SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 43 (File No. 2-73115) [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 45 (File No. 811-3218) [X]
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AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
200 AXP Financial Center
Minneapolis, Minnesota 55474
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on October 30, 2000 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. 30, 2000
AXP(SM) Variable Portfolio - Blue Chip Advantage Fund
AXP(SM) Variable Portfolio - Bond Fund
AXP(SM) Variable Portfolio - Capital Resource Fund
AXP(SM) Variable Portfolio - Cash Management Fund
AXP(SM) Variable Portfolio - Diversified Equity Income Fund
AXP(SM) Variable Portfolio - Emerging Markets Fund
AXP(SM) Variable Portfolio - Extra Income Fund
AXP(SM) Variable Portfolio - Federal Income Fund
AXP(SM) Variable Portfolio - Global Bond Fund
AXP(SM) Variable Portfolio - Growth Fund
AXP(SM) Variable Portfolio - International Fund
AXP(SM) Variable Portfolio - Managed Fund
AXP(SM) Variable Portfolio - New Dimensions Fund (R)
AXP(SM) Variable Portfolio - S&P 500 Index Fund
AXP(SM) Variable Portfolio - Small Cap Advantage Fund
AXP(SM) Variable Portfolio - Strategy Aggressive 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.
This prospectus 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.
Managed by IDS Life Insurance Company
<PAGE>
Table of Contents
TAKE A CLOSER LOOK AT:
THE FUNDS 4p
AXP VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND 4p
Goal 4p
Investment Strategy 4p
Risks 5p
Past Performance 5p
Management 5p
AXP VARIABLE PORTFOLIO - BOND FUND 6p
Goal 6p
Investment Strategy 6p
Risks 7p
Past Performance 8p
Management 8p
AXP VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND 9p
Goal 9p
Investment Strategy 9p
Risks 10p
Past Performance 10p
Management 11p
AXP VARIABLE PORTFOLIO - CASH MANAGEMENT FUND 11p
Goal 11p
Investment Strategy 11p
Risks 12p
Past Performance 13p
Management 13p
AXP VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND 14p
Goal 14p
Investment Strategy 14p
Risks 14p
Past Performance 15p
Management 15p
<PAGE>
AXP VARIABLE PORTFOLIO - EMERGING MARKETS FUND 15p
Goal 15p
Investment Strategy 15p
Risks 16p
Past Performance 16p
Management 16p
AXP VARIABLE PORTFOLIO - EXTRA INCOME FUND 17p
Goal 17p
Investment Strategy 17p
Risks 18p
Past Performance 19p
Management 20p
AXP VARIABLE PORTFOLIO - FEDERAL INCOME FUND 20p
Goal 20p
Investment Strategy 20p
Risks 21p
Past Performance 21p
Management 21p
AXP VARIABLE PORTFOLIO - GLOBAL BOND FUND 21p
Goal 21p
Investment Strategy 21p
Risks 22p
Past Performance 23p
Management 24p
AXP VARIABLE PORTFOLIO - GROWTH FUND 24p
Goal 24p
Investment Strategy 24p
Risks 25p
Past Performance 25p
Management 25p
<PAGE>
AXP VARIABLE PORTFOLIO - INTERNATIONAL FUND 25p
Goal 25p
Investment Strategy 25p
Risks 26p
Past Performance 27p
Management 28p
AXP VARIABLE PORTFOLIO - MANAGED FUND 28p
Goal 28p
Investment Strategy 28p
Risks 29p
Past Performance 30p
Management 31p
AXP VARIABLE PORTFOLIO - NEW DIMENSIONS FUND 31p
Goal 31p
Investment Strategy 31p
Risks 31p
Past Performance 32p
Management 33p
AXP VARIABLE PORTFOLIO - S&P 500 INDEX FUND 33p
Goal 33p
Investment Strategy 33p
Risks 34p
Past Performance 34p
Index Performance 35p
Management 35p
AXP VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND 35p
Goal 35p
Investment Strategy 35p
Risks 36p
Past Performance 36p
Management 36p
<PAGE>
AXP VARIABLE PORTFOLIO - STRATEGY AGGRESSIVE FUND 37p
Goal 37p
Investment Strategy 37p
Risks 37p
Past Performance 38p
Management 39p
FEES AND EXPENSES 40p
Shareholder Fees 40p
Annual Fund Operating Expenses 40p
BUYING AND SELLING SHARES 41p
Valuing Fund Shares 41p
Purchasing Shares 41p
Transferring/Selling Shares 41p
DISTRIBUTIONS AND TAXES 42p
OTHER INFORMATION 42p
FINANCIAL HIGHLIGHTS 43p
<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 - Emerging Markets 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 - S&P 500 Index 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 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.
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
The Fund invests primarily in securities of companies included in the Standard &
Poor's 500 Composite Price Index (S&P 500 Index). The S&P 500 Index is an
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). 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 primarily in common stocks that comprise
the S&P 500 Index, it is not an index fund, it may own companies not included in
the index, and its results will likely differ from the index.
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 equity investments by:
o Identifying companies 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 weight certain
industry classifications based on AEFC's expectations for growth and for
expected market trends.
o Buying equity securities not included in the S&P 500 Index if those
securities meet the standards described above.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to alternative investments,
-- 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'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.
<PAGE>
Although not a primary investment strategy, the Fund also may invest in other
instruments, such as money market securities and derivatives (such as futures,
options and forward contracts).
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, expenses, and
taxes.
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 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 bar chart and past performance table are not presented because the Fund did
not begin operations until September 1999.
MANAGEMENT
Keith Tufte and James M. Johnson, Jr. are primarily responsible for the
day-to-day operations of AXP Variable Portfolio - Blue Chip Advantage Fund.
Keith Tufte joined AEFC in 1990. He became portfolio manager of AXP Variable
Portfolio - Diversified Equity Income Fund in May 2000 and he has managed AXP
Blue Chip Advantage Fund, and Aggressive Growth Portfolio since November 1998.
He also became director of research-equities in 1998. He serves as portfolio
manager of AXP Equity Value Fund and Equity Income Portfolio.
James M. Johnson, Jr. joined AEFC in 1994 as an equity quantitative analyst. He
began managing portfolios for American Express Asset Management in 1996. He is
portfolio manager of Total Return Portfolio, AXP Small Company Index Fund, AXP
S&P 500 Index Fund, AXP Mid Cap Index Fund, AXP Total Stock Market Index Fund,
AXP Nasdaq 100 Index Fund, and AXP Variable Portfolio - S&P 500 Index Fund. He
is co-portfolio manager of Aggressive Growth Portfolio and AXP Blue Chip
Advantage Fund.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
<PAGE>
AXP Variable Portfolio - Bond 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 lower-quality (junk)
bonds. As a result, junk 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 (which may include investments in emerging markets).
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, AEFC will 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 portfolio 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 relative to alternative investments,
-- 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.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, common stocks, preferred stocks,
derivatives (such as futures, options and forward contracts), and convertible
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, expenses, and
taxes.
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:
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. This type of risk is closely related to
reinvestment risk, which is the risk that an investor will not be able to
reinvest income or principal at the same rate it currently is earning.
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. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment-grade bonds.
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.
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.
<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 recognized indexes.
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)
In the printed prospectus a bar chart is shown in this space.
+4.32% +17.54% +9.32% +15.85% -3.92% +22.30% +5.70% +8.83% +1.51% +1.70%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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, 2000 was +2.77%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year 5 years 10 years
AXP VP - Bond Fund +1.70% +7.75% +8.04%
Lehman Brothers Aggregate Bond Index -0.82% +7.73% +7.70%
Lipper Corporate Debt - BBB rated Index -1.12% +7.68% +7.72%
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 subaccounts or the contracts. 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, 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.
MANAGEMENT
Fred Quirsfeld and Ray Goodner are primarily responsible for the day-to-day
operation of AXP Variable Portfolio - Bond Fund.
Fred Quirsfeld, senior vice president and senior portfolio manager, joined AEFC
in 1985. He became co-portfolio manger of this fund in January 2000. He also is
co-portfolio manager of AXP Bond Fund and has managed that fund since 1985. He
also serves as vice president - fixed income investments for the American
Express mutual funds.
<PAGE>
Ray Goodner, vice president and senior portfolio manager, joined AEFC in 1977.
He became co-portfolio manager of this fund in May 2000. He also serves as
portfolio manager of other American Express mutual funds including Quality
Income Portfolio, World Income Portfolio, and AXP Variable Portfolio - Global
Bond Fund.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - 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 Fund'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 (such as
futures, options and forward contracts) 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, expenses, and
taxes.
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.
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.
In the printed prospectus a bar chart is shown in this space.
+0.67% +46.78% +4.09% +3.42% +1.17% +27.86% +7.71% +24.14% +24.12% +23.75%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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, 2000 was -6.02%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1999)
1 year 5 years 10 years
AXP VP - Capital Resource Fund +23.75% +21.30% +15.50%
S&P 500 Index +21.04% +28.56% +18.21%
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 subaccounts or the contracts. 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 may be 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
Betty Tebault, senior portfolio manager, manages the day-to-day operations of
AXP Variable Portfolio - Capital Resource Fund. She joined AEFC in 1985 as an
analyst and became an associate portfolio manager in 1991, helping to manage
Wealth Management Portfolios and AXP Stock Fund. She began managing this Fund in
February 2000.
AXP Variable Portfolio - Cash Management Fund
GOAL
The Fund seeks to provide shareholders with maximum current income consistent
with liquidity and stability of principal. 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
sector 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.
In the printed prospectus a bar chart appears in this space.
+7.98% 5.82% +3.27% +2.70% +3.80 +5.45% +4.23% +5.16% +5.14% +4.73
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
During the period shown in the bar chart, the highest return for a calendar
quarter was +1.95% (quarter ending December 1990) 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, 2000 was +4.30%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year 5 years 10 years
AXP VP - Cash Management Fund +4.73% +4.94% +4.82%
This table shows total returns from hypothetical investments in shares of the
Fund. The results do not reflect the expenses that apply to the subaccounts or
the contracts. 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 may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual 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 moderate growth potential based on:
-- effective management (considering overall performance), and
-- financial strength.
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 relative to alternative investments,
-- 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 (including bonds and commercial paper of any
rating) and money market securities. Additionally, the Fund may utilize
derivative instruments (such as futures, options and forward contracts) 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, expenses, and
taxes.
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:
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
sector 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.
<PAGE>
PAST PERFORMANCE
The bar chart and past performance table are not presented because the Fund did
not begin operations until September 1999.
MANAGEMENT
Keith Tufte manages the day-to-day operations of AXP Variable Portfolio -
Diversified Equity Income Fund. He joined AEFC in 1990, became portfolio manager
of this Fund in May 2000, and has managed AXP Blue Chip Advantage Fund and
Aggressive Growth Portfolio since November 1998. He is also co-manager of AXP
Variable Portfolio - Blue Chip Advantage Fund. He became director of
research-equities in 1998. He also serves as portfolio manager of AXP Equity
Value Fund and Equity Income Portfolio.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - Emerging Markets 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 of companies in
emerging market countries. Emerging markets are countries characterized as
developing or emerging by either the World Bank or the United Nations. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in companies located in at least three different emerging market
countries. Included within this 65% are the securities of companies that earn
50% or more of their total revenues from goods or services produced in emerging
market countries or from sales made in emerging market countries.
The selection of geographic regions is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC, the Fund's investment adviser, chooses
investments by:
o Considering opportunities and risks within emerging market countries.
o Determining the percentage of assets to invest in a particular country based
upon its economic outlook, political environment, and growth rate (the Fund
may invest a significant portion of its assets in a particular country or
region).
o Identifying companies with:
-- effective management,
-- financial strength,
-- prospects for growth and development, and
-- high demand for their products or services.
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).
o Buying securities of those companies AEFC considers to be industry market
leaders offering the best opportunity for long-term growth.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to alternative investments, and
-- the company or the security continues to meet the standards described
above.
Because the economies of emerging markets can change much more rapidly than that
of the U.S., AEFC will focus on the risks associated with potential currency
devaluations or sharp changes in monetary policy. If AEFC believes economic or
political developments may result in lower share prices, it will attempt to
reduce the investments in that country.
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. Additionally, the Fund may utilize derivative instruments to
produce incremental earnings and to increase flexibility.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities and debt securities. During weak or
declining markets, the Fund may invest more of its assets in money market
securities.
<PAGE>
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, expenses, and taxes.
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
Sector/Concentration 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 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.
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
quickly.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
sector will be more susceptible to changes in price (the more you diversify, the
more you spread risk).
PAST PERFORMANCE
The bar chart and past performance table are not presented because the Fund did
not begin operations until May 2000.
MANAGEMENT
Julian Thompson manages the day-to-day operations of AXP Variable Portfolio -
Emerging Markets Fund. He joined AEFC in 1999. Besides managing this Fund, he
has co-managed the assets of Emerging Markets Portfolio since December 1999.
Prior to joining AEFC, from 1993-1999, he was an Investment Manager - Emerging
Markets for Stewart Ivory, a Scottish investment company.
<PAGE>
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - Extra Income Fund
GOAL
The Fund seeks to provide shareholders with high current income as its primary
goal and, as its secondary goal, capital growth. Because any investment involves
risk, achieving this goal cannot be guaranteed.
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, expenses, and
taxes.
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. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment-grade bonds.
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.
In the printed prospectus you will find a bar chart in this space.
+13.37% -4.41% +6.24%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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, 2000 was -3.22%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year Since inception
AXP VP - Extra Income Fund +6.24% +5.51%(a)
Merrill Lynch High Yield Bond Index +1.57% +7.41%(b)
Lipper High Yield Funds Index +4.78% +7.30%(b)
Lehman Brothers Aggregate Bond Index -0.82% +6.37%(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 subaccounts or the contracts. 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.
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.
The securities included in the indexes may not be the same as those held by the
Fund.
<PAGE>
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 served
as an associate manager since 1994.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
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 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 relative to alternative investments,
-- 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, investment-grade non-governmental
debt obligations, and derivatives (such as futures, options and forward
contracts).
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, expenses, and
taxes. Additionally, the Fund's portfolio turnover 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 that would be taxable
distributions to shareholders.
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. This type of risk is closely related to
reinvestment risk, which is the risk that an investor will not be able to
reinvest income or principal at the same rate it currently is earning.
PAST PERFORMANCE
The bar chart and past performance table are not presented because the Fund did
not begin operations until September 1999.
MANAGEMENT
James W. 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 may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - Global Bond 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.
<PAGE>
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, and also to produce
incremental earnings and to increase flexibility.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities, preferred stocks, and convertible
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, expenses, and
taxes.
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. 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/Emerging Markets Risk
Interest Rate Risk
Liquidity 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. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment-grade bonds.
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.
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.
<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.
In the printed prospectus a bar chart appears in this area.
+3.83% +8.05% -4.40%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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, 2000 was -1.84%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year Since inception
AXP VP - Global Bond Fund -4.40% +4.07%(a)
Salomon Smith Barney World Government Bond Index -4.27% +4.45%(b)
Lipper Global Income Funds Index -2.74% +4.50%(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 subaccounts or the contracts. 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 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 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.
The securities included in the indexes may not be the same as those held by the
Fund.
<PAGE>
MANAGEMENT
Ray Goodner and Nic Pifer are primarily responsible for the day-to-day operation
of AXP Variable Portfolio - Global Bond Fund.
Ray Goodner, vice president and senior portfolio manger, joined AEFC in 1977. He
became co-portfolio manager of this fund in May 2000. He also serves as
portfolio manager of other American Express mutual funds including Quality
Income Portfolio, World Income Portfolio, and AXP Variable Portfolio - Bond
Fund.
Nic Pifer, co-manager of the Fund, joined AEFC in 2000. From 1997 to 2000, Nic
worked at Investment Advisers, Inc. where he served as vice president and fixed
income portfolio manager. Prior to that he was a trader analyst and manager of
the foreign exchange trading desk at the Federal Reserve Bank of New York.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
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 (such as futures, options, and forward contracts) 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, expenses, and
taxes.
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 bar chart and past performance table are not presented because the Fund did
not begin operations until September 1999.
MANAGEMENT
Lisa Costa, senior portfolio manager is responsible for the day-to-day
operations of AXP Variable Portfolio - Growth Fund. She joined AEFC in January
2000. From 1985-1999 she was vice president and portfolio manager for Franklin
Advisors at Franklin Templeton Group of Funds. She also serves as portfolio
manager of AXP Growth Fund.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - International 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.
<PAGE>
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).
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, expenses,
and taxes.
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.
In the printed prospectus there is a bar chart in this space.
+32.79% -1.66% +11.33% +9.03% +2.73% +15.82% +45.63%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
During the period shown in the bar chart, the highest return for a calendar
quarter was +31.82% (quarter ending December 1999) 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, 2000 was -17.33%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year 5 years Since inception
AXP VP - International Fund +45.63% +16.03% +13.34%(a)
MSCI EAFE Index +25.27% +11.14% +9.64%(b)
Lipper International Funds Index +37.83% +15.96% +13.59%(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 subaccounts or the contracts. 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 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.
<PAGE>
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.
The securities included in the indexes may not be the same as those held by the
Fund.
MANAGEMENT
Mark Fawcett, Richard Leadem, and Gavin Corr are primarily responsible for the
day-to-day operations of AXP Variable Portfolio International Fund.
Mark Fawcett, co-manager of the Fund since September 2000, joined AEFC in 1999.
He is chief investment officer of American Express Asset Management
International Inc. (AEAMI), the London-based subsidiary of AEFC. He also manages
AXP International Fund, IDS Life Series Fund - International Equity Portfolio,
the international portion of AXP Managed Allocation Fund and the equity portion
of AXP Global Balanced Fund. Prior to joining AEFC, Mark was with Gartmore
Investment Management plc, a pension fund and mutual fund management company in
the U.K. from 1991 to 1999.
Richard Leadem, co-manager of the Fund since September 2000, joined AEFC in 1997
as chief investment director - North American Equities for AEAMI. He also
manages World Growth Portfolio and AXP Global Growth Fund. He also co-manages
IDS Life Series Fund International Equity Portfolio. Prior to joining AEFC, he
was a senior portfolio manager at Mercury Asset management from 1994 to 1997.
Gavin Corr, co-manager of the Fund since September 2000, joined AEFC in 1995 as
a portfolio manager on the European equity team. He also co-manages AXP European
Equity Fund and IDS Life Series Fund - International Equity Portfolio. Prior to
joining AEFC, he was with a London investment bank.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - 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.
<PAGE>
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.
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 (such as futures, options, and forward contracts) 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, expenses, and taxes.
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.
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.
<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.
In the printed prospectus a bar chart appears in this space.
+3.29 +29.63% +7.53% +12.33% -4.52% +24.21 +16.20% +19.50% +15.80% +14.84%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
During the period shown in the bar chart, the highest return for a calendar
quarter was +15.66% (quarter ending December 1998) and the lowest return for a
calendar quarter was -9.94% (quarter ending September 1998).
The Fund's year to date return as of Sept. 30, 2000 was +2.61%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year 5 years 10 years
AXP VP - Managed Fund +14.84% +18.06% +13.48%
S&P 500 Index +21.04% +28.56% +18.21%
Lipper Flexible Portfolio Index +9.82% +16.37% +12.23%
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 subaccounts or the contracts. 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 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.
The securities included in the index may not be the same as those held by the
Fund.
<PAGE>
MANAGEMENT
Alfred Henderson and David 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
has managed the equity portfolio of this Fund since 1996. From 1995-1996 he was
a portfolio manager at Montgomery Asset Management. From 1992-1995 he was a
senior portfolio manager as Husic Capital Management.
David 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.
AXP Variable Portfolio - New 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 (such as futures, options and forward contracts) 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, expenses, and taxes.
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.
<PAGE>
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
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 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.
In the printed prospectus a bar chart is in this space.
+24.37% +28.64 +32.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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, 2000 was +1.50%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year Since inception
AXP VP - New Dimensions Fund +32.00% +26.35%(a)
S&P 500 Index +21.04% +26.78%(b)
Russell 1000 (R) Growth Index +33.16% +31.69%(b)
Lipper Large-Cap Growth Index +34.82% +30.11%(b)
(a) Inception date was May 1, 1996
(b) Measurement period started May 1, 1996.
<PAGE>
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 subaccounts or the contracts. 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 may be generally larger than
those in which the Fund invests.
Russell 1000 (R) Growth Index measures the performance of the 1000 companies in
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.
The securities included in the indexes may not be the same as those held by the
Fund.
MANAGEMENT
Gordon M. 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 may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
AXP Variable Portfolio - S&P 500 Index Fund
GOAL
The Fund seeks to provide shareholders with long-term capital appreciation.
Because any investment involves risk, achieving this goal cannot be guaranteed.
INVESTMENT STRATEGY
The Fund seeks to provide investment results that correspond to the total return
(the combination of appreciation and income) of large-capitalization stocks of
U.S. companies. In pursuit of this objective, the Fund invests primarily in
securities that are expected to provide investment results that correspond to
the performance of the Standard & Poor's 500 Composite Price Index* (S&P 500
Index). The S&P 500 Index is made up primarily of large-capitalization companies
that represent a broad spectrum of the U.S. economy. The S&P 500 Index is an
unmanaged group of securities whose overall performance is frequently used as a
standard to measure investment performance. The Fund is not managed according to
traditional methods of "active" investment management. Instead, it follows a
passive or indexing investment approach in an attempt to mirror the performance
of the S&P 500 Index. Keep in mind that an index fund has operating expenses and
transaction costs, while an index does not. This means that, while an index fund
may track its index closely, it is typically unable to match the performance of
the index exactly. While there is no guarantee, the investment adviser expects
the correlation between the Fund and its respective index to be at least .95. A
correlation of 1.00 means the return of the Fund can be completely explained by
the return of the index.
The Fund normally will invest in all stocks in the S&P 500 Index in roughly the
same proportions as their weightings in the index. For example, if 5% of the S&P
500 Index is made up of a stock of a particular company, the Fund normally will
invest approximately 5% of its assets in that company. This strategy is known as
"full replication." Although the Fund attempts to replicate the S&P 500 Index,
there may be times when the Fund and the index do not match exactly. AEFC, the
Fund's investment adviser, may purchase stocks not included in the S&P 500 Index
when it believes it would be a cost efficient way of approximating the S&P 500
Index's performance to do so, for example, in anticipation of a stock being
added to the index.
AEFC may use various techniques, such as buying and selling options and futures
contracts, to increase or decrease the Fund's exposure to changing security
prices or other factors that affect security values. The Fund normally will
invest at least 80% of its total assets in securities that are contained in the
S&P 500 Index. AEFC will monitor the performance of the Fund against the index
and will adjust the Fund's holdings, as necessary, to minimize tracking error.
In the event a correlation of .95 or better is not achieved, the Fund's board
will consider alternative arrangements.
<PAGE>
The Fund may change its target index for a different index if the current index
is discontinued or if the Fund's board believes a different index would better
enable the Fund to match the performance of the market segment represented by
the current index. The substitute index will measure the same general segment of
the market as the current index.
The Fund may hold cash or its equivalent or invest in investment grade
short-term fixed income securities. Although index funds, by their nature, tend
to be tax-efficient investments, the Fund generally is managed without regard to
tax efficiency.
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
o The security continues to be included in the S&P 500 Index,
o Corporate actions have affected the company's security (such as corporate
reorganizations, mergers or acquisitions),
o A company's market weighting otherwise changes with respect to the S&P 500
Index, and
o Timing of cash flows in and out of the Fund require AEFC to sell a
security.
For more information on investment strategies, holdings and the S&P 500 Index,
please refer to the SAI and the annual/semiannual reports.
* "Standard & Poor's (R)", "S&P (R)", "S&P 500 (R)", and "Standard &
Poor's 500" are trademarks of The McGraw-Hill Companies, Inc. These
trademarks have been licensed for use by American Express Financial
Corporation. The Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's or any of its subsidiaries or affiliates (the
"Licensors") and the Licensors make no representation regarding the
advisability of investing in the Fund.
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
Tracking Error Risk
Sector/Concentration 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.
Tracking Error Risk
The Fund may not track the S&P 500 Index perfectly because differences between
the S&P 500 Index and the Fund's portfolio can cause differences in performance.
The investment adviser purchases securities and other instruments in an attempt
to replicate the performance of the S&P 500 Index. However, the tools that the
investment adviser uses to replicate the S&P 500 Index are not perfect and 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
and changes in the S&P 500 Index.
In addition, the returns from a specific type of security (for example,
large-cap stocks) may trail returns from other asset classes or the overall
market. Each type of security will go through cycles of doing better or worse
than stocks or bonds in general. These periods may last for several years.
Sector/Concentration Risk
The Fund is non-diversified. A non-diversified fund may invest more of its
assets in fewer companies than if it were a diversified fund. Because each
investment has a greater effect on the Fund's performance, it may be more
susceptible to a single economic, political or regulatory occurrence than a
diversified fund. In addition, in tracking the S&P 500 Index, the Fund may have
a considerable portion of its assets invested in one or more sectors of the
market. This may lead to a greater market fluctuation than would occur with a
fund invested in a wider spectrum of industries. The Fund will invest more than
25% of its total assets in a particular industry only if necessary to track the
S&P 500 Index.
PAST PERFORMANCE
The bar chart and past performance table are not presented because the Fund did
not begin operations until May 2000.
<PAGE>
INDEX PERFORMANCE
The following chart shows the performance of the S&P 500 Index for the ten years
ended in December 1999. How the S&P 500 Index performed in the past does not
indicate how it will perform in the future. The past performance of the index
should not be viewed as representative of the Fund's future performance.
In the printed prospectus a bar chart appears in this space
-3.10% +30.47% +7.62% +10.08% +1.32% +37.58% +22.96% +33.36% +28.56% +21.04%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
MANAGEMENT
James M. Johnson, Jr. manages the day-to-day operations of AXP Variable
Portfolio - S&P 500 Index Fund. He joined AEFC in 1994 as an equity quantitative
analyst. He began managing portfolios for American Express Asset Management
Group in 1996. He became portfolio manager of the Fund in 2000. He also manages
or co-manages AXP Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500
Index Fund, AXP Small Company Index Fund, AXP Total Stock Market Index Fund,
Total Return Portfolio, AXP Blue Chip Advantage Fund, Aggressive Growth
Portfolio and AXP Variable Portfolio - Blue Chip Advantage Fund.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
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.
<PAGE>
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, debt securities (of any rating),
and derivatives (such as futures, options and forward contracts).
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, expenses, and
taxes.
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
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 bar chart and past performance table are not presented because the Fund did
not begin operations until September 1999.
MANAGEMENT
Jake Hurwitz and Kent Kelly 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, they have managed AXP Small Cap Advantage Fund since May 1999.
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 may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual fund.
<PAGE>
AXP Variable Portfolio - Strategy Aggressive 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 alternative 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), derivatives (such as options, futures and forward
contracts), and convertible securities.
During weak or declining markets or when growth opportunities are unavailable,
the Fund may invest more of its assets in money market securities or debt
obligations. 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, expenses, and taxes. 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 that would be taxable
distributions to shareholders.
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
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.
<PAGE>
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
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.
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.
In the printed prospectus a bar chart appears in this area.
+13.07 -6.32% +31.76% +15.98% +12.64% +2.62% +71.03%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
During the period shown in the bar chart, the highest return for a calendar
quarter was +56.47% (quarter ending December 1999) 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, 2000 was +11.67%.
Average Annual Total Returns (as of Dec. 31, 1999)
1 year 5 years Since inception
AXP VP - Strategy Aggressive Fund +71.03% +24.75% +17.02%(a)
S&P MidCap 400 Index +14.72% +23.05% +16.75%(b)
Russell MidCap (R) Growth Index +51.29% +28.02% +19.26%(b)
Lipper Mid-Cap Growth Index +73.72% +28.07% +19.53%(b)
S&P 500 Index +21.04% +28.56% +20.21%(b)
(a) Inception date was Jan. 13, 1992.
(b) Measurement period started Feb. 1, 1992.
<PAGE>
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 subaccounts or the contracts. 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.
Standard & Poor's MidCap 400 Index (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
values. The stocks are also members of the Russell 1000 (R) 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.
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 may be generally larger than
those in which the Fund invest.
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 AXP Innovations Fund (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.
The Fund may have a name, portfolio manager, objectives, strategies and
characteristics that are the same or substantially similar to those of a
different retail mutual fund. The Fund, however, will have its own unique
portfolio holdings, fees and operating expenses. Consequently, the Fund will
have its own unique operating results, and those results may differ
significantly from the different retail mutual 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 variable life
insurance contract 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
variable life insurance contract, there is no sales charge for the purchase or
sale of Fund shares. However, there may be charges associated with your variable
annuity or variable life insurance contract, including those that may be
associated with surrender or withdrawal. Any charges that apply to the
subaccount and your contract are described in the variable annuity or variable
life insurance 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. In turn, IDS Life pays AEFC a fee for investment advisory services.
Under the Investment Management Services agreement, the following fees were paid
as a percentage of average daily net assets for the most recent fiscal year:
Fund Fee
AXP Variable Portfolio - Blue Chip Advantage Fund 0.56%
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 - Diversified Equity Income Fund 0.56%
AXP Variable Portfolio - Emerging Markets Fund* 1.13%
AXP Variable Portfolio - Extra Income Fund 0.62%
AXP Variable Portfolio - Federal Income Fund 0.61%
AXP Variable Portfolio - Global Bond Fund 0.84%
AXP Variable Portfolio - Growth Fund 0.64%
AXP Variable Portfolio - International Fund* 0.82%
AXP Variable Portfolio - Managed Fund 0.59%
AXP Variable Portfolio - New Dimensions Fund 0.60%
AXP Variable Portfolio - S&P 500 Index Fund 0.28%
AXP Variable Portfolio - Small Cap Advantage Fund** 0.75%
AXP Variable Portfolio - Strategy Aggressive Fund 0.59%
* AEFC pays American Express Asset Management International Inc. (AEAMI) a
fee for sub-investment advisory services. AEAMI (50192 AXP Financial
Center, Minneapolis, MN 55474) is a wholly-owned subsidiary of AEFC.
** AEFC pays Kenwood Capital Management LLC (KCM LLC) a fee for sub-investment
advisory services. KCM LLC (Metropolitan Center, Suite 2300, 333 South
Seventh Street, Minneapolis, MN 55402) is an indirect subsidiary of AEFC.
o Distribution (12b-1) Fees
The Fund has adopted 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>
o Expense Limitation
Through April 30, 2001, 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 - Emerging Markets Fund 1.75%
AXP Variable Portfolio - S&P 500 Index Fund 0.495
Through Aug. 31, 2001, 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
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).
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 variable life insurance contract 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 variable annuity or variable
life insurance contract. Any charges that apply to the subaccount and your
contract are described in your variable annuity or variable life insurance
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 have allocated to the
subaccounts. IDS Life or 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 variable annuity or variable life insurance prospectus for
more information about transfers among subaccounts as well as surrenders and
withdrawals.
<PAGE>
Distributions and Taxes
The Fund distributes to shareholders (the variable accounts or variable
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 (the
variable accounts or variable 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 variable
annuities or variable life insurance is discussed in your variable annuity or
variable life insurance prospectus.
Other Information
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 70100 AXP Financial Center, Minneapolis,
MN 55474. 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 200 AXP Financial
Center, Minneapolis, MN 55474. 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
owned and managed more than $263.6 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.
<PAGE>
Financial Highlights
AXP VP - Blue Chip Advantage Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $9.78
Income from investment operations:
Net investment income (loss) .02
Net gains (losses) (both realized and unrealized) 1.85
Total from investment operations 1.87
Less distributions:
Dividends from net investment income (.03)
Net asset value, end of period $11.62
Ratios/supplemental data
Net assets, end of period (in millions) $71
Ratio of expenses to average daily net assets(c) .95%(d,e)
Ratio of net investment income
(loss) to average daily net assets .34%(d)
Portfolio turnover rate
(excluding short-term securities) 226%
Total return(f) 19.13%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 0.96% for the period ended Aug.
31, 2000.
(f) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - Bond Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $10.56 $11.08 $11.99 $11.54 $11.58
Income from investment operations:
Net investment income (loss) .75 .79 .88 .85 .88
Net gains (losses) (both realized and unrealized) (.27) (.52) (.68) .52 (.07)
Total from investment operations .48 .27 .20 1.37 .81
Less distributions:
Dividends from net investment income (.75) (.77) (.85) (.84) (.85)
Distributions from realized gains -- (.02) (.26) (.07) --
Excess distributions from realized gains -- -- -- (.01) --
Total distributions (.75) (.79) (1.11) (.92) (.85)
Net asset value, end of period $10.29 $10.56 $11.08 $11.99 $11.54
Ratios/supplemental data
Net assets, end of period (in millions) $1,468 $1,750 $1,852 $1,923 $1,912
Ratio of expenses to average daily net assets(b) .79% .68% .67% .68% .68%
Ratio of net investment income (loss)
to average daily net assets 7.30% 7.22% 7.39% 7.18% 7.47%
Portfolio turnover rate
(excluding short-term securities) 70% 68% 48% 73% 56%
Total return(c) 4.69% 2.40% 1.54% 12.24% 5.82%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
AXP VP - Capital Resource Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $34.62 $26.80 $27.97 $25.57 $24.42
Income from investment operations:
Net investment income (loss) .01 .06 .11 .16 .30
Net gains (losses) (both realized and unrealized) 6.20 10.28 (.54) 6.45 1.22
Total from investment operations 6.21 10.34 (.43) 6.61 1.52
Less distributions:
Dividends from net investment income (.01) (.06) (.11) (.15) (.29)
Distributions from realized gains (3.61) (2.46) (.63) (4.05) (.07)
Excess distributions from realized gains -- -- -- (.01) (.01)
Total distributions (3.62) (2.52) (.74) (4.21) (.37)
Net asset value, end of period $37.21 $34.62 $26.80 $27.97 $25.57
Ratios/supplemental data
Net assets, end of period (in millions) $5,920 $5,621 $4,453 $4,867 $4,372
Ratio of expenses to average daily net assets(b) .77% .66% .66% .67% .68%
Ratio of net investment income (loss)
to average daily net assets (.02%) .17% .34% .61% 1.15%
Portfolio turnover rate
(excluding short-term securities) 52% 56% 68% 110% 131%
Total return(c) 19.26% 40.12% (1.67%) 28.47% 6.15%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
AXP VP - Cash Management Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
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) $783 $690 $428 $421 $288
Ratio of expenses to average daily net assets(b) .68% .56% .57% .57% .56%
Ratio of net investment income (loss)
to average daily net assets 5.38% 4.60% 5.13% 4.97% 5.02%
Total return(c) 5.52% 4.72% 5.25% 5.05% 5.15%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
AXP VP - Diversified Equity Income Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $9.76
Income from investment operations:
Net investment income (loss) .10
Net gains (losses) (both realized and unrealized) .30
Total from investment operations .40
Less distributions:
Dividends from net investment income (.11)
Net asset value, end of period $10.05
Ratios/supplemental data
Net assets, end of period (in millions) $23
Ratio of expenses to average daily net assets(c) .95%(d,e)
Ratio of net investment income
(loss) to average daily net assets 1.42%(d)
Portfolio turnover rate
(excluding short-term securities) 53%
Total return(f) 4.21%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.49% for the period ended Aug.
31, 2000.
(f) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - Emerging Markets Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $10.23
Income from investment operations:
Net investment income (loss) (.01)
Net gains (losses) (both realized and unrealized) (.60)
Total from investment operations (.61)
Less distributions:
Tax return of capital (.01)
Net asset value, end of period $9.61
Ratios/supplemental data
Net assets, end of period (in millions) $6
Ratio of expenses to average daily net assets(c) 1.69%(d,e)
Ratio of net investment income (loss)
to average daily net assets (.36%)(d)
Portfolio turnover rate
(excluding short-term securities) 37%
Total return(f) (6.03%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 1, 2000 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 2.42% for the period ended Aug.
31, 2000.
(f) 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 changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996(b)
Net asset value, beginning of period $8.75 $9.54 $10.39 $9.77 $10.00
Income from investment operations:
Net investment income (loss) .85 .92 .95 .88 .18
Net gains (losses) (both realized and unrealized) (.99) (.69) (.80) .62 (.23)
Total from investment operations (.14) .23 .15 1.50 (.05)
Less distributions:
Dividends from net investment income (.85) (.92) (.95) (.88) (.18)
Distributions from realized gains -- (.10) (.05) -- --
Total distributions (.85) (1.02) (1.00) (.88) (.18)
Net asset value, end of period $7.76 $8.75 $9.54 $10.39 $9.77
Ratios/supplemental data
Net assets, end of period (in millions) $595 $638 $564 $320 $49
Ratio of expenses to average daily net assets(c) .82% .70% .69% .69% 1.53%(d)
Ratio of net investment income (loss)
to average daily net assets 10.35% 10.17% 9.21% 8.88% 8.14%(d)
Portfolio turnover rate
(excluding short-term securities) 63% 50% 66% 104% 22%
Total return(e) (1.59%) 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) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
AXP VP - Federal Income Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $10.02
Income from investment operations:
Net investment income (loss) .51
Net gains (losses) (both realized and unrealized) (.06)
Total from investment operations .45
Less distributions:
Dividends from net investment income (.52)
Net asset value, end of period $9.95
Ratios/supplemental data
Net assets, end of period (in millions) $37
Ratio of expenses to average daily net assets(c) .87%(d,e)
Ratio of net investment income (loss)
to average daily net assets 5.49%(d)
Portfolio turnover rate
(excluding short-term securities) 67%
Total return(f) 4.64%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 0.89% for the period ended Aug.
31, 2000.
(f) 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 changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996(b)
Net asset value, beginning of period $9.84 $10.09 $10.32 $10.08 $10.00
Income from investment operations:
Net investment income (loss) .32 .55 .60 .51 .12
Net gains (losses) (both realized and unrealized) (.51) (.29) (.21) .14 .07
Total from investment operations (.19) .26 .39 .65 .19
Less distributions:
Dividends from net investment income (.31) (.51) (.58) (.41) (.11)
Distributions from realized gains -- -- (.04) -- --
Total distributions (.31) (.51) (.62) (.41) (.11)
Net asset value, end of period $9.34 $9.84 $10.09 $10.32 $10.08
Ratios/supplemental data
Net assets, end of period (in millions) $177 $197 $183 $119 $21
Ratio of expenses to average daily net assets(c) 1.07% .96% .95% .97% 1.77%(d)
Ratio of net investment income (loss)
to average daily net assets 4.81% 5.36% 5.81% 5.66% 4.96%(d)
Portfolio turnover rate
(excluding short-term securities) 50% 56% 14% 36% 4%
Total return(e) (1.90%) 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) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
AXP VP - Growth Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $9.72
Income from investment operations:
Net investment income (loss) --
Net gains (losses) (both realized and unrealized) 3.75
Total from investment operations 3.75
Less distributions:
Tax return of capital (.01)
Net asset value, end of period $13.46
Ratios/supplemental data
Net assets, end of period (in millions) $195
Ratio of expenses to average daily net assets(c) .95%(d,e)
Ratio of net investment income (loss)
to average daily net assets (.09%)(d)
Portfolio turnover rate
(excluding short-term securities) 17%
Total return(f) 38.59%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC Reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 0.97% for the period ended Aug.
31, 2000.
(f) 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 changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $17.26 $14.25 $14.09 $13.30 $12.55
Income from investment operations:
Net investment income (loss) .06 .12 .14 .18 .20
Net gains (losses) (both realized and unrealized) 2.50 3.04 .42 1.06 1.01
Total from investment operations 2.56 3.16 .56 1.24 1.21
Less distributions:
Dividends from net investment income (.01) (.07) (.15) (.17) (.44)
Distributions from realized gains (2.83) (.08) (.19) (.28) (.02)
Excess distributions from realized gains -- -- (.06) -- --
Total distributions (2.84) (.15) (.40) (.45) (.46)
Net asset value, end of period $16.98 $17.26 $14.25 $14.09 $13.30
Ratios/supplemental data
Net assets, end of period (in millions) $2,389 $2,221 $2,023 $2,105 $1,874
Ratio of expenses to average daily net assets(b) 1.02% .94% .94% .97% .96%
Ratio of net investment income (loss)
to average daily net assets .27% .70% .94% 1.30% 1.28%
Portfolio turnover rate
(excluding short-term securities) 118% 102% 86% 91% 58%
Total return(c) 14.74% 22.18% 4.09% 9.34% 9.64%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
AXP VP - Managed Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $18.84 $17.25 $18.87 $16.00 $14.85
Income from investment operations:
Net investment income (loss) .47 .50 .49 .46 .46
Net gains (losses) (both realized and unrealized) 2.85 3.29 (.12) 3.93 1.15
Total from investment operations 3.32 3.79 .37 4.39 1.61
Less distributions:
Dividends from net investment income (.48) (.49) (.48) (.45) (.46)
Distributions from realized gains (.87) (1.71) (1.50) (1.06) --
Excess distributions from net investment income -- -- (.01) (.01) --
Total distributions (1.35) (2.20) (1.99) (1.52) (.46)
Net asset value, end of period $20.81 $18.84 $17.25 $18.87 $16.00
Ratios/supplemental data
Net assets, end of period (in millions) $5,223 $5,046 $4,413 $4,445 $3,482
Ratio of expenses to average daily net assets(b) .75% .63% .64% .64% .65%
Ratio of net investment income (loss)
to average daily net assets 2.37% 2.62% 2.56% 2.65% 2.94%
Portfolio turnover rate
(excluding short-term securities) 49% 44% 50% 72% 85%
Total return(c) 18.42% 22.98% 1.74% 27.50% 11.01%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
AXP VP - New Dimensions Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996(b)
Net asset value, beginning of period $18.87 $13.29 $12.95 $9.94 $10.00
Income from investment operations:
Net investment income (loss) .03 .06 .08 .10 .03
Net gains (losses) (both realized and unrealized) 6.34 5.60 .34 3.01 (.06)
Total from investment operations 6.37 5.66 .42 3.11 (.03)
Less distributions:
Dividends from net investment income (.04) (.06) (.08) (.10) (.03)
Distributions from realized gains (.17) (.02) -- -- --
Total distributions (.21) (.08) (.08) (.10) (.03)
Net asset value, end of period $25.03 $18.87 $13.29 $12.95 $9.94
Ratios/supplemental data
Net assets, end of period (in millions) $5,564 $3,538 $1,960 $1,307 $171
Ratio of expenses to average daily net assets(c) .78% .68% .69% .72% 1.04%(d)
Ratio of net investment income (loss)
to average daily net assets .15% .34% .59% 1.04% 1.69%(d)
Portfolio turnover rate
(excluding short-term securities) 28% 27% 34% 29% 4%
Total return(e) 34.01% 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) Expense ratio is based on total expenses of the Fund before reduction of
earnings credit on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
AXP VP - S&P 500 Index Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $10.06
Income from investment operations:
Net investment income (loss) .02
Net gains (losses) (both realized and unrealized) .33
Total from investment operations .35
Less distributions:
Dividends from net investment income (.03)
Net asset value, end of period $10.38
Ratios/supplemental data
Net assets, end of period (in millions) $21
Ratio of expenses to average daily net assets(c) .48%(d,e)
Ratio of net investment income (loss)
to average daily net assets .72%(d)
Portfolio turnover rate
(excluding short-term securities) 44%
Total return(f) 3.49%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 1, 2000 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.57% for the period ended Aug.
31, 2000.
(f) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
AXP VP - Small Cap Advantage Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
2000(b)
Net asset value, beginning of period $9.90
Income from investment operations:
Net investment income (loss) (.02)
Net gains (losses) (both realized and unrealized) 2.78
Total from investment operations 2.76
Less distributions:
Distributions from realized gains (.08)
Net asset value, end of period $12.58
Ratios/supplemental data
Net assets, end of period (in millions) $31
Ratio of expenses to average daily net assets(c) 1.19%(d,e)
Ratio of net investment income
(loss) to average daily net assets (.24%)(d)
Portfolio turnover rate
(excluding short-term securities) 169%
Total return(f) 28.19%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug.
31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.43% for the period ended Aug.
31, 2000.
(f) Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - Strategy Aggressive Fund
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $16.46 $13.10 $17.17 $16.04 $14.44
Income from investment operations:
Net investment income (loss) .01 .05 .01 .08 .10
Net gains (losses) (both realized and unrealized) 13.17 4.36 (2.57) 2.84 1.60
Total from investment operations 13.18 4.41 (2.56) 2.92 1.70
Less distributions:
Dividends from net investment income -- (.05) (.01) (.08) (.10)
Distributions from realized gains (1.82) (1.00) (1.49) (1.71) --
Excess distributions from realized gains -- -- (.01) -- --
Total distributions (1.82) (1.05) (1.51) (1.79) (.10)
Net asset value, end of period $27.82 $16.46 $13.10 $17.17 $16.04
Ratios/supplemental data
Net assets, end of period (in millions) $4,197 $2,327 $1,976 $2,427 $1,941
Ratio of expenses to average daily net assets(b) .77% .67% .66% .68% .69%
Ratio of net investment income (loss)
to average daily net assets .04% .31% .08% .47% .65%
Portfolio turnover rate
(excluding short-term securities) 143% 207% 176% 218% 189%
Total return(c) 84.97% 35.27% (16.40%) 18.60% 11.82%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) 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 Fund are 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
70100 AXP Financial Center
Minneapolis, MN 55474
800-862-7919
TTY: 800-846-4852
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
1-202-942-8090). Reports and other information about the Fund are available on
the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
Copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address: [email protected], or by
writing to the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
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 - Emerging Markets Fund 811-3218
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 - S&P 500 Index Fund 811-3218
AXP Variable Portfolio - Small Cap Advantage Fund 811-3218
AXP Variable Portfolio - Strategy Aggressive Fund 811-3218
S-6466-99 T (10/00)
<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 - Emerging Markets Fund
AXPSM Variable Portfolio - Federal Income Fund
AXPSM Variable Portfolio - Global Bond Fund
AXPSM Variable Portfolio - S&P 500 Index 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(R)
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. 30, 2000
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, 70100 AXP Financial Center, Minneapolis, MN 55474 or by calling
800-862-7919.
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. 15
Information Regarding Risks and Investment Strategies.....................p. 25
Security Transactions.....................................................p. 48
Brokerage Commissions Paid to Brokers Affiliated with IDS Life............p. 52
Performance Information...................................................p. 53
Valuing Fund Shares.......................................................p. 56
Selling Shares............................................................p. 58
Capital Loss Carryover....................................................p. 58
Taxes.....................................................................p. 59
Agreements................................................................p. 59
Organizational Information................................................p. 72
Board Members and Officers................................................p. 74
Compensation for Board Members............................................p. 77
Independent Auditors......................................................p. 80
Appendix A: Description of Money Market Securities.......................p. 81
Appendix B: Description of Ratings.......................................p. 83
Appendix C: Additional Information About the Index.......................p. 88
<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 - Emerging Markets Fund (Emerging Markets)
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 - S&P 500 Index Fund (S&P 500 Index Fund)
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.
<PAGE>
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.
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.
<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.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
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.
Emerging Markets
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.
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 American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except as permitted under the 1940 Act.
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.
<PAGE>
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.
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 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.
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.
<PAGE>
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.
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.
<PAGE>
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%.
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.
<PAGE>
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.
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.
S&P 500 Index Fund
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, unless that industry represents more than
25% of the index tracked by the Fund. For all other industries, in
accordance with the current interpretation by the SEC, 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 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 board members and
officers of AEFC or to its own board members and officers.
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except as permitted under the 1940 Act.
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.
<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 Issue senior securities, except as permitted under the 1940 Act.
o Lend Fund securities in excess of 30% of its net assets.
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
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- -------------------------------------------------------------------------
Investment strategies & types of investments: Allowable for
the Fund?
----------------------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Emerging Extra Federal Global Growth International
Markets Income Income Bond
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Agency and Government Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Borrowing yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Cash/Money Market Instruments yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Collateralized Bond Obligations yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Commercial Paper yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Common Stock yes yes no yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Convertible Securities yes yes no yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Corporate Bonds yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Debt Obligations yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Depositary Receipts yes yes no yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Derivative Instruments yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Foreign Currency Transactions yes yes no yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Foreign Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
High-Yield (High-Risk) Securities (Junk Bonds) yes yes no yes no no
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Illiquid and Restricted Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Indexed Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Inverse Floaters no yes yes yes no no
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Investment Companies yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Lending of Portfolio Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Loan Participations yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Mortgage- and Asset-Backed Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Mortgage Dollar Rolls no yes yes yes no no
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Municipal Obligations yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Preferred Stock yes yes no yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Real Estate Investment Trusts yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Repurchase Agreements yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Reverse Repurchase Agreements yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Short Sales no no yes no no no
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Sovereign Debt yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Structured Products yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Variable- or Floating-Rate Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Warrants yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
When-Issued Securities yes yes yes yes yes yes
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes yes yes yes
Securities
----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- ----------------------------------------------------------------------
Investment strategies & types of investments: Allowable for
the Fund?
----------------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New S&P 500 Small Cap Strategy
Managed Dimensions Index Fund Advantage Aggressive
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
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 yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Convertible Securities yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Corporate Bonds yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Debt Obligations yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Depositary Receipts yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Derivative Instruments yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Foreign Currency Transactions yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Foreign Securities yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
High-Yield (High-Risk) Securities (Junk Bonds) yes yes no no yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Illiquid and Restricted Securities yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Indexed Securities yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Inverse Floaters yes no 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 yes yes no no yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Mortgage Dollar Rolls yes no no no no
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Municipal Obligations yes yes yes yes yes
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Preferred Stock yes yes 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 no yes no no
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
Sovereign Debt yes yes yes no 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
----------------------------------------------- ------------- ------------- -------------- ------------- -------------
</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 The Fund will not invest more than 10% of its total assets in securities of
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>
Emerging Markets
o Under normal market conditions, at least 65% of the Fund's total assets
will be invested in emerging market equity securities of at least three
different countries.
o The Fund may invest up to 20% of its net assets in bonds.
o The Fund may invest up to 10% of its net assets in bonds rated below
investment grade, including Brady bonds.
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.
o The Fund will not invest in a company to control or manage it.
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.
<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, 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.
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.
<PAGE>
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.
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.
<PAGE>
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.
S&P 500 Index Fund
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, except the Fund may make margin payments
in connection with transactions in futures contracts.
For additional information about the Index, see Appendix C.
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.
<PAGE>
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.
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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.
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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 a buyer
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.
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
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, 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.
The Fund, AEFC and IDS Life each have 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
the Fund.
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
<PAGE>
continuing basis to obtain such 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 periods noted below, each Fund paid the following total brokerage
commissions. Substantially all firms through whom transactions were executed
provide research services.
<TABLE>
<CAPTION>
Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Blue Chip Advantage(a) $ 89,774 $ -0- $ -0-
Bond 47,482 63,860 85,301
Capital Resource 5,671,309 6,309,750 7,319,583
Cash Management -0- -0- -0-
Diversified Equity Income(a) 25,904 -0- -0-
Emerging Markets(b) 15,512 -0- -0-
Extra Income 8,078 1,293 4,211
Federal Income(a) 1,160 -0- -0-
Global Bond -0- -0- -0-
Growtha 70,141 -0- -0-
International 10,996,932 8,124,560 6,012,897
Managed 2,320,496 2,953,255 2,698,065
New Dimensions 2,155,713 1,277,847 1,172,182
S&P 500 Index(b) 5,307 -0- -0-
Small Cap Advantage(a) 45,677 -0- -0-
Strategy Aggressive 3,542,181 5,889,467 6,553,128
a For the period from Sept. 15, 1999 (date the Fund became available ) to Aug. 31, 2000
b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000
</TABLE>
<PAGE>
In fiscal period 2000, the following transactions and commissions were
specifically directed to firms in exchange for research services:
Transactions Commissions
Blue Chip Advantage $ - $ -
Bond - -
Capital Resource 325,000 20,500
Cash Management - -
Diversified Equity Income 3,050 156
Emerging Markets - -
Extra Income - -
Federal Income - -
Global Bond - -
Growth - -
International - -
Managed 1,765,000 98,150
New Dimensions - -
S&P 500 Index - -
Small Cap Advantage 300 18
Strategy Aggressive 1,935,640 105,955
-------------------------------------------------------------------------------
As of the end of the most recent fiscal period, Emerging Markets, Federal Income
and 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 period, 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>
Value of Securities
Fund Name of Issuer Owned at End of Fiscal Period
--------------------- -------------- -----------------------------
<S> <C> <C>
Blue Chip Advantage Bank of America $15,775
FleetBoston 633,312
Lehman Brothers 733,700
Merrill Lynch 145,000
Morgan Stanley 1,018,402
Bond Fleet Financial Group 5,102,000
LaBranche 4,200,000
Capital Resource Bank of America 42,850,000
Chase Manhattan 22,908,750
Merrill Lynch 39,150,000
Morgan Stanley 86,050,000
Cash Management Bank of America 35,975,444
Bear Sterns 25,998,041
Fleet 4,980,983
Goldman Sachs Group 33,537,349
Merrill Lynch 14,548,601
Morgan Guaranty 1,000,000
Salomon Smith Barney 36,986,257
<PAGE>
Diversified Equity Income Bank of America $625,171
FleetBoston Financial 541,655
Lehman Brothers 280,071
Morgan Stanley 575,947
Extra Income LaBranche 3,360,000
Salomon Smith Barney 592,652
Global Bond Morgan (JP) 861,550
Growth FleetBoston Financial 3,181,542
Merrill Lynch 4,704,960
Managed Bank of America 7,191,016
Donaldson, Lufkin & Jenrette 21,417,000
LaBranche 1,312,500
Merrill Lynch 23,414,374
Morgan (JP) 4,307,750
Morgan Stanley 151,580,059
Travelers 3,883,640
New Dimensions Morgan Stanley 156,196,535
S&P 500 Index American Express 124,104
Bank of America 139,477
Bear Stearns 11,602
Chase Manhattan 114,377
FleetBoston Financial 60,446
Lehman Brothers 27,550
Merrill Lynch 88,450
Morgan (JP) 42,800
Morgan Stanley 191,247
Paine Webber Group 16,302
PNC Financial Services Group 26,935
Schwab (Charles) 81,722
Small Cap Advantage Jefferies Group 94,356
LaBranche 138,575
Raymond James Financial 76,950
Strategy Aggressive Fleet Funding 5,756,403
Morgan Stanley 9,080,313
</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. Relatively greater portfolio
turnover often occurs in the early years of a fund's operation since it is more
difficult for new funds to establish meaningful portfolio position as quickly
and efficiently as a more seasoned fund.
The portfolio turnover rates for the two most recent fiscal periods were as
follows:
Aug. 31, 2000 Aug. 31, 1999
------------- -------------
Blue Chip Advantage(a) 226% 0%
Bond 70 68
Capital Resource 52 56
Diversified Equity Income(a) 53 0
Emerging Markets(b) 37 0
Extra Income 63 50
Federal Income(a) 67 0
Global Bond 50 56
Growth(a) 17 0
International 118 102
Managed 49 44
New Dimensions 28 27
S&P 500 Index(b) 44 0
Small Cap Advantage(a) 169 0
Strategy Aggressive 143 207
a For the period from Sept. 15, 1999 (date the Fund became available ) to
Aug. 31, 2000
b For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000
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, Extra Income, Federal Income, Global
Bond and International to brokers affiliated with the Advisor for the three most
recent fiscal years.
<PAGE>
Information about brokerage commissions paid by the Funds for the last three
fiscal periods to brokers affiliated with the Advisor is contained in the
following table:
<TABLE>
<CAPTION>
As of the end of Fiscal Period,
2000 1999 1998
---------------------------------------------- ------------ ------------
Percent of
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
------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip American Wholly-owned
Advantage(a) Enterprise subsidiary $183 0.20% 0.15% $0 $0
Investment of the 800,594 14.12 28.78 582,267 630,669
Capital Resource Services Inc. Advisor
Diversified Equity 87 0.34 0.98 0 0
Income(a) 132 0.19 0.15 0 0
Growth(a) 172,988 7.45 17.02 215,973 123,736
Managed 68,268 3.17 6.46 165,340 129,771
New Dimensions
Small Cap 1,188 2.60 3.91 0 0
Advantage(a) 198,000 5.59 8.08 203,181 414,129
Strategy Aggressive
a For the period from Sept. 15, 1999 (date the Fund became available ) to Aug. 31, 2000
</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 is calculated by several sources. Blue Chip
Advantage 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 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 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 6.86%, Diversified Equity Income's was 3.29%, Extra
Income's was 11.54%, Federal Income's was 5.66%, and Global Bond's was 4.12% for
the 30-day period ended Aug. 31, 2000.
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 6.90%, Diversified Equity Income's was 3.33%,
Extra Income's was 11.40%, Federal Income's was 5.70%, and Global Bond's was
4.09% for the 30-day period ended Aug. 31, 2000.
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's simple annualized yield was 6.36% and its compound yield was
6.38% for the seven days ended Aug. 31, 2000, the last business day of the
Fund's fiscal year.
Yield, or rate of return, on Cash Management 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>
Ibbotson Associates provides historical returns of the capital markets in the
United States, including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term government bonds,
Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indexes. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios.
The Fund may quote various measures of volatility in advertising. Measures of
volatility seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark.
The Distributor may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Materials may
include discussions of asset allocation, retirement investing, brokerage
products and services, model portfolios, saving for college or other goals, and
charitable giving.
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 period, the computation looked like this:
<TABLE>
<CAPTION>
Shares outstanding
at the end of Net asset value
Fund Net assets divided by previous day Equals of one share
---- ---------- ---------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Blue Chip Advantage $71,312,447 6,135,874 $11.62
Bond 1,467,596,238 142,640,055 10.29
Capital Resource 5,919,840,831 159,093,094 37.21
Diversified Equity Income 22,781,967 2,265,882 10.05
Emerging Markets 583,605 9.61
5,607,492
Extra Income 76,654,201 7.76
594,567,627
Federal Income 3,724,826 9.95
37,080,339
Global Bond 177,318,234 18,985,219 9.34
Growth 194,762,760 14,473,073 13.46
International 2,388,754,491 140,699,238 16.98
Managed 5,222,919,985 250,956,171 20.81
New Dimensions 5,564,222,410 222,269,788 25.03
S&P 500 Index 21,008,667 2,024,382 10.38
Small Cap Advantage 31,101,148 2,471,535 12.58
Strategy Aggressive 4,196,894,262 150,886,656 27.82
----------------------------------------------------------------------------------------------------------
</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.
<PAGE>
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.
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
<PAGE>
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.
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 following Funds had total capital loss
carryovers of $182,591,604 at the end of the most recent fiscal period, that if
not offset by subsequent capital gains will expire as follows:
<PAGE>
Fund 2007 2008 2009
---- --------------- ---------------- -----------
Blue Chip Advantage $0 $21,038 $683,800
Bond 14,566,694 52,158,845 43,059,646
Diversified Equity
Income 0 21,681 224,596
Emerging Markets 0 31,298 0
Extra Income 6,538,287 30,163,085 27,163,088
Federal Income 0 0 40,242
Global Bond 938,847 3,742,801 1,202,665
Growth 0 5,782 2,015,518
Small Cap Advantage 0 0 13,691
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.
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
<PAGE>
Bond
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
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
<PAGE>
Emerging Markets
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 1.170%
Next 0.25 1.155
Next 0.25 1.140
Next 0.25 1.125
Next 1.00 1.110
Over 2.00 1.095
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
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
<PAGE>
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
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 6 0.570
S&P 500 Index
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1.00 0.29%
Next 1.00 0.28
Next 3.00 0.27
Over 5.00 0.26
<PAGE>
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, Emerging Markets, 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 Large-Cap
Core Index for Blue Chip Advantage, (ii) Lipper Equity Income Fund Index for
Diversified Equity Income, (iii) Lipper Emerging Markets Fund Index for Emerging
Markets, (iv) Lipper Large-Cap Growth Index for Growth, and (v) the Lipper Small
Cap Core Funds 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.
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 and
Diversified Equity Income, 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 and Growth, 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.
<PAGE>
On the last day of the most recent fiscal period, the daily rate applied to the
Fund's assets (on an annual basis) was 0.560% for Blue Chip Advantage, 0.605%
for Bond, 0.600%, for Capital Resource, 0.510% for Cash Management, 0.560% for
Diversified Equity Income, 1.170% for Emerging Markets, 0.620% for Extra Income,
0.610% for Federal Income, 0.840% for Global Bond, 0.630% for Growth, 0.823% for
International, 0.589% for Managed, 0.601% for New Dimensions, 0.290% for S&P 500
Index, 0.790% for Small Cap Advantage, and 0.591%, 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.
The management fee is paid monthly. Under the agreement, advisory expenses paid
for the following fiscal periods were as follows:
Fund 2000 1999 1998
------ ------ ------- ------
Blue Chip Advantage(a) $ 175,456 $ -0- $ -0-
Bond 9,660,825 11,191,880 11,816,239
Capital Resource 35,047,411 33,169,737 31,852,411
Cash Management 3,873,812 2,828,782 2,041,502
Diversified Equity Income(a) 63,161 -0- -0-
Emerging Markets(b) 20,657 -0- -0-
Extra Income 3,823,199 3,725,928 2,988,028
Federal Income(a) 156,447 -0- -0-
Global Bond 1,574,254 1,689,945 1,338,718
Growth(a) 479,607 -0- -0-
International 20,495,043 17,609,972 18,268,846
Managed 30,552,651 29,584,681 28,641,618
New Dimensions 28,032,830 17,935,431 11,769,360
S&P 500 Index(b) 13,965 -0- -0-
Small Cap Advantage(a) 102,222 -0- -0-
Strategy Aggressive 20,341,387 13,697,732 15,625,616
-------------------------------------------------------------------------------
a For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000
b For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000
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.
<PAGE>
Under the agreement, nonadvisory expenses paid for the following fiscal periods
were as follows:
Fund 2000 1999 1998
----- ------ ------- ------
Blue Chip Advantage(a) $ 71,864 $ -0- $ -0-
Bond 285,887 451,601 306,961
Capital Resource 702,447 711,962 691,029
Cash Management 155,263 116,861 90,399
Diversified Equity Income(a) 25,649 -0- -0-
Emerging Markets(b) 6,300 -0- -0-
Extra Income 140,312 160,872 82,924
Federal Income(a) 23,478 -0- -0-
Global Bond 91,267 112,238 73,014
Growth(a) 97,730 -0- -0-
International 901,977 1,431,821 1,494,878
Managed 766,039 657,770 694,841
New Dimensions 730,550 627,887 379,620
S&P 500 Index(b) -0- -0- -0-
Small Cap Advantage(a) 34,223 -0- -0-
Strategy Aggressive 633,245 499,525 389,523
-------------------------------------------------------------------------------
a For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000
b For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000
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 and the S&P 500 Index Fund
whose fees are 0.35%.
Under the Agreement, the Advisor paid AEFC for the following fiscal periods as
follows:
Fund 2000 1999 1998
----- ------- ------- ---------
Blue Chip Advantage(a) $ 79,177 $ -0- $ -0-
Bond 4,003,119 4,639,445 4,869,052
Capital Resource 14,622,003 13,791,067 13,148,180
Cash Management 1,902,340 1,386,766 995,844
Diversified Equity Income(a) 28,404 -0- -0-
Emerging Markets(b) 4,563 -0- -0-
Extra Income 1,544,400 1,502,390 1,190,430
Federal Income(a) 65,295 -0- -0-
Global Bond 469,362 502,960 395,622
Growth(a) 186,362 -0- -0-
International 8,741,822 7,456,590 7,744,185
Managed 12,982,916 12,548,106 12,132,138
New Dimensions 11,617,712 7,296,923 4,691,961
S&P 500 Index(b) 17,284 -0- -0-
Small Cap Advantage(a) 34,118 -0- -0-
Strategy Aggressive 8,603,549 5,662,457 6,496,353
-------------------------------------------------------------------------------
a For the period from Sept. 15, 1999 (date the Fund became available ) to
Aug. 31, 2000
b For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000
<PAGE>
Sub-Investment Advisor:
American Express Asset Management International Inc. (AEAMI), a wholly-owned
subsidiary of AEFC located at 50192 AXP Financial Center, Minneapolis, MN 55474
sub-advises the assets in the Emerging Markets and International Funds. AEAMI,
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, AEAMI receives an annual fee of 0.35% of daily net assets.
Under the agreement, the total amount paid for International Fund was $8,741,822
for fiscal year 2000, $7,456,590 for fiscal year 1999, and $7,744,185 for fiscal
year 1998.
Emerging Markets did not begin operations until May 2000. As a result, fees
totaling $4,563 were paid in fiscal period 2000. No fees were paid in fiscal
year 1999 and 1998.
Kenwood Capital Management LLC (KCM LLC) an indirect subsidiary of AEFC located
at Metropolitan Centre, Suite 2300, 333 South Seventh Street, Minneapolis, MN
55442, sub-advises the assets of Small Cap Advantage Fund. KCM LLC, 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 KCM LLC 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,
fees totaling $34,118 were paid in fiscal period 2000. No fees were paid in
fiscal year 1999 and 1998.
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
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>
Emerging Markets
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $0.25 0.10%
Next 0.25 0.09
Next 0.25 0.08
Next 0.25 0.07
Next 1.00 0.06
Over 2.00 0.05
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
<PAGE>
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
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
S&P 500 Index
Assets Annual rate at
(billions) each asset level
---------- ----------------
First $1.00 0.080%
Next 1.00 0.075
Next 3.00 0.070
Over 5.00 0.065
<PAGE>
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
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 period, the daily rates applied to the
Funds' net assets on an annual basis were:
Fund Daily Rates Fees Paid During Prior Fiscal Year
---- ----------- ----------------------------------
Blue Chip Advantage 0.040% $ 12,604
Bond 0.048 859,265
Capital Resource 0.040 2,403,552
Cash Management 0.030 234,322
Diversified Equity Income 0.040 4,502
Emerging Markets 0.100 1,766
Extra Income 0.050 350,383
Federal Income 0.050 12,824
Global Bond 0.060 113,263
Growth 0.050 37,134
International 0.044 1,122,452
Managed 0.026 1,441,406
New Dimensions 0.040 1,961,986
S&P 500 Index 0.080 3,852
Small Cap Advantage 0.060 8,095
Strategy Aggressive 0.040 1,430,593
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.
<PAGE>
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 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.
<PAGE>
ORGANIZATIONAL INFORMATION
-------------------------------------------------------------------------------
The Fund is an open-end management investment company. The Fund headquarters are
at 70100 AXP Financial Center, Minneapolis, MN 55474.
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
Date of Form of State of Fiscal Diversified
Organization Organization Organization Year End
<S> <C> <C> <C> <C> <C>
----------------------------------- ------------- ------------ ------------- ------------- -------------
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
Emerging Markets Fund
AXP Variable Portfolio - Yes
Growth Fund
AXP Variable Portfolio Yes
-International Fund
AXP Variable Portfolio - New Yes
Dimensions Fund
AXP Variable Portfolio - S&P Yes
500 Index 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
----------------------------------- ------------- ------------ ------------- ------------- -------------
</TABLE>
* Date merged into a Minnesota corporation.
<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 63 American Express funds.
Peter J. Anderson**
Born in 1942
251 AXP Financial Center
Minneapolis, MN
Senior vice president - investments and director of AEFC. Vice president -
investments of the Fund.
H. Brewster Atwater, Jr.'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. (consumer
foods and restaurants) Director, Merck & Co., Inc. (pharmaceuticals).
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 EXIDE
Corporation (auto parts and batteries).
David R. Hubers**
Born in 1943
25 AXP Financial Center
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) 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, American Express Funds.
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Visiting lecturer and Director of The Institute of Politics, Harvard University.
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
25 AXP Financial Center
Minneapolis, MN
Senior vice president of AEFC. President of the Fund.
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 and restaurants).
<PAGE>
+ 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:
Frederick C. Quirsfeld
Born in 1947
53609 AXP Financial Center
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
John M. Knight
Born in 1952
105 AXP Financial Center
Minneapolis, MN
Vice President - investment accounting of AEFC. Treasurer for the Fund.
<PAGE>
COMPENSATION FOR BOARD MEMBERS
-------------------------------------------------------------------------------
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 - Blue Chip Advantage Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $888 $131,867
Lynne V. Cheney 858 121,033
Heinz F. Hutter 838 123,792
Anne P. Jones 838 120,867
William R. Pearce 617 111,792
Alan K. Simpson 667 112,067
C. Angus Wurtele 738 120,142
</TABLE>
Compensation Table
for AXP VP - Bond Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $1,955 $131,867
Lynne V. Cheney 1,809 121,033
Heinz F. Hutter 1,830 123,792
Anne P. Jones 1,781 120,867
William R. Pearce 1,658 111,792
Alan K. Simpson 1,659 112,067
C. Angus Wurtele 1,780 120,142
</TABLE>
Compensation Table
for AXP VP - Capital Resource Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $3,713 $131,867
Lynne V. Cheney 3,477 121,033
Heinz F. Hutter 3,588 123,792
Anne P. Jones 3,590 120,867
William R. Pearce 3,417 111,792
Alan K. Simpson 3,469 112,067
C. Angus Wurtele 3,538 120,142
</TABLE>
<PAGE>
Compensation Table
for AXP VP - Cash Management Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $1,546 $131,867
Lynne V. Cheney 1,409 121,033
Heinz F. Hutter 1,421 123,792
Anne P. Jones 1,355 120,867
William R. Pearce 1,250 111,792
Alan K. Simpson 1,234 112,067
C. Angus Wurtele 1,371 120,142
</TABLE>
Compensation Table
for AXP VP - Extra Income Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $1,505 $131,867
Lynne V. Cheney 1,376 121,033
Heinz F. Hutter 1,380 123,792
Anne P. Jones 1,314 120,867
William R. Pearce 1,208 111,792
Alan K. Simpson 1,192 112,067
C. Angus Wurtele 1,330 120,142
</TABLE>
Compensation Table
for AXP VP - Federal Income Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $888 $131,867
Lynne V. Cheney 858 121,033
Heinz F. Hutter 838 123,792
Anne P. Jones 838 120,867
William R. Pearce 617 111,792
Alan K. Simpson 667 112,067
C. Angus Wurtele 738 120,142
</TABLE>
Compensation Table
for AXP VP - Global Bond Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $1,346 $131,867
Lynne V. Cheney 1,220 121,033
Heinz F. Hutter 1,221 123,792
Anne P. Jones 1,149 120,867
William R. Pearce 1,050 111,792
Alan K. Simpson 1,028 112,067
C. Angus Wurtele 1,171 120,142
</TABLE>
<PAGE>
Compensation Table
for AXP VP - Growth Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $888 $131,867
Lynne V. Cheney 858 121,033
Heinz F. Hutter 838 123,792
Anne P. Jones 838 120,867
William R. Pearce 617 111,792
Alan K. Simpson 667 112,067
C. Angus Wurtele 738 120,142
</TABLE>
Compensation Table
for AXP VP - International Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $2,271 $131,867
Lynne V. Cheney 2,097 121,033
Heinz F. Hutter 2,146 123,792
Anne P. Jones 2,101 120,867
William R. Pearce 1,975 111,792
Alan K. Simpson 1,980 112,067
C. Angus Wurtele 2,096 120,142
</TABLE>
Compensation Table
for AXP VP - Managed Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $3,446 $131,867
Lynne V. Cheney 3,220 121,033
Heinz F. Hutter 3,321 123,792
Anne P. Jones 3,316 120,867
William R. Pearce 3,150 111,792
Alan K. Simpson 3,195 112,067
C. Angus Wurtele 3,271 120,142
</TABLE>
Compensation Table
for AXP VP - New Dimensions Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $2,955 $131,867
Lynne V. Cheney 2,709 121,033
Heinz F. Hutter 2,830 123,792
Anne P. Jones 2,797 120,867
William R. Pearce 2,658 111,792
Alan K. Simpson 2,675 112,067
C. Angus Wurtele 2,780 120,142
</TABLE>
<PAGE>
Compensation Table
for AXP VP - Strategy Aggressive Fund
<TABLE>
<CAPTION>
Total cash compensation from the
Aggregate American Express Funds and
Board member compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
--------------------------------- --------------------------------- ------------------------------
H. Brewster Atwater, Jr. $2,455 $131,867
Lynne V. Cheney 2,256 121,033
Heinz F. Hutter 2,330 123,792
Anne P. Jones 2,286 120,867
William R. Pearce 2,158 111,792
Alan K. Simpson 2,164 112,067
C. Angus Wurtele 2,280 120,142
</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.
No board compensation was paid for Diversified Equity Income, Emerging Markets,
S&P 500 Index or Small Cap Advantage Funds.
INDEPENDENT AUDITORS
-------------------------------------------------------------------------------
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Wells Fargo Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Funds.
<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>
APPENDIX C
ADDITIONAL INFORMATION ABOUT THE INDEX
AXP Variable Portfolio - S&P 500 Index Fund is not sponsored, endorsed, sold or
promoted by S&P. S&P makes no representation or warranty, express or implied, to
the shareholders of AXP Variable Portfolio - S&P 500 Index Fund or any member of
the public regarding the advisability of investing in securities generally or in
AXP Variable Portfolio - S&P 500 Index Fund particularly or the ability of the
S&P 500 Index to track general stock market performance. S&P's only relationship
to AXP Variable Portfolio - S&P 500 Index Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index, which are
determined, composed and calculated by S&P without regard to AXP Variable
Portfolio - S&P 500 Index Fund. S&P has no obligation to take the needs of AXP
Variable Portfolio - S&P 500 Index Fund or its shareholders into consideration
in determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the prices and
amount of AXP Variable Portfolio - S&P 500 Index Fund or the timing of the
issuance or sale of the fund or in the determination or calculation of the
equation by which the fund's shares are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of AXP Variable Portfolio - S&P 500 Index Fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXPSM VARIABLE PORTFOLIO - INCOME SERIES, INC.
AXPSM VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXPSM VARIABLE PORTFOLIO - MANAGED SERIES, INC.
AXPSM VARIABLE PORTFOLIO - MONEY MARKET SERIES, INC.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of AXP VP - Bond Fund, AXP VP -
Extra Income Fund, AXP VP - Federal Income Fund and AXP VP - Global Bond Fund
(funds within AXP Variable Portfolio - Income Series, Inc.), AXP VP - Blue Chip
Advantage Fund, AXP VP - Capital Resource Fund, AXP VP - Emerging Markets Fund,
AXP VP - Growth Fund, AXP VP - International Fund, AXP VP - New Dimensions Fund,
AXP VP - S&P 500 Index Fund, AXP VP - Small Cap Advantage Fund and AXP VP -
Strategy Aggressive Fund (funds within AXP Variable Portfolio - Investment
Series, Inc.), AXP VP Diversified Equity Income Fund and AXP VP - Managed Fund
(funds within AXP Variable Portfolio - Managed Series, Inc.) and AXP VP Cash
Management Fund, (fund within AXP Variable Portfolio - Money Market Series,
Inc.), as of August 31, 2000, and the related statements of operations,
statements of changes in net assets and the financial highlights for the periods
presented. 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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 VP
- Bond Fund, AXP VP - Extra Income Fund, AXP VP - Federal Income Fund, AXP VP -
Global Bond Fund, AXP VP - Blue Chip Advantage Fund, AXP VP - Capital Resource
Fund, AXP VP - Emerging Markets Fund, AXP VP - Growth Fund, AXP VP International
Fund, AXP VP - New Dimensions Fund, AXP VP - S&P 500 Index Fund, AXP VP - Small
Cap Advantage Fund, AXP VP - Strategy Aggressive Fund, AXP VP - Diversified
Equity Income Fund, AXP VP - Managed Fund and AXP VP - Cash Management Fund as
of August 31, 2000 and the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
October 6, 2000
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statements of assets and liabilities
American Express Variable Portfolio Funds
AXP VP - AXP VP - AXP VP -
Blue Chip Bond Capital
Advantage Fund Resource
Aug. 31, 2000 Fund Fund
Assets
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers
<S> <C> <C> <C> <C> <C> <C>
(identified cost $64,205,146, $1,530,585,949 and $3,874,711,243) $70,545,572 $1,465,175,569 $5,955,814,512
Investments in securities of affiliated issuers for AXP VP - Bond Fund
(identified cost $7,812,117) -- 206,720 --
Total investments in securities
(identified cost $64,205,146, $1,538,398,066 and $3,874,711,243) 70,545,572 1,465,382,289 5,955,814,512
Cash in bank on demand deposit 357,524 -- --
Receivable for investment securities sold 478,678 33,236,890 62,225,412
Dividends and accrued interest receivable 62,286 23,811,414 3,021,106
U.S. government securities held as collateral (Note 5) -- 50,255,840 --
------------ ---------- --------------
Total assets 71,444,060 1,572,686,433 6,021,061,030
Liabilities
Disbursements in excess of cash on demand deposit -- 989,396 4,336,480
Dividends payable to shareholders (Note 1) 61,541 8,609,833 --
Payable for investment securities purchased -- 28,030,842 36,049,162
Accrued investment management services fee 31,347 756,165 2,921,844
Accrued distribution fee 6,997 156,189 608,037
Accrued administrative services fee 2,239 60,463 195,660
Payable upon return of securities loaned (Note 5) -- 66,324,590 56,700,000
Other accrued expenses 29,489 162,717 409,016
------ ------- -------
Total liabilities 131,613 105,090,195 101,220,199
------- ----------- -----------
Net assets applicable to outstanding capital stock $71,312,447 $1,467,596,238 $5,919,840,831
=========== ============== ==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 61,359 $ 1,426,401 $ 1,590,931
Additional paid-in capital 66,066,189 1,651,565,193 3,318,904,050
Undistributed (excess of distributions over) net investment income 586 1,473,664 1
Accumulated net realized gain (loss) (Note 9) (1,225,015) (113,821,903) 518,242,580
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (Note 7) 6,409,328 (73,047,117) 2,081,103,269
--------- ----------- -------------
Total-- representing net assets applicable to outstanding capital stock $71,312,447 $1,467,596,238 $5,919,840,831
=========== ============== ==============
Shares outstanding 6,135,874 142,640,055 159,093,094
--------- ----------- -----------
Net asset value per share of outstanding capital stock $ 11.62 $ 10.29 $ 37.21
----------- -------------- --------------
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 -
Cash Diversified Emerging
Management Equity Income Markets
Aug. 31, 2000 Fund Fund Fund
Assets
Investments in securities, at value (Note 1):
<S> <C> <C> <C> <C> <C> <C>
(identified cost $783,386,853, $21,995,728 and $5,779,247) $783,386,853 $22,891,932 $5,627,003
Cash in bank on demand deposit 3,185,690 471,713 10,939
Receivable for investment securities sold -- -- 40,216
Unrealized appreciation on foreign currency contracts (Notes 1 and 4) -- -- 23
Dividends and accrued interest receivable 341,038 48,565 349
------- ------ ---
Total assets 786,913,581 23,412,210 5,678,530
----------- ---------- ---------
Liabilities
Dividends payable to shareholders (Note 1) 3,920,385 60,235 --
Payable for investment securities purchased -- 549,421 59,641
Accrued investment management services fee 335,045 10,343 5,505
Accrued distribution fee 82,119 2,309 588
Accrued administrative services fee 19,709 739 470
Other accrued expenses 67,739 7,196 4,834
------ ----- -----
Total liabilities 4,424,997 630,243 71,038
--------- ------- ------
Net assets applicable to outstanding capital stock $782,488,584 $22,781,967 $5,607,492
============ =========== ==========
Represented by
Capital stock-- $.01 par value (Note 1) $ 7,828,288 $ 22,659 $ 5,836
Additional paid-in capital 774,708,095 22,152,661 5,801,504
Undistributed (excess of distributions over) net investment income (38,290) 470 --
Accumulated net realized gain (loss) (Note 9) (9,509) (290,026) (47,507)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (Note 4) -- -- 896,203
------------- ---------- -----------
(152,341)
Total-- representing net assets applicable to outstanding capital stock $782,488,584 $22,781,967 $5,607,492
============ =========== ==========
Shares outstanding 782,828,827 2,265,882 583,605
----------- --------- -------
Net asset value per share of outstanding capital stock $ 1.00 $ 10.05 $ 9.61
------------ ----------- ----------
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 Federal Global
Income Income Bond
Aug. 31, 2000 Fund Fund Fund
Assets
Investments in securities, at value (Note 1):
<S> <C> <C> <C> <C> <C> <C>
(identified cost $686,249,729, $36,467,925 and $188,158,836) $585,288,887 $36,642,815 $174,517,396
Cash in bank on demand deposit -- 414,269 80,875
Receivable for investment securities sold 2,632,740 -- 32,134
Dividends and accrued interest receivable 15,517,484 241,680 3,482,596
Unrealized appreciation on foreign currency contracts held,
at value (Notes 1 and 4) -- -- 24,754
---------- ---------- -----------
Total assets 603,439,111 37,298,764 178,137,755
----------- ---------- -----------
Liabilities
Disbursements in excess of cash on demand deposit 168,885 -- --
Dividends payable to shareholders (Note 1) 5,747,336 178,301 605,734
Payable for investment securities purchased 2,500,000 5,625 --
Unrealized depreciation on foreign currency contracts held,
at value (Notes 1 and 4) -- -- 26,317
Accrued investment management services fee 312,342 19,061 127,500
Accrued distribution fee 62,972 3,906 18,973
Accrued administrative services fee 25,189 1,562 9,107
Other accrued expenses 54,760 9,970 31,890
------ ----- ------
Total liabilities 8,871,484 218,425 819,521
--------- ------- -------
Net assets applicable to outstanding capital stock $594,567,627 $37,080,339 $177,318,234
============ =========== ============
Represented by
Capital stock-- $.01 par value (Note 1) $ 766,542 $ 37,248 $ 189,852
Additional paid-in capital 760,456,995 36,971,323 196,878,910
Undistributed (excess of distributions over)
net investment income (953,626) 2,307 (69,768)
Accumulated net realized gain (loss) (Note 9) (64,741,442) (81,013) (5,922,719)
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies
(Notes 4 and 7) (100,960,842) 150,474 (13,758,041)
------------ ------- -----------
Total-- representing net assets applicable to outstanding capital stock $594,567,627 $37,080,339 $177,318,234
============ =========== ============
Shares outstanding 76,654,201 3,724,826 18,985,219
---------- --------- ----------
Net asset value per share of outstanding capital stock $ 7.76 $ 9.95 $ 9.34
------------ ----------- ------------
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 -
Growth International Managed
Aug. 31, 2000 Fund Fund Fund
Assets
Investments in securities, at value (Note 1):
<S> <C> <C> <C> <C> <C> <C>
(identified cost $174,146,335, $2,116,151,016 and $3,781,283,397) $197,137,954 $2,388,148,873 $5,342,800,244
Cash in bank on demand deposit (including foreign currency
holdings of $28,739,848 for AXP VP - International Fund) 44,668 28,739,848 --
Receivable for investment securities sold -- 67,438,771 36,456,254
Dividends and accrued interest receivable 46,664 5,327,198 27,113,326
Unrealized appreciation on foreign currency contracts held, at value
(Notes 1 and 4) -- 1,468 --
U.S. government securities held as collateral (Note 5) -- -- 119,075,048
----------- ------------- -----------
Total assets 197,229,286 2,489,656,158 5,525,444,872
----------- ------------- -------------
Liabilities
Disbursements in excess of cash on demand deposit -- 564,792 1,971,316
Dividends payable to shareholders (Note 1) -- -- 31,811,295
Payable for investment securities purchased 2,314,122 19,371,398 74,247,516
Unrealized depreciation on foreign currency contracts held, at value
(Notes 1 and 4) -- 19,311 --
Accrued investment management services fee 92,181 1,659,913 2,569,316
Accrued distribution fee 18,290 252,003 545,336
Accrued administrative services fee 7,316 89,618 114,781
Payable upon return of securities loaned (Note 5) -- 78,572,200 186,405,648
Other accrued expenses 34,617 372,432 315,386
Option contracts written at value (premium received,
$4,489,434 for AXP VP - Managed Fund) (Note 8) -- -- 4,544,293
---------- ----------- -----------
Total liabilities 2,466,526 100,901,667 302,524,887
--------- ----------- -----------
Net assets applicable to outstanding capital stock $194,762,760 $2,388,754,491 $5,222,919,985
============ ============== ==============
Represented by
Capital stock -- $.01 par value
($.001 for AXP VP - Managed Fund) (Note 1) $ 144,731 $ 1,406,992 $ 250,956
Additional paid-in capital 173,693,767 1,707,684,351 3,372,077,276
Undistributed (excess of distributions over)
net investment income -- 18,120 (8,517,689)
Accumulated net realized gain (loss) (Note 9) (2,067,357) 408,041,324 297,669,778
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign
currencies (Note 4) 22,991,619 271,603,704 1,561,439,664
---------- ----------- -------------
Total-- representing net assets applicable to outstanding capital stock $194,762,760 $2,388,754,491 $5,222,919,985
============ ============== ==============
Shares outstanding 14,473,073 140,699,238 250,956,171
---------- ----------- -----------
Net asset value per share of outstanding capital stock $ 13.46 $ 16.98 $ 20.81
------------ -------------- --------------
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 -
New S&P 500 Small Cap
Dimensions Index Advantage
Aug. 31, 2000 Fund Fund Fund
Assets
Investments in securities, at value (Note 1):
<S> <C> <C> <C> <C> <C> <C>
(identified cost $3,643,183,595, $20,905,752 and $28,266,784) $5,578,248,104 $21,611,940 $30,600,069
Cash in bank on demand deposit 2,798,942 64,907 353,310
Receivable for investment securities sold -- 1,844,600 593,122
Dividends and accrued interest receivable 3,422,303 22,988 11,964
--------- ------ ------
Total assets 5,584,469,349 23,544,435 31,558,465
------------- ---------- ----------
Liabilities
Dividends payable to shareholders (Note 1) 1,506,933 26,001 --
Payable for investment securities purchased 15,013,435 2,501,976 422,473
Accrued investment management and services fee 2,723,630 4,565 18,600
Accrued distribution fee 565,684 1,967 2,943
Accrued administrative services fee 183,801 1,259 1,413
Other accrued expenses 253,456 -- 11,888
------- -------- ------
Total liabilities 20,246,939 2,535,768 457,317
---------- --------- -------
Net assets applicable to outstanding capital stock $5,564,222,410 $21,008,667 $31,101,148
============== =========== ===========
Represented by
Capital stock-- $.01 par value $ 2,222,698 $ 20,244 $ 24,715
Additional paid-in capital 3,284,915,860 20,223,305 27,812,488
Undistributed (excess of distributions over) net investment income (182,317) 3,799 906
Accumulated net realized gain (loss) (Note 9) 342,201,660 55,131 897,213
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign
currencies (Note 7) 1,935,064,509 706,188 2,365,826
------------- ------- ---------
Total-- representing net assets applicable to outstanding
capital stock $5,564,222,410 $21,008,667 $31,101,148
============== =========== ===========
Shares outstanding 222,269,788 2,024,382 2,471,535
----------- --------- ---------
Net asset value per share of outstanding capital stock $ 25.03 $ 10.38 $ 12.58
-------------- ----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of assets and liabilities (continued)
American Express Variable Portfolio Funds
AXP VP -
Strategy
Aggressive
Aug. 31, 2000 Fund
Assets
Investments in securities, at value (Note 1):
<S> <C> <C>
(identified cost $3,238,420,718) $4,494,185,632
Cash in bank on demand deposit --
Receivable for investment securities sold 36,394,643
Dividends and accrued interest receivable 1,406,324
U.S. government securities held as collateral (Note 5) 54,796,603
----------
Total assets 4,586,783,202
-------------
Liabilities
Disbursements in excess of cash on demand deposit 2,066,919
Dividends payable to shareholders (Note 1) 6,259
Payable for investment securities purchased 158,021,794
Accrued investment management and services fee 1,881,608
Accrued distribution fee 398,732
Accrued administrative services fee 127,458
Payable upon return of securities loaned (Note 5) 225,237,403
Other accrued expenses 239,499
Option contracts written at value (premium received,
$2,699,886 for AXP VP - Strategy Aggressive Fund) (Note 8) 1,909,268
---------
Total liabilities 389,888,940
-----------
Net assets applicable to outstanding capital stock $4,196,894,262
==============
Represented by
Capital stock-- $.01 par value $ 1,508,867
Additional paid-in capital 1,968,348,271
Undistributed net investment income 1,122,817
Accumulated net realized gain (loss) (Note 9) 959,379,043
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies (Note 7) 1,266,535,264
-------------
Total-- representing net assets applicable to outstanding capital stock $4,196,894,262
==============
Shares outstanding 150,886,656
-----------
Net asset value per share of outstanding capital stock $ 27.82
--------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
American Express Variable Portfolio Funds
AXP VP - AXP VP - AXP VP -
Blue Chip Bond Capital
Advantage Fund Resource
Year ended Aug. 31, 2000 Fund* Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 295,069 $ 2,377,401 $ 36,984,995
Interest 111,381 127,189,762 6,775,560
Less foreign taxes witheld (86) -- (30,539)
--- ----------- -------
Total income 406,364 129,567,163 43,730,016
------- ----------- ----------
Expenses (Note 2):
Investment management services fee 175,456 9,660,825 35,047,411
Distribution fee 39,353 1,878,652 6,909,209
Administrative services fees and expenses 12,604 859,265 2,403,552
Custodian fees 55,233 129,815 229,238
Compensation of board members 5,444 12,472 24,792
Printing and postage 3,662 104,456 421,214
Audit fees 13,000 23,750 23,000
Other -- 15,454 5,005
-------- ------ -------
Total expenses 304,752 12,684,689 45,063,421
Less expenses reimbursed by AEFC (Note 2) (5,467) -- --
------ ---------- ----------
299,285 12,684,689 45,063,421
Earnings credits on cash balances (Note 2) (8) (60) (772)
-- --- ----
Total net expenses 299,277 12,684,629 45,062,649
------- ---------- ----------
Investment income (loss)-- net 107,087 116,882,534 (1,332,633)
------- ----------- ----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) (1,390,382) (54,661,929) 521,098,266
Futures contracts 165,482 765,307 --
Foreign currency transactions -- 47,942 --
Options contracts written (Note 8) -- -- 334,814
---------- ----------- -------
Net realized gain (loss) on investments (1,224,900) (53,848,680) 521,433,080
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 6,455,361 9,693,956 506,731,364
--------- --------- -----------
Net gain (loss) on investments and foreign currencies 5,230,461 (44,154,724) 1,028,164,444
--------- ----------- -------------
Net increase (decrease) in net assets resulting from operations $ 5,337,548 $ 72,727,810 $1,026,831,811
=========== ============ ==============
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
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 -
Cash Diversified Emerging
Management Equity Income Markets
Year ended Aug. 31, 2000 Fund Fund* Fund**
Investment income
Income:
<S> <C> <C> <C>
Dividends $ -- $ 215,590 $ 15,121
Interest 46,141,419 52,425 10,053
Less foreign taxes withheld -- (17) (811)
---------- --- ----
Total income 46,141,419 267,998 24,363
---------- ------- ------
Expenses (Note 2):
Investment management services fee 3,873,812 63,161 20,657
Distribution fee 901,836 14,034 2,207
Administrative services fees and expenses 234,322 4,502 1,766
Custodian fees 66,602 72,028 2,895
Compensation of board members 9,588 -- --
Printing and postage 53,119 1,831 3,200
Audit fees 17,750 13,000 13,500
Other 8,222 -- --
----- ------- -------
Total expenses 5,165,251 168,556 44,225
Less expenses reimbursed by AEFC (Note 2) -- (61,020) (13,295)
--------- ------- -------
5,165,251 107,536 30,930
Earnings credits on cash balances (Note 2) (18) (190) --
--- ---- ------
Total net expenses 5,165,233 107,346 30,930
--------- ------- ------
Investment income (loss)-- net 40,976,186 160,652 (6,567)
---------- ------- ------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) (298) (290,026) (47,507)
Futures contracts -- -- 391
Foreign currency transactions -- 466 --
------- ----- -------
Net realized gain (loss) on investments (298) (289,560) (47,116)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities in
foreign currencies -- 945,865 (265,835)
-------- ------- --------
Net gain (loss) on investments and foreign currencies (298) 656,305 (312,951)
---- ------- --------
Net increase (decrease) in net assets resulting from operations $40,975,888 $ 816,957 $(319,518)
=========== ========= =========
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000.
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 Federal Global
Income Income Bond
Year ended Aug. 31, 2000 Fund Fund* Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 5,779,786 $ -- $ --
Interest 63,225,368 1,639,781 11,022,386
========== ========= ==========
Total income 69,005,154 1,639,781 11,022,386
---------- --------- ----------
Expenses (Note 2):
Investment management services fee 3,823,199 156,447 1,574,254
Distribution fee 727,332 31,887 220,760
Administrative services fees and expenses 350,383 12,824 113,263
Custodian fees 62,435 6,364 49,448
Compensation of board members 9,305 5,444 8,186
Printing and postage 42,149 1,831 14,648
Audit fees 19,000 13,500 17,000
Other 7,474 -- 2,639
----- ------- -----
Total expenses 5,041,277 228,297 2,000,198
Less expenses reimbursed by AEFC (Note 2) -- (3,459) --
--------- ------ ---------
5,041,277 224,838 2,000,198
Earnings credits on cash balances (Note 2) (51) (202) (654)
--- ---- ----
Total net expenses 5,041,226 224,636 1,999,544
--------- ------- ---------
Investment income (loss)-- net 63,963,928 1,415,145 9,022,842
---------- --------- ---------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) (36,041,910) (37,143) (4,141,686)
Futures contracts -- (43,870) --
Foreign currency transactions 474 -- 270,508
--- ------- -------
Net realized gain (loss) on investments (36,041,436) (81,013) (3,871,178)
on investments and on translation of assets and liabilities
in foreign currencies (37,938,667) 138,567 (8,771,892)
----------- ------- ----------
Net gain (loss) on investments and foreign currencies (73,980,103) 57,554 (12,643,070)
----------- ------ -----------
Net increase (decrease) in net assets resulting from operations $(10,016,175) $1,472,699 $ (3,620,228)
============ ========== =============
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
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 -
Growth International Managed
Year ended Aug. 31, 2000 Fund* Fund Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 266,617 $ 26,261,504 $ 24,811,063
Interest 372,638 8,937,643 137,174,452
Less foreign taxes withheld (156) (2,894,560) (59,682)
---- ---------- -------
Total income 639,099 32,304,587 161,925,833
------- ---------- -----------
Expenses (Note 2):
Investment management services fee 479,607 20,495,043 30,522,651
Distribution fee 92,803 2,962,550 6,131,578
Administrative services fees and expenses 37,134 1,122,452 1,441,406
Custodian fees 92,307 690,257 337,155
Compensation of board members -- 14,668 22,921
Printing and postage 5,850 173,986 369,945
Audit fees 13,500 20,750 21,500
Other -- 4,306 14,557
------ ----- ------
Total expenses 721,201 25,484,012 38,861,713
Less expenses reimbursed by AEFC (Note 2) (13,659) -- --
------- ---------- ----------
707,542 25,484,012 38,861,713
Earnings credits on cash balances (Note 2) (268) (1,990) (39)
---- ------ ---
Total net expenses 707,274 25,482,022 38,861,674
------- ---------- ----------
Investment income (loss)-- net (68,175) 6,822,565 123,064,159
------- --------- -----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) (2,067,357) 416,788,233 306,580,263
Foreign currency transactions -- (9,612,055) (17,784)
Futures contracts -- (5,166,145) --
Options contracts written (Note 8) -- -- 2,551,472
---------- ----------- ---------
Net realized gain (loss) on investments (2,067,357) 402,010,033 309,113,951
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities in
foreign currencies 23,048,568 (80,050,249) 444,957,506
---------- ----------- -----------
Net gain (loss) on investments and foreign currencies 20,981,211 321,959,784 754,071,457
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations $20,913,036 $328,782,349 $877,135,616
=========== ============ ============
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
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 -
New S&P 500 Small Cap
Dimensions Index Advantage
Year ended Aug. 31, 2000 Fund Fund** Fund*
Investment income
Income:
<S> <C> <C> <C>
Dividends $ 26,192,635 $ 58,900 $ 72,829
Interest 17,181,138 1,305 55,450
Less foreign taxes withheld (7,267) (576) --
------ ----
Total income 43,366,506 59,629 128,279
---------- ------ -------
Expenses (Note 2):
Investment management services fee 28,032,830 13,965 102,222
Distribution fee 5,550,496 6,019 16,815
Administrative services fees and expenses 1,961,986 3,852 8,095
Custodian fees 311,881 37,705 51,213
Compensation of board members 19,403 -- --
Printing and postage 367,993 3,200 1,831
Audit fees 22,750 13,000 13,000
Other 8,619 -- --
----- ------ -------
Total expenses 36,275,958 77,741 193,176
Less expenses reimbursed by AEFC (Note 2) -- (53,905) (31,689)
---------- ------- -------
36,275,958 23,836 161,487
Earnings credits on cash balances (Note 2) (96) -- (132)
--- ------ ----
Total net expenses 36,275,862 23,836 161,355
---------- ------ -------
Investment income (loss)-- net 7,090,644 35,793 (33,076)
--------- ------ -------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 343,690,031 55,131 1,036,011
Futures contracts -- -- (56,082)
Foreign currency transactions (66,198) -- --
Options contracts written (Note 8) 77,500 -- --
------ ------- --------
Net realized gain (loss) on investments 343,701,333 55,131 979,929
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities
in foreign currencies 951,943,591 656,987 2,398,169
----------- ------- ---------
Net gain (loss) on investments and foreign currencies 1,295,644,924 712,118 3,378,098
------------- ------- ---------
Net increase (decrease) in net assets resulting from operations $1,302,735,568 $747,911 $3,345,022
============== ======== ==========
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations (continued)
American Express Variable Portfolio Funds
AXP VP -
Strategy
Aggressive
Year ended Aug. 31, 2000 Fund
Investment income
Income:
<S> <C>
Dividends $ 4,182,299
Interest 23,706,853
Less foreign taxes withheld (29,796)
-------
Total income 27,859,356
----------
Expenses (Note 2):
Investment management services fee 20,341,387
Distribution fee 4,129,613
Administrative services fees and expenses 1,430,593
Custodian fees 328,642
Compensation of board members 15,929
Printing and postage 263,434
Audit fees 17,750
Other 8,135
-----
Total expenses 26,535,483
Less expenses reimbursed by AEFC (Note 2) --
-----------
26,535,483
Earnings credits on cash balances (Note 2) (645)
----
Total net expenses 26,534,838
----------
Investment income (loss) -- net 1,324,518
---------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 963,715,937
Futures contracts (4,662,421)
Foreign currency transactions (168,342)
Options contracts written (Note 8) 6,339,024
---------
Net realized gain (loss) on investments 965,224,198
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and liabilities in foreign currencies 971,335,686
-----------
Net gain (loss) on investments and foreign currencies 1,936,559,884
-------------
Net increase (decrease) in net assets resulting from operations $1,937,884,402
--------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
American Express Variable Portfolio Funds
AXP VP - Blue Chip
Advantage Fund AXP VP - Bond Fund
Aug. 31, 2000 Aug. 31, 2000 Aug. 31, 1999
Period ended * Year ended Year ended
Operations and distributions
<S> <C> <C> <C>
Investment income (loss)-- net $ 107,087 $ 116,882,534 $ 133,946,467
Net realized gain (loss) on investments (1,224,900) (53,848,680) (59,672,912)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 6,455,361 9,693,956 (28,854,381)
--------- --------- -----------
Net increase (decrease) in net assets resulting from operations 5,337,548 72,727,810 45,419,174
--------- ---------- ----------
Distributions to shareholders from:
Net investment income (108,611) (115,516,198) (129,854,610)
Net realized gain -- -- (4,108,552)
--------- ------------ ----------
Total distributions (108,611) (115,516,198) (133,963,162)
-------- ------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 67,771,142 114,752,390 106,635,029
Reinvestment of distributions at net asset value 47,070 106,906,365 133,963,162
Payments for redemptions (3,690,078) (461,561,788) (254,262,401)
---------- ------------ ------------
Increase (decrease) in net assets from capital share transactions 64,128,134 (239,903,033) (13,664,210)
---------- ------------ -----------
Total increase (decrease) in net assets 69,357,071 (282,691,421) (102,208,198)
Net assets at beginning of year 1,955,376** 1,750,287,659 1,852,495,857
--------- ------------- -------------
Net assets at end of year $ 71,312,447 $1,467,596,238 $1,750,287,659
============= ============== ==============
Undistributed net investment income $ 586 $ 1,473,664 $ 1,473,065
------------- -------------- --------------
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** Initial capital of $2,000,000 was contributed on Sept. 10, 1999. The Fund had a decrease in net assets resulting from
operations of $44,624 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available).
AXP VP - Capital Resource Fund AXP VP - Cash Management Fund
Year ended Aug. 31, 2000 1999 2000 1999
Operations and distributions
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ (1,332,633) $ 9,103,562 $ 40,976,186 $ 25,541,730
Net realized gain (loss) on investments 521,433,080 572,334,253 (298) (6,680)
Net change in unrealized appreciation (depreciation)
on investments and on translation
of assets and liabilities in foreign currencies 506,731,364 1,167,038,381 -- --
----------- ------------- ----------- ----------
Net increase (decrease) in net assets resulting from
operations 1,026,83,811 1,748,476,196 40,975,888 25,535,050
------------ ------------- ---------- ----------
Distributions to shareholders from:
Net investment income -- (9,103,562) (41,014,556) (25,541,732)
Net realized gain (573,191,093) (401,677,258) -- --
------------ ------------
Total distributions (573,191,093) (410,780,820) (41,014,556) (25,541,732)
------------ ------------ ----------- -----------
Capital share transactions (Note 6)
Proceeds from sales 161,522,332 84,199,124 1,024,273,156 603,358,465
Reinvestment of distributions at net asset value 573,191,093 410,780,820 37,095,171 25,541,732
Payments for redemptions (889,079,855) (665,014,906) (968,460,693) (367,134,897)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital
share transactions (154,366,430) (170,034,962) 92,907,634 261,765,300
------------ ------------ ---------- -----------
Total increase (decrease) in net assets 299,274,288 1,167,660,414 92,868,966 261,758,618
Net assets at beginning of year 5,620,566,543 4,452,906,129 689,619,618 427,861,000
------------- ------------- ----------- -----------
Net assets at end of year $5,919,840,831 $5,620,566,543 $ 782,488,584 $ 689,619,618
============== ============== =============== ==============
Undistributed (excess of distributions over)
net investment income $ 1 $ (61,479) $ (38,290) $ 80
-------------- -------------- --------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
American Express Variable Portfolio Funds
AXP VP - AXP VP -
Diversified Equity Emerging
Income Fund Markets Fund
Aug. 31 2000 Aug. 31, 2000
Period ended* Period ended**
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 160,652 $ (6,567)
Net realized gain (loss) on investments (289,560) (47,116)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 945,865 (265,835)
------- --------
Net increase (decrease) in net assets resulting from operations 816,957 (319,518)
------- --------
Distributions to shareholders from:
Net investment income (162,618) --
Tax return of capital -- (4,272)
------- ------
Total distributions (162,618) (4,272)
Capital share transactions (Note 6)
Proceeds from sales 23,715,662 3,356,229
Reinvestment of distributions at net asset value 102,383 4,272
Payments for redemptions (3,642,255) (2,546,345)
---------- ----------
Increase (decrease) in net assets from capital share transactions 20,175,790 814,156
---------- -------
Total increase (decrease) in net assets 20,830,129 490,366
Net assets at beginning of year 1,951,838*** 5,117,126****
--------- ---------
Net assets at end of year $22,781,967 $ 5,607,492
=========== ============
Undistributed net investment income $ 470 $ --
----------- ----------
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000.
*** Initial capital of $2,000,000 was contributed on Sept. 10, 1999. The Fund had a decrease in net assets resulting from
operations of $48,162 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available).
**** Initial capital of $5,000,000 was contributed on April 26, 2000. The Fund had an increase in net assets
resulting from operations of $117,126 during the period from April 26, 2000 to May 1, 2000 (date the Fund became available).
AXP VP - Extra AXP VP - Federal
Income Fund Income Fund
Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000
Year ended Year ended Period ended*
Operations and distributions
Investment income (loss) -- net $ 63,963,928 $ 61,117,522 $ 1,415,145
Net realized gain (loss) on investments (36,041,436) (29,699,969) (81,013)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (37,938,667) (14,674,862) 138,567
----------- ----------- -------
Net increase (decrease) in net assets resulting from operations (10,016,175) 16,742,691 1,472,699
----------- ---------- ---------
Distributions to shareholders from:
Net investment income (63,640,261) (61,060,060) (1,420,833)
Net realized gain -- (6,531,786) --
----------- ---------- ----------
Total distributions (63,640,261) (67,591,846) (1,420,833)
----------- ----------- ----------
Capital share transactions (Note 6)
Proceeds from sales 111,860,734 88,193,720 51,592,615
Reinvestment of distributions at net asset value 57,892,926 67,591,846 1,249,119
Payments for redemptions (139,567,473) (31,179,532) (25,830,856)
------------ ----------- -----------
Increase (decrease) in net assets from capital share transactions 30,186,187 124,606,034 27,010,878
---------- ----------- ----------
Total increase (decrease) in net assets (43,470,249) 73,756,879 27,062,744
Net assets at beginning of year 638,037,876 564,280,997 10,017,595**
----------- ----------- ----------
Net assets at end of year $ 594,567,627 $638,037,876 $ 37,080,339
============= ============ ===============
Undistributed (excess of distributions over) net investment income $ (953,626) $ (674,915) $ 2,307
------------- ------------ ---------------
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** Initial capital of $10,000,000 was contributed on Sept 10, 1999. The fund has a increase in net assets resulting from
operations of $17,595 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available).
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 AXP VP -
Bond Fund Growth Fund
Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000
Year ended Year ended Period ended *
Operations and distributions
<S> <C> <C> <C>
Investment income (loss)-- net $ 9,022,842 $ 10,780,290 $ (68,175)
Net realized gain (loss) on investments (3,871,178) (5,258,630) (2,067,357)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (8,771,892) (1,292,387) 23,048,568
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations (3,620,228) 4,229,273 20,913,036
---------- --------- ----------
Distributions to shareholders from:
Net investment income (6,087,281) (10,036,136) --
Net realized gain -- (60,153) --
Tax return of capital -- -- (21,500)
---------- ---------- -------
Total distributions (6,087,281) (10,096,289) (21,500)
---------- ----------- -------
Capital share transactions (Note 6)
Proceeds from sales 27,391,610 26,082,577 176,740,005
Reinvestment of distributions at net asset value 5,481,547 10,096,289 21,500
Payments for redemptions (43,273,645) (16,223,051) (4,834,742)
----------- ----------- ----------
Increase (decrease) in net assets from capital share transactions (10,400,488) 19,955,815 171,926,763
----------- ---------- -----------
Total increase (decrease) in net assets (20,107,997) 14,088,799 192,818,299
Net assets at beginning of year 197,426,231 183,337,432 1,944,461**
----------- ----------- ---------
Net assets at end of year $177,318,234 $197,426,231 $194,762,760
============ ============ ============
Undistributed (excess of distributions over) net investment income $ (69,768) $ (366,177) $ --
------------ ------------ ----------
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** Initial capital of $2,000,000 was contributed on Sept. 10, 1999. The fund had a decrease in net assets resulting from
operations of $55,539 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available).
AXP VP - International Fund AXP VP - Managed Fund
Year ended Aug. 31, 2000 1999 2000 1999
Operations and distributions
Investment income (loss)-- net $ 6,822,565 $ 14,983,400 $ 123,064,159 $ 131,674,116
Net realized gain (loss) on investments 402,010,033 350,164,528 309,113,951 212,352,905
Net change in unrealized appreciation
(depreciation) on investments and on translation
of assets and liabilities in foreign currencies (80,050,249) 64,235,687 444,957,506 655,721,269
----------- ---------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations 328,782,349 429,383,615 877,135,616 999,748,290
----------- ----------- ----------- -----------
Distributions to shareholders from:
Net investment income -- (8,959,567) (123,017,644) (131,267,722)
Net realized gain (358,133,126) (10,584,503) (227,051,206) (431,748,610)
------------ ----------- ------------ ------------
Total distributions (358,133,126) (19,544,070) (350,068,850) (563,016,332)
------------ ----------- ------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 320,452,991 189,648,648 187,325,532 130,228,291
Reinvestment of distributions at net asset value 358,133,126 19,544,070 318,257,555 563,016,332
Payments for redemptions (481,511,642) (420,734,802) (855,460,704) (497,199,202)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from capital
share transactions 197,074,475 (211,542,084) (349,877,617) 196,045,421
----------- ------------ ------------ -----------
Total increase (decrease) in net assets 167,723,698 198,297,461 177,189,149 632,777,379
Net assets at beginning of year 2,221,030,793 2,022,733,332 5,045,730,836 4,412,953,457
------------- ------------- ------------- -------------
Net assets at end of year $2,388,754,491 $2,221,030,793 $5,222,919,985 $5,045,730,836
============== ============== ============== ==============
Undistributed (excess of distributions over)
net investment income $ 18,120 $ 214,311 $ (8,517,689) $ (8,256,690)
-------------- -------------- -------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets (continued)
American Express Variable Portfolio Funds
AXP VP - New Dimensions Fund AXP VP - S&P 500
Index Fund
Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000
Year ended Year ended Period ended*
Operations and distributions
<S> <C> <C> <C>
Investment income (loss)-- net $ 7,090,644 $ 9,929,837 $ 35,793
Net realized gain (loss) on investments 343,701,333 32,818,556 55,131
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 951,943,591 838,085,236 656,987
----------- ----------- -------
Net increase (decrease) in net assets resulting from operations 1,302,735,568 880,833,629 747,911
------------- ----------- -------
Distributions to shareholders from:
Net investment income (7,206,757) (9,929,837) (45,004)
Net realized gain (34,324,740) (2,459,211) --
----------- ---------- ---------
Total distributions (41,531,497) (12,389,048) (45,004)
----------- ----------- -------
Capital share transactions (Note 6)
Proceeds from sales 855,882,656 744,395,091 10,618,952
Reinvestment of distributions at net asset value 40,024,565 12,389,048 19,003
Payments for redemptions (131,113,528) (46,528,713) (390,158)
------------ ----------- --------
Increase (decrease) in net assets from capital share transactions 764,793,693 710,255,426 10,247,797
----------- ----------- ----------
Total increase (decrease) in net assets 2,025,997,764 1,578,700,007 10,950,704
Net assets at beginning of year 3,538,224,646 1,959,524,639 10,057,963**
------------- ------------- ----------
Net assets at end of year $5,564,222,410 $3,538,224,646 $21,008,667
============== ============== ===========
Undistributed (excess of distributions over) net investment income $ (182,317) $ (7) $ 3,799
-------------- -------------- -----------
* For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000.
** Initial capital of $10,000,000 was contributed on April 26, 2000. The Fund had an increase in net assets
resulting from operations of $57,963 during the period from April 26, 2000 to May 1, 2000 (date the Fund became available).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXP VP - Small Cap
Advantage Fund AXP VP - Strategy Aggressive Fund
Aug. 31, 2000 Aug. 31, 2000 Aug. 31, 1999
Period ended* Year ended Year ended
Operations and distributions
<S> <C> <C> <C>
Investment income (loss)-- net $ (33,076) $ 1,324,518 $ 7,129,382
Net realized gain (loss) on investments 979,929 965,224,198 260,100,632
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 2,398,169 971,335,686 400,514,769
--------- ----------- -----------
Net increase (decrease) in net assets resulting from operations 3,345,022 1,937,884,402 667,744,783
--------- ------------- -----------
Distributions to shareholders from:
Net investment income -- (6,259) (7,142,316)
Net realized gain (51,500) (252,883,137) (148,760,451)
------- ------------ ------------
Total distributions (51,500) (252,889,396) (155,902,767)
------- ------------ ------------
Capital share transactions (Note 6)
Proceeds from sales 31,835,984 355,616,461 69,869,156
Reinvestment of distributions at net asset value 51,500 254,972,408 155,902,767
Payments for redemptions (7,049,658) (426,011,593) (385,883,333)
---------- ------------ ------------
Increase (decrease) in net assets from capital share transactions 24,837,826 184,577,276 (160,111,410)
---------- ----------- ------------
Total increase (decrease) in net assets 28,131,348 1,869,572,282 351,730,606
Net assets at beginning of year 2,969,800** 2,327,321,980 1,975,591,374
--------- ------------- -------------
Net assets at end of year $ 31,101,148 $4,196,894,262 $2,327,321,980
============ ============== ==============
Undistributed (excess of distributions over) net investment income $ 906 $ 1,122,817 $ (27,100)
------------ -------------- --------------
* For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000.
** Initial capital of $3,000,000 was contributed on Sept. 10, 1999. The Fund had a decrease in net assets resulting from
operations of $30,200 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available).
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 following Funds became available Sept. 15, 1999. Prior to
this date, American Express Financial Corporation (AEFC) purchased the following
shares of capital stock, which represented the initial capital in each Fund at
$10.00 per share:
Fund Number of shares
AXP VP - Blue Chip Advantage Fund 200,000
AXP VP - Diversified Equity Income Fund 200,000
AXP VP - Federal Income Fund 1,000,000
AXP VP - Growth Fund 200,000
AXP VP - Small Cap Advantage Fund 300,000
The following Funds became available on May 1, 2000. Prior to this date,
American Express Financial Corporation (AEFC) purchased the following shares of
capital stock, which represented the initial capital in each Fund at $10.00 per
share:
Fund Number of shares
AXP VP - Emerging Markets Fund 500,000
AXP VP - S&P 500 Index Fund 1,000,000
The primary investments of each Fund are as follows:
AXP VP - Blue Chip Advantage Fund invests primarily in common stocks of
companies that are included in the S&P 500;
AXP VP - Bond Fund invests primarily in bonds and other debt obligations;
AXP VP - Capital Resource Fund invests primarily in U.S. common stocks and
other securities convertible into common stock;
AXP VP - Cash Management Fund invests primarily in money market
securities;
AXP VP - Diversified Equity Income Fund invests primarily in equity securities;
AXP VP - Emerging Markets Fund invest primarily in equity securities of
companies in emerging market countries;
AXP VP - Extra Income Fund invests primarily in high-yielding, high risk
corporate bonds (junk bonds) issued by U.S. and foreign companies
and governments;
AXP VP - Federal Income Fund invests primarily in debt obligations;
AXP VP - Global Bond Fund invests primarily in debt securities of U.S. and
foreign issuers;
AXP VP - Growth Fund invest primarily in common stocks and securities
convertible into common stocks that appear to offer growth
opportunities;
AXP VP - International Fund invests primarily in equity securities of foreign
issuers that offer strong growth potential;
AXP VP - Managed Fund invests primarily in a combination of common and preferred
stocks, convertible securities, bonds and other debt securities;
AXP VP - New Dimensions Fund invests primarily in common stocks showing
potential for significant growth;
AXP VP - S&P 500 Index Fund invests primarily in securities that are
expected to provide investment results that correspond to the
performance of the Standard & Poor's 500 Composite Price Index (S&P
500);
AXP VP - Small Cap Advantage Fund invests primarily in equity securities;
AXP VP - Strategy Aggressive 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 accounting principles generally
accepted in the United States of America 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 may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market 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 traded on any U.S. or foreign exchange. The Funds also may buy or
write put and call options on these 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. 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, 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, 2000, investments in securities for AXP VP - Bond Fund, AXP VP -
Extra Income Fund, AXP VP - Global Bond Fund and AXP VP - Strategy Aggressive
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, 2000, was $10,772,854, $15,906,765, $951,147 and
$122,410,159 representing 0.73%, 2.68%, 0.54% and 2.92% of net assets for AXP VP
- Bond Fund, AXP VP - Extra Income Fund, AXP VP - Global Bond Fund and AXP VP -
Strategy Aggressive Fund, respectively. According to the board guidelines
certain unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by AXP VP - Bond
Fund and AXP VP - Managed Fund on a forward-commitment or when-issued basis can
take place one month or more after the transaction date. During this period,
such securities are subject to market fluctuations and they may affect the
Fund's net assets the same as owned securities. The Funds designate cash or
liquid securities at least equal to the amount of its commitment. As of Aug. 31,
2000, AXP VP - Bond Fund, and AXP VP - Managed Fund had entered into outstanding
when-issued or forward commitments of $14,956,250, and $47,945,486,
respectively.
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
substantially 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.
<PAGE>
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 -
Blue Chip Bond Capital
Advantage Fund Resources
Fund Fund
Accumulated net realized gain (loss) $-- $(1,365,737) $(61,480)
Undistributed net investment income 586 (1,365,737) 1,394,113
--- ---------- ---------
Additional paid-in capital
reduction (increase) $586 $-- $1,332,633
---- ---------- ----------
AXP VP - AXP VP - AXP VP -
Cash Diversified Emerging
Management Equity Markets
Fund Fund Fund
Accumulated net realized gain (loss $-- $466 $391
Undistributed net investment income -- 936 6,979
---- --- -----
Additional paid-in capital
reduction (increase) $-- $470 $6,588
---- ---- ------
AXP VP - AXP VP - AXP VP
Extra Income Federal Global Bond
Fund Income Fund
Fund
Accumulated net realized gain (loss) $(602,378) $-- $(2,639,152)
Undistributed net investment income 602,378 2,307 (2,639,152)
------- ----- ----------
Additional paid-in capital
reduction (increase) $-- $2,307 $--
------- ------ ---------
AXP VP - AXP VP - AXP VP -
Growth International Managed
Fund Fund Fund
Accumulated net realized gain (loss) $-- $7,976,055 $307,514
Undistributed net investment income 88,265 (7,841,892) 307,514
------ ---------- -------
Additional paid-in capital
reduction (increase) $88,265 $134,163 $--
------- -------- -------
AXP VP - AXP VP - AXP VP -
New S&P 500 Small Cap
Dimensions Index Advantage
Fund Fund Fund
Accumulated net realized gain (loss $66,197 $-- $(31,216)
Undistributed net investment income 66,197 3,799 31,839
------ ----- ------
Additional paid-in capital
reduction (increase) $-- $3,799 $623
------ ----- ----
AXP VP -
Strategy
Aggressive
Fund
Accumulated net realized gain (loss) $168,342
Undistributed net investment income (168,342)
--------
Additional paid-in capital reduction (increase) $--
--------
<PAGE>
Dividends
As of Aug. 31, 2000, dividends declared for each Fund payable Sept. 1, 2000
are as follows:
Fund Amount per share
AXP VP - Blue Chip Advantage Fund $0.010
AXP VP - Bond Fund 0.060
AXP VP - Capital Resource Fund 0.000
AXP VP - Cash Management Fund 0.005
AXP VP - Diversified Equity Income Fund 0.027
AXP VP - Emerging Markets Fund 0.000
AXP VP - Extra Income Fund 0.075
AXP VP - Federal Income Fund 0.048
AXP VP - Global Bond Fund 0.032
AXP VP - Growth Fund 0.000
AXP VP - International Fund 0.000
AXP VP - Managed Fund 0.127
AXP VP - New Dimensions Fund 0.007
AXP VP - S&P 500 Index Fund 0.013
AXP VP - Small Cap Advantage Fund 0.000
AXP VP - Strategy Aggressive Fund 0.000
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
distributed monthly for AXP VP Bond, AXP VP - Cash Management, AXP VP - Extra
Income, AXP VP - Federal Income and AXP VP - Global Bond Funds and declared and
distributed quarterly, when available, for AXP VP - Blue Chip Advantage, AXP VP
- Capital Resource, AXP VP - Diversified Equity Income, AXP VP - Emerging
Markets, AXP VP - Growth, AXP VP - International, AXP VP - Managed, AXP VP - New
Dimensions, AXP VP - S&P 500 Index, AXP VP - Small Cap Advantage and AXP VP -
Strategy Aggressive Funds. Capital gain distributions, when available, 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.
Interest income, including level-yield amortization of premium and discount, is
accrued daily.
<PAGE>
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 - Blue Chip Advantage Fund 0.560% to 0.470%
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 - Diversified Equity Income Fund 0.560% to 0.470%
AXP VP - Emerging Markets Fund 1.170% to 1.095%
AXP VP - Extra Income Fund 0.620% to 0.545%
AXP VP - Federal Income Fund 0.610% to 0.535%
AXP VP - Global Bond Fund 0.840% to 0.780%
AXP VP - Growth Fund 0.630% to 0.570%
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 - S&P 500 Index Fund 0.29% to 0.26%
AXP VP - Small Cap Advantage Fund 0.790% to 0.650%
AXP VP - Strategy Aggressive Fund 0.650% to 0.575%
For AXP VP - Blue Chip Advantage Fund, AXP VP - Diversified Equity Income Fund,
AXP VP - Growth Fund and AXP VP - Small Cap Advantage Fund beginning February
2000 the fee may be adjusted upward or downward by a performance incentive
adjustment based on a comparison of the performance of the Fund to the Lipper
Large-Cap Core Index for AXP VP - Blue Chip Advantage Fund, the Lipper Equity
Income Funds Index for AXP VP - Diversified Equity Income Fund, the Lipper
Large-Cap Growth Index for AXP VP - Growth Fund and the Lipper Small-Cap Core
Funds Index for AXP VP - Small Cap Advantage Fund. The maximum adjustment is
0.08% for AXP VP - Blue Chip Advantage Fund and AXP VP - Diversified Equity
Income Fund and 0.12% for AXP VP - Growth Fund and AXP VP - Small Cap Advantage
Fund of the Fund's average daily net assets after deducting 1% from the
performance difference. If the performance difference is less than 1%, the
adjustment will be zero. The adjustment decreased the fee by $997 and $4,367 for
AXP VP - Blue Chip Advantage Fund and AXP VP - Small Cap Advantage Fund,
respectively, for the year ended Aug. 31, 2000. The adjustment increased the fee
by $139 and $11,713 for AXP VP - Diversified Equity Income Fund and AXP VP -
Growth Fund, respectively, for the year ended Aug. 31, 2000.
For AXP VP - Emerging Markets Fund the fee may be adjusted upward or
downward by a performance incentive adjustment based on a comparison of the
performance of the Fund to the Lipper Emerging Markets Fund Index. The maximum
adjustment is 0.12% of the Fund's average daily net assets after deducting 1%
from the performance difference. If the performance difference is less than 1%,
the adjustment will be zero. The first adjustment will be made in Dec. 1, 2000.
IDS Life, in turn, pays to 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 AXP VP - S&P 500 Index 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
amountequal 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 Sub-investment Advisory Agreements with American
Express Asset Management International Inc. (International), a wholly-owned
subsidiary of AEFC and Kenwood Capital Management LLC, an indirect 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 - Blue Chip Advantage Fund 0.040% to 0.020%
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 - Diversified Equity Income Fund 0.040% to 0.020%
AXP VP - Emerging Markets Fund 0.10% to 0.05%
AXP VP - Extra Income Fund 0.050% to 0.025%
AXP VP - Federal Income Fund 0.050% to 0.025%
AXP VP - Global Bond Fund 0.060% to 0.040%
AXP VP - Growth Fund 0.050% to 0.030%
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 - S&P 500 Index Fund 0.080% to 0.065%
AXP VP - Small Cap Advantage Fund 0.060% to 0.035%
AXP VP - Strategy Aggressive Fund 0.060% to 0.035%
A minor portion of additional administrative service expenses paid by the Funds
are consultants' fees and fund office expenses. 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 have an agreement with IDS Life for
distribution services. Under a Plan and Agreement of Distribution, each Fund
pays a distribution fee at an annual rate up to 0.125% of each Fund's average
daily net assets.
<PAGE>
Through April 30, 2001, IDS Life and AEFC have agreed to waive certain fees and
reimburse expenses to the extent that total expenses exceed the following
percentage of the Fund's average daily net assets:
Fund Percentage
AXP VP - Emerging Markets Fund 1.750%
AXP VP - S&P 500 Index Fund 0.495%
Through Aug. 31, 2001, IDS Life and AEFC have agreed to waive certain fees
and reimburse expenses to the extent that total expenses exceed the following
percentage of the Fund's average daily net assets as follows:
Fund Percentage
AXP VP - Blue Chip Advantage Fund 0.950%
AXP VP - Diversified Equity Income Fund 0.950%
AXP VP - Federal Income Fund 0.875%
AXP VP - Growth Fund 0.950%
AXP VP - Small Cap Advantage Fund 1.225%
During the year ended Aug. 31, 2000, the Funds' custodian fees were reduced
as a result of earnings credits from overnight cash balances as follows:
Fund Reduction
AXP VP - Blue Chip Advantage Fund* $8
AXP VP - Bond Fund 60
AXP VP - Capital Resource Fund 772
AXP VP - Cash Management Fund 18
AXP VP - Diversified Equity Income Fund* 190
AXP VP - Emerging Markets Fund** --
AXP VP - Extra Income Fund 51
AXP VP - Federal Income Fund* 202
AXP VP - Global Bond Fund 654
AXP VP - Growth Fund* 268
AXP VP - International Fund 1,990
AXP VP - Managed Fund 39
AXP VP - New Dimensions Fund 96
AXP VP - S&P 500 Index Fund** --
AXP VP - Small Cap Advantage Fund* 132
AXP VP - Strategy Aggressive Fund 645
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
** For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000.
3. SECURITIES TRANSACTIONS
For the year ended Aug. 31, 2000, cost of purchases and proceeds from sales
of securities aggregated, respectively, $4,685,972,967 and $4,592,147,756 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 - Blue Chip Advantage Fund* $133,250,828 $74,128,292
AXP VP - Bond Fund 1,072,925,862 1,262,841,597
AXP VP - Capital Resource Fund 2,963,682,227 3,633,243,567
AXP VP - Diversified Equity Income Fund* 25,816,616 5,970,370
AXP VP - Emerging Markets Fund** 3,494,687 1,741,991
AXP VP - Extra Income Fund 376,211,143 353,594,044
AXP VP - Federal Income Fund* 40,101,938 13,824,319
AXP VP - Global Bond Fund 87,724,371 102,010,605
AXP VP - Growth Fund* 173,826,109 12,962,761
AXP VP - International Fund 2,754,304,190 2,837,706,294
AXP VP - Managed Fund 2,448,060,601 2,863,753,065
AXP VP - New Dimensions Fund 2,020,506,337 1,220,907,436
AXP VP - S&P 500 Index Fund** 16,581,123 6,899,374
AXP VP - Small Cap Advantage* 45,625,686 23,312,490
AXP VP - Strategy Aggressive Fund 4,540,747,671 4,479,238,361
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, 2000 are as follows:
Fund Amount paid
AXP VP - Blue Chip Advantage Fund* $183
AXP VP - Capital Resource Fund 800,594
AXP VP - Diversified Equity Income Fund* 87
AXP VP - Growth Fund* 132
AXP VP - Managed Fund 172,988
AXP VP - New Dimensions Fund 68,268
AXP VP - Small Cap Advantage Fund* 1,188
AXP VP - Strategy Aggressive Fund 198,000
* For the period from Sept. 15, 1999 (date the Fund became available)
through Aug. 31, 2000.
** For the period from May 1, 2000 (date the Fund became available) through
Aug. 31, 2000.
<PAGE>
4. FOREIGN CURRENCY CONTRACTS
As of Aug. 31, 2000, AXP VP - Emerging Markets Fund, AXP VP - Global Bond Fund
and AXP VP - International 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 - Emerging Markets Fund
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
Sept. 1, 2000 1,686,525,000 2,577 $1 $--
Turkish Lira U.S. Dollar
Sept. 5, 2000 50,453 7,250 14 --
South African Rand U.S. Dollar
Sept. 5, 2000 40,489 5,815 8 --
South African Rand U.S. Dollar ---- ----
$23 $--
---- ----
AXP VP - Global Bond Fund
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
Sept. 11, 2000 190,000,000 1,758,608 $-- $24,925
Japanese Yen U.S. Dollar
Sept. 18, 2000 2,020,000 1,368,805 -- 1,392
Canadian Dollar U.S. Dollar
Sept. 25, 2000 2,716,000 1,590,625 21,067 --
Australian Dollar U.S. Dollar
Oct. 11, 2000 110,000,000 1,041,647 3,687 --
Japanese Yen U.S. Dollar ------- -------
$24,754 $26,317
------- -------
AXP VP - International Fund
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
Sept. 1, 2000 460,326,879,600 703,326 $279 $--
Turkish Lira U.S. Dollar
Sept. 1, 2000 1,737,840 1,181,120 -- 19,311
U.S. Dollar British Pound
Sept. 5, 2000 909,479 625,889 1,189 --
U.S. Dollar British Pound ------ -------
$1,468 $19,311
------ -------
5. LENDING OF PORTFOLIO SECURITIES
Presented below is information regarding securities on loan as of Aug.31, 2000.
AXP VP - AXP VP - AXP VP -
Bond Capital International
Fund Resource Fund
Fund
Value of securities on loan to brokers $65,253,000 $54,992,700 $76,973,325
----------- ----------- -----------
Collateral received for securities loaned:
Cash $16,068,750 $56,700,000 $78,572,200
U.S. government securities, at value 50,255,840 -- --
---------- ---------- ----------
Total collateral received
for securities loaned $66,324,590 $56,700,000 $78,572,200
----------- ----------- -----------
AXP VP - AXP VP -
Managed Strategy
Fund Aggressive
Fund
Value of securities on loan to brokers $181,326,703 $228,418,633
Collateral received for securities loaned:
Cash $67,330,600 $170,440,800
U.S. government securities, at value 119,075,048 54,796,603
Total collateral received for securities loaned $186,405,648 $225,237,403
As of Aug. 31, 2000, due to fluctuating market conditions, AXP VP - Strategy
Aggressive requested additional collateral which was received on Sept. 1, 2000.
Income from securities lending amounted to $63,656, $324,442, $51, $803,563,
$583,941, $27,747 and $1,580,894 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, 2000.
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.
<PAGE>
6. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Aug. 31, 2000
AXP VP - AXP VP - AXP VP -
Blue Chip Bond Capital
Advantage Fund Resource
Fund* Fund
Sold 6,275,074 11,026,927 4,592,964
Issued for reinvested distributions 4,449 10,298,958 17,347,021
Redeemed (343,649)(44,391,780) (25,202,471)
-------- ----------- -----------
Net increase (decrease) 5,935,874 (23,065,895) (3,262,486)
--------- ----------- ----------
Year ended Aug. 31, 2000
AXP VP - AXP VP - AXP VP -
Cash Diversified Emerging
Management Equity Markets**
Fund Income* Fund Fund
Sold 1,024,333,621 2,417,294 340,753
Issued for reinvested distributions 37,096,618 10,531 447
Redeemed (968,288,266) (361,943) (257,573)
------------ -------- --------
Net increase (decrease) 93,141,973 2,065,882 83,627
------------ -------- --------
Year ended Aug. 31, 2000
AXP VP - AXP VP - AXP VP -
Extra Federal Global
Income Income Bond
Fund Fund* Fund
Sold 13,576,569 5,203,078 2,860,750
Issued for reinvested distributions 7,037,448 126,391 572,040
Redeemed (16,917,745)(2,604,643)(4,516,817)
----------- ---------- ----------
Net increase (decrease) 3,696,272 2,724,826 (1,084,027)
----------- ---------- ----------
Year ended Aug. 31, 2000
AXP VP - AXP VP - AXP VP -
Growth International Managed
Fund* Fund Fund
Sold 14,684,400 18,042,152 9,538,432
Issued for reinvested distributions 2,031 20,912,028 16,977,247
Redeemed (413,358)(26,969,794) (43,382,143)
-------- ----------- -----------
Net increase (decrease) 14,273,073 11,984,386 (16,866,464)
---------- ---------- -----------
Year ended Aug. 31, 2000
AXP VP - AXP VP - AXP VP -
New S&P 500 Small Cap
Dimensions Index** Advantage*
Fund Fund Fund
Sold 38,564,707 1,060,656 2,832,461
Issued for reinvested distributions 1,934,546 1,955 5,023
Redeemed (5,751,240) (38,184) (665,949)
---------- ------- --------
Net increase (decrease) 34,748,013 1,024,427 2,171,535
---------- --------- ---------
Year ended Aug. 31, 2000
AXP VP -
Strategy
Aggressive
Fund
Sold 14,937,839
Issued for reinvested distributions 13,299,832
Redeemed (18,755,998)
-----------
Net increase (decrease) 9,481,673
---------
Year ended Aug. 31, 1999
AXP VP - AXP VP - AXP VP -
Bond Capital Cash
Fund Resource Management
Fund Fund
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)
---------- ---------- ----------
* For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
** For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000.
<PAGE>
7. FUTURES CONTRACTS
As of Aug. 31, 2000, AXP VP - Blue Chip Advantage Fund's investments in
securities included securities valued at $531,727 that were pledged as
collateral to cover initial margin deposits on 67 open purchase stock index
contracts. The market value of the open purchase contracts as of Aug. 31, 2000
was $5,101,745 with a net unrealized gain of $68,902. See "Summary of
significant accounting policies."
As of Aug. 31, 2000, AXP VP - Federal Income Fund's investments in
securities included securities valued at $52,055 that were pledged as collateral
to cover initial margin deposits on 10 open sale interest rate contracts. The
market value of the open sale contracts as of Aug. 31, 2000 was $1,001,563 with
a net unrealized loss of $24,416. See "Summary of significant accounting
policies."
As of Aug. 31, 2000, AXP VP - Small Cap Advantage Fund's investments in
securities included securities valued at $194,675 that were pledged as
collateral to cover initial margin deposits on 2 open purchase stock index
contracts. The market value of the open purchase contracts as of Aug. 31, 2000
was $537,050 with a net unrealized gain of $32,541. See "Summary of significant
accounting policies."
As of Aug. 31, 2000, AXP VP - Strategy Aggressive Fund's investments in
securities included securities valued at $23,730,125 that were pledged as
collateral to cover initial margin deposits on 457 open purchase stock index
contracts. The market value of the open purchases contracts as of Aug. 31, 2000
was $187,973,300 with a net unrealized gain of $9,979,732. See "Summary of
significant accounting policies."
8. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written by AXP
VP - Capital Resource Fund during the year ended Aug. 31, 2000 are as follows:
Calls
Contracts Premium
Balance Aug. 31, 1999 -- $--
Opened 1,375 1,064,277
Closed or expired (1,100) (334,814)
Exercised (275) (729,463)
---- --------
Balance Aug. 31, 2000 -- $--
---- --------
See "Summary of significant accounting policies."
Contracts and premium amounts associated with options contracts written by AXP
VP - Managed Fund during the year ended Aug. 31, 2000 are as follows:
Calls Puts
Contracts Premium Contracts Premium
Balance Aug. 31, 1999 -- $-- 2,500 $1,198,710
Opened 43,000 10,028,696 -- --
Closed or expired (11,450) (1,655,305) (2,500) (1,198,710)
Exercised (13,850) (3,883,957) -- --
------- ---------- --------- ----------
Balance Aug. 31, 2000 17,700 $4,489,434 -- $--
------ ---------- --------- ----------
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, 2000 are as follows:
Puts
Contracts Premium
Balance Aug. 31, 1999 -- $--
Opened 775 135,625
Closed or expired (775) (135,625)
Exercised -- --
-------- --------
Balance Aug. 31, 2000 -- $--
-------- --------
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, 2000 are as
follows:
Calls Puts
Contracts Premium Contracts Premium
Balance Aug. 31, 1999 -- $-- 4,450 $1,299,571
Opened 24,590 9,890,102 24,635 16,550,796
Closed or expired (16,350) (5,437,684) (23,344) (13,765,240)
Exercised (7,640) (4,349,222) (3,091) (1,488,437)
------ ---------- ------ ----------
Balance Aug. 31, 2000 600 $103,196 2,650 $2,596,690
------ -------- ----- ----------
See "Summary of significant accounting policies."
9. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, capital loss carry-overs were as follows as of
Aug. 31, 2000:
Fund Carry-over Expiration Date
AXP VP - Blue Chip Advantage Fund $704,838 2008-2009
AXP VP - Bond Fund 109,785,185 2007-2009
AXP VP - Diversified Equity Income Fund 246,277 2008-2009
AXP VP - Emerging Markets Fund 31,298 2008
AXP VP - Extra Income Fund 63,864,460 2007-2009
AXP VP - Federal Income Fund 40,242 2009
AXP VP - Global Bond Fund 5,884,313 2007-2009
AXP VP - Growth Fund 2,021,300 2008-2009
AXP VP - Small Cap Advantage Fund 13,691 2009
It is unlikely the board will authorize a distribution of any net realized gain
for a Fund until its capital loss carry-over has been offset or expires.
<PAGE>
10. Financial Highlights
The tables below show certain important financial information for evaluating
each Fund's results.
AXP VP - Blue Chip Advantage Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $9.78
-----
Income from investment operations:
Net investment income (loss) .02
Net gains (losses) (both realized and unrealized) 1.85
----
Total from investment operations 1.87
----
Less distributions:
Dividends from net investment income (.03)
----
Net asset value, end of period $11.62
------
Ratios/supplemental data
Net assets, end of period (in millions) $71
---
Ratio of expenses to average daily net assetsc .95%d,e
---
Ratio of net investment income (loss) to
average daily net assets .34%d
---
Portfolio turnover rate
(excluding short-term securities) 226%
---
Total returnf 19.13%
-----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from Sept. 15, 1999 (date the Fund became available)
to Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 0.96% for the period
ended Aug. 31, 2000.
f Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<TABLE>
<CAPTION>
<PAGE>
AXP VP - Bond Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $10.56 $11.08 $11.99 $11.54 $11.58
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .75 .79 .88 .85 .88
Net gains (losses)
(both realized and unrealized) (.27) (.52) (.68) .52 (.07)
---- ---- ---- --- ----
Total from investment operations .48 .27 .20 1.37 .81
--- --- --- ---- ---
Less distributions:
Dividends from net investment income (.75) (.77) (.85) (.84) (.85)
Distributions from realized gains -- (.02) (.26) (.07) --
Excess distributions from realized gains -- -- -- (.01) --
---- ---- ---- ---- ----
Total distributions (.75) (.79) (1.11) (.92) (.85)
---- ---- ----- ---- ----
Net asset value, end of period $10.29 $10.56 $11.08 $11.99 $11.54
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $1,468 $1,750 $1,852 $1,923 $1,912
------ ------ ------ ------ ------
Ratio of expenses to average
daily net assetsb .79% .68% .67% .68% .68%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets 7.30% 7.22% 7.39% 7.18% 7.47%
---- ---- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 70% 68% 48% 73% 56%
-- -- -- -- --
Total returnc 4.69% 2.40% 1.54% 12.24% 5.82%
---- ---- ---- ----- ----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
c Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXP VP - Capital Resource Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $34.62 $26.80 $27.97 $25.57 $24.42
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .01 .06 .11 .16 .30
Net gains (losses)
(both realized and unrealized) 6.20 10.28 (.54) 6.45 1.22
---- ----- ---- ---- ----
Total from investment operations 6.21 10.34 (.43) 6.61 1.52
---- ----- ---- ---- ----
Less distributions:
Dividends from net investment income (.01) (.06) (.11) (.15) (.29)
Distributions from realized gains (3.61) (2.46) (.63) (4.05) (.07)
Excess distributions from realized gains -- -- -- (.01) (.01)
---- ---- ---- ---- ----
Total distributions (3.62) (2.52) (.74) (4.21) (.37)
----- ----- ---- ----- ----
Net asset value, end of period $37.21 $34.62 $26.80 $27.97 $25.57
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $5,920 $5,621 $4,453 $4,867 $4,372
------ ------ ------ ------ ------
Ratio of expenses to average daily net assetsb .77% .66% .66% .67% .68%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets (.02%) .17% .34% .61% 1.15%
---- --- --- --- ----
Portfolio turnover rate
(excluding short-term securities) 52% 56% 68% 110% 131%
-- -- -- --- ---
Total returnc 19.26% 40.12% (1.67%) 28.47% 6.15%
----- ----- ----- ----- ----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
c Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - Cash Management Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000 1999 1998 1997 1996
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) $783 $690 $428 $421 $288
---- ---- ---- ---- ----
Ratio of expenses to average daily net assetsb .68% .56% .57% .57% .56%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets 5.38% 4.60% 5.13% 4.97% 5.02%
---- ---- ---- ---- ----
Total returnc 5.52% 4.72% 5.25% 5.05% 5.15%
---- ---- ---- ---- ----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
c Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
</TABLE>
AXP VP - Diversified Equity Income Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $9.76
-----
Income from investment operations:
Net investment income (loss) .10
Net gains (losses) (both realized and unrealized) .30
---
Total from investment operations .40
---
Less distributions:
Dividends from net investment income (.11)
----
Net asset value, end of period $10.05
------
Ratios/supplemental data
Net assets, end of period (in millions) $23
---
Ratio of expenses to average daily net assetsc .95%d,e
---
Ratio of net investment income (loss)
to average daily net assets 1.42%d
----
Portfolio turnover rate
(excluding short-term securities) 53%
---
Total returnf 4.21%
-----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from Sept. 15, 1999 (date the Fund became available)
to Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.49% for the period ended
Aug. 31, 2000. f Total return does not reflect payment of the expenses that
apply to the variable accounts or any annuity charges.
AXP VP - Emerging Markets Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $10.23
------
Income from investment operations:
Net investment income (loss) (.01)
Net gains (losses) (both realized and unrealized) (.60)
----
Total from investment operations (.61)
----
Less distributions:
Tax return of capital (.01)
----
Net asset value, end of period $9.61
-----
Ratios/supplemental data
Net assets, end of period (in millions) $6
--
Ratio of expenses to average daily net assetsc 1.69%d,e
-----
Ratio of net investment income
(loss) to average daily net assets (.36%)d
-----
Portfolio turnover rate
(excluding short-term securities) 37%
--
Total returnf (6.03%)
------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from May 1, 2000 (date the Fund became available)
to Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 2.42% for the period ended
Aug. 31, 2000.
f Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
<TABLE>
<CAPTION>
AXP VP - Extra Income Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996b
Net asset value, beginning of period $8.75 $9.54 $10.39 $9.77 $10.00
----- ----- ------ ----- ------
Income from investment operations:
Net investment income (loss) .85 .92 .95 .88 .18
Net gains (losses)
(both realized and unrealized) (.99) (.69) (.80) .62 (.23)
---- ---- ---- --- ----
Total from investment operations (.14) .23 .15 1.50 (.05)
---- --- --- ---- ----
Less distributions:
Dividends from net investment income (.85) (.92) (.95) (.88) (.18)
Distributions from realized gains -- (.10) (.05) -- --
---- ---- ---- ---- ----
Total distributions (.85) (1.02) (1.00) (.88) (.18)
---- ----- ----- ---- ----
Net asset value, end of period $7.76 $8.75 $9.54 $10.39 $9.77
----- ----- ----- ------ -----
Ratios/supplemental data
Net assets, end of period (in millions) $595 $638 $564 $320 $49
---- ---- ---- ---- ---
Ratio of expenses to average daily net assetsc .82% .70% .69% .69% 1.53%d
--- --- --- --- ----
Ratio of net investment income (loss)
to average daily net assets 10.35% 10.17% 9.21% 8.88% 8.14%d
----- ----- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 63% 50% 66% 104% 22%
-- -- -- --- --
Total returne (1.59%) 2.61% 1.03% 16.80% (.50%)
----- ---- ---- ----- ----
</TABLE>
<PAGE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 1, 1996.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - Federal Income Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $10.02
------
Income from investment operations:
Net investment income (loss) .51
Net gains (losses) (both realized and unrealized) (.06)
----
Total from investment operations .45
---
Less distributions:
Dividends from net investment income (.52)
----
Net asset value, end of period $9.95
-----
Ratios/supplemental data
Net assets, end of period (in millions) $37
---
Ratio of expenses to average daily net assetsc .87%d,e
---
Ratio of net investment income
(loss) to average daily net assets 5.49%d
----
Portfolio turnover rate
(excluding short-term securities) 67%
--
Total returnf 4.64%
----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from Sept. 15, 1999 (date the Fund became available)
to Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 0.89% for the period ended
Aug. 31, 2000.
f Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
<TABLE>
<CAPTION>
AXP VP - Global Bond Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996b
Net asset value, beginning of period $9.84 $10.09 $10.32 $10.08 $10.00
----- ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .32 .55 .60 .51 .12
Net gains (losses)
(both realized and unrealized) (.51) (.29) (.21) .14 .07
---- ---- ---- --- ---
Total from investment operations (.19) .26 .39 .65 .19
---- --- --- --- ---
Less distributions:
Dividends from net investment income (.31) (.51) (.58) (.41) (.11)
Distributions from realized gains -- -- (.04) -- --
---- ---- ---- ---- ----
Total distributions (.31) (.51) (.62) (.41) (.11)
---- ---- ---- ---- ----
Net asset value, end of period $9.34 $9.84 $10.09 $10.32 $10.08
----- ----- ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $177 $197 $183 $119 $21
---- ---- ---- ---- ---
Ratio of expenses to average daily net assetsc 1.07% .96% .95% .97% 1.77%d
---- --- --- --- ----
Ratio of net investment income (loss
to average daily net assets 4.81% 5.36% 5.81% 5.66% 4.96%d
---- ---- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 50% 56% 14% 36% 4%
-- -- -- -- -
Total returne (1.90%) 2.50% 3.82% 6.47% 2.00%
----- ---- ---- ---- ----
</TABLE>
<PAGE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was May 1, 1996.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - Growth Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $9.72
-----
Income from investment operations:
Net investment income (loss) --
Net gains (losses)
(both realized and unrealized) 3.75
----
Total from investment operations 3.75
----
Less distributions:
Tax return of capital (.01)
----
Net asset value, end of period $13.46
------
Ratios/supplemental data
Net assets, end of period (in millions) $195
----
Ratio of expenses to average daily net assetsc .95%d,e
----
Ratio of net investment
income (loss) to average daily net assets (.09%)d
----
Portfolio turnover rate
(excluding short-term securities) 17%
--
Total returnf 38.59%
-----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC Reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 0.97% for the period ended
Aug. 31, 2000.
f Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
<TABLE>
<CAPTION>
AXP VP - International Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $17.26 $14.25 $14.09 $13.30 $12.55
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .06 .12 .14 .18 .20
Net gains (losses)
(both realized and unrealized) 2.50 3.04 .42 1.06 1.01
---- ---- --- ---- ----
Total from investment operations 2.56 3.16 .56 1.24 1.21
---- ---- --- ---- ----
Less distributions:
Dividends from net investment income (.01) (.07) (.15) (.17) (.44)
Distributions from realized gains (2.83) (.08) (.19) (.28) (.02)
Excess distributions from realized gains -- -- (.06) -- --
---- ---- ---- ---- ----
Total distributions (2.84) (.15) (.40) (.45) (.46)
----- ---- ---- ---- ----
Net asset value, end of period $16.98 $17.26 $14.25 $14.09 $13.30
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $2,389 $2,221 $2,023 $2,105 $1,874
------ ------ ------ ------ ------
Ratio of expenses to average daily net assetsb 1.02% .94% .94% .97% .96%
---- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets .27% .70% .94% 1.30% 1.28%
--- --- --- ---- ----
Portfolio turnover rate
(excluding short-term securities) 118% 102% 86% 91% 58%
--- --- -- -- --
Total returnc 14.74% 22.18% 4.09% 9.34% 9.64%
----- ----- ---- ---- ----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
c Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXP VP - Managed Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $18.84 $17.25 $18.87 $16.00 $14.85
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .47 .50 .49 .46 .46
Net gains (losses)
(both realized and unrealized) 2.85 3.29 (.12) 3.93 1.15
---- ---- ---- ---- ----
Total from investment operations 3.32 3.79 .37 4.39 1.61
---- ---- --- ---- ----
Less distributions:
Dividends from net investment income (.48) (.49) (.48) (.45) (.46)
Distributions from realized gains (.87) (1.71) (1.50) (1.06) --
Excess distributions from net investment income -- -- (.01) (.01) --
---- ---- ---- ---- ----
Total distributions (1.35) (2.20) (1.99) (1.52) (.46)
----- ----- ----- ----- ----
Net asset value, end of period $20.81 $18.84 $17.25 $18.87 $16.00
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $5,223 $5,046 $4,413 $4,445 $3,482
------ ------ ------ ------ ------
Ratio of expenses to average daily net assetsb .75% .63% .64% .64% .65%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets 2.37% 2.62% 2.56% 2.65% 2.94%
---- ---- ---- ---- ----
Portfolio turnover rate
(excluding short-term securities) 49% 44% 50% 72% 85%
-- -- -- -- --
Total returnc 18.42% 22.98% 1.74% 27.50% 11.01%
----- ----- ---- ----- -----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
c Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXP VP - New Dimensions Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996b
Net asset value, beginning of period $18.87 $13.29 $12.95 $9.94 $10.00
------ ------ ------ ----- ------
Income from investment operations:
Net investment income (loss) .03 .06 .08 .10 .03
Net gains (losses)
(both realized and unrealized) 6.34 5.60 .34 3.01 (.06)
---- ---- --- ---- ----
Total from investment operations 6.37 5.66 .42 3.11 (.03)
---- ---- --- ---- ----
Less distributions:
Dividends from net investment income (.04) (.06) (.08) (.10) (.03)
Distributions from realized gains (.17) (.02) -- -- --
---- ---- ---- ---- ----
Total distributions (.21) (.08) (.08) (.10) (.03)
---- ---- ---- ---- ----
Net asset value, end of period $25.03 $18.87 $13.29 $12.95 $9.94
------ ------ ------ ------ -----
Ratios/supplemental data
Net assets, end of period (in millions) $5,564 $3,538 $1,960 $1,307 $171
------ ------ ------ ------ ----
Ratio of expenses to average daily net assetsc .78% .68% .69% .72% 1.04%d
--- --- --- --- ----
Ratio of net investment income (loss)
to average daily net assets .15% .34% .59% 1.04% 1.69%d
--- --- --- ---- ----
Portfolio turnover rate
(excluding short-term securities) 28% 27% 34% 29% 4%
-- -- -- -- -
Total returne 34.01% 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 Expense ratio is based on total expenses of the Fund before reduction of
earnings credit on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
AXP VP - S&P 500 Index Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $10.06
------
Income from investment operations:
Net investment income (loss) .02
Net gains (losses) (both realized and unrealized) .33
---
Total from investment operations .35
---
Less distributions:
Dividends from net investment income (.03)
----
Net asset value, end of period $10.38
------
Ratios/supplemental data
Net assets, end of period (in millions) $21
---
Ratio of expenses to average daily net assetsc .48%d,e
---
Ratio of net investment
income (loss) to average daily net assets .72%d
---
Portfolio turnover rate
(excluding short-term securities) 44%
--
Total returnf 3.49%
----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from May 1, 2000 (date the Fund became available) to
Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.57% for the period ended
Aug. 31, 2000.
f Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
AXP VP - Small Cap Advantage Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
2000b
Net asset value, beginning of period $9.90
-----
Income from investment operations:
Net investment income (loss) (.02)
Net gains (losses)
(both realized and unrealized) 2.78
----
Total from investment operations 2.76
----
Less distributions:
Distributions from realized gains (.08)
----
Net asset value, end of period $12.58
------
Ratios/supplemental data
Net assets, end of period (in millions) $31
---
Ratio of expenses to average daily net assetsc 1.19%d,e
----
Ratio of net investment income
(loss) to average daily net assets (.24%)d
----
Portfolio turnover rate
(excluding short-term securities) 169%
---
Total returnf 28.19%
-----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b For the period from Sept. 15, 1999 (date the Fund became available) to
Aug. 31, 2000.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.43% for the period ended
Aug. 31, 2000.
f Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
<PAGE>
<TABLE>
<CAPTION>
AXP VP - Strategy Aggressive Fund
Fiscal period ended Aug. 31,
Per share income and capital changesa
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
Net asset value, beginning of period $16.46 $13.10 $17.17 $16.04 $14.44
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) .01 .05 .01 .08 .10
Net gains (losses)
(both realized and unrealized) 13.17 4.36 (2.57) 2.84 1.60
----- ---- ----- ---- ----
Total from investment operations 13.18 4.41 (2.56) 2.92 1.70
----- ---- ----- ---- ----
Less distributions:
Dividends from net investment income -- (.05) (.01) (.08) (.10)
Distributions from realized gains (1.82) (1.00) (1.49) (1.71) --
Excess distributions from realized gains -- -- (.01) -- --
---- ---- ---- ---- ----
Total distributions (1.82) (1.05) (1.51) (1.79) (.10)
----- ----- ----- ----- ----
Net asset value, end of period $27.82 $16.46 $13.10 $17.17 $16.04
------ ------ ------ ------ ------
Ratios/supplemental data
Net assets, end of period (in millions) $4,197 $2,327 $1,976 $2,427 $1,941
------ ------ ------ ------ ------
Ratio of expenses to average daily net assetsb .77% .67% .66% .68% .69%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets .04% .31% .08% .47% .65%
--- --- --- --- ---
Portfolio turnover rate
(excluding short-term securities) 143% 207% 176% 218% 189%
--- --- --- --- ---
Total returnc 84.97% 35.27% (16.40%) 18.60% 11.82%
----- ----- ------ ----- -----
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
c Total return does not reflect payment of the expenses that apply to the
variable accounts or any annuity charges.
</TABLE>
<PAGE>
Investments in Securities
AXP VP - Blue Chip Advantage Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (92.6%)
Issuer Shares Value(a)
Aerospace & defense (0.5%)
United Technologies 6,100(d) $380,869
Airlines (0.5%)
Southwest Airlines 16,235 367,317
Automotive & related (0.8%)
Ford Motor 23,853(d) 576,944
Banks and savings & loans (4.6%)
Bank of America 15,775 844,948
Bank of New York 12,955 679,328
FleetBoston Financial 14,836 633,312
Mellon Financial 9,700 438,925
Wells Fargo 15,890 686,249
Total 3,282,762
Chemicals (0.4%)
Du Pont (EI) de Nemours 6,900 309,638
Communications equipment & services (6.8%)
Corning 2,580 846,079
JDS Uniphase 7,300(b) 909,763
Lucent Technologies 22,575 943,917
Motorola 21,355 770,115
Nortel Networks 12,830(c) 1,046,446
Sycamore Networks 2,300(b) 315,100
Total 4,831,420
Computer software & services (4.6%)
Microsoft 24,640(b) 1,720,180
Oracle 17,515(b) 1,592,770
Total 3,312,950
Computers & office equipment (18.4%)
Cisco Systems 38,810(b) 2,658,486
Compaq Computer 26,150 890,734
Computer Sciences 6,340(b) 501,256
Dell Computer 21,575(b) 941,209
EMC 13,860(b) 1,358,280
First Data 10,785 514,310
Hewlett-Packard 8,250 996,188
Intl Business Machines 10,750 1,419,000
Mercury Interactive 4,500(b) 549,844
Sanmina 4,800(b) 566,400
Solectron 9,730(b) 440,891
Sun Microsystems 6,956(b) 882,977
Veritas Software 6,210(b) 748,693
Yahoo! 5,176(b) 628,884
Total 13,097,152
Electronics (5.0%)
Broadcom Cl A 2,850(b) 712,500
Intel 30,260 2,265,717
Linear Technology 8,600 618,663
Total 3,596,880
Energy (4.9%)
Apache 4,000 252,000
Chevron 8,440 713,180
Exxon Mobil 20,749 1,693,637
Kerr-McGee 6,500 410,719
Tosco 14,460(d) 441,030
Total 3,510,566
Energy equipment & services (0.9%)
Halliburton 12,380 656,140
Financial services (6.9%)
Citigroup 21,013 1,226,653
Fannie Mae 12,600 677,250
Lehman Brothers Holdings 5,060 733,700
MBNA 16,010 565,353
Merrill Lynch 1,000 145,000
Morgan Stanley, Dean Witter,
Discover & Co 9,468 1,018,402
Providian Financial 4,535 521,242
Total 4,887,600
Health care (12.8%)
Allergan 7,700 563,063
ALZA 7,500(b) 567,188
American Home Products 5,630 305,076
Amgen 10,742(b) 814,377
Baxter Intl 7,443 619,630
Biogen 3,600(b) 248,850
Biomet 9,255 312,935
Genentech 1,200(b) 228,600
Guidant 9,300(b) 626,006
Johnson & Johnson 1,430 131,471
Lilly (Eli) 1,700(d) 124,100
MedImmune 6,400(b) 538,400
Medtronic 11,620 595,525
Merck & Co 2,900 202,638
Pfizer 37,315 1,613,873
Pharmacia 13,088 766,465
Schering-Plough 10,185 408,673
Watson Pharmaceuticals 7,100(b) 437,981
Total 9,104,851
Health care services (1.1%)
Cardinal Health 5,250 429,516
HCA-The Healthcare Co 10,600 365,700
Total 795,216
Household products (0.9%)
Colgate-Palmolive 6,375 324,726
Kimberly-Clark 4,895 286,358
Total 611,084
Insurance (2.1%)
American Intl Group 10,187 907,916
Marsh & McLennan 5,040 598,500
Total 1,506,416
Leisure time & entertainment (0.7%)
Viacom Cl B 7,238(b) 487,208
Media (0.6%)
Comcast Special Cl A 11,545(b) 430,051
Metals (1.1%)
Alcoa 18,860 627,095
Nucor 3,560(d) 130,830
Total 757,925
Miscellaneous (1.0%)
Convergys 7,600(b) 297,350
Stilwell Financial 8,800(b) 425,700
Total 723,050
Multi-industry conglomerates (5.1%)
Danaher 6,450 362,409
General Electric 37,520 2,201,955
Minnesota Mining & Mfg 2,600 241,800
Tyco Intl 14,920(c) 850,440
Total 3,656,604
Restaurants & lodging (0.2%)
Wendy's Intl 7,565 142,789
Retail (4.4%)
CVS 13,790 511,954
Home Depot 3,447(d) 165,671
Kroger 25,705(b) 583,182
Lowe's Companies 13,170 590,181
Safeway 12,485(b) 615,667
Wal-Mart Stores 9,650 457,772
Walgreen 7,000 230,125
Total 3,154,552
Utilities -- electric (1.5%)
AES 6,400(b) 408,000
Duke Energy 8,640 646,380
Total 1,054,380
Utilities-- gas (2.2%)
Coastal 7,300 502,788
Enron 9,040 767,269
Williams Companies 6,600 304,013
Total 1,574,070
Utilities -- telephone (4.6%)
AT&T 5,778 182,007
BellSouth 11,680 435,810
Global Crossing 10,670(b,c) 320,767
Nextel Communications Cl A 6,600(b) 365,888
Qwest Communications Int l16,531(b) 853,413
SBC Communications 16,415 685,326
Sprint (PCS Group) 8,390(b) 421,073
Total 3,264,284
Total common stocks
(Cost: $59,731,471) $66,072,718
Short-term securities (6.3%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.8%)
Federal Home Loan Bank Disc Nt
09-06-00 6.46% $500,000 $499,448
Federal Home Loan Mtge Corp Disc Nt
10-17-00 6.47 1,200,000 1,189,942
Federal Natl Mtge Assn Disc Nt
09-29-00 6.48 1,000,000 994,804
Total 2,684,194
Commercial paper (2.5%)
Verizon Communications
10-05-00 6.52 1,800,000 1,788,660
Total short-term securities
(Cost: $4,473,675) $4,472,854
Total investments in securities
(Cost: $64,205,146)(e) $70,545,572
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, 2000, the
value of foreign securities represented 3.11% of net assets.
(d)Partially pledged as initial margin deposit on the following open stock index
futures contracts (see Note 7 to the financial statements):
Type of security Contracts
Purchase contracts
S & P 500, Sept. 2000 62
S & P 500, Dec. 2000 5
(e)Aug. 31, 2000, the cost of securities for federal income tax purposes was
$64,656,421 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $7,730,151
Unrealized depreciation (1,841,000)
----------
Net unrealized appreciation $5,889,151
<PAGE>
Investments in Securities
AXP VP - Bond Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Bonds (95.0%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (17.0%)
Federal Republic of Germany
(European Monetary Unit)
11-11-04 7.50% 15,000,000(c) $14,394,243
Govt of Canada
(U.S. Dollar)
11-05-08 5.25 15,000,000(c) 13,580,265
Govt of Russia
(Russian Ruble)
06-16-99 (original maturity
date) -- 1,639,000(b,c) 59,010
12-15-01 -- 7,793,000(b,c) 219,831
02-06-02 -- 2,273,000(b,c) 79,627
05-22-02 -- 2,273,000(b,c) 77,622
06-05-02 -- 2,273,000(b,c) 77,646
09-18-02 -- 2,273,000(b,c) 76,762
10-09-02 -- 2,273,000(b,c) 75,134
01-22-03 -- 2,273,000(b,c) 73,563
02-05-03 -- 2,273,000(b,c) 73,653
05-21-03 -- 2,273,000(b,c) 72,073
06-04-03 -- 2,273,000(b,c) 71,885
09-17-03 -- 2,273,000(b,c) 70,502
10-08-03 -- 2,273,000(b,c) 68,783
01-21-04 -- 2,273,000(b,c) 67,646
Republic of Colombia
(U.S. Dollar)
08-13-05 12.83 10,000,000(c,h) 9,600,000
U.S. Treasury
11-15-00 5.75 5,000,000 4,992,200
05-15-02 7.50 6,170,000 6,294,387
06-30-02 6.25 17,000,000 17,002,719
03-31-03 5.50 7,500,000 7,388,700
05-15-04 5.25 10,000,000 9,734,400
05-15-04 7.25 11,000,000 11,417,670
08-15-04 7.25 8,200,000 8,536,938
11-15-05 5.88 5,475,000 5,443,355
08-15-07 6.13 5,000,000 5,039,850
05-15-08 5.63 59,250,000(e) 58,083,367
11-15-16 7.50 31,275,000 36,249,601
08-15-27 6.38 38,500,000 41,062,559
Total 249,983,991
Mortgage-backed securities (30.3%)
Federal Home Loan Mtge Corp
05-01-07 9.00 2,098,217 2,145,619
03-01-13 5.50 3,875,311 3,640,847
04-01-15 7.50 19,279,224 19,362,419
08-01-24 8.00 2,410,595 2,441,475
01-01-25 9.00 588,372 606,576
07-01-28 6.00 8,891,090 8,293,697
09-01-28 6.00 27,306,858 25,405,354
10-01-29 7.00 24,250,066 23,651,332
12-01-29 7.00 48,908,186 47,752,899
Collateralized Mtge Obligation
03-15-22 7.00 10,455,000 10,144,962
07-15-22 7.00 12,940,000 12,630,475
Federal Natl Mtge Assn
09-01-07 8.50 2,841,658 2,893,387
06-15-09 6.38 10,000,000 9,649,900
09-15-09 6.63 15,000,000 14,756,280
12-01-13 5.50 13,317,850 12,483,604
02-01-14 5.50 21,710,957 20,335,648
04-01-14 5.50 190,649 178,707
12-01-14 6.00 28,261,642 27,027,810
11-01-21 8.00 249,009 252,707
04-01-22 8.00 1,640,935 1,663,498
04-01-23 8.50 3,230,040 3,305,839
06-01-24 9.00 3,134,054 3,244,805
02-01-27 7.50 7,405,193 7,377,423
09-01-28 6.50 13,130,318 12,551,797
10-01-28 6.00 18,480,422 17,179,266
11-01-28 6.00 8,487,760 7,888,354
11-01-28 6.50 18,190,341 17,390,292
12-01-28 6.00 3,751,864 3,489,470
12-01-28 6.50 22,828,460 21,801,179
01-01-29 6.50 18,005,650 17,195,396
02-01-29 6.00 9,480,967 8,817,896
03-01-29 6.50 23,219,942 22,189,618
06-01-29 6.00 5,441,083 5,057,081
07-01-29 7.50 15,000,000(i) 14,892,188
09-01-29 6.00 5,433,164 5,049,721
09-01-29 7.00 19,119,216 18,647,145
Collateralized Mtge Obligation
05-18-26 5.00 10,000,000 8,718,439
Govt Natl Mtge Assn
06-20-24 7.38 2,774,259(j) 2,798,525
Total 442,911,630
Aerospace & defense (0.1%)
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,710,000 1,744,200
Airlines (0.8 %)
AMR
05-15-01 9.50 4,500,000 4,540,230
Delta Air Lines
12-15-09 7.90 7,500,000 7,295,575
Total 11,835,805
Automotive & related (1.6%)
Ford Motor Credit
03-15-05 7.50 7,850,000 7,849,686
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 2,500,000 2,287,500
Lear
Company Guaranty Series B
05-15-09 8.11 7,500,000 7,131,525
MSX Intl
Company Guaranty
01-15-08 11.38 3,450,000 3,312,000
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 4,100,000 3,280,000
Total 23,860,711
Banks and savings & loans (1.6%)
Cullen/Frost Capital
Series A
02-01-27 8.42 5,000,000 4,460,250
Fleet Financial Group
Sr Nts
12-01-01 9.00 5,000,000 5,102,000
Provident Trust
Company Guaranty
04-15-28 8.29 5,500,000 4,628,773
Union Planters Bank
Sub Nts
03-15-08 6.50 5,000,000 4,418,725
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 5,000,000 4,505,700
Total 23,115,448
Building materials & construction (0.3%)
Masco
10-01-01 9.00 5,000,000 5,065,200
Chemicals (0.4%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 5,950,000 5,362,438
Communications equipment & services (2.1%)
Aether Systems
Cv
03-22-05 6.00 1,041,000 905,670
Aspect Communications
Zero Coupon Cv Sub Deb
08-10-18 6.87 1,630,000(l) 493,385
Caprock Communications
Sr Nts
05-01-09 11.50 3,000,000 1,860,000
Celcaribe
Sr Nts
03-15-04 13.50 3,150,000 2,551,500
DLJ Secured Loan Trust
Sr Secured Ctfs
07-09-07 11.00 2,500,000(d) 2,500,000
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 2,775,000 2,830,500
EchoStar DBS
Sr Nts
02-01-09 9.38 4,050,000 4,014,563
Equinix
Sr Nts
12-01-07 13.00 1,345,000 1,076,000
Fairpoint Communications
Sr Sub Nts
05-01-10 12.50 1,350,000(d) 1,336,500
KMC Telecom Holdings
Sr Nts
05-15-09 13.50 1,250,000 1,000,000
NTL
Cv Sub Nts
12-15-09 5.75 860,000(d) 574,747
Zero Coupon Sr Nts Series B
02-01-01 11.48 5,000,000(m) 4,706,249
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 3,000,000 3,030,000
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 2,500,000(m) 500,000
Versatel Telecom
(European Monetary Unit)
03-30-05 4.00 1,083,000(c,d) 808,244
(U.S. Dollar) Sr Nts
07-15-09 11.88 900,000(c) 823,500
Voicestream Wireless
Sr Nts
11-15-09 10.38 2,250,000 2,430,000
Total 31,440,858
Computers & office equipment (1.0%)
Affiliated Computer Services
Cv
03-15-05 4.00 870,000 1,059,747
Akamai Technologies
Cv
07-01-07 5.50 390,000(d) 338,731
Exodus Communications
Sr Nts
07-15-10 11.63 1,500,000(d) 1,522,500
Globix
Sr Nts
02-01-10 12.50 3,925,000 2,983,000
Hewlett-Packard
Zero Coupon Sub Nts
10-14-17 2.42 1,360,000(l) 1,251,785
Hyperion Solutions
Cv
03-15-05 4.50 1,075,000 938,583
Juniper Networks
03-15-07 4.75 1,700,000 2,428,076
Mercury Interactive
Cv
07-01-07 4.75 1,160,000(d) 1,456,751
Sanmina
Cv
05-01-04 4.25 301,000 774,870
Solectron
Zero Coupon Cv
05-08-20 3.37 2,356,000(l) 1,558,565
Veritas Software
Cv
08-13-06 1.86 130,000 440,863
Total 14,753,471
Electronics (1.3%)
Celestica
(U.S. Dollar) Zero Coupon Cv
08-01-20 3.41 1,360,000(c,l) 724,200
Conexant Systems
Cv
02-01-07 4.00 1,527,000 1,116,619
Cv Sub Nts
02-01-07 4.00 640,000(d) 462,739
Flextronics Intl
(U.S. Dollar) Sr Sub Nts
07-01-10 9.88 1,100,000(c,d) 1,141,250
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 8,500,000(c,d) 7,346,193
LSI Logic
Cv
02-15-05 4.00 1,100,000 952,875
SCI Systems
03-15-07 3.00 1,700,000 2,162,536
Semtech
Cv
02-01-07 4.50 500,000(d) 756,505
Thomas & Betts
01-15-06 6.50 4,500,000 4,340,093
Vitesse Semiconductor
Cv
03-15-05 4.00 670,000(d) 687,902
Total 19,690,912
Energy (3.0%)
Ashland
Medium-term Nts Series J
08-15-05 7.83 5,000,000 4,967,875
Devon Energy
Cv Deb
08-15-08 4.90 816,000 775,200
Kerr-McGee
04-01-01 10.00 5,000,000 5,064,800
Lodestar Holdings
Company Guaranty
05-15-05 11.50 1,500,000 225,000
PDV America
Sr Nts
08-01-03 7.88 7,500,000 7,150,665
Petroliam Nasional Berhd
(U.S. Dollar)
08-15-15 7.75 10,000,000(c,d) 9,455,900
Phillips Petroleum
05-25-10 8.75 5,000,000 5,516,543
Pioneer Natl Resources
Sr Nts
08-15-07 8.25 4,000,000 3,830,000
Roil
(U.S. Dollar)
12-05-02 12.78 1,387,200(c,d) 1,328,244
USX
03-01-08 6.85 6,500,000 6,265,415
Total 44,579,642
Financial services (1.7%)
American Tower
Cv
02-15-10 5.00 145,000 137,025
CSC Holdings
Sr Sub Deb
04-01-23 9.88 5,000,000 5,100,000
Indah Kiat Finance Mauritius
(U.S. Dollar) Company Guaranty
07-01-07 10.00 2,530,000(c) 1,467,400
LaBranche
Sr Sub Nts
03-01-07 12.00 4,000,000 4,200,000
Ohio Savings Capital
Company Guaranty
06-03-27 9.50 5,000,000(d) 4,725,100
Osprey Trust/Osprey 1
01-15-03 8.31 8,100,000(d) 8,158,239
Providian Financial
Cv Sr Nts
08-15-05 3.25 1,060,000 1,124,702
Total 24,912,466
Health care (0.2%)
Inhale Therapeutic Systems
Cv Sub Nts
02-08-07 5.00 850,000(d) 1,212,313
Roche Holdings
Zero Coupon Cv
01-19-15 1.34 1,747,000(d,l) 1,669,992
Total 2,882,305
Health care services (1.1%)
HCA-The Healthcare
09-01-10 8.75 3,710,000 3,700,577
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 5,275,000(b) 1,635,250
Sunrise Assisted Living
Cv Sub Nts
06-15-02 5.50 1,700,000 1,496,000
Tenet Healthcare
Sr Sub Nts Series B
12-01-08 8.13 10,500,000 9,975,000
Total 16,806,827
Industrial equipment & services (0.5%)
Clark Equipment
03-01-01 9.75 5,000,000 5,054,650
Laidlaw
(U.S. Dollar)
05-15-06 7.65 10,000,000(b,c) 2,800,000
Total 7,854,650
Insurance (2.3%)
Americo Life
Sr Sub Nts
06-01-05 9.25 4,500,000 4,207,500
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 3,500,000 3,390,583
Nationwide CSN Trust
02-15-25 9.88 10,500,000(d) 10,936,999
New England Mutual
02-15-24 7.88 5,000,000(d) 4,887,900
SAFECO Capital Trust
Company Guaranty
07-15-37 8.07 5,780,000 5,008,243
Zurich Capital Trust
(U.S. Dollar) Company Guaranty
06-01-37 8.38 5,000,000(d) 4,871,860
Total 33,303,085
Leisure time & entertainment (1.8%)
Cinemark USA
Sr Sub Nts Series B
08-01-08 9.63 5,005,000 1,801,800
Time Warner
08-15-04 7.98 1,500,000 1,534,905
08-15-06 8.11 3,000,000 3,095,520
08-15-07 8.18 3,000,000 3,107,340
02-01-24 7.57 10,000,000 9,559,200
Sr Nts
01-15-28 6.95 5,000,000 4,419,750
United Artists Theatres
Series 1995A
07-01-15 9.30 4,552,458 2,749,776
Total 26,268,291
Media (3.6%)
Australis Media
(U.S. Dollar)
11-01-00 14.00 292,984(b,c,q) 287,394
(U.S. Dollar) Zero Coupon
05-15-03 15.75 10,081,770(b,c,l,q) 1,718
Charter Communications Holdings/Charter Capital
Sr Nts
01-15-10 10.25 5,000,000 4,975,000
Cox Communications
Cv
04-19-20 .43 1,789,000 843,907
CSC Holdings
Sr Sub Debs
05-15-16 10.50 10,000,000 10,749,999
Infinity Broadcasting
Company Guaranty
06-15-07 8.88 3,245,000 3,318,013
Lamar Media
Company Guaranty
09-15-07 8.63 3,000,000 2,947,500
News America Holdings
10-15-12 10.13 10,000,000 10,537,300
Paxson Communications
Sr Sub Nts
10-01-02 11.63 5,000,000 5,118,750
TeleWest Communications
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 9.25 4,275,000(c,m) 2,372,625
TeleWest Finance
(U.S. Dollar) Cv Company Guaranty
07-07-05 6.00 830,000(c,d) 707,575
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 6,989,161(c,p,q) 10,483,742
Total 52,343,523
Metals (1.5%)
Alcan Aluminum
(U.S. Dollar)
01-15-22 8.88 6,750,000(c) 7,001,775
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 3,293,516(c,d) 3,194,710
Inco
(U.S. Dollar) Cv
03-15-16 7.75 3,010,000(c) 2,648,800
WMC Finance USA
(U.S. Dollar)
11-15-13 7.25 10,000,000(c) 9,521,030
Total 22,366,315
Miscellaneous (1.9%)
Bistro Trust
12-31-02 9.50 10,000,000(d) 9,510,001
Colonial Capital
Company Guaranty Series A
01-15-27 8.92 3,000,000 2,570,127
Continucare
Cv Sr Sub Nts
10-31-02 8.00 243,902(d) 48,476
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 3,921,329
ISG Resources
04-15-08 10.00 4,150,000 3,527,500
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 5.81 4,080,000(l) 1,596,830
Normandy Yandal Operations
(U.S. Dollar) Sr Nts
04-01-08 8.88 5,250,000(c) 4,620,000
NSM Steel
Company Guaranty
02-01-06 12.00 1,577,781(b,d) 63,111
02-01-08 12.25 5,300,000(b,d) 106,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,775,000 1,508,750
Total 27,472,124
Multi-industry conglomerates (1.8%)
CBS
06-01-01 8.88 5,000,000 5,045,200
Interim Services
Cv Sub Nts
06-01-05 4.50 1,080,000 758,603
Jordan Inds
Sr Nts Series D
08-01-07 10.38 3,500,000 3,272,500
Metromedia Intl Group
Sr Disc Nts Series B
09-30-07 10.50 7,282,500 3,277,125
US Inds/USI America Holding
Company Guaranty
10-15-03 7.13 10,000,000 9,845,500
Sr Nts Series B
12-01-06 7.25 5,000,000 4,792,775
Total 26,991,703
Paper & packaging (2.1%)
Chesapeake
05-01-03 9.88 5,000,000 5,113,000
Crown Cork & Seal
04-15-23 8.00 5,000,000 4,002,250
Crown Paper
Sr Sub Nts
09-01-05 11.00 3,450,000(b) 931,500
Doman Inds
(U.S. Dollar)
03-15-04 8.75 3,000,000(c) 2,407,500
Owens-Illinois
Sr Nts
05-15-04 7.85 5,000,000 4,727,950
Packaging Corp of America
Company Guaranty
04-01-09 9.63 3,220,000 3,300,500
Pactiv
06-15-17 8.13 6,000,000 5,311,020
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 4,500,000(c) 4,545,000
Total 30,338,720
Restaurants & lodging (0.1%)
MGM Mirage
02-06-08 6.88 2,000,000 1,838,380
Retail (1.7%)
Eye Care Centers of America
Company Guaranty
05-01-08 9.13 2,000,000 740,000
Kroger
Sr Nts
07-15-06 8.15 3,000,000 3,018,150
09-15-29 8.00 9,000,000 8,719,650
Target
12-01-22 8.50 3,000,000 3,053,355
Wal-Mart CRAVE Trust
07-17-06 7.00 10,267,374(d) 10,042,108
Total 25,573,263
Textiles & apparel (0.3%)
VF Corp
05-01-01 9.50 5,000,000 5,056,550
Transportation (0.2%)
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 2,290,000(b,c) 687,000
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 2,200,000(c) 1,408,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 4,140,000(b,c,d) 828,000
Total 2,923,000
Utilities -- electric (5.5%)
Calpine
Sr Nts
04-15-06 7.63 9,400,000 9,051,636
Cleveland Electric Illuminating
1st Mtge Series B
05-15-05 9.50 11,000,000 11,145,310
1st Mtge Series E
07-01-23 9.00 4,000,000 4,119,400
CMS Energy
Sr Nts
05-15-02 8.13 5,000,000 4,956,300
Connecticut Light & Power
1st Mtge Series C
06-01-02 7.75 5,000,000 5,035,350
Edison Mission Energy
Sr Nts
06-15-09 7.73 8,600,000 8,360,421
Hydro-Quebec
(U.S. Dollar) Local Govt Guaranty Series 1989HH
12-01-29 8.50 10,000,000(c) 11,153,400
Midland Funding I
Series 1991-C
07-23-02 10.33 786,580 803,430
Series 1994-C
07-23-02 10.33 677,581 692,096
Midland Funding II
Series A
07-23-05 11.75 5,000,000 5,546,300
NRG Northeast Generating
12-15-04 8.06 2,000,000(d) 2,009,520
06-15-15 8.84 4,000,000(d) 4,141,560
Sithe Independence Funding
Series A
12-30-13 9.00 7,500,000 7,611,750
Texas Utilities Electric
Medium-term Nts 1st Mtge Series B
03-01-02 9.70 6,000,000 6,221,040
Total 80,847,513
Utilities -- gas (0.9%)
El Paso Energy
Sr Nts
05-15-09 6.75 5,500,000 5,216,090
Sr Nts Series B
07-15-01 6.63 8,675,000 8,593,195
Total 13,809,285
Utilities -- telephone (7.6%)
AT&T Canada
(U.S. Dollar) Sr Nts
11-01-08 10.63 4,000,000(c) 4,404,680
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 3,800,000(c,m) 3,145,032
Bell Telephone of Pennsylvania
03-15-33 7.38 10,000,000 9,079,699
BellSouth Capital Funding
02-15-30 7.88 12,000,000 11,959,103
COLT Telecom Group
(European Monetary Unit) Cv
04-03-07 2.00 2,000,000(c,d) 1,498,133
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 4,135,000(b) 5,169
Level 3 Communications
Cv
03-15-10 6.00 850,000 764,677
McLeod USA
Sr Nts
02-15-09 8.13 1,250,000 1,118,750
Metromedia Fiber Network
Sr Nts
12-15-09 10.00 1,875,000 1,846,875
New Eng Tel & Tel
08-01-31 9.00 7,500,000 7,522,725
Nextel Communications
Cv
11-15-09 9.38 1,200,000 1,176,000
01-15-10 5.25 150,000 147,188
Cv Sr Nts
01-15-10 5.25 700,000(d) 684,306
Primus Telecomm Group
Cv
02-15-07 5.75 1,360,000(d) 700,917
02-15-07 5.75 1,350,000 703,688
Sr Nts
01-15-09 11.25 2,000,000 1,260,000
PSINet
Sr Nts
12-01-06 10.50 1,100,000 948,750
Qwest Capital Funding
Company Guaranty
07-15-28 6.88 9,250,000 8,006,708
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.25 1,750,000 1,690,523
11-01-08 7.50 6,250,000 6,190,313
Zero Coupon Sr Disc Nts Series B
02-01-03 8.90 7,000,000(m) 5,725,720
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 3,900,000(c) 1,365,000
Sprint Capital
Company Guaranty
11-15-08 6.13 10,000,000 8,975,499
05-01-09 6.38 7,000,000 6,362,930
TeleCorp PCS
Sr Sub Nts
07-15-10 10.63 910,000(d) 946,400
U S WEST Communications
11-10-26 7.20 10,000,000 8,794,300
United Pan-Europe Communications
(U.S. Dollar) Sr Nts Series B
02-01-10 11.25 3,225,000(c) 2,817,844
02-01-10 11.50 1,925,000(c) 1,684,375
Vodafone AirTouch
(U.S. Dollar)
02-15-10 7.75 5,900,000(c,d) 5,926,432
Williams Communications Group
Sr Nts
08-01-10 11.88 1,100,000(d) 1,100,000
WorldCom
05-15-10 8.25 4,600,000 4,774,602
Total 111,326,338
Municipal bonds (0.5%)
New Jersey Economic Development
Authority State Pension Funding
Revenue Bond (MBIA Insured)
02-15-29 7.43 7,000,000(f) 7,043,540
Total bonds
(Cost: $1,456,156,920) $1,394,302,184
Common stocks (0.5%)
Issuer Shares Value(a)
BayCorp Holdings 28(b) $245
Celcaribe 512,190(b,d) 768,285
Continucare 378,049 189,025
Globix 76,173(b) 2,042,389
Intermedia Communications 2,691(b) 55,838
PhoneTel Technologies 646,000(b,g) 206,720
Price Communications1 48,076(b) 3,035,557
Specialty Foods 15,000(b) 3,750
Wilshire Financial Services Group 617,590(b) 1,003,584
Total common stocks
(Cost: $15,752,152) $7,305,393
Preferred stocks & other (1.2%)
Issuer Shares Value(a)
APP China Group
(U.S. Dollar) 5,100(c,d) $2,907,000
Bar Technologies
Warrants 4,500 45
Coastal
6.63% Cv PRIDES 38,610(o) 1,479,246
CVS
6.00% Cv 12,650 841,225
Dairy Mart
Warrants 10,000 3,500
Dobson Communications
13.00% Pay-in-kind --(p) 377
Equinix
Warrants 2,000 440,000
Georgia-Pacific Group
7.50% Cm Cv 32,700 1,060,706
Global Crossing
6.38% Cv 7,600(c,d) 643,150
Ingersoll-Rand
6.75% Cv PRIDES 33,100(o) 750,956
Intermedia Communications
7.00% Cm Cv Series F 18,700(b,d) 299,200
7.00% Cm Cv Series F 20,865 333,840
13.50% Pay-in-kind
Series B 3,206(p) 2,180,020
KMC Telecom Holdings
Warrants 3,000 6,000
Lincoln Natl
7.75% Cm Cv 33,500 837,500
Metlife Capital
8.00% Cm Cv 18,200 1,446,900
Monsanto
6.50% Cv ACES 18,840(n) 945,533
Nakornthai Strip Mill
Warrants 3,355,391 3
Nextel Communications
13.00% Pay-in-kind
Series D 1,698(p) 1,816,860
Paxson Communications
12.50% Pay-in-kind
Exchangable --(b,p) 124
PLD Telekom
Warrants 10,000 300
Sovereign Capital Trust
7.50% Cv 17,900 952,056
Telehub Communications
Warrants 2,500 25
Unifi Communications
Warrants 7,000 70
Wendys Financing
5.00% Cm Cv Series A2 7,200 1,292,000
Total preferred stocks & other
(Cost: $20,940,050) $18,236,636
Short-term securities (3.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (2.0%)
Federal Home Loan Bank Disc Nts
09-27-00 6.48% $9,000,000 $8,956,463
10-13-00 6.46 3,600,000 3,572,437
10-18-00 6.46 7,300,000 7,237,657
Federal Natl Mtge Assn Disc Nts
09-18-00 6.41 8,800,000 8,770,916
10-12-00 6.47 1,300,000 1,289,826
Total 29,827,299
Commercial paper (1.1%)
Alcoa
09-22-00 6.50 3,100,000 3,087,743
Barton Capital
09-07-00 6.54 1,200,000(k) 1,198,476
BellSouth Telecommunications
10-02-00 6.51 4,000,000 3,976,995
Delaware Funding
09-08-00 6.53 1,800,000(k) 1,797,392
Gillette
10-18-00 6.54 1,100,000(k) 1,090,349
Heinz (HJ)
10-04-00 6.55 1,300,000 1,291,872
Motorola
10-26-00 6.56 2,400,000 2,374,994
Variable Funding Capital
10-12-00 6.56 900,000(k) 892,956
Total 15,710,777
Total short-term securities
(Cost: $45,548,944) $45,538,076
Total investments in securities
(Cost: $1,538,398,066)(r) $1,465,382,289
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, 2000, the value of foreign securities represented 10.28% 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)Security is partially or fully on loan. See Note 5 to the financial
statements.
(f)The following abbreviation is used in portfolio descriptions to identify the
insurer of the issue:
MBIA -- Municipal Bond Investors Assurance
<PAGE>
<TABLE>
<CAPTION>
(g)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, 2000 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
<S> <C> <C> <C> <C> <C> <C>
PhoneTel Technologies* $-- $7,812,117 $-- $7,812,117 $-- $206,720
* Issuer was not an affiliate for the entire year ended Aug. 31, 2000.
(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, 2000.
(i)At Aug. 31, 2000, the cost of securities purchased, including interest
purchased, on a when-issued basis was $14,956,250.
(j)Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 2000.
(k)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.
(l)For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(m)For those zero coupon bonds that become coupon paying at a future date, the
rate disclosed represents the annualized effective yield from the date of
acquisition to interest reset date disclosed.
(n)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.
(o)PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are
structured as convertible preferred securities. Investors receive an enhanced
yield but based upon a specific formula, potential appreciation is limited.
PRIDES pay dividends, have voting rights, are noncallable for three years and
upon maturity, convert into shares of common stock.
(p)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.
(q)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, 2000, is as follows:
Security Acquisition Cost
dates
Australis Media
(U.S. Dollar) 14.00% 2000 12-18-97 thru 02-02-98 $200,991
(U.S. Dollar) 15.75% Zero Coupon 2003 07-03-97 thru 10-29-97 7,422,192
Veninfotel
(U.S. Dollar) Cv Pay-in-kind 2002 03-05-97 thru 03-01-99 6,339,375
(r)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$1,536,225,437 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $36,345,154
Unrealized depreciation (107,188,302)
------------
Net unrealized depreciation $(70,843,148)
</TABLE>
<PAGE>
Investments in Securities
AXP VP - Capital Resource Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (99.4%)
Issuer Shares Value(a)
Banks and savings & loans (4.5%)
Bank of America 800,000 $42,850,000
Chase Manhattan 410,000 22,908,750
Firstar 2,300,000 54,912,500
Mellon Financial 1,500,000 67,875,000
State Street 660,000 77,715,000
Total 266,261,250
Beverages & tobacco (1.0%)
Coca-Cola 1,100,000 57,887,500
Communications equipment & services (7.5%)
Corning 893,863 293,131,198
JDS Uniphase 850,000(b) 105,931,250
Nokia ADR Cl A 946,000(c) 42,510,875
Total 441,573,323
Computer software & services (2.2%)
Microsoft 1,900,000(b) 132,643,750
Computers & office equipment (17.2%)
Akamai Technologies 155,000(b) 11,712,188
America Online 700,000(b) 41,037,500
Apple Computer 312,400(b) 19,036,875
Cisco Systems 2,800,000(b) 191,799,999
Compaq Computer 810,000 27,590,625
Computer Sciences 800,000(b) 63,250,000
Dell Computer 900,000(b) 39,262,500
EMC 950,000(b) 93,100,000
Exodus Communications 400,000(b) 27,375,000
First Data 1,900,000 90,606,250
Gateway 465,000(b) 31,666,500
Hewlett-Packard 730,000 88,147,500
Intl Business Machines 683,800 90,274,890
Mercury Interactive 241,500(b) 29,508,281
Solectron 2,750,000(b) 124,609,375
Yahoo! 400,000(b) 48,600,000
Total 1,017,577,483
Electronics (9.1%)
Intel 3,200,000 239,600,000
Jabil Circuit 2,140,000(b) 136,558,750
KLA-Tencor 300,000(b) 19,687,500
Teradyne 800,000(b) 51,850,000
Texas Instruments 1,400,000 93,712,500
Total 541,408,750
Energy (4.5%)
Anadarko Petroleum 1,100,000 72,347,000
Chevron 650,000 54,925,000
Exxon Mobil 900,000 73,462,500
Texaco 1,250,000 64,375,000
Total 265,109,500
Energy equipment & services (2.6%)
Halliburton 1,465,000 77,645,000
Schlumberger 905,000 77,207,813
Total 154,852,813
Financial services (5.1%)
Citigroup 3,000,000 175,125,000
Merrill Lynch 270,000 39,150,000
Morgan Stanley, Dean Witter,
Discover & Co 800,000 86,050,000
Total 300,325,000
Health care (10.1%)
American Home Products 850,000 46,059,375
Genentech 170,000(b) 32,385,000
Guidant 1,000,000(b) 67,312,500
Immunex 1,035,000(b) 52,008,750
MedImmune 450,000(b) 37,856,250
Medtronic 1,500,000 76,875,000
Pfizer 3,962,500 171,378,124
Schering-Plough 970,000 38,921,250
Teva Pharmaceutical Inds ADR 1,280,000(c) 77,600,000
Total 600,396,249
Household products (2.6%)
Colgate-Palmolive 1,750,000 89,140,625
Kimberly-Clark 1,137,000 66,514,500
Total 155,655,125
Industrial equipment & services (1.0%)
Illinois Tool Works 1,078,000 60,435,375
Insurance (2.5%)
American Intl Group 1,685,000 150,175,625
Leisure time & entertainment (3.3%)
Disney (Walt) 2,545,000 99,095,938
Viacom Cl B 1,472,500(b) 99,117,656
Total 198,213,594
Media (6.2%)
Adelphia Communications Cl A 310,000(b) 10,385,000
Clear Channel Communications 1,000,000(b) 72,375,000
Comcast Special Cl A 2,250,000(b) 83,812,500
Infinity Broadcasting Cl A 2,850,000(b) 107,943,750
Univision Communications Cl A 430,000(b) 18,973,750
USA Networks 2,965,000(b) 71,345,313
Total 364,835,313
Miscellaneous (1.8%)
Stilwell Financial 1,580,000(b) 76,432,500
TyCom 759,800(b,c) 31,626,675
Total 108,059,175
Multi-industry conglomerates (8.0%)
General Electric 4,460,000 261,746,250
Tyco Intl 3,700,000(c) 210,900,000
Total 472,646,250
Retail (5.7%)
Circuit City Stores-
Circuit City Group 800,000 20,750,000
Costco Wholesale 275,000(b) 9,470,312
CVS 1,750,000 64,968,750
Home Depot 850,000 40,853,125
Kohl's 1,400,000(b) 78,400,000
Safeway 1,300,000(b) 64,106,250
Wal-Mart Stores 1,300,000 61,668,750
Total 340,217,187
Utilities -- gas (2.9%)
Enron 2,000,000 169,750,000
Utilities -- telephone (1.5%)
Allegiance Telecom 450,000(b) 22,415,625
AT&T Wireless Group 2,512,600(b,e) 65,798,713
Total 88,214,338
Total common stocks
(Cost: $3,805,111,184) $5,886,237,600
Short-term securities (1.2%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.8%)
Federal Home Loan Bank Disc Nts
09-15-00 6.40% $2,100,000 $2,094,234
09-27-00 6.42 10,900,000 10,845,962
09-29-00 6.44 6,500,000 6,465,335
10-06-00 6.44 2,100,000 2,086,119
10-13-00 6.46 4,500,000 4,465,546
Federal Home Loan Mtge Corp Disc Nts
09-05-00 6.40 2,400,000 2,397,870
09-14-00 6.44 1,100,000 1,097,122
Federal Natl Mtge Assn Disc Nts
09-21-00 6.43 600,000 597,645
09-25-00 6.43 3,400,000 3,384,889
10-26-00 6.51 10,000,000 9,895,808
Total 43,330,530
Commercial paper (0.4%)
Alcoa
09-22-00 6.50 9,500,000 9,462,438
Gannett
10-06-00 6.56 5,400,000(d) 5,363,079
Heinz (HJ)
10-04-00 6.55 2,000,000 1,987,496
May Department Stores
10-11-00 6.56 1,300,000 1,290,228
SBC Communications
10-17-00 6.58 2,800,000(d) 2,775,910
Xcel Energy
10-03-00 6.56 5,400,000 5,367,231
Total 26,246,382
Total short-term securities
(Cost: $69,600,059) $69,576,912
Total investments in securities
(Cost: $3,874,711,243)(f) $5,955,814,512
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, 2000, the
value of foreign securities represented 6.13% of net assets.
(d)Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Actof 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, 2000, the cost of securities for federal income tax purposes was
$3,878,232,331 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $2,190,914,987
Unrealized depreciation (113,332,806)
------------
Net unrealized appreciation $2,077,582,181
<PAGE>
Investments in Securities
AXP VP - Cash Management Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Certificates of deposit (2.7%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Canadian Imperial Bank of Commerce
09-19-00 6.60% $5,000,000 $5,000,000
10-12-00 6.61 5,000,000 5,000,000
10-13-00 6.61 5,000,000 5,000,000
11-01-00 6.66 5,000,000 5,000,000
Morgan Guaranty Trust
04-16-01 6.80 1,000,000 1,000,000
Total certificates of deposit
(Cost: $21,000,000) $21,000,000
Commercial paper (95.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Automotive & related (4.1%)
DaimlerChrysler North America
10-30-00 6.60% $5,000,000 $4,946,489
10-31-00 6.56 4,000,000 3,956,733
11-13-00 6.58 4,800,000 4,736,831
11-21-00 6.58 3,000,000 2,956,260
11-21-00 6.59 5,000,000 4,926,988
Ford Motor Credit
10-06-00 6.54 3,400,000 3,378,514
10-06-00 6.56 2,500,000 2,484,153
Toyota Motor Credit
09-18-00 6.50 4,400,000(b) 4,386,536
Total 31,772,504
Banks and savings & loans (15.4%)
Bank One Canada
10-04-00 6.57 5,000,000 4,970,071
10-10-00 6.54 2,000,000 1,985,938
10-13-00 6.58 5,000,000 4,961,938
10-24-00 6.55 3,000,000 2,971,336
10-25-00 6.55 2,000,000 1,980,530
11-02-00 6.62 4,000,000 3,954,878
11-20-00 6.61 2,000,000 1,971,067
BankAmerica/Nations Bank
10-04-00 6.55 5,000,000 5,000,000
10-19-00 6.63 5,000,000 5,000,000
11-01-00 6.58 4,000,000 4,000,000
11-03-00 6.60 5,000,000 5,000,000
11-06-00 6.58 5,000,000 5,000,000
11-14-00 6.59 5,000,000 5,000,000
11-15-00 6.59 5,000,000 5,000,000
BBV Finance (Delaware)
10-17-00 6.55 6,800,000 6,743,522
11-22-00 6.58 7,000,000 6,896,680
Commerzbank U.S. Finance
09-19-00 6.53 10,000,000 9,967,450
Deutsche Bank Financial
10-23-00 6.58 5,000,000 4,952,911
10-26-00 6.60 5,000,000 4,950,118
11-02-00 6.56 5,000,000 4,944,114
11-22-00 6.58 3,000,000 2,955,720
Societe Generale North America
09-20-00 6.54 5,000,000 4,982,794
09-21-00 6.53 7,000,000 6,974,683
09-25-00 6.54 10,000,000 9,956,600
Total 120,120,350
Broker dealers (14.2%)
Bear Stearns
09-05-00 6.64 2,000,000 1,998,524
09-07-00 6.52 4,100,000 4,095,552
09-13-00 6.53 2,000,000 1,995,653
09-14-00 6.54 4,000,000 3,990,582
09-20-00 6.54 4,000,000 3,986,236
11-16-00 6.58 5,000,000 4,931,494
02-26-01 6.70 5,000,000(c) 5,000,000
Goldman Sachs Group
09-18-00 6.56 1,300,000 1,295,985
09-21-00 6.54 3,000,000 2,989,133
10-16-00 6.60 5,000,000 4,959,063
10-20-00 6.59 5,000,000 4,955,560
10-27-00 6.61 3,000,000 2,969,480
11-15-00 6.58 4,400,000 4,340,508
11-16-00 6.59 5,000,000 4,931,389
11-20-00 6.57 3,200,000 3,153,920
11-20-00 6.58 4,000,000 3,942,311
Merrill Lynch
09-05-00 6.52 10,000,000 9,992,756
10-24-00 6.58 4,600,000 4,555,845
Salomon Smith Barney
09-08-00 6.52 2,100,000 2,097,342
09-25-00 6.55 5,000,000 4,978,267
10-02-00 6.56 5,000,000 4,971,928
10-03-00 6.56 5,000,000 4,971,022
10-24-00 6.59 5,000,000 4,951,932
10-30-00 6.57 5,000,000 4,946,736
11-08-00 6.57 2,200,000 2,173,030
11-09-00 6.58 4,000,000 3,950,167
11-15-00 6.59 4,000,000 3,945,833
Total 111,070,248
Chemicals (2.1%)
Bayer
09-01-00 6.65 3,900,000(b) 3,900,000
09-26-00 6.53 7,300,000(b) 7,267,049
10-17-00 6.56 5,000,000(b) 4,958,408
Total 16,125,457
Commercial finance (2.2%)
CAFCO
09-22-00 6.57 5,000,000(b) 4,980,925
10-18-00 6.59 1,000,000(b) 991,475
Ciesco LP
09-22-00 6.53 2,100,000 2,092,025
10-06-00 6.56 5,000,000 4,968,306
Exxon Mobil Australia
09-29-00 6.51 4,000,000(b) 3,979,840
Total 17,012,571
Communications equipment & services (5.5%)
Alcatel
09-13-00 6.53 5,000,000(b) 4,989,133
BellSouth Telecommunications
09-12-00 6.52 3,000,000 2,994,033
10-02-00 6.52 5,300,000(b) 5,270,426
Lucent Technologies
09-01-00 6.49 8,300,000 8,300,000
Motorola
10-20-00 6.55 5,000,000 4,955,832
10-26-00 6.55 6,600,000 6,534,559
11-22-00 6.58 2,000,000 1,970,480
Verizon Communications
10-05-00 6.52 5,000,000 4,969,400
10-05-00 6.54 3,000,000 2,981,583
Total 42,965,446
Energy (0.8%)
Chevron Transport
10-19-00 6.57 6,400,000(b) 6,344,448
Financial services (17.1%)
Amsterdam Funding
09-15-00 6.54 3,500,000(b) 3,491,126
10-04-00 6.57 2,500,000(b) 2,485,035
Associates Corp North America
10-23-00 6.55 5,000,000 4,953,128
Associates First Capital
09-11-00 6.52 5,000,000 4,990,958
09-14-00 6.53 7,300,000 7,282,839
CIT Group Holdings
10-05-00 6.57 5,000,000 4,969,164
10-16-00 6.54 3,500,000 3,471,606
10-30-00 6.56 5,000,000 4,946,818
10-31-00 6.56 4,000,000 3,956,733
11-07-00 6.57 5,000,000 4,939,607
Corporate Receivables
10-11-00 6.57 5,000,000(b) 4,963,778
10-17-00 6.55 1,000,000(b) 991,694
Delaware Funding
10-10-00 6.55 3,800,000(b) 3,773,242
10-24-00 6.56 3,000,000(b) 2,971,292
Enterprise Funding
10-27-00 6.60 2,500,000(b) 2,474,606
Falcon Asset
09-07-00 6.53 1,000,000(b) 998,913
10-17-00 6.57 5,000,000(b) 4,958,344
Fleet Funding
09-22-00 6.54 5,000,000(b) 4,980,983
Household Finance
09-18-00 6.54 2,100,000 2,093,534
09-19-00 6.54 4,000,000 3,986,960
10-25-00 6.59 5,000,000 4,951,025
Intl Lease Finance
11-07-00 6.59 4,700,000 4,643,056
Paccar Financial
11-02-00 6.59 3,900,000 3,856,207
11-10-00 6.57 3,500,000 3,455,832
11-20-00 6.57 3,900,000 3,843,840
Preferred Receivables
09-11-00 6.53 6,000,000(b) 5,989,133
09-14-00 6.54 1,000,000(b) 997,646
Receivables Capital
09-12-00 6.52 3,800,000(b) 3,792,441
09-20-00 6.54 3,500,000(b) 3,487,956
09-22-00 6.57 2,000,000(b) 1,992,370
Sheffield Receivables
09-15-00 6.55 3,000,000(b) 2,992,382
10-02-00 6.57 3,000,000(b) 2,983,131
Three Rivers Funding
09-01-00 6.65 5,000,000 5,000,000
Variable Funding Capital
09-08-00 6.56 5,000,000(b) 4,993,632
10-10-00 6.57 1,000,000(b) 992,937
Windmill Funding
09-12-00 6.53 2,000,000(b) 1,996,016
09-14-00 6.54 1,000,000(b) 997,646
Total 134,645,610
Food (2.4%)
Cargill Asia Pacific
09-01-00 6.66 5,000,000(b) 5,000,000
Heinz (HJ)
10-18-00 6.54 5,000,000 4,957,700
10-20-00 6.55 9,100,000 9,019,614
Total 18,977,314
Health care (2.4%)
Glaxo Wellcome
09-07-00 6.54 9,800,000(b) 9,789,334
09-13-00 6.52 2,900,000(b) 2,893,707
11-09-00 6.56 3,000,000(b) 2,962,740
11-17-00 6.57 3,000,000(b) 2,958,420
Total 18,604,201
Insurance (1.8%)
American General
09-18-00 6.54 2,500,000 2,492,303
10-12-00 6.55 4,900,000 4,863,726
American General Finance
10-23-00 6.55 3,000,000 2,971,877
11-06-00 6.56 3,900,000 3,853,668
Total 14,181,574
Media (5.9%)
Gannett
10-05-00 6.54 5,000,000(b) 4,969,306
10-25-00 6.55 5,000,000(b) 4,951,325
11-21-00 6.59 7,000,000(b) 6,897,783
11-21-00 6.60 7,000,000(b) 6,897,625
Reed Elsevier
09-08-00 6.52 5,000,000(b) 4,993,671
10-11-00 6.53 9,500,000(b) 9,431,599
10-19-00 6.56 3,000,000 2,974,000
10-26-00 6.57 5,000,000(b) 4,950,347
Total 46,065,656
Metals (3.1%)
Alcoa
09-06-00 6.53 10,000,000 9,990,944
10-10-00 6.56 3,400,000 3,376,022
10-12-00 6.53 5,000,000 4,963,100
10-16-00 6.53 3,400,000 3,372,460
11-17-00 6.56 2,700,000 2,662,636
Total 24,365,162
Miscellaneous (1.5%)
Barton Capital
10-05-00 6.54 6,000,000(b) 5,963,166
CXC
09-25-00 6.56 1,000,000(b) 995,647
10-10-00 6.59 5,000,000(b) 4,964,575
Total 11,923,388
Multi-industry conglomerates (4.6%)
GE Capital Intl Funding
09-01-00 6.53 4,000,000(b) 4,000,000
09-08-00 6.52 5,000,000(b) 4,993,671
09-21-00 6.54 3,000,000(b) 2,989,133
10-25-00 6.58 2,000,000(b) 1,980,440
10-31-00 6.59 4,000,000(b) 3,956,533
11-07-00 6.58 2,000,000 1,975,806
11-08-00 6.58 5,000,000(b) 4,938,611
11-13-00 6.58 4,000,000(b) 3,947,359
General Electric Capital
09-01-00 6.67 5,000,000 5,000,000
11-08-00 6.58 2,000,000 1,975,444
Total 35,756,997
Retail (4.6%)
May Department Stores
10-27-00 6.58 6,800,000 6,731,139
11-13-00 6.60 7,000,000 6,907,595
11-14-00 6.60 4,700,000 4,637,106
Wal-Mart Stores
09-26-00 6.53 5,800,000(b) 5,773,819
10-03-00 6.52 6,600,000(b) 6,561,984
10-03-00 6.54 5,500,000(b) 5,468,222
Total 36,079,865
Utilities -- electric (4.5%)
Natl Rural Utilities
09-21-00 6.52 7,300,000 7,273,639
10-23-00 6.53 4,700,000 4,656,076
11-14-00 6.56 5,000,000 4,933,503
11-14-00 6.57 3,000,000 2,960,040
11-16-00 6.57 3,000,000 2,958,960
Xcel Energy
10-03-00 6.56 8,700,000 8,649,579
10-30-00 6.60 3,900,000 3,858,262
Total 35,290,059
Utilities -- telephone (3.7%)
AT&T
09-18-00 6.53 2,200,000 2,193,237
10-02-00 6.53 3,000,000 2,983,234
Bell Atlantic Finance Services
09-29-00 6.54 5,000,000 4,974,684
10-05-00 6.55 5,000,000 4,969,259
10-12-00 6.58 1,100,000 1,091,819
10-13-00 6.56 2,600,000 2,580,253
SBC Communications
09-25-00 6.53 3,300,000(b) 3,285,700
09-26-00 6.53 2,200,000(b) 2,190,069
10-26-00 6.55 4,900,000(b) 4,851,415
Total 29,119,670
Total commercial paper
(Cost: $750,420,520) $750,420,520
Letters of credit (1.5%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Bank of America-AES Shady Point
11-08-00 6.58% $2,000,000 $1,975,444
Toronto Dominion Bank-Presbyterian Healthcare
Services
09-06-00 6.57 10,000,000 9,990,889
Total letters of credit
(Cost: $11,966,333) $11,966,333
Total investments in securities
(Cost: $783,386,853)(d) $783,386,853
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 n Aug. 31, 2000.
(d)Also represents the cost of securities for federal income tax purposes at
Aug. 31, 2000.
<PAGE>
Investments in Securities
AXP VP - Diversified Equity Income Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (97.4%)
Issuer Shares Value(a)
Aerospace & defense (1.8%)
Boeing 4,901 $262,682
Goodrich (BF) 3,568 145,553
Total 408,235
Automotive & related (1.1%)
Ford Motor 10,036 243,026
Visteon 737 11,562
Total 254,588
Banks and savings & loans (11.7%)
Bank of America 11,686 625,171
Bank of New York 7,312 383,192
First Union 5,966 172,641
FleetBoston Financial 12,704 541,655
Mellon Financial 10,514 475,477
Wells Fargo 11,035 476,658
Total 2,674,794
Beverages & tobacco (3.0%)
Anheuser-Busch 4,027 317,378
Philip Morris 12,700 376,237
Total 693,615
Building materials & construction (0.5%)
Martin Marietta Materials 2,772 110,833
Chemicals (1.1%)
Dow Chemical 2,919 76,437
Du Pont (EI) de Nemours 4,063 182,373
Total 258,810
Communications equipment & services (1.4%)
Motorola 8,916 321,402
Computers & office equipment (5.2%)
Compaq Computer 5,394 183,627
Electronic Data Systems 2,196 109,409
Equant ADR 1,714(b,c) 65,846
First Data 3,125 149,039
Hewlett-Packard 1,120 135,204
Intl Business Machines 1,981 261,487
Solectron 6,229(b) 282,235
Total 1,186,847
Electronics (0.9%)
Natl Semiconductor 2,181(b) 96,962
Texas Instruments 1,735 116,095
Total 213,057
Energy (9.3%)
Chevron 7,635 645,158
Conoco Cl A 12,720 320,472
Conoco Cl B 3,569 93,240
Exxon Mobil 9,854 804,379
Kerr-McGee 4,163 263,071
Total 2,126,320
Energy equipment & services (0.9%)
Halliburton 3,710 196,630
Financial services (15.7%)
Alliance Capital Management
Holding LP 9,869(d) 511,030
Citigroup 18,401 1,074,177
Fannie Mae 4,510 242,434
Lehman Brothers Holdings 1,933 280,071
MBNA 10,159 358,740
Morgan Stanley,
Dean Witter, Discover & Co 5,357 575,947
Providian Financial 4,617 530,526
Total 3,572,925
Food (2.2%)
General Mills 9,511 305,497
SUPERVALU 13,235 197,763
Total 503,260
Health care (6.8%)
American Home Products 5,508 298,465
Baxter Intl 4,328 360,305
Pfizer 7,263 314,031
Pharmacia 5,753 336,910
Watson Pharmaceuticals 4,018(b) 247,726
Total 1,557,437
Household products (2.7%)
Colgate-Palmolive 6,002 305,727
Kimberly-Clark 5,418 316,953
Total 622,680
Industrial equipment & services (2.1%)
Illinois Tool Works 4,379 245,519
Parker-Hannifin 6,382 222,158
Total 467,677
Insurance (5.3%)
American Intl Group 8,932 796,065
Marsh & McLennan 3,380 401,353
Total 1,197,418
Leisure time & entertainment (1.8%)
Viacom Cl B 6,202(b) 417,472
Media (1.4%)
Adelphia Communications
Cl A 1,712(b) 57,343
USA Networks 10,576(b) 254,653
Total 311,996
Metals (0.9%)
Alcoa 6,145 204,252
Miscellaneous (1.7%)
Stilwell Financial 8,098(b) 391,741
Paper & packaging (0.9%)
Intl Paper 6,643 211,711
Retail (5.2%)
Circuit City Stores-Circuit
City Group 10,864 282,038
CVS 9,972 370,613
Gap 8,509 190,664
Target 15,136 351,924
Total 1,195,239
Utilities -- electric (2.9%)
Dominion Resources 3,569 188,991
Duke Energy 4,886 365,406
PPL 3,171 106,194
Total 660,591
Utilities-- gas (1.8%)
Coastal 2,893 199,288
El Paso Energy 1,678 97,744
Williams Companies 2,549 117,374
Total 414,406
Utilities -- telephone (8.9%)
ALLTEL 991 50,125
AT&T 13,508 425,502
AT&T Wireless Group 6,244(b) 163,471
BellSouth 7,412 276,266
Intermedia Communications 56(b) 1,162
SBC Communications 4,457 186,120
Sprint (PCS Group) 1,943(b) 97,519
Telefonica de Espana ADR 812(b,c) 46,541
Telefonos de Mexico ADR
Cl L 913(c) 49,659
Verizon 10,113 441,180
WorldCom 7,846(b) 286,429
Total 2,023,974
Total common stocks
(Cost: $21,301,581) $22,197,910
Short-term security (3.0%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency
Federal Home Loan Bank Disc Nt
10-18-00 6.46% $700,000 $694,022
Total short-term security
(Cost: $694,147) $694,022
Total investments in securities
(Cost: $21,995,728)(e) $22,891,932
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, 2000, the
value of foreign securities represented 0.71% of net assets.
(d)The share amount for Limited Liability Companies (LLC) or Limited
Partnerships (LP) represents capital contributions.
(e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$22,039,477 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $2,294,446
Unrealized depreciation (1,441,991)
----------
Net unrealized appreciation $852,455
<PAGE>
AXP VP - Emerging Markets Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (91.8%)(c)
Issuer Shares Value(a)
Brazil (13.5%)
Banks and savings & loans (1.1%)
Uniao de Bancos Brasileiros GDR 1,800 $61,200
Communications equipment & services (2.3%)
Brasil Telecom Participacoes ADR 1,800 126,788
Energy (3.9%)
Petroleo Brasileiro ADR 3,587 111,457
Petroleo Brasileiro ADR 3,330(b) 105,936
Total 217,393
Miscellaneous (1.0%)
Tele Centro Oeste Celular
Participacoes ADR 4,500 57,375
Utilities -- electric (2.0%)
Companhia Paranaense de
Energia ADR 11,700 113,344
Utilities -- telephone (3.2%)
Tele Norte Leste
Participacoes ADR 7,100 181,050
Chile (3.6%)
Retail (0.9%)
Distribucion y Servicio D&S ADR 1,900 32,775
Utilities -- electric (0.7%)
Enersis ADR 2,200(b) 37,950
Utilities -- telephone (2.0%)
Compania de Telecomunicaciones
de Chile ADR 6,500(b) 114,563
China (1.0%)
Energy
Shanghai Petrochemical
Series H 360,000 59,082
Greece (3.0%)
Banks and savings & loans (2.1%)
Alpha Bank 2,277 69,097
Natl Bank of Greece 1,386 47,314
Total 116,411
Utilities -- telephone (0.9%)
Hellenic Telecommunications
Organization 2,836 52,943
Hong Kong (6.4%)
Communications equipment & services (3.5%)
China Mobile 18,000(b) $138,473
China Unicom 22,000(b) 51,056
Total 189,529
Computers & office equipment (1.5%)
Legend Holdings 80,000 85,136
Financial services (1.4%)
Hong Kong Exchanges & Clearing 38,000(b) 78,687
Hungary (2.0%)
Banks and savings & loans
OTP Bank GDR 2,050 110,188
India (6.6%)
Beverages & tobacco (1.7%)
ITC GDR 5,000 95,626
Building materials & construction (0.7%)
Gujarat Ambuja Cements GDR 9,000(b,d) 41,625
Computer software & services (0.5%)
SSI GDR 3,700(b,d) 27,473
Computers & office equipment (2.2%)
Infosys Technologies ADR 800 124,812
Miscellaneous (0.7%)
Videsh Sanchar Nigam GDR 3,700(d) 40,423
Textiles & apparel (0.8%)
Reliance Inds GDR 2,850(d) 46,811
Israel (5.1%)
Banks and savings & loans (1.2%)
Bank Hapoalim 21,000 66,916
Communications equipment & services (1.1%)
NICE-Systems ADR 800(b) 64,000
Electronics (2.0%)
Orbotech 1,170(b) 113,271
Miscellaneous (0.8%)
Partner Communications ADR 4,500(b) 42,750
Malaysia (2.8%)
Electronics (0.8%)
Malaysian Pacific Inds 5,000 43,421
Leisure time & entertainment (0.9%)
Tanjong Public 23,000 49,934
Utilities -- electric (1.1%)
Tenaga Nasional 19,000 63,500
Mexico (11.3%)
Banks and savings & loans (2.9%)
Grupo Financiero
Banamex Accival Cl O 11,100(b) 56,672
Grupo Financiero
BBVA Bancomer Cl O 215,400(b) 108,455
Total 165,127
Beverages & tobacco (2.1%)
Fomento Economico Mexicano ADR 1,300 59,231
Grupo Modelo Cl C 24,500 61,080
Total 120,311
Building materials & construction (1.0%)
Cemex ADR 2,300 53,906
Media (1.0%)
Grupo Televisa GDR 900(b) 58,275
Multi-industry conglomerates (1.0%)
Alfa Cl A 20,000 55,076
Retail (1.0%)
Organizacion Soriana Cl B 13,400 57,789
Utilities -- telephone (2.2%)
Telefonos de Mexico ADR Cl L 2,250 122,484
Russia (6.2%)
Communications equipment & services (1.9%)
Mobile Telesystems ADR 3,680(b) 107,180
Energy (3.2%)
Lukoil Holding ADR 2,800 179,200
Miscellaneous (1.1%)
Surgutneftegaz ADR 3,181 62,029
South Africa (3.9%)
Banks and savings & loans (0.8%)
African Bank Investments 39,400(b) 42,098
Metals (1.2%)
Anglo American Platinum 1,700 66,464
Multi-industry conglomerates (1.1%)
Johnnic Holdings 4,500 62,280
Retail (0.8%)
Profurn 65,000(b) 43,349
South Korea (8.7%)
Communications equipment & services (1.3%)
SK Telecom ADR 2,800 71,750
Electronics (3.6%)
Samsung Electronics GDR 1,600 201,600
Utilities -- electric (2.3%)
Korea Electric Power ADR 7,550 127,406
Utilities -- telephone (1.5%)
Korea Telecom ADR 2,200 83,325
Taiwan (12.3%)
Computers & office equipment (1.4%)
Synnex Technology Intl GDR 5,005 79,517
Electronics (10.3%)
Hon Hai Precision Inds GDR 7,540(d) 133,647
Macronix Intl ADR 1,800 39,375
Siliconware Precision Inds ADR 8,000(b) 58,000
Taiwan Semiconductor Mfg ADR 6,297(b) 220,394
Winbond Electronics GDR 5,070(d) 126,623
Total 578,039
Industrial equipment & services (0.6%)
Advanced Semicondutor
Engineering GDR 3,945 36,393
Thailand (0.9%)
Media
BEC World Public 8,000 48,529
Turkey (3.2%)
Banks and savings & loans (1.6%)
Turkiye Garanti Bankasi 1,802,000(b) 18,439
Yapi ve Kredi Bankasi 8,559,000 71,896
Total 90,335
Furniture & appliances (0.8%)
Arcelik 1,425,000 45,160
Media (0.8%)
Hurriyet Gazetecilik ve
Matbaacilik 4,250,000 46,735
United Kingdom (1.3%)
Metals
Billiton ADR 18,000 70,975
Total common stocks
(Cost: $5,282,358) $5,130,308
Short-term security (8.8%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency
Federal Home Loan Bank Disc Nt
10-06-00 6.44% $500,000 $496,695
Total short-term security
(Cost: $496,889) $496,695
Total investments in securities
(Cost: $5,779,247)(e) $5,627,003
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.
(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)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$5,795,456 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $349,412
Unrealized depreciation (517,865)
--------
Net unrealized depreciation $(168,453)
<PAGE>
Investments in Securities
AXP VP - Extra Income Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Bonds (78.4%)
Issuer Coupon Principal Value(a)
rate amount
Aerospace & defense (1.8%)
BE Aerospace
Sr Sub Nts Series B
03-01-08 8.00% $1,800,000 $1,588,500
Compass Aerospace
Company Guaranty Series B
04-15-05 10.13 2,220,000 327,450
Fairchild
Company Guaranty
04-15-09 10.75 4,950,000 3,910,500
Sequa
Sr Nts
08-01-09 9.00 5,000,000 4,987,500
Total 10,813,950
Automotive & related (3.5%)
EV Intl
Company Guaranty Series A
03-15-07 11.00 2,500,000 1,737,500
French (JL) Auto Casting
Company Guaranty Series B
06-01-09 11.50 4,125,000 3,444,375
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 3,200,000 2,928,000
Lear
Company Guaranty Series B
05-15-09 8.11 5,000,000 4,754,350
MSX Intl
Company Guaranty
01-15-08 11.38 2,725,000 2,616,000
Oxford Automotive
Company Guaranty Series D
06-15-07 10.13 2,675,000 2,434,250
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 3,750,000 3,000,000
Total 20,914,475
Beverages & tobacco (0.4%)
Canandaigua Brands
Company Guaranty
03-01-09 8.50 2,500,000 2,400,000
Chemicals (2.4%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 3,650,000 3,289,563
08-01-09 10.00 4,775,000 4,261,687
Lyondell Chemical
Series B
05-01-07 9.88 3,800,000 3,861,754
Sovereign Specialty Chemical
03-15-10 11.88 1,500,000 1,537,500
Sterling Chemicals
Company Guaranty Series B
07-15-06 12.38 1,000,000 1,032,500
Total 13,983,004
Commercial finance (0.1%)
Advance Holding
Zero Coupon Series B
04-15-03 12.88 1,900,000(g) 760,000
Communications equipment & services (12.4%)
360networks
(U.S. Dollar) Sr Nts
05-01-08 13.00 2,060,000(c,d) 1,987,900
08-01-09 12.00 400,000(c) 360,000
Birch Telecom
Sr Nts
06-15-08 14.00 3,000,000 1,796,250
Cable Satisfaction Intl
03-01-10 12.75 1,155,000 1,027,950
Caprock Communications
Sr Nts Series B
07-15-08 12.00 3,250,000 2,080,000
Covad Communications Group
Sr Nts
02-15-09 12.50 2,000,000 1,570,000
DLJ Secured Loan Trust
Sr Secured Ctfs
07-07-07 10.13 2,000,000(d) 2,086,800
07-09-07 11.00 2,500,000(d) 2,500,000
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 3,400,000 3,468,000
EchoStar DBS
Sr Nts
02-01-09 9.38 4,200,000 4,163,250
Equinix
Sr Nts
12-01-07 13.00 1,680,000 1,344,000
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 3,850,000(c) 2,233,000
06-15-08 10.88 3,000,000(c) 1,650,000
GST Telecommunications
Sr Sub Nts
11-15-07 12.75 750,000(b) 135,000
GT Group Telecom
(U.S. Dollar) Zero Coupon
02-01-05 13.25 4,110,000(c,d,g) 2,116,650
IPCS
Zero Coupon
07-15-05 14.00 3,155(d,g) 1,877,225
KMC Telecom Holdings
Sr Nts
05-15-09 13.50 3,000,000 2,400,000
Zero Coupon Sr Disc Nts
02-15-03 12.68 1,500,000(g) 570,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 1,100,000 968,000
Nextel Partners
Sr Nts
03-15-10 11.00 1,100,000(d) 1,100,000
NTL
Sr Nts Series B
02-15-07 10.00 3,000,000 2,910,000
Zero Coupon Sr Nts Series B
02-01-01 11.40 5,000,000(g) 4,706,250
NTL Communications
Zero Coupon Sr Nts Series B
10-01-03 12.38 1,500,000(g) 975,000
Orius Capital
Sr Sub Nts
02-01-10 12.75 1,100,000(d) 1,133,000
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 8,550,000 8,635,501
Rhythms NetConnections
Sr Nts
04-15-09 12.75 1,750,000 1,102,500
02-15-10 14.00 2,250,000 1,462,500
Spectrasite Holdings
Zero Coupon Sr Disc Nts
04-15-04 11.25 4,225,000(g) 2,577,250
Tele1 Europe
(U.S. Dollar) Sr Nts
05-15-09 13.00 2,000,000(c) 1,990,000
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 3,000,000(g) 600,000
UbiquiTel
Zero Coupon Company Guaranty
04-15-05 14.00 4,900,000(g) 2,548,000
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 2,800,000(c) 2,632,000
Vialog
Company Guaranty
11-15-01 12.75 3,720,000 3,124,800
Voicestream Wireless
Sr Nts
11-15-09 10.38 4,193,748 4,529,248
Total 74,360,074
Computers & office equipment (1.8%)
Concentric Network
Sr Nts
12-15-07 12.75 1,600,000 1,608,000
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 2,840,000 1,136,000
Exodus Communications
Sr Nts
07-15-10 11.63 2,675,000(d) 2,715,125
Globix
Sr Nts
02-01-10 12.50 6,925,000 5,263,000
Verio
Sr Nts
04-01-05 10.38 250,000 275,135
Total 10,997,260
Electronics (0.3%)
Flextronics Intl
(U.S. Dollar) Sr Sub Nts
07-01-10 9.88 1,460,000(c,d) 1,514,750
Energy (2.0%)
AES Drax Energy
08-30-10 11.50 1,600,000(d) 1,672,000
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 3,050,000 2,135,000
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
11-01-04 16.00 1,313,384(b,c,d) 1,313,384
Lodestar Holdings
Company Guaranty
05-15-05 11.50 5,565,000 834,750
Ocean Energy
Company Guaranty Series B
07-01-08 8.38 2,750,000 2,743,125
Rayovac
Sr Sub Nts Series B
11-01-06 10.25 2,412,000 2,484,360
Roil
(U.S. Dollar)
12-05-02 12.78 693,600(c,d) 664,122
Total 11,846,741
Energy equipment & services (0.1%)
Seven Seas Petroleum
Sr Nts Series B
05-15-05 12.50 2,000,000 500,000
Financial services (2.0%)
AOA Holdings LLC
Sr Nts
06-01-06 10.38 2,500,000 2,400,000
Gemini Inds
12-23-01 13.50 1,507,500(b,i) 150,750
Indah Kiat Finance Mauritius
(U.S. Dollar) Company Guaranty
07-01-07 10.00 1,955,000(c) 1,133,900
LaBranche
Sr Sub Nts
03-01-07 12.00 3,200,000 3,360,000
RBF Finance
Company Guaranty
03-15-09 11.38 4,060,000 4,689,300
Total 11,733,950
Food (1.0%)
Aurora Foods
Sr Sub Nts Series B
02-15-07 9.88 705,000 549,900
Sr Sub Nts Series D
02-15-07 9.88 4,375,000 3,412,500
RAB Enterprises
Company Guaranty
05-01-05 10.50 2,400,000 1,704,000
Total 5,666,400
Health care (0.2%)
Alaris Medical Systems
Company Guaranty
12-01-06 9.75 1,475,000 1,069,375
Health care services (2.8%)
Fountain View
Company Guaranty Series B
04-15-08 11.25 1,450,000 217,500
Genesis Health Ventures
Sr Sub Nts
10-01-06 9.25 1,700,000(b) 153,000
HCA-The Healthcare
09-01-10 8.75 1,375,000 1,371,508
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 4,100,000 2,357,500
Oxford Health Plans
Sr Nts
05-15-05 11.00 4,575,000 4,803,749
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 4,385,000(b) 1,359,350
Physician Sales & Service
Company Guaranty
10-01-07 8.50 1,400,000 1,344,000
Tenet Healthcare
Sr Nts
09-01-10 9.25 2,225,000(d) 2,308,438
Sr Sub Nts Series B
12-01-08 8.13 2,950,000 2,802,500
Total 16,717,545
Industrial equipment & services (2.1%)
Blount
Company Guaranty
06-15-05 7.00 2,175,000 1,870,500
Fairfield Mfg
Sr Sub Nts
10-15-08 9.63 3,300,000 2,805,000
Grove Holdings/Capital LLC
Zero Coupon
05-01-03 11.63 1,000,000(b,g) 10,000
Grove Inds LLC
05-01-10 14.50 930,165 32,556
Motor & Gears
Sr Nts Series D
11-15-06 10.75 5,250,000 5,105,625
Thermadyne Holdings
Zero Coupon
06-01-03 12.50 3,000,000(g) 1,083,750
Thermadyne Mfg
Company Guaranty
06-01-08 9.88 2,000,000 1,540,000
Total 12,447,431
Insurance (0.4%)
Americo Life
Sr Sub Nts
06-01-05 9.25 2,700,000 2,524,500
Leisure time & entertainment (5.7%)
Alliance Atlantis Communications
(U.S. Dollar) Sr Sub Nts
12-15-09 13.00 1,750,000(c) 1,793,750
Cinemark USA
Sr Sub Nts Series B
08-01-08 9.63 3,050,000 1,098,000
Coast Hotels & Casino
Company Guaranty
04-01-09 9.50 2,805,000 2,762,925
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 2,500,000 2,312,500
Hollywood Casino Shreveport
1st Mtge
08-01-06 13.00 1,500,000 1,608,750
Horseshoe Gaming Holdings
Company Guaranty
06-15-07 9.38 1,380,000 1,373,100
05-15-09 8.63 1,620,000 1,579,500
Icon Health & Fitness
Company Guaranty
09-27-05 12.00 444,000(d) 288,600
Isle of Capri Casinos/Capital
1st Mtge Series B
08-31-04 13.00 2,750,000 2,997,500
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 2,000,000 2,000,000
Mandalay Resort Group
Sr Nts
08-01-08 9.50 800,000(d) 820,000
Premier Cruises
Sr Nts
03-15-08 11.00 2,000,000(b,d,h,i) --
Premier Parks
Sr Nts
04-01-06 9.25 2,100,000 1,963,500
06-15-07 9.75 2,550,000 2,428,875
Regal Cinemas
Sr Sub Nts
06-01-08 9.50 1,260,000 113,400
12-15-10 8.88 1,250,000 112,500
Station Casinos
Sr Sub Nts
07-01-10 9.88 605,000 601,975
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 11,400,000 7,695,000
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 700,000 420,000
United Artists Theatres
Series 1995A
07-01-15 9.30 2,685,957 1,622,372
Sr Sub Nts Series B
04-15-08 9.75 4,505,000(b) 90,100
Total 33,682,347
Media (8.9%)
Adelphia Communications
Zero Coupon Sr Nts Pay-in-kind Series B
02-15-04 9.50 60,991(e,j) 58,551
AMFM
Zero Coupon Sr Disc Nts
02-01-02 7.49 1,000,000(g) 940,000
AMFM Operating
Pay-in-kind
10-31-06 12.63 1,060,700(j) 1,211,850
Australis Holdings
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-00 13.35 2,260,000(b,c,g,i) 11,300
Australis Media
(U.S. Dollar)
11-01-00 14.00 197,041(c,i) 193,282
05-15-03 15.75 4,547,958(b,c,i) 885
Benedek Communications
Zero Coupon Sr Disc Nts
05-15-01 13.89 2,750,000(g) 2,282,500
Big City Radio
Zero Coupon Company Guaranty
03-15-01 11.25 2,000,000(g) 1,180,000
Capstar Broadcasting
Sub Deb Pay-in-kind
07-01-09 12.00 1,123,600(j) 1,280,904
Charter Communications Holdings LLC/Capital
Sr Nts
04-01-09 8.63 2,000,000 1,830,000
Charter Communications Holdings/Charter Capital
Sr Nts
04-01-09 10.00 2,400,000 2,400,000
01-15-10 10.25 2,250,000 2,238,750
Charter Communications LLC/Capital
Zero Coupon Sr Disc Nts
04-01-04 14.16 4,350,000(g) 2,610,000
Coaxial Communications/Phoenix
Company Guaranty
08-15-06 10.00 2,215,000 2,181,775
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 1,500,000 1,650,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 3,250,000(c) 3,120,000
Paxson Communications
Sr Sub Nts
10-01-02 11.63 4,350,000 4,453,313
Pegasus Media & Communications
Series B
07-01-05 12.50 1,500,000 1,575,000
Sr Nts Series B
10-15-05 9.63 5,180,000 5,154,099
Radio Unica
Zero Coupon Company Guaranty
08-01-02 11.74 2,500,000(g) 1,725,000
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 2,600,000(c) 2,704,000
Sinclair Broadcasting Group
Company Guaranty
07-15-07 9.00 2,950,000 2,743,500
Telemundo Holdings
Zero Coupon Sr Disc Nts Series B
08-15-03 11.50 4,000,000(g) 2,780,000
TeleWest Communications
(U.S. Dollar) Sr Nts
11-01-08 11.25 2,000,000(c) 1,980,000
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 8.96 4,100,000(c,g) 2,275,500
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 1,215,506(c,i,j) 1,823,259
WRC Media/Weekly Read/Compass
Sr Sub Nts
11-15-09 12.75 2,500,000 2,275,000
Total 52,678,468
Metals (2.5%)
AK Steel
Company Guaranty
02-15-09 7.88 3,000,000 2,797,500
EnviroSource
Sr Nts
06-15-03 9.75 2,000,000 620,000
Great Lakes Acquisition
Zero Coupon Series B
05-15-03 21.06 2,635,000(g) 1,133,050
Great Lakes Carbon
Company Guaranty Pay-in-kind Series B
05-15-08 10.25 1,060,000(j) 837,400
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 659,636(c,d) 639,847
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 2,000,000 1,840,000
Natl Steel
1st Mtge Series D
03-01-09 9.88 2,300,000 2,018,250
Ormet
Company Guaranty
08-15-08 11.00 1,600,000(d) 1,456,000
Pen Holdings
Company Guaranty Series B
06-15-08 9.88 1,570,000 1,208,900
Renco Steel Holdings
Sr Nts Series B
02-01-05 10.88 1,500,000 1,290,000
Sheffield Steel
1st Mtge Series B
12-01-05 11.50 2,000,000 1,200,000
Total 15,040,947
Miscellaneous (7.7%)
Actuant
Company Guaranty
05-01-09 13.00 2,200,000(d) 2,244,000
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 3,000,000 3,090,000
Advanced Glassfiber Yarn
Sr Sub Nts
01-15-09 9.88 3,620,000 3,217,275
Argo-Tech
Company Guaranty Series D
10-01-07 8.63 3,000,000 2,400,000
Bistro Trust
12-31-02 9.50 1,000,000(d) 951,000
Booth Creek Ski Holdings
Sr Nts Series B
03-15-07 12.50 500,000 376,250
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00 2,500,000(c) 1,425,000
Comforce Operating
Sr Nts Series B
12-01-07 12.00 750,000 376,875
Consolidated Container/ Consolidated Container Capital
07-15-09 10.13 2,750,000 2,736,250
Cybernet Internet Service
Sr Nts
07-01-09 14.00 2,000,000 865,000
Dura Operating
Company Guaranty Series B
05-01-09 9.00 2,050,000 1,873,188
Falcon Products
Company Guaranty Series B
06-15-09 11.38 2,750,000 2,612,500
ISG Resources
04-15-08 10.00 3,605,000 3,064,250
Nationwide Credit
Sr Nts Series A
01-15-08 10.25 835,000 555,275
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 2,475,000 2,580,188
Normandy Yandal Operations
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,000,000(c) 1,760,000
NSM Steel
Company Guaranty
02-01-06 12.00 779,610(b,d) 31,184
02-01-08 12.25 1,200,000(b,d) 24,000
Omega Cabinets
Sr Sub Nts
06-15-07 10.50 1,460,000 1,343,200
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 7,190,000 6,111,499
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 3,695,000 3,380,925
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 1,775,000(c) 239,625
SC Intl
09-01-07 9.25 3,700,000 3,589,000
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 1,250,000(b) 175,000
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 570,000 473,100
Total 45,494,584
Multi-industry conglomerates (1.2%)
Communications & Power Inds
Sr Sub Nts Series B
08-01-05 12.00 2,000,000 1,360,000
Jordan Inds
Sr Nts Series D
08-01-07 10.38 4,240,000 3,964,399
Zero Coupon Sr Sub Debs Series B
04-01-02 11.75 1,608,386(g) 1,045,451
Metromedia Intl Group
Sr Disc Nts Series B
09-30-07 10.50 145,650 65,543
Prime Succession
Sr Sub Nts
08-15-04 10.75 2,710,000(b) 406,500
Total 6,841,893
Paper & packaging (6.0%)
Berry Plastics
Company Guaranty Series C
04-15-04 12.25 750,000 716,250
Sr Sub Nts Series B
07-15-07 11.00 2,500,000 2,250,000
BPC Holding
Pay-in-kind Sr Nts Series B
06-15-06 12.50 1,817,956(j) 1,490,724
Crown Paper
Sr Sub Nts
09-01-05 11.00 4,785,000(b) 1,291,950
Doman Inds
(U.S. Dollar)
03-15-04 8.75 1,000,000(c) 802,500
(U.S. Dollar) Company Guaranty
07-01-04 12.00 1,750,000(c) 1,785,000
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 2,175,000(c) 1,609,500
Gaylord Container
Sr Nts
06-15-07 9.75 3,428,000 2,742,400
02-15-08 9.88 175,000 98,000
Graham Packaging/GPC Capital
Zero Coupon Sr Disc Nts Series B
01-15-03 11.57 2,100,000(g) 1,260,000
Packaging Corp of America
Company Guaranty
04-01-09 9.63 1,985,000 2,034,625
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 6,575,000(c) 6,640,750
Riverwood Intl
Company Guaranty
04-01-08 10.88 1,450,000 1,370,250
Company Guaranty Sr Nts
04-01-06 10.25 1,300,000 1,313,000
Silgan Holdings
06-01-09 9.00 4,245,000 3,862,950
Stone Container
Sr Nts
08-01-16 12.58 2,000,000 2,080,000
Warren (SD)
Pay-in-kind
12-15-06 14.00 4,032,449(j) 4,425,613
Total 35,773,512
Restaurants & lodging (2.5%)
Domino's
Company Guaranty Series B
01-15-09 10.38 2,825,000 2,697,875
Florida Panthers Holdings
Company Guaranty
04-15-09 9.88 2,150,000 2,064,000
MGM Grand
Sr Sub Nts
06-01-07 9.75 6,000,000 6,285,000
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 3,750,000 3,731,250
Total 14,778,125
Retail (0.7%)
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 3,850,000 2,752,750
Eye Care Centers of America
Company Guaranty
05-01-08 9.13 1,725,000 638,250
Flooring America
Company Guaranty
10-15-07 9.25 1,109,000 654,310
Total 4,045,310
Textiles & apparel (0.5%)
Anvil Knitwear
Sr Nts Series B
03-15-07 10.88 635,000 555,625
Galey & Lord
Company Guaranty
03-01-08 9.13 3,600,000 1,872,000
GFSI Holdings
Zero Coupon Sr Disc Nts Series B
09-15-04 10.77 2,700,000(g) 405,000
Steel Heddle Group
Zero Coupon Series B
06-01-03 13.74 1,600,000(g) 112,000
Total 2,944,625
Transportation (0.5%)
American Architectural
Company Guaranty
12-01-07 11.75 1,600,000(b) 274,000
Global Ocean Carriers
Sr Nts
07-15-07 10.25 2,500,000(b) 1,125,000
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 350,000(c) 112,000
06-15-07 9.50 500,000(c) 150,000
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 2,100,000(c) 1,344,000
Total 3,005,000
Utilities -- telephone (9.0%)
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 11.99 5,950,000(g) 4,254,250
COLT Telecom Group
(U.S. Dollar) Zero Coupon Sr Disc Nts
12-15-01 12.00 2,000,000(c,g) 1,802,500
Dobson Communications
Sr Nts
07-01-10 10.88 2,500,000(d) 2,484,375
Energis
(U.S. Dollar)
06-15-09 9.75 1,700,000(c) 1,691,500
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 500,000(b) 625
Intermedia Communications
Sr Nts Series B
06-01-08 8.60 2,000,000 1,640,000
Zero Coupon Sr Disc Nts Series B
07-15-02 10.65 3,860,000(g) 2,624,800
ITC Deltacom
Sr Nts
03-01-08 8.88 1,960,000 1,568,000
11-15-08 9.75 1,500,000 1,230,000
Level 3 Communications
03-15-08 11.00 2,000,000 1,980,000
McLeod USA
Sr Nts
03-15-08 8.38 370,000 340,400
02-15-09 8.13 2,250,000 2,013,750
Metromedia Fiber Network
Sr Nts Series B
11-15-08 10.00 750,000 738,750
Sr Nts
12-15-09 10.00 3,500,000 3,447,500
Nextel Communications
Cv
11-15-09 9.38 5,000,000 4,900,000
Zero Coupon Sr Nts
02-15-03 9.95 3,845,000(g) 2,922,200
Primus Telecomm Group
Sr Nts
08-01-04 11.75 1,175,000 763,750
01-15-09 11.25 1,750,000 1,102,500
Sr Nts Series B
05-15-08 9.88 2,500,000 1,500,000
PSINet
Sr Nts
12-01-06 10.50 3,650,000 3,148,125
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 5,775,000(c) 2,021,250
TeleCorp PCS
Sr Sub Nts
07-15-10 10.63 2,425,000(d) 2,522,000
United Pan-Europe Communications
(U.S. Dollar) Sr Nts Series B
08-01-09 10.88 2,300,000(c) 1,955,000
11-01-09 11.25 1,500,000(c) 1,301,250
02-01-10 11.25 1,600,000(c) 1,398,000
02-01-10 11.50 975,000(c) 853,125
Williams Communications Group
Sr Nts
08-01-10 11.88 3,280,000(d) 3,280,000
Total 53,483,650
Total bonds
(Cost: $551,504,162) $466,017,916
Common stocks (1.1%)
Issuer Shares Value(a)
Global TeleSystems 21,800(b) $188,025
Globix 33,088(b) 887,172
Intermedia Communications 51,526(b) 1,069,165
Intermedia Communications 1,733(b) 35,960
Nextel Communications Cl A 8,646(b) 479,313
OpTel 2,250(b,d) 23
PhoneTel Technologies 161,880(b) 51,802
Premier Holdings 148,117(i) 407,322
Price Communications 57,000(b) 1,168,500
VIALOG 37,529(i) 295,541
Western Wireless Cl A 30,000(b) 1,533,749
Wilshire Financial Services Group 286,815(b) 466,074
Wilshire Real Estate
Investment Trust 30,000(b) 82,500
WRC Media 3,382(d) 3,382
Total common stocks
(Cost: $12,471,295) $6,668,528
Preferred stocks & other (10.3%)
Issuer Shares Value(a)
AirGate PCS
Warrants 3,300 $481,800
Allegiance Telecom
Warrants 4,950 539,550
American Restaurant Group
12.00% Pay-in-kind Series B 627(j) 188,100
Warrants 500 5
Australis Holdings
Warrants 1,760(c) 18
Benedek Communications
11.50% Pay-in-kind 1,000(b,j) 520,000
Bestel
Warrants 1,000 120,000
Birch Telecom
Warrants 2,000 109,500
Cable Satisfaction
Warrants 1,155(c) 11,550
Century Maintenance
13.25% Pay-in-kind
Series C 25,786(j) 1,933,964
Clark Materials Handling
13.00% 1,816(b,d) 18
COLT Telecom Group
Warrants 1,000 100,000
Communications & Power Inds
14.00% Pay-in-kind
Series B 37,777(j) 2,493,264
CSC Holdings
11.13% Pay-in-kind
Series M 106,882(j) 11,436,373
Cybernet Internet
Warrants 2,000 10,000
Dobson Communications
13.00% Pay-in-kind 1,185(j) 1,164,360
Fairfield Mfg
11.25% Pay-in-kind 600(b,j) 495,000
HF Holdings
Warrants 4,250 4,250
Intermedia Communications
7.00% Cm Cv Series F 60,000(b) 960,000
13.50% Pay-in-kind
Series B 4,541(j) 3,088,142
Iridium World Communications
Warrants 1,700 17
Jitney-Jungle Stores of America Cl A
15.00% 20,000(b) 40,000
KMC Telecom Holdings
Warrants 1,500 3,000
Knology Holdings
Warrants 1,500 3,000
Nakornthai Strip Mill
Warrants 759,711 1
Nextel Communications
11.13% Pay-in-kind
Series E 2,500(j) 2,412,500
13.00% Pay-in-kind
Series D 2,931(j) 3,136,170
Nextlink Communications
13.00% Pay-in-kind 3,248(j) 2,663,228
NTL
13.00% Pay-in-kind
Series B 4,372(j) 4,109,219
Paxson Communications
12.50% Pay-in-kind
Exchangeable 3,291(b,j) 3,430,783
Pegasus Communications
12.75% Pay-in-kind 7,450(b,j) 908,900
12.75% Pay-in-kind
Series A 378(b,j) 398,919
PLD Telekom
Warrants 200 6
Poland Telecom
Warrants 1,775(c) 222
Primus Telecommunications
Warrants 1,175 17,038
RSL Communications
Warrants 1,250 19,844
Rural Cellular
12.25% 4,219(b) 3,712,720
SGW Holding
12.50% Cm Pay-in-kind
Series B 13,972(b,i,j) 139,720
Cv Series A 9,677(b,i) 48,385
Warrants 250(i) 250
Sinclair Capital
11.63% 20,000(b) 1,805,000
Telehub Communications
Warrants 3,000 30
UbiquiTel
Warrants 4,900 343,000
Unifi Communications
Warrants 1,000 10
Varde Fund V LP 5,000,000(b,i,k) 5,201,354
Wayland Investment
Fund LLC 6,000,000(b,i,k) 7,634,717
XM Satellite Radio
14.00% Cv 1,900(d) 1,729,000
Total preferred stocks & other
(Cost: $71,068,729) $61,412,927
Short-term securities (8.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (5.1%)
Federal Home Loan Bank Disc Nts
09-13-00 6.40% $500,000 $498,805
09-27-00 6.42 2,700,000 2,686,614
09-27-00 6.48 4,000,000 3,980,650
09-29-00 6.44 3,000,000 2,984,509
10-27-00 6.46 5,800,000 5,739,394
Federal Natl Mtge Disc Nts
09-18-00 6.41 7,100,000 7,076,534
09-21-00 6.43 7,200,000 7,171,740
Total 30,138,246
Commercial paper (3.5%)
Bell Atlantic Finance Services
10-16-00 6.58 1,800,000 1,784,843
Duke Energy
09-07-00 6.50 1,600,000 1,597,981
Emerson Electric
09-13-00 6.53 3,100,000(f) 3,092,712
General Motors Acceptance
10-05-00 6.55 1,600,000 1,589,534
Intl Lease Finance
09-22-00 6.52 500,000 498,017
10-16-00 6.52 1,300,000 1,289,053
Reed Elsevier
09-15-00 6.52 900,000(f) 897,436
Salomon Smith Barney
11-06-00 6.57 600,000 592,652
SBC Communications
10-17-00 6.58 2,500,000(f) 2,478,491
11-02-00 6.56 5,500,000(f) 5,436,667
Wal-Mart Stores
09-19-00 6.51 900,000(f) 896,860
Xcel Energy
09-18-00 6.52 900,000 897,025
Total 21,051,271
Total short-term securities
(Cost: $51,205,543) $51,189,517
Total investments in securities
(Cost: $686,249,729)(l) $585,288,887
<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, 2000, the value of foreign securities represented 9.93%
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)For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(f)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.
(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)Negligible market value.
(i)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, 2000, is as follows:
Security Acquisition Cost
dates
Australis Holdings
<S> <C> <C> <C> <C> <C> <C> <C>
(U.S. Dollar) 13.35% Zero Coupon Sr Disc Nts 2000 10-29-96 thru 10-03-97 $1,374,281
Australis Media
(U.S. Dollar) 14.00% 2000 12-18-97 thru 02-02-98 135,166
(U.S. Dollar) 15.75% 2003 10-14-96 thru 07-03-97 3,124,438
Gemini Inds
13.50% 2001 12-23-96 thru 10-22-99 1,506,000
Premier Cruises
11.00% Sr Nts 2008 03-06-98 thru 03-13-98 --
Premier Holdings 03-06-98 thru 03-13-98 1,286,500
SGW Holding
12.50% Pay-in-kind Series B 08-12-97 thru 06-01-00 211,563
Cv Series A 08-12-97 100,002
Warrants 08-12-97 78,900
Varde Fund V LP 04-27-00 5,000,000
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 03-01-99 1,102,500
VIALOG 11-06-97 thru 06-18-98 199,844
Wayland Investment Fund LLC 05-17-00 6,671,880
* Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(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)The share amount for Limited Liability Companies (LLC) or Limited
Partnerships (LP) represents capital contributions.
(l)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$686,199,110 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $11,068,872
Unrealized depreciation (111,979,095)
------------
Net unrealized depreciation $(100,910,223)
</TABLE>
<PAGE>
Investments in Securities
AXP VP - Federal Income Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Bonds (92.4%)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (50.9%)
Federal Home Loan Mtge Corp
06-01-14 6.50% $905,888 $883,319
06-01-29 6.50 950,129 908,643
07-01-29 6.00 958,605 891,206
Federal Natl Mtge Assn
04-15-03 5.75 1,000,000 977,041
08-15-04 6.50 2,000,000 1,980,118
03-01-14 5.50 823,259 771,108
04-01-14 5.50 889,247 833,544
05-01-14 6.00 914,085 874,179
06-01-14 6.50 173,791 169,475
07-01-14 6.00 933,464 892,712
03-01-15 7.00 957,595 947,559
01-01-29 6.00 495,874 462,248
02-01-29 6.00 923,997 858,744
03-01-29 6.00 71,651 66,591
08-01-29 7.00 1,349,041 1,315,315
10-01-29 6.50 1,352,252 1,291,401
07-01-30 8.00 2,971,612 2,999,919
Govt Natl Mtge Assn
04-15-13 7.00 1,754,467 1,750,784
Total 18,873,906
U.S. government obligations (41.5%)
U.S. Treasury
07-31-01 5.50% $1,500,000 $1,488,510
11-30-01 5.88 1,000,000 994,530
04-30-02 6.63 2,000,000 2,011,240
11-30-02 5.75 3,000,000 2,972,820
02-28-03 5.50 5,000,000 4,928,100
02-15-04 4.75 2,800,000 2,686,236
05-15-06 6.88 100,000(b) 104,109
05-15-09 5.50 200,000 194,438
Total 15,379,983
Total bonds
(Cost: $34,078,410) $34,253,889
Short-term securities (6.4%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies
Federal Home Loan Bank Disc Nts
09-15-00 6.40% $600,000 $598,405
09-27-00 6.41 600,000 597,026
Federal Home Loan Mtge Corp Disc Nt
10-05-00 6.47 200,000 198,692
Federal Natl Mtge Assn Disc Nt
09-29-00 6.48 1,000,000 994,803
Total short-term securities
(Cost: $2,389,515) $2,388,926
Total investments in securities
(Cost: $36,467,925)(c) $36,642,815
Notes to investments in securities
(a)Securities are valued by procedures described in Note 1 to the financial
statements.
(b)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 contract
U.S. Treasury Bonds, Sept. 2000, 10-year $1,000,000
(c)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$36,467,925 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $250,233
Unrealized depreciation (75,343)
-------
Net unrealized appreciation $174,890
<PAGE>
Investments in Securities
AXP VP - Global Bond Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Bonds (93.1%)(c)
Issuer Coupon Principal Value(a)
rate amount
Australia (1.8%)
Australian Government
(Australian Dollar)
08-15-03 9.50% 2,500,000 $1,563,196
New South Wales Treasury
(Australian Dollar)
03-01-08 8.00 2,700,000(d) 1,687,008
Total 3,250,204
Austria (2.2%)
Republic of Austria
(Japanese Yen)
01-22-01 5.00 400,000,000 3,817,472
Belgium (1.3%)
Belgium Kingdom
(European Monetary Unit) Series 14
04-29-04 7.25 2,500,000 2,345,772
Canada (3.8%)
Abitibi-Consolidated Finance
(U.S. Dollar) Company Guaranty
08-01-09 7.88 1,600,000 1,553,792
Govt of Canada
(U.S. Dollar)
11-05-08 5.25 3,000,000 2,716,053
Laidlaw
(U.S. Dollar)
05-15-06 7.65 1,400,000(b) 392,000
Province of Manitoba
(U.S. Dollar) Series CK
12-15-00 9.00 625,000 628,619
Rogers Communication
(Canadian Dollar) Sr Nts
07-15-07 8.75 2,000,000 1,362,989
Total 6,653,453
Cayman Islands (0.3%)
Roil
(U.S. Dollar)
12-05-02 12.78 578,000(d) 553,435
China (0.1%)
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 500,000(b,d) 100,000
Colombia (0.9%)
Republic of Colombia
(U.S. Dollar)
04-23-09 9.75 2,000,000 1,655,000
Denmark (0.9%)
Govt of Denmark
(Danish Krone)
05-15-03 8.00 13,000,000 1,629,371
France (1.4%)
Govt of France
(European Monetary Unit)
04-25-05 7.50 400,000 387,525
04-25-11 6.50 2,200,000 2,121,503
Total 2,509,028
Germany (20.5%)
Allgemeine Hypo Bank
(European Monetary Unit)
09-02-09 5.00 6,510,000 5,430,911
Bayerische Landesbank
(U.S. Dollar) Sub Nts
12-01-08 5.88 800,000 732,712
Depfa Deutsche Pfandbriefbank
(European Monetary Unit)
02-03-05 5.00 3,000,000 2,599,676
Federal Republic of Germany
(European Monetary Unit)
07-22-02 8.00 5,180,000 4,826,147
07-15-03 6.50 2,200,000 2,015,385
11-11-04 7.50 11,675,000 11,203,518
06-20-16 6.00 2,914,364 2,778,698
07-04-27 6.50 3,820,000 3,843,887
Treuhandanstalt
(European Monetary Unit)
01-29-03 7.13 3,200,000 2,957,974
Total 36,388,908
Indonesia (0.5%)
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 1,300,000 832,000
Israel (0.5%)
Israel Electric
(U.S. Dollar) Sr Nts
12-15-26 7.88 1,000,000(d) 930,110
Italy (7.4%)
Govt of Italy
(European Monetary Unit)
09-15-01 7.75 1,265,317 1,151,986
01-01-04 8.50 6,757,875 6,537,997
11-01-26 7.25 1,575,191 1,664,901
Republic of Italy
(Japanese Yen)
06-20-01 3.50 395,000,000 3,797,160
Total 13,152,044
Japan (2.3%)
Development Bank of Japan
(Japanese Yen)
09-20-01 6.50 412,000,000 4,099,837
Mexico (0.6%)
United Mexican States
(British Pound) Medium-term Nts Series E
05-30-02 8.75 750,000 1,100,056
Netherlands (0.4%)
KPNQwest
(European Monetary Unit) Sr Nts
06-01-09 7.13 925,000 728,990
Norway (3.9%)
Govt of Norway
(Norwegian Krone)
05-31-01 7.00 47,270,000 5,191,694
05-15-09 5.50 16,040,000 1,672,159
Total 6,863,853
Supra-National (1.1%)
Inter-American Development Bank
(Japanese Yen)
07-08-09 1.90 205,000,000 1,911,383
Sweden (0.5%)
Paulson Enterprenad
(Swedish Krona)
12-15-00 4.75 9,000,000(f) 951,147
United Kingdom (2.9%)
COLT Telecom Group
(European Monetary Unit)
07-31-08 7.63 1,500,000 614,312
United Kingdom Treasury
(British Pound)
06-07-02 7.00 1,000,000 1,477,407
06-10-03 8.00 1,950,000 2,980,575
Total 5,072,294
United States (39.8%)
American Standard
(European Monetary Unit) Company Guaranty
06-01-06 7.13 1,700,000 1,493,831
Citicorp
(European Monetary Unit)
09-19-09 6.25 3,000,000 1,333,867
DTE Burns Harbor LLC
(U.S. Dollar) Sr Nts
01-30-03 6.57 736,060(d) 725,034
Federal Natl Mtge Assn
(U.S. Dollar)
08-15-04 6.50 1,500,000 1,485,089
02-15-08 5.75 2,000,000 1,872,964
07-01-13 6.00 1,695,827 1,622,881
05-01-14 6.50 1,377,394 1,342,588
02-01-27 7.50 425,272 423,677
03-01-27 7.50 906,471 903,072
03-01-29 6.50 1,853,769 1,770,349
Ford Motor Credit
(Japanese Yen)
02-07-05 1.20 300,000,000 2,769,278
(U.S. Dollar)
09-10-02 6.55 3,000,000 2,963,340
IBM
(Japanese Yen)
04-14-03 .90 190,000,000 1,777,083
Intl Paper
(European Monetary Unit)
08-11-06 5.38 1,800,000 1,501,138
MGM Grand
(U.S. Dollar)
02-01-05 6.95 1,500,000 1,413,840
Morgan (JP)
(U.S.Dollar) Sr Sub Medium-term Nts Series A
02-15-12 4.00 1,000,000 861,550
Nationwide CSN Trust
(U.S. Dollar)
02-15-25 9.88 1,500,000(d) 1,562,429
New York Life Insurance
(U.S. Dollar)
12-15-23 7.50 1,000,000(d) 913,000
PDVSA Finance
(U.S. Dollar) Sr Nts
02-15-10 9.75 1,500,000 1,502,295
Railcar Leasing
(U.S. Dollar)
01-15-13 7.13 3,000,000(d) 2,991,600
Texas Utilities Electric
(U.S. Dollar)
08-01-07 7.17 2,000,000 1,964,840
U.S. Treasury
(U.S. Dollar)
11-15-00 5.75 1,500,000 1,497,660
11-30-00 4.63 1,000,000 995,620
11-15-01 7.50 1,650,000 1,671,401
02-15-05 7.50 5,600,000 5,915,000
11-15-16 7.50 15,500,000 17,965,429
TIPS
01-15-07 3.38 3,000,000(e) 3,144,195
United Air Lines
(U.S. Dollar)
07-01-10 7.73 1,100,000 1,124,002
USX
(U.S. Dollar)
03-01-08 6.85 2,000,000 1,927,820
Viacom
(U.S. Dollar) Company Guaranty
07-30-10 7.70 1,000,000 1,013,610
Watson Pharmaceuticals
(U.S. Dollar) Sr Nts
05-15-08 7.13 1,200,000 1,107,684
Zurich Capital Trust
(U.S. Dollar) Company Guaranty
06-01-37 8.38 1,000,000(d) 974,372
Total 70,530,538
Total bonds
(Cost: $178,714,003) $165,074,895
Short-term securities (5.3%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies
Federal Home Loan Mtge Corp Disc Nts
09-14-00 6.44% $900,000 $897,645
10-03-00 6.43 2,500,000 2,485,356
10-03-00 6.44 2,000,000 1,988,267
10-12-00 6.48 1,000,000 992,174
10-17-00 6.46 1,400,000 1,388,284
Federal Natl Mtge Assn Disc Nts
09-21-00 6.43 1,100,000 1,095,682
10-16-00 6.45 600,000 595,093
Total short-term securities
(Cost: $9,444,833) $9,442,501
Total investments in securities
(Cost: $188,158,836)(g) $174,517,396
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.
(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)Identifies issue considered to be illiquid as to its marketability
(see Note 1 to the financial statements). Information concerning such
security holdings at Aug. 31, 2000, is as follows:
Security Acquisition Cost
date
Paulson Enterprenad
4.75% (Swedish Krona) 2000 07-08-97 $8,151,026
(g)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$187,511,034 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $995,523
Unrealized depreciation (13,989,161)
-----------
Net unrealized depreciat $(12,993,638)
<PAGE>
Investments in Securities
AXP VP - Growth Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (94.2%)
Issuer Shares Value(a)
Airlines (0.8%)
Southwest Airlines 72,934 $1,650,132
Banks and savings & loans (2.8%)
FleetBoston Financial 74,531 3,181,542
Zions Bancorp 51,536 2,306,236
Total 5,487,778
Communications equipment & services (7.0%)
Corvis 9,772(b) 1,014,456
JDS Uniphase 24,290(b) 3,027,141
MasTec 46,449(b) 1,672,164
Nokia ADR Cl A 92,114(c) 4,139,373
Sycamore Networks 8,149(b) 1,116,413
Tellabs 46,860(b) 2,632,946
Total 13,602,493
Computer software & services (3.8%)
Microsoft 85,051(b) 5,937,623
Veritas Software 12,158(b) 1,465,799
Total 7,403,422
Computers & office equipment (24.6%)
Akamai Technologies 37,409(b) 2,826,718
America Online 48,406(b) 2,837,802
Avici Systems 3,235(b) 484,643
Cisco Systems 173,376(b) 11,876,255
Commerce One 40,570(b) 2,536,893
EMC 119,926(b) 11,752,747
Extreme Networks 16,192(b) 1,506,868
Hewlett-Packard 24,289 2,932,897
Intl Business Machines 28,558 3,769,656
Solectron 46,227(b) 2,094,661
VeriSign 5,151(b) 1,024,405
Yahoo! 35,644(b) 4,330,746
Total 47,974,291
Electronics (22.6%)
Applied Materials 89,106(b) 7,690,961
Broadcom Cl A 19,480(b) 4,870,000
Foundry Networks 16,196(b) 1,507,240
Intel 80,992 6,064,276
Maxim Integrated Products 77,828(b) 6,824,543
PMC-Sierra 13,827(b) 3,263,172
STMicroelectronics 48,580(c) 2,996,779
Symbol Technologies 45,350 1,876,356
Texas Instruments 131,304 8,789,161
Total 43,882,488
Energy (1.6%)
Anadarko Petroleum 48,640 3,199,053
Energy equipment & services (3.1%)
Halliburton 61,594 3,264,482
Schlumberger 32,413 2,765,234
Total 6,029,716
Financial services (7.1%)
Citigroup 119,931 7,000,952
Merrill Lynch 32,448 4,704,960
Providian Financial 18,629 2,141,171
Total 13,847,083
Furniture & appliances (0.4%)
Ethan Allen Interiors 31,061 836,706
Health care (10.5%)
ALZA 10,202(b) 771,526
Amgen 32,432(b) 2,458,751
Genentech 23,482(b) 4,473,321
MedImmune 3,875(b) 325,984
Medtronic 44,132 2,261,765
Pfizer 178,052 7,700,749
Schering-Plough 41,332 1,658,447
Serono ADR 23,500(b,c) 672,688
Total 20,323,231
Insurance (0.5%)
Marsh & McLennan 8,111 963,181
Leisure time & entertainment (1.2%)
Harley-Davidson 48,551 2,418,447
Media (0.1%)
Sony ADR 1,900(c) 212,145
Multi-industry conglomerates (1.9%)
Tyco Intl 64,840(c) 3,695,880
Restaurants & lodging (1.0%)
Marriott Intl Cl A 48,611 1,920,135
Retail (2.7%)
Home Depot 71,288 3,426,280
RadioShack 32,456 1,914,904
Total 5,341,184
Utilities -- telephone (2.5%)
AT&T Wireless Group 55,100(b) 1,442,931
WorldCom 94,883(b) 3,463,230
Total 4,906,161
Total common stocks
(Cost: $160,699,418) $183,693,526
Short-term securities (6.9%)
Issuer Annualized Amount Value(a)
yield on date payable at of purchase
maturity
U.S. government agencies (3.8%)
Federal Home Loan Mtge Corp Disc Nts
10-03-00 6.45% $4,000,000 $3,976,497
10-24-00 6.49 2,500,000 2,475,887
Federal Natl Mtge Assn Disc Nt
09-07-00 6.50 1,000,000 998,692
Total 7,451,076
Commercial paper (3.1%)
Exxon Mobil Australia
09-29-00 6.51 1,100,000(d) 1,094,258
Household Finance
09-01-00 6.65 4,900,000 4,899,094
Total 5,993,352
Total short-term securities
(Cost: $13,446,917) $13,444,428
Total investments in securities
(Cost: $174,146,335)(e) $197,137,954
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, 2000, the
value of foreign securities represented 6.02% of net assets.
(d)Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other"accredited
investors." This security has been determined to be liquid under
guidelines established by the board.
(e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$174,192,392 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $28,805,647
Unrealized depreciation (5,860,085)
----------
Net unrealized appreciation $22,945,562
<PAGE>
Investments in Securities
AXP VP - International Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (95.3%)(c)
Issuer Shares Value(a)
Australia (2.1%)
Banks and savings & loans (1.0%)
Commonwealth Bank
of Australia 1,540,000 $24,632,661
Insurance (1.1%)
AMP 2,476,000 25,493,872
Brazil (1.1%)
Energy
Petroleo Brasileiro ADR 838,450(b) 26,673,191
Canada (4.7%)
Communications equipment & services (2.8%)
Nortel Networks 821,800 67,028,063
Energy (1.0%)
Petro-Canada 1,136,502 24,083,331
Multi-industry conglomerates (0.9%)
Bombardier Cl B 1,294,172 21,325,273
Finland (2.5%)
Communications equipment & services (1.5%)
Nokia 859,255 37,716,880
Miscellaneous (1.0%)
Vivendi 279,926 22,897,160
France (12.8%)
Banks and savings & loans (1.2%)
BNP Paribas 320,383 29,482,233
Communications equipment & services (2.6%)
Alcatel Alsthom 765,421 62,643,315
Computers & office equipment (2.8%)
Cap Gemini 323,669(e) 67,626,908
Energy (4.0%)
Total Fina Elf 630,319 93,645,606
Household products (1.8%)
Aventis ADR 585,190 43,964,705
Industrial equipment & services (0.4%)
Castorama Dubois 42,517 9,223,654
Germany (4.6%)
Banks and savings & loans (2.4%)
Deutsche Bank 650,446 56,790,187
Utilities -- electric (2.2%)
E.on 1,086,364 52,302,734
Hong Kong (1.0%)
Communications equipment & services
China Mobile (Hong Kong) 3,116,000(b) 23,971,382
Italy (3.1%)
Banks and savings & loans (2.5%)
San Paolo - IMI 867,219 15,405,464
Utilities -- telephone (0.6%)
Telecom Italia Mobile 5,840,651(b,e) 50,682,921
Japan (21.3%)
Automotive & related (0.8%)
Toyota Motor 466,000 20,276,069
Chemicals (0.9%)
Asahi Chemical Inds 3,612,000 22,591,935
Computers & office equipment (3.8%)
Canon 552,000 24,690,923
Fujitsu 1,386,000 40,160,728
Hitachi Software Engineering 237,000 27,624,812
Total 92,476,463
Electronics (3.7%)
Hitachi 1,901,000 22,514,657
Nintendo 84,300 14,577,007
Pioneer 581,000 24,517,067
Rohm 94,500 26,894,926
Total 88,503,657
Furniture & appliances (1.4%)
Matsushita Electric Industrial 1,235,000 33,816,579
Industrial equipment & services (1.3%)
Amada 3,667,000 31,463,850
Media (2.1%)
Sony 442,000 49,322,956
Miscellaneous (1.2%)
Lawson 112,100 5,813,138
Oriental Land 238,700 21,980,814
Total 27,793,952
Retail (1.5%)
FamilyMart 660,200 19,687,134
Ryohin Keikaku 165,700 16,004,407
Total 35,691,541
Textiles & apparel (0.7%)
Kuraray 1,971,000 17,207,436
Utilities -- telephone (3.9%)
Nippon Telegraph & Telephone 5,580 66,453,488
Nippon Television Network 1,601 915,801
NTT DoCoMo 931(b) 24,619,467
Total 91,988,756
Korea (0.4%)
Metals
Pohang Iron & Steel ADR 492,782 10,471,618
Mexico (0.5%)
Utilities -- telephone
Telefonos de Mexico ADR Cl L 198,813 10,822,883
Netherlands (6.7%)
Energy (1.5%)
Royal Dutch Petroleum 571,227(b) 34,789,634
Insurance (5.2%)
Fortis 2,096,986 64,639,789
ING Groep 887,370(b) 59,487,628
Total 124,127,417
Singapore (1.3%)
Banks and savings & loans (0.7%)
Overseas Union Bank 3,272,599 16,540,761
Building materials & construction (0.6%)
Singapore Technologies
Engineering 10,008,000 13,488,968
South Korea (1.0%)
Electronics
Samsung Electronics 92,600 22,842,029
Spain (1.6%)
Energy
Repsol-YPF 1,935,806 38,381,086
Sweden (4.1%)
Communications equipment & services
Ericsson (LM) Cl B 4,869,886 98,311,162
Turkey (0.4%)
Banks and savings & loans
Turkiye Garanti Bankasi 492,251,421(b) 5,037,089
Yapi Kredit Finance 488,457,820 4,103,058
Total 9,140,147
United Kingdom (24.7%)
Aerospace & defense (0.8%)
BAE Systems 2,962,003 18,488,681
Communications equipment & services (4.0%)
Marconi 5,383,068 95,711,518
Health care (4.2%)
Glaxo Wellcome ADR 1,896,231 54,656,126
SmithKline Beecham 3,494,435 45,632,531
Total 100,288,657
Industrial equipment & services (0.9%)
Hays PLC 3,862,638 22,649,165
Insurance (1.5%)
Prudential 2,692,173 35,332,359
Leisure time & entertainment (2.4%)
EMI Group ADR 6,202,939 57,671,534
Retail (3.3%)
Next 1,948,544 17,634,524
Tesco 19,644,619 61,953,501
Total 79,588,025
Utilities -- gas (2.8%)
BG Group 10,616,917 66,270,287
Utilities -- telephone (4.8%)
COLT Telecom Group 350,728(b) 11,839,178
Vodafone AirTouch 26,102,317 105,676,244
Total 117,515,422
United States (1.6%)
Computers & office equipment (0.6%)
Computer Sciences 169,936(b) 13,435,565
Health care (1.0%)
Schering-Plough 577,500 23,172,188
Total common stocks
(Cost: $2,003,729,033) $2,275,761,840
Short-term securities (4.7%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.2%)
Federal Home Loan Bank Disc Nts
09-15-00 6.40% $9,300,000 $9,274,466
09-29-00 6.44 21,700,000 21,584,272
10-11-00 6.43 19,500,000 19,353,424
Federal Home Loan Mtge Corp Disc Nts
09-05-00 6.42 7,300,000 7,293,501
09-12-00 6.43 4,600,000 4,590,156
Federal Natl Mtge Assn Disc Nts
09-18-00 6.41 12,200,000 12,159,678
10-05-00 6.46 2,300,000 2,284,954
Total 76,540,451
Commercial paper (1.5%)
Alcoa
10-11-00 6.53 12,400,000 12,306,793
Cargill Global Funding
10-18-00 6.53 500,000(d) 495,687
Ford Motor Credit
09-01-00 6.51 1,000,000 999,819
Gillette
10-18-00 6.54 9,700,000(d) 9,614,898
Preferred Receivables
10-06-00 6.54 1,100,000(d) 1,092,850
Variable Funding Capital
10-12-00 6.56 1,800,000(d) 1,786,329
Wal-Mart Stores
09-26-00 6.53 6,200,000(d) 6,170,402
10-03-00 6.52 3,400,000(d) 3,379,804
Total 35,846,582
Total short-term securities
(Cost: $112,421,983) $112,387,033
Total investments in securities
(Cost: $2,116,151,016)(f) $2,388,148,873
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.
(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, 2000, the cost of securities for federal income tax purposes was
$2,117,108,315 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $369,264,858
Unrealized depreciation (98,224,300)
-----------
Net unrealized appreciation $271,040,558
<PAGE>
Investments in Securities
AXP VP - Managed Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (64.9%)
Issuer Shares Value(a)
Aerospace & defense (1.0%)
Boeing 220,000 $11,797,500
Goodrich (BF) 370,300 15,112,869
Honeywell Intl 328,300 12,660,069
United Technologies 180,000 11,238,750
Total 50,809,188
Airlines (1.2%)
Southwest Airlines 2,791,300(m) 63,153,163
Automotive & related (0.4%)
Tower Automotive 1,706,700(b) 19,413,713
Banks and savings & loans (1.6%)
Bank One 300,000 10,575,000
U.S. Bancorp 600,000 13,050,000
Washington Mutual 1,056,000 36,960,000
Wells Fargo 570,000 24,616,875
Wilshire Financial
Services Group 154,397(b) 250,895
Total 85,452,770
Beverages & tobacco (0.5%)
Coca-Cola 450,400 23,702,300
Building materials & construction (0.2%)
Martin Marietta Materials 250,000 10,000,000
Communications equipment & services (4.0%)
360networks 750,000 13,359,375
Celcaribe 235,770(b,d) 353,655
Corning 66,100 21,676,669
JDS Uniphase 130,000(b) 16,201,250
Nokia ADR Cl A 2,758,400(c,m) 123,955,600
Nortel Networks 324,192(c) 26,441,910
PhoneTel Technologies 228,000(b) 72,960
VoiceStream Wireless 80,000(b) 9,005,000
Total 211,066,419
Computer software & services (2.3%)
Microsoft 1,550,000(b,m) 108,209,375
Oracle 150,000(b) 13,640,625
Total 121,850,000
Computers & office equipment (10.5%)
Cisco Systems 3,450,000(b,m) 236,324,999
CMGI 98,000(b) 4,385,500
Dell Computer 850,000(b) 37,081,250
EMC 928,400(b) 90,983,200
Equant 220,000(b,c,j) 8,456,250
Globix 70,400(b) 1,887,600
Hewlett-Packard 175,000 21,131,250
Sanmina 105,000(b) 12,390,000
Solectron 2,094,200(b) 94,893,437
Sun Microsystems 275,000(b) 34,907,813
Yahoo! 100,000(b) 12,150,000
Total 554,591,299
Electronics (6.6%)
American Power
Conversion 2,733,700(b) 65,096,231
Axcelis Technologies 207,500(b) 3,747,969
Excalibur Technologies 350,000(b) 16,625,000
Intel 1,800,000 134,774,999
Maxim Integrated Products 706,400(b) 61,942,450
Texas Instruments 910,000(m) 60,913,125
Total 343,099,774
Energy (1.8%)
Anadarko Petroleum 474,000 31,174,980
Exxon Mobil 385,100 31,433,788
Royal Dutch Petroleum 521,600(c,j) 31,915,400
Total 94,524,168
Financial services (7.8%)
Citigroup 2,284,133(m) 133,336,283
Donaldson, Lufkin
& Jenrette - DLJ 242,000(m) 21,417,000
Fannie Mae 520,000 27,950,000
MBNA 1,896,800 66,980,750
Merrill Lynch 108,100(m) 15,674,500
Morgan Stanley, Dean
Witter, Discover & Co 1,327,000 142,735,437
Total 408,093,970
Food (0.3%)
Keebler Foods 325,000 14,889,063
Furniture & appliances (0.4%)
Leggett & Platt 1,182,000 20,906,625
Health care (7.5%)
American Home Products 525,000 28,448,438
Amgen 1,067,600(b) 80,937,424
Bristol-Myers Squibb 275,000 14,575,000
Elan ADR 1,036,500(b,c,j,m) 60,440,906
Merck & Co 654,400 45,726,200
Pfizer 1,867,050 80,749,912
Pharmacia & Upjohn 717,791 42,035,635
Schering-Plough 976,900 39,198,113
Total 392,111,628
Health care services (0.6%)
Continucare 378,049(b) 189,025
McKesson HBOC 1,153,500 28,765,406
Total 28,954,431
Household products (0.5%)
Procter & Gamble 398,400 24,626,100
Industrial equipment & services (0.6%)
Illinois Tool Works 520,000(m) 29,152,500
Insurance (1.8%)
American General 155,000 11,285,938
American Intl Group 577,650(m) 51,483,055
MetLife 998,000(b) 24,263,875
Progressive Corp 125,000 9,476,563
Total 96,509,431
Leisure time & entertainment (1.1%)
Disney (Walt) 393,000 15,302,438
Time Warner 464,500 39,714,750
Total 55,017,188
Media (1.1%)
Clear Channel
Communications 188,000(b) 13,606,500
Comcast Special Cl A 368,000(b) 13,708,000
Infinity Broadcasting Cl A 147,500(b) 5,586,563
TELEWEST 50,000(j) 1,218,750
TeleWest Communications 3,840,000(b,c) 9,609,987
USA Networks 614,000(b,m) 14,774,375
Total 58,504,175
Miscellaneous (0.3%)
Internap Network Services 200,000(b) 7,200,000
TyCom 154,400(b,c) 6,426,900
Total 13,626,900
Multi-industry conglomerates (4.6%)
Cendant 1,532,000(b,m) 20,203,250
Century Business Services 800,000(b) 1,400,000
General Electric 2,533,600 148,690,650
Tyco Intl 1,201,500(c) 68,485,500
Total 238,779,400
Paper & packaging (0.2%)
Intl Paper 300,000 9,562,500
Restaurants & lodging (0.7%)
Boca Resorts Cl A 513,800(b) 5,716,025
Extended Stay America 2,200,000(b) 32,587,500
Total 38,303,525
Retail (3.9%)
Dollar General 652,000 13,406,750
Gap 217,000 4,868,938
Gerald Stevens 400,000(b) 362,500
Home Depot 2,141,400 102,921,037
Safeway 506,400(b) 24,971,850
Wal-Mart Stores 1,244,800 59,050,200
Total 205,581,275
Utilities -- electric (0.4%)
Calpine 100,000(b) 9,900,000
Duke Energy 167,000 12,493,688
Total 22,393,688
Utilities -- telephone (3.0%)
Allegiance Telecom 105,000(b) 5,230,313
AT&T - Liberty Media
Group Cl A 800,000(b) 17,100,000
Intermedia Communications 2,167(b) 44,965
Qwest Communications Intl 821,427(b,m) 42,406,169
Vodafone AirTouch ADR 880,000(c,j) 36,025,000
WorldCom 1,506,900(b,m) 55,001,850
Total 155,808,297
Total common stocks
(Cost: $1,777,251,615) $3,390,483,490
Preferred stocks & other
Issuer Shares Value(a)
Allegiance Telecom
Warrants 2,450 $267,050
APP China Group
(U.S. Dollar) 1,300(c,d) 741,000
Coastal
6.63% Cv PRIDES 44,240(p) 1,694,945
CSC Holdings
11.75% Pay-in-kind
Series H 34,539(k) 3,747,481
CVS
6.00% Cv ACES 14,460(i) 961,590
Georgia-Pacific Group
7.50% Cm Cv 37,500 1,216,406
Global Crossing
6.38% Cv 8,620(c,d) 729,468
Ingersoll-Rand
6.75% Cv PRIDES 37,900(p) 859,856
Intermedia Communications
7.00% Cm Cv Series F 43,575(d) 697,200
KMC Telecom Holdings
Warrants 2,800 5,600
Lincoln Natl
7.75% Cm Cv 38,400 960,000
Metlife Capital
8.00% Cm Cv 20,730 1,648,035
Mexico Value
Rights 1,000(c,o) --
Monsanto
6.50% Cv ACES 21,730(i) 1,090,574
Nextel Communications
13.00% Pay-in-kind Series D 929(k) 994,030
Nextlink Communications
13.00% Pay-in-kind 1,298(k) 1,064,710
Paxson Communications
12.50% Pay-in-kind
Exchangeable 1,750(b,k) 1,824,375
13.25% Pay-in-kind 7(k) 6,526
Pegasus Communications
12.75% Pay-in-kind Series A 1,915(b,k) 2,020,061
Primus Telecommunications
Warrants 2,300 33,350
Sovereign Capital Trust
7.50% Cv 20,440 1,087,153
Sinclair Capital
11.63% 30,000(b) 2,707,500
Unifi Communications
Warrants 2,000 20
Wendys Financing
5.00% Cm Cv Series A 31,090 1,476,775
Total preferred stocks & other
(Cost: $26,360,459) $25,833,705
Bonds (33.5%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (5.3%)
Govt Trust Certs Israel
11-15-01 9.25% $891,794 $907,276
People's Republic of China
(U.S. Dollar)
01-15-96 9.00 2,500,000(c) 2,323,863
Republic of Brazil
(U.S. Dollar)
04-15-14 8.00 7,388,460(c) 5,712,240
Resolution Funding Corp
Zero Coupon
07-15-20 6.56 5,000,000(e) 1,463,250
Russian Federation
(U.S. Dollar)
03-31-10 8.25 646,004(c,d) 460,278
03-31-30 2.25 4,250,000(c,d) 1,848,750
U.S. Treasury
08-15-03 5.75 33,300,000 32,987,646
02-15-04 5.88 12,500,000 12,425,750
02-15-06 5.63 20,000,000 19,640,600
10-15-06 6.50 21,000,000 21,511,770
05-15-08 5.63 50,000,000(j) 49,015,499
11-15-16 7.50 62,000,000(j) 71,861,719
02-15-20 8.50 25,000,000 32,261,750
11-15-24 7.50 25,000,000 30,070,250
Zero Coupon
05-15-05 6.46 18,000,000(e) 13,624,020
11-15-21 6.26 35,000,000(e) 10,210,900
United Mexican States
(U.S. Dollar)
03-12-08 8.63 4,250,000(c) 4,250,000
(U.S. Dollar) Series A
12-31-19 6.25 4,000,000(c) 3,577,520
Total 314,153,081
Mortgage-backed securities (11.8%)
Federal Home Loan Mtge Corp
07-01-14 6.50 24,501,603 23,891,169
04-01-15 7.50 24,099,029 24,203,022
08-01-24 8.00 2,063,232 2,090,961
11-01-25 6.50 5,802,498 5,584,904
10-01-29 7.00 38,798,163 37,840,236
Federal Natl Mtge Assn
02-13-04 5.13 11,625,000 11,044,122
05-14-04 5.63 60,000,000 57,748,981
01-01-09 5.50 15,034,472 14,327,237
06-15-09 6.38 20,000,000 19,299,800
06-01-10 6.50 4,817,698 4,740,519
08-01-11 8.50 3,102,674 3,175,440
04-01-13 6.00 12,992,580 12,446,954
05-01-13 6.00 9,346,998 8,944,934
09-01-13 6.00 3,851,918 3,686,226
04-01-14 5.50 26,019,406 24,371,172
11-01-14 7.00 11,399,705 11,280,235
12-01-14 7.00 6,803,354 6,732,055
03-01-15 7.00 5,899,099 5,837,276
05-01-15 6.00 24,406,039 23,340,533
06-01-15 7.00 9,626,949 9,578,151
04-01-22 8.00 1,779,997 1,804,472
04-01-23 8.50 2,153,434 2,203,969
05-01-23 6.50 1,582,360 1,525,490
05-01-24 6.00 4,443,937 4,191,166
06-01-24 9.00 1,213,523 1,256,406
02-01-25 8.50 901,890 922,462
05-01-25 8.50 1,010,464 1,032,573
09-01-25 6.50 3,579,022 3,443,699
11-01-25 7.50 3,530,659 3,522,927
02-01-26 7.00 5,081,178 4,977,979
07-01-26 7.50 3,323,876 3,312,442
02-01-27 7.50 3,665,570 3,651,824
03-01-28 6.00 12,929,037 12,052,319
04-01-28 6.00 16,844,287 15,666,247
10-01-28 6.00 17,242,552 16,024,883
10-01-28 7.00 17,158,562 16,743,120
11-01-28 6.00 24,820,122 23,067,325
03-01-29 6.50 32,092,225 30,676,792
05-01-29 6.50 18,893,981 18,043,752
07-01-29 6.50 50,000,000(n) 47,734,375
08-01-29 6.50 19,227,418 18,362,184
08-01-29 7.50 4,949,725 4,920,431
10-01-29 7.50 9,911,788 9,853,127
11-01-29 6.50 19,535,014 18,668,199
12-01-29 7.00 6,951,822 6,780,175
01-01-30 7.00 17,711,289 17,273,982
02-01-30 7.50 34,431,753 34,201,318
03-01-30 7.50 24,713,000 24,551,353
06-01-30 7.50 24,959,206 24,795,948
09-01-30 7.00 25,000,000 24,297,001
Collateralized Mtge Obligation
Trust Series Z
02-25-24 6.00 8,853,277(q) 7,580,796
Govt Natl Mtge Assn
12-01-08 7.00 8,327,079 8,324,498
05-15-24 7.00 14,639,055 14,391,947
Merrill Lynch Mtge Investors
06-15-21 7.77 752,318(g) 707,649
Series 1996-C2 Cl D
12-21-28 6.96 7,500,000 7,032,225
Total 743,758,982
Aerospace & defense (0.3%)
BE Aerospace
Sr Sub Nts Series B
02-01-06 9.88 2,500,000 2,468,750
Compass Aerospace
Company Guaranty Series B
04-15-05 10.13 1,210,000 178,475
Fairchild
Company Guaranty
04-15-09 10.75 1,300,000 1,027,000
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 2,690,000 2,743,800
Northrop-Grumman
03-01-06 7.00 3,750,000 3,617,550
Roller Bearing
Company Guaranty Series B
06-15-07 9.63 1,600,000 1,464,000
Sequa
Sr Nts
08-01-09 9.00 1,600,000 1,596,000
Transdigm
Company Guaranty
12-01-08 10.38 1,000,000(d) 900,000
Total 13,995,575
Airlines (0.2%)
Continental Airlines
Series 1974B
01-02-17 6.90 4,898,005 4,546,083
Series 1996A
10-15-13 6.94 4,524,819 4,242,651
Total 8,788,734
Automotive & related (0.4%)
Aftermarket Technology
Sr Sub Nts Series D
08-01-04 12.00 1,125,000 1,110,938
Daimler Chrysler
05-27-03 7.75 4,000,000 4,046,912
Delco Remy Intl
Company Guaranty
08-01-06 10.63 1,000,000 995,000
Sr Nts
12-15-07 8.63 500,000 462,500
Ford Motor Credit
10-28-09 7.38 5,000,000 4,849,100
06-15-10 7.88 2,000,000 2,004,180
French (JL) Auto Casting
Company Guaranty Series B
06-01-09 11.50 1,000,000 835,000
Hayes Lemmerz Intl
Company Guaranty
07-15-06 11.00 1,350,000 1,346,625
Lear
Sub Nts
07-15-06 9.50 1,700,000 1,708,500
Oxford Automotive
Company Guaranty Series D
06-15-07 10.13 960,000 873,600
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 650,000 520,000
Total 18,752,355
Banks and savings & loans (1.5%)
Bank of America
05-16-05 7.88 7,000,000 7,191,016
Capital One Bank
05-15-08 6.70 5,300,000 4,835,932
Sr Nts
06-15-05 8.25 7,000,000 7,067,130
Corp Andina de Fomento
(U.S. Dollar)
02-01-03 7.10 5,200,000(c) 5,108,688
Cullen/Frost Capital
Series A
02-01-27 8.42 3,200,000 2,854,560
Deutsche Telekom Intl Finance
(U.S. Dollar)
06-15-10 8.00 12,250,000(c) 12,396,632
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 5,000,000(g) 4,307,750
Provident Trust
Company Guaranty
04-15-28 8.29 5,500,000 4,628,773
Union Planters Bank
Sub Nts
03-15-08 6.50 10,000,000 8,837,450
Union Planters Capital
Company Guaranty
12-15-26 8.20 2,600,000 2,109,458
Wachovia
Sr Nts
07-15-05 7.45 4,000,000 4,034,880
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 2,900,000 2,613,306
Sr Nts
06-15-05 8.25 4,500,000 4,603,455
Wells Fargo
Sr Medium-term Nts Series G
09-15-02 6.38 5,800,000 5,715,204
Total 76,304,234
Building materials & construction (0.2%)
Foster Wheeler
11-15-05 6.75 5,375,000 4,551,319
Nortek
Sr Sub Nts
03-01-04 9.88 1,500,000(j) 1,455,000
Pulte
Company Guaranty
04-01-03 9.50 5,000,000 5,040,740
Total 11,047,059
Chemicals (0.4%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 1,850,000 1,667,313
08-01-09 10.00 2,900,000(j) 2,588,250
Dow Chemical
11-01-29 7.38 2,200,000 2,145,770
Lyondell Chemical
Series A
05-01-07 9.63 1,100,000 1,117,875
Rohm & Haas
07-15-29 7.85 6,000,000 6,055,086
Sovereign Specialty Chemical
03-15-10 11.88 1,600,000(d) 1,640,000
Waste Management
Sr Nts
10-01-07 7.13 4,500,000 4,212,180
Total 19,426,474
Communications equipment & services (0.7%)
360networks
(U.S. Dollar) Sr Nts
05-01-08 13.00 500,000(c,d,j) 482,500
Aether Systems
Cv
03-22-05 6.00 1,190,000 1,035,300
Aspect Communications
Zero Coupon Cv Sub Deb
08-10-18 6.00 1,880,000(e) 569,057
Celcaribe
Sr Nts
03-15-04 13.50 1,450,000 1,174,500
DLJ Secured Loan Trust
Sr Secured Ctfs
07-07-07 10.13 2,500,000(d) 2,608,500
07-09-07 11.00 500,000(d) 500,000
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 2,750,000 2,805,000
Equinix
Sr Nts
12-01-07 13.00 1,345,000 1,076,000
FLAG
Sr Nts
01-30-08 8.25 2,525,000 2,297,750
GT Group Telecom
(U.S. Dollar) Zero Coupon
02-01-05 13.25 750,000(c,d,f )386,250
IPCS
Zero Coupon
07-15-05 14.00 735(d,f) 437,325
KMC Telecom Holdings
Sr Nts
05-15-09 13.50 250,000 200,000
Zero Coupon Sr Disc Nts
02-15-03 12.68 1,875,000(f) 712,500
KPNQwest
(U.S. Dollar) Sr Nts
06-01-09 8.13 3,000,000(c) 2,760,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 1,000,000 880,000
NTL
Cv Sub Nts
12-15-09 5.75 980,000(d) 654,944
Sr Nts Series B
10-01-08 11.50 1,000,000 1,020,000
Zero Coupon Sr Nts Series B
04-01-03 9.78 3,825,000(f) 2,448,000
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 3,450,000 3,484,500
Rhythms NetConnections
Sr Nts
02-15-10 14.00 900,000 585,000
Rural Cellular
Sr Sub Nts Series B
05-15-08 9.63 1,750,000 1,675,625
Spectrasite Holdings
Zero Coupon Sr Disc Nts
04-15-04 11.25 2,000,000(f) 1,220,000
Versatel Telecom
(European Monetary Unit)
03-30-05 4.00 1,241,000(c,d) 926,159
(U.S. Dollar) Sr Nts
05-15-08 13.25 700,000(c) 658,000
Vialog
Company Guaranty
11-15-01 12.75 5,000,000 4,200,001
Voicestream Wireless
Sr Nts
11-15-09 10.38 1,149,180 1,241,114
Total 36,038,025
Computers & office equipment (0.3%)
Affiliated Computer Services
Cv
03-15-05 4.00 1,000,000 1,218,100
Akamai Technologies
Cv
07-01-07 5.50 450,000(d) 390,843
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 1,770,000 708,000
Exodus Communications
Sr Nts
07-15-10 11.63 700,000(d) 710,500
Globix
Sr Nts
02-01-10 12.50 2,000,000 1,520,000
Hewlett-Packard
Zero Coupon Sub Nts
10-14-17 3.13 1,555,000(e) 1,431,269
Hyperion Solutions
Cv
03-15-05 4.50 1,234,000 1,077,405
Juniper Networks
03-15-07 4.75 1,950,000 2,785,145
Mercury Interactive
Cv
07-01-07 4.75 1,330,000(d) 1,670,241
PSINet
Sr Nts
11-01-08 11.50 1,125,000 984,375
Sanmina
Cv
05-01-04 4.25 340,000 875,269
Solectron
Zero Coupon Cv
05-08-20 2.75 2,700,000(e) 1,786,131
Veritas Software
Cv
08-13-06 1.86 150,000 508,688
Total 15,665,966
Electronics (0.2%)
Celestica
(U.S. Dollar) Zero Coupon Cv
08-01-20 6.23 1,570,000(c,e) 836,025
Conexant Systems
Cv
02-01-07 4.00 1,950,000 1,425,937
Cv Sub Nts
02-01-07 4.00 535,000(d) 386,821
LSI Logic
Cv
02-15-05 4.00 1,270,000 1,100,138
SCI Systems
03-15-07 3.00 1,950,000 2,480,555
Semtech
Cv
02-01-07 4.50 570,000(d) 862,416
Vitesse Semiconductor
Cv
03-15-05 4.00 780,000(d) 800,842
Total 7,892,734
Energy (0.6%)
AES Drax Energy
08-30-10 11.50 845,000(d) 883,025
Devon Energy
Cv Deb
08-15-08 4.90 928,000 881,600
Honam Oil Refinery
(U.S. Dollar)
10-15-05 7.13 5,750,000(c,d) 5,461,868
Lodestar Holdings
Company Guaranty
05-15-05 11.50 3,000,000 450,000
Phillips Petroleum
05-25-05 8.50 4,000,000 4,186,632
05-25-10 8.75 5,000,000 5,392,680
Roil
(U.S. Dollar)
12-05-02 12.78 2,196,400(c,d) 2,103,053
USX
03-01-08 6.85 12,000,000 11,566,920
Total 30,925,778
Energy equipment & services (0.1%)
Global Marine
09-01-07 7.13 4,500,000 4,366,530
Financial services (0.9%)
Associates Corp of North America
Sr Nts
10-15-02 6.38 10,000,000 9,826,000
Countrywide Home Loan
Company Guaranty
06-15-04 6.85 8,000,000 7,765,840
Duke Capital
Sr Nts
10-01-09 7.50 4,500,000 4,464,360
Heller Financial
05-15-03 7.88 5,000,000 5,050,825
Indah Kiat Finance Mauritius
(U.S. Dollar) Company Guaranty
07-01-07 10.00 535,000(c) 310,300
LaBranche
Sr Sub Nts
03-01-07 12.00 1,250,000 1,312,500
Morgan Stanley, Dean
Witter, Discover & Co
06-15-05 7.75 7,000,000 7,150,241
Providian Financial
Cv
08-15-05 3.25 1,230,000 1,305,079
Standard Credit Card Trust
Series A
10-07-04 5.95 3,000,000 2,919,390
Travelers Group
Sr Nts
01-15-06 6.75 4,000,000 3,883,640
Wilmington Trust
05-01-08 6.63 3,200,000 2,936,768
Total 46,924,943
Food (0.2%)
Aurora Foods
Sr Sub Nts Series B
02-15-07 9.88 1,345,000 1,049,100
Earthgrains
08-01-03 8.38 7,000,000 7,012,040
RAB Enterprises
Company Guaranty
05-01-05 10.50 855,000 607,050
Total 8,668,190
Health care (0.1%)
Inhale Therapeutic Systems
Cv Sub Nts
02-08-07 5.00 961,000(d) 1,370,626
Roche Holdings
Zero Coupon Cv
01-19-15 1.47 2,000,000(d,e) 1,911,840
Watson Pharmaceuticals
Sr Nts
05-15-08 7.13 2,550,000 2,353,829
Total 5,636,295
Health care services (0.2%)
Fountain View
Company Guaranty Series B
04-15-08 11.25 2,150,000 322,500
HCA- The Healthcare
09-01-10 8.75 1,030,000 1,027,384
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 220,000 126,500
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 2,000,000(b) 620,000
Sunrise Assisted Living
Cv Sub Nts
06-15-02 5.50 1,946,000 1,712,480
Tenet Healthcare
Sr Nts
12-01-03 8.63 2,500,000 2,499,999
09-01-10 9.25 1,575,000(d) 1,634,063
Sr Sub Nts Series B
12-01-08 8.13 800,000 760,000
Total 8,702,926
Industrial equipment & services (0.1%)
Motor & Gears
Sr Nts Series D
11-15-06 10.75 1,500,000 1,458,750
Terex
Company Guaranty Series D
04-01-08 8.88 1,425,000 1,339,500
Total 2,798,250
Insurance (0.8%)
American General Institute Capital
Company Guaranty Series A
12-01-45 7.57 10,000,000(d) 9,124,590
Americo Life
Sr Sub Nts
06-01-05 9.25 1,600,000 1,496,000
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 3,000,000 2,906,214
Nationwide CSN Trust
02-15-25 9.88 9,000,000(d) 9,374,571
New England Mutual
02-15-24 7.88 2,000,000(d) 1,955,160
Principal Mutual
03-01-44 8.00 2,500,000(d) 2,183,898
SAFECO Capital Trust
Company Guaranty
07-15-37 8.07 5,000,000 4,332,390
SunAmerica
08-30-05 7.34 5,000,000 5,043,850
Zurich Capital Trust
(U.S. Dollar) Company Guaranty
06-01-37 8.38 3,750,000(c,d) 3,653,895
Total 40,070,568
Leisure time & entertainment (0.4%)
Argosy Gaming
Company Guaranty
06-01-09 10.75 1,875,000 1,975,781
Cinemark USA
Sr Sub Nts Series B
08-01-08 9.63 2,710,000 975,600
Coast Hotels & Casino
Company Guaranty
04-01-09 9.50 2,000,000 1,970,000
Horseshoe Gaming Holdings
Company Guaranty
05-15-09 8.63 2,500,000 2,437,500
Pinnacle Entertainment
Company Guaranty Series B
02-15-07 9.25 1,875,000 1,921,875
Premier Parks
Sr Nts
04-01-06 9.25 1,250,000 1,168,750
Riviera Holdings
Company Guaranty
08-15-04 10.00 1,150,000 1,058,000
Station Casinos
Sr Sub Nts
04-15-07 9.75 2,000,000 1,980,000
Time Warner
02-01-24 7.57 2,900,000 2,772,168
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 1,025,000 691,875
United Artists Theatres
Series 1995A
07-01-15 9.30 1,820,983 1,099,910
Viacom
Company Guaranty
07-30-10 7.70 3,200,000 3,243,553
Total 21,295,012
Media (1.1%)
Charter Communications Holdings/Charter Capital
Sr Nts
01-15-10 10.25 1,500,000 1,492,500
Comcast Cable Communications
11-15-08 6.20 6,100,000 5,630,361
Cox Communications
11-15-15 7.25 5,000,000 4,783,400
06-15-25 7.63 5,000,000 4,764,850
Cv
04-19-20 .43 2,045,000 964,667
Cox Enterprises
06-15-09 7.38 10,000,000(d) 9,657,400
CSC Holdings
Sr Sub Nts
11-01-05 9.25 2,000,000 2,020,000
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 2,350,000 2,585,000
Lamar Media
Company Guaranty
12-01-06 9.63 2,180,000 2,229,050
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,350,000(c) 1,296,000
Outdoor Systems
Company Guaranty
10-15-06 9.38 2,500,000 2,612,300
Paxson Communications
Sr Sub Nts
10-01-02 11.63 2,000,000 2,047,500
Price Communications Wireless
Sr Sub Nts
07-15-07 11.75 1,500,000 1,616,250
Radio Unica
Zero Coupon Company Guaranty
08-01-02 11.75 1,950,000(f) 1,345,500
Telemundo Holdings
Zero Coupon Sr Disc Nts Series B
08-15-03 11.50 1,965,000(f) 1,365,675
TeleWest Communications
(U.S. Dollar) Cv
07-07-05 6.00 952,000(c,d) 811,580
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 9.25 1,600,000(c,f) 888,000
Time Warner Entertainment
Sr Nts
07-15-33 8.38 10,000,000 10,350,500
Total 56,460,533
Metals (0.1%)
EnviroSource
Sr Nts Series B
06-15-03 9.75 1,500,000 465,000
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 1,976,109(c,d) 1,916,826
Ormet
Company Guaranty
08-15-08 11.00 1,235,000(d) 1,123,850
Pen Holdings
Company Guaranty Series B
06-15-08 9.88 2,515,000 1,936,550
U.S. Can
Company Guaranty
10-15-06 10.13 2,000,000 2,160,000
Total 7,602,226
Miscellaneous (0.8%)
Actuant
Company Guaranty
05-01-09 13.00 1,135,000(d) 1,157,700
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 3,460,000 3,563,800
Argo-Tech
Company Guaranty
10-01-07 8.63 1,150,000 920,000
Bistro Trust
12-31-02 9.50 12,000,000(d) 11,412,000
Continucare
Cv Sr Sub Nts
10-31-02 8.00 243,902(b,d) 48,476
Delphes 2
(U.S. Dollar)
05-05-09 7.75 3,000,000(c,d) 2,923,140
Falcon Products
Company Guaranty Series B
06-15-09 11.38 2,000,000 1,900,000
ISG Resources
04-15-08 10.00 2,760,000 2,346,000
Jasmine Submarine Telecom
(U.S. Dollar) Sr Nts
05-30-11 8.48 806,323(c,d) 748,880
Nationwide Credit
Sr Nts Series A
01-15-08 10.25 2,500,000 1,662,500
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 3.24 4,664,000(e) 1,825,396
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 2,000,000 2,085,000
NSM Steel
Company Guaranty
02-01-06 12.00 1,522,095(b,d) 60,884
Omega Cabinets
Sr Sub Nts
06-15-07 10.50 1,980,000 1,821,600
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,125,000 956,250
PSA
08-01-05 7.13 7,000,000(d) 7,028,161
SC Intl
09-01-07 9.25 1,950,000 1,891,500
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 1,350,000(b) 189,000
Vesta Capital
01-15-27 8.52 5,000,000(d) 1,837,755
Total 44,378,042
Multi-industry conglomerates (0.5%)
CBS
06-01-01 8.88 9,750,000 9,838,140
Goodrich (BF)
Company Guaranty
04-15-08 7.50 5,000,000 4,834,450
Interim Services
Cv Sub Nts
06-01-05 4.50 1,244,000 873,798
Jordan Inds
Sr Nts Series D
08-01-07 10.38 4,080,000 3,814,800
Prime Succession
Sr Sub Nts
08-15-04 10.75 980,000(b) 147,000
US Inds/USI America Holding
Company Guaranty
10-15-03 7.13 5,000,000 4,922,750
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,350,000 3,211,159
Total 27,642,097
Paper & packaging (0.5%)
Abitibi-Consolidated
(U.S. Dollar)
08-01-05 8.30 8,000,000(c) 8,135,920
Ball
Company Guaranty
08-01-08 8.25 1,750,000 1,680,000
Crown Paper
Sr Sub Nts
09-01-05 11.00 1,000,000(b) 270,000
Gaylord Container
Sr Nts
06-15-07 9.75 1,250,000 1,000,000
Intl Paper
07-08-05 8.13 6,000,000(d) 6,136,620
Packaging Corp of America
Company Guaranty
04-01-09 9.63 2,495,000 2,557,375
Quno
(U.S. Dollar) Sr Nts
05-15-05 9.13 2,500,000(c) 2,566,715
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 2,200,000(c) 2,222,000
Silgan Holdings
06-01-09 9.00 2,650,000 2,411,500
Total 26,980,130
Restaurants & lodging (0.2%)
MGM Grand
Sr Sub Nts
06-01-07 9.75 3,000,000 3,142,500
MGM Mirage
02-06-08 6.88 7,380,000 6,783,622
Total 9,926,122
Retail (0.2%)
Eye Care Centers of America
Company Guaranty
05-01-08 9.13 500,000 185,000
Flooring America
Company Guaranty
10-15-07 9.25 1,849,000 1,090,910
Kroger
Company Guaranty
03-01-08 7.45 6,075,000 5,876,530
Target
08-15-10 7.50 2,500,000 2,514,383
Wal-Mart CRAVE Trust
07-17-06 7.00 3,422,458(d) 3,347,369
Total 13,014,192
Textiles & apparel (--%)
Galey & Lord
Company Guaranty
03-01-08 9.13 1,750,000 910,000
Transportation (0.1%)
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 5,120,000(b,c) 1,638,400
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 3,300,000(c) 2,112,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 5,000,000(b,c,d)1,000,000
Total 4,750,400
Utilities -- electric (0.7%)
Alabama Power
1st Mtge
12-01-24 9.00 2,038,080 2,126,686
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 1,800,000 1,747,656
Cleveland Electric Illuminating
1st Mtge Series B
05-15-05 9.50 9,000,000 9,118,889
Connecticut Light & Power
1st Mtge Series C
06-01-02 7.75 5,000,000 5,035,350
Jersey Central Power & Light
1st Mtge
11-01-25 6.75 7,200,000 6,345,007
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-1 6 6.75 2,600,000(h) 2,349,854
Salton Sea Funding
Series C
05-30-10 7.84 1,325,000 1,339,284
Sithe Independence Funding
Series A
12-30-13 9.00 1,500,000 1,522,350
Texas Utilities Electric
08-01-07 7.17 5,000,000 4,912,100
Western Massachusetts Electric
1st Mtge Series B
07-01-01 7.38 2,750,000 2,739,138
Total 37,236,314
Utilities -- gas (0.4%)
Columbia Energy Group
Series E
11-28-10 7.32 7,000,000 6,587,350
El Paso Energy
Sr Nts
05-15-09 6.75 1,900,000 1,801,922
Sr Nts Series B
07-15-01 6.63 8,675,000 8,593,195
Enron
06-15-03 7.88 3,000,000 3,052,770
Total 20,035,237
Utilities -- telephone (1.3%)
360 Communications
04-01-09 7.60 3,000,000 2,937,360
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 11.94 950,000(f) 679,250
AT&T Canada
(U.S. Dollar) Sr Nts
11-01-08 10.63 1,200,000(c) 1,321,404
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 2,300,000(c,f) 1,903,572
COLT Telecom Group
(European Monetary Unit) Cv
04-03-07 2.00 2,290,000(c,d) 1,715,363
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 1,655,000(b) 2,069
Global Crossing Holdings
(U.S. Dollar) Sr Nts
11-15-09 9.50 625,000(c) 626,563
Hyperion Telecommunications
Sr Nts Series B
09-01-04 12.25 1,500,000 1,440,000
Intermedia Communications
Sr Nts Series B
06-01-08 8.60 1,900,000 1,558,000
Zero Coupon Sr Disc Nts
Series B
07-15-02 11.25 2,695,000(f) 1,832,600
Level 3 Communications
Cv
03-15-10 6.00 970,000 872,631
McLeod USA
Sr Nts
02-15-09 8.13 1,000,000 895,000
Nextel Communications
Cv
11-15-09 9.38 2,500,000 2,450,000
Cv Sr Nts
01-15-10 5.25 970,000(d) 948,253
Primus Telecomm Group
Cv
02-15-07 5.75 3,115,000(d) 1,614,566
Sr Nts
08-01-04 11.75 2,300,000 1,495,000
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.50 6,950,000 6,883,628
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 3,000,000(c) 1,050,000
Sprint Capital
Company Guaranty
05-01-09 6.38 5,000,000 4,544,950
TeleCorp PCS
Sr Sub Nts
07-15-10 10.63 1,060,000(d) 1,102,400
U S WEST Capital Funding
Company Guaranty
08-15-01 6.88 10,000,000 9,964,099
U S WEST Communications
11-10-26 7.20 5,000,000 4,397,150
United Pan-Europe Communications
(U.S. Dollar) Sr Nts Series B
02-01-10 11.25 925,000(c) 808,219
02-01-10 11.50 1,300,000(c) 1,137,500
Vodafone AirTouch
(U.S. Dollar)
02-15-10 7.75 5,000,000(c,d) 5,022,400
Company Guaranty
05-01-08 6.65 10,000,000 9,384,999
Williams Communications Group
Sr Nts
08-01-10 11.88 500,000(d) 500,000
Total 67,086,976
Total bonds
(Cost: $1,802,367,084) $1,751,233,980
Short-term securities (3.4%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (2.0%)
Federal Home Loan Bank Disc Nts
10-06-00 6.46 38,900,000 38,634,035
10-13-00 6.46 30,200,000 29,968,774
Federal Home Loan Mtge Corp Disc Nts
09-12-00 6.43 1,800,000 1,796,148
10-24-00 6.50 7,000,000 6,932,380
Federal Natl Mtge Assn Disc Nts
09-21-00 6.43 25,200,000 25,101,088
09-28-00 6.44 800,000 795,820
Total 103,228,245
Commercial paper (1.4%)
Alcoa
09-22-00 6.50 2,600,000 2,589,720
11-16-00 6.57 8,100,000 7,986,001
AT&T
09-06-00 6.50 18,000,000 17,980,530
Delaware Funding
09-25-00 6.55 4,400,000(l) 4,379,894
Gillette
10-12-00 6.53 9,500,000(l) 9,428,180
10-17-00 6.55 6,600,000(l) 6,544,077
May Department Stores
10-11-00 6.56 3,400,000 3,374,443
Morgan Stanley, Dean
Witter, Discover & Co
09-18-00 6.52 1,700,000 1,694,381
Nestle Capital
09-01-00 6.40 900,000 899,840
Pfizer
09-15-00 6.47 8,700,000 8,676,618
Preferred Receivables
10-06-00 6.54 1,600,000(l) 1,589,600
Reed Elsevier
09-18-00 6.53 6,900,000(l) 6,877,540
Total 72,020,824
Total short-term securities
(Cost: $175,304,239) $175,249,069
Total investments in securities
(Cost: $3,781,283,397)(r) $5,342,800,244
Notes to investments in securities
(a)Securities are valued by procedures described in Note 1 to the financial
statements.
(b)Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c)Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of
Aug. 31, 2000, the value of foreign securities represented 8.93% 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)For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(f)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.
(g)Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 2000.
(h)The following abbreviation is used in portfolio descriptions to identify the
insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
(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)Security is partially or fully on loan. See Note 5 to the financial
statements.
(k)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.
(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.
<PAGE>
<TABLE>
<CAPTION>
(m)At Aug. 31, 2000, securities valued at $203,469,375 were held to cover open
call options written as follows:
Issuer Contracts Exercise Expiration Value(a)
price date
<S> <C> <C> <C> <C>
American Intl Group 300 $90 Nov. 2000 $142,500
American Intl Group 300 95 Nov. 2000 80,625
Cendant 3,500 15 Nov. 2000 262,500
Cisco Systems 500 70 Oct. 2000 181,250
Citigroup 500 56 Sept. 2000 189,109
Donaldson, Lufkin & Jenrette - DLJ 500 70 Oct. 2000 956,250
Elan ADR 2,200 55 Sept. 2000 907,500
Elan ADR 500 60 Oct. 2000 178,125
Illinois Tool Works 1,200 60 Sept. 2000 30,000
Merrill Lynch 200 140 Oct. 2000 237,500
Microsoft 750 70 Oct. 2000 305,496
Nokia ADR Cl A 250 45 Sept. 2000 39,062
Qwest Communications Intl 500 50 Sept. 2000 143,750
Qwest Communications Intl 500 55 Oct. 2000 134,375
Southwest Airlines 1,000 25 Sept. 2000 15,626
Texas Instruments 500 70 Sept. 2000 76,562
Texas Instruments 500 75 Sept. 2000 23,438
Texas Instruments 500 70 Oct. 2000 215,625
Texas Instruments 500 75 Oct. 2000 134,375
USA Networks 1,000 25 Oct. 2000 137,500
WorldCom 1,000 40 Sept. 2000 28,125
WorldCom 1,000 45 Dec. 2000 125,000
Total $4,544,293
</TABLE>
<PAGE>
(n)At Aug. 31, 2000, the cost of securities purchased, including interest
purchased, on a when-issued basis was $47,945,486.
(o)Negligible market value.
(p)PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are
structured as convertible preferred securities. Investors receive
an enhanced yield but based upon a specific formula, potential appreciation
is limited. PRIDES pay dividends, have voting rights, are noncallable for
three years and upon maturity, convert into shares of common stock.
(q)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.
(r)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$3,786,500,633 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $1,739,036,533
Unrealized depreciation (182,736,922)
------------
Net unrealized appreciation $1,556,299,611
<PAGE>
Investments in Securities
AXP VP - New Dimensions Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (95.9%)
Issuer Shares Value(a)
Aerospace & defense (0.3%)
United Technologies 236,000 $14,735,250
Airlines (0.9%)
Southwest Airlines 2,139,350 48,402,794
Banks and savings & loans (2.6%)
State Street 479,700 56,484,675
Wells Fargo 2,054,500 88,728,719
Total 145,213,394
Beverages & tobacco (0.4%)
Anheuser-Busch 86,100 6,785,756
Coca-Cola 344,000 18,103,000
Total 24,888,756
Chemicals (0.2%)
Air Products & Chemicals 283,600 10,298,225
Communications equipment & services (10.6%)
Corning 515,800 169,150,163
JDS Uniphase 1,375,500(b) 171,421,687
Lucent Technologies 1,118,000 46,746,375
Motorola 1,671,900 60,292,894
Nokia ADR Cl A 1,113,600(c) 50,042,400
Nortel Networks 1,145,900(c) 93,462,469
Total 591,115,988
Computer software & services (3.6%)
Microsoft 1,719,900(b) 120,070,519
Oracle 889,900(b) 80,925,281
Total 200,995,800
Computers & office equipment (17.8%)
America Online 1,116,300(b) 65,443,088
Automatic Data Processing 1,111,600 66,279,150
Cisco Systems 3,385,600(b) 231,913,599
Dell Computer 856,600(b) 37,369,175
EMC 1,862,000(b) 182,476,000
Hewlett-Packard 513,200 61,968,900
Intl Business Machines 855,100 112,873,200
Sanmina 154,200(b) 18,195,600
Solectron 2,476,400(b) 112,211,875
Sun Microsystems 343,900(b) 43,653,806
Veritas Software 256,800(b) 30,960,450
Yahoo! 240,700(b) 29,245,050
Total 992,589,893
Electronics (8.6%)
Applied Materials 687,600(b) 59,348,475
Applied Micro Circuits 22,400(b) 4,545,800
Broadcom Cl A 54,700(b) 13,675,000
Intel 2,407,200 180,239,099
Maxim Integrated Products 393,400(b) 34,496,263
PMC-Sierra 71,800(b) 16,944,800
Teradyne 361,500(b) 23,429,719
Texas Instruments 2,204,800 147,583,800
Total 480,262,956
Energy (4.5%)
Chevron 803,800 67,921,100
Exxon Mobil 2,223,898 181,525,674
Total 249,446,774
Energy equipment & services (1.0%)
Halliburton 1,095,500 58,061,500
Financial services (7.5%)
Citigroup 3,420,833 199,691,146
MBNA 1,718,650 60,689,828
Morgan Stanley, Dean
Witter, Discover & Co 1,452,180 156,196,535
Total 416,577,509
Health care (6.3%)
ALZA 393,300(b) 29,743,313
Amgen 393,300(b) 29,817,056
Bristol-Myers Squibb 1,410,300 74,745,900
Guidant 222,500(b) 14,977,031
Medtronic 1,238,500 63,473,125
Pfizer 2,530,950 109,463,587
Schering-Plough 667,900 26,799,488
Total 349,019,500
Health care services (1.4%)
Cardinal Health 922,550 75,476,122
Household products (1.1%)
Colgate-Palmolive 957,800 48,787,938
Kimberly-Clark 223,000 13,045,500
Total 61,833,438
Industrial equipment & services (0.5%)
Illinois Tool Works 481,600 26,999,700
Insurance (1.9%)
American Intl Group 1,197,960 106,768,185
Leisure time & entertainment (3.6%)
Time Warner 732,400 62,620,200
Viacom Cl B 2,054,217(b) 138,274,482
Total 200,894,682
Media (1.1%)
Comcast Special Cl A 205,500(b) 7,654,875
Gannett 861,786 48,798,632
Sony ADR 52,700 5,869,681
Total 62,323,188
Metals (0.3%)
Alcoa 420,000 13,965,000
Miscellaneous (0.6%)
Stilwell Financial 721,200(b) 34,888,050
Multi-industry conglomerates (6.5%)
General Electric 3,728,000 218,787,000
Minnesota Mining & Mfg 650,500 60,496,500
Tyco Intl 1,478,344(c) 84,265,608
Total 363,549,108
Restaurants & lodging (0.7%)
Marriott Intl Cl A 962,700 38,026,650
Retail (7.3%)
Best Buy 187,700(b) 11,590,475
Costco Wholesale 1,582,500(b) 54,497,344
Home Depot 1,087,450 52,265,566
Safeway 2,396,000(b) 118,152,750
Target 1,795,400 41,743,050
Wal-Mart Stores 2,745,900 130,258,631
Total 408,507,816
Utilities -- electric (0.3%)
Calpine 151,100(b) 14,958,900
Utilities -- gas (3.6%)
El Paso Energy 1,539,500 89,675,875
Enron 1,300,000 110,337,500
Total 200,013,375
Utilities -- telephone (2.6%)
AT&T - Liberty Media Group
Cl A 1,370,400(b) 29,292,300
Level 3 Communications 171,300(b) 14,943,248
Qwest Communications Intl 879,186(b) 45,387,977
WorldCom 1,515,700(b) 55,323,051
Total 144,946,576
Total common stocks
(Cost: $3,399,631,607) $5,334,759,129
Short-term securities (4.4%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (2.1%)
Federal Home Loan Bank Disc Nt
09-13-00 6.41% $21,500,000 $21,448,603
Federal Home Loan Mtge Corp Disc Nt
10-03-00 6.43 47,800,000 47,520,011
Federal Natl Mtge Assn Disc Nts
09-20-00 6.41 41,500,000 41,347,370
10-26-00 6.51 4,600,000 4,552,072
Total 114,868,056
Commercial paper (2.3%)
Alcoa
10-16-00 6.53 3,000,000 2,975,160
Barton Capital
10-03-00 6.55 5,300,000(d) 5,268,372
Bell Atlantic Finance Services
09-05-00 6.56 8,700,000 8,691,964
Commerzbank U.S. Finance
09-27-00 6.53 2,400,000 2,388,102
Duke Energy
09-14-00 6.52 18,700,000 18,651,067
Gannett
09-08-00 6.50 8,500,000(d) 8,487,741
09-26-00 6.53 13,000,000(d) 12,937,939
Gillette
10-13-00 6.52 9,200,000(d) 9,125,095
GMAC
10-05-00 6.55 1,900,000 1,887,571
Household Finance
09-01-00 6.65 1,900,000 1,899,649
Pfizer
09-28-00 6.50 18,600,000(d) 18,506,400
Reed Elsevier
09-18-00 6.53 4,800,000(d) 4,784,375
Wal-Mart Stores
09-19-00 6.52 3,200,000(d) 3,188,836
09-26-00 6.53 18,200,000(d) 18,113,115
10-17-00 6.54 8,200,000(d) 8,129,450
Windmill Funding
09-21-00 6.55 3,600,000(d) 3,586,083
Total 128,620,919
Total short-term securities
(Cost: $243,551,988) $243,488,975
Total investments in securities
(Cost: $3,643,183,595)(e) $5,578,248,104
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, 2000, the
value of foreign securities represented 4.09% 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)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$3,643,183,595 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $2,000,761,763
Unrealized depreciation (65,697,254)
-----------
Net unrealized appreciation $1,935,064,509
<PAGE>
Investments in Securities
AXP VP - S&P 500 Index Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (100.0%)
Issuer Shares Value(a)
Aerospace & defense (1.2%)
Boeing 1,426 $76,471
General Dynamics 315 19,825
Goodrich (BF) 159 6,489
Honeywell Intl 1,254 48,358
Lockheed Martin 672 19,068
Northrop Grumman 109 8,482
Raytheon Cl B 533 14,824
Rockwell Intl 295 11,929
United Technologies 740 46,204
Total 251,650
Airlines (0.2%)
AMR 235(b) 7,711
Delta Air Lines 192 9,504
Southwest Airlines 779 17,625
US Airways Group 104(b) 3,536
Total 38,376
Automotive & related (1.0%)
Cooper Tire & Rubber 115 1,387
Cummins Engine 65 2,308
Dana 239 5,900
Delphi Automotive Systems 884 14,531
Eaton 114 7,567
Ford Motor 2,945 71,232
General Motors 841 60,710
Genuine Parts 277 5,696
Goodyear Tire & Rubber 245 5,727
Johnson Controls 134 7,161
Navistar Intl 97(b) 3,638
PACCAR 120 5,093
Snap-On 92 2,835
TRW 193 8,818
Visteon 204 3,200
Total 205,803
Banks and savings & loans (5.1%)
AmSouth Bancorporation 617 11,261
Bank of America 2,604 139,477
Bank of New York 1,159 60,776
Bank One 1,802 63,521
BB&T 615 16,644
Charter One Financial 329 7,814
Chase Manhattan 2,047 114,377
Comerica 245 13,797
Fifth Third Bancorp 730 33,717
First Union 1,541 44,593
Firstar 1,524 36,386
FleetBoston Financial 1,416 60,446
Golden West Financial 248 11,811
Huntington Bancshares 383 6,463
KeyCorp 682 13,768
Mellon Financial 772 34,933
Morgan (JP) 256 42,800
Natl City 952 19,933
Northern Trust 350 29,509
Old Kent Financial 215 6,302
PNC Financial Services Group 457 26,935
Regions Financial 346 7,526
Southtrust 264 7,442
State Street 253 29,791
Summit Bancorp 276 7,642
SunTrust Banks 476 23,503
Synovus Financial 443 8,722
U.S. Bancorp 1,182 25,709
Union Planters 212 6,426
USA Education 246 9,640
Wachovia 318 18,226
Washington Mutual 861 30,135
Wells Fargo 2,531 109,309
Total 1,079,334
Beverages & tobacco (2.4%)
Anheuser-Busch 710 55,957
Brown-Forman Cl B 107 5,671
Coca-Cola 3,889 204,661
Coca-Cola Enterprises 660 12,293
Coors (Adolph) Cl B 57 3,395
Fortune Brands 248 6,324
PepsiCo 2,264 96,504
Philip Morris 3,593 106,444
UST 254 5,493
Total 496,742
Building materials & construction (0.3%)
Armstrong Holdings 63 1,004
Centex 93 2,685
Fluor 119 3,563
Georgia-Pacific Group 267 7,142
Kaufman & Broad Home 75 1,861
Louisiana-Pacific 163 1,722
Masco 704 13,729
Owens-Corning 87 451
Potlatch 45 1,513
Pulte 64 2,108
Sherwin-Williams 257 5,911
Temple-Inland 82 3,480
Vulcan Materials 158 7,001
Weyerhaeuser 365 16,905
Total 69,075
Chemicals (1.0%)
Air Products & Chemicals 360 13,073
Allied Waste Inds 296(b) 2,720
Dow Chemical 1,062 27,812
Du Pont (EI) de Nemours 1,646 73,865
Eastman Chemical 120 5,175
Ecolab 203 7,904
Engelhard 200 3,750
FMC 47(b) 3,187
Grace (WR) 106(b) 841
Great Lakes Chemical 85 2,869
Hercules 168 2,226
Millipore 72 4,383
Pall 194 4,147
PPG Inds 273 11,057
Praxair 247 10,930
Rohm & Haas 341 9,868
Sigma-Aldrich 133 3,870
Union Carbide 211 8,453
Waste Management 975 18,464
Total 214,594
Communications equipment & services (5.8%)
ADC Telecommunications 1,061(b) 43,435
Andrew Corp 126(b) 3,733
Corning 462 151,507
JDS Uniphase 1,464(b) 182,451
Lucent Technologies 5,116 213,915
Motorola 3,381 121,929
Nortel Networks 4,654(c) 379,594
QUALCOMM 1,165(b) 69,754
Scientific-Atlanta 250 19,484
Tellabs 644(b) 36,185
Total 1,221,987
Computer software & services (5.5%)
Adobe Systems 189 24,570
BMC Software 383(b) 10,341
Citrix Systems 290(b) 6,380
Computer Associates Intl 925 29,369
Compuware 566(b) 5,979
Microsoft 8,267(b) 577,140
Novell 517(b) 6,333
Oracle 4,459(b) 405,490
Parametric Technology 433(b) 5,792
PeopleSoft 433(b) 13,964
Siebel Systems 314(b) 61,880
Total 1,147,238
Computers & office equipment (15.0%)
Adaptec 163(b) 3,994
America Online 3,609(b) 211,579
Apple Computer 512(b) 31,200
Autodesk 91 2,559
Automatic Data Processing 986 58,791
Cabletron Systems 286(b) 10,707
Ceridian 227(b) 5,491
Cisco Systems 10,928(b) 748,688
Compaq Computer 2,668 90,880
Computer Sciences 262(b) 20,714
Comverse Technology 240(b) 22,065
Dell Computer 4,045(b) 176,463
Electronic Data Systems 732 36,463
EMC 3,409(b) 334,083
Equifax 221 5,622
First Data 648 30,902
Gateway 506(b) 34,459
Hewlett-Packard 1,572 189,820
Intl Business Machines 2,785 367,621
Lexmark Intl Group Cl A 203(b) 13,766
Mercury Interactive 124(b) 15,151
NCR 149(b) 6,016
Network Appliance 479(b) 56,043
Palm 887(b) 39,028
Pitney Bowes 404 14,771
SABRE Holdings Cl A 202 5,631
Sanmina 233(b) 27,492
Sapient 184(b) 9,660
Seagate Technology 356(b) 21,138
Solectron 937(b) 42,458
Sun Microsystems 2,493(b) 316,455
Unisys 489(b) 6,357
Veritas Software 615(b) 74,146
Yahoo! 854(b) 103,761
Total 3,133,974
Electronics (7.9%)
Advanced Micro Devices 481(b) 18,098
Agilent Technologies 711(b) 42,883
Altera 626(b) 40,573
American Power Conversion 304(b) 7,239
Analog Devices 556(b) 55,878
Applied Materials 1,269(b) 109,531
Broadcom Cl A 339(b) 84,750
Conexant Systems 341(b) 12,681
Intel 10,522 787,835
KLA-Tencor 292(b) 19,163
Linear Technology 489 35,178
LSI Logic 482(b) 17,322
Maxim Integrated Products 445(b) 39,021
Micron Technology 872(b) 71,286
Molex 308 16,266
Natl Semiconductor 277(b) 12,327
Novellus Systems 205(b) 12,620
PerkinElmer 77 6,925
Tektronix 75 5,714
Teradyne 272(b) 17,629
Texas Instruments 2,709 181,335
Thomas & Betts 91 1,706
Xilinx 505(b) 44,882
Total 1,640,842
Energy (4.7%)
Amerada Hess 142 9,718
Anadarko Petroleum 382 25,124
Apache 191 12,033
Ashland 110 3,878
Burlington Resources 338 13,288
Chevron 1,025 86,613
Conoco Cl B 981 25,629
Devon Energy 198 11,595
Exxon Mobil 5,469 446,410
FirstEnergy 362 8,960
Kerr-McGee 147 9,289
Occidental Petroleum 579 12,521
Phillips Petroleum 399 24,688
Royal Dutch Petroleum 3,369(c) 206,142
Sunoco 139 3,779
Texaco 868 44,702
Tosco 227 6,924
Unocal 381 12,716
USX-Marathon Group 489 13,417
Total 977,426
Energy equipment & services (0.7%)
Baker Hughes 518 18,940
Halliburton 698 36,994
McDermott Intl 94 723
Rowan Companies 147(b) 4,557
Schlumberger 894 76,269
Transocean Sedco Forex 330 19,718
Total 157,201
Financial services (6.4%)
American Express 2,099 124,104
Associates First Capital
Cl A 1,145 32,204
Bear Stearns Companies 173 11,602
Capital One Financial 307 18,516
CIT Group Cl A 413 7,228
Citigroup 7,069 412,676
Countrywide Credit Inds 178 6,742
Fannie Mae 1,583 85,087
Franklin Resources 382 14,516
Freddie Mac 1,093 46,043
H&R Block 154 5,525
Household Intl 744 35,712
Lehman Brothers Holdings 190 27,550
MBNA 1,339 47,284
Merrill Lynch 610 88,450
MGIC Investment 166 9,763
Morgan Stanley, Dean
Witter, Discover & Co 1,778 191,247
Paine Webber Group 228 16,302
Paychex 584 26,061
Providian Financial 224 25,746
Schwab (Charles) 2,140 81,722
T.Rowe Price Associates 189 8,552
Total 1,322,632
Food (1.1%)
Archer-Daniels-Midland 993 8,753
Bestfoods 432 30,510
Campbell Soup 663 16,824
ConAgra 837 15,328
General Mills 457 14,681
Heinz (HJ) 554 21,122
Hershey Foods 215 9,178
Kellogg 637 14,771
Nabisco Group Holdings 512 14,368
Quaker Oats 205 13,927
Ralston-Ralston Purina Group 481 10,883
Sara Lee 1,366 25,442
SUPERVALU 206 3,077
Sysco 524 22,172
Wrigley (Wm) Jr 179 13,257
Total 234,293
Furniture & appliances (0.1%)
Black & Decker 133 5,328
Briggs & Stratton 35 1,514
Leggett & Platt 308 5,448
Maytag 123 4,689
Stanley Works 137 3,665
Whirlpool 114 4,332
Total 24,976
Health care (9.9%)
Abbott Laboratories 2,434 106,489
Allergan 203 14,844
ALZA 181(b) 13,688
American Home Products 2,049 111,031
Amgen 1,613(b) 122,286
Bard (CR) 79 3,856
Bausch & Lomb 83 2,967
Baxter Intl 456 37,962
Becton, Dickinson & Co 396 11,930
Biogen 233(b) 16,106
Biomet 278 9,400
Boston Scientific 640(b) 12,120
Bristol-Myers Squibb 3,099 164,248
Guidant 482(b) 32,445
Johnson & Johnson 2,185 200,885
Lilly (Eli) 1,775 129,576
Mallinckrodt 105 4,732
MedImmune 328(b) 27,593
Medtronic 1,881 96,402
Merck & Co 3,613 252,461
PE Corp-PE Biosystems Group 328 32,267
Pfizer 9,888 427,661
Pharmacia 1,994 116,774
Schering-Plough 2,300 92,289
St. Jude Medical 131(b) 5,191
Watson Pharmaceuticals 159(b) 9,808
Total 2,055,011
Health care services (0.7%)
Aetna 221 12,362
Cardinal Health 433 35,426
HCA-The Healthcare 876 30,222
HEALTHSOUTH 605(b) 3,706
Humana 263(b) 2,252
IMS Health 466 8,796
Manor Care 160(b) 2,140
McKesson HBOC 442 11,023
Quintiles Transnational 180(b) 2,509
Tenet Healthcare 491(b) 15,221
UnitedHealth Group 256 24,192
Wellpoint Health Networks 97(b) 8,372
Total 156,221
Household products (1.7%)
Alberto-Culver Cl B 87 2,463
Avon Products 372 14,578
Clorox 368 13,317
Colgate-Palmolive 906 46,150
Gillette 1,640 49,201
Intl Flavors/Fragrances 161 4,146
Kimberly-Clark 873 51,071
Newell Rubbermaid 418 10,842
Procter & Gamble 2,055 127,025
Tupperware 90 1,817
Unilever 898(c) 42,431
Total 363,041
Industrial equipment & services (0.4%)
Caterpillar 547 20,102
Cooper Inds 146 5,156
Deere & Co 367 12,088
Illinois Tool Works 474 26,574
Ingersoll-Rand 254 11,573
Parker-Hannifin 175 6,092
Thermo Electron 271(b) 6,301
Timken 95 1,550
Total 89,436
Insurance (3.1%)
AFLAC 417 22,518
Allstate 1,170 34,004
American General 391 28,470
American Intl Group 3,632 323,705
Aon 401 14,962
Chubb 274 20,978
CIGNA 256 24,896
Cincinnati Financial 252 9,797
Conseco 510 4,303
Hartford Financial
Services Group 338 22,519
Jefferson-Pilot 161 10,656
Lincoln Natl 301 16,254
Loews 154 12,464
Marsh & McLennan 424 50,350
MBIA 154 10,126
Progressive Corp 114 8,643
SAFECO 200 5,263
St. Paul Companies 333 15,859
Torchmark 201 5,641
UnumProvident 377 8,176
Total 649,584
Leisure time & entertainment (2.7%)
Brunswick 138 2,588
Carnival Cl A 949 18,921
Disney (Walt) 3,264 127,093
Harley-Davidson 477 23,761
Harrah's Entertainment 191(b) 5,420
Hasbro 270 3,325
Mattel 668 6,597
Seagram 686(c) 41,289
Time Warner 2,067 176,728
Viacom Cl B 2,396(b) 161,282
Total 567,004
Media (1.3%)
American Greetings Cl A 101 1,881
Clear Channel
Communications 914(b) 66,153
Comcast Special Cl A 1,411(b) 52,560
Deluxe 113 2,486
Donnelley (RR) & Sons 191 4,918
Dow Jones 139 8,696
Dun & Bradstreet 254 8,382
Gannett 419 23,726
Harcourt General 112 6,643
Interpublic Group
of Companies 473 18,092
Knight-Ridder 122 6,664
McGraw-Hill Companies 305 18,891
Meredith 79 2,158
New York Times Cl A 266 10,424
Omnicom Group 280 23,363
Tribune 484 17,273
Young & Rubicam 113 6,611
Total 278,921
Metals (0.5%)
Alcan Aluminium 343(c) 11,255
Alcoa 1,358 45,153
Allegheny Technologies 130 2,828
Avery Dennison 176 9,515
Barrick Gold 621(c) 9,897
Bethlehem Steel 207(b) 725
Freeport-McMoRan
Copper & Gold Cl B 251(b) 2,463
Homestake Mining 409 2,275
Inco 285(b,c) 5,095
Newmont Mining 263 4,882
Nucor 133 4,888
Phelps Dodge 123 5,474
Placer Dome 514(c) 4,562
USX-U.S. Steel Group 138 2,398
Worthington Inds 135 1,409
Total 112,819
Miscellaneous (0.6%)
Convergys 240(b) 9,390
Standard & Poor's
Depositary Receipts 692 104,003
Stilwell Financial 350(b) 16,931
Total 130,324
Multi-industry conglomerates (6.1%)
Cendant 1,132(b) 14,929
Crane 95 2,387
Danaher 222 12,474
Dover 318 15,542
Eastman Kodak 487 30,316
Emerson Electric 671 44,412
General Electric 15,542 912,127
Grainger (WW) 147 4,245
ITT Inds 138 4,640
Minnesota Mining & Mfg 622 57,846
Natl Service Inds 63 1,256
Polaroid 70 1,190
Textron 226 12,670
Tyco Intl 2,652(c) 151,165
Xerox 1,046 16,802
Total 1,282,001
Paper & packaging (0.3%)
Ball 46 1,593
Bemis 83 2,781
Boise Cascade 89 2,659
Crown Cork & Seal 201 2,601
Fort James 323 10,215
Intl Paper 759 24,192
Mead 161 4,317
Owens-Illinois 230(b) 3,004
Pactiv 265(b) 2,915
Sealed Air 131(b) 6,722
Westvaco 157 4,298
Willamette Inds 173 5,277
Total 70,574
Restaurants & lodging (0.5%)
Darden Restaurants 194 3,431
Hilton Hotels 578 5,780
Marriott Intl Cl A 376 14,852
McDonald's 2,100 62,739
Starbucks 288(b) 10,548
Tricorn Global Restaurants 231(b) 6,728
Wendy's Intl 178 3,360
Total 107,438
Retail (4.7%)
Albertson's 665 14,298
AutoZone 210(b) 4,725
Bed Bath & Beyond 440(b) 7,728
Best Buy 322(b) 19,884
Circuit City Stores-
Circuit City Group 319 8,274
Consolidated Stores 174(b) 2,371
Costco Wholesale 702(b) 24,175
CVS 613 22,758
Dillard's Cl A 147 1,884
Dollar General 516 10,610
Federated Dept Stores 336(b) 9,282
Gap 1,337 30,000
Home Depot 3,635 174,709
K mart 755(b) 5,285
Kohl's 513(b) 28,728
Kroger 1,312(b) 29,767
Limited 674 13,480
Longs Drug Stores 61 1,151
Lowe's Companies 601 26,933
May Department Stores 522 11,974
Nordstrom 211 3,640
Office Depot 496(b) 3,627
Penney (JC) 409 5,726
RadioShack 293 17,287
Safeway 780(b) 38,464
Sears, Roebuck 553 17,247
Staples 760(b) 11,685
Target 1,433 33,318
Tiffany 227 9,449
TJX Companies 471 8,861
Toys "R" Us 339(b) 6,166
Wal-Mart Stores 7,002 332,159
Walgreen 1,584 52,075
Winn-Dixie Stores 226 3,150
Total 990,870
Textiles & apparel (0.1%)
Liz Claiborne 85 3,735
Nike Cl B 429 16,972
Reebok Intl 89(b) 1,708
Russell 51 972
Springs Inds Cl A 28 837
VF 179 4,094
Total 28,318
Transportation (0.3%)
Burlington Northern
Santa Fe 672 15,036
CSX 343 8,189
FedEx 455(b) 18,360
Norfolk Southern 601 9,654
Ryder System 93 1,784
Union Pacific 389 15,463
Total 68,486
Utilities -- electric (1.8%)
AES 718(b) 45,774
Ameren 215 8,694
American Electric Power 505 17,801
Cinergy 249 7,314
CMS Energy 172 4,494
Consolidated Edison 332 10,396
Constellation Energy Group 235 8,989
CP&L Energy 250 9,250
Dominion Resources 373 19,769
DTE Energy 224 7,784
Duke Energy 578 43,242
Edison Intl 521 10,778
Entergy 361 10,988
Florida Progress 154 7,989
FPL Group 279 14,892
GPU 190 5,819
Niagara Mohawk Holdings 270(b) 3,476
PECO Energy 266 12,818
PG&E 605 17,507
Pinnacle West Capital 133 5,478
PPL 226 7,571
Public Service
Enterprise Group 339 12,289
Reliant Energy 464 17,226
Sempra Energy 320 6,240
Southern Co 1,019 30,507
TXU 414 14,464
Unicom 279 12,747
Xcel Energy 531 13,305
Total 387,601
Utilities-- gas (0.9%)
Coastal 337 23,211
Columbia Energy Group 126 8,844
Eastern Enterprises 42 2,657
El Paso Energy 364 21,203
Enron 1,150 97,606
KeySpan 210 7,232
NICOR 72 2,655
ONEOK 45 1,437
Peoples Energy 55 1,788
Williams Companies 694 31,968
Total 198,601
Utilities-- telephone (6.0%)
ALLTEL 496 25,079
AT&T 5,895 185,695
BellSouth 2,956 110,297
CenturyTel 220 6,339
Global Crossing 1,386(b,c) 41,667
Nextel Communications
Cl A 1,192(b) 66,082
Qwest Communications Int l2,565(b) 132,419
SBC Communications 5,344 223,114
Sprint (FON Group) 1,378 46,164
Sprint (PCS Group) 1,438(b) 72,170
Verizon 4,274 186,455
WorldCom 4,498(b) 164,177
Total 1,259,658
Total common stocks
(Cost: $20,305,752) $21,012,051
Short-term security (2.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Commercial paper
Bayer
09-01-00 6.65% $600,000(d) $599,889
Total short-term security
(Cost: $600,000) $599,889
Total investments in securities
(Cost: $20,905,752)(e) $21,611,940
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, 2000, the
value of foreign securities represented 4.25% of net assets.
(d)Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid under
guidelines established by the board.
(e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$20,909,230 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $1,568,797
Unrealized depreciation (866,087)
--------
Net unrealized appreciation $702,710
<PAGE>
Investments in Securities
AXP VP - Small Cap Advantage Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (92.0%)
Issuer Shares Value(a)
Aerospace & defense (0.6%)
Aeroflex 2,187(b) $80,372
Precision Castparts 1,500 114,000
Total 194,372
Airlines (0.3%)
SkyWest 1,652 82,084
Automotive & related (1.4%)
DollarThrifty
Automotive Group 6,500(b) 147,062
Gentex 4,650(b) 120,319
Lear 1,600(b) 34,500
Snap-On 3,900 120,169
Total 422,050
Banks and savings & loans (6.7%)
American Capital
Strategies 3,100 74,013
Astoria Finance 2,000 70,250
Bank United Cl A 2,600 117,000
City Natl 3,200 125,000
Commerce Bancshares 2,600 93,600
Cullen/Frost Bankers 5,512 170,872
Dime Community
Bancshares 3,700 74,463
Downey Financial 3,200 107,200
East West Bancorp 6,900 117,731
First Midwest Bancorp 4,969 128,262
FirstFed Financial 3,500(b) 63,000
Fulton Financial 4,600 96,600
Hudson United Bancorp 3,212 80,902
Imperial Bancor 4,300(b) 93,525
Investors Financial Services 2,800 172,375
MAF Bancorp 4,900 105,350
Queens County Bancorp 2,300 60,663
Silicon Valley Bancshares 3,367(b) 194,022
Southwest Bancorp of Texas 2,600(b) 75,563
Webster Financial 2,800 69,038
Total 2,089,429
Beverages & tobacco (0.8%)
Canandaigua Wine Cl A 3,015(b) 162,433
Coors (Adolph) Cl B 1,400 83,388
Total 245,821
Building materials & construction (2.6%)
Carlisle Companies 3,800 174,180
Dycom Inds 3,468(b) 183,803
Florida Rock Inds 2,409 92,596
Horton (DR) 7,363 144,499
Lennar 2,100 58,013
NCI Building Systems 3,300(b) 58,163
Pulte 3,100 102,106
URS 2,000(b) 26,375
Total 839,735
Chemicals (1.9%)
Albemarle 4,800 119,100
Cytec Inds 3,800(b) 126,825
Geon 3,600 62,775
Lubrizol 4,700 101,931
OM Group 3,700 175,288
Total 585,919
Communications equipment & services (4.7%)
Adaptive Broadband 1,750(b) 54,688
Adtran 1,100(b) 58,919
Allied Riser Communications 3,700(b) 30,063
Celeritek 2,700(b) 121,163
Commonwealth Telephone
Enterprises 1,300(b) 50,213
Corsair Communications 3,400(b) 37,400
DMC Stratex Networks 4,244(b) 108,487
Excel Techology 2,300(b) 84,974
Glenayre Technologies 8,050(b) 87,544
LCC Intl Cl A 3,000(b) 65,813
Leap Wireless Intl 1,310(b) 103,981
Media 100 750(b) 13,219
Natural Microsystems 1,200(b) 89,475
Netro 1,600(b) 132,199
Peco II 350(b) 13,650
Plantronics 900(b) 44,944
Proxim 2,270(b) 136,341
REMEC 4,825(b) 137,512
Tollgrade Communications 300(b) 33,356
WJ Communications 1,300(b) 76,619
Total 1,480,560
Computers & office equipment (9.1%)
ADAC Laboratories 5,750(b) 128,656
Advent Software 900(b) 55,463
Allaire 2,100(b) 71,269
ASK Jeeves 2,150(b) 64,573
Aspen Technology 2,600(b) 119,438
Avocent 1,553(b) 75,515
Clarent 2,300(b) 109,825
Clarus 1,600(b) 96,800
FactSet Research Systems 2,400 82,050
go2net 1,000(b) 69,000
Henry (Jack) & Associates 2,099 93,143
HNC Software 1,870(b) 101,740
InFocus 2,800(b) 135,449
Informatica 500(b) 50,000
Insight Enterprises 1,700(b) 85,425
Interwoven 1,000(b) 96,000
IntraNet Solutions 3,444(b) 156,055
Keynote Systems 900(b) 27,225
Manhattan Associates 1,100(b) 51,013
McAfee.com 1,900(b) 49,994
McDATA Cl B 400(b) 43,025
Natl Instruments 1,500(b) 64,781
Netegrity 1,200(b) 105,600
Netopia 950(b) 34,794
OTG Software 2,200(b) 49,225
Puma Technology 3,000(b) 72,938
Rare Medium Group 3,300(b) 33,000
RSA Security 2,169(b) 128,107
SERENA Software 6,000(b) 263,999
SonicWALL 800(b) 60,900
Varian 3,000(b) 146,249
Verity 2,300(b) 105,225
Total 2,826,476
Electronics (13.5%)
ACT Mfg 700(b) 35,656
Actel 3,700(b) 162,799
Alpha Inds 4,340(b) 218,898
Amphenol Cl A 1,200(b) 76,800
Anixter Intl 1,100(b) 38,500
Audiovox Cl A 1,900(b) 34,438
Belden 3,800 99,275
Brooks Automation 1,300(b) 71,906
C&D Technologies 3,700 204,424
C-Cube Microsystems 3,600(b) 83,700
CTS 2,300 118,019
Cymer 1,200(b) 55,125
DSP Group 1,700(b) 78,625
Elantec Semiconductor 1,450(b) 128,325
Electro Scientific Inds 2,380(b) 98,026
Exar 1,300(b) 156,813
Harman Intl Inds 1,669 128,096
Helix Technology 1,900 71,963
Integrated Circuit Systems 2,550(b) 70,125
Intl Rectifier 2,550(b) 160,491
KEMET 5,024(b) 150,720
Kulicke & Soffa Inds 3,638(b) 66,166
Littelfuse 1,800(b) 65,363
LTX 1,600(b) 40,900
Methode Electronics Cl A 2,400 144,300
MRV Communications 1,000(b) 77,063
Nanometrics 1,600(b) 79,600
Oak Technology 3,600(b) 104,850
Pericom Semiconductor 800(b) 59,200
PerkinElmer 800 71,950
Photon Dynamics 1,200(b) 56,325
Plexus 600(b) 92,850
PLX Technolog 1,600(b) 50,100
Power Integrations 2,900(b) 49,300
Sensormatic Electronics 5,700(b) 94,763
Technitrol 1,515 193,162
Therma-Wave 2,900(b) 78,663
Three-Five Systems 3,191(b) 106,101
Trimble Navigation 3,459(b) 143,765
Varian Medical Systems 3,254(b) 149,481
Varian Semiconductor
Equipment Associates 1,600(b) 91,400
Viasystems Group 4,400(b) 72,600
Zoran 900(b) 55,631
Total 4,186,257
Energy (1.1%)
HS Resources 3,424(b) 108,498
Swift Energy 3,100(b) 89,706
Valero Energy 2,500 75,313
Vintage Petroleum 3,500 73,500
Total 347,017
Energy equipment & services (1.8%)
Lone Star Technologies 1,800(b) 90,450
Louis Dreyfus Natural Gas 3,000(b) 104,250
Patterson Energy 2,900(b) 90,988
Pride Intl 5,499(b) 135,412
UTI Energy 1,600(b) 59,600
Varco Intl 4,200(b) 84,788
Total 565,488
Financial services (4.4%)
Affiliated Managers Grou 1,500(b) 83,625
AmeriCredit 8,400(b) 232,049
Catellus Development 5,200(b) 92,950
Delphi Financial Group Cl A 1,714(b) 70,917
Eaton Vance 1,400 67,813
Financial Federal 2,746(b) 58,353
Jefferies Group 3,100 94,356
LaBranche 4,600(b) 138,575
Metris Companies 5,000 179,688
Radian Group 3,300 205,012
Raymond James Financial 2,700 76,950
SEI Investments 1,139 72,327
Total 1,372,615
Food (2.2%)
Dean Foods 3,000 93,750
Delta & Pine Land 3,200 78,200
Earthgrains 5,200 91,650
Performance Food Group 2,925(b) 108,591
Smithfield Foods 4,779(b) 126,942
Suiza Foods 3,400(b) 170,000
Total 669,133
Furniture & appliances (0.5%)
Ethan Allen Interiors 3,300 88,893
Salton 2,100(b) 79,013
Total 167,906
Health care (6.4%)
Alkermes 1,460(b) 67,525
Alpharma Cl A 2,000(d) 113,250
ArthoCare 1,500(b) 66,750
Cephalon 1,200(b) 60,375
Coherent 2,161(b) 173,960
COR Therapeutics 2,370(b) 133,313
Emisphere Technologies 1,500(b) 49,500
Enzo Biochem 1,233(b) 73,980
Enzon 1,570(b) 95,574
Inhale Therapeutic Systems 1,800(b) 90,900
Jones Pharma 3,216 114,972
Laboratory Corp
America Holdings 1,180(b) 139,609
Medicis Pharmaceutical Cl A 1,200(b) 77,325
Myriad Genetics 300(b) 41,963
Noven Pharmaceuticals 1,100(b) 46,200
Priority Healthcare Cl B 1,300(b) 75,075
Protein Design Labs 1,620(b) 123,120
Regeneron Pharmaceuticals 2,900(b) 102,769
Techne 1,132(b) 108,106
Vertex Pharmaceuticals 1,200(b) 102,000
Wesley Jessen VisionCare 1,900(b) 71,488
Zoll Medical 1,100(b) 48,125
Total 1,975,879
Health care services (3.3%)
Apria Healthcare Group 5,100(b) 75,863
Aurora Biosciences 400(b) 27,350
Cerner 2,050(b) 78,028
Cytyc 1,355(b) 63,177
Foundation Health
Systems Cl A 6,400(b) 112,400
Genzyme Transgenics 2,800(b) 104,125
LifePoint Hospitals 4,550(b) 137,069
Mid Atlantic Medical Services 5,600(b) 90,300
PRAECIS Pharmaceuticals 1,700(b) 74,481
Triad Hospitals 4,600(b) 132,643
Universal Health Services Cl B 1,938(b) 137,113
Total 1,032,549
Household products (0.1%)
Valence Technology 2,300(b) 38,956
Industrial equipment & services (1.9%)
AGCO 6,400 67,200
Asyst Technologies 2,100(b) 54,994
Graco 2,600 92,138
IDEX 1,600 48,600
Kennametal 4,200 107,625
Minerals Technologies 2,800 145,249
Nordson 1,400 90,650
Total 606,456
Insurance (2.6%)
Fidelity Natl Financial 3,950 78,753
First American 3,600 59,400
Gallagher (Arthur J) 3,780 185,220
MONY Group 1,900 71,844
Old Republic Intl 5,700 136,444
Reinsurance Group of America 2,100 59,850
RenaissanceRe Holdings 1,600(c) 76,600
StanCorp Financial Group 3,500 140,000
Total 808,111
Leisure time & entertainment (1.1%)
Anchor Gaming 1,300(b) 95,225
Aztar 8,764(b) 127,626
Concord Camera 5,500(b) 121,000
Total 343,851
Media (3.3%)
ADVO 2,100(b) 85,969
Emmis Communications Cl A 2,440(b) 80,063
Houghton Mifflin 800 39,350
McClatchy Cl A 2,200 78,788
Penton Media 3,300 103,331
Price Communications 4,100(b) 84,050
Radio One Cl A 2,850(b) 60,028
Scholastic 2,152(b) 138,131
True North Communications 3,500(c,d) 162,312
Valassis Communications 2,400 69,300
Zomax 6,850(b) 132,984
Total 1,034,306
Metals (1.2%)
Mueller Inds 4,949(b) 156,202
Shaw Group 1,800(b) 100,238
Stillwater Mining 3,100(b) 105,400
Total 361,840
Miscellaneous (2.6%)
AremisSoft 2,300(b) 62,675
Beasley Broadcast
Group Cl A 4,250(b) 52,328
California Amplifier 1,300(b) 54,275
Cell Genesys 2,400(b) 73,950
Cobalt Networks 1,100(b) 54,588
DigitalThink 800(b) 26,893
Dobson Communications
Cl A 2,600(b) 56,063
Genome Therapeutics 2,300(b) 57,788
Learning Tree Intl 1,900(b) 130,030
PolyMedica 1,600(b) 56,800
Rural Celluar Cl A 1,500(b) 113,999
Texas Biotechnology 1,300(b) 22,913
UCBH Holdings 1,600 48,400
Total 810,702
Multi-industry conglomerates (2.0%)
Agribrands Intl 900(b) 35,775
Argosy Gaming 4,000(b) 64,000
Brady Cl A 3,189 92,282
Hall, Kinion & Associates 1,800(b) 59,400
Meade Instruments 3,300(b) 79,200
Mettler-Toledo Intl 3,200(b) 151,400
StarTek 1,625(b) 63,680
Stewart & Stevenson Services 4,250 68,531
Total 614,268
Paper & packaging (1.6%)
AptarGroup 4,100 95,581
Ball 2,600 90,025
Bowater 1,800 92,475
Buckeye Technologies 4,100(b) 102,244
Pope & Talbot 5,569 110,684
Total 491,009
Real estate investment trust (2.8%)
Arden Realty 3,800 96,899
BRE Properties Cl A 2,700 78,806
Camden Property Trust 2,900 86,819
Developers Diversified Realty 3,400 49,300
Essex Property Trust 1,200 59,025
Gables Residential Trust 3,000 83,250
Liberty Property Trust 1,900 49,638
Pan Pacific Retail Properties 2,700 51,469
Prentiss Properties Trust 1,200 29,175
Reckson Associates Realty 2,300 55,919
SL Green Realty 3,000 80,438
Smith (Charles E)
Residential Realty 2,200 90,475
United Dominion Realty Trust 4,900 52,981
Total 864,194
Restaurants & lodging (0.9%)
CEC Entertainment 2,600(b) 75,075
Cheesecake Factory (The) 2,382(b) 85,901
RARE Hospitality Intl 2,600(b) 73,125
Ryan's Family Steak Houses 5,200(b) 42,250
Total 276,351
Retail (2.8%)
AnnTaylor Stores 3,100(b) 111,600
Barnes & Noble 3,300(b) 57,131
Footstar 3,200(b) 95,200
Fossil 4,400(b) 76,725
NBTY 9,930(b) 70,131
PurchasePro.com 900(b) 52,003
United Stationers 4,133(b) 134,064
Whole Foods Market 3,000(b) 151,500
Zale 3,235(b) 119,493
Total 867,847
Textiles & apparel (1.4%)
Abercrombie & Fitch 2,400(b) 54,204
Brown Shoe 5,698 61,253
Hot Topic 2,400(b) 67,950
Kellwood 1,700 27,200
Kenneth Cole Productions
Cl A 1,400(b) 61,688
Skechers U.S.A. Cl A 4,900(b) 87,280
Timberland Cl A 1,800(b) 73,350
Total 432,925
Transportation (1.9%)
Atlas Air 1,800(b) 77,850
EGL 3,300(b) 118,594
Expeditors Intl of Washington 2,200 107,800
Forward Air 2,000(b) 91,750
Landstar System 1,591(b) 81,141
Offshore Logistics 350(b) 6,081
USFreightways 3,100 96,681
Total 579,897
Utilities-- electric (2.5%)
Cleco 2,400 100,200
El Paso Electric 10,065(b) 135,248
Kansas City Power & Light 1,900 51,063
Minnesota Power 3,500 77,656
OGE Energy 3,200 68,400
Public Service Co of
New Mexico 5,000 106,875
UIL Holdings 2,576 129,605
Western Resources 4,900 98,000
Total 767,047
Utilities -- gas (1.5%)
Equitable Resources 1,699 95,674
New Jersey Resources 2,000 80,000
ONEOK 2,700 86,231
Piedmont Natural Gas 2,500 69,219
UGI 3,400 77,563
Western Gas Resources 2,600 57,038
Total 465,725
Utilities -- telephone (0.5%)
Illuminet Holdings 1,600(b) 63,600
Intermedia Communications 2,700(b) 56,025
Mpower Communications 2,250(b) 41,484
Total 161,109
Total common stocks
(Cost: $26,276,486) $28,607,884
Other (--%)
Issuer Shares Value(a)
Elan Rights 2,700 $2,531
Total other
(Cost: $--) $2,531
Short-term securities (6.4%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies
Federal Home Loan Mtge Corp Disc Nts
09-14-00 6.44% $300,000 $299,215
10-17-00 6.46 400,000 396,653
Federal Natl Mtge Assn Disc Nts
09-20-00 6.41 800,000 797,057
10-05-00 6.46 500,000 496,729
Total short-term securities
(Cost: $1,990,298) $1,989,654
Total investments in securities
(Cost: $28,266,784)(e) $30,600,069
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, 2000,
the value of foreign securities represented 0.77% of net assets.
(d)Partially pledged as initial margin deposit on the following open stock
index futures contracts (see Note 7 to the financial statements):
Type of security Contracts
Purchase contracts
Russell 2000, Sept. 2000 2
(e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$28,405,928 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $3,453,869
Unrealized depreciation (1,259,728)
----------
Net unrealized appreciation $2,194,141
<PAGE>
Investments in Securities
AXP VP - Strategy Aggressive Fund
Aug. 31, 2000
(Percentages represent value of investments compared to net assets)
Common stocks (90.7%)
Issuer Shares Value(a)
Airlines (0.3%)
Northwest Airlines Cl A 350,000(b) $10,959,375
Banks and savings & loans (1.1%)
Silicon Valley Bancshares 95,100(b) 5,487,666
Sovereign Bancorp 3,375,000 28,687,501
TCF Financial 199,000 6,532,424
Zions Bancorp 115,000 5,146,250
Total 45,853,841
Communications equipment & services (15.0%)
CIENA 240,000(b) 53,204,999
Copper Mountain Networks 631,400(b) 37,844,538
Corvis 116,200(b) 12,063,013
Covad Communicati Group 1,725,000(b) 28,139,063
Ditech Communications 158,000(b) 9,322,000
DMC Stratex Networks 1,235,000(b) 31,569,688
Equinix 1,017,000(b,d) 16,432,564
Fairchild
Semiconductor Intl Cl A 680,000(b) 27,030,000
Finisar 2,289,800(b) 106,165,514
Focal Communications 360,000(b) 11,137,500
Healtheon/WebMD 429,000(b) 7,574,657
Netro 582,000(b) 48,087,750
New Focus 287,800(b) 39,728,679
ONI Systems 37,050(b) 3,516,422
Powerwave Technologies 115,800(b) 5,462,093
SDL 452,000(b,d)179,585,249
Sonus Networks 48,000(b,d) 7,986,000
WJ Communications 65,000(b,i) 3,830,938
Total 628,680,667
Computer software & services (3.0%)
Edwards (JD) & Co 1,150,000(b) 28,534,375
i2 Technologies 202,000(b) 34,175,875
PeopleSoft 819,900(b) 26,288,806
SunGard Data Systems 1,062,000(b) 38,232,000
Total 127,231,056
Computers & office equipment (20.3%)
Akamai Technologies 450,000(b,d) 34,003,125
Avici Systems 100,800(b,d) 15,101,100
Digital Lightwave 1,798(b) 157,775
Embarcadero Technologies 250,000(b,i) 10,500,000
Emulex 250,500(b) 26,224,219
Extreme Networks 1,373,000(b) 127,643,037
Fiserv 975,000(b) 52,832,813
Genuity 1,800,000(b) 15,525,000
InfoSpace 679,000(b) 26,481,000
Juniper Networks 466,000(b) 99,607,499
Liberate Technologies 580,000(b) 17,835,000
McDATA Cl B 492,200(b) 52,929,622
Mercury Interactive 1,205,500(b) 147,297,030
NetIQ 625,000(b) 35,312,500
Portal Software 789,500(b) 43,619,875
Predictive Systems 520,000(b) 10,335,000
Sanmina 345,000(b) 40,710,000
Software.com 95,000(b) 13,828,438
Trintech Group ADR 303,500(b,c) 8,194,500
Tumbleweed
Communications 441,000(b) 27,617,625
VeriSign 240,000(b) 47,730,000
Total 853,485,158
Electronics (19.1%)
Advanced Energy Inds 675,000(b) 38,559,375
Applied Micro Circuits 150,000(b) 30,440,625
Avanex 254,500(b,d) 38,505,469
Celestica 1,145,000(b,c) 89,453,124
Flextronics Intl 452,000(b,c) 37,657,250
GlobeSpan 355,000(b) 42,755,313
Integrated Device
Technology 420,000(b) 36,855,000
Jabil Circuit 1,280,400(b) 81,592,934
Newport 225,000 35,775,000
Novellus Systems 912,600(b) 56,181,938
Pericom Semiconductor 252,100(b) 18,655,400
PMC-Sierra 445,000(b) 105,019,999
SCI Systems 480,000(b) 29,640,000
Semtech 325,000(b) 38,492,188
TriQuint Semiconductor 128,600(b) 7,044,094
Vitesse Semiconductor 660,000(b) 58,616,250
Waters 728,000(b) 57,921,500
Total 803,165,459
Energy (3.6%)
Apache 450,000 28,350,000
Kerr-McGee 770,000 48,654,375
Murphy Oil 240,000 16,020,000
Newfield Exploration 240,000(b,g,i)10,383,606
Suncor Energy 800,000 18,037,567
Tosco 1,000,000(i) 30,500,000
Total 151,945,548
Energy equipment & services (1.4%)
Cooper Cameron 500,000(b) 38,906,250
Diamond Offshore Drilling 425,000 19,045,313
Total 57,951,563
Financial services (0.7%)
Metris Companies 276,600 9,902,937
Radian Group 260,000 16,152,499
Total 26,055,436
Health care (8.9%)
Alkermes 1,357,000(b) 62,761,250
ALZA 1,200,000(b) 90,750,000
Diversa 320,000(b) 9,120,000
Forest Laboratories 515,000(b) 50,405,625
Gilead Sciences 225,000(b) 24,300,000
IDEC Pharmaceuticals 409,300(b) 57,148,513
Invitrogen 244,250(b) 15,418,281
MiniMed 280,600(b) 20,146,203
Teva Pharmaceutical
Inds ADR 700,000(c) 42,437,500
Total 372,487,372
Health care services (1.8%)
Abgenix 620,000(b) 46,606,563
McKesson HBOC 1,100,000 27,431,250
Total 74,037,813
Insurance (1.0%)
XL Capital Cl A 585,000(c) 40,328,438
Media (1.6%)
TMP Worldwide 560,000(b) 38,745,000
Univision
Communications Cl A 680,000(b) 30,005,000
Total 68,750,000
Metals (0.4%)
Nucor 450,000 16,537,500
Miscellaneous (4.3%)
Biotech Holdings Trust
Depositary Receipts 210,000(b) 42,406,875
Convergys 420,000(b) 16,432,500
Digex 904,000(b,d) 76,557,501
FirePond 526,000(b) 10,980,250
Internap Network Services 645,000(b) 23,220,000
Semiconductor Holdings
Trust Depositary Receipts 147,400(b) 14,453,056
Total 184,050,182
Multi-industry conglomerates (0.6%)
Robert Half Intl 790,000(b) 25,131,875
Retail (2.4%)
Bed Bath & Beyond 2,472,000(b) 43,414,500
Best Buy 330,000(b) 20,471,440
Dollar Tree Stores 938,200(b) 38,055,738
Total 101,941,678
Utilities -- electric (2.7%)
Calpine 1,130,800(b) 111,949,200
Utilities -- telephone (2.5%)
Allegiance Telecom 1,297,600(b) 64,636,700
Intermedia Communications 5,288(b) 109,726
Western Wireless Cl A 340,000(b) 17,382,500
WinStar Communications 860,000(b) 23,112,500
Total 105,241,426
Total common stocks
(Cost: $2,588,278,744) $3,805,783,587
Preferred stocks & other (1.4%)(f)
Issuer Shares Value(a)
Aurgin Systems
2.46% 2,440,000 $6,002,400
Bluestream
Ventures LP 9,500,000(e) 9,500,000
Covia Technologies
Cv 1,596,148 3,999,947
Dia Dexus
Cv Series C 1,113,979(b) 8,633,337
Equinix
Cv 265,252 3,435,013
Warrants 13,800 3,036,000
Fibrogen
Cv Series E 1,559,020 7,000,000
FREEI.Net
8.05% 434,744(b) 7,000,031
Mars
Cv Series D 2,619,048 5,500,001
MarsMusic.com
Cv 7,000,000 7,000,000
Protein Delivery
2.50% 2,800,000 7,000,000
Signalsoft
Cv Series E 1,182,432 46,883,429
YOUpowered
Cv Series B 425,258 3,300,002
Vcommerce
Cv Series C 884,120 4,119,999
Total preferred stocks & other
(Cost: $81,369,982) $122,410,159
Bond (0.5%)
Issuer Coupon Principal Value(a)
rate amount
Equinix
Sr Nts
12-01-07 13.00% $13,800,000 $11,040,000
Total bond
(Cost: $13,792,939) $11,040,000
Option purchased (0.1%)
Issuer Shares Exercise Expiration Value(a)
price date
Call
Zions
Bancorp 115,000 $45 Jan. 2001 $481,563
Total option purchased
(Cost: $356,138) $481,563
Short-term securities (13.2%)(g)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (6.7%)
Federal Home Loan Bank Disc Nts
09-01-00 6.40% $50,000,000 $49,991,110
10-06-00 6.44 29,800,000 29,603,023
10-13-00 6.46 30,300,000 30,068,008
Federal Home Loan Mtge Corp Disc Nts
09-14-00 6.44 7,900,000 7,879,328
10-10-00 6.45 26,000,000 25,814,964
10-24-00 6.50 24,700,000 24,461,398
Federal Natl Mtge Assn Disc Nts
09-11-00 6.39 36,500,000 36,426,167
09-21-00 6.43 34,600,000 34,464,191
10-16-00 6.45 28,300,000 28,068,566
10-19-00 6.49 12,500,000 12,386,213
10-26-00 6.51 1,500,000 1,484,371
Total 280,647,339
Commercial paper (6.5%)
Abbey Natl North America
11-13-00 6.56 2,700,000 2,663,481
Alcoa
10-11-00 6.53 2,300,000 2,282,712
AT&T
11-10-00 6.57 6,300,000 6,218,244
Barton Capital
09-12-00 6.54 13,000,000(h) 12,971,703
Bayer
09-12-00 6.53 6,700,000(h) 6,685,215
09-19-00 6.52 16,300,000(h) 16,243,135
Bell Atlantic Finance Services
09-05-00 6.56 5,500,000 5,494,920
CXC
11-16-00 6.60 9,000,000(h) 8,873,335
Dresdner US Finance
09-11-00 6.50 4,600,000 4,590,695
Duke Energy
09-14-00 6.52 8,000,000 7,979,066
Enterprise Funding
11-13-00 6.59 11,000,000(h) 10,851,219
Fleet Funding
10-11-00 6.55 5,800,000(h) 5,756,403
Ford Motor Credit
09-01-00 6.51 21,500,000 21,496,112
Gillette
10-13-00 6.52 20,900,000(h) 20,729,835
11-08-00 6.56 14,900,000(h) 14,712,086
Intl Lease Finance
10-16-00 6.52 25,000,000(h) 24,789,484
Kimberly-Clark
10-23-00 6.53 13,100,000(h) 12,973,096
Morgan Stanley, Dean
Witter, Discover & Co
09-12-00 6.50 9,100,000 9,080,313
Natl Rural Utilities
09-11-00 6.52 9,400,000 9,380,986
09-22-00 6.53 7,100,000 7,070,334
10-18-00 6.55 9,000,000 8,921,039
Pfizer
09-28-00 6.50 14,000,000(h) 13,929,549
SBC Communications
11-02-00 6.56 5,000,000(h) 4,942,425
Toyota Motor Credit
09-07-00 6.56 1,900,000(h) 1,897,580
Wal-Mart Stores
09-12-00 6.51 5,100,000(h) 5,088,746
09-19-00 6.51 6,600,000(h) 6,576,975
09-19-00 6.52 21,700,000(h) 21,624,296
Total 273,822,984
Total short-term securities
(Cost: $554,622,915) $554,470,323
Total investments in securities
(Cost: $3,238,420,718)(j) $4,494,185,632
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, 2000, the
value of foreign securities represented 5.20% of net assets.
(d)Security is partially or fully on loan. See Note 5 to the financial
statements.
(e)The share amount for Limited Liability Companies (LLC) or Limited
Partnerships (LP) represents capital contributions.
(f)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, 2000, is as follows:
Security Acquisition Cost
dates
Aurgin Systems
2.46% 12-16-99 $6,002,400
Bluestream Ventures LP 06-28-00 9,500,000
Covia Technologies
Cv 08-16-00 3,999,947
Dia Dexus
Cv Series C 04-03-00 8,633,337
Equinix
Cv 05-19-00 4,000,000
Warrants 12-01-99 1,314,284
Fibrogen
Cv Series E 05-17-00 7,000,000
FREEI.Net
8.05% 11-04-99 7,000,013
Mars
Cv Series D 06-16-00 5,500,001
MarsMusic.com Cl A
Cv 12-01-99 7,000,000
Protein Delivery
2.50% 05-04-99 7,000,000
Signalsoft
Cv Series E 12-15-99 6,999,997
Vcommerce
Cv 07-21-00 4,119,999
YOUpowered
Cv Series B 06-01-00 3,300,002
(g)At Aug. 31, 2000 cash or short-term securities were designated to cover
open put options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
Best Buy 45,000 $60 Oct. 2000 $195,518
eBay 140,000 68 Oct. 2000 1,330,000
Forest Labs 20,000 70 Nov. 2000 10,000
MiniMed 20,000 55 Nov. 2000 35,000
MiniMed 40,000 65 Nov. 2000 192,500
Total $1,763,018
At Aug. 31, 2000, securities valued at $2,595,902 were held to cover open call
options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
Newfield Exploration 60,000 $50 Dec. 2000 $146,250
(h)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.
(i)Partially pledged as initial margin deposit on the following open stock index
futures contracts (see Note 7 to the financial statements):
Type of security Contracts
Purchase contracts
Nasdaq 100, Sept. 2000 322
Nasdaq 100, Dec. 2000 135
(j)At Aug. 31, 2000, the cost of securities for federal income tax purposes was
$3,246,493,120 and the aggregate gross unrealized appreciation
and depreciation based on that cost was:
Unrealized appreciation $1,374,309,922
Unrealized depreciation (126,617,410)
------------
Net unrealized appreciation $1,247,692,512
See accompanying notes to investments in securities.
<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 as Exhibit (d)(3) to Registrant's Post-Effective
Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by
reference.
(d)(4) Investment Management Services Agreement dated May 1, 2000, between
Registrant, on behalf of AXP Variable Portfolio - Emerging Markets
Fund and AXP Variable Portfolio - S&P 500 Index Fund, and IDS Life
Insurance Company, filed electronically herewith.
(d)(5) 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)(6) Addendum to Investment Advisory Agreement dated May 1, 2000 between
IDS Life Insurance Company and American Express Financial Company,
filed electronically herewith.
(d)(7) Investment Advisory Agreement between American Express Financial
Corporation and American Express Asset Management International Inc.
for AXPSM Variable Portfolio - International Equity Fund (formerly 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)(8) Addendum to Investment Advisory Agreement dated May 1, 2000, between
American Express Financial Corporation and American Express Asset
Management International Inc. for AXP Variable Portfolio - Emerging
Markets Fund, filed electronically herewith.
<PAGE>
(d)(9) 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 as Exhibit (d)(8) to Registrant's Post-Effective
Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by
reference.
(d)(10) 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
as Exhibit (d)(9) to Registrant's Post-Effective Amendment No. 40
filed on or about Oct. 29, 1999, is incorporated by reference.
(d)(11) 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.
(d)(12) 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)(13) 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 as Exhibit
(d)(12) to Registrant's Post-Effective Amendment No. 40 filed on or
about May 28, 1999, is incorporated by reference.
(d)(14) Form of Administrative Services Agreement dated May 1, 2000, between
Registrant, on behalf of AXP Variable Portfolio - Emerging Markets
Fund and AXP Variable Portfolio - S&P 500 Index 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 as Exhibit (g)(3)
to Registrant's Post-Effective Amendment No. 40 filed on or about Oct.
29, 1999, is incorporated by reference.
<PAGE>
(g)(4) Custodian Agreement dated May 1, 2000, between Registrant, on behalf
of AXP Variable Portfolio - Emerging Markets Fund and AXP Variable
Portfolio - S&P 500 Index Fund, and American Express Trust Company,
filed electronically herewith.
(g)(5) 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. Post-Effective Amendment No.
33 to 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 Statement
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.
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.
(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)(1) 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 as Exhibit (m) to Registrant's Post-Effective Amendment
No. 40 filed on or about Oct. 29, 1999, is incorporated by reference
(m)(2) Plan and Agreement of Distribution dated Sept. 20, 1999, between
Registrant (on behalf of AXPSM Variable Portfolio - Capital Resource
Fund, AXPSM Variable Portfolio - International Fund, AXPSM Variable
Portfolio - New Dimensions Fund and AXPSM Variable Portfolio -
Strategy Aggressive Fund) and IDS Life Insurance Company, filed
electronically herewith.
(m)(3) Plan and Agreement of Distribution dated May 1, 2000, between
Registrant, on behalf of AXP Variable Portfolio - Emerging Markets
Fund and AXP Variable Portfolio - S&P 500 Index Fund, and IDS Life
Insurance Company, filed electronically herewith.
(n) Rule 18f-3 Plan: Not Applicable.
(o) Reserved
(p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed
electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP
Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to
Registration Statement No. 33-30770, is incorporated by reference.
<PAGE>
(p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment
advisor and principal underwriter filed electronically on or about
March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series,
Inc.'s Post-Effective Amendment No. 24 to Registration Statement No.
33-30770, is incorporated by reference.
(q)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement dated Jan. 13, 2000 filed electronically as Exhibit (p)(1)
to Registrant's Post-Effective Amendment No. 41 filed on or about Feb.
11, 2000, is incorporated by reference.
(q)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 13, 2000 filed electronically as Exhibit (p)(2)
to Registrant's Post-Effective Amendment No. 41 filed on or about Feb.
11, 2000, 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.
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 200 AXP Financial Center Director and President
Executive Vice President Assurance Company Minneapolis, MN 55474
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
IDS Life Series Fund, Inc. Director
------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial 200 AXP Financial Center Senior Vice President and
Executive Vice President Advisors Inc. Minneapolis, MN 55474 Chief Marketing Officer
American Express Financial Director, Senior Vice
Corporation President and Chief
Marketing Officer
------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial 200 AXP Financial Center Vice President
Vice President Advisors Inc. Minneapolis, MN 55474
American Express Financial Vice President
Corporation
------------------------------- ---------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company 200 AXP Financial Center Vice President
Vice President Minneapolis, MN 55474
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
<PAGE>
Investors Syndicate Director and Vice
Development Corp. President
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 200 AXP Financial Center Vice President, Treasurer
Vice President Minneapolis, MN 55474 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>
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
IDS Partnership Services Vice President and
Corporation Treasurer
<PAGE>
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 200 AXP Financial Center Director
Director Minneapolis, MN 55474
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 200 AXP Financial Center Vice President
Vice President Advisors Inc. Minneapolis, MN 55474
American Express Financial Vice President
Corporation
IDS Life Series Fund, Inc. Director
------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company 200 AXP Financial Center Director
Director, Chief Executive Minneapolis, MN 55474
Officer and President
American Centurion Life Director and Chairman of
Assurance Company the Board
American Enterprise Life Director and Chairman of
Insurance Company the Board
<PAGE>
American Express Director and President
Corporation
American Express Financial Senior Vice President
Advisors Inc.
American Express Financial Director and Senior Vice
Corporation President-Insurance
Products
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.
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 200 AXP Financial Center Vice President
Director and Executive Vice Advisors Inc. Minneapolis, MN 55474
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 200 AXP Financial Center Vice President
Director and Executive Vice Insurance Company Minneapolis, MN 55474
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
------------------------------- ---------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial 200 AXP Financial Center Director and Senior Vice
Director and Executive Vice Advisors Inc. Minneapolis, MN 55474 President-Investment
President Products
American Express Financial Vice President
Corporation
American Express Trust Vice President
Company
------------------------------- ---------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Enterprise Director
Director and Executive Vice Investment Services Inc.
President
<PAGE>
American Express Client 200 AXP Financial Center Director and President
Service Corporation Minneapolis, MN 55474
American Express Financial Senior Vice President
Advisors Inc.
American Express Financial Director and Senior Vice
Corporation President
------------------------------- ---------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial 200 AXP Financial Center Vice President
Vice President Advisors Inc. Minneapolis, MN 55474
American Express Financial Vice President
Corporation
------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, AMEX Assurance Company 200 AXP Financial Center Director
Director and Executive Vice Minneapolis, MN 55474
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
------------------------------- ---------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life 200 AXP Financial Center Director, Vice President,
Vice President, General Insurance Company Minneapolis, MN 55474 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
<PAGE>
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 200 AXP Financial Center Vice President and
Vice President and Controller Assurance Company Minneapolis, MN 55474 Controller, Risk Management
American Enterprise Life Vice President and
Insurance Company Controller
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
200 AXP Financial Center
Minneapolis, MN 55474
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 the requirements for the effectiveness of this amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Minneapolis and
State of Minnesota on the 26th day of October, 2000.
AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
By /s/ Arne H. Carlson**
_____________________________________________
Arne H. Carlson, Chief Executive Officer
By
/s/ John M. Knight
John M. 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 26th day of October, 2000.
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/ 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
/s/ John R. Thomas* Director
------------------------------------
John R. Thomas
<PAGE>
/s/ C. Angus Wurtele* Director
------------------------------------
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated Jan. 13, 2000, filed
electronically as Exhibit (p)(1) to Registrant's Post-Effective Amendment No.
41, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated Jan. 13, 2000, filed
electronically as Exhibit (p)(2) to Registrant's Post-Effective Amendment No.
41, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 43 TO REGISTRATION STATEMENT NO.
2-73115
This post-effective amendment contains the following papers and documents:
The facing sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Part C.
Other information.
The signatures.
Exhibits.
