SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 (File No. 333-32362) [X]
----
Post-Effective Amendment No. [ ]
AXP EXTRA INCOME FUND, INC.
IDS Tower 10
Minneapolis, MN 55440-0010
Leslie L. Ogg
901 S. Marquette Avenue, Suite 2810
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement.
Title of Securities Being Registered: Common Stock
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940.
This Registration Statement shall hereafter become effective in accordance with
the provisions of Section 8(a) of the Securities Act of 1933.
<PAGE>
<PAGE>
STRATEGIST FUND GROUP
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2000
Strategist Growth Fund, Inc.
-Strategist Growth Fund
-Strategist Growth Trends Fund
-Strategist Special Growth Fund
Strategist Growth and Income Fund, Inc.
-Strategist Balanced Fund
-Strategist Equity Fund
-Strategist Equity Income Fund
-Strategist Total Return Fund
Strategist Income Fund, Inc.
-Strategist Government Income Fund
-Strategist High Yield Fund
-Strategist Quality Income Fund
Strategist World Fund, Inc.
-Strategist Emerging Markets Fund
-Strategist World Growth Fund
-Strategist World Income Fund
-Strategist World Technologies Fund
Strategist Tax-Free Income Fund, Inc.
-Strategist Tax-Free High Yield Fund
Your Fund will hold a special shareholders' meeting at 2:00 p.m. on May 9, 2000,
at the IDS Tower, 80 South Eighth Street, Minneapolis, MN, in Conference Room A
on the 27th floor. This will be a joint meeting for all of the Funds listed
above. At the meeting, shareholders will consider the following:
- - A proposal to approve an Agreement and Plan of Reorganization between the
Strategist Fund and the corresponding AXP Fund investing in the same master
fund. Under this Agreement, the Strategist Fund will transfer all of its
assets to the AXP Fund in exchange for Class A shares of the AXP Fund. These
shares will be distributed proportionately to you and the other shareholders
of the Strategist Fund. The AXP Fund will assume the Strategist Fund's
liabilities. The Board of Directors recommends that you vote FOR the
proposal.
- - Any other business that may come before the meeting.
Please take a few minutes to read the proxy statement. It discusses the proposal
in more detail. If you were a shareholder on April 5, 2000, you may vote at the
meeting or any adjournment of the meeting. We hope you can attend the meeting.
For those of you who cannot attend, please complete and return the enclosed
proxy card. If you have questions, please call 1-800-775-5805. This proxy
statement was first mailed to shareholders the week of April 17, 2000.
April 17, 2000
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED APRIL 17, 2000
This document is a proxy statement for each of the Strategist Funds and a
prospectus for the corresponding AXP Fund as shown in the table below. It
contains the information you should know before voting on the proposed
reorganization of the Strategist Fund into the corresponding AXP Fund (the
"Reorganization"). Please read it carefully and keep it for future reference.
The table shows the investment objective for each Strategist Fund and
corresponding AXP Fund. Investment policies for the Strategist Fund and its
corresponding AXP Fund are identical. The address of the Strategist Fund is IDS
Tower 10, Minneapolis, Minnesota 55440-0010. The address of the AXP Fund is 901
Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268.
FUND NAMES AND INVESTMENT OBJECTIVES
<TABLE>
<CAPTION>
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<S> <C> <C>
STRATEGIST FUND AXP FUND INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------------
Strategist Balanced AXP Mutual Balance of growth of capital and
current income.
- --------------------------------------------------------------------------------------
Strategist Emerging AXP Emerging Long-term capital growth.
Markets Markets
- --------------------------------------------------------------------------------------
Strategist Equity AXP Stock Current income and growth of capital.
- --------------------------------------------------------------------------------------
Strategist Equity AXP Diversified High level of current income.
Income Equity Income Secondary goal is steady growth of
capital.
- --------------------------------------------------------------------------------------
Strategist Government AXP Federal High level of current income and
Income Income safety of principal consistent with
investment in U.S. government and
government agency securities.
- --------------------------------------------------------------------------------------
Strategist Growth AXP Growth Long-term capital growth.
- --------------------------------------------------------------------------------------
Strategist Growth AXP New Long-term growth of capital.
Trends Dimensions
- --------------------------------------------------------------------------------------
Strategist High Yield AXP Extra Income High current income. Secondary goal is
capital growth.
- --------------------------------------------------------------------------------------
Strategist Quality AXP Selective Current income and preservation of
Income capital.
- --------------------------------------------------------------------------------------
</TABLE>
2
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<TABLE>
<CAPTION>
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<S> <C> <C>
STRATEGIST FUND AXP FUND INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------------
Strategist Special AXP Research Long-term capital growth.
Growth Opportunities
- --------------------------------------------------------------------------------------
Strategist Tax-Free AXP High Yield High yield generally exempt from
High Yield Tax-Exempt federal income taxes.
- --------------------------------------------------------------------------------------
Strategist Total Return AXP Managed Maximum total return through a
Allocation combination of growth of capital and
current income.
- --------------------------------------------------------------------------------------
Strategist World Growth AXP Global Growth Long-term capital growth.
- --------------------------------------------------------------------------------------
Strategist World Income AXP Global Bond High total return through income and
growth of capital.
- --------------------------------------------------------------------------------------
Strategist World AXP Innovations Long-term capital growth.
Technologies
- --------------------------------------------------------------------------------------
</TABLE>
HOW THE REORGANIZATION WILL WORK
- - The Strategist Fund will transfer all of its assets to the corresponding AXP
Fund. The AXP Fund will assume the Strategist Fund's stated liabilities.
- - The AXP Fund will issue Class A shares to the Strategist Fund in an amount
equal to the value of the assets it receives, less the liabilities it
assumes. These Class A shares will be distributed to the Strategist Fund's
shareholders in proportion to their holdings in the Strategist Fund. You will
not pay any sales charge in connection with this distribution of shares.
Please note that the AXP Fund is not a bank deposit, is not federally insured,
is not endorsed by any bank or government agency and is not guaranteed to
achieve its goal.
As with all mutual funds, the Securities and Exchange Commission (the "SEC") has
not approved or disapproved these securities or passed on the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
3
<PAGE>
WHERE TO GET MORE INFORMATION*
<TABLE>
<CAPTION>
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<S> <C>
The AXP Fund's most recent prospectus In the same envelope as this proxy
and annual report. statement/prospectus.
- ------------------------------------------------------------------------------------
The AXP Fund's most recent statement of Incorporated by reference into this
additional information and semi-annual proxy statement/prospectus. For a copy
report to shareholders (if a semi-annual at no charge, call toll-free
report has been issued subsequent to the 1-800-862-7919 or write to the address
most recent annual report). below.
- ------------------------------------------------------------------------------------
The Strategist Fund's most recent Incorporated by reference into this
prospectus. proxy statement/prospectus. For a copy
at no charge, call toll-free
1-800-297-8800 or write to the address
below.
- ------------------------------------------------------------------------------------
The Strategist Fund's most recent annual Incorporated by reference into this
report and semi-annual report to proxy statement/prospectus. For a copy
shareholders (if a semi-annual report at no charge, call toll-free
has been issued subsequent to the most 1-800-297-8800 or write to the address
recent annual report). below.
- ------------------------------------------------------------------------------------
Statement of additional information Incorporated by reference into this
dated the same date as this proxy proxy statement/prospectus. For a copy
statement/prospectus. This document at no charge, call toll-free
contains information about both the 1-800-862-7919 or write to the address
Strategist Fund and the AXP Fund. below.
- ------------------------------------------------------------------------------------
To ask questions about this proxy Call toll-free 1-800-775-5805 or write
statement/prospectus. to: American Express Client Service
Corporation, P.O. Box 534, Minneapolis,
MN 55440-0534.
- ------------------------------------------------------------------------------------
</TABLE>
* See Table G-2 for the dates of each of these documents.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
A. Summary.................................................. 7
- How the Reorganization Will Work........................ 7
- Comparison of the Strategist Fund to the AXP Fund....... 8
- Tax Consequences........................................ 10
- Investment Policies and Risk Factors.................... 10
B. Fees and Expenses........................................ 13
C. The Reorganization....................................... 17
- Terms of the Reorganization............................. 17
- Conditions to Closing the Reorganization................ 18
- Termination of the Agreement............................ 18
- Tax Status of the Reorganization........................ 18
- Reasons for the Proposed Reorganization and Board
Deliberations........................................... 19
- Boards' Determination................................... 21
D. Information Concerning the Meeting....................... 22
- Recommendation and Vote Required........................ 22
- Voting.................................................. 22
- Revoking Your Proxy..................................... 22
- Simultaneous Meetings................................... 22
- Solicitation of Proxies................................. 22
- Dissenters' Right of Appraisal.......................... 23
- Other Business.......................................... 23
- Adjournment............................................. 23
</TABLE>
5
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<TABLE>
<CAPTION>
PAGE
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E. Capitalization and Ownership of Fund Shares.............. 24
- Capitalization.......................................... 24
- Ownership of Fund Shares................................ 25
F. Experts.................................................. 28
G. Additional Information About the Funds' Businesses....... 28
EXHIBITS
1. Form of Agreement and Plan of Reorganization between the
Strategist Fund and the AXP Fund.......................... 30
2. Minnesota Business Corporation Act Sections 302A.471 and
302A.473.................................................. 42
3. Most recent AXP Fund prospectus and annual report
(enclosed)
</TABLE>
6
<PAGE>
A. SUMMARY
This proxy statement/prospectus is being used by the Board of Directors (the
"Board") of the Strategist Fund to solicit proxies to vote at a special meeting
of shareholders. The purpose of the meeting is to consider a proposal to approve
an Agreement and Plan of Reorganization (the "Agreement") providing for the
Reorganization of the Strategist Fund into the corresponding AXP Fund invested
in the same master fund.
The following is a summary. More complete information appears later in this
proxy statement/prospectus. You should read the entire proxy
statement/prospectus and the exhibits because they contain details that are not
in the summary. The materials in the statement of additional information dated
the same date as this proxy statement/prospectus for the Strategist Fund and the
AXP Fund are incorporated by reference into this proxy statement/prospectus.
HOW THE REORGANIZATION WILL WORK.
- - The Strategist Fund will transfer all of its assets to the corresponding AXP
Fund. The AXP Fund will assume all the Strategist Fund's stated liabilities.
There are no outstanding liabilities with respect to the Strategist Fund's
12b-1 plan.
- - The AXP Fund will issue Class A shares to the Strategist Fund in an amount
equal to the value of the assets it receives, less the liabilities it
assumes. These Class A shares will be distributed to the Strategist Fund's
shareholders in proportion to their holdings in the Strategist Fund.
- - Neither the Strategist Fund nor the shareholders of the Strategist Fund will
pay any sales charge in connection with the Reorganization.
- - After the Reorganization is completed, Strategist shareholders will be
shareholders of Class A shares of the corresponding AXP Fund. The Strategist
Fund will be deregistered as a mutual fund and terminated under state law.
7
<PAGE>
TABLE A-1.
COMPARISON OF THE STRATEGIST FUND TO THE AXP FUND
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIST FUND AXP FUND
<S> <C> <C>
- ---------------------------------------------------------------------------------------
General A series of capital stock of A series of capital stock of
an open-end management an open-end management
investment company organized investment company organized
as a Minnesota corporation. as a Minnesota corporation.
- ---------------------------------------------------------------------------------------
Investment Structure A feeder fund, as shown in A feeder fund, as shown in
Table A-2, investing all of Table A-2, investing all of
its assets in a master fund. its assets in a master fund.
- ---------------------------------------------------------------------------------------
Investment Adviser American Express Financial AEFC is the investment
Corporation ("AEFC") is the adviser for the master fund.
investment adviser for the
master fund.
- ---------------------------------------------------------------------------------------
Investment Objectives, Identical for both Funds.
Policies, Investment See Table A-2 for more information on each fund.
Strategies, Risks and
Restrictions
- ---------------------------------------------------------------------------------------
Pricing Each Fund calculates its net asset value per share at the
close of trading on the New York Stock Exchange (the "NYSE")
(normally 3:00 p.m. Central Time) each business day.
- ---------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
STRATEGIST FUND AXP FUND
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Classes of Shares One class of shares, offered Three classes of shares.
without a sales charge. Only Class A shares are
Effective October 4, 1999 being offered to Strategist
the Strategist Fund Fund shareholders in this
discontinued a 0.25% 12b-1 proxy statement/prospectus.
fee. - Class A has a front-end
sales charge and a 0.25%
12b-1 fee.*
- Class B has a contingent
deferred sales charge and a
1% 12b-1 fee.
- Class Y is offered only to
institutional investors with
no sales charge and a 0.10%
service fee.
*No sales charge will be
charged as part of the
Reorganization. On
subsequent purchases, the
sales charge will be waived
permanently for former
Strategist shareholders.
- ---------------------------------------------------------------------------------------
Buying and Selling Strategist Fund shares are Investors may purchase and
Shares no longer available for new redeem shares directly,
investment. Existing through their American
shareholders may make add-on Express financial advisor or
purchases to existing through other authorized
accounts. broker-dealers or third
parties.
- ---------------------------------------------------------------------------------------
Minimum Investment Initial: No new investments Initial: $2,000*
Amounts allowed Subsequent: $100
Subsequent: $100 for *The AXP Fund will waive the
existing investors minimum investment amount
for any Strategist Fund
account that, after the
Reorganization, contains
less than $2,000.
- ---------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
STRATEGIST FUND AXP FUND
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Exchanges Permitted only between Class A shares of the AXP
existing Strategist Fund Fund may be exchanged for
accounts. Class A shares of 38 other
AXP Funds.
- ---------------------------------------------------------------------------------------
Voting Rights No cumulative voting rights Cumulative voting rights
when voting on the election when voting on the election
of directors. of directors.
- ---------------------------------------------------------------------------------------
</TABLE>
TAX CONSEQUENCES. The Reorganization is expected to be tax-free for federal
income tax purposes and will not take place unless the Strategist Fund and the
AXP Fund receive a satisfactory opinion from the law firm of Ropes & Gray,
substantially to that effect.
INVESTMENT POLICIES AND RISK FACTORS. Because both the Strategist Fund and the
AXP Fund invest in the same master fund and are subject to the same investment
objectives, investment strategies and restrictions, the risks of an investment
in the AXP Fund are identical to the risks of an investment in the Strategist
Fund. Investment policies and risk factors are described in detail in the
enclosed AXP Fund prospectus under the headings "Investment Strategies" and
"Risks". The following table provides a brief summary of the investment policies
and risks.
10
<PAGE>
TABLE A-2.
SUMMARY OF PRIMARY INVESTMENT POLICIES AND RISKS
(policies and risks are identical for the Strategist Fund and its corresponding
AXP Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIST FUND AXP FUND PRIMARY INVESTMENT POLICIES PRIMARY INVESTMENT RISKS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Balanced AXP Mutual Primarily invests in a combination of Market risk, interest rate risk,
common stocks and senior securities. sector/ concentration risk,
call/prepayment risk, credit risk,
liquidity risk, style risk
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Emerging AXP Emerging Markets Primarily invests in equity Market risk, foreign/emerging markets
Markets securities of companies in emerging risk, liquidity risk, style risk,
market countries. sector/ concentration risk
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Equity AXP Stock Primarily invests in common stocks Market risk, inflation risk, foreign
and securities convertible into risk
common stocks.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Equity AXP Diversified Equity Primarily invests in dividend-paying Market risk, sector/concentration
Income Income equity securities. risk, inflation risk
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Government AXP Federal Income Primarily invests in debt obligations Market risk, correlation risk,
Income issued or guaranteed as to principal interest rate risk, call/prepayment
and interest by the U.S. government, risk
its agencies or instrumentalities.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Growth AXP Growth Primarily invests in common stocks Market risk, style risk, foreign risk
and securities convertible into
common stocks that appear to offer
growth opportunities.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Growth AXP New Dimensions Primarily invests in common stocks Market risk, style risk, foreign risk
Trends showing potential for significant
growth.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist High Yield AXP Extra Income Primarily invests in high-yielding, Market risk, interest rate risk,
high risk corporate bonds (junk credit risk
bonds).
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
TABLE A-2.
SUMMARY OF PRIMARY INVESTMENT POLICIES AND RISKS
(policies and risks are identical for the Strategist Fund and its corresponding
AXP Fund)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIST FUND AXP FUND PRIMARY INVESTMENT POLICIES PRIMARY INVESTMENT RISKS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Quality AXP Selective Primarily invests in debt obligations Market risk, interest rate risk,
Income that are investment grade or credit risk
equivalent.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Special AXP Research Primarily invests in securities of Market risk, issuer risk, style risk
Growth Opportunities companies that are part of the S&P
500 and are believed to be
undervalued or offer the potential
for long-term growth.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Tax-Free AXP High Yield Tax- Primarily invests in medium and lower Market risk, interest rate risk,
High Yield Exempt quality bonds (junk bonds) and other credit risk, legal/legislative risk,
debt obligations issued by or on call/ prepayment risk
behalf of state or local governmental
units whose interest is exempt from
federal income tax.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist Total AXP Managed Allocation Primarily allocates investments among Market risk, interest rate risk,
Return four asset classes: U.S. equities, foreign/ emerging markets risk,
U.S. and foreign debt securities, call/prepayment risk, credit risk,
foreign equity securities and cash. event risk, liquidity risk, small
company risk
- ----------------------------------------------------------------------------------------------------------------------------
Strategist World AXP Global Growth Primarily invests in equity Market risk, foreign/emerging markets
Growth securities of companies around the risk, style risk
world that are positioned to meet
market needs in a changing world
economy.
- ----------------------------------------------------------------------------------------------------------------------------
Strategist World AXP Global Bond Primarily invests in debt obligations Interest rate risk, foreign/emerging
Income of U.S. and foreign issuers. markets risk, credit risk, liquidity
risk
- ----------------------------------------------------------------------------------------------------------------------------
Strategist World AXP Innovations Primarily invests in equity Market risk, sector/concentration
Technologies securities of companies in the risk, style risk
information technology industry.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
B. FEES AND EXPENSES
The following table describes the fees and expenses that you pay if you buy and
hold shares of the Strategist Fund or Class A shares of the AXP Fund. The table
also shows Pro Forma expenses of Class A shares of the AXP Fund assuming the
proposed Reorganization had been effective during the most recent fiscal year.
13
<PAGE>
TABLE B-1.
ACTUAL AND PRO FORMA FUND EXPENSES
For the Most Recent Fiscal Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER FEES ANNUAL OPERATING EXPENSES(A)
(fees paid directly (expenses that are deducted from Fund assets)
FUND from your investment) (as a percent of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum sales Management Distribution Other
charge fees(b) (12b-1) fees(c) expenses(d) Total(e)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Balanced............................. 0% 0.48% 0.25% 2.41% 3.14%
AXP Mutual - Class A............................ 5% 0.46% 0.25% 0.19% 0.90%
AXP Mutual - Class A Pro Forma.................. * 0.46% 0.25% 0.19% 0.90%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Emerging Markets..................... 0% 1.10% 0.25% 4.82% 6.17%
AXP Emerging Markets - Class A.................. 5% 1.10% 0.25% 0.76% 2.11%
AXP Emerging Markets - Class A Pro Forma........ * 1.10% 0.25% 0.76% 2.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Equity............................... 0% 0.48% 0.25% 1.42% 2.15%
AXP Stock - Class A............................. 5% 0.48% 0.25% 0.15% 0.88%
AXP Stock - Class A Pro Forma................... * 0.48% 0.25% 0.15% 0.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Equity Income........................ 0% 0.49% 0.25% 2.88% 3.62%
AXP Diversified Equity Income - Class A......... 5% 0.49% 0.25% 0.22% 0.96%
AXP Diversified Equity Income - Class A
Pro Forma....................................... * 0.49% 0.25% 0.22% 0.96%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Government Income.................... 0% 0.50% 0.25% 0.66% 1.41%
AXP Federal Income - Class A.................... 5% 0.50% 0.25% 0.23% 0.98%
AXP Federal Income - Class A Pro Forma.......... * 0.50% 0.25% 0.23% 0.98%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Growth............................... 0% 0.52% 0.25% 0.26% 1.03%
AXP Growth - Class A............................ 5% 0.53% 0.25% 0.19% 0.97%
AXP Growth - Class A Pro Forma.................. * 0.53% 0.25% 0.19% 0.97%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Growth Trends........................ 0% 0.53% 0.25% 0.17% 0.95%
AXP New Dimensions -- Class A................... 5% 0.53% 0.25% 0.15% 0.93%
AXP New Dimensions -- Class A Pro Forma......... * 0.53% 0.25% 0.15% 0.93%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist High Yield........................... 0% 0.56% 0.25% 1.04% 1.85%
AXP Extra Income - Class A...................... 5% 0.56% 0.25% 0.20% 1.01%
AXP Extra Income - Class A Pro Forma............ * 0.56% 0.25% 0.20% 1.01%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Quality Income....................... 0% 0.52% 0.25% 2.81% 3.58%
AXP Selective - Class A......................... 5% 0.51% 0.25% 0.22% 0.98%
AXP Selective - Class A Pro Forma............... * 0.51% 0.25% 0.22% 0.98%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
TABLE B-1.
ACTUAL AND PRO FORMA FUND EXPENSES
For the Most Recent Fiscal Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER FEES ANNUAL OPERATING EXPENSES(A)
(fees paid directly (expenses that are deducted from Fund assets)
FUND from your investment) (as a percent of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum sales Management Distribution Other
charge fees(b) (12b-1) fees(c) expenses(d) Total(e)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Special Growth....................... 0% 0.64% 0.25% 1.38% 2.27%
AXP Research Opportunities - Class A............ 5% 0.63% 0.25% 0.33% 1.21%
AXP Research Opportunities - Class A
Pro Forma....................................... * 0.63% 0.25% 0.33% 1.21%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Tax-Free High Yield.................. 0% 0.45% 0.25% 2.55% 3.25%
AXP High Yield Tax-Exempt - Class A............. 5% 0.44% 0.25% 0.11% 0.80%
AXP High Yield Tax-Exempt - Class A
Pro Forma....................................... * 0.44% 0.25% 0.11% 0.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist Total Return......................... 0% 0.44% 0.25% 0.62% 1.31%
AXP Managed Allocation - Class A................ 5% 0.43% 0.25% 0.21% 0.89%
AXP Managed Allocation - Class A Pro Forma...... * 0.43% 0.25% 0.21% 0.89%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist World Growth......................... 0% 0.75% 0.25% 1.85% 2.85%
AXP Global Growth - Class A..................... 5% 0.74% 0.25% 0.32% 1.31%
AXP Global Growth - Class A Pro Forma........... * 0.74% 0.25% 0.32% 1.31%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist World Income......................... 0% 0.75% 0.25% 2.46% 3.46%
AXP Global Bond - Class A....................... 5% 0.74% 0.25% 0.28% 1.27%
AXP Global Bond - Class A Pro Forma............. * 0.74% 0.25% 0.28% 1.27%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist World Technologies................... 0% 0.72% 0.25% 2.24% 3.21%
AXP Innovations - Class A....................... 5% 0.72% 0.25% 0.15% 1.12%
AXP Innovations - Class A Pro Forma............. * 0.72% 0.25% 0.15% 1.12%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* The 5% sales charge will be waived permanently for former
Strategist shareholders.
(a) For all Funds, operating expenses include expenses charged
by both the Fund and the master fund. Expenses are based on
actual expenses for the last fiscal year, restated to
reflect current fees.
(b) The management fee is paid by the master fund and is
allocated between the Strategist Fund and the AXP Fund based
on respective net assets. For some Funds, the chart shows a
slight difference between the management fee for the
Strategist Fund and the management fee for the AXP Fund.
This difference is due to rounding.
(c) Effective October 4, 1999 the 0.25% distribution fee was
discontinued for the Strategist Fund.
(d) Other expenses include an administrative services fee, a
transfer agency fee and other nonadvisory expenses.
(e) For the Strategist Fund, AEFC has agreed to waive certain
fees and to absorb certain other Fund expenses until the end
of the Fund's current fiscal year. The agreement may be
terminated at any time after that date. Under the agreement,
total expenses will not exceed 0.95% for Tax-Free High
Yield; 1.10% for Government Income and Quality Income; 1.20%
for High Yield; 1.25% for Balanced, Equity and Equity
Income; 1.30% for Growth, Growth Trends and Total Return;
1.35% for World Income and World Technologies; 1.40% for
Special Growth; 1.75% for World Growth; and 2.20% for
Emerging Markets. For the most recent fiscal year, actual
total expenses with fee waivers and expense reimbursement
were 0.95% for Tax-Free High Yield; 1.09% for Government
Income, 1.09% for Quality Income, 1.19% for High Yield;
0.98% for Balanced; 1.25% for Equity; 1.25% for Equity
Income; 1.03% for Growth; 0.95% for Growth Trends; 1.22% for
Total Return; 1.35% for World Income, 1.47% for World
Technologies; 1.39% for Special Growth; 1.71% for World
Growth; and 2.20% for Emerging Markets.
</TABLE>
15
<PAGE>
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of 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. If you hold your shares until the end of the year shown, the
following table shows your costs under the current arrangements and your costs
if the proposed reorganization had been in effect. The numbers for the AXP Fund
reflect the costs that would be incurred if a shareholder paid $500 in sales
charge to purchase Class A shares. You will not incur that cost since the sales
charge will be waived permanently for former Strategist Fund shareholders.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Strategist Balanced........................ $317 $ 969 $1,645 $3,451
AXP Mutual - Class A....................... 587 773 974 1,557
AXP Mutual - Class A Pro Forma............. 587 773 974 1,557
- --------------------------------------------------------------------------------------
Strategist Emerging Markets................ 613 1,819 2,996 5,823
AXP Emerging Markets - Class A............. 703 1,128 1,578 2,824
AXP Emerging Markets - Class A Pro Forma.. 703 1,128 1,578 2,824
- --------------------------------------------------------------------------------------
Strategist Equity.......................... 218 673 1,155 2,487
AXP Stock - Class A........................ 585 767 964 1,534
AXP Stock - Class A Pro Forma.............. 585 767 964 1,534
- --------------------------------------------------------------------------------------
Strategist Equity Income................... 365 1,109 1,874 3,882
AXP Diversified Equity Income - Class A.... 593 791 1,005 1,623
AXP Diversified Equity Income - Class A
Pro Forma.................................. 593 791 1,005 1,623
- --------------------------------------------------------------------------------------
Strategist Government Income............... 144 447 772 1,696
AXP Federal Income - Class A............... 595 797 1,015 1,646
AXP Federal Income - Class A Pro Forma..... 595 797 1,015 1,646
- --------------------------------------------------------------------------------------
Strategist Growth.......................... 105 328 570 1,264
AXP Growth - Class A....................... 594 794 1,010 1,634
AXP Growth - Class A Pro Forma............. 594 794 1,010 1,634
- --------------------------------------------------------------------------------------
Strategist Growth Trends................... 97 303 526 1,171
AXP New Dimensions - Class A............... 590 782 990 1,590
AXP New Dimensions - Class A Pro Forma..... 590 782 990 1,590
- --------------------------------------------------------------------------------------
Strategist High Yield...................... 188 582 1,002 2,174
AXP Extra Income - Class A................. 598 806 1,031 1,679
AXP Extra Income - Class A Pro Forma....... 598 806 1,031 1,679
- --------------------------------------------------------------------------------------
Strategist Quality Income.................. 361 1,097 1,855 3,847
AXP Selective - Class A.................... 595 797 1,015 1,646
AXP Selective - Class A Pro Forma.......... 595 797 1,015 1,646
- --------------------------------------------------------------------------------------
Strategist Special Growth.................. 230 710 1,216 2,610
AXP Research Opportunities - Class A....... 617 865 1,133 1,897
AXP Research Opportunities - Class A
Pro Forma.................................. 617 865 1,133 1,897
- --------------------------------------------------------------------------------------
Strategist Tax-Free High Yield............. 328 1,001 1,698 3,552
AXP High Yield Tax-Exempt - Class A........ 578 743 923 1,444
AXP High Yield Tax-Exempt - Class A
Pro Forma.................................. 578 743 923 1,444
- --------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strategist Total Return.................... $133 $ 415 $ 719 $1,584
AXP Managed Allocation - Class A........... 586 770 969 1,545
AXP Managed Allocation - Class A
Pro Forma.................................. 586 770 969 1,545
- --------------------------------------------------------------------------------------
Strategist World Growth.................... 288 883 1,504 3,179
AXP Global Growth - Class A................ 627 895 1,183 2,005
AXP Global Growth - Class A Pro Forma...... 627 895 1,183 2,005
- --------------------------------------------------------------------------------------
Strategist World Income.................... 349 1,062 1,798 3,740
AXP Global Bond - Class A.................. 623 883 1,163 1,962
AXP Global Bond - Class A Pro Forma........ 623 883 1,163 1,962
- --------------------------------------------------------------------------------------
Strategist World Technologies.............. 324 989 1,679 3,515
AXP Innovations - Class A.................. 608 838 1,087 1,800
AXP Innovations - Class A Pro Forma........ 608 838 1,087 1,800
- --------------------------------------------------------------------------------------
</TABLE>
C. THE REORGANIZATION
TERMS OF THE REORGANIZATION. The Board has approved the Agreement, a copy of
which is attached as Exhibit 1. The Agreement provides for Reorganization on the
following terms:
- - The Reorganization is scheduled to occur on the first day that the NYSE is
open for business following shareholder approval and receipt of any necessary
regulatory approvals, but may occur on any later date agreed to by the Funds.
- - The Strategist Fund will transfer all of its assets to the AXP Fund and, in
exchange, the AXP Fund will assume the Strategist Fund's stated liabilities
and issue Class A shares.
- - The AXP Fund will issue Class A shares to the Strategist Fund in an amount
equal to the value of the assets received by the AXP Fund, less the
liabilities assumed by the AXP Fund in the transaction. These shares will
immediately be distributed by the Strategist Fund to its shareholders in
proportion to their holdings in the Strategist Fund. As a result,
shareholders of the Strategist Fund will become Class A shareholders of the
AXP Fund.
- - Neither the Strategist Fund nor the shareholders of the Strategist Fund will
pay any sales charge in connection with the Reorganization.
- - The net asset value of both Funds will be computed as of 3:00 p.m. Central
time, on the closing date.
17
<PAGE>
- - After the Reorganization, the Strategist Fund will be deregistered as a
mutual fund and terminated under state law.
CONDITIONS TO CLOSING THE REORGANIZATION. The completion of the Reorganization
is subject to certain conditions described in the Agreement, including:
- - The Strategist Fund will have declared and paid a dividend that will
distribute all of the Fund's taxable income, if any, to the shareholders of
the Strategist Fund for the taxable years ending at or prior to the closing.
- - The Funds will have received any approvals, consents or exemptions from the
SEC or any regulatory body necessary to carry out the Reorganization.
- - A registration statement on Form N-14 will have been filed with the SEC and
declared effective for each of the Funds.
- - The shareholders of the Strategist Funds will have approved the Agreement.
- - The Funds will have received an opinion of tax counsel that the proposed
Reorganization will be tax-free for each Fund and its shareholders.
TERMINATION OF THE AGREEMENT. The Agreement and the transactions contemplated
by it may be terminated and abandoned by resolutions of the Board of the
Strategist Fund or the AXP Fund at any time prior to closing. In the event of a
termination, there will be no liability for damages on the part of either the
Strategist Fund or the AXP Fund or the directors, officers or shareholders of
either Fund.
TAX STATUS OF THE REORGANIZATION. The Reorganization is expected to be tax-free
for federal income tax purposes and will not take place unless the Strategist
Fund and the AXP Fund receive a satisfactory opinion from the law firm of
Ropes & Gray, substantially to the effect that:
- - The transfer of the Strategist Fund's assets to the AXP Fund in exchange for
Class A shares of the AXP Fund and the assumption of the Strategist Fund's
liabilities, followed by the distribution of those shares to the Strategist
Fund's shareholders and the termination of the Strategist Fund will be a
"reorganization" within the meaning of Section 368(a)(1) of the Internal
Revenue Code of 1986 (the "Code"), and the Strategist Fund and the
corresponding AXP Fund will each be
18
<PAGE>
a "party to the reorganization" within the meaning of Section 368(b) of the
Code.
- - No gain or loss will be recognized by the Strategist Fund upon the transfer
of all of its assets to the AXP Fund or on the distribution by the Strategist
Fund of Class A shares of the AXP Fund to Strategist Fund shareholders.
- - No gain or loss will be recognized by the AXP Fund upon the receipt of the
Strategist Fund's assets solely in exchange for the issuance of the AXP
Fund's Class A shares to the Strategist Fund and the assumption of all of the
Strategist Fund's liabilities by the AXP Fund.
- - The basis of the assets of the Strategist Fund acquired by the AXP Fund will
be, in each instance, the same as the basis of those assets in the hands of
the Strategist Fund immediately before the transfer.
- - The tax holding period of the assets of the Strategist Fund in the hands of
the AXP Fund will include the Strategist Fund's tax holding period for those
assets.
- - The shareholders of the Strategist Fund will not recognize gain or loss upon
the exchange of all their shares of the Strategist Fund solely for the AXP
Fund Class A shares as part of the Reorganization.
- - The basis of the Class A shares of the AXP Fund received by the Strategist
Fund shareholders in the Reorganization will be the same as the basis of the
shares of the Strategist Fund surrendered in exchange.
- - The tax holding period of the Class A shares of the AXP Fund received by the
Strategist Fund shareholders will include, for each shareholder, the tax
holding period of the shares of the Strategist Fund surrendered in exchange,
provided that the Class A shares of the AXP Fund were held as capital assets
on the date of the exchange.
REASONS FOR THE PROPOSED REORGANIZATION AND BOARD DELIBERATIONS. The Board
believes that the proposed Reorganization will be advantageous to the Strategist
Fund shareholders for several reasons. The Board considered the following
matters, among others, in approving the Reorganization.
- - TERMS AND CONDITIONS OF THE REORGANIZATION. The Board considered the terms
and conditions of the Reorganization as described in the previous paragraphs.
19
<PAGE>
- - TAX CONSEQUENCES. The Board considered the tax-free nature of the
Reorganization.
- - CONTINUITY OF INVESTMENT. The Board took into account the fact that,
following the Reorganization, shareholders of the Strategist Funds will be
invested in a fund holding an identical investment securities portfolio, with
identical investment objectives, policies, and restrictions.
- - CONTINUED NO-LOAD PURCHASES. The Board took into account that shareholders of
the Strategist Fund will be able to make future purchases of shares of the
AXP Fund on a no-load basis.
- - EXPENSE RATIOS. Following the Reorganization, the expense ratio for the AXP
Fund is expected to be lower than the expense ratio of the Strategist Fund.
The Reorganization is expected to eliminate or reduce costs associated with
maintaining separate funds, including costs of separate audits, printing
costs and blue sky fees. The Strategist Fund has been unable to attract
sufficient assets to operate effectively without significant expense
subsidization. Since commencement of operations, AEFC has been waiving a
portion of its fees. AEFC has committed to continue capping fees through the
end of the 2000 fiscal year for the Strategist Fund, although waivers can be
discontinued at any time after that. AEFC does not expect to waive fees
indefinitely and, without continued fee waivers or growth in assets, the
Strategist Fund's expense ratios would likely exceed those of many other
funds with similar investment objectives. This could have an adverse impact
on the Strategist Fund's performance. As a result, it is possible that the
Strategist Fund's asset base will decline and the Strategist Fund's expense
ratio will rise even higher as fixed costs are spread over a shrinking asset
base.
The AXP Fund, on the other hand, has achieved viable size. Certain fixed
shareholder expenses (such as accounting fees, printing costs and blue sky
expenses) are expected to be lower for the AXP fund than they would be for
the Strategist Fund if AEFC discontinued waiving fees. Thus, Strategist Fund
shareholders will experience lower per share fixed costs by holding AXP Fund
shares than they would if they continued to hold shares in the Strategist
Fund. Expense ratios for each of the Funds for the last fiscal year are
shown under the heading "Fees and Expenses".
- - POTENTIAL BENEFITS TO AEFC AND ITS AFFILIATES. Although not a reason for
approving the Reorganization, as part of its deliberations the Board also
considered the potential benefits from the Reorganization
20
<PAGE>
that could be realized by AEFC and its affiliates. The Board recognized that
the potential benefits to AEFC consist principally of the elimination of
expenses incurred in duplicative efforts to administer two separate funds.
AEFC also will benefit to the extent it no longer waives its fees. The Board
also noted, however, that shareholders of the Strategist Funds will benefit
directly from any decrease in overall operating ratios resulting from the
proposed Reorganization.
- - COSTS. The Board considered the fact that AEFC has agreed to bear the costs
of effecting the Reorganization.
- - ALTERNATIVE SOLUTIONS. The Board determined that the Reorganization provided
greater benefits to shareholders than other options, such as the liquidation
of the Strategist Fund. Liquidating the Strategist Fund would require most
shareholders, subject to federal income taxation, to recognize either gains
or losses in the current tax year when many shareholders might prefer to
defer those gains or losses. Another alternative, a voluntary exchange into
the corresponding AXP Fund, generally also would require shareholders to
recognize a gain or loss for tax purposes. The Reorganization, on the other
hand, is expected to be achieved on a tax-free basis resulting in a deferral
of any gain or loss for federal income tax purposes. Any shareholder who does
not want to participate in the Reorganization may redeem shares. This would
be a taxable event for the shareholder similar to what would happen if the
Strategist Fund was liquidated.
BOARDS' DETERMINATION. After considering the factors described above and other
relevant information, at a meeting held on March 10, 2000, the Strategist Fund
Board members, including a majority of the Independent Directors, found that
participation in the Reorganization is in the best interests of the Strategist
Fund and that the interests of existing shareholders of the Fund will not be
diluted as a result of the Reorganization. The Independent Directors were
advised, in their deliberations, by special counsel as to their fiduciary duties
under state law and the Investment Company Act of 1940 (the "1940 Act"), and met
separately on a number of occasions with counsel prior to approving the
Reorganization. In addition, AEFC agreed that, following the Reorganization, it
will provide the Independent Directors with the same level of indemnification
for their actions as directors of the Fund as is currently provided by the Fund.
The Board of Directors of the AXP Fund approved the Agreement at a meeting held
on March 8-9, 2000. The Board members considered the terms of the Agreement, the
provisions intended to avoid the dilution of
21
<PAGE>
shareholder interests and the anticipated tax consequences of the
Reorganization. The Board found that participation in the Reorganization is in
the best interests of the AXP Fund and that the interests of existing
shareholders of the Fund will not be diluted as a result of the Reorganization.
D. INFORMATION CONCERNING THE MEETING
RECOMMENDATION AND VOTE REQUIRED. The Board recommends that shareholders
approve the proposed Agreement. The Agreement must be approved by a majority of
the Fund's shares voted at the meeting. If the Agreement is not approved, the
Board will consider what further action should be taken.
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. Signed proxy cards returned without instructions will be
voted in favor of the proposal.
All votes count toward a quorum, regardless of how they are voted (For, Against
or Abstain). Broker non-votes will be counted toward a quorum but not toward the
approval of the proposal. Broker non-votes are shares for which the underlying
owner has not voted and the broker holding the shares does not have authority to
vote.
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 writing us or by sending another card.
SIMULTANEOUS MEETINGS. The meeting of your Fund will be held simultaneously
with meetings of the other funds in the Strategist Fund Group. 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 take into
consideration 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 and for you to vote
as promptly as possible. AEFC will pay the expenses for the proxy material and
the postage. Supplementary solicitations may be made by mail, telephone,
electronic means or personal contact. The expenses of supplementary solicitation
will be paid by AEFC.
22
<PAGE>
DISSENTERS' RIGHT OF APPRAISAL. Under Sections 302A.471 and 302A.473 of the
Minnesota Business Corporation Act, Strategist Fund shareholders are entitled to
assert dissenters' rights in connection with the Reorganization and obtain
payment of the "fair value" of their shares, provided that they comply with the
requirements of Minnesota law. A copy of the relevant provisions is attached as
Exhibit 2.
Notwithstanding the provisions of Minnesota law, the SEC has taken the position
that use of state appraisal procedures by a mutual fund would be a violation of
Rule 22c-1, the forward pricing rule, under the 1940 Act. This rule states that
no mutual fund may redeem its shares other than at net asset value next computed
after receipt of a request for redemption. It is the SEC's position that Rule
22c-1 supersedes appraisal provisions in state statutes.
In the interest of ensuring equal valuation for all shareholders, dissenters'
rights will be determined in accordance with the SEC's interpretation. As a
result, if any shareholder elects to exercise dissenters' rights under Minnesota
law, the Strategist Fund intends to submit this question to a court of competent
jurisdiction. In that event, a dissenting shareholder would not receive any
payment until the end of the court proceeding.
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 are received by the time
scheduled for the meeting, the persons named as proxies may move for one or more
adjournments of the meeting for a period of not more than 120 days in the
aggregate to allow further solicitation of shareholders on the proposal. 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. AEFC will pay the costs of any additional
solicitation and of any adjourned meeting.
23
<PAGE>
E. CAPITALIZATION AND OWNERSHIP OF FUND SHARES
CAPITALIZATION. The following table shows the capitalization of the Strategist
Fund and the AXP Fund as of February 29, 2000 and on a pro forma basis, assuming
the proposed Reorganization had taken place.
TABLE E-1.
CAPITALIZATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Strategist Balanced............. $ 1,121,480 $14.19 79,051
AXP Mutual - Class A............ 2,845,139,084 11.80 241,151,956
AXP Mutual - Class A
Pro Forma....................... 2,846,260,564 11.80 241,246,997
- -----------------------------------------------------------------------------------
Strategist Emerging Markets..... 838,627 5.57 150,488
AXP Emerging Markets -
Class A......................... 345,604,086 6.63 52,129,590
AXP Emerging Markets - Class A
Pro Forma....................... 346,442,713 6.63 52,256,080
- -----------------------------------------------------------------------------------
Strategist Equity............... 1,268,457 33.36 38,021
AXP Stock - Class A............. 3,435,951,038 26.88 127,833,144
AXP Stock - Class A
Pro Forma....................... 3,437,219,495 26.88 127,880,334
- -----------------------------------------------------------------------------------
Strategist Equity Income........ 911,061 8.90 102,388
AXP Diversified Equity Income -
Class A......................... 1,753,394,316 8.06 217,495,354
AXP Diversified Equity Income -
Class A Pro Forma............... 1,754,305,377 8.06 217,608,389
- -----------------------------------------------------------------------------------
Strategist Government Income.... 839,068 4.55 184,345
AXP Federal Income - Class A.... 1,333,443,659 4.67 285,435,290
AXP Federal Income - Class A
Pro Forma....................... 1,334,282,727 4.67 285,614,962
- -----------------------------------------------------------------------------------
Strategist Growth............... 30,296,472 58.84 514,904
AXP Growth - Class A............ 6,211,706,008 53.38 116,377,239
AXP Growth - Class A
Pro Forma....................... 6,242,002,480 53.38 116,944,801
- -----------------------------------------------------------------------------------
Strategist Growth Trends........ 29,539,340 37.92 779,012
AXP New Dimensions - Class A.... 17,183,848,180 35.80 480,021,047
AXP New Dimensions - Class A
Pro Forma....................... 17,213,387,520 35.80 480,846,168
- -----------------------------------------------------------------------------------
Strategist High Yield........... 1,695,722 3.73 454,423
AXP Extra Income - Class A...... 2,501,563,029 3.75 667,793,439
AXP Extra Income - Class A
Pro Forma....................... 2,503,258,751 3.75 668,245,632
- -----------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Strategist Quality Income....... $ 740,918 $ 8.68 85,385
AXP Selective - Class A......... 1,014,413,269 8.46 119,970,541
AXP Selective - Class A
Pro Forma....................... 1,015,154,187 8.46 120,058,120
- -----------------------------------------------------------------------------------
Strategist Special Growth....... 1,913,631 5.99 319,504
AXP Research Opportunities -
Class A......................... 555,284,904 7.60 73,040,677
AXP Research Opportunities -
Class A Pro Forma............... 557,198,535 7.60 73,292,471
- -----------------------------------------------------------------------------------
Strategist Tax-Free High
Yield........................... 785,483 4.24 185,369
AXP High Yield Tax-Exempt -
Class A......................... 4,794,230,093 4.27 1,123,660,941
AXP High Yield Tax-Exempt -
Class A Pro Forma............... 4,795,015,576 4.27 1,123,844,895
- -----------------------------------------------------------------------------------
Strategist Total Return......... 868,449 12.73 68,215
AXP Managed Allocation -
Class A......................... 1,879,003,429 10.22 183,876,234
AXP Managed Allocation -
Class A Pro Forma............... 1,879,871,878 10.22 183,961,209
- -----------------------------------------------------------------------------------
Strategist World Growth......... 1,093,025 11.46 95,390
AXP Global Growth - Class A..... 1,576,608,728 10.30 153,028,755
AXP Global Growth - Class A
Pro Forma....................... 1,577,701,753 10.30 153,134,874
- -----------------------------------------------------------------------------------
Strategist World Income......... 597,880 5.56 107,505
AXP Global Bond - Class A....... 501,761,454 5.57 90,123,823
AXP Global Bond - Class A
Pro Forma....................... 502,359,334 5.57 90,231,162
- -----------------------------------------------------------------------------------
Strategist World Technologies... 2,448,011 22.60 108,321
AXP Innovations - Class A....... 16,240,712 22.69 715,673
AXP Innovations - Class A
Pro Forma....................... 18,688,723 22.69 823,562
- -----------------------------------------------------------------------------------
</TABLE>
OWNERSHIP OF FUND SHARES. The following table provides information on
shareholders who owned more than 5% of any Fund's outstanding shares as of
February 29, 2000. As of that date, AEFC or its parent company, American Express
Company, held more than 25% of the outstanding shares of each of the Strategist
Funds. Under the 1940 Act, any person who owns more than 25% of the voting
securities of a company is presumed to "control" the company. Under this
definition, as shown below, AEFC and American Express are deemed to be
controlling persons of the Strategist Funds. As of February 29, 2000, officers
and directors of each of the Funds as a group owned less than 1% of the
outstanding shares of each of the Funds.
25
<PAGE>
TABLE E-2.
OWNERSHIP OF FUND SHARES*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF AXP
CLASS A SHARES
NUMBER OF PERCENT OF HELD FOLLOWING THE
FUND 5% OWNERS SHARES HELD SHARES HELD REORGANIZATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Strategist
Balanced............. AEFC (1) 52,033 65.8% 0.03%
AXP Mutual........... None -- -- --
- ----------------------------------------------------------------------------------
Strategist Emerging
Markets.............. AEFC 120,595 80.0% 0.19%
AXP Emerging
Markets.............. None -- -- --
- ----------------------------------------------------------------------------------
Strategist Equity.... AEFC 28,661 75.4% 3.15%
AXP Stock............ None -- -- --
- ----------------------------------------------------------------------------------
Strategist Equity
Income............... AEFC 82,394 80.5% 0.04%
AXP Diversified
Equity Income........ None -- -- --
- ----------------------------------------------------------------------------------
Strategist Government AEFC 134,197 72.8% 0.05%
Income............... (2) 17,348 9.4% **
(3) 10,947 5.9% **
AXP Federal Income... None -- -- --
- ----------------------------------------------------------------------------------
Strategist Growth.... (4) 402,401 78.2% 0.38%
AXP Growth........... None -- -- --
- ----------------------------------------------------------------------------------
Strategist Growth
Trends............... (4) 621,855 79.8% 0.14%
AXP New Dimensions... None -- -- --
- ----------------------------------------------------------------------------------
Strategist High AEFC 165,462 36.4% 0.03%
Yield................ (5) 123,529 27.4% 0.02%
(6) 104,720 23.0% 0.01%
AXP Extra Income..... None -- -- --
- ----------------------------------------------------------------------------------
Strategist Quality AEFC 71,657 83.9% 0.06%
Income............... (7) 5,328 6.2% **
AXP Selective........ None -- -- --
- ----------------------------------------------------------------------------------
Strategist Special
Growth............... AEFC 163,702 51.2% 0.18%
AXP Research
Opportunities........ None -- -- --
- ----------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF AXP
CLASS A SHARES
NUMBER OF PERCENT OF HELD FOLLOWING THE
FUND 5% OWNERS SHARES HELD SHARES HELD REORGANIZATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Strategist Tax-Free AEFC 141,173 76.2% 0.01%
High Yield........... (8) 16,723 9.0% **
AXP High Yield Tax-
Exempt............... None -- -- --
- ----------------------------------------------------------------------------------
Strategist Total AEFC 58,061 85.1% 0.04%
Return............... (9) 6,530 9.6% **
AXP Managed
Allocation........... None -- -- --
- ----------------------------------------------------------------------------------
Strategist World AEFC 80,173 84.0%
Growth............... (10) 6,185 6.5% 0.06%
AXP Global Growth.... None -- -- --
- ----------------------------------------------------------------------------------
Strategist World
Income............... AEFC 101,305 94.2% 0.11%
AXP Global Bond...... None -- -- --
- ----------------------------------------------------------------------------------
Strategist World
Technologies......... AEFC 108,321 100% 100%
AXP Innovations...... AEFC 759,090 100% 100%
- ----------------------------------------------------------------------------------
</TABLE>
* For the AXP Fund, 5% ownership is shown for Class A shares.
** Less than 0.01%
(1) AEFC, a Delaware corporation, is located at IDS Tower 10, Minneapolis, MN
55440-0010.
(2) Norrine F. Baggett, 326 East Southfield Road, Shreveport, LA 71105.
(3) Nadia Hamidian, 22 68th Street, Guttenberg, NJ 07093.
(4) American Express Company, a Delaware corporation, the parent company of
AEFC, is located at American Express Tower, World Financial Center, New
York, NY 10285.
(5) American Latvian Association in the US, Inc., 400 Hurley Ave., Rockville,
MD 20850.
(6) Latvijas Brivibas Fonds LTD, 400 Hurley Ave., Rockville, MD 20850.
(7) Barbara B. Ismel, 328 West 86th No. 2C, New York, NY 10024.
(8) John L. and Rosana L. Warren, 4971 Little Cub Creek Road, Evergreen, CO
80439.
(9) Peter L. Rowe and Fredda Rosenblatt, 6887 Palm Grove Court, West Palm
Beach, FL 33418.
(10) William J. and Frances M. Russell, 1443 Creekside Court, Vienna, VA 22182.
27
<PAGE>
F. EXPERTS
The audited financial statements for the Strategist Fund and the AXP Fund
included in or incorporated by reference in this proxy statement/ prospectus or
the Statement of Additional Information, have been audited by KPMG LLP,
independent auditors for the Funds, whose reports are included in the annual
report. The financial statements have been incorporated in this document in
reliance on KPMG's reports given on their authority as experts in auditing and
accounting matters.
G. ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in each Fund's prospectus you can find
additional information about the business of the Fund.
TABLE G-1.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HEADING IN PROSPECTUS
TYPE OF INFORMATION STRATEGIST FUND AXP FUND
<S> <C> <C>
- -------------------------------------------------------------------------------------
Investment objective Goal Goal
- -------------------------------------------------------------------------------------
Principal investment strategies Investment Strategy Investment Strategy
- -------------------------------------------------------------------------------------
Principal risks Risks Risks
- -------------------------------------------------------------------------------------
Fee table Fees and Expenses Fees and Expenses
- -------------------------------------------------------------------------------------
Management Management Management
- -------------------------------------------------------------------------------------
Fund share price Valuing Fund Shares Valuing Fund Shares
- -------------------------------------------------------------------------------------
Buying and selling fund shares Purchasing Shares; Purchasing Shares;
Exchanging/Selling Exchanging/Selling
Shares Shares
- -------------------------------------------------------------------------------------
Distributions and taxes Distributions and Distributions and
Taxes Taxes
- -------------------------------------------------------------------------------------
Financial highlights Financial Highlights Financial Highlights
- -------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
TABLE G-2.
DATES OF FUND DOCUMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEMI-ANNUAL
ANNUAL REPORT
REPORT (IF APPLICABLE)
PROSPECTUS SAI (FOR PERIOD (FOR PERIOD
FUND (DATED) (DATED) ENDED) ENDED)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
Strategist Balanced........... 11/29/99 11/29/99 9/30/99 NA
AXP Mutual.................... 11/29/99 11/29/99 9/30/99 NA
- -------------------------------------------------------------------------------------
Strategist Equity............. 11/29/99 11/29/99 9/30/99 NA
AXP Stock..................... 11/29/99 11/29/99 9/30/99 NA
- -------------------------------------------------------------------------------------
Strategist Equity Income...... 11/29/99 11/29/99 9/30/99 NA
AXP Diversified Equity
Income........................ 11/29/99 11/29/99 9/30/99 NA
- -------------------------------------------------------------------------------------
Strategist Emerging Markets... 12/30/99 12/30/99 10/31/99 NA
AXP Emerging Markets.......... 12/30/99 12/30/99 10/31/99 NA
- -------------------------------------------------------------------------------------
Strategist Government Income.. 7/30/99 7/30/99 5/31/99 11/30/99
AXP Federal Income............ 7/30/99 7/30/99 5/31/99 11/30/99
- -------------------------------------------------------------------------------------
Strategist Growth............. 9/29/99 9/29/99 7/31/99 1/31/00
AXP Growth.................... 9/29/99 9/29/99 7/31/99 1/31/00
- -------------------------------------------------------------------------------------
Strategist Growth Trends...... 9/29/99 9/29/99 7/31/99 1/31/00
AXP New Dimensions............ 9/29/99 9/29/99 7/31/99 1/31/00
- -------------------------------------------------------------------------------------
Strategist High Yield......... 7/30/99 7/30/99 5/31/99 11/30/99
AXP Extra Income.............. 7/30/99 7/30/99 5/31/99 11/30/99
- -------------------------------------------------------------------------------------
Strategist Quality Income..... 7/30/99 7/30/99 5/31/99 11/30/99
AXP Selective................. 7/30/99 7/30/99 5/31/99 11/30/99
- -------------------------------------------------------------------------------------
Strategist Special Growth..... 9/29/99 9/29/99 7/31/99 1/31/00
AXP Research Opportunities.... 9/29/99 9/29/99 7/31/99 1/31/00
- -------------------------------------------------------------------------------------
Strategist Tax-Free High
Yield......................... 1/28/00 1/28/00 11/30/99 NA
AXP High Yield Tax-Exempt..... 1/28/00 1/28/00 11/30/99 NA
- -------------------------------------------------------------------------------------
Strategist Total Return....... 11/29/99 11/29/99 9/30/99 NA
AXP Managed Allocation........ 11/29/99 11/29/99 9/30/99 NA
- -------------------------------------------------------------------------------------
Strategist World Growth....... 12/30/99 12/30/99 10/31/99 NA
AXP Global Growth............. 12/30/99 12/30/99 10/31/99 NA
- -------------------------------------------------------------------------------------
Strategist World Income....... 12/30/99 12/30/99 10/31/99 NA
AXP Global Bond............... 12/30/99 12/30/99 10/31/99 NA
- -------------------------------------------------------------------------------------
Strategist World
Technologies.................. 12/30/99 12/30/99 10/31/99 NA
AXP Innovations............... 3/15/00 3/15/00 10/31/99 NA
- -------------------------------------------------------------------------------------
</TABLE>
Each Fund is subject to the information requirements of the Securities Exchange
Act of 1934 and the 1940 Act and files reports, proxy materials and other
information with the SEC. These reports, proxy materials and other information
can be inspected and copied at the Public Reference Room maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C., the Midwest Regional Office of the
SEC at 500 West Madison Street, Suite 400, Chicago, Illinois 60611, and the
Northeast Regional Office of the SEC at 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of these materials also can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, copies of these documents may be viewed
on-line or downloaded from the SEC's website at http://www.sec.gov.
29
<PAGE>
EXHIBIT 1
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization dated as of March 10, 2000 (the
"Agreement") is between Strategist Growth and Income Fund, Inc. (the "Strategist
Corporation"), a Minnesota corporation, on behalf of Strategist Balanced Fund
(the "Acquired Fund"), a series of capital stock of the Strategist Corporation,
and AXP Investment Series, Inc. (the "AXP Corporation"), a Minnesota
corporation, on behalf of AXP Mutual (the "Acquiring Fund"), a series of capital
stock of the AXP Corporation. The Acquired Fund and the Acquiring Fund are
feeder funds investing in a single master trust.
In consideration of the mutual promises, the parties agree as follows:
1. SHAREHOLDER APPROVAL
The Acquired Fund will call a meeting of its shareholders for the purpose of
approving the Agreement and the transactions it contemplates (the
"Reorganization"). The Acquiring Fund agrees to furnish data and information,
as reasonably requested, for the proxy statement to be furnished to
shareholders of the Acquired Fund.
2. REORGANIZATION
a. Plan of Reorganization. At the closing, the Strategist Corporation will
convey all of the assets of the Acquired Fund to the Acquiring Fund. The
Acquiring Fund will assume all liabilities of the Acquired Fund, reflected on
an unaudited statement of assets and liabilities, as of the Closing. At the
Closing, the AXP Corporation will deliver Class A shares of the Acquiring
Fund, including fractional shares, to the Strategist Corporation. The number
of shares will be determined by dividing the value of the net assets of the
Acquired Fund, computed as described in paragraph 3(a), by the net asset value
of one share of the Acquiring Fund, computed as described in paragraph 3(b).
The Acquired Fund will not pay a sales charge on the receipt of Acquiring Fund
shares in exchange for the assets of the Acquired Fund. In addition, the
shareholders of the Acquired Fund will not pay a sales charge on distribution
to them of Class A shares of the Acquiring Fund.
b. Closing and Effective Time of the Reorganization. The Reorganization and
all related acts necessary to complete the Reorganization (the
30
<PAGE>
"Closing") will occur on the first day on which the New York Stock Exchange
(the "NYSE") is open for business following approval of shareholders of the
Acquired Fund and receipt of all necessary regulatory approvals, or such later
date as the parties may agree.
3. VALUATION OF NET ASSETS
a. The value of the net assets of the Acquired Fund will be computed as of the
close of regular trading on the NYSE on the day of Closing (the "Valuation
Date") using the valuation procedures in the Acquiring Fund's prospectus.
b. The net asset value per share of Class A shares of the Acquiring Fund will
be determined as of the close of regular trading on the NYSE on the Valuation
Date, using the valuation procedures in the Acquiring Fund's prospectus.
c. At the Closing, the Acquired Fund will provide the Acquiring Fund with a
copy of the computation showing the valuation of the Acquired Fund's net
assets on the Valuation Date. The Acquiring Fund will provide the Acquired
Fund with a copy of the computation showing the determination of the net asset
value per share of Class A shares of the Acquiring Fund on the Valuation Date.
Both computations will be certified by an officer of American Express
Financial Corporation.
4. LIQUIDATION AND DISSOLUTION OF THE ACQUIRED FUND
a. As soon as practicable after the Valuation Date, the Strategist Corporation
will liquidate the Acquired Fund and distribute Class A shares of the
Acquiring Fund to the Acquired Fund's shareholders of record. The Acquiring
Fund will establish shareholder accounts in the names of each Acquired Fund
shareholder, representing the respective pro rata number of full and
fractional shares of the Acquiring Fund due to each shareholder. All issued
and outstanding shares of the Acquired Fund will simultaneously be cancelled
on the books of the Strategist Corporation. Shareholder accounts will be
established by the Acquiring Fund or its transfer agent in accordance with
instructions from the Strategist Corporation.
b. Immediately after the Valuation Date, the share transfer books of the
Strategist Corporation relating to the Acquired Fund will be closed and no
further transfer of shares will be made.
31
<PAGE>
c. Promptly after the distribution, the Acquiring Fund or its transfer agent
will notify each shareholder of the Acquired Fund of the number of Class A
shares distributed to the shareholder and confirm the registration in the
shareholder's name.
d. As promptly as practicable after the liquidation of the Acquired Fund, and
in no event later than twelve months from the date of the Closing, the
Acquired Fund will be dissolved.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE AXP CORPORATION ON BEHALF OF
THE ACQUIRING FUND
The AXP Corporation represents and warrants to the Strategist Corporation as
follows:
a. Organization, Existence, etc. The AXP Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Minnesota and has the power to carry on its business as it is now being
conducted.
b. Registration as Investment Company. The Acquiring Fund is a series of the
AXP Corporation, registered under the Investment Company Act of 1940 (the
"1940 Act") as an open-end, management investment company.
c. Capitalization. The Acquiring Fund has authorized capital of 10,000,000,000
shares of common stock, par value $0.01 per share. All of the outstanding
shares have been duly authorized and are validly issued, fully paid and
non-assessable. Since the Acquiring Fund is engaged in the continuous offering
and redemption of its shares, the number of outstanding shares may vary daily.
d. Financial Statements. The audited financial statements as of the end of the
last fiscal year, and the subsequent unaudited semi-annual financial
statements, if any (the "Acquiring Fund Financial Statements"), fairly present
the financial position of the Acquiring Fund, and the results of its
operations and changes in its net assets for the periods shown.
e. Shares to be Issued Upon Reorganization. The shares to be issued in
connection with the Reorganization will be duly authorized and, at the time of
the Closing, will be validly issued, fully paid and non-assessable.
f. Authority Relative to the Agreement. The AXP Corporation has the power to
enter into and carry out the obligations described in this
32
<PAGE>
Agreement. The Agreement and the transactions contemplated by it have been
duly authorized by the Board of Directors and no other proceedings by the AXP
Corporation or the Acquiring Fund are necessary.
g. No Violation. The AXP Corporation is not in violation of its Articles of
Incorporation or By-Laws (the "Articles") or in default in the performance of
any material agreement to which it is a party. The execution of this Agreement
and the completion of the transactions contemplated by it will not conflict
with, or constitute a breach of, any material contract or other instrument to
which the Acquiring Fund is subject. Nor will the transactions result in any
violation of the provisions of the Articles or any law, administrative
regulation or administrative or court decree applicable to the Acquiring Fund.
h. Liabilities. There are no liabilities of the Acquiring Fund other than:
- liabilities disclosed in the Acquiring Fund Financial Statements
- liabilities incurred in the ordinary course of business subsequent to the
date of the latest annual or semi-annual financial statements, or
- liabilities previously disclosed to the Strategist Corporation, none of
which has been materially adverse to the business, assets or results of
operation of the Acquiring Fund.
i. Litigation. There is no litigation, administrative proceeding or
investigation before any court or governmental body currently pending or, to
the knowledge of the Acquiring Fund, threatened, that would materially and
adversely affect the Acquiring Fund, its financial condition or the conduct of
its business, or that would prevent or hinder completion of the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts that
might form the basis for the institution of any such litigation, proceeding or
investigation and is not a party to or subject to the provisions of any order,
decree or judgment.
j. Contracts. Except for contracts and agreements previously disclosed to the
Strategist Corporation, the Acquiring Fund is not a party to or subject to any
material contract, debt instrument, plan, lease, franchise, license or permit.
k. Taxes. The federal tax returns of the Acquiring Fund have been filed for
all taxable years since commencement of its operations. The Acquiring Fund has
qualified and will qualify as a regulated investment company under the
Internal Revenue Code with respect to each taxable year since commencement of
its operations.
33
<PAGE>
l. Registration Statement. The Acquiring Fund will file a registration
statement on Form N-14 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933 (the "1933 Act") relating
to the shares to be issued in the Reorganization. At the time the Registration
Statement becomes effective, at the time of the shareholders' meeting and at
the Closing, the Registration Statement will not contain an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading. However, none of the representations and
warranties in this subsection apply to statements in, or omissions from, the
Registration Statement made in reliance on information furnished by the
Strategist Corporation for use in the Registration Statement.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE STRATEGIST CORPORATION ON
BEHALF OF THE ACQUIRED FUND
The Strategist Corporation represents and warrants to the AXP Corporation as
follows:
a. Organization, Existence, etc. The Strategist Corporation is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota and has the power to carry on its business as it is now
being conducted.
b. Registration as Investment Company. The Acquired Fund is a series of the
Strategist Corporation, registered under the 1940 Act as an open-end,
management investment company.
c. Capitalization. The Acquired Fund has authorized capital of 10,000,000,000
shares of common stock, par value $0.01 per share. All of the outstanding
shares have been duly authorized and are validly issued, fully paid and
non-assessable. Since the Acquired Fund is engaged in the continuous offering
and redemption of its shares, the number of outstanding shares may vary daily.
d. Financial Statements. The audited financial statements as of the end of the
last fiscal year, and the subsequent unaudited semi-annual financial
statements, if any, (the "Acquired Fund Financial Statements") fairly present
the financial position of the Acquired Fund, and the results of its operations
and changes in its net assets for the periods shown.
e. Authority Relative to the Agreement. The Strategist Corporation has the
power to enter into and to carry out its obligations under this Agreement. The
Agreement and the transactions contemplated by it
34
<PAGE>
have been duly authorized by the Board of Directors and no other proceedings
by the Strategist Corporation or the Acquired Fund are necessary.
f. No Violation. The Strategist Corporation is not in violation of its
Articles or in default in the performance of any material agreement to which
it is a party. The execution of this Agreement and the completion of the
transactions contemplated by it will not conflict with or constitute a breach
of, any material contract to which the Acquired Fund is subject. Nor will the
transactions result in any violation of the provisions of the Articles or any
law, administrative regulation or administrative or court decree applicable to
the Acquired Fund.
g. Liabilities. There are no liabilities of the Acquired Fund other than:
- liabilities disclosed in the Acquired Fund Financial Statements
- liabilities incurred in the ordinary course of business subsequent to the
date of the latest annual or semi-annual financial statements, or
- liabilities previously disclosed to the AXP Corporation, none of which has
been materially adverse to the business, assets or results of operation of
the Acquired Fund.
h. Litigation. There is no litigation, administrative proceeding or
investigation before any court or governmental body currently pending or, to
the knowledge of the Acquired Fund, threatened, that would materially and
adversely affect the Acquired Fund, its financial condition or the conduct of
its business, or that would prevent or hinder completion of the transactions
contemplated by this Agreement. The Acquired Fund knows of no facts that might
form the basis for the institution of any such litigation, proceeding or
investigation and is not a party to or subject to the provisions of any order,
decree or judgment.
i. Contracts. Except for contracts and agreements previously disclosed to the
AXP Corporation, the Acquired Fund is not a party to or subject to any
material contract, debt instrument, plan, lease, franchise, license or permit.
j. Taxes. The federal tax returns of the Acquired Fund have been filed for all
taxable years since commencement of its operations. The Acquired Fund has
qualified and will qualify as a regulated investment company under the
Internal Revenue Code with respect to each taxable year since commencement of
its operations.
k. Fund Securities. All securities listed in the schedule of investments of
the Acquired Fund as of the Closing will be owned by the Acquired
35
<PAGE>
Fund free and clear of any encumbrances, except as indicated in the schedule.
l. Registration Statement. The Acquired Fund will cooperate with the Acquiring
Fund and will furnish information relating to the Strategist Corporation and
the Acquired Fund required in the Registration Statement. At the time the
Registration Statement becomes effective, at the time of the shareholders'
meeting and at the Closing, the Registration Statement, as it relates to the
Strategist Corporation or the Acquired Fund, will not contain an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein not misleading. However, the representations and
warranties in this subsection apply only to statements in or omissions from
the Registration Statement made in reliance upon information furnished by the
Strategist Corporation for use in the Registration Statement.
7. CONDITIONS TO OBLIGATIONS OF THE AXP CORPORATION
The obligations of the AXP Corporation with respect to the Reorganization are
subject to the satisfaction of the following conditions:
a. Shareholder Approval. This Agreement will have been approved by the
affirmative vote of the holders of the majority of the outstanding shares of
common stock of the Acquired Fund.
b. Representations, Warranties and Agreements. The Strategist Corporation and
the Acquired Fund will have complied with this Agreement and each of the
representations and warranties in this Agreement will be true in all material
respects as of the Closing. An officer of the Strategist Corporation will
provide a certificate to the AXP Corporation confirming that, as of the
Closing, the representations and warranties set forth in Section 6 are true
and correct and that there have been no material adverse changes in the
financial condition, results of operations, business, properties or assets of
the Acquired Fund since the date of its last financial statement, except as
otherwise indicated in any financial statements, certified by an officer of
the Strategist Corporation, and delivered to the AXP Corporation on or prior
to the last business day before the Closing.
c. Regulatory Approvals.
- The Registration Statement referred to in Section 5(l) will be effective and
no stop orders under the 1933 Act will have been issued.
- All necessary approvals, consents and exemptions from federal and state
regulatory authorities will have been obtained.
36
<PAGE>
d. Tax Opinion. The AXP Corporation will have received the opinion of Ropes &
Gray dated as of the Closing, as to the federal income tax consequences of the
Reorganization to the Acquiring Fund and its shareholders. For purposes of
rendering their opinion, Ropes & Gray may rely, as to factual matters, upon
the statements made in this Agreement, the proxy statement which will be
distributed to the shareholders of the Acquired Fund, and other written
representations as an officer of the Strategist Corporation and the AXP
Corporation, respectively will have verified as of Closing. The opinion of
Ropes & Gray will be to the effect that: (i) neither the Acquired Fund nor the
Acquiring Fund will recognize any gain or loss upon the transfer of the assets
of the Acquired Fund to, and assumption of its liabilities by, the Acquiring
Fund in exchange for shares of the Acquiring Fund and upon the distribution of
the shares to the Acquired Fund shareholders in exchange for their shares of
the Acquired Fund; (ii) the shareholders of the Acquired Fund who receive
shares of the Acquiring Fund in the Reorganization will not recognize any gain
or loss on the exchange of their shares of the Acquired Fund for the shares of
the Acquiring Fund; (iii) the holding period and the basis of the shares
received by the Acquired Fund shareholders will be the same as the holding
period and the basis of the shares of the Acquired Fund surrendered in the
exchange; (iv) the holding period and the basis of the assets acquired by the
Acquiring Fund will be the same as the holding period and the basis of the
assets to the Acquired Fund immediately prior to the Reorganization.
e. Opinion of Counsel. The AXP Corporation will have received an opinion of
counsel for the Acquired Fund, dated as of the Closing, to the effect that:
(i) the Strategist Corporation is a corporation duly organized and validly
existing under the laws of the state of Minnesota; (ii) the Acquired Fund is a
series of the Strategist Corporation, an open-end investment company
registered under the 1940 Act; (iii) this Agreement and the Reorganization
have been duly authorized and approved by all requisite action of the
Strategist Corporation and the Acquired Fund and this Agreement has been duly
executed by, and is a valid and binding obligation of, the Acquired Fund.
f. Declaration of Dividend. The Strategist Corporation will have declared a
dividend with respect to the Acquired Fund which, together with all previous
dividends, will have the effect of distributing to the Acquired Fund's
shareholders all of the Acquired Fund's investment company taxable income for
the taxable years ending on or prior to the Closing (computed without regard
to deduction for dividends paid) and
37
<PAGE>
all of its net capital gain realized in taxable years ending on or prior to
the Closing (after reduction for capital loss carry forward).
8. CONDITIONS TO OBLIGATIONS OF THE STRATEGIST CORPORATION
The obligations of the Strategist Corporation with respect to the
Reorganization are subject to the satisfaction of the following conditions:
a. Shareholder Approval. This Agreement will have been approved by the
affirmative vote of the holders of the majority of the outstanding shares of
common stock of the Acquired Fund.
b. Representations, Warranties and Agreements. The Acquiring Fund will have
complied with this Agreement and each of the representations and warranties in
this Agreement will be true in all material respects as of the Closing. An
officer of the AXP Corporation will provide a certificate to the Strategist
Corporation confirming that, as of the Closing, the representations and
warranties set forth in Section 5 are true and correct and that there have
been no material adverse changes in the financial condition, results of
operations, business, properties or assets of the Acquiring Fund since the
date of its last financial statement, except as otherwise indicated in any
financial statements, certified by an officer of the AXP Corporation, and
delivered to the Strategist Corporation on or prior to the last business day
before the Closing.
c. Regulatory Approvals.
- The Registration Statement referred to in Section 5(l) will be effective and
no stop orders under the 1933 Act will have been issued.
- All necessary approvals, consents and exemptions from federal and state
regulatory authorities will have been obtained.
d. Tax Opinion. The Strategist Corporation will have received the opinion of
Ropes & Gray dated as of the Closing, as to the federal income tax
consequences of the Reorganization to the Acquired Fund and its shareholders.
For purposes of rendering their opinion, Ropes & Gray may rely, as to factual
matters, upon the statements made in this Agreement, the proxy statement which
will be distributed to the shareholders of the Acquired Fund, and other
written representations as an officer of the Strategist Corporation and the
AXP Corporation, respectively will have verified as of Closing. The opinion of
Ropes & Gray will be to the effect that: (i) neither the Acquired Fund nor the
Acquiring Fund will recognize any gain or loss upon the transfer of the assets
of the Acquired Fund to, and assumption of its liabilities by, the Acquiring
38
<PAGE>
Fund in exchange for shares of the Acquiring Fund and upon the distribution of
the shares to the Acquired Fund shareholders in exchange for their shares of
the Acquired Fund; (ii) the shareholders of the Acquired Fund who receive
shares of the Acquiring Fund in the Reorganization will not recognize any gain
or loss on the exchange of their shares of the Acquired Fund for the shares of
the Acquiring Fund; (iii) the holding period and the basis of the shares
received by the Acquired Fund shareholders will be the same as the holding
period and the basis of the shares of the Acquired Fund surrendered in the
exchange; (iv) the holding period and the basis of the assets acquired by the
Acquiring Fund will be the same as the holding period and the basis of the
assets to the Acquired Fund immediately prior to the Reorganization.
e. Opinion of Counsel. The Strategist Corporation will have received the
opinion of counsel for the Acquiring Fund, dated as of the Closing, to the
effect that: (i) the AXP Corporation is a corporation duly organized and
validly existing under the laws of the state of Minnesota; (ii) the Acquiring
Fund is a series of the AXP Corporation, an open-end investment company
registered under the 1940 Act; (iii) this Agreement and the Reorganization
have been authorized and approved by all requisite action of the AXP
Corporation and the Acquiring Fund and this Agreement has been duly executed
by, and is a valid and binding obligation of, the AXP Corporation; and
(iv) the shares to be issued in the Reorganization are duly authorized and
upon issuance in accordance with this Agreement will be validly issued, fully
paid and non-assessable shares of the Acquiring Fund.
9. AMENDMENT; TERMINATION; NON-SURVIVAL OF COVENANTS, WARRANTIES AND
REPRESENTATIONS
a. This Agreement may be amended in writing if authorized by the respective
Boards of Directors. The Agreement may be amended at any time before or after
approval by the shareholders of the Acquired Fund, but after shareholder
approval, no amendment shall be made that substantially changes the terms of
paragraphs 2 or 3.
b. At any time prior to the Closing, any of the parties may waive in writing
(i) any inaccuracies in the representations and warranties made to it and (ii)
compliance with any of the covenants or conditions made for its benefit.
c. The Strategist Corporation may terminate this Agreement at any time prior
to the Closing by notice to the AXP Corporation if a material
39
<PAGE>
condition to its performance or a material covenant of the AXP Corporation is
not fulfilled on or before the date specified for its fulfillment or a
material breach of this Agreement is made by the AXP Corporation and is not
cured.
d. The AXP Corporation may terminate this Agreement at any time prior to the
Closing by notice to the Strategist Corporation if a material condition to its
performance or a material covenant of the Strategist Corporation is not
fulfilled on or before the date specified for its fulfillment or a material
breach of this Agreement is made by the Strategist Corporation and is not
cured.
e. This Agreement may be terminated by any party at any time prior to the
Closing, whether before or after approval by the shareholders of the Acquired
Fund, without any liability on the part of either party or its respective
directors, officers, or shareholders, on written notice to the other party,
and shall be terminated without liability as of the close of business on
December 31, 2000, or a later date agreed upon by the parties, if the Closing
is not on or prior to that date.
f. The representations, warranties and covenants contained in this Agreement,
or in any document delivered in connection with this Agreement, will survive
the Reorganization.
10. EXPENSES
The expenses of the reorganization, whether or not the Reorganization is
completed, will be borne by American Express Financial Corporation.
11. GENERAL
a. Headings. The headings contained in this Agreement are for reference
purposes only and will not affect the meaning or interpretation of this
Agreement. Nothing in this Agreement is intended to confer upon any other
person any rights or remedies by reason of this Agreement.
b. Governing Law. This Agreement will be governed by the laws of the state of
Minnesota.
12. INDEMNIFICATION
Each party will indemnify and hold the other and its officers and directors
(each an "Indemnitee") harmless from and against any liability or other cost
and expense, in connection with the defense or disposition of any action,
suit, or other proceeding, before any court or administrative
40
<PAGE>
or investigative body in which the Indemnitee may be involved as a party, with
respect to actions taken under this Agreement. However, no Indemnitee will be
indemnified against any liability or expense arising by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the Indemnitee's position.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed.
Strategist Growth and Income Fund, Inc.
on behalf of Strategist Balanced Fund
<TABLE>
<S> <C>
By /s/ James A. Mitchell
------------------------
James A. Mitchell
President
AXP Investment Series, Inc.
on behalf of AXP Mutual
By /s/ Leslie L. Ogg
------------------------
Leslie L. Ogg
Vice President
</TABLE>
The undersigned is a party to this Agreement for the purposes of Sections 3c and
10 only.
American Express Financial Corporation
<TABLE>
<S> <C>
By /s/ Pamela J. Moret
------------------------
Pamela J. Moret
Senior Vice President
</TABLE>
41
<PAGE>
EXHIBIT 2
MINNESOTA BUSINESS CORPORATION ACT
SECTIONS 302A.471 AND 302A.473
Minnesota law requires that we provide you with a copy of the state law on
dissenters' rights. Notwithstanding the provisions of the law set out below, the
SEC has taken the position that use of state appraisal procedures by a
registered mutual fund such as the Strategist Fund would be a violation of
Rule 22c-1, the forward pricing rule, under the 1940 Act. As a result, if any
shareholder elects to exercise dissenters' rights under Minnesota law, the
Strategist Fund intends to submit this question to a court of competent
jurisdiction. In that event, a dissenting shareholder would not receive any
payment until the end of the court proceeding.
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of
the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or to
cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class
or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
42
<PAGE>
(b) A sale, lease, transfer, or other disposition of all or substantially all of
the property and assets of the corporation, but not including a transaction
permitted without shareholder approval in section 302A.661, subdivision 1,
or a disposition in dissolution described in section 302A.725, subdivision
2, or a disposition pursuant to an order of a court, or a disposition for
cash on terms requiring that all or substantially all of the net proceeds of
disposition be distributed to the shareholders in accordance with their
respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to which
the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with respect
to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
SUBDIVISION 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than all of the
shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by
another person but registered in the name of the shareholder and discloses
the name and address of each beneficial owner on whose behalf the
shareholder dissents. In that event, the rights of the dissenter shall be
determined as if the shares as to which the shareholder has dissented and
the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
43
<PAGE>
SUBDIVISION 3. RIGHTS NOT TO APPLY.
(a) Unless the articles, the bylaws, or a resolution approved by the board
otherwise provide, the right to obtain payment under this section does not
apply to a shareholder of the surviving corporation in a merger, if the
shares of the shareholder are not entitled to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on
an action described in subdivision 1, only shareholders as of the date
fixed, and beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise dissenters' rights.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this subdivision have the
meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date of
the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
SUBDIVISION 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this
44
<PAGE>
section and a brief description of the procedure to be followed under these
sections.
SUBDIVISION 3. NOTICE OF DISSENT. If the proposed action must be approved by
the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent to
demand the fair value of the shares owned by the shareholder and must not vote
the shares in favor of the proposed action.
SUBDIVISION 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if necessary,
the shareholders, the corporation shall send to all shareholders who have
complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date
by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting shareholder
must demand payment and deposit certificated shares or comply with any
restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all
other rights of a shareholder until the proposed action takes effect.
SUBDIVISION 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation receives a
valid demand for payment, whichever is later, the corporation shall remit to
each dissenting shareholder who has complied with
45
<PAGE>
subdivisions 3 and 4 the amount the corporation estimates to be the fair
value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description of
the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a) from
a person who was not a shareholder on the date the action dissented from was
first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for
withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in
full satisfaction. The dissenter may decline the offer and demand payment
under subdivision 6. Failure to do so entitled the dissenter only to the
amount offered. If the dissenter makes demand, subdivision 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
SUBDIVISION 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
46
<PAGE>
SUBDIVISION 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in a court a petition requesting that
the court determine the fair value of the shares, plus interest. The petition
shall be filed in the county in which the registered office of the corporation
is located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedures apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
SUBDIVISION 8. COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of
those costs and expenses against a dissenter
47
<PAGE>
whose action in demanding payment under subdivision 6 is found to be
arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply substantially
with this section, the court may assess all fees and expenses of any experts
or attorneys as the court deems equitable. These fees and expenses may also
be assessed against a person who has acted arbitrarily, vexatiously, or not
in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
48
<PAGE>
AXPSM Extra Income Fund
PROSPECTUS
July 30, 1999
American
Express(R)
Funds
AXP Extra Income Fund seeks to provide shareholders with high current income as
its primary goal and, as its secondary goal, capital growth.
Please note that this Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission
has not approved or disapproved these securities or passed upon the adequacy of
this prospectus. Any representation to the contrary is a criminal offense.
AMERICAN
EXPRESS (logo)
<PAGE>
Table of Contents
TAKE A CLOSER LOOK AT:
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Transactions Through Third Parties
Sales Charges 14p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Master/Feeder Structure 25p
Financial Highlights 29p
FUND INFORMATION KEY
Goal and Investment Strategy
The Fund's particular investment goal and the strategies it intends
to use in pursuing its goal.
Risks
The major risk factors associated with the Fund.
Fees and Expenses
The overall costs incurred by an investor in the Fund, including
sales charges and annual expenses.
Management
The individual or group designated by the investment manager to
handle the Fund's day-to-day management.
Master/Feeder Structure
Describes the Fund's investment structure.
Financial Highlights
Tables showing the Fund's financial performance.
<PAGE>
The Fund
GOAL
AXP Extra Income Fund (the Fund) seeks to provide shareholders with high current
income as its primary goal and, as its secondary goal, capital growth. Because
any investment involves risk, achieving these goals cannot be guaranteed.
INVESTMENT STRATEGY
The Fund invests primarily, and may invest all of its assets, in high-yielding,
high risk corporate bonds (junk bonds). These bonds may be issued by U.S. and
foreign companies and governments.
The selection of debt obligations is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses investments by:
o Reviewing interest rate and economic forecasts.
o Identifying securities and /or companies that:
-- have medium and low quality ratings,
-- have similar qualities, in AEFC's opinion, even though they are not rated
or have been given a different rating by a rating agency,
-- have growth potential,
-- have the potential to increase in value as their credit ratings improve.
o Buying securities that are expected to outperform other securities. In this
analysis, AEFC will take risk factors into account (for example, whether
money has been set aside to cover the cost of principal and interest
payments). AEFC believes that credit selection is a primary concern and
aggressively manages the Fund to earn a high total return.
<PAGE>
In evaluating whether to sell a security, AEFC considers, among
other factors, whether:
-- the interest rate or economic outlook changes,
-- a sector or industry is experiencing change,
-- a security's rating is changed,
-- the security is overvalued,
-- the company does not meet AEFC's performance expectations,
-- AEFC wishes to lock-in profits,
-- AEFC identifies a more attractive opportunity, and
-- the issuer or the security continues to meet the other standards described
above.
Although not a primary investment strategy, the Fund also may invest in other
instruments such as: money market securities, convertible securities, preferred
stocks, and common stocks.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could cause the Fund to
lose the opportunity to participate in market improvement. During these times,
AEFC may make frequent securities trades that could result in increased fees,
expenses, and taxes.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
<PAGE>
RISKS
This Fund is designed for long-term investors with above-average risk tolerance.
This Fund has a higher potential for volatility and loss of principal. Please
remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Interest Rate Risk
Credit Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a debt obligation, the higher its
yield and the greater the sensitivity to changes in interest rates.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown on
the chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes below.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
_______________________________________________________________________________
Class A Performance (based on calendar years
_______________________________________________________________________________
- -3.87% -10.69% +38.45% +19.82% +20.68% -7.70% +21.63% +14.28% +13.00% -4.99%
_______________________________________________________________________________
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
_______________________________________________________________________________
During the period shown in the bar chart, the highest return for a calendar
quarter was +12.96% (quarter ending March 1991) and the lowest return for a
calendar quarter was -9.81% (quarter ending September 1998).
The 5% sales charge applicable to Class A shares of the Fund is not reflected in
the bar chart; if reflected, returns would be lower than those shown. The
performance of Class B and Class Y may vary from that shown above because of
differences in sales charges and fees.
The Fund's year to date return as of March 31, 1999 was +5.29%.
<PAGE>
Average Annual Total Returns (as of Dec. 31, 1998)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 5 years 10 years (A) Since inception (B&Y)
_______________________________________________________________________________________________________________
Extra Income:
Class A -9.75% +5.52% +8.44% --
Class B -9.13% -- -- +8.11%a
_______________________________________________________________________________________________________________
Class Y -4.84% -- -- +9.68%a
Lehman Brothers Aggregate
_______________________________________________________________________________________________________________
Bond Index +7.44% +6.97% +9.10% +8.79%b
_______________________________________________________________________________________________________________
Merrill Lynch High
_______________________________________________________________________________________________________________
Yield Bond Index +3.66% +9.01% +11.08% +10.87%b
a Inception date was March 20, 1995.
b Measurement period started April 1, 1995.
</TABLE>
This table shows total returns from hypothetical investments in Class A, Class B
and Class Y shares of the Fund. These returns are compared to the indexes shown
for the same periods. The performance of Classes A, B and Y vary because of
differences in sales charges and fees. Past performance for Class Y for the
periods prior to March 20, 1995 may be calculated based on the performance of
Class A, adjusted to reflect differences in sales charges, although not for
other differences in expenses.
For purposes of this calculation we assumed:
o a sales charge of 5% for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares,
o no sales charge for Class Y shares, and
o no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
Lehman Brothers Aggregate Bond Index is an unmanaged index made up of a
representative list of government, corporate, asset-backed and mortgage-backed
securities. The index is frequently used as a general measure of bond market
performance. However, the securities used to create the index may not be
representative of the bonds held in the Fund.
<PAGE>
Merrill Lynch High Yield Bond Index provides a broad-based measure
of performance of the non-investment grade U.S. domestic bond market.
The index currently captures close to $200 billion of the outstanding
debt of domestic market issuers rated below investment grade but not
in default. The index is "rule based", which means there is a defined
list of criteria that a bond must meet in order to qualify for
inclusion in the index.
The indexes reflect reinvestment of all distributions and changes in market
prices, but exclude brokerage commissions or other fees.
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________
Shareholder Fees (fees paid directly from your investment)
<S> <C> <C> <C>
Class A Class B Class Y
Maximum sales charge (load) imposed on purchasesa
(as a percentage of offering price) 5% none none
______________________________________________________________________________________________________________
Maximum deferred sales charge (load) imposed on
sales (as a percentage of offering price at time of purchase) none 5% none
______________________________________________________________________________________________________________
</TABLE>
Annual Fund operating expensesb (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
______________________________________________________________________________________________________________
As a percentage of average daily net assets: Class A Class B Class Y
______________________________________________________________________________________________________________
Management fees 0.56% 0.56% 0.56%
Distribution (12b-1) fees 0.25% 1.00% 0.00%
Other expensesc 0.20% 0.21% 0.27%
______________________________________________________________________________________________________________
Total 1.01% 1.77% 0.83%
</TABLE>
a This charge may be reduced depending on your total investments in American
Express mutual funds. See "Sales Charges."
b Both in this table and the following example, fund operating expenses
include expenses charged by both the Fund and its Master Portfolio as
described under "Management." Expenses for Class A, Class B and Class Y are
based on actual expenses for the last fiscal year, restated to reflect
current fees.
c Other expenses include an administrative services fee, a shareholder
services fee for Class Y, a transfer agency fee and other nonadvisory expenses.
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you hold your shares until the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
_______________________________________________________________________________
Class Aa $598 $806 $1,031 $1,679
_______________________________________________________________________________
Class Bb $680 $957 $1,160 $1,888d
_______________________________________________________________________________
Class Bc $180 $557 $ 960 $1,888d
_______________________________________________________________________________
Class Y $ 85 $265 $ 461 $1,029
a Includes a 5% sales charge.
b Assumes you sold your Class B shares at the end of the period and incurred the
applicable CDSC.
c Assumes you did not sell your Class B shares at the end of the period.
d Based on conversion of Class B shares to Class A shares in the
ninth year of ownership.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
MANAGEMENT
The Fund's assets are invested in High Yield Portfolio (the Portfolio), which is
managed by AEFC. Jack Utter, vice president and senior portfolio manager, joined
AEFC in 1962. He has managed the assets of the Fund since 1985. He also is
co-portfolio manager of AXP Variable Portfolio Extra Income Fund. Scott
Schroepfer, senior portfolio manager, joined AEFC in 1990. He is co-portfolio
manager and has managed the assets of the Fund since March 1999. He is
co-portfolio manager of AXP Variable Portfolio Extra Income Fund, and serves as
portfolio manager of the IDS Life Series Fund -- Managed Portfolio since 1995
and as associate portfolio manager since 1994.
Buying and Selling Shares
VALUING FUND SHARES
The public offering price for Class A is the net asset value (NAV) adjusted for
the sales charge. For Class B and Class Y, it is the NAV.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business of the New York Stock Exchange, normally
3 p.m. Central Standard Time (CST), each business day (any day the New York
Stock Exchange is open).
The Fund's investments are valued based on market quotations, or where market
quotations are not readily available based on methods selected in good faith by
the board. If the Fund's investment policies permit it to invest in securities
that are listed on foreign stock exchanges that trade on weekends or other days
when the Fund does not price its shares, the value of the Fund's underlying
investments may change on days when you could not buy or sell shares of the
Fund. Please see the SAI for further information.
INVESTMENT OPTIONS
1. Class A shares are sold to the public with a sales charge at the time of
purchase and on annual distribution (12b-1) fee.
2. Class B shares are sold to the public with a CDSC and an annual distribution
(12b-1) fee.
3. Class Y shares are sold to qualifying institutional investors without a sales
charge or distribution fee. Please see the SAI for information on eligibility
to purchase Class Y shares.
_______________________________________________________________________________
Investment options summary:
Class A Maximum sales charge of 5%
Initial sales charge waived or reduced for certain purchases
Annual distribution fee of 0.25% of average daily net assets.*
Lower annual expenses than Class B shares
_______________________________________________________________________________
Class B No initial sales charge
CDSC on shares sold in the first six years
(maximum of 5% in first year, reduced to 0% after year six)
CDSC waived in certain circumstances
Shares convert to Class A in ninth year of ownership
Annual distribution fee of 1.00% of average daily net assets*
Higher annual expenses than Class A shares
_______________________________________________________________________________
Class Y No initial sales charge
No annual distribution fee
Service fee of 0.10% of average daily net assets
Available only to certain qualifying institutional investors
_______________________________________________________________________________
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 that allows it to pay distribution fees and servicing-related for the sale
of Class A and Class B shares. Because these fees are paid out of the Fund's
assets on an on-going basis, the fees may cost long-term shareholders more than
paying other types of sales charges imposed by some mutual funds.
<PAGE>
Should you purchase Class A or Class B shares?
If your investments in American Express mutual funds total $250,000 or more,
Class A shares may be the better option. If you qualify for a waiver of the
sales charge, Class A shares will be the best option.
If you invest less than $250,000, consider how long you plan to hold your
shares. Class B shares have a higher annual distribution fee and a CDSC for six
years. To help you determine what is best for you, consult your financial
advisor.
Class B shares convert to Class A shares in the ninth calendar year of
ownership. Class B shares purchased through reinvested dividends and
distributions also will convert to Class A shares in the same proportion as the
other Class B shares.
PURCHASING SHARES
To purchase shares through a brokerage account or from entities other than
American Express Financial Advisors Inc., please consult your selling agent. The
following section explains how you can purchase shares from American Express
Financial Advisors (the Distributor).
If you do not have a mutual fund account, you need to establish one. Your
financial advisor will help you fill out and submit an application. Once your
account is set up, you can choose among several convenient ways to invest.
When you purchase shares for a new or existing account, your order will be
priced at the next NAV calculated after your order is accepted by the Fund. If
your application does not specify which class of shares you are purchasing, we
will assume you are investing in Class A shares.
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide the correct TIN, you could be subject to backup
withholding of 31% of taxable distributions and proceeds from certain sales and
exchanges. You also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN,
o a civil penalty of $500 if you make a false statement that results in
no backup withholding, and
o criminal penalties for falsifying information.
You also could be subject to backup withholding if the IRS requires us to do so
or if you failed to report required interest or dividends on your tax return.
<PAGE>
How to determine the correct TIN
<TABLE>
<CAPTION>
<S> <C>
For this type of account: Use the Social Security or Employer Identification number of:
Individual or joint account The individual or one of the individuals listed on the joint
account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors Act)
A revocable living trust The grantor-trustee (the person who puts the money into the trust)
An irrevocable trust, pension trust or estate The legal entity (not the personal representative or trustee,
unless no legal entity is designated in the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
</TABLE>
For details on TIN requirements, contact your financial advisor to obtain a copy
of federal Form W-9, "Request for Taxpayer Identification Number and
Certification."
Three ways to invest
_______________________________________________________________________________
1 By mail:
Once your account has been established, send your check with the
account number on it to:
American Express Funds
P.O. Box 74
Minneapolis, MN 55440-0074
Minimum amounts
Initial investment: $2,000
Additional investments: $100
Account balances: $300
Qualified accounts: none
If your account balance falls below $300, you will be asked to increase it to
$300 or establish a scheduled investment plan. If you do not do so within 30
days, your shares can be sold and the proceeds mailed to you.
<PAGE>
_______________________________________________________________________________
2 By scheduled investment plan:
Contact your financial advisor for assistance in setting up one of the following
scheduled plans:
o automatic payroll deduction,
o bank authorization,
o direct deposit of Social Security check, or
o other plan approved by the Fund.
Minimum amounts
Initial investment: $100
Additional investments: $50/mo. for qualified accounts; $100/mo. for
nonqualified accounts
Account balances: none (on active plans with monthly payments)
If your account balance is below $2,000, you must make payments at least
monthly.
_______________________________________________________________________________
3 By wire or electronic funds transfer:
If you have an established account, you may wire money to:
Norwest Bank Minnesota
Routing Transit No. 091000019
Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name). Please remember that you need
to provide all 10 digits.
If this information is not included, the order may be rejected, and all money
received by the Fund, less any costs the Fund or American Express Client Service
Corporation (AECSC) incurs, will be returned promptly.
Minimum amounts
Each wire investment: $1,000
TRANSACTIONS THROUGH THIRD PARTIES
You may buy or sell shares through certain 401 (k) plans, banks, broker-dealers,
financial advisors or other investment professionals. These organizations may
charge you a fee for this service and may have different policies. Some policy
differences may include different minimum investment amounts, exchange
privileges, fund choices and cutoff times for investments. The Fund and the
Distributor are not responsible for the failure of one of these organizations to
carry out its obligations to its customers. Some organizations may receive
compensation from the Distributor or its affiliates for shareholder
recordkeeping and similar services. When authorized by the Fund, some
organizations may designate selected agents to accept purchase or sale orders on
the Fund's behalf. To buy or sell shares through third parties or determine if
there are policy differences, please consult your selling agent. For other
pertinent information related to buying or selling shares, please refer to the
appropriate prospectus.
<PAGE>
SALES CHARGES
Class A -- initial sales charge alternative
When you purchase Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
_______________________________________________________________________________
Total investment Sales charge as percentage of:a
Public offering priceb Net amount invested
_______________________________________________________________________________
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
a To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, you must total the amounts of all increments that apply.
b Offering price includes a 5% sales charge.
The sales charge on Class A shares may be lower than 5%, depending on the
total amount:
o you now are investing in this Fund,
o you have previously invested in this Fund, or
o you and your primary household group are investing or have invested in
other American Express mutual funds that have a sales charge. (The primary
household group consists of accounts in any ownership for spouses or
domestic partners and their unmarried children under 21. For purposes of
this policy, domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.)
AXP Tax-Free Money Fund and Class A shares of AXP Cash Management Fund do
not have sales charges.
Other Class A sales charge policies:
o IRA purchases or other employee benefit plan purchases made through a
payroll deduction plan or through a plan sponsored by an employer,
association of employers, employee organization or other similar group, may
be added together to reduce sales charges for all shares purchased through
that plan, and
o if you intend to invest $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent. For more
details, please see the SAI.
<PAGE>
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses or domestic partners and unmarried
children under 21.
o current or retired American Express financial advisors, their spouses or
domestic partners and unmarried children under 21.
o investors who have a business relationship with a newly associated
financial advisor who joined the Distributor from another investment firm
provided that (1) the purchase is made within six months of the advisor's
appointment date with the Distributor, (2) the purchase is made with
proceeds of shares sold that were sponsored by the financial advisor's
previous broker-dealer, and (3) the proceeds are the result of a sale of an
equal or greater value where a sales load was assessed.
o qualified employee benefit plans offering participants daily access to
American Express mutual funds. Eligibility must be determined in advance.
For assistance, please contact your financial advisor. (Participants in
certain qualified plans where the initial sales charge is waived may be
subject to a deferred sales charge of up to 4%.)
o shareholders who have at least $1 million invested in American Express
mutual funds. If the investment is sold in the first year after purchase, a
CDSC of 1% will be charged. The CDSC will be waived only in the
circumstances described for waivers for Class B shares.
o purchases made within 90 days after a sale of shares (up to the amount
sold):
-- of American Express mutual funds in a qualified plan subject to a
deferred sales charge, or
-- in a qualified plan or account where American Express Trust Company
has a recordkeeping, trustee, investment management, or investment
servicing relationship.
<PAGE>
Send the Fund a written request along with your payment, indicating the
date and the amount of the sale.
o purchases made:
-- with dividend or capital gain distributions from this Fund or from the
same class of another American Express mutual fund that has a sales
charge,
-- through or under a wrap fee product or other investment product
sponsored by the Distributor or another broker-dealer, investment
advisor, bank or investment professional.,
-- within the University of Texas System ORP,
-- within a segregated separate account offered by Nationwide Life
Insurance Company or Nationwide Life and Annuity Insurance Company,
-- within the University of Massachusetts After-Tax Savings Program,
-- with the proceeds from IDS Life Real Estate Variable Annuity
surrenders, or
-- through or under a subsidiary of AEFC offering Personal Trust
Services' Asset-Based pricing alternative.
Class B -- contingent deferred sales charge (CDSC) alternative
A CDSC is based on the sale amount and the number of calendar years -- including
the year of purchase -- between purchase and sale. The following table shows how
CDSC percentages on sales decline after a purchase:
If the sale is made during the: The CDSC percentage rate is:
_______________________________________________________________________________
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are selling causes the value of your investment in Class B
shares to fall below the cost of the shares you have purchased during the last
six years including the current year, the CDSC is based on the lower of the cost
of those shares purchased or market value.
<PAGE>
Example:
Assume you had invested $10,000 in Class B shares and that your investment had
appreciated in value to $12,000 after 15 months, including reinvested dividends
and capital gain distributions. You could sell up to $2,000 worth of shares
without paying a CDSC ($12,000 current value less $10,000 purchase amount). If
you sold $2,500 worth of shares, the CDSC would apply to the $500 representing
part of your original purchase price. The CDSC rate would be 4% because the sale
was made during the second year after the purchase.
Because the CDSC is imposed only on sales that reduce your total purchase
payments, you never have to pay a CDSC on any amount that represents
appreciation in the value of your shares, income earned by your shares, or
capital gains. In addition, the CDSC rate on your sale will be based on your
oldest purchase payment. The CDSC on the next amount sold will be based on the
next oldest purchase payment.
The CDSC on Class B shares will be waived on sales of shares:
o in the event of the shareholder's death,
o held in trust for an employee benefit plan, or
o held in IRAs or certain qualified plans if American Express Trust Company is
the custodian, such as Keogh plans, tax-sheltered custodial accounts or
corporate pension plans, provided that the shareholder is:
-- at least 59 1/2 years old AND
-- taking a retirement distribution (if the sale is part of a transfer to
an IRA or qualified plan, or a custodian-to-custodian transfer, the
CDSC will not be waived) OR
-- selling under an approved substantially equal periodic payment
arrangement.
<PAGE>
EXCHANGING/SELLING SHARES
Exchanges
You can exchange your Fund shares at no charge for shares of the same class of
any other publicly offered American Express mutual fund. Exchanges into AXP
Tax-Free Money Fund may only be made from Class A shares. For complete
information on the other funds, including fees and expenses, read that fund's
prospectus carefully. Your exchange will be priced at the next NAV calculated
after it is accepted by that fund.
You may make up to three exchanges (1 1/2 round trips) within any 30-day period.
These limits do not apply to scheduled exchange programs and certain employee
benefit plans. Exceptions may be allowed with pre-approval of the Fund.
Other exchange policies:
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
AECSC receives written approval from the secured party.
AECSC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
<PAGE>
Selling Shares
You can sell your shares at any time. The payment will be mailed within seven
days after accepting your request.
When you sell shares, the amount you receive may be more or less than the amount
you invested. Your sale price will be the next NAV calculated after your request
is accepted by the Fund, minus any applicable CDSC.
You can change your mind after requesting a sale and use all or part of the
proceeds to purchase new shares in the same account from which you sold. If you
reinvest in Class A, you will purchase the new shares at NAV rather than the
offering price on the date of a new purchase. If you reinvest in Class B, any
CDSC you paid on the amount you are reinvesting also will be reinvested. To take
advantage of this option, send a request within 90 days of the date your sale
request was received and include your account number. This privilege may be
limited or withdrawn at any time and may have tax consequences.
The Fund reserves the right to redeem in kind.
For more details and a description of other sales policies, please see the SAI.
<PAGE>
Two ways to request an exchange or sale of shares
To sell or exchange shares held through a brokerage account or with entities
other than American Express Financial Advisors, please consult your selling
agent. The following section explains how you can exchange or sell shares held
with American Express Financial Advisors.
Requests to sell shares of the Fund are not allowed within 30 days of a
telephoned-in address change.
Important: If you request a sale of shares you recently purchased by a check or
money order that is not guaranteed, the Fund will wait for your check to clear.
It may take up to 10 days from the date of purchase before payment is made.
(Payment may be made earlier if your bank provides evidence satisfactory to the
Fund and AECSC that your check has cleared.)
_______________________________________________________________________________
1 By letter:
Include in your letter:
o the name of the fund(s),
o the class of shares to be exchanged or sold,
o your mutual fund account number(s) (for exchanges, both funds must
be registered in the same ownership),
o your TIN,
o the dollar amount or number of shares you want to exchange or sell,
o signature(s) of all registered account owners,
o for sales, indicate how you want your money delivered to you, and
o any paper certificates of shares you hold.
Regular mail:
American Express Client Service Corporation
Attn: Transactions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Client Service Corporation
Attn: Transactions
733 Marquette Ave.
Minneapolis, MN 55402
<PAGE>
_______________________________________________________________________________
2 By telephone:
American Express Client Service Corporation
Telephone Transaction Service
800-437-3133
o The Fund and AECSC will use reasonable procedures to confirm authenticity of
telephone exchange or sale requests.
o Telephone exchange and sale privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts. You may request
that these privileges NOT apply by writing AECSC. Each registered owner must
sign the request.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Telephone privileges may be modified or discontinued at any time.
Minimum sale amount: $100 Maximum sale amount: $50,000
<PAGE>
Three ways to receive payment when you sell shares
_______________________________________________________________________________
1 By regular or express mail:
o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges you pay
will vary depending on the courier you select.
_______________________________________________________________________________
2 By wire or electronic funds transfer:
o Minimum wire: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same ownership as the American Express mutual
fund account.
NOTE: Pre-authorization required. For instructions,
contact your financial advisor or AECSC.
_______________________________________________________________________________
3 By scheduled payout plan:
o Minimum payment: $50.
o Contact your financial advisor or AECSC to set up regular payments on a
monthly, bimonthly, quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges.
<PAGE>
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and net
gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTION
The Fund's net investment income is distributed to you as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Net short-term capital gains are included in net investment income.
Long-term capital gains are realized when a security is held for more than one
year. The Fund offsets any net realized capital gains by any available capital
loss carryovers. Net realized long-term capital gains, if any, are distributed
by the end of the calendar year as capital gain distributions.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request distributions in cash, or
o you direct the Fund to invest your distributions in the same class of any
publicly offered American Express mutual fund for which you have previously
opened an account.
We reinvest the distributions for you at the next calculated NAV after the
distribution is paid.
If you choose cash distributions, you will receive cash only for distributions
declared after your request has been processed.
TAXES
Distributions are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.
Income received by the Fund may be subject to foreign tax and withholding. Tax
conventions between certain countries and the U.S. may reduce or eliminate these
taxes. You may be entitled to claim foreign tax credits or deductions subject to
provisions and limitations of the Internal Revenue Code.
<PAGE>
If you buy shares shortly before the record date of a distribution you will pay
taxes on money earned by the Fund before you were a shareholder. You will pay
the full pre-distribution price for the shares, then receive a portion of your
investment back as a distribution, which is taxable.
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held for more
than one year). If you sell shares for less than their cost, the difference is a
capital loss. If you buy Class A shares of this or another American Express
mutual fund and within 91 days exchange into this Fund, you may not include the
sales charge in your calculation of tax gain or loss on the sale of the first
fund you purchased. The sales charge may be included in the calculation of your
tax gain or loss on a subsequent sale.
Selling shares held in an IRA or qualified retirement account may subject you to
federal taxes, penalties and reporting requirements. Please consult your tax
advisor.
Important: This information is a brief and selective summary of some of the tax
rules that apply to this Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
<PAGE>
Master/Feeder Structure
This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio (the master fund). Other feeder
funds also invest in the Portfolio. The master/feeder structure offers the
potential for reduced costs because it spreads fixed costs of portfolio
management over a larger pool of assets. The Fund may withdraw its assets from
the Portfolio at any time if the Fund's board determines that it is best. In
that event, the board would consider what action should be taken, including
whether to hire an investment advisor to manage the Fund's assets directly or to
invest all of the Fund's assets in another pooled investment entity. Here is an
illustration of the structure:
Investors buy shares in the Fund
The Fund buys units in the Portfolio
The Portfolio invests in securities, such as stocks or bonds
Other feeders may include mutual funds and institutional accounts. These feeders
buy the Portfolio's securities on the same terms and conditions as the Fund and
pay their proportionate share of the Portfolio's expenses. However, their
operating costs and sales charges are different from those of the Fund.
Therefore, the investment returns for other feeders are different from the
returns of the Fund.
<PAGE>
YEAR 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000. While Year 2000-related
computer problems could have a negative effect on the Fund, AEFC is working to
avoid such problems and to obtain assurances from service providers that they
are taking similar steps.
The companies, governments or international markets, in which the Fund invests
also may be adversely affected by Year 2000 issues. To the extent a portfolio
holding is adversely affected by a Year 2000 processing issue, the Fund's return
could be adversely affected.
INVESTMENT MANAGER
The investment manager of the Portfolio is AEFC, located at IDS Tower 10,
Minneapolis, MN 55440-0010. The Portfolio pays AEFC a fee for managing its
assets. The Fund pays its proportionate share of the fee. Under the Investment
Management Services Agreement, the fee for the most recent fiscal year was 0.56%
of its average daily net assets. Under the agreement the Portfolio also pays
taxes, brokerage commissions and nonadvisory expenses. AEFC is a wholly-owned
subsidiary of American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center, New York, NY,
10285.
<PAGE>
Financial Highlights
Fiscal period ended May 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Per share income and capital changesa
- -------------------------------------------------------------------------------------------------------------------
Class A
1999 1998 1997 1996b 1995
Net asset value, beginning of period $4.58 $4.39 $4.34 $4.15 $4.02
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .40 .40 .39 .28 .39
Net gains (losses) (both realized and unrealized) (.58) .17 .06 .20 .13
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations (.18) .57 .45 .48 .52
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.43) (.38) (.40) (.29) (.39)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.97 $4.58 $4.39 $4.34 $4.15
- -------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2,814 $3,112 $2,582 $2,145 $1,822
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assetsc .91% .89% .92% .94%d .87%
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 9.86% 8.90% 9.01% 8.90%d 9.93%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 47% 81% 92% 61% 70%
- -------------------------------------------------------------------------------------------------------------------
Total returne (3.67%) 13.24% 10.92% 11.73% 14.15%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b The Fund's fiscal year-end was changed from Aug. 31 to May 31, effective 1996.
c Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
<PAGE>
Fiscal period ended May. 31,
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Per share income and capital changesa
- -------------------------------------------------------------------------------------------------------------------
Class B Class Y
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1996c 1995b 1999 1998 1997 1996c 1995b
Net asset value,
beginning of period $4.58 $4.39 $4.34 $4.15 $3.93 $4.58 $4.39 $4.34 $4.15 $3.93
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment
income (loss) .37 .37 .36 .25 .18 .41 .41 .40 .28 .20
Net gains (losses) (both
realized and unrealized) (.58) .16 .06 .20 .21 (.59) .16 .06 .20 .21
- -------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.21) .53 .42 .45 .39 (.18) .57 .46 .48 .41
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (.40) (.34) (.37) (.26) (.17) (.43) (.38) (.41) (.29) (.19)
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $3.97 $4.58 $4.39 $4.34 $4.15 $3.97 $4.58 $4.39 $4.34 $4.15
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (in millions) $1,076 $1,046 $613 $270 $76 $1 $2 $-- $-- $2
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses
to average daily
net assetsd 1.67% 1.65% 1.68% 1.70%e 1.72%e .83% .82% .85% .76%e .78%e
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
daily net assets 9.11% 8.23% 8.18% 8.34%e 9.51%e 9.93% 10.07% 8.68% 8.24e 10.19%e
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term
securities) 47% 81% 92% 61% 70% 47% 81% 92% 61% 70%
- -------------------------------------------------------------------------------------------------------------------
Total returnf (4.39%) 12.42% 10.07% 11.10% 9.90% (3.58%) 13.42% 11.05% 11.83% 10.40%
- -------------------------------------------------------------------------------------------------------------------
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
c The Fund's fiscal year-end was changed from Aug. 31 to May 31, effective 1996.
d Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
</TABLE>
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditor's report and additional information about the
performance of the Fund are contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
<PAGE>
This page left blank intentionally
<PAGE>
American
Express(R)
Funds
This Fund, along with the other American Express mutual funds, is distributed by
American Express Financial Advisors Inc. and can be purchased from an American
Express financial advisor or from other authorized broker-dealers or third
parties. The funds can be found under the "Amer Express" banner in most mutual
fund quotations.
Additional information about the Fund and its investments is available in the
Fund's Statement of Additional Information (SAI), annual and semiannual reports
to shareholders. In the Fund's annual report, you will find a discussion of
market conditions and investment strategies that significantly affected the Fund
during its last fiscal year. The SAI is incorporated by reference in this
prospectus. For a free copy of the SAI, the annual report or the semiannual
report contact your selling agent or American Express Client Service
Corporation.
American Express Client Service Corporation
P.O. Box 534, Minneapolis, MN 55440-0534
800-862-7919 TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.
Investment Company Act File #811-3848
TICKER SYMBOL
Class A: INEAX Class B: IEIBX Class Y: NA
AMERICAN EXPRESS (Logo)
S-6370-99 N (7/99)
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP EXTRA INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Extra Income Fund, Inc. as of May 31, 1999, and the related statement of
operations for the year then ended and the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for the three-year period ended May 31, 1999, the nine months ended
May 31, 1996 and the one-year period ended August 31, 1995. These financial
statements and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AXP Extra Income Fund, Inc. as
of May 31, 1999, and the results of its operations, changes in its net assets
and the financial highlights for the periods stated in the first paragraph
above, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
July 2, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
AXP Extra Income Fund, Inc.
May 31, 1999
Assets
<S> <C>
Investment in High Yield Portfolio (Note 1) $3,892,924,152
--------------
Liabilities
Dividends payable to shareholders 1,106,039
Accrued distribution fee 22,070
Accrued service fee 18,640
Accrued transfer agency fee 12,608
Accrued administrative services fee 4,551
Other accrued expenses 330,695
-------
Total liabilities 1,494,603
---------
Net assets applicable to outstanding capital stock $3,891,429,549
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 9,795,117
Additional paid-in capital 4,398,526,497
Undistributed net investment income 763,196
Accumulated net realized gain (loss) (221,184,208)
Unrealized appreciation (depreciation) on investments (296,471,053)
------------
Total-- representing net assets applicable to outstanding capital stock $3,891,429,549
==============
Net assets applicable to outstanding shares: Class A $2,814,036,886
Class B $1,076,149,676
Class Y $ 1,242,987
Net asset value per share of outstanding capital stock: Class A shares 708,302,389 $ 3.97
Class B shares 270,896,547 $ 3.97
Class Y shares 312,738 $ 3.97
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
AXP Extra Income Fund, Inc.
Year ended May 31, 1999
Investment income
Income:
<S> <C>
Dividends $ 39,984,393
Interest 376,326,585
-----------
Total income 416,310,978
-----------
Expenses (Note 2):
Expenses allocated from High Yield Portfolio 21,537,454
Distribution fee-- Class B 7,644,344
Transfer agency fee 3,693,064
Incremental transfer agency fee
Class A 156,013
Class B 134,766
Service fee
Class A 4,935,188
Class B 1,772,833
Class Y 1,535
Administrative services fees and expenses 1,730,915
Compensation of board members 12,474
Postage 900,806
Registration fees 259,927
Reports to shareholders 164,462
Audit fees 11,375
------
Total expenses 42,955,156
Earnings credits on cash balances (Note 2) (140,031)
--------
Total net expenses 42,815,125
----------
Investment income (loss) -- net 373,495,853
-----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (127,645,870)
Foreign currency transactions (197,934)
--------
Net realized gain (loss) on investments (127,843,804)
Net change in unrealized appreciation (depreciation) on investments (413,763,674)
------------
Net gain (loss) on investments (541,607,478)
------------
Net increase (decrease) in net assets resulting from operations $(168,111,625)
=============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
AXP Extra Income Fund, Inc.
Year ended May 31, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 373,495,853 $ 325,142,783
Net realized gain (loss) on investments (127,843,804) 107,292,068
Net change in unrealized appreciation (depreciation) on investments (413,763,674) 8,762,590
------------ ---------
Net increase (decrease) in net assets resulting from operations (168,111,625) 441,197,441
------------ -----------
Distributions to shareholders from:
Net investment income
Class A (296,255,921) (240,406,587)
Class B (98,359,518) (63,119,023)
Class Y (162,431) (46,439)
-------- -------
Total distributions (394,777,870) (303,572,049)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 804,097,401 905,358,041
Class B shares 467,391,217 584,338,366
Class Y shares 648,414 1,680,622
Reinvestment of distributions at net asset value
Class A shares 202,831,655 164,676,904
Class B shares 83,023,420 53,387,290
Class Y shares 162,431 45,553
Payments for redemptions
Class A shares (888,843,613) (651,156,321)
Class B shares (Note 2) (374,265,469) (231,593,965)
Class Y shares (1,139,232) (16,859)
---------- -------
Increase (decrease) in net assets from capital share transactions 293,906,224 826,719,631
----------- -----------
Total increase (decrease) in net assets (268,983,271) 964,345,023
Net assets at beginning of year 4,160,412,820 3,196,067,797
------------- -------------
Net assets at end of year $3,891,429,549 $4,160,412,820
============== ==============
Undistributed net investment income $ 763,196 $ 23,077,627
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
AXP Extra Income Fund, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The Fund has 10 billion
authorized shares of capital stock.
The Fund offers Class A, Class B and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge and
automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class specific
expenses) and realized and unrealized gains or losses on investments are
allocated to each class of shares based upon its relative net assets.
Investment in High Yield Portfolio
The Fund invests all of its assets in the High Yield Portfolio (the Portfolio),
a series of Income Trust, an open-end investment company that has the same
objectives as the Fund. The Portfolio invests primarily in long-term corporate
bonds in the lower-rating categories, commonly known as junk bonds.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is equal to
the Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund as of May 31, 1999 was 99.96%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to the shareholders. No provision for income or excise taxes is
thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes, and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by
$1,032,414 and accumulated net realized gain has been increased by $43,900,721
resulting in a net reclassification adjustment to decrease paid-in capital by
$42,868,307.
Dividends to shareholders
Dividends from net investment income, declared daily and paid monthly, are
reinvested in additional shares of the Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with American Express Financial Corporation (AEFC) to
provide administrative services. Under an Administrative Services Agreement, the
Fund pays AEFC a fee for administration and accounting services at a percentage
of the Fund's average daily net assets in reducing percentages from 0.05% to
0.025% annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and employees.
Under this agreement, the Fund also pays taxes, audit and certain legal fees,
registration fees for shares, compensation of board members, corporate filing
fees and any other expenses properly payable by the Fund and approved by the
board.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class Y $17.50
Under terms of a prior agreement that ended Jan. 31, 1999, the Fund paid a
transfer agency fee at an annual rate per shareholder account of $15.50 for
Class A and $16.50 for Class B. Under terms of a prior agreement that ended
March 31, 1999, the Fund paid a transfer agency fee at an annual rate per
shareholder account of $15.50 for Class Y.
The Fund has agreements with American Express Financial Advisors Inc. for
distribution and shareholder services. Under a Plan and Agreement of
Distribution, the Fund pays a distribution fee at an annual rate of 0.75% of the
Fund's average daily net assets attributable to Class B shares. Effective July
1, 1999, the Fund will pay a distribution fee at an annual rate up to 0.25% of
the Fund's average daily net assets attributable to Class A shares and up to
1.00% of the Fund's average daily net assets attributable to Class B shares.
Under a Shareholder Service Agreement, the Fund pays a fee for service provided
to shareholders by financial advisors and other servicing agents. The fee is
calculated at a rate of 0.175% of the Fund's average daily net assets
attributable to Class A and Class B shares and 0.10% of the Fund's average daily
net assets attributable to Class Y shares. Effective July 1, 1999, the Fund will
convert the Shareholder Service Agreement with respect to Class A and Class B
shares into the Plan and Agreement of Distribution discussed above.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $13,789,994 for Class A and $1,267,514 for Class B
for the year ended May 31, 1999.
During the year ended May 31, 1999, the Fund's transfer agency fees were reduced
by $140,031 as a result of earnings credits from overnight cash balances.
<TABLE>
<CAPTION>
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended May 31, 1999
Class A Class B Class Y
<S> <C> <C> <C>
Sold 196,364,147 113,211,748 159,985
Issued for reinvested distributions 49,792,206 20,406,881 39,979
Redeemed (217,533,478) (91,218,686) (284,954)
------------ ----------- --------
Net increase (decrease) 28,622,875 42,399,943 (84,990)
---------- ---------- -------
Year ended May 31, 1998
Class A Class B Class Y
Sold 197,884,919 127,715,399 362,086
Issued for reinvested distributions 35,993,198 11,659,883 9,921
Redeemed (142,256,690) (50,588,489) (3,656)
------------ ----------- ------
Net increase (decrease) 91,621,427 88,786,793 368,351
---------- ---------- -------
4. CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund has a capital loss carryover of
$220,674,753 as of May 31, 1999, that if not offset by subsequent capital gains,
will expire in 2000 through 2008. It is unlikely the board will authorize a
distribution of any net realized gains until the available capital loss
carryover has been offset or expires.
5. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express funds, permits borrowings up
to $200 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the
Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90
days after such loan is executed. The Fund also pays a commitment fee equal to
its pro rata share of the amount of the credit facility at a rate of 0.05% per
annum. The Fund had no borrowings outstanding during the year ended May 31,
1999.
6. FINANCIAL HIGHLIGHTS
"Financial highlights" showing per share data and selected financial information
are presented on pages 29 and 30 of the prospectus.
</TABLE>
<PAGE>
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
INCOME TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of High Yield Portfolio (a series of
Income Trust) as of May 31, 1999, and the related statement of operations for
the year then ended and the statements of changes in net assets for each of the
years in the two-year period ended May 31, 1999. These financial statements are
the responsibility of portfolio management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, we request confirmations from brokers,
and where replies are not received, we carry out other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of High Yield Portfolio as of May
31, 1999, and the results of its operations and the changes in its net assets
for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
July 2, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
High Yield Portfolio
May 31, 1999
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $4,115,507,606) $3,818,901,721
Accrued interest and dividends receivable 89,453,347
Receivable for investment securities sold 751,623
-------
Total assets 3,909,106,691
-------------
Liabilities
Disbursements in excess of cash on demand deposit 2,890,083
Payable for investment securities purchased 11,553,625
Accrued investment management services fee 59,493
Other accrued expenses 6,600
-----
Total liabilities 14,509,801
----------
Net assets $3,894,596,890
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
High Yield Portfolio
Year ended May 31, 1999
Investment income
Income:
<S> <C>
Dividend $ 40,002,427
Interest 376,534,651
-----------
Total income 416,537,078
-----------
Expenses (Note 2):
Investment management services fee 21,505,599
Compensation of board members 18,323
Custodian fees 218,991
Audit fees 34,125
Other 91,552
------
Total expenses 21,868,590
Earnings credits on cash balances (Note 2) (321,344)
--------
Total net expenses 21,547,246
----------
Investment income (loss) -- net 394,989,832
-----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) (127,712,172)
Foreign currency transactions (198,038)
--------
Net realized gain (loss) on investments (127,910,210)
Net change in unrealized appreciation (depreciation) on investments (413,949,530)
------------
Net gain (loss) on investments (541,859,740)
------------
Net increase (decrease) in net assets resulting from operations $(146,869,908)
=============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
High Yield Portfolio
Year ended May 31, 1999 1998
Operations
<S> <C> <C>
Investment income (loss)-- net $ 394,989,832 $ 343,256,750
Net realized gain (loss) on investments (127,910,210) 107,320,343
Net change in unrealized appreciation
(depreciation) on investments (413,949,530) 8,772,357
------------ ---------
Net increase (decrease) in net assets resulting
from operations (146,869,908) 459,349,450
Net contributions (withdrawals) from partners (122,534,167) 505,587,141
------------ -----------
Total increase (decrease) in net assets (269,404,075) 964,936,591
Net assets at beginning of year 4,164,000,965 3,199,064,374
------------- -------------
Net assets at end of year $3,894,596,890 $4,164,000,965
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
High Yield Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
High Yield Portfolio (the Portfolio) is a series of Income Trust (the Trust) and
is registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. High Yield Portfolio
invests primarily in long-term corporate bonds in the lower-rating categories,
commonly known as junk bonds. The Declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends upon the credit standing of the other party. The
Portfolio also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an option is
that the Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Portfolio will realize
a gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Portfolio may buy
and sell financial futures contracts traded on any U.S. or foreign exchange. The
Portfolio also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions,
if any, may arise from sales of foreign currency, closed forward contracts,
exchange gains or losses realized between the trade date and settlement date on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
Illiquid securities
As of May 31, 1999, investments in securities included issues that are illiquid
which the Portfolio currently limits to 10% of net assets, at market value, at
the time of purchase. The aggregate value of such securities as of May 31, 1999
was $48,850,315 representing 1.3% of net assets. According to board guidelines,
certain unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date. For U.S. dollar
denominated bonds, interest income includes level-yield amortization of premium
and discount. For foreign bonds, except for original issue discount, the
Portfolio does not amortize premium and discount. Interest income, including
level-yield amortization of premium and discount, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with AEFC to manage its portfolio. Under this agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Portfolio's average daily net assets in reducing
percentages from 0.59% to 0.465% annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended May 31, 1999, the Portfolio's custodian fees were reduced
by $321,344 as a result of earnings credits from overnight cash balances. The
Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,047,615,608 and $1,773,458,227, respectively, for the
year ended May 31, 1999. For the same period, the portfolio turnover rate was
47%. Realized gains and losses are determined on an identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
High Yield Portfolio
May 31, 1999
(Percentages represent value of investments compared to net assets)
Bonds (85.8%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (--%)
Govt of Algeria
(U.S. Dollar)
<S> <C> <C> <C> <C>
03-04-00 7.06% $1,045,455(c) $961,818
Govt of Russia
(Russian Ruble)
09-27-00 14.00 30,008,878(c) 34,098
Total 995,916
Mortgage-backed securities (0.1%)
Federal Home Loan Mtge Corp
08-01-17 7.50 3,376(e) 3,432
Merrill Lynch Mtge Investors
06-15-21 7.77 4,990,514(d) 4,586,594
Total 4,590,026
Aerospace & defense (1.5%)
Compass Aerospace
Sr Sub Nts
04-15-05 10.13 15,160,000(d) 14,591,500
Fairchild
Company Guaranty
04-15-09 10.75 15,300,000(d) 15,280,875
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 6,145,000 6,767,181
Sequa
Sr Sub Nts
12-15-03 9.38 20,750,000 21,398,438
Total 58,037,994
Automotive & related (2.8%)
EV Intl
Company Guaranty Series A
03-15-07 11.00 10,500,000 8,163,750
French (JL) Auto Casting
Sr Sub Nts
06-01-09 11.50 12,900,000(d) 12,980,625
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 10,000,000 10,287,500
Lear
Sr Nts
05-15-09 8.11 30,000,000(d) 29,550,000
MSX Intl
Company Guaranty
01-15-08 11.38 13,110,000 12,831,413
Oxford Automotive
Company Guaranty Series B
06-15-07 10.13 25,120,000 26,093,400
Penda
Sr Nts Series B
03-01-04 10.75 4,500,000 4,573,125
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 4,000,000 3,855,000
Total 108,334,813
Banks and savings & loans (0.2%)
CEI Citicorp Holdings
(Argentine Peso)
02-14-07 11.25 5,000,000(c,d) 3,212,500
Wilshire Financial Services
01-01-04 13.00 14,700,000(b) 2,205,000
Series B
08-15-04 13.00 8,500,000(b) 1,275,000
Total 6,692,500
Beverages & tobacco (0.3%)
Canandaigua Brands
Company Guaranty
03-01-09 8.50 12,500,000 12,546,875
Building materials & construction (0.4%)
Formica
Sr Sub Nts
03-01-09 10.88% $15,000,000(d) $14,850,000
Chemicals (0.9%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 18,675,000 17,531,156
Lyondell Chemical
05-01-07 9.88 9,500,000(d) 9,630,625
Sr Sub Nts
05-01-09 10.88 8,800,000(d) 8,998,000
Total 36,159,781
Commercial finance (0.4%)
Advance Holding
Zero Coupon Series B
04-15-03 12.45 8,800,000(g) 5,225,000
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 12,750,000(c) 12,192,188
Total 17,417,188
Communications equipment & services (10.6%)
21st Century Telecom Group
Zero Coupon Sr Disc Nts
02-15-03 12.25 15,500,000(g) 6,975,000
Bestel
(U.S. Dollar) Zero Coupon
05-15-01 12.75 6,400,000(c,g) 3,936,000
Birch Telecom
Sr Nts
06-15-08 14.00 14,000,000 13,387,500
Caprock Communications
Sr Nts Series B
07-15-08 12.00 17,000,000 17,212,500
Celcaribe
Sr Nts
03-15-04 13.50 11,150,000 9,003,625
Crown Castle Intl
Zero Coupon Sr Disc Nts
11-15-02 10.15 14,750,000(g) 10,306,563
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 16,000,000(d) 17,040,000
EchoStar DBS
Sr Nts
02-01-09 9.38 41,015,000(d) 41,220,074
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 14,500,000(c) 15,732,500
06-15-08 10.88 17,000,000(c) 18,190,000
GST Equipment Funding
Sr Nts
05-01-07 13.25 6,750,000 7,399,688
GST Telecom/GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 15,000,000(d,g) 8,400,000
GST Telecommunications
Sr Sub Nts
11-15-07 12.75 6,750,000 7,315,313
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.88 25,950,000 26,079,749
Zero Coupon Sr Disc Nts Series B
08-01-00 10.04 21,900,000(g) 18,697,125
KMC Telecom Holdings
Sr Nts
05-15-09 13.50 12,000,000(d) 12,015,000
Zero Coupon Sr Disc Nts
02-15-03 12.68 12,000,000(g) 6,690,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 5,525,000 5,580,250
NTL
Zero Coupon Sr Nts Series B
02-01-01 11.40 40,000,000(g) 34,199,999
PhoneTel Technologies
Sr Nts
12-15-06 12.00 23,500,000(b) 8,577,500
Poland Telecom
(U.S. Dollar) Company Guaranty
06-01-04 14.00 4,000,000(c) 2,080,000
Price Communications Cellular Holdings
Pay-in-kind Sr Nts
08-15-08 11.25 9,000,000(k) 9,292,500
RCN
Zero Coupon Sr Disc Nts Series B
02-15-03 9.80 7,500,000(g) 4,621,875
Rhythms Net Connections
Sr Nts
04-15-09 12.75 12,500,000(d) 11,687,500
Satelites Mexicanos
(U.S. Dollar) Sr Nts Series B
11-01-04 10.13 10,000,000(c) 8,000,000
Spectrasite Holdings
Zero Coupon Sr Disc Nts
04-15-04 11.25 17,200,000(d,g) 9,997,500
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 3,650,000 3,426,438
Tele1 Europe
(U.S. Dollar)
05-15-09 13.00 8,000,000(c,d) 8,080,000
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 12,000,000(g) 9,135,000
Triton Communications
Zero Coupon Company Guaranty
05-01-03 10.86 22,000,000(g) 13,282,500
Unisite
Zero Coupon Sub Nts
12-15-00 13.00 9,000,000(d,g,j) 10,769,310
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 16,600,000(c) 17,596,000
Vialog
Company Guaranty
11-15-01 12.75 22,600,000 18,362,500
Total 414,289,509
Computers & office equipment (2.2%)
Anacomp
Sr Sub Nts Series B
04-01-04 10.88 8,500,000 8,914,375
Concentric Network
Sr Nts
12-15-07 12.75 5,600,000 5,901,000
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 20,250,000 17,744,063
Decisionone Holdings
Zero Coupon
08-01-02 9.89 8,450,000(b,g) 21,125
Globix
Sr Nts
05-01-05 13.00 17,825,000 17,112,000
PSINet
Sr Nts
11-01-08 11.50 6,500,000 6,825,000
Sr Nts Series B
02-15-05 10.00 11,025,000 11,025,000
Verio
Sr Nts
04-01-05 10.38 7,000,000 7,140,000
12-01-08 11.25 11,000,000(d) 11,701,250
Total 86,383,813
Electronics (0.7%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 15,000,000(c,d) 12,817,715
Metromedia Fiber Network
Sr Nts
11-15-08 10.00 13,750,000(d) 14,368,750
Total 27,186,465
Energy (3.9%)
Belco Oil & Gas
Sr Sub Nts Series B
09-15-07 8.88 11,000,000 10,780,000
Canadian Forest Oil
(U.S. Dollar) Company Guaranty
09-15-07 8.75 14,500,000(c) 13,901,875
Clark R&M
Sr Sub Nts
11-15-07 8.88 10,100,000 8,900,625
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 9,000,000 8,448,750
Houston Exploration
Sr Sub Nts Series B
01-01-08 8.63 6,450,000 6,296,813
HS Resources
Company Guaranty
11-15-06 9.25 4,250,000 4,234,063
Sr Sub Nts
12-01-03 9.88 9,700,000 9,724,250
Sr Sub Nts Series B
11-15-06 9.25 8,000,000 7,970,000
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
11-01-04 11.75 15,750,000(b,c,d) 3,150,000
Lodestar Holdings
Company Guaranty
05-15-05 11.50 18,350,000 14,496,499
Michael Petroleum
Sr Nts Series B
04-01-05 11.50 6,000,000 3,600,000
Nuevo Energy
Company Guaranty Series B
06-01-08 8.88 12,000,000 11,595,000
Ocean Energy
Company Guaranty Series B
07-01-08 8.38 14,000,000 13,930,000
Rayovac
Sr Sub Nts Series B
11-01-06 10.25 11,814,000 12,877,260
Roil
(U.S. Dollar)
12-05-02 12.78 8,240,000(c,d) 2,884,000
Tesoro Petroleum
Company Guaranty Series B
07-01-08 9.00 14,250,000 14,089,688
XCL
05-01-04 13.50 8,000,000(d) 4,240,000
Total 151,118,823
Energy equipment & services (1.0%)
Dailey Intl
Company Guaranty Series B
02-15-08 9.50 9,000,000 5,850,000
DI Inds
Sr Nts
07-01-07 8.88 6,000,000 5,280,000
Grey Wolf
Company Guaranty Series C
07-01-07 8.88 1,750,000 1,540,000
Northern Offshore
(U.S. Dollar) Company Guaranty Series B
05-15-05 10.00 21,000,000(c) 10,710,000
Plains Resources
Company Guaranty Series D
03-15-06 10.25 9,000,000 9,348,750
Seven Seas Petroleum
Sr Nts Series B
05-15-05 12.50 8,000,000 4,550,000
Total 37,278,750
Financial services (2.0%)
AOA Holdings LLC
Sr Nts
06-01-06 10.38 15,500,000(d) 15,519,375
Arcadia Financial
Sr Nts
03-15-07 11.50 30,165,000 25,337,044
Gemini Inds
12-23-01 13.50 13,500,000(j) 10,800,000
Ono Finance
(U.S. Dollar)
05-01-09 13.00 6,100,000(c,d) 6,199,797
RBF Finance
Company Guaranty
03-15-09 11.38 12,375,000(d) 12,483,281
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 10,000,000(c) 6,450,000
Total 76,789,497
Food (1.5%)
Ameriserve Food Distributions
07-15-07 10.13 12,225,000 10,742,719
Aurora Foods
Sr Sub Nts Series D
02-15-07 9.88 10,000,000 10,512,500
Chiquita Brands Intl
Sr Nts
01-15-04 9.63 8,500,000 8,744,375
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 10,325,000(c,d) 7,021,000
RAB Enterprises
Company Guaranty
05-01-05 10.50 9,600,000 5,472,000
Specialty Foods
Sr Nts Series B
08-15-01 10.25 15,000,000 14,381,250
Total 56,873,844
Health care (0.6%)
Alaris Medical
Zero Coupon Sr Disc Nts
08-01-03 11.12 16,000,000(g) 9,420,000
Alaris Medical Systems
Company Guaranty
12-01-06 9.75 14,000,000 14,297,500
Total 23,717,500
Health care services (3.0%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 25,750,000 26,007,499
Fountain View
Company Guaranty Series B
04-15-08 11.25 8,600,000 7,535,750
Genesis Health Ventures
Sr Sub Nts
10-01-06 9.25 5,800,000 4,835,750
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 15,000,000 12,731,250
Oxford Health Plans
Sr Nts
05-15-05 11.00 13,000,000(d) 13,455,000
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 17,600,000 13,728,000
Physician Sales & Service
Company Guaranty
10-01-07 8.50 15,250,000 15,478,750
Tenet Healthcare
Sr Sub Nts
12-01-08 8.13 17,050,000(d) 16,510,124
Triad Hospitals Holdings
Sr Sub Nts
05-15-09 11.00 6,050,000(d) 6,193,688
Total 116,475,811
Household products (0.5%)
Revlon Worldwide
Zero Coupon Sr Disc Nts Series B
03-15-01 10.94 14,000,000(f) 10,220,000
Scotts
Sr Sub Nts
01-15-09 8.63 10,385,000(d) 10,385,000
Total 20,605,000
Industrial equipment & services (1.8%)
Clark Materials Handling
Sr Nts Series D
11-15-06 10.75 2,650,000 2,318,750
Fairfield Mfg
Sr Sub Nts
10-15-08 9.63 13,600,000(d) 13,583,000
Grove Holdings/Capital
Zero Coupon
05-01-03 11.63 4,000,000(g) 1,520,000
Grove Inds
05-01-10 14.50 3,114,730(d) 2,055,722
Motor & Gears
Sr Nts Series D
11-15-06 10.75 30,500,000 31,376,875
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 15,000,000 15,056,250
Thermadyne Holdings
Zero Coupon
06-01-03 12.49 12,000,000(g) 6,000,000
Total 71,910,597
Insurance (0.8%)
Americo Life
Sr Sub Nts
06-01-05 9.25 15,000,000 15,318,750
Veritas Holdings
(U.S. Dollar) Sr Nts
12-15-03 9.63 16,894,000(c) 17,189,645
Total 32,508,395
Leisure time & entertainment (6.3%)
Coast Hotels & Casino
Sr Sub Nts
04-01-09 9.50 9,235,000(d) 9,177,281
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 12,000,000 11,190,000
HMH Properties
Sr Nts Series C
12-01-08 8.45 10,000,000 9,587,500
Hollywood Park
Company Guaranty Series B
02-15-07 9.25 10,000,000 10,100,000
Horseshoe Gaming Holdings
Sr Sub Nts
05-15-09 8.63 16,550,000(d) 16,156,938
Icon Health & Fitness
Sr Sub Nts Series B
07-15-02 13.00 12,500,000(b) 8,625,000
Intl Game Technology
Sr Nts
05-15-09 8.38 16,400,000(d) 16,236,000
Isle of Capri Casinos/Capital
1st Mtge Series B
08-31-04 13.00 16,250,000 18,057,813
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 15,000,000 15,281,250
Mohegan Tribal Gaming
Sr Sub Nts
01-01-09 8.75 2,400,000(d) 2,421,000
Premier Cruises
Sr Nts
03-15-08 11.00 11,000,000(b,d) 2,750,000
Premier Parks
Sr Nts
04-01-06 9.25 8,300,000 8,424,500
Regal Cinemas
Sr Sub Nts
06-01-08 9.50 8,000,000 7,660,000
12-15-10 8.88 12,000,000 10,935,000
Riviera Holdings
Company Guaranty
08-15-04 10.00 4,700,000 4,470,875
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 26,945,000 23,812,644
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 28,050,000 28,260,374
United Artists Theatres
Series 1995A
07-01-15 9.30 13,222,657 11,707,737
Sr Sub Nts Series B
04-15-08 9.75 10,000,000 7,950,000
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 15,105,000 15,595,913
Zero Coupon
11-15-99 10.00 6,000,000(g) 5,910,000
Total 244,309,825
Media (10.4%)
Adelphia Communications
Sr Deb
09-15-04 11.88 5,000,000 5,306,250
Sr Nts Series B
02-01-08 8.38 19,500,000 19,524,375
Australis Holdings
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-00 13.35 17,900,000(b,c,g) 179,000
Australis Media
(U.S. Dollar)
11-01-00 14.00 2,419,998(b,c) 2,030,523
(U.S. Dollar) Zero Coupon
05-15-00 12.32 43,500,000(b,c,g) 4,350
(U.S. Dollar) Zero Coupon Sr Disc Nts
05-15-00 13.83 469,560(b,c,g) 2,348
Benedek Communications
Zero Coupon Sr Disc Nts
05-15-01 13.89 13,500,000(g) 11,188,125
Big City Radio
Zero Coupon Company Guaranty
03-15-01 11.25 10,000,000(g) 7,162,500
Bresnan Communications
Sr Nts
02-01-09 8.00 4,800,000(d) 4,824,000
Cable Systems USA
06-30-99 10.75 12,088(j) 12,088
Capstar Broadcasting
Zero Coupon Sr Disc Nts
02-01-02 7.49 8,000,000(g) 6,750,000
CBS Radio
Pay-in-kind Sub Deb
01-15-09 11.38 9,475,300(k) 10,801,842
Central Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.38 12,175,000(c) 10,227,000
Chancellor Media
Sr Nts
11-01-08 8.00 50,000,000(d) 49,687,499
Sr Sub Nts
10-01-04 9.38 3,500,000 3,644,375
Coaxial Communications/Phoenix
Company Guaranty
08-15-06 10.00 10,000,000 10,512,500
Emmis Communications
Sr Sub Nts
03-15-09 8.13 11,525,000(d) 11,280,094
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 15,000,000(c,d) 10,462,500
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 17,000,000 19,125,000
Jacor Communications
Company Guaranty
12-15-06 9.75 19,000,000 20,804,999
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 16,350,000(c) 16,493,063
Outdoor Systems
Company Guaranty
10-15-06 9.38 10,000,000 10,662,500
06-15-07 8.88 20,755,000 21,766,805
Paxson Communications
Sr Sub Nts
10-01-02 11.63 13,000,000 13,633,750
Pegasus Media & Communications
Series B
07-01-05 12.50 15,400,000 17,017,000
Sr Nts Series B
10-15-05 9.63 6,500,000 6,662,500
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 15,000,000 15,262,500
Sr Sub Nts
07-15-07 11.75 10,000,000 11,000,000
Radio Unica
Zero Coupon Company Guaranty
08-01-02 11.74 13,000,000(g) 7,556,250
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 15,200,000(c) 15,599,000
Sinclair Broadcast Group
Sr Sub Nts
12-15-07 8.75 1,800,000 1,759,500
Spanish Broadcasting System
Sr Nts
06-15-02 12.50 4,000,000 4,460,000
Sr Nts Series B
03-15-04 11.00 3,150,000 3,437,438
Susquehanna Media
Sr Sub Nts
05-15-09 8.50 6,395,000(d) 6,402,994
Telemundo Holdings
Zero Coupon Sr Disc Nts Series B
08-15-03 11.50 17,000,000(g) 9,010,000
TeleWest Communications
(U.S. Dollar) Sr Nts
11-01-08 11.25 8,000,000(c) 9,060,000
(U.S. Dollar) Zero Coupon
10-01-00 10.90 7,000,000(c,g) 6,212,500
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 9.25 13,725,000(c,d,g) 9,024,188
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 9,450,000(c,j,k) 14,175,000
Total 402,724,356
Metals (2.7%)
AK Steel
Sr Nts
02-15-09 7.88 15,000,000(d) 14,737,500
Bar Technologies
Company Guaranty
04-01-01 13.50 10,000,000 10,300,000
EnviroSource
Sr Nts
06-15-03 9.75 26,648,000 16,821,550
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 8,798,020(c,d) 8,446,099
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 12,000,000 12,465,000
Natl Steel
1st Mtge
03-01-09 9.88 11,000,000(d) 11,261,250
Neenah
Sr Sub Nts
05-01-07 11.13 3,700,000(d) 3,663,000
Ormet
Company Guaranty
08-15-08 11.00 17,000,000(d) 16,936,250
Sheffield Steel
1st Mtge Series B
12-01-05 11.50 10,200,000 9,996,000
Total 104,626,649
Miscellaneous (8.8%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 10,800,000 11,731,500
Advance Stores
Company Guaranty Series B
04-15-08 10.25 5,500,000 5,500,000
Advanced Glassfiber Yarn
Sr Sub Nts
01-15-09 9.88 17,720,000(d) 16,634,650
AMSC Acquisition
Company Guaranty Series B
04-01-08 12.25 8,000,000 5,560,000
Argo-Tech
Company Guaranty
10-01-07 8.63 5,750,000 5,491,250
Sr Sub Nts
10-01-07 8.63 13,000,000(d) 12,415,000
Bistro Trust
Sub Nts
12-31-02 9.50 10,000,000(d) 9,503,000
Booth Creek Ski Holdings
Sr Nts Series B
03-15-07 12.50 4,500,000 4,185,000
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00 11,500,000(c) 10,925,000
Comforce Operating
Sr Nts Series B
12-01-07 12.00 4,750,000 4,708,438
CTI Holdings
(U.S. Dollar) Zero Coupon Sr Nts
04-15-03 11.50 9,450,000(c,g) 4,772,250
Dura Operating
Sr Sub Nts
05-01-09 9.00 9,000,000(d) 8,898,750
ECM Funding LP
06-10-02 11.92 1,277,510(j) 1,277,510
Grant Geophysical
Company Guaranty Series B
02-15-08 9.75 7,250,000 3,625,000
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 10,000,000(c) 9,575,000
ISG Resources
04-15-08 10.00 17,445,000 17,902,931
Knology Holdings
Zero Coupon Sr Disc Nts
10-15-02 12.14 11,000,000(g) 6,668,750
Nebco Evans Holding
Zero Coupon Sr Disc Nts
07-15-02 34.18 8,500,000(g) 4,250,000
Nextel Partners
Zero Coupon Sr Disc Nts
02-01-04 13.78 47,900,000(d,g) 25,865,999
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 20,300,000 22,507,625
NSM Steel
Company Guaranty
02-01-06 12.00 10,375,000(b,d) 2,075,000
02-01-08 12.25 11,700,000(b,d) 585,000
NTEX
(U.S. Dollar) Sr Nts
06-01-06 11.50 6,900,000(c) 6,348,000
Omnipoint Communications
Sr Nts
02-17-06 8.25 16,823,654(d) 15,477,762
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 37,395,000 37,067,793
Pierce Leahy Command
Company Guaranty
05-15-08 8.13 25,150,000 24,615,563
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 16,500,000(c) 15,015,000
Riviera Black Hawk
1st Mtge
06-01-05 13.00 10,425,000(d) 10,581,375
SC Intl
09-01-07 9.25 17,650,000 18,775,188
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 11,450,000 10,405,188
Transamerica Energy
06-15-02 11.50 13,960,000(b) 1,675,200
Zero Coupon
06-15-99 17.14 9,600,000(g) 1,032,000
United Inds
Sr Sub Nts
04-01-09 9.88 7,195,000(d) 7,257,956
Total 342,908,678
Multi-industry conglomerates (1.1%)
Communications & Power Inds
08-01-05 12.00 10,000,000 10,487,500
Jordan Inds
Sr Nts Series C
08-01-07 10.38 10,410,000(d) 10,410,000
Zero Coupon Sr Sub Debs Series B
04-01-02 11.75 17,692,251(g) 11,477,848
Prime Succession
Sr Sub Nts
08-15-04 10.75 13,475,000 9,702,000
Total 42,077,348
Paper & packaging (5.6%)
APP Intl Finance
(U.S. Dollar)
10-01-05 11.75 4,500,000(c) 3,330,000
Bear Island LLC/Finance
Sr Nts Series B
12-01-07 10.00 8,675,000 8,599,094
Berry Plastics
Sr Sub Nts
04-15-04 12.25 3,250,000(d) 3,420,625
BPC Holding
Sr Nts Series B
06-15-06 12.50 11,750,000 12,410,938
Crown Paper
Sr Sub Nts
09-01-05 11.00 20,000,000 14,800,000
Doman Inds
(U.S. Dollar)
03-15-04 8.75 10,500,000(c) 7,376,250
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 3,500,000(c) 2,310,000
Gaylord Container
Sr Nts
06-15-07 9.75 6,000,000 5,782,500
02-15-08 9.88 32,500,000 28,559,374
Sr Nts Series B
06-15-07 9.38 8,000,000 7,510,000
Graham Packaging/GPC Capital
Zero Coupon Sr Disc Nts Series B
01-15-03 10.76 5,000,000(g) 3,425,000
Grupo Industrial Durango
(U.S. Dollar)
08-01-03 12.63 5,000,000(c) 4,825,000
Packaging Corp of America
Sr Sub Nts
04-01-09 9.63 9,905,000(d) 10,078,338
Repap New Brunswick
(U.S. Dollar)
06-01-04 11.50 7,500,000(c,d) 7,556,250
(U.S. Dollar) Sr Nts
06-01-04 9.00 5,450,000(c) 5,177,500
04-15-05 10.63 33,000,000(c) 28,132,500
Riverwood Intl
Company Guaranty
08-01-07 10.63 5,500,000 5,671,875
04-01-08 10.88 10,000,000 9,812,500
Company Guaranty Sr Nts
04-01-06 10.25 15,000,000 15,281,250
Silgan Holdings
06-01-09 9.00 13,250,000 13,581,250
Pay-in-kind
07-15-06 13.25 5,621,000(k) 6,295,520
Stone Container
Sr Nts
08-01-16 12.58 9,000,000 9,337,500
Tjiwi Kimia Intl
(U.S. Dollar) Company Guaranty
08-01-01 13.25 7,000,000(c) 5,460,000
Total 218,733,264
Restaurants & lodging (1.4%)
American Restaurant Group
Company Guaranty Series B
02-15-03 11.50 9,000,000 8,122,500
Domino's
Sr Sub Nts
01-15-09 10.38 16,325,000(d) 16,712,719
Florida Panthers Holdings
Sr Sub Nts
04-15-09 9.88 11,000,000(d) 10,697,500
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 18,700,000 19,471,375
Total 55,004,094
Retail (2.7%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 15,750,000(g) 11,025,000
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 17,675,000 16,592,406
Sr Sub Nts Series B
03-15-04 10.25 6,250,000 5,867,188
Maxim Group
Company Guaranty Series B
10-15-07 9.25 12,500,000 12,515,625
Musicland Group
Company Guaranty Series B
03-15-08 9.88 16,750,000 16,896,563
Pathmark Stores
Sr Sub Nts
05-01-03 9.63 8,500,000 8,712,500
Sub Nts
06-15-02 11.63 18,000,000 18,472,499
Stater Brothers Holdings
Sr Nts
03-01-01 11.00 14,500,000 14,935,000
Total 105,016,781
Textiles & apparel (1.3%)
Anvil Knitwear
Sr Nts Series B
03-15-07 10.88 14,000,000 8,960,000
Galey & Lord
Company Guaranty
03-01-08 9.13 9,700,000 6,353,500
GFSI
Sr Sub Nts Series B
03-01-07 9.63 13,000,000 11,960,000
GFSI Holdings
Zero Coupon Sr Disc Nts Series B
09-15-04 10.77 17,300,000(g) 12,110,000
Hosiery Corp of America
Sr Sub Nts
08-01-02 13.75 8,000,000 8,600,000
Steel Heddle Group
Zero Coupon Series B
06-01-03 13.74 6,200,000(g) 992,000
Steel Heddle Mfg
Company Guaranty Series B
06-01-08 10.63 4,600,000 2,754,250
Total 51,729,750
Transportation (1.5%)
American Architectural
Company Guaranty
12-01-07 11.75 10,000,000 7,975,000
Autopistas Del Sol
(U.S. Dollar) Sr Nts
08-01-09 10.25 13,500,000(c,d) 10,260,000
Enterprises Shipholding
(U.S. Dollar) Sr Nts
05-01-08 8.88 22,370,000(c) 14,540,500
Global Ocean Carriers
Sr Nts
07-15-07 10.25 13,500,000 6,783,750
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 3,500,000(c) 1,925,000
06-15-07 9.50 5,000,000(c) 2,600,000
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 10,500,000(c) 10,762,500
Trico Marine Services
Company Guaranty Series G
08-01-05 8.50 5,000,000 4,500,000
Total 59,346,750
Utilities -- electric (0.3%)
Midland Funding
Series B
07-23-06 13.25 10,500,000 12,678,750
Utilities -- gas (0.6%)
Bellwether Exploration
Sr Nts
04-01-07 10.88 9,000,000 8,381,250
Empire Gas
Zero Coupon Sr Nts
07-15-99 7.00 11,350,000(h) 5,675,000
Leviathan Gas
Sr Sub Nts
06-01-09 10.38 8,400,000(d) 8,452,500
Total 22,508,750
Utilities -- telephone (7.9%)
Allegiance Telecom
Sr Nts
05-15-08 12.88 2,000,000 2,162,500
Zero Coupon Sr Disc Nts Series B
02-15-03 11.99 30,450,000(g) 18,574,499
CCPR Services
Company Guaranty
02-01-07 10.00 10,000,000 11,087,500
Colt Telecommunications Group
(U.S. Dollar) Zero Coupon
12-15-01 12.00 8,500,000(c,g) 7,055,000
Covad Communications Group
02-15-09 12.50 14,000,000(d) 13,405,000
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 4,135,000(b) 5,169
Hyperion Telecommunications
09-01-04 12.25 14,000,000 14,700,000
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 11,025,000 10,570,219
06-01-08 8.60 2,400,000 2,274,000
Zero Coupon Sr Disc Nts Series B
07-15-02 10.65 22,375,000(g) 16,165,938
ITC Deltacom
Sr Nts
06-01-07 11.00 9,457,000 10,331,773
03-01-08 8.88 17,250,000 17,250,000
11-15-08 9.75 4,500,000 4,680,000
McLeod USA
Sr Nts
03-15-08 8.38 7,680,000 7,392,000
02-15-09 8.13 13,000,000(d) 12,122,500
Metrocall
Sr Sub Nts
10-01-07 10.38 5,700,000 4,389,000
MetroNet Communications
(U.S. Dollar) Sr Nts
08-15-07 12.00 8,750,000(c) 10,346,875
11-01-08 10.63 6,950,000(c,d) 8,018,563
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-02 10.74 8,300,000(c,g) 6,671,125
06-15-03 9.96 16,000,000(c,g) 11,860,000
NEXTLINK Communications
Sr Nts
04-15-06 12.50 15,000,000 16,556,250
11-15-08 10.75 8,750,000(d) 8,771,875
Omnipoint Communications
Sr Nts
08-15-06 11.63 24,100,000 22,141,874
Paging Network
Sr Sub Nts
08-01-07 10.13 6,950,000 4,656,500
Panamsat Intl Systems
Pay-in-kind
04-15-05 12.75 4,000(k) 4,555
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 11,550,000 11,781,000
Sr Nts Series B
05-15-08 9.88 10,000,000 9,600,000
Pronet
Sr Sub Nts
06-15-05 11.88 19,350,000 17,414,999
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 10,167,000(c) 10,916,816
11-15-08 10.50 16,250,000(c) 16,128,125
Total 307,033,655
Total bonds
(Cost: $3,638,943,412) $3,343,461,747
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common stocks (1.2%)
Issuer Shares Value(a)
<S> <C> <C>
Arena Brands 111,111(b,j) $2,444,442
Celcaribe 1,812,990(b) 3,625,980
Communications & Power Inds 3,500(b) 525,000
Concentric Network 100,000(b) 3,231,250
Earthwatch 308,812(b,d) 386,015
EchoStar Communications CI A 25,000(b) 2,868,750
Foodmaker 21,000(b) 567,000
Gaylord Container Cl A 1,000,000(b) 8,375,000
Global TeleSystems Group 107,700(b) 8,185,199
Intermedia Communications 301,376(b) 7,628,580
Nextel Communications Cl A 41,056(b) 1,513,940
OpTel 17,000(b,d) 51,000
Pagemart Nationwide 50,750(b) 190,313
Pegasus Communications 16,923(b) 799,612
Primus Telecommunications Group 300,000(b) 4,987,500
Specialty Foods 300,000(b) 6,000
Wilshire Real Estate Investment Trust 140,000 595,000
Wireless One 25,000(b) 77,344
Total common stocks
(Cost: $35,919,026) $46,057,925
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Preferred stocks & other (10.4%)
Issuer Shares Value(a)
21st Century Telecom Group
<S> <C> <C> <C>
13.75% Pay-in-kind 2,983(l) $1,372,180
Warrants 2,600 52,000
Allegiance Telecom
Warrants 30,450 1,735,650
American Mobile Satellite
Warrants 8,000 200,000
American Restaurant Group
12.00% Pay-in-kind Series B 3,920(l) 3,920,000
Warrants 3,500 35
American Telecasting
Warrants 85,225 852
APP Finance II Mauritius Cl B
12.00% 22,600(b,c) 13,786,000
Australis Holdings
Warrants 13,400(c) 134
Bar Technologies
Warrants 10,000 200,000
Belco Oil & Gas
6.50% Cv 210,000 3,622,500
Bell Technology
Warrants 19,525 1,464,375
Benedek Communications
11.50% Pay-in-kind 7,000(b,l) 5,250,000
Warrants 70,000(j) 140,000
Bestel
Warrants 10,400 104,000
Birch Telecom
Warrants 14,000 70,000
Capstar Broadcasting
12.00% Pay-in-kind Exchangeable 47,700(l) 5,777,663
Capstar Communications
12.63% Pay-in-kind Series E 64,555(l) 8,012,889
Century Maintenance
13.25% Pay-in-kind Series C 127,640(l) 14,024,445
Chesapeake Energy
7.00% Cv 33,300(d) 666,000
Clark Materials Handling
13.00% 7,148(b) 6,183,020
Clearnet Communications
Warrants 42,240 337,920
Communications & Power Inds
14.00% Pay-in-kind Series B 199,425(l) 21,537,901
Concentric Network
13.50% Pay-in-kind Series B 12,670(l) 12,606,650
Crown Packaging
Warrants 10,000(i) --
CSC Holdings
11.13% Pay-in-kind Series M 330,067(l) 38,081,479
11.75% Pay-in-kind Series H 150,267(l) 17,261,922
Dairy Mart
Warrants 311,333(d) 112,080
Dobson Communications
13.00% Pay-in-kind 8,500(b,d,l) 8,415,000
Fairfield Mfg
11.25% Pay-in-kind 6,580(b,l) 6,769,174
Geotek Communications
Warrants 872,500 1
HarCor Energy
Warrants 110,000 55,000
Hemmeter Enterprises
Warrants 36,000(i) --
Hosiery Corp of America
Warrants 10,000 400,000
Hyperion Telecommunications
12.88% Pay-in-kind Series B 5,453(l) 5,071,290
Intermedia Communications
7.00% Cv Series F 240,000 5,130,000
13.50% Pay-in-kind Series B 18,631(l) 19,562,550
Warrants 22,750 2,184,000
Intl Wireless Communications
Warrants 14,750 148
Iridium World Communications
Warrants 17,150 17,150
IXC Communications
12.50% Pay-in-kind Series B 4,452(l) 4,318,440
Jitney-Jungle Stores of America Cl A
15.00% 109,500 7,117,500
Kelley Oil & Gas
2.63% Cv 153,165 775,398
KMC Telecom Holdings
Warrants 12,000 30,000
Knology Holdings
Warrants 11,000 $27,500
Lady Luck Gaming
Pay-in-kind 50,000(b,j,l) 2,000,000
Liberty Group Publishing
14.75% Cv 499,487(b) 12,487,175
MetroNet Communications
Warrants 8,750 860,732
Nakornthai Strip Mill
Warrants 7,407,184 7
Nebco Evans Holdings
11.25% Pay-in-kind 129,891(l) 5,260,586
Nextel Communications
11.13% Pay-in-kind Series E 7,462(l) 7,462,000
13.00% Pay-in-kind Series D 20,500(l) 22,293,750
North Atlantic Trading
12.00% Pay-in-kind 1(b,d,l) 22
NTL
13.00% Pay-in-kind Series B 25,848(d,l) 28,432,800
Packaging Corp of America
12.38% Pay-in-kind 42,500(b,d,l) 4,462,500
Paxson Communications
12.50% Pay-in-kind Exchangeable 230,660(b,l) 20,990,060
Pegasus Communications
12.75% Pay-in-kind 62,500(b,l) 7,328,125
12.75% Pay-in-kind Series A 3,059(b,l) 3,403,138
Poland Telecom
Warrants 20,500 990,800
Price Communications
Warrants 41,280 3,663,600
Primus Telecommunications
Warrants 11,550 173,250
R&B Falcon
13.88% Pay-in-kind 12,000(b,d,l) 12,360,000
RSL Communications
Warrants 9,500 902,500
SGW Holding
12.50% Pay-in-kind Series B 136,145(b,j,l) 2,314,465
Cv Series A 87,091(b,j) 899,940
Warrants 2,750(j) 870,375
Sinclair Capital
11.63% 140,000 15,260,000
Telehub Communications
Warrants 12,000 600,000
Unifi Communications
Warrants 10,000 100
Unisite
Cl C 5,938(b,j) 3,147,140
Warrants 4,504(j) 45
Versatel
Warrants 16,600 996,000
Vialog
Warrants 22,600 1,130,000
Warren (SD)
14.00% Series B 597,430(b) 31,365,075
Wireless One
Warrants 23,250 233
Total preferred stocks & other
(Cost: $417,308,679) $406,047,264
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (0.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.4%)
Federal Home Loan Bank Disc Nt
<S> <C> <C> <C>
06-30-99 4.73% $4,000,000 $3,982,287
Federal Home Loan Mtge Corp Disc Nts
06-24-99 4.75 8,400,000 8,371,365
06-30-99 4.75 1,600,000 1,593,287
Federal Natl Mtge Assn Disc Nts
06-04-99 4.80 3,100,000 3,096,950
06-17-99 4.73 400,000 398,896
Total 17,442,785
Commercial paper (0.1%)
GTE Funding
06-07-99 4.84 3,700,000 3,695,542
Letter of credit (0.1%)
Bank of America-
AES Hawaii
06-10-99 4.84 2,200,000 2,196,458
Total short-term securities
(Cost: $23,336,489) $23,334,785
Total investments in securities
(Cost: $4,115,507,606)(m) $3,818,901,721
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of May 31, 1999,
the value of foreign securities represented 13.13% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(e) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on May 31, 1999.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31, 1999.
(i) Negligible market value.
(j) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at May 31, 1999, is as follows:
Security Acquisition Cost
dates
Arena Brands
<S> <C> <C>
Common 09-03-92 $5,888,888
Benedek Communications
Warrants 05-10-96 482,759
Cable Systems USA
10.75% 1999 02-02-96 11,644
ECM Funding LP
11.92% 2002 04-13-92 1,277,510
Gemini Inds
13.50% 2001 12-23-96 13,500,000
Lady Luck Gambling
Pay-in-kind Preferred 11-19-98 1,750,000
SGW Holdings
12.50% Pay-in-kind Series B Preferred 08-12-97 thru 04-15-99 2,328,107
Cv Series A Preferred 08-12-97 899,998
Warrants 08-12-97 867,900
Unisite
Cl C Preferred 12-17-97 2,750,066
Warrants 12-17-97 --
13.00% Zero Coupon Sub Nts 2000* 12-18-97 9,000,000
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 09-01-98 9,450,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(k) Pay-in-kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. The
securities issued as interest or dividends usually have the same terms,
including maturity date, as the pay-in-kind securities.
(l) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(m) At May 31, 1999, the cost of securities for federal income tax purposes was
$4,115,990,015 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $138,215,711
Unrealized depreciation (435,304,005)
------------
Net unrealized depreciation $(297,088,294)
</TABLE>
<PAGE>
Form of Proxy Card
Proxy Card Front
Proxy Card
[Fund name]
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Heidi S. Brommer, James A. Mitchell and Eileen
J. Newhouse, 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 special
meeting to be held on May 9, 2000, 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" THE PROPOSAL.
THE BOARD RECOMMENDS A VOTE
"FOR" THE PROPOSAL.
_____________________________________
Signature(s)
Date _______, 2000
Owners please sign as names appear at
left. Executors, administrators,
trustees, etc., should indicate
position when signing.
Proxy Card Back
Vote on Proposal
Approve the Agreement and Plan of Reorganization between the Strategist Fund and
the AXP Fund providing for the acquisition of all of the assets of the
Strategist Fund by the AXP Fund in exchange for Class A shares of the AXP Fund
and assumption by the AXP Fund of the liabilities of the Strategist Fund, to be
followed by distribution of those Class A shares to the shareholders of the
Strategist Fund and the subsequent termination of the Strategist Fund.
For _____ Against _____ Abstain _____
<PAGE>
Statement of Additional Information
April 17, 2000
AXP Mutual
AXP Stock
AXP Diversified Equity Income
AXP Emerging Markets
AXP Federal Income
AXP Growth
AXP New Dimensions
AXP Extra Income
AXP Selective
AXP Research Opportunities
AXP High Yield Tax-Exempt
AXP Managed Allocation
AXP Global Growth
AXP Global Bond
AXP Innovations
This statement of additional information ("SAI") covers each of the funds listed
above (each an "AXP Fund") and consists of this cover page and the following
information:
1. The AXP Fund's most recent SAI, dated as shown in the table below, which
has been previously filed and is incorporated by reference.
2. The AXP Fund's most recent annual report and semi-annual report to
shareholders, if a semi-annual report has been issued subsequent to the
date of the most recent annual report, for the period shown in the table
below, which have been previously filed and are incorporated by reference.
3. The Strategist Fund's most recent SAI, dated as shown in the table below,
which has been previously filed and is incorporated by reference.
4. The Strategist Fund's most recent annual report and, if applicable,
semi-annual report to shareholders, for the period shown in the table
below, which have been previously filed and are incorporated by reference.
This SAI is not a prospectus. It should be read in conjunction with the proxy
statement/prospectus, which may be obtained by calling 1-800-862-7919 or writing
American Express Client Service Corporation, P.O. Box 534, Minneapolis, MN
55440-0534.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Annual Report Semi-Annual
Fund SAI (for period Report
(dated) ended) (if applicable)
(for period
ended)
Strategist Balanced 11/29/99 9/30/99 NA
AXP Mutual 11/29/99 9/30/99 NA
Strategist Equity 11/29/99 9/30/99 NA
AXP Stock 11/29/99 9/30/99 NA
Strategist Equity Income 11/29/99 9/30/99 NA
AXP Diversified Equity Income 11/29/99 9/30/99 NA
Strategist Emerging Markets 12/30/99 10/31/99 NA
AXP Emerging Markets 12/30/99 10/31/99 NA
Strategist Government Income 7/30/99 5/31/99 11/30/99
AXP Federal Income 7/30/99 5/31/99 11/30/99
Strategist Growth 9/29/99 7/31/99 1/31/00
AXP Growth 9/29/99 7/31/99 1/31/00
Strategist Growth Trends 9/29/99 7/31/99 1/31/00
AXP New Dimensions 9/29/99 7/31/99 1/31/00
Strategist High Yield 7/30/99 5/31/99 11/30/99
AXP Extra Income 7/30/99 5/31/99 11/30/99
Strategist Quality Income 7/30/99 5/31/99 11/30/99
AXP Selective 7/30/99 5/31/99 11/30/99
Strategist Special Growth 9/29/99 7/31/99 1/31/00
AXP Research Opportunities 9/29/99 7/31/99 1/31/00
Strategist Tax-Free High Yield 1/28/00 11/30/99 NA
AXP High Yield Tax-Exempt 1/28/00 11/30/99 NA
Strategist Total Return 11/29/99 9/30/99 NA
AXP Managed Allocation 11/29/99 9/30/99 NA
Strategist World Growth 12/30/99 10/31/99 NA
AXP Global Growth 12/30/99 10/31/99 NA
Strategist World Income 12/30/99 10/31/99 NA
AXP Global Bond 12/30/99 10/31/99 NA
Strategist World Technologies 12/30/99 10/31/99 NA
AXP Innovations 3/15/00 10/31/99 NA
</TABLE>
<PAGE>
AXP INNOVATIONS FUND
STRATEGIST WORLD TECHNOLOGIES FUND
INTRODUCTION TO PROPOSED FUND MERGER
OCTOBER 31, 1999
The accompanying unaudited pro forma combining statement of assets and
liabilities and the statement of operations reflect the accounts of the two
funds at and for the 12-month period ending October 31, 1999. These statements
have been derived from annual reports for AXP Innovations Fund (a series of AXP
Global Series, Inc.) and Strategist World Technologies Fund (a series of
Strategist World Fund, Inc.) as of October 31, 1999. Each Fund invests all of
its assets in World Technologies Portfolio (the Portfolio), a series of World
Trust, an open-end investment company that has the same objectives as the Funds.
The Portfolio invests in technology common stocks. Management of the Funds has
elected not to present a combining Schedule of Investments for the Portfolio
because it will not change as a result of the merger. The schedule of
investments for the Portfolio is included in the Funds' annual reports, which
are available upon request.
Under the proposed Agreement and Plan of Reorganization, shares of the
Strategist World Technologies Fund would be exchanged for Class A shares of the
AXP Innovations Fund.
The pro forma combining statements have been prepared based upon the various fee
structures of the funds in existence as of October 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
AXP Innovations Fund
Strategist World Technologies Fund
Pro forma Combining
Statement of assets and liabilities
October 31, 1999
(Unaudited)
Strategist World
AXP Innovations Technologies
Fund Fund Combined
Assets
<S> <C> <C> <C>
Investments in World Technologies Portfolio (Note 1) $ 7,897,520 $ 1,125,654 $ 9,023,174
----------- ----------- -----------
Liabilities
Accrued distribution fee 4 - 4
Accrued administrative services fee 12 2 14
Other accrued expenses 16,790 4,447 21,237
------ ----- ------
Total liabilities 16,806 4,449 21,255
------ ----- ------
Net assets applicable
to outstanding capital stock $ 7,880,714 $ 1,121,205 $ 9,001,919
=========== =========== ===========
Represented by
Capital stock --- $.01 par value (Note 1) $ 7,000 $ 1,000 $ 8,000
Additional paid-in capital 3,399,239 484,163 3,883,402
Accumulated net realized gain (loss) 970,722 136,387 1,107,109
Unrealized appreciation (depreciation)
on investments and on translation
of assets and liabilities in foreign currencies 3,503,753 499,655 4,003,408
--------- ------- ---------
Total --- representing net assets applicable
to outstanding capital stock $ 7,880,714 $ 1,121,205 $ 9,001,919
=========== =========== ===========
Net assets applicable to outstanding shares: Class A $ 7,435,047 $ 8,556,252
Class B $ 220,363 $ 220,363
Class Y $ 225,304 $ 225,304
Net asset value per share of outstanding
capital stock: (Note 2) Class A shares 660,000 $ 11.27 100,000 $ 11.21 759,485 $ 11.27
Class B shares 20,000 $ 11.02 20,000 $ 11.02
Class Y shares 20,000 $ 11.27 20,000 $ 11.27
See accompanying notes to pro forma combining financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXP Innovations Fund
Strategist World Technologies Fund
Pro forma Combining
Statement of Operations
October 31, 1999
(Unaudited)
Strategist World Pro forma
Investment income AXP Innovations Technologies Pro forma AXP Innovations
Income: Fund Fund Adjustments Fund
<S> <C> <C> <C> <C>
Dividends $ 6,134 $ 874 $ 7,008
Less foreign taxes withheld (328) (47) (375)
---- --- ----
Total Income 5,806 827 6,633
----- --- -----
Expenses:
Expenses allocated from World Technologies Portfolio 63,721 9,085 72,806
Distribution fee
Class A 5,263 1,900 7,163
Class B 1,395 1,395
Transfer agency fee 48 20 (2) a 66
Incremental transfer agency fee
Class A 2 2
Class B 2 2
Administrative services fees and expenses 2,467 504 2,971
Compensation of board members 818 818
Registration fees 414 414
Audit fees 3,600 3,600
Other 2,490 2,490
----- -----
Total Expenses 72,898 18,831 (2) 91,727
Less expenses voluntarily reimbursed by AEFC (6,548) (6,496) (13,044)
------ ------ -------
Total net expenses 66,350 12,335 (2) 78,683
------ ------ -- ------
Investment income (loss) -- net (60,544) (11,508) 2 (72,050)
------- ------- - -------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 1,376,509 196,456 1,572,965
Foreign currency transactions (38) (5) (43)
Options contracts written (1,470) (210) (1,680)
------ ---- ------
Net realized gain (loss) on investments 1,375,001 196,241 1,571,242
Net change in unrealized apprciation
(depreciation) on investments and on
translation of assets and liabilities
in foreign currencies 2,778,956 396,216 3,175,172
--------- ------- ---------
Net gain (loss) on investments and foreign currencies 4,153,957 592,457 4,746,414
--------- ------- ---------
Net increase (decrease) in net assets
resulting from operations $ 4,093,413 $ 580,949 $ 2 $ 4,674,364
=========== ========= === ===========
a) Adjustment for transfer agency fee from $20 to Innovation Class A $19 per account.
See accompanying notes to pro forma combining financial statements.
</TABLE>
<PAGE>
AXP INNOVATIONS FUND
STRATEGIST WORLD TECHNOLOGIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED AS TO OCTOBER 31, 1999)
1. BASIS OF COMBINATION
The unaudited pro forma combining statement of assets and liabilities and the
statement of operations reflect the accounts of the two funds at and for the
12-month period ending October 31, 1999. These statements have been derived from
annual reports for AXP Innovations Fund (a series of AXP Global Series, Inc.)
and Strategist World Technologies Fund (a series of Strategist World Fund, Inc.)
as of October 31, 1999.
Each Fund invests all of its assets in World Technologies Portfolio (the
Portfolio), a series of World Trust, an open-end investment company that has the
same objectives as the Funds. The Portfolio invests in technology common stocks.
Management of the Funds has elected not to present a combining schedule of
investments for the Portfolio because it will not change as a result of the
merger. The schedule of investments for the Portfolio is included in the Funds'
annual reports, which are available upon request.
The pro forma statements give effect to the proposed transfer of the assets and
liabilities of Strategist World Technologies Fund in exchange for Class A shares
of AXP Innovations Fund under generally accepted accounting principles. The
results of operations for AXP Innovations Fund will not be restated for
Strategist World Technologies Fund's results of operations for pre-combination
periods. The pro forma statements do not reflect the expenses of either fund in
carrying out its obligation under the Agreement and Plan of Reorganization.
American Express Financial Corporation has agreed to bear the costs of effecting
the Reorganization, which is estimated at $7,500.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the funds incorporated by reference in the
Statement of Additional Information.
The pro forma statement of operations give effect to the proposed transaction on
the historical operations of the surviving entity, AXP Innovations Fund, as if
the transaction had occurred at the beginning of the year presented.
2. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of additional Class
A shares of AXP Innovations Fund if the reorganization were to have taken place
on October 31, 1999. The pro forma number of Class A shares outstanding of
759,485 consists of 99,485 shares assumed to be issued to shareholders of
Strategist World Technologies Fund plus 660,000 shares of AXP Innovations Fund
outstanding as of October 31, 1999.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
Item 16. Exhibits
(1) Articles of Incorporation, as amended Nov. 14, 1991, filed as Exhibit
No. 1 to Post-Effective Amendment No. 17 to Registration Statement No.
2-86637, are incorporated by reference.
(2) Amended By-laws, dated Jan. 10, 1996, filed electronically as Exhibit
No. 2 to Post-Effective Amendment No. 27 to Registration Statement No.
2-86637, are incorporated by reference.
(3) Voting Trust Agreement: Not Applicable.
(4) Form of Agreement and Plan of Reorganization, dated March 10, 2000,
filed electronically herewith as Exhibit 1 to Part A of this
Registration Statement.
(5) Stock certificate for common stock, filed as Exhibit No. 4 to
Registrant's Post-Effective Amendment No. 4, is incorporated by
reference.
(6) Investment Management and Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 5 to Registrant's Post-Effective Amendment
No. 23 to Registration Statement No. 2-86637, is incorporated by
reference. The Agreement was assumed by the Portfolio when the Fund
adopted the master/feeder structure.
(7) Distribution Agreement between Registrant and American Express
Financial Advisors Inc., dated March 20, 1995, is incorporated by
reference to Exhibit 6 to Registrant's Post-Effective Amendment No. 29
filed on or about July 30, 1998.
(8) All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
(9)(a) Custodian Agreement between Registrant and First National Bank of
Minneapolis, dated July 23, 1986, refiled electronically as Exhibit 8
(a) to Registrant's Post-Effective Amendment No. 27 to Registration
Statement No. 2-86637, is incorporated by reference.
(9)(b) Addendum to the Custodian Agreement, dated July 23, 1986 between IDS
Extra Income Fund, Inc. and First Bank National Association executed
on June 10, 1996, filed electronically as Exhibit 8(b) to
Post-Effective Amendment No. 27 to Registration Statement No. 2-86637,
is incorporated by reference.
(10)(a) Plan and Agreement of Distribution dated July 1, 1999 between AXP
Extra Income Fund, Inc. and American Express Financial Advisors Inc.,
is incorporated by reference to Exhibit (m) to AXP Discovery Fund,
Inc. Post-Effective Amendment No. 36 to Registration Statement File
No. 2-72174 filed on or about July 30, 1999. Registrant's Plan and
Agreement of Distribution differs from the one incorporated by
reference only by the fact that Registrant is one executing party.
(10)(b) Rule 18f-3 Plan dated April 1999 is incorporated by reference to
Exhibit (o) to IDS Precious Metals Fund, Inc. Post-Effective Amendment
No. 33, File No. 2-93745 filed on or about May 21, 1999.
(11) Opinion and consent of counsel as to the legality of the securities
being registered is incorporated by reference to Exhibit (11) to
Registration Statement No. 333-32362 filed on or about March 13, 2000.
(12) Tax Opinion to be filed by amendment.
(13(a) Administrative Services Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, is incorporated
by reference to Exhibit 9(d) to Registrant's Post-Effective Amendment
No. 29 filed on or about July 30, 1998.
(13)(b) Agreement and Declaration of Unitholders made June 10, 1996 by IDS
Extra Income Fund, Inc. and Strategist Income Fund, Inc., filed
electronically as Exhibit 9(e) to Post-Effective Amendment No. 27 to
Registration Statement No. 2-86637, is incorporated by reference.
(13)(c) License Agreement dated Jan. 25, 1988, between Registrant and IDS
Financial Corporation, filed as Exhibit 9(c) to Post-Effective
Amendment No. 15 to Registration Statement No. 2-86637, is
incorporated by reference.
(13)(d) Class Y Shareholder Service Agreement between IDS Precious Metals
Fund, Inc. and American Express Financial Advisors Inc., dated May 9,
1997, filed electronically on or about May 27, as Exhibit 9(e) to IDS
Precious Metals Fund, Inc.'s Amendment No. 30 to Registration
Statement No. 2-93745, is incorporated by reference. Registrant's
Class Y shareholder Service Agreement differs from the one
incorporated by reference only by the fact that Registrant is one
executing party.
(13)(e) Transfer Agency Agreement dated February 1, 1999 between Registrant
and American Express Client Service Corporation is incorporated by
reference to Exhibit (h)(6) to Registrant's Post-Effective Amendment
No. 30 filed on or about May 27, 1999.
(14) Independent Auditors' Consent is filed electronically herewith.
(15) Omitted Financial Statements: Not applicable.
(16)(a) Directors' Power of Attorney, dated January 13, 2000, is
incorporated by reference to Exhibit (16)(a) to Registration Statement
No. 333-32362 filed on or about March 13, 2000.
(16)(b) Officers' Power of Attorney, dated January 13, 2000, is incorporated
by reference to Exhibit (16)(b) to Registration Statement No.
333-32362 filed on or about March 13, 2000.
(16)(c) Trustees' Power of Attorney, dated January 13, 2000, is incorporated
by reference to Exhibit (16)(c) to Registration Statement No.
333-32362 filed on or about March 13, 2000.
(16)(d) Officers' Power of Attorney, dated January 13, 2000, is incorporated
by reference to Exhibit (16)(d) to Registration Statement No.
333-32362 filed on or about March 13, 2000.
(17)(a) Code of Ethics adopted under Rule 17j-1 for Registrant filed
electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP
Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to
Registration Statement No. 33-30770, is incorporated by reference.
(17)(b) Code of Ethics adopted under Rule 17j-1 for Registrant's investment
advisor and principal underwriter filed electronically on or about
March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series,
Inc.'s Post-Effective Amendment No. 24 to Registration Statement No.
33-30770, is incorporated by reference.
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17
CFR 230.145c], the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The Registrant undertakes to file by Post-Effective Amendment an Opinion of
Counsel supporting the tax consequences of the proposed reorganization
within a reasonable time after receipt of such opinion.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed on behalf of the Registrant, in the City of
Minneapolis and State of Minnesota on the 17th day of April, 2000.
AXP EXTRA INCOME FUND, INC.
By /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer
By /s/ John M. Knight
John M. Knight, Treasurer
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities indicated
on the 17th day of April, 2000.
Signature Capacity
____________________________ Director
Peter J. Anderson
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson* Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ William R. Pearce* Director
William R. Pearce
<PAGE>
Signature Capacity
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ John R. Thomas* Director
John R. Thomas
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (16)(a) to Registration Statement No. 333-32362, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (16)(b) to Registration Statement No. 333-32362, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, Income Trust consents to the filing
of this Amendment to the Registration Statement signed on behalf of the
Registrant, in the City of Minneapolis and State of Minnesota on the 17th day of
April, 2000.
INCOME TRUST
By /s/ Arne H. Carlson****
Arne H. Carlson
Chief Executive Officer
By /s/ John M. Knight
John M. Knight
Treasurer
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities indicated
on the 17th day of April, 2000.
Signature Capacity
____________________________ Trustee
Peter J. Anderson
/s/ H. Brewster Atwater, Jr.*** Trustee
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson*** Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney*** Trustee
Lynne V. Cheney
/s/ David R. Hubers*** Trustee
David R. Hubers
/s/ Heinz F. Hutter*** Trustee
Heinz F. Hutter
<PAGE>
Signature Capacity
/s/ Anne P. Jones*** Trustee
Anne P. Jones
/s/ William R. Pearce*** Trustee
William R. Pearce
/s/ Alan K. Simpson*** Trustee
Alan K. Simpson
/s/ John R. Thomas*** Trustee
John R. Thomas
/s/ C. Angus Wurtele*** Trustee
C. Angus Wurtele
***Signed pursuant to Trustees' Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (16)(c) to Registration Statement No. 333-32362, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
****Signed pursuant to Officers' Power of Attorney dated January 13, 2000, filed
electronically as Exhibit (16)(d) to Registration Statement No. 333-32362, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS AMENDMENT TO THE REGISTRATION STATEMENT
This Amendment to the Registration Statement comprises the following papers and
documents:
The facing sheet.
Part A.
The prospectus.
Part B.
The Statement of Additional Information.
Part C.
Other information.
Exhibits.
Undertakings.
The signatures.
<PAGE>
AXP Extra Income Fund, Inc.
EXHIBIT INDEX
Exhibit (14): Independent Auditors' Consent
Independent auditors' consent
The board and shareholders
AXP Extra Income Fund, Inc.
The board and shareholders
Strategist Income Fund, Inc.
Strategist High Yield Fund
The board of trustees and unitholders
Income Trust:
High Yield Portfolio
We consent to the use of our reports included or incorporated herein by
reference and to the references to our Firm under the heading "Financial
Highlights" in the prospectuses included or incorporated herein by reference,
under the heading "INDEPENDENT AUDITORS" in the Statement of Additional
Information incorporated herein by reference and under the heading "Experts" of
the combined Proxy Statement/Prospectus on Form N-14.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
April 17, 2000
