American
Express(R)
Variable
Portfolio
Funds
2000 ANNUAL REPORT
References to "Fund" throughout this annual report refer to AXPSM Variable
Portfolio - Blue Chip Advantage Fund, AXPSM Variable Portfolio - Bond Fund,
AXPSM Variable Portfolio - Capital Resource Fund, AXPSM Variable Portfolio -
Cash Management Fund, AXPSM Variable Portfolio - Diversified Equity Income Fund,
AXPSM Variable Portfolio - Emerging Markets Fund, AXPSM Variable Portfolio Extra
Income Fund, AXPSM Variable Portfolio - Federal Income Fund, AXPSM Variable
Portfolio - Global Bond Fund, AXPSM Variable Portfolio - Growth Fund, AXPSM
Variable Portfolio - International Fund, AXPSM Variable Portfolio - Managed
Fund, AXPSM Variable Portfolio - New Dimensions Fund(R), AXPSM Variable
Portfolio - S&P 500 Index Fund, AXPSM Variable Portfolio - Small Cap Advantage
Fund, AXPSM 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 variable life insurance
contract (the contracts) and allocating your purchase payments to the variable
subaccount or variable account (the subaccounts) that invests in the Fund.
This annual report may contain information on Funds not available under
your variable annuity or variable life insurance contract. Please refer to your
variable annuity or variable life insurance prospectus for information regarding
the investment options available to you.
(This annual report includes a prospectus that describes in detail the
Funds' objectives, investment strategies, risks, sales charges, fees and other
matters of interest. Please read the prospectus carefully before you invest or
send money.)
AMERICAN
EXPRESS(R) (logo)
Managed by IDS Life Insurance Company
<PAGE>
The American Express Variable Portfolio (AXP VP) Funds provide several
alternatives to consider for investment through your variable annuity or
variable life insurance contracts.
Table of Contents
2000 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 3
AXP Variable Portfolio-Blue Chip Advantage Fund 4
From the Portfolio Managers 4
The 10 Largest Holdings 5
The Fund's Long-term Performance 5
AXP Variable Portfolio-Bond Fund 6
From the Portfolio Managers 6
The 10 Largest Holdings 7
The Fund's Long-term Performance 7
AXP Variable Portfolio-Capital Resource Fund 8
From the Portfolio Manager 8
The 10 Largest Holdings 9
The Fund's Long-term Performance 9
AXP Variable Portfolio - Cash Management Fund 10
From the Portfolio Manager 10
AXP Variable Portfolio-Diversified EquityIncome Fund 10
From the Portfolio Manager 10
The 10 Largest Holdings 11
The Fund's Long-term Performance 11
AXP Variable Portfolio - Emerging Markets Fund 12
From the Portfolio Manager 12
The 10 Largest Holdings 13
AXP Variable Portfolio -Extra Income Fund 14
From the Portfolio Managers 14
The 10 Largest Holdings 15
The Fund's Long-term Performance 15
AXP Variable Portfolio - Federal Income Fund 16
From the Portfolio Manager 16
The Fund's Long-term Performance 17
AXP VariablePortfolio - Global Bond Fund 18
From the Portfolio Managers 18
The 10 Largest Holdings 19
The Fund's Long-term Performance 19
AXP Variable Portfolio - Growth Fund 20
From the Portfolio Manager 20
The 10 Largest Holdings 21
The Fund's Long-term Performance 21
AXP Variable Portfolio - International Fund 22
From the Portfolio Managers 22
The 10 Largest Holdings 23
The Fund's Long-term Performance 23
AXP Variable Portfolio - Managed Fund 24
From the Portfolio Managers 24
The 10 Largest Holdings 25
The Fund's Long-term Performance 25
AXP Variable Portfolio - New Dimensions Fund 26
From the Portfolio Manager 26
The 10 Largest Holdings 27
The Fund's Long-term Performance 27
AXP Variable Portfolio - S&P 500 Index Fund 28
From the Portfolio Manager 28
The 10 Largest Holdings 29
AXP Variable Portfolio - Small Cap Advantage Fund 30
From the Portfolio Managers 30
The 10 Largest Holdings 31
The Fund's Long-term Performance 31
AXP Variable Portfolio - Strategy Aggressive Fund 32
From the Portfolio Manager 32
The 10 Largest Holdings 33
The Fund's Long-term Performance 33
Independent Auditors' Report 34
Financial Statements 35
Notes to Financial Statements 51
Investments in Securities 67
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of
the prospectus)
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
The financial markets have always had their ups
and downs, but in recent months volatility has become more frequent and intense.
While no one can say with certainty what the markets will do, American Express
Financial Corporation, the Fund's investment manager, expects economic growth to
continue this year, accompanied by a modest rise in long-term interest rates.
But no matter what transpires, this is a great time to take a close look at your
goals and investments. We encourage you to:
o Consult a professional investment advisor who can help you cut through
mountains of data.
o Set financial goals that extend beyond those achievable through retirement
plans of your employer.
o Learn as much as you can about your current investments.
The portfolio managers' letters that follow provide a review of the Fund's
investment strategies and performance. The annual report contains other valuable
information as well. The Fund's prospectus describes its investment objectives
and how it intends to achieve those objectives. As experienced investors know,
information is vital to making good investment decisions.
So, take a moment and decide again whether the Fund's investment objectives and
management style fit with your other investments to help you reach your
financial goals. And make it a practice on a regular basis to assess your
investment options.
On behalf of the Board,
Arne H. Carlson
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Keith Tufte
Keith Tufte
Portfolio Manger
(picture of)James M. Johnson, Jr.
James M. Johnson, Jr.
Portfolio Manager
From the Portfolio Managers
AXP VP - Blue Chip Advantage Fund
The Fund had a productive fiscal year, as it benefited from a stock-market
surge last fall and winter. For its initial reporting period -- Sept. 15, 1999
(date the Fund became available) through August 2000 -- the Fund generated a
total return of 19.13%. (This figure does not reflect expenses that apply to the
subaccounts or the contracts.)
The stock market was in a slump when the period began, as investors worried that
long-term interest rates might continue on an upward trend. But by mid-October,
fresh reports of still-tame inflation and generally good corporate profits had
arrived to put investors in a much-improved mood. The result was a resounding
rally that continued through the end of 1999 and into the early days of the new
year.
The market was forced to give up some of its gains during the spring, in the
face of concerns about interest rates, inflation and the sustainability of
sky-high prices on many stocks. Then, after essentially treading water over the
summer, stocks rebounded in August to finish the period on an encouraging note.
For the most part, technology-related stocks determined the market's direction
during the period. That worked to the Fund's advantage, as those issues
comprised its largest area of investment (up to about a third of the portfolio
at times). Looking at specific holdings, Cisco Systems, EMC, Nortel Networks,
Intel and Oracle were among the biggest and most productive names. As the period
progressed, we reduced the technology holdings a bit by taking profits in some
stocks that had experienced especially sharp run-ups.
Looking at other stock groups, transportation, financial services, health care
and retailing all provided good-to-strong gains, with stocks such as Southwest
Airlines, Capital One Financial and Best Buy among the Fund's biggest winners.
On the other hand, telecommunications and basic materials were especially weak.
About mid-period we shifted more money into health care stocks and
basic-materials stocks such as paper and chemicals.
As the new fiscal year begins, the stock market continues to be confronted by
uncertainty regarding inflation, the Federal Reserve's policy regarding interest
rates, the strength of corporate profits and the presidential election. But, and
this is probably the most important factor, the economy appears to remain on
solid ground. Therefore, as the year progresses, we think that holding stocks of
high-quality companies with relatively predictable profits will prove rewarding
for the Fund.
Keith Tufte
James M. Johnson, Jr.
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Blue Chip Advantage Fund
$20,000
X $12,190
AXP VP - Blue
Chip Advantage
Fund
X Lipper
Large-Cap Core Index
X S&P 500 Index
10,000
10/1/99 10/99 11/99 12/99 1/00 2/00 3/00 4/00 5/00 6/00 7/00 8/00
(The printed version of the chart contains a line graph with 3 lines
correspinding to the two indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Blue Chip Advantage Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Cisco Systems 3.73% $2,658,486
Intel 3.18 2,265,717
General Electric 3.09 2,201,955
Microsoft 2.41 1,720,180
Exxon Mobil 2.37 1,693,637
Pfizer 2.26 1,613,873
Oracle 2.23 1,592,770
Intl Business Machines 1.99 1,419,000
EMC 1.90 1,358,280
Citigroup 1.72 1,226,653
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 24.88% of net assets.
The Fund's Long-term Performance
AXP VP-Blue Chip Advantage Fund
Average Annual Total Returns (as of Aug. 31, 2000)
Since inception*
+19.13%
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Standard & Poor's 500 Composite Price
Index (S&P 500 Index) and the Lipper Large-Cap Core Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
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 companies may be generally larger than those
in which the Fund invests.
Lipper Large-Cap Core Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Fred Quirsfeld
Fred Quirsfled
Portfolio Manager
(picture of) Ray Goodner
Ray Goodner
Portfolio Manager
From the Portfolio Managers
AXP VP - Bond Fund
Concerns about higher interest rates and potentially higher inflation made
for an often-difficult environment for corporate bonds during the past 12
months. Still, the AXP VP - Bond Fund did produce a positive total return of
4.69% for its fiscal year -- September 1999 through August 2000. (This figure
does not reflect expenses that apply to the subaccounts or the contracts.)
Thanks to a remarkably robust economy and a run-up in oil prices, the
possibility of higher inflation weighed on the minds of bond investors
throughout the period. And while there would ultimately be only modest evidence
that inflation was picking up, the Federal Reserve (the Fed) made it clear that
it was concerned about the inflation risk when it raised short-term interest
rates six times during the fiscal year.
The initial repercussion was that long-term interest rates climbed substantially
from last fall through last January, taking a toll on bond prices in the
process. The Fund was somewhat shielded from the negative effect of the
interest-rate rise by our decision to keep the portfolio's average maturity
relatively short early in the period. Still, the Fund did experience some
erosion of its net asset value.
February marked the beginning of a strong rally by U.S. Treasury bonds and a
commensurate decline in long-term interest rates. But corporate and
mortgage-backed bonds continued to languish under the cloud of Fed rate
increases and the possibility of an eventual slowdown in economic growth. The
period ended on an encouraging note, though, as a brighter outlook for corporate
bonds emerged during July and August, helping the Fund to rebound nicely.
As always, the largest area of investment for the Fund was corporate bonds,
including investment-grade and high-yield issues. The rest of the portfolio was
composed of mortgage-backed and U.S. Treasury bonds, plus a small amount of
convertible and emerging-market bonds. Overall, about three-fourths of the
portfolio was invested in issues rated investment grade, one-fourth in below
investment grade.
The most notable change to the asset mix was a reduction in high-yield corporate
issues, which were especially poor performers, and an increase in
investment-grade corporate and U.S. Treasury bonds. In addition, we lengthened
the portfolio's average maturity last summer as it appeared that the Fed's
interest-rate increases were coming to an end. Those strategies enhanced
performance late in the period.
As the new fiscal year begins, we continue to look forward to an improving bond
environment, especially for higher-quality issues. The economy is showing signs
of slowing down, which should take some pressure off inflation and, in turn,
persuade the Fed that further interest-rate increases may not be necessary. In
light of that, we plan to maintain our recent emphasis on quality and a slightly
aggressive maturity structure.
Fred Quirsfeld
Ray Goodner
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Bond Fund
$30,000
X $22,250
AXP VP-Bond Fund
$20,000
X Lipper Corporate Debt-BBB
rated Index
X Lehman Brothers
Aggregate Bond Index
$10,000
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
(The printed version of the chart contains a line graph with 3 lines
correspinding to the two indexes and Fund noted above.)
10 Largest Holdings
AXP VP - Bond Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Federal Republic of Germany
7.50% 2004 .98% $14,394,243
Govt of Canada
5.25% 2008 .93 13,580,265
BellSouth Capital Funding
7.88% 2030 .81 11,959,103
Hydro-Quebec
8.50% 2029 .76 11,153,400
Cleveland Electric Illuminating
9.50% 2005 .76 11,145,310
Nationwide CSN Trust
9.88% 2025 .75 10,936,999
CSC Holdings
10.50% 2016 .73 10,749,999
News America Holdings
10.13% 2012 .72 10,537,300
Veninfotel
10.00% 2002 .71 10,483,742
Wal-Mart CRAVE Trust
7.00% 2006 .68 10,042,108
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 7.83% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Bond Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year 5 years 10 years
+4.69% +5.27% +8.33%
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Lehman Brothers Aggregate Bond Index and
the Lipper Corporate Debt - BBB rated Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guaranteeof future results. The above graph does not reflect expenses that apply
to the subaccounts or the contracts.
Lehman Brothers Aggregate Bond Index, an unmanaged index, is 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.
Lipper Corporate Debt - BBB rated Index, an unmanaged index
published by Lipper Inc., includes the 30 largest funds that are generally
similar to the Fund, although some funds in the index may have somewhat
different investment policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Betty Tebault
Betty Tebault
Portfolio Manager
From the Portfolio Manager
AXP VP - Capital Resource Fund
It was a volatile but ultimately productive 12 months for the stock market
and the Fund. For the fiscal year -- September 1999 through August 2000 -- the
Fund generated a total return of 19.26%. (This figure does not reflect expenses
that apply to the subaccounts or the contracts.)
After an initial setback, the stock market gained support from reports of tame
inflation, healthy economic growth and generally good corporate profits.
Increasing excitement about the potential for the Internet soon supplied
additional momentum, resulting in a tremendous rally that carried the market to
an all-time high in early January.
At that point, concerns about inflation, interest rates and the sustainability
of sky-high prices for many stocks began to cast a cloud over the market, which
responded by retreating steadily during the spring. The period ended on an up
note, though, as stocks regained some lost ground in August.
The Fund's performance generally tracked that of the broad market -- gaining
strongly during the fall and early winter before slumping in the spring. Making
the biggest contribution to performance during the year were technology-related
stocks, which comprised the Fund's largest area of investment. Prominent winners
included Jabil and JDS Uniphase.
Looking at other sectors, financial services, health care and energy also
provided good overall results. Poor performers, on the other hand, included
consumer products, telecommunications, retailing and cyclical stocks.
As for changes to the holdings, upon becoming the sole manager of the Fund in
February, I began lowering the exposure to cyclical, retailing and consumer
stocks, while adding to financial services and media. Beyond those shifts, I
reduced the number of holdings, as I think a more focused portfolio offers
greater opportunity to enhance performance.
At this point, it appears that the economy is slowing down somewhat, which
probably will mean less-robust corporate profits in the new fiscal year. If so,
I think investors may have to settle for more moderate performance from the
stock market. What I find most encouraging is that the market also has been
"broadening out," meaning that a greater variety of stocks are making gains.
Ultimately, I think that could lead to a healthier market that is more likely to
reward patient investors.
Betty Tebault
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Capital Resource Fund
$70,000
$60,000
$50,000
X $46,850
AXP VP-Capital
Resource Fund
$40,000
X S&P 500 Index
$30,000
$20,000
$10,000
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
(The printed version of the chart contains a line graph with 2 lines
correspinding to the one index and Fund noted above.)
The 10 Largest Holdings
AXP VP - Capital Resource Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Corning 4.95% $293,131,198
General Electric 4.42 261,746,250
Intel 4.05 239,600,000
Tyco Intl 3.56 210,900,000
Cisco Systems 3.24 191,799,999
Citigroup 2.96 175,125,000
Pfizer 2.89 171,378,124
Enron 2.87 169,750,000
American Intl Group 2.54 150,175,625
Jabil Circuit 2.31 136,558,750
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 33.79% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Capital Resource Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year 5 years 10 years
+19.26% +17.45% +16.70%
On the graph above you can see how the Fund's total return compared to a widely
cited performance index, the S&P 500 Index.
Your investment and return values fluctuate so that your accumulation units,
when redeemed, may be worth more or less than their original cost. This was a
period of widely fluctuating security prices. Past performance is no guarantee
of future results. The above graph does not reflect expenses that apply to the
subaccounts or the contracts.
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 companies may be generally larger than those
in which the Fund invests.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Terry Fettig
Terry Fettig
Portfolio Manager
From the Portfolio Manager
AXP VP - Cash Management Fund
The Fund's yield increased during the past 12 months, reflecting a rise in
short-term interest rates. For the fiscal year -- September 1999 through August
2000 -- the Fund generated a total return of 5.52%. (This figure does not
reflect expenses that apply to the subaccounts or the contracts.) The seven-day
yield was 6.38%. (The yield more closely reflects the current earnings of the
money market fund than does total return.) In keeping with its objective, the
Fund maintained a $1 per share price throughout the period. (An investment in
the Fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Fund seeks to preserve
the value of your investment at $1 per share, it is possible to lose money by
investing in the Fund.)
With the economy continuing to grow at a rapid rate and higher costs
showing up in some business sectors, especially oil, the possibility of an
upturn in inflation made investors increasingly uneasy during the 12 months. The
Federal Reserve (Fed) evidently shared that concern, as it raised short-term
interest rates six times over the period.
(By way of background, the Fed adjusts short-term interest rates based
largely on the condition of the economy and the inflation outlook. When the
economy appears weak and inflation is low, the Fed usually reduces rates to
stimulate economic growth. Conversely, when the economy is especially strong and
inflation threatens to pick up, the Fed usually raises rates to rein in economic
growth and thereby keep inflation in check.)
In response to the Fed's rate hikes, issuers of commercial paper -- the
core of the Fund's investment portfolio -- increased the interest rates on their
securities. As these new securities were added to the portfolio, the result was
a gradual increase in the Fund's yield. To more readily take advantage of the
higher yields that became available, I kept the average maturity of the
portfolio relatively short -- in the 30- to 45-day range. This allowed me to add
new securities sooner than would have been possible with a longer average
maturity.
Looking toward the new fiscal year, the data reflect a moderate upturn
in inflation while the economy appears to be slowing down somewhat. Therefore,
unless upcoming data indicate a notable change in those conditions, I think
we'll see slightly higher short-term interest rates in the months ahead as the
Fed maintains its vigilance on inflation. In keeping with that outlook, my
near-term plan is to stay with the investment approach I employed during the
past fiscal year.
Terry Fettig
<PAGE>
(picture of) Keith Tufte
Keith Tufte
Portfolio Manager
From the Portfolio Manager
AXP VP - Diversified Equity
Income Fund
The Fund recovered from a bad start and ultimately finished in positive
territory for the past fiscal year. For the 12 months -- Sept. 15, 1999 (date
the Fund became available) through August 2000 -- the Fund generated a return of
4.21%. (This figure does not reflect expenses that apply to the subaccounts or
the contracts.)
After a shaky start, the stock market quickly got back on track as
investors, encouraged by reports of still-tame inflation and generally good
corporate profits, moved back into stocks in the fall. Adding greatly to the
optimism was increasing excitement about the potential of the Internet, which
soon turned the market's advance into a runaway rally. The positive momentum
continued through December and into early January, taking the market to an
all-time high.
By that time, concerns about inflation, interest rates and the
sustainability of lofty prices on many stocks also had risen, and by mid-March
the market had begun a several-week retreat. But, following an uneventful few
months, stocks finished the period in positive fashion with a rebound in August.
As has been the case in recent years, the market's advances were most often led
by growth stocks, particularly technology-related issues -- quite the opposite
of the value-oriented emphasis of the Fund. As a result, the Fund was
essentially left behind during the market's fall/winter surge. On the other
hand, the Fund held up relatively well during the spring sell-off.
Looking at the Fund's holdings, the biggest and most productive area of
investment was financial services, which includes banks and insurance companies.
Other major areas included energy, which, thanks to higher oil prices, provided
positive performance, and industrials and telecommunications, which were
negative performers. The most notable change to the portfolio was an increase in
financial services stocks, which I made soon after becoming manager of the Fund
in May. I expect that group to continue to do well as investors anticipate an
end to the Federal Reserve's interest-rate increases.
As for the current fiscal year, I'm encouraged by the recent "broadening
out" of the market -- that is, a greater variety of stocks, especially in the
financial and energy areas participating in market upturns. It could signal
improving performance by value stocks, which in turn would be good news for the
Fund.
Keith Tufte
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Diversified Equity Income Fund
$20,000
X S&P 500 Index
X Russel 1000(R) Value Index
X $10,619
AXP VP-
Diversified
Equity
Income Fund
X Lipper Equity Income Funds Index
$10,000
10/1/99 10/99 11/99 12/99 1/00 2/00 3/00 4/00 5/00 6/00 7/00 8/00
(The printed version of the chart contains a line graph with 4 lines
correspinding to the three indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Diversified Equity Income Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Citigroup 4.72% $1,074,177
Exxon Mobil 3.53 804,379
American Intl Group 3.49 796,065
Chevron 2.83 645,158
Bank of America 2.74 625,171
Morgan Stanley, Dean Witter,
Discover & Co 2.53 575,947
FleetBoston Financial 2.38 541,655
Providian Financial 2.33 530,526
Alliance Capital Management Holding LP 2.24 511,030
Wells Fargo 2.09 476,658
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 28.88% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Diversified Equity Income Fund
Average Annual Total Returns (as of Aug. 31, 2000)
Since inception*
+4.21%
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the S&P 500 Index, the Russell 1000(R) Value
Index and the Lipper Equity Income Funds Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
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 companies may be generally larger than those
in which the Fund invests.
Russell 1000(R) Value Index, an unmanaged index, measures the performance
of those Russell 1000 companies lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value Index.
Lipper Equity Income Funds Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Julian Thompson
Julian Thompson
Portfolio Manager
From the Portfolio Manager
AXP VP - Emerging Markets Fund
In a difficult environment for stocks in virtually all emerging markets,
the Fund experienced a loss of 6.03% during its initial reporting period -- May
1 (date the Fund became available) through August 2000. (This figure does not
reflect expenses that apply to the subaccounts or the contracts.)
The period began with the emerging markets feeling the ill effects of a
technology-led downturn in the U.S. stock market. Technology stocks were under
pressure because of concerns about potentially higher inflation, rising interest
rates and whether companies could continue to generate enough earnings growth to
justify extremely high stock prices. Because technology-related stocks are the
dominant sector in many emerging markets and because those markets have a strong
correlation to the performance of the U.S. stock market, particularly the
Nasdaq, prices were under considerable pressure in May.
A better mood returned to the markets in June, resulting in positive performance
for the month. But worries about a slowdown in corporate earnings resurfaced in
July and drove down prices again. The period did end on a good note, however, as
expectations that the Federal Reserve may have finished raising interest rates
lifted the markets in August.
All told, I held investments in about 20 countries. On a regional basis, the
biggest area of investment was Asia (including China, South Korea, Taiwan,
Thailand and India), Latin America (chiefly Brazil and Mexico) and Eastern
Europe (including Russia, Israel, Poland, Hungary and Turkey). Looking at stock
sectors, technology/telecommunications comprised the largest portion of the
portfolio, followed by utilities and financial services.
Looking toward the new fiscal year, I will continue to concentrate the portfolio
in the strongest and most dynamic economies in the emerging markets universe. In
Latin America, economies in Brazil and Mexico are healthy, and the countries are
benefiting from political and economic reforms, as well as the possibility of an
upgrade in their bond ratings. In Asia, China remains the most attractive
market, thanks to improving economic growth and structural reform. In Eastern
Europe, I favor Russia, which is enjoying stronger economic growth thanks
largely to higher oil prices, and Israel, which boasts a number of high-quality
technology companies. On the other hand, I have reduced investments in Turkey,
which is experiencing worsening trade figures and delays in the
business-privatization process, and India, where increasing government deficits
are a concern.
Julian Thompson
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
The 10 Largest Holdings
AXP VP - Emerging Markets Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Taiwan Semiconductor Mfg ADR (Taiwan) 3.93% $220,394
Samsung Electronics GDR (South Korea) 3.60 201,600
Tele Norte Leste Participacoes ADR (Brazil) 3.23 181,050
Lukoil Holding ADR (Russia) 3.20 179,200
China Mobile (Hong Kong) 2.47 138,473
Hon Hai Precision Inds GDR (Taiwan) 2.38 133,647
Korea Electric Power ADR (South Korea) 2.27 127,406
Brasil Telecom Participacoes ADR (Brazil) 2.26 126,788
Winbond Electronics GDR (Taiwan) 2.26 126,623
Infosys Technologies ADR (India) 2.23 124,812
Note: Certain foreign investment risks include: changes in currency
exchange rates, adverse political or economic order, and lack of
similar regulatory requirements followed by U.S. companies.
For further detail about these holdings, please refer to the section
entitled "Investments in Securities."
The 10 holdings listed here make up 27.83% of net assets.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Jack Utter
Jack Utter
Portfolio Manager
(picture of) Scott Schroepfer
Scott Schroepfer
Portfolio Manager
From the Portfolio Managers
AXP VP - Extra Income Fund
Reflecting a largely difficult environment for high-yield bonds, the Fund
experienced a loss of 1.59% during the past fiscal year -- September 1999
through August 2000. (This figure does not reflect expenses that apply to the
subaccounts or the contracts.)
Two powerful opposing factors were at work throughout the period: strong
economic growth and the threat of higher inflation/higher interest rates. In
general, a robust economy is good for high-yield bonds because of the
potentially positive effect on the financial health of their issuers, which in
turn makes it easier for them to make their interest and principal payments.
Inflation and interest rates are, of course, another matter. When they rise,
bond prices suffer. Over the 12 months, there was only a small increase in
inflation. But that didn't stop the Federal Reserve from raising short-term
interest rates six times to cool off the red-hot economy and thereby reduce the
likelihood of a future run-up in inflation.
Compounding the situation were weak cash flows into high-yield mutual funds, an
ample supply of new bonds and a higher-than-normal level of defaults by issuers
of high-yield bonds. Defaults were a particular problem in the
telecommunications industry, which represents a substantial portion of the
high-yield market. The ultimate result of these factors was an overall decline
in the value of the Fund's bonds.
While it was impossible to completely avoid the effect of the default situation,
we reduced or eliminated holdings among issuers most susceptible to
credit-quality concerns and added to investments among those in a better
position to attract financing. This strategy provided something of a cushion for
the Fund in the face of falling bond prices.
Looking toward the new fiscal year, the high-yield market may continue to
struggle over the near term, as investors wait to see what will happen with
economic growth, inflation and interest rates. We think that better news lies
ahead on those fronts for high-yield bonds, and that investors will return to
this segment of the market before long. If that outlook proves reasonably
accurate, the Fund should enjoy improving performance as the current period
progresses.
Jack Utter
Scott Schroepfer
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Extra Income Fund
$20,000
X Merrill Lynch High Yield Bond Index
X Lipper High Yield Funds Index
X $11,849 AXP VP - Extra
Income Fund
X Lehman Brothers Aggregate Bond Index
$10,000
6/96 8/96 8/97 8/98 8/99 8/00
(The printed version of the chart contains a line graph with 4 lines
correspinding to the three indexes and Fund noted above.)
10 Largest Holdings
AXP VP - Extra Income Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
CSC Holdings
11.13% Pay-in-kind Series M Preferred 1.92% $11,436,373
Price Communications Wireless
9.13% 2006 1.45 8,635,501
Trump Atlantic City Assn/Funding
11.25% 2006 1.29 7,695,000
Wayland Investment Fund LLC
1.28 7,634,717
Repap New Brunswick
9.00% 2004 1.12 6,640,750
MGM Grand
9.75% 2007 1.06 6,285,000
Outsourcing Solutions
11.00% 2006 1.03 6,111,499
Globix
12.50% 2010 .89 5,263,000
Varde Fund V LP
.87 5,201,354
Pegasus Media & Communications
9.63% 2005 .87 5,154,099
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 11.78% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Extra Income Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year Since inception*
-1.59% +3.98%
* Inception date was May 1, 1996.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the Merrill Lynch High Yield Bond Index, the
Lipper High Yield Funds Index, and the Lehman Brothers Aggregate Bond Index.
Recently, the Fund's investment manager recommended that the Fund change its
comparative index from the Lehman Brothers Aggregate Bond Index to the Merrill
Lynch High Yield Bond Index. The investment manager made this recommendation
because the new index more closely represents the Fund's holdings. We will
include both indexes in this transition year. In the future, however, only the
Merrill Lynch High Yield Bond Index will be included.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
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.
Lipper High Yield Funds Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up
of a representative list of government, corporate, asset-backed and
mortgage-backed securities. The index is frequently used as a general measure of
bond market performance. The index reflects reinvestment of all distributions
and changes in market prices, but excludes brokerage commissions or other fees.
However, the securities used to create the index may not be representative of
the bonds held in the Fund.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) James W. Snyder
James W. Snyder
Portfolio Manager
From the Portfolio Manager
AXP VP - Federal Income Fund
Rising interest rates kept the bond market off balance for much of the past
period. Still, the Fund did finish in positive territory for the fiscal year,
with a total return of 4.64% for its initial reporting period -- Sept. 15, 1999
(date the Fund became available) through August 2000. (This figure does not
reflect expenses that apply to the subaccounts or the contracts.)
With robust economic growth, soaring oil prices and an ever-tightening labor
market, the environment seemed ripe for an upturn in inflation during the past
12 months. As it turned out, inflation remained largely subdued. But that didn't
keep fixed-income investors, not to mention the Federal Reserve Board (the Fed),
from worrying about it just the same. The Fed evidenced its concern by raising
short-term interest rates six times during the period to cool off the economy
and thereby head off an inflation spike.
Those actions served to reinforce an upturn in bond market yields through the
end of 1999, which dragged down bond prices in the process. A flood of new
corporate bonds also served to hold back prices. Aside from long-term U.S.
Treasury bonds, the rest of the market continued to struggle until summer. By
that time, signs of a slowing economy started to surface, and investors began to
anticipate an end to the Fed's rate increases. The more positive environment
allowed the bond market to stage a solid rally during the final three months of
the period.
Looking at the Fund's holdings, I kept about half the assets invested in
Treasury securities, with the other half in mortgage-backed bonds issued by the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). While they did lose value when interest
rates rose, they held up relatively well thanks to their short-to-intermediate
maturities. In addition, early in the period I kept a higher-than-usual level of
cash reserves in the portfolio, which helped mitigate the effect of the rate
rise. I gradually reduced the cash over the ensuing months and added to
investments in mortgage-backed securities. This shift enhanced the Fund's
performance during the summer as those issues performed well.
Given that recent data continue to suggest that the economy is slowing down, the
Fed may be persuaded that no further interest-rate increases are necessary to
guard against a run-up in inflation. If so, that would likely lend support to
the bond market in the new fiscal year, and perhaps result in less volatility
and more consistent performance.
James W. Snyder
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Federal Income Fund
$20,000
X $10,464
AXP VP-
Federal
Income
Fund
X Lipper Short/Intermediate U.S.
Government Funds Index
X Merrill Lynch 1-5 Year U.S.
Government Index
$10,000
10/1/99 10/99 11/99 12/99 1/00 2/00 3/00 4/00 5/00 6/00 7/00 8/00
(The printed version of the chart contains a line graph with 3 lines
correspinding to the two indexes and Fund noted above.)
The Fund's Long-term Performance
AXP VP - Federal Income Fund
Average Annual Total Returns (as of Aug. 31, 2000)
Since inception*
+4.64%
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Merrill Lynch 1-5 Year U.S. Government
Index and the Lipper Short/Intermediate U.S. Government Funds Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
Merrill Lynch 1-5 Year U.S. Government Index, an unmanaged index, is made
up of a representative list of government bonds. The index is frequently used as
a general measure of government bond performance. However, the securities used
to create the index may not be representative of the bonds held in the Fund.
Lipper Short/Intermediate U.S. Government Funds Index, an unmanaged index
published by Lipper Inc., includes the 30 largest funds that are generally
similar to the Fund, although some funds in the index may have somewhat
different investment policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
From the Portfolio Managers
AXP VP - Global Bond Fund
The environment for global fixed-income investing was unrewarding over the
past 12 months, as rising interest rates and a decline in the value of the euro
hampered performance. Reflecting these conditions, the Fund experienced a loss
of 1.90% for the fiscal year -- September 1999 through August 2000. (This figure
does not reflect expenses that apply to the subaccounts or the contracts.)
The credit-tightening, manifested in the form of higher short-term interest
rates, was prompted by concerns that accelerating economic activity would push
inflation rates higher. International trade and investment flows raised the
yen's value in comparison to the dollar, which modestly enhanced returns from
investments in Japan. The euro, on the other hand, lost considerable value
against the dollar, which penalized returns from European holdings and detracted
from the Fund's performance.
Looking at the portfolio mix, investments in Europe and the U.S. each comprised
about 40-45% of the holdings, with most of the rest in Japan and emerging
markets in Latin America and Asia. While the majority of the investments were in
government bonds, about a quarter of the portfolio consisted of U.S. corporate
issues. Probably the most encouraging event during the 12 months was a sharp
rally by U.S. Treasury bonds this past spring and summer, which resulted from
the federal government's effort to retire older bonds as part of its
deficit-reduction effort. Emerging-market bonds also performed quite well during
that time.
For most of the period, the portfolio featured a defensive maturity structure
created by an emphasis on short-to-intermediate bonds, as well as
higher-yielding corporate and emerging market bonds, both of which benefit from
economic expansion and add income to the portfolio. While the defensive
structure mitigated the negative effect of the trend toward higher interest
rates and lower bond prices in the U.S. and Europe, it could not negate it. As
for changes to the portfolio, they were minor: an increase in U.S. holdings
about mid-period, followed by a reduction in the U.K. and an increase in
continental Europe.
Since this past summer, we have been anticipating the end of the Federal
Reserve's interest-rate increases and an eventual recovery in the value of the
euro. If no more rate hikes are forthcoming in the new fiscal year, we expect a
better tone to return to the U.S.
bond market and, eventually, to European markets as well.
Ray Goodner
Nic Pifer
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Global Bond Fund
$20,000
X Lipper Global Income Funds Index
X $11,384 AXP VP - Global
Bond Fund
X Salomon Smith Barney
World Govt. Bond Index
$10,000
6/1/96 8/96 8/97 8/98 8/99 8/00
(The printed version of the chart contains a line graph with 3 lines
correspinding to the two indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Global Bond Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
U.S. Treasury
7.50% 2016 10.13% $17,965,429
Federal Republic of Germany
7.50% 2004 6.32 11,203,518
Govt of Italy
8.50% 2004 3.69 6,537,997
U.S. Treasury
7.50% 2005 3.34 5,915,000
Allgemeine Hypo Bank
5.00% 2009 3.06 5,430,911
Govt of Norway
7.00% 2001 2.93 5,191,694
Federal Republic of Germany
8.00% 2002 2.72 4,826,147
Development Bank of Japan
6.50% 2001 2.31 4,099,837
Federal Republic of Germany
6.50% 2027 2.17 3,843,887
Republic of Austria
5.00% 2001 2.15 3,817,472
Note: Certain foreign investment risks include: changes in currency
exchange rates, adverse political or economic order, and lack of similar
regulatory requirements followed by U.S. companies.
For further detail about these holdings, please refer to the section
entitled "Investments in Securities."
The 10 holdings listed here make up 38.82% of net assets.
<PAGE>
The Fund's Long-term Performance
AXPVP- Global Bond Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year Since inception*
-1.90% +3.00%
* Inception date was May 1, 1996.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Salomon Smith Barney World Government Bond
Index and the Lipper Global Income Funds Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
Salomon Smith Barney World Government Bond Index, an unmanaged market
capitalization weighted benchmark, tracks the performance of the 17 government
bond markets around the world. It is widely recognized by investors as a
measurement index for portfolios of government bond securities. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Lipper Global Income Funds Index, an unmanaged index published by Lipper
Inc., includes 30 funds that are generally similar to the Fund, although some
funds in the index may have somewhat different investment policies or
objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Lisa A. Costa
Lisa A. Costa
Portfolio Manager
From the Portfolio Manager
AXP VP - Growth Fund
The Fund took good advantage of a stock-market surge last fall and winter
to post a strong gain for the fiscal year. For the Fund's initial reporting
period -- Sept. 15, 1999 (date the Fund became available) through August 2000 --
the Fund's total return was 38.59%. (This figure does not reflect expenses that
apply to the subaccounts or the contracts.)
The period got off to a shaky start, as the stock market struggled in the face
of higher interest rates, concerns that the robust economy might soon spawn a
run-up in the inflation rate, and uncertainty regarding the potential effect of
the Y2K computer bug.
The mood in the market quickly changed, though, as fresh reports of still-tame
inflation and healthy corporate profits arrived and excitement about the impact
of the burgeoning Internet began to build. Soon, the market's advance turned
into a spectacular rally that culminated in an all-time high in mid-March.
But by that time, a variety of concerns had also risen regarding the outlook for
interest rates, corporate profits, economic growth and the sustainability of
sky-high prices on many stocks. The market responded by going into a steady
retreat during the spring. Then, after essentially treading water for a few
months, stocks ended the period in positive fashion with an August rebound.
The driving force for most of the period was technology-related stocks. While
they were extremely volatile, many recorded sharp gains. The tech trend worked
to the advantage of the Fund, as about half the portfolio's assets was
concentrated in that sector. Among the largest and most productive holdings for
the Fund were Cisco Systems, EMC Corporation, Texas Instruments, Intel, Applied
Materials and Maxim Integrated Products.
Most of the rest of the portfolio was invested in the health care and financial
services areas, with Pfizer and Citigroup, respectively, providing some of the
best performance later in the period.
As the new fiscal year begins, the stock market is being kept off balance as
investors try to sort what the future holds for inflation, interest rates, the
economy and corporate profits. Before 2000 ends, though, I think the scales will
tip toward the positive side, allowing the market to begin making progress. More
specifically, I look for stocks of companies with robust and comparatively
predictable profit-growth prospects to benefit most from a market upturn. Most
of these names continue to be found in the technology and health care areas, and
they remain the Fund's primary investments.
Lisa A. Costa
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Growth Fund
$20,000
X $14,197
AXP VP-
Growth
Fund
X Russell 1000(R)
Growth Index
X Lipper Large-Cap Growth Index
X S&P 500 Index
$10,000
10/1/99 10/99 11/99 12/99 1/00 2/00 3/00 4/00 5/00 6/00 7/00 8/00
(The printed version of the chart contains a line graph with 4 lines
correspinding to the three indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Growth Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Cisco Systems 6.10% $11,876,255
EMC 6.03 11,752,747
Texas Instruments 4.51 8,789,161
Pfizer 3.95 7,700,749
Applied Materials 3.95 7,690,961
Citigroup 3.59 7,000,952
Maxim Integrated Products 3.50 6,824,543
Intel 3.11 6,064,276
Microsoft 3.05 5,937,623
Broadcom Cl A 2.50 4,870,000
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 40.29% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Growth Fund
Average Annual Total Returns (as of Aug. 31, 2000)
Since inception*
+38.59%
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the S&P 500 Index, the Russell 1000(R) Growth
Index and the Lipper Large-Cap Growth Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
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 companies may be generally larger than those
in which the Fund invests.
Russell 1000(R) Growth Index measures the performance of the 1000 largest
companies in the Russell 3000 Index, which represents 92% of the total market
capitalization of the Russell 3000 Index. These companies have higher
price-to-book ratios and higher forecasted growth values.
Lipper Large-Cap Growth Index, an unmanaged index published by Lipper Inc.,
includes 30 funds that are generally similar to the Fund, although some funds in
the index may have somewhat different investment policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Mark Fawcett
Mark Fawcett
Portfolio Manager
(picture of) Richard Leadem
Richard Leadem
Portfolio Manager
(picture of) Garvin Corr
Garvin Corr
Portfolio Manager
From the Portfolio Managers
AXP VP - International Fund
A strong advance early in the fiscal year enabled the Fund to post a
double-digit return for the period. For the 12 months -- September 1999 through
August 2000 -- the Fund generated a total return of 14.74%. (This figure does
not reflect expenses that apply to the subaccounts or the contracts.)
The period got off to a sluggish start, as a sagging U.S. stock market led to a
bit of a slump in Europe during September. But the next three months were a
completely different story. Europe and, to a somewhat lesser degree, Japan
followed the U.S. market's lead by embarking on a remarkable rally that
continued through the end of 1999 and into the early days of the new year.
From that point, the investment environment became increasingly difficult in the
face of rising interest rates and concerns about the sustainability of extremely
high prices for many stocks. Again taking a cue from the U.S., European markets
eventually went into a spring slump that eroded much of the previous months'
gain, then essentially treaded water over the summer.
The Fund's performance took a similar path -- surging during the fall and early
winter, then losing ground in the spring. While we were, on the whole, satisfied
with the performance of our stock selections, overall weakness in the yen (in
Japan) and, to a greater degree, the euro (Europe) versus the dollar did detract
from the Fund's return.
Looking at the asset allocation, the bulk of the portfolio was invested in
Europe, principally France, Germany, the United Kingdom and Italy. Because of
its relatively weak performance, we reduced holdings in the U.K. as the period
progressed.
Early in the period, we increased investments in Japan to take advantage of the
positive effect of a trend toward corporate restructuring and the prospect of an
improving economy. But when that outlook turned less promising during the spring
and summer, we reduced our Japanese holdings.
As for specific business sectors, we emphasized technology, media and
telecommunications stocks in Europe, while in Japan our choices were more
stock-specific and, thus, quite varied. Overall, we avoided stocks in the food
and, for the most part, financial services sectors. Late in the period, we added
to "defensive" stocks, especially pharmaceuticals, in Europe.
As the new fiscal year begins, we are maintaining a somewhat conservative
approach that centers on stocks of top-quality companies with relatively
predictable earnings growth.
Mark Fawcett
Richard Leadem
Gavin Corr
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - International Fund
$30,000
X $23,760 AXP VP-
International Fund
$20,000
X Lipper International Funds Index
X MSCI EAFE Index
$10,000
2/1/92 8/92 8/93 8/94 8/95 8/96 8/97 8/98 8/99 8/00
(The printed version of the chart contains a line graph with 3 lines
correspinding to the two indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - International Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Vodafone AirTouch (United Kingdom) 4.42% $105,676,244
Ericsson (LM) Cl B (Sweden) 4.12 98,311,162
Marconi (United Kingdom) 4.01 95,711,518
Total Fina Elf (France) 3.92 93,645,606
Cap Gemini (France) 2.83 67,626,908
Nortel Networks (Canada) 2.81 67,028,063
Nippon Telegraph & Telephone (Japan) 2.78 66,453,488
BG Group (United Kingdom) 2.77 66,270,287
Fortis (Netherlands) 2.71 64,639,789
Alcatel Alstom (France) 2.62 62,643,315
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 32.99% of net assets.
The Fund's Long-term Performance
AXP VP - International Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year 5 years Since inception*
+14.74% +11.72% +10.55%
* Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Morgan Stanley Capital International EAFE
Index (MSCI EAFE Index) and the Lipper International Funds Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
MSCI EAFE Index, an unmanaged index, is compiled from a composite of
securities markets of Europe, Australia and the Far East. The index 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 Funds Index, an unmanaged index published by Lipper
Inc., includes the 30 largest funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Alfred Henderson
Alfred Henderson
Portfolio Manager
(picture of) David Kuplic
David Kuplic
Portfolio Manager
From the Portfolio Managers
AXP VP - Managed Fund
Despite considerable volatility in the stock and bond markets, the Fund
enjoyed a productive fiscal year. For the 12 months -- September 1999 through
August 2000 -- the Fund gained 18.42%. (This figure does not reflect expenses
that apply to the subaccounts or the contracts.)
After a slow start, the stock market got going in October as tame inflation data
and generally good corporate profits lifted investors' spirits. Thanks to
increasing excitement about the Internet, optimism soon turned into euphoria,
and stocks surged to an all-time high by early January. From that point, the
situation became increasingly difficult as concerns about rising interest rates
and the strength of corporate profits set in. The result for the market was a
spring slump, followed by a moderate recovery late in the period.
For the bond market, the pattern was just the opposite. Bond prices slid during
the fall and winter amid worries about higher inflation and higher interest
rates. But as the period progressed, long-term interest rates began to come
down, lending support for the market, particularly Treasury bonds.
Much of the Fund's gain was realized during the stock market's fall/winter
rally, thanks largely to its substantial exposure to the technology sector,
which led the advance. Most of the investments were in semiconductor,
telecommunications, wireless and telephone stocks, many of which are tied to the
development of the Internet infrastructure. Prominent performers included Cisco
Systems, Nokia and MCI Worldcom. Much of the rest of the stock portfolio was
invested in consumer-related issues, followed by financial services and
industrial stocks. The consumer group was positive overall, while industrial and
financial services were mixed.
Bond investments were spread among U.S. Treasury, corporate, mortgage-backed
and, to a small degree, emerging market issues. After struggling in late 1999,
Treasury bonds rallied strongly in 2000 and provided a boost to Fund
performance. Emerging market bonds also made a positive contribution.
Mortgage-backed bonds experienced mixed results, while corporate bonds were
weak. All told, bonds comprised about a third of the entire portfolio, with
stocks accounting for most of the rest.
As the new fiscal year begins, investors remain conflicted about the direction
of interest rates, inflation and the strength of corporate profits. As a result,
stocks and bonds may find it difficult to make much progress over the near term,
but our view is that an overall positive outlook eventually will emerge and lend
support to the markets.
Alfred Henderson
David Kuplic
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Managed Fund
$70,000
$60,000
$50,000
X $38,960 AXP VP-
Managed Fund
$40,000
X S&P 500 Index
$30,000
X Lipper Flexible Portfolio Index
$20,000
$10,000
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
(The printed version of the chart contains a line graph with 3 lines
correspinding to the two indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Managed Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Cisco Systems 4.52% $236,324,999
General Electric 2.85 148,690,650
Morgan Stanley, Dean Witter,
Discover & Co 2.73 142,735,437
Intel 2.58 134,774,999
Citigroup 2.55 133,336,283
Nokia ADR Cl A 2.37 123,955,600
Microsoft 2.07 108,209,375
Home Depot 1.97 102,921,037
Solectron 1.82 94,893,437
EMC 1.74 90,983,200
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 25.20% of net assets.
<PAGE>
The Fund's Long-term Performance
AXPVP - Managed Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year 5 years 10 years
+18.42% +15.98% +14.57%
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the S&P 500 Index and the Lipper Flexible
Portfolio Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
The S&P 500 Index, an unmanaged list of common stocks, is frequently used
as a general measure of market performance. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees. However, the S&P 500 companies may be generally
larger than those in which the Fund invests.
Lipper Flexible Portfolio Index, an unmanaged index published by Lipper
Inc., includes 30 funds that are generally similar to the Fund, although some
funds in the index may have somewhat different investment policies or
objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of)Gordon M. Fines
Gordon M. Fines
Portfolio Manager
From the Portfolio Manager
AXP VP - New Dimensions Fund
The past 12 months was a volatile but productive period for the Fund's
large-capitalization growth stocks. For the fiscal year -- September 1999
through August 2000 -- the Fund generated a total return of 34.01%. (This figure
does not reflect expenses that apply to the subaccounts or the contracts.)
The stock market labored without success early in the period, as concerns about
higher interest rates, potentially higher inflation and the possible impact of
the Y2K computer bug weighed on investors' minds. But by mid-October, the
market, buoyed by fresh reports of still-tame inflation, generally healthy
corporate profits and increasing excitement about the burgeoning Internet,
stocks began moving forward. Within weeks, the advance turned into a remarkable
rally that kept gathering momentum through December and ultimately reached a
peak in early March.
At that point, the psychology of the market underwent an abrupt change from
optimism to pessimism regarding inflation, interest rates and corporate profits.
Compounding the situation was increasing concern that sky-high prices for many
technology-related stocks had reached unjustifiable levels. The result for the
market, especially the tech sector, was a sharp spring downturn and a sluggish
summer. A rebound in August, though, brought the period to a positive close.
While the pattern of the Fund's performance roughly tracked that of the market
during the 12 months, good stock selection allowed it to generate a far-better
return. Clearly driving the Fund's gains were technology and telecommunications
stocks, which made up nearly half of the portfolio at times. The main areas of
investment were semiconductors, software, networking and wireless
communications, with IBM, Cisco Systems and JDS Uniphase among the largest and
most productive holdings.
Given the overall lofty prices of such stocks, I reduced those holdings in the
spring and summer, while I increased investments in energy, health care and
financial stocks. That strategy had the desired effect of lessening the
volatility in the Fund's value, as well as allowing the Fund to reap some gains
resulting from improved performance by those three groups.
Looking toward the new fiscal year, while the economy remains on the growth
track, the stock market may, at least over the near term, continue to be
buffeted by concerns about inflation, interest rates and corporate profits. But
as the year progresses, I expect to see a gradually improving investment
environment that will reward stocks with solid growth credentials.
Gordon M. Fines
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - New Dimensions Fund
$30,000
X $25,678 AXP VP-New
Dimensions Fund
X S&P 500 Index
X Russell 1000(R) Growth Index
$20,000
X Lipper Large-Cap Growth Index
$10,000
6/1/96 8/96 8/97 8/98 8/99 8/00
(The printed version of the chart contains a line graph with 4 lines
correspinding to the three indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - New Dimensions Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
Cisco Systems 4.17% $231,913,599
General Electric 3.93 218,787,000
Citigroup 3.59 199,691,146
EMC 3.28 182,476,000
Exxon Mobil 3.26 181,525,674
Intel 3.24 180,239,099
JDS Uniphase 3.08 171,421,687
Corning 3.04 169,150,163
Morgan Stanley, Dean Witter,
Discover & Co 2.81 156,196,535
Texas Instruments 2.65 147,583,800
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 33.05% of net assets.
<PAGE>
The Fund's Long-term Performance
AXPVP - New Dimensions Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year Since inception*
+34.01% +24.49%
* Inception date was May 1, 1996.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the S&P 500 Index, Russell 1000(R) Growth
Index and the Lipper Large-Cap Growth Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
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 companies may be generally larger than those
in which the Fund invests.
Russell 1000(R) Growth Index measures the performance of the 1000 largest
companies in the Russell 3000 Index, which represents 92% of the total market
capitalization of the Russell 3000 Index. These companies have higher
price-to-book ratios and higher forecasted growth values.
Lipper Large-Cap Growth Index, an unmanaged index published by Lipper Inc.,
includes 30 funds that are generally similar to the Fund, although some funds in
the index may have somewhat different investment policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) James M. Johnson Jr.
James M. Johnson Jr.
Portfolio Manager
From the Portfolio Manager
AXP VP - S&P 500 Index Fund
Despite considerable volatility, the U.S. stock market and the Fund
finished the past four months in positive territory. The total return for the
Fund was 3.49% during its initial reporting period -- May 1 (date the Fund
became available) through Aug. 31, 2000. (This figure does not reflect expenses
that apply to the subaccounts or the contracts.)
The stock market was in the middle of a tug of war throughout the period. On one
side were the positive forces of strong economic growth and generally good
corporate profits. On the other were the negative forces of rising interest
rates imposed by the Federal Reserve and concerns about the justifiability of
sky-high prices on many market-leading stocks. The result on a monthly basis was
a loss in May, a gain in June, a loss in July and, in the market's best
performance over the period, a sharp gain in August that put things back in the
plus column.
Most of the volatility was driven by the technology sector, which, at about
one-third, easily comprises the largest component of the Standard & Poor's 500
Composite Price Index. Technology took a drubbing from May through July, as
investors worried that companies would not be able to maintain great enough
earnings growth to warrant higher stock prices. Their mood brightened in August,
though, allowing the stocks to regain much of the lost ground.
The best and most consistent sectors during the period were financial services,
capital goods and utilities, each of which posted a double-digit gain. Also
providing positive performance were the transportation, health care, energy and
consumer cyclical sectors. Consumer staples finished approximately even, while
the basic materials sector was down. The biggest drag on performance was the
communications services group, which experienced a double-digit loss for the
four months.
Heading into the new fiscal year, it appears that economic growth has begun to
slow down somewhat. While that may persuade the Federal Reserve that no further
interest-rate increases are needed, it could also mean that profit growth for
some industries will be less robust in the months ahead. All in all, it's not a
bad environment for the stock market, but it seems likely that sustained
progress will be difficult to come by, at least over the near term.
James M. Johnson, Jr.
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
The 10 Largest Holdings
AXP VP - S&P 500 Index Fund
Percent Value
(of net assets) (as of Aug 31, 2000)
General Electric 4.34% $912,128
Intel 3.75 787,835
Cisco Systems 3.56 748,688
Microsoft 2.75 577,140
Exxon Mobil 2.12 446,410
Pfizer 2.04 427,661
Citigroup 1.96 412,676
Oracle 1.93 405,490
Nortel Networks 1.81 379,594
Intl Business Machines 1.75 367,621
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 26.01% of net assets.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Jake Hurwitz
Jake Hurwitz
Portfolio Manager
(picture of) Kent A. Kelley
Kent A. Kelley
Portfolio Manager
From the Portfolio Managers
AXP VP - Small Cap Advantage Fund
In a highly volatile but generally rewarding environment for
small-capitalization stocks, the Fund realized a healthy gain for the past 12
months. For the Sept. 15, 1999 (date the Fund became available) through August
2000 period, the Fund's total return was 28.19%. (This figure does not reflect
expenses that apply to the subaccounts or the contracts.)
The period got off to a rocky start, as stocks struggled against headwinds
produced by higher interest rates and the threat of rising inflation. The tone
of the market improved in the early fall as investors, encouraged by reports of
still-tame inflation and better-than-expected corporate profits, moved back into
stocks. In November, investor enthusiasm for "new economy" stocks provided the
decisive catalyst for an explosive rally that carried the Nasdaq to a series of
new highs, led by stocks in the technology and biotechnology areas.
By March, investors' single-minded focus on technology had taken share prices in
that sector to sky-high levels. In the middle of the month, the rally came to an
abrupt halt under the pressure of higher interest rates, then gave way to steep
sell-off that continued into May. The up-and-down pattern re-emerged over the
summer, as technology stocks mounted a strong advance in June, then sank again
in July. The period ended on an encouraging note, though, as stocks rallied
sharply again in August behind strength in the energy, finance and health care
sectors.
During the 12 months, our emphasis on diversification helped the Fund to weather
the worst of the market's volatility relatively well. Consistent with our
balanced style of management, the Fund's investments were split between growth
stocks (about 55% of the holdings) and value stocks (about 45%). We also kept
the portfolio broadly diversified across economic sectors.
Looking more closely at the Fund's holdings, good stock selection in the energy
sector boosted performance, particularly stocks of natural gas exploration and
production companies and oil-drilling companies. In the technology sector,
investments in contract equipment manufacturing, semiconductor and Internet
infrastructure companies also made a good contribution. Among health care
stocks, strong earnings growth and an improving regulatory climate produced
strong returns for our hospital management and health maintenance organization
stocks.
As for the new fiscal year, we think the outlook for small-cap stocks is
unusually favorable, thanks to accelerating profits and relatively low stock
prices. Assuming the Federal Reserve achieves its goal of slowing down the
economy to a more moderate pace and thereby relieves upward pressure on
inflation, a more normal and less volatile investment environment should unfold.
If so, we think the Fund is well positioned to benefit from what could be an
ongoing advance in the small-cap sector.
Jake Hurwitz
Kent A. Kelley
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Small Cap Advantage Fund
$20,000
X Russell 2000(R) Index
X Lipper Small-
Cap Core Funds
Index
X $12,660
AXP VP-
Small Cap
Advantage
Fund
X S&P Small Cap 600 Index
$10,000
10/1/99 10/99 11/99 12/99 1/00 2/00 3/00 4/00 5/00 6/00 7/00 8/00
(The printed version of the chart contains a line graph with 4 lines
correspinding to the three indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Small Cap Advantage Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
SERENA Software .85% $263,999
AmeriCredit .75 232,049
Alpha Inds .70 218,898
Radian Group .66 205,012
C&D Technologies .66 204,424
Silicon Valley Bancshares .62 194,022
Technitrol .62 193,162
Gallagher (Arthur J) .60 185,220
Dycom Inds .59 183,803
Metris Companies .58 179,688
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 6.63% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Small Cap Advantage Fund
Average Annual Total Returns (as of Aug. 31, 2000)
Since inception*
+28.19%
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
On the graph above you can see how the Fund's total return compared to three
widely cited performance indexes, the Standard & Poor's SmallCap 600 Index (S&P
SmallCap 600 Index), the Russell 2000(R) Index and the Lipper Small-Cap Core
Funds Index.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
S&P SmallCap 600 Index, an unmanaged market-weighted index, consists of 600
domestic stocks chosen for market size, liquidity, (bid-asked spread, ownership,
share turnover and number of no trade days) and industry group representation.
The index reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions or other fees. The Fund may invest in
stocks that may not be listed in the Index.
Russell 2000(R) Index, an unmanaged index, measures the performance of the
2000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.
Lipper Small-Cap Core Funds Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
(picture of) Louis Gigilo
Louis Gigilo
Portfolio Manager
From the Portfolio Manager
AXP VP - Strategy Aggressive Fund
The Fund generated an extraordinary gain during the past 12 months as it
was well positioned for a remarkable rally in technology-related stocks. For the
fiscal year -- September 1999 through August 2000 -- the Fund's total return was
84.97%. (This figure does not reflect expenses that apply to the subaccounts or
the contracts. Also, the Fund's return was attributable to unusually favorable
market conditions and is unlikely to be repeated or consistently achieved in the
future.)
As encouraging reports on inflation and corporate profits began coming in,
investors quickly began moving into stocks not long after the start of the
period. Thanks to increasing excitement about the Internet, a healthy rally soon
turned into a spectacular surge that continued through the fall and into the
early days of January. By that time, the Fund was ahead more than 100%.
But by mid-March, the euphoria had given way to renewed concerns about
inflation and interest rates, as well as the sustainability of sky-high prices
on many stocks. The result was sharp sell-off in the spring from which the
market spent the rest of the period trying to recover.
Throughout the year, the magic word for the market -- and even more so for the
Fund -- was technology. Thanks to its heavy exposure to that sector (nearly 60%
of assets at the highest point), the Fund easily outperformed the market during
the upturns. However, the reverse was also true, as technology led the market
and the Fund down during the spring.
Looking at the Fund's top performers, stocks related to the growth of the
Internet were especially strong. Among them were SDL, Verisign, InfoSpace,
Juniper, PMC Sierra, Mercury Interactive and Allegiance. Aside from technology,
IDEC Pharmaceuticals, Alza and Alkermes, in the biotechnology sector, generated
sharp gains, while Kansas City Southern, with a strong presence in financial
services, did quite well, and Univison, a media company, was up strongly.
There was considerable initial public offering (IPO) activity during the period,
and the Fund took part in a number of them. In some cases, I sold the stocks
quickly for a profit; in others, I held the shares based on our positive
long-term outlook for the company. In still other cases, I didn't take part in
the IPOs, but did buy the stocks later via secondary offerings in order to build
a larger position than would have been possible by buying the IPOs. On the
whole, although participation in new stock issues clearly benefited performance,
the impact of IPOs was not a significant factor in last year's extraordinary
performance.
Although gains will almost surely be tougher to come by in the new fiscal year,
I think the outlook remains positive, particularly for technology,
telecommunications, energy and health care stocks.
Louis Giglio
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS (This annual report is not part of the
prospectus.)
<PAGE>
How your $10,000 has grown in AXP VP - Strategy Aggressive Fund
S60,000
$50,000
X Russell MidCap(R)
Growth Index
X $40,647 AXP VP-
Strategy Aggressive
Fund
$40,000
$30,000
X Lipper Mid-Cap Growth Index
X S&P MidCap 400 Index
X S&P 500 Index
$20,000
$10,000
2/1/92 8/92 8/93 8/94 8/95 8/96 8/97 8/98 8/99 8/00
(The printed version of the chart contains a line graph with 5 lines
correspinding to the four indexes and Fund noted above.)
The 10 Largest Holdings
AXP VP - Strategy Aggressive Fund
Percent Value
(of net assets) (as of Aug. 31, 2000)
SDL 4.28% $179,585,249
Mercury Interactive 3.51 147,297,030
Extreme Networks 3.04 127,643,037
Calpine 2.67 111,949,200
Finisar 2.53 106,165,514
PMC-Sierra 2.50 105,019,999
Juniper Networks 2.37 99,607,499
ALZA 2.16 90,750,000
Celestica 2.13 89,453,124
Jabil Circuit 1.94 81,592,934
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here make up 27.13% of net assets.
<PAGE>
The Fund's Long-term Performance
AXP VP - Strategy Aggressive Fund
Average Annual Total Returns (as of Aug. 31, 2000)
1 year 5 years Since inception*
+84.97% +22.73% +17.65%
* Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to four
widely cited performance indexes, Standard & Poor's MidCap 400 Index (S&P MidCap
400 Index), the Russell MidCap(R) Growth Index, the Lipper Mid-Cap Growth Fund
Index and the S&P 500 Index. Recently, the Fund's investment manager recommended
that the Fund change its comparative index from the S&P 500 Index to the S&P
MidCap 400 Index. The investment manager made this recommendation because the
new index more closely represents the Fund's holdings. We will include both
indexes in this transition year. In the future, however, only the S&P MidCap 400
Index will be included.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost. This
was a period of widely fluctuating security prices. Past performance is no
guarantee of future results. The above graph does not reflect expenses that
apply to the subaccounts or the contracts.
S&P MidCap 400 Index, an unmanaged market-weighted index, consists of 400
domestic stocks chosen for market size, liquidity and industry group
representation. The index reflects reinvestment of all distributions and changes
in market prices, but excludes brokerage commissions or other fees. The Fund may
invest in stocks that may not be listed in the Index.
Russell MidCap(R) Growth Index measures the performance of those Russell
MidCap companies with higher price-to-book ratios and higher forecasted growth
valued. The stocks are also members of the Russell 1000 Growth Index.
Lipper Mid-Cap Growth Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
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 companies may be generally larger than those
in which the Fund invests.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 2000
<PAGE>
The financial statements contained in Post-Effective Amendment #43 to
Registration Statement No. 2-73115 filed on or about October 26, 2000, are
incorporated herein by reference.
<PAGE>
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<PAGE>
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<PAGE>
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue
strip at the top
of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described to
annual report. the left of the text.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
<PAGE>
American Express Variable
Portfolio Funds
70100 AXP Financial Center
Minneapolis, MN 55474
AMERICAN
EXPRESS (R) (LOGO)
S-6466 T (10/00)
