing IDS Life to do so to the extent
authorized by law, if IDS Life determines, in good faith, that such commission
is reasonable in relation to the value of the brokerage or research services
provided by a broker or dealer, viewed either in the light of that transaction
or IDS Life's or AEFC's overall responsibilities with respect to the Fund and
the other funds for which they act as investment managers.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, IDS Life must follow
procedures authorized by the board. To date, three procedures have been
authorized. One procedure permits IDS Life to direct an order to buy or sell a
security traded on a national securities exchange to a specific broker for
research services it has provided. The second procedure permits IDS Life, in
order to obtain research, to direct an order on an agency basis to buy or sell a
security traded in the over-the-counter market to a firm that does not make a
market in that security. The commission paid generally includes compensation for
research services. The third procedure permits IDS Life, in order to obtain
research and brokerage services, to cause the Fund to pay a commission in excess
of the amount another broker might have charged. IDS Life has advised the Fund
that it is necessary to do business with a number of brokerage firms on a
continuing basis to obtain such
<PAGE>
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but IDS Life believes it may obtain better
overall execution. IDS Life has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by IDS Life and AEFC in providing advice to
all the funds and accounts advised by IDS Life and AEFC even though it is not
possible to relate the benefits to any particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by IDS Life,
AEFC or any of its subsidiaries. When the Fund buys or sells the same security
as another portfolio, fund, or account, AEFC carries out the purchase or sale in
a way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
For fiscal years noted below, each Fund paid the following total brokerage
commissions. Substantially all firms through whom transactions were executed
provide research services.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Aug. 31, 1999 Aug. 31, 1998 Aug. 31, 1997
------------- ------------- -------------
Bond $ 63,860 $ 85,301 $ 168,718
Capital Resource 6,309,750 7,319,583 9,778,626
Cash Management -0- -0- -0-
Extra Income 1,293 4,211 1,668
Global Bond -0- -0- -0-
International 8,124,560 6,012,897 6,013,492
Managed 2,953,255 2,698,065 3,490,303
New Dimensions 1,277,847 1,172,182 657,014
Strategy Aggressive 5,889,467 6,553,128 7,958,360
</TABLE>
<PAGE>
In fiscal year 1999, the following transactions and commissions were
specifically directed to firms in exchange for research services:
Transactions Commissions
Bond $ - $ -
Capital Resource - -
Cash Management - -
Extra Income - -
Global Bond - -
International - -
Managed 290,000 14,500
New Dimensions - -
Strategy Aggressive 2,111,000 106,765
As of the end of the most recent fiscal year, International held no securities
of its regular brokers or dealers or of the parent of those brokers or dealers
that derived more than 15% of gross revenue from securities-related activities.
As of the end of the most recent fiscal year, each Fund held securities of its
regular brokers or dealers of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
<TABLE>
<CAPTION>
<S> <C> <C>
Value of Securities
Fund Name of Issuer owned at End of Fiscal Year
Bond Bank of America $ 2,195,508
Fleet Financial Group 10,573,734
Salomon Smith Barney 8,289,607
Capital Resource Morgan Stanley 77,231,250
Cash Management Bank of America 3,089,840
Fleet Funding 26,266,189
Goldman Sachs Group 23,624,357
Merrill Lynch 4,000,000
Morgan Guaranty 5,000,000
Salomon Smith Barney 4,960,583
Extra Income Lehman Brothers 2,177,500
Global Bond Lehman Brothers 1,101,183
Morgan (JP) 886,950
Managed Bank of America 27,225,000
Fleet Funding 1,893,627
Merrill Lynch 26,452,262
Morgan (JP) 4,434,750
Morgan Stanley 62,214,063
Salomon Smith Barney 3,845,927
Travelers Property Casualty 14,200,000
New Dimensions Bank of America 44,377,356
Morgan Stanley 38,966,598
Salomom Smith Barney 18,222,417
Schwab (Charles) 14,875,700
Strategy Aggressive Fleet Funding 16,735,023
Legg Mason 534,892
Salomon Smith Barney 7,292,732
</TABLE>
<PAGE>
The Fund's portfolio turnover rate indicates changes in its portfolio of
securities and will vary from year to year. The Fund may experience relatively
higher portfolio turnover than normal during a period of rapid asset growth if
smaller positions acquired in connection with portfolio diversification
requirements are replaced by larger positions. High portfolio turnover could
result in increased transaction costs.
The portfolio turnover rates for the two most recent fiscal years were as
follows:
Aug. 31, 1999 Aug. 31, 1998
------------- -------------
Bond 68% 48%
Capital Resource 56 68
Extra Income 50 66
Global Bond 56 14
International 102 86
Managed 44 50
New Dimensions 27 34
Strategy Aggressive 207 176
Blue Chip Advantage, Diversified Equity Income, Federal Income, Growth and Small
Cap Advantage Funds did not begin operations until September 1999. Therefore, no
brokerage information is provided for those Funds.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE
- --------------------------------------------------------------------------------
Affiliates of American Express Company (of which IDS Life is a wholly-owned
indirect subsidiary) may engage in brokerage and other securities transactions
on behalf of the Fund according to procedures adopted by the board and to the
extent consistent with applicable provisions of the federal securities laws. IDS
Life will use an American Express affiliate only if (i) IDS Life determines that
the Fund will receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar brokerage and other
services for the Fund and (ii) the affiliate charges the Fund commission rates
consistent with those the affiliate charges comparable unaffiliated customers in
similar transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
No brokerage commissions were paid by Bond, Cash Management, Extra Income,
Global Bond and International to brokers affiliated with the Advisor for the
three most recent fiscal years.
<PAGE>
<TABLE>
<CAPTION>
Information about brokerage commissions paid by the Funds for the last three
fiscal years to brokers affiliated with the Advisor is contained in the
following table:
As of the end of Fiscal Year,
1999 1998 1997
---------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Percent of
------------- ----------- ------------ ------------ Aggregate ------------ ------------
Dollar Amount
Aggregate of Aggregate Aggregate
Dollar Percent of Transactions Dollar Dollar
amount of Aggregate Involving Amount of Amount of
Fund Nature of Commissions Brokerage Payment of Commissions Commissions
Broker Affiliation Paid to Commissions Commissions Paid to Paid to
Broker Broker Broker
Capital Resource American Wholly-owned $582,267 9.23% 17.79% $630,669 $817,190
Managed Enterprise subsidiary 215,973 7.31 9.88 123,736 227,619
New Dimensions Investment of the 165,340 12.94 29.28 129,771 20,404
Strategy Aggressive Services Inc. Advisor 203,181 3.45 5.13 414,129 183,327
- --------------------
</TABLE>
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
Average annual total return
The Fund may calculate average annual total return for certain periods by
finding the average annual compounded rates of return over the period that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
<PAGE>
Aggregate total return
The Fund may calculate aggregate total return for certain periods representing
the cumulative change in the value of an investment in a fund over a specified
period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
The total return of the S&P 500 Index is calculated by several sources. Blue
Chip Advantage Fund will use the total return as calculated by Standard & Poor's
Corporation (S&P) to measure the U.S. stock market. The total return is
calculated by adding dividend income to price appreciation. Total return on the
S&P 500 Index is determined by reinvesting cash dividends paid on stocks on the
ex-dividend date that is, the date on or after which a sale of stock does not
carry with it the right to a dividend already declared. S&P also makes
adjustments for special dividends, such as stock dividends. The percentage
changes for the indexes other than the S&P 500 Index reflect reinvestment of all
distributions on a quarterly basis and changes in market prices. The percentage
changes for all the indexes exclude brokerage commissions or other fees. By
comparison, the Fund will incur such fees and other expenses.
Annualized yield
Bond, Diversified Equity Income, Extra Income, Federal Income and Global Bond
may calculate an annualized yield by dividing the net investment income per
share deemed earned during a 30-day period by the net asset value per share on
the last day of the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Bond's annualized yield was 6.62%, Extra Income's was 12.89% and Global Bond's
was 4.39% for the 30-day period ended Aug. 31, 1999. Diversified Equity Income
and Federal Income did not begin operations until September 1999. Therefore, no
annualized yield has been calculated for these Funds.
The Fund 's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to the Fund's shareholders. Actual amounts paid
to Fund shareholders are reflected in the distribution yield.
<PAGE>
DISTRIBUTION YIELD
Distribution yield is calculated according to the following formula:
D x F = DY
NAV 30
where: D = sum of dividends for 30 day period
NAV = beginning of period net asset value
F = annualizing factor
DY = distribution yield
Bond's distribution yield was 6.56%, Extra Income's was 12.50% and Global Bond's
was 4.38% for the 30-day period ended Aug. 31, 1999. Diversified Equity Income
and Federal Income did not begin operations until September 1999. Therefore, no
distribution yield has been calculated for these Funds.
Cash Management Fund calculates annualized simple and compound yields based on a
seven-day period.
The simple yield is calculated by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of the
seven-day period, dividing the net change in account value by the value of the
account at the beginning of the period to obtain the return for the period, and
multiplying that return by 365/7 to obtain an annualized figure. The value of
the hypothetical account includes the amount of any declared dividends, the
value of any shares purchased with any dividend paid during the period and any
dividends declared for such shares. The Fund's yield does not include any
realized or unrealized gains or losses.
The Fund calculates its compound yield according to the following formula:
Compound Yield = (return for seven day period + 1) x (365/7) - 1
Cash Management Fund's simple annualized yield was 4.73% and its compound yield
was 4.84% for the seven days ended Aug. 31, 1999, the last business day of the
Fund's fiscal year.
Yield, or rate of return, on Cash Management Fund shares may fluctuate daily and
does not provide a basis for determining future yields. However, it may be used
as one element in assessing how the Fund is meeting its goal. When comparing an
investment in the Fund with savings accounts and similar investment
alternatives, you must consider that such alternatives often provide an agreed
to or guaranteed fixed yield for a stated period of time, whereas the Fund's
yield fluctuates. In comparing the yield of one money market fund to another,
you should consider the Fund's investment policies, including the types of
investments permitted.
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and
Wiesenberger Investment Companies Service. The Fund also may compare its
performance to a wide variety of indexes or averages. There are similarities and
differences between the investments that the Fund may purchase and the
investments measured by the indexes or averages and the composition of the
indexes or averages will differ from that of the Fund.
<PAGE>
VALUING FUND SHARES
- --------------------------------------------------------------------------------
The value of an individual share is determined by using the net asset value
(NAV) before shareholder transactions for the day. As of the end of the most
recent fiscal year, the computation looked like this:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shares outstanding
Fund at the end of Net asset value
Net assets divided by previous day equals of one share
- --------------------------- ----------------- ------------- --------------------- ----------- ----------------
Bond $1,750,287,659 165,705,950 $10.56
Capital Resource 5,620,566,543 162,355,580 34.62
Extra Income 638,037,876 72,957,929 8.75
Global Bond 197,426,231 20,069,246 9.84
International 2,221,030,793 128,714,852 17.26
Managed 5,045,730,836 267,822,635 18.84
New Dimensions 3,538,224,646 187,521,775 18.87
Strategy Aggressive 2,327,321,980 141,404,983 16.46
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Blue Chip Advantage, Diversified Equity Income, Federal Income, Growth and Small
Cap Advantage did not begin operations until September 1999. Therefore, they are
not included in this chart.
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the exchange
where the security is primarily traded and if none exists, to the
over-the-counter market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities
traded over-the-counter but not included in the NASDAQ National Market
System, are valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued
at their fair value according to procedures decided upon in good faith by
the board.
<PAGE>
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is an
approximation of market value determined by systematically increasing the
carrying value of a security if acquired at a discount, or reducing the
carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
o Securities without a readily available market price, and other assets are
valued at fair value as determined in good faith by the board. The board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the Fund.
If a valuation of a bond is not available from a pricing service, the bond
will be valued by a dealer knowledgeable about the bond if such a dealer is
available.
Cash Management Fund intends to use its best efforts to maintain a
constant net asset value of $1 per share although there is no assurance it
will be able to do so. Accordingly, the Fund uses the amortized cost method
in valuing its portfolio.
o Short-term securities maturing in 60 days or less are valued at amortized
cost. Amortized cost is an approximation of market value determined by
systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that
the carrying value is equal to maturity value on the maturity date. It does
not take into consideration unrealized capital gains or losses. All of the
securities in the Fund's portfolio will be valued at their amortized cost.
In addition, Cash Management Fund must abide by certain conditions. It must only
invest in securities of high quality which present minimal credit risks as
determined by the board of directors. This means that the rated commercial paper
in the Fund's portfolio will be issues that have been rated in the highest
rating category by at least two nationally recognized statistical rating
organizations (or by one if only one rating is assigned) and in unrated paper
determined by the Fund's board of directors to be comparable. The Fund must also
purchase securities with original or remaining maturities of 13 months or less,
and maintain a dollar-weighted average portfolio maturity of 90 days or less. In
addition, the board of directors must establish procedures designed to stabilize
the Fund's price per share for purposes of sales and redemptions at $1 to the
extent that it is reasonably possible to do so. These procedures include review
of the Fund's securities by the Board, at intervals deemed appropriate by it, to
determine whether the Fund's net asset value per share computed by using the
available market quotations deviates from a share value of $1 as computed using
the amortized cost method. The board must consider any deviation that appears,
and if it exceeds 0.5%, it must determine what action, if any, needs to be
taken. If the board determines that a deviation exists that may result in a
material dilution of the holdings of the variable accounts or investors, or in
other unfair consequences for such people, it must undertake remedial action
that it deems necessary and appropriate. Such action may include withholding
dividends, calculating net asset value per share for purposes of sales and
redemptions in kind, and selling securities before maturity in order to realize
capital gain or loss or to shorten average portfolio maturity.
In other words, while the amortized cost method provides certainty and
consistency in portfolio valuation, it may, from time to time, result in
valuations of securities that are either somewhat higher or lower than the
prices at which the securities could be sold. This means that during times of
declining interest rates, the yield on Cash Management Fund's shares may be
higher than if valuations of portfolio securities were made based on actual
market prices and estimates of market prices. Accordingly, if use of the
amortized cost method were to result in a lower portfolio value at a given time,
a prospective investor in the Fund would be able to obtain a somewhat higher
yield than if portfolio valuation were based on actual market values. The
variable accounts, on the other hand, would receive a somewhat lower yield than
they would otherwise receive. The opposite would happen during a period of
rising interest rates.
<PAGE>
SELLING SHARES
- -------------------------------------------------------------------------------
The Fund will sell any shares presented by the shareholders (variable accounts
or subaccounts) for sale. The policies on when or whether to buy or sell Fund
shares are described in your annuity or life insurance policy prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares, or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is
not reasonably practicable for the Fund to determine the fair value of its
net assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all contract owners.
REJECTION OF BUSINESS
The Fund reserves the right to reject any business, in its sole discretion.
CAPITAL LOSS CARRYOVER
- --------------------------------------------------------------------------------
For federal income tax purposes, the Bond, Extra Income and Global Bond Funds
had total capital loss carryovers of $91,037,357 at the end of the most recent
fiscal year, that if not offset by subsequent capital gains will expire as
follows:
Fund 2007 2008
- ---- --------------- -----------
Bond $14,566,694 $42,662,347
Extra Income 6,538,287 22,710,560
Global Bond 938,847 3,620,622
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
TAXES
- --------------------------------------------------------------------------------
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENTS
Investment Management Services Agreement
IDS Life, a wholly-owned subsidiary of AEFC, is the investment manager for the
Fund. Under the Investment Management Services Agreement, IDS Life, subject to
the policies set by the board, provides investment management services.
For its services, IDS Life is paid a fee monthly based on the following
schedule. The fee is calculated for each calendar day on the basis of net assets
as of the close of business two business days prior to the day for which the
calculation is made.
Blue Chip Advantage
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.50 0.560%
Next 0.50 0.545
Next 1.00 0.530
Next 1.00 0.515
Next 3.00 0.500
Over 6.00 0.470
Bond Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.610%
Next 1 0.595
Next 1 0.580
Next 3 0.565
Next 3 0.550
Over 9 0.535
Capital Resource
Assets Annual rate at
(billions) each asset level
First $1 0.630%
Next 1 0.615
Next 1 0.600
Next 3 0.585
Over 6 0.570
<PAGE>
Cash Management
Assets Annual rate at
(billions) each asset level
First $1.0 0.510%
Next 0.5 0.493
Next 0.5 0.475
Next 0.5 0.458
Over 2.5 0.440
Diversified Equity Income
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.50 0.560%
Next 0.50 0.545
Next 1.00 0.530
Next 1.00 0.515
Next 3.00 0.500
Over 6.00 0.470
Extra Income
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.620%
Next 1 0.605
Next 1 0.590
Next 3 0.575
Next 3 0.560
Over 9 0.545
Federal Income
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1.00 0.610%
Next 1.00 0.595
Next 1.00 0.580
Next 3.00 0.565
Next 3.00 0.550
Over 9.00 0.535
<PAGE>
Global Bond
Assets Annual rate at
(billions) each asset level
First $0.25 0.840%
Next 0.25 0.825
Next 0.25 0.810
Next 0.25 0.795
Over 1.00 0.780
Growth
Assets Annual rate at
(billions) each asset level
First $1.00 0.630%
Next 1.00 0.615
Next 1.00 0.600
Next 3.00 0.585
Over 6.00 0.570
International
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.870%
Next 0.25 0.855
Next 0.25 0.840
Next 0.25 0.825
Next 1.00 0.810
Over 2.00 0.795
Managed
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.5 0.630%
Next 0.5 0.615
Next 1.0 0.600
Next 1.0 0.585
Next 3.0 0.570
Over 6.0 0.550
<PAGE>
New Dimensions
Assets Annual rate at
(billions) each asset level
First $1 0.630%
Next 1 0.615
Next 1 0.600
Next 3 0.585
Over 9 0.570
Small Cap Advantage
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.790%
Next 0.25 0.770
Next 0.25 0.750
Next 0.25 0.730
Next 1.00 0.710
Over 2.00 0.650
Strategy Aggressive
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.650%
Next 0.25 0.635
Next 0.25 0.620
Next 0.25 0.605
Next 1.00 0.590
Over 2.00 0.575
For Blue Chip Advantage, Diversified Equity Income, Growth and Small Cap
Advantage, before the fee based on the asset charge is paid, it is adjusted for
investment performance. The adjustment, determined monthly, will be calculated
using the percentage point difference between the change in the net asset value
of one share of the Fund and the change in the (i) Lipper Growth and Income Fund
Index (Index) for Blue Chip Advantage and Growth, (ii) Lipper Equity Income Fund
Index for Diversified Equity Income, and (iii) the Lipper Small Cap Fund Index
for Small Cap Advantage. The performance of one share of the Fund is measured by
computing the percentage difference between the opening and closing net asset
value of one share of the Fund, as of the last business day of the period
selected for comparison, adjusted for dividend or capital gain distributions
which are treated as reinvested at the end of the month during which the
distribution was made. The performance of the Index for the same period is
established by measuring the percentage difference between the beginning and
ending Index for the comparison period. The performance is adjusted for dividend
or capital gain distributions (on the securities which comprise the Index),
which are treated as reinvested at the end of the month during which the
distribution was made. One percentage point will be subtracted from the
calculation to help assure that incentive adjustments are attributable to AEFC's
management abilities rather than random fluctuations and the result multiplied
by 0.01%. That number will be multiplied times the Fund's average net assets for
the comparison period and then divided by the number of months in the comparison
period to determine the monthly adjustment.
<PAGE>
Where the Fund's share performance exceeds that of the Index, the base fee will
be increased. Where the performance of the Index exceeds the performance of the
Fund's shares, the base fee will be decreased. For Blue Chip Advantage,
Diversified Equity Income and Growth, the maximum monthly increase or decrease
will be 0.08% of each Fund's average net assets on an annual basis. For Small
Cap Advantage, the maximum monthly increase or decrease will be 0.12% of the
Fund's average net assets on an annual basis.
The 12 month comparison period will roll over with each succeeding month, so
that it always equals 12 months, ending with the month for which the performance
adjustment is being computed.
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's assets (on an annual basis) was 0.604% for Bond, 0.601% for Capital
Resource, 0.510% for Cash Management, 0.620% for Extra Income, 0.840% for Global
Bond, 0.825% for International, 0.589% for Managed, 0.610% for New Dimensions,
0.604% for Strategy Aggressive. The fee is calculated for each calendar day on
the basis of net assets as of the close of business two business days prior to
the day for which the calculation is made. Blue Chip Advantage, Diversified
Equity Income, Federal Income, Growth and Small Cap Advantage began operations
September 1999. Therefore, they are not included in these listings for the
fiscal year ended Aug. 31, 1999.
<TABLE>
<CAPTION>
The management fee is paid monthly. Under the agreement, advisory expenses paid
for the following fiscal years were as follows:
<S> <C> <C> <C>
Fund 1999 1998 1997
Bond $11,191,880 $11,816,239 $11,582,416
- --------------------------------------
Capital Resource 33,169,737 31,852,411 27,562,075
- --------------------------------------
Cash Management 2,828,782 2,041,502 1,845,243
- --------------------------------------
Extra Income 3,725,928 2,988,028 1,070,942
- --------------------------------------
Global Bond 1,689,945 1,338,718 576,997
- --------------------------------------
International 17,609,972 18,268,846 16,844,405
- --------------------------------------
Managed 29,584,681 28,641,618 23,778,006
- --------------------------------------
New Dimensions 17,935,431 11,769,360 4,581,562
- --------------------------------------
Strategy Aggressive 13,697,732 15,625,616 13,049,949
</TABLE>
<PAGE>
Under the Agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees and expenses, audit expenses,
cost of items sent to contract owners, postage, fees and expenses paid to board
members who are not officers or employees of IDS Life or AEFC, fees and expenses
of attorneys, costs of fidelity and surety bonds, SEC registration fees,
expenses of preparing prospectuses and of printing and distributing prospectuses
to existing contract owners, losses due to theft or other wrong doing or due to
liabilities not covered by bond or agreement, expenses incurred in connection
with lending securities and expenses properly payable by the Fund, approved by
the board. All other expenses are borne by IDS Life.
<TABLE>
<CAPTION>
Under the agreement, nonadvisory expenses paid for the following fiscal years
were as follows:
<S> <C> <C> <C>
Fund 1999 1998 1997
Bond $ 451,601 $ 306,961 $ 470,062
- --------------------------------------
Capital Resource 711,962 691,029 1,216,304
- --------------------------------------
Cash Management 116,861 90,399 112,930
- --------------------------------------
Extra Income 160,872 82,924 29,848
- --------------------------------------
Global Bond 112,238 73,014 53,806
- --------------------------------------
International 1,431,821 1,494,878 1,971,367
- --------------------------------------
Managed 657,770 694,841 781,442
- --------------------------------------
New Dimensions 627,887 379,620 311,923
- --------------------------------------
Strategy Aggressive 499,525 389,523 595,678
</TABLE>
Investment Advisory Agreement
IDS Life and AEFC have an Investment Advisory Agreement under which AEFC
executes purchases and sales and negotiates brokerage as directed by IDS Life.
For its services, IDS Life pays AEFC an annual fee of 0.25% of each Fund's
average daily net assets except for International whose fee is 0.35%. Blue Chip
Advantage, Diversified Equity Income, Federal Income, Growth and Small Cap
Advantage began operations September 1999. Therefore, they are not included in
these listings for the fiscal year ended Aug. 31, 1999.
<TABLE>
<CAPTION>
Under the Agreement, the Advisor paid AEFC for the following fiscal years as
follows:
<S> <C> <C> <C>
Fund 1999 1998 1997
Bond $4,639,445 $ 4,869,052 $ 4,808,246
- --------------------------------------
Capital Resource 13,791,067 13,148,180 11,405,895
- --------------------------------------
Cash Management 1,386,766 995,844 907,423
- --------------------------------------
Extra Income 1,502,390 1,190,430 431,464
- --------------------------------------
Global Bond 502,960 395,622 172,596
- --------------------------------------
International 7,456,590 7,744,185 7,127,500
- --------------------------------------
Managed 12,548,106 12,132,138 10,013,842
- --------------------------------------
New Dimensions 7,296,923 4,691,961 1,821,928
- --------------------------------------
Strategy Aggressive 5,662,457 6,496,353 5,385,048
</TABLE>
<PAGE>
Sub-Investment Advisor:
American Express Asset Management International Inc. (Sub-Advisor), a
wholly-owned subsidiary of AEFC located at IDS Tower 10, Minneapolis, MN
55440-0010 sub-advises the assets in the International Equity Fund. Sub-Advisor,
subject to the supervision and approval of AEFC, provides investment advisory
assistance and day-to-day management of the Fund's portfolio, as well as
investment research and statistical information, under an Investment Advisory
Agreement with AEFC.
Under the agreement, the Sub-Advisor receives an annual fee of 0.35% of daily
net assets.
Under the agreement, the total amount paid for International Fund was $7,456,590
for fiscal year 1999, $7,744,185 for fiscal year 1998, and $7,127,500 for fiscal
year 1997.
American Express Asset Management Group Inc. (Sub-Advisor) an indirect
subsidiary of AEFC located at IDS Tower 10, Minneapolis, MN 55440-0010,
sub-advises the assets of Strategy Aggressive Fund. Sub-Advisor, subject to the
supervision and approval of AEFC, provides investment advisory assistance and
day-to-day management of the Fund's portfolio, as well as investment research
and statistical information, under an Investment Advisory Agreement with AEFC.
Under the agreement, the Sub-Adviser receives an annual fee of 0.35% of average
daily net assets.
Under the agreement, the Sub-Advisor receives an annual fee of 0.35% of daily
net assets.
Under the agreement, the total amount paid for Strategy Aggressive Fund was
$5,662,457 for fiscal year 1999, $6,496,353 for fiscal year 1998, and $5,385,048
for fiscal year 1997.
Kenwood Capital Management LLC (Sub-Advisor) an indirect subsidiary of AEFC
located at IDS Tower 10, Minneapolis, MN 55440-0010, sub-advises the assets of
Small Cap Advantage Fund. Sub-Advisor, subject to the supervision and approval
of AEFC, provides investment advisory assistance and day-to-day management of
the Fund's portfolio, as well as investment research and statistical
information, under an Investment Advisory Agreement with AEFC. Under the
agreement, the Sub-Advisor receives an annual fee of 0.35% of average daily net
assets. Small Cap Advantage did not begin operations until September 1999. As a
result, no fees were paid during the prior fiscal year.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC a fee for providing administration and accounting
services. The fee, based on the following schedule, is calculated for each
calendar day on the basis of net assets as of the close of business two business
days prior to the day for which the calculation is made.
Blue Chip Advantage
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.50 0.040%
Next 0.50 0.035
Next 1.00 0.030
Next 1.00 0.025
Next 3.00 0.020
Over 6.00 0.020
<PAGE>
Bond Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Next 3 0.030
Over 9 0.025
Capital Resource
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Over 6 0.030
Cash Management
Assets Annual rate at
(billions) each asset level
First $1.0 0.030%
Next 0.5 0.027
Next 0.5 0.025
Next 0.5 0.022
Over 2.5 0.020
Diversified Equity Income
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.50 0.040%
Next 0.50 0.035
Next 1.00 0.030
Next 1.00 0.025
Next 3.00 0.020
Over 6.00 0.020
<PAGE>
Extra Income
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Next 3 0.030
Over 9 0.025
Federal Income
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1.00 0.050%
Next 1.00 0.045
Next 1.00 0.040
Next 3.00 0.035
Next 3.00 0.030
Over 9.00 0.025
Global Bond
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Over 1.00 0.040
Growth
Assets Annual rate at
(billions) each asset level
First $1.00 0.050%
Next 1.00 0.045
Next 1.00 0.040
Next 3.00 0.035
Over 6.00 0.030
<PAGE>
International
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.0 0.040
Over 2.0 0.035
Managed
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.5 0.040%
Next 0.5 0.035
Next 1.0 0.030
Next 1.0 0.025
Next 3.0 0.020
Over 6.0 0.020
New Dimensions
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Over 6 0.030
Small Cap Advantage
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.00 0.040
Over 2.00 0.035
<PAGE>
Strategy Aggressive
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.00 0.040
Over 2.00 0.035
On the last day of the most recent fiscal year, the daily rates applied to the
Funds' net assets on an annual basis were:
Fund Daily Rates Fees Paid During Prior Fiscal Year
- ---- ----------- ----------------------------------
Bond 0.048% $ 933,030
Capital Resource 0.040 2,297,747
Cash Management 0.030 173,728
Extra Income 0.050 321,400
Global Bond 0.060 123,793
International 0.045 997,689
Managed 0.026 1,402,710
New Dimensions 0.043 1,339,605
Strategy Aggressive 0.045 1,046,623
Blue Chip Advantage, Diversified Equity Income, Federal Income, Growth and Small
Cap Advantage did not begin operations until September 1999. Therefore, they are
not included in this list.
PLAN AND AGREEMENT OF DISTRIBUTION
To help defray the cost of distribution and servicing, the Fund and IDS Life
entered into a Plan and Agreement of Distribution (Plan) pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, IDS Life is paid a fee up to actual expenses
incurred at an annual rate of up to 0.125% of the Fund's average daily net
assets.
Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of shares; and overhead
appropriately allocated to the sale of shares. These expenses also include costs
of providing personal service to contract owners. A substantial portion of the
costs are not specifically identified to any one of the American Express
Variable Portfolio Funds.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting
<PAGE>
securities of the Fund or by IDS Life. The Plan (or any agreement related to it)
will terminate in the event of its assignment, as that term is defined in the
1940 Act. The Plan may not be amended to increase the amount to be spent for
distribution without shareholder approval, and all material amendments to the
Plan must be approved by a majority of the board members, including a majority
of the board members who are not interested persons of the Fund and who do not
have a financial interest in the operation of the Plan or any agreement related
to it. The selection and nomination of disinterested board members is the
responsibility of the other disinterested board members. No board member who is
not an interested person has any direct or indirect financial interest in the
operation of the Plan or any related agreement. The Plan was not effective
during the fiscal year. As a result, no fees were paid. The fee is not allocated
to any one service (such as advertising, payments to underwriters or other
uses). However, a significant portion of the fee is generally used for sales and
promotional expenses.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a sub-custodian agreement with Bank of New York,
90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United Stated are maintained in the custody of
various foreign branches of Bank of New York or in other financial institutions
as permitted by law and by the Fund's sub-custodian agreement.
ORGANIZATIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company. The Fund headquarters are
at IDS Tower 10, Minneapolis, MN 55440-0010.
SHARES
The Fund is owned by the subaccounts, its shareholders. The shares of the Fund
represent an interest in that fund's assets only (and profits or losses), and,
in the event of liquidation, each share of the Fund would have the same rights
to dividends and assets as every other share of that Fund.
VOTING RIGHTS
For a discussion of the rights of contract owners concerning the voting of
shares held by the subaccounts, please see your annuity or life insurance policy
prospectus. All shares have voting rights over the Fund's management and
fundamental policies. Each share is entitled to one vote for each share owned.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that shareholders have as many votes as the number of shares owned,
including fractional shares, multiplied by the number of members to be elected.
Dividend Rights
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
<PAGE>
<TABLE>
<CAPTION>
FUND HISTORY TABLE FOR FUNDS MANAGED BY IDS LIFE
<S> <C> <C> <C> <C> <C>
Date of Form of State of Fiscal Diversified
Organization Organization Organization Year End
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
IDS Life Series Fund, Inc. 5/8/85 Corporation MN 4/30
Equity Portfolio Yes
Equity Income Portfolio Yes
Government Securities Yes
Portfolio
Income Portfolio Yes
International Equity Portfolio Yes
Managed Portfolio Yes
Money Market Portfolio Yes
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Income 4/27/81, Corporation NV/MN 8/31
Series, Inc. 6/13/86*
AXP Variable Portfolio - Bond Yes
Fund
AXP Variable Portfolio - Extra Yes
Income Fund
AXP Variable Portfolio - Yes
Federal Income Fund
AXP Variable Portfolio - No
Global Bond Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - 4/27/81, Corporation NV/MN 8/31
Investment Series, Inc. 6/13/86*
AXP Variable Portfolio - Blue Yes
Chip Advantage Fund
AXP Variable Portfolio - Yes
Capital Resource Fund
AXP Variable Portfolio - Yes
Growth Fund
AXP Variable Portfolio Yes
-International Fund
AXP Variable Portfolio - New Yes
Dimensions Fund
AXP Variable Portfolio - Small Yes
Cap Advantage Fund
AXP Variable Portfolio - Yes
Strategy Aggressive Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Managed 3/5/85 Corporation MN 8/31
Series, Inc.
AXP Variable Portfolio - Yes
Diversified Equity Income Fund
AXP Variable Portfolio - Yes
Managed Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Money 4/27/81, Corporation NV/MN 8/31
Market Series, Inc. 6/13/86*
AXP Variable Portfolio - Cash Yes
Management Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
* Date merged into a Minnesota corporation.
</TABLE>
<PAGE>
BOARD MEMBERS AND OFFICERS
- -------------------------------------------------------------------------------
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 58 American Express funds.
H. Brewster Atwater, Jr.'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN
Chairman and chief executive officer of the Fund. Chairman, Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.
Lynne V. Cheney
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.
William H. Dudley'**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior adviser to the chief executive officer of AEFC.
David R. Hubers**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones+
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
William R. Pearce'
Born in 1927
2050 One Financial Plaza
Minneapolis, MN
RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management
committee. Retired vice chairman of the board, Cargill, Incorporated (commodity
merchants and processors). Former chairman, Board Services Corporation.
Alan K. Simpson+
Born in 1931
1201 Sunshine Ave.
Cody, WY
Director of The Institute of Politics, Harvard University. Former three-term
United States Senator for Wyoming. Former Assistant Republican Leader, U.S.
Senate. Director, PacifiCorp (electric power) and Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
<PAGE>
C. Angus Wurtele+'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of investment review committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. In addition to Mr. Carlson, who
is chairman of the board, and Mr. Thomas, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.
Officers who also are officers and employees of AEFC:
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN
Vice President - investment accounting of AEFC. Treasurer for the Fund.
<PAGE>
COMPENSATION FOR BOARD MEMBERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
During the most recent fiscal year, the independent members of the Fund board,
for attending up to 27 meetings, received the following compensation:
Compensation Table
for AXP VP - Bond Fund
<S> <C> <C>
Total cash compensation from the
--------------------------------- American Express funds and
Board member Aggregate Preferred Master Trust Group
---------------------------------
compensation from the Fund
H. Brewster Atwater, Jr. $2,158 $117,900
Lynne V. Cheney 1,820 96,900
Heinz F. Hutter 1,833 98,400
Anne P. Jones 2,081 112,400
William R. Pearce 717 39,000
Alan K. Simpson 1,820 96,900
Edson W. Spencer 1,517 81,000
Wheelock Whitney 1,392 73,500
C. Angus Wurtele 2,258 123,900
Compensation Table
for AXP VP - Capital Resource Fund
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $3,725 $117,900
Lynne V. Cheney 3,479 96,900
Heinz F. Hutter 3,400 98,400
Anne P. Jones 3,756 112,400
William R. Pearce 1,342 39,000
Alan K. Simpson 3,479 96,900
Edson W. Spencer 2,833 81,000
Wheelock Whitney 2,708 73,500
C. Angus Wurtele 3,825 123,900
Compensation Table
for AXP VP - Money Market Series, Inc.
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $1,392 $117,900
Lynne V. Cheney 1,008 96,900
Heinz F. Hutter 1,067 98,400
Anne P. Jones 1,260 112,400
William R. Pearce 425 39,000
Alan K. Simpson 1,008 96,900
Edson W. Spencer 867 81,000
Wheelock Whitney 742 73,500
C. Angus Wurtele 1,492 123,900
<PAGE>
Compensation Table
for AXP VP - Extra Income Fund
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $1,392 $117,900
Lynne V. Cheney 1,008 96,900
Heinz F. Hutter 1,067 98,400
Anne P. Jones 1,260 112,400
William R. Pearce 425 39,000
Alan K. Simpson 1,008 96,900
Edson W. Spencer 867 81,000
Wheelock Whitney 742 73,500
C. Angus Wurtele 1,492 123,900
Compensation Table
for AXP VP - Global Bond Fund
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $1,225 117,900
Lynne V. Cheney 831 96,900
Heinz F. Hutter 900 98,400
Anne P. Jones 1,082 112,400
William R. Pearce 342 39,000
Alan K. Simpson 831 96,900
Edson W. Spencer 733 81,000
Wheelock Whitney 608 73,500
C. Angus Wurtele 1,325 123,900
Compensation Table
for AXP VP - International Fund
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $2,192 $117,900
Lynne V. Cheney 1,856 96,900
Heinz F. Hutter 1,867 98,400
Anne P. Jones 2,118 112,400
William R. Pearce 717 39,000
Alan K. Simpson 1,856 96,900
Edson W. Spencer 1,550 81,000
Wheelock Whitney 1,425 73,500
C. Angus Wurtele 2,292 123,900
<PAGE>
Compensation Table
for AXP VP - Managed Series, Inc.
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $3,592 $117,900
Lynne V. Cheney 3,338 96,900
Heinz F. Hutter 3,267 98,400
Anne P. Jones 3,613 112,400
William R. Pearce 1,300 39,000
Alan K. Simpson 3,338 96,900
Edson W. Spencer 2,717 81,000
Wheelock Whitney 2,592 73,500
C. Angus Wurtele 3,692 123,900
Compensation Table
for AXP VP - New Dimensions Fund
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $2,192 $117,900
Lynne V. Cheney 1,856 96,900
Heinz F. Hutter 1,867 98,400
Anne P. Jones 2,114 112,400
William R. Pearce 800 39,000
Alan K. Simpson 1,856 96,900
Edson W. Spencer 1,517 81,000
Wheelock Whitney 1,392 73,500
C. Angus Wurtele 2,292 123,900
Compensation Table
for AXP VP - Strategy Aggressive Fund
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $2,325 $117,900
Lynne V. Cheney 1,997 96,900
Heinz F. Hutter 2,000 98,400
Anne P. Jones 2,261 112,400
William R. Pearce 758 39,000
Alan K. Simpson 1,997 96,900
Edson W. Spencer 1,667 81,000
Wheelock Whitney 1,542 73,500
C. Angus Wurtele 2,425 123,900
</TABLE>
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
Blue Chip advantage, Diversified Equity Income, Federal Income, Growth and Small
Cap Advantage did not begin operations until September 1999. Therefore, they
paid no board compensation for the past fiscal year.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Norwest Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX A
DESCRIPTION OF MONEY MARKET SECURITIES
The types of instruments that form the major part of the Fund's investments are
described below.
Certificates of Deposit -- A certificate of deposit is a negotiable receipt
issued by a bank or savings and loan association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited, plus interest, on the date
specified on the certificate.
Time Deposit -- A time deposit is a non-negotiable deposit in a bank for a fixed
period of time.
Bankers' Acceptances -- A bankers' acceptance arises from a short-term credit
arrangement designed to enable businesses to obtain funds to finance commercial
transactions. It is a time draft drawn on a bank by an exporter or an importer
to obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date.
Commercial Paper -- Commercial paper is generally defined as unsecured
short-term notes issued in bearer form by large well-known corporations and
finance companies. Maturities on commercial paper range from one day to nine
months.
Commercial paper rated A by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are better than the industry average.
Long-term senior debt rating is "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowances made for unusual circumstances. Typically, the
issuer's industry is well established, the issuer has a strong position within
its industry and the reliability and quality of management is unquestioned.
Issuers rated A are further rated by use of numbers 1, 2 and 3 to denote
relative strength within this highest classification.
A Prime rating is the highest commercial paper rating assigned by Moody's
Investors Services Inc. Issuers rated Prime are further rated by use of numbers
1, 2 and 3 to denote relative strength within this highest classification. Among
the factors considered by Moody's in assigning ratings for an issuer are the
following: (1) management; (2) economic evaluation of the industry and an
appraisal of speculative type risks which may be inherent in certain areas; (3)
competition and customer acceptance of products; (4) liquidity; (5) amount and
quality of long-term debt; (6) ten year earnings trends; (7) financial strength
of a parent company and the relationships which exist with the issuer; and (8)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Letters of Credit -- A letter of credit is a short-term note issued in bearer
form with a bank letter of credit which provides that the bank pay to the bearer
the amount of the note upon presentation.
U.S. Treasury Bills -- Treasury bills are issued with maturities of any period
up to one year. Three-month and six-month bills are currently offered by the
Treasury on 13-week and 26-week cycles respectively and are auctioned each week
by the Treasury. Treasury bills are issued in book entry form and are sold only
on a discount basis, i.e., the difference between the purchase price and the
maturity value constitutes interest income for the investor. If they are sold
before maturity, a portion of the income received may be a short-term capital
gain.
U.S. Government Agency Securities -- Federal agency securities are debt
obligations which principally result from lending programs of the U.S.
government. Housing and agriculture have traditionally been the principal
beneficiaries of Federal credit programs, and agencies involved in providing
credit to agriculture and housing account for the bulk of the outstanding agency
securities.
<PAGE>
Repurchase Agreements -- A repurchase agreement involves the acquisition of
securities by the Fund, with the concurrent agreement by a bank (or securities
dealer if permitted by law or regulation), to reacquire the securities at the
Fund's cost, plus interest, within a specified time. The Fund thereby receives a
fixed rate of return on this investment, one that is insulated from market and
rate fluctuations during the holding period. In these transactions, the
securities acquired by the Fund have a total value equal to or in excess of the
value of the repurchase agreement and are held by the Fund's custodian until
required.
Floating rate instruments -- These instruments pay interest at a rate tied to an
external interest rate. The rate changes whenever there is a change in the
external interest rate.
If AEFC becomes aware that a security owned by the Fund is downgraded below the
second highest rating, AEFC will either sell the security or recommend to the
Fund's board why it should not be sold.
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
<PAGE>
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
<PAGE>
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
<PAGE>
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
<PAGE>
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXPSM Variable Portfolio - Investment Series, Inc.
AXPSM Variable Portfolio - New Dimensions Fund
Oct. 29, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial Statements contained in the
most recent Annual Report to Shareholders (Annual Report) that may be obtained
from your financial advisor or by writing to American Express(R) Variable
Portfolio Funds, IDS Tower 10, Minneapolis, MN 55440-0010 or by calling
800-437-0602.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
TABLE OF CONTENTS
Fundamental Investment Policies......................................p.3
Investment Strategies and Types of Investments.......................p.5
Information Regarding Risks and Investment Strategies................p.7
Security Transactions...............................................p.30
Brokerage Commissions Paid to Brokers Affiliated with IDS Life......p.32
Performance Information.............................................p.33
Valuing Fund Shares.................................................p.34
Selling Shares......................................................p.35
Taxes...............................................................p.35
Agreements..........................................................p.36
Organizational Information..........................................p.38
Board Members and Officers..........................................p.40
Compensation for Board Members......................................p.43
Independent Auditors................................................p.43
Appendix: Description of Ratings...................................p.44
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Throughout this SAI, the Fund is referred to as follows:
AXP Variable Portfolio - New Dimensions Fund (New Dimensions)
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them. It
may be considered an underwriter under securities laws when it sells
restricted securities.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the SEC, this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
<PAGE>
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make a loan of any part of its assets to AEFC, to the directors and
officers of AEFC or to its own directors and officers.
o Lend Fund securities in excess of 30% of its net assets.
Except for the fundamental policies listed above, the other investment policies
described in the prospectus and in this SAI are not fundamental and may be
changed by the board at any time.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to adopt temporary defensive
positions and is authorized to attempt to hedge against certain types of risk,
these practices are left to the investment manager's sole discretion.
- ----------------------------------------------- --------------------------
Investment strategies & types of investments: Allowable for the Fund?
- ----------------------------------------------- --------------------------
- ----------------------------------------------- --------------------------
Agency and Government Securities yes
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Borrowing yes
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Cash/Money Market Instruments yes
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Collateralized Bond Obligations yes
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Commercial Paper yes
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Common Stock yes
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Convertible Securities yes
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Corporate Bonds yes
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Debt Obligations yes
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Depositary Receipts yes
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Derivative Instruments yes
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Foreign Currency Transactions yes
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Foreign Securities yes
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High-Yield (High-Risk) Securities (Junk Bonds) yes
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Illiquid and Restricted Securities yes
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Indexed Securities yes
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Inverse Floaters no
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Investment Companies yes
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Lending of Portfolio Securities yes
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Loan Participations yes
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Mortgage- and Asset-Backed Securities yes
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Mortgage Dollar Rolls no
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Municipal Obligations yes
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Preferred Stock yes
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Real Estate Investment Trusts yes
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Repurchase Agreements yes
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Reverse Repurchase Agreements yes
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Short Sales no
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Sovereign Debt yes
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Structured Products yes
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Variable- or Floating-Rate Securities yes
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Warrants yes
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When-Issued Securities yes
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Zero-Coupon, Step-Coupon, and Pay-in-Kind yes
Securities
- ----------------------------------------------- --------------------------
<PAGE>
The following are guidelines that may be changed by the board at any time:
o The Fund may invest up to 30% of its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, but the Fund may make margin
payments in connection with transactions in stock index futures contracts.
o The Fund will not invest more than 10% of its assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
<PAGE>
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
<PAGE>
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
<PAGE>
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique
<PAGE>
investment characteristics in that they generally (i) have higher yields than
common stocks but lower yields than comparable non-convertible securities, (ii)
are less subject to fluctuation in value than the underlying stock since they
have fixed income characteristics, and (iii) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
<PAGE>
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend on, in whole or in part, (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
<PAGE>
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable gain or loss in the price of the
derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees for the length of the contract to sell the security at the
set price when the buyer wants to exercise the option, no matter what the market
price of the security is at that time. A person who buys a put option has the
right to sell a security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price if the
purchaser wants to exercise the option during the length of the contract, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
<PAGE>
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day an
investor would pay out cash in an amount equal to any decline in the contract's
value or receive cash equal to any increase. At the time a futures contract is
closed out, a nominal commission is paid, which is generally lower than the
commission on a comparable transaction in the cash market.
Future contracts may be based on various securities, securities indices (such as
the S&P 500 Index), foreign currencies and other financial instruments and
indices.
Options on Futures Contracts. Options on futures contracts give the holder
a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date (some futures are settled in cash), an option on a futures
contract merely entitles its holder to decide on or before a future date (within
nine months of the date of issue) whether to enter into a contract. If the
holder decides not to enter into the contract, all that is lost is the amount
(premium) paid for the option. Further, because the value of the option is fixed
at the point of sale, there are no daily payments of cash to reflect the change
in the value of the underlying contract. However, since an option gives the
buyer the right to enter into a contract at a set price for a fixed period of
time, its value does change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded
on national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred on futures contracts and on underlying securities identified as
hedged positions.
<PAGE>
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
Derivatives are risky investments.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities.
There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
<PAGE>
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by the forces of supply and
demand in the foreign exchange markets, actual or anticipated changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected by the intervention of U.S. or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments.
Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
<PAGE>
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy options on foreign currencies
for hedging purposes. For example, a decline in the dollar value of a foreign
currency in which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against the diminutions in the value of securities, the Fund
may buy options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
<PAGE>
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put options, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.
<PAGE>
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities and Domestic Companies with Foreign Operations
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
<PAGE>
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transition period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
<PAGE>
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time-consuming
negotiations and legal expense, and it may be difficult - or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
<PAGE>
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, the Fund will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
<PAGE>
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia). The interest on these
obligations is generally exempt from federal income tax. Municipal obligations
are generally classified as either "general obligations" or "revenue
obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
<PAGE>
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
<PAGE>
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price on the replacement date. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased prior to the scheduled
delivery date, the investor loses the opportunity to participate in the gain.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
<PAGE>
Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
<PAGE>
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets. In addition, when the Fund engages in forward commitment and
when-issued transactions (either purchases or sales), it relies on the
counterparty to consummate the transaction. The failure of the counterparty to
consummate the transaction may result in the Fund's losing the opportunity to
obtain a price and yield considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
<PAGE>
SECURITY TRANSACTIONS
- -------------------------------------------------------------------------------
Subject to policies set by the board, IDS Life Insurance Company (IDS Life) is
authorized to determine, consistent with the Fund's investment goal and
policies, which securities will be purchased, held, or sold. In determining
where the buy and sell orders are to be placed, IDS Life has been directed to
use its best efforts to obtain the best available price and the most favorable
execution except where otherwise authorized by the board. IDS Life intends to
direct American Express Financial Corporation (AEFC) to execute trades and
negotiate commissions on its behalf. In selecting broker-dealers to execute
transactions, AEFC may consider the price of the security, including commission
or mark-up, the size and difficulty of the order, the reliability, integrity,
financial soundness, and general operation and execution capabilities of the
broker, the broker's expertise in particular markets, and research services
provided by the broker. These services are covered by the Investment Advisory
Agreement between IDS Life and AEFC. When AEFC acts on IDS Life's behalf, for
the Fund, it follows the guidelines stated below.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund or trust for which it
acts as investment manager.
The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing IDS Life to do so to the extent
authorized by law, if IDS Life determines, in good faith, that such commission
is reasonable in relation to the value of the brokerage or research services
provided by a broker or dealer, viewed either in the light of that transaction
or IDS Life's or AEFC's overall responsibilities with respect to the Fund and
the other funds for which they act as investment managers.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, IDS Life must follow
procedures authorized by the board. To date, three procedures have been
authorized. One procedure permits IDS Life to direct an order to buy or sell a
security traded on a national securities exchange to a specific broker for
research services it has provided. The second procedure permits IDS Life, in
order to obtain research, to direct an order on an agency basis to buy or sell a
security traded in the over-the-counter market to a firm that does not make a
market in that security. The commission paid generally includes compensation for
research services. The third procedure permits IDS Life, in order to obtain
research and brokerage services, to cause the Fund to pay a commission in excess
of the amount another broker might have charged. IDS Life has advised the Fund
that it is necessary to do business with a number of brokerage firms on a
continuing basis to obtain such
<PAGE>
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but IDS Life believes it may obtain better
overall execution. IDS Life has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by IDS Life and AEFC in providing advice to
all the funds and accounts advised by IDS Life and AEFC even though it is not
possible to relate the benefits to any particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by IDS Life,
AEFC or any of its subsidiaries. When the Fund buys or sells the same security
as another portfolio, fund, or account, AEFC carries out the purchase or sale in
a way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
For fiscal years noted below, the Fund paid the following total brokerage
commissions. Substantially all firms through whom transactions were executed
provide research services.
Aug. 31, 1999 Aug. 31, 1998 Aug. 31, 1997
New Dimensions $1,277,847 $1,172,182 $657,014
No transactions were directed to brokers because of research services they
provided to the Fund.
<PAGE>
As of the end of the most recent fiscal year, the Fund held securities of its
regular brokers or dealers of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
Value of Securities
Fund Name of Issuer owned at End of Fiscal Year
New Dimensions Bank of America $44,377,356
Morgan Stanley 38,966,598
Salomon Smith Barney 18,222,417
Schwab (Charles) 14,875,700
The Fund's portfolio turnover rate indicates changes in its portfolio of
securities and will vary from year to year. The Fund may experience relatively
higher portfolio turnover than normal during a period of rapid asset growth if
smaller positions acquired in connection with portfolio diversification
requirements are replaced by larger positions. High portfolio turnover could
result in increased transaction costs.
The portfolio turnover rates for the two most recent fiscal years were as
follows:
Aug. 31, 1999 Aug. 31, 1998
New Dimensions 27% 34%
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE
- --------------------------------------------------------------------------------
Affiliates of American Express Company (of which IDS Life is a wholly-owned
indirect subsidiary) may engage in brokerage and other securities transactions
on behalf of the Fund according to procedures adopted by the board and to the
extent consistent with applicable provisions of the federal securities laws. IDS
Life will use an American Express affiliate only if (i) IDS Life determines that
the Fund will receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar brokerage and other
services for the Fund and (ii) the affiliate charges the Fund commission rates
consistent with those the affiliate charges comparable unaffiliated customers in
similar transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
<TABLE>
<CAPTION>
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with the Advisor is contained in the
following table:
As of the end of Fiscal Year,
199 199 199
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------- ------------ -------------
Percent of
------------ ------------- ------------- ------------- Aggregate ------------ -------------
Dollar
Aggregate Amount of Aggregate Aggregate
Dollar Percent of Transactions Dollar Dollar
amount of Aggregate Involving Amount of Amount of
Fund Nature of Commissions Brokerage Payment of Commissions Commissions
Broker Affiliation Paid to Commissions Commissions Paid to Paid to
Broker Broker Broker
New Dimensions American Wholly-owned $165,340 12.94% 29.28% $129,771 $20,404
Enterprise subsidiary
Investment of the
Services Advisor
Inc.
- ---------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
Average annual total return
The Fund may calculate average annual total return for certain periods by
finding the average annual compounded rates of return over the period that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for certain periods representing
the cumulative change in the value of an investment in a fund over a specified
period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and
Wiesenberger Investment Companies Service. The Fund also may compare its
performance to a wide variety of indexes or averages. There are similarities and
differences between the investments that the Fund may purchase and the
investments measured by the indexes or averages and the composition of the
indexes or averages will differ from that of the Fund.
<PAGE>
VALUING FUND SHARES
<TABLE>
<CAPTION>
The value of an individual share is determined by using the net asset value
(NAV) before shareholder transactions for the day. As of the end of the most
recent fiscal year, the computation looked like this:
<S> <C> <C> <C> <C> <C>
Shares outstanding at the Net asset value
Net assets end of previous day of one share
- ----------------------- ----------------- ------------ --------------------------- --------- -----------------
New Dimensions $3,538,224,646 divided by 87,521,775 equals $18.87
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the exchange
where the security is primarily traded and if none exists, to the
over-the-counter market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities
traded over-the-counter but not included in the NASDAQ National Market
System, are valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued
at their fair value according to procedures decided upon in good faith by
the board.
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is an
approximation of market value determined by systematically increasing the
carrying value of a security if acquired at a discount, or reducing the
carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
o Securities without a readily available market price, and other assets are
valued at fair value as determined in good faith by the board. The board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the Fund.
If a valuation of a bond is not available from a pricing service, the bond
will be valued by a dealer knowledgeable about the bond if such a dealer is
available.
<PAGE>
SELLING SHARES
- --------------------------------------------------------------------------------
The Fund will sell any shares presented by the shareholders (variable accounts
or subaccounts) for sale. The policies on when or whether to buy or sell Fund
shares are described in your annuity or life insurance policy prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares, or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is
not reasonably practicable for the Fund to determine the fair value of its
net assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all contract owners.
REJECTION OF BUSINESS
The Fund reserves the right to reject any business, in its sole discretion.
TAXES
- -------------------------------------------------------------------------------
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
<PAGE>
- -------------------------------------------------------------------------------
AGREEMENTS
Investment Management Services Agreement
IDS Life, a wholly-owned subsidiary of AEFC, is the investment manager for the
Fund. Under the Investment Management Services Agreement, IDS Life, subject to
the policies set by the board, provides investment management services.
For its services, IDS Life is paid a fee monthly based on the following
schedule. The fee is calculated for each calendar day on the basis of net assets
as of the close of business two business days prior to the day for which the
calculation is made.
New Dimensions
Assets Annual rate at
(billions) each asset level
First $1 0.630%
Next 1 0.615
Next 1 0.600
Next 3 0.585
Over 9 0.570
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's assets on an annual basis, was 0.610%. The fee is calculated for each
calendar day on the basis of net assets as of the close of business two business
days prior to the day for which the calculation is made.
The management fee is paid monthly. Under the agreement, advisory expenses paid
for the following fiscal years were as follows:
1999 1998 1997
New Dimensions $17,935,431 $11,769,360 $4,581,562
- ---------------
Under the Agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees and expenses, audit expenses,
cost of items sent to contract owners, postage, fees and expenses paid to board
members who are not officers or employees of IDS Life or AEFC, fees and expenses
of attorneys, costs of fidelity and surety bonds, SEC registration fees,
expenses of preparing prospectuses and of printing and distributing prospectuses
to existing contract owners, losses due to theft or other wrong doing or due to
liabilities not covered by bond or agreement, expenses incurred in connection
with lending securities and expenses properly payable by the Fund, approved by
the board. All other expenses are borne by IDS Life.
Under the agreement, nonadvisory expenses paid for the following fiscal years
were as follows:
1999 1998 1997
New Dimensions $627,887 $379,620 $311,923
- --------------
<PAGE>
Investment Advisory Agreement
IDS Life and AEFC have an Investment Advisory Agreement under which AEFC
executes purchases and sales and negotiates brokerage as directed by IDS Life.
For its services, IDS Life pays AEFC an annual fee of 0.25% of the Fund's
average daily net assets.
Under the Agreement, the Advisor paid AEFC for the following fiscal years as
follows:
1999 1998 1997
New Dimensions $12,548,106 $4,691,961 $1,821,928
- --------------
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC a fee for providing administration and accounting
services. The fee, based on the following schedule, is calculated for each
calendar day on the basis of net assets as of the close of business two business
days prior to the day for which the calculation is made.
New Dimensions
Assets Annual rate at
(billions) each asset level
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Over 6 0.030
On the last day of the most recent fiscal year, the daily rates applied to the
Funds' net assets on an annual basis were:
Daily Rates Fees Paid During Prior Fiscal Year
New Dimensions 0.043% $339,605
PLAN AND AGREEMENT OF DISTRIBUTION
To help defray the cost of distribution and servicing, the Fund and IDS Life
entered into a Plan and Agreement of Distribution (Plan) pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, IDS Life is paid a fee up to actual expenses
incurred at an annual rate of up to 0.125% of the Fund's average daily net
assets.
Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of shares; and overhead
appropriately allocated to the sale of shares. These expenses also include costs
of providing personal service to contract owners. A substantial portion of the
costs are not specifically identified to any one of the American Express
Variable Portfolio Funds.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of
<PAGE>
the Plan or in any agreement related to the Plan, or by vote of a majority of
the outstanding voting securities of the Fund or by IDS Life. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person has any direct or
indirect financial interest in the operation of the Plan or any related
agreement. The Plan was not effective during the most recent fiscal year. As a
result, no fees were paid. The fee is not allocated to any one service (such as
advertising, payments to underwriters or other uses.) However, a significant
portion of the fee is generally used for sales and promotional expenses.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a sub-custodian agreement with Bank of New York,
90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United Stated are maintained in the custody of
various foreign branches of Bank of New York or in other financial institutions
as permitted by law and by the Fund's sub-custodian agreement.
ORGANIZATIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company. The Fund headquarters are
at IDS Tower 10, Minneapolis, MN 55440-0010.
SHARES
The Fund is owned by the subaccounts, its shareholders. The shares of the Fund
represent an interest in that fund's assets only (and profits or losses), and,
in the event of liquidation, each share of the Fund would have the same rights
to dividends and assets as every other share of that Fund.
VOTING RIGHTS
For a discussion of the rights of contract owners concerning the voting of
shares held by the subaccounts, please see your annuity or life insurance policy
prospectus. All shares have voting rights over the Fund's management and
fundamental policies. Each share is entitled to one vote for each share owned.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that shareholders have as many votes as the number of shares owned,
including fractional shares, multiplied by the number of members to be elected.
Dividend Rights
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
<PAGE>
<TABLE>
<CAPTION>
FUND HISTORY TABLE FOR FUNDS MANAGED BY IDS LIFE
<S> <C> <C> <C> <C> <C>
Date of Form of State of Fiscal Diversified
Organization Organization Organization Year End
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
IDS Life Series Fund, Inc. 5/8/85 Corporation MN 4/30
Equity Portfolio Yes
Equity Income Portfolio Yes
Government Securities Yes
Portfolio
Income Portfolio Yes
International Equity Portfolio Yes
Managed Portfolio Yes
Money Market Portfolio Yes
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Income 4/27/81, Corporation NV/MN 8/31
Series, Inc. 6/13/86*
AXP Variable Portfolio - Bond Yes
Fund
AXP Variable Portfolio - Extra Yes
Income Fund
AXP Variable Portfolio - Yes
Federal Income Fund
AXP Variable Portfolio - No
Global Bond Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - 4/27/81, Corporation NV/MN 8/31
Investment Series, Inc. 6/13/86*
AXP Variable Portfolio - Blue Yes
Chip Advantage Fund
AXP Variable Portfolio - Yes
Capital Resource Fund
AXP Variable Portfolio - Yes
Growth Fund
AXP Variable Portfolio Yes
-International Fund
AXP Variable Portfolio - New Yes
Dimensions Fund
AXP Variable Portfolio - Small Yes
Cap Advantage Fund
AXP Variable Portfolio - Yes
Strategy Aggressive Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Managed 3/5/85 Corporation MN 8/31
Series, Inc.
AXP Variable Portfolio - Yes
Diversified Equity Income Fund
AXP Variable Portfolio - Yes
Managed Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Money 4/27/81, Corporation NV/MN 8/31
Market Series, Inc. 6/13/86*
AXP Variable Portfolio - Cash Yes
Management Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
* Date merged into a Minnesota corporation.
</TABLE>
<PAGE>
BOARD MEMBERS AND OFFICERS
- -------------------------------------------------------------------------------
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 58 American Express funds.
H. Brewster Atwater, Jr.'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN
Chairman and chief executive officer of the Fund. Chairman, Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.
Lynne V. Cheney
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.
William H. Dudley'**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior adviser to the chief executive officer of AEFC.
David R. Hubers**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones+
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
William R. Pearce'
Born in 1927
2050 One Financial Plaza
Minneapolis, MN
RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management
committee. Retired vice chairman of the board, Cargill, Incorporated (commodity
merchants and processors). Former chairman, Board Services Corporation.
Alan K. Simpson+
Born in 1931
1201 Sunshine Ave.
Cody, WY
Director of The Institute of Politics, Harvard University. Former three-term
United States Senator for Wyoming. Former Assistant Republican Leader, U.S.
Senate. Director, PacifiCorp (electric power) and Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
<PAGE>
C. Angus Wurtele+'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of investment review committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. In addition to Mr. Carlson, who
is chairman of the board, and Mr. Thomas, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.
Officers who also are officers and employees of AEFC:
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN
Vice President - investment accounting of AEFC. Treasurer for the Fund.
<PAGE>
COMPENSATION FOR BOARD MEMBERS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
During the most recent fiscal year, the independent members of the Fund board,
for attending up to 27 meetings, received the following compensation:
<S> <C> <C>
Total cash compensation from the
--------------------------------- ---------------------------------
Board member Aggregate American Express funds and
Compensation from the Fund Preferred Master Trust Group
H. Brewster Atwater, Jr. $2,192 $117,900
Lynne V. Cheney 1,856 96,900
Heinz F. Hutter 1,867 98,400
Anne P. Jones 2,114 112,400
William R. Pearce 800 39,000
Alan K. Simpson 1,856 96,900
C. Angus Wurtele 2,292 123,900
</TABLE>
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Norwest Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
<PAGE>
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
<PAGE>
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
<PAGE>
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
<PAGE>
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP (SM) VARIABLE PORTFOLIO -- INVESTMENT SERIES, INC.
AXP (SM) VARIABLE PORTFOLIO -- INCOME SERIES, INC.
AXP (SM) VARIABLE PORTFOLIO -- MONEY MARKET SERIES, INC.
AXP (SM) VARIABLE PORTFOLIO -- MANAGED SERIES, INC.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of AXP Variable Portfolio -- Bond
Fund, (fund within AXP Variable Portfolio -- Income Series, Inc.), AXP Variable
Portfolio -- Capital Resource Fund, (fund within AXP Variable Portfolio --
Investment Series, Inc.), AXP Variable Portfolio -- Cash Management Fund, (fund
within AXP Variable Portfolio -- Money Market Series, Inc.), AXP Variable
Portfolio -- Extra Income Fund and AXP Variable Portfolio -- Global Bond Fund,
(funds within AXP Variable Portfolio -- Income Series, Inc.), AXP Variable
Portfolio -- International Fund, (fund within AXP Variable Portfolio --
Investment Series, Inc.), AXP Variable Portfolio -- Managed Fund (fund within
AXP Variable Portfolio -- Managed Series, Inc.), AXP Variable Portfolio -- New
Dimensions Fund and AXP Variable Portfolio -- Strategy Aggressive Fund, (funds
within AXP Variable Portfolio -- Investment Series, Inc.) as of August 31, 1999,
and the related statements of operations for the year then ended and the
statements of changes in net assets for each of the years in the two-year period
ended August 31, 1999. We have also audited the financial highlights for each of
the periods presented under the caption "financial highlights" in the
prospectus. These financial statements and the financial highlights are the
responsibility of fund management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Variable Portfolio -- Bond Fund, AXP Variable Portfolio -- Capital Resource
Fund, AXP Variable Portfolio -- Cash Management Fund, AXP Variable Portfolio --
Extra Income Fund, AXP Variable Portfolio -- Global Bond Fund, AXP Variable
Portfolio -- International Fund, AXP Variable Portfolio -- Managed Fund, AXP
Variable Portfolio -- New Dimensions Fund and AXP Variable Portfolio -- Strategy
Aggressive Fund as of August 31, 1999 and the results of their operations, the
changes in their net assets, and the financial highlights for the periods stated
in the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
October 1, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statements of assets and liabilities
American Express Variable Portfolio Funds
AXP VP -- AXP VP -- AXP VP --
Bond Capital Cash
Fund Resource Management
Aug. 31, 1999 Fund Fund
Assets
Investments in securities, at value (Note 1):
(identified cost, $1,835,687,555; $4,047,761,447
<S> <C> <C> <C>
and $689,561,940, respectively) $1,752,157,356 $5,622,133,352 $689,561,940
Cash in bank on demand deposit 189,902 79,197 128,006
Receivable for investment securities sold 29,034,173 17,284,939 --
Dividends and accrued interest receivable 28,896,892 4,031,500 109,911
U.S. government securities held as collateral (Note 5) 66,371,795 -- --
Receivable for capital stock sold 7,747,962 5,664 3,483,156
--------- ----- ---------
Total assets 1,884,398,080 5,643,534,652 693,283,013
------------- ------------- -----------
Liabilities
Dividends payable to shareholders (Note 1) 10,027,436 1,303,492 2,737,850
Payable for investment securities purchased 54,174,575 3,847,282 --
Accrued investment management and services fee 931,661 3,032,408 302,993
Payable upon return of securities loaned (Note 5) 68,796,795 7,920,000 --
Payable for capital stock redeemed -- 6,396,860 576,924
Other accrued expenses 179,954 468,067 45,628
------- ------- ------
Total liabilities 134,110,421 22,968,109 3,663,395
----------- ---------- ---------
Net assets applicable to outstanding capital stock $1,750,287,659 $5,620,566,543 $689,619,618
============== ============== ============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,657,059 $ 1,623,556 $ 6,896,869
Additional paid-in capital 1,891,237,568 3,474,570,488 682,731,880
Undistributed (excess of distributions over)
net investment income 1,473,065 (61,479) 80
Accumulated net realized gain (loss) (61,338,960) 570,062,073 (9,211)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (Note 7) (82,741,073) 1,574,371,905 --
----------- ------------- -----------
Total -- representing net assets applicable to outstanding
capital stock $1,750,287,659 $5,620,566,543 $689,619,618
============== ============== ============
Shares outstanding 165,705,950 162,355,580 689,686,854
Net asset value per share of outstanding capital stock $ 10.56 $ 34.62 $ 1.00
-------------- -------------- ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of assets and liabilities (continued)
American Express Variable Portfolio Funds
AXP VP -- AXP VP -- AXP VP --
Extra Global International
Income Bond Fund
Aug. 31, 1999 Fund Fund
Assets
Investments in securities, at value (Note 1):
(identified cost, $684,860,287; $202,795,870
<S> <C> <C> <C>
and $1,944,967,810, respectively) $621,838,112 $197,837,361 $2,296,602,351
Cash in bank on demand deposit 583,980 79,566 --
Receivable for investment securities sold 850,541 17,745,301 33,319,234
Dividends and accrued interest receivable 17,110,221 3,001,555 9,637,138
Unrealized appreciation on foreign currency
contracts held, at value (Notes 1 and 4) -- 17,405 185,614
U.S. government securities held as collateral (Note 5) -- -- 4,593,908
Receivable for capital stock sold 5,964,449 405,060 4,063,643
--------- ------- ---------
Total assets 646,347,303 219,086,248 2,348,401,888
----------- ----------- -------------
Liabilities
Disbursements in excess of cash on demand deposit -- -- 1,090,195
Dividends payable to shareholders (Note 1) 6,827,240 760,501 6,018,832
Payable for investment securities purchased 1,080,474 20,726,215 27,430,862
Accrued investment management and services fee 350,109 146,055 1,697,101
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) -- 45 191,333
Payable upon return of securities loaned (Note 5) -- -- 90,740,908
Other accrued expenses 51,604 27,201 201,864
------ ------ -------
Total liabilities 8,309,427 21,660,017 127,371,095
--------- ---------- -----------
Net assets applicable to outstanding capital stock $638,037,876 $197,426,231 $2,221,030,793
============ ============ ==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 729,579 $ 200,692 $ 1,287,149
Additional paid-in capital 730,307,771 207,268,558 1,511,687,018
Undistributed (excess of distributions over) net investment income (674,915) (366,177) 214,311
Accumulated net realized gain (loss) (29,302,384) (4,690,693) 356,188,362
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (Note 4) (63,022,175) (4,986,149) 351,653,953
----------- ---------- -----------
Total -- representing net assets applicable to
outstanding capital stock $638,037,876 $197,426,231 $2,221,030,793
============ ============ ==============
Shares outstanding 72,957,929 20,069,246 128,714,852
---------- ---------- -----------
Net asset value per share of outstanding capital stock $ 8.75 $ 9.84 $ 17.26
------------ ------------ --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of assets and liabilities (continued)
American Express Variable Portfolio Funds
AXP VP -- AXP VP -- AXP VP --
Managed New Strategy
Fund Dimensions Aggressive
Aug. 31, 1999 Fund Fund
Assets
Investments in securities, at value (Note 1):
(identified cost, $4,061,695,440; $2,568,327,288
<S> <C> <C> <C>
and $2,106,264,126, respectively) $5,177,684,945 $3,551,448,206 $2,401,108,546
Cash in bank on demand deposit 59,581 14,712 1,819,241
Receivable for investment securities sold 14,221,980 4,611,128 119,229,846
Dividends and accrued interest receivable 27,080,277 1,938,694 312,583
U.S. government securities held as collateral (Note 5) 221,080,365 -- 7,907,206
Receivable for capital stock sold 25,931,880 1,653,352 --
---------- ---------
Total assets 5,466,059,028 3,559,666,092 2,530,377,422
------------- ------------- -------------
Liabilities
Dividends payable to shareholders (Note 1) 33,026,581 3,183,554 2,089,271
Payable for investment securities purchased 6,395,363 6,175,601 92,440,246
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) -- -- 239,606
Accrued investment management and services fee 2,642,861 1,918,505 2,524,978
Payable upon return of securities loaned (Note 5) 377,324,265 10,011,600 104,147,606
Payable for capital stock redeemed -- 15,541 --
Other accrued expenses 251,622 136,645 536,548
Option contracts written at value (premium received,
$1,198,710 for AXP VP -- Managed Fund and $1,299,571
for AXP VP-- Strategy Aggressive Fund) (Note 8) 687,500 -- 1,077,187
------- -------- ---------
Total liabilities 420,328,192 21,441,446 203,055,442
----------- ---------- -----------
Net assets applicable to outstanding capital stock $5,045,730,836 $3,538,224,646 $2,327,321,980
============== ============== ==============
Represented by
Capital stock -- $.01 par value
($.001 for AXP VP-- Managed Fund) (Note 1) $ 267,823 $ 1,875,218 $ 1,414,050
Additional paid-in capital 3,721,938,026 2,520,469,647 1,783,865,812
Undistributed (excess of distributions over)
net investment income (8,256,690) (7) (27,100)
Accumulated net realized gain (loss) 215,299,519 32,758,870 246,869,640
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign
currencies (Notes 4 and 7) 1,116,482,158 983,120,918 295,199,578
------------- ----------- -----------
Total -- representing net assets applicable to outstanding
capital stock $5,045,730,836 $3,538,224,646 $2,327,321,980
============== ============== ==============
Shares outstanding 267,822,635 187,521,775 141,404,983
----------- ----------- -----------
Net asset value per share of outstanding capital stock $ 18.84 $ 18.87 $ 16.46
-------------- -------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
American Express Variable Portfolio Funds
AXP VP -- AXP VP -- AXP VP --
Bond Capital Cash
Fund Resource Management
Year ended Aug. 31, 1999 Fund Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 2,290,910 $ 39,716,887 $ --
Interest 144,232,068 5,715,664 28,661,101
Less foreign taxes withheld -- (149,543) --
-------- -------- -------
Total income 146,522,978 45,283,008 28,661,101
----------- ---------- ----------
Expenses (Note 2):
Investment management services fee 11,191,880 33,169,737 2,828,782
Administrative services fees and expenses 933,030 2,297,747 173,728
Custodian fees and expenses 161,406 320,145 51,221
Compensation of board members and officers 15,597 28,547 9,258
Printing and postage 249,563 339,322 39,073
Audit fees 23,250 22,500 17,000
Other 1,785 1,448 309
----- ----- ---
Total expenses 12,576,511 36,179,446 3,119,371
---------- ---------- ---------
Investment income (loss)-- net 133,946,467 9,103,562 25,541,730
----------- --------- ----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (61,615,405) 572,334,253 (6,680)
Financial futures contracts 2,263,646 -- --
Foreign currency transactions (321,153) -- --
-------- ------- -----
Net realized gain (loss) on investments (59,672,912) 572,334,253 (6,680)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies (28,854,381) 1,167,038,381 --
----------- ------------- -----
Net gain (loss) on investments and foreign currencies (88,527,293) 1,739,372,634 (6,680)
----------- ------------- ------
Net increase (decrease) in net assets resulting from operations $ 45,419,174 $1,748,476,196 $25,535,050
============= ============== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations (continued)
American Express Variable Portfolio Funds
AXP VP -- AXP VP -- AXP VP --
Extra Global International
Income Bond Fund
Year ended Aug. 31, 1999 Fund Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 7,946,033 $ -- $ 29,278,224
Interest 57,379,689 12,706,266 7,993,218
Less foreign taxes withheld -- -- (2,248,560)
-------- ------- ----------
Total income 65,325,722 12,706,266 35,022,882
Expenses (Note 2):
Investment management services fee 3,725,928 1,689,945 17,609,972
Administrative services fees and expenses 321,400 123,793 997,689
Custodian fees and expenses 65,418 57,358 1,137,533
Compensation of board members and officers 9,258 7,877 15,870
Printing and postage 65,318 28,104 254,969
Audit fees 18,500 16,500 20,000
Other 2,378 2,399 3,449
----- ----- -----
Total expenses 4,208,200 1,925,976 20,039,482
--------- --------- ----------
Investment income (loss)-- net 61,117,522 10,780,290 14,983,400
---------- ---------- ----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (29,699,969) (5,336,280) 356,750,737
Financial futures contracts -- 82,266 --
Foreign currency transactions -- (4,616) (6,586,209)
------- ------ ----------
Net realized gain (loss) on investments (29,699,969) (5,258,630) 350,164,528
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies (14,674,862) (1,292,387) 64,235,687
----------- ---------- ----------
Net gain (loss) on investments and foreign currencies (44,374,831) (6,551,017) 414,400,215
----------- ---------- -----------
Net increase (decrease) in net assets resulting from operations $ 16,742,691 $ 4,229,273 $429,383,615
============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations (continued)
American Express Variable Portfolio Funds
AXP VP -- AXP VP -- AXP VP --
Managed New Strategy
Fund Dimensions Aggressive
Year ended Aug. 31, 1999 Fund Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 29,123,926 $ 20,422,107 $ 4,640,677
Interest 134,409,775 9,469,922 17,744,977
Less foreign taxes withheld (214,424) (59,269) (12,392)
-------- ------- -------
Total income 163,319,277 29,832,760 22,373,262
----------- ---------- ----------
Expenses (Note 2):
Investment management services fee 29,584,681 17,935,431 13,697,732
Administrative services fees and expenses 1,402,710 1,339,605 1,046,623
Custodian fees and expenses 369,131 313,308 228,585
Compensation of board members and officers 27,446 15,883 16,972
Printing and postage 239,877 269,431 228,012
Audit fees 21,000 22,000 17,000
Other 316 7,265 8,956
--- ----- -----
Total expenses 31,645,161 19,902,923 15,243,880
---------- ---------- ----------
Investment income (loss)-- net 131,674,116 9,929,837 7,129,382
----------- --------- ---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $6,076,005 realized gain on
investments of affiliated issuers for AXP VP -- Strategy
Aggressive Fund) (Note 3) 212,592,019 33,424,972 265,390,770
Foreign currency transactions (239,114) -- (17,405)
Options contracts written (Note 8) -- (606,416) (5,272,733)
------- -------- ----------
Net realized gain (loss) on investments 212,352,905 32,818,556 260,100,632
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 655,721,269 838,085,236 400,514,769
----------- ----------- -----------
Net gain (loss) on investments and foreign currencies 868,074,174 870,903,792 660,615,401
----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations $999,748,290 $880,833,629 $667,744,783
============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
American Express Variable Portfolio Funds
AXP VP -- Bond Fund AXP VP -- Capital Resource Fund
Year ended Aug. 31, 1999 1998 1999 1998
Operations and distributions
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 133,946,467 $ 143,058,301 $ 9,103,562 $ 18,039,721
Net realized gain (loss) on investments (59,672,912) (465,418) 572,334,253 448,373,910
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (28,854,381) (110,599,748) 1,167,038,381 (503,365,840)
----------- ------------ ------------- ------------
Net increase (decrease) in net assets resulting
from operations 45,419,174 31,993,135 1,748,476,196 (36,952,209)
---------- ---------- ------------- -----------
Distributions to shareholders from:
Net investment income (129,854,610) (138,696,945) (9,103,562) (19,551,462)
Net realized gain (4,108,552) (42,097,397) (401,677,258) (108,000,072)
Excess distributions of net investment
income (Note 1) -- -- -- (60,536)
- ------- ------- ------- -------
Total distributions (133,963,162) (180,794,342) (410,780,820) (127,612,070)
------------ ------------ ------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 106,635,029 111,114,932 84,199,124 94,373,230
Reinvested distributions at net asset value 133,963,162 180,794,342 410,780,820 127,612,070
Payments for redemptions (254,262,401) (213,929,824) (665,014,906) (471,105,969)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital
share transactions (13,664,210) 77,979,450 (170,034,962) (249,120,669)
----------- ---------- ------------ ------------
Total increase (decrease) in net assets (102,208,198) (70,821,757) 1,167,660,414 (413,684,948)
Net assets at beginning of year 1,852,495,857 1,923,317,614 4,452,906,129 4,866,591,077
------------- ------------- ------------- -------------
Net assets at end of year $1,750,287,659 $1,852,495,857 $5,620,566,543 $4,452,906,129
============== ============== ============== ==============
Undistributed (excess of distributions over)
net investment income $ 1,473,065 $ 2,105,989 $ (61,479) $ (61,479)
-------------- -------------- -------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
American Express Variable Portfolio Funds
AXP VP -- Cash Management Fund AXP VP -- Extra Income Fund
Year ended Aug. 31, 1999 1998 1999 1998
Operations and distributions
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 25,541,730 $ 20,307,017 $ 61,117,522 $ 43,597,676
Net realized gain (loss) on investments (6,680) (1,891) (29,699,969) 6,264,774
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies -- -- (14,674,862) (57,363,291)
------- ------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations 25,535,050 20,305,126 16,742,691 (7,500,841)
---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income (25,541,732) (20,307,015) (61,060,060) (43,596,675)
Net realized gain -- -- (6,531,786) (1,952,622)
------ ------ ---------- ----------
Total distributions (25,541,732) (20,307,015) (67,591,846) (45,549,297)
----------- ----------- ----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 603,358,465 372,906,239 88,193,720 262,609,367
Reinvested distributions at net asset value 25,541,732 20,307,015 67,591,846 45,549,297
Payments for redemptions (367,134,897) (386,699,143) (31,179,532) (11,144,825)
------------ ------------ ----------- -----------
Increase (decrease) in net assets from capital
share transactions 261,765,300 6,514,111 124,606,034 297,013,839
----------- --------- ----------- -----------
Total increase (decrease) in net assets 261,758,618 6,512,222 73,756,879 243,963,701
Net assets at beginning of year 427,861,000 421,348,778 564,280,997 320,317,296
----------- ----------- ----------- -----------
Net assets at end of year $689,619,618 $427,861,000 $638,037,876 $564,280,997
============ ============ ============ ============
Undistributed (excess of distributions over)
net investment income $ 80 $ 82 $ (674,915) $ (332,628)
------------ ------------ ------------ ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
American Express Variable Portfolio Funds
AXP VP -- Global Bond Fund AXP VP -- International Fund
Year ended Aug. 31, 1999 1998 1999 1998
Operations and distributions
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 10,780,290 $ 9,143,827 $ 14,983,400 $ 20,701,441
Net realized gain (loss) on investments (5,258,630) (732,605) 350,164,528 20,930,910
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (1,292,387) (4,143,433) 64,235,687 46,999,648
---------- ---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations 4,229,273 4,267,789 429,383,615 88,631,999
--------- --------- ----------- ----------
Distributions to shareholders from:
Net investment income (10,036,136) (8,768,516) (8,959,567) (21,412,151)
Net realized gain (60,153) (557,107) (10,584,503) (27,841,143)
Excess distributions of net investment income -- -- -- (8,929,492)
------ ------ ------ ----------
Total distributions (10,096,289) (9,325,623) (19,544,070) (58,182,786)
----------- ---------- ----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 26,082,577 64,799,779 189,648,648 131,026,007
Reinvested distributions at net asset value 10,096,289 9,325,623 19,544,070 58,182,786
Payments for redemptions (16,223,051) (4,907,859) (420,734,802) (301,899,906)
----------- ---------- ------------ ------------
Increase (decrease) in net assets from capital
share transactions 19,955,815 69,217,543 (211,542,084) (112,691,113)
---------- ---------- ------------ ------------
Total increase (decrease) in net assets 14,088,799 64,159,709 198,297,461 (82,241,900)
Net assets at beginning of year 183,337,432 119,177,723 2,022,733,332 2,104,975,232
----------- ----------- ------------- -------------
Net assets at end of year $197,426,231 $183,337,432 $2,221,030,793 $2,022,733,332
============ ============ ============== ==============
Undistributed (excess of distributions over)
net investment income $ (366,177) $ (411,170) $ 214,311 $ 214,312
------------ ------------ -------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
American Express Variable Portfolio Funds
AXP VP -- Managed Fund AXP VP -- New Dimensions Fund
Year ended Aug. 31, 1999 1998 1999 1998
Operations and distributions
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 131,674,116 $ 123,735,373 $ 9,929,837 $ 10,926,250
Net realized gain (loss) on investments 212,352,905 433,344,561 32,818,556 14,132,367
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies 655,721,269 (467,198,242) 838,085,236 (31,064,162)
----------- ------------ ----------- -----------
Net increase (decrease) in net assets resulting
from operations 999,748,290 89,881,692 880,833,629 (6,005,545)
----------- ---------- ----------- ----------
Distributions to shareholders from:
Net investment income (131,267,722) (120,816,343) (9,929,837) (10,926,249)
Net realized gain (431,748,610) (354,443,189) (2,459,211) --
Excess distributions of net investment income (Note 1) -- (2,711,871) -- --
------- ---------- -------- ------
Total distributions (563,016,332) (477,971,403) (12,389,048) (10,926,249)
------------ ------------ ----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 130,228,2911 64,843,111 744,395,091 683,285,147
Reinvested distributions at net asset value 563,016,332 477,971,403 12,389,048 10,926,249
Payments for redemptions (497,199,202) (286,373,658) (46,528,713) (24,581,947)
------------ ------------ ----------- -----------
Increase (decrease) in net assets from capital
share transactions 196,045,421 356,440,856 710,255,426 669,629,449
----------- ----------- ----------- -----------
Total increase (decrease) in net assets 632,777,379 (31,648,855) 1,578,700,007 652,697,655
Net assets at beginning of year 4,412,953,457 4,444,602,312 1,959,524,639 1,306,826,984
------------- ------------- ------------- -------------
Net assets at end of year $5,045,730,836 $4,412,953,457 $3,538,224,646 $1,959,524,639
============== ============== ============== ==============
Undistributed (excess of distributions over)
net investment income $ (8,256,690) $ (4,408,797) $ (7) $ (7)
-------------- -------------- -------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
American Express Variable Portfolio Funds
AXP VP -- Strategy Aggressive Fund
Year ended Aug. 31, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 7,129,382 $ 1,982,389
Net realized gain (loss) on investments 260,100,632 138,926,753
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies 400,514,769 (522,716,812)
----------- ------------
Net increase (decrease) in net assets resulting
from operations 667,744,783 (381,807,670)
----------- ------------
Distributions to shareholders from:
Net investment income (7,142,316) (1,982,434)
Net realized gain (148,760,451) (212,438,792)
Excess distributions of net investment income -- (1,274,187)
-------- ----------
Total distributions (155,902,767) (215,695,413)
------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 69,869,156 123,640,158
Reinvested distributions at net asset value 155,902,767 215,695,413
Payments for redemptions (385,883,333) (193,668,539)
------------ ------------
Increase (decrease) in net assets from capital
share transactions (160,111,410) 145,667,032
------------ -----------
Total increase (decrease) in net assets 351,730,606 (451,836,051)
Net assets at beginning of year 1,975,591,374 2,427,427,425
------------- -------------
Net assets at end of year $2,327,321,980 $1,975,591,374
============== ==============
Undistributed (excess of distributions over) net investment income $ (27,100) $ 3,239
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
American Express Variable Portfolio Funds
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Each Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, (non-diversified for AXP VP -- Global Bond Fund) open-end
management investment company. Each Fund has 10 billion authorized shares of
capital stock.
The primary investments of each Fund are as follows:
AXP VP -- Bond Fund (formerly known as IDS Life Special Income Fund) invests
primarily in investment-grade bonds and other debt obligations;
AXP VP -- Capital Resource Fund (formerly known as IDS Life Capital Resource
Fund) invests primarily in U.S. common stocks and other securities convertible
into common stock;
AXP VP -- Cash Management Fund (formerly known as IDS Life Moneyshare Fund)
invests primarily in money market securities;
AXP VP -- Extra Income Fund (formerly known as IDS Life Income Advantage
Fund) invests primarily in high-yielding, high risk corporate bonds (junk
bonds) issued by U.S. and foreign companies and governments;
AXP VP -- Global Bond Fund (formerly known as IDS Life Global Yield Fund)
invests primarily in debt securities of U.S. and foreign issuers;
AXP VP -- International Fund (formerly known as IDS Life International Equity
Fund) invests primarily in equity securities of foreign issuers that offer
strong growth potential;
AXP VP -- Managed Fund (formerly known as IDS Life Managed Fund) invests
primarily in a combination of common and preferred stocks, convertible
securities, bonds and other debt securities;
AXP VP -- New Dimensions Fund (formerly known as IDS Life Growth Dimensions
Fund) invests primarily in common stocks showing potential for significant
growth; and
AXP VP -- Strategy Aggressive Fund (formerly known as IDS Life Aggressive
Growth Fund) invests primarily in securities of growth companies.
Shares of each Fund are sold through the purchase of a variable annuity contract
or life insurance policy.
The Fund's significant accounting policies are summarized as follows:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities in all Funds, except AXP VP -- Cash Management Fund, maturing in more
than 60 days from the valuation date are valued at the market price or
approximate market value based on the current interest rates; those maturing in
60 days or less are valued at amortized cost. Pursuant to Rule 2a-7 of the 1940
Act, all securities in AXP VP -- Cash Management Fund are valued at amortized
cost which approximates market value in order to maintain a constant net asset
value of $1 per share.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Funds, except AXP VP -- Cash Management Fund,
may buy and sell put and call options and write covered call options on
portfolio securities and write cash-secured puts. The risk in writing a call
option is that the Funds give up the opportunity for profit if the market price
of the security increases. The risk in writing a put option is that the Funds
may incur a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Funds pay a premium whether
or not the option is exercised. The Funds also have the additional risk of being
unable to enter into a closing transaction if a liquid secondary market does not
exist. The Funds also may write over-the-counter options where completing the
obligation depends upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Funds
will realize a gain or loss when the option transaction expires or closes. When
an option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Funds, except AXP
VP -- Cash Management Fund, may buy and sell financial futures contracts. The
Funds also may buy or write put and call options on futures contracts. Risks of
entering into futures contracts and related options include the possibility of
an illiquid market and that a change in the value of the contract or option may
not correlate with changes in the value of the underlying securities.
Upon entering into a futures contract, the Funds are required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Funds each day. The variation margin payments are equal to the
daily changes in the contract value and recorded as unrealized gains and losses.
The Funds recognize a realized gain or loss when the contract is closed or
expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. In the
statement of operations, net realized gains or losses from foreign currency
transactions, if any, may arise from sales of foreign currency, closed forward
contracts, exchange gains or losses realized between the trade date and
settlement date on securities transactions, and other translation gains or
losses on dividends, interest income and foreign withholding taxes.
The Funds, except AXP VP -- Cash Management Fund, also may enter into forward
foreign currency exchange contracts for operational purposes. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Funds and the resulting unrealized appreciation and/or depreciation are
determined using foreign currency exchange rates from an independent pricing
service. The Funds are subject to the credit risk that the other party will not
complete its contract obligations.
Illiquid securities
As of Aug. 31, 1999, investments in securities for AXP VP -- Bond Fund and AXP
VP -- Extra Income Fund included issues that are illiquid which these Funds
currently limit to 10% of net assets, at market value, at the time of purchase.
The aggregate value of such securities as of Aug. 31, 1999, was $9,509,063 and
$5,383,766 representing 0.54% and 0.84% of net assets for AXP VP -- Bond Fund
and AXP VP -- Extra Income Fund, respectively. According to board guidelines,
certain unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
<PAGE>
<TABLE>
<CAPTION>
Federal taxes
Each Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to the Variable Accounts. No provision for income or excise taxes
is thus required. Each Fund is treated as a separate entity for federal income
tax purposes.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes, the timing and amount of
market discount recognized as ordinary income, foreign tax credits and losses
deferred due to "wash sale" transactions. The character of distributions made
during the year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. The effect on
dividend distributions of certain book-to-tax differences is presented as
"excess distributions" in the statement of changes in net assets. Also, due to
the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains (losses)
are recorded by the Funds.
On the statements of assets and liabilities, as a result of permanent
book-to-tax differences, accumulated net realized gain (loss) and undistributed
net investment income have been increased (decreased), resulting in net
reclassification adjustments to additional paid-in-capital by the following:
AXP VP -- AXP VP -- AXP VP --
Bond Capital Cash
Fund Resource Management
Fund Fund
<S> <C> <C> <C>
Accumulated net realized gain (loss) $4,724,781 $-- $--
Undistributed net investment income (4,724,781) -- --
---------- ---- ----
Additional paid-in capital reduction (increase) $ -- $-- $--
AXP VP -- AXP VP -- AXP VP --
Extra Income Global Bond International
Fund Fund Fund
Accumulated net realized gain (loss) $399,749 $699,161 $6,023,834
Undistributed net investment income (399,749) (699,161) (6,023,834)
-------- -------- ----------
Additional paid-in capital reduction (increase) $ -- $ -- $ --
AXP VP -- AXP VP -- AXP VP --
Managed New Strategy
Fund Dimensions Aggressive
Fund Fund
Accumulated net realized gain (loss) $4,254,287 $-- $17,405
Undistributed net investment income (4,254,287) -- (17,405)
---------- ------ -------
Additional paid-in capital reduction (increase) $ -- $-- $ --
</TABLE>
<PAGE>
Dividends
As of Aug. 31, 1999, dividends declared for each Fund payable Sept. 1, 1999 are
as follows:
AXP VP-- Bond Fund $0.060
AXP VP-- Capital Resource Fund $0.008
AXP VP-- Cash Management Fund $0.004
AXP VP-- Extra Income Fund $0.094
AXP VP-- Global Bond Fund $0.038
AXP VP-- International Fund $0.047
AXP VP-- Managed Fund $0.124
AXP VP-- New Dimensions Fund $0.017
AXP VP-- Strategy Aggressive Fund $0.015
Distributions to the Variable Accounts are recorded as of the close of business
on the record date and are payable on the first business day following the
record date. Dividends from net investment income are declared daily and paid
monthly for AXP VP -- Bond, AXP VP -- Cash Management, AXP VP -- Extra Income
and AXP VP -- Global Bond Funds and declared and paid quarterly for AXP VP --
Capital Resource, AXP VP -- International, AXP VP -- Managed, AXP VP -- New
Dimensions and AXP VP -- Strategy Aggressive Funds. Capital gain distributions,
if any, will be made annually. However, an additional capital gain distribution
may be made during the fiscal year in order to comply with the Internal Revenue
Code, as applicable to regulated investment companies.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. For U.S.
dollar denominated bonds, interest income includes level-yield amortization of
premium and discount. For foreign bonds, the Funds amortize premium and original
issue discount daily and market discount is recognized at the time of sale.
2. EXPENSES
The Funds have an Investment Management agreement with IDS Life for managing
investments, record keeping and other services that are based solely on the
assets of each Fund. The management fee is a percentage of each Fund's average
daily net assets in reducing percentages annually as follows:
Fund Percentage Range
AXP VP-- Bond Fund 0.610% to 0.535%
AXP VP-- Capital Resource Fund 0.630% to 0.570%
AXP VP-- Cash Management Fund 0.510% to 0.440%
AXP VP-- Extra Income Fund 0.620% to 0.545%
AXP VP-- Global Bond Fund 0.840% to 0.780%
AXP VP-- International Fund 0.870% to 0.795%
AXP VP-- Managed Fund 0.630% to 0.550%
AXP VP-- New Dimensions Fund 0.630% to 0.570%
AXP VP-- Strategy Aggressive Fund 0.650% to 0.575%
IDS Life, in turn, pays to American Express Financial Corporation (AEFC) a fee
based on a percentage of each Fund's average daily net assets for the year. This
fee is equal to 0.35% for AXP VP -- International Fund and 0.25% for each
remaining Fund. In addition to paying its own management fee, brokerage
commissions, taxes and costs of certain legal services, each Fund will reimburse
IDS Life an amount equal to the cost of certain expenses incurred and paid by
IDS Life in connection with each Fund's operations. The Funds also pay custodian
fees to American Express Trust Company, an affiliate of IDS Life. The
reimbursement paid by AXP VP -- Cash Management Fund will be limited to 0.25% of
the Fund's average daily net assets.
AEFC has a Sub-investment Advisory Agreement with American Express Asset
Management International Inc. (International), a wholly-owned subsidiary of
AEFC.
The Funds have an Administrative Services Agreement with AEFC. Under this
agreement, each Fund pays AEFC a fee for administration and accounting services
at a percentage of each Fund's average daily net assets in reducing percentages
annually as follows:
Fund Percentage Range
AXP VP-- Bond Fund 0.050% to 0.025%
AXP VP-- Capital Resource Fund 0.050% to 0.030%
AXP VP-- Cash Management Fund 0.030% to 0.020%
AXP VP-- Extra Income Fund 0.050% to 0.025%
AXP VP-- Global Bond Fund 0.060% to 0.040%
AXP VP-- International Fund 0.060% to 0.035%
AXP VP-- Managed Fund 0.040% to 0.020%
AXP VP-- New Dimensions Fund 0.050% to 0.030%
AXP VP-- Strategy Aggressive Fund 0.060% to 0.035%
Additional administrative service expenses paid by the Funds are office
expenses, consultants' fees and compensation of officers and employees. Under
this agreement, the Funds also pay taxes, audit and certain legal fees,
registration fees for shares, compensation of board members, corporate filing
fees and any other expenses properly payable by the Funds and approved by the
board.
Effective Sept. 21, 1999, the Funds will enter into an agreement with IDS Life
for distribution services. Under a Plan and Agreement of Distribution, each Fund
will pay a distribution fee at an annual rate of 0.125% of each Fund's average
daily net assets.
3. SECURITIES TRANSACTIONS
For the year ended Aug. 31, 1999, cost of purchases and proceeds from sales of
securities aggregated, respectively, $3,339,487,592 and $3,064,358,115 for AXP
VP -- Cash Management Fund. Cost of purchases and proceeds from sales of
securities (other than short-term obligations) aggregated for each Fund are as
follows:
Fund Purchases Proceeds
AXP VP-- Bond Fund $1,261,980,794 $1,215,427,781
AXP VP-- Capital Resource Fund 3,014,830,372 3,530,277,020
AXP VP-- Extra Income Fund 380,484,408 278,703,313
AXP VP-- Global Bond Fund 138,020,088 103,758,446
AXP VP-- International Fund 2,006,188,247 2,208,333,223
AXP VP-- Managed Fund 2,064,244,598 2,155,313,200
AXP VP-- New Dimensions Fund 1,276,024,025 745,928,138
AXP VP-- Strategy Aggressive Fund 4,045,046,657 4,351,822,101
Net realized gains and losses on investment sales are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with IDS Life for the year
ended Aug. 31, 1999 are as follows:
AXP VP -- Capital Resource Fund $582,267
AXP VP -- Managed Fund 215,973
AXP VP -- New Dimensions Fund 165,340
AXP VP -- Strategy Aggressive Fund 203,181
<PAGE>
<TABLE>
<CAPTION>
4. FOREIGN CURRENCY CONTRACTS
As of Aug. 31, 1999, AXP VP -- Global Bond Fund, AXP VP -- International Fund
and AXP VP -- Strategy Aggressive Fund had entered into foreign currency
exchange contracts that obligate the Funds to deliver currencies at specified
future dates. The unrealized appreciation and/or depreciation on these contracts
is included in the accompanying financial statements. See "Summary of
significant accounting policies." The terms of the open contracts are as
follows:
AXP VP -- Global Bond Fund
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
<S> <C> <C> <C> <C>
Sept. 2, 1999 1,506,625 470,308,150 $17,405 $--
U.S. Dollar Greek Drachma
Sept. 2, 1999 4,049 4,238 -- 45
----- --
European Monetary Unit U.S. Dollar
Total $17,405 $45
AXP VP -- International Fund
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
Sept. 1, 1999 1,164,238 736,614 $ -- $ 6,636
Australian Dollar U.S. Dollar
Sept. 1, 1999 1,708,111 189,907,788 29,460 --
U.S. Dollar Japanese Yen
Sept. 1, 1999 690,758 408,563 -- 1,747
Singaporan Dollar U.S. Dollar
Sept. 2, 1999 5,505,685 3,468,803 74,579 --
U.S Dollar British Pound
Sept. 2, 1999 969,403 616,831 -- 2,036
Australian Dollar U.S. Dollar
Sept. 2, 1999 1,507,810 165,527,370 6,691 --
U.S. Dollar Japanese Yen
Sept. 2, 1999 2,928,769 1,736,287 -- 3,404
Singaporan Dollar U.S. Dollar
Sept. 3, 1999 5,940,421 3,739,053 74,594 --
U.S Dollar British Pound
Sept. 3, 1999 962,539 570,678 -- 1,071
Singaporan Dollar U.S. Dollar
Sept. 7, 1999 4,116,470 2,445,476 290 --
Singaporan Dollar U.S. Dollar
Sept. 30, 1999 7,077,303 7,396,985 -- 89,740
European Monetary Unit U.S. Dollar
Sept. 30, 1999 4,620,479 4,845,728 -- 42,046
European Monetary Unit U.S. Dollar
Sept. 30, 1999 4,421,077 4,632,183 -- 44,653
--------- ------
European Monetary Unit U.S. Dollar
Total $185,614 $191,333
AXP VP -- Strategy Aggressive Fund
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
Sept. 1, 1999 7,543,897 12,026,480 $-- $109,385
British Pound U.S. Dollar
Sept. 2, 1999 2,054,435 3,256,937 $-- $ 48,033
British Pound U.S. Dollar
Sept. 2, 1999 2,707,561 2,820,331 $-- $ 43,861
European Monetary Unit U.S. Dollar
Sept. 3, 1999 3,054,016 3,192,363 $-- $ 38,327
--- ---------
European Monetary Unit U.S. Dollar
Total $-- $239,606
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. LENDING OF PORTFOLIO SECURITIES
Presented below is information regarding securities on loan as of Aug. 31, 1999.
AXP VP -- AXP VP -- AXP VP --
Bond Capital International
Fund Resource Fund
Fund
<S> <C> <C> <C>
Value of securities on loan to brokers $66,601,500 $7,462,500 $86,190,096
----------- ---------- -----------
Collateral received for securities loaned:
Cash $ 2,425,000 $7,920,000 $86,147,000
U.S. government securities, at value 66,371,795 -- 4,593,908
---------- ------- ---------
Total collateral received for securities loaned $68,796,795 $7,920,000 $90,740,908
----------- ---------- -----------
AXP VP -- AXP VP -- AXP VP --
Managed New Strategy
Fund Dimensions Aggressive
Fund Fund
Value of securities on loan to brokers $362,954,040 $ 9,747,313 $100,414,463
------------ ----------- ------------
Collateral received for securities loaned:
Cash $156,243,900 $10,011,600 $ 96,240,400
U.S. government securities, at value 221,080,365 -- 7,907,206
----------- ------- ---------
Total collateral received for securities loaned $377,324,265 $10,011,600 $104,147,606
------------ ----------- ------------
Income from securities lending amounted to $205,211, $103,137, $8,114, $834,283,
$772,965, $69,710 and $450,762 for AXP VP -- Bond Fund, AXP VP -- Capital
Resource 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, respectively, for the year ended Aug. 31, 1999.
The risks to each Fund of securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Aug. 31, 1999
AXP VP -- AXP VP -- AXP VP --
Bond Capital Cash
Fund Resource Management
Fund Fund
<S> <C> <C> <C>
Sold 9,705,292 2,571,389 603,415,090
Issued for reinvested distributions 12,224,882 14,021,994 25,544,144
Redeemed (23,348,532) (20,385,941) (367,169,580)
----------- ----------- ------------
Net increase (decrease) (1,418,358) (3,792,558) 261,789,654
Year ended Aug. 31, 1999
AXP VP -- AXP VP -- AXP VP --
Extra Global International
Income Bond Fund
Fund Fund
Sold 9,758,757 2,510,601 12,212,960
Issued for reinvested distributions 7,511,830 981,534 1,096,574
Redeemed (3,462,581) (1,593,306) (26,524,212)
---------- ---------- -----------
Net increase (decrease) 13,808,006 1,898,829 (13,214,678)
Year ended Aug. 31, 1999
AXP VP -- AXP VP -- AXP VP --
Managed New Strategy
Fund Dimensions Aggressive
Fund Fund
Sold 6,954,626 42,053,242 4,611,926
Issued for reinvested distributions 31,767,507 669,065 11,423,262
Redeemed (26,684,346) (2,661,999) (25,418,985)
----------- ---------- -----------
Net increase (decrease) 12,037,787 40,060,308 (9,383,797)
Year ended Aug. 31, 1998
AXP VP -- AXP VP -- AXP VP --
Bond Capital Cash
Fund Resource Management
Fund Fund
Sold 9,406,202 3,111,763 372,938,041
Issued for reinvested distributions 15,335,152 4,593,438 20,308,748
Redeemed (18,015,220) (15,545,239) (386,732,614)
----------- ----------- ------------
Net increase (decrease) 6,726,134 (7,840,038) 6,514,175
Year ended Aug. 31, 1998
AXP VP -- AXP VP -- AXP VP --
Extra Global International
Income Bond Fund
Fund Fund
Sold 25,022,142 6,193,224 8,581,401
Issued for reinvested distributions 4,401,276 894,227 4,293,695
Redeemed (1,093,400) (470,748) (20,393,377)
---------- -------- -----------
Net increase (decrease) 28,330,018 6,616,703 (7,518,281)
Year ended Aug. 31, 1998
AXP VP -- AXP VP -- AXP VP --
Managed New Strategy
Fund Dimensions Aggressive
Fund Fund
Sold 8,609,654 47,550,647 7,220,136
Issued for reinvested distributions 26,654,679 493,421 13,613,493
Redeemed (15,015,022) (1,469,624) (11,448,329)
----------- ---------- -----------
Net increase (decrease) 20,249,311 46,574,444 9,385,300
</TABLE>
<PAGE>
7. FUTURES CONTRACTS
As of Aug. 31, 1999, AXP VP -- Bond Fund's investments in securities included
securities valued at $6,311,834 that were pledged as collateral to cover initial
margin deposits on 400 open sale interest rate contracts. The market value of
the open sale contracts as of Aug. 31, 1999 was $45,587,500 with a net
unrealized gain of $801,526. See "Summary of significant accounting policies."
As of Aug. 31, 1999, AXP VP -- Strategy Aggressive Fund's investments in
securities included securities valued at $88,438 that were pledged as collateral
to cover initial margin deposits on three open purchase stock index contracts.
The market value of the open purchase contracts as of Aug. 31, 1999 was $989,850
with a net unrealized loss of $72,968. See "Summary of significant accounting
policies."
<PAGE>
<TABLE>
<CAPTION>
8. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written by AXP
VP -- Managed Fund during the year ended
Aug. 31, 1999 are as follows:
Puts
Contracts Premium
Balance Aug. 31, 1998 -- $ --
Opened 2,500 1,198,710
----- ---------
Balance Aug. 31, 1999 2,500 $1,198,710
See "Summary of significant accounting policies."
Contracts and premium amounts associated with options contracts written by AXP
VP -- New Dimensions Fund during the year ended
Aug. 31, 1999 are as follows:
Calls
Contracts Premium
Balance Aug. 31, 1998 -- $ --
Opened 2,426 1,143,310
Closed or expired (2,426) (1,143,310)
------ ----------
Balance Aug. 31, 1999 -- $ --
See "Summary of significant accounting policies."
Contracts and premium amounts associated with options contracts written by AXP
VP -- Strategy Aggressive Fund during the year ended Aug. 31, 1999 are as
follows:
Puts Calls
Contracts Premium Contracts Premium
<S> <C> <C> <C> <C>
Balance Aug. 31, 1998 -- $ -- -- $ --
Opened 5,450 1,834,053 37,480 16,414,545
Closed or expired (1,000) (534,482) (29,500) (13,762,194)
Exercised -- -- (7,980) (2,652,351)
---- ------- ------ ----------
Balance Aug. 31, 1999 4,450 $1,299,571 -- $ --
See "Summary of significant accounting policies."
9. CAPITAL LOSS CARRYOVER
For federal income tax purposes, AXP VP -- Bond Fund, AXP VP -- Extra Income
Fund and AXP VP -- Global Bond Fund had capital loss carryovers as of Aug. 31,
1999 of $57,229,041, $29,248,847 and $4,559,469, respectively, which, if not
offset by subsequent capital gains, will expire in 2007 and 2008. It is unlikely
the board will authorize a distribution of any net realized gain for a Fund
until its capital loss carryover has been offset or expires.
10. FINANCIAL HIGHLIGHTS
"Financial highlights" showing per share data and selected financial information
are presented on pages 56-64 of the prospectus.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Bond Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Bonds (92.9%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (11.8%)
Govt of Algeria
(U.S. Dollar)
<S> <C> <C> <C>
03-04-00 7.06% $1,090,909(c) $1,039,091
Govt of Poland
(Polish Zloty)
06-12-02 3.44 18,900,000(c) 4,719,648
Govt of Russia
(Russian Ruble)
06-16-99 -- 1,639,000(b,c) 65,338
12-15-01 -- 7,793,000(b,c) 79,872
02-06-02 -- 2,273,000(b,c) 44,173
05-22-02 -- 2,273,000(b,c) 41,772
06-05-02 -- 2,273,000(b,c) 41,600
09-18-02 -- 2,273,000(b,c) 39,688
10-09-02 -- 2,273,000(b,c) 38,474
01-22-03 -- 2,273,000(b,c) 36,698
02-05-03 -- 2,273,000(b,c) 36,607
05-21-03 -- 2,273,000(b,c) 35,121
06-04-03 -- 2,273,000(b,c) 35,348
09-17-03 -- 2,273,000(b,c) 34,668
10-08-03 -- 2,273,000(b,c) 33,345
01-21-04 -- 2,273,000(b,c) 32,847
Republic of Brazil
(U.S. Dollar)
04-15-14 8.00 11,952,800(c,f) 7,111,916
Republic of Panama
(U.S. Dollar)
04-01-29 9.38 5,000,000(c) 4,637,500
Resolution Funding Corp
10-15-19 8.13 38,059,000 44,139,278
U.S. Treasury
11-30-99 5.63 14,000,000 14,019,514
11-15-00 5.75 5,000,000 5,006,984
05-15-02 7.50 6,170,000 6,421,977
06-30-02 6.25 17,000,000(d) 17,173,221
08-15-02 6.38 10,900,000 11,041,005
03-31-03 5.50 7,500,000 7,401,691
08-15-04 7.25 8,200,000(o) 8,626,173
11-15-05 5.88 40,000,000(d) 39,516,347
11-15-16 7.50 24,750,000 27,314,446
United Mexican States
(U.S. Dollar)
03-12-08 8.63 4,000,000(c,d) 3,680,000
(U.S. Dollar) Series XW
02-17-09 10.38 4,000,000(c) 4,015,000
Total 206,459,342
Mortgage-backed securities (17.0%)
Federal Home Loan Mtge Corp
05-01-07 9.00 3,387,614 3,491,342
03-01-13 5.50 4,373,456 4,085,814
08-01-24 8.00 2,861,721 2,904,647
01-01-25 9.00 811,200 849,480
07-01-28 6.00 9,502,230 8,736,160
09-01-28 6.00 28,995,081 26,674,230
Collateralized Mtge Obligation
03-15-22 7.00 10,455,000 10,179,309
07-15-22 7.00 12,940,000 12,538,731
Federal Natl Mtge Assn
09-01-07 8.50 4,009,501 4,127,300
06-15-09 6.38 10,000,000(d) 9,632,800
12-01-13 5.50 14,913,742 13,902,441
01-01-14 5.50 23,816,455 22,186,457
04-01-14 5.50 14,927,032 13,914,830
11-01-21 8.00 308,222 313,425
04-01-22 8.00 1,939,160 1,970,672
04-01-23 8.50 4,005,995 4,144,963
06-01-24 9.00 4,005,617 4,215,912
02-01-27 7.50 8,742,395 8,682,247
09-01-28 6.50 14,260,506 13,494,004
10-01-28 6.00 19,813,906 18,204,026
11-01-28 6.00 8,959,148 8,231,217
11-01-28 6.50 19,523,583 18,486,392
12-01-28 6.50 24,458,583 23,136,352
01-01-29 6.50 19,437,227 18,392,476
02-01-29 6.00 9,881,301 9,092,385
03-01-29 6.50 24,676,641 23,362,801
Collateralized Mtge Obligation
05-18-26 5.00 10,000,000 8,626,252
Govt Natl Mtge Assn
06-20-24 6.38 3,332,238(j) 3,348,899
Total 296,925,564
Aerospace & defense (0.2%)
Kellstrom Inds
Cv Sub Nts
10-15-02 5.75 730,000 529,250
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,710,000 1,791,225
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 1,250,000 1,287,500
Total 3,607,975
Airlines (0.3%)
AMR
05-15-01 9.50 4,500,000 4,694,802
Automotive & related (1.4%)
Arvin Capital
Company Guaranty
02-01-27 9.50 5,000,000 5,057,990
Exide
Cv Sr Sub Nts
12-15-05 2.90 1,240,000(e) 706,093
Ford Motor Credit
01-15-03 7.50 5,000,000 5,077,692
French (JL) Auto Casting
Sr Sub Nts
06-01-09 11.50 3,800,000(e) 3,871,250
Lear
Sr Nts
05-15-09 8.11 7,500,000(e) 7,198,799
Mascotech
Cv Sub Deb
12-15-03 4.50 385,000 313,775
MSX Intl
Company Guaranty
01-15-08 11.38 2,450,000 2,388,750
Total 24,614,349
Banks and savings & loans (4.6%)
Bank of Singapore
(U.S. Dollar) Sub Nts
08-10-09 7.88 10,000,000(c,e) 9,887,690
Bank One
Medium-term Nts Series A
02-17-09 6.00 15,000,000 13,608,018
Cullen/Frost Capital
Series A
02-01-27 8.42 5,000,000 4,900,475
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 5,100,000(c,e) 4,500,750
Fleet Financial Group
Sub Nts
06-15-01 9.90 5,000,000 5,298,253
12-01-01 9.00 5,000,000 5,275,481
Newcourt Credit Group
02-16-05 6.88 10,000,000(e) 9,725,320
04-15-28 8.29 5,500,000 5,428,108
Union Planters Bank
Sub Nts
03-15-18 6.50 5,000,000 4,638,358
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 3,000,000 2,972,233
Wells Fargo
07-15-04 6.63 15,000,000 14,780,354
Total 81,015,040
Building materials & construction (0.5%)
Masco
10-01-01 9.00 5,000,000 5,253,698
Tyco Intl Group
(U.S. Dollar) Company Guaranty
01-15-29 6.88 4,300,000(c) 3,829,961
Total 9,083,659
Chemicals (1.0%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 9,950,000 9,054,500
Rohm & Haas
07-15-29 7.85 8,000,000(e) 8,110,138
Total 17,164,638
Communications equipment & services (2.8%)
Caprock Communications
Sr Nts
05-01-09 11.50 6,000,000(e) 5,955,000
Celcaribe
Sr Nts
03-15-04 13.50 3,150,000 2,535,750
Clearnet Communications
Zero Coupon Sr Disc Nts
12-15-00 6.42 5,000,000(g) 4,625,000
EchoStar DBS
Sr Nts
02-01-09 9.38 2,050,000(e) 2,050,000
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 2,000,000(c) 2,095,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 1,000,000 1,000,000
NTL
Zero Coupon Sr Nts
10-01-03 7.87 9,625,000(g) 6,400,625
Zero Coupon Sr Nts Series B
02-01-01 11.48 5,000,000(g) 4,337,500
PhoneTel Technologies
Sr Nts
12-15-06 12.00 8,500,000(b) 2,125,000
Poland Telecom
(U.S. Dollar) Company Guaranty
06-01-04 14.00 5,000,000(b,c) 3,475,000
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 5,000,000 5,075,000
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 2,500,000(g) 1,650,000
WorldCom
04-01-07 7.75 7,000,000 7,229,469
Total 48,553,344
Computers & office equipment (0.5%)
Data General
Cv Sub Nts
05-15-04 6.00 285,000 282,150
PSINet
Sr Nts Series B
02-15-05 10.00 6,005,000 5,794,825
Silicon Graphics
Cv Sr Nts
09-01-04 5.25 490,000 387,100
Solectron
Zero Coupon Cv Sub Nts
01-27-19 4.00 919,000(e,f) 584,714
Verio
Sr Nts
12-01-08 11.25 2,250,000 2,289,375
Total 9,338,164
Electronics (0.9%)
Credence Systems
Cv Sub Nts
09-15-02 5.25 860,500 808,750
Cymer
Zero Coupon Cv Sub Nts
08-06-00 3.50 860,000(g) 836,410
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 8,500,000(c,e) 6,756,159
Integrated Process Equipment
Cv Sub Nts
09-15-04 6.25 620,000 437,875
Kent Electronics
Cv Sub Nts
09-01-04 4.50 935,000 738,650
Micron Technology
Cv Sub Nts
07-01-04 7.00 450,000 569,813
NatSteel Electronics
Cv
06-30-04 1.50 235,000(e) 267,313
S3
Cv Sub Nts
10-01-03 5.75 600,000 529,500
STMicroelectronics
(U.S. Dollar) Zero Coupon Cv Sub Nts
06-10-08 .50 203,000(c,f) 257,225
Thomas & Betts
01-15-06 6.50 4,500,000 4,336,430
Total 15,538,125
Energy (2.2%)
Devon Energy
Cv Deb
08-15-08 4.90 526,000 523,370
Lodestar Holdings
Company Guaranty
05-15-05 11.50 1,500,000 1,260,000
Occidental Petroleum
Medium-term Nts
06-01-00 10.98 5,000,000 5,157,685
Oryx Energy
04-01-01 10.00 5,000,000 5,236,571
PDV America
Sr Nts
08-01-03 7.88 7,500,000 6,706,628
R & B Falcon
04-15-08 6.95 5,000,000 3,827,697
Roil
(U.S. Dollar)
12-05-02 12.78 3,724,800(c,e) 2,346,624
Union Pacific Resources
05-15-28 7.15 7,500,000 6,574,880
USX
03-01-08 6.85 6,500,000 6,160,092
Total 37,793,547
Energy equipment & services (0.6%)
Diamond Offshore Drilling
Cv Sub Nts
02-15-07 3.75 385,000 437,938
Global Marine
09-01-07 7.13 10,000,000 9,467,881
Seacor Holdings
Cv Sub Nts
11-15-06 5.38 340,000 332,775
Total 10,238,594
Financial services (4.6%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 2,750,000(c) 2,621,245
American General Finance
Sr Nts
11-01-03 5.75 5,000,000 4,775,443
Associates
11-01-03 5.75 6,700,000 6,413,023
Beneficial
Medium-term Nts
02-18-13 6.25 10,000,000 9,829,603
California Infrastructure-
Southern California Edison
03-25-02 6.14 5,635,412 5,644,766
Countrywide Home Loan
Company Guaranty
06-15-04 6.85 12,000,000 11,804,399
CSC Holdings
Sr Sub Deb
04-01-23 9.88 5,000,000 5,112,500
Ford Capital
05-15-02 9.88 5,000,000 5,380,143
Hoechst Capital
(European Monetary Unit) Company Guaranty
07-29-03 2.75 600,000(c,e) 666,445
Household Finance
04-01-00 9.55 6,500,000 6,618,151
Marlin Water Trust
Sr Nts
12-15-01 7.09 8,095,670 7,986,101
Ohio Savings Capital
Company Guaranty
06-03-27 9.50 5,000,000(e) 5,158,520
Ono Finance
(U.S. Dollar)
05-01-09 13.00 1,800,000(c,e) 1,890,098
Salomon
Medium-term Sr Nts Series D
10-06-99 6.99 5,000,000 5,006,643
SASCO
02-25-28 6.76 2,174,363 2,167,600
Total 81,074,680
Food (0.2%)
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 4,750,000(c,e) 3,372,500
Furniture & appliances (0.3%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 5,000,000 5,012,500
Simmons
Sr Sub Nts
03-15-09 10.25 600,000(e) 594,000
Total 5,606,500
Health care (0.5%)
Centocor
Cv Sub Deb
02-15-05 4.75 205,000 272,138
Lilly (Eli)
01-01-36 6.77 10,000,000 9,278,668
Total 9,550,806
Health care services (1.5%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 250,000 246,250
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,500,000 2,137,500
Novacare
Cv Sub Deb
01-15-00 5.50 537,000 475,916
Omnicare
Cv
12-01-07 5.00 1,130,000 774,050
Service Corp Intl
03-15-20 6.30 11,000,000 10,544,048
Sunrise Assisted Living
Cv Sub Nts
06-15-02 5.50 550,000 506,000
Tenet Healthcare
Sr Sub Nts Series B
12-01-08 8.13 9,000,000 8,392,500
Triad Hospitals Holdings
Sr Sub Nts
05-15-09 11.00 3,050,000(e) 3,080,500
Total 26,156,764
Household products (0.4%)
Chattem
Company Guaranty Series B
04-01-08 8.88 2,200,000 2,112,000
Revlon Consumer Products
Sr Nts
02-01-06 8.13 4,250,000 3,782,500
Scotts
Sr Sub Nts
01-15-09 8.63 585,000(e) 567,450
Total 6,461,950
Industrial equipment & services (1.4%)
AGCO
Sr Sub Nts
03-15-06 8.50 1,025,000 964,781
Case
08-01-05 7.25 5,475,000 5,296,434
Clark Equipment
03-01-01 9.75 5,000,000 5,209,839
Laidlaw
(U.S. Dollar)
05-15-06 7.65 10,000,000(c) 9,609,870
Terex
Company Guaranty
04-01-08 8.88 3,800,000 3,572,000
Total 24,652,924
Insurance (3.6%)
Americo Life
Sr Sub Nts
06-01-05 9.25 4,500,000 4,584,375
Conseco
Medium-term Nts Series B
06-21-01 7.60 15,000,000 14,965,217
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 3,500,000 3,515,983
Florida Windstorm
(MBIA Insured)
02-25-19 7.13 15,000,000(e,l) 14,079,257
Nationwide CSN Trust
02-15-25 9.88 10,500,000(e) 11,355,535
New England Mutual
02-15-24 7.88 5,000,000(e) 5,134,487
SAFECO Capital
Company Guaranty
07-15-37 8.07 10,000,000 9,072,624
Total 62,707,478
Leisure time & entertainment (4.0%)
AMC Entertainment
Sr Sub Nts
02-01-11 9.50 5,000,000 4,237,500
Loews Cineplex Entertainment
Sr Sub Nts
08-01-08 8.88 4,500,000 3,948,750
Premier Parks
Sr Nts
04-01-06 9.25 2,150,000 2,085,500
Zero Coupon Sr Disc Nts
04-01-03 10.00 5,250,000(g) 3,451,875
Speedway Motorsports
Company Guaranty Series D
08-15-07 8.50 12,000,000 11,940,000
Time Warner
08-15-04 7.98 1,500,000 1,543,217
08-15-06 8.11 3,000,000 3,099,165
08-15-07 8.18 3,000,000 3,133,070
02-01-24 7.57 20,000,000 19,288,461
Sr Nts
01-15-28 6.95 5,000,000 4,449,489
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 2,500,000 2,512,500
United Artists Theatres
Series 1995A
07-01-15 9.30 4,668,292 3,288,905
Vail Resorts
Sr Sub Nts
05-15-09 8.75 7,000,000(e) 6,798,750
Total 69,777,182
Media (5.9%)
AMFM
Company Guaranty
11-01-08 8.00 10,000,000 9,600,000
Australis Media
(U.S. Dollar)
11-01-00 14.00 292,984(b,c) 254,396
(U.S. Dollar) Zero Coupon
05-15-03 15.75 10,081,770(b,c,g) 1,409
Comcast Cable Communications
11-15-08 6.20 6,100,000 5,548,717
Cox Communications
06-15-25 7.63 10,000,000 9,405,506
Cox Enterprises
06-15-09 7.38 10,000,000(e) 9,844,965
CSC Holdings
Sr Nts
07-15-09 8.13 6,600,000(e) 6,435,000
Sr Sub Debs
05-15-16 10.50 10,000,000 10,900,000
Heritage Media
Sr Sub Nts
02-15-06 8.75 2,000,000 2,045,000
Interpublic Group
Cv Sub Nts
06-01-06 1.87 250,000(e) 231,250
Lamar Media
Company Guaranty
12-01-06 9.63 1,350,000 1,377,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,700,000(c) 1,729,750
News America Holdings
10-15-12 10.13 10,000,000 11,106,395
Rogers Cablesystems
(Canadian Dollar)
01-15-14 6.56 2,700,000(c) 1,927,024
STC Broadcasting
Sr Sub Nts
03-15-07 11.00 6,750,000 6,994,688
Susquehanna Media
Sr Sub Nts
05-15-09 8.50 3,260,000(e) 3,194,800
TCI Communications
08-01-15 8.75 5,000,000 5,609,456
TCI Telecommunications
Sr Nts
02-15-28 7.13 2,000,000 1,883,174
Telewest Communication
(British Pound) Cv
02-19-07 5.25 320,000(c,e) 489,045
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 9.25 4,275,000(c,e,g) 2,607,750
Time Warner Entertainment
Sr Nts
07-15-33 8.38 2,500,000 2,626,764
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 6,339,375(c,k,q) 9,509,063
Total 103,321,152
Metals (1.3%)
Alcan Aluminum
(U.S. Dollar)
01-15-22 8.88 6,750,000(c) 7,171,511
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 4,189,380(c,e) 3,958,964
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 2,000,000(c) 1,734,221
WMC Finance USA
(U.S. Dollar)
11-15-13 7.25 10,000,000(c) 9,833,541
Total 22,698,237
Miscellaneous (3.7%)
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 3,000,000 2,940,000
Bistro Trust
Sub Nts
12-31-02 9.50 10,000,000(e) 9,483,000
Colonial Capital
Company Guaranty Series A
01-15-27 8.92 3,000,000 2,781,570
Continucare
Cv Sr Sub Nts
10-31-02 8.00 1,000,000(e) 45,000
Delphes 2
(U.S. Dollar)
05-05-09 7.75 3,200,000(c,e) 3,008,000
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 4,305,371
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 7,500,000(c) 6,750,000
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 3,600,000(b,c,e) 954,000
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000 1,145,375
KPNQwest
(U.S. Dollar) Sr Nts
06-01-09 8.13 15,000,000(c,e) 14,287,499
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 3.24 2,450,000(f) 753,375
Nextel Partners
Zero Coupon Sr Disc Nts
02-01-04 13.60 9,600,000(e,g) 5,760,000
NSM Steel
Company Guaranty
02-01-06 12.00 2,125,000(b,e) 573,750
02-01-08 12.25 5,300,000(b,e) 265,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,775,000 1,739,500
PTC Intl Finance
(U.S. Dollar) Zero Coupon Company Guaranty
07-01-02 10.75 3,000,000(c,g) 2,178,750
Republic Technology/RTI Capital
07-15-09 13.75 3,800,000 3,743,000
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 4,255,000 3,903,963
Transamerica Energy
06-15-02 11.50 1,000,000(b) 115,000
06-15-02 13.00 2,100,000(b) 215,250
Total 64,947,403
Multi-industry conglomerates (2.3%)
American Standard
Company Guaranty
06-01-09 8.25 5,000,000 4,800,000
Interim Services
Cv Sub Nts
06-01-05 4.50 915,000 750,300
Metamor Worldwide
Cv Sub Nts
08-15-04 2.94 1,090,000 758,913
Packaged Ice
Company Guaranty Series B
02-01-05 9.75 7,525,000 7,167,563
Personnel Group of America
Cv Sub Nts
07-01-04 5.75 600,000 478,500
Pierce Leahy
Sr Sub Nts
07-15-06 11.13 812,000 881,020
Tenneco
06-15-17 7.63 6,000,000 5,770,898
USI America Holdings
Company Guaranty
10-15-03 7.13 10,000,000 9,796,329
Sr Nts Series B
12-01-06 7.25 5,000,000 4,841,078
Westinghouse Electric
06-01-01 8.88 5,000,000 5,125,016
Total 40,369,617
Paper & packaging (2.5%)
APP Intl Finance
(U.S. Dollar)
10-01-05 11.75 3,950,000(b,c) 2,824,250
Chesapeake
05-01-03 9.88 5,000,000 5,479,936
Crown Cork & Seal
04-15-23 8.00 5,000,000 4,535,608
Gaylord Container
Sr Nts
06-15-07 9.75 2,200,000 2,046,000
Sr Nts Series B
06-15-07 9.38 5,000,000 4,550,000
Graham Packaging/GPC Capital
Company Guaranty Series B
01-15-08 8.75 2,500,000 2,375,000
Owens-Illinois
Sr Nts
05-15-04 7.85 5,000,000 4,920,514
Packaging Corp of America
Sr Sub Nts
04-01-09 9.63 3,220,000(e) 3,252,200
Repap New Brunswick
(U.S. Dollar) Sr Nts
04-15-05 10.63 6,465,000(c) 5,624,549
Riverwood Intl
Company Guaranty
04-01-08 10.88 3,750,000 3,656,250
Silgan Holdings
06-01-09 9.00 4,125,000 4,027,031
Total 43,291,338
Restaurants & lodging (0.2%)
Domino's
Company Guaranty Series B
01-15-09 10.38 3,275,000 3,209,500
Sunterra
Cv Sub Nts
01-15-07 5.75 1,140,000 813,675
Total 4,023,175
Retail (1.8%)
Costco Companies
Zero Coupon Cv Sub Nts
08-19-17 3.50 225,000(f) 198,281
Dayton Hudson
12-01-22 8.50 3,000,000 3,145,462
Eye Care Centers of America
Company Guaranty
05-01-08 9.13 4,000,000 3,455,000
Kroger
Sr Nts
07-15-06 8.15 3,000,000 3,112,490
SAKS
Company Guaranty
07-15-04 7.00 10,000,000 9,561,300
Wal-Mart CRAVE Trust
07-17-06 7.00 11,603,197(e) 11,451,892
Total 30,924,425
Textiles & apparel (0.3%)
VF Corp
05-01-01 9.50 5,000,000 5,231,795
Transportation (0.6%)
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 3,950,000(c) 1,975,000
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 6,600,000(c) 6,600,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 4,140,000(c,e) 2,111,400
Total 10,686,400
Utilities -- electric (6.2%)
Boston Edison
06-01-20 9.88 5,000,000 5,289,712
Calpine
Sr Nts
04-15-06 7.63 9,400,000 8,836,000
Cleveland Electric Illuminating
07-01-00 7.19 5,000,000 5,024,329
07-01-04 7.67 2,000,000 2,020,398
1st Mtge Series B
05-15-05 9.50 11,000,000 11,611,431
CMS Energy
Sr Nts
05-15-02 8.13 5,000,000 4,992,478
Connecticut Light & Power
1st Mtge Series C
06-01-02 7.75 5,000,000 5,059,123
Edison Mission Energy
Sr Nts
06-15-09 7.73 8,600,000(e) 8,595,339
Hydro-Quebec
(U.S. Dollar) Local Govt Guaranty Series 1989HH
12-01-29 8.50 20,000,000(c) 21,912,837
Midland Cogeneration
Series 1991-C
07-23-02 10.33 1,120,480 1,184,908
Midland Funding
Series 1994-C
07-23-02 10.33 965,211 1,020,711
Series A
07-23-05 11.75 5,000,000 5,531,250
Sithe Independence Funding
Series A
12-30-13 9.00 7,500,000 7,939,045
Texas Utilities Electric
Medium-term Nts 1st Mtge Series B
03-01-02 9.70 6,000,000 6,394,478
Texas-New Mexico Power
1st Mtge Series U
09-15-00 9.25 3,500,000 3,587,500
TXU Electric Capital
Company Guaranty
01-30-37 8.18 10,000,000 9,547,093
Total 108,546,632
Utilities -- gas (0.8%)
El Paso Energy
Sr Nts
07-15-01 6.63 8,675,000(e) 8,661,337
05-15-09 6.75 5,500,000 5,143,098
Total 13,804,435
Utilities -- telephone (6.7%)
AT&T
03-15-04 5.63 7,000,000 6,680,869
03-15-09 6.00 5,400,000 5,000,443
AT&T Canada
(U.S. Dollar) Sr Nts
11-01-08 10.63 4,000,000(c) 4,520,000
Bell Atlantic
08-01-31 9.00 7,500,000 7,883,476
Bell Atlantic Financial Services
Cv
09-15-05 4.25 476,000(e) 508,520
Bell Telephone of Pennsylvania
03-15-33 7.38 10,000,000 9,351,254
Call-Net Enterprises
(U.S. Dollar) Sr Nts
08-15-08 8.00 3,625,000(c) 3,190,000
COLT Telecom Group
(European Monetary Unit)
03-29-06 2.00 450,000(c,e) 504,594
Energis
(U.S. Dollar)
06-15-09 9.75 10,000,000(c,e) 10,175,000
Frontier
10-15-03 6.00 7,000,000 6,537,370
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 4,135,000(b) 5,169
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 5,600,000 4,984,000
06-01-08 8.60 3,500,000 3,097,500
03-01-09 9.50 5,000,000 4,687,500
Zero Coupon Sr Disc Nts
05-15-01 8.97 1,000,000(g) 825,000
McLeod USA
Sr Nts
03-15-08 8.38 1,535,000 1,431,388
02-15-09 8.13 5,000,000 4,612,500
MetroNet Communications
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 3,800,000(c,g) 2,907,000
Paging Network
Sr Sub Nts
08-01-07 10.13 3,250,000 1,917,500
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.25 1,750,000 1,697,500
11-01-08 7.50 13,250,000 12,865,064
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 6,150,000(c) 6,211,500
11-15-09 9.88 5,000,000(c) 4,375,000
U S West Capital Funding
Company Guaranty
07-15-28 6.88 9,250,000 8,148,550
U S WEST Communications
11-10-26 7.20 6,000,000 5,451,770
Total 117,568,467
Municipal bond (0.4%)
New Jersey Economic Development
Authority State Pension Funding
Revenue Bond (MBIA Insured)
02-15-29 7.43 7,000,000(l) 7,007,070
Total bonds
(Cost: $1,707,871,239) $1,626,808,073
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common stocks (0.1%)
Issuer Shares Value(a)
<S> <C> <C>
BayCorp Holdings 28(b) $203
Celcaribe 512,190(b,e) 1,280,475
Intermedia Communications 2,167(b) 56,342
Nextel Communications Cl A 6,197(b) 358,264
Specialty Foods 15,000(b) 3,750
Wilshire Financial Services Group 617,590(b) 791,287
Total common stocks
(Cost: $7,381,336) $2,490,321
Preferred stocks & other (1.4%)
Issuer Shares Value(a)
Adelphia Communications
5.50% Cv Series D 2,875 $529,000
Bar Technologies
Warrants 4,500 90,000
Bell Technology
Warrants 5,410 595,100
CMS Energy
8.75% Cv 13,500(b) 545,063
Coastal
5.58% Cv 23,400 642,038
Coltec Capital
5.25% Cv 10,800(e) 503,550
CVS
6.00% Cv ACES 3,075(i) 234,469
Dairy Mart
Warrants 10,000 3,500
Dobson Communications
13.00% Pay-in-kind 3,000(n) 2,880,000
Federal-Mogul Finance Trust
7.00% Cm Cv 9,400 494,675
Georgia-Pacific Group
7.50% Cv 9,750(b) 442,406
Geotek Communications
Warrants 250,000(m) --
Global TeleSystems Group
7.25% Cm Cv 5,600(e) 313,600
7.25% Cm Cv 3,400 190,400
Hercules Trust
6.50% Cm Cv 530 487,271
Houston Inds
7.00% Cv ACES 2,275(i) 234,325
Intermedia Communications
7.00% Cv Series F 36,700 798,225
Kerr-McGee
5.50% Cv 7,500(b) 274,688
KMC Telecom Holdings
Warrants 3,000 7,500
Nakornthai Strip Mill
Warrants 3,355,391 3
Newell Financial Trust
5.25% Cm Cv 10,000 500,000
Nextel Communications
13.00% Pay-in-kind Series D 4,130(n) 4,460,399
Paxson Communications
12.50% Pay-in-kind Exchangeable 45,878(b,n) 4,496,044
PLD Telekom
Warrants 5,000 250
Poland Telecom
Warrants 5,000 250
Price Communications
Warrants 23,048 2,869,476
Republic of Argentina
Warrants 5,500(c) 1,375
SkyTel Communications
2.25% Cv 13,500(b) 511,313
Suiza Capital
5.50% Cv 23,850(e) 775,125
Telehub Communications
Warrants 2,500 75,000
Unifi Communications
Warrants 7,000 70
United Mexican States
Warrants 9,000 652,500
Wendys Financing
5.00% Cm Cv Series A 8,800 523,600
Total preferred stocks & other
(Cost: $21,688,553) $24,131,215
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (5.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (4.8%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C>
09-17-99 5.16% $18,800,000 $18,756,969
10-01-99 5.09 25,000,000 24,886,402
Federal Home Loan Mtge Corp Disc Nts
10-07-99 5.21 4,200,000 4,178,244
10-15-99 5.22 11,600,000 11,526,559
Federal Natl Mtge Assn Disc Nts
09-16-99 5.05 6,100,000 6,085,316
09-17-99 5.06 5,300,000 5,285,944
10-21-99 5.24 10,400,000 10,324,889
11-18-99 5.31 2,600,000 2,569,247
Total 83,613,570
Commercial paper (0.7%)
Ameritech Capital Funding
09-24-99 5.27 1,800,000(p) 1,793,962
Petrofina (Delaware)
10-26-99 5.20 3,300,000 3,271,723
Salomon Smith Barney
10-06-99 5.33 3,300,000 3,282,964
SBC Communications Capital
10-13-99 5.17 4,600,000(p) 4,570,020
Total 12,918,669
Letter of credit (0.1%)
Bank of America-
AES Hawaii
09-15-99 5.26 2,200,000 2,195,508
Total short-term securities
(Cost: $98,746,427) $98,727,747
Total investments in securities
(Cost: $1,835,687,555)(r) $1,752,157,356
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Aug. 31,
1999, the value of foreign securities represented 12.44% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(e) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1999.
(i) ACES (Automatically Convertible Equity Securities) are structured as
convertible preferred securities. Investors receive an enhanced yield but based
upon a specific formula, potential appreciation is limited. ACES pay dividends,
have voting rights, are noncallable for at least three years and upon maturity,
convert into shares of common stock.
(j) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 1999.
(k) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Aug. 31, 1999, is as follows:
Security Acquisition Cost
dates
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 09-01-99 $6,037,500
(l) The following abbreviation is used in portfolio descriptions to identify the
insurer of the issue:
MBIA -- Municipal Bond Investors Assurance
(m) Negligible market value.
(n) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(o) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 7 to the financial statements):
Type of security Notional amount
Sale contracts
U.S. Treasury Bonds, Dec. 1999 $40,000,000
(p) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(q) Pay-in-kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. The
securities issued as interest or dividends usually have the same terms,
including maturity date, as the pay-in-kind securities.
(r) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$1,834,191,393 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $29,109,796
Unrealized depreciation (111,143,833)
------------
Net unrealized depreciation $(82,034,037)
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Capital Resource Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (98.3%)
Issuer Shares Value(a)
Aerospace & defense (2.4%)
<S> <C> <C>
AlliedSignal 1,000,000 $61,250,000
Raytheon Cl B 1,050,000 71,531,250
Total 132,781,250
Automotive & related (2.4%)
Delphi Automotive Systems 1,000,000 18,750,000
Federal-Mogul 300,000 13,687,500
General Motors 900,000 59,512,500
Lear 1,000,000(b) 40,187,500
Total 132,137,500
Banks and savings & loans (1.6%)
Bank One 400,000 16,050,000
First Union 850,000 35,275,000
State Street 660,000 39,517,500
Total 90,842,500
Beverages & tobacco (1.6%)
Coca-Cola 1,500,000 89,718,750
Building materials & construction (0.8%)
Weyerhaeuser 800,000 45,000,000
Chemicals (0.4%)
Azurix 1,300,000(b) 24,131,250
Communications equipment & services (2.4%)
Lucent Technologies 1,100,000 70,468,750
Motorola 700,000 64,575,000
Total 135,043,750
Computers & office equipment (19.3%)
America Online 550,000(b) 50,221,875
BMC Software 650,000(b) 34,978,125
Cisco Systems 1,500,000(b) 101,718,750
Computer Sciences 1,000,000(b) 69,187,500
Electronic Data Systems 1,500,000 84,187,500
EMC 600,000(b) 36,000,000
Equant 396,000(b,c) 34,872,750
First Data 1,500,000 66,000,000
Intl Business Machines 1,250,000 155,703,124
Microsoft 1,500,000(b) 138,843,750
Novell 1,500,000(b) 35,531,250
Solectron 1,600,000(b) 125,200,000
Unisys 3,000,000(b) 129,000,000
Yahoo! 200,000(b) 29,500,000
Total 1,090,944,624
Electronics (7.4%)
Corning 950,000 63,175,000
Intel 1,600,000 131,500,000
Jabil Circuit 1,000,000(b) 44,812,500
Teradyne 750,000(b) 51,046,875
Texas Instruments 1,500,000 123,093,750
Total 413,628,125
Energy (3.4%)
Anadarko Petroleum 1,000,000 34,000,000
Exxon 1,200,000 94,650,000
Texaco 1,000,000 63,500,000
Total 192,150,000
Financial services (4.0%)
Citigroup 1,875,000 83,320,313
MBNA 2,500,000 61,718,750
Morgan Stanley, Dean Witter, Discover & Co 900,000 77,231,250
Total 222,270,313
Health care (6.5%)
Bristol-Myers Squibb 1,000,000 70,375,000
Guidant 700,000 41,081,250
Immunex 370,000(b) 24,905,625
Medtronic 650,000 50,862,500
Merck & Co 900,000 60,468,750
Mylan Laboratories 1,250,000 24,765,625
Pfizer 1,200,000 45,300,000
Warner-Lambert 700,000 46,375,000
Total 364,133,750
Household products (1.7%)
Colgate-Palmolive 1,300,000 69,550,000
Newell Rubbermaid 600,000 24,600,000
Total 94,150,000
Industrial equipment & services (4.5%)
Caterpillar 1,200,000 67,950,000
Illinois Tool Works 1,500,000 116,906,250
Ingersoll-Rand 1,100,000 69,987,500
Total 254,843,750
Insurance (4.8%)
ACE 2,000,000(c) 42,875,000
American Intl Group 1,125,000 104,273,438
Lincoln Natl 1,250,000 58,593,750
Progressive Corp 606,400 61,852,800
Total 267,594,988
Leisure time & entertainment (0.7%)
Disney (Walt) 200,000 5,550,000
Time Warner 550,000 32,621,875
Total 38,171,875
Media (4.3%)
Clear Channel Communications 1,000,000(b) 70,062,500
Comcast Special Cl A 1,500,000 48,937,500
Infinity Broadcasting Cl A 2,700,000(b) 73,068,750
MediaOne Group 750,000(b) 49,312,500
Total 241,381,250
Multi-industry conglomerates (7.4%)
General Electric 1,650,000 185,315,625
Tyco Intl 2,300,000(c) 233,018,750
Total 418,334,375
Paper & packaging (2.4%)
Earthshell 400,000(b) 1,937,500
Intl Paper 1,550,000 72,946,875
Willamette Inds 1,500,000 59,437,500
Total 134,321,875
Restaurants & lodging (1.5%)
Wendy's Intl 3,000,000 84,000,000
Retail (13.2%)
Amazon.com 225,000(b,e) 27,984,375
Circuit City Stores 1,900,000 81,700,000
Costco Wholesale 285,000(b) 21,303,750
CVS 1,250,000 52,109,375
Dayton Hudson 1,700,000 98,600,000
Gap 2,475,000 96,834,375
Home Depot 1,850,000 113,081,250
Kohl's 1,200,000(b) 85,500,000
Safeway 1,200,000(b) 55,875,000
Wal-Mart Stores 2,500,000 110,781,250
Total 743,769,375
Transportation (1.4%)
Canadian Natl Railway 500,000(c) 31,781,250
Union Pacific 1,000,000 48,687,500
Total 80,468,750
Utilities -- gas (1.1%)
Enron 1,500,000 62,812,500
Utilities -- telephone (3.1%)
AT&T 1,800,000 81,000,000
MCI WorldCom 1,200,000(b) 90,900,000
Total 171,900,000
Total common stocks
(Cost: $3,950,138,994) $5,524,530,550
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (1.7%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.3%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C>
09-17-99 5.16% $10,000,000 $9,977,111
10-13-99 5.18 2,500,000 2,483,758
10-22-99 5.23 5,500,000 5,458,259
Federal Home Loan Mtge Corp Disc Nts
09-09-99 5.06 600,000 599,192
09-20-99 5.05 7,600,000 7,579,864
10-01-99 5.07 25,096,000 24,978,128
10-14-99 5.24 6,500,000 6,459,550
Federal Natl Mtge Assn Disc Nts
10-12-99 5.17 6,200,000 6,160,761
10-21-99 5.24 10,000,000 9,927,778
11-18-99 5.31 2,300,000 2,272,795
Total 75,897,196
Commercial Paper (0.4%)
CAFCO
10-22-99 5.37 5,000,000(d) 4,962,246
Delaware Funding
09-24-99 5.31 5,000,000(d) 4,983,069
Ford Motor Credit
09-03-99 5.33 5,000,000 4,998,519
10-18-99 5.30 3,800,000 3,773,905
Heinz (HJ)
09-29-99 5.23 3,000,000 2,987,867
Total 21,705,606
Total short-term securities
(Cost: $97,622,453) $97,602,802
Total investments in securities
(Cost: $4,047,761,447)(f) $5,622,133,352
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of Aug. 31, 1999, the
value of foreign securities represented 6.09% of net assets.
(d) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) Security is partially or fully on loan. See Note 5 to the financial
statements.
(f) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$4,048,615,527 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $1,674,334,912
Unrealized depreciation (100,817,087)
------------
Net unrealized appreciation $1,573,517,825
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Cash Management Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
U.S. government agencies (2.2%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Federal Home Loan Mtge Corp Disc Nt
<S> <C> <C> <C>
10-07-99 5.21% $7,500,000 $7,461,150
Federal Natl Mtge Disc Nt
11-18-99 5.31 7,700,000 7,612,413
Total U.S. government agencies
(Cost: $15,073,563) $15,073,563
Certificates of deposit (1.0%)
Dresdner U.S. Finance
01-19-00 5.04 2,000,000 2,000,000
Westdeutsche Landesbank Yankee
09-29-99 5.32 5,000,000 5,000,000
Total certificates of deposit
(Cost: $7,000,000) $7,000,000
Commercial paper (91.2%)
Automotive & related (2.9%)
Daimler/Chrysler
09-23-99 5.25 6,100,000 6,080,541
10-05-99 5.18 4,200,000 4,179,651
10-18-99 5.23 5,000,000 4,966,317
Ford Motor Credit
09-03-99 5.33 5,000,000 4,998,520
Total 20,225,029
Banks and savings & loans (13.2%)
ABN Amro
10-04-99 5.23 5,000,000 4,976,212
10-15-99 4.92 3,000,000 2,982,400
ANZ (Delaware)
09-13-99 4.89 4,000,000 3,993,600
10-06-99 5.22 2,900,000 2,885,452
10-07-99 4.93 5,000,000 4,975,950
10-12-99 4.91 5,200,000 5,171,573
Deutsche Bank Financial
09-08-99 5.00 6,000,000 5,994,237
09-17-99 5.23 2,000,000 1,995,369
10-18-99 5.21 6,300,000 6,257,724
10-25-99 5.22 5,000,000 4,961,337
10-28-99 5.22 5,000,000 4,959,150
Dresdner US Finance
09-02-99 5.02 5,000,000 4,999,310
11-29-99 5.28 5,000,000 4,935,846
First Union
05-19-00 5.35 1,000,000 1,000,000
First Union Natl Bank
11-18-99 5.50 2,000,000(c) 2,000,000
Morgan Guaranty
11-29-99 5.23 5,000,000(c) 5,000,000
NBD Bank Canada
09-08-99 5.16 11,400,000 11,388,650
09-28-99 5.25 3,400,000 3,386,689
10-05-99 5.23 7,200,000 7,164,708
Westpac Capital
10-19-99 4.91 2,100,000 2,086,560
Total 91,114,767
Broker dealers (6.1%)
Bear Stearns
10-04-99 5.23 2,000,000 1,990,522
10-19-99 5.23 5,000,000 4,965,600
10-28-99 4.95 2,800,000 2,778,587
11-19-99 4.99 1,000,000 989,357
11-22-99 4.98 2,000,000 1,977,951
01-20-00 5.96 2,000,000 1,954,332
01-28-00 5.85 1,000,000 976,408
04-13-00 5.70 2,000,000 1,931,625
04-21-00 5.77 1,000,000 964,144
Goldman Sachs Group
10-13-99 4.91 3,300,000 3,281,520
10-14-99 4.92 3,500,000 3,479,933
10-25-99 5.24 5,000,000 4,961,300
10-27-99 4.94 5,000,000 4,962,511
10-29-99 5.24 3,000,000 2,975,060
11-23-99 5.28 3,000,000 2,964,033
01-07-00 5.36 1,000,000(c) 1,000,000
Total 42,152,883
Commercial finance (14.8%)
CAFCO
09-09-99 4.95 5,000,000(b) 4,994,578
10-19-99 5.37 6,400,000(b) 6,354,517
10-21-99 5.38 5,000,000(b) 4,962,986
10-22-99 5.23 2,000,000(b) 1,985,352
10-22-99 5.37 5,000,000(b) 4,962,246
11-01-99 5.29 5,000,000(b) 4,955,690
Ciesco LP
10-18-99 5.20 4,000,000 3,973,158
Falcon Asset
09-09-99 5.19 2,000,000(b) 1,997,707
09-20-99 4.90 2,000,000(b) 1,994,923
10-20-99 5.24 5,000,000(b) 4,964,815
11-02-99 5.43 2,000,000(b) 1,981,469
11-08-99 5.28 2,000,000(b) 1,980,356
11-10-99 5.43 5,000,000(b) 4,947,694
Preferred Receivables
09-16-99 5.16 4,100,000(b) 4,091,236
10-01-99 5.24 2,500,000(b) 2,489,167
10-12-99 5.37 2,200,000(b) 2,186,645
10-13-99 5.33 5,000,000(b) 4,969,200
10-29-99 5.40 5,000,000(b) 4,956,903
11-03-99 5.43 5,000,000(b) 4,952,925
11-10-99 5.44 5,000,000(b) 4,947,694
Variable Funding Capital
09-13-99 5.19 5,600,000(b) 5,590,349
09-21-99 5.17 4,500,000(b) 4,487,200
10-13-99 5.20 5,000,000(b) 4,970,017
10-13-99 5.36 8,600,000(b) 8,546,522
Total 102,243,349
Communications equipment & services (1.0%)
BellSouth Capital Funding
09-22-99 5.19 7,100,000(b) 7,078,629
Energy (2.5%)
Chevron Transport
09-17-99 4.89 3,500,000(b) 3,492,518
Petrofina (Delaware)
10-15-99 5.34 6,100,000 6,060,486
11-09-99 5.40 7,700,000 7,621,337
Total 17,174,341
Financial services (25.0%)
Associates First Capital
10-20-99 5.25 5,000,000 4,964,747
10-21-99 5.24 4,500,000 4,467,687
Barclays U.S. Funding
09-09-99 5.17 5,000,000 4,994,300
10-20-99 5.32 5,000,000 4,964,101
BMW US Capital
09-22-99 5.20 5,000,000 4,984,921
10-08-99 5.19 6,300,000 6,266,783
10-29-99 5.21 10,500,000 10,412,878
Corporate Receivables
09-08-99 5.17 5,000,000(b) 4,995,013
09-23-99 5.17 5,000,000(b) 4,984,356
10-26-99 5.23 3,300,000(b) 3,273,985
10-27-99 5.22 4,000,000(b) 3,967,956
11-05-99 5.36 2,200,000(b) 2,178,947
Delaware Funding
09-30-99 5.30 2,000,000(b) 1,991,574
10-22-99 5.31 5,000,000(b) 4,962,813
11-09-99 5.39 4,800,000(b) 4,751,056
GMAC
10-07-99 5.24 5,000,000 4,974,000
10-12-99 5.19 5,000,000 4,970,788
10-14-99 5.29 5,900,000 5,863,073
Household Finance
09-01-99 5.60 2,000,000 2,000,000
09-20-99 5.25 5,100,000 5,085,923
Intl Lease Finance
09-10-99 4.90 2,000,000 1,997,600
Intl Securitization
09-02-99 5.15 3,500,000(b) 3,499,501
09-02-99 5.18 5,000,000(b) 4,999,283
Merrill Lynch
10-21-99 5.30 1,000,000(c) 1,000,000
01-28-00 5.17 3,000,000(c) 3,000,000
Salomon Smith Barney
10-26-99 5.23 5,000,000 4,960,583
Sheffield Receivables
09-01-99 5.15 5,000,000(b) 5,000,000
09-14-99 5.21 3,300,000(b) 3,293,839
09-17-99 5.18 5,000,000(b) 4,988,578
09-23-99 5.19 3,000,000(b) 2,990,558
10-15-99 5.23 8,700,000(b) 8,645,025
10-29-99 5.42 2,000,000(b) 1,982,664
Windmill Funding
09-15-99 5.18 6,700,000(b) 6,686,607
09-15-99 5.19 6,400,000(b) 6,387,132
09-23-99 5.24 5,000,000(b) 4,984,081
09-27-99 4.90 3,000,000(b) 2,989,730
10-01-99 5.25 5,000,000(b) 4,978,292
10-04-99 5.32 5,000,000(b) 4,975,754
Total 172,414,128
Food (1.4%)
Cargill Financial Markets
01-25-00 5.75 1,000,000(b) 977,289
Cargill Global
09-01-99 5.57 2,000,000(b) 2,000,000
03-10-00 5.49 1,000,000(b) 971,987
Heinz (HJ)
09-29-99 5.23 5,400,000 5,378,160
Total 9,327,436
Health care (2.9%)
Glaxo Wellcome
09-07-99 5.00 5,000,000(b) 4,995,883
09-10-99 5.05 5,200,000(b) 5,193,513
10-04-99 5.22 10,000,000(b) 9,952,517
Total 20,141,913
Insurance (1.5%)
American General
10-06-99 5.23 7,500,000 7,462,156
American General Finance
09-30-99 5.27 3,000,000 2,987,337
Total 10,449,493
Metals (0.6%)
Alcoa
10-05-99 5.34 4,100,000 4,079,400
Miscellaneous (11.3%)
CXC
09-01-99 5.16 5,000,000(b) 5,000,000
10-12-99 5.23 5,000,000(b) 4,970,560
10-14-99 5.36 10,000,000(b) 9,936,337
10-20-99 5.21 3,000,000(b) 2,978,971
10-21-99 5.22 3,300,000(b) 3,276,350
Fleet Funding
09-16-99 5.16 4,500,000(b) 4,490,400
10-06-99 5.33 6,000,000(b) 5,969,083
10-06-99 5.35 5,000,000(b) 4,974,139
10-12-99 5.36 5,000,000(b) 4,969,706
10-14-99 5.32 5,900,000(b) 5,862,861
Thames Asset Global
09-07-99 5.20 4,000,000(b) 3,996,547
09-15-99 5.32 5,000,000(b) 4,989,694
10-14-99 5.25 5,000,000(b) 4,969,004
10-15-99 4.92 4,000,000(b) 3,976,484
11-01-99 5.41 2,000,000(b) 1,981,869
11-01-99 5.46 5,600,000(b) 5,548,760
Total 77,890,765
Multi-industry conglomerates (2.7%)
General Electric Capital Intl
09-03-99 5.19 5,000,000(b) 4,998,564
09-22-99 5.26 5,000,000(b) 4,984,717
09-29-99 5.27 5,000,000(b) 4,979,622
10-04-99 5.23 3,500,000 3,483,381
Total 18,446,284
Utilities -- electric (3.8%)
Natl Rural Utilities
09-10-99 5.00 3,700,000 3,695,440
10-26-99 5.21 7,100,000 7,044,137
10-27-99 5.21 3,300,000 3,273,563
UBS Finance (Delaware)
10-08-99 4.92 1,000,000 995,108
10-12-99 4.95 1,000,000 994,545
11-12-99 4.92 5,000,000 4,952,200
12-13-99 5.07 5,000,000 4,929,330
Total 25,884,323
Utilities -- telephone (1.5%)
Ameritech Capital Funding
09-24-99 5.27 4,800,000(b) 4,783,900
SBC Communications Capital
10-07-99 5.18 5,500,000(b) 5,471,840
Total 10,255,740
Total commercial paper
(Cost: $628,878,480) $628,878,480
Letters of credit (5.6%)
ABN Amro-
Louis Dreyfus
09-07-99 5.20 5,000,000 4,995,683
09-10-99 5.26 5,000,000 4,993,450
09-17-99 5.31 3,600,000 3,591,520
Bank of America-
AES Hawaii
09-24-99 5.18 3,100,000 3,089,840
Dresdner US Finance-
ContiFinancial
09-10-99 5.24 5,000,000 4,993,475
Toronto Dominion Bank-
Presbyterian Healthcare Services
10-20-99 5.33 5,000,000 4,964,067
Union Bank Switzerland-
River Fuel Trust
09-03-99 5.19 8,000,000(b) 7,997,702
09-28-99 5.31 4,000,000(b) 3,984,160
Total letters of credit
(Cost: $38,609,897) $38,609,897
Total investments in securities
(Cost: $689,561,940)(d) $689,561,940
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(c) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1999.
(d) Also represents the cost of securities for federal income tax purposes at
Aug. 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Extra Income Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Bonds (82.7%)
Issuer Coupon Principal Value(a)
rate amount
Aerospace & defense (1.7%)
Compass Aerospace
Sr Sub Nts
<S> <C> <C> <C>
04-15-05 10.13% $1,720,000(d) $1,539,400
Fairchild
Company Guaranty
04-15-09 10.75 2,700,000(d) 2,484,000
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,060,000 1,110,350
Sequa
10-15-99 9.63 2,500,000 2,509,375
08-01-09 9.00 3,500,000 3,447,500
Total 11,090,625
Automotive & related (2.5%)
EV Intl
Company Guaranty Series A
03-15-07 11.00 2,500,000 1,893,750
French (JL) Auto Casting
Sr Sub Nts
06-01-09 11.50 2,300,000(d) 2,343,125
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 2,000,000 1,985,000
Lear
Sr Nts
05-15-09 8.11 2,000,000 1,919,680
MSX Intl
Company Guaranty
01-15-08 11.38 1,725,000 1,681,875
Oxford Automotive
Company Guaranty Series D
06-15-07 10.13 4,250,000 4,207,500
Penda
Sr Nts Series B
03-01-04 10.75 1,200,000 1,179,000
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 1,000,000 957,500
Total 16,167,430
Banks and savings & loans (0.1%)
CEI Citicorp Holdings
(Argentine Peso)
02-14-07 11.25 500,000(c,d) 357,500
Beverages & tobacco (0.4%)
Canandaigua Brands
Company Guaranty
03-01-09 8.50 2,500,000 2,368,750
Building materials & construction (0.4%)
Formica
Sr Sub Nts
03-01-09 10.88 2,875,000(d) 2,706,094
Chemicals (1.3%)
Allied Waste
Sr Sub Nts
08-01-09 10.00 750,000(d) 727,500
Allied Waste North America
Company Guaranty Series B
01-01-06 7.63 750,000 688,125
01-01-09 7.88 3,325,000 3,025,750
Lyondell Chemical
Series B
05-01-07 9.88 1,500,000 1,500,000
Sr Sub Nts
05-01-09 10.88 1,300,000 1,316,250
Sterling Chemicals
07-15-06 12.38 1,000,000(d) 1,000,000
Total 8,257,625
Commercial finance (0.4%)
Advance Holding
Zero Coupon Series B
04-15-03 12.88 1,900,000(g) 1,064,000
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 2,000,000(c) 1,752,500
Total 2,816,500
Communications equipment & services (11.3%)
21st Century Telecom Group
Zero Coupon Sr Disc Nts
02-15-03 12.25 1,500,000(g) 675,000
Bestel
(U.S. Dollar) Zero Coupon
05-15-01 12.75 1,850,000(c,g) 1,202,500
Birch Telecom
Sr Nts
06-15-08 14.00 2,000,000 2,022,500
Caprock Communications
Sr Nts Series B
07-15-08 12.00 3,000,000 3,000,000
Covad Communications Group
Sr Nts
02-15-09 12.50 2,000,000 1,940,000
Crown Castle Intl
Zero Coupon Sr Disc Nts
08-01-04 11.30 1,250,000(d,g) 703,125
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 3,000,000 3,150,000
EchoStar DBS
Sr Nts
02-01-09 9.38 7,200,000(d) 7,199,999
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 3,850,000(c) 4,032,875
06-15-08 10.88 2,000,000(c) 2,040,000
GST Equipment Funding
Sr Nts
05-01-07 13.25 750,000 819,375
GST Telecom/GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 3,000,000(d,g) 1,710,000
GST Telecommunications
Sr Sub Nts
11-15-07 12.75 750,000 817,500
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.88 4,700,000 4,535,500
Zero Coupon Sr Disc Nts Series B
08-01-00 9.19 3,250,000(g) 2,758,438
KMC Telecom Holdings
Sr Nts
05-15-09 13.50 2,000,000(d) 1,960,000
Zero Coupon Sr Disc Nts
02-15-03 12.68 1,500,000(g) 795,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 600,000 600,000
NTL
Sr Nts Series B
02-15-07 10.00 2,000,000 2,025,000
Zero Coupon Sr Nts Series B
02-01-01 8.94 5,000,000(g) 4,337,500
PhoneTel Technologies
Sr Nts
12-15-06 12.00 2,130,000(b) 532,500
Poland Telecom
(U.S. Dollar) Company Guaranty
06-01-04 14.00 100,000(b,c) 69,500
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 4,700,000 4,770,500
RCN
Zero Coupon Sr Disc Nts Series B
02-15-03 9.80 700,000(g) 435,750
Rhythms Net Connections
Sr Nts
04-15-09 12.75 1,750,000(d) 1,614,375
Satelites Mexicanos
(U.S. Dollar) Sr Nts Series B
11-01-04 10.13 2,000,000(c) 1,560,000
Spectrasite Holdings
Zero Coupon Sr Disc Nts
04-15-04 11.25 2,975,000(d,g) 1,532,125
Tele1 Europe
(U.S. Dollar)
05-15-09 13.00 1,000,000(c,d) 1,060,000
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 3,000,000(g) 1,980,000
Triton Communications
Zero Coupon Company Guaranty
05-01-03 10.86 4,000,000(g) 2,740,000
Unisite
Zero Coupon Sub Nts
12-15-00 13.00 1,000,000(e,g) 1,224,300
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 1,200,000(c) 1,200,000
05-15-08 13.25 1,400,000(c) 1,400,000
Vialog
Company Guaranty
11-15-01 12.75 3,720,000 3,008,550
Worldwide Fiber
Sr Nts
08-01-09 12.00 2,500,000(d) 2,506,250
Total 71,958,162
Computers & office equipment (1.9%)
Concentric Network
Sr Nts
12-15-07 12.75 600,000 604,500
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 3,250,000 2,839,687
Decisionone Holdings
Zero Coupon
08-01-02 9.88 1,425,000(b,g) 3,563
Globix
Sr Nts
05-01-05 13.00 2,050,000 1,845,000
PSINet
Sr Nts
11-01-08 11.50 1,500,000 1,522,500
Sr Nts Series B
02-15-05 10.00 2,450,000 2,364,250
Verio
Sr Nts
04-01-05 10.38 500,000 497,500
12-01-08 11.25 2,250,000 2,289,375
Total 11,966,375
Electronics (0.5%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 1,350,000(c,d) 1,073,037
Metromedia Fiber Network
Sr Nts Series B
11-15-08 10.00 2,250,000 2,227,500
Total 3,300,537
Energy (3.8%)
Belco Oil & Gas
Sr Sub Nts Series B
09-15-07 8.88 2,000,000 1,920,000
Canadian Forest Oil
(U.S. Dollar) Company Guaranty
09-15-07 8.75 2,500,000(c) 2,406,250
Clark R&M
Sr Sub Nts
11-15-07 8.88 1,400,000 1,162,000
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 1,500,000 1,378,125
HS Resources
Sr Sub Nts
12-01-03 9.88 1,400,000 1,400,000
Sr Sub Nts Series B
11-15-06 9.25 2,000,000 1,980,000
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
11-01-04 11.75 2,250,000(b,c,d) 450,000
Lodestar Holdings
Company Guaranty
05-15-05 11.50 4,650,000 3,906,000
Michael Petroleum
Sr Nts Series B
04-01-05 11.50 500,000(b) 240,000
Nuevo Energy
Sr Sub Nts
06-01-08 9.50 2,000,000 2,000,000
Ocean Energy
Company Guaranty Series B
07-01-08 8.38 2,250,000 2,188,125
Rayovac
Sr Sub Nts Series B
11-01-06 10.25 2,412,000 2,617,020
Roil
(U.S. Dollar)
12-05-02 12.78 1,241,600(c,d) 782,208
Tesoro Petroleum
Company Guaranty Series B
07-01-08 9.00 2,150,000 2,133,875
Total 24,563,603
Energy equipment & services (0.9%)
Dailey Intl
Company Guaranty Series B
02-15-08 9.50 1,000,000 646,250
DI Inds
Sr Nts
07-01-07 8.88 1,000,000 895,000
Grey Wolf
Company Guaranty Series C
07-01-07 8.88 250,000 223,750
Northern Offshore
(U.S. Dollar) Company Guaranty Series B
05-15-05 10.00 3,400,000(c) 2,074,000
Plains Resources
Company Guaranty Series D
03-15-06 10.25 1,000,000 1,005,000
Seven Seas Petroleum
Sr Nts Series B
05-15-05 12.50 2,000,000 940,000
Total 5,784,000
Financial services (2.0%)
AOA Holdings LLC
Sr Nts
06-01-06 10.38 2,500,000(d) 2,493,750
Arcadia Financial
Sr Nts
03-15-07 11.50 4,830,000 4,179,225
Gemini Inds
12-23-01 13.50 1,500,000(b,e) 1,200,000
Ono Finance
(U.S. Dollar)
05-01-09 13.00 1,100,000(c,d) 1,155,060
RBF Finance
Company Guaranty
03-15-09 11.38 2,060,000 2,183,600
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 3,000,000(b,c) 1,860,000
Total 13,071,635
Food (1.0%)
Ameriserve Food Distributions
Company Guaranty
07-15-07 10.13 1,975,000 1,471,375
Aurora Foods
Sr Sub Nts Series D
02-15-07 9.88 2,000,000 2,020,000
Chiquita Brands Intl
Sr Nts
01-15-04 9.63 400,000 395,000
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 1,250,000(c,d) 887,500
RAB Enterprises
Company Guaranty
05-01-05 10.50 2,400,000 1,656,000
Total 6,429,875
Health care (1.0%)
Alaris Medical
Zero Coupon Sr Disc Nts
08-01-03 11.12 4,000,000(g) 2,120,000
Alaris Medical Systems
Company Guaranty
12-01-06 9.75 4,225,000 4,013,750
Total 6,133,750
Health care services (3.3%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 5,750,000 5,663,750
Fountain View
Company Guaranty Series B
04-15-08 11.25 950,000 779,000
Genesis Health Ventures
Sr Sub Nts
10-01-06 9.25 1,700,000 1,037,000
Hanger Orthopedic Group
Sr Sub Nts
06-15-09 11.25 1,700,000(d) 1,717,000
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,000,000 1,710,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 2,275,000(d) 2,275,000
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 2,750,000 2,158,750
Physician Sales & Service
Company Guaranty
10-01-07 8.50 2,250,000 2,272,500
Tenet Healthcare
Sr Sub Nts Series B
12-01-08 8.13 2,950,000 2,750,875
Triad Hospitals Holdings
Sr Sub Nts
05-15-09 11.00 900,000(d) 909,000
Total 21,272,875
Household products (0.4%)
Revlon Worldwide
Zero Coupon Sr Disc Nts Series B
03-15-01 10.59 1,000,000(f) 595,000
Scotts
Sr Sub Nts
01-15-09 8.63 2,050,000(d) 1,988,500
Total 2,583,500
Industrial equipment & services (2.1%)
Blount
Company Guaranty
06-15-05 7.00 2,600,000 2,177,500
Fairfield Mfg
Sr Sub Nts
10-15-08 9.63 2,000,000(d) 1,990,000
Grove Holdings/Capital
Zero Coupon
05-01-03 11.63 1,000,000(g) 250,000
Grove Inds
05-01-10 14.50 778,682 272,539
Motor & Gears
Sr Nts Series D
11-15-06 10.75 5,250,000 5,184,375
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 2,500,000 2,400,000
Thermadyne Holdings
Zero Coupon
06-01-03 12.50 3,000,000(g) 1,372,500
Total 13,646,914
Insurance (0.3%)
Americo Life
Sr Sub Nts
06-01-05 9.25 2,000,000 2,037,500
Leisure time & entertainment (5.8%)
Coast Hotels & Casino
Company Guaranty
04-01-09 9.50 1,570,000 1,503,275
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 1,500,000 1,389,375
HMH Properties
Sr Nts Series C
12-01-08 8.45 1,250,000 1,171,875
Hollywood Casino Shreveport
1st Mtge
08-01-06 13.00 1,500,000(d) 1,537,500
Hollywood Park
Company Guaranty Series B
02-15-07 9.25 2,000,000 1,960,000
Horseshoe Gaming Holdings
Sr Sub Nts
05-15-09 8.63 2,750,000(d) 2,660,625
Icon Health & Fitness
Sr Sub Nts Series B
07-15-02 13.00 1,000,000(b) 730,000
Intl Game Technology
Sr Nts
05-15-09 8.38 2,500,000(d) 2,412,500
Isle of Capri Casinos/Capital
1st Mtge Series B
08-31-04 13.00 2,750,000 3,038,750
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 2,000,000 2,030,000
Premier Cruises
Sr Nts
03-15-08 11.00 2,000,000(b,d,k) --
Premier Parks
Sr Nts
04-01-06 9.25 800,000 776,000
06-15-07 9.75 2,300,000 2,300,000
Regal Cinemas
Sr Sub Nts
06-01-08 9.50 3,750,000 2,625,000
12-15-10 8.88 500,000 330,000
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 7,550,000 6,493,000
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 1,200,000 1,206,000
United Artists Theatres
Series 1995A
07-01-15 9.30 1,633,909 1,151,122
Sr Sub Nts Series B
04-15-08 9.75 2,000,000 680,000
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 3,025,000 2,737,625
11-15-05 10.00 600,000 510,000
Total 37,242,647
Media (9.5%)
Adelphia Communications
Sr Nts Series B
02-01-08 8.38 3,500,000 3,272,500
Zero Coupon Sr Nts Pay-in-kind Series B
02-15-04 9.50 60,991(f,i) 60,076
AMFM
Company Guaranty
11-01-08 8.00 8,600,000 8,255,999
Australis Holdings
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-00 12.80 2,260,000(b,c,g) 22,600
Australis Media
(U.S. Dollar)
11-01-00 14.00 197,041(b,c) 171,090
(U.S. Dollar) Zero Coupon
05-15-00 12.25 4,500,000(b,c,g) 450
05-15-00 14.06 47,958(b,c,g) 240
Benedek Communications
Zero Coupon Sr Disc Nts
05-15-01 11.89 2,250,000(g) 1,901,250
Big City Radio
Zero Coupon Company Guaranty
03-15-01 11.25 2,000,000(g) 1,427,500
Bresnan Communications
Sr Nts
02-01-09 8.00 1,450,000(d) 1,435,500
Capstar Broadcasting
Zero Coupon Sr Disc Nts
02-01-02 7.49 1,000,000(g) 857,500
CBS Radio
Pay-in-kind Sub Deb
01-15-09 11.38 1,052,800(i) 1,183,084
Central Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.38 2,150,000(c) 1,182,500
Coaxial Communications/Phoenix
Company Guaranty
08-15-06 10.00 1,500,000 1,530,000
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 2,250,000(c,d) 1,625,625
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 3,000,000 3,281,250
Jacor Communications
Company Guaranty
12-15-06 9.75 1,450,000 1,544,250
Liberty Group Publishing
Zero Coupon
02-01-03 22.46 750,000(g) 360,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 3,000,000(c) 3,052,500
Outdoor Systems
Company Guaranty
06-15-07 8.88 5,165,000 5,332,863
Paxson Communications
Sr Sub Nts
10-01-02 11.63 3,250,000 3,331,250
Pegasus Media & Communications
Series B
07-01-05 12.50 1,500,000 1,657,500
Sr Nts Series B
10-15-05 9.63 2,750,000 2,722,500
Price Communications Wireless
Sr Sub Nts
07-15-07 11.75 2,500,000 2,731,250
Radio Unica
Zero Coupon Company Guaranty
08-01-02 11.74 2,000,000(g) 1,240,000
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 2,600,000(c) 2,600,000
Sinclair Broadcast Group
Sr Sub Nts
12-15-07 8.75 450,000 427,500
Sinclair Broadcasting Group
Company Guaranty
07-15-07 9.00 450,000 436,500
Spanish Broadcasting System
Sr Nts
06-15-02 12.50 1,000,000 1,120,000
Susquehanna Media
Sr Sub Nts
05-15-09 8.50 960,000(d) 940,800
Telemundo Holdings
Zero Coupon Sr Disc Nts Series B
08-15-03 11.50 4,000,000(g) 2,120,000
Telewest Communication
(U.S. Dollar) Sr Nts
11-01-08 11.25 2,000,000(c) 2,130,000
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 7.90 2,100,000(c,d,g) 1,281,000
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 1,102,500(c,e,i) 1,653,750
Total 60,888,827
Metals (2.3%)
AK Steel
Sr Nts
02-15-09 7.88 2,500,000(d) 2,400,000
EnviroSource
Sr Nts
06-15-03 9.75 4,000,000 2,560,000
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 837,876(c,d) 791,793
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 2,000,000 2,040,000
Ormet
Company Guaranty
08-15-08 11.00 3,500,000(d) 3,416,875
Pen Holdings
Company Guaranty Series B
06-15-08 9.88 1,875,000 1,790,625
Sheffield Steel
1st Mtge Series B
12-01-05 11.50 2,000,000 1,680,000
Total 14,679,293
Miscellaneous (9.3%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 1,500,000 1,560,000
Advance Stores
Company Guaranty Series B
04-15-08 10.25 800,000 744,000
Advanced Glassfiber Yarn
Sr Sub Nts
01-15-09 9.88 3,120,000 2,999,100
Argo-Tech
Company Guaranty Series D
10-01-07 8.63 3,000,000 2,883,750
Bistro Trust
Sub Nts
12-31-02 9.50 1,000,000(d) 948,300
Booth Creek Ski Holdings
Sr Nts Series B
03-15-07 12.50 500,000 370,000
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00 1,500,000(c) 1,387,500
Charter Communication Holdings
Sr Nts
04-01-09 8.63 2,500,000(d) 2,350,000
Comforce Operating
Sr Nts Series B
12-01-07 12.00 750,000 709,688
Consolidated Container
Sr Sub Nts
07-15-09 10.13 2,850,000(d) 2,878,500
CTI Holdings
(U.S. Dollar) Zero Coupon Sr Nts
04-15-03 11.50 950,000(c,g) 446,500
Dura Operating
Sr Sub Nts
05-01-09 9.00 1,400,000(d) 1,344,000
Falcon Products
Sr Sub Nts
06-15-09 11.38 2,750,000(d) 2,701,875
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 1,750,000(c) 1,575,000
ISG Resources
04-15-08 10.00 2,705,000 2,684,713
Knology Holdings
Zero Coupon Sr Disc Nts
10-15-02 12.14 900,000(g) 513,000
Nebco Evans Holding
Zero Coupon Sr Disc Nts
07-15-02 12.79 1,500,000(g) 645,000
Nextel Partners
Zero Coupon Sr Disc Nts
02-01-04 13.60 10,100,000(d,g) 6,059,999
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 2,475,000 2,697,750
NSM Steel
Company Guaranty
02-01-06 12.00 1,050,000(b) 283,500
02-01-08 12.25 1,200,000(b) 60,000
NTEX
(U.S. Dollar) Sr Nts
06-01-06 11.50 1,400,000(c) 1,197,000
Omnipoint Communications
Sr Nts
02-17-06 8.58 1,972(d,h) 1,962
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 5,690,000 5,576,199
Panolam Inds
Sr Sub Nts
02-15-09 11.50 800,000(d) 824,000
Pierce Leahy Command
Company Guaranty
05-15-08 8.13 5,125,000 4,779,063
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 2,225,000(c) 2,002,500
Republic Technology/RTI Capital
07-15-09 13.75 1,275,000 1,255,875
Riviera Black Hawk
1st Mtge
06-01-05 13.00 1,575,000(d) 1,602,563
SC Intl
09-01-07 9.25 2,700,000 2,673,000
SFC New Holdings
Sr Nts
08-15-01 11.25 2,000,000 1,900,000
SFC Sub Inc
Zero Coupon
06-15-05 -- 95,787(b,g) 10
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 1,250,000 962,500
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 570,000 522,975
Transamerica Energy
06-15-02 11.50 2,200,000(b) 253,000
06-15-02 13.00 2,400,000(b) 246,000
Total 59,638,822
Multi-industry conglomerates (1.2%)
Communications & Power Inds
Sr Sub Nts Series B
08-01-05 12.00 2,000,000 1,720,000
Jordan Inds
Sr Nts Series D
08-01-07 10.38 2,740,000 2,685,199
Zero Coupon Sr Sub Debs Series B
04-01-02 11.75 1,608,386(g) 1,037,409
Prime Succession
Sr Sub Nts
08-15-04 10.75 2,710,000 2,245,913
Total 7,688,521
Paper & packaging (6.5%)
Bear Island LLC/Finance
Sr Nts Series B
12-01-07 10.00 875,000 857,500
Berry Plastics
Sr Sub Nts
04-15-04 12.25 750,000(d) 787,500
07-15-07 11.00 1,400,000(d) 1,422,750
BPC Holding
Sr Nts Series B
06-15-06 12.50 1,600,000 1,572,000
Crown Paper
Sr Sub Nts
09-01-05 11.00 3,000,000 2,295,000
Doman Inds
07-01-04 12.00 1,750,000(d) 1,750,000
(U.S. Dollar)
03-15-04 8.75 1,500,000(c) 1,042,500
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 350,000(c) 231,000
Gaylord Container
Sr Nts
06-15-07 9.75 4,300,000 3,999,000
02-15-08 9.88 4,000,000 3,450,000
Graham Packaging/GPC Capital
Zero Coupon Sr Disc Nts Series B
01-15-03 10.03 2,100,000(g) 1,344,000
Grupo Industrial Durango
(U.S. Dollar)
08-01-03 12.63 1,000,000(c) 990,000
Packaging Corp of America
Sr Sub Nts
04-01-09 9.63 1,485,000(d) 1,499,850
Repap New Brunswick
(U.S. Dollar)
06-01-04 11.50 1,000,000(c,d) 1,010,000
(U.S. Dollar) Sr Nts
06-01-04 9.00 2,150,000(c) 2,080,125
04-15-05 10.63 3,750,000(c) 3,262,500
Riverwood Intl
Company Guaranty
08-01-07 10.63 500,000 505,000
Riverwood Intl
Company Guaranty Sr Nts
04-01-06 10.25 4,250,000 4,250,000
Silgan Holdings
06-01-09 9.00 2,325,000 2,269,781
Stone Container
Sr Nts
08-01-16 12.58 2,000,000 2,062,500
Warren (SD)
Pay-in-kind
12-15-06 14.00 4,032,448(i) 4,617,153
Total 41,298,159
Restaurants & lodging (1.2%)
American Restaurant Group
Company Guaranty Series B
02-15-03 11.50 1,000,000 885,000
Domino's
Company Guaranty Series B
01-15-09 10.38 2,600,000 2,548,000
Florida Panthers Holdings
Company Guaranty
04-15-09 9.88 1,650,000 1,526,250
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 2,750,000 2,667,500
Total 7,626,750
Retail (1.2%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 1,650,000(g) 1,113,750
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 2,850,000 2,664,750
Maxim Group
Company Guaranty Series B
10-15-07 9.25 1,500,000(b) 1,275,000
Musicland Group
Company Guaranty Series B
03-15-08 9.88 2,500,000 2,425,000
Total 7,478,500
Textiles & apparel (1.0%)
Anvil Knitwear
Sr Nts Series B
03-15-07 10.88 1,500,000 952,500
Galey & Lord
Company Guaranty
03-01-08 9.13 1,600,000 800,000
GFSI
Sr Sub Nts Series B
03-01-07 9.63 2,500,000 2,025,000
GFSI Holdings
Zero Coupon Sr Disc Nts Series B
09-15-04 11.38 2,700,000(g) 1,890,000
Steel Heddle Group
Zero Coupon Series B
06-01-03 13.74 1,600,000(g) 240,000
Steel Heddle Mfg
Company Guaranty Series B
06-01-08 10.63 1,200,000 660,000
Total 6,567,500
Transportation (1.2%)
American Architectural
Company Guaranty
12-01-07 11.75 1,000,000 550,000
Fistas Del Sol
(U.S. Dollar) Sr Nts
08-01-09 10.25 1,500,000(c,d) 975,000
Enterprises Shipholding
(U.S. Dollar) Sr Nts
05-01-08 8.88 3,570,000(c) 2,427,600
Global Ocean Carriers
Sr Nts
07-15-07 10.25 2,500,000(b) 875,000
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 350,000(c) 185,500
06-15-07 9.50 500,000(c) 250,000
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 1,600,000(c) 1,600,000
Trico Marine Services
Company Guaranty Series G
08-01-05 8.50 1,000,000 890,000
Total 7,753,100
Utilities -- gas (0.2%)
Leviathan Gas
Sr Sub Nts
06-01-09 10.38 1,250,000(d) 1,271,875
Utilities -- telephone (7.7%)
Allegiance Telecom
Sr Nts
05-15-08 12.88 250,000 270,625
Zero Coupon Sr Disc Nts Series B
02-15-03 12.13 4,950,000(g) 3,093,750
AT&T Canada
(U.S. Dollar) Sr Nts
11-01-08 10.63 1,050,000(c) 1,186,500
CCPR Services
Company Guaranty
02-01-07 10.00 2,000,000 2,140,000
COLT Telecommunications Group
(U.S. Dollar) Zero Coupon
12-15-01 8.86 1,000,000(c,g) 811,250
Energis
(U.S. Dollar)
06-15-09 9.75 1,450,000(c,d) 1,475,375
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 500,000(b) 625
Hyperion Telecommunications
Sr Nts Series B
09-01-04 12.25 3,000,000 3,150,000
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,975,000 1,757,750
06-01-08 8.60 600,000 531,000
Zero Coupon Sr Disc Nts Series B
07-15-02 9.51 3,125,000(g) 2,156,250
ITC Deltacom
Sr Nts
06-01-07 11.00 1,528,000 1,612,040
03-01-08 8.88 2,600,000 2,535,000
11-15-08 9.75 500,000 510,000
McLeod USA
Sr Nts
03-15-08 8.38 1,345,000 1,254,213
02-15-09 8.13 2,250,000 2,075,625
MetroNet Communications
(U.S. Dollar) Sr Nts
08-15-07 12.00 750,000(c) 870,000
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-02 10.74 800,000(c,g) 639,000
06-15-03 9.95 3,550,000(c,g) 2,715,750
NEXTLINK Communications
Sr Nts
04-15-06 12.50 1,000,000 1,090,000
11-15-08 10.75 2,750,000 2,777,500
Omnipoint
Sr Nts Series A
08-15-06 11.63 1,000,000 1,050,000
Omnipoint Communications
Sr Nts
08-15-06 11.63 2,450,000 2,572,500
Paging Network
Sr Sub Nts
02-01-06 8.88 1,500,000 840,000
08-01-07 10.13 2,000,000 1,180,000
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 1,175,000 1,151,500
Sr Nts Series B
05-15-08 9.88 2,500,000 2,200,000
Pronet
Sr Sub Nts
06-15-05 11.88 2,000,000 1,700,000
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 1,225,000(c) 1,237,250
11-15-08 10.50 2,750,000(c) 2,591,875
United Pan-Europe Communications
(U.S. Dollar) Sr Nts
08-01-09 10.88 1,800,000(c,d) 1,809,000
Total 48,984,378
Total bonds
(Cost: $582,879,580) $527,631,622
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common stocks (1.4%)
Issuer Shares Value(a)
<S> <C> <C>
Concentric Network 34,000(b) $745,875
Cybernet Internet Services 2,000(d) 1,999,999
Global TeleSystems Group 21,800(b) 704,413
Intermedia Communications 72,842(b) 1,893,891
Nextel Communications Cl A 2,323(b) 134,298
OpTel 2,250(b,d) 23
Premier Holdings 148,117 555,439
Price Communications 85,001(b) 1,753,143
Versatel Telecom Intl ADR 50,000(b,c) 678,125
Wilshire Financial Services Group 286,815(b) 367,482
Wilshire Real Estate Investment Trust 30,000 90,000
Total common stocks
(Cost: $11,200,791) $8,922,688
Preferred stocks & other (7.7%)
Issuer Shares Value(a)
21st Century Telecom Group
13.75% Pay-in-kind 457(j) $210,220
Warrants 400 8,000
Allegiance Telecom
Warrants 4,950 346,500
American Mobile Satellite
Warrants 1,500(d) 60,000
American Restaurant Group
12.00% Pay-in-kind Series B 528(j) 528,000
Warrants 500 5
APP Finance II Mauritius Cl B
12.00% 4,075(b,c) 2,404,250
Australis Holdings
Warrants 1,760(c) 18
Belco Oil & Gas
6.50% Cv 40,000 692,500
Bell Technology
Warrants 2,350 258,500
Benedek Communications
11.50% Pay-in-kind 1,000(b,j) 790,000
Bestel
Warrants 2,850 85,500
Birch Telecom
Warrants 2,000 11,000
Capstar Broadcasting
12.00% Pay-in-kind
Exchangeable 11,236(j) 1,325,848
Capstar Communications
12.63% Pay-in-kind Series E 10,607(j) 1,251,626
Century Maintenance
13.25% Pay-in-kind Series C 22,682(j) 2,313,564
Chesapeake Energy
7.00% Cv 10,000 287,500
Clark Materials Handling
13.00% 1,648(b) 1,380,200
Communications & Power Inds
14.00% Pay-in-kind Series B 29,691(j) 3,047,039
Concentric Network
13.50% Pay-in-kind Series B 2,847(j) 2,619,240
CSC Holdings
11.13% Pay-in-kind Series M 45,306(j) 4,915,700
Dobson Communications
13.00% Pay-in-kind 1,500(j) 1,440,000
Fairfield Mfg
11.25% Pay-in-kind 600(b,j) 618,000
Geotek Communications
Warrants 40,000(k) --
Hyperion Telecommunications
12.88% Pay-in-kind Series B 602(j) 538,790
Intermedia Communications
7.00% Cv Series F 60,000 1,305,000
13.50% Pay-in-kind Series B 2,571(j) 2,442,450
Iridium World Communications
Warrants 1,700 425
Jitney-Jungle Stores of America Cl A
15.00% 20,000 320,000
KMC Telecom Holdings
Warrants 1,500 3,750
Knology Holdings
Warrants 1,500 3,000
Lady Luck Gaming
Pay-in-kind 15,000(b,e,j) 630,000
MetroNet Communications
Warrants 750 78,438
Nakornthai Strip Mill
Warrants 759,711 1
Nebco Evans Holdings
11.25% Pay-in-kind 23,348(j) 770,484
Nextel Communications
11.13% Pay-in-kind Series E 1,178(j) 1,198,615
13.00% Pay-in-kind Series D 2,581(j) 2,787,480
NTL
13.00% Pay-in-kind Series B 3,725(j) 3,957,813
Packaging Corp of America
12.38% Pay-in-kind 7,500(b,d,j) 821,250
Paxson Communications
12.50% Pay-in-kind
Exchangeable 27,260(b,j) 2,671,480
Pegasus Communications
12.75% Pay-in-kind 7,450(b,j) 797,150
12.75% Pay-in-kind Series A 187(b,j) 187,000
PLD Telekom 100(b) 5
Poland Telecom
Warrants 2,225(c) 133,500
Warrants 100 5
Price Communications
Warrants 4,472 556,764
Primus Telecommunications
Warrants 1,175 23,500
R&B Falcon
13.88% Cm Pay-in-kind 2,000(j) 1,880,000
Warrants 2,000 200,000
RSL Communications
Warrants 1,250 98,750
SGW Holding
12.50% Pay-in-kind Series B 12,374(b,e,j) 210,358
Cv Series A 9,677(b,e) 99,996
Warrants 250(e) 79,125
Sinclair Capital
11.63% 20,000 2,025,000
Telehub Communications
Warrants 3,000 90,000
Unifi Communications
Warrants 1,000 10
Unisite
Cl C Warrants 540(b,e) 286,232
Warrants 500(b,e) 5
Vialog
Warrants 3,720 186,000
Total preferred stocks & other
(Cost: $54,466,987) $48,975,586
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (5.7%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government notes (5.0%)
Federal Home Loan Bank Disc Nt
<S> <C> <C> <C>
09-17-99 5.16% $1,300,000 $1,297,024
Federal Home Loan Mtge Corp Disc Nts
09-15-99 5.06 3,300,000 3,292,424
09-17-99 5.06 4,000,000 3,989,592
09-20-99 5.04 1,300,000 1,296,563
09-20-99 5.05 4,200,000 4,188,872
10-14-99 5.20 1,300,000 1,291,988
10-15-99 5.22 2,200,000 2,186,072
10-18-99 5.23 3,200,000 3,178,317
10-28-99 5.24 1,000,000 991,317
Federal Natl Mtge Assn Disc Nts
10-12-99 5.17 1,600,000 1,589,874
10-21-99 5.24 2,400,000 2,382,667
10-25-99 5.27 4,900,000 4,861,560
11-18-99 5.31 1,100,000 1,086,989
Total 31,633,259
Commercial paper (0.7%)
American General
10-07-99 5.30 1,900,000 1,889,987
Ciesco LP
10-08-99 5.28 2,000,000(l) 1,989,208
Delaware Funding
10-05-99 5.17 800,000(l) 795,762
Total 4,674,957
Total short-term securities
(Cost: $36,312,929) $36,308,216
Total investments in securities
(Cost: $684,860,287)(m) $621,838,112
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Aug. 31,
1999, the value of foreign securities represented 12.20% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(e) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Aug. 31, 1999, is as follows:
Security Acquisition Cost
dates
Gemini Inds
<S> <C> <C>
13.50% 2001 12-23-96 $1,500,000
Lady Luck Gaming
Pay-in-kind 11-19-98 525,000
SGW Holding
12.50% Pay-in-kind Series B 08-12-97 thru 04-15-99 211,601
Cv Series A 08-12-97 100,002
Warrants 08-12-97 78,900
Unisite
13.00% Zero Coupon Sub Nts 2000 12-18-97 1,000,000
Cl C Warrants 12-17-97 250,090
Warrants 12-17-97 --
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 03-01-99 1,102,500
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1999.
(i) Pay-in-kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. The
securities issued as interest or dividends usually have the same terms,
including maturity date, as the pay-in-kind securities.
(j) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(k) Negligible market value.
(l) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(m) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$683,648,086 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $11,682,488
Unrealized depreciation (73,492,462)
-----------
Net unrealized depreciation $(61,809,974)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Global Bond Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Bonds (97.3%)(c)
Issuer Coupon Principal Value(a)
rate amount
Argentina (0.5%)
Republic of Argentina
(Japanese Yen)
<S> <C> <C> <C>
03-27-01 5.50% 110,000,000 $996,710
Australia (1.9%)
New South Wales Treasury
(Australian Dollar)
03-01-08 8.00 2,700,000(d) 1,867,536
Queensland Treasury
(Australian Dollar) Local Govt Guaranty
05-14-03 6.00 2,825,000 1,917,878
Total 3,785,414
Bermuda (0.1%)
Central Euro Media
(European Monetary Unit) Sr Nts Series RG
08-15-04 4.45 750,000 263,674
Canada (6.1%)
Abitibi-Consolidated Finance
(U.S. Dollar) Company Guaranty
08-01-09 7.88 1,600,000 1,551,340
British Columbia
(Canadian Dollar)
12-01-06 5.25 2,275,000 1,446,973
Govt of Canada
(Canadian Dollar)
02-01-06 7.00 3,000,000 2,150,364
06-01-23 8.00 4,200,000 3,564,117
Laidlaw
(U.S. Dollar)
05-15-06 7.65 1,400,000 1,345,382
Province of Manitoba
(U.S. Dollar) Series CK
12-15-00 9.00 625,000 645,155
Rogers Communication
(Canadian Dollar) Sr Nts
07-15-07 6.37 2,000,000 1,345,524
Total 12,048,855
Cayman Islands (0.2%)
Roil
(U.S. Dollar)
12-05-02 12.78 776,000(d) 488,880
China (0.1%)
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 500,000(d) 255,000
Denmark (3.2%)
Govt of Denmark
(Danish Krone)
05-15-03 8.00 7,700,000 1,218,240
03-15-06 8.00 7,500,000 1,224,293
11-10-24 7.00 24,850,000 3,844,916
Total 6,287,449
France (0.2%)
Govt of France
(European Monetary Unit)
04-25-05 7.50 400,000 487,076
Germany (13.3%)
Allgemeine Hypo Bank
(European Monetary Unit)
09-02-09 5.00 15,510,000 15,882,391
Bayerische Landesbank
(U.S. Dollar) Sub Nts
12-01-08 5.88 800,000 732,768
Federal Republic of Germany
(European Monetary Unit)
07-22-02 8.00 5,180,000 6,078,792
06-20-16 6.00 2,914,364 3,285,383
Total 25,979,334
Greece (1.5%)
Hellenic Republic
(Greek Drachma)
02-19-06 6.00 963,000,000 3,009,924
Hong Kong (1.3%)
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 1,000,000(d) 882,500
Hutchison Whampoa Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 2,000,000(d) 1,682,675
Total 2,565,175
Indonesia (0.4%)
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 1,300,000(b) 806,000
Israel (0.5%)
Israel Electric
(U.S. Dollar) Sr Nts
12-15-26 7.88 1,000,000(d) 901,590
Italy (4.3%)
Govt of Italy
(European Monetary Unit)
09-15-01 7.75 1,265,317 1,440,052
01-01-04 8.50 4,257,875 5,170,836
11-01-26 7.25 1,575,191 1,960,489
Total 8,571,377
Japan (0.7%)
Sony
(U.S. Dollar)
03-04-03 6.13 1,500,000 1,475,287
Malaysia (0.8%)
Petronas
(U.S. Dollar)
08-15-15 7.75 2,000,000(d) 1,664,042
Mexico (2.0%)
Banco Nacional de Comercio Exterior
(U.S. Dollar)
02-02-04 7.25 3,000,000 2,692,500
United Mexican States
(British Pound) Medium-term Nts Series E
05-30-02 14.48 750,000 1,194,671
Total 3,887,171
Netherlands (0.5%)
KPNQwest
(European Monetary Unit) Sr Nts
06-01-09 7.13 925,000(d) 939,370
Norway (4.1%)
Govt of Norway
(Norwegian Krone)
05-31-01 7.00 47,270,000 6,161,077
05-15-09 5.50 16,040,000 1,989,713
Total 8,150,790
Panama (0.5%)
Banco General
(U.S. Dollar)
08-01-02 7.70 1,000,000(d) 940,844
Peru (0.4%)
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 1,000,000 867,111
Poland (0.9%)
Govt of Poland
(U.S. Dollar)
10-27-99 5.00 2,000,000(b) 1,737,500
Slovenia (1.5%)
Republic of Slovenia
(European Monetary Unit)
06-16-04 5.40 5,500,000 3,034,878
South Korea (0.9%)
Korea Electric Power
(U.S. Dollar)
12-01-03 6.38 2,000,000 1,870,357
Spain (1.1%)
Govt of Spain
(European Monetary Unit)
04-30-06 8.80 1,021,721 1,313,132
01-31-29 6.00 732,033 787,468
Total 2,100,600
Supra-National (0.9%)
World Bank
(Japanese Yen)
06-20-00 4.50 190,000,000 1,799,300
Sweden (4.3%)
Govt of Sweden
(Swedish Krona)
02-09-05 5.64 30,000,000 3,767,400
08-15-07 8.00 26,200,000 3,691,056
Paulson Enterprenad
(Swedish Krona)
12-15-00 8.64 9,000,000 1,082,773
Total 8,541,229
United Kingdom (10.9%)
COLT Telecom Group
(European Monetary Unit)
07-31-08 4.25 1,500,000 803,192
United Kingdom Treasury
(British Pound)
03-03-00 9.00 2,000,000 3,276,150
11-06-01 7.00 1,125,000 1,854,308
06-07-02 7.00 1,000,000 1,656,280
06-10-03 8.00 3,540,000 6,100,132
12-07-05 8.50 2,715,000 5,003,780
09-08-06 7.75 1,500,000 2,697,095
Total 21,390,937
United States (33.3%)
American Standard
(European Monetary Unit) Company Guaranty
06-01-06 7.13 1,700,000 1,753,386
California Infrastructure-
Pacific Gas & Electric
(U.S. Dollar)
06-25-03 6.16 1,050,000 1,049,979
Citicorp
(European Monetary Unit)
09-19-09 6.25 3,000,000 1,646,232
DTE Burns Harbor LLC
(U.S. Dollar) Sr Nts
01-30-03 6.57 1,028,560(d) 982,985
Federal Natl Mtge Assn
(U.S. Dollar)
02-15-08 5.75 2,000,000 1,864,115
07-01-13 6.00 1,883,210 1,793,757
07-01-14 6.50 1,500,000 1,457,340
02-01-27 7.50 489,879 486,508
03-01-27 7.50 1,027,779 1,020,708
06-01-27 7.50 780,214 774,604
03-01-29 6.50 1,949,143 1,843,773
Federated Dept Stores
(U.S. Dollar)
02-15-28 7.00 1,500,000 1,358,788
First Union-
Lehman Brothers Cl A3
(U.S. Dollar) Series 1997-C1
04-18-29 7.50 1,150,000 1,101,183
Firstar Capital
(U.S. Dollar) Company Guaranty Series B
12-15-26 8.32 600,000 580,468
Ford Motor Credit
(U.S. Dollar)
09-10-02 6.55 3,000,000 2,967,752
GTE North
(U.S. Dollar) Series F
02-15-10 6.38 2,000,000 1,880,161
MGM Grand
(U.S. Dollar)
02-01-05 6.95 1,500,000 1,364,393
Morgan (JP)
(U.S. Dollar) Sr Sub Medium-term Nts Series A
02-15-12 4.00 1,000,000 886,950
Nationwide CSN Trust
(U.S. Dollar)
02-15-25 9.88 1,500,000(d) 1,622,218
New York Life Insurance
(U.S. Dollar)
12-15-23 7.50 1,000,000(d) 914,870
Railcar Leasing
(U.S. Dollar)
01-15-13 7.13 3,000,000(d) 3,010,106
Texas Utilities Electric
(U.S. Dollar)
08-01-07 7.17 2,000,000 1,968,561
TXU Electric Capital
(U.S. Dollar) Company Guaranty
01-30-37 8.18 1,000,000 954,709
U.S. Treasury
(U.S. Dollar)
02-15-00 5.88 4,500,000 4,511,179
11-15-00 5.75 1,500,000 1,502,095
11-30-00 4.63 1,000,000 987,871
11-15-01 7.50 1,650,000 1,707,730
04-30-03 5.75 1,425,000 1,416,533
02-15-05 7.50 5,600,000 5,958,870
11-15-16 7.50 8,500,000 9,380,719
TIPS
01-15-07 3.38 3,000,000(e) 3,010,332
USX
(U.S. Dollar)
03-01-08 6.85 2,000,000 1,895,414
Watson Pharmaceuticals
(U.S. Dollar) Sr Nts
05-15-08 7.13 1,200,000 1,140,630
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 1,000,000(d) 1,010,840
Total 65,805,759
Venezuela (0.7%)
PDVSA Finance
(U.S. Dollar)
02-15-10 9.75 1,500,000(d) 1,418,624
Total bonds
(Cost: $197,028,766) $192,070,257
Short-term securities (2.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies
Federal Home Loan Bank Disc Nt
09-17-99 5.16% $400,000 $399,084
Federal Home Loan Mtge Corp Disc Nts
10-07-99 5.21 400,000 397,928
10-12-99 5.21 3,300,000 3,280,570
10-14-99 5.20 1,700,000 1,689,522
Total short-term securities
(Cost: $5,767,104) $5,767,104
Total investments in securities
(Cost: $202,795,870)(f) $197,837,361
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements. Foreign security values are stated in U.S. dollars. For debt
securities, principal amounts are denominated in the currency indicated.
(b) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1999.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(e) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semiannual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(f) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$202,723,350 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $1,492,527
Unrealized depreciation (6,378,516)
----------
Net unrealized depreciation $(4,885,989)
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- International Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (93.5%)
Issuer Shares Value(a)
Australia (3.8%)
Airlines (0.5%)
<S> <C> <C>
Qantas Airways 3,179,000 $10,248,778
Energy (0.4%)
Woodside Petroleum 1,410,000 9,861,117
Media (--%)
Publishing & Broadcasting 144,000 847,584
Metals (1.3%)
Broken Hill Proprietary 1,833,000 19,717,581
Pasminco 6,223,000 6,654,254
Total 26,371,835
Retail (0.8%)
Woolworths 5,262,000 18,402,266
Utilities -- telephone (0.8%)
AAPT 2,503,000(b) 7,718,001
Telstra 1,992,000 10,364,376
Total 18,082,377
Brazil (0.2%)
Banks and savings & loans
Uniao de Bancos Brasileiros GDR 303,810 5,316,675
Canada (3.1%)
Communications equipment & services (0.9%)
Nortel Networks 511,000(c) 20,982,938
Energy (1.0%)
Petro-Canada 1,523,400 22,865,768
Multi-industry conglomerates (1.2%)
Bombardier Cl B 1,556,900 24,201,327
France (15.7%)
Banks and savings & loans (3.3%)
Banque Natl de Paris 981,671 75,184,512
Building materials & construction (2.9%)
Lafarge 592,156 63,706,097
Computers & office equipment (2.1%)
Cap Gemini 265,748 45,682,240
Electronics (0.3%)
SGS-Thomson Microelectronics 90,731 6,032,323
Energy (4.5%)
Elf Aquitaine 145,163 25,491,058
Total Petroleum Cl B 592,554 76,473,598
Total 101,964,656
Household products (0.5%)
Rhone-Poulenc Cl A 207,611 10,085,016
Industrial equipment & services (2.1%)
Castorama Dubois 175,603 45,883,097
Germany (10.5%)
Automotive & related (2.2%)
Volkswagen 823,202 49,724,035
Chemicals (4.3%)
Bayer 910,273 39,624,639
Henkel KGaA 751,803 54,477,675
Total 94,102,314
Industrial equipment & services (4.0%)
Mannesmann 576,190(b) 88,502,669
Hong Kong (0.7%)
Communications equipment & services (0.2%)
China Telecom 1,532,000 4,764,673
Financial services (0.5%)
Cheung Kong Holdings 1,222,000 10,622,724
Italy (5.6%)
Banks and savings & loans
Banca Intesa 8,246,434(c) 34,893,961
Instituto Bancario San Paolo di Torino 3,342,179 44,936,599
Unicredito Italiano 9,725,472 44,958,912
Total 124,789,472
Japan (16.7%)
Automotive & related (2.1%)
Bridgestone 870,000 24,676,332
Toyota Motor 779,000 23,021,787
Total 47,698,119
Chemicals (1.2%)
Asahi Chemical Inds 5,056,000 27,062,240
Computers & office equipment (2.7%)
Canon 803,000 23,510,716
Fujitsu 1,260,000 37,006,326
Total 60,517,042
Electronics (3.2%)
Alps Electric 721,000(c) 20,977,928
Hitachi 2,362,000 24,009,966
Matsushita Communication Industrial 312,000 26,576,878
Total 71,564,772
Health care services (1.3%)
Yamanouchi Pharmaceutical 660,000 29,468,868
Household products (0.4%)
Shiseido 676,000 9,463,189
Media (1.2%)
Sony 202,000 26,207,601
Transportation (0.8%)
East Japan Railway 1,472 8,929,375
Kawasaki Kisen Kaisha 3,843,000 7,840,873
Total 16,770,248
Utilities -- telephone (3.8%)
Nippon Telegraph & Telephone 52,000 58,520,518
NTT Mobile Communication Network 14,680 24,445,400
Total 82,965,918
Mexico (0.9%)
Banks and savings & loans (0.4%)
Grupo Financiero Banamex Accival 4,312,000 8,264,056
Beverages & tobacco (0.5%)
Fomento Economico Mexicano ADR 322,000 10,646,125
Netherlands (3.9%)
Industrial equipment & services (1.1%)
Philips Electronics 232,003 23,941,132
Insurance (2.8%)
Fortis 1,817,197 61,610,429
New Zealand (0.5%)
Utilities -- telephone
Telecom Corp of New Zealand 2,367,000(c) 10,611,971
Singapore (2.3%)
Banks and savings & loans (1.0%)
Oversea-Chinese Banking 180,000 1,261,656
Overseas Union Bank 3,991,900 20,866,460
Total 22,128,116
Financial services (0.8%)
City Developments 77,000 466,528
DBS Land 7,754,000 17,686,873
Total 18,153,401
Transportation (0.5%)
Neptune Orient Lines 8,298,000 10,745,080
South Korea (0.9%)
Utilities -- telephone
Korea Telecom ADR 637,888(b) 20,731,360
Spain (2.6%)
Utilities -- telephone
Telefonica de Espana 3,578,715 57,164,604
Sweden (4.8%)
Banks and savings & loans (0.8%)
Nordbanken Holding 2,969,431 16,775,503
Communications equipment & services (4.0%)
Ericsson (LM) Cl B 2,749,936 88,869,407
Switzerland (3.0%)
Banks and savings & loans
UBS 236,294 66,769,572
United Kingdom (18.3%)
Banks and savings & loans (1.3%)
Standard Chartered 1,990,977 29,242,276
Chemicals (1.7%)
Imperial Chemical Inds 3,268,195 37,170,816
Communications equipment & services (2.3%)
Cable & Wireless Communications 2,402,430(b,c) 25,101,790
Orange 1,578,826(b) 26,643,162
Total 51,744,952
Energy (3.3%)
Shell Transport & Trading 9,240,604 73,732,627
Leisure time & entertainment (1.0%)
EMI Group ADR 2,594,700 22,080,897
Multi-industry conglomerates (5.3%)
General Electric 8,440,537 84,456,857
Williams 6,173,405 35,056,915
Total 119,513,772
Retail (2.9%)
Great Universal Stores 4,193,906 42,301,833
Next 1,948,544 23,070,761
Total 65,372,594
Utilities -- gas (0.5%)
BG 1,805,407 10,869,633
Total common stocks
(Cost: $1,729,497,999) $2,076,080,813
Other (0.3%)
Issuer Shares Value(a)
Banca Intesa 7,626,156 $6,768,213
Warrants
Total other
(Cost: $1,678,707) $6,768,213
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1999
Short-term securities (9.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (7.7%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C>
10-01-99 5.09% $25,000,000 $24,886,402
10-01-99 5.09 25,000,000 24,886,401
10-13-99 5.18 3,600,000 3,576,612
10-22-99 5.23 20,000,000 19,848,214
Federal Home Loan Mtge Corp Disc Nts
09-15-99 5.06 2,000,000 1,995,409
09-20-99 5.05 5,800,000 5,784,633
09-23-99 5.01 5,700,000 5,682,688
09-30-99 5.05 6,400,000 6,374,171
10-07-99 5.22 5,000,000 4,974,000
10-14-99 5.20 17,100,000 16,994,607
10-14-99 5.24 6,000,000 5,962,662
10-15-99 5.22 8,500,000 8,446,185
10-28-99 5.24 17,500,000 17,348,053
Federal Natl Mtge Assn Disc Nts
09-10-99 5.03 19,000,000 18,976,250
10-01-99 5.22 5,500,000 5,476,167
Total 171,212,454
Commercial paper (1.9%)
Albertson's
09-02-99 5.22 7,500,000(d) 7,498,913
Barclays U.S. Funding
09-22-99 5.23 3,300,000 3,289,970
BMW US Capital
09-27-99 5.16 1,500,000 1,494,243
10-18-99 5.23 700,000 694,926
Ciesco LP
10-08-99 5.28 5,500,000(d) 5,470,323
Corporate Receivables
09-13-99 5.22 1,200,000(d) 1,197,920
Delaware Funding
10-05-99 5.17 800,000(d) 795,762
Ford Motor Credit
09-03-99 5.33 5,000,000 4,998,520
10-18-99 5.30 4,000,000 3,972,531
Pfizer
09-17-99 5.20 4,000,000(d) 3,990,791
SBC Communications Capital
10-26-99 5.20 6,200,000(d) 6,146,873
Variable Funding Capital
09-23-99 5.15 3,000,000(d) 2,990,099
Total 42,540,871
Total short-term securities
(Cost: $213,791,104) $213,753,325
Total investments in securities
(Cost: $1,944,967,810)(e) $2,296,602,351
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements. Foreign security values are stated in U.S. dollars.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 5 to the financial
statements.
(d) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$1,945,880,781 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $408,609,821
Unrealized depreciation (57,888,251)
-----------
Net unrealized appreciation $350,721,570
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Managed Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (62.7%)
Issuer Shares Value(a)
Aerospace & defense (1.5%)
<S> <C> <C>
AlliedSignal 350,000 $21,437,500
Boeing 700,000 31,718,750
United Technologies 360,000 23,805,000
Total 76,961,250
Airlines (1.0%)
Southwest Airlines 3,000,000 50,062,500
Automotive & related (0.7%)
Tower Automotive 1,772,600(b) 35,452,000
Banks and savings & loans (2.3%)
Bank of America 450,000 27,225,000
UnionBanCal 313,500 12,030,563
Washington Mutual 1,800,000 57,150,000
Wells Fargo 500,000 19,906,250
Wilshire Financial Services Group 154,397(b) 197,821
Total 116,509,634
Beverages & tobacco (0.7%)
Coca-Cola 625,000 37,382,813
Building materials & construction (1.3%)
Martin Marietta Materials 1,100,000 50,187,500
Masco 500,000 14,156,250
Total 64,343,750
Chemicals (0.3%)
Waste Management 775,000 16,904,688
Communications equipment & services (2.5%)
Celcaribe 235,770(b,c,j) 589,425
Globalstar Telecommunications 1,000(b) 25,688
Loral Space & Communications 643,700(b) 11,827,988
Lucent Technologies 700,000 44,843,750
Nokia Oyj ADR Cl A 800,000(c) 66,699,999
Tellabs 75,000(b) 4,467,188
Total 128,454,038
Computers & office equipment (9.8%)
Cisco Systems 1,787,500(b) 121,214,843
Compuware 365,000(b) 11,018,438
Dell Computer 575,000(b) 28,067,188
EMC 565,000(b) 33,900,000
Intl Business Machines 275,000 34,254,688
Microsoft 1,500,000(b) 138,843,749
Solectron 1,075,000(b) 84,118,749
Sun Microsystems 275,000(b) 21,862,500
Unisys 450,000(b) 19,350,000
Total 492,630,155
Electronics (4.2%)
American Power Conversion 3,260,000(b) 57,253,750
Intel 975,000 80,132,813
Maxim Integrated Products 450,000(b) 30,290,625
Texas Instruments 550,000 45,134,375
Total 212,811,563
Energy (1.7%)
Anadarko Petroleum 850,000 28,900,000
Mobil 200,000 20,475,000
Royal Dutch Petroleum 600,000(c) 37,125,000
Total 86,500,000
Financial services (5.8%)
Associates First Capital Cl A 1,200,000 41,175,000
Citigroup 1,950,000 86,653,124
Fannie Mae 430,000 26,713,750
MBNA 2,350,000 58,015,625
Merrill Lynch & Co 250,000 18,656,250
Morgan Stanley, Dean Witter, Discover & Co 725,000 62,214,063
Total 293,427,812
Food (0.7%)
U.S. Foodservice 1,700,000(b) 35,381,250
Furniture & appliances (0.5%)
Leggett & Platt 1,050,000 23,231,250
Health care (7.3%)
Amgen 1,050,000(b) 87,346,874
Bristol-Myers Squibb 900,000 63,337,500
Elan ADR 1,200,000(b,c,d) 38,475,000
Genentech 50,000(b) 8,212,500
Merck & Co 975,000 65,507,813
Pfizer 1,350,000 50,962,500
Schering-Plough 1,000,000 52,562,500
Total 366,404,687
Health care services (1.8%)
AmeriSource Health Cl A 350,000(b) 9,034,375
Cardinal Health 325,000 20,718,750
HEALTHSOUTH Rehabilitation 1,900,000(b) 15,556,250
McKesson HBOC 1,000,000 31,125,000
United Healthcare 200,000 12,162,500
Total 88,596,875
Household products (0.8%)
Procter & Gamble 420,000 41,685,000
Industrial equipment & services (0.8%)
Illinois Tool Works 500,000 38,968,750
Insurance (1.3%)
American General 250,000 17,750,000
American Intl Group 350,000 32,440,625
Travelers Property Casualty Cl A 400,000 14,200,000
Total 64,390,625
Leisure time & entertainment (1.8%)
Disney (Walt) 800,000 22,200,000
Premier Parks 350,000(b) 11,462,500
Time Warner 1,000,000 59,312,500
Total 92,975,000
Media (1.5%)
Cox Communications Cl A 1,000(b) 37,188
Infinity Broadcasting Cl A 800,000(b,d) 21,650,000
MediaOne Group 600,000(b) 39,450,000
TeleWest Communications 3,520,000(b,c) 13,689,280
Total 74,826,468
Multi-industry conglomerates (5.8%)
Cendant 2,050,000(b) 36,771,875
Century Business Services 800,000(b) 10,350,000
General Electric 1,185,000 133,090,312
Tyco Intl 1,100,625(c) 111,507,070
Total 291,719,257
Paper & packaging (0.3%)
Intl Paper 280,000 13,177,500
Restaurants & lodging (0.5%)
Extended Stay America 2,200,000(b) 19,800,000
Florida Panthers Holdings 575,000(b) 5,714,063
Total 25,514,063
Retail (4.2%)
AutoNation 700,000(b) 9,056,250
Dollar General 675,000 17,550,000
Gap 200,000 7,825,000
Home Depot 1,475,000 90,159,375
Safeway 500,000(b) 23,281,250
Wal-Mart Stores 1,500,000 66,468,750
Total 214,340,625
Utilities -- electric (0.4%)
Carolina Power & Light 500,000 18,187,500
Utilities -- telephone (3.2%)
BCE 325,000(c) 15,193,750
Intermedia Communications 2,167(b) 56,342
MCI WorldCom 1,325,000(b) 100,368,750
U S WEST Communications Group 200,000 10,450,000
Vodafone AirTouch ADR 180,000(c,d) 36,101,250
Total 162,170,092
Total common stocks
(Cost: $1,966,853,998) $3,163,009,145
Preferred stocks & other (1.2%)
Issuer Shares Value(a)
Adelphia Communications
5.50% Cv Series D 6,675 $1,228,200
Allegiance Telecom
Warrants 2,450 171,500
American Mobile Satellite
Warrants 2,000(j) 80,000
Bell Technology
Warrants 5,000 550,000
CMS Energy 32,800 1,324,300
8.75%
Coastal
5.58% Cv 57,200 1,569,425
Coltec Capital
5.25% Cv 26,900(j) 1,254,213
Concentric Network
13.50% Pay-in-kind Series B 1,100(f) 1,012,000
Cox Communications
7.00% Cm Cv 200,000 10,525,000
CVS
6.00% Cv 7,215 550,144
Federal-Mogul Finance Trust
7.00% Cm Cv 23,650 1,244,581
Georgia-Pacific Group 26,000 1,179,750
7.50% Cv
Globalstar Telecommunications
8.00% Cv 150,000(j) 9,412,500
Global TeleSystems Group
7.25% Cv 19,400(j) 1,086,400
7.25% Cv 2,300 128,800
Hercules Trust
6.50% Cm Cv 1,270 1,167,613
Houston Inds
7.00% Cv ACES 5,500(o) 566,500
Intermedia Communications 89,000 1,935,750
7.00% Cm Cv Series F
Kerr-McGee
5.50% Cv 18,400 673,900
KMC Telecom Holdings
Warrants 2,800 7,000
Loral Space & Communications
6.00% Cv 225,000(j) 11,531,249
Mexico Value
Rights 1,000(c,e) --
Newell Financial Trust
5.25% Cm Cv 5,000(j) 250,000
5.25% Cm Cv 20,000 1,000,000
Pinto Totta Intl Finance
7.77% Cm 5,000(c,j) 4,734,375
Primus Telecommunications
Warrants 2,300 46,000
SkyTel Communications 32,600 1,234,725
2.25% Cv
Sinclair Capital
11.63% Cm 30,000 3,037,500
Suiza Capital
5.50% Cv 57,750 1,876,875
Unifi Communications
Warrants 2,000 20
Wendys Financing
5.00% Cm Cv Series A 21,000 1,249,500
Total preferred stocks & other
(Cost: $57,711,281) $60,627,820
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (31.9%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (8.5%)
Govt of Algeria
(U.S. Dollar)
<S> <C> <C> <C>
03-04-00 7.06% $363,636(c) $346,364
Govt of Russia
(Russian Ruble)
12-15-20 6.63 13,600,000(b,c) 1,500,896
(U.S. Dollar)
12-29-49 6.63 314,112(b,c) 45,282
Govt Trust Certs Israel
11-15-01 9.25 1,409,158 1,428,265
People's Republic of China
(U.S. Dollar)
07-03-01 7.38 2,000,000(c) 2,012,600
01-15-96 9.00 2,500,000(c) 2,286,079
Resolution Funding Corp
Zero Coupon
07-15-20 6.56 5,000,000(k) 1,250,841
U.S. Treasury
01-31-00 5.38 25,000,000 25,012,185
02-15-00 8.50 20,000,000 20,284,476
03-31-01 6.38 61,000,000(d) 61,591,560
05-31-01 6.50 10,000,000 10,123,415
06-30-03 5.38 40,000,000(d) 39,259,304
08-15-03 5.75 43,300,000(d) 43,018,550
02-15-04 5.88 12,500,000 12,472,984
02-15-06 5.63 20,000,000(d) 19,477,924
10-15-06 6.50 21,000,000 21,368,424
05-15-08 5.63 50,000,000(d) 48,278,510
11-15-16 7.50 62,000,000(d) 68,424,069
08-15-22 7.25 1,000,000 1,095,096
08-15-23 6.25 2,000,000 1,963,000
11-15-24 7.50 2,500,000 2,834,667
TIPS
07-15-02 3.63 10,000,000(h) 10,281,830
Zero Coupon
05-15-05 6.46 18,000,000(k) 12,706,409
11-15-21 6.26 35,000,000(k) 8,367,065
United Mexican States
(U.S. Dollar)
03-12-08 8.63 4,250,000(c) 3,910,000
05-15-26 11.50 3,750,000(c) 4,078,125
(U.S. Dollar) Series A
12-31-19 6.25 4,000,000(c) 2,857,520
Total 426,275,440
Mortgage-backed securities (6.6%)
Federal Home Loan Mtge Corp
08-01-24 8.00 2,232,877 2,266,370
11-01-25 6.50 6,314,116 6,000,368
Federal Natl Mtge Assn
02-13-04 5.13 11,625,000 10,968,308
05-14-04 5.63 40,000,000(d) 38,440,609
01-01-09 5.50 17,792,242 16,685,743
06-01-10 6.50 5,902,693 5,768,052
08-01-11 8.50 4,205,032 4,387,254
04-01-13 6.00 14,866,849 14,163,148
05-01-13 6.00 10,685,150 10,182,069
09-01-13 6.00 4,444,116 4,234,877
04-01-22 8.00 2,103,496 2,137,678
04-01-23 8.50 2,670,755 2,763,404
05-01-23 6.50 1,748,164 1,667,853
05-01-24 6.00 4,882,706 4,522,607
06-01-24 9.00 1,550,997 1,632,424
02-01-25 8.50 1,335,164 1,377,301
05-01-25 8.50 1,496,956 1,542,793
09-01-25 6.50 3,976,936 3,776,856
11-01-25 7.50 4,109,453 4,082,495
02-01-26 7.00 5,766,165 5,602,175
07-01-26 7.50 3,911,199 3,884,290
02-01-27 7.50 4,327,485 4,297,712
03-01-28 6.00 13,956,958 12,822,955
04-01-28 6.00 18,251,972 16,794,748
10-01-28 6.00 19,094,265 17,542,856
10-01-28 7.00 18,849,460 18,307,538
11-01-28 6.00 26,458,313 24,308,575
03-01-29 6.50 34,732,951 32,868,561
05-01-29 6.50 19,771,465 18,702,620
Collateralized Mtge Obligation
Trust Series Z
02-25-24 6.00 8,297,462(i) 7,126,773
Govt Natl Mtge Assn
12-01-08 7.00 10,333,331 10,281,665
05-15-24 7.00 16,515,971 16,061,781
Merrill Lynch Mtge Investors
06-15-21 7.74 953,595(j,m) 872,837
Series 1996-C2 Cl D
12-21-28 6.96 7,500,000 6,923,175
Total 332,998,470
Aerospace & defense (0.2%)
BE Aerospace
Sr Sub Nts Series B
02-01-06 9.88 2,500,000 2,540,625
Kellstrom Inds
Cv Sub Nts
10-15-02 5.75 1,750,000(d) 1,268,750
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 690,000 722,775
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 1,000,000 1,030,000
Northrop-Grumman
03-01-06 7.00 3,750,000 3,649,345
Total 9,211,495
Airlines (0.2%)
Continental Airlines
Series 1974B
01-02-17 6.90 4,945,629 4,672,433
Series 1996A
04-15-15 6.94 4,745,693 4,595,064
Total 9,267,497
Automotive & related (0.1%)
Arvin Capital
Company Guaranty
02-01-27 9.50 3,000,000 3,034,793
Exide
Cv Sr Sub Nts
12-15-05 2.90 2,434,000(j) 1,385,993
Mascotech
Cv Sub Deb
12-15-03 4.50 980,000 798,700
MSX Intl
Company Guaranty
01-15-08 11.38 1,485,000 1,447,875
Total 6,667,361
Banks and savings & loans (1.3%)
Banco General
(U.S. Dollar)
08-01-02 7.70 3,750,000(c,j) 3,528,166
Bank of Singapore
(U.S. Dollar) Sub Nts
08-10-09 7.88 7,100,000(c,j) 7,020,260
Capital One Bank
05-15-08 6.70 5,300,000 4,910,667
Corp Andina de Fomento
(U.S. Dollar)
02-01-03 7.10 5,200,000(c) 5,038,177
Cullen/Frost Capital
Series A
02-01-27 8.42 3,200,000 3,136,304
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 3,850,000(c,j) 3,397,625
Firstar Capital
Company Guaranty Series B
12-15-26 8.32 1,800,000 1,741,403
Greenpoint Capital
Company Guaranty
06-01-27 9.10 2,000,000 1,940,639
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 5,000,000(m) 4,434,750
Norwest
Sr Medium-term Nts Series G
09-15-02 6.38 5,800,000 5,761,332
Provident Trust
Company Guaranty
04-15-28 8.29 5,500,000 5,428,108
Union Planters Bank
Sub Nts
03-15-18 6.50 10,000,000 9,276,714
Union Planters Capital
Company Guaranty
12-15-26 8.20 5,000,000 4,685,662
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 2,900,000 2,873,158
Total 63,172,965
Building materials & construction (0.3%)
Foster Wheeler
11-15-05 6.75 6,100,000 5,420,759
Southdown
Sr Sub Nts Series B
03-01-06 10.00 1,400,000 1,529,500
Tyco Intl Group
(U.S. Dollar) Company Guaranty
06-15-28 7.00 8,000,000(c) 7,243,620
Total 14,193,879
Chemicals (0.3%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 2,825,000 2,570,750
Lyondell Chemical
Series A
05-01-07 9.63 1,500,000 1,522,500
Rohm & Haas
07-15-29 7.85 6,000,000(j) 6,082,604
USA Waste Services
Sr Nts
10-01-07 7.13 4,500,000 4,099,212
Total 14,275,066
Commercial finance (--%)
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 1,600,000(c) 1,402,000
Communications equipment & services (0.6%)
Celcaribe
Sr Nts
03-15-04 13.50 1,450,000 1,167,250
EchoStar DBS
Sr Nts
02-01-09 9.38 2,460,000(j) 2,460,000
GST Telecom/GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 2,000,000(j,l) 1,140,000
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.88 4,600,000 4,439,000
Zero Coupon Sr Disc Nts Series B
08-01-00 12.68 2,000,000(l) 1,697,500
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-03 12.68 2,800,000(l) 1,484,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 1,000,000 1,000,000
NTL
Zero Coupon Sr Nts Series B
04-01-03 9.78 3,825,000(l) 2,524,500
PhoneTel Technologies
Sr Nts
12-15-06 12.00 3,000,000(b) 750,000
RCN
Zero Coupon Sr Disc Nts Series B
02-15-03 9.80 2,400,000(l) 1,494,000
Triton Communications
Zero Coupon Company Guaranty
05-01-03 10.86 4,000,000(l) 2,740,000
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 2,700,000(c) 2,700,000
Vialog
Company Guaranty
11-15-01 12.75 5,000,000 4,043,750
WorldCom
04-01-07 7.75 4,000,000 4,131,125
Total 31,771,125
Computers & office equipment (0.2%)
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 2,000,000 1,747,500
Data General
Cv Sub Nts
05-15-04 6.00 690,000 683,100
Globix
Sr Nts
05-01-05 13.00 5,000,000 4,500,000
Silicon Graphics
Cv Sr Nts
09-01-04 5.25 1,270,000 1,003,300
Solectron
Cv Sub Nts
01-27-19 4.00 2,229,000 1,418,201
Total 9,352,101
Electronics (0.3%)
Credence Systems
Cv Sub Nts
09-15-02 5.25 2,086,000 1,960,548
Cymer
Cv Sub Nts
08-06-04 3.50 2,080,000(m) 2,022,945
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 4,000,000(c,j) 3,179,369
Integrated Process Equipment
Cv Sub Nts
09-15-04 6.25 1,600,000(j) 1,130,000
Kent Electronics
Cv Sub Nts
09-01-04 4.50 1,550,000 1,224,500
Micron Technology
Cv Sub Nts
07-01-04 7.00 1,080,000 1,367,550
NatSteel Electronics
Cv
06-30-04 1.50 605,000(j) 688,188
S3
Cv Sub Nts
10-01-03 5.75 1,465,000 1,292,863
STMicroelectronics
(U.S. Dollar) Zero Coupon Cv Sub Nts
06-10-08 .50 464,000(c,k) 587,944
Total 13,453,907
Energy (0.6%)
Devon Energy
Cv Deb
08-15-08 4.90 1,275,000 1,268,625
ESI Tractebel
Company Guaranty Series B
12-30-11 7.99 1,250,000 1,112,238
Honam Oil Refinery
(U.S. Dollar)
10-15-05 7.13 5,750,000(c,j) 5,268,072
Lodestar Holdings
Company Guaranty
05-15-05 11.50 5,000,000 4,200,000
Parker & Parsley Petroleum
Sr Nts
08-15-07 8.25 4,200,000 3,665,911
Roil
(U.S. Dollar)
12-05-02 12.78 3,880,000(c,j) 2,444,400
USX
03-01-08 6.85 12,000,000 11,372,478
Total 29,331,724
Energy equipment & services (0.2%)
DI Inds
Sr Nts
07-01-07 8.88 1,500,000 1,342,500
Diamond Offshore Drilling
Cv Sub Nts
02-15-07 3.75 1,035,000 1,177,313
Global Marine
09-01-07 7.13 4,500,000 4,260,546
Northern Offshore
(U.S. Dollar) Company Guaranty Series B
05-15-05 10.00 2,000,000(c) 1,220,000
Pool Energy Services
Company Guaranty Series B
04-01-08 8.63 1,000,000 975,000
Seacor Holdings
Cv Sub Nts
11-15-06 5.38 1,000,000 978,750
Total 9,954,109
Financial services (0.8%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 1,750,000(c) 1,668,065
Arcadia Financial
Sr Nts
03-15-07 11.50 1,575,000 1,370,250
Associates Corp of North America
Sr Nts
10-15-02 6.38 10,000,000 9,881,465
Bat-CRAVE-800
08-12-00 6.68 5,000,000(j) 5,013,232
08-12-00 6.86 3,000,000 3,007,920
Countrywide Home Loan
Company Guaranty
06-15-04 6.85 8,000,000 7,869,600
Hoechst Capital
(European Monetary Unit) Company Guaranty
07-29-03 2.75 1,700,000(c,j) 1,888,261
Salomon
Sr Nts
01-15-06 6.75 4,000,000 3,845,927
Standard Credit Card Trust
Series A
10-07-04 5.95 3,000,000 2,911,380
Wilmington Trust
05-01-08 6.63 3,200,000 3,019,667
Total 40,475,767
Food (0.1%)
Ameriserve Food Distributions
Company Guaranty
10-15-06 8.88% 1,000,000 860,000
07-15-07 10.13 1,750,000 1,303,750
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 1,200,000(c,j) 852,000
Total 3,015,750
Furniture & appliances (--%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 1,500,000 1,503,750
Simmons
Sr Sub Nts
03-15-09 10.25 600,000(j) 594,000
Total 2,097,750
Health care (0.1%)
Alaris Medical Systems
Company Guaranty
12-01-06 9.75 3,600,000 3,419,999
Centocor
Cv Sub Deb
02-15-05 4.75 505,000 670,388
Watson Pharmaceuticals
Sr Nts
05-15-08 7.13 2,550,000 2,423,840
Total 6,514,227
Health care services (0.6%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 2,000,000 1,970,000
Fountain View
Company Guaranty Series B
04-15-08 11.25 2,150,000 1,763,000
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,000,000 1,710,000
Manor Care
Sr Nts
06-15-06 7.50 6,000,000 5,942,677
Novacare
Cv Sub Deb
01-15-00 5.50 1,475,000 1,307,219
Omnicare
Cv
12-01-07 5.00 2,740,000 1,876,900
Owens & Minor
Company Guaranty Sr Sub Nts
06-01-06 10.88 1,200,000 1,254,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,125,000(j) 1,125,000
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 1,000,000 785,000
Physician Sales & Service
Company Guaranty
10-01-07 8.50 1,050,000 1,060,500
Sunrise Assisted Living
Cv Sub Nts
06-15-02 5.50 1,300,000 1,196,000
Tenet Healthcare
Sr Nts
12-01-03 8.63 2,500,000 2,464,352
Sr Sub Nts Series B
12-01-08 8.13 6,300,000 5,874,750
Total 28,329,398
Household products (0.1%)
Chattem
Company Guaranty Series B
04-01-08 8.88 2,200,000 2,112,000
Revlon Consumer Products
Sr Nts
02-01-06 8.13 3,750,000 3,337,500
Scotts
Sr Sub Nts
01-15-09 8.63 1,050,000(j) 1,018,500
Total 6,468,000
Industrial equipment & services (0.2%)
AGCO
Sr Sub Nts
03-15-06 8.50 800,000 753,000
Case
08-01-05 7.25 5,000,000 4,836,926
Terex
Company Guaranty
04-01-08 8.88 2,100,000 1,974,000
Thermadyne Mfg
Company Guaranty
06-01-08 9.88 5,000,000 4,150,000
Total 11,713,926
Insurance (1.4%)
American General Institute Capital
Company Guaranty Series A
12-01-45 7.57 14,350,000(j) 13,629,838
Americo Life
Sr Sub Nts
06-01-05 9.25 1,600,000 1,630,000
Arkwright CSN Trust
08-15-26 9.63 3,000,000(j) 3,147,695
Conseco Financing Trust
Company Guaranty
11-15-26 8.70 3,800,000 3,511,595
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 3,000,000 3,013,700
Florida Windstorm
(MBIA Insured)
02-25-19 7.13 7,500,000(g,j) 7,039,628
Metropolitan Life Insurance
11-01-25 7.80 6,900,000(j) 6,793,802
Minnesota Mutual Life
09-15-25 8.25 2,700,000(j) 2,849,997
Nationwide CSN Trust
02-15-25 9.88 9,000,000(j) 9,733,316
New England Mutual
02-15-24 7.88 2,000,000(j) 2,053,795
Principal Mutual
03-01-44 8.00 2,500,000(j) 2,417,724
SAFECO Capital
Company Guaranty
07-15-37 8.07 5,000,000 4,536,312
SunAmerica
08-30-05 7.34 5,000,000 5,111,346
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 3,750,000(c,j) 3,790,648
Total 69,259,396
Leisure time & entertainment (0.6%)
AMC Entertainment
Sr Sub Nts
03-15-09 9.50 2,000,000 1,700,000
Coast Hotels & Casino
Company Guaranty
04-01-09 9.50 905,000 866,538
Hollywood Park
Company Guaranty Series B
02-15-07 9.25 1,875,000 1,837,500
Horseshoe Gaming Holdings
Sr Sub Nts
05-15-09 8.63 2,000,000(j) 1,935,000
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 2,000,000 2,030,000
Premier Parks
Sr Nts
04-01-06 9.25 1,250,000 1,212,500
Zero Coupon Sr Disc Nts
04-01-03 10.00 3,000,000(l) 1,972,500
Regal Cinemas
Sr Sub Nts
06-01-08 9.50 3,000,000 2,100,000
Riviera Holdings
Company Guaranty
08-15-04 10.00 2,250,000 2,025,000
Time Warner
02-01-24 7.57 5,900,000 5,690,096
Sr Nts
01-15-28 6.95 5,000,000 4,449,489
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 1,000,000 860,000
United Artists Theatres
Series 1995A
07-01-15 9.30 1,867,317 1,315,562
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 2,410,000 2,181,050
Total 30,175,235
Media (1.9%)
Adelphia Communications
Sr Nts Series B
02-01-08 8.38 3,000,000 2,805,000
AMFM
Company Guaranty
11-01-08 8.00 3,000,000 2,880,000
Antenna TV
08-01-07 9.00 3,000,000 2,670,000
CBS
Sr Nts
05-20-05 7.15 5,000,000 4,919,064
Central Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.38 3,675,000(c) 2,021,250
Comcast Cable Communications
11-15-08 6.20 6,100,000 5,548,717
Cox Communications
11-15-15 7.25 5,000,000 4,649,120
06-15-25 7.63 5,000,000 4,702,753
Cox Enterprises
06-15-09 7.38 10,000,000(j) 9,844,965
CSC Holdings
Sr Nts
07-15-08 7.25 5,000,000 4,635,949
Sr Sub Nts
11-01-05 9.25 2,000,000 2,105,000
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 5,000,000(c,j) 3,612,500
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 1,500,000 1,640,625
Interpublic Group
Cv Sub Nts
06-01-06 1.87 600,000(j) 555,000
Lamar Media
Company Guaranty
12-01-06 9.63 1,100,000 1,122,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,350,000(c) 1,373,625
Outdoor Systems
Company Guaranty
10-15-06 9.38 2,500,000 2,631,250
06-15-07 8.88 10,000,000 10,325,000
Rogers Cablesystems
(Canadian Dollar)
01-15-14 6.56 5,000,000(c) 3,568,563
Susquehanna Media
Sr Sub Nts
05-15-09 8.50 960,000(j) 940,800
TCI Communications
08-01-15 8.75 3,850,000 4,319,281
Sr Nts
02-15-28 7.13 1,300,000 1,224,063
Tele-Communications
02-15-23 8.75 3,500,000 3,668,754
Telewest Communication
(British Pound) Cv
02-19-07 5.25 805,000(c,j) 1,230,253
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 9.25 1,600,000(c,j,l) 976,000
Time Warner Entertainment
Sr Nts
07-15-33 8.38 10,000,000 10,507,055
Total 94,476,587
Metals (0.2%)
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 2,513,628(c,j,l) 2,375,378
Natl Steel
1st Mtge Series D
03-01-09 9.88 1,625,000 1,641,250
Ormet
Company Guaranty
08-15-08 11.00 2,700,000(j) 2,635,875
P & L Coal Holdings
Company Guaranty Series B
05-15-08 8.88 3,000,000 2,970,000
Pen Holdings
Company Guaranty Series B
06-15-08 9.88 3,000,000 2,865,000
Total 12,487,503
Miscellaneous (1.2%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 2,000,000 2,080,000
Advanced Glassfiber Yarn
Sr Sub Nts
01-15-09 9.88 2,130,000 2,047,463
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 2,000,000 1,960,000
Bistro Trust
Sub Nts
12-31-02 9.50 12,000,000(j) 11,379,599
Continucare
Cv Sr Sub Nts
10-31-02 8.00 1,000,000(j) 45,000
Delphes 2
(U.S. Dollar)
05-05-09 7.75 9,000,000(c,j) 8,460,000
Dura Operating
Sr Sub Nts
05-01-09 9.00 675,000(j) 648,000
First Empire Capital
Company Guaranty
02-01-27 8.23 4,000,000 3,882,982
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c) 2,250,000
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 4,000,000(b,c,j) 1,060,000
ISG Resources
04-15-08 10.00 2,760,000 2,739,300
Jasmine Submarine Telecom
(U.S. Dollar) Sr Nts
05-30-11 8.48 847,855(c,j) 657,068
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000 1,145,375
KPNQwest
(U.S. Dollar) Sr Nts
06-01-09 8.13 5,000,000(c,j) 4,762,500
Murrin Murrin Holdings
(U.S. Dollar) Sr Nts
08-31-07 9.38 1,000,000(c) 902,500
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 3.24 5,900,000(k) 1,814,250
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 2,000,000 2,180,000
NSM Steel
Company Guaranty
02-01-06 12.00 2,050,000(b) 553,500
Oshkosh Truck
Company Guaranty
03-01-08 8.75 3,000,000 2,988,750
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,125,000 1,102,500
Pierce Leahy Command
Company Guaranty
05-15-08 8.13 4,050,000 3,776,625
SC Intl
09-01-07 9.25 1,950,000 1,930,500
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 1,350,000 1,039,500
Vesta Capital
01-15-27 8.52 5,000,000(b,j) 3,073,565
Total 62,478,977
Multi-industry conglomerates (0.8%)
Coltec Inds
Company Guaranty
04-15-08 7.50 5,000,000 5,093,750
Hutchison Whampoa Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 1,250,000(c,j) 1,051,672
(U.S. Dollar) Company Guaranty Series B
08-01-17 7.45 1,275,000(c,j) 1,097,620
Interim Services
Cv Sub Nts
06-01-05 4.50 2,250,000 1,845,000
Jordan Inds
Sr Nts Series D
08-01-07 10.38 6,080,000 5,958,400
Metamor Worldwide
Cv Sub Nts
08-15-04 2.94 2,620,000 1,824,175
Packaged Ice
Company Guaranty Series B
02-01-05 9.75 6,300,000 6,000,750
Personnel Group of America
Cv Sub Nts
07-01-04 5.75 1,500,000 1,196,250
Pierce Leahy
Sr Sub Nts
07-15-06 11.13 812,000 881,020
Prime Succession
Sr Sub Nts
08-15-04 10.75 980,000 812,175
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,350,000 3,243,522
Westinghouse Electric
06-01-01 8.88 9,750,000 9,993,782
Total 38,998,116
Paper & packaging (0.5%)
Ball
Company Guaranty
08-01-08 8.25 1,750,000 1,715,000
Gaylord Container
Sr Nts
06-15-07 9.75 1,750,000 1,627,500
Sr Nts Series B
06-15-07 9.38 3,250,000 2,957,500
Graham Packaging/GPC Capital
Company Guaranty Series B
01-15-08 8.75 2,000,000 1,900,000
Owens-Illinois
Sr Nts
05-15-07 8.10 4,350,000 4,237,947
Packaging Corp of America
Sr Sub Nts
04-01-09 9.63 745,000(j) 752,450
Quno Corp
(U.S. Dollar) Sr Nts
05-15-05 9.13 2,500,000(c) 2,612,500
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 1,200,000(c) 1,161,000
04-15-05 10.63 3,000,000(c) 2,610,000
Riverwood Intl
Company Guaranty Sr Nts
04-01-06 10.25 2,000,000 2,000,000
Silgan Holdings
06-01-09 9.00 1,650,000 1,610,813
Total 23,184,710
Restaurants & lodging (0.2%)
Domino's
Company Guaranty Series B
01-15-09 10.38 1,950,000 1,911,000
Extended Stay America
Sr Sub Nts
03-15-08 9.15 4,000,000 3,620,000
Signature Resorts
Sr Nts
05-15-06 9.25 3,000,000 2,880,000
Sunterra
Cv Sub Nts
01-15-07 5.75 2,600,000 1,855,750
Total 10,266,750
Retail (0.3%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 2,900,000(l) 1,957,500
Costco Companies
Zero Coupon Cv Sub Nts
08-19-17 3.50 625,000(k) 550,781
Maxim Group
Company Guaranty Series B
10-15-07 9.25 2,500,000(b) 2,125,000
Meyer (Fred)
Company Guaranty
03-01-08 7.45 6,075,000 6,044,860
Safeway
11-15-03 6.05 1,300,000 1,247,825
Wal-Mart CRAVE Trust
07-17-06 7.00 3,867,732(j) 3,817,297
Total 15,743,263
Textiles & apparel (0.1%)
Galey & Lord
Company Guaranty
03-01-08 9.13 3,000,000 1,500,000
Loomis Fargo
01-15-04 10.00 500,000 495,000
Steel Heddle Mfg
Company Guaranty Series B
06-01-08 10.63 1,200,000 660,000
Westpoint Stevens
Sr Nts
06-15-08 7.88 3,250,000 3,071,250
Total 5,726,250
Transportation (0.4%)
Atlas Air Series C
01-02-10 8.01 9,373,999 9,037,285
Enterprises Shipholding
(U.S. Dollar) Sr Nts
05-01-08 8.88 3,095,000(c) 2,104,600
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 5,120,000(c) 2,713,600
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 3,300,000(c) 3,300,000
Stena Line
(U.S. Dollar) Sr Nts
06-01-08 10.63 1,000,000(c) 750,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 5,000,000(c,j) 2,550,000
Total 20,455,485
Utilities -- electric (1.4%)
Alabama Power
1st Mtge
12-01-24 9.00 2,200,000 2,350,232
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 3,600,000 3,723,575
Cleveland Electric Illuminating
07-01-04 7.67 6,500,000 6,566,294
1st Mtge Series B
05-15-05 9.50 9,000,000 9,500,261
CMS Energy
Sr Nts
05-15-02 8.13 5,000,000 4,992,478
11-15-04 7.63 2,500,000 2,425,342
Connecticut Light & Power
1st Mtge Series C
06-01-02 7.75 5,000,000 5,059,123
El Paso Electric
1st Mtge Series D
02-01-06 8.90 2,750,000 3,018,125
Israel Electric
(U.S. Dollar) Sr Nts
12-15-06 7.25 2,700,000(c) 2,605,932
Jersey Central Power & Light
1st Mtge
11-01-25 6.75 7,200,000 6,375,195
Korea Electric Power
(U.S. Dollar)
12-01-03 6.38 4,000,000(c) 3,740,714
MidAmerican Energy Holdings
Sr Nts
09-15-06 9.50 1,325,000 1,457,500
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 2,600,000(g) 2,410,872
Salton Sea Funding
Series C
05-30-10 7.84 1,325,000 1,322,851
Sithe Independence Funding
Series A
12-30-13 9.00 1,500,000 1,587,809
Texas Utilities Electric
08-01-07 7.17 5,000,000 4,921,400
TXU Electric Capital
Company Guaranty
01-30-37 8.18 5,000,000 4,773,547
Western Massachusetts Electric
1st Mtge Series B
07-01-01 7.38 2,750,000 2,779,655
Wisconsin Electric Power
12-01-95 6.88 2,800,000 2,522,691
Total 72,133,596
Utilities -- gas (0.3%)
Columbia Gas System
Series E
11-28-10 7.32 7,000,000 6,760,460
El Paso Energy
Sr Nts
07-15-01 6.63 8,675,000(j) 8,661,336
05-15-09 6.75 1,900,000 1,776,707
Total 17,198,503
Utilities -- telephone (1.3%)
360 Communications
04-01-09 7.60 3,000,000 3,063,046
Airtouch Communications
05-01-08 6.65 10,000,000 9,611,536
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 11.94 2,450,000(l) 1,531,250
AT&T Canada
(U.S. Dollar) Sr Nts
11-01-08 10.63 1,200,000(c) 1,356,000
Bell Atlantic Financial Services
Cv
09-15-05 4.25 1,151,000(j) 1,229,636
Call-Net Enterprises
(U.S. Dollar) Sr Nts
08-15-08 8.00 1,750,000(c) 1,540,000
COLT Telecom Group
(European Monetary Unit)
03-29-06 2.00 1,090,000(c,j) 1,222,239
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 1,655,000(b) 2,069
Hyperion Telecommunications
Sr Nts Series B
09-01-04 12.25 1,500,000 1,575,000
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,000,000 890,000
06-01-08 8.60 3,000,000 2,655,000
McLeod USA
Sr Nts
03-15-08 8.38 2,300,000 2,144,750
02-15-09 8.13 2,250,000 2,075,625
Metrocall
Sr Sub Nts
11-01-07 9.75 1,000,000 710,000
MetroNet Communications
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 2,300,000(c,l) 1,759,500
NEXTLINK Communications
Sr Nts
11-15-08 10.75 3,000,000 3,030,000
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 2,300,000 2,254,000
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.50 2,500,000 2,427,371
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 3,000,000(c) 3,030,000
U S WEST Capital Funding
Company Guaranty
08-15-01 6.88 20,000,000(j) 19,950,516
U S WEST Communications
11-10-26 7.20 5,000,000 4,543,142
Total 66,600,680
Total bonds
(Cost: $1,692,130,063) $1,609,127,008
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (6.8%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.8%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C>
09-24-99 5.03% $25,000,000 $24,920,139
10-01-99 5.09 25,000,000 24,886,402
Federal Home Loan Mtge Corp Disc Nts
09-02-99 5.12 2,800,000 2,799,493
09-09-99 5.06 6,300,000 6,291,517
09-16-99 4.99 12,500,000 12,474,167
09-17-99 5.06 6,500,000 6,483,087
09-20-99 5.05 11,900,000 11,868,472
10-14-99 5.20 8,300,000 8,247,032
10-14-99 5.24 2,800,000 2,782,575
Federal Natl Mtge Assn Disc Nts
09-02-99 5.06 200,000 199,962
09-13-99 5.06 11,900,000 11,875,912
09-14-99 4.99 23,000,000 22,951,906
09-16-99 5.05 21,200,000 21,148,966
09-21-99 5.04 29,100,000 29,005,508
11-18-99 5.31 8,100,000 8,004,193
Total 193,939,331
Commercial paper (3.0%)
Becton Dickinson
09-22-99 5.22 8,400,000 8,374,569
BMW US Capital
09-23-99 5.23 6,600,000 6,579,027
10-18-99 5.23 8,700,000 8,636,933
CAFCO
09-21-99 5.16 5,700,000(n) 5,682,545
10-22-99 5.37 5,000,000(n) 4,962,246
Clorox
09-09-99 5.15 7,600,000 7,591,336
Falcon Asset
09-01-99 5.13 6,200,000(n) 6,200,000
Fleet Funding
09-24-99 5.27 1,900,000 (n) 1,893,627
Ford Motor Credit
09-03-99 5.33 5,000,000 4,998,519
10-18-99 5.30 5,700,000 5,660,857
GMAC
09-14-99 5.18 10,000,000 9,981,403
Lucent Technologies
10-04-99 5.17 13,800,000 13,730,495
Petrofina (Delaware)
09-21-99 5.13 19,600,000 19,544,576
SBC Communications Capital
10-13-99 5.17 3,500,000(n) 3,477,189
10-26-99 5.20 20,100,000(n) 19,927,765
UBS Finance (Delaware)
10-18-99 5.30 3,000,000 2,978,697
Variable Funding Capital
09-14-99 5.16 16,200,000(n) 16,167,745
Windmill Funding
09-10-99 5.16 4,600,000(n) 4,594,112
Total $150,981,641
Total short-term securities
(Cost: $345,000,098) $344,920,972
Total investments in securities
(Cost: $4,061,695,440)(p) $5,177,684,945
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. Items identified are in default as to payment of
interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Aug. 31,
1999, the value of foreign securities represented 8.90% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(e) Negligible market value.
(f) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(g) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
MBIA -- Municipal Bond Investors Assurance
(h) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semiannual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(i) This security is a collateralized mortgage obligation that pays no interest
or principal during its initial accrual period until previous series within the
trust have been paid off. Interest is accrued at an effective yield; similar to
a zero coupon bond.
(j) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(k) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(l) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(m) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1999.
(n) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(o) ACES (Automatically Convertible Equity Securities) are structured as
convertible preferred securities. Investors receive an enhanced yield but based
upon a specific formula, potential appreciation is limited. ACES pay dividends,
have voting rights, are noncallable for at least three years and upon maturity,
convert into shares of common stock.
(p) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$4,071,745,977 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $1,280,108,023
Unrealized depreciation (174,169,055)
------------
Net unrealized appreciation $1,105,938,968
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- New Dimensions Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (91.5%)
Issuer Shares Value(a)
Aerospace & defense (1.1%)
<S> <C> <C>
AlliedSignal 289,600 $17,738,000
United Technologies 304,600 20,141,675
Total 37,879,675
Airlines (1.4%)
AMR 304,700(b) 17,863,038
Southwest Airlines 1,829,550 30,530,615
Total 48,393,653
Automotive & related (0.6%)
Ford Motor 396,900 20,688,413
Banks and savings & loans (3.5%)
Bank of America 685,674 41,483,277
State Street 537,200 32,164,850
Wells Fargo 1,219,500 48,551,344
Total 122,199,471
Beverages & tobacco (0.5%)
Coca-Cola 304,800 18,230,850
Chemicals (0.2%)
Waste Management 397,200 8,663,925
Communications equipment & services (3.7%)
Lucent Technologies 839,800 53,799,688
Motorola 411,600 37,970,100
Tellabs 681,600(b) 40,597,800
Total 132,367,588
Computers & office equipment (19.7%)
America Online 403,800(b) 36,871,988
BMC Software 453,126(b) 24,383,843
Cisco Systems 2,438,100(b) 165,333,655
EMC 913,700(b) 54,822,000
Hewlett-Packard 311,500 32,824,313
Intl Business Machines 1,523,900 189,820,793
Microsoft 1,096,900(b) 101,531,806
Novell 1,264,800(b) 29,959,950
Solectron 624,400(b) 48,859,300
Sun Microsystems 152,600(b) 12,131,700
Total 696,539,348
Electronics (8.4%)
Applied Materials 304,400(b) 21,631,425
Corning 259,100 17,230,150
Intel 1,066,400 87,644,750
JDS Uniphase 609,700(b) 64,666,306
Teradyne 243,800(b) 16,593,638
Texas Instruments 1,097,200 90,038,974
Total 297,805,243
Energy (2.2%)
Exxon 427,100 33,687,513
Mobil 426,400 43,652,700
Total 77,340,213
Energy equipment & services (0.5%)
Halliburton 396,400 18,383,050
Financial services (5.9%)
Citigroup 1,524,050 67,724,972
Fannie Mae 504,000 31,311,000
Kansas City Southern Inds 410,100 18,992,756
MBNA 1,523,550 37,612,641
Morgan Stanley, Dean Witter, Discover & Co 454,090 38,966,598
Schwab (Charles) 376,600 14,875,700
Total 209,483,667
Health care (7.4%)
Bausch & Lomb 152,300 10,061,319
Bristol-Myers Squibb 944,900 66,497,337
Johnson & Johnson 177,700 18,169,825
Medtronic 457,000 35,760,250
Merck & Co 329,300 22,124,844
Pfizer 1,082,100 40,849,274
Schering-Plough 694,300 36,494,144
Warner-Lambert 457,400 30,302,750
Total 260,259,743
Health care services (1.4%)
Cardinal Health 792,950 50,550,563
Household products (0.6%)
Colgate-Palmolive 365,300 19,543,550
Industrial equipment & services (0.7%)
Illinois Tool Works 335,600 26,155,825
Insurance (1.7%)
ACE 593,500(c) 12,723,156
American Intl Group 502,740 46,597,714
Total 59,320,870
Leisure time & entertainment (2.1%)
Time Warner 1,280,300 75,937,794
Media (4.4%)
CBS 914,440 42,978,680
Clear Channel Communications 305,000(b) 21,369,063
Comcast Special Cl A 762,100 24,863,513
Gannett 960,086 65,225,842
Total 154,437,098
Multi-industry conglomerates (5.6%)
General Electric 1,066,800 119,814,975
Tyco Intl 761,672(c) 77,166,895
Xerox 54,400 2,597,600
Total 199,579,470
Paper & packaging (0.7%)
Intl Paper 518,300 24,392,494
Restaurants & lodging (0.9%)
Marriott Intl Cl A 913,800 31,297,650
Retail (10.7%)
Costco Wholesale 609,500(b) 45,560,125
CVS 455,800 19,001,163
Dayton Hudson 944,800 54,798,400
Home Depot 914,500 55,898,812
Kroger 815,700(b) 18,863,063
Safeway 1,371,400(b) 63,855,812
Wal-Mart Stores 2,742,500 121,527,030
Total 379,504,405
Utilities -- electric (0.8%)
CMS Energy 543,900 21,518,044
Duke Energy 89,900 5,169,250
Total 26,687,294
Utilities -- gas (1.0%)
El Paso Energy 655,600 23,970,375
Enron 304,900 12,767,688
Total 36,738,063
Utilities -- telephone (5.8%)
AT&T 380,700 17,131,500
Bell Atlantic 152,400 9,334,500
BellSouth 1,218,600 55,141,650
MCI WorldCom 914,300(b) 69,258,225
U S WEST Communications Group 608,600 31,799,350
Vodafone AirTouch ADR 107,950(c,e) 21,650,722
Total 204,315,947
Total common stocks
(Cost: $2,253,532,300) $3,236,695,862
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (8.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (2.8%)
Federal Home Loan Bank Disc Nt
<S> <C> <C> <C>
10-13-99 5.18% $25,000,000 $24,837,579
Federal Home Loan Mtge Corp Disc Nts
09-09-99 5.06 6,200,000 6,191,651
09-16-99 4.99 20,000,000 19,958,667
10-07-99 5.22 2,800,000 2,785,440
10-12-99 5.21 20,000,000 19,882,239
Federal Natl Mtge Assn Disc Nts
09-10-99 5.03 22,500,000 22,471,874
11-18-99 5.31 3,000,000 2,964,516
Total 99,091,966
Commercial paper (6.0%)
Alabama Power
10-05-99 5.22 10,000,000 9,947,023
Albertson's
09-03-99 5.26 2,500,000(d) 2,499,269
Barclays U.S. Funding
09-22-99 5.23 3,700,000 3,688,755
10-20-99 5.32 9,500,000 9,428,931
Bell Atlantic
09-02-99 5.17 3,100,000 3,099,556
BMW US Capital
09-23-99 5.23 4,900,000 4,884,429
09-27-99 5.16 7,800,000 7,770,066
10-21-99 5.18 4,400,000 4,367,109
CAFCO
09-21-99 5.16 5,000,000(d) 4,984,689
Ciesco LP
09-20-99 5.19 10,800,000 10,770,588
Corporate Receivables
09-13-99 5.22 2,600,000(d) 2,595,493
Falcon Asset
09-01-99 5.13 8,900,000(d) 8,899,999
09-21-99 5.21 4,300,000(d) 4,287,626
Ford Motor Credit
09-03-99 5.33 5,000,000 4,998,519
09-14-99 5.11 13,200,000 13,175,786
NBD Bank Canada
09-28-99 5.25 10,000,000 9,960,850
Northern States Power
10-25-99 5.22 7,500,000 7,437,231
Paccar Financial
09-13-99 5.24 3,400,000 3,394,073
Petrofina (Delaware)
09-07-99 5.16 2,500,000 2,497,858
09-17-99 5.22 15,600,000 15,563,947
Pfizer
09-17-99 5.20 5,400,000(d) 5,387,568
Reed Elsevier
09-21-99 5.16 8,000,000(d) 7,977,200
Salomon Smith Barney
09-07-99 5.15 4,600,000 4,596,075
10-05-99 5.22 2,800,000 2,785,427
10-06-99 5.33 2,200,000 2,188,643
10-07-99 5.21 8,700,000 8,652,272
SBC Communications Capital
10-13-99 5.17 2,900,000(d) 2,881,099
Sheffield Receivables
09-10-99 5.24 6,800,000(d) 6,791,126
Thames Asset Global
09-07-99 5.23 11,200,000(d) 11,190,256
09-27-99 5.32 4,800,000(d) 4,781,627
UBS Finance (Delaware)
10-28-99 5.21 5,000,000 4,956,587
USAA Capital
10-06-99 5.22 2,300,000 2,288,042
10-29-99 5.31 6,600,000 6,540,731
Windmill Funding
09-01-99 5.13 5,200,000(d) 5,200,000
09-07-99 5.17 2,300,000(d) 2,297,849
Total 212,766,299
Letter of credit (0.1%)
Bank of America-
AES Hawaii
09-15-99 5.26 2,900,000 2,894,079
Total short-term securities
(Cost: $314,794,988) $314,752,344
Total investments in securities
(Cost: $2,568,327,288)(f) $3,551,448,206
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of Aug. 31, 1999, the
value of foreign securities represented 3.15% of net assets.
(d) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) Security is partially or fully on loan. See Note 5 to the financial
statements.
(f) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$2,568,327,288 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $1,028,951,411
Unrealized depreciation (45,830,493)
-----------
Net unrealized appreciation $983,120,918
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP VP -- Strategy Aggressive Fund
Aug. 31, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (83.8%)(e)
Issuer Shares Value(a)
Aerospace & defense (--%)
<S> <C> <C>
Alliant Techsystems 5,968(b) $435,664
Airlines (0.6%)
Amtran 9,440(b) 188,800
SkyWest 7,247 145,846
Southwest Airlines 840,000 14,017,500
Total 14,352,146
Automotive & related (0.6%)
Central Parking 6,395 205,439
Gentex 721,992(b) 13,808,096
O'Reilly Automotive 7,795(b) 298,159
SPS Technologies 5,055(b) 198,093
Winnebago Inds 15,200 364,480
Total 14,874,267
Banks and savings & loans (1.5%)
Centura Banks 4,628 214,334
Commerce Bancorp 7,064 303,752
Cullen/Frost Bankers 30,694 801,881
First Financial Holdings 6,032 113,100
FirstMerit 26,065 685,021
Flagstar Bancorp 9,321 184,090
Hamilton Bancorp 8,465(b) 206,334
Hudson United Bancorp 7,734 246,038
NBT Bancorp 5,907 111,495
Old Natl Bancorp 7,125 213,750
Queens County Bancorp 8,465 232,788
Republic Bancorp 17,722 239,247
Southwest Bancorp of Texas 6,882(b) 118,715
TCF Financial 471,000 13,305,749
U.S. Trust 8,831 734,077
UnionBanCal 428,000 16,424,499
Total 34,134,870
Beverages & tobacco (--%)
Beringer Wine Estates Holdings Cl B 6,090(b,d) 253,496
Building materials & construction (--%)
Centex Construction Products 6,882 264,527
Dycom Inds 13,276(b) 409,896
NCI Building Systems 7,369(b) 134,945
Total 809,368
Chemicals (--%)
MacDermid 8,111 268,677
Spartech 8,891 247,281
Total 515,958
Communications equipment & services (3.1%)
Amdocs 1,064,000(b) 27,930,000
CommScope 25,395(b) 874,540
Covad Communications Group 334,000(b) 15,405,750
InterVoice 22,107(b) 303,971
Oak Inds 7,900(b) 247,863
Plantronics 7,917(b) 400,798
Rhythms NetConnections 98,000(b) 3,748,500
Tellabs 400,000(b,f) 23,825,000
Total 72,736,422
Computers & office equipment (24.9%)
Acxiom 14,258(b) 250,406
America Online 257,000(b) 23,467,313
American Management Systems 23,203(b) 664,186
BISYS Group 6,212(b) 295,070
BMC Software 374,000(b) 20,125,875
Cisco Systems 1,520,000(b) 103,074,999
Citrix Systems 416,000(b) 23,684,526
Clarent 40,000(b) 1,330,000
Clarify 7,600(b) 334,400
CMGI 338,000(b,d) 28,370,875
Cognex 18,818(b) 568,068
Concentric Network 771,000(b) 16,972,741
CustomTracks 2,300 88,263
Dendrite Intl 5,298(b) 220,529
EMC 210,000(b) 12,600,000
FactSet Research Systems 9,196 425,890
Fair Isaac & Co 8,553 241,622
Gadzoox Networks 50,000(b) 4,518,750
Gemstar Intl Group 418,000(b) 28,842,000
Henry (Jack) & Associates 12,606 409,695
InfoSpace.com 494,200(b) 22,765,216
Insight Enterprises 8,000(b) 242,000
Intuit 344,000(b) 30,809,499
Juniper Networks 45,000(b) 9,225,000
Kronos 7,798(b) 391,118
Legato Systems 236,000(b) 10,162,750
Lexmark Intl Group Cl A 236,000(b) 18,585,000
Macromedia 20,706(b) 820,475
MedQuist 15,590(b) 542,727
Mercury Interactive 550,722(b) 26,296,976
Natl Computer Systems 9,437 368,043
Natl Data 10,353 396,002
Natl Instruments 4,476(b) 134,000
Navigant Consulting 4,700(b) 206,213
New Era of Networks 6,760(b) 113,230
Novell 703,000(b) 16,652,313
Peregrine Systems 532,000(b) 17,556,000
Profit Recovery Group Intl 23,290(b) 886,495
Progress Software 11,145(b) 341,316
Rational Software 323,300(b) 8,749,306
Safeguard Scientifics 418,300(b) 28,004,648
SunGard Data Systems 912,000(b) 22,800,000
Symantec 11,388(b) 341,640
U.S. Interactive 11,900(b) 246,925
VeriSign 671,500(b) 72,474,465
Whittman-Hart 18,818(b) 495,149
Xircom 15,042(b) 598,860
Yahoo! 154,000(b) 22,715,000
Total 579,405,574
Electronics (12.4%)
Actel 12,606(b) 197,757
AFC Cable Systems 6,334(b) 272,362
Alpha Inds 11,023(b) 627,622
Altera 380,000(b) 16,007,500
Burr-Brown 9,744(b) 371,490
C-Cube Microsystems 15,103(b) 420,052
Conexant Systems 344,000(b) 24,784,260
CTS 14,982 713,518
Dallas Semiconductor 9,866 498,233
Dionex 12,911(b) 514,019
DSP Communications 10,962(b) 257,607
Etec Systems 8,400(b) 369,600
Flextronics Intl 461,000(b) 27,054,938
Helix Technology 15,408 435,276
Jabil Circuit 604,500(b) 27,089,156
JDS Uniphase 321,000(b) 34,046,061
LSI Logic 286,000(b) 16,230,500
Methode Electronics Cl A 12,180 219,240
Micrel 6,455(b) 494,614
Novellus Systems 394,119(b) 21,257,794
Plexus 10,414(b) 309,817
PMC-Sierra 502,400(b) 46,704,728
Power Integrations 3,500(b) 237,781
Powerwave Technologies 7,004(b) 297,232
Sawtek 4,632(b) 153,146
Taiwan Semiconductor Mfg ADR 615,000(b,d) 17,796,563
Teradyne 202,000(b) 13,748,625
Vicor 12,300(b) 237,544
Vitesse Semiconductor 228,000(b) 15,504,000
Xilinx 304,000(b) 21,261,000
Total 288,112,035
Energy (0.9%)
Apache 462,000 21,021,000
Barrett Resources 6,200(b) 223,588
Newfield Exploration 15,225(b) 462,459
Pogo Producing 10,231 213,572
Total 21,920,619
Energy equipment & services (--%)
Marine Drilling 12,241(b) 194,326
Financial services (3.3%)
Capital One Financial 439,000 16,572,249
Financial Federal 13,239 249,059
Investment Technology Group 3,776 102,896
Jeffries Group 7,734 191,417
Kansas City Southern Inds 329,000 15,236,117
Knight/Trimark Group Cl A 1,266,000(b,d) 41,461,499
Legg Mason 14,007 534,892
Mutual Risk Management 17,844(c,h) 490,710
Radian Group 4,872 225,635
SEI Investments 6,821 627,106
Total 75,691,580
Food (1.0%)
Delta & Pine Land 7,491 212,089
Earthgrains 9,196 221,854
Smithfield Foods 6,577(b) 193,199
Suiza Foods 417,000(b) 13,202,446
U.S. Foodservice 460,000(b) 9,573,750
United Natural Foods 7,491(b) 86,147
Total 23,489,485
Furniture & appliances (0.1%)
Briggs & Stratton 4,385 266,937
Ethan Allen Interiors 15,042 439,038
La-Z-Boy 16,199 355,366
Mohawk Inds 5,846(b) 132,266
Total 1,193,607
Health care (2.0%)
Alkermes 315,000(b) 11,694,375
Alpharma Cl A 8,770 297,084
Ballard Medical Products 12,606 308,847
Barr Laboratories 8,891(b) 306,740
Biomatrix 6,821(b,d) 133,862
IDEC Pharmaceuticals 7,369(b) 936,324
IDEXX Laboratories 13,763(b) 233,971
Incyte Pharmaceuticals 9,622(b) 273,024
Jones Pharma 22,471 608,121
Liposome 12,073(b) 238,064
MedImmune 188,000(b) 19,399,249
Mylan Laboratories 570,000 11,293,125
OEC Medical Systems 6,638(b) 229,011
Priority Healthcare Cl B 17,500(b) 492,188
Roberts Pharmaceutical 7,308(b) 195,946
Safeskin 7,734(b) 61,389
Summit Technology 15,712(b) 251,392
Techne 8,039(b) 249,209
Total 47,201,921
Health care services (1.1%)
Express Scripts Cl A 346,276(b) 23,330,345
Hanger Orthopedic Group 7,856(b) 108,020
Patterson Dental 17,722(b) 726,602
Renal Care Group 23,812(b) 455,405
Res-Care 9,379(b,d) 177,029
Universal Health Services Cl B 9,257(b) 308,952
Total 25,106,353
Household products (0.3%)
Chattem 3,167(b) 76,404
Jostens 10,658 214,492
Scotts Cl A 6,273(b) 248,960
Seminis Cl A 620,200(b) 6,202,000
Total 6,741,856
Industrial equipment & services (0.1%)
Astec Inds 11,571(b) 391,968
G & K Services Cl A 1,340 55,694
JLG Inds 15,469 274,575
Manitowoc 14,799 548,487
Terex 7,430(b) 199,681
Total 1,470,405
Insurance (1.2%)
Blanch (EW) Holdings 207,000 13,713,749
Fidelity Natl Financial 6,638 102,059
Gallagher (Arthur J) 9,988 545,595
Hooper Holmes 16,504 377,529
Reinsurance Group of America 5,329 170,528
ReliaStar Financial 259,000 11,671,188
Triad Guaranty 13,703(b) 267,209
Total 26,847,857
Leisure time & entertainment (0.8%)
Acclaim Entertainment 19,427(b) 137,203
Anchor Gaming 4,324(b) 210,119
Polaris Inds 4,446 159,778
SFX Entertainment Cl A 450,500(b) 18,532,025
Total 19,039,125
Media (7.2%)
Adelphia Communications Cl A 550,900(b,d) 34,189,210
ADVO 7,795(b) 152,977
Cablevision Systems Cl A 322,000(b,d) 22,741,250
Catalina Marketing 6,115(b) 554,936
Clear Channel Communications 153,000(b) 10,719,562
Consolidated Graphics 11,754(b) 496,607
Metro Networks 6,395(b) 364,515
TeleWest Communications 2,492,000(b,c) 9,691,467
True North Communications 8,891 292,847
Univision Communications Cl A 605,000(b,h) 44,618,750
USA Networks 408,000(b) 18,317,249
Valassis Communications 26,340(b) 1,152,375
Westwood One 10,170(b) 390,274
Young & Rubicam 547,000 24,413,666
Total 168,095,685
Metals (--%)
Mueller Inds 9,257(b) 286,967
Stillwater Mining 11,114(b) 245,203
Total 532,170
Miscellaneous (1.0%)
Apex 5,600(b) 185,850
Fiserv 720,700(b) 22,156,456
John Nuveen Cl A 6,029 235,508
Philadelphia Suburban 16,443 381,272
Total 22,959,086
Multi-industry conglomerates (2.9%)
Bell & Howell 6,760(b) 226,460
DeVry 24,847(b) 518,681
Education Management 8,952(b) 115,817
Electronics for Imaging 260,161(b) 15,251,939
Labor Ready 16,260(b) 261,176
Lason 4,994(b) 225,666
Mettler-Toledo Intl 9,196(b) 244,844
NCO Group 6,120(b) 278,460
Pre-Paid Legal Services 7,491(b) 240,180
Sylvan Learning Systems 7,613(b) 151,308
Tyco Intl 495,000(c) 50,149,687
Total 67,664,218
Paper & packaging (--%)
Buckeye Technologies 12,789(b) 203,025
Shorewood Packaging 8,100(b) 119,475
Total 322,500
Restaurants & lodging (0.7%)
CEC Entertainment 15,530(b) 432,885
Foodmaker 21,315(b) 491,577
Papa John's Intl 384,000(b) 15,264,001
Sonic 6,882(b) 210,761
Taco Cabana Cl A 22,289(b) 206,173
Total 16,605,397
Retail (8.7%)
99 Cents Only Stores 5,177(b) 186,372
American Eagle Outfitters 472,000(b) 18,526,000
Ames Dept Stores 8,952(b) 262,965
AnnTaylor Stores 528,520(b) 17,507,225
Bed Bath & Beyond 907,000(b) 24,942,500
CDW Computer Centers 4,324(b) 191,878
Circuit City Stores 340,000 14,620,000
Dollar General 811,000 21,086,000
Family Dollar Stores 869,000 17,108,438
Fossil 20,942(b) 653,113
Kohl's 463,000(b) 32,988,749
Linens `N Things 14,433(b) 494,330
Men's Wearhouse 19,549(b) 403,198
Musicmaker.com 370,000(b) 4,382,188
Pacific Sunwear of California 11,601(b) 269,723
Regis 20,127 384,929
Tiffany & Co 499,000 26,384,625
TJX Companies 561,000 16,198,875
Tuesday Morning 249,000(b) 4,964,438
Williams-Sonoma 13,033(b) 508,287
Total 202,063,833
Textiles & apparel (1.0%)
Abercrombie & Fitch 654,000(b) 22,808,250
K-Swiss Cl A 9,369 293,952
Oshkosh B'Gosh Cl A 16,991 273,980
Quiksilver 8,831(b) 152,335
Total 23,528,517
Transportation (--%)
Atlas Air 5,511(b) 150,175
Expeditors Intl of Washington 18,087 584,436
Swift Transportation 11,754(b) 244,630
Total 979,241
Utilities -- telephone (8.3%)
Allegiance Telecom 509,500(b) 30,633,688
COLT Telecom Group ADR 417,000(b) 36,539,624
Global TeleSystems Group 454,000(b) 14,669,875
Intermedia Communications 5,288(b) 137,488
Intermedia Communications 666,400(b,f) 17,301,568
Omnipoint 460,000(b) 18,630,000
RCN 546,000(b) 22,904,188
United States Cellular 211,000(b) 11,868,750
Western Wireless Cl A 213,000(b) 8,240,438
WinStar Communications 641,200(b) 32,545,113
Total 193,470,732
Total common stocks
(Cost: $1,655,610,235) $1,950,748,313
Preferred stock (0.3%)
Issuer Shares Value(a)
Protein Delivery
2.50% 2,800,000 $7,000,000
Total preferred stock
(Cost: $7,000,000) $7,000,000
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options purchased (0.1%)
Issuer Shares Exercise Expiration Value(a)
price date
Calls
<S> <C> <C> <C> <C>
Altera 135,000 $50 Dec. 1999 $438,750
BMC Software 75,000 60 Nov. 1999 290,625
Flextronics Intl 50,000 55 Sept. 1999 246,875
Stryker 95,000 55 Oct. 1999 457,188
TJX Companies 70,000 30 Oct. 1999 80,938
Total 1,514,376
Total options purchased
(Cost: $1,724,006) $1,514,376
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (19.0%)(f)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S government agencies (9.5%)
Federal Home Loan Bank Disc Nts
<S> <C> <C> <C>
09-08-99 5.02% $12,000,000 $11,986,160
09-24-99 5.02 25,000,000 24,916,666
Federal Home Loan Mtge Corp Disc Nts
09-09-99 4.92 3,900,000 3,894,857
09-13-99 5.03 11,700,000 11,678,072
09-15-99 5.03 32,500,000 32,429,717
09-16-99 5.00 50,000,000 49,889,109
09-23-99 4.99 27,500,000 27,412,677
10-07-99 5.21 4,200,000 4,177,639
Federal Natl Mtge Assn Disc Nts
09-02-99 5.02 1,000,000 999,704
09-08-99 4.94 13,600,000 13,584,314
09-13-99 5.03 40,000,000 39,925,032
Total 220,893,947
Commercial Paper (9.5%)
American General
10-07-99 5.30 7,000,000 6,962,085
BellSouth Capital Funding
09-22-99 5.18 12,900,000(g) 12,859,321
BMW US Capital
09-27-99 5.14 9,200,000 9,164,671
CAFCO
09-21-99 5.14 14,300,000(g) 14,256,457
Ciesco LP
09-14-99 5.13 18,900,000 18,862,366
Clorox
09-09-99 5.14 8,400,000 8,389,227
10-04-99 5.19 4,000,000 3,980,166
Corporate Receivables
09-13-99 5.21 4,500,000(g) 4,491,550
Daimler/Chrysler
10-18-99 5.17 10,000,000 9,928,666
Delaware Funding
09-20-99 5.13 18,800,000(g) 18,745,687
09-21-99 5.27 1,600,000(g) 1,595,100
Fleet Funding
09-20-99 5.13 9,800,000(g) 9,772,123
10-06-99 5.33 7,000,000(g) 6,962,900
Ford Motor Credit
09-28-99 5.22 9,100,000 9,063,195
Gannett
09-03-99 5.12 10,700,000 10,695,434
Gateway Fuel
09-02-99 5.14 1,200,000 1,199,657
Heinz (HJ)
09-29-99 5.22 5,000,000 4,979,055
Household Finance
09-08-99 5.26 15,000,000 14,982,500
Paccar Financial
09-13-99 5.24 4,500,000 4,491,501
Petrofina (Delaware)
09-17-99 5.21 3,900,000 3,890,423
Pfizer
09-27-99 5.24 2,900,000(g) 2,888,647
Salomon Smith Barney
09-07-99 5.13 7,300,000 7,292,732
SBC Communications Capital
10-13-99 5.14 2,300,000(g) 2,285,247
10-26-99 5.18 13,000,000(g) 12,890,396
Sheffield Receivables
09-08-99 5.21 11,700,000(g) 11,686,479
UBS Finance (Delaware)
10-28-99 5.20 5,000,000 4,955,787
USAA Capital
10-06-99 5.20 3,700,000 3,680,538
Total 220,951,910
Total short-term securities
(Cost: $441,929,885) $441,845,857
Total investments in securities
(Cost: $2,106,264,126)(i) $2,401,108,546
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of Aug. 31, 1999, the
value of foreign securities represented 2.59% of net assets.
(d) Security is partially or fully on loan. See Note 5 to the financial
statements.
(e) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended Aug. 31, 1999 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
<S> <C> <C> <C> <C> <C> <C>
Health Management Systems* $13,565,943 $143,750 $13,709,693 $-- $-- $--
Secure Computing.* 12,952,228 -- 12,952,228 -- -- --
Spiegel Inc. Cl A* -- 6,150,615 6,150,615 -- -- --
Steiner Leisure* 6,314,583 2,211,250 8,525,833 -- -- --
--------- --------- --------- ---- ---- ----
Total $32,832,754 $8,505,615 $41,338,369 $-- $-- $--
*Issuer was not an affiliate for the entire year ended Aug. 31, 1999.
(f) At Aug. 31, 1999, cash or short-term securities were designated to cover
open put options written as follows:
Issuer Shares Exercise Expiration Value(a)
Price Date
Convad Communications Group 90,000 $45 Sept. 1999 $270,000
Intermedia Communications 260,000 20 Sept. 1999 65,000
Tellabs 95,000 65 Oct. 1999 742,187
Total $1,077,187
(g) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(h) Partially pledged as initial margin deposit on the following open stock
index futures purchase contracts (see Note 7 to the financial statements):
Type of security Contracts
S&P 500 Index, Sept. 1999 3
(i) At Aug. 31, 1999, the cost of securities for federal income tax purposes was
$2,108,940,419 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $372,227,074
Unrealized depreciation (80,058,947)
-----------
Net unrealized appreciation $292,168,127
</TABLE>
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation as amended Nov. 10, 1994, filed
electronically as Exhibit 1 to Registrant's Post-Effective Amendment
No. 34 to Registration Statement No. 2-73115, are incorporated by
reference.
(b) By-Laws as amended Jan. 12, 1989, filed electronically as Exhibit No.2
to Registrant's Post-Effective Amendment No. 25 to Registration
Statement No. 2-73115, are incorporated by reference.
(c) Stock certificate for common shares, is on file at the Registrant's
headquarters.
(d)(1) Investment Management Services Agreement between Registrant, on behalf
of IDS Life Aggressive Growth Fund, IDS Life Capital Resource Fund and
IDS Life International Equity Fund, and IDS Life Insurance Company
dated March 20, 1995, filed electronically as Exhibit No. 5(a) to
Registrant's Post-Effective Amendment No. 30, is incorporated by
reference.
(d)(2) Investment Management Services Agreement between Registrant, on behalf
of IDS Life Growth Dimensions Fund and IDS Life Insurance Company dated
April 11, 1996, filed electronically as Exhibit 5(b) to Registrant's
Post-Effective Amendment No. 33, is incorporated by reference.
(d)(3) Investment Management Services Agreement dated Sept. 13, 1999, between
Registrant, on behalf of AXP Variable Portfolio - Blue Chip Advantage
Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio -
Small Cap Advantage Fund and IDS Life Insurance Company, filed
electronically herewith.
(d)(4) Investment Advisory Agreement between IDS Life Insurance Company and
American Express Financial Corporation dated Oct. 14, 1998, filed
electronically as Exhibit 5(c) to Registrant's Post-Effective Amendment
No. 36 filed on or about Oct. 30, 1998, is incorporated by reference.
(d)(5) Addendum to Investment Advisory Agreement dated Oct. 14, 1999 between
IDS Life Insurance Company and American Express Financial Corporation,
filed electronically herewith.
(d)(6) Investment Advisory Agreement between American Express Financial
Corporation Inc. and American Express Asset Management International
Inc. for IDS Life International Equity Fund dated February 11, 1999,
filed electronically as Exhibit (d)(6) to Registrant's Post-Effective
Amendment No. 37 filed on or about May 28, 1999, is incorporated by
reference.
(d)(7) Investment Subadvisory Agreement between American Express Financial
Corporation and American Express Asset Management Group Inc. on behalf
of AXP Variable Portfolio-Strategy Aggressive Fund dated July 9, 1999,
filed electronically herewith.
(d)(8) Subadvisory Agreement between American Express Financial Corporation
and Kenwood Capital Management LLC on behalf of AXP Variable Portfolio
- Small Cap Advantage Fund dated Sept. 13, 1999, filed electronically
herewith.
(d)(9) Administrative Services Agreement, dated March 20, 1995, between IDS
Life Investment Series, Inc., on behalf of IDS Life Aggressive Growth
Fund, IDS Life Capital Resource Fund and IDS Life International Equity
Fund, and American Express Financial Corporation, filed electronically
as Exhibit No. 5(d) to Registrant's Post-Effective Amendment No. 30, is
incorporated by reference.
<PAGE>
(d)(10) Administrative Services Agreement, dated April 11, 1996, between IDS
Life Investment Series, Inc. on behalf of IDS Life Growth Dimensions
Fund and American Express Financial Corporation, filed electronically
as Exhibit 5(f) to Registrant's Post-Effective Amendment No. 34, is
incorporated by reference.
(d)(11) Administrative Services Agreement dated Sept. 13, 1999, between AXP
Variable Portfolio Investment Series, Inc. on behalf of AXP Variable
Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth
Fund and AXP Variable Portfolio - Small Cap Advantage Fund and American
Express Financial Corporation, filed electronically herewith.
(e) Underwriting contracts: Not Applicable.
(f) All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
(g)(1) Custodian Agreement dated March 20, 1995, between IDS Life Investment
Series, Inc., on behalf of IDS Life Aggressive Growth Fund, IDS Life
Capital Resource Fund and IDS Life International Equity Fund, and
American Express Trust Company, filed electronically as Exhibit No.
8(a) to Registrant's Post-Effective Amendment No. 30, is incorporated
by reference.
(g)(2) Custodian Agreement dated April 11, 1996, between IDS Life Investment
Series, Inc. on behalf of IDS Life Growth Dimensions Fund and American
Express Trust Company, filed electronically as Exhibit 8(b) to
Registrant's Post-Effective Amendment No. 34, is incorporated by
reference.
(g)(3) Custodian Agreement dated Sept. 13, 1999, between AXP Variable
Portfolio - Investment Series, Inc. on behalf of AXP Variable Portfolio
- Blue Chip Advantage Fund, AXP Variable Portfolio Growth Fund and AXP
Variable Portfolio - Small Cap Advantage Fund and American Express
Trust Company, filed electronically herewith.
(g)(4) Custodian Agreement dated May 13, 1999 between American Express Trust
Company and The Bank of New York filed electronically as Exhibit (g)(3)
to IDS Precious Metal Fund, Inc.'s Post-Effective Amendment No. 33,
Registration Statement No. 2-93745 filed on or about May 24, 1999, is
incorporated by reference.
(h)(1) Plan and Agreement of Merger between IDS Life Capital Resource
Minnesota, Inc. and IDS Life Capital Resource Fund, Inc. dated
April 10, 1986, filed electronically as Exhibit No. 9(a) to
Registrant's Post-Effective Amendment No. 25 to Registration Statement
No. 2-73115, is incorporated by reference.
(h)(2) License Agreement between Registrant and IDS Financial Corporation,
dated Jan. 25, 1988, filed electronically as Exhibit No. 9(b) to
Registrant's Post-Effective Amendment No. 25 to Registration Statemen
No. 2-73115, is incorporated by reference.
(h)(3) License Agreement dated June 17, 1999 between the American Express
Funds and American Express Company, filed electronically on or about
Sept. 23, 1999 as Exhibit (h)(4) to AXP Stock Fund, Inc's
Post-Effective Amendment No. 98 to Registration Statement No. 2-11358,
is incorporated by reference
(i) Opinion and consent of counsel as to the legality of the securities
being registered, filed electronically herewith.
<PAGE>
(j) Independent Auditors' Consent, filed electronically herewith.
(k) Omitted Financial Statements: Not Applicable.
(l) Investment Letter of IDS Life Insurance Company dated Oct. 13, 1981,
filed electronically as Exhibit 13 to Registrant's Post-Effective
Amendment No. 25, is incorporated by reference.
(m) Plan and Agreement of Distribution dated Sept. 13, 1999, between
Registrant on behalf of AXP Variable Portfolio - Blue Chip Advantage
Fund, AXP Variable Portfolio - Growth Fund, and AXP Variable Portfolio
- Small Cap Advantage Fund, and IDS Life Insurance Company, filed
electronically herewith.
(n) Financial Data Schedules: Not Applicable.
(o) Rule 18f-3 Plan: Not Applicable.
(p)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement dated Jan. 14, 1999, filed electronically as Exhibit (p)(1)
to Registrant's Post-Effective Amendment No. 37 filed on or about
May 28, 1999, is incorporated by reference.
(p)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated March 1, 1999 filed electronically as Exhibit (p)(2)
to Registrant's Post-Effective Amendment No. 37 filed on or about May
28, 1999, is incorporated by reference.
Item 24. Persons Controlled by or under Common Control with Registrant
IDS Life and its subsidiaries are the record holders of all outstanding shares
of AXP Variable Portfolio - Investment Series, Inc., AXP Variable Portfolio -
Income Series, Inc., AXP Variable Portfolio - Money Market Series, Inc. and AXP
Variable Portfolio - Managed Series, Inc. All of such shares were purchased and
are held by IDS Life and its subsidiaries pursuant to instructions from owners
of variable annuity contracts issued by IDS Life and its subsidiaries.
Accordingly, IDS Life disclaims beneficial ownership of all shares of each fund.
Item 25. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
<PAGE>
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
<TABLE>
<CAPTION>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
Directors and officers of IDS Life Insurance Company who are directors and/or
officers of one or more other companies:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President
Executive Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
American Express Financial Vice President
Corporation
IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Executive Vice President Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
American Express Financial Director, Senior Vice
Corporation President and Chief
Marketing Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Express Financial Vice President
Corporation
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President Minneapolis, MN 55440 and Assistant Secretary
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Financial Vice President and
Corporation Corporate Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Partners Life Vice President and
Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
American Express Financial Vice President and
Advisors Japan Inc. Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
Public Employee Payment Vice President and
Company Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director Minneapolis, MN 55440
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Financial Director, President and
Corporation Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
IDS Life Series Fund, Inc. Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and President Minneapolis, MN 55440
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
American Centurion Life Director and Chairman of
Assurance Company the Board
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Director and President
Corporation
American Express Financial Senior Vice President
Advisors Inc.
American Express Financial Director and Senior Vice
Corporation President
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
IDS Insurance Agency of Director and President
New Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director and Chairman of
of New York Albany, NY 12205 the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Financial Vice President
Corporation
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Director and Executive Vice Insurance Company Minneapolis, MN 55440
President
American Express Director
Corporation
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
American Express Financial Vice President
Corporation
Investors Syndicate Director, Chairman of the
Development Corporation Board and President
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Executive Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
American Express Trust Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Executive Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
American Express Financial Director and Senior Vice
Corporation President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Financial Senior Vice President and
Corporation Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Express Financial Vice President
Corporation
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Director and Vice President
Inc.
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President, General Insurance Company Minneapolis, MN 55440 General Counsel and
Counsel and Secretary Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Express Financial Vice President and
Corporation Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Philip C. Wentzel, American Centurion Life IDS Tower 10 Vice President and
Vice President and Controller Assurance Company Minneapolis, MN 55440 Controller, Risk Management
American Enterprise Life Vice President and
Insurance Company Controller
<PAGE>
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company).
(Continued)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Controller, Risk Management
</TABLE>
Item 27. Principal Underwriters
The Fund has no principal underwriter.
Item 28. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440-0010
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant, AXP Variable Portfolio - Investment Series, Inc. certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement under Rule 485(b) of the Securities Act and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, duly authorized, in the City of Minneapolis and State of
Minnesota on the 28th day of October, 1999.
AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
By /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer
By ________________________________________
John Knight, Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to its
Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of October, 1999.
Signature Capacity
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson* Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley Director
William H. Dudley
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ William R. Pearce* Director
William R. Pearce
/s/ Alan K. Simpson* Director
Alan K. Simpson
<PAGE>
/s/ John R. Thomas* Director
John R. Thomas
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated Jan. 14, 1999, filed
electronically as Exhibit (p)(1) to Registrant's Post-Effective Amendment No.
37, by:
/s/Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated March 1, 1999, filed
electronically as Exhibit (p)(2) to Registrant's Post-Effective Amendment No.
37, by:
/s/Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 40
TO REGISTRATION STATEMENT NO. 2-73115
This post-effective amendment contains the following papers and documents:
The facing sheet.
Part A.
The prospectuses.
Part B.
Statements of Additional Information.
Part C.
Other information.
The signatures.
Exhibits.
<PAGE>
IDS Life Investment Series, Inc.
File No. 2-73115/811-3218
EXHIBIT INDEX
Exhibit (d)(3): Investment Management Services Agreement dated Sept. 13, 1999.
Exhibit (d)(5): Addendum to Investment Advisory Agreement dated Oct. 14, 1999.
Exhibit (d)(7): Investment Subadvisory Agreement dated July 9, 1999.
Exhibit (d)(8): Subadvisory Agreement dated Sept. 13, 1999.
Exhibit (d)(11): Administrative Services Agreement dated Sept. 13, 1999.
Exhibit (g)(3): Custodian Agreement dated Sept. 13, 1999.
Exhibit (i): Opinion and consent of counsel.
Exhibit (j): Independent Auditors' Consent.
Exhibit (m): Plan and Agreement of Distribution dated Sept. 13, 1999.
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the 13th day of September, 1999, by and between AXP Variable
Portfolio - Investment Series, Inc. (the "Corporation"), a Minnesota
corporation, on behalf of its underlying series funds: AXP Variable Portfolio -
Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP Variable
Portfolio - Small Cap Advantage Fund (individually a "Fund" and collectively the
"Funds"), and IDS Life Insurance Company ("IDS Life") a Minnesota corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Corporation hereby retains IDS Life, and IDS Life hereby agrees, for
the period of this Agreement and under the terms and conditions hereinafter
set forth, to furnish the Corporation continuously with suggested
investment planning; to determine, consistent with the Funds' investment
objectives and policies, which securities in IDS Life's discretion shall be
purchased, held or sold and to execute or cause the execution of purchase
or sell orders; to prepare and make available to the Funds all necessary
research and statistical data in connection therewith; to furnish all
services of whatever nature required in connection with the management of
the Fund including transfer agent and dividend- disbursing agent services;
to furnish or pay for all supplies, printed material, office equipment,
furniture and office space as the Funds may require; and to pay or
reimburse such expenses of the Fund as may be provided for in Part Three;
subject always to the direction and control of the Board of Directors (the
"Board"), the Executive Committee and the authorized officers of the
Corporation and its underlying Fund. IDS Life agrees to maintain (directly
or through the contract described in paragraph (7) of this Part One) an
adequate organization of competent persons to provide the services and to
perform the functions herein mentioned. IDS Life agrees to meet with any
persons at such times as the Board deems appropriate for the purpose of
reviewing IDS Life's performance under this Agreement.
(2) IDS Life agrees that the investment planning and investment decisions will
be in accordance with general investment policies of the Fund as disclosed
to IDS Life from time to time by the Funds and as set forth in its
prospectuses and registration statements filed with the United States
Securities and Exchange Commission (the "SEC").
(3) IDS Life agrees that it will maintain all required records, memoranda,
instructions or authorizations relating to the acquisition or disposition
of securities for the Funds.
(4) The Fund agrees that it will furnish to IDS Life any information that the
latter may reasonably request with respect to the services performed or to
be performed by IDS Life under this Agreement.
(5) IDS Life is authorized to select the brokers or dealers that will execute
the purchases and sales of portfolio securities for the Fund and is
directed to use its best efforts to obtain the best available price and
most favorable execution, except as prescribed herein. Subject to prior
authorization by the Board of appropriate policies and procedures, and
subject to termination at any time by the Board, IDS Life may also be
authorized to effect individual securities transactions at commission rates
in excess of the minimum commission rates available, to the extent
authorized by law, if IDS Life determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or American Express Financial
Corporation's ("AEFC") or IDS Life's overall responsibilities with respect
to the Funds and other funds for which they act as investment adviser.
(6) It is understood and agreed that in furnishing the Funds with the services
as herein provided, neither IDS Life, nor any officer, director or agent
thereof shall be held liable to a Funds or its creditors or shareholders
for errors of judgment or for anything except willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the terms of this Agreement.
It is further understood and agreed that IDS Life may rely upon information
furnished to it reasonably believed to be accurate and reliable.
<PAGE>
(7) The existence of an investment advisory agreement between IDS Life and AEFC
is specifically acknowledged and approved.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Corporation agrees to pay to IDS Life, and IDS Life covenants and
agrees to accept from the Corporation in full payment for the services
furnished, a fee composed of an asset charge and a performance incentive
adjustment.
(a) The asset charge
(i) The asset charge for each calendar day of each year shall be
equal to the total of 1/365th (1/366th in each leap year) of the
amount computed in accordance with paragraph (ii) below. The
computation shall be made for each day on the basis of net assets
as of the close of business of the full business day two (2)
business days prior to the day for which the computation is being
made. In the case of the suspension of the computation of net
asset value, the asset charge for each day during such suspension
shall be computed as of the close of business on the last full
business day on which the net assets were computed. Net assets as
of the close of a full business day shall include all
transactions in shares of the Funds recorded on the books of the
Funds for that day.
(ii) The asset charge shall be based on the net assets of each Fund as
set forth in the following table.
AXP Variable Portfolio - Blue Chip Advantage Fund
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.540%
Next 0.25 0.515
Next 0.25 0.490
Next 0.25 0.465
Next 1.00 0.440
Next 1.00 0.410
Next 3.00 0.380
Next 6.00 0.350
AXP Variable Portfolio - Growth Fund
Assets Annual rate at
(billions) each asset level
First $1.00 0.630%
Next 1.00 0.615
Next 1.00 0.600
Next 3.00 0.585
Over 6.00 0.570
<PAGE>
AXP Variable Portfolio - Small Cap Advantage Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.790%
Next 0.25 0.770
Next 0.25 0.750
Next 0.25 0.730
Next 1.00 0.710
Over 2.00 0.650
(b) The performance incentive adjustment
(i) The performance incentive adjustment, determined monthly, shall
be computed by measuring the percentage point difference between
the performance of one share of the Fund and the performance of
an Index (the "Index"). The Index for AXP Variable Portfolio -
Blue Chip Advantage Fund and AXP Variable Portfolio - Growth Fund
is the Lipper Growth and Income Fund Index. The Index for AXP
Variable Portfolio - Small Cap Advantage Fund is the Lipper Small
Cap Fund Index. The performance of one share of a Fund shall be
measured by computing the percentage difference, carried to two
decimal places, between the opening net asset value of one share
of the Fund and the closing net asset value of such share as of
the last business day of the period selected for comparison,
adjusted for dividends or capital gain distributions treated as
reinvested at the end of the month during which the distribution
was made but without adjustment for expenses related to a
particular class of shares. The performance of the Index will
then be established by measuring the percentage difference,
carried to two decimal places, between the beginning and ending
Index for the comparison period, with dividends or capital gain
distributions on the securities which comprise the Index being
treated as reinvested at the end of the month during which the
distribution was made.
(ii) In computing the adjustment, one percentage point shall be
deducted from the difference, as determined in (b)(i) above. The
result shall be converted to a decimal value (e.g., 2.38% to
0.0238), multiplied by .01 and then multiplied by the Funds'
average net assets for the comparison period. This product next
shall be divided by 12 to put the adjustment on a monthly basis.
Where the performance of the Fund exceeds the Index, the amount
so determined shall be an increase in fees as computed under
paragraph (a). Where Fund performance is exceeded by the Index,
the amount so determined shall be a decrease in such fees. The
percentage point difference between the performance of the Fund
and that of the Index, as determined above, is limited to a
maximum of 0.0008 per year for AXP Variable Portfolio - Blue Chip
Advantage Fund and AXP Variable Portfolio - Growth Fund, and
0.0012 per year for AXP Variable Portfolio - Small Cap Advantage
Fund.
(iii)The 12 month comparison period will roll over with each
succeeding month, so that it always equals 12 months, ending with
the month for which the performance adjustment is being computed.
(iv) If the Index ceases to be published for a period of more than 90
days, changes in any material respect or otherwise becomes
impracticable to use for purposes of the adjustment, no
adjustment will be made under this paragraph (b) until such time
as the Board approves a substitute index.
<PAGE>
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the
basis of the number of days that this Agreement is in effect during the
month with respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the Funds to IDS
Life within five business days after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Corporation agrees to pay:
(a) Fees payable to IDS Life for the latter's services under the terms of
this Agreement.
(b) All fees, costs, expenses and allowances payable to any person, firm
or corporation for services under any agreement entered into by the
Fund covering the offering for sale, sale and distribution of the
Fund's shares.
(c) All taxes of any kind payable by the Funds other than federal original
issuance taxes on shares issued by the Fund.
(d) All brokerage commissions and charges in the purchase and sale of
assets.
(2) The Corporation agrees to reimburse IDS Life or its affiliates for the
aggregate cost of the services listed below incurred by IDS Life in its
operation of the Fund.
(a) All custodian or trustee fees, costs and expenses.
(b) Costs and expenses in connection with the auditing and certification
of the records and accounts of the Fund by independent certified
public accountants.
(c) Costs of obtaining and printing of dividend checks, reports to
shareholders, notices, proxies, proxy statements and tax notices to
shareholders, and also the cost of envelopes in which such are to be
mailed.
(d) Postage on all communications, notices and statements to brokers,
dealers, and the Fund's shareholders.
(e) All fees and expenses paid to directors of the Funds; however, IDS
Life will pay fees to directors who are officers or employees of IDS
Life or its affiliated companies.
(f) Costs of fidelity and surety bonds covering officers, directors and
employees of the Fund.
(g) All fees and expenses of attorneys who are not officers or employees
of IDS Life or any of its affiliates.
(h) All fees paid for the qualification and registration for public sales
of the securities of the Fund under the laws of the United States and
of the several states of the United States in which the securities of
the Fund shall be offered for sale.
(i) Cost of printing prospectuses, statements of additional information
and application forms for existing shareholders, and any supplements
thereto.
<PAGE>
(j) Any losses due to theft and defalcation of the assets of the Funds, or
due to judgments or adjustments not covered by surety or fidelity
bonds, and not covered by agreement or obligation.
(k) Expenses incurred in connection with lending portfolio securities of
the Funds.
(l) Expenses properly payable by the Funds, approved by the Board.
Part Four: MISCELLANEOUS
(1) IDS Life shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this Agreement, shall have no authority
to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) Each Fund recognizes that AEFC and IDS Life now render and may continue to
render investment advice and other services to other investment companies
and persons which may or may not have investment policies and investments
similar to those of the Funds and that AEFC and IDS Life manage their own
investments and/or those of their subsidiaries. AEFC and IDS Life shall be
free to render such investment advice and other services and each Fund
hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers,
agents and/or shareholders of the Funds are or may be interested in AEFC or
IDS Life or any successor or assignee thereof, as directors, officers,
stockholders or otherwise; that directors, officers, stockholders or agents
of AEFC or IDS Life are or may be interested in the Funds as directors,
officers, shareholders, or otherwise; or that AEFC or IDS Life or any
successor or assignee, is or may be interested in the Funds as shareholder
or otherwise, provided, however, that neither AEFC or IDS Life, nor any
officer, director or employee thereof or of the Funds, shall sell to or buy
from the Funds any property or security other than shares issued by the
Funds, except in accordance with applicable regulations or orders of the
SEC.
(5) Any notice under this Agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in
writing mailed to the other.
(6) IDS Life agrees that no officer, director or employee of IDS Life will deal
for or on behalf of the Funds with himself as principal or agent, or with
any corporation or partnership in which he may have a financial interest,
except that this shall not prohibit:
(a) Officers, directors or employees of IDS Life from having a financial
interest in the Funds or in IDS Life.
(b) The purchase of securities for the Funds, or the sale of securities
owned by the Funds, through a security broker or dealer, one or more
of whose partners, officers, directors or employees is an officer,
director or employee of IDS Life, provided such transactions are
handled in the capacity of broker only and provided commissions
charged do not exceed customary brokerage charges for such services.
(c) Transactions with the Funds by a broker-dealer affiliate of IDS Life
as may be allowed by rule or order of the SEC, and if made pursuant to
procedures adopted by the Board.
<PAGE>
(7) IDS Life agrees that, except as herein otherwise expressly provided or as
may be permitted consistent with the use of a broker-dealer affiliate of
IDS Life under applicable provisions of the federal securities laws,
neither it nor any of its officers, directors or employees shall at any
time during the period of this Agreement, make, accept or receive, directly
or indirectly, any fees, profits or emoluments of any character in
connection with the purchase or sale of securities (except shares issued by
the Funds) or other assets by or for the Funds.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect for two years from the date of this
Agreement, or until a new agreement is approved by a vote of the majority
of the outstanding shares of each Fund and by vote of the Board, including
the vote required by (b) of this paragraph, and if no new agreement is so
approved, this Agreement shall continue from year to year thereafter unless
and until terminated by either party as hereinafter provided, except that
such continuance shall be specifically approved at least annually (a) by
the Board or by a vote of the majority of the outstanding shares of the
Funds and (b) by the vote of a majority of the directors who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. As
used in this paragraph, the term "interested person" shall have the same
meaning as set forth in the Investment Company Act of 1940, as amended (the
"1940 Act").
(2) This Agreement may be terminated by either a Fund or IDS Life at any time
by giving the other party 60 days' written notice of such intention to
terminate, provided that any termination shall be made without the payment
of any penalty, and provided further that termination may be effected
either by the Board or by a vote of the majority of the outstanding voting
shares of the Fund. The vote of the majority of the outstanding voting
shares of the Fund for the purpose of this Part Five shall be the vote at a
shareholders' regular meeting, or a special meeting duly called for the
purpose, of 67% or more of the Fund's shares present at such meeting if the
holders of more than 50% of the outstanding voting shares are present or
represented by proxy, or more than 50% of the outstanding voting shares of
the Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.
AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Blue Chip Advantage Fund
AXP Variable Portfolio - Growth Fund
AXP Variable Portfolio - Small Cap Advantage Fund
By/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
IDS LIFE INSURANCE COMPANY
By/s/Pamela J. Moret
Pamela J. Moret
Executive Vice President, Variable Assets
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
Schedule A of the Investment Advisory Agreement between IDS Life Insurance
Company (IDS Life) and American Express Financial Corporation (AEFC) dated
October, 14, 1998 is hereby amended to add 5 new investment portfolios, AXP
Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio -
Diversified Equity Income Fund, AXP Variable Portfolio Federal Income Fund, AXP
Variable Portfolio - Growth Fund and AXP Variable Portfolio - Small Cap
Advantage Fund. All other provisions of the Investment Advisory Agreement remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as on the
13th day of September, 1999.
IDS LIFE INSURANCE COMPANY ATTEST:
By:/s/Pamela J. Moret By:/s/Mary Jo Olson
Name: Pamela J. Moret Name: Mary Jo Olson
Title: Executive Vice President Title: Assistant Secretary
Variable Assets
AMERICAN EXPRESS FINANCIAL CORPORATION ATTEST:
By:/s/Peter J. Anderson By:/s/Mary Jo Olson
Name: Peter J. Anderson Name: Mary Jo Olson
Title: Senior Vice President - Title: Assistant Secretary
Investment Operations
<PAGE>
SCHEDULE A
FUND PERCENTAGE OF
NET ASSETS
AXP Variable Portfolio - Income Series, Inc.
o AXP Variable Portfolio - Bond Fund 0.25%
o AXP Variable Portfolio - Extra Income Fund 0.25%
o AXP Variable Portfolio - Federal Income Fund 0.25%
o AXP Variable Portfolio - Global Bond Fund 0.25%
AXP Variable Portfolio - Investment Series, Inc.
o AXP Variable Portfolio - Blue Chip Advantage 0.25%
o AXP Variable Portfolio - Capital Resource Fund 0.25%
o AXP Variable Portfolio - Growth Fund 0.25%
o AXP Variable Portfolio - International Fund 0.35%
o AXP Variable Portfolio - New Dimensions Fund 0.25%
o AXP Variable Portfolio - Small Cap Advantage Fund 0.25%
o AXP Variable Portfolio - Strategy Aggressive Fund 0.25%
AXP Variable Portfolio - Managed Series, Inc.
o AXP Variable Portfolio - Diversified Equity Income Fund 0.25%
o AXP Variable Portfolio - Managed Fund 0.25%
AXP Variable Portfolio - Money Market Series, Inc.
o AXP Variable Portfolio - Cash Management Fund 0.25%
IDS Life Series Fund, Inc.
o Equity Portfolio 0.25%
o Equity Income Portfolio 0.25%
o Income Portfolio 0.25%
o Money Market Portfolio 0.25%
o Managed Portfolio 0.25%
o Government Securities Portfolio 0.25%
o International Equity Portfolio 0.35%
INVESTMENT SUBADVISORY AGREEMENT
This Agreement is effective as of the 9th day of July, 1999, by and between
American Express Financial Corporation ("AEFC"), a Delaware corporation and
American Express Asset Management Group Inc. ("AEAMG"), a Minnesota corporation.
Each of the Funds and Portfolios listed in Exhibit A (individually a "Fund" and
collectively the "Funds" ), is registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"); and
Each Fund has entered into an Investment Management Services Agreement with
AEFC, an investment adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act"), under which AEFC provides investment advisory services to
the Fund; and
AEAMG is a registered investment adviser under the Advisers Act and has a staff
of experienced investment personnel and facilities for the kind of investment
portfolio contemplated for the Funds.
Therefore, it is mutually agreed with respect to each Fund:
Part One: Investment Management Services
(1) AEFC retains AEAMG, and AEAMG agrees, with respect to the Fund's assets
allocated to AEAMG by AEFC, to furnish the Fund continuously with suggested
investment planning; to determine, consistent with the Fund's investment
objectives and policies, which securities in AEAMG's discretion shall be
purchased, held or sold and to execute or cause the execution of purchase or
sell orders; to prepare and make available to the Fund all necessary research
and statistical data; subject always to the direction and control of the Board
of Directors (the "Board"), the officers of the Fund and AEFC. AEFC will be
responsible for investing and reinvesting all of the Fund's cash and cash items
held by the Fund's U.S. custodian. AEAMG agrees to maintain an adequate
organization of competent persons to provide the services and to perform the
functions described in this Agreement.
(2) All transactions will be executed in accordance with the procedures and
standards set forth in, or established in accordance with, the Investment
Management Services Agreement between AEFC and the Fund. AEFC will provide AEAMG
with information concerning those procedures and standards and AEAMG will
maintain records to assure that transactions have been executed in accordance
those procedures and standards.
(3) AEAMG agrees that the investment planning and investment decisions will be
in accordance with investment policies and strategies of the Fund as disclosed
to AEAMG from time to time by the Fund and as set forth in its prospectus and
statement of additional information filed with the Securities and Exchange
Commission (the "SEC").
(4) AEFC agrees that it will furnish to AEAMG any information that the latter
may reasonably request with respect to the services performed or to be performed
by AEAMG under this Agreement.
(5) AEAMG agrees to provide the Board and AEFC with information and reports
regarding its activities as deemed appropriate by AEFC or as requested by the
Board and to meet with any persons at the request of the Board or AEFC for the
purpose of reviewing AEAMG's performance under this Agreement.
<PAGE>
(6) It is understood and agreed that in furnishing the Fund with advisory
services, neither AEAMG, nor any of its officers, directors or agents will be
held liable to AEFC, the Fund or its creditors or shareholders for errors of
judgment or for anything except willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or reckless disregard of its
obligations and duties under the terms of this Agreement. It is further
understood and agreed that AEAMG may rely upon information furnished to it
reasonably believed to be accurate and reliable and that, except as provided
above, AEAMG will not be accountable for any loss suffered by AEFC or the Fund
by reason of the latter's action or nonaction on the basis of any advice or
recommendation of AEAMG, its officers, directors or agents.
Part Two: Compensation To AEAMG.
As compensation for its services, AEFC will pay AEAMG a fee as described in
Exhibit A. AEFC will pay this fee to AEAMG on a monthly basis in cash within 5
business days after the last day of each month. In the event of the termination
of this Agreement, the fee accrued will be prorated on the basis of the number
of days that this Agreement is in effect during the month.
Part Three: Miscellaneous
(1) AEAMG will be deemed to be an independent contractor and, unless expressly
authorized, will have no authority to act for or represent the Fund.
(2) AEFC agrees that AEAMG may render investment advice and other services to
other persons that may or may not have investment policies and investments
similar to those of the Fund, and that AEAMG may manage its own investments,
provided that these activities do not impair AEAMG's ability to render services
under this Agreement.
(3) Neither this Agreement nor any transaction under this Agreement will be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in AEAMG or any
successor or assignee, as directors, officers, stockholders or otherwise; that
directors, officers, stockholders or agents of AEAMG are or may be interested in
the Fund as directors, officers, shareholders, or otherwise; or that AEAMG or
any successor or assignee, is or may be interested in the Fund as shareholder or
otherwise, provided, however, that neither AEAMG, nor any officer, director or
employee thereof or of the Fund, shall sell to or buy from the Fund any property
or security other than shares issued by the Fund, except in accordance with
applicable regulations or orders of the SEC.
(4) Any notice under this Agreement must be given in writing delivered to the
party's principal place of business in Minneapolis, Minnesota, or to another
address as either party may designate in writing to the other.
(5) AEAMG agrees that no officer, director or employee of AEAMG will deal for or
on behalf of the Fund with himself or herself as principal or agent, or with any
corporation or partnership in which he or she may have a financial interest,
except that this shall not prohibit:
(a) Officers, directors or employees of AEAMG from having a financial
interest in the Fund or in AEAMG.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of AEAMG, provided such transactions are handled in the capacity of broker only
and provided commissions charged do not exceed customary brokerage charges for
such services.
(c) Transactions with the Fund by a broker-dealer affiliate of AEAMG as
may be allowed by rule or order of the SEC, and if made pursuant to procedures
adopted by the Fund's Board.
<PAGE>
(6) AEAMG agrees that, except as herein otherwise expressly provided or as may
be permitted consistent with the use of a broker-dealer affiliate of AEAMG under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
Agreement, make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except shares issued by the Fund) or other assets by or for the
Fund.
(7) AEAMG agrees to protect the confidentiality of any non-public information
provided to it by AEFC or the Fund.
Part Four: Renewal And Termination
(1) This Agreement, unless terminated under paragraph 2,3, or 4 below, will
continue in effect from year to year, provided its continued applicability is
specifically approved at least annually (i) by the Board of the Fund or by a
vote of the holders of a majority of the outstanding votes of the Fund and (ii)
by vote of a majority of the Board members who are not parties to this Agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. As used in this paragraph, the term
"interested person" has the same meaning as set forth in the 1940 Act, as
amended.
(2) This Agreement may be terminated at any time, without penalty, by the Board
of the Fund or by vote of the holders of a majority of the Fund's outstanding
shares, on 60 days' written notice to AEFC or to AEAMG.
(3) AEFC or AEAMG may terminate this Agreement by giving sixty days written
notice to the other party.
(4) This Agreement will terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning set forth in the 1940 Act,
as amended.
In Witness Thereof, the parties hereto have executed this Agreement as of the
day and year first above written.
AMERICAN EXPRESS FINANCIAL CORPORATION
By:/s/Peter J. Anderson
Senior Vice President -
Investment Operations
AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC.
By:/s/Stephen W. Roszell
President
<PAGE>
EXHIBIT A
With respect to the Fund's assets allocated to AEAMG, AEFC will pay AEAMG a fee
equal on an annual basis as follows:
Fund Fee
AXP Variable Portfolio -
Strategy Aggressive Fund 0.35% of average daily net assets
SUB-ADVISORY AGREEMENT
This Agreement is effective as of the 13th day of September, 1999 by and between
American Express Financial Corporation ("AEFC"), a Delaware corporation and
Kenwood Capital Management LLC ("Kenwood"), a Delaware limited liability
company.
Each of the Funds and Portfolios listed in Exhibit A (individually a "Fund" and
collectively the "Funds" ), is registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"); and
Each Fund has entered into an Investment Management Services Agreement with
AEFC, an investment adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act"), under which AEFC provides investment advisory services to
the Fund; and
Kenwood is a registered investment adviser under the Advisers Act and has a
staff of experienced investment personnel and facilities for the kind of
investment portfolio contemplated for the Funds.
Therefore, it is mutually agreed with respect to each Fund:
Part One: Investment Management Services
(1) AEFC retains Kenwood, and Kenwood agrees, with respect to the Fund's assets
allocated to Kenwood by AEFC, to furnish the Fund continuously with
suggested investment planning; to determine, consistent with the Fund's
investment objectives and policies, which securities in Kenwood's
discretion shall be purchased, held or sold and to execute or cause the
execution of purchase or sell orders; to prepare and make available to the
Fund all necessary research and statistical data; subject always to the
direction and control of the Board of Directors (the "Board"), the officers
of the Fund and AEFC. AEFC will be responsible for investing and
reinvesting all of the Fund's cash and cash items held by the Fund's U.S.
custodian. Kenwood agrees to maintain an adequate organization of competent
persons to provide the services and to perform the functions described in
this Agreement.
(2) All transactions will be executed in accordance with the procedures and
standards set forth in, or established in accordance with, the Investment
Management Services Agreement between AEFC and the Fund. AEFC will provide
Kenwood with information concerning those procedures and standards and
Kenwood will maintain records to assure that transactions have been
executed in accordance those procedures and standards.
(3) Kenwood agrees that the investment planning and investment decisions will
be in accordance with investment policies and strategies of the Fund as
disclosed to Kenwood from time to time by the Fund and as set forth in its
prospectus and statement of additional information filed with the
Securities and Exchange Commission (the "SEC").
(4) AEFC agrees that it will furnish to Kenwood any information that the latter
may reasonably request with respect to the services performed or to be
performed by Kenwood under this Agreement.
(5) Kenwood agrees to provide the Board and AEFC with information and reports
regarding its activities as deemed appropriate by AEFC or as requested by
the Board and to meet with any persons at the request of the Board or AEFC
for the purpose of reviewing Kenwood's performance under this Agreement.
(6) It is understood and agreed that in furnishing the Fund with advisory
services, neither Kenwood, nor any of its officers, directors or agents
will be held liable to AEFC, the Fund or its creditors or shareholders for
errors of judgment or for anything except willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or reckless disregard
of its obligations and duties under the terms of this Agreement. It is
further understood and agreed that Kenwood may rely upon information
furnished to it reasonably believed to be accurate and reliable and that,
except as provided above, Kenwood will not be accountable for any loss
suffered by AEFC or the Fund by reason of the latter's action or nonaction
on the basis of any advice or recommendation of Kenwood, its officers,
directors or agents.
<PAGE>
Part Two: Compensation To Kenwood.
As compensation for its services, AEFC will pay Kenwood a fee as described in
Exhibit A. AEFC will pay this fee to Kenwood on a monthly basis in cash within 5
business days after the last day of each month. In the event of the termination
of this Agreement, the fee accrued will be prorated on the basis of the number
of days that this Agreement is in effect during the month.
Part Three: Miscellaneous
(1) Kenwood will be deemed to be an independent contractor and, unless
expressly authorized, will have no authority to act for or represent the
Fund.
(2) AEFC agrees that Kenwood may render investment advice and other services to
other persons that may or may not have investment policies and investments
similar to those of the Fund, and that Kenwood may manage its own
investments, provided that these activities do not impair Kenwood's ability
to render services under this Agreement.
(3) Neither this Agreement nor any transaction under this Agreement will be
invalidated or in any way affected by the fact that directors, officers,
agents and/or shareholders of the Fund are or may be interested in Kenwood
or any successor or assignee, as directors, officers, stockholders or
otherwise; that directors, officers, stockholders or agents of Kenwood are
or may be interested in the Fund as directors, officers, shareholders, or
otherwise; or that Kenwood or any successor or assignee, is or may be
interested in the Fund as shareholder or otherwise, provided, however, that
neither Kenwood, nor any officer, director or employee thereof or of the
Fund, shall sell to or buy from the Fund any property or security other
than shares issued by the Fund, except in accordance with applicable
regulations or orders of the SEC.
(4) Any notice under this Agreement must be given in writing delivered to the
party's principal place of business in Minneapolis, Minnesota, or to
another address as either party may designate in writing to the other.
(5) Kenwood agrees that no officer, director or employee of Kenwood will deal
for or on behalf of the Fund with himself or herself as principal or agent,
or with any corporation or partnership in which he or she may have a
financial interest, except that this shall not prohibit:
(a) Officers, directors or employees of Kenwood from having a financial
interest in the Fund or in Kenwood.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of
whose partners, officers, directors or employees is an officer,
director or employee of Kenwood, provided such transactions are
handled in the capacity of broker only and provided commissions
charged do not exceed customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of Kenwood as
may be allowed by rule or order of the SEC, and if made pursuant to
procedures adopted by the Fund's Board.
(6) Kenwood agrees that, except as herein otherwise expressly provided or as
may be permitted consistent with the use of a broker-dealer affiliate of
Kenwood under applicable provisions of the federal securities laws, neither
it nor any of its officers, directors or employees shall at any time during
the period of this Agreement, make, accept or receive, directly or
indirectly, any fees, profits or emoluments of any character in connection
with the purchase or sale of securities (except shares issued by the Fund)
or other assets by or for the Fund.
(7) Kenwood agrees to protect the confidentiality of any non-public information
provided to it by AEFC or the Fund.
<PAGE>
Part Four: Renewal And Termination
(1) This Agreement, unless terminated under paragraph 2, 3, or 4 below, will
continue in effect from year to year, provided its continued applicability
is specifically approved at least annually (i) by the Board of the Fund or
by a vote of the holders of a majority of the outstanding votes of the Fund
and (ii) by vote of a majority of the Board members who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. As used in this
paragraph, the term "interested person" has the same meaning as set forth
in the 1940 Act, as amended.
(2) This Agreement may be terminated at any time, without penalty, by the Board
of the Fund or by vote of the holders of a majority of the Fund's
outstanding shares, on 60 days' written notice to AEFC or to Kenwood.
(3) AEFC or Kenwood may terminate this Agreement by giving sixty days written
notice to the other party.
(4) This Agreement will terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning set forth in the 1940
Act, as amended.
In Witness Thereof, the parties hereto have executed this Agreement as of the
day and year first above written.
AMERICAN EXPRESS FINANCIAL CORPORATION
By:/s/Peter J. Anderson
Peter J. Anderson
Senior Vice President -Investment Operations
Kenwood Capital Management LLC
By:/s/Jacob D. Hurwitz
Jacob E. Hurwitz
Principal
<PAGE>
EXHIBIT A
With respect to the Fund's assets allocated to Kenwood, AEFC will pay Kenwood a
fee equal on an annual basis as follows:
Fund Fee
AXP Variable Portfolio -
Small Cap Advantage Fund 0.35% of average daily net assets
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 13th day of September, 1999, by and between AXP Variable
Portfolio - Investment Series, Inc. (the "Corporation"), a Minnesota
corporation, on behalf of its underlying series funds: AXP Variable Portfolio -
Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP Variable
Portfolio - Small Cap Advantage Fund (individually a "Fund" and collectively the
"Funds"), and American Express Financial Corporation, a Delaware corporation.
Part One: SERVICES
(1) The Corporation hereby retains American Express Financial Corporation,
and American Express Financial Corporation hereby agrees, for the
period of this Agreement and under the terms and conditions hereinafter
set forth, to furnish the Corporation continuously with all
administrative, accounting, clerical, statistical, correspondence,
corporate and all other services of whatever nature required in
connection with the administration of the Corporation as provided under
this Agreement; and to pay such expenses as may be provided for in Part
Three hereof; subject always to the direction and control of the Board
of Directors, the Executive Committee and the authorized officers of
the Corporation. American Express Financial Corporation agrees to
maintain an adequate organization of competent persons to provide the
services and to perform the functions herein mentioned. American
Express Financial Corporation agrees to meet with any persons at such
times as the Board of Directors deems appropriate for the purpose of
reviewing American Express Financial Corporation's performance under
this Agreement.
(2) The Corporation agrees that it will furnish to American Express
Financial Corporation any information that the latter may reasonably
request with respect to the services performed or to be performed by
American Express Financial Corporation under this Agreement.
(3) It is understood and agreed that in furnishing the Corporation with the
services as herein provided, neither American Express Financial
Corporation, nor any officer, director or agent thereof shall be held
liable to the Corporation or its creditors or shareholders for errors
of judgment or for anything except willful misfeasance, bad faith, or
gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express
Financial Corporation may rely upon information furnished to it
reasonably believed to be accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Corporation agrees to pay to American Express Financial
Corporation, and American Express Financial Corporation covenants and
agrees to accept from the Corporation in full payment for the services
furnished, based on the net assets of the Corporation as set forth in
the following table:
AXP Variable Portfolio - Blue Chip Advantage Fund
Assets Annual Rate at
(billions) each asset level
---------- ----------------
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over 1.00 0.020
<PAGE>
AXP Variable Portfolio - Growth Fund
Assets Annual Rate at
(billions) each asset level
---------- ----------------
First $1.00 0.050%
Next 1.00 0.045
Next 1.00 0.040
Next 3.00 0.035
Over 6.00 0.030
AXP Variable Portfolio - Small Cap Advantage Fund
Assets Annual Rate at
(billions) each asset level
---------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.00 0.040
Over 2.00 0.035
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Corporation recorded on the books of the Corporation for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the
event of the termination of this Agreement, the administrative fee
accrued shall be prorated on the basis of the number of days that this
Agreement is in effect during the month with respect to which such
payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by
the Corporation to American Express Financial Corporation within five
(5) business days after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Corporation agrees to pay:
(a) Administrative fees payable to American Express Financial
Corporation for its services under the terms of this
Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public
accountants for services the Corporation requests.
(d) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against
the Corporation, its directors and officers, (ii) it employs
in conjunction with a claim asserted by the Board of
Directors against American Express Financial Corporation,
except that American Express Financial Corporation shall
reimburse the Corporation for such fees and expenses if
it is ultimately determined by a court of competent
jurisdiction, or American Express Financial Corporation
agrees, that it is liable in whole or in part to the
Corporation, and (iii) it employs to assert a claim against a
third party.
(e) Fees paid for the qualification and registration for public
sale of the securities of the Corporation under the laws of
the United States and of the several states in which such
securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy,
insurance on the premises, furniture and equipment, telephone,
telegraph, electronic information services, books,
periodicals, published services, and office supplies used by
the Corporation, equal to the cost of such incurred by
American Express Financial Corporation.
(g) Fees of consultants employed by the Corporation.
(h) Directors, officers and employees expenses which shall include
fees, salaries, memberships, dues, travel, seminars, pension,
profit sharing, and all other benefits paid to or provided for
directors, officers and employees, directors and officers
liability insurance, errors and omissions liability insurance,
worker's compensation insurance and other expenses applicable
to the directors, officers and employees, except the
Corporation will not pay any fees or expenses of any person
who is an officer or employee of American Express Financial
Corporation or its affiliates.
(i) Filing fees and charges incurred by the Corporation in
connection with filing any amendment to its articles of
incorporation, or incurred in filing any other document with
the State of Minnesota or its political subdivisions.
(j) Organizational expenses of the Corporation.
(k) One-half of the Investment Company Institute membership dues
charged jointly to the American Express(R) Funds and American
Express Financial Corporation.
(l) Expenses properly payable by the Corporation, approved by the Board
of Directors.
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this
Agreement. Further, American Express Financial Corporation agrees that
if, at the end of any month, the expenses of the Corporation under this
Agreement and any other agreement between the Corporation and American
Express Financial Corporation, but excluding those expenses set forth
in (1)(b) of this Part Three, exceed the most restrictive applicable
state expenses limitation, the Corporation shall not pay those expenses
set forth in (1)(a) and (c) through (m) of this Part Three to the
extent necessary to keep the Corporation's expenses from exceeding the
limitation, it being understood that American Express Financial
Corporation will assume all unpaid expenses and bill the Corporation
for them in subsequent months but in no event can the accumulation of
unpaid expenses or billing be carried past the end of the Corporation's
fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized
in this Agreement, shall have no authority to act for or represent the
Corporation.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Corporation recognizes that American Express Financial Corporation
now renders and may continue to render investment advice and other
services to other investment companies and persons which may or may not
have investment policies and investments similar to those of the
Corporation and that American Express Financial Corporation manages its
own investments and/or those of its subsidiaries. American Express
Financial Corporation shall be free to render such investment advice
and other services and the Corporation hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers,
agents and/or shareholders of the Corporation are or may be interested
in American Express Financial Corporation or any successor or assignee
thereof, as directors, officers, stockholders or otherwise; that
directors, officers, stockholders or agents of American Express
Financial Corporation are or may be interested in the Corporation as
directors, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may
be interested in the Corporation as shareholder or otherwise, provided,
however, that neither American Express Financial Corporation, nor any
officer, director or employee thereof or of the Corporation, shall sell
to or buy from the Corporation any property or security other than
shares issued by the Corporation, except in accordance with applicable
regulations or orders of the United States Securities and Exchange
Commission.
(5) Any notice under this Agreement shall be given in writing, addressed,
and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business
in Minneapolis, Minnesota, or to such other address as either party may
designate in writing mailed to the other.
(6) American Express Financial Corporation agrees that no officer, director
or employee of American Express Financial Corporation will deal for or
on behalf of the Corporation with himself as principal or agent, or
with any corporation or partnership in which he may have a financial
interest, except that this shall not prohibit officers, directors or
employees of American Express Financial Corporation from having a
financial interest in the Corporation or in American Express Financial
Corporation.
(7) The Corporation agrees that American Express Financial Corporation may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that American Express Financial
Corporation remains fully responsible for the services.
(8) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent
of the other party. This Agreement shall be governed by the laws of the
State of Minnesota.
<PAGE>
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above
(the "Effective Date") and shall continue in effect from year to year
thereafter as the parties may mutually agree; provided that either
party may terminate this Agreement by giving the other party notice in
writing specifying the date of such termination, which shall be not
less than 60 days after the date of receipt of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Blue Chip Advantage Fund
AXP Variable Portfolio - Growth Fund
AXP Variable Portfolio - Small Cap Advantage Fund
By:/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By:/s/Pamela J. Moret
Pamela J. Moret
Vice President- Variable Assets
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated September 13, 1999, between AXP Variable
Portfolio - Investment Series, Inc., a Minnesota Corporation, (the
"Corporation"), on behalf of its underlying series funds: AXP Variable Portfolio
- - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP
Variable Portfolio - Small Cap Advantage Fund, and American Express Trust
Company, a corporation organized under the laws of the State of Minnesota with
its principal place of business at Minneapolis, Minnesota (the "Custodian").
WHEREAS, the Corporation desires that its securities and cash be hereafter held
and administered by Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Corporation and the Custodian agree as follows:
Section 1. Definitions
The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Corporation, notes, bonds, debentures, evidences of indebtedness, options to buy
or sell stocks or stock indexes, certificates of interest or participation in
any profit-sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts, voting
trust certificates, certificates of deposit for a security, fractional or
undivided interests in oil, gas or other mineral rights, or any certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security. In addition, for the purpose of this Custodian
Agreement, the word "securities" also shall include other instruments in which
the Corporation may invest including currency forward contracts and commodities
such as interest rate or index futures contracts, margin deposits on such
contracts or options on such contracts.
The words "custodian order" shall mean a request or direction, including a
computer printout, directed to the Custodian and signed in the name of the
Corporation by any two individuals designated in the current certified list
referred to in Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Corporation will certify to the Custodian the names and signatures of its
present officers and other designated persons authorized on behalf of the
Corporation to direct the Custodian by custodian order as herein before defined.
The Corporation agrees that whenever any change occurs in this list it will file
with the Custodian a copy of a resolution certified by the Secretary or an
Assistant Secretary of the Corporation as having been duly adopted by the Board
of Directors or the Executive Committee of the Board of Directors of the
Corporation designating those persons currently authorized on behalf of the
Corporation to direct the Custodian by custodian order, as herein before
defined, and upon such filing (to be accompanied by the filing of specimen
signatures of the designated persons) the persons so designated in said
resolution shall constitute the current certified list. The Custodian is
authorized to rely and act upon the names and signatures of the individuals as
they appear in the most recent certified list from the Corporation which has
been delivered to the Custodian as herein above provided.
<PAGE>
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other banks having
not less than two million dollars aggregate capital, surplus and undivided
profits for the custody of securities. Any such bank selected by the Custodian
to act as subcustodian shall be deemed to be the agent of the Custodian.
The Custodian also may enter into arrangements for the custody of securities
entrusted to its care through foreign branches of United States banks; through
foreign banks, banking institutions or trust companies; through foreign
subsidiaries of United States banks or bank holding companies, or through
foreign securities depositories or clearing agencies (hereinafter also called,
collectively, the "Foreign Subcustodian" or indirectly through an agent,
established under the first paragraph of this section, if and to the extent
permitted by Section 17(f) of the Investment Company Act of 1940 and the rules
promulgated by the Securities and Exchange Commission thereunder, any order
issued by the Securities and Exchange Commission, or any "no-action" letter
received from the staff of the Securities and Exchange Commission. To the extent
the existing provisions of the Custodian Agreement are consistent with the
requirements of such Section, rules, order or no-action letter, they shall apply
to all such foreign custodianships. To the extent such provisions are
inconsistent with or additional requirements are established by such Section,
rules, order or no-action letter, the requirements of such Section, rules, order
or no-action letter will prevail and the parties will adhere to such
requirements; provided, however, in the absence of notification from the
Corporation of any changes or additions to such requirements, the Custodian
shall have no duty or responsibility to inquire as to any such changes or
additions.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or accounts in the
name of the Corporation or cause its agent to open and maintain such
account or accounts subject only to checks, drafts or directives by the
Custodian pursuant to the terms of this Agreement. The Custodian or its
agent shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Corporation.
The Custodian or its agent shall make payments of cash to or for the
account of the Corporation from such cash only:
(a) for the purchase of securities for the portfolio of the Corporation
upon the receipt of such securities by the Custodian or its agent
unless otherwise instructed on behalf of the Corporation;
(b) for the purchase or redemption of shares of capital stock of the
Corporation;
(c) for the payment of interest, dividends, taxes, management fees, or
operating expenses (including, without limitation thereto, fees for
legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or redemption fees, if
any;
(e) for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Corporation held by or to
be delivered to the Custodian;
(f) for payments in connection with the return of securities loaned by the
Corporation upon receipt of such securities or the reduction of
collateral upon receipt of proper notice;
(g) for payments for other proper corporate purposes;
(h) or upon the termination of this Agreement.
<PAGE>
Before making any such payment for the purposes permitted under the terms of
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the
Custodian shall receive and may rely upon a custodian order directing such
payment and stating that the payment is for such a purpose permitted under these
items (a), (b), (c), (d), (e), (f) or (g) or, where appropriate, a trade
affirmation report, and that in respect to item (g), a copy of a resolution of
the Board of Directors or of the Executive Committee of the Board of Directors
of the Corporation signed by an officer of the Corporation and certified by its
Secretary or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose to be a proper corporate purpose, and naming the
person or persons to whom such payment is made. Notwithstanding the above, for
the purposes permitted under items (a) or (f) of paragraph (1) of this section,
the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the Corporation
to endorse and collect all checks, drafts or other orders for the payment
of money received by the Custodian for the account of the Corporation and
drawn on or to the order of the Corporation and to deposit same to the
account of the Corporation pursuant to this Agreement.
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the Custodian or
its agent shall hold in a separate account or accounts, and physically
segregated at all times from those of any other persons, firms or corporations,
pursuant to the provisions hereof, all securities received by it for the account
of the Corporation. The Custodian shall record and maintain a record of all
certificate numbers. Securities so received shall be held in the name of the
Corporation, in the name of an exclusive nominee duly appointed by the Custodian
or in bearer form, as appropriate.
Subject to such rules, regulations or guidelines as the Securities and Exchange
Commission may adopt, the Custodian may deposit all or any part of the
securities owned by the Corporation in a securities depository which includes
any system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities.
All securities are to be held or disposed of by the Custodian for, and subject
at all times to the instructions of, the Corporation pursuant to the terms of
this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities, except pursuant
to the directive of the Corporation and only for the account of the Corporation
as set forth in Section 6 of this Agreement.
Section 6. Transfer Exchange, Delivery, etc. of Securities
The Custodian shall have sole power to release or deliver any securities of the
Corporation held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it or its agent hereunder only:
(a) for sales of such securities for the account of the Corporation, upon
receipt of payment therefor;
(b) when such securities are called, redeemed, retired or otherwise become
payable;
(c) for examination upon the sale of any such securities in accordance with
"street delivery" custom which would include delivery against interim
receipts or other proper delivery receipts;
(d) in exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of
(e) merger, consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(f) for the purpose of exchanging interim receipts or temporary certificates
for permanent certificates;
<PAGE>
(g) upon conversion of such securities pursuant to their terms into other
securities;
(h) upon exercise of subscription, purchase or other similar rights represented
by such securities; for loans of such securities by the Corporation upon
receipt of collateral; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f), (g) and (h), securities or cash received in exchange therefore shall
be delivered to the Custodian, its agent, or to a securities depository. Before
making any such transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Corporation requesting such transfer,
exchange or delivery and stating that it is for a purpose permitted under
Section 6 or, where appropriate, a trade affirmation report, (whenever a
facsimile is utilized, the Corporation will also deliver an original signed
custodian order) and, in respect to item (i), a copy of a resolution of the
Board of Directors or of the Executive Committee of the Board of Directors of
the Corporation signed by an officer of the Corporation and certified by its
Secretary or an Assistant Secretary, specifying the securities, setting forth
the purpose for which such payment, transfer, exchange or delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming the
person or persons to whom such transfer, exchange or delivery of such securities
shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order from the
Corporation, the Custodian shall or shall cause its agent to:
(a) present for payment all coupons and other income items held by the
Custodian or its agent for the account of the Corporation which call for
payment upon presentation and hold all cash received by it upon such
payment for the account of the Corporation;
(b) present for payment all securities held by it or its agent which mature or
when called, redeemed, retired or otherwise become payable;
(c) ascertain all stock dividends, rights and similar securities to be issued
with respect to any securities held by the Custodian or its agent
hereunder, and to collect and hold for the account of the Corporation all
such securities; and
(d) ascertain all interest and cash dividends to be paid to security holders
with respect to any securities held by the Custodian or its agent, and to
collect and hold such interest and cash dividends for the account of the
Corporation.
Section 8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any of the
securities held hereunder by or for the account of the Corporation. The
Custodian shall promptly deliver to the Corporation all notices, proxies and
proxy soliciting materials with relation to such securities, such proxies to be
executed by the registered holder of such securities (if registered otherwise
than in the name of the Corporation), but without indicating the manner in which
such proxies are to be voted.
Custodian shall transmit promptly to the Corporation all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Custodian
from issuers of the securities being held for the Corporation. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Corporation all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer.
<PAGE>
Section 9. Transfer Taxes
The Corporation shall pay or reimburse the Custodian for any transfer taxes
payable upon transfers of securities made hereunder, including transfers
resulting from the termination of this Agreement. The Custodian shall execute
such certificates in connection with securities delivered to it under this
Agreement as may be required, under any applicable law or regulation, to exempt
from taxation any transfers and/or deliveries of any such securities which may
be entitled to such exemption.
Section 10. Custodian's Reports
The Custodian shall furnish the Corporation as of the close of business each day
a statement showing all transactions and entries for the account of the
Corporation. The books and records of the Custodian pertaining to its actions as
Custodian under this Agreement and securities held hereunder by the Custodian
shall be open to inspection and audit by officers of the Corporation, internal
auditors employed by the Corporation's investment adviser, and independent
auditors employed by the Corporation. The Custodian shall furnish the
Corporation in such form as may reasonably be requested by the Corporation a
report, including a list of the securities held by it in custody for the account
of the Corporation, identification of any subcustodian, and identification of
such securities held by such subcustodian, as of the close of business of the
last business day of each month, which shall be certified by a duly authorized
officer of the Custodian. It is further understood that additional reports may
from time to time be requested by the Corporation. Should any report ever be
filed with any governmental authority pertaining to lost or stolen securities,
the Custodian will concurrently provide the Corporation with a copy of that
report.
The Custodian also shall furnish such reports on its systems of internal
accounting control as the Corporation may reasonably request from time to time.
Section 11. Concerning Custodian
For its services hereunder the Custodian shall be paid such compensation at such
times as may from time to time be agreed on in writing by the parties hereto in
a Custodian Fee Agreement.
The Custodian shall not be liable for any action taken in good faith upon any
custodian order or facsimile herein described, trade affirmation report, or
certified copy of any resolution of the Board of Directors or of the Executive
Committee of the Board of Directors of the Corporation, and may rely on the
genuineness of any such document which it may in good faith believe to have been
validly prepared or executed.
The Corporation agrees to indemnify and hold harmless Custodian and its nominee
from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or its nominee in
connection with the performance of this Agreement, except such as may arise from
the Custodian's or its nominee's own negligent action, negligent failure to act
or willful misconduct. Custodian is authorized to charge any account of the
Corporation for such items. In the event of any advance of cash for any purpose
made by Custodian resulting from orders or instructions of the Corporation, or
in the event that Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Corporation shall be
security therefor.
The Custodian shall maintain a standard of care equivalent to that which would
be required of a bailee for hire and shall not be liable for any loss or damage
to the Corporation resulting from participation in a securities depository
unless such loss or damage arises by reason of any negligence, misfeasance, or
willful misconduct of officers or employees of the Custodian, or from its
failure to enforce effectively such rights as it may have against any securities
depository or from use of an agent, unless such loss or damage arises by reason
of any negligence, misfeasance, or willful misconduct of officers or employees
of the Custodian, or from its failure to enforce effectively such rights as it
may have against any agent.
<PAGE>
Section 12. Termination and Amendment of Agreement
The Corporation and the Custodian mutually may agree from time to time in
writing to amend, to add to, or to delete from any provision of this Agreement.
The Custodian may terminate this Agreement by giving the Corporation ninety
days' written notice of such termination by registered mail addressed to the
Corporation at its principal place of business.
The Corporation may terminate this Agreement at any time by written notice
thereof delivered, together with a copy of the resolution of the Board of
Directors authorizing such termination and certified by the Secretary of the
Corporation, by registered mail to the Custodian.
Upon such termination of this Agreement, assets of the Corporation held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Corporation, upon receipt by the Custodian of a copy
of the resolution of the Board of Directors of the Corporation certified by the
Secretary, showing appointment of the successor custodian, and provided that
such successor custodian is a bank or trust company, organized under the laws of
the United States or of any State of the United States, having not less than two
million dollars aggregate capital, surplus and undivided profits. Upon the
termination of this Agreement as a part of the transfer of assets, either to a
successor custodian or otherwise, the Custodian will deliver securities held by
it hereunder, when so authorized and directed by resolution of the Board of
Directors of the Corporation, to a duly appointed agent of the successor
custodian or to the appropriate transfer agents for transfer of registration and
delivery as directed. Delivery of assets on termination of this Agreement shall
be effected in a reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the successor custodian,
the Custodian shall continue to act as such under this Agreement as to assets in
its possession or control. Termination as to each security shall become
effective upon delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor custodian, and
such delivery shall constitute effective delivery by the Custodian to the
successor under this Agreement.
In addition to the means of termination herein before authorized, this Agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Corporation and after written notice of such action to the
Custodian.
<PAGE>
Section 13. General
Nothing expressed or mentioned in or to be implied from any provision of this
Agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
This Agreement shall be governed by the laws of the State of Minnesota.
AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Blue Chip Advantage Fund
AXP Variable Portfolio - Growth Fund
AXP Variable Portfolio - Small Cap Advantage Fund
By:/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS TRUST COMPANY
By:/s/ChandraKant A. Patel
ChandraKant A. Patel
Vice President
October 28, 1999
AXP Variable Portfolio - Investment Series, Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of AXP Variable
Portfolio - Investment Series, Inc. (the Company) and all necessary
certificates, permits, minute books, documents and records of the Company, and
the applicable statutes of the State of Minnesota, and it is my opinion that the
shares sold in accordance with applicable federal and state securities laws will
be legally issued, fully paid, and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268
Independent auditors' consent
The board and shareholders
AXP Variable Portfolio Investment Series, Inc.
AXP Variable Portfolio - Capital Resource Fund
AXP Variable Portfolio - International Fund
AXP Variable Portfolio - New Dimensions Fund
AXP Variable Portfolio - Strategy Aggressive Fund
AXP Variable Portfolio Income Series, Inc.
AXP Variable Portfolio - Bond Fund
AXP Variable Portfolio - Extra Income Fund
AXP Variable Portfolio - Global Bond Fund
AXP Variable Portfolio Money Market Series, Inc.
AXP Variable Portfolio - Cash Management Fund
AXP Variable Portfolio Managed Series, Inc.
AXP Variable Portfolio - Managed Fund:
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG LLP
Minneapolis, Minnesota
October 28, 1999
Plan and Agreement of Distribution
This Plan and Agreement of Distribution ("Plan") is between AXP Variable
Portfolio - Investment Series, Inc. on behalf of its series of capital stock,
AXP Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio -
Growth Fund and AXP Variable Portfolio - Small Cap Advantage Fund, a registered
management investment company, ("the Portfolio") and IDS Life Insurance Company
("IDS Life"). It is effective September 13, 1999.
This Plan provides that:
1. IDS Life will purchase the Portfolio's shares on behalf of its separate
accounts and the separate accounts of its affiliated life insurance
companies established for the purpose of funding variable life insurance,
annuity contracts or both (collectively referred to as "Variable
Contracts"). Additionally, IDS Life may offer the Portfolio's shares to one
or more unaffiliated life insurance companies ("Unaffiliated Life
Companies") for purchase on behalf on certain of their separate accounts
established for the purpose of funding Variable Contracts.
2. The Portfolio will reimburse IDS Life up to 0.125% of its daily net assets
for various costs paid and accrued in connection with the distribution of
the Portfolio's shares and for services provided to existing and
prospective Variable Contract owners. Payments made under the Plan are
based on budgeted expenses and shall be made within five (5) business days
after each month. At the end of each calendar year, IDS Life shall furnish
a declaration setting out the actual expenses it has paid and accrued. Any
money that has been paid in excess of the amount of these expenses shall be
returned to the Portfolio.
3. IDS Life represents that the money paid by the Portfolio will benefit the
variable Contract owners and not the separate accounts that legally own the
shares and be for the following:
(a) printing and mailing prospectuses, Statements of Additional
Information, supplements, and reports to existing and prospective
Variable Contract owners;
(b) preparation and distribution of advertisement, sales literature,
brokers' materials and promotional materials relating to the
Portfolio;
(c) presentation of seminars and sales meetings describing or relating to
the Portfolio;
(d) training sales personnel regarding the Portfolio;
(e) compensation of sales personnel for sale of the Portfolio's shares;
(f) compensation of sales personnel for assisting Variable Contract owners
with respect to the Portfolio shares;
(g) overhead of IDS Life and its affiliates appropriately allocated to the
promotion of sale of the Portfolio's shares; and
(h) any activity primarily intended to result in the sale of the
Portfolio's shares, including payments to Unaffiliated Life Companies.
4. IDS Life shall provide all information relevant and necessary for the Board
to make informed determinations about whether the Plan should be continued
and shall:
(a) submit quarterly a report that sets out the expenses paid or accrued
by it, the names of the Unaffiliated Life Companies to whom the
Portfolio's shares are sold, and the payments made to each
Unaffiliated Life Company that has been reimbursed;
(b) monitor the level and quality of services provided by it and all
affiliated companies and will use its best efforts to assure that in
each case legitimate services are rendered in return for the
reimbursement pursuant to the Plan ;and
(c) meet with the Portfolio's representatives, as reasonably requested, to
provide additional information.
5. IDS Life represents that it and all affiliated insurance company sponsors
will provide full disclosure of the Portfolio's 12b-1 Plan in the
prospectus for any separate account investing in the Portfolio and will
clearly communicate the combined effect of all fees and costs, including
the reimbursement under the 12b-1 Plan, imposed by the separate account and
the Portfolio in accordance with applicable laws.
6. All payments by IDS Life to Unaffiliated Life Companies shall be made
pursuant to a written agreement (Related Agreement). All such written
agreements will be in a form approved by a majority of the Portfolio's
independent members of the board and the board as a whole before it shall
be used. The Related Agreement shall:
(a) require full disclosure of the combined effect of all fees and charges
in accordance with applicable laws;
(b) provide for the termination at any time without penalty as required by
Rule 12b-1; and
(c) continue so long as its continuance is done in accordance with the
requirements of Rule 12b-1.
7. The Portfolio represents that the Plan has been approved as required by
Rule 12b-1 and may continue for more than one year so long as it is
continued as required by Rule 12b-1 and shall terminate automatically in
the event of an assignment.
8. The Plan may not be amended to materially increase the amount of the
payments without the approval of the outstanding voting securities.
AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Blue Chip Advantage Fund
AXP Variable Portfolio - Growth Fund
AXP Variable Portfolio - Small Cap Advantage Fund
/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
IDS LIFE INSURANCE COMPANY
/s/Pamela J. Moret
Pamela J. Moret
Executive Vice President, Variable Assets
