<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
IDS Bond Fund, Inc.
IDS California Tax-Exempt Trust
IDS Discovery Fund, Inc.
IDS Equity Select Fund, Inc.
IDS Extra Income Fund, Inc.
IDS Federal Income Fund, Inc.
IDS Global Series, Inc.
IDS Growth Fund, Inc.
IDS High Yield Tax-Exempt Fund, Inc.
IDS International Fund, Inc.
IDS Investment Series, Inc.
IDS Managed Retirement Fund, Inc.
IDS Market Advantage Series, Inc.
IDS Money Market Series, Inc.
IDS New Dimensions Fund, Inc.
IDS Precious Metals Fund, Inc.
IDS Progressive Fund, Inc.
IDS Selective Fund, Inc.
IDS Special Tax-Exempt Series Trust
IDS Stock Fund, Inc.
IDS Strategy Fund, Inc.
IDS Tax-Exempt Bond Fund, Inc.
IDS Tax-Free Money Fund, Inc.
IDS Utilities Income Fund, Inc.
IDS Life Investment Series, Inc.
IDS Life Managed Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Special Income Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
IDS MUTUAL FUND GROUP
Principal Executive Office
901 Marquette Avenue South, Suite 2810
Minneapolis, MN 55402-3268
NOTICE OF REGULAR MEETING OF SHAREHOLDERS
TO BE HELD JUNE 16, 1999
RETAIL FUNDS:
IDS Bond Fund, Inc.
IDS California Tax-Exempt Trust
- IDS California Tax-Exempt Fund
IDS Discovery Fund, Inc.
IDS Equity Select Fund, Inc.
IDS Extra Income Fund, Inc.
IDS Federal Income Fund, Inc.
IDS Global Series, Inc.
- IDS Emerging Markets Fund
- IDS Global Balanced Fund
- IDS Global Bond Fund
- IDS Global Growth Fund
IDS Growth Fund, Inc.
- IDS Growth Fund
- IDS Research Opportunities Fund
IDS High Yield Tax-Exempt Fund, Inc.
IDS International Fund, Inc.
IDS Investment Series, Inc.
- IDS Diversified Equity Income Fund
- IDS Mutual
IDS Managed Retirement Fund, Inc.
- IDS Managed Allocation Fund
IDS Market Advantage Series, Inc.
- IDS Blue Chip Advantage Fund
- IDS Small Company Index Fund
IDS Money Market Series, Inc.
- IDS Cash Management Fund
IDS New Dimensions Fund, Inc.
IDS Precious Metals Fund, Inc.
IDS Progressive Fund, Inc.
IDS Selective Fund, Inc.
IDS Special Tax-Exempt Series Trust
- IDS Insured Tax-Exempt Fund
- IDS Massachusetts Tax-Exempt Fund
- IDS Michigan Tax-Exempt Fund
- IDS Minnesota Tax-Exempt Fund
- IDS New York Tax-Exempt Fund
- IDS Ohio Tax-Exempt Fund
IDS Stock Fund, Inc.
IDS Strategy Fund, Inc.
- IDS Equity Value Fund
- IDS Strategy Aggressive Fund
IDS Tax-Exempt Bond Fund, Inc.
- IDS Intermediate Tax-Exempt Fund
- IDS Tax-Exempt Bond Fund
IDS Tax-Free Money Fund, Inc.
IDS Utilities Income Fund, Inc.
ANNUITY FUNDS:
IDS Life Investment Series, Inc.
- IDS Life Aggressive Growth Fund
- IDS Life Capital Resource Fund
- IDS Life Growth Dimensions Fund
- IDS Life International Equity Fund
IDS Life Managed Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Special Income Fund, Inc.
- IDS Life Global Yield Fund
- IDS Life Income Advantage Fund
- IDS Life Special Income Fund
Your Fund will hold a shareholders' meeting at 3:00 p.m. on June 16, 1999, at
the IDS Tower, 80 S. Eighth Street, Minneapolis, MN on the 50th floor. This will
be a joint meeting with all of the Funds listed above. You were a shareholder on
April 18, 1999 and should vote on each proposal. Please read the proxy
statement. Board members recommend that you vote FOR each proposal.
Please vote immediately by mail, telephone or internet, even if you plan to
attend the meeting. Just follow the instructions on the enclosed proxy card or
cards. You must vote separately for each Fund you own.
April 18, 1999
<PAGE>
PROXY STATEMENT
This is a combined proxy statement for all of the Funds listed on the first
page. There are five sections to this proxy statement:
<TABLE>
<CAPTION>
SECTION PAGE
- ---------------------------------------------------------------------------- -----
<S> <C>
A - Overview................................................................ 3
B - Fund Proposals.......................................................... 5
C - Proxy Voting and Shareholder Meeting Information........................ 26
D - Fund Information........................................................ 29
E - Board Member Information................................................ 49
</TABLE>
Please be sure to read the proxy statement before you vote. You will receive a
separate card for each Fund you own. It is important that you return your vote
for each Fund. This proxy statement was first mailed to shareholders the week of
April 18, 1999.
PLEASE VOTE IMMEDIATELY.
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE COST OF ADDITIONAL MAILINGS.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN.
ANNUITY FUNDS
If your investments include any of the Annuity Funds listed on the first page,
you have the right to instruct IDS Life Insurance Company ("IDS Life") or IDS
Life Insurance Company of New York ("IDS Life of New York") how to vote the
Annuity Fund shares held under your annuity contract. You can do so by mail,
telephone or internet. Just follow the instructions on the enclosed card. IDS
Life and IDS Life of New York will vote any Fund shares for which they do not
receive voting instructions in proportionately the same manner - either For,
Against or Abstain - as shares for which they do receive instructions.
2
<PAGE>
SECTION A - OVERVIEW
The Boards of Directors/Trustees (the "Board") of the Funds in the IDS MUTUAL
FUND GROUP (the "Group") are asking you to vote on the following proposals. The
proposals are described in detail in Section B.
<TABLE>
<CAPTION>
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<S> <C>
PROPOSAL FUNDS AFFECTED
- ----------------------------------------------------------------------
(1) Elect Board All Funds
members
- ----------------------------------------------------------------------
(2) Ratify the All Funds
selection of
independent
auditors
- ----------------------------------------------------------------------
(3) Change the Fund All Funds
name from "IDS"
to "AXP"
- ----------------------------------------------------------------------
(4) Approve a new All Funds except Cash Management and Tax-Free
shareholder Money (Does not apply to Class Y shares)
service and
distribution
plan
- ----------------------------------------------------------------------
(5) Approve changes Blue Chip, Cash Management, Diversified Equity
to the Income, Emerging Markets, Equity Select, Equity
Investment Value, Global Balanced, Global Growth, Research
Management Opportunities, Small Company Index, Strategy
Services Aggressive, Tax-Free Money, Utilities Income
Agreement
- ----------------------------------------------------------------------
(6) Change
investment
policies
regarding:
A: Borrowing or A: All Funds
lending money
to other funds
B: Prohibited B: Bond, Cash Management, Discovery, Equity
conflict of Select, Equity Value, Federal Income, Global
interest Bond, Global Growth, Growth, Insured,
International, Mutual, Managed Allocation, New
Dimensions, Precious Metals, Selective, Small
Company Index, State Tax-Exempts (CA, MA, MI,
MN, NY, OH), Stock, Strategy Aggressive,
Tax-Exempt Bond, Life Aggressive Growth, Life
Capital Resource, Life Global Yield, Life
Growth Dimensions, Life International Equity,
Life Managed, Life Moneyshare, Life Special
Income
- ----------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
PROPOSAL FUNDS AFFECTED
<S> <C>
- ----------------------------------------------------------------------
C: Senior C: Emerging Markets, Equity Value, Extra Income,
securities Federal Income, Global Balanced, Global Bond,
Global Growth, International, Managed
Allocation, Precious Metals, Selective,
Strategy Aggressive, Life Global Yield, Life
Income Advantage, Life Managed, Life Moneyshare
D: Transactions D: Equity Select, Federal Income
with affiliates
E: Other E: Cash Management, International, Stock, Life
investment Moneyshare
companies
F: Pledging or F: Cash Management, Tax-Free Money
mortgaging
G: Three years G: Cash Management, Tax-Free Money
operating history
H: Exploration H: Cash Management, Tax-Free Money, Life
programs Moneyshare
I: Control or I: Cash Management, Life Moneyshare
manage
J: Concentration J: Global Bond
- ----------------------------------------------------------------------
(7) Approve a Managed Allocation, Strategy Aggressive
Subadvisory
Agreement
- ----------------------------------------------------------------------
(8) Change the Equity Select
investment
objective
- ----------------------------------------------------------------------
(9) Transact other All Funds
business
- ----------------------------------------------------------------------
</TABLE>
4
<PAGE>
SECTION B - FUND PROPOSALS
PROPOSAL 1: ELECTION OF BOARD MEMBERS
(Applies to: ALL FUNDS)
WHO ARE THE NOMINEES FOR THE BOARD? Nominees are listed below. Each person is a
nominee for each of the 47 funds within the Group. Each nominee was elected a
member of the Board at the last shareholders' meeting except for Mr. Atwater,
Mr. Carlson and Mr. Simpson.
Each Board member will serve until the next regular shareholders' meeting or
until he or she reaches the mandatory retirement age established by the Board.
Under the current Board policy, members may serve until the meeting following
their 72(nd) birthday. This policy does not apply to Ms. Jones or Mr. Pearce who
may serve until the end of the Board meeting following their 75(th) birthday.
All nominees have agreed to serve. If an unforeseen event prevents a nominee
from serving, your votes will be cast for the election of a substitute selected
by the Board. Information on each nominee follows. Election requires a vote by a
majority of the Fund's shares voted at the meeting.
<TABLE>
<S> <C> <C>
H. BREWSTER ATWATER, JR. Board member since 1996 Born in 1931
Retired chairman and chief executive officer, General Mills, Inc.
Director: Merck & Co., Inc. and Darden Restaurants, Inc.
Committee assignments: Audit, Contracts, Investment Review
ARNE H. CARLSON* Board member since 1999 Born in 1934
Chairman and Chief Executive Officer of the Funds. Governor of
Minnesota, 1991 to 1999. Chair: Board Services Corporation
(provides administrative services to boards).
Committee assignments: Audit, Contracts, Executive, Investment
Review, Nominating
LYNNE V. CHENEY Board member since 1994 Born in 1941
Distinguished Fellow, American Enterprise Institute for Public
Policy
Research. Former Chair of National Endowment of the Humanities.
Director: The Reader's Digest Association Inc., Lockheed-Martin
and Union Pacific Resources.
Committee assignments: Audit, Nominating
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
WILLIAM H. DUDLEY** Board member since 1991 Born in 1932
Senior adviser to the chief executive officer of American Express
Financial Corporation ("AEFC").
Committee assignment: Investment Review
DAVID R. HUBERS** Board member since 1993 Born in 1943
President, chief executive officer and director of AEFC.
HEINZ F. HUTTER Board member since 1994 Born in 1929
Retired president and chief operating officer, Cargill,
Incorporated (commodity merchants and processors).
Committee assignments: Executive, Investment Review
ANNE P. JONES Board member since 1985 Born in 1935
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director: Motorola, Inc.
(electronics), C-Cor Electronics, Inc. and Amnex, Inc.
(communications).
Committee assignments: Audit, Contracts, Executive
WILLIAM R. PEARCE Board member since 1980 Born in 1927
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 of Board Services Corporation.
Committee assignments: Contracts, Investment Review, Nominating
ALAN K. SIMPSON Board member since 1997 Born in 1931
Director of The Institute of Politics, Harvard University. Former
three-term United States Senator for Wyoming. Director: PacifiCorp
(electric power) and Biogen (bio-pharmaceuticals).
Committee assignments: Audit, Executive, Nominating
JOHN R. THOMAS** Board member since 1987 Born in 1937
President of all Funds in the Group. Senior vice president of
AEFC.
Committee assignments: Audit, Executive, Investment Review,
Nominating
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
C. ANGUS WURTELE Board member since 1994 Born in 1934
Retired chairman of the board and chief executive officer, The
Valspar Corporation (paints). Director: Valspar, Bemis Corporation
(packaging) and General Mills, Inc. (consumer foods).
Committee assignments: Contracts, Executive, Investment Review,
Nominating
</TABLE>
*Interested person by reason of being an officer of the Fund.
**Interested person by reason of being an officer, director, securityholder
and/or employee of AEFC or American Express Company ("American Express").
DOES THE BOARD HAVE COMMITTEES? The Board has several committees that
facilitate the work of the Board. The Executive Committee has authority to act
for the full Board between meetings. The Joint Audit Committee considers the
scope of annual audits, reviews the results of those audits, receives reports
from American Express Corporate Audit about the Fund's operations, and addresses
areas of special concern. The Contracts Committee negotiates contracts under the
full Board's direction and monitors the performance under those contracts. The
Investment Review Committee addresses investment issues and receives reports on
the structure and processes used by AEFC to make investment decisions and assure
compliance with applicable requirements. The Nominating Committee makes
recommendations about Board composition and compensation. Shareholders who want
to suggest Board candidates should write to Nominating Committee, IDS MUTUAL
FUND GROUP, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268.
Candidates must have a background that gives promise of making a significant
contribution to furthering the interests of all shareholders.
During 1998, the Board met six times, Joint Audit three times, Contracts six
times, Investment Review four times and Nominating three times. The Executive
Committee did not meet during that period. Average attendance at the Board was
91% and no nominee attended less than 75% of the meetings.
HOW MUCH ARE BOARD MEMBERS PAID? The following table shows the total
compensation received by each Board member from all of the Funds in the Group
for the year ended Dec. 31, 1998. The Funds do not pay retirement benefits to
Board members. Information on compensation paid to Board members by individual
Funds is shown in Section E.
7
<PAGE>
BOARD MEMBER COMPENSATION FROM ALL IDS FUNDS*
<TABLE>
<CAPTION>
NOMINEE AGGREGATE COMPENSATION
- ------------------------------------------------- ----------------------
<S> <C>
Atwater.......................................... $ 108,900
Cheney........................................... 95,400
Hutter........................................... 101,400
Jones............................................ 111,400
Simpson.......................................... 92,400
Wurtele.......................................... 121,900
</TABLE>
*Directors affiliated with AEFC or Board Services Corporation, a company
providing administrative services to the Funds, are not paid by the Funds.
The number of Fund shares beneficially owned by each Board member is shown in
Section E.
WHO ARE THE FUND OFFICERS? Besides Mr. Carlson and Mr. Thomas, the Fund's other
officers are:
LESLIE L. OGG, born in 1938. Vice president and general counsel since 1978.
President of Board Services Corporation.
PETER J. ANDERSON, born in 1942. Vice president-investments since 1995. Director
and senior vice president-investments of AEFC.
FREDERICK C. QUIRSFELD, born in 1947. Vice president-fixed income investments
since 1998. Vice president-taxable mutual fund investments of AEFC.
JOHN M. KNIGHT, born in 1952. Treasurer since 1999. Vice President-Investment
Accounting of AEFC.
Officers serve at the pleasure of the Board. Officers are paid by AEFC or Board
Services Corporation. During the last fiscal year, no officer earned more than
$60,000 from any Fund.
PROPOSAL 2: RATIFY OR REJECT THE SELECTION OF
KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS
(Applies to: ALL FUNDS)
KPMG Peat Marwick LLP is the independent auditor for the Fund. KPMG has provided
audit, tax and consulting services to the Fund for many years. It meets at least
twice each year with the Joint Audit Committee. Based on that Committee's
recommendation, the independent members of the Board selected KPMG to provide
these services again this year. A representative of KPMG will be at the meeting
to answer questions or
8
<PAGE>
make a statement. The independent members of the Board recommend that you vote
to ratify their action. This requires an affirmative vote by a majority of the
shares voting at the meeting. If the selection is not ratified, the independent
members will decide what further action must be taken.
PROPOSAL 3: APPROVE OR REJECT AN
AMENDMENT TO THE ARTICLES OF INCORPORATION/
DECLARATION OF TRUST TO CHANGE THE NAME OF THE FUND
(Applies to: ALL FUNDS)
WHY SHOULD THE NAME OF THE FUND BE CHANGED? Historically the name of the Fund
has reflected the name of the investment manager. For many years, the Fund name
has been IDS. In 1995, the investment manager changed its name from IDS
Financial Corporation to American Express Financial Corporation to reflect that
it is wholly owned by American Express and because American Express has high
name recognition and a strong reputation for quality. This is the first
shareholder meeting since AEFC changed its name and the first opportunity for
shareholders to consider this name change. Consistent with a common industry
practice, AEFC recommends that the Fund use AXP, an abbreviated form of the
investment manager's name. The family of funds will be referred to as the
American Express Funds.
WHAT STEPS ARE REQUIRED? Shareholders of each corporation or trust will vote to
change the name of the legal entity and the Board will change the name of the
underlying series of shares that are separate Funds. Retail Funds will replace
"IDS" with "AXP" in their name. Annuity Funds will add "Variable Portfolio" to
their name in addition to changing to AXP. This designation is commonly used in
the industry for funds sold only through variable annuities. In addition, the
Board will change the names of some Annuity Funds to parallel the names of the
Retail Funds with the same investment objectives, as shown in the following
table.
For the Funds listed in the following table there is one further change.
Originally the corporation issued only one series and had the same name as the
Fund. The corporation now issues more than one series and there is confusion
between the name of the corporation and the name of the original Fund. The name
of the corporation will be changed as shown in the following table.
9
<PAGE>
TABLE 3-1. PROPOSED FUND NAMES
(for Funds with a change in addition to substituting AXP for IDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<S> <C>
CURRENT NAME PROPOSED NAME
- ------------------------------------------------------------------
IDS Growth Fund, Inc. AXP Growth Series, Inc.
-IDS Growth Fund - AXP Growth Fund
-IDS Research Opportunities - AXP Research Opportunities
Fund Fund
- ------------------------------------------------------------------
IDS Managed Retirement Fund, AXP Managed Series, Inc.
Inc.
-IDS Managed Allocation Fund - AXP Managed Allocation Fund
- ------------------------------------------------------------------
IDS Strategy Fund, Inc. AXP Strategy Series, Inc.
-IDS Equity Value Fund - AXP Equity Value Fund
-IDS Strategy Aggressive Fund - AXP Strategy Aggressive Fund
- ------------------------------------------------------------------
IDS Tax-Exempt Bond Fund, Inc. AXP Tax-Exempt Series, Inc.
-IDS Intermediate Tax-Exempt - AXP Intermediate Tax-Exempt
Bond Fund Bond Fund
-IDS Tax-Exempt Bond Fund - AXP Tax-Exempt Bond Fund
- ------------------------------------------------------------------
IDS Life Investment Series, Inc. AXP Variable Portfolio -
Investment Series, Inc.
-IDS Life Aggressive Growth - AXP Variable Portfolio -
Fund Strategy Aggressive Fund
-IDS Life Capital Resource - AXP Variable Portfolio -
Fund Capital Resource Fund
-IDS Life Growth Dimensions - AXP Variable Portfolio - New
Fund Dimensions Fund
-IDS Life International Equity - AXP Variable Portfolio -
Fund International Fund
- ------------------------------------------------------------------
IDS Life Managed Fund, Inc. AXP Variable Portfolio - Managed
Series, Inc.
-IDS Life Managed Fund - AXP Variable Portfolio -
Managed Fund
- ------------------------------------------------------------------
IDS Life Moneyshare Fund, Inc. AXP Variable Portfolio - Money
Market Series, Inc.
-IDS Life Moneyshare Fund - AXP Variable Portfolio -
Cash Management Fund
- ------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
CURRENT NAME PROPOSED NAME
<S> <C>
- ------------------------------------------------------------------
IDS Life Special Income Fund, AXP Variable Portfolio - Income
Inc. Series, Inc.
-IDS Life Global Yield Fund - AXP Variable Portfolio -
Global Bond Fund
-IDS Life Income Advantage - AXP Variable Portfolio -
Fund Extra Income Fund
-IDS Life Special Income Fund - AXP Variable Portfolio -
Bond Fund
- ------------------------------------------------------------------
</TABLE>
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that you vote to approve the necessary amendments to the Articles of
Incorporation or Declaration of Trust to change the name of the Fund. The name
change requires the approval of a majority of the Fund's shares voted at the
meeting. The change will be effective when the amendments are filed with the
appropriate state office. This filing is expected to occur shortly after the
shareholder meeting.
PROPOSAL 4: APPROVE OR REJECT
A SHAREHOLDER SERVICE AND DISTRIBUTION PLAN
(Applies to: ALL FUNDS EXCEPT CASH MANAGEMENT AND TAX-FREE MONEY)
American Express Financial Advisors Inc. ("AEFA") is the distributor for the
Retail Funds. IDS Life is the distributor for the Annuity Funds. For purposes of
this discussion "AEFA" includes both AEFA and IDS Life. The Retail Funds
currently pay AEFA for providing ongoing services to shareholders but AEFA
legally may not use any of this money to pay for distribution costs. AEFA met
with the Board on several occasions to discuss changes in the financial services
industry. It recommends that the Fund pay some of its distribution costs in
addition to paying for ongoing shareholder services. A Fund is permitted to pay
distribution costs by Securities and Exchange Commission ("SEC") Rule 12b-1.
In support of its recommendation, AEFA made the following observations:
- - growth of the Fund's assets is crucial to long term success
- - the industry has evolved over the years toward a fee-based means of
compensating financial advisors and other financial intermediaries
- - the Fund's current pricing structure leaves it at a competitive disadvantage
to other funds that generally have distribution/shareholder service fees of
0.25% or more
- - while AEFA has been very successful selling shares through its financial
advisors and institutional retirement plans, in order to gain market share
the Fund must be sold in other ways as well
11
<PAGE>
In light of these observations, AEFA recommended:
A. RETAIL FUNDS - CLASS A. (Applies to: CLASS A AND CLASS B SHAREHOLDERS FOR
ALL RETAIL FUNDS EXCEPT CASH MANAGEMENT AND TAX-FREE MONEY) That Class A
shareholders of the Retail Funds convert existing Shareholder Service Agreements
to distribution plans (also known as 12b-1 plans) and increase fees from 0.175%
to 0.25% of average daily net assets. Because Class B shares convert to Class A
shares in the ninth year of ownership, Class B shareholders also will vote on
the Class A distribution plan. For Class B shareholders, a vote in favor of this
proposal is a vote in favor of both the Class A and Class B plans.
B. RETAIL FUNDS - CLASS B. (Applies to: CLASS B SHAREHOLDERS FOR ALL RETAIL
FUNDS EXCEPT CASH MANAGEMENT AND TAX-FREE MONEY) That Class B shareholders of
the Retail Funds combine existing Shareholder Service Agreements with existing
distribution plans and increase combined fees from 0.925% to 1.0% of average
daily net assets.
C. ANNUITY FUNDS. (Applies to: ALL ANNUITY FUNDS) That the Annuity Funds adopt
distribution plans with a fee of 0.125% of average daily net assets. Currently,
the Annuity Funds do not have a distribution plan or a shareholder service
agreement.
SHAREHOLDER SERVICE. Services provided under the existing Shareholder Service
Agreement for the Retail Funds are intended to help shareholders thoughtfully
consider their investment goals and monitor the progress they are making in
achieving those goals. Shareholder service-related activities include, among
other things, ongoing interactions between financial advisors and shareholders,
shareholder communications and shareholder seminars.
DISTRIBUTION PLAN. Under the distribution plan, AEFA will distribute Fund
shares and service shareholder accounts either directly through its financial
advisors or through broker-dealers and other financial intermediaries. AEFA will
use distribution plan fees to pay for distribution activities. Distribution
activities are primarily intended to result in sales of Fund shares and include
advertising, compensation and expenses of financial advisors or other sales and
marketing personnel, printing and mailing of prospectuses to prospective
investors, and printing and mailing of sales literature. In addition, AEFA will
provide the shareholder services described in the previous paragraph.
12
<PAGE>
HOW WILL THE PROPOSED CHANGE AFFECT FUND EXPENSES? Fees and expenses the Fund
actually paid as well as fees and expenses the Fund would have paid if the
proposed Plan had been in effect for the last fiscal year are shown in Section
D.
THE PROPOSED DISTRIBUTION PLAN. Under the proposed plan, the Fund will pay AEFA
each month for distribution and shareholder servicing activities. AEFA will pay
financial advisors, broker-dealers and other financial intermediaries who
provide distribution or shareholder services to the Fund's shareholders. AEFA
will provide the Board with quarterly reports specifying how the money was
spent.
WHAT FACTORS DID THE BOARD CONSIDER? In considering the adoption of the
distribution plan, the Board considered the potential costs and benefits of the
plan, including:
- - the increase in expenses
- - the competitive situation in the industry involving the adoption of
distribution plans by an increasing number of funds
- - AEFA's need to compensate financial advisors, broker-dealers and other
financial intermediaries for distribution and service-related activities at
competitive levels to assure the scope and quality of services expected by
shareholders
- - the impact on investment management of positive cash flow and increased asset
size
The Board also recognized and considered that possible benefits may be realized
by AEFC as a result of the adoption of the plan. If Fund assets grow more
rapidly as a result of the implementation of the plan, the investment management
and administrative services fees payable to AEFC by the Fund (which are
calculated as a percent of net assets) will increase.
The Board reviewed the Fund's expense ratios, the level to which the expense
ratios will increase as a result of adopting the plan, the relationship of the
fee to the overall expense ratio of the Fund and how the overall expense ratio
compares to expense ratios of comparable funds with which the Fund competes. The
Board concluded that the proposed plan and fees are consistent with those in the
industry.
If approved, the plan will continue in effect for one year from the date of
approval, and then from year to year so long as it is approved by a majority of
the Board, including a majority of the independent members. The plan may be
terminated at any time by the Board or the shareholders and will terminate
automatically if it is assigned. The plan may not be
13
<PAGE>
amended to materially increase the amount of the fee unless the change is
approved by the shareholders.
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed plan. The Plan must be
approved by the lesser of (a) a majority of the Fund's outstanding shares or (b)
67% of the shares voted at the meeting, so long as more than 50% of the shares
actually vote. If the proposed plan is not approved, the Fund will continue to
operate under its current arrangements.
PROPOSAL 5: APPROVE OR REJECT CHANGES TO
THE INVESTMENT MANAGEMENT SERVICES AGREEMENT
(Applies to: BLUE CHIP, CASH MANAGEMENT, DIVERSIFIED EQUITY INCOME, EMERGING
MARKETS, EQUITY SELECT, EQUITY VALUE, GLOBAL BALANCED, GLOBAL GROWTH, RESEARCH
OPPORTUNITIES, SMALL COMPANY INDEX, STRATEGY AGGRESSIVE, TAX-FREE MONEY,
UTILITIES INCOME)
The Fund pays fees to AEFC under an Investment Management Services Agreement
(the "Agreement") for conducting day-to-day investment management services for
the Fund. The services performed by AEFC include providing the personnel,
equipment and office facilities necessary for the management of the Fund's
investment portfolio. Subject to the direction of the Board and consistent with
the Fund's investment policies, AEFC decides what securities to buy, hold or
sell. AEFC also executes buy and sell orders and provides research and
statistical data to support investment management activities. Some of the Retail
Funds are part of a master/ feeder structure. In this structure, the Fund
invests all of its assets in a master fund (the "Portfolio") with the same
policies as the Fund. For purposes of this discussion, a Portfolio is referred
to as a "Fund".
AEFC recommended to the Board that the fee schedule under the Agreement be
changed to help ensure that AEFC receives fees for its services that will allow
it to:
- - attract and retain high quality investment management and research personnel
- - continue to provide technology and other systems necessary to keep the Fund
operating at a high level of service
- - continue efforts to improve investment performance for the benefit of
shareholders in the future
14
<PAGE>
AEFC believes that maintaining competitive management fees will, over the long
term, enable it to continue to provide high-quality management services to the
Fund.
The proposed management fee reflects one or more of the following changes:
- - An increase in the fee
- - The addition of breakpoints that reduce fee rates as the Fund's assets grow
- - The addition of a performance incentive adjustment ("PIA")
Please check the following table to see what changes apply to your Fund.
TABLE 5-1. PROPOSED MANAGEMENT FEE CHANGES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<S> <C> <C>
TYPE OF PROPOSED FEE
FUND CHANGE (ANNUAL RATE; IN BILLIONS)
- -------------------------------------------------------------------
Blue Chip Increase, First $.25 - .54%; next $.25 -
breakpoint .515%; next $.25 - .49%; next
and PIA $.25 - .465%; next $1 - .44%;
next $1 - .41%; next $3 -
.38%; over $6 - .35%
- -------------------------------------------------------------------
Cash Management Increase First $1 - .36%; next $.5 -
Tax-Free Money and .343%; next $.5 - .325%; next
breakpoint $.5 - .308%; next $1 - .29%;
next $3 - .27%; over $6.5 -
.25%
- -------------------------------------------------------------------
Diversified Equity PIA *
Income
- -------------------------------------------------------------------
Emerging Markets PIA *
- -------------------------------------------------------------------
Equity Select Increase, First $1 - .60%; next $1 -
breakpoint .575%; next $1 - .55%; next $3
and change - .525%; next $6 - .50%; next
in PIA $12 - .49%; over $24 - .48%
- -------------------------------------------------------------------
Equity Value PIA *
- -------------------------------------------------------------------
Global Balanced PIA *
- -------------------------------------------------------------------
Global Growth PIA *
- -------------------------------------------------------------------
Research Opportunities PIA *
- -------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
TYPE OF PROPOSED FEE
FUND CHANGE (ANNUAL RATE; IN BILLIONS)
<S> <C> <C>
- -------------------------------------------------------------------
Small Company Index PIA *
- -------------------------------------------------------------------
Strategy Aggressive PIA *
- -------------------------------------------------------------------
Utilities Income Increase First $0.5 - .61%; next $0.5 -
and PIA .585%; next $1 - .56%; next $1
- .535%; next $3 - .51%; over
$6 - .48%
- -----------------------------------
</TABLE>
*The fee schedule will not change. The performance incentive adjustment is
discussed in detail in the following paragraphs.
WHAT ARE THE TERMS OF THE CURRENT AGREEMENT? The fee the Fund pays to AEFC for
its services under the Agreement is based on the net assets of the Fund and
decreases as the size of the Fund increases. The complete fee schedule for the
Fund and other Funds managed by AEFC is found in Section D. The Fund also pays
its taxes, brokerage commission and nonadvisory expenses, which include
custodian fees; audit and certain legal fees; fidelity bond premiums;
registration fees for shares; consultant fees; Board compensation; corporate
filing fees; organizational expenses; a portion of the Investment Company
Institute dues; expenses incurred in connection with lending portfolio
securities; and other expenses properly payable by the Fund, approved by the
Board. Section D includes information on the date of the current Agreement, the
date it was last approved by shareholders and the reason why it was submitted to
shareholders at that time.
16
<PAGE>
HOW DOES THE PROPOSED AGREEMENT DIFFER FROM THE CURRENT AGREEMENT? The terms of
the proposed Agreement are the same as the current Agreement except for the
change described in Table 5-1.
WHAT IS A PERFORMANCE INCENTIVE ADJUSTMENT? (Applies to: BLUE CHIP, DIVERSIFIED
EQUITY INCOME, EMERGING MARKETS, EQUITY SELECT, EQUITY VALUE, GLOBAL BALANCED,
GLOBAL GROWTH, RESEARCH OPPORTUNITIES, SMALL COMPANY INDEX, STRATEGY AGGRESSIVE,
UTILITIES INCOME) Under the proposed performance incentive adjustment, the fee
will be adjusted based on the Fund's performance compared to an index of similar
funds. The performance incentive adjustment is calculated by measuring the
percentage difference over a rolling 12-month period between:
- - the performance of one Class A share of the Fund and
- - the change in a designated Lipper Index (the "Index") of funds with similar
investment objectives.
As described in more detail below, if the Fund's performance is better than the
Index, the fee paid to AEFC will increase. If the Fund's performance is worse
than the Index, the fee paid to AEFC will decrease. The following table shows
the proposed Index for each Fund and the maximum adjustment.
TABLE 5-2. PROPOSED INDEXES
<TABLE>
<CAPTION>
------------------------------------------------------------------
MAXIMUM
FUND INDEX ADJUSTMENT
<S> <C> <C>
- -----------------------------------------------------------------------
Blue Chip Lipper Growth and Income Fund
Index .08%
Diversified Equity Lipper Equity Income Fund Index
Income .08%
Emerging Markets Lipper Emerging Markets Fund
Index .12%
Equity Select Lipper Growth Fund Index .12%
Equity Value Lipper Growth and Income Fund
Index .08%
Global Balanced Lipper Global Fund Index .12%
Global Growth Lipper Global Fund Index .12%
Research Opportunities Lipper Growth Fund Index .12%
Small Company Index Lipper Small Cap Fund Index .12%
Strategy Aggressive Lipper Capital Appreciation Fund
Index .12%
Utilities Income Lipper Utility Fund Index .08%
- --------------------------------------------------------
</TABLE>
For Equity Select, shareholders are being asked to approve a change from Lipper
Growth and Income Fund Index to Lipper Growth Fund Index and from a maximum
adjustment of .08% to .12%. These changes will be made only if shareholders
approve Proposal 8 to change the Fund's investment
17
<PAGE>
objective. If shareholders do not approve Proposal 8, the Fund will continue to
operate under its current Index and maximum adjustment.
- - HOW IS THE ADJUSTMENT CALCULATED? One percentage point is subtracted from
the calculation to help assure that incentive adjustments are attributable to
AEFC's investment decisions rather than random fluctuations and the result is
multiplied by .01. For example, if the difference between the change in the
Fund's net asset value and the change in the Index for a comparison period is
2.55 percent, the adjustment would be .000155 (.0255 - .01 = .0155 X .01 =
.000155) times the Fund's average net assets for the comparison period divided
by 12. The first adjustment will be made on January 1, 2000 and will cover the
six-month period beginning July 1, 1999. The comparison period will increase by
one month each month until it reaches 12 months.
- - WHAT ARE LIPPER INDEXES? Lipper, Inc. is an unaffiliated company that
collects data from company reports, financial reporting services, periodicals
and other sources deemed to be reliable. It then analyzes the data and publishes
a number of indexes based on the performance of the largest mutual funds in
various categories. Categories are based on investment objectives. Lipper
indexes are published by newspapers and periodicals throughout the country and
are generally recognized by the mutual fund industry as being an accurate and
reliable source of comparative information. If an Index ceases to be published
for a period of more than 90 days, changes in any material respect or otherwise
becomes impracticable to use for purposes of a performance incentive adjustment,
the Fund will pay the advisory fee without any adjustment for performance until
the Board approves a substitute index. Lipper is currently in the process of
modifying and expanding its indexes. After those changes are completed, some of
the current indexes may no longer exist. As a result, the Board may need to
approve a different Index for the Fund in the near future. Using a different
Index for the performance incentive adjustment would most likely result in
different pro forma information.
HOW WILL THE PROPOSED CHANGE IN FEE STRUCTURE AFFECT FUND EXPENSES? Fees and
expenses the Fund actually paid as well as fees and expenses the Fund would have
paid if the proposed Agreement had been in effect for the last fiscal year are
shown in Section D.
WHAT INFORMATION WAS REVIEWED AND CONSIDERED? The Contracts Committee, as well
as the full Board, received information on:
- - current trends in the financial services industry, including market share
data for both mutual funds and annuity funds
18
<PAGE>
- - information on investment performance over various time periods for the Fund,
a group of comparable funds and an appropriate comparative index
- - the proposed management fee compared to management fees of comparable funds
- - the impact of the proposed change on the Fund's expense ratio
- - the Fund's expense ratio compared to a group of comparable funds
- - the impact of performance incentive adjustments
- - AEFC's overall profitability from its mutual fund operations in light of
available industry data, both including and excluding distribution costs
- - the benefits to AEFC as assets increase in size and the extent economies of
scale are shared with the Fund
- - the character and amount of fees paid by the Fund for the other services
provided by AEFC and its affiliates, and the revenues it generates from
retirement custodial accounts, fees paid for custodial services to an
affiliate of AEFC and the allocation of brokerage to an affiliate of AEFC
As part of the process of reviewing the information, the Board retained
PricewaterhouseCoopers to assist in its review.
WHAT WERE THE CONCLUSIONS? The Board and the Contracts Committee for each Fund
acted separately in considering the information provided to assure that the
Fund's fees as compared to AEFC's costs in providing services to the Fund are
equitable and appropriate in relation to that of each of the other Funds. The
Board concluded that a competitive fee:
- - will help AEFC remain competitive in attracting, retaining and motivating the
high quality investment personnel necessary to manage the Fund
- - will help to address the expectations regarding the performance of the Fund
- - will allow AEFC to continue to improve the technology and other systems
necessary to keep the Fund operating at a high level of service
At a meeting held on January 13-14, 1999, called for the purpose of considering
the proposed Agreement, the independent members first and then the Board as a
whole, by vote, cast in person, approved the terms of the proposed Agreement. If
approved, the proposed Agreement will continue from year to year after the
second year, so long as it is approved at least annually by a majority of the
Board, including a majority of the independent members. The proposed Agreement
may be terminated at any time
19
<PAGE>
by the Board, AEFC or the shareholders and will terminate automatically if it is
assigned.
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed Agreement. The Agreement must
be approved by the lesser of (a) a majority of the Fund's outstanding shares or
(b) 67% of the shares voted at the meeting, so long as more than 50% of the
shares actually vote. If the proposed Agreement is not approved, the Fund will
continue to operate under the current Agreement.
PROPOSAL 6: APPROVE OR REJECT
CHANGES IN INVESTMENT POLICIES
(Applies to: ALL FUNDS)
The Fund has some investment policies that are fundamental. This means the
policies can be changed only with the approval of shareholders. A few of these
policies are no longer required to be fundamental, some need changes and others
are no longer required at all. The Board recommends making the following changes
to the Fund's fundamental investment policies:
A. CHANGE THE POLICY SO THAT THE FUND MAY BORROW OR LEND MONEY TO OTHER FUNDS
ADVISED BY AEFC. (Applies to: ALL FUNDS) If approved by shareholders, the Fund
and all other Funds advised by AEFC or its affiliates intend to file a request
for an exemptive order with the SEC that will permit them to participate in a
borrowing and lending program. The Fund's existing policies do not allow these
arrangements. If shareholders approve this proposal, the Board will adopt a new
investment policy so that the Fund may borrow from and lend money to the other
Funds.
- - WHY WOULD THE FUND WANT TO BORROW OR LEND MONEY? Normally, the Fund has
enough cash on hand to satisfy all requests from shareholders who want to sell
shares. However, sometimes the Fund may be short on cash while waiting for
security trades to settle (typically a three business-day process). The Fund has
a bank line of credit to meet such an unusual event but it may be less costly to
borrow from another Fund. It also benefits the Fund to lend money to an
associated Fund on a short-term basis if it has cash available. The only
circumstance under which the Fund would borrow or lend money is short-term cash
needs to meet redemption requests.
20
<PAGE>
B. ELIMINATE THE POLICY ADDRESSING A POTENTIAL CONFLICT OF INTEREST. (Applies
to: BOND, CASH MANAGEMENT, DISCOVERY, EQUITY SELECT, EQUITY VALUE, FEDERAL
INCOME, GLOBAL BOND, GLOBAL GROWTH, GROWTH, INSURED, INTERNATIONAL, MUTUAL,
MANAGED ALLOCATION, NEW DIMENSIONS, PRECIOUS METALS, SELECTIVE, SMALL COMPANY
INDEX, STATE TAX-EXEMPTS, STOCK, STRATEGY AGGRESSIVE, TAX-EXEMPT BOND, LIFE
AGGRESSIVE GROWTH, LIFE CAPITAL RESOURCE, LIFE GLOBAL YIELD, LIFE GROWTH
DIMENSIONS, LIFE INTERNATIONAL EQUITY, LIFE MANAGED, LIFE MONEYSHARE, LIFE
SPECIAL INCOME) The Fund has a fundamental policy that prohibits it from buying
securities of any company if an officer or board member of the Fund or of the
Fund's investment adviser individually owns more than 1/2 of 1% of the
securities of that company and together they own more than 5% of those
securities. This policy originated with state securities laws designed to avoid
conflicts of interest. These laws no longer apply to the Fund. Both the Fund and
AEFC have Codes of Ethics that address conflicts of interest. Under these Codes,
procedures are in place to keep individuals who would stand to gain from the
Fund's investments in an inappropriate way from doing so. The Board believes
that Codes of Ethics are a better way to address these types of conflicts of
interest because they can be tailored to the specific operating structures of an
organization and to provide appropriate flexibility. The elimination of this
policy will not change the way the Fund's assets are invested.
C. MODIFY THE POLICY PROHIBITING ISSUANCE OF SENIOR SECURITIES. (Applies to:
EMERGING MARKETS, EQUITY VALUE, EXTRA INCOME, FEDERAL INCOME, GLOBAL BALANCED,
GLOBAL BOND, GLOBAL GROWTH, INTERNATIONAL, MANAGED ALLOCATION, PRECIOUS METALS,
SELECTIVE, STRATEGY AGGRESSIVE, LIFE GLOBAL YIELD, LIFE INCOME ADVANTAGE, LIFE
MANAGED, LIFE MONEYSHARE) The Fund has a fundamental policy that prohibits it
from issuing any senior security. The Board recommends that shareholders vote to
replace the current policy with the following limitation: "THE FUND WILL NOT
ISSUE SENIOR SECURITIES, EXCEPT AS PERMITTED UNDER THE INVESTMENT COMPANY ACT OF
1940." The purpose of this change is to develop a standardized policy for all
Funds in the Group. Generally a senior security is an obligation of the Fund
that takes priority over the claims of the Fund's shareholders. The law
prohibits the Fund from issuing most types of senior securities, but permits
doing so if certain conditions are met. For example, the Fund may enter into a
transaction that obligates it to pay money at a future date if cash is set aside
to cover the obligation. This type of transaction may be considered a senior
security. It is desirable in this situation for the Group to have a standardized
policy and the revised policy will not change the way the Fund's assets are
invested.
21
<PAGE>
D. ELIMINATE THE POLICY PROHIBITING TRANSACTIONS WITH AFFILIATES. (Applies to:
EQUITY SELECT, FEDERAL INCOME) This is a proposal to standardize policies. The
Fund is one of only two funds in the Group that has a fundamental policy
limiting its ability to purchase securities from, or sell securities to, the
Fund's advisor or any officer or board member of the Fund or the advisor. These
transactions are prohibited by law and therefore the policy is not necessary.
E. RECLASSIFY AS NONFUNDAMENTAL THE FUND'S POLICY ON INVESTING IN OTHER
INVESTMENT COMPANIES. (Applies to: CASH MANAGEMENT, INTERNATIONAL, STOCK, LIFE
MONEYSHARE) The Fund has a fundamental policy prohibiting it from investing in
other investment companies, such as country-specific funds, except by purchases
in the open market where the dealer's or sponsor's profit is the regular
commission. The Board recommends that this policy be changed to non-fundamental
to conform with the standard policy used by the other Funds in the Group.
Changing this policy to non-fundamental will not have any impact on the Fund's
investment practices.
F. ELIMINATE THE POLICY PROHIBITING THE FUND FROM PLEDGING OR
MORTGAGING. (Applies to: CASH MANAGEMENT, TAX-FREE MONEY) The Fund has a
fundamental policy that it may not pledge or mortgage more than 15% of its
assets as collateral for loans or for other purposes. This requirement is based
on a state law that no longer applies. While the Board recommends elimination of
the policy on pledging or mortgaging assets, the Fund continues to have a
fundamental policy limiting its ability to borrow. The elimination of this
policy will not change the way the Fund's assets are invested.
G. ELIMINATE THE POLICY ON INVESTMENTS IN ISSUERS WITH LESS THAN THREE YEARS OF
OPERATING HISTORY. (Applies to: CASH MANAGEMENT, TAX-FREE MONEY) The Fund has a
fundamental policy that it may not invest more than 5% of its assets in
companies with less than three years of operating history. This requirement is
based on a state law that no longer applies. The elimination of this policy will
not change the way the Fund's assets are invested.
H. ELIMINATE THE POLICY PROHIBITING INVESTMENT IN EXPLORATION AND DEVELOPMENT
PROGRAMS. (Applies to: CASH MANAGEMENT, TAX-FREE MONEY, LIFE MONEYSHARE) The
Fund has a fundamental policy that it may not invest in any oil, gas or other
mineral exploration or development programs. This requirement is based on a
state law that no longer applies. The elimination of this policy will not change
the way the Fund's assets are invested.
22
<PAGE>
I. ELIMINATE THE POLICY PROHIBITING INVESTMENTS FOR THE PURPOSE OF EXERCISING
CONTROL OR MANAGING THE COMPANY. (Applies to: CASH MANAGEMENT, LIFE MONEYSHARE)
The Fund has a fundamental policy that it may not invest in any company for
purposes of exercising control or management. This requirement is based on a
state law that no longer applies. The elimination of this policy will not change
the way the Fund's assets are invested.
J. CHANGE THE POLICY REGARDING CONCENTRATION. (Applies to: GLOBAL BOND) The
Fund is a non-diversified investment company that may invest significant amounts
of its assets in securities of certain governments. The fundamental policy
states it may not concentrate in any one industry but says nothing about
governments. The policy will be clarified to read as follows: "THE FUND WILL NOT
CONCENTRATE IN ANY ONE INDUSTRY, EXCEPT THAT THE FUND MAY INVEST MORE THAN 25%
OF ITS ASSETS IN GOVERNMENT SECURITIES OF A SINGLE COUNTRY."
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed changes in the fundamental
policies. The changes must be approved by the lesser of (a) a majority of the
Fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long
as more than 50% of the shares actually vote. If the changes are not approved,
the Fund will continue to operate in accordance with its current investment
policies.
PROPOSAL 7: APPROVE OR REJECT A NEW SUBADVISORY
AGREEMENT WITH KENWOOD CAPITAL MANAGEMENT LLC
(Applies to: MANAGED ALLOCATION, STRATEGY AGGRESSIVE)
Kenwood Capital Management LLC ("Kenwood") is a registered investment adviser
with particular expertise on investments in small capitalization companies.
Kenwood is a subsidiary of AEFC. AEFC plans to enter into a Subadvisory
Agreement with Kenwood. Under the proposed Subadvisory Agreement, AEFC will
grant investment management authority to Kenwood with respect to all or a part
of the Fund's assets. Kenwood will be authorized to buy or sell stocks, bonds
and other securities for the Fund, subject to the overall supervision of AEFC.
WILL THE PROPOSED SUBADVISORY AGREEMENT CHANGE THE FEES PAID BY THE FUND? There
will be no change in the fees paid by the Fund. If the proposed Subadvisory
Agreement is approved, the fees paid by the Fund to AEFC will remain the same.
AEFC, not the Fund, will pay Kenwood. Compensation will be based on the assets
allocated to Kenwood by AEFC and will be paid at a rate of 0.35% of average
daily net assets.
23
<PAGE>
PRINCIPALS AND MANAGEMENT BOARD OF KENWOOD. Jacob E. Hurwitz and Kent A. Kelley
are the principals of Kenwood. The following individuals are directors of
Kenwood: Peter J. Anderson, Jacob E. Hurwitz, Kent A. Kelley, Gabrielle F.
Parish, Stephen W. Roszell. Mr. Anderson and Mr. Roszell are officers of AEFC.
Ms. Parish is an officer of American Express Asset Management Group ("AEAMG"), a
wholly-owned subsidiary of AEFC. All of the directors are located at IDS Tower,
Minneapolis, MN 55440-0010. AEAMG owns 50.1% of Kenwood. Mr. Hurwitz and Mr.
Kelley each owns a minority interest. Kenwood's address is IDS Tower 10,
Minneapolis, MN 55440-0010.
WHEN WILL THE PROPOSED SUBADVISORY AGREEMENT START? If approved by
shareholders, the proposed Subadvisory Agreement will take effect shortly after
the shareholder meeting. The proposed Subadvisory Agreement will continue from
year to year, provided continuance is approved at least annually. The proposed
Subadvisory Agreement may be terminated without penalty either by the Board, by
AEFC or by a vote of a majority of the outstanding shares of the Fund.
WHAT FACTORS DID THE BOARD CONSIDER? Subadvisory agreements must be approved by
shareholders when the subadvisor is partially owned by the investment manager.
The Subadvisory Agreement meets appropriate operational objectives of AEFC and
Kenwood. AEFC has committed to be fully accountable for the investment
performance of the Fund and for all duties and responsibilities under the
Investment Management Services Agreement. AEFC will manage the arrangement with
Kenwood in the same way it oversees portfolio managers directly employed by
AEFC.
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed Subadvisory Agreement. The
Subadvisory Agreement must be approved by the lesser of (a) a majority of the
Fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long
as more than 50% of the shares actually vote. If the proposed Subadvisory
Agreement is not approved, the Fund will continue to operate under its current
investment management agreement with AEFC.
24
<PAGE>
PROPOSAL 8: APPROVE OR REJECT
A CHANGE IN THE INVESTMENT OBJECTIVE
(Applies to: EQUITY SELECT)
Currently the Fund's investment objective is "growth of capital and income". The
Fund invests primarily in mid-capitalization securities. AEFC has advised the
Board that it is becoming increasingly difficult for the portfolio manager to
find mid-cap securities that pay dividends. Most mid-cap companies are run as
growth companies. This means that they are more likely to reinvest all of their
income into the business and less likely to distribute income to their
shareholders. As a result, AEFC recommended to the Board that the Fund's
investment objective be changed to eliminate income as an objective. If
shareholders approve, the Fund's objective will be "growth of capital". While
the Fund may still purchase securities that pay dividends, it will no longer
have income as an objective in making investment decisions.
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the change in investment objective. The
change must be approved by the lesser of (a) a majority of the Fund's
outstanding shares or (b) 67% of the shares voted at the meeting, so long as
more than 50% of the shares actually vote. If the change is not approved, the
Fund will continue to operate under its current investment objective.
25
<PAGE>
SECTION C - PROXY VOTING AND
SHAREHOLDER MEETING INFORMATION
This section includes information about proxy voting and the shareholder
meetings.
VOTING. Each share is entitled to one vote. For those of you who cannot come to
the meeting, the Board is asking permission to vote for you. The shares will be
voted as you instruct either by mail, telephone or internet. Signed proxy cards
returned without instructions will be voted in favor of all proposals.
Each corporation or trust issues one or more series of common stock. Each series
is a separate Fund. On the election of board members, ratification of
independent auditors and the change of name, you vote together with the owners
of shares of all the other Funds that are part of the same corporation or trust.
On the investment management agreement, changes of fundamental investment
policies, subadvisory agreement and change in investment objective, you vote
together with the owners of the other shares in your Fund. On the distribution
plan, you vote together with the owners of shares of the same class owned in
your Fund. All votes count toward a quorum, regardless of how they are voted
(For, Against or Abstain). Abstentions are treated as a vote against a proposal.
Broker non-votes (shares for which the underlying owner has not voted and the
broker holding the shares does not have authority to vote) will be counted
toward a quorum. In determining whether a proposal received the affirmative vote
of 67% of the shares voted at the meeting, broker non-votes will be disregarded
in the calculation. In determining whether a proposal received the affirmative
vote of 50% of the outstanding shares, broker non-votes will be treated as a
vote against the proposal.
In voting for Board members, you may vote all of your shares cumulatively. This
means that you have the right to give each nominee an equal number of votes or
divide the votes among the nominees as you wish. You have as many votes as the
number of shares you own, including fractional shares, multiplied by the number
of members to be elected. If you elect to withhold authority for any individual
nominee or nominees, you may do so by marking the box labeled "Exception," and
by striking the name of any excepted nominee, as is further explained on the
card itself. If you do withhold authority, the proxies will not vote shares
equivalent to the proportionate number applicable to the names for which
authority is withheld.
MASTER/FEEDER FUNDS. Some Funds are part of a master/feeder structure. The
feeder funds seek their investment objectives by investing their assets
26
<PAGE>
in master funds with the same policies. Master funds invest in and manage the
securities. Proposals 5 through 8 affect the master funds. Feeder funds, as the
sole shareholders of the master fund, will vote for or against each of those
proposals in proportion to the vote received from feeder fund shareholders.
REVOKING YOUR PROXY. If your plans change and you can attend the meeting,
simply inform the Secretary at the meeting that you will be voting your shares
in person. Also, if you change your mind after you vote, you may change your
vote or revoke it by mail, telephone or internet.
JOINT PROXY STATEMENT/SIMULTANEOUS MEETINGS. This joint proxy statement reduces
the preparation, printing and mailing costs of sending separate proxy statements
for each Fund. The meetings will be held simultaneously with each proposal being
voted on separately by shareholders of a corporation or by shareholders of a
Fund or by a class of shares of the Fund where appropriate. If any shareholder
objects to the holding of simultaneous meetings, the shareholder may move for an
adjournment of his or her Fund's meeting to a time immediately after the
simultaneous meetings so that a meeting of that Fund may be held separately. If
a shareholder makes this motion, the persons named as proxies will consider the
reasons for the objection in deciding whether to vote in favor of the
adjournment.
SOLICITATION OF PROXIES. The Board is asking for your vote as promptly as
possible. The Fund will pay the expenses for the proxy material and the postage.
Supplementary solicitations may be made by mail, telephone, electronic means or
personal contact by financial advisors. The expenses of supplementary
solicitation will be paid by the Fund and AEFC.
SHAREHOLDER PROPOSALS. No proposals were received from shareholders. The Fund
does not hold regular meetings of shareholders on an annual basis. Therefore, no
anticipated date of the next regular meeting can be provided. If you have a
proposal you believe should be presented to all shareholders, send the proposal
to the Chairman. The proposal will be considered at a meeting of the Board as
soon as practicable.
OTHER BUSINESS. The Board does not know at this time of any other business to
come before the meetings. If something does come up, the proxies will use their
best judgment to vote for you on the matter.
ADJOURNMENT. In the event that not enough votes in favor of any of the
proposals are received by the time scheduled for the meeting, the persons named
as proxies may move for one or more adjournments of the meeting
27
<PAGE>
for a period of not more than 60 days in the aggregate to allow further
solicitation of shareholders on the proposals. Any adjournment requires the
affirmative vote of a majority of the shares present at the meeting. The persons
named as proxies will vote in favor of adjournment those shares they are
entitled to vote that have voted in favor of the proposals. They will vote
against any adjournment those shares that have voted against any of the
proposals. The Fund will pay the costs of any additional solicitation and of any
adjourned meeting.
ANNUAL REPORT. The latest annual report was previously mailed to you. If you
would like another copy of the annual report and any subsequent semi-annual
report, without charge, please write Bob Severson at American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534 or call
1-800-862-7919.
28
<PAGE>
SECTION D - FUND INFORMATION
This section contains the following information about your Fund and its adviser:
<TABLE>
<CAPTION>
CONTENT
TABLE (all information is shown for the last fiscal year unless noted otherwise)
- --------- --------------------------------------------------------------------------
<S> <C>
D-1A Actual and pro forma expenses for Class A assuming all of the fee changes
had been in effect during the year
D-1B Actual and pro forma expenses for Class B
D-1Y Actual and pro forma expenses for Class Y
D-2 The Fund's pro forma expenses compared to a group of similar funds
D-3 The Fund's fee schedule under its management agreement
D-4 The Fund's size, number of outstanding shares and 5% owners
D-5 Fees paid under the Shareholder Service and Distribution Plan Agreements
D-6 Actual and pro forma Investment Management Services Agreement fees
D-7 Payments the Fund made to AEFC and its affiliates
D-8 Brokerage commissions the Fund paid to an AEFC affiliate
D-9 Information about shareholder approval of current agreements
</TABLE>
THE FUND'S ADVISER AND DISTRIBUTOR. AEFC is the adviser or subadviser for each
of the Funds. IDS Life, a wholly-owned subsidiary of AEFC, is the investment
manager and distributor for each of the Annuity Funds. AEFA, a wholly-owned
subsidiary of AEFC, is the distributor for each of the Retail Funds. The address
for AEFC, IDS Life and AEFA is IDS Tower 10, Minneapolis, MN 55440-0010. AEFC is
a wholly-owned subsidiary of American Express, World Financial Center, New York,
NY 10285.
PRESIDENT AND BOARD OF DIRECTORS OF AEFC. David R. Hubers is President and
Chief Executive Officer of AEFC. The following individuals are directors of
AEFC. Except as otherwise noted, each director is an officer of AEFC located at
IDS Tower 10, Minneapolis, MN 55440-0010. Directors: Peter J. Anderson, Karl J.
Breyer, James E. Choat, Gordon L. Eid, Harvey Golub (Chairman, American Express,
New York, NY), David R. Hubers, Marietta L. Johns, Susan D. Kinder, Richard W.
Kling, Steven C. Kumagai, Peter A. Lefferts, Douglas A. Lennick, Jonathan S.
Linen (Vice Chairman, American Express, New York, NY), Barry J. Murphy, Erven A.
Samsel, Norman Weaver, Jr., Michael R. Woodward.
PRESIDENT AND BOARD OF DIRECTORS OF IDS LIFE. Richard W. Kling is President of
IDS Life. The following individuals are directors of IDS Life. Each director is
an officer of AEFC located at IDS Tower 10, Minneapolis, MN 55440-0010.
Directors: David R. Hubers, Richard W. Kling, Paul F. Kolkman, Paula R. Meyer,
James A. Mitchell, Barry J. Murphy, Stuart A. Sedlacek.
29
<PAGE>
TABLE D-1A. ACTUAL AND PRO FORMA FUND EXPENSES - CLASS A
(as a % of average daily net assets)
This table shows how expenses appear in the prospectus fee table. If
shareholders approve Proposal 4, the Fund will discontinue the Shareholder
Service Agreement and enter into a distribution plan. As a result, expenses will
move from one heading to another. Expenses for the last fiscal year paid under
the Shareholder Service Agreement are shown in the Actual column under the
heading "Other Expenses". If that agreement is discontinued, those expenses will
decrease as shown in the Pro Forma column under "Other Expenses". On the other
hand, fees under the distribution plan will increase as shown under the heading
"Distribution".
<TABLE>
<CAPTION>
TOTAL FUND
OTHER OPERATING
MANAGEMENT DISTRIBUTION EXPENSES* EXPENSES
AGREEMENT ------------------------ ------------------------ ------------------------
------------------------ Pro Pro Pro
ANNUAL OPERATING EXPENSES Actual Actual Forma Actual Forma Actual Forma
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro
Forma
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL FUNDS:
Blue Chip Advantage 0.38% 0.48% 0.00% 0.25% 0.40% 0.27% 0.78% 1.00%
Bond 0.48 0.48 0.00 0.25 0.35 0.21 0.83 0.94
California Tax-Exempt 0.47 0.47 0.00 0.25 0.28 0.12 0.75 0.84
Cash Management 0.27 0.32 0.00 0.00 0.29 0.33 0.56 0.65
Discovery 0.64 0.64 0.00 0.25 0.39 0.26 1.03 1.15
Diversified Equity Income 0.49 0.45 0.00 0.25 0.37 0.23 0.86 0.93
Emerging Markets 1.09 1.15 0.00 0.25 0.84 0.75 1.93 2.15
Equity Select 0.52 0.60 0.00 0.25 0.30 0.15 0.82 1.00
Equity Value 0.49 0.48 0.00 0.25 0.36 0.22 0.85 0.95
Extra Income 0.56 0.56 0.00 0.25 0.33 0.18 0.89 0.99
Federal Income 0.50 0.50 0.00 0.25 0.36 0.21 0.86 0.96
Global Balanced 0.79 0.80 0.00 0.25 0.74 0.62 1.53 1.67
Global Bond 0.74 0.74 0.00 0.25 0.42 0.29 1.16 1.28
Global Growth 0.75 0.75 0.00 0.25 0.47 0.35 1.22 1.35
Growth 0.53 0.53 0.00 0.25 0.34 0.20 0.87 0.98
High Yield Tax-Exempt 0.44 0.44 0.00 0.25 0.26 0.10 0.70 0.79
Insured Tax-Exempt 0.45 0.45 0.00 0.25 0.28 0.12 0.73 0.82
Intermediate Tax-Exempt 0.45 0.45 0.00 0.25 0.51 0.35 0.96 1.05
International 0.74 0.74 0.00 0.25 0.52 0.40 1.26 1.39
Managed Allocation 0.44 0.44 0.00 0.25 0.36 0.22 0.80 0.91
Massachusetts Tax-Exempt 0.47 0.47 0.00 0.25 0.35 0.19 0.82 0.91
Michigan Tax-Exempt 0.47 0.47 0.00 0.25 0.35 0.19 0.82 0.91
Minnesota Tax-Exempt 0.46 0.46 0.00 0.25 0.29 0.13 0.75 0.84
Mutual 0.47 0.47 0.00 0.25 0.33 0.19 0.80 0.91
New Dimensions 0.50 0.50 0.00 0.25 0.32 0.17 0.82 0.92
New York Tax-Exempt 0.47 0.47 0.00 0.25 0.32 0.16 0.79 0.88
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
TOTAL FUND
OTHER OPERATING
MANAGEMENT DISTRIBUTION EXPENSES* EXPENSES
AGREEMENT ------------------------ ------------------------ ------------------------
------------------------ Pro Pro Pro
ANNUAL OPERATING EXPENSES Actual Actual Forma Actual Forma Actual Forma
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro
Forma
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ohio Tax-Exempt 0.47% 0.47% 0.00% 0.25% 0.36% 0.20% 0.83% 0.92%
Precious Metals 0.76 0.76 0.00 0.25 0.75 0.66 1.51 1.67
Progressive 0.61 0.61 0.00 0.25 0.41 0.27 1.02 1.13
Research Opportunities 0.64 0.61 0.00 0.25 0.48 0.36 1.12 1.22
Selective 0.51 0.51 0.00 0.25 0.35 0.21 0.86 0.97
Small Company Index 0.33 0.37 0.00 0.25 0.67 0.56 1.00 1.18
Stock 0.46 0.46 0.00 0.25 0.31 0.16 0.77 0.87
Strategy Aggressive 0.60 0.55 0.00 0.25 0.41 0.28 1.01 1.08
Tax-Exempt Bond 0.45 0.45 0.00 0.25 0.28 0.12 0.73 0.82
Tax-Free Money 0.31 0.36 0.00 0.00 0.23 0.25 0.54 0.61
Utilities Income 0.52 0.61 0.00 0.25 0.34 0.20 0.86 1.06
ANNUITY FUNDS:
Life Aggressive Growth 0.60 0.60 0.00 0.13 0.06 0.06 0.66 0.79
Life Capital Resource 0.61 0.61 0.00 0.13 0.05 0.05 0.66 0.79
Life Global Yield 0.85 0.85 0.00 0.13 0.10 0.10 0.95 1.08
Life Growth Dimensions 0.63 0.63 0.00 0.13 0.06 0.06 0.69 0.82
Life Income Advantage 0.63 0.63 0.00 0.13 0.06 0.06 0.69 0.82
Life International Equity 0.83 0.83 0.00 0.13 0.11 0.11 0.94 1.07
Life Managed 0.59 0.59 0.00 0.13 0.05 0.05 0.64 0.77
Life Moneyshare 0.52 0.52 0.00 0.13 0.05 0.05 0.57 0.70
Life Special Income 0.61 0.61 0.00 0.13 0.06 0.06 0.67 0.80
</TABLE>
*For the Retail Funds, other expenses include an administrative services fee, a
shareholder services fee, a transfer agency fee and other nonadvisory expenses.
Pro forma numbers reflect a $4 per account increase in the transfer agency fee
effective Feb. 1, 1999.
For the Annuity Funds, other expenses include an administrative services fee
and other nonadvisory expenses.
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost investing in other mutual funds. Assume you invest
$10,000 and the Fund earns a 5% return. The operating expenses remain the same
each year. The following table shows your costs under the current arrangements
and your costs if the proposed changes had been in effect:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ -------------------- -------------------- --------------------
Pro Pro Pro Pro
Actual Forma Actual Forma Actual Forma Actual Forma
----------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL FUNDS:
Blue Chip Advantage $ 576 $ 597 $ 737 $ 803 $ 912 $ 1,026 $ 1,422 $ 1,668
Bond 580 591 752 785 938 995 1,478 1,601
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ -------------------- -------------------- --------------------
Pro Pro Pro Pro
Actual Forma Actual Forma Actual Forma Actual Forma
----------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California Tax-Exempt $ 573 $ 581 $ 728 $ 755 $ 897 $ 943 $ 1,388 $ 1,489
Cash Management 57 66 180 208 313 363 705 814
Discovery 600 611 812 847 1,041 1,102 1,701 1,832
Diversified Equity Income 583 590 761 782 954 990 1,512 1,590
Emerging Markets 686 707 1,076 1,140 1,491 1,597 2,646 2,863
Equity Select 580 597 750 803 933 1,026 1,467 1,668
Equity Value 582 592 758 788 949 1,000 1,501 1,612
Extra Income 586 596 770 800 969 1,021 1,545 1,657
Federal Income 583 593 761 791 954 1,005 1,512 1,623
Global Balanced 648 661 959 1,000 1,293 1,363 2,237 2,382
Global Bond 612 624 850 886 1,107 1,168 1,843 1,973
Global Growth 618 631 868 907 1,138 1,203 1,908 2,047
Growth 584 595 764 797 959 1,015 1,523 1,646
High Yield Tax-Exempt 568 577 713 740 871 918 1,331 1,433
Insured Tax-Exempt 571 580 722 749 886 933 1,365 1,467
Intermediate Tax-Exempt 593 602 791 818 1,005 1,051 1,623 1,723
International 622 634 880 918 1,158 1,223 1,951 2,090
Managed Allocation 578 588 743 776 923 979 1,444 1,568
Massachusetts Tax-Exempt 580 588 749 776 933 979 1,467 1,568
Michigan Tax-Exempt 580 588 749 776 933 979 1,467 1,568
Minnesota Tax-Exempt 573 581 728 755 897 943 1,388 1,489
Mutual 578 588 743 776 923 979 1,444 1,568
New Dimensions 580 589 749 779 933 985 1,467 1,579
New York Tax-Exempt 577 585 740 767 918 964 1,433 1,534
Ohio Tax-Exempt 580 589 752 779 938 985 1,478 1,579
Precious Metals 646 661 954 1,000 1,283 1,363 2,216 2,382
Progressive 599 609 809 841 1,036 1,092 1,690 1,810
Research Opportunities 608 618 838 868 1,087 1,138 1,800 1,908
Selective 583 594 761 794 954 1,010 1,512 1,634
Small Company Index 597 614 803 856 1,026 1,117 1,668 1,865
Stock 575 584 734 764 907 959 1,410 1,523
Strategy Aggressive 598 605 806 827 1,031 1,067 1,679 1,756
Tax-Exempt Bond 571 580 722 749 886 933 1,365 1,467
Tax-Free Money 55 62 173 196 302 341 680 766
Utilities Income 583 603 761 821 954 1,056 1,512 1,734
ANNUITY FUNDS:
Life Aggressive Growth 67 81 211 253 368 440 826 982
Life Capital Resource 67 81 211 253 368 440 826 982
Life Global Yield 97 110 303 344 526 596 1,171 1,322
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ -------------------- -------------------- --------------------
Pro Pro Pro Pro
Actual Forma Actual Forma Actual Forma Actual Forma
----------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life Growth Dimensions $ 70 $ 84 $ 221 $ 262 $ 385 $ 456 $ 862 $ 1,018
Life Income Advantage 70 84 221 262 385 456 862 1,018
Life International Equity 96 109 300 341 521 591 1,159 1,310
Life Managed 65 79 205 246 357 429 802 958
Life Moneyshare 58 72 183 224 319 390 717 874
Life Special Income 68 82 215 256 374 445 838 994
</TABLE>
33
<PAGE>
TABLE D-1B. ACTUAL AND PRO FORMA FUND EXPENSES - CLASS B
(as a % of average daily net assets)
This table shows how expenses appear in the prospectus fee table. If
shareholders approve Proposal 4, the Fund will discontinue the Shareholder
Service Agreement and enter into a distribution plan. As a result, expenses will
move from one heading to another. Expenses for the last fiscal year paid under
the Shareholder Service Agreement are shown in the Actual column under the
heading "Other Expenses". If that agreement is discontinued, those expenses will
decrease as shown in the Pro Forma column under "Other Expenses". On the other
hand, fees under the distribution plan will increase as shown under the heading
"Distribution".
<TABLE>
<CAPTION>
TOTAL FUND
OTHER OPERATING
MANAGEMENT DISTRIBUTION EXPENSES* EXPENSES
AGREEMENT ------------------------ ------------------------ -----------
------------------------ Pro Pro
ANNUAL OPERATING EXPENSES Actual Actual Forma Actual Forma Actual
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Pro
Forma
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Advantage 0.38% 0.48% 0.75% 1.00% 0.41% 0.28% 1.54%
Bond 0.48 0.48 0.75 1.00 0.36 0.22 1.59
California Tax-Exempt 0.47 0.47 0.75 1.00 0.28 0.12 1.50
Cash Management 0.27 0.32 0.75 0.75 0.30 0.34 1.32
Discovery 0.64 0.64 0.75 1.00 0.40 0.27 1.79
Diversified Equity Income 0.49 0.45 0.75 1.00 0.38 0.24 1.62
Emerging Markets 1.09 1.15 0.75 1.00 0.87 0.78 2.71
Equity Select 0.52 0.60 0.75 1.00 0.31 0.16 1.58
Equity Value 0.49 0.48 0.75 1.00 0.37 0.23 1.61
Extra Income 0.56 0.56 0.75 1.00 0.34 0.19 1.65
Federal Income 0.50 0.50 0.75 1.00 0.36 0.21 1.61
Global Balanced 0.79 0.80 0.75 1.00 0.75 0.63 2.29
Global Bond 0.74 0.74 0.75 1.00 0.43 0.30 1.92
Global Growth 0.75 0.75 0.75 1.00 0.49 0.37 1.99
Growth 0.53 0.53 0.75 1.00 0.35 0.21 1.63
High Yield Tax-Exempt 0.44 0.44 0.75 1.00 0.26 0.10 1.45
Insured Tax-Exempt 0.45 0.45 0.75 1.00 0.29 0.13 1.49
Intermediate Tax-Exempt 0.45 0.45 0.75 1.00 0.51 0.35 1.71
International 0.74 0.74 0.75 1.00 0.53 0.41 2.02
Managed Allocation 0.44 0.44 0.75 1.00 0.37 0.23 1.56
Massachusetts Tax-Exempt 0.47 0.47 0.75 1.00 0.35 0.19 1.57
Michigan Tax-Exempt 0.47 0.47 0.75 1.00 0.35 0.19 1.57
Minnesota Tax-Exempt 0.46 0.46 0.75 1.00 0.29 0.13 1.50
Mutual 0.47 0.47 0.75 1.00 0.34 0.20 1.56
New Dimensions 0.50 0.50 0.75 1.00 0.33 0.19 1.58
New York Tax-Exempt 0.47 0.47 0.75 1.00 0.33 0.17 1.55
Ohio Tax-Exempt 0.47 0.47 0.75 1.00 0.37 0.21 1.59
Precious Metals 0.76 0.76 0.75 1.00 0.77 0.68 2.28
Progressive 0.61 0.61 0.75 1.00 0.42 0.29 1.78
Research Opportunities 0.64 0.61 0.75 1.00 0.49 0.37 1.88
Selective 0.51 0.51 0.75 1.00 0.36 0.22 1.62
Small Company Index 0.33 0.37 0.75 1.00 0.68 0.57 1.76
Stock 0.46 0.46 0.75 1.00 0.32 0.18 1.53
Strategy Aggressive 0.60 0.55 0.75 1.00 0.42 0.29 1.77
Tax-Exempt Bond 0.45 0.45 0.75 1.00 0.28 0.12 1.48
Utilities Income 0.52 0.61 0.75 1.00 0.35 0.21 1.62
<CAPTION>
Pro
ANNUAL OPERATING EXPENSES Forma
- --------------------------------- -----------
<S> <C>
Blue Chip Advantage 1.76%
Bond 1.70
California Tax-Exempt 1.59
Cash Management 1.41
Discovery 1.91
Diversified Equity Income 1.69
Emerging Markets 2.93
Equity Select 1.76
Equity Value 1.71
Extra Income 1.75
Federal Income 1.71
Global Balanced 2.43
Global Bond 2.04
Global Growth 2.12
Growth 1.74
High Yield Tax-Exempt 1.54
Insured Tax-Exempt 1.58
Intermediate Tax-Exempt 1.80
International 2.15
Managed Allocation 1.67
Massachusetts Tax-Exempt 1.66
Michigan Tax-Exempt 1.66
Minnesota Tax-Exempt 1.59
Mutual 1.67
New Dimensions 1.69
New York Tax-Exempt 1.64
Ohio Tax-Exempt 1.68
Precious Metals 2.44
Progressive 1.90
Research Opportunities 1.98
Selective 1.73
Small Company Index 1.94
Stock 1.64
Strategy Aggressive 1.84
Tax-Exempt Bond 1.57
Utilities Income 1.82
</TABLE>
*Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses. Pro forma numbers
reflect a $4 per account increase in the transfer agency fee effective Feb. 1,
1999.
34
<PAGE>
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost investing in other mutual funds. Assume you invest
$10,000 and the Fund earns a 5% return. The operating expenses remain the same
each year. The following table shows your costs under the current Agreements and
your costs if the proposed changes had been in effect:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ---------------------- ---------------------- ----------------------
Pro Pro Pro Pro
Actual Forma Actual Forma Actual Forma Actual Forma
----------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Advantage $ 657 $ 679 $ 887 $ 954 $ 1,040 $ 1,155 $ 1,634 $ 1,877
Bond 662 673 902 936 1,067 1,124 1,689 1,811
California Tax-Exempt 653 662 874 902 1,019 1,067 1,592 1,692
Cash Management 634 644 819 847 924 972 1,385 1,487
Discovery 682 694 964 1,000 1,171 1,233 1,635 2,039
Diversified Equity Income 665 672 911 933 1,082 1,119 1,723 1,800
Emerging Markets 774 796 1,242 1,307 1,635 1,743 2,857 3,071
Equity Select 661 679 899 954 1,061 1,155 1,678 1,877
Equity Value 664 674 908 939 1,077 1,129 1,712 1,822
Extra Income 668 678 921 951 1,098 1,150 1,756 1,866
Federal Income 664 674 908 939 1,077 1,129 1,712 1,825
Global Balanced 732 746 1,116 1,158 1,426 1,496 2,439 2,582
Global Bond 695 707 1,003 1,040 1,238 1,299 2,050 2,178
Global Growth 702 715 1,025 1,064 1,274 1,340 2,122 2,260
Growth 666 677 914 948 1,088 1,145 1,734 1,855
High Yield Tax-Exempt 648 657 859 887 993 1,040 1,535 1,636
Insured Tax-Exempt 652 661 871 899 1,014 1,061 1,578 1,678
Intermediate Tax-Exempt 674 683 939 967 1,129 1,176 1,825 1,923
International 705 718 1,034 1,073 1,289 1,355 2,157 2,294
Managed Allocation 659 670 893 927 1,051 1,108 1,656 1,778
Massachusetts Tax-Exempt 660 669 896 924 1,056 1,103 1,670 1,770
Michigan Tax-Exempt 660 669 896 924 1,056 1,103 1,670 1,770
Minnesota Tax-Exempt 653 662 874 902 1,019 1,067 1,592 1,692
Mutual 659 670 893 927 1,051 1,108 1,656 1,778
New Dimensions 661 672 899 933 1,061 1,019 1,678 1,797
New York Tax-Exempt 658 667 890 918 1,046 1,093 1,645 1,745
Ohio Tax-Exempt 662 671 902 930 1,067 1,114 1,689 1,789
Precious Metals 731 747 1,113 1,161 1,421 1,501 2,426 2,590
Progressive 681 693 961 997 1,165 1,227 1,898 2,026
Research Opportunities 691 701 991 1,022 1,217 1,268 2,007 2,114
Selective 665 676 911 945 1,082 1,140 1,723 1,844
Small Company Index 679 697 954 1,009 1,155 1,248 1,877 2,071
Stock 656 667 884 918 1,035 1,093 1,622 1,742
Strategy Aggressive 680 687 957 979 1,160 1,196 1,888 1,964
Tax-Exempt Bond 651 660 868 896 1,009 1,056 1,569 1,670
Utilities Income 665 685 911 973 1,082 1,186 1,723 1,942
</TABLE>
35
<PAGE>
TABLE D-1Y. ACTUAL AND PRO FORMA FUND EXPENSES - CLASS Y
(as a % of average daily net assets)
<TABLE>
<CAPTION>
TOTAL FUND
OTHER OPERATING
MANAGEMENT DISTRIBUTION EXPENSES* EXPENSES
AGREEMENT ------------------------ ------------------------ -----------
------------------------ Pro Pro
ANNUAL OPERATING EXPENSES Actual Actual Forma Actual Forma Actual
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Pro
Forma
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Advantage 0.38% 0.48% 0.00% 0.00% 0.33% 0.35% 0.71%
Bond 0.48 0.48 0.00 0.00 0.28 0.29 0.76
Cash Management 0.27 0.32 0.00 0.00 0.29 0.31 0.56
Discovery 0.64 0.64 0.00 0.00 0.32 0.34 0.96
Diversified Equity Income 0.49 0.45 0.00 0.00 0.29 0.31 0.78
Emerging Markets 1.09 1.15 0.00 0.00 0.77 0.81 1.86
Equity Select 0.52 0.60 0.00 0.00 0.23 0.24 0.75
Equity Value 0.49 0.48 0.00 0.00 0.27 0.29 0.76
Extra Income 0.56 0.56 0.00 0.00 0.26 0.27 0.82
Federal Income 0.50 0.50 0.00 0.00 0.28 0.29 0.78
Global Balanced 0.79 0.80 0.00 0.00 0.67 0.70 1.46
Global Bond 0.74 0.74 0.00 0.00 0.35 0.37 1.09
Global Growth 0.75 0.75 0.00 0.00 0.40 0.42 1.15
Growth 0.53 0.53 0.00 0.00 0.27 0.28 0.80
High Yield Tax-Exempt 0.44 0.44 0.00 0.00 0.18 0.19 0.62
Insured Tax-Exempt 0.45 0.45 0.00 0.00 0.20 0.21 0.65
Intermediate Tax-Exempt 0.45 0.45 0.00 0.00 0.43 0.44 0.88
International 0.74 0.74 0.00 0.00 0.44 0.47 1.18
Managed Allocation 0.44 0.44 0.00 0.00 0.28 0.29 0.72
Mutual 0.47 0.47 0.00 0.00 0.26 0.27 0.73
New Dimensions 0.50 0.50 0.00 0.00 0.25 0.26 0.75
Precious Metals 0.76 0.76 0.00 0.00 0.67 0.71 1.43
Progressive 0.61 0.61 0.00 0.00 0.34 0.36 0.95
Research Opportunities 0.64 0.61 0.00 0.00 0.41 0.43 1.05
Selective 0.51 0.51 0.00 0.00 0.28 0.29 0.79
Small Company Index 0.33 0.37 0.00 0.00 0.59 0.62 0.92
Stock 0.46 0.46 0.00 0.00 0.24 0.25 0.70
Strategy Aggressive 0.60 0.55 0.00 0.00 0.33 0.35 0.93
Tax-Exempt Bond 0.45 0.45 0.00 0.00 0.18 0.19 0.63
Utilities Income 0.52 0.61 0.00 0.00 0.27 0.28 0.79
<CAPTION>
Pro
ANNUAL OPERATING EXPENSES Forma
- --------------------------------- -----------
<S> <C>
Blue Chip Advantage 0.83%
Bond 0.77
Cash Management 0.63
Discovery 0.98
Diversified Equity Income 0.76
Emerging Markets 1.96
Equity Select 0.84
Equity Value 0.77
Extra Income 0.83
Federal Income 0.79
Global Balanced 1.50
Global Bond 1.11
Global Growth 1.17
Growth 0.81
High Yield Tax-Exempt 0.63
Insured Tax-Exempt 0.66
Intermediate Tax-Exempt 0.89
International 1.21
Managed Allocation 0.73
Mutual 0.74
New Dimensions 0.76
Precious Metals 1.47
Progressive 0.97
Research Opportunities 1.04
Selective 0.80
Small Company Index 0.99
Stock 0.71
Strategy Aggressive 0.90
Tax-Exempt Bond 0.64
Utilities Income 0.89
</TABLE>
*Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses. Pro forma numbers
reflect a $2 per account increase in the transfer agency fee effective April 1,
1999.
36
<PAGE>
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost investing in other mutual funds. Assume you invest
$10,000 and the Fund earns a 5% return. The operating expenses remain the same
each year. The following table shows your costs under the current Agreements and
your costs if the proposed changes had been in effect:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ------------------------ ---------------------- --------------------
Pro Pro Pro Pro
Actual Forma Actual Forma Actual Forma Actual Forma
----------- ----------- ----------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Advantage $ 73 $ 85 $ 227 $ 265 $ 396 $ 461 $ 886 $ 1,029
Bond 78 79 243 247 423 429 946 958
Cash Management 57 64 180 202 313 352 704 790
Discovery 98 100 306 312 532 543 1,183 1,206
Diversified Equity Income 80 78 249 243 434 423 970 946
Emerging Markets 189 199 585 616 1,007 1,058 2,185 2,290
Equity Select 77 86 240 268 418 467 934 1,041
Equity Value 78 79 243 246 423 429 946 958
Extra Income 84 85 262 265 456 461 1,018 1,029
Federal Income 80 81 249 253 434 440 970 982
Global Balanced 149 153 462 474 798 819 1,751 1,796
Global Bond 111 113 347 353 602 612 1,333 1,356
Global Growth 117 119 366 372 634 645 1,402 1,425
Growth 82 83 255 259 445 450 994 1,006
High Yield Tax-Exempt 63 64 199 202 346 352 778 790
Insured Tax-Exempt 66 67 208 211 363 368 814 826
Intermediate Tax-Exempt 90 91 281 284 488 494 1,089 1,100
International 120 123 375 384 650 666 1,437 1,471
Managed Allocation 74 75 230 234 401 407 898 910
Mutual 75 76 234 237 407 412 910 922
New Dimensions 77 78 240 243 418 423 934 946
Precious Metals 146 150 453 465 783 804 1,718 1,762
Progressive 97 99 303 309 526 537 1,171 1,194
Research Opportunities 107 106 334 331 580 575 1,287 1,276
Selective 81 82 253 256 440 445 982 994
Small Company Index 94 101 294 316 510 548 1,136 1,218
Stock 72 73 224 227 390 396 874 886
Strategy Aggressive 95 92 297 287 516 499 1,147 1,112
Tax-Exempt Bond 64 65 202 205 352 357 790 802
Utilities Income 81 91 253 284 440 494 982 1,100
</TABLE>
37
<PAGE>
TABLE D-2. PRO FORMA EXPENSE RATIO COMPARED TO SIMILAR FUNDS*
(lower number indicates lower expenses)
This table shows how the Fund's expenses rank compared to a group of similar
funds. A higher number indicates lower expenses. For example, Managed Allocation
would rank 19 out of 20 similar funds -- only one fund in the group has lower
expenses.
<TABLE>
<CAPTION>
FUND RANKING
- ------------------------------- -----------
<S> <C>
Blue Chip Advantage............ 19/34
Bond........................... 33/51
California Tax-Exempt.......... 13/32
Cash Management................ 31/54
Discovery...................... 23/48
Diversified Equity Income...... 21/27
Emerging Markets............... 13/57
Equity Select.................. 46/59
Equity Value................... 48/61
Extra Income................... 14/27
Federal Income................. 13/25
Global Balanced................ 30/37
Global Bond.................... 16/35
Global Growth.................. 26/38
Growth......................... 17/32
High Yield Tax-Exempt.......... 29/52
Insured Tax-Exempt............. 12/17
Intermediate Tax-Exempt........ 9/43
International.................. 19/24
<CAPTION>
FUND RANKING
- ------------------------------- -----------
<S> <C>
Managed Allocation............. 19/20
Massachusetts Tax-Exempt....... 10/20
Michigan Tax-Exempt............ 9/18
Minnesota Tax-Exempt........... 12/17
Mutual......................... 30/32
New Dimensions................. 27/40
New York Tax-Exempt............ 12/22
Ohio Tax-Exempt................ 6/17
Precious Metals................ 8/14
Progressive.................... 29/32
Research Opportunities......... 35/94
Selective...................... 18/38
Small Company Index............ 1/15
Stock.......................... 25/31
Strategy Aggressive............ 56/73
Tax-Exempt Bond................ 62/110
Tax-Free Money................. 69/78
Utilities Income............... 20/26
</TABLE>
*The rankings are based on expenses of Class A. Shareholders of Class B and
Class Y should refer to the Class A ranking for comparison purposes. The
ranking is based on the Fund's total expenses assuming that shareholders
approve the proposed distribution plan, transfer agency fees are increased and
management fees are changed as described in this proxy statement. The ranking
information was supplied by Lipper, a company not affiliated with the Fund or
AEFC. Lipper is the leading provider of data and analyses on the investment
company business. Lipper developed the comparison group (the "universe") by
selecting funds with similar investment objectives, as categorized by Lipper,
and similar asset size.
38
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CATEGORY AVERAGE
ANNUITY FUND EXPENSE RATIO EXPENSE RATIO*
- ------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Life Aggressive Growth........................... 0.79% 0.91%
Life Capital Resource............................ 0.79 0.86
Life Global Yield................................ 1.08 1.03
Life Growth Dimensions........................... 0.82 0.86
Life Income Advantage............................ 0.82 0.82
Life International Equity........................ 1.07 1.19
Life Managed..................................... 0.77 0.84
Life Moneyshare.................................. 0.70 0.52
Life Special Income.............................. 0.80 0.75
</TABLE>
*Category average expense ratio information was supplied by Variable Annuity
Research and Development Service ("VARDS"), a company not affiliated with the
Fund or AEFC. VARDS developed the category average by selecting subaccounts
with similar investment objectives, as described in the funds' prospectuses.
Categories contain between 10 and 573 subaccounts. The average category size is
232 subaccounts.
39
<PAGE>
TABLE D-3. FUND MANAGEMENT FEES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<S> <C>
RETAIL FUNDS MANAGEMENT FEE (annual rate; in billions)
- ------------------------------------------------------------------
Blue Chip Advantage First $.25 - .44%; next $.25 - .415%; next
$.25 - .39%; next $.25 - .365%; over $1 -
.34%
- ------------------------------------------------------------------
Bond First $1 - .52%; next $1 - .495%; next $1 -
Federal Income(1) .47%; next $3 - .445%; next $3 - .42%; over
Selective(1) $9 - .395%
- ------------------------------------------------------------------
California First $.25 - .47%; next $.25 - .445%; next
Tax-Exempt $.25 - .42%; next $.25 - .405%; over $1 -
Massachusetts Tax- .38%
Exempt
Michigan Tax-Exempt
Minnesota Tax-Exempt
Ohio Tax-Exempt
New York Tax-Exempt
- ------------------------------------------------------------------
Cash Management First $1 - .31%; next $.5 - .293%; next $.5
Tax-Free Money - .275%; next $.5 - .258%; over $2.5 - .24%
- ------------------------------------------------------------------
Discovery(2) First $.25 - .64%; next $.25 - .615%; next
Progressive(2) $.25 - .59%; next $.25 - .565%; next $1 -
.54%; over $2 - .515%
- ------------------------------------------------------------------
Diversified Equity First $.5 - .53%; next $.5 - .505%; next $1
Income(1) - .48%; next $1 - .455%; next $3 - .43%;
Equity Select(2) over $6 - .40%
Equity Value
Managed
Allocation(1,2,3)
Stock(1,2)
Utilities Income
- ------------------------------------------------------------------
Extra Income(1) First $1 - .59%; next $1 - .565%; next $1 -
.54%; next $3 - .515%; next $3 - .49%; over
$9 - .465%
- ------------------------------------------------------------------
Emerging First $.25 - 1.10%; next $.25 - 1.08%; next
Markets(1,5) $.25 - 1.06%; next $.25 - 1.04%; next $1
-1.02%; over $2 - 1.0%
- ------------------------------------------------------------------
Global Balanced(4,6 ) First $.25 - .79%; next $.25 - .765%; next
$.25 - .74%; next $.25 - .715%; next $1 -
.69%; over $2 - .665%
- ------------------------------------------------------------------
Global Bond(1) First $.25 - .77%; next $.25 - .745%; next
$.25 - .72%; next $.25 - .695%; over $1 -
.67%
- ------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
RETAIL FUNDS MANAGEMENT FEE (annual rate; in billions)
<S> <C>
- ------------------------------------------------------------------
Global Growth(1,4) First $.25 - .80%; next $.25 - .775%; next
Internationa1(2,4) $.25 - .75%; next $.25 - .725%; next $1 -
Precious Metals(2) .70%; over $2 - .675%
- ------------------------------------------------------------------
Growth(1,2) First $1 - .60%; next $1 - .575%; next $1 -
Strategy .55%; next $3 - .525%; over $6 - .50%
Aggressive(3)
- ------------------------------------------------------------------
High Yield First $1 - .49%; next $1 - .465%; next $1 -
Tax-Exempt(1) .44%; next $3 - .415%; next $3 - .39%; over
$9 - .36%
- ------------------------------------------------------------------
Insured Tax-Exempt First $1 - .45%; next $1 - .425%; next $1 -
Intermediate Tax- .40%; next $3 - .375%; over $6 - .35%
Exempt(7)
Tax-Exempt Bond
- ------------------------------------------------------------------
Mutua1(1,2) First $1 - .53%; next $1 - .505%; next $1 -
.48%; next $3 - .455%; over $6 - .43%
- ------------------------------------------------------------------
New Dimensions(1,2) First $1 - .60%; next $1 - .575%; next $1 -
.55%; next $3 - .525%; next $6 - .50%; over
$12 - .49%
- ------------------------------------------------------------------
Research First $.25 - .65%; next $.25 - .625%; next
Opportunities(1) $.50 - .60%; next $1 - .575%; next $1 -
.55%; next $3 - .525%; over $6 - .50%
- ------------------------------------------------------------------
Small Company First $.25 - .38%; next $.25 - .37%; next
Index(8) $.25 - .36%; next $.25 - .35%; over $1 -
.34%
- ------------------------------------------------------------------
</TABLE>
(1)The Fund is part of the master/feeder structure. Management fees are paid by
the Portfolio on behalf of the Fund.
(2)The Fund has a performance incentive adjustment based on its performance
compared to a Lipper index of comparable funds over a rolling 12-month
period.
(3)Under a subadvisory agreement with American Express Asset Management Group
("AEAMG"), AEFC pays AEAMG a fee equal on an annual basis to 0.35% of average
daily net assets.
(4)Under a subadvisory agreement with American Express Asset Management
International Inc. ("AEAMI"), AEFC pays AEAMI a fee equal on an annual basis
to 0.35% of average daily net assets.
(5)Under a subadvisory agreement with AEAMI, AEFC pays AEAMI a fee equal on an
annual basis to 0.50% of average daily net assets.
(6)Total fees and expenses have been capped at 1.5% through 10/31/99.
(7)Total fees and expenses have been capped at 0.9% through 11/30/99.
(8)Total fees and expenses have been capped at 1.0% through 1/31/00.
41
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
<S> <C>
ANNUITY FUNDS MANAGEMENT FEE (annual rate; in billions)
- ----------------------------------------------------------------------------------
Life Aggressive Growth(1 ) First $.25 - .65%; next $.25 - .635%; next $.25 - .62%;
next $.25 - .605%; next $1 - .59%; over $2 - .575%
- -------------------------------------------------------------------------
Life Capital Resource(1 ) First $1 - .63%; next $1 - .615%; next $1 - .60%; next
Life Growth Dimensions(1 ) $3 - .585%; over $6 - .57%
- -------------------------------------------------------------------------
Life Global Yield(1 ) First $.25 - .84%; next $.25 - .825%; next $.25 - .81%;
next $.25 - .795%; over $1 - .78%
- -------------------------------------------------------------------------
Life Income Advantage(1 ) First $1 - .62%; next $1 - .605%; next $1 - .59%; next
$3 - .575%; next $3 - .56%; over $9 - .545%
- -------------------------------------------------------------------------
Life International ) First $.25 - .87%; next $.25 - .855%; next $.25 - .84%;
Equity(2 next $.25 - .825%; next $1 - .81%; over $2 - .795%
- -------------------------------------------------------------------------
Life Managed(1 ) First $.5 - .63%; next $.5 - .615%; next $1 - .60%;
next $1 - .585%; next $3 - .57%; over $6 - .55%
- -------------------------------------------------------------------------
Life Moneyshare(1 ) First $1 - .51%; next $.5 - .493%; next $.5 - .475%;
next $.5 - .458%; over $2.5 - .44%
- -------------------------------------------------------------------------
Life Special Income(1 ) First $1 - .61%; next $1 - .595%; next $1 - .58%; next
$3 - .565%; next $3 - .55%; over $9 - .535%
- -------------------------------------------------------------------------
</TABLE>
(1)Under an investment advisory agreement with AEFC, IDS Life pays AEFC a fee
equal on an annual basis to 0.25% of average daily net assets.
(2)Under an investment advisory agreement with AEFC, IDS Life pays AEFC a fee
equal on an annual basis to 0.35% of average daily net assets. Under a
subadvisory agreement with AEAMI, AEFC pays AEAMI a fee equal on an annual
basis to 0.35% of average daily net assets.
42
<PAGE>
TABLE D-4. FUND SIZE AND 5% OWNERS
as of Jan. 31, 1999
<TABLE>
<CAPTION>
FUND NET ASSETS OUTSTANDING SHARES 5% OWNERS
- --------------------------- --------------- ------------------ ----------
<S> <C> <C> <C>
RETAIL FUNDS:
Blue Chip Advantage:
Class A $ 1,862,701,271 156,768,832 None
Class B 1,108,899,093 94,082,982 None
Class Y 322,959,683 27,142,532 None
Bond:
Class A 2,781,631,067 542,284,888 None
Class B 1,151,316,616 224,449,238 None
Class Y 258,251,812 52,227,936 (1)
California Tax-Exempt:
Class A 256,785,314 47,314,217 None
Class B 18,913,413 3,486,783 None
Cash Management:
Class A 4,466,119,648 4,466,133,321 None
Class B 157,500,160 157,551,713 None
Class Y 118,536,357 118,572,637 (2)
Discovery:
Class A 850,331,336 78,894,093 None
Class B 158,872,177 15,213,145 None
Class Y 83,098,780 7,715,175 None
Diversified Equity Income:
Class A 2,053,425,109 218,870,893 None
Class B 595,174,308 63,422,115 None
Class Y 47,799,104 7,313,996 None
Emerging Markets:
Class A 187,956,322 51,493,865 None
Class B 100,559,466 27,968,575 None
Class Y 27,338 7,498 None
Equity Select:
Class A 1,164,755,900 78,564,594 None
Class B 92,695,779 6,377,509 None
Class Y 295,900 19,941 (3)
Equity Value:
Class A 922,746,116 82,673,244 None
Class B 1,695,022,337 151,883,445 None
Class Y 1,001,113 89,528 None
Extra Income:
Class A 2,790,359,571 701,126,770 None
Class B 1,020,523,380 256,445,028 None
Class Y 1,208,667 303,614 None
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
FUND NET ASSETS OUTSTANDING SHARES 5% OWNERS
- --------------------------- --------------- ------------------ ----------
<S> <C> <C> <C>
Federal Income:
Class A $ 1,653,889,353 326,458,955 None
Class B 1,363,715,724 269,188,861 None
Class Y 185,121,366 36,568,316 None
Global Balanced:
Class A 79,145,648 12,375,853 None
Class B 53,293,496 8,371,910 None
Class Y 1,338 209 None
Global Bond:
Class A 724,632,383 116,260,271 None
Class B 271,580,617 43,573,706 None
Class Y 5,384 864 None
Global Growth:
Class A 1,139,520,915 131,197,169 None
Class B 365,750,182 42,672,855 None
Class Y 24,617,049 2,831,212 (4)
Growth:
Class A 4,328,556,812 106,246,536 None
Class B 1,286,149,459 32,594,951 None
Class Y 769,890,318 19,361,441 (5)
High Yield Tax-Exempt:
Class A 5,795,966,759 1,235,042,959 None
Class B 290,045,219 61,807,892 None
Class Y 12,080 2,791 (6)
Insured Tax-Exempt:
Class A 462,804,316 81,501,573 None
Class B 55,931,561 9,850,592 None
Class Y 1,289 227 None
Intermediate Tax-Exempt:
Class A 24,097,450 4,637,972 None
Class B 7,679,704 1,473,391 None
Class Y 1,119 217 None
International:
Class A 865,320,322 73,379,029 None
Class B 413,506,014 35,207,796 None
Class Y 81,631,533 6,924,507 None
Managed Allocation:
Class A 2,378,268,978 222,254,104 None
Class B 275,550,528 25,928,798 None
Class Y 104,587,825 9,768,617 None
Massachusetts Tax-Exempt:
Class A 71,686,526 12,771,833 None
Class B 16,073,739 2,857,489 None
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
FUND NET ASSETS OUTSTANDING SHARES 5% OWNERS
- --------------------------- --------------- ------------------ ----------
<S> <C> <C> <C>
Michigan Tax-Exempt:
Class A $ 78,370,271 14,005,593 None
Class B 6,107,195 1,091,420 None
Minnesota Tax-Exempt:
Class A 401,456,595 73,522,311 None
Class B 39,785,690 7,298,091 None
Mutual:
Class A 3,279,797,958 248,954,646 None
Class B 419,285,100 32,055,012 None
Class Y 1,382,091,585 104,852,543 None
New Dimensions:
Class A 12,485,497,384 415,786,808 None
Class B 3,347,326,341 113,457,420 None
Class Y 5,269,545,011 175,209,854 None
New York Tax-Exempt:
Class A 104,801,766 19,553,590 None
Class B 12,076,885 2,252,904 None
Ohio Tax-Exempt:
Class A 70,812,151 12,825,135 None
Class B 6,839,654 1,230,535 (7)
Precious Metals:
Class A 51,449,502 9,187,741 None
Class B 7,513,453 1,357,413 None
Class Y 761 136 None
Progressive:
Class A 474,400,512 64,164,826 None
Class B 96,590,477 13,287,294 None
Class Y 9,827,076 1,330,235 None
Research Opportunities:
Class A 405,322,578 52,287,661 None
Class B 230,289,545 30,299,714 None
Class Y 372,264 47,923 None
Selective:
Class A 1,236,203,998 132,719,516 None
Class B 194,783,235 20,912,796 None
Class Y 244,247,645 26,118,292 None
Small Company Index:
Class A 596,296,138 97,570,741 None
Class B 370,805,760 61,783,355 None
Class Y 1,843,411 301,133 None
Stock:
Class A 3,328,250,933 121,741,050 None
Class B 331,023,787 12,187,562 None
Class Y 1,159,002,597 42,486,070 None
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
FUND NET ASSETS OUTSTANDING SHARES 5% OWNERS
- --------------------------- --------------- ------------------ ----------
<S> <C> <C> <C>
Strategy Aggressive:
Class A $ 631,222,993 26,539,190 None
Class B 851,799,903 37,126,050 None
Class Y 2,277 95 None
Tax-Exempt Bond:
Class A 990,918,962 236,146,978 None
Class B 38,661,778 9,211,920 None
Class Y 11,260 2,684 (8)
Tax-Free Money: 169,351,838 169,834,948 None
Utilities Income:
Class A 1,201,059,615 127,147,819 None
Class B 337,168,356 35,699,113 None
Class Y 395,947 41,933 (9)
ANNUITY FUNDS:
Life Aggressive Growth 2,493,945,569 155,923,936 None
Life Capital Resource 5,872,130,686 172,912,003 None
Life Global Yield 208,970,117 19,690,493 None
Life Growth Dimensions 2,939,443,914 161,014,083 None
Life Income Advantage 598,767,561 66,233,206 None
Life International Equity 2,201,315,272 138,007,624 None
Life Managed 5,289,615,521 275,100,401 None
Life Moneyshare 528,383,277 528,428,088 None
Life Special Income 1,917,701,912 171,707,850 None
</TABLE>
(1)Phifer Wire Products, American Express Trust Company 733 Marquette Ave.,
Minneapolis MN 55402, owns 2,846,918 shares (5.45%) of Class Y.
(2)PNC Bank, PNC Bank Two Oliver Plaza, 620 Liberty Ave., Pittsburgh PA 15222,
owns 7,509,849 shares (6.33%) of Class Y.
(3)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
13,792 shares (69.16%) of Class Y.
(4)Jet Aviation Holdings Inc., American Express Trust Company P.O. Box 534,
Minneapolis MN 55440, owns 291,105 shares (10.28%) of Class Y.
(5)Kimberly-Clark Corporation, US Bank P.O. Box 64010, St. Paul MN 55164, owns
2,076,198 shares (10.74%) of Class Y.
(6)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
2,791 shares (100.00%) of Class Y.
(7)George J. Barder Trust, 3695 Center Road, Brunswick OH 44212, owns 66,427
shares (5.40%) of Class B.
(8)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
2,684 shares (100.00%) of Class Y.
(9)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
4,376 shares (10.44%) of Class Y.
46
<PAGE>
TABLE D-5. PLAN AND SHAREHOLDER SERVICE FEES*
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------- ---------------------------
AGGREGATE AGGREGATE
FEE FEE
AGGREGATE (as a % of AGGREGATE (as a % of
FEE average FEE average
FUND (in dollars) net assets) (in dollars) net assets)
- ------------------------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Blue Chip Advantage $ 1,662,550 0.173% $ 4,368,530 0.922%
Bond 4,686,759 0.173 9,286,159 0.925
California Tax-Exempt 410,510 0.173 114,455 0.922
Discovery 1,649,649 0.173 1,205,018 0.924
Diversified Equity Income 3,349,345 0.173 4,308,604 0.924
Emerging Markets 425,703 0.174 1,151,958 0.922
Equity Select 1,766,901 0.172 562,310 0.925
Equity Value 1,113,607 0.173 15,584,436 0.923
Extra Income 4,999,691 0.173 7,678,938 0.922
Federal Income 2,317,759 0.173 8,606,272 0.921
Global Balanced 84,602 0.174 295,896 0.922
Global Bond 1,269,000 0.173 2,285,572 0.922
Global Growth 1,660,146 0.173 2,459,902 0.921
Growth 5,770,742 0.173 7,807,201 0.924
High Yield Tax-Exempt 9,974,466 0.174 2,125,768 0.925
Insured Tax-Exempt 797,021 0.173 349,150 0.923
Intermediate Tax-Exempt 33,631 0.175 59,162 0.925
International 1,474,727 0.172 3,743,430 0.921
Managed Allocation 4,420,478 0.173 2,427,724 0.924
Massachusetts Tax-Exempt 114,879 0.174 94,863 0.924
Michigan Tax-Exempt 132,861 0.174 40,221 0.922
Minnesota Tax-Exempt 662,340 0.174 242,780 0.924
Mutual 5,588,730 0.171 3,015,696 0.924
New Dimensions 16,191,476 0.173 18,258,044 0.924
New York Tax-Exempt 185,919 0.173 80,926 0.924
Ohio Tax-Exempt 117,144 0.174 39,650 0.925
Precious Metals 116,374 0.170 74,784 0.923
Progressive 888,778 0.172 738,479 0.924
Research Opportunities 478,985 0.174 1,317,622 0.925
Selective 2,166,433 0.171 1,273,406 0.921
Small Company Index 392,799 0.173 1,119,917 0.922
Stock 5,115,762 0.170 2,269,419 0.924
Strategy Aggressive 816,876 0.172 7,388,115 0.923
Tax-Exempt Bond 1,712,601 0.173 272,356 0.925
Utilities Income 1,467,758 0.173 1,256,722 0.924
</TABLE>
*Class A paid fees under a shareholder service agreement. Class B paid fees
under a distribution plan and a shareholder service agreement.
47
<PAGE>
TABLE D-6. ACTUAL AND PRO FORMA
INVESTMENT MANAGEMENT SERVICES AGREEMENT FEES
<TABLE>
<CAPTION>
FUND ACTUAL FEE PRO FORMA FEE % CHANGE
- -------------------------- ------------ -------------- -------------
<S> <C> <C> <C>
Blue Chip $ 5,953,408 $ 7,521,171 26.3%
Cash Management 9,928,579 11,715,041 18.0
Diversified Equity Income 12,209,566 11,287,366 (7.6)
Emerging Markets 4,040,624 4,250,985 5.2
Equity Select 5,640,461 6,140,318 8.9
Equity Value 11,485,241 11,265,045 (1.9)
Global Balanced 636,029 647,338 1.8
Global Growth 9,353,092 9,345,711 (0.1)
Research Opportunities 2,718,858 2,586,595 (4.9)
Small Company Index 1,463,843 1,614,584 10.3
Strategy Aggressive 7,578,435 6,877,446 (9.2)
Tax-Free Money 496,592 576,673 16.1
Utilities Income 5,074,299 6,001,874 18.3
</TABLE>
TABLE D-7. FUND PAYMENTS TO AEFC AND ITS AFFILIATES*
<TABLE>
<CAPTION>
FUND ADMIN PLAN SERVICE TA CUSTODY
- -------------------- --------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Blue Chip $ 450,673 $ 3,544,614 $ 2,600,732 $ 2,203,371 $ 127,504
Cash Management 942,396 863,705 N/A 7,089,268 253,421
Diversified Equity
Income 805,208 3,496,529 4,246,227 3,046,414 253,255
Emerging Markets 359,269 934,695 642,997 1,161,894 736,885
Equity Select 415,721 456,295 1,873,372 779,586 100,821
Equity Value 786,903 12,659,839 4,038,512 3,115,731 242,477
Global Balanced 48,915 240,003 140,495 157,293 70,307
Global Growth 627,858 1,996,877 2,745,372 2,207,944 621,414
Research
Opportunities 243,876 1,068,895 727,712 786,849 45,064
Small Company Index 324,356 908,232 692,276 779,605 299,901
Strategy Aggressive 642,964 6,004,726 2,200,265 2,290,176 124,680
Tax-Free Money 50,968 N/A N/A 159,134 **
Utilities Income 379,141 1,019,619 1,704,929 1,004,792 131,975
</TABLE>
*The Administrative Services Agreement ("Admin") is between the Fund and AEFC.
The Plan and Service agreements are between the Fund and AEFA. The TA
Agreement is between the Fund and AECSC. The Custodian Agreement ("Custody")
is between the Fund and American Express Trust Company. Services under these
agreements will continue to be provided after the Agreement is approved,
although if shareholders approve the new distribution plan, the services
currently provided under the Shareholder Service Agreement ("Service") will be
provided under the Plan and Agreement of Distribution ("Plan").
**For this fund, the Custodian Agreement is with U.S. Bank, N.A., a company that
is not affiliated with AEFC.
48
<PAGE>
TABLE D-8. BROKERAGE COMMISSIONS PAID TO
AMERICAN ENTERPRISE INVESTMENT SERVICES INC.*
<TABLE>
<CAPTION>
AMOUNT OF % OF ALL
FUND COMMISSIONS COMMISSIONS
- -------------------------- ------------ ---------------
<S> <C> <C>
Blue Chip $ 332,604 7.35%
Cash Management 0 0.00
Diversified Equity Income 49,994 0.99
Emerging Markets 0 0.00
Equity Select 158,346 9.43
Equity Value 5,643 0.12
Global Balanced 0 0.00
Global Growth 0 0.00
Research Opportunities 81,111 7.05
Small Company Index 0 0.00
Strategy Aggressive 7,404 0.36
Tax-Free Money 0 0.00
Utilities Income 22,259 1.04
</TABLE>
*A wholly-owned subsidiary of AEFC. These transactions were executed at rates
determined to be reasonable and fair as compared to the rates another broker
would charge.
TABLE D-9. DATES RELATING TO APPROVAL OF AGREEMENTS
<TABLE>
<CAPTION>
CLASS B
DISTRIBUTION MANAGEMENT AGREEMENT
PLAN ----------------------------------------
----------- DATE LAST DATE REASON
DATE APPROVED BY ENTERED SUBMITTED TO
FUND ADOPTED SHAREHOLDERS INTO SHAREHOLDERS
- -------------------------- ----------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Initial
Emerging Markets 11/13/96 11/13/96 11/13/96 approval
Initial
Global Balanced 11/13/96 11/13/96 11/13/96 approval
Initial
Intermediate Tax-Exempt 11/13/96 11/13/96 11/13/96 approval
Initial
Research Opportunities 8/19/96 8/19/96 8/19/96 approval
Initial
Small Company Index 8/19/96 8/19/96 8/19/96 approval
All other Retail Funds 3/20/95* 9/9/94 3/20/95 **
</TABLE>
*Excluding Tax-Free Money that does not have a Class B Plan.
**Shareholders approved (1) basing the fee solely on the assets of the Fund, not
on the assets of all of the funds in the Group and (2) eliminating provisions
regarding administration and accounting services. The Fund and AEFC then
entered into a separate Administrative Services Agreement.
49
<PAGE>
SECTION E - BOARD MEMBER INFORMATION
This section includes the following information:
- - TABLE E-1 shows the compensation paid to Board members by each Fund in its
last fiscal year
- - TABLE E-2 shows the total number of shares of all the Funds owned by the
Board members and the number of shares owned in each individual Fund
TABLE E-1. BOARD MEMBER COMPENSATION
<TABLE>
<CAPTION>
BOARD MEMBER: ATWATER CHENEY HUTTER JONES SIMPSON
- --------------------------------------------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
RETAIL FUNDS:
Blue Chip Advantage.................................................. $ 1304 $ 1184 $ 1404 $ 1338 $ 1080
Bond................................................................. 3133 3123 3183 3194 2972
California Tax-Exempt................................................ 900 756 950 806 630
Cash Management...................................................... 2800 2770 2850 2845 2625
Discovery............................................................ 1400 1286 1450 1361 1155
Diversified Equity Income............................................ 1150 1020 1200 1097 893
Emerging Markets..................................................... 975 781 950 856 630
Equity Select........................................................ 1525 1336 1450 1542 1286
Equity Value......................................................... 2162 2038 2212 2202 1926
Extra Income......................................................... 1492 1331 1492 1382 1200
Federal Income....................................................... 1233 1057 1233 1109 929
Global Balanced...................................................... 975 781 950 856 630
Global Bond.......................................................... 1075 887 1050 962 735
Global Growth........................................................ 1075 887 1050 962 735
Growth............................................................... 1358 1242 1408 1318 1112
<CAPTION>
BOARD MEMBER: WURTELE
- --------------------------------------------------------------------- -----------
<S> <C>
RETAIL FUNDS:
Blue Chip Advantage.................................................. $ 1429
Bond................................................................. 3283
California Tax-Exempt................................................ 1050
Cash Management...................................................... 2950
Discovery............................................................ 1550
Diversified Equity Income............................................ 1300
Emerging Markets..................................................... 1025
Equity Select........................................................ 1700
Equity Value......................................................... 2412
Extra Income......................................................... 1642
Federal Income....................................................... 1383
Global Balanced...................................................... 1025
Global Bond.......................................................... 1125
Global Growth........................................................ 1125
Growth............................................................... 1508
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
BOARD MEMBER: ATWATER CHENEY HUTTER JONES SIMPSON
- --------------------------------------------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
High Yield Tax-Exempt................................................ $ 2017 $ 1858 $ 1942 $ 2069 $ 1808
Insured Tax-Exempt................................................... 1000 862 1050 914 736
Intermediate Tax-Exempt.............................................. 1025 806 950 1007 756
International........................................................ 1625 1470 1600 1542 1310
Managed Allocation................................................... 1350 1232 1400 1309 1103
Massachusetts Tax-Exempt............................................. 900 756 950 806 630
Michigan Tax-Exempt.................................................. 900 756 950 806 630
Minnesota Tax-Exempt................................................. 950 809 1000 860 683
Mutual............................................................... 1675 1577 1725 1853 1444
New Dimensions....................................................... 3150 3140 3200 3220 2995
New York Tax-Exempt.................................................. 900 756 950 806 630
Ohio Tax-Exempt...................................................... 900 756 950 806 630
Precious Metals...................................................... 1001 807 1051 958 706
Progressive.......................................................... 1100 968 1150 1043 840
Research Opportunities............................................... 900 756 950 831 630
Selective............................................................ 1150 968 1150 1018 840
Small Company Index.................................................. 968 826 1068 977 725
Stock................................................................ 1400 1286 1450 1361 1155
Strategy Aggressive.................................................. 1759 1609 1809 1766 1500
<CAPTION>
BOARD MEMBER: WURTELE
- --------------------------------------------------------------------- -----------
<S> <C>
High Yield Tax-Exempt................................................ $ 2192
Insured Tax-Exempt................................................... 1150
Intermediate Tax-Exempt.............................................. 1200
International........................................................ 1675
Managed Allocation................................................... 1500
Massachusetts Tax-Exempt............................................. 1050
Michigan Tax-Exempt.................................................. 1050
Minnesota Tax-Exempt................................................. 1100
Mutual............................................................... 1825
New Dimensions....................................................... 3300
New York Tax-Exempt.................................................. 1050
Ohio Tax-Exempt...................................................... 1050
Precious Metals...................................................... 1251
Progressive.......................................................... 1250
Research Opportunities............................................... 1050
Selective............................................................ 1300
Small Company Index.................................................. 1093
Stock................................................................ 1550
Strategy Aggressive.................................................. 2009
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
BOARD MEMBER: ATWATER CHENEY HUTTER JONES SIMPSON
- --------------------------------------------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Tax-Exempt Bond...................................................... $ 1542 $ 1353 $ 1467 $ 1559 $ 1303
Tax-Free Money....................................................... 1075 806 950 1058 756
Utilities Income..................................................... 1300 1180 1350 1230 1050
ANNUITY FUNDS:
Life Aggressive Growth............................................... 2233 2169 2283 2243 2029
Life Capital Resource................................................ 3700 3720 3750 3791 3564
Life Global Yield.................................................... 900 756 950 831 630
Life Growth Dimensions............................................... 1367 1251 1417 1333 1125
Life Income Advantage................................................ 967 827 1017 903 701
Life International Equity............................................ 2100 2028 2150 2100 1888
Life Managed......................................................... 3333 3331 3383 3407 3182
Life Moneyshare...................................................... 1000 862 1050 937 735
Life Special Income.................................................. 2000 1922 2050 1994 1783
<CAPTION>
BOARD MEMBER: WURTELE
- --------------------------------------------------------------------- -----------
<S> <C>
Tax-Exempt Bond...................................................... $ 1717
Tax-Free Money....................................................... 1292
Utilities Income..................................................... 1450
ANNUITY FUNDS:
Life Aggressive Growth............................................... 2383
Life Capital Resource................................................ 3850
Life Global Yield.................................................... 1050
Life Growth Dimensions............................................... 1517
Life Income Advantage................................................ 1117
Life International Equity............................................ 2250
Life Managed......................................................... 3483
Life Moneyshare...................................................... 1150
Life Special Income.................................................. 2150
</TABLE>
52
<PAGE>
TABLE E-2. BOARD MEMBER SHARE OWNERSHIP*
as of March 1, 1999
ATWATER: All IDS Funds- shares; Fund- shares.
CARLSON: All IDS Funds- shares; Fund- shares.
CHENEY: All IDS Funds- shares; Fund- shares.
DUDLEY: All IDS Funds- shares; Fund- shares.
HUBERS: All IDS Funds- shares; Fund- shares.
HUTTER: All IDS Funds- shares; Fund- shares.
JONES: All IDS Funds- shares; Fund- shares.
PEARCE: All IDS Funds- shares; Fund- shares.
SIMPSON: All IDS Funds- shares; Fund- shares.
THOMAS: All IDS Funds- shares; Fund- shares.
WURTELE: All IDS Funds- shares; Fund- shares.
*Board members and officers as a group owned less than 1% of each Fund's
outstanding shares.
Bracketed amounts represent shares owned by family members in which the nominee
disclaims ownership, control or voting power.
53
<PAGE>
IDS MUTUAL FUND GROUP
PROXY STATEMENT SUMMARY
April 18, 1999
Here's a brief overview of some of the changes being recommended for your IDS
mutual fund or variable annuity fund. We encourage you to read the full text of
the enclosed proxy statement.
WHY AM I BEING ASKED TO VOTE?
[GRAPHIC]
Funds are required to get shareholders' votes for certain kinds of
changes, like the ones included in this proxy statement. You have
a right to vote on these changes either by
mailing your proxy card, calling a toll-free number, or responding
by internet.
IS MY VOTE IMPORTANT?
Absolutely! While the Board has reviewed these changes and recommends you
approve them, you have the right to voice your opinion. And, your Fund pays for
most of the cost of holding a shareholder meeting. Until the Fund is sure that
at least half of the shares will vote at the meeting, it will continue to
contact shareholders asking them to vote. These efforts cost your Fund money -
so please, vote immediately.
WHAT IS BEING VOTED ON?
At all regular meetings, shareholders elect Board members and ratify the
selection of independent auditors. In addition, shareholders at this meeting
will vote on proposals to:
- Change the name of the Fund from IDS to AXP
- Add a distribution agreement
- Change the Investment Management Services Agreement
- Change some of the investment policies
Some of these changes affect all Funds, while others affect only certain Funds.
Please refer to page 3 of the proxy statement to see what proposals apply to
your Fund.
WHAT DO BOARD MEMBERS AND INDEPENDENT AUDITORS DO?
Board members represent the interests of the shareholders and oversee the
management of the Fund. Independent auditors review the financial statements
prepared for the Fund and give an opinion on whether they present fairly the
financial position of the Fund.
WHY CHANGE THE FUND'S NAME FROM IDS TO AXP?
The proposal is to change the name of the Fund to AXP, an abbreviated form of
the name of the investment manager, American Express Financial Corporation. For
example, IDS New Dimensions Fund will be changed to AXP New Dimensions Fund.
<PAGE>
WHAT CHANGES ARE PROPOSED TO DISTRIBUTION ARRANGEMENTS?
The proposal is to change the existing shareholder service agreement to a
distribution plan (also known as a 12b-1 plan). Amounts paid under the
distribution plan will be used for service and education as well as for
advertising materials and programs designed to increase Fund sales. These
efforts are anticipated to increase the Fund's assets. If you are an annuity
fund shareholder, you are being asked to approve a new distribution plan that
will provide additional services and education.
WHAT CHANGES ARE PROPOSED TO THE INVESTMENT MANAGEMENT SERVICES AGREEMENT?
Shareholders of some funds are being asked to vote on changes to the management
agreement. These changes reflect the research and portfolio management resources
required to manage your Fund and are in line with management fee levels for
other mutual funds.
WHAT CHANGES ARE PROPOSED TO FUND POLICIES?
Some policies no longer apply because of changes in the law. Others are being
standardized to match the other Funds in the Group. One policy is being added to
permit borrowing and lending between Funds. You are being asked to eliminate,
modify or add these policies. This will not change the way the Fund is managed.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
After careful consideration, the Board recommends that you vote FOR each
proposal.
HOW DO I VOTE?
You can vote in one of four ways:
- By mail with the enclosed proxy card
[GRAPHIC]
- By telephone
- Through the internet
- In person at the meeting
Please refer to the enclosed voting instruction card for the telephone number
and internet address. If you own more than one Fund, it is important that you
vote for each Fund.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about any of the issues described in the proxy statement
or about voting procedures, please call your financial advisor or call client
services at 1-800-xxx-xxxx.
<PAGE>
IDS MUTUAL FUND GROUP
PROXY STATEMENT SUMMARY
CLASS Y SHAREHOLDERS
April 18, 1999
Here's a brief overview of some of the changes being recommended for your IDS
mutual fund. We encourage you to read the full text of the enclosed proxy
statement.
WHY AM I BEING ASKED TO VOTE?
Funds are required to get shareholders' votes for certain
[GRAPHIC]
kinds of changes, like the ones included in this proxy statement.
You have a right to vote on these changes either by mailing your
proxy card, calling a toll-free number, or responding by internet.
IS MY VOTE IMPORTANT?
Absolutely! While the Board has reviewed these changes and recommends you
approve them, you have the right to voice your opinion. And, your Fund pays for
most of the cost of holding a shareholder meeting. Until the Fund is sure that
at least half of the shares will vote at the meeting, it will continue to
contact shareholders asking them to vote. These efforts cost your Fund money -
so please, vote immediately.
WHAT IS BEING VOTED ON?
At all regular meetings, shareholders elect Board members and ratify the
selection of independent auditors. In addition, shareholders at this meeting
will vote on proposals to:
- Change the name of the Fund from IDS to AXP
- Change the Investment Management Services Agreement
- Change some of the investment policies
Some of these changes affect all Funds, while others affect only certain Funds.
Please refer to page 3 of the proxy statement to see what proposals apply to
your Fund.
WHAT DO BOARD MEMBERS AND INDEPENDENT AUDITORS DO?
Board members represent the interests of the shareholders and oversee the
management of the Fund. Independent auditors review the financial statements
prepared for the Fund and give an opinion on whether they present fairly the
financial position of the Fund.
<PAGE>
WHY CHANGE THE FUND'S NAME FROM IDS TO AXP?
The proposal is to change the name of the Fund to AXP, an abbreviated form of
the name of the investment manager, American Express Financial Corporation. For
example, IDS New Dimensions Fund will be changed to AXP New Dimensions Fund.
WHAT CHANGES ARE PROPOSED TO THE INVESTMENT MANAGEMENT SERVICES AGREEMENT?
Shareholders of some funds are being asked to vote on changes to the management
agreement. The changes reflect the research and portfolio management resources
required to manage your Fund, and are in line with management fee levels for
other mutual funds.
WHAT CHANGES ARE PROPOSED TO FUND POLICIES?
Some policies no longer apply because of changes in the law. Others are being
standardized to match the other Funds in the Group. One policy is being added to
permit borrowing and lending between Funds. You are being asked to eliminate,
modify or add these policies. This will not change the way the Fund is managed.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
After careful consideration, the Board recommends that you vote FOR each
proposal.
HOW DO I VOTE?
You can vote in one of four ways:
- By mail with the enclosed proxy card
[GRAPHIC]
- By telephone
- Through the internet
- In person at the meeting
Please refer to the enclosed voting instruction card for the telephone number
and internet address. If you own more than one Fund, it is important that you
vote for each Fund.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about any of the issues described in the proxy statement
or about voting procedures, please call 1-800-xxx-xxxx.
If you are a Plan Sponsor voting on behalf of your retirement plan, please
contact your Regional Director.
<PAGE>
IDS MUTUAL FUND GROUP
PROXY STATEMENT SUMMARY
AMERICAN ENTERPRISE LIFE/AMERICAN CENTURION LIFE
APRIL 18, 1999
Here's a brief overview of some of the changes being recommended for the IDS
mutual fund in which your variable annuity subaccount invests. We encourage you
to read the full text of the enclosed proxy statement.
WHY AM I BEING ASKED TO VOTE?
Funds are required to get shareholders' votes for certain kinds of changes, like
the ones included in this proxy statement. You have a right to vote on these
changes either by mailing your proxy card, calling a toll-free number, or
responding by internet.
IS MY VOTE IMPORTANT?
Absolutely! While the Board has reviewed these changes and recommends you
approve them, you have the right to voice your opinion. And, your Fund pays for
most of the cost of holding a shareholder meeting. Until the Fund is sure that
at least half of the shares will vote at the meeting, it will continue to
contact shareholders asking them to vote. These efforts cost your Fund money -
so please, vote immediately.
WHAT IS BEING VOTED ON?
At all regular meetings, shareholders elect Board members and ratify the
selection of independent auditors. In addition, shareholders at this meeting
will vote on proposals to:
- Change the name of the Fund from IDS to AXP
- Add a distribution agreement
- Change some of the investment policies
Some of these changes affect all Funds, while others affect only certain Funds.
Please refer to page 3 of the proxy statement to see what proposals apply to
your Fund.
WHAT DO BOARD MEMBERS AND INDEPENDENT AUDITORS DO?
Board members represent the interests of the shareholders and oversee the
management of the Fund. Independent auditors review the financial statements
prepared for the Fund and give an opinion on whether they present fairly the
financial position of the Fund.
<PAGE>
WHY CHANGE THE FUND'S NAME FROM IDS TO AXP?
The proposal is to change the name of the Fund to AXP, an abbreviated form of
the name of the investment manager, American Express Financial Corporation. For
example, IDS New Dimensions Fund will be changed to AXP New Dimensions Fund.
WHY ADD A DISTRIBUTION AGREEMENT?
You are being asked to approve a new distribution plan (also known as a 12b-1
plan). Amounts paid under the distribution plan will be used for shareholder
service and education, as well as for advertising materials and programs
designed to increase Fund sales. These efforts are anticipated to increase the
Fund's assets.
WHAT CHANGES ARE PROPOSED TO FUND POLICIES?
Some policies no longer apply because of changes in the law. Others are being
standardized to match the other Funds in the Group. One policy is being added to
permit borrowing and lending between Funds. You are being asked to eliminate,
modify or add these policies. This will not change the way the Fund is managed.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
After careful consideration, the Board recommends that you vote FOR each
proposal.
HOW DO I VOTE?
You can vote in one of four ways:
- By mail with the enclosed proxy card
- By telephone
- Through the internet
- In person at the meeting
Please refer to the enclosed voting instruction card for the telephone number
and internet address. If you own more than one Fund, it is important that you
vote for each Fund.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about any of the issues described in the proxy statement
or about voting procedures, and your contract was issued by American Enterprise
Life, please call at 1-800-333-3437. If your contract was issued by American
Centurion Life, please call 1-800-504-0469. Or you can contact your annuity
representative.
<PAGE>
- --------------------------------------------------------------------------------
VOTE TODAY BY MAIL, TOUCH-TONE PHONE, OR THE INTERNET
CALL TOLL-FREE: 1-888-221-0697 OR BY ACCESSING WWW.PROXYWEB.COM
- --------------------------------------------------------------------------------
SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON VOTING BY PHONE OR INTERNET
*** CONTROL NUMBER: 999 999 999 999 99 *** V Please fold and detach card at
perforation before mailing V
FUND NAME
PRINTS HERE PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS/TRUSTEES.
The undersigned hereby appoints Arne H. Carlson, Leslie L. Ogg and William R.
Pearce, or any one of them, as proxies, with full power of substitution, to
represent and to vote all of the shares of the undersigned at the regular
meeting to be held on June 16, 1999, and any adjournment thereof.
TO HAVE YOUR VOTE COUNTED, YOU MUST SIGN, DATE AND RETURN THIS PROXY. IT WILL
BE VOTED AS MARKED, OR IF NOT MARKED, WILL BE VOTED "FOR" EACH PROPOSAL.
----------------------------
THE BOARD RECOMMENDS A VOTE
"FOR" ALL PROPOSALS.
----------------------------
-------------------------------
-------------------------------
Signature(s)
Date_____________, 1999
Owners please sign as names
appear at left. Executors,
administrators, trustees, etc.,
should indicate position when
signing.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE REFER TO SECTION A - OVERVIEW (PAGES 3 & 4) OF THE PROXY STATEMENT
TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR FUND.
- --------------------------------------------------------------------------------
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
V PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING V
<TABLE>
<CAPTION>
<S><C>
1. Election of Board members. (ALL FUNDS) FOR WITHHOLD EXCEPTION
(01) H. Brewster Atwater, Jr. (02) Arne H. Carlson (03) Lynne V. Cheney ALL ALL
(04) William H. Dudley (05) David R. Hubers (06) Heinz F. Hutter / / / / / / 1.
(07) Anne P. Jones (08) William R. Pearce (09) Alan K. Simpson
(10) John R. Thomas (11) C. Angus Wurtele
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTION" BOX AND PRINT THE NOMINEE'S NAME ON THIS LINE.________________
FOR AGAINST ABSTAIN
2. Ratify the selection of independent auditors (ALL FUNDS) / / / / / / 2.
3. Change the Fund name from "IDS" to "AXP" (ALL FUNDS) / / / / / / 3.
4. Approve a new shareholder service and distribution plan / / / / / / 4.
(SEE OVERVIEW-PAGES 3 & 4)
5. Approve changes to the Investment Management Services Agreement / / / / / / 5.
(SEE OVERVIEW-PAGES 3 & 4)
6. Changes to investment policies (SEE OVERVIEW-PAGES 3 & 4) FOR AGAINST ABSTAIN
6.1 Borrow or lend to other funds 6.6 Pledging or mortgaging ALL ALL ALL
6.2 Prohibited conflict of interest 6.7 Three years operating history / / / / / / 6.
6.3 Senior securities 6.8 Exploration programs
6.4 Transactions with affiliates 6.9 Control or manage
6.5 Other investment companies 6.10 Concentration
IF YOU DO NOT WISH TO APPROVE A PARTICULAR INVESTMENT POLICY CHANGE,
APPLICABLE TO YOUR FUND, WRITE THE NUMBER OF THE SUB-PROPOSAL ON THE LINE
BELOW.
--------------------------------------------------------------------------
FOR AGAINST ABSTAIN
7. Approve a Subadvisory Agreement (MANAGED ALLOCATION FUND AND STRATEGY / / / / / / 7.
AGGRESSIVE FUND ONLY)
8. Change the investment objective (EQUITY SELECT FUND ONLY) / / / / / / 8.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PLEASE REFER TO SECTION A - OVERVIEW (PAGES 3 & 4) OF THE PROXY STATEMENT
TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR FUND.
- --------------------------------------------------------------------------------
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
V PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING V
<TABLE>
<CAPTION>
<S><C>
1. Election of Board members. (ALL FUNDS) FOR WITHHOLD EXCEPTION
(01) H. Brewster Atwater, Jr. (02) Arne H. Carlson (03) Lynne V. Cheney ALL ALL
(04) William H. Dudley (05) David R. Hubers (06) Heinz F. Hutter / / / / / / 1.
(07) Anne P. Jones (08) William R. Pearce (09) Alan K. Simpson
(10) John R. Thomas (11) C. Angus Wurtele
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTION" BOX AND PRINT THE NOMINEE'S NAME ON THIS LINE.________________
FOR AGAINST ABSTAIN
2. Ratify the selection of independent auditors (ALL FUNDS) / / / / / / 2.
3. Change the Fund name from "IDS" to "AXP" (ALL FUNDS) / / / / / / 3.
4. NOT APPLICABLE / / / / / / 4.
5. Approve changes to the Investment Management Services Agreement / / / / / / 5.
(SEE OVERVIEW-PAGES 3 & 4)
6. Changes to investment policies (SEE OVERVIEW-PAGES 3 & 4) FOR AGAINST ABSTAIN
6.1 Borrow or lend to other funds 6.6 Pledging or mortgaging ALL ALL ALL
6.2 Prohibited conflict of interest 6.7 Three years operating history / / / / / / 6.
6.3 Senior securities 6.8 Exploration programs
6.4 Transactions with affiliates 6.9 Control or manage
6.5 Other investment companies 6.10 Concentration
IF YOU DO NOT WISH TO APPROVE A PARTICULAR INVESTMENT POLICY CHANGE,
APPLICABLE TO YOUR FUND, WRITE THE NUMBER OF THE SUB-PROPOSAL ON THE LINE
BELOW.
--------------------------------------------------------------------------
FOR AGAINST ABSTAIN
7. Approve a Subadvisory Agreement (MANAGED ALLOCATION FUND AND STRATEGY / / / / / / 7.
AGGRESSIVE FUND ONLY)
8. Change the investment objective (EQUITY SELECT FUND ONLY) / / / / / / 8.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PLEASE REFER TO SECTION A - OVERVIEW (PAGES 3 & 4) OF THE PROXY STATEMENT
TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR FUND.
- --------------------------------------------------------------------------------
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
V PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING V
<TABLE>
<CAPTION>
<S><C>
1. Election of Board members. (ALL FUNDS) FOR WITHHOLD EXCEPTION
(01) H. Brewster Atwater, Jr. (02) Arne H. Carlson (03) Lynne V. Cheney ALL ALL
(04) William H. Dudley (05) David R. Hubers (06) Heinz F. Hutter / / / / / / 1.
(07) Anne P. Jones (08) William R. Pearce (09) Alan K. Simpson
(10) John R. Thomas (11) C. Angus Wurtele
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTION" BOX AND PRINT THE NOMINEE'S NAME ON THIS LINE.________________
FOR AGAINST ABSTAIN
2. Ratify the selection of independent auditors (ALL FUNDS) / / / / / / 2.
3. Change the Fund name from "IDS" to "AXP" (ALL FUNDS) / / / / / / 3.
4. Approve a new shareholder service and distribution plan / / / / / / 4.
(SEE OVERVIEW-PAGES 3 & 4)
5. NOT APPLICABLE / / / / / / 5.
6. Changes to investment policies (SEE OVERVIEW-PAGES 3 & 4) FOR AGAINST ABSTAIN
6.1 Borrow or lend to other funds 6.6 Pledging or mortgaging ALL ALL ALL
6.2 Prohibited conflict of interest 6.7 Three years operating history / / / / / / 6.
6.3 Senior securities 6.8 Exploration programs
6.4 Transactions with affiliates 6.9 Control or manage
6.5 Other investment companies 6.10 Concentration
IF YOU DO NOT WISH TO APPROVE A PARTICULAR INVESTMENT POLICY CHANGE,
APPLICABLE TO YOUR FUND, WRITE THE NUMBER OF THE SUB-PROPOSAL ON THE LINE
BELOW.
--------------------------------------------------------------------------
FOR AGAINST ABSTAIN
7. NOT APPLICABLE / / / / / / 7.
8. NOT APPLICABLE / / / / / / 8.
</TABLE>
<PAGE>
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