SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No.
Post-Effective Amendment No. 31 (File No. 2-93801)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32 (File No. 811-4133)
AXP MANAGED SERIES, INC.
200 AXP Financial Center
Minneapolis, Minnesota 55474
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box.)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on June 26, 2000, pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph(a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
AXP Managed Allocation Fund, a series of the Registrant, has adopted a
master/feeder operating structure. This Post-Effective Amendment includes a
signature page for Growth and Income Trust, the master fund.
<PAGE>
<PAGE>
AXP(SM) MANAGED
Allocation
Fund
NOV. 29, 1999 PROSPECTUS
REVISED AS OF JUNE 26, 2000
AMERICAN
EXPRESS -Registered Trademark-
FUNDS
AXP MANAGED ALLOCATION FUND SEEKS
TO PROVIDE SHAREHOLDERS MAXIMUM [GRAPHIC]
TOTAL RETURN THROUGH A COMBINATION
OF GROWTH OF CAPITAL AND CURRENT
INCOME.
Please note that this Fund:
- is not a bank deposit
- is not federally insured
- is not endorsed by any bank or government agency
- 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.
[LOGO]
<PAGE>
TABLE OF CONTENTS
TAKE A CLOSER LOOK AT:
THE FUND 3p
Goal 3p
Investment Strategy 3p
Risks 6p
Past Performance 8P
Fees And Expenses 10p
Management 11p
Buying And Selling Shares 13p
Valuing Fund Shares 13p
Investment Options 13p
Purchasing Shares 15p
Transactions Through Third Parties 18p
Sales Charges 18p
Exchanging/Selling Shares 22p
DISTRIBUTIONS AND TAXES 27p
MASTER/FEEDER STRUCTURE 29p
OTHER INFORMATION 30p
FINANCIAL HIGHLIGHTS 31p
FUND INFORMATION KEY
[GRAPHIC] GOAL AND INVESTMENT STRATEGY
The Fund's particular investment goal and the strategies it intends to
use in pursuing its goal.
[GRAPHIC] RISKS
The major risk factors associated with the Fund.
[GRAPHIC] FEES AND EXPENSES
The overall costs incurred by an investor in the Fund, including sales
charges and annual expenses.
[GRAPHIC] MANAGEMENT
The individual or group designated by the investment manager to handle
the Fund's day-to-day management.
[GRAPHIC] MASTER/FEEDER STRUCTURE
Describes the Fund's investment structure.
[GRAPHIC] FINANCIAL HIGHLIGHTS
Tables showing the Fund's financial performance.
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2p AXP MANAGED ALLOCATION FUND
<PAGE>
The Fund
[GRAPHIC] GOAL
AXP Managed Allocation Fund (the Fund) seeks to provide shareholders maximum
total return through a combination of growth of capital and current income.
Because any investment involves risk, achieving this goal cannot be guaranteed.
The Fund seeks to achieve its goal by investing all of its assets in a master
portfolio rather than by directly investing in and managing its own portfolio of
securities. The master portfolio has the same goal and investment policies as
the Fund.
INVESTMENT STRATEGY
The Fund's assets primarily are allocated among four asset classes: (1) U.S.
equities, (2) U.S. and foreign debt securities, (3) foreign equity securities,
and (4) cash. The Fund's investment manager, American Express Financial
Corporation (AEFC), determines the portion of the Fund's assets to be invested
in each asset class. AEFC expects to reset this mix, called the market mix, at
least once every 12 to 18 months. The Fund may invest up to 50% of its total
assets in foreign investments, which may include emerging markets, and up to 15%
of its total assets in below investment-grade debt securities (lower-quality
bonds).
The allocation among asset classes is the primary decision in building the
investment portfolio.
In pursuit of the Fund's goal, AEFC chooses investments by:
- Considering opportunities and risks by country and currency.
- Identifying investments that contribute to the portfolio diversification of
the Fund, including both the number of issues and the types of securities
held in the portfolio.
- Determining the appropriate allocation among asset classes based on the
market mix AEFC expects to provide the most favorable total return. The
day-to-day allocation of investments will vary from the market mix but will
remain within the ranges selected by AEFC. As of the end of the most recent
fiscal year, the market mix and ranges selected by AEFC are:
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PROSPECTUS -- JUNE 26, 2000 3p
<PAGE>
<TABLE>
<CAPTION>
ASSET CLASS MARKET MIX RANGE
<S> <C> <C>
U.S. equity securities 50% 25-75%
U.S. and foreign debt securities 40 10-50
Foreign equity securities 10 0-50
Cash 0 0-30
</TABLE>
AEFC chooses equity investments by:
- Identifying U.S. and foreign companies of all sizes.
- Identifying smaller companies that exhibit:
-- attractive valuations, based on measures such as the ratio of stock price
to company earnings, free cash flow or book value, and
-- improving earnings, based on an analysis of trends in earnings forecasts
and prior period earnings that were better than expected, as well as an
assessment of the company's competitive market position.
- Identifying larger companies with potential for above-average long-term
growth based on:
-- effective management considering overall performance,
-- competitive market position, and
-- financial strength.
AEFC chooses debt obligations by:
- Considering opportunities and risks by reviewing interest rate and economic
forecasts.
- Investing more heavily in certain sectors (for example, corporate bonds and
government bonds) based on AEFC's expectations for interest rates.
- Identifying U.S. and foreign bonds that are investment-grade or below
investment-grade (lower-quality).
- Identifying securities that are expected to outperform other securities. In
this analysis, AEFC will take risk factors into account (for example,
whether money has been set aside to cover the cost of principal and interest
payments).
- Identifying obligations that may benefit from currency fluctuations and
interest rate differences among countries.
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4p AXP MANAGED ALLOCATION FUND
<PAGE>
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
-- the security is overvalued relative to other potential investments,
-- the interest rate or economic outlook changes,
-- the security has reached AEFC's price objective or moved above a
reasonable valuation target,
-- AEFC identifies a more attractive opportunity,
-- the company has met or fails to meet AEFC's earnings and/or growth
expectations,
-- the issuer's credit quality declines or AEFC expects a decline (the Fund
may continue to own securities that are down-graded until AEFC believes it
is advantageous to sell), 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 preferred stocks and convertible securities. Additionally,
the Fund may utilize derivative instruments (such as: futures, options and
forward contracts) to produce incremental earnings, to hedge existing positions
and to increase flexibility.
During weak or declining markets, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could prevent the Fund
from achieving its investment objectives. 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.
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PROSPECTUS -- JUNE 26, 2000 5p
<PAGE>
[GRAPHIC] RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
MARKET RISK
INTEREST RATE RISK
FOREIGN/EMERGING MARKETS RISK
CALL/PREPAYMENT RISK
CREDIT RISK
EVENT RISK
LIQUIDITY RISK
SMALL COMPANY RISK
MARKET RISK
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
INTEREST RATE RISK
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
FOREIGN/EMERGING MARKETS RISK
The following are all components of foreign/emerging markets risk:
COUNTRY RISK includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
CURRENCY RISK results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
CUSTODY RISK refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held
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6p AXP MANAGED ALLOCATION FUND
<PAGE>
only to the standard of care of the local market. Governments or trade groups
may compel local agents to hold securities in designated depositories that are
not subject to independent evaluation. The less developed a country's securities
market is, the greater the likelihood of problems occurring.
EMERGING MARKETS RISK includes the dramatic pace of change (economic, social,
and political) in emerging market countries as well as the other considerations
listed above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
CALL/PREPAYMENT RISK
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
reinvestment risk, which is the risk that an investor will not be able to
reinvest income or principal at the same rate it currently is earning.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.
EVENT RISK
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
LIQUIDITY RISK
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
SMALL COMPANY RISK
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 7p
<PAGE>
companies are traded only over-the-counter or on regional securities exchanges
and the frequency and volume of their trading is substantially less than is
typical of larger companies.
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
- how the Fund's performance has varied for each full calendar year shown on
the chart below, and
- how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
[GRAPH]
<TABLE>
<CAPTION>
CLASS A PERFORMANCE (BASED ON CALENDAR YEARS)
<S> <C>
1990 +0.07%
1991 +45.94%
1992 +9.26%
1993 +14.95%
1994 -4.62%
1995 +19.26%
1996 +12.15%
1997 +14.54%
1998 +8.41%
1999 +11.95%
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was +16.49% (quarter ending March 1991) and the lowest return for a
calendar quarter was -14.21% (quarter ending September 1990).
The 5.75% 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, Class C 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, 2000 was +1.98%.
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8p AXP MANAGED ALLOCATION FUND
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DEC. 31, 1999)
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Managed Allocation:
Class A +5.51% +11.88% +11.86% --%
Class B +7.12% --% --% +12.58%(a)
Class Y +12.12% --% --% +13.85%(a)
S&P 500 Index +21.04% +28.56% +18.21% +27.74%(b)
Lipper Flexible Portfolio Index +9.82% +16.37% +12.23% +15.89%(b)
</TABLE>
(a) Inception date was March 20, 1995.
(b) Measurement period started April 1, 1995.
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. Class C is new as of the date of this prospectus
and therefore performance information is not available.
FOR PURPOSES OF THIS CALCULATION WE ASSUMED:
- the maximum sales charge for Class A shares,
- sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares,
- no sales charge for Class Y shares, and
- no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees. However, the S&P 500 companies may
be generally larger than those in which the Fund invests.
Lipper Flexible Portfolio Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
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PROSPECTUS -- JUNE 26, 2000 9p
<PAGE>
[GRAPHIC] 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)
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases(a)
(as a percentage of offering price) 5.75%(b) none none none
-------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) imposed on sales
(as a percentage of offering price at time of purchase) none 5% 1%(c) none
-----------------------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(d) (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Management fees(e) 0.43% 0.43% 0.43% 0.43%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00%
Other expenses(f) 0.21% 0.22% 0.22% 0.29%
Total 0.89% 1.65% 1.65% 0.72%
</TABLE>
(a)This charge may be reduced depending on the value of your total investments
in American Express mutual funds. See "Sales Charges."
(b)For Class A purchases over $500,000 on which the sales charge is waived, a 1%
sales charge applies if you sell your shares less than one year after
purchase.
(c)For Class C purchases, a 1% sales charge applies if you sell your shares less
than one year after purchase.
(d)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. Expenses
for Class C are based on estimates for the current fiscal year.
(e)Includes the impact of a performance adjustment fee that decreased the
management fee by 0.06% for the most recent fiscal year.
(f)Other expenses include an administrative services fee, a shareholder services
fee for Class Y, a transfer agency fee and other nonadvisory expenses.
--------------------------------------------------------------------------------
10p AXP MANAGED ALLOCATION FUND
<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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A(a) $661 $843 $1,040 $1,612
Class B(b) $568 $821 $ 998 $1,756(d)
Class B(c) $168 $521 $ 898 $1,756(d)
Class C $168 $521 $ 898 $1,960
Class Y $ 74 $230 $ 401 $ 898
</TABLE>
(a) Includes a 5.75% 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.
[GRAPHIC] MANAGEMENT
The Fund's assets are invested in Total Return Portfolio (the Portfolio), which
is managed by AEFC. Day-to-day portfolio management for the various asset
classes held by the Portfolio is the responsibility of the following team of
portfolio managers led by Jim Johnson:
James Johnson has served as portfolio manager since December 1999. He began
managing the U.S. equity portion of the Portfolio in July 1998. He joined AEFC
in 1994 as an equity quantitative analyst for American Express Asset Management
Group Inc. He has managed the focused research product for American Express
Asset Management Group since 1996. He is portfolio manager of AXP Small Company
Index Fund, AXP S&P 500 Index Fund, AXP Mid Cap Index Fund, AXP Total Stock
Market Index Fund, and AXP Nasdaq 100 Index Fund. He also is co-portfolio
manager of AXP Blue Chip Advantage Fund and Aggressive Growth Portfolio.
Ian King and John O'Brien, the "London Team," provide portfolio management for
the international equities portion of the Portfolio. Ian joined AEFC in 1995 and
also serves as portfolio manager for Emerging Markets Portfolio. Prior to
joining AEFC he was director of
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 11p
<PAGE>
Lehman Brothers Global Asset Management Ltd. from 1992 to 1995. John joined AEFC
in 1988 and serves as vice president and portfolio manager for American Express
Asset Management International Inc.
Jake Hurwitz and Kent Kelley, principals of Kenwood Capital Management LLC,
began managing the U.S. small cap equity portion of the Portfolio in January
1999. Since 1999 Jake and Kent have also managed other American Express Funds,
including AXP Discovery Fund, AXP Progressive Fund and AXP Small Cap Advantage
Fund. Previously, Jake served as senior vice president at Travelers Investment
Management Company (TIMCO). Previously, Kent was chief executive officer at
TIMCO.
David Kuplic, vice president and senior portfolio manager, joined AEFC in 1990
as a fixed income analyst. He began managing the fixed income portion of the
Portfolio in May 2000. He also serves as co-manager of other American Express
Funds, including AXP Variable Portfolio -- Managed Fund.
--------------------------------------------------------------------------------
12p AXP MANAGED ALLOCATION FUND
<PAGE>
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, Class C 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 Time (CT), each business day (any day the New York Stock Exchange
is open).
Fund shares may be purchased through various third-party organizations,
including 401(k) plans, banks, brokers and investment advisers. Where authorized
by the Fund, orders will be priced at the NAV next computed after receipt by the
organization or their selected agent.
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 an annual distribution (12b-1) fee of 0.25%.
2. CLASS B shares are sold to the public with a contingent deferred sales charge
(CDSC) and an annual distribution fee of 1.00%.
3. CLASS C shares are sold to the public without a sales charge at the time of
purchase and with an annual distribution fee of 1.00%.
4. 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.
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PROSPECTUS -- JUNE 26, 2000 13p
<PAGE>
INVESTMENT OPTIONS SUMMARY:
The Fund offers four different classes of shares. There are differences among
the fees and expenses for each class. Not everyone is eligible to buy every
class. After determining which classes you are eligible to buy, decide which
class best suits your needs. Your financial advisor can help you with this
decision.
The following table shows the key features of each class:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABILITY Available to Available to Available to Limited to qualifying
all investors. all investors. all investors. institutional investors.
---------------------------------------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Yes. Payable at time No. Entire purchase No. Entire purchase No. Entire purchase
of purchase. Lower price is invested in price is invested in price is invested in
sales charge for shares of the Fund. shares of the Fund. shares of the Fund.
larger investments.
---------------------------------------------------------------------------------------------------------------------------
Deferred Sales Charge On purchases over Maximum 5% 1% CDSC applies if None.
$500,000, 1% CDSC during the first year you sell your shares
applies if you sell decreasing to 0% less than 1 year
your shares less than after six years. after purchase.
1 year after purchase.
---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION AND/OR Yes.* Yes.* Yes.* Yes.
SHAREHOLDER SERVICE FEE 0.25% 1.00% 1.00% 0.10%
---------------------------------------------------------------------------------------------------------------------------
CONVERSION TO CLASS A N/A Yes, automatically in No. No.
ninth calendar year
of ownership.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 that allows it to pay distribution and servicing-related expenses for
the sale of Class A, Class B and Class C 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.
SHOULD YOU PURCHASE CLASS A, CLASS B OR CLASS C SHARES?
If your investments in American Express mutual funds total $250,000 or more,
Class A shares may be the better option because the sales charge is reduced for
larger purchases. 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 than Class A shares
and a CDSC for six years. 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.
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14p AXP MANAGED ALLOCATION FUND
<PAGE>
Class C shares also have a higher annual distribution fee than Class A shares.
Class C shares have no sales charge if you hold the shares for one year or
longer. Unlike Class B shares, Class C shares do not convert to Class A. As a
result, you will pay a 1% distribution fee for as long as you hold Class C
shares. If you choose a deferred sales charge option (Class B or Class C),
generally you should consider Class B shares if you intend to hold your shares
for more than six years. Consider Class C shares if you intend to hold your
shares less than six years. To help you determine what investment is best for
you, consult your financial advisor.
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:
- a $50 penalty for each failure to supply your correct TIN,
- a civil penalty of $500 if you make a false statement that results in no
backup withholding, and
- criminal penalties for falsifying information.
You also could be subject to backup withholding, if the IRS notifies us to do
so, because you failed to report required interest or dividends on your tax
return.
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PROSPECTUS -- JUNE 26, 2000 15p
<PAGE>
HOW TO DETERMINE THE CORRECT TIN
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: USE THE SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER OF:
<S> <C>
Individual or joint account The individual or one of the owners 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 The legal entity (not the personal representative or trustee,unless
trust or estate no legal entity is designated in the account title
-------------------------------------------------------------------------------------------------------------
Sole proprietorship The owner
-------------------------------------------------------------------------------------------------------------
Partnership The partnership
-------------------------------------------------------------------------------------------------------------
Corporate The corporation
-------------------------------------------------------------------------------------------------------------
Association, club or tax-exempt The organization
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." You also may obtain the form on the Internet at
(http://www.irs.gov/prod/forms_pubs/).
THREE WAYS TO INVEST
1 BY MAIL: [GRAPHIC]
Once your account has been established, send your check with the account number
on it to:
AMERICAN EXPRESS FUNDS
70200 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
<S> <C>
Initial investment: $2,000
Additional investments: $100
Account balances: $300
Qualified accounts: none
</TABLE>
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.
--------------------------------------------------------------------------------
16p AXP MANAGED ALLOCATION FUND
<PAGE>
2 BY SCHEDULED INVESTMENT PLAN: [GRAPHIC]
Contact your financial advisor for assistance in setting up one of the following
scheduled plans:
- automatic payroll deduction,
- bank authorization,
- direct deposit of Social Security check, or
- other plan approved by the Fund.
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
<S> <C>
Initial investment: $100
Additional investments: $50/mo. for qualified accounts; $100/mo. for
nonqualified accounts
Account balances: none (on active plans with monthly payments)
</TABLE>
If your account balance is below $2,000, you must make payments at least
monthly.
3 BY WIRE OR ELECTRONIC FUNDS TRANSFER: [GRAPHIC]
If you have an established account, you may wire money to:
NORWEST BANK MINNESOTA (UNTIL JULY 2000)
WELLS FARGO BANK MINNESOTA N. A. (AFTER JULY 2000)
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.
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
<S> <C>
Each wire investment: $1,000
</TABLE>
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 17p
<PAGE>
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. Where 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 section in the prospectus.
SALES CHARGES
CLASS A -- INITIAL SALES CHARGE ALTERNATIVE
When you purchase Class A shares, you pay a sales charge as shown in the
following table:
<TABLE>
<CAPTION>
TOTAL INVESTMENT SALES CHARGE AS PERCENTAGE OF:
PUBLIC OFFERING PRICE(a) NET AMOUNT INVESTED
<S> <C> <C>
Up to $50,000 5.75% 6.10%
$50,000 - $99,999 4.75 4.99
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00* 2.04*
$1,000,000 or more 0.00 0.00
</TABLE>
(a) Offering price includes the sales charge.
* The sales charge will be waived until Dec. 31, 2000.
THE SALES CHARGE ON CLASS A SHARES MAY BE LOWER THAN 5.75%, BASED ON THE
COMBINED MARKET VALUE OF:
- your current investment in this Fund,
- your previous investment in this Fund, and
- investments you and your primary household group have made 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
--------------------------------------------------------------------------------
18p AXP MANAGED ALLOCATION FUND
<PAGE>
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:
- 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
- if you intend to invest more than $50,000 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 contact your financial advisor or see the SAI.
WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES
Sales charges do not apply to:
- current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses or domestic partners, children and
parents.
- current or retired American Express financial advisors, employees of
financial advisors, their spouses or domestic partners, children and parents.
- registered representatives and other employees of brokers, dealers or other
financial institutions having a sales agreement with the Distributor,
including their spouses, domestic partners, children and parents.
- 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.
- 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%.)
- shareholders who have at least $1 million invested in American Express mutual
funds. Until Dec. 31, 2000, the sales charge does not apply to shareholders
who have at least $500,000 invested in American Express mutual fund. If the
investment is sold less than one year after purchase, a CDSC of 1% will be
charged. During that year, the CDSC will be waived only in the circumstances
described for waivers for Class B and Class C shares.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 19p
<PAGE>
- 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.
Send the Fund a written request along with your payment, indicating the date
and the amount of the sale.
- purchases made:
-- with dividend or capital gain distributions from this Fund or from the
same class of another American Express mutual fund,
-- through or under a wrap fee product or other investment product sponsored
by the Distributor or another authorized 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, or
-- through or under a subsidiary of AEFC offering Personal Trust Services'
Asset-Based pricing alternative.
- shareholders whose original purchase was in a Strategist fund merged into an
American Express fund in 2000.
CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE (CDSC) ALTERNATIVE
FOR CLASS B, the 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:
<TABLE>
<CAPTION>
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:
<S> <C>
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
</TABLE>
FOR CLASS C, a 1% CDSC is charged if you sell your shares less than 1 year after
purchase.
--------------------------------------------------------------------------------
20p AXP MANAGED ALLOCATION FUND
<PAGE>
For both Class B and Class C, if the amount you are selling causes the value of
your investment to fall below the cost of the shares you have purchased, the
CDSC is based on the lower of the cost of those shares purchased or market
value. 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 on your sale, if any, will be based on your oldest
purchase payment. The CDSC on the next amount sold will be based on the next
oldest purchase payment.
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.
WAIVERS OF THE SALES CHARGE FOR CLASS B AND CLASS C SHARES
The CDSC will be waived on sales of shares:
- in the event of the shareholder's death,
- held in trust for an employee benefit plan, or
- 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.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 21p
<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 fund, 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:
- Exchanges must be made into the same class of shares of the new fund.
- If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
- Once we receive your exchange request, you cannot cancel it.
- Shares of the new fund may not be used on the same day for another exchange.
- 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.
--------------------------------------------------------------------------------
22p AXP MANAGED ALLOCATION FUND
<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 or
Class C, 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.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 23p
<PAGE>
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.)
TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES
1 BY LETTER: [GRAPHIC]
Include in your letter:
- the name of the fund(s),
- the class of shares to be exchanged or sold,
- your mutual fund account number(s) (for exchanges, both funds must be
registered in the same ownership),
- your Social Security number or Employer Identification number,
- the dollar amount or number of shares you want to exchange or sell,
- signature(s) of all registered account owners,
- for sales, indicate how you want your money delivered to you, and
- any paper certificates of shares you hold.
REGULAR OR EXPRESS MAIL:
AMERICAN EXPRESS FUNDS
70100 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
--------------------------------------------------------------------------------
24p AXP MANAGED ALLOCATION FUND
<PAGE>
2 BY TELEPHONE: [GRAPHIC]
American Express Client Service Corporation
Telephone Transaction Service
800-437-3133
- The Fund and AECSC will use reasonable procedures to confirm authenticity of
telephone exchange or sale requests.
- 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.
- Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
- Telephone privileges may be modified or discontinued at any time.
<TABLE>
<S> <C>
MINIMUM SALE AMOUNT: $100 MAXIMUM SALE AMOUNT: $50,000
</TABLE>
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 25p
<PAGE>
THREE WAYS TO RECEIVE PAYMENT WHEN YOU SELL SHARES
1 BY REGULAR OR EXPRESS MAIL: [GRAPHIC]
- Mailed to the address on record.
- 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: [GRAPHIC]
- Minimum wire: $1,000.
- Request that money be wired to your bank.
- 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: [GRAPHIC]
- Minimum payment: $50.
- Contact your financial advisor or AECSC to set up regular payments on a
monthly, bimonthly, quarterly, semiannual or annual basis.
- Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges.
--------------------------------------------------------------------------------
26p AXP MANAGED ALLOCATION FUND
<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 DISTRIBUTIONS
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. Each realized capital gain or loss is long-term or short-term depending on
the length of time the Fund held the security. Realized capital gains and losses
offset each other. The Fund offsets any net realized capital gains by any
available capital loss carryovers. Net short-term capital gains are included in
net investment income. Net realized long-term capital gains, if any, are
distributed by the end of the calendar year as CAPITAL GAIN DISTRIBUTIONS.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
- you request distributions in cash, or
- 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.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 27p
<PAGE>
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.
If you buy shares shortly before the record date of a distribution you may 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 may be 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 less
than their cost, the difference is a capital loss. 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 buy Class A shares and within 91 days exchange into another 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 of the second fund you
purchased.
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.
-----------------------------------------------------------------------------
28P AXP MANAGED ALLOCATION FUND
<PAGE>
[GRAPHIC] 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). 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
[GRAPHIC]
The Fund buys units in the Portfolio
[GRAPHIC]
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.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 29p
<PAGE>
Other Information
INVESTMENT MANAGER
The investment manager of the Portfolio is AEFC, 200 AXP Financial Center,
Minneapolis, MN 55474. 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 0.43%
of its average daily net assets. Under the agreement, the Portfolio also pays
taxes, brokerage commissions and nonadvisory expenses. AEFC or an affiliate may
make payments from its own resources, which include management fees paid by the
Fund, to compensate broker-dealers or other persons for providing distribution
assistance. 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.
--------------------------------------------------------------------------------
30p AXP MANAGED ALLOCATION FUND
<PAGE>
[GRAPHIC] Financial Highlights
FISCAL PERIOD ENDED SEPT. 30,
<TABLE>
<CAPTION>
PER SHARE INCOME AND CAPITAL CHANGES(a)
CLASS A
2000(f) 1999 1998 1997 1996(b) 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.49 $10.34 $12.68 $12.20 $12.19 $11.29
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13 .32 .37 .32 .24 .21
Net gains (losses) (both realized and unrealized) 1.03 1.16 (.79) 1.97 .58 1.65
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.16 1.48 (.42) 2.29 .82 1.86
----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13) (.30) (.37) (.32) (.23) (.16)
Distributions from realized gains (.80) (1.03) (1.55) (1.49) (.58) (.80)
----------------------------------------------------------------------------------------------------------------------------
Total distributions (.93) (1.33) (1.92) (1.81) (.81) (.96)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.72 $10.49 $10.34 $12.68 $12.20 $12.19
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1,914 $1,979 $2,233 $2,639 $2,523 $2,602
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c) .97%(d) .82% .80% .84% .80%(d) .83%
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.28%(d) 2.85% 3.13% 2.55% 2.29%(d) 1.85%
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 54% 81% 122% 99% 142% 90%
----------------------------------------------------------------------------------------------------------------------------
Total return(e) 11.34% 14.78% (3.73%) 20.79% 7.13% 17.97%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, 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.
(f) Six months ended March 31, 2000 (Unaudited).
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 31p
<PAGE>
FISCAL PERIOD ENDED SEPT. 30,
<TABLE>
<CAPTION>
PER SHARE INCOME AND CAPITAL CHANGES(a)
CLASS B
2000(g) 1999 1998 1997 1996(b) 1995(c)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.43 $10.29 $12.63 $12.15 $12.16 $10.41
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .23 .29 .23 .15 .11
Net gains (losses) (both realized and unrealized) 1.02 1.16 (.79) 1.97 .57 1.74
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.11 1.39 (.50) 2.20 .72 1.85
----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.22) (.29) (.23) (.15) (.10)
Distributions from realized gains (.80) (1.03) (1.55) (1.49) (.58) --
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.89) (1.25) (1.84) (1.72) (.73) (.10)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.65 $10.43 $10.29 $12.63 $12.15 $12.16
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $238 $237 $251 $241 $163 $75
----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(d) 1.74%(e) 1.59% 1.56% 1.60% 1.57%(e) 1.58%(e)
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 1.51%(e) 2.08% 2.40% 1.82% 1.61%(e) .94%(e)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 54% 81% 122% 99% 142% 90%
----------------------------------------------------------------------------------------------------------------------------------
Total return(f) 10.95% 13.90% (4.46%) 19.87% 6.45% 17.70%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, effective
1996.
(c) Inception date was March 20, 1995.
(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.
(g) Six months ended March 31, 2000 (Unaudited).
--------------------------------------------------------------------------------
32p AXP MANAGED ALLOCATION FUND
<PAGE>
FISCAL PERIOD ENDED SEPT. 30,
<TABLE>
<CAPTION>
PER SHARE INCOME AND CAPITAL CHANGES(a)
CLASS Y
2000(g) 1999 1998 1997 1996(b) 1995(c)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.50 $10.34 $12.68 $12.20 $12.19 $10.41
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13 .33 .38 .33 .26 .16
Net gains (losses) (both realized and unrealized) 1.03 1.17 (.79) 1.97 .58 1.76
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.16 1.50 (.41) 2.30 .84 1.92
----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.31) (.38) (.33) (.25) (.14)
Distributions from realized gains (.80) (1.03) (1.55) (1.49) (.58) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.94) (1.34) (1.93) (1.82) (.83) (.14)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.72 $10.50 $10.34 $12.68 $12.20 $12.19
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $48 $56 $95 $118 $113 $115
----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(d) .81%(e) .72% .72% .71% .63%(e) .65%(e)
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.43%(e) 2.95% 3.20% 2.69% 2.45%(e) 1.95%(e)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 54% 81% 122% 99% 142% 90%
----------------------------------------------------------------------------------------------------------------------------------
Total return(f) 11.42% 14.92% (3.65%) 20.94% 7.28% 18.40%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, effective
1996.
(c) Inception date was March 20, 1995.
(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.
(g) Six months ended March 31, 2000 (Unaudited).
The information in these tables has been audited by KPMG LLP, independent
auditors. The independent auditors' report and additional information about the
performance of the Fund are contained in the Fund's annual report which, if not
included with this prospectus, may be obtained without charge.
--------------------------------------------------------------------------------
PROSPECTUS -- JUNE 26, 2000 33p
<PAGE>
AMERICAN
EXPRESS -Registered Trademark-
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 Funds
70100 AXP Financial Center, Minneapolis, MN 55474
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
1-202-942-8090). Reports and other information about the Fund are available on
the EDGAR Database on the Commission's Internet site at (http://www.sec.gov).
Copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address: [email protected], or by
writing to the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
Investment Company Act File #811-4133
TICKER SYMBOL
CLASS A: IMRFX CLASS B: IMRBX CLASS C: N/A CLASS Y: IDRYX
[LOGO]
S-6141-99 T (6/00)
<PAGE>
AXPSM MANAGED SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXPSM MANAGED ALLOCATION FUND (the Fund)
Nov. 29, 1999
Revised as of June 26, 2000
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that may be obtained
from your American Express financial advisor or by writing to American Express
Client Service Corporation, P.O. Box 534, Minneapolis, MN 55440-0534 or by
calling 800-862-7919.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
TABLE OF CONTENTS
Mutual Fund Checklist...........................................p. 3
Fundamental Investment Policies.................................p. 5
Investment Strategies and Types of Investments..................p. 7
Information Regarding Risks and Investment Strategies...........p. 9
Security Transactions............................................p.30
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation...........................p.31
Performance Information..........................................p.32
Valuing Fund Shares..............................................p.33
Investing in the Fund............................................p.34
Selling Shares...................................................p.36
Pay-out Plans....................................................p.37
Taxes............................................................p.38
Agreements.......................................................p.39
Organizational Information.......................................p.43
Board Members and Officers.......................................p.46
Compensation for Board Members...................................p.48
Independent Auditors.............................................p.48
Appendix: Description of Ratings................................p.49
<PAGE>
MUTUAL FUND CHECKLIST
[X] Mutual funds are NOT guaranteed or insured by any
bank or government agency. You can lose money.
[X] Mutual funds ALWAYS carry investment risks. Some
types carry more risk than others.
[X] A higher rate of return typically involves a
higher risk of loss.
|X| Past performance is not a reliable indicator of
future performance.
[X] ALL mutual funds have costs that lower investment
return.
|X| You can buy some mutual funds by contacting them
directly. Others, like this one, are sold mainly
through brokers, banks, financial planners, or
insurance agents. If you buy through these
financial professionals, you generally will pay a
sales charge.
|X| Shop around. Compare a mutual fund with others of
the same type before you buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:
Develop a Financial Plan
Have a plan - even a simple plan can help you take control of your financial
future. Review your plan with your advisor at least once a year or more
frequently if your circumstances change.
Dollar-Cost Averaging
An investment technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is dollar-cost
averaging. Dollar-cost averaging involves building a portfolio through the
investment of fixed amounts of money on a regular basis regardless of the price
or market condition. This may enable an investor to smooth out the effects of
the volatility of the financial markets. By using this strategy, more shares
will be purchased when the price is low and less when the price is high. As the
accompanying chart illustrates, dollar-cost averaging tends to keep the average
price paid for the shares lower than the average market price of shares
purchased, although there is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares to meet
long-term goals.
<PAGE>
Dollar-cost averaging:
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
----- -------- ------
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5)
The average price you paid for each share: $4.84 ($500 divided by 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
The Fund pursues its investment objective by investing all of its assets in
Total Return Portfolio (the Portfolio) of Growth and Income Trust (the Trust), a
separate investment company, rather than by directly investing in and managing
its own portfolio of securities. The Portfolio has the same investment
objectives, policies, and restrictions as the Fund. References to "Fund" in this
SAI, where applicable, refer to the Fund and Portfolio, collectively, to the
Fund, singularly, or to the Portfolio, singularly.
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing. The Portfolio and Fund
have not borrowed in the past and have no present intention to borrow.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry. According to the present interpretation by
the Securities and Exchange Commission (SEC), this means no more than 25%
of the Fund's total assets, based on current market value at time of
purchase, can be invested in any one industry.
o Purchase more than 10% of the outstanding voting securities of an issuer.
o Invest more than 5% of its total assets in securities of any one company,
government, or political subdivision thereof, except the limitation will
not apply to investments in securities issued by the U.S. government, its
agencies, or instrumentalities, and except that up to 25% of the Fund's
total assets may be invested without regard to this 5% limitation.
o Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
<PAGE>
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except as permitted under the 1940 Act.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to adopt temporary defensive
positions and is authorized to attempt to hedge against certain types of risk,
these practices are left to the investment manager's sole discretion.
AXP Managed Allocation
Fund
Investment strategies & types of investments: Allowable for the Fund?
Agency and Government Securities yes
Borrowing yes
Cash/Money Market Instruments yes
Collateralized Bond Obligations yes
Commercial Paper yes
Common Stock yes
Convertible Securities yes
Corporate Bonds yes
Debt Obligations yes
Depositary Receipts yes
Derivative Instruments yes
Foreign Currency Transactions yes
Foreign Securities yes
High-Yield (High-Risk) Securities (Junk Bonds) yes
Illiquid and Restricted Securities yes
Indexed Securities yes
Inverse Floaters yes
Investment Companies yes
Lending of Portfolio Securities yes
Loan Participations yes
Mortgage- and Asset-Backed Securities yes
Mortgage Dollar Rolls yes
Municipal Obligations yes
Preferred Stock yes
Real Estate Investment Trusts yes
Repurchase Agreements yes
Reverse Repurchase Agreements yes
Short Sales no
Sovereign Debt yes
Structured Products yes
Variable- or Floating-Rate Securities yes
Warrants yes
When-Issued Securities yes
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes
<PAGE>
The following are guidelines that may be changed by the board at any time:
o No more than 15% of the Fund's total assets will be invested in below
investment-grade debt securities.
o No more than 50% of the Fund's total assets will be invested in foreign
investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o The Fund may invest up to 30% of its total assets in short-term debt
securities rated in the top two grades or the equivalent.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in futures contracts.
o The Fund will not invest more than 10% of its total assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
<PAGE>
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Correlation Risk
The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
<PAGE>
Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Reinvestment Risk
The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.
<PAGE>
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
<PAGE>
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields than comparable non-convertible securities, (ii) are less
subject to fluctuation in value than the underlying stock since they have fixed
income characteristics, and (iii) provide the potential for capital appreciation
if the market price of the underlying common stock increases.
<PAGE>
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
<PAGE>
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
<PAGE>
Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees for the length of the contract to sell the security at the
set price when the buyer wants to exercise the option, no matter what the market
price of the security is at that time. A person who buys a put option has the
right to sell a security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price if the
purchaser wants to exercise the option during the length of the contract, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a
buyer (holding the "long" position) and a seller (holding the "short" position)
for an asset with delivery deferred until a future date. The buyer agrees to pay
a fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices.
<PAGE>
Options on Futures Contracts. Options on futures contracts give the
holder a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date (some futures are settled in cash), an option on a futures
contract merely entitles its holder to decide on or before a future date (within
nine months of the date of issue) whether to enter into a contract. If the
holder decides not to enter into the contract, all that is lost is the amount
(premium) paid for the option. Further, because the value of the option is fixed
at the point of sale, there are no daily payments of cash to reflect the change
in the value of the underlying contract. However, since an option gives the
buyer the right to enter into a contract at a set price for a fixed period of
time, its value does change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities
traded on national securities exchanges. An option on a stock index is similar
to an option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
If the Fund is using short futures contracts for hedging purposes, the Fund may
be required to defer recognizing losses incurred on short futures contracts and
on underlying securities.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities.
There can be no assurance that any particular strategy will succeed.
<PAGE>
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by the forces of supply and
demand in the foreign exchange markets, actual or anticipated changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected by the intervention of U.S. or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments.
Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
<PAGE>
The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
<PAGE>
Options on Foreign Currencies. The Fund may buy options on foreign currencies
for hedging purposes. For example, a decline in the dollar value of a foreign
currency in which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against the diminutions in the value of securities, the Fund
may buy options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
<PAGE>
Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
<PAGE>
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transition period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
<PAGE>
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time- consuming
negotiations and legal expense, and it may be difficult or impossible for the
Fund to sell such an investment promptly and at an acceptable price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
<PAGE>
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, the Fund will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
<PAGE>
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."
<PAGE>
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased between the date of the
short sale and the date on which the borrowed security is replaced, the investor
loses the opportunity to participate in the gain. A "short sale against the box"
will result in a constructive sale of appreciated securities thereby generating
capital gains to the Fund.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
<PAGE>
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets. In addition, when the Fund engages in forward commitment and
when-issued transactions, it relies on the counterparty to consummate the
transaction. The failure of the counterparty to consummate the transaction may
result in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
<PAGE>
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held, or sold. In determining where the buy and sell orders are to
be placed, AEFC has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board. In selecting broker-dealers to execute transactions,
AEFC may consider the price of the security, including commission or mark-up,
the size and difficulty of the order, the reliability, integrity, financial
soundness, and general operation and execution capabilities of the broker, the
broker's expertise in particular markets, and research services provided by the
broker.
The Fund, AEFC and American Express Financial Advisors (the Distributor) each
have a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund or trust for which it
acts as investment manager.
The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and the other American Express funds
for which it acts as investment manager.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund that it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
<PAGE>
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all American
Express funds even though it is not possible to relate the benefits to any
particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by AEFC or
any of its subsidiaries. When the Fund buys or sells the same security as
another portfolio, fund, or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
The Fund paid total brokerage commissions of $4,560,856 for fiscal year ended
Sept. 30, 1999, $5,108,612 for fiscal year 1998, and $5,860,957 for fiscal year
1997. Substantially all firms through whom transactions were executed provide
research services.
No transactions were directed to brokers because of research services they
provided to the Fund except for the affiliates as noted below.
As of the end of the most recent fiscal year, the Fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
Value of Securities
Name of Issuer owned at End of Fiscal Year
Advest $ 567,575
Bank of America 23,169,619
FleetBoston 12,653,937
Hambrecht & Quist 1,796,006
Legg Mason 965,475
Lehman Brothers 7,084,969
Merrill Lynch 14,877,442
Morgan Stanley 9,712,519
Raymond James Financial 528,344
The portfolio turnover rate was 81% in the most recent fiscal year, and 122% in
the year before.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
Affiliates of American Express Company (of which AEFC is a wholly-owned
subsidiary) may engage in brokerage and other securities transactions on behalf
of the Fund according to procedures adopted by the board and to the extent
consistent with applicable provisions of the federal securities laws. AEFC will
use an American Express affiliate only if (i) AEFC determines that the Fund will
receive prices and executions at least as favorable as those offered by
qualified independent brokers performing similar brokerage and other services
for the Fund and (ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges comparable unaffiliated customers in similar
transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
<PAGE>
<TABLE>
<CAPTION>
As of the end of Fiscal Year,
1999 1998 1997
------------------------------------------------ --------------- --------------
Percent of
--------------- --------------- -------------- Aggregate --------------- --------------
Dollar Amount
of
Aggregate Percent of Transactions Aggregate Aggregate
Dollar amount Aggregate Involving Dollar Amount Dollar Amount
Broker Nature of of Commissions Brokerage Payment of of Commissions of
Affiliation Paid to Broker Commissions Commissions Paid to Broker Commissions
Paid to Broker
<S> <C> <C> <C> <C> <C> <C>
American Wholly-owned $84,089 1.84 7.38% $148,878 $314,054
Enterprise subsidiary of
Investment AEFC
Services Inc.
</TABLE>
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
AVERAGE ANNUAL TOTAL RETURN
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
AGGREGATE TOTAL RETURN
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index,
<PAGE>
Stanger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal, and Wiesenberger Investment Companies Service.
The Fund also may compare its performance to a wide variety of indexes or
averages. There are similarities and differences between the investments that
the Fund may purchase and the investments measured by the indexes or averages
and the composition of the indexes or averages will differ from that of the
Fund.
Ibbotson Associates provides historical returns of the capital markets in the
United States, including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term government bonds,
Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indexes. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios.
The Fund may quote various measures of volatility in advertising. Measures of
volatility seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark.
The Distributor may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Materials may
include discussions of asset allocation, retirement investing, brokerage
products and services, model portfolios, saving for college or other goals, and
charitable giving.
VALUING FUND SHARES
As of the end of the most recent fiscal year, the computation looked like this:
<TABLE>
<CAPTION>
Net asset value
Net assets Shares of one share
outstanding
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Class A $1,979,293,010 divided by 188,621,593 equals $10.49
Class B 236,617,284 22,689,101 10.43
Class C*
Class Y 55,990,641 5,334,798 10.50
</TABLE>
* Class C is new as of the date as of this SAI, and, therefore, NAV information
is not available.
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the exchange
where the security is primarily traded and, if none exist, to the
over-the-counter market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities
traded over-the-counter but not included in the NASDAQ National Market
System are valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
<PAGE>
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued
at their fair value according to procedures decided upon in good faith by
the board.
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is an
approximation of market value determined by systematically increasing the
carrying value of a security if acquired at a discount, or reducing the
carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
o Securities without a readily available market price and other assets are
valued at fair value as determined in good faith by the board. The board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the Fund.
If a valuation of a bond is not
available from a pricing service, the bond will be valued by a dealer
knowledgeable about the bond if such a dealer is available.
INVESTING IN THE FUND
SALES CHARGE
Investors should understand that the purpose and function of the initial sales
charge and distribution fee for Class A shares is the same as the purpose and
function of the CDSC and distribution fee for Class B and Class C shares. The
sales charges and distribution fees applicable to each class pay for the
distribution of shares of the Fund.
Shares of the Fund are sold at the public offering price. The public offering
price is the NAV of one share adjusted for the sales charge for Class A. For
Class B, Class C and Class Y, there is no initial sales charge so the public
offering price is the same as the NAV. Using the sales charge schedule in the
table below, for Class A, the public offering price for an investment of less
than $50,000, made on the last day of the most recent fiscal year, was
determined by dividing the NAV of one share, $10.49, by 0.9425 (1.00-0.0575) for
a maximum 5.75% sales charge for a public offering price of $11.13. The sales
charge is paid to the Distributor by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
<TABLE>
<CAPTION>
Sales charge as a percentage of:
------------------------------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
-------------------- -------------- ---------------
<S> <C> <C>
Up to $50,000 5.75% 6.10%
$50,000 - $99,999 4.75 4.99
$100,000 - $249,999 3.75 3.90
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00* 2.04*
$1,000,000 or more 0.00 0.00
*The sales charge will be waived until Dec. 31, 2000.
</TABLE>
<PAGE>
The initial sales charge is waived for certain qualified plans. Participants in
these qualified plans may be subject to a deferred sales charge on certain
redemptions. The Fund will waive the deferred sales charge on certain
redemptions if the redemption is a result of a participant's death, disability,
retirement, attaining age 59 1/2, loans, or hardship withdrawals. The deferred
sales charge varies depending on the number of participants in the qualified
plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
----------------- ---- -----------
Less than $1 million 4% 0%
$1 million or more 0% 0%
Class A - Reducing the Sales Charge
The market value of your investments in the Fund determines your sales charge.
For example, suppose you have made an investment that now has a value of $20,000
and you later decide to invest $40,000 more. The value of your investments would
be $60,000. As a result, your $40,000 investment qualifies for the lower 4.75%
sales charge that applies to investments of more than $50,000 and up to
$100,000.
Class A - Letter of Intent (LOI)
If you intend to invest more than $50,000 over a period of time, you can reduce
the sales charge in Class A by filing a LOI and committing to invest a certain
amount. The agreement can start at any time and will remain in effect for 13
months. The LOI start date can be backdated by 90 days. Your investments will be
charged the sales charge that applies to the amount you have committed to
invest. Five percent of the commitment amount will be placed in escrow. If your
commitment amount is reached within the 13-month period, the shares will be
released from escrow. If you do not invest the commitment amount by the end of
the 13 months, the remaining unpaid sales charge will be redeemed from the
escrowed shares and the remaining balance released from escrow. The commitment
amount does not include purchases in any class of American Express funds other
than Class A; purchases in American Express funds held within a wrap product;
and purchases of AXP Cash Management Fund and AXP Tax-Free Money Fund unless
they are subsequently exchanged to Class A shares of an American Express mutual
fund within the 13 month period. A LOI is not an option (absolute right) to buy
shares.
Class Y Shares
Class Y shares are offered to certain institutional investors. Class Y shares
are sold without a front-end sales charge or a CDSC and are not subject to a
distribution fee. The following investors are eligible to purchase Class Y
shares:
o Qualified employee benefit plans* if the plan:
-uses a daily transfer recordkeeping service offering participants
daily access to American Express mutual funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in American Express mutual
funds or
- 500 or more participants.
<PAGE>
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These institutions must have at least $10 million in American Express
mutual funds.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit described above.
* Eligibility must be determined in advance. To do so, contact your financial
advisor.
SYSTEMATIC INVESTMENT PROGRAMS
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments - monthly, quarterly, or semiannually. You are
not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time.
AUTOMATIC DIRECTED DIVIDENDS
Dividends, including capital gain distributions, paid by another American
Express fund subject to a sales charge, may be used to automatically purchase
shares in the same class of this Fund. Dividends may be directed to existing
accounts only. Dividends declared by a fund are exchanged to this Fund the
following day. Dividends can be exchanged into the same class of another
American Express fund but cannot be split to make purchases in two or more
funds. Automatic directed dividends are available between accounts of any
ownership except:
o Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts
as custodian;
o Between two American Express Trust Company custodial accounts with
different owners (for example, you may not exchange dividends from your IRA
to the IRA of your spouse); and
o Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REJECTION OF BUSINESS
The Fund or AECSC reserves the right to reject any business, in its sole
discretion.
<PAGE>
SELLING SHARES
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the prospectus.
During an emergency, the board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of the Fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is
not reasonably practicable for the Fund to determine the fair value of its
net assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should the Fund distribute securities, a shareholder may incur brokerage
fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash. If
you are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties, and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please write American Express Client Service
Corporation, P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express
Financial Advisors Telephone Transaction Service at 800-437-3133. Your
authorization must be received in the Minneapolis headquarters at least five
days before the date you want your payments to begin. The initial payment must
be at least $50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual, or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you will have to send in
a separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
<PAGE>
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
TAXES
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 less
than their cost, the difference is a capital loss. 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 more than
one year).
If you buy Class A shares and within 91 days exchange into another 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 of the second fund you
purchased.
For example:
You purchase 100 shares of one fund having a public offering price of $10.00 per
share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of
$9.425 per share, the value of your investment is $942.50. Within 91 days of
purchasing that fund, you decide to exchange out of that fund, now at a NAV of
$11.00 per share, up from the original NAV of $9.425, and purchase into a second
fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares. So
instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50
gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the basis
of your shares in the second fund.
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a redemption of shares and may result in a gain or loss for tax
purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
plus the amount of the initial sales charge applied to the amount exchanged
exceeds annual contribution limitations. For example: If you were to exchange
$2,000 in Class A shares from a nonqualified account to an IRA without
considering the 5.75% ($115) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations. You
should consult your tax advisor for further details about this complex subject.
<PAGE>
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, 17.64% of the Fund's net investment income
dividends qualified for the corporate deduction.
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
Income earned by the Fund may have had foreign taxes imposed and withheld on it
in foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of the Fund's total assets at
the close of its fiscal year consists of securities of foreign corporations, the
Fund will be eligible to file an election with the Internal Revenue Service
under which shareholders of the Fund would be required to include their pro rata
portions of foreign taxes withheld by foreign countries as gross income in their
federal income tax returns. These pro rata portions of foreign taxes withheld
may be taken as a credit or deduction in computing the shareholders' federal
income taxes. If the election is filed, the Fund will report to its shareholders
the per share amount of such foreign taxes withheld and the amount of foreign
tax credit or deduction available for federal income tax purposes.
Capital gain distributions, if any, received by shareholders should be treated
as long-term capital gains regardless of how long they owned their shares.
Short-term capital gains earned by the Fund are paid to shareholders as part of
their ordinary income dividend and are taxable. A special 28% rate on capital
gains may apply to sales of precious metals, if any, owned directly by the Fund.
A special 25% rate on capital gains may apply to investments in REITs.
Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
For purposes of the excise tax distributions, "section 988" ordinary gains and
losses are distributable based on an Oct. 31 year end. This is an exception to
the general rule that ordinary income is paid based on a calendar year end.
If a mutual fund is the holder of record of any share of stock on the record
date for any dividend payable with respect to such stock, such dividend shall be
included in gross income by the Fund as of the later of (1) the date such share
became ex-dividend or (2) the date the Fund acquired such share. Because the
dividends on some foreign equity investments may be received some time after the
stock goes ex-dividend, and in certain rare cases may never be received by the
Fund, this rule may cause the Fund to take into income dividend income that it
has not received and pay such income to its shareholders. To the extent that the
dividend is never received, the Fund will take a loss at the time that a
determination is made that the dividend will not be received.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
<PAGE>
AGREEMENTS
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, AEFC,
subject to the policies set by the board, provides investment management
services.
For its services, AEFC is paid a fee based on the following schedule. Each class
of the Fund pays its proportionate share of the fee.
Assets Annual rate at
(billions) each asset level
--------- ----------------
First $0.50 0.530%
Next 0.50 0.505
Next 1.00 0.480
Next 1.00 0.455
Next 3.00 0.430
Over 6.00 0.400
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.493% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
Class A share of the Fund and the change in the Lipper Flexible Portfolio Fund
Index (Index). The performance of one Class A share of the Fund is measured by
computing the percentage difference between the opening and closing net asset
value of one Class A share of the Fund, as of the last business day of the
period selected for comparison, adjusted for dividend or capital gain
distributions which are treated as reinvested at the end of the month during
which the distribution was made. The performance of the Index for the same
period is established by measuring the percentage difference between the
beginning and ending Index for the comparison period. The performance is
adjusted for dividend or capital gain distributions (on the securities which
comprise the Index), which are treated as reinvested at the end of the month
during which the distribution was made. One percentage point will be subtracted
from the calculation to help assure that incentive adjustments are attributable
to AEFC's management abilities rather than random fluctuations and the result
multiplied by 0.01%. That number will be multiplied times the Fund's average net
assets for the comparison period and then divided by the number of months in the
comparison period to determine the monthly adjustment.
Where the Fund's Class A share performance exceeds that of the Index, the base
fee will be increased. Where the performance of the Index exceeds the
performance of the Fund's Class A share, the base fee will be decreased. The
maximum monthly increase or decrease will be 0.08% of the Fund's average net
assets on an annual basis.
The 12 month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. The adjustment decreased the fee by $1,498,682 for
fiscal year 1999.
The management fee is paid monthly. Under the agreement, the total amount paid
was $11,143,597 for fiscal year 1999, $12,897,457 for fiscal year 1998, and
$13,358,064 for fiscal year 1997.
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
postage of confirmations except purchase confirmations; consultants' fees;
compensation of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with lending
<PAGE>
securities; and expenses properly payable by the Fund, approved by the board.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $949,982 for fiscal year 1999, $977,549 for fiscal year 1998, and
$1,051,745 for fiscal year 1997.
Sub-Investment Adviser:
Kenwood Capital Management LLC (Sub-Adviser), an indirect subsidiary of AEFC
located at Metropolitan Centre, Suite 2300, 333 South 7th Street, Minneapolis,
MN 55442, subadvises the Fund's assets, Sub-Adviser, subject to the supervision
and approval of AEFC, provides investment advisory assistance and day-to-day
management of the Fund's portfolio, as well as investment research and
statistical information, under an Investment Advisory Agreement with AEFC.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate at
(billions) each asset level
--------- ----------------
First $0.50 0.040%
Next 0.50 0.035
Next 1.00 0.030
Next 1.00 0.025
Next 3.00 0.020
Over 6.00 0.020
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.033% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $833,543 for fiscal year 1999, $920,953 for
fiscal year 1998, and $897,986 for fiscal year 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A is $19.00 per year, for Class B is $20.00 per year, for Class C is
$19.50 per year and for Class Y is $17.00 per year. The fees paid to AECSC may
be changed by the board without shareholder approval.
DISTRIBUTION AGREEMENT
American Express Financial Advisors Inc. is the Fund's principal underwriter
(distributor). The Fund's shares are offered on a continuous basis.
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to the Distributor daily. These charges amounted to $2,264,775
for fiscal year 1999. After paying commissions to personal financial advisors,
and other expenses, the amount retained was $594,625. The amounts were
$3,793,568 and $648,271 for fiscal year 1998, and $4,674,729 and $757,348 for
fiscal year 1997.
Part of the sales charge may be paid to selling dealers who have agreements with
the Distributor. The Distributor will retain the balance of the sales charge. At
times the entire sales charge may be paid to selling dealers.
<PAGE>
SHAREHOLDER SERVICE AGREEMENT
With respect to Class Y shares, 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 0.10% of average daily net assets. During the most
recent fiscal year, the Fund also paid a shareholder service fee with respect to
Class A and Class B shares at a rate of 0.175% of average daily net assets. The
Shareholder Service Agreement for Class A and Class B shares was converted to a
Plan and Agreement of Distribution effective July 1, 1999.
PLAN AND AGREEMENT OF DISTRIBUTION
For Class A, Class B and Class C shares, to help defray the cost of distribution
and servicing not covered by the sales charges received under the Distribution
Agreement, the Fund and the Distributor entered into a Plan and Agreement of
Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund pays a fee up to actual expenses incurred at an annual rate of up to
0.25% of the Fund's average daily net assets attributable to Class A shares and
up to 1.00% for Class B and Class C shares. Each class has exclusive voting
rights on the Plan as it applies to that class. In addition, because Class B
shares convert to Class A shares, Class B shareholders have the right to vote on
any material change to expenses charged under the Class A Plan.
Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of Class A, Class B and
Class C shares; and overhead appropriately allocated to the sale of Class A,
Class B and Class C shares. These expenses also include costs of providing
personal service to shareholders. A substantial portion of the costs are not
specifically identified to any one of the American Express funds.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the relevant class of shares or by the Distributor. The
Plan (or any agreement related to it) will terminate in the event of its
assignment, as that term is defined in the 1940 Act. The Plan may not be amended
to increase the amount to be spent for distribution without shareholder
approval, and all material amendments to the Plan must be approved by a majority
of the board members, including a majority of the board members who are not
interested persons of the Fund and who do not have a financial interest in the
operation of the Plan or any agreement related to it. The selection and
nomination of disinterested board members is the responsibility of the other
disinterested board members. No board member who is not an interested person,
has any direct or indirect financial interest in the operation of the Plan or
any related agreement. For the most recent fiscal year, the Fund paid fees of
$1,322,916 for Class A shares and $2,103,293 for Class B shares. For Class A
shares, these fees were based on the 0.25% fee in effect as of July 1, 1999. The
Plan was not effective with respect to Class A shares prior to July 1, 1999. For
Class B shares, these fees were based on the 1.00% fee in effect as of July 1,
1999 and the 0.75% fee in effect prior thereto. The fee is not allocated to any
one service (such as advertising, payments to underwriters, or other uses).
However, a significant portion of the fee is generally used for sales and
promotional expenses.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a sub-custodian agreement with the Bank of New
York, 90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United States are maintained in the custody of
various foreign branches of Bank of New York or in other financial institutions
as permitted by law and by the Fund's sub-custodian agreement.
<PAGE>
ORGANIZATIONAL INFORMATION
The Fund is an open-end management investment company. The Fund headquarters are
at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
The shares of the Fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of the Fund
would have the same rights to dividends and assets as every other share of that
Fund.
VOTING RIGHTS
As a shareholder in the Fund, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that you have as many votes as the number of shares you own,
including fractional shares, multiplied by the number of members to be elected.
Dividend Rights
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
AEFC has been a provider of financial services since 1894. Its family of
companies offers not only mutual funds but also insurance, annuities, investment
certificates and a broad range of financial management services.
In addition to managing assets of more than $105 billion for the American
Express Funds, AEFC manages investments for itself and its subsidiaries, IDS
Certificate Company and IDS Life Insurance Company. Total assets under
management as of the end of the most recent fiscal year were more than $180
billion.
The Distributor serves individuals and businesses through its nationwide network
of more than 600 supervisory offices, more than 3,800 branch offices and more
than 9,400 financial advisors.
<PAGE>
<TABLE>
<CAPTION>
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED AMERICAN EXPRESS FUNDS*
<S> <C> <C> <C> <C> <C>
Date of Form of State of Fiscal
Fund Organization Organization Organization Year End Diversified
AXP Bond Fund, Inc. 6/27/74, 6/31/86*** Corporation NV/MN 8/31 Yes
AXP Discovery Fund, Inc. 4/29/81, 6/13/86*** Corporation NV/MN 7/31 Yes
AXP Equity Select Fund, Inc.** 3/18/57, 6/13/86*** Corporation NV/MN 11/30 Yes
AXP Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes
AXP Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes
AXP Global Series, Inc. 10/28/88 Corporation MN 10/31
AXP Emerging Markets Fund Yes
AXP Global Balanced Fund Yes
AXP Global Bond Fund No
AXP Global Growth Fund Yes
AXP Innovations Fund Yes
AXP Growth Series, Inc. 5/21/70, 6/13/86*** Corporation NV/MN 7/31
AXP Growth Fund Yes
AXP Research Opportunities Fund Yes
AXP High Yield Tax-Exempt Fund, 12/21/78, 6/13/86** Corporation NV/MN 11/30 Yes
Inc.
AXP International Fund, Inc. 7/18/84 Corporation MN 10/31
AXP European Equity Fund No
AXP International Fund Yes
AXP Investment Series, Inc. 1/18/40, 6/13/86*** Corporation NV/MN 9/30
AXP Diversified Equity Income Fund Yes
AXP Mutual Yes
AXP Managed Series, Inc. 10/9/84 Corporation MN 9/30
AXP Managed Allocation Fund Yes
AXP Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
AXP Blue Chip Advantage Fund Yes
AXP International Equity Index Fund No
AXP Mid Cap Index Fund No
AXP Nasdaq 100 Index Fund No
AXP S&P 500 Index Fund No
AXP Small Company Index Fund Yes
AXP Total Stock Market Index Fund No
AXP Money Market Series, Inc. 8/22/75, 6/13/86*** Corporation NV/MN 7/31
AXP Cash Management Fund Yes
AXP New Dimensions Fund, Inc. 2/20/68, 6/13/86*** Corporation NV/MN 7/31
AXP Growth Dimensions Fund Yes
AXP New Dimensions Fund Yes
AXP Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No
AXP Progressive Fund, Inc. 4/23/68, 6/13/86*** Corporation NV/MN 9/30 Yes
AXP Selective Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 5/31 Yes
AXP Stock Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 9/30 Yes
AXP Strategy Series, Inc. 1/24/84 Corporation MN 3/31
AXP Equity Value Fund** Yes
AXP Focus 20 Fund No
AXP Small Cap Advantage Fund Yes
AXP Strategy Aggressive Fund** Yes
AXP Tax-Exempt Series, Inc. 9/30/76, 6/13/86*** Corporation NV/MN 11/31
AXP Intermediate Tax-Exempt Fund Yes
AXP Tax-Exempt Bond Fund Yes
AXP Tax-Free Money Fund, Inc. 2/29/80, 6/13/86*** Corporation NV/MN 12/31 Yes
AXP Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes
AXP California Tax-Exempt Trust 4/7/86 Business MA 6/30
Trust****
AXP California Tax-Exempt Fund No
AXP Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30
Trust****
AXP Insured Tax-Exempt Fund Yes
AXP Massachusetts Tax-Exempt Fund No
AXP Michigan Tax-Exempt Fund No
AXP Minnesota Tax-Exempt Fund No
AXP New York Tax-Exempt Fund No
AXP Ohio Tax-Exempt Fund No
</TABLE>
<PAGE>
* At the shareholders meeting held on June 16, 1999, shareholders of the
existing funds (except for AXP Small Cap Advantage Fund) approved the name
change from IDS to AXP. In addition to substituting AXP for IDS, the
following series changed their names: IDS Growth Fund, Inc. to AXP Growth
Series, Inc., IDS Managed Retirement Fund, Inc. to AXP Managed Series,
Inc., IDS Strategy Fund, Inc. to AXP Strategy Series, Inc., and IDS
Tax-Exempt Bond Fund, Inc. to AXP Tax-Exempt Series, Inc.
** At the shareholders meeting held on Nov. 9, 1994, IDS Equity Plus Fund,
Inc. changed its name to IDS Equity Select Fund, Inc. At that same time IDS
Strategy Aggressive Equity Fund changed its name to IDS Strategy Aggressive
Fund, and IDS Strategy Equity Fund changed its name to IDS Equity Value
Fund.
*** Date merged into a Minnesota corporation incorporated on 4/7/86.
**** Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
trust itself is unable to meet its obligations.
<PAGE>
BOARD MEMBERS AND OFFICERS
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 60 American Express mutual funds.
Peter J. Anderson**
Born in 1942
200 AXP Financial Center
Minneapolis, MN
Senior vice president - investments and director of AEFC. Vice president -
investments of the Fund.
H. Brewster Atwater, Jr.'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc.
Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN
Chairman and chief executive officer of the Fund. Chairman, Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.
Lynne V. Cheney
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and EXCIDE Corporation (auto parts and batteries).
David R. Hubers**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Heinz F. Hutter'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
<PAGE>
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), and Amnex,
Inc. (communications).
William R. Pearce+'
Born in 1927
2050 One Financial Plaza
Minneapolis, MN
RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management
committee. Retired vice chairman of the board, Cargill, Incorporated (commodity
merchants and processors). Former chairman, American Express Funds.
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Visiting lecturer and Director of The Institute of Politics, Harvard University.
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC. President of the Fund.
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of investment review committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. In addition to Mr. Carlson, who
is chairman of the board, Mr. Thomas, who is president and Mr. Anderson who is
vice president, the Fund's other officers are:
<PAGE>
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.
Officers who also are officers and employees of AEFC:
Frederick C. Quirsfeld
Born in 1947
200 AXP Financial Center
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
John M. Knight
Born in 1952
200 AXP Financial Center
Minneapolis, MN
Vice president - investment accounting of AEFC. Treasurer for the Fund.
COMPENSATION FOR BOARD MEMBERS
During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 28 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C>
Total cash compensation
Board member Aggregate compensation Aggregate compensation from American Express
from the Fund from the Portfolio Funds and Preferred
Master Trust Group
H. Brewster Atwater, Jr. $1,700 $2,125 $121,000
Lynne V. Cheney 1,387 1,842 103,500
Heinz F. Hutter 1,375 1,800 101,500
Anne P. Jones 1,643 2,103 119,000
William R. Pearce 650 850 49,300
Alan K. Simpson 1,387 1,842 103,500
C. Angus Wurtele 1,800 2,225 127,000
</TABLE>
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG LLP, 4200 Norwest Center, 90 S. Seventh St.,
Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
<PAGE>
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
<PAGE>
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
<PAGE>
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD AND SHAREHOLDERS
AXP MANAGED SERIES, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Managed Allocation Fund (a series of AXP Managed Series, Inc.) as of
September 30, 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 September 30, 1999 and the financial highlights for
the three-year period ended September 30, 1999, the ten-month period ended
September 30, 1996 and for the year ended November 30, 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 Managed Allocation Fund as
of September 30, 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.
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AXP MANAGED ALLOCATION FUND
<TABLE>
<CAPTION>
SEPT. 30, 1999
-------------------------------------------------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in Total Return Portfolio (Note 1) $2,271,992,257
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------------------------------------------
Accrued distribution fee 20,015
Accrued service fee 198
Accrued transfer agency fee 8,698
Accrued administrative services fee 2,045
Other accrued expenses 60,366
-------------------------------------------------------------------------------------------------------------------
Total liabilities 91,322
-------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $2,271,900,935
===================================================================================================================
-------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
-------------------------------------------------------------------------------------------------------------------
Capital stock -- $.01 par value (Note 1) $ 2,166,455
Additional paid-in capital 2,073,276,661
Undistributed net investment income 1,992,073
Accumulated net realized gain (loss) 147,207,198
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies 47,258,548
-------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $2,271,900,935
===================================================================================================================
Net assets applicable to outstanding shares: Class A $1,979,293,010
Class B $ 236,617,284
Class Y $ 55,990,641
Net asset value per share of outstanding capital stock: Class A shares 188,621,593 $ 10.49
Class B shares 22,689,101 $ 10.43
Class Y shares 5,334,798 $ 10.50
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
AXP MANAGED ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPT. 30, 1999
-------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends $17,433,293
Interest 77,468,283
Less foreign taxes withheld (108,573)
-------------------------------------------------------------------------------------------------------------------
Total income 94,793,003
-------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Expenses allocated from Total Return Portfolio 11,683,826
Distribution fee
Class A 1,322,916
Class B 2,103,293
Transfer agency fee 3,015,512
Incremental transfer agency fee
Class A 242,399
Class B 68,647
Service fee
Class A 2,929,897
Class B 341,475
Class Y 94,988
Administrative services fees and expenses 833,543
Compensation of board members 11,817
Printing and postage 414,464
Registration fees 64,346
Audit fees 10,000
Other 15,034
-------------------------------------------------------------------------------------------------------------------
Total expenses 23,152,157
Earnings credits on cash balances (Note 2) (109,503)
-------------------------------------------------------------------------------------------------------------------
Total net expenses 23,042,654
-------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 71,750,349
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
-------------------------------------------------------------------------------------------------------------------
Net realized gain (loss):
Security transactions 151,704,552
Financial futures contracts 13,102,404
Foreign currency transactions (2,321,650)
Options contracts written (13,936,490)
-------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 148,548,816
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilites in foreign currencies 152,325,753
-------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies 300,874,569
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $372,624,918
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
AXP MANAGED ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPT. 30, 1999 1998
-------------------------------------------------------------------------------------------------------------------
OPERATIONS AND DISTRIBUTIONS
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income (loss) -- net $ 71,750,349 $ 90,130,092
Net realized gain (loss) on security transactions 148,548,816 266,056,396
Net change in unrealized appreciation (depreciation) on investments 152,325,753 (447,425,901)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 372,624,918 (91,239,413)
-------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (59,764,982) (79,898,680)
Class B (5,070,750) (6,541,547)
Class Y (2,600,055) (3,760,874)
Net realized gain
Class A (213,025,397) (314,653,758)
Class B (24,584,424) (30,968,697)
Class Y (9,468,549) (14,757,922)
Excess distribution of net investment income
Class A -- (124,284)
Class B -- (14,043)
Class Y -- (5,293)
-------------------------------------------------------------------------------------------------------------------
Total distributions (314,514,157) (450,725,098)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
-------------------------------------------------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 81,611,960 140,890,845
Class B shares 34,306,652 64,808,657
Class Y shares 18,212,314 26,541,231
Reinvestment of distributions at net asset value
Class A shares 268,805,672 390,187,799
Class B shares 29,452,905 37,296,108
Class Y shares 12,068,604 18,087,773
Payments for redemptions
Class A shares (654,795,821) (466,079,730)
Class B shares (Note 2) (83,238,755) (42,813,659)
Class Y shares (71,652,350) (46,229,433)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (365,228,819) 122,689,591
-------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (307,118,058) (419,274,920)
Net assets at beginning of year 2,579,018,993 2,998,293,913
-------------------------------------------------------------------------------------------------------------------
Net assets at end of year $2,271,900,935 $2,579,018,993
===================================================================================================================
Undistributed net investment income $ 1,992,073 $ 2,337,028
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AXP MANAGED ALLOCATION FUND
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Managed Series, Inc. and 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 that can be allocated among the separate series as designated by
the board.
The Fund offers Class A, Class B and Class Y shares.
- Class A shares are sold with a front-end sales charge.
- 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.
- 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, incremental 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 TOTAL RETURN PORTFOLIO
The Fund invests all of its assets in Total Return Portfolio (the Portfolio), a
series of Growth and Income Trust (the Trust), an open-end investment company
that has the same objectives as the Fund. Total Return Portfolio seeks to
provide shareholders maximum total return through a combination of growth of
capital and current income.
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 Sept. 30, 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).
<PAGE>
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
$4,659,517 and accumulated net realized gain has been increased by $4,659,517.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared and paid each calendar quarter,
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.
<PAGE>
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 0.04% to
0.02% 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.
AEFC has a Sub-investment Advisory Agreement with Kenwood Capital Management
LLC, an indirect subsidiary of AEFC.
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:
- Class A $19
- Class B $20
- Class Y $17
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 for Class A
and $16 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 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 Plan), the Fund pays 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% for Class B shares. The Plan went into effect July 1, 1999.
Under terms of a prior Plan and Agreement of Distribution (the Prior Plan) that
ended June 30, 1999, the Fund paid a distribution fee for Class B shares at an
annual rate up to 0.75% of average daily net assets. The Prior Plan was not
effective with respect to Class A shares.
<PAGE>
Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares. Under terms of a prior agreement that
ended June 30, 1999, the Fund paid a shareholder service fee for Class A and
Class B share at a rate of 0.175% of average daily net assets. Effective July 1,
1999, the agreement for Class A and Class B shares was converted to the Plan and
Agreement of Distribution discussed above.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $1,985,661 for Class A and $279,114 for Class B
for the year ended Sept, 30, 1999.
During the year ended Sept. 30, 1999, the Fund's transfer agency fees were
reduced by $109,503 as a result of earnings credits from overnight cash
balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPT. 30, 1999
CLASS A CLASS B CLASS Y
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold 7,621,749 3,221,089 1,700,619
Issued for reinvested distributions 26,079,903 2,878,182 1,171,183
Redeemed (60,922,790) (7,797,934) (6,730,053)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (27,221,138) (1,698,663) (3,858,251)
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPT. 30, 1998
CLASS A CLASS B CLASS Y
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold 12,019,432 5,553,683 2,273,079
Issued for reinvested distributions 35,728,238 3,440,868 1,698,051
Redeemed (39,972,980) (3,711,733) (4,098,272)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 7,774,690 5,282,818 (127,142)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. 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
Sept. 30,1999.
<PAGE>
5. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPT. 30,
-------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
-------------------------------------------------------------------------------------------------------------------
CLASS A
1999 1998 1997 1996(b) 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.34 $12.68 $12.20 $12.19 $11.29
-------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .32 .37 .32 .24 .21
Net gains (losses) (both realized and unrealized) 1.16 (.79) 1.97 .58 1.65
-------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.48 (.42) 2.29 .82 1.86
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.30) (.37) (.32) (.23) (.16)
Distributions from realized gains (1.03) (1.55) (1.49) (.58) (.80)
-------------------------------------------------------------------------------------------------------------------
Total distributions (1.33) (1.92) (1.81) (.81) (.96)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.49 $10.34 $12.68 $12.20 $12.19
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1,979 $2,233 $2,639 $2,523 $2,602
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c) .82% .80% .84% .80%(d) .83%
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.85% 3.13% 2.55% 2.29%(d) 1.85%
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 81% 122% 99% 142% 90%
-------------------------------------------------------------------------------------------------------------------
Total return(e) 14.78% (3.73%) 20.79% 7.13% 17.97%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, 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>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPT. 30,
-----------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
-----------------------------------------------------------------------------------------------------------------------
CLASS B CLASS Y
1999 1998 1997 1996(b) 1995(c) 1999 1998 1997 1996(b) 1995(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.29 $12.63 $12.15 $12.16 $10.41 $10.34 $12.68 $12.20 $12.19 $10.41
-----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23 .29 .23 .15 .11 .33 .38 .33 .26 .16
Net gains (losses) (both
realized and unrealized) 1.16 (.79) 1.97 .57 1.74 1.17 (.79) 1.97 .58 1.76
-----------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.39 (.50) 2.20 .72 1.85 1.50 (.41) 2.30 .84 1.92
-----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.22) (.29) (.23) (.15) (.10) (.31) (.38) (.33) (.25) (.14)
Distributions from
realized gains (1.03) (1.55) (1.49) (.58) -- (1.03) (1.55) (1.49) (.58) --
-----------------------------------------------------------------------------------------------------------------------
Total distributions (1.25) (1.84) (1.72) (.73) (.10) (1.34) (1.93) (1.82) (.83) (.14)
-----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.43 $10.29 $12.63 $12.15 $12.16 $10.50 $10.34 $12.68 $12.20 $12.19
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in millions) $237 $251 $241 $163 $75 $56 $95 $118 $113 $115
-----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(d) 1.59% 1.56% 1.60% 1.57%(e) 1.58%(e) .72% .72% .71% .63%(e) .65%(e)
-----------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss) to
average daily net assets 2.08% 2.40% 1.82% 1.61%(e) .94%(e) 2.95% 3.20% 2.69% 2.45%(e) 1.95%(e)
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term
securities) 81% 122% 99% 142% 90% 81% 122% 99% 142% 90%
-----------------------------------------------------------------------------------------------------------------------
Total return(f) 13.90% (4.46%) 19.87% 6.45% 17.70% 14.92% (3.65%) 20.94% 7.28% 18.40%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, effective
1996.
(c) Inception date was March 20, 1995.
(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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH AND INCOME TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Total Return Portfolio (a series
of Growth and Income Trust) as of September 30, 1999, 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 September 30, 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. Our procedures included
confirmation of securities owned as of September 30, 1999, by correspondence
with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Total Return Portfolio as of
September 30, 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.
KPMG LLP
Minneapolis, Minnesota
November 5, 1999
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
SEPT. 30, 1999
-------------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $2,220,588,850) $2,270,471,242
Dividends and accrued interest receivable 14,704,607
Receivable for investment securities sold 17,185,093
-------------------------------------------------------------------------------
Total assets 2,302,360,942
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------
Disbursements in excess of cash on demand deposit 9,635,043
Payable for investment securities purchased 17,653,223
Payable upon return of securities loaned (Note 4) 2,024,000
Accrued investment management services fee 30,910
Other accrued expenses 205,014
-------------------------------------------------------------------------------
Total liabilities 29,548,190
-------------------------------------------------------------------------------
Net assets $2,272,812,752
-------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED SEPT. 30, 1999
--------------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends $ 17,438,696
Interest 77,490,290
Less foreign taxes withheld (108,605)
--------------------------------------------------------------------------------------
Total income 94,820,381
--------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 11,143,597
Compensation of board members 15,312
Custodian fees 416,158
Audit fees 30,000
Other 91,981
--------------------------------------------------------------------------------------
Total expenses 11,697,048
Earnings credits on cash balances (Note 2) (9,627)
--------------------------------------------------------------------------------------
Total net expenses 11,687,421
--------------------------------------------------------------------------------------
Investment income (loss) -- net 83,132,960
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
--------------------------------------------------------------------------------------
Net realized gain (loss):
Security transactions (including $13,090,861 realized loss on
investments of affiliated issuers) (Note 3) 151,744,843
Financial futures contracts 13,105,951
Foreign currency transactions (2,322,376)
Options contracts written (Note 5) (13,940,329)
--------------------------------------------------------------------------------------
Net realized gain (loss) on investments 148,588,089
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 152,366,575
--------------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies 300,954,664
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $384,087,624
======================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED SEPT. 30, 1999 1998
--------------------------------------------------------------------------------------------------------
OPERATIONS
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income (loss) -- net $ 83,132,960 $ 101,362,151
Net realized gain (loss) on investments 148,588,089 266,111,907
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 152,366,575 (447,531,928)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 384,087,624 (80,057,870)
Net contributions (withdrawals) from partners (691,086,627) (339,337,021)
--------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (306,999,003) (419,394,891)
Net assets at beginning of year 2,579,811,755 2,999,206,646
--------------------------------------------------------------------------------------------------------
Net assets at end of year $2,272,812,752 $2,579,811,755
--------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
TOTAL RETURN PORTFOLIO
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is a series of Growth and Income Trust
(the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Total Return
Portfolio seeks to provide maximum total return through a combination of growth
of capital and current income by investing in U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
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.
<PAGE>
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
an option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the 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.
<PAGE>
FOREIGN CURRENCY TRANSLATIONS AND FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. 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 Sept. 30, 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
Sept. 30, 1999 was $3,720,938 representing 0.16% 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 and interest income,
including level-yield amortization of premium and discount, is accrued daily.
<PAGE>
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with American Express Financial Corporation (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 0.53% to 0.40% annually.
The fees may be increased or decreased by a performance adjustment based on a
comparison of the performance of Class A shares of AXP Managed Allocation Fund
to the Lipper Flexible Portfolio Fund Index. The maximum adjustment is 0.08% of
the Portfolio's average daily net assets on an annual basis. The adjustment
decreased the fee by $1,498,682 for the year ended Sept. 30, 1999.
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 Sept. 30, 1999, the Portfolio's custodian fees were
reduced by $9,627 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 $1,884,962,231 and $2,358,137,249, respectively, for the
year ended Sept. 30, 1999. For the same period, the portfolio turnover rate was
81%. Realized gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $84,089 for the
year ended Sept. 30, 1999.
<PAGE>
4. LENDING OF PORTFOLIO SECURITIES
As of Sept. 30, 1999, securities valued at $1,984,220 were on loan to brokers.
For collateral, the Portfolio received $2,024,000 in cash. Income from
securities lending amounted to $190,165 for the year ended Sept. 30, 1999. The
risks to the Portfolio of securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
5. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPT. 30, 1999
---------------------------------------------------
PUTS
CONTRACTS PREMIUM
--------------------------------------------------------------------------------
<S> <C> <C>
Balance Sept. 30, 1998 1,750 $ 6,263,389
Closed (1,750) (6,263,389)
--------------------------------------------------------------------------------
Balance Sept. 30, 1999 -- $ --
--------------------------------------------------------------------------------
</TABLE>
See "Summary of significant accounting policies."
6. STOCK INDEX FUTURES CONTRACTS
As of Sept. 30, 1999, investments in securities included securities valued at
$11,623,222 that were pledged as collateral to cover initial margin deposits on
159 open purchase contracts. The market value of the open purchase contracts as
of Sept. 30, 1999 was $51,603,450 with a net unrealized gain of $2,584,704. See
"Summary of significant accounting policies."
<PAGE>
INVESTMENTS IN SECURITIES
TOTAL RETURN PORTFOLIO
SEPT. 30, 1999
(Percentages represent value of investments compared to net assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (59.1%)(k)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
AEROSPACE & DEFENSE (0.6%)
Alliant Techsystems 14,600(b) $1,011,963
AlliedSignal 157,100 9,416,181
Goodrich (BF) 85,800 2,488,200
-------------------------
Total 12,916,344
-------------------------------------------------------------------------------------------------------------------
AIRLINES (0.3%)
America West Holdings Cl B 42,000(b) 727,125
Amtran 27,300(b) 511,875
SkyWest 41,300 906,019
Southwest Airlines 246,375 3,741,820
-------------------------
Total 5,886,839
-------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE & RELATED (2.2%)
Dana 197,100 7,317,338
Delphi Automotive Systems 193,374 3,106,070
DollarThrifty Automotive Group 24,350(b) 503,741
Ford Motor 363,300 18,233,118
General Motors 216,800 13,644,850
Gentex 80,800(b) 1,669,025
Myers Inds 47,840 849,160
Smith (AO) 42,700 1,291,675
Tower Automotive 73,700(b) 1,460,181
Winnebago Inds 42,900 1,026,919
-------------------------
Total 49,102,077
-------------------------------------------------------------------------------------------------------------------
BANKS AND SAVINGS & LOANS (4.0%)
Advest Group 31,100 567,575
Anchor Bancorp Wisconsin 33,400 542,750
Bank of America 416,065 23,169,619
Bank of New York 217,100 7,259,281
BankBoston 196,700 8,531,863
Cullen/Frost Bankers 64,700 1,617,500
Dime Community Bancshares 30,400 630,800
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
FirstMerit 63,800 $1,618,925
Flagstar Bancorp 47,400 728,775
Fleet Boston 345,500 12,653,937
Hamilton Bancorp 27,300(b) 580,125
Hudson United Bancorp 13,700 422,131
MAF Bancorp 29,700 590,288
Mellon Bank 38,300 1,292,625
NBT Bancorp 19,700 341,056
Provident Bankshares 17,235 366,782
Queens County Bancorp 34,200 944,775
Republic Bancorp 53,100 613,969
Southwest Bancorp of Texas 27,300(b) 476,044
U.S. Trust 20,300 1,631,613
Wachovia 83,800 6,588,775
Washington Mutual 226,100 6,613,425
Webster Financial 41,400 1,055,700
Wells Fargo 270,300 10,710,638
Wilshire Financial Services Group 411,726(b) 501,791
-------------------------
Total 90,050,762
-------------------------------------------------------------------------------------------------------------------
BEVERAGES & TOBACCO (0.8%)
Anheuser-Busch 32,600 2,284,038
Beringer Wine Estates Holdings Cl B 21,500(b) 882,844
Canandaigua Wine Cl A 31,400(b) 1,876,150
Coca-Cola 264,100 12,693,306
-------------------------
Total 17,736,338
-------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION (0.4%)
Dycom Inds 28,200(b) 1,189,688
Florida Rock Inds 28,600 993,850
Granite Construction 25,800 672,413
Horton (DR) 89,600 1,159,200
Insituform Technologies Cl A 62,300(b) 1,557,499
NCI Building Systems 32,400(b) 536,625
Pulte 29,400 639,450
Ryland Group 43,100 980,525
TJ Intl 33,100 831,638
URS 32,800 803,600
-------------------------
Total 9,364,488
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
CHEMICALS (0.6%)
Air Products & Chemicals 54,400 $1,581,000
Dow Chemical 58,400 6,635,700
Geon 33,700 867,775
MacDermid 15,100 514,344
Spartech 30,100 882,306
Waste Management 176,665 3,400,801
-------------------------
Total 13,881,926
-------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT & SERVICES (1.8%)
CommScope 60,300(b) 1,959,750
Digital Microwave 72,100(b) 1,131,069
Lucent Technologies 339,200 22,005,600
Motorola 109,900 9,671,200
Oak Inds 31,700 1,077,800
Orbital Sciences 22,800(b) 399,000
Plantronics 11,300(b) 562,175
SymmetriCom 96,400(b) 723,000
Tellabs 40,800(b) 2,323,050
-------------------------
Total 39,852,644
-------------------------------------------------------------------------------------------------------------------
COMPUTERS & OFFICE EQUIPMENT (11.0%)
3Com 75,600(b) 2,173,500
Acxiom 25,300(b) 497,303
America Online 144,875(b) 15,066,999
American Management Systems 60,600(b) 1,554,769
Apple Computer 65,000(b) 4,115,313
BISYS Group 14,300(b) 670,759
Cisco Systems 372,200(b) 25,518,962
Cognex 41,400(b) 1,249,763
Computer Sciences 167,500(b) 11,777,344
Dell Computer 138,000(b) 5,770,125
Dendrite Intl 31,000(b) 1,464,750
Electronic Data Systems 254,700 13,483,180
EMC 160,800(b) 11,487,150
FactSet Research Systems 23,800 1,353,625
First Data 287,900 12,631,613
Hadco 38,100(b) 1,647,825
Henry (Jack) & Associates 32,600 1,204,163
Hewlett-Packard 105,600 9,715,200
Insight Enterprises 15,800(b) 513,500
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Intl Business Machines 332,700 $40,381,462
Kronos 21,100(b) 774,106
Lexmark Intl Group Cl A 58,000(b) 4,669,000
Macromedia 48,500(b) 1,982,438
MedQuist 34,800(b) 1,163,625
Mercury Interactive 35,200(b) 2,272,600
Microsoft 459,200(b) 41,586,299
Natl Computer Systems 20,200 774,544
New Era of Networks 23,700(b) 512,513
Novell 99,800(b) 2,064,613
Oracle 98,800(b) 4,495,400
Pitney Bowes 28,700 1,748,906
Profit Recovery Group Intl 63,150(b) 2,818,069
Solectron 63,000(b) 4,524,188
Unisys 385,700(b) 17,404,712
Whittman-Hart 34,700(b) 1,345,709
Xircom 29,800(b) 1,272,088
-------------------------
Total 251,686,115
-------------------------------------------------------------------------------------------------------------------
ELECTRONICS (3.1%)
Actel 39,600(b) 752,400
AFC Cable Systems 19,200(b) 816,000
Alpha Inds 25,200(b) 1,421,438
Anixter Intl 68,950(b) 1,603,088
Applied Materials 46,500(b) 3,621,188
Burr-Brown 23,500(b) 928,250
C-Cube Microsystems 24,300(b) 1,057,050
Corning 85,170 5,839,467
CTS 31,900 1,834,250
Dionex 27,600(b) 1,179,900
DSP Communications 11,300(b) 214,700
Electro Scientific Inds 22,300(b) 1,188,172
Etec Systems 15,300(b) 575,663
Helix Technology 41,200 1,369,900
Intel 217,100 16,133,243
Intl Rectifier 82,800(b) 1,262,700
KLA-Tencor 57,300(b) 3,724,499
Kulicke & Soffa Inds 41,300(b) 1,004,106
Lattice Semiconductor 56,500(b) 1,677,344
LSI Logic 67,900(b) 3,496,850
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Micrel 29,100(b) $1,262,213
Natl Semiconductor 114,700(b) 3,498,350
Novellus Systems 15,000(b) 1,011,563
Park Electrochemical 41,100 1,351,163
Power Integrations 12,800(b) 886,400
Powerwave Technologies 33,500(b) 1,615,328
S3 87,200(b) 910,150
Texas Instruments 108,600 8,932,349
Varian Medical Systems 50,100 1,095,938
-------------------------
Total 70,263,662
-------------------------------------------------------------------------------------------------------------------
ENERGY (3.6%)
Barrett Resources 43,400(b) 1,603,088
Chevron 300,100 26,633,874
Exxon 94,800 7,198,875
FirstEnergy 65,800 1,677,900
Forest Oil 53,100(b) 906,019
HS Resources 26,100(b) 427,388
Mobil 250,900 25,278,174
Sunoco 61,200 1,675,350
Texaco 243,900 15,396,188
-------------------------
Total 80,796,856
-------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (0.1%)
Marine Drilling 44,000(b) 695,750
Pride Intl 97,900(b) 1,388,957
Tuboscope 61,500(b) 764,906
-------------------------
Total 2,849,613
-------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (3.4%)
Associates First Capital Cl A 85,300 3,070,800
Capital One Financial 149,300 5,822,700
Citigroup 263,000 11,572,000
Delphi Financial Group Cl A 26,976(b) 814,338
Financial Federal 50,000(b) 943,750
Hambrecht & Quist Group 36,700(b) 1,796,006
Investment Technology Group 28,600 597,025
Kansas City Southern Inds 169,600 7,875,800
Legg Mason 25,200 965,475
Lehman Brothers Holdings 121,500 7,084,969
MBNA 364,500 8,315,156
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Merrill Lynch & Co 92,400 $6,208,125
Morgan Stanley, Dean Witter, Discover & Co 108,900 9,712,519
Mutual Risk Management 40,700 498,575
Providian Financial 123,600 9,787,575
Radian Group 37,300 1,601,569
Raymond James Financial 26,500 528,344
SEI Investments 11,500 1,026,734
-------------------------
Total 78,221,460
-------------------------------------------------------------------------------------------------------------------
FOOD (2.1%)
Bestfoods 176,000 8,536,000
Corn Products Intl 40,100 1,220,544
Earthgrains 54,700 1,210,238
General Mills 263,800 21,400,774
Performance Food Group 29,600(b) 758,500
Sara Lee 310,900 7,286,719
Smithfield Foods 45,200(b) 1,209,100
SUPERVALU 228,000 4,973,250
-------------------------
Total 46,595,125
-------------------------------------------------------------------------------------------------------------------
FURNITURE & APPLIANCES (0.2%)
Briggs & Stratton 14,800 863,950
Ethan Allen Interiors 42,800 1,361,575
La-Z-Boy 62,900(h) 1,199,031
-------------------------
Total 3,424,556
-------------------------------------------------------------------------------------------------------------------
HEALTH CARE (5.0%)
Alpharma Cl A 44,600 1,574,938
American Home Products 175,730 7,292,795
Amgen 98,800(b) 8,052,200
Bausch & Lomb 39,900 2,630,906
Baxter Intl 67,800 4,084,950
Bristol-Myers Squibb 652,200 44,023,499
Guidant 159,900 8,574,638
IDEC Pharmaceuticals 14,300(b) 1,344,647
Jones Pharma 52,900 1,744,047
Liposome 63,400(b) 482,434
Medtronic 356,400 12,652,200
Priority Healthcare Cl B 45,950(b) 1,418,706
Quest Diagnostics 47,500(b) 1,235,000
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Roberts Pharmaceutical 48,300(b) $1,461,075
Schering-Plough 416,230 18,158,033
Summit Technology 22,300(b) 408,369
Syncor Intl 22,000(b) 825,000
Techne 27,500(b) 862,813
-------------------------
Total 116,826,250
-------------------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.5%)
Apria Healthcare Group 71,550(b) 1,198,463
Cardinal Health 80,400 4,381,799
Express Scripts Cl A 21,850(b) 1,709,763
Hanger Orthopedic Group 87,700(b) 1,271,650
Orthodontic Centers of America 33,250(b) 581,875
Patterson Dental 29,200(b) 1,447,225
Renal Care Group 58,500(b) 1,281,516
-------------------------
Total 11,872,291
-------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.6%)
Chattem 9,600 211,800
Kimberly-Clark 276,900 14,537,250
-------------------------
Total 14,749,050
-------------------------------------------------------------------------------------------------------------------
INDUSTRIAL EQUIPMENT & SERVICES (0.3%)
Astec Inds 29,600(b) 714,100
JLG Inds 43,800 665,213
Manitowoc 33,600 1,146,600
Nordson 14,000 686,000
Parker-Hannifin 75,600 3,387,825
-------------------------
Total 6,599,738
-------------------------------------------------------------------------------------------------------------------
INSURANCE (1.2%)
American General 84,800 5,358,300
American Intl Group 195,437 16,990,804
Blanch (EW) Holdings 14,600 950,825
Fidelity Natl Financial 22,000 334,125
First American Financial 34,600 462,775
Gallagher (Arthur J) 29,100 1,549,575
Hooper Holmes 35,000 896,875
LandAmerica Financial Group 17,500 345,625
Reinsurance Group of America 22,400 575,400
-------------------------
Total 27,464,304
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
LEISURE TIME & ENTERTAINMENT (1.0%)
Aztar 150,300(b) $1,540,575
Disney (Walt) 355,000 9,185,625
Harrah's Entertainment 149,300(b) 4,143,075
Hasbro 119,750 2,567,141
Time Warner 61,100 3,711,825
Viacom Cl B 42,200(b) 1,782,950
-------------------------
Total 22,931,191
-------------------------------------------------------------------------------------------------------------------
MEDIA (1.4%)
Catalina Marketing 11,600(b) 983,825
CBS 155,000 7,168,750
Comcast Special Cl A 217,600 8,676,800
Consolidated Graphics 24,600(b) 1,036,275
McClatchy Newspapers 22,000 786,500
New York Times Cl A 238,400 8,940,001
Price Communications 44,100(b) 1,105,256
Scholastic 13,400(b) 670,000
True North Communications 24,200 880,275
Valassis Communications 34,700(b) 1,524,631
-------------------------
Total 31,772,313
-------------------------------------------------------------------------------------------------------------------
METALS (0.2%)
Mueller Inds 43,700(b) 1,297,343
Ryerson Tull 46,000 1,063,750
Steel Technologies 88,200 1,025,325
Stillwater Mining 21,900(b) 588,563
-------------------------
Total 3,974,981
-------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (0.1%)
PFF Bancorp 39,200 808,500
Philadelphia Suburban 29,700 699,806
-------------------------
Total 1,508,306
-------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY CONGLOMERATES (3.2%)
Bell & Howell 26,700(b) 979,556
Brady (WH) Cl A 33,500 1,072,000
Danaher 55,400 2,918,888
DeVry 29,200(b) 584,000
General Electric 327,400 38,817,362
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Interim Services 40,600(b) $664,825
Labor Ready 3,650(b) 36,728
Lason 30,900(b) 1,376,016
Mettler-Toledo Intl 32,900(b) 974,663
NCO Group 22,450(b) 1,055,150
Pre-Paid Legal Services 16,800(b) 661,500
Sylvan Learning Systems 26,300(b) 509,563
Tyco Intl 227,200(c) 23,458,399
-------------------------
Total 73,108,650
-------------------------------------------------------------------------------------------------------------------
PAPER & PACKAGING (0.9%)
AptarGroup 42,800 1,144,900
Ball 11,400 502,313
Intl Paper 369,000 17,735,062
-------------------------
Total 19,382,275
-------------------------------------------------------------------------------------------------------------------
RESTAURANTS & LODGING (0.5%)
CEC Entertainment 38,100(b) 1,366,838
Darden Restaurants 189,300 3,703,181
Foodmaker 48,800(b) 1,216,950
Ruby Tuesday 57,300 1,117,350
Ryan's Family Steak Houses 99,900(b) 899,100
Taco Cabana Cl A 122,300(b) 1,184,781
Wendy's Intl 82,000 2,162,750
-------------------------
Total 11,650,950
-------------------------------------------------------------------------------------------------------------------
RETAIL (4.3%)
Ames Dept Stores 26,600(b) 847,875
AnnTaylor Stores 44,100(b) 1,802,588
Bindley Western Inds 116,266 1,664,057
Circuit City Stores-Circuit City Group 59,000 2,489,063
Cost Plus 17,100(b) 829,350
CVS 259,300 10,582,680
Dayton Hudson 41,400 2,486,588
Fossil 63,400(b) 1,715,763
Haverty Furniture Companies 57,900 839,550
Home Depot 156,800 10,760,399
Kroger 403,900(b) 8,911,043
Linens `N Things 35,500(b) 1,198,125
Men's Wearhouse 73,800(b) 1,586,700
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Pacific Sunwear of California 38,450(b) $1,077,802
Regis 50,950 980,788
Safeway 356,200(b) 13,557,862
ShopKo Stores 62,300 1,806,700
TJX Companies 146,300 4,105,543
United Stationers 31,900 679,869
Wal-Mart Stores 533,400 25,369,837
Walgreen 117,600 2,984,100
Zale 52,200(b) 1,999,913
-------------------------
Total 98,276,195
-------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL (0.2%)
Authentic Fitness 51,600 906,225
Brown Shoe 70,100 1,283,706
Dixie Group 97,400(b) 754,850
K-Swiss Cl A 31,700 1,000,531
Oshkosh B'Gosh Cl A 52,900 844,747
-------------------------
Total 4,790,059
-------------------------------------------------------------------------------------------------------------------
TRANSPORTATION (0.2%)
Atlas Air 30,150(b) 659,531
Expeditors Intl of Washington 14,600 468,569
Landstar System 28,200(b) 979,950
Offshore Logistics 70,000 721,875
USFreightways 35,800 1,696,025
Werner Enterprises 53,800 948,225
-------------------------
Total 5,474,175
-------------------------------------------------------------------------------------------------------------------
UTILITIES -- ELECTRIC (0.9%)
Cinergy 74,100 2,097,956
Cleco 22,700 736,331
DTE Energy 83,700 3,023,663
Edison Intl 103,000 2,504,188
El Paso Electric 98,200 883,800
PECO Energy 116,200 4,357,500
Public Service Co of New Mexico 48,800 890,600
TNP Enterprises 28,300 1,101,931
Unicom 130,700 4,827,731
United Illuminating 22,400 1,083,600
-------------------------
Total 21,507,300
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
UTILITIES -- GAS (0.2%)
Equitable Resources 24,800 $937,750
New Jersey Resources 15,600 624,000
ONEOK 24,900 754,781
Piedmont Natural Gas 20,100 609,281
Southwestern Energy 84,600 766,688
UGI 27,800 646,350
-------------------------
Total 4,338,850
-------------------------------------------------------------------------------------------------------------------
UTILITIES -- TELEPHONE (4.1%)
Ameritech 215,100 14,452,031
AT&T 437,150 19,016,026
Bell Atlantic 234,900 15,811,706
BellSouth 237,600 10,692,000
MCI WorldCom 261,175(b) 18,771,953
SBC Communications 206,400 10,539,300
U S WEST Communications Group 71,200 4,062,850
-------------------------
Total 93,345,866
-------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $1,243,769,857) $1,342,201,549
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS & OTHER (0.2%)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Bar Technologies
Warrants 3,000 $60,000
Bell Technology
Warrants 3,410 443,300
KMC Telecom Holdings
Warrants 3,000 7,500
Nakornthai Strip Mill
Warrants 2,722,298 3
Paxson Communications
12.50% Pay-in-kind Exchangeable 26,881(b,i) 2,876,267
PLD Telekom
Warrants 6,000 300
Poland Telecom
Warrants 5,500 302,500
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS & OTHER (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a)
<S> <C> <C>
Republic of Argentina
Warrants 4,500(c) $1,125
Telehub Communications
Warrants 2,500 25,000
Unifi Communications
Warrants 3,000 30
-------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS & OTHER
(Cost: $3,228,971) $3,716,025
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (28.1%)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
GOVERNMENT OBLIGATIONS (5.6%)
Republic of Panama
(U.S. Dollar)
02-13-02 7.88% $1,000,000(c,d) $973,750
U.S. Treasury
11-30-99 5.63 3,500,000 3,504,354
04-30-00 6.75 32,000,000(l) 32,269,503
06-30-02 6.25 8,000,000(l) 8,109,566
03-31-03 5.50 1,500,000 1,486,402
08-15-04 7.25 20,000,000 21,135,666
08-15-05 6.50 12,500,000 12,804,386
05-15-07 6.63 12,500,000 12,894,166
08-15-23 6.25 9,700,000 9,548,971
08-15-27 6.38 20,000,000 20,037,038
United Mexican States
(U.S. Dollar)
03-12-08 8.63 4,000,000(c) 3,722,520
-------------------------
Total 126,486,322
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (3.3%)
Federal Home Loan Mtge Corp
03-01-13 5.50% $9,621,602 $9,074,935
12-01-25 7.50 12,332,884 12,398,373
07-01-28 6.00 9,502,230 8,863,775
09-01-28 6.00 9,470,245 8,839,729
Federal Natl Mtge Assn
05-01-24 7.50 9,326,635 9,376,159
09-01-28 6.50 9,395,950 9,011,280
10-01-28 6.00 9,612,285 8,960,476
Collateralized Mtge Obligation
05-18-26 5.00 9,593,000 8,169,547
-------------------------
Total 74,694,274
-------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.3%)
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,035,000 1,076,400
Newport News Shipbuilding
Sr Nts
12-01-06 8.63 800,000 824,000
Northrop-Grumman
03-01-16 7.75 5,000,000 4,958,288
-------------------------
Total 6,858,688
-------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE & RELATED (0.1%)
MSX Intl
Company Guaranty
01-15-08 11.38 2,450,000 2,388,750
-------------------------------------------------------------------------------------------------------------------
BANKS AND SAVINGS & LOANS (1.0%)
Bank of Singapore
(U.S. Dollar) Sub Nts
08-10-09 7.88 4,200,000(c,d) 4,242,802
Corp Andina de Fomento
(U.S. Dollar)
02-01-03 7.10 6,500,000(c) 6,381,006
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 550,000(c,d) 491,509
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
Union Planters Bank
Sub Nts
03-15-18 6.50% $10,000,000 $9,334,766
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 1,500,000 1,467,387
-------------------------
Total 21,917,470
-------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION (0.1%)
Southdown
Sr Sub Nts Series B
03-01-06 10.00 2,350,000 2,567,375
-------------------------------------------------------------------------------------------------------------------
CHEMICALS (0.3%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 3,550,000 3,141,750
Polymer Group
Company Guaranty Series B
03-01-08 8.75 4,000,000 3,750,000
-------------------------
Total 6,891,750
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL FINANCE (0.2%)
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 6,000,000(c) 5,257,500
-------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT & SERVICES (1.2%)
Clearnet Communications
Zero Coupon Sr Disc Nts
12-15-00 6.24 5,000,000(g) 4,712,500
Covad Communications Group
Sr Nts
02-15-09 12.50 2,000,000 1,890,000
KMC Telecom Holdings
Zero Coupon Sr Disc Nts
02-15-03 12.68 3,000,000(g) 1,620,000
MetroMedia Intl Group
(U.S. Dollar) Company Guaranty
06-01-04 14.00 3,000,000(c) 2,220,000
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50% $1,000,000 $910,000
NTL Communications
Zero Coupon Sr Nts Series B
10-01-03 7.87 9,625,000(g) 6,424,688
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 2,500,000(g) 1,175,000
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 5,500,000(c) 5,568,750
WorldCom
04-01-07 7.75 3,000,000 3,124,071
-------------------------
Total 27,645,009
-------------------------------------------------------------------------------------------------------------------
COMPUTERS & OFFICE EQUIPMENT (0.4%)
Concentric Network
Sr Nts
12-15-07 12.75 3,800,000 3,828,500
Globix
Sr Nts
05-01-05 13.00 3,410,000 3,000,800
PSINet
Sr Nts Series B
02-15-05 10.00 2,005,000 1,924,800
-------------------------
Total 8,754,100
-------------------------------------------------------------------------------------------------------------------
ELECTRONICS (0.3%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 4,500,000(c,d) 3,526,983
Thomas & Betts
01-15-06 6.50 4,500,000 4,364,496
-------------------------
Total 7,891,479
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
ENERGY (1.2%)
Lodestar Holdings
Company Guaranty
05-15-05 11.50% $5,000,000 $3,750,000
R & B Falcon
04-15-08 6.95 5,000,000 4,150,000
Roil
(U.S. Dollar)
12-05-02 12.78 3,296,000(c,d) 2,406,080
Union Pacific Resources
05-15-28 7.15 7,500,000 6,687,481
USX
03-01-08 6.85 10,000,000 9,563,201
-------------------------
Total 26,556,762
-------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (0.1%)
Grey Wolf
Sr Nts
07-01-07 8.88 1,500,000 1,338,750
-------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (1.0%)
Airplanes GPA Cl D
(U.S. Dollar) Series 1
03-15-19 10.88 2,750,000(c) 2,634,583
Arcadia Financial
Sr Nts
03-15-07 11.50 1,825,000 1,396,125
Providian Natl Bank
Sr Nts
03-15-03 6.70 10,000,000 9,719,350
SASCO
02-25-28 6.76 2,174,363 2,170,644
Wilmington Trust
05-01-08 6.63 6,300,000 5,982,175
-------------------------
Total 21,902,877
-------------------------------------------------------------------------------------------------------------------
FOOD (0.1%)
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 2,115,000(c,d) 1,417,050
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
FURNITURE & APPLIANCES (0.1%)
Interface
Sr Sub Nts Series B
11-15-05 9.50% $2,500,000 $2,506,250
-------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.6%)
Baxter Intl
02-15-28 6.63 10,000,000 8,756,138
Lilly (Eli)
01-01-36 6.77 5,000,000 4,669,219
-------------------------
Total 13,425,357
-------------------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (1.2%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 250,000 242,500
Fountain View
Company Guaranty Series B
04-15-08 11.25 2,150,000 1,687,750
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,500,000 2,143,750
Manor Care
Sr Nts
06-15-06 7.50 7,000,000 6,973,472
Owens & Minor
Company Guaranty Sr Sub Nts
06-01-06 10.88 3,200,000 3,344,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 1,125,000(d) 1,116,563
Service Corp Intl
03-15-20 6.30 11,850,000 11,222,537
-------------------------
Total 26,730,572
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
HOUSEHOLD PRODUCTS (0.3%)
Chattem
Company Guaranty Series B
04-01-08 8.88% $2,200,000 $2,073,500
Revlon Consumer Products
Sr Nts
02-01-06 8.13 5,000,000 4,512,500
-------------------------
Total 6,586,000
-------------------------------------------------------------------------------------------------------------------
INDUSTRIAL EQUIPMENT & SERVICES (--%)
AGCO
Sr Sub Nts
03-15-06 8.50 1,025,000 963,500
-------------------------------------------------------------------------------------------------------------------
INSURANCE (0.7%)
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 1,500,000 1,506,730
Metropolitan Life Insurance
11-01-25 7.80 4,800,000(d) 4,756,267
Minnesota Mutual Life
09-15-25 8.25 4,500,000(d) 4,775,818
Nationwide CSN Trust
02-15-25 9.88 5,000,000(d) 5,432,891
-------------------------
Total 16,471,706
-------------------------------------------------------------------------------------------------------------------
LEISURE TIME & ENTERTAINMENT (1.4%)
Loews Cineplex Entertainment
Sr Sub Nts
08-01-08 8.88 4,500,000 4,050,000
Mirage Resorts
02-01-08 6.75 8,750,000 7,827,400
Speedway Motorsports
Company Guaranty Series D
08-15-07 8.50 2,000,000 1,985,000
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
Time Warner
02-01-24 7.57% $11,875,000 $11,564,727
Sr Nts
01-15-28 6.95 5,000,000 4,522,143
Venetian Casino/LV Sands
Company Guaranty
11-15-04 12.25 3,465,000(h) 2,841,300
-------------------------
Total 32,790,570
-------------------------------------------------------------------------------------------------------------------
MEDIA (1.0%)
Australis Media
(U.S. Dollar)
11-01-00 14.00 145,084(b,c) 127,315
05-15-03 15.75 40,885(b,c) 204
(U.S. Dollar) Zero Coupon
05-15-00 15.75 5,000,000(b,c,g) 500
CSC Holdings
Sr Sub Debs
05-15-16 10.50 3,000,000 3,330,000
Heritage Media
Sr Sub Nts
02-15-06 8.75 5,000,000 5,112,499
Lamar Media
Company Guaranty
12-01-06 9.63 800,000 808,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 1,000,000(c) 1,017,500
News America Holdings
10-15-12 10.13 2,175,000 2,422,982
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 4,000,000(c) 4,000,000
TCI Communications
08-01-15 8.75 1,700,000 1,911,597
Sr Nts
02-15-28 7.13 1,400,000 1,323,980
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 2,480,625(c,i,j) 3,720,938
-------------------------
Total 23,775,515
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
METALS (0.2%)
EnviroSource
Sr Nts
06-15-03 9.75% $530,000 $329,925
Sr Nts Series B
06-15-03 9.75 1,300,000 809,250
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 2,384,244(c,d) 2,265,032
Southern Peru Copper
(U.S. Dollar)
05-30-07 7.90 1,000,000(c) 872,429
-------------------------
Total 4,276,636
-------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (1.2%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 3,900,000 4,017,000
Alliance Imaging
Sr Sub Nts
12-15-05 9.63 5,000,000 5,000,000
Delphes #2
(U.S. Dollar)
05-05-09 7.75 2,700,000(c,d) 2,565,000
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 4,305,044
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c) 2,212,500
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 2,200,000(b,c,d) 550,000
Jorgensen (Earle M)
Sr Nts
04-01-05 9.50 1,225,000 1,127,000
NSM Steel
Company Guaranty
02-01-06 12.00 2,070,039(b,d) 434,708
02-01-08 12.25 4,300,000(b,d) 86,000
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00% $1,075,000 $1,045,438
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 5,500,000(c) 4,510,000
PTC Intl Finance
(U.S. Dollar) Zero Coupon Company Guaranty
07-01-02 10.75 1,000,000(c,g) 690,000
Republic Technology/RTI Capital
07-15-09 13.75 750,000 738,750
Transamerica Energy
06-15-02 11.50 600,000(b) 63,000
Zero Coupon
06-15-02 13.00 1,300,000(b,f) 139,750
-------------------------
Total 27,484,190
-------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY CONGLOMERATES (0.5%)
Hutchison Whampoa Finance
(U.S. Dollar) Company Guaranty
08-01-27 7.50 1,650,000(c,d) 1,389,726
(U.S. Dollar) Company Guaranty Series B
08-01-17 7.45 1,000,000(c,d) 862,669
Packaged Ice
Company Guaranty Series B
02-01-05 9.75 5,475,000 4,831,687
Pierce Leahy
Sr Sub Nts
07-15-06 11.13 488,000 518,500
Prime Succession
Sr Sub Nts
08-15-04 10.75 980,000 705,600
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,000,000 2,924,736
-------------------------
Total 11,232,918
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
PAPER & PACKAGING (0.7%)
Doman Inds
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25% $2,300,000(c) $1,552,500
Gaylord Container
Sr Nts
06-15-07 9.75 1,300,000 1,218,750
Sr Nts Series B
06-15-07 9.38 9,000,000 8,347,500
Owens-Illinois
Sr Nts
05-15-04 7.85 2,000,000 1,977,044
Silgan Holdings
06-01-09 9.00 2,050,000 1,988,500
-------------------------
Total 15,084,294
-------------------------------------------------------------------------------------------------------------------
RESTAURANTS & LODGING (0.7%)
Domino's
Company Guaranty Series B
01-15-09 10.38 3,275,000 3,078,500
Extended Stay America
Sr Sub Nts
03-15-08 9.15 4,750,000 4,512,500
MGM Grand
02-06-08 6.88 10,000,000 8,867,090
-------------------------
Total 16,458,090
-------------------------------------------------------------------------------------------------------------------
RETAIL (1.2%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 2,275,000(g) 1,541,313
Dayton Hudson
12-01-22 8.50 2,500,000 2,612,725
Great Atlantic & Pacific Tea
04-15-07 7.75 10,000,000 9,383,467
Kroger
Sr Nts
07-15-06 8.15 5,000,000 5,155,968
Wal-Mart CRAVE Trust
07-17-06 7.00 7,735,465(d) 7,663,834
-------------------------
Total 26,357,307
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
TRANSPORTATION (0.6%)
Enterprise Rent-A-Car USA Finance
02-15-08 6.80% $10,000,000(d) $9,387,000
Company Guaranty Medium-term Nts
01-15-06 6.95 3,000,000(d) 2,880,573
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 1,000,000(c) 490,000
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 2,070,000(c,d) 1,035,000
-------------------------
Total 13,792,573
-------------------------------------------------------------------------------------------------------------------
UTILITIES -- ELECTRIC (0.8%)
Cleveland Electric Illuminating
07-01-00 7.19 3,000,000 3,013,520
CMS Energy
Sr Nts
05-15-02 8.13 2,900,000 2,903,285
El Paso Electric
1st Mtge Series B
05-01-01 7.75 5,000,000 5,065,604
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 7,365,000(m) 6,830,651
-------------------------
Total 17,813,060
-------------------------------------------------------------------------------------------------------------------
UTILITIES -- GAS (0.2%)
Columbia Gas System
Series E
11-28-10 7.32 5,043,000 4,918,947
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
<S> <C> <C> <C>
UTILITIES -- TELEPHONE (1.4%)
Frontier
10-15-03 6.00% $3,000,000 $2,746,890
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 2,485,000(b) 3,106
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 1,600,000 1,404,000
06-01-08 8.60 5,000,000 4,312,500
03-01-09 9.50 3,000,000 2,790,000
McLeod USA
Sr Nts
03-15-08 8.38 2,300,000 2,144,750
AT&T Canada
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 3,800,000(c,g) 2,935,500
Omnipoint Communications
Sr Nts
08-15-06 11.63 2,500,000 2,587,500
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.25 450,000 441,000
11-01-08 7.50 4,550,000 4,508,457
U S West Capital Funding
Company Guaranty
07-15-28 6.88 9,250,000 8,149,135
-------------------------
Total 32,022,838
-------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (0.1%)
New Jersey Economic Development
Authority State Pension Funding
Revenue Bond (MBIA Insured)
02-15-29 7.43 3,000,000(m) 3,027,870
-------------------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $687,272,943) $638,286,349
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES (12.6%)
-------------------------------------------------------------------------------------------------------------------
ISSUER ANNUALIZED AMOUNT VALUE(a)
YIELD ON DATE PAYABLE AT
OF PURCHASE MATURITY
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (6.6%)
Federal Home Loan Bank Disc Nts
10-22-99 5.24% $27,800,000 $27,715,673
11-05-99 5.28 10,200,000 10,144,134
12-01-99 5.25 3,200,000 3,171,287
Federal Home Loan Mtge Corp Disc Nts
10-14-99 5.24 2,400,000 2,395,485
10-15-99 5.24 2,600,000 2,594,732
11-05-99 5.26 25,000,000 24,872,882
Federal Natl Mtge Assn Disc Nts
12-02-99 5.29 24,300,000 24,069,940
12-13-99 5.29 19,000,000 18,788,709
12-17-99 5.29 11,000,000 10,871,062
12-17-99 5.31 24,600,000 24,320,175
-------------------------
Total 148,944,079
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (6.0%)
Alcoa
11-12-99 5.36 6,000,000 5,960,838
Barclays U.S. Funding
10-19-99 5.31 6,300,000 6,283,337
10-25-99 5.32 6,000,000 5,978,800
BellSouth Capital Funding
11-08-99 5.33 700,000(e) 696,091
11-16-99 5.33 8,100,000(e) 8,043,179
BMW US Capital
10-21-99 5.18 8,300,000 8,275,182
Daimler/Chrysler
10-18-99 5.18 10,000,000 9,972,334
GTE Funding
10-21-99 5.34 8,500,000 8,474,830
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
ISSUER ANNUALIZED AMOUNT VALUE(a)
YIELD ON DATE PAYABLE AT
OF PURCHASE MATURITY
<S> <C> <C> <C>
Heinz (HJ)
10-08-99 5.31% $7,900,000 $7,891,874
Merrill Lynch
10-25-99 5.31 8,700,000 8,669,317
Natl Rural Utilities
11-12-99 5.35 9,200,000 9,142,899
Petrofina (Delaware)
10-27-99 5.31 8,100,000 8,069,053
Pfizer
11-02-99 5.32 3,800,000(e) 3,782,098
United Parcel Services
11-03-99 5.33 10,700,000 10,648,114
USAA Capital
10-29-99 5.31 10,000,000 9,952,130
Wal-Mart Stores
11-01-99 5.32 25,600,000(e) 25,483,164
-------------------------
Total 137,323,240
-------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $286,317,079) $286,267,319
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $2,220,588,850)(n) $2,270,471,242
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to investments in securities.
<PAGE>
--------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
--------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of
Sept. 30, 1999, the value of foreign securities represented 4.10% 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) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(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) Security is partially or fully on loan. See Note 4 to the financial
statements.
(i) 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.
(j) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Sept. 30, 1999, is as follows:
<TABLE>
<CAPTION>
Security Acquisition Cost
date
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 03-05-97 thru 03-01-99 $2,480,625
</TABLE>
<PAGE>
(k) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended Sept. 30, 1999 are as follows:
<TABLE>
<CAPTION>
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
China North Ind* $13,079,176 $10,604,176 $23,683,352 $-- $-- $--
Fomento Economico
Mexicano ADR* 10,019,149 792,894 10,812,043 -- -- --
Thai Farmers Bank* 1,670,797 293,559 1,964,356 -- -- --
----------------------------------------------------------------------------------------------------------
Total $24,769,122 $11,690,629 $36,459,751 $-- $-- $--
----------------------------------------------------------------------------------------------------------
</TABLE>
*Issuer was not an affiliate for the entire year ended Sept. 30, 1999.
(l) Partially pledged as initial margin deposit on the following open stock
index futures purchase contracts (see Note 6 to the financial statements):
<TABLE>
<CAPTION>
Type of security Contracts
----------------------------------------------------------------------------------------------------------
<S> <C>
S&P 500 Index, Dec. 1999 159
</TABLE>
(m) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
MBIA -- Municipal Bond Investors Assurance
(n) At Sept. 30, 1999, the cost of securities for federal income tax purposes
was $2,223,115,255 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation $188,915,441
Unrealized depreciation (141,559,454)
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation $47,355,987
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
CLASS A
INCOME DISTRIBUTION TAXABLE AS DIVIDEND INCOME, 17.64% QUALIFYING FOR DEDUCTION
BY CORPORATIONS.
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 .................................. 0.25275
March 25 1999 .................................. 0.06141
June 24, 1999 .................................. 0.05806
Sept. 23, 1999 ................................. 0.07205
TOTAL ......................................... $0.44427
CAPITAL GAIN DISTRIBUTION TAXABLE AS LONG-TERM CAPITAL GAIN.
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ................................. $0.88695
TOTAL DISTRIBUTIONS ........................... $1.33122
</TABLE>
The distribution of $1.13970 per share, payable Dec. 22, 1998, consisted of
$0.10491 derived from net investment income, $0.14784 from net short-term
capital gains (a total of $0.25275 taxable as dividend income) and $0.88695 from
net long-term capital gains.
<PAGE>
CLASS B
INCOME DISTRIBUTION TAXABLE AS DIVIDEND INCOME, 17.64% QUALIFYING FOR DEDUCTION
BY CORPORATIONS.
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ................................. $0.23278
March 25, 1999 ................................. 0.04039
June 24, 1999 .................................. 0.03714
Sept. 23, 1999 ................................. 0.05106
TOTAL ......................................... $0.36137
CAPITAL GAIN DISTRIBUTION TAXABLE AS LONG-TERM CAPITAL GAIN.
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 .................................. $0.88695
TOTAL DISTRIBUTIONS ............................ $1.24832
</TABLE>
The distributions of $1.11973 per share, payable Dec. 22, 1998, consisted of
$0.08494 derived from net investment income, $0.14784 from net short-term
capital gains (a total of $0.23278 taxable as dividend income) and $0.88695 from
net long-term capital gains.
CLASS Y
INCOME DISTRIBUTION TAXABLE AS DIVIDEND INCOME, 17.64% QUALIFYING FOR DEDUCTION
BY CORPORATIONS.
<TABLE>
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ................................. $0.25475
March 25, 1999 ................................. 0.06394
June 24, 1999 .................................. 0.06012
Sept. 23, 1999 ................................. 0.07632
TOTAL ......................................... $0.45513
CAPITAL GAIN DISTRIBUTION TAXABLE AS LONG-TERM CAPITAL GAIN.
<CAPTION>
PAYABLE DATE PER SHARE
<S> <C>
Dec. 22, 1998 ................................. $0.88695
TOTAL DISTRIBUTIONS ........................... $1.34208
</TABLE>
The distribution of $1.14170 per share, payable Dec. 22, 1998, consisted of
$0.10691 derived from net investment income, $0.14784 from net short-term
capital gains (a total of $0.25475 taxable as dividend income) and $0.88695 from
net long-term capital gains.
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
AXP Managed Allocation Fund
March 31, 2000 (Unaudited)
Assets
<S> <C>
Investment in Total Return Portfolio (Note 1) $2,200,066,772
--------------
Liabilities
Accrued distribution fee 19,706
Accrued service fee 11,084
Accrued transfer agency fee 7,699
Accrued administrative services fee 1,991
Other accrued expenses 28,009
------
Total liabilities 68,489
------
Net assets applicable to outstanding capital stock $2,199,998,283
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 2,052,988
Additional paid-in capital 1,950,089,032
Undistributed net investment income 720,428
Accumulated net realized gain (loss) 48,345,651
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies 198,790,184
-----------
Total -- representing net assets applicable to outstanding capital stock $2,199,998,283
==============
Net assets applicable to outstanding shares: Class A $1,914,290,462
Class B $ 237,868,898
Class Y $ 47,838,923
Net asset value per share of outstanding capital stock: Class A shares 178,504,302 $ 10.72
Class B shares 22,333,046 $ 10.65
Class Y shares 4,461,489 $ 10.72
--------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
AXP Managed Allocation Fund
Six months ended March 31, 2000 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 7,541,994
Interest 29,241,345
Less foreign taxes withheld (32,970)
-------
Total income 36,750,369
----------
Expenses (Note 2):
Expenses allocated from Total Return Portfolio 6,251,648
Distribution fee
Class A 2,459,711
Class B 1,201,758
Transfer agency fee 1,347,828
Incremental transfer agency fee
Class A 129,793
Class B 34,778
Service fee-- Class Y 27,264
Administrative services fees and expenses 373,954
Compensation of board members 5,049
Printing and postage 51,820
Registration fees 19,863
Audit fees 5,000
Other 8,134
-----
Total expenses 11,916,600
Earnings credits on cash balances (Note 2) (73,436)
-------
Total net expenses 11,843,164
----------
Investment income (loss) -- net 24,907,205
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 84,010,656
Financial futures contracts (18,321,055)
Foreign currency transactions 256,365
-------
Net realized gain (loss) on investments 65,945,966
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 151,531,636
-----------
Net gain (loss) on investments and foreign currencies 217,477,602
-----------
Net increase (decrease) in net assets resulting from operations $242,384,807
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
AXP Managed Allocation Fund
March 31, 2000 Sept. 30, 1999
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 24,907,205 $ 71,750,349
Net realized gain (loss) on investments 65,945,966 148,548,816
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilites in foreign currencies 151,531,636 152,325,753
----------- -----------
Net increase (decrease) in net assets resulting from operations 242,384,807 372,624,918
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (23,504,627) (59,764,982)
Class B (1,996,914) (5,070,750)
Class Y (677,309) (2,600,055)
Net realized gain
Class A (143,121,801) (213,025,397)
Class B (17,618,754) (24,584,424)
Class Y (4,066,958) (9,468,549)
---------- ----------
Total distributions (190,986,363) (314,514,157)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 40,420,958 81,611,960
Class B shares 15,872,316 34,306,652
Class Y shares 4,764,854 18,212,314
Reinvestment of distributions at net asset value
Class A shares 164,092,629 268,805,672
Class B shares 19,463,633 29,452,905
Class Y shares 4,744,267 12,068,604
Payments for redemptions
Class A shares (314,405,813) (654,795,821)
Class B shares (Note 2) (39,389,851) (83,238,755)
Class Y shares (18,864,089) (71,652,350)
----------- -----------
Increase (decrease) in net assets from capital share transactions (123,301,096) (365,228,819)
------------ ------------
Total increase (decrease) in net assets (71,902,652) (307,118,058)
Net assets at beginning of period 2,271,900,935 2,579,018,993
------------- -------------
Net assets at end of period $2,199,998,283 $2,271,900,935
============== ==============
Undistributed net investment income $ 720,428 $ 1,992,073
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
AXP Managed Allocation Fund
(Unaudited as to March 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Managed Series, Inc. and 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 that can be allocated among the separate series as designated by
the board.
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, incremental transfer agency fee and service fee (class
specific expenses) differ 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 Total Return Portfolio
The Fund invests all of its assets in Total Return Portfolio (the Portfolio), a
series of Growth and Income Trust (the Trust), an open-end investment company
that has the same objectives as the Fund. Total Return Portfolio seeks to
provide shareholders maximum total return through a combination of growth of
capital and current income.
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 March 31, 2000 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 accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets and liabilities) that could differ from actual results.
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 substantially 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.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
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 0.04% to
0.02% annually. A minor portion of additional administrative service expenses
paid by the Fund are consultants' fees and fund office expenses. 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.
AEFC has a Sub-investment Advisory Agreement with Kenwood Capital Management
LLC, an indirect subsidiary of AEFC.
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
o Class B $20
o Class Y $17
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays 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% for Class B shares.
Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$747,778 for Class A and $112,044 for Class B for the six months ended March 31,
2000.
During the six months ended March 31, 2000, the Fund's transfer agency fees were
reduced by $73,436 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended March 31, 2000
Class A Class B Class Y
Sold 3,833,497 1,517,555 453,124
Issued for reinvested distributions 15,794,232 1,887,899 457,279
Redeemed (29,745,020) (3,761,509) (1,783,712)
----------- ---------- ----------
Net increase (decrease) (10,117,291) (356,055) (873,309)
Year ended Sept. 30, 1999
Class A Class B Class Y
Sold 7,621,749 3,221,089 1,700,619
Issued for reinvested distributions 26,079,903 2,878,182 1,171,183
Redeemed (60,922,790) (7,797,934) (6,730,053)
----------- ---------- ----------
Net increase (decrease) (27,221,138) (1,698,663) (3,858,251)
4. 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 mutual 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 six months ended
March 31, 2000.
<PAGE>
<TABLE>
<CAPTION>
5. FINANCIALHIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Fiscal period ended Sept. 30,
Per share income and capital changesa
Class A
2000b 1999 1998 1997 1996c
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.49 $10.34 $12.68 $12.20 $12.19
Income from investment operations:
Net investment income (loss) .13 .32 .37 .32 .24
Net gains (losses) (both realized and unrealized) 1.03 1.16 (.79) 1.97 .58
Total from investment operations 1.16 1.48 (.42) 2.29 .82
Less distributions:
Dividends from net investment income (.13) (.30) (.37) (.32) (.23)
Distributions from realized gains (.80) (1.03) (1.55) (1.49) (.58)
Total distributions (.93) (1.33) (1.92) (1.81) (.81)
Net asset value, end of period $10.72 $10.49 $10.34 $12.68 $12.20
Ratios/supplemental data
Net assets, end of period (in millions) $1,914 $1,979 $2,233 $2,639 $2,523
Ratio of expenses to average daily net assetsd .97%e .82% .80% .84% .80%e
Ratio of net investment income (loss)
to average daily net assets 2.28%e 2.85% 3.13% 2.55% 2.29%e
Portfolio turnover rate
(excluding short-term securities) 54% 81% 122% 99% 142%
Total returnf 11.34% 14.78% (3.73%) 20.79% 7.13%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended March 31, 2000 (Unaudited).
c The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, effective
1996.
d 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>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended Sept. 30,
Per share income and capital changesa
Class B Class Y
2000b 1999 1998 1997 1996c 2000b 1999 1998 1997 1996c
Net asset value, beginning
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
of period $10.43 $10.29 $12.63 $12.15 $12.16 $10.50 $10.34 $12.68 $12.20 $12.19
Income from investment operations:
Net investment income (loss) .09 .23 .29 .23 .15 .13 .33 .38 .33 .26
Net gains (losses) (both realized
and unrealized) 1.02 1.16 (.79) 1.97 .57 1.03 1.17 (.79) 1.97 .58
Total from investment operations 1.11 1.39 (.50) 2.20 .72 1.16 1.50 (.41) 2.30 .84
Less distributions:
Dividends from net
investment income (.09) (.22) (.29) (.23) (.15) (.14) (.31) (.38) (.33) (.25)
Distributions from realized gains (.80) (1.03) (1.55) (1.49) (.58) (.80) (1.03) (1.55) (1.49) (.58)
Total distributions (.89) (1.25) (1.84) (1.72) (.73) (.94) (1.34) (1.93) (1.82) (.83)
Net asset value, end of period $10.65 $10.43 $10.29 $12.63 $12.15 $10.72 $10.50 $10.34 $12.68 $12.20
Ratios/supplemental data
Net assets, end of period
(in millions) $238 $237 $251 $241 $163 $48 $56 $95 $118 $113
Ratio of expenses to average
daily net assetsd 1.74%e 1.59% 1.56% 1.60% 1.57%e .81%e .72% .72% .71% .63%e
Ratio of net investment
income (loss) to average
daily net assets 1.51%e 2.08% 2.40% 1.82% 1.61%e 2.43%e 2.95% 3.20% 2.69% 2.45%e
Portfolio turnover rate
(excluding short-term securities) 54% 81% 122% 99% 142% 54% 81% 122% 99% 142%
Total returnf 10.95% 13.90% (4.46%) 19.87% 6.45% 11.42% 14.92% (3.65%) 20.94% 7.28%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended March 31, 2000 (Unaudited).
c The Fund's fiscal year-end was changed from Nov. 30 to Sept. 30, effective
1996.
d 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>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
Total Return Portfolio
March 31, 2000 (Unaudited)
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $1,990,014,840) $2,182,218,406
Cash in bank on demand deposit 336,532
Dividends and accrued interest receivable 10,467,417
Receivable for investment securities sold 21,396,157
Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 4) 32,188
U.S. government securities held as collateral (Note 5) 26,408,250
----------
Total assets 2,240,858,950
-------------
Liabilities
Payable for investment securities purchased 8,279,057
Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 4) 5,309
Payable upon return of securities loaned (Note 5) 31,411,550
Accrued investment management services fee 29,947
Other accrued expenses 153,979
-------
Total liabilities 39,879,842
----------
Net assets $2,200,979,108
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Total Return Portfolio
Six months ended March 31, 2000 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 7,544,898
Interest 29,255,299
Less foreign taxes withheld (32,983)
-------
Total income 36,767,214
----------
Expenses (Note 2):
Investment management services fee 6,163,797
Compensation of board members 6,292
Custodian fees 43,400
Audit fees 15,000
Other 30,060
------
Total expenses 6,258,549
Earnings credits on cash balances (Note 2) (4,488)
------
Total net expenses 6,254,061
---------
Investment income (loss) -- net 30,513,153
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 84,035,147
Financial futures contracts (18,328,652)
Foreign currency transactions 256,372
-------
Net realized gain (loss) on investments 65,962,867
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 151,598,657
-----------
Net gain (loss) on investments and foreign currencies 217,561,524
-----------
Net increase (decrease) in net assets resulting from operations $248,074,677
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Total Return Portfolio
March 31, 2000 Sept. 30, 1999
Six months ended Year ended
(Unaudited)
Operations
<S> <C> <C>
Investment income (loss)-- net $ 30,513,153 $ 83,132,960
Net realized gain (loss) on investments 65,962,867 148,588,089
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 151,598,657 152,366,575
----------- -----------
Net increase (decrease) in net assets resulting from operations 248,074,677 384,087,624
Net contributions (withdrawals) from partners (319,908,321) (691,086,627)
------------ ------------
Total increase (decrease) in net assets (71,833,644) (306,999,003)
Net assets at beginning of period 2,272,812,752 2,579,811,755
------------- -------------
Net assets at end of period $2,200,979,108 $2,272,812,752
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Total Return Portfolio
(Unaudited as to March 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is a series of Growth and Income Trust
(the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Total Return
Portfolio seeks to provide maximum total return through a combination of growth
of capital and current income by investing in U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
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 accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets and liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities 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
an option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the 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. 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 March 31, 2000, 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
March 31, 2000 was $4,839,658 representing 0.22% 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 and 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 American Express Financial Corporation (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 0.53% to 0.40% annually.
The fee may be adjusted upward or downward by a performance incentive adjustment
based on a comparison of the performance of Class A shares of AXP Managed
Allocation Fund to the Lipper Flexible Portfolio Fund Index. The maximum
adjustment is 0.08% of the Portfolio's average daily net assets after deducting
1% from the performance difference. If the performance difference is less than
1%, the adjustment will be zero. The adjustment increased the fee by $565,613
for the six months ended March 31, 2000.
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 six months ended March 31, 2000, the Portfolio's custodian fees were
reduced by $4,488 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 $1,109,996,687 and $1,162,940,538 respectively, for the
six months ended March 31, 2000. For the same period, the portfolio turnover
rate was 54%. Realized gains and losses are determined on an identified cost
basis.
Brokerage commissions paid to brokers affiliated with AEFC were $65,322 for the
six months ended March 31, 2000.
4. FOREIGN CURRENCY CONTRACTS
As of March 31, 2000, the Portfolio has foreign currency exchange contracts that
obligate it to deliver currencies at specified future dates. The unrealized
appreciation and/or depreciation on these contracts is included in the
accompanying financial statements. See "Summary of significant accounting
policies." The terms of the open contracts are as follows:
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
April 3, 2000 17,213,240 162,339 $-- $5,309
Japanese Yen U.S. Dollar
April 3, 2000 1,096,883 115,927,407 32,188 --
U.S. Dollar Japanese Yen
Total $32,188 $5,309
5. LENDING OF PORTFOLIO SECURITIES
As of March 31, 2000, securities valued at $29,953,300 were on loan to brokers.
For collateral, the Portfolio received $5,003,300 in cash and U.S. government
securities valued at $26,408,250. Income from securities lending amounted to
$26,737 for the six months ended March 31, 2000. The risks to the Portfolio of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
6. FUTURES CONTRACTS
As of March 31, 2000, investments in securities included securities valued at
$11,720,080 that were pledged as collateral to cover initial margin deposits on
230 open sale interest rate contracts and 590 open sale stock index contracts.
The market value of the open sale interest rate contracts as of March 31, 2000
was $22,621,250 with a net unrealized loss of $399,006. The market value of the
open sale stock index contracts as of March 31, 2000 was $181,046,750 with a net
unrealized gain of $6,996,084. See "Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Total Return Portfolio
March 31, 2000 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (71.7%)
Issuer Shares Value(a)
Aerospace & defense (0.7%)
<S> <C> <C>
Boeing 74,000 $2,807,375
Goodrich (BF) 46,050 1,321,059
Honeywell Intl 145,050 7,642,322
United Technologies 71,550 4,521,066
Total 16,291,822
Airlines (0.2%)
America West Holdings Cl B 42,000(b) 651,000
Amtran 27,300(b) 487,988
SkyWest 43,100 1,686,288
Southwest Airlines 106,075 2,207,685
Total 5,032,961
Automotive & related (1.4%)
Bridgestone 44,000(c) 970,636
Delphi Automotive Systems 191,024 3,056,384
DollarThrifty Automotive Group 49,200(b) 845,625
Ford Motor 204,900 9,412,593
General Motors 115,750 9,585,546
Gentex 75,800(b) 2,809,338
Smith (AO) 37,300 671,400
Tower Automotive 68,000(b) 1,113,500
Toyota Motor 46,000(c) 2,405,844
Total 30,870,866
Banks and savings & loans (3.3%)
Bank of America 224,665 11,780,871
Bank of New York 153,550 6,381,922
Banque Natl de Paris 7,276(c) 574,518
Cullen/Frost Bankers 64,700 1,710,506
Deutsche Bank 22,151(c) 1,472,390
Dime Community Bancshares 30,400 480,700
First Midwest Bancorp 26,850 651,113
Firstar 170,100 3,901,669
Flagstar Bancorp 47,400 616,200
FleetBoston Financial 274,421 10,016,367
Garanti Banking 41,045,286(b,c) 522,715
Hamilton Bancorp 38,000(b) 593,750
Hudson United Bancorp 14,111 306,032
Instituto Bancario San Paolo di Torino 138,996(c) 1,903,703
MAF Bancorp 29,700 480,769
Mellon Financial 72,700 2,144,650
NBT Bancorp 20,685 299,933
Overseas Union Bank 157,000(c) 706,216
Provident Bankshares 17,235 271,451
Queens County Bancorp 34,200 617,738
Republic Bancorp 58,410 545,768
Silicon Valley Bancshares 12,700(b) 912,813
SLM Holding 13,250 441,391
Southtrust 81,500 2,073,156
U.S. Trust 11,400 2,154,600
Uniao de Bancos Brasileiros GDR 22,000(c) 698,500
Wachovia 70,550 4,766,534
Webster Financial 22,000 506,000
Wells Fargo 324,450 13,282,171
Wilshire Financial Services Group 411,726(b) 334,527
Yapi Kredit Finance 19,050,000 509,466
Total 71,658,139
Beverages & tobacco (1.1%)
Anheuser-Busch 80,150 4,989,338
Beringer Wine Estates Holdings Cl B 22,900(b) 821,538
Canandaigua Wine Cl A 31,400(b) 1,601,400
Coca-Cola 262,300 12,311,705
Fomento Economico Mexicano ADR 14,000(c) 630,000
PepsiCo 129,800 4,486,213
Total 24,840,194
Building materials & construction (0.8%)
Dycom Inds 53,800(b) 2,622,750
Elcor 33,200 1,145,400
Florida Rock Inds 28,600 800,800
Horton (DR) 89,600 1,170,400
Insituform Technologies Cl A 39,100(b) 1,197,438
NCI Building Systems 32,400(b) 609,525
Pulte 29,400 613,725
Ryland Group 43,100 808,125
URS 50,800(b) 666,750
Weyerhaeuser 121,850 6,945,450
Total 16,580,363
Chemicals (0.7%)
Air Products & Chemicals 33,000 938,438
Asahi Chemical Inds 220,000(c) 1,403,458
Dow Chemical 48,400 5,517,599
Du Pont (EI) de Nemours 100,850 5,332,444
Engelhard 102,850 1,555,606
Geon 33,700 724,550
Total 15,472,095
Communications equipment & services (4.1%)
Adaptive Broadband 16,400(b) 877,400
Advanced Fibre Communications 7,400(b) 463,888
Aspect Communications 35,000(b) 1,297,188
C-COR Electronics 15,500(b) 759,500
China Telecom 144,000(b,c) 1,262,176
Com21 12,800(b) 601,600
CommScope 55,900(b) 2,550,438
Corsair Communications 12,000(b) 229,500
Digital Microwave 53,100(b) 1,798,763
Ericsson (LM) Cl B 55,000(c) 4,838,878
Glenayre Technologies 29,000(b) 509,313
Harmonic Lightwaves 3,000(b) 249,750
InterVoice 22,000(b) 635,250
Leap Wireless Intl 9,100(b) 898,056
Lucent Technologies 278,700(c) 16,931,024
Marconi 158,632 1,891,660
Motorola 90,650 12,906,293
Net2000 Communications 24,200(b) 574,750
Nokia 20,700(c) 4,378,445
Nortel Networks 120,600(c) 15,195,599
P-COM 68,600(b) 1,269,100
Proxim 9,700(b) 1,160,969
QUALCOMM 42,950(b) 6,412,972
Scientific-Atlanta 60,600 3,844,313
Sonera 38,416(c) 2,621,555
Spectrian 55,900(b) 1,257,750
Tellabs 75,800(b) 4,774,216
Total 90,190,346
Computers & office equipment (15.2%)
3Com 38,450(b) 2,138,781
About.com 13,400(b) 1,180,875
Acxiom 25,300(b) 841,225
ADAC Laboratories 32,800(b) 451,000
Allaire 9,800(b) 741,125
America Online 177,100(b) 11,909,974
American Management Systems 29,500(b) 1,292,469
Aspect Development 6,800(b) 437,750
Aspen Technology 24,000(b) 969,000
Automatic Data Processing 66,800 3,223,100
BindView Development 14,400(b) 447,300
BISYS Group 5,900(b) 392,350
Black Box 6,700(b) 463,870
Cabletron Systems 75,900(b) 2,224,819
Canon 36,000(c) 1,560,263
Cap Gemini 17,200(c) 4,658,780
Cisco Systems 664,700(b) 51,389,618
Citrix Systems 34,400(b) 2,279,000
Cognex 27,400(b) 1,580,638
Compaq Computer 190,450 5,070,731
Computer Associates Intl 76,850 4,548,559
Computer Sciences 58,500(b) 4,628,813
Dell Computer 246,600(b) 13,300,987
Dendrite Intl 20,800(b) 435,500
Diamond Technology Partners 9,600(b) 631,200
Electronic Data Systems 135,000 8,665,313
EMC 134,300(b) 16,787,499
Emulex 3,300(b) 360,113
Eprise 24,300(b) 382,725
FactSet Research Systems 23,200 627,850
First Data 222,300 9,836,774
Fujitsu 87,000(c) 2,669,102
go2net 3,100(b) 249,744
Hadco 17,100(b) 1,105,088
Harbinger 19,000(b) 553,375
HearMe 19,600(b) 494,900
Hewlett-Packard 127,200 16,861,949
Hitachi Software Engineering 8,000(c) 982,518
HNC Software 10,100(b) 727,831
Hyperion Solutions 27,900(b) 906,750
Informatica 6,100(b) 468,556
Insight Enterprises 15,800(b) 575,713
Intl Business Machines 119,600 14,112,799
IntraNet Solutions 20,700(b) 952,200
ISS Group 3,800(b) 442,700
Kronos 12,000(b) 355,500
Level 8 Systems 15,400(b) 719,950
Lexmark Intl Group Cl A 41,900(b) 4,430,925
Macromedia 18,200(b) 1,643,688
MarchFirst 24,800(b) 885,050
Maxtor 29,700(b) 384,244
MedQuist 43,000(b) 1,169,063
Mercury Interactive 33,900(b) 2,686,575
Micromuse 3,200(b) 444,200
MICROS Systems 10,000(b) 629,375
Microsoft 509,050(b) 54,086,562
Natl Computer Systems 20,200 1,025,150
Natl Instruments 29,000(b) 1,361,188
Netopia 7,000(b) 503,563
Network Appliance 41,700 3,450,675
New Era of Networks 5,800(b) 227,650
Novell 48,200(b) 1,379,725
NVIDIA 6,200(b) 523,803
Oracle 302,400(b) 23,606,099
OTG Software 5,400(b) 217,688
Peregrine Systems 11,000(b) 737,688
Pinnacle Systems 28,000(b) 931,000
Project Software & Development 6,400(b) 361,600
Proxicom 15,800(b) 700,138
Rare Medium Group 15,600(b) 688,350
Razorfish Cl A 8,300(b) 228,250
Remedy 28,000(b) 1,179,500
RSA Security 18,000(b) 932,625
S1 5,200(b) 445,575
Sagent Technology 15,800(b) 455,238
SanDisk 6,400(b) 784,000
SAP 2,846(c) 2,049,740
SERENA Software 25,050(b) 798,469
Solectron 155,850(b) 6,243,741
Sun Microsystems 94,700(b) 8,873,686
THQ 20,000(b) 357,500
Unisys 130,900(b) 3,337,950
Verity 24,200(b) 986,150
Xircom 10,600(b) 392,200
Yahoo! 57,450(b) 9,845,493
Zixit 4,300(b) 313,094
Total 334,933,886
Electronics (6.3%)
Alpha Inds 16,300(b) 1,548,500
Alps Electric 41,000(c) 559,844
Amkor Technology 11,900(b) 631,444
ANADIGICS 2,550(b) 168,300
Analog Devices 40,200(b) 3,238,613
Applied Materials 122,388(b) 11,535,030
Audiovox Cl A 4,900(b) 213,763
Brooks Automation 7,000(b) 437,500
Burr-Brown 17,250(b) 937,969
C&D Technologies 17,000 1,003,000
C-Cube Microsystems 18,600(b) 1,354,313
Conexant Systems 19,300(b) 1,370,300
Corning 44,270 8,588,379
Credence Systems 750(b) 93,844
CTS 14,100 803,700
Cypress Semiconductor 11,900(b) 586,819
Dallas Semiconductor 13,400 470,675
Electro Scientific Inds 27,800(b) 1,612,400
Exar 16,650(b) 1,191,516
Harman Intl Inds 23,600 1,416,000
Helix Technology 21,600 1,297,350
Hitachi 183,000(c) 2,172,652
Integrated Device Technology 10,000(b) 396,250
Intel 330,250 43,572,358
Intl Rectifier 31,300(b) 1,193,313
KEMET 18,300(b) 1,157,475
KLA-Tencor 29,200(b) 2,460,100
Kulicke & Soffa Inds 24,400(b) 1,563,125
Kyocera 8,000 1,337,034
Lam Research 11,700(b) 527,231
Lattice Semiconductor 29,200(b) 1,976,475
LSI Logic 59,100(b) 4,292,138
Matsushita Communication Industrial 10,000(c) 1,840,760
Micrel 20,000(b) 1,920,000
MRV Communications 2,000(b) 183,250
Natl Semiconductor 53,650(b) 3,252,531
Nintendo 7,000(c) 1,230,582
Photronics 6,000(b) 211,875
Power Integrations 18,200(b) 455,000
Powerwave Technologies 14,300(b) 1,787,500
Rohm 4,600(c) 1,599,416
S3 40,000(b) 840,000
Sensormatic Electronics 45,000(b) 1,009,688
Siliconix 2,000(b) 190,125
Teradyne 33,200(b) 2,730,700
Texas Instruments 90,750 14,519,999
Three-Five Systems 20,000(b) 1,200,000
TranSwitch 5,800(b) 557,525
Trimble Navigation 47,600(b) 1,225,700
TriQuint Semiconductor 4,400(b) 323,400
Varian Medical Systems 50,100(b) 2,285,813
Vicor 28,800(b) 518,400
Total 137,589,674
Energy (3.5%)
Anadarko Petroleum 51,400 1,988,538
Apache 97,400 4,845,650
Barrett Resources 43,400(b) 1,293,863
Chevron 184,600 17,063,963
Conoco Cl B 129,800 3,326,125
Exxon Mobil 342,475 26,648,835
HS Resources 45,100(b) 952,738
Newfield Exploration 34,300(b) 1,209,075
Petro-Canada 37,000(c) 615,096
Repsol-YPF 144,200(c) 3,161,896
Royal Dutch Petroleum 43,300(c) 2,492,456
Texaco 156,450 8,389,631
Tosco 65,100 1,981,481
Total Petroleum Cl B 13,952 2,089,816
Total 76,059,163
Energy equipment & services (0.3%)
Halliburton 25,400 1,041,400
Louis Dreyfus Natural Gas 30,400(b) 1,033,600
Marine Drilling 46,400(b) 1,273,100
Patterson Energy 13,800(b) 438,150
Pride Intl 97,900(b) 2,233,344
Tuboscope 61,500(b) 1,045,500
UTI Energy 14,900(b) 562,475
Total 7,627,569
Financial services (3.8%)
AmeriCredit 66,800(b) 1,089,675
Capital One Financial 93,250 4,470,172
Citigroup 403,050 23,905,902
Delphi Financial Group Cl A 27,515(b) 835,768
Fannie Mae 183,200 10,339,349
Financial Federal 43,700(b) 794,794
Jefferies Group 28,600 654,225
Kansas City Southern Inds 97,250(b) 8,357,422
Lehman Brothers Holdings 64,250 6,232,250
MBNA 316,850 8,079,675
Metris Companies 33,200 1,290,650
Morgan Stanley, Dean Witter, Discover & Co 66,050 5,387,203
Nikko Securities 92,000(c) 1,392,432
Paychex 42,900 2,246,888
Providian Financial 55,500 4,807,688
Radian Group 37,300 1,776,413
Raymond James Financial 21,900 454,425
SEI Investments 4,200 476,438
Total 82,591,369
Food (1.2%)
Bestfoods 162,050 7,585,965
Earthgrains 58,000 862,750
General Mills 106,100 3,839,494
Performance Food Group 29,600(b) 647,500
Sara Lee 337,650 6,077,700
Smithfield Foods 62,100(b) 1,242,000
Suiza Foods 16,000(b) 644,000
SUPERVALU 283,600 5,370,675
Total 26,270,084
Furniture & appliances (0.2%)
Briggs & Stratton 15,800 649,775
Furniture Brands Intl 32,000(b) 602,000
La-Z-Boy 62,900 967,088
Matsushita Electric Industrial 53,000 1,584,709
Salton 20,000(b) 867,500
Total 4,671,072
Health care (6.2%)
Abbott Laboratories 138,900 4,887,544
Affymetrix 3,100(b) 460,156
Alkermes 2,300(b) 212,750
Alpharma Cl A 32,100 1,179,675
American Home Products 100,450 5,386,631
Amgen 112,200(b) 6,886,274
Baxter Intl 119,300 7,478,618
Bio-Technology General 23,100(b) 358,050
Biomet 60,000 2,182,500
Bristol-Myers Squibb 327,400 18,907,349
Celgene 2,100(b) 209,081
Cephalon 20,000(b) 750,000
Coherent 30,600(b) 1,591,200
COR Therapeutics 8,400(b) 553,744
Diversa 8,300(b) 390,100
Enzo Biochem 14,000(b) 987,000
ENZON 5,900(b) 222,356
Gilead Sciences 3,300(b) 209,138
Glaxo Wellcome ADR 160,816(c) 4,595,833
Guidant 61,350(b) 3,608,147
Human Genome Sciences 4,000(b) 332,250
IDEC Pharmaceuticals 13,700(b) 1,346,025
Immune Response 32,800(b,h) 377,200
Incyte Pharmaceuticals 15,100(b) 1,313,700
Jones Pharma 39,900 1,211,963
Laboratory 175,000(b) 754,688
Liposome 30,500(b) 532,797
Medtronic 127,800 6,573,713
Merck & Co 77,750 4,830,219
Pfizer 577,000 21,096,562
Pharmacia & Upjohn 71,750 4,251,188
Priority Healthcare Cl B 30,650(b) 1,540,163
Protein Design Labs 10,100(b) 802,950
Quest Diagnostics 47,500(b) 1,888,125
Regeneron Pharmaceuticals 5,500(b) 162,594
Sankyo 47,000(c) 1,183,297
Schering-Plough 245,030 9,004,852
Sequenom 9,700(b) 381,938
SmithKline Beecham 152,870(c) 2,015,223
Techne 18,900(b) 1,304,100
Vertex Pharmaceuticals 18,300(b) 856,669
Warner-Lambert 138,850 13,537,874
Wesley Jessen VisionCare 23,400(b) 840,938
Total 137,195,174
Health care services (0.3%)
Abgenix 3,700(b) 511,063
Apria Healthcare Group 49,000(b) 707,438
Biopure 13,700(b) 456,381
Cerner 30,000(b) 810,000
Columbia/HCA Healthcare 83,300 2,108,531
Cytyc 18,000(b) 868,500
IntraBiotics Pharmaceuticals 16,900(b) 253,500
Patterson Dental 30,700(b) 1,174,275
Total 6,889,688
Household products (0.7%)
Colgate-Palmolive 51,500 2,903,313
Kimberly-Clark 148,450 8,313,199
Procter & Gamble 52,650 2,961,563
Valence Technology 19,700(b) 464,181
Total 14,642,256
Industrial equipment & services (0.9%)
Amada 118,000(c) 953,884
Castorama Dubois 9,500(c) 2,040,346
Deere & Co 74,700 2,838,600
Illinois Tool Works 63,650 3,516,662
Ingersoll-Rand 26,500 1,172,625
Kennametal 39,000 1,172,438
Manitowoc 32,200 871,413
Parker-Hannifin 125,950 5,203,308
Roper Inds 30,400 1,031,700
Total 18,800,976
Insurance (1.5%)
American Intl Group 173,137 18,958,501
CIGNA 46,350 3,511,012
Fidelity Natl Financial 49,200 679,575
First American Financial 34,600 490,888
Fortis 112,100(c) 2,870,031
Gallagher (Arthur J) 42,600 1,384,500
Hooper Holmes 53,000 1,818,563
LandAmerica Financial Group 17,500 339,063
Prudential 112,346(c) 1,692,968
Reinsurance Group of America 18,300 435,769
Total 32,180,870
Leisure time & entertainment (0.9%)
Aztar 150,300(b) 1,427,850
Disney (Walt) 213,900 8,850,112
EMI Group ADR 330,200(c) 3,658,953
Viacom Cl B 103,450(b) 5,456,988
Total 19,393,903
Media (1.5%)
Catalina Marketing 15,900(b) 1,609,875
CBS 134,600(b) 7,621,724
Comcast Special Cl A 131,250 5,692,969
Emmis Communications Cl A 13,100(b) 609,150
McClatchy Newspapers 23,200 759,800
MediaOne Group 72,150(b) 5,844,150
Modem Media Poppe Tyson 3,800(b) 123,025
New York Times Cl A 38,750 1,663,828
News 66,000(c) 921,543
Price Communications 37,400(b) 860,200
Radio One Cl A 5,950(b) 396,419
Scholastic 20,800(b) 1,121,900
Snyder Communications 36,900(b) 830,250
Sony 21,000(c) 2,965,668
True North Communications 24,200 951,363
Valassis Communications 49,000(b) 1,632,313
Total 33,604,177
Metals (0.5%)
Alcoa 26,900 1,889,725
Broken Hill Proprietary 68,000(c) 735,900
Mueller Inds 43,700(b) 1,327,388
Nippon Steel 577,000(c) 1,376,820
Nucor 54,150 2,707,499
Ryerson Tull 49,100 761,050
Steel Technologies 88,200 700,088
Stillwater Mining 23,600(b) 944,000
WMC 175,000(c) 683,794
Total 11,126,264
Miscellaneous (0.3%)
Apex 9,400(b) 348,975
Beasley Broadcast Group Cl A 45,900(b) 424,575
eLoyalty 25,500(b) 608,813
Epcos 3,314(b,c) 437,712
Intraware 20,400(b) 842,775
PFF Bancorp 42,000 651,000
Philadelphia Suburban 29,700 538,313
Quintus 8,000(b) 237,500
TSI Intl Software 2,400(b) 199,350
United Pan-Europe Communications 55,200(b,c) 2,579,782
ValueClick 32,700(b) 684,656
Total 7,553,451
Multi-industry conglomerates (3.7%)
Agribrands Intl 19,100(b) 750,869
Bell & Howell 18,700(b) 584,375
Bombardier Cl B 27,000(c) 677,463
Brady (WH) Cl A 52,100 1,624,869
Danaher 106,200 5,416,200
Emerson Electric 18,800 994,050
General Electric 359,200 55,743,349
Hutchison Whampoa 79,000(c) 1,425,471
NCO Group 22,450(b) 716,997
Secom 11,000(c) 942,781
Sylvan Learning Systems 45,400(b) 723,563
Tyco Intl 246,600(c) 12,299,174
Zebra Technologies Cl A 11,300(b) 565,000
Total 82,464,161
Paper & packaging (0.5%)
AptarGroup 42,800 1,142,225
Ball 11,400 394,013
Champion Intl 40,800 2,172,600
Intl Paper 128,600 5,497,649
Pope & Talbot 61,700 1,133,738
Silgan Holdings 31,600(b) 383,150
Total 10,723,375
Restaurants & lodging (0.5%)
Applebee's Intl 18,100 509,063
CEC Entertainment 38,100(b) 1,033,463
Cheesecake Factory (The) 23,600(b) 982,350
Darden Restaurants 220,200 3,922,312
Jack in the Box 24,400(b) 520,025
Ruby Tuesday 51,700 904,750
Ryan's Family Steak Houses 99,900(b) 955,294
Taco Cabana Cl A 122,300(b) 726,156
Wendy's Intl 116,550 2,352,853
Total 11,906,266
Retail (4.6%)
Ames Dept Stores 26,600(b) 653,363
AnnTaylor Stores 14,500(b) 333,500
Bed Bath & Beyond 62,950(b) 2,478,656
Best Buy 37,350(b) 3,212,100
Circuit City Stores-Circuit City Group 70,050 4,264,294
Copart 11,000(b) 192,500
Costco Wholesale 62,050(b) 3,261,503
CVS 70,250 2,638,766
FamilyMart 27,300(c) 1,350,709
Fossil 63,400(b) 1,485,938
Gap 91,300 4,547,881
Home Depot 206,700 13,332,149
Kroger 225,300(b) 3,956,831
Linens `N Things 37,400(b) 1,280,950
Lowe's Companies 70,750 4,130,031
Men's Wearhouse 59,300(b) 1,756,763
NBTY 76,600(b) 1,048,463
Pacific Sunwear of California 30,150(b) 1,160,775
Regis 44,450 658,416
Safeway 102,850(b) 4,653,962
ShopKo Stores 50,300(b) 892,825
Tandy 36,250 1,839,688
Target 67,900 5,075,524
Tesco 713,189(c) 2,370,291
TJX Companies 137,500 3,050,781
United Stationers 44,000(b) 1,570,250
Wal-Mart Stores 403,650 22,402,574
Walgreen 116,200 2,992,150
Whole Foods Market 32,000(b) 1,326,000
World Online Intl 6,198(b,c) 138,515
Zale 53,700(b) 2,533,969
Total 100,590,117
Textiles & apparel (0.1%)
Asahi Glass 89,000(c) 759,328
Brown Shoe 77,100 925,199
Dixie Group 65,400(b) 290,213
Total 1,974,740
Transportation (0.5%)
Atlas Air 30,150(b) 825,356
Burlington Northern Santa Fe 83,500 1,847,437
EGL 13,100(b) 306,213
Expeditors Intl of Washington 14,600 580,350
Landstar System 28,200(b) 1,543,950
Offshore Logistics 70,000(b) 971,250
Union Pacific 34,100 1,334,163
USFreightways 44,800 1,677,200
Werner Enterprises 53,800 914,600
Total 10,000,519
Utilities -- electric (0.6%)
AES 21,850(b) 1,720,688
Avista 16,300 664,225
Cleco 22,700 754,775
Duke Energy 33,100 1,737,750
El Paso Electric 93,900(b) 974,213
PECO Energy 58,000 2,138,749
Pinnacle West Capital 70,950 1,999,902
Public Service Co of New Mexico 42,500 669,375
Texas Utilities 49,400 1,466,563
TNP Enterprises 28,300 1,239,894
United Illuminating 22,400 879,200
Total 14,245,334
Utilities -- gas (0.3%)
BG Group 500,000(c) 2,812,048
Equitable Resources 24,800 1,111,350
New Jersey Resources 14,400 615,600
ONEOK 24,900 622,500
Piedmont Natural Gas 20,100 523,856
UGI 27,800 601,175
Total 6,286,529
Utilities -- telephone (5.3%)
AT&T 363,800 20,463,749
Bell Atlantic 246,300 15,055,088
BellSouth 177,250 8,330,750
Brightpoint 66,400(b) 813,400
COLT Telecom Group 33,000(b,c) 1,568,299
Embratel Participacoes ADR 34,000(c) 871,250
Global Crossing 49,700(b,c) 2,034,594
GTE 33,300 2,364,300
ICG Communications 16,000(b) 578,000
Intermedia Communications 960(b) 46,369
MCI WorldCom 377,762(b) 17,117,362
Nextel Communications Cl A 31,450(b) 4,662,463
Nippon Telegraph & Telephone 220(b,c) 3,492,574
Nippon Television Network 450(c) 319,503
NTT Data 37(c) 695,496
NTT Mobile Communication Network 74(c) 3,034,234
SBC Communications 269,221 11,307,282
Sprint 116,900 7,364,700
Sprint PCS 83,400(b,h) 5,447,063
Telecom Italia Mobile 182,088(c) 2,234,224
Telefonos de Mexico ADR Cl L 13,800(c) 924,600
U S WEST Communications Group 46,650 3,387,956
Vodafone AirTouch 884,469 4,907,450
Total 117,020,706
Total common stocks
(Cost: $1,345,471,810) $1,577,278,109
Preferred stocks & other (0.9%)
Issuer Shares Value(a)
Bar Technologies
Warrants 3,000 $2,625
Bell Technology
Warrants 3,410 1,619,750
Coastal
6.63 % Cv PRIDES 44,900(o) 1,271,230
Coltec Capital
5.25% Cv 13,800 501,975
Cox Communications
7.00% Cm Cv PRIDES 15,800(o) 1,003,300
CVS
6.00% Cv ACES 14,700(n) 993,169
Enron
7.00% Cv 24,700 544,944
Georgia-Pacific Group
7.50% Cv 19,000 814,625
Global Crossing
6.38% Cv 8,800(c,d) 948,200
Global TeleSystems Group
7.25% Cm Cv 20,800 842,400
Ingersoll-Rand
6.75% Cv PRIDES 38,475(o) 904,163
Intermedia Communications
7.00% Cm Cv Series F 55,300 1,831,812
13.50% Pay-in-kind Series B 1,000(i) 940,000
Kerr-McGee
5.50% Cv 13,700 614,788
KMC Telecom Holdings
Warrants 3,000 9,000
Lincoln Natl
7.75% Cm Cv 38,950 788,738
McKesson Financing Trust
5.00% Cv 24,600 888,675
Nakornthai Strip Mill
Warrants 2,722,298 3
Paxson Communications
12.50% Pay-in-kind Exchangeable 26,881(i) 2,768,742
PLD Telekom
Warrants 6,000 270
Poland Telecom
Warrants 4,400(c) 550
Sovereign Bancorp
7.50% Cv 20,800(b) 1,014,000
Suiza Capital
5.50% Cv 28,100 962,425
Telehub Communications
Warrants 2,500 1,250
Unifi Communications
Warrants 3,000 30
Wendys Financing
5.00% Cm Cv Series A 15,800 742,600
Total preferred stocks & other
(Cost: $18,647,918) $20,009,264
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (25.4%)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (5.8%)
Federal Home Loan Mtge Corp
<S> <C> <C> <C>
03-01-13 5.50% $8,978,519 $8,289,282
03-01-15 7.50 50,000,000 49,914,062
12-01-25 7.50 11,505,159 11,325,448
07-01-28 6.00 9,163,050 8,358,442
09-01-28 6.00 9,147,568 8,336,456
Federal Natl Mtge Assn
03-01-14 5.50 9,261,228 8,528,405
05-01-24 7.50 8,624,165 8,494,803
09-01-28 6.50 9,027,620 8,471,879
10-01-28 6.00 9,249,135 8,429,314
Collateralized Mtge Obligation
05-18-26 5.00 9,593,000 8,066,470
Total 128,214,561
U.S. government obligations (6.1%)
U.S. Treasury
04-30-00 6.75 32,000,000(h,k,m) 32,017,087
06-30-02 6.25 8,000,000(k,m) 7,964,462
03-31-03 5.50 1,500,000(k,m) 1,462,169
05-15-04 7.25 4,800,000 4,948,593
08-15-04 7.25 20,000,000 20,659,800
08-15-05 6.50 12,500,000 12,588,583
05-15-07 6.63 12,500,000 12,736,121
08-15-17 8.88 16,000,000 20,450,339
08-15-23 6.25 9,700,000 9,839,874
08-15-27 6.38 8,500,000 8,845,313
Total 131,512,341
Aerospace & defense (0.3%)
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 1,035,000 1,027,238
Northrop-Grumman
03-01-16 7.75 5,000,000 4,853,137
Total 5,880,375
Automotive & related (0.4%)
Exide
Cv Sr Sub Nts
12-15-05 2.90 2,450,000(d) 1,263,416
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 1,250,000 1,125,000
Lear
Sub Nts
07-15-06 9.50 1,800,000 1,728,000
Mascotech
Cv Sub Deb
12-15-03 4.50 1,780,000 1,314,975
MSX Intl
Company Guaranty
01-15-08 11.38 2,450,000 2,278,500
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 1,750,000 1,513,750
Total 9,223,641
Banks and savings & loans (0.3%)
Union Planters Bank
Sub Nts
03-15-08 6.50 5,000,000 4,528,930
Washington Mutual Capital
Company Guaranty
06-01-27 8.38 1,500,000 1,469,082
Total 5,998,012
Chemicals (0.1%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 1,550,000 1,232,250
Communications equipment & services (0.7%)
American Tower
Cv
02-15-10 5.00 1,053,000(d) 1,196,471
Commscope
Cv Sub Nts
12-15-06 4.00 950,000(d) 1,135,250
Corning
Cv Sub Nts
03-01-08 4.88 255,000 1,075,463
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 1,000,000 1,030,000
EchoStar Communications
Cv Sub Nts
01-01-07 4.88 1,070,000(d) 1,801,613
EchoStar DBS
Sr Nts
02-01-09 9.38 1,000,000 965,000
GT Group Telecom
(U.S. Dollar) Zero Coupon
02-01-05 13.25 1,025,000(c,d,g) 563,750
iBasis
03-15-05 5.75 990,000 676,913
Nextel Partners
Sr Nts
03-15-10 11.00 275,000(d) 266,750
NTL
Cv Sub Nts
12-15-09 5.75 1,003,000(d) 1,026,821
NTL Communications
Zero Coupon Sr Nts Series B
10-01-03 7.87 3,625,000(g) 2,428,749
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 2,500,000(g) 200,000
Versatel Telecom
(European Monetary Unit)
12-17-04 4.00 1,880,000(c,d) 2,267,178
03-30-05 4.00 630,000(c,d) 627,411
(U.S. Dollar) Sr Nts
05-15-08 13.25 1,000,000(c) 1,037,500
Total 16,298,869
Computers & office equipment (0.5%)
ASM Lithography Holdings
(U.S. Dollar) Cv
11-30-04 4.25 1,030,000(c,d) 1,266,900
Concentric Network
Sr Nts
12-15-07 12.75 3,800,000 4,047,000
Globix
Sr Nts
02-01-10 12.50 1,250,000(d) 1,150,000
Hewlett-Packard
Zero Coupon Sub Nts
10-14-17 2.46 1,580,000(f) 1,212,650
Internet Capital Group
Cv Sub Nts
12-21-04 5.50 315,000 277,200
Juniper Networks
03-15-07 4.75 1,980,000 1,965,150
PSINet
Sr Nts Series B
02-15-05 10.00 1,005,000 949,725
Silicon Graphics
Cv Sr Nts
09-01-04 5.25 1,340,000 1,003,325
Total 11,871,950
Electronics (0.5%)
Conexant Systems
Cv Sub Nts
02-01-07 4.00 870,000(d) 791,700
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 4,500,000(c,d) 4,070,164
Intel
Cv Sub Nts
09-01-04 4.00 275,000 1,192,469
Photronics
Cv Sub Nts
06-01-04 6.00 474,000 607,313
SCI Systems
03-15-07 3.00 990,000 1,104,266
Thomas & Betts
01-15-06 6.50 4,500,000 4,268,137
Total 12,034,049
Energy (0.6%)
Devon Energy
Cv Deb
08-15-08 4.90 948,000 949,185
Lodestar Holdings
Company Guaranty
05-15-05 11.50 5,000,000 950,000
Roil
(U.S. Dollar)
12-05-02 12.78 2,520,000(c,d) 2,268,000
USX
03-01-08 6.85 10,000,000 9,542,302
Total 13,709,487
Financial services (0.9%)
Arcadia Financial
Sr Nts
03-15-07 11.50 1,250,000 1,325,000
Indah Kiat Finance Mauritius
(U.S. Dollar) Company Guaranty
07-01-07 10.00 1,685,000(c) 1,171,075
LaBranche
03-01-07 12.00 1,000,000(d) 980,000
Providian Natl Bank
Sr Nts
03-15-03 6.70 10,000,000 9,571,354
Wilmington Trust
05-01-08 6.63 6,300,000 5,919,484
Total 18,966,913
Furniture & appliances (0.1%)
Interface
Sr Sub Nts Series B
11-15-05 9.50 2,500,000 2,212,500
Health care (0.5%)
Alkermes
Cv Sub Nts
02-15-07 3.75 495,000(d) 415,800
Alpharma
Cv Sr Sub Nts
06-01-06 3.00 580,000(j) 737,325
06-01-06 3.00 810,000 1,057,560
Baxter Intl
02-15-28 6.63 10,000,000 8,691,201
Inhale Theraptic Systems
Cv Sub Nts
02-08-07 5.00 980,000(d) 1,038,800
Total 11,940,686
Health care services (0.3%)
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 2,500,000 1,850,000
Sunrise Assisted Living
Cv Sub Nts
06-15-02 5.50 1,975,000 1,545,438
Tenet Healthcare
Sr Sub Nts Series B
12-01-08 8.13 2,750,000 2,509,375
Total 5,904,813
Insurance (0.3%)
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 1,500,000 1,476,093
Nationwide CSN Trust
02-15-25 9.88 5,000,000(d) 5,389,065
Total 6,865,158
Leisure time & entertainment (0.5%)
AMC Entertainment
Sr Sub Nts
02-01-11 9.50 1,270,000 647,700
Time Warner
02-01-24 7.57 5,875,000 5,643,074
Sr Nts
01-15-28 6.95 5,000,000 4,472,900
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 700,000 469,000
Total 11,232,674
Media (0.7%)
Australis Media
(U.S. Dollar)
11-01-00 14.00 145,084(c) 135,485
05-15-03 15.75 40,885(b,c) 409
(U.S. Dollar) Zero Coupon
05-15-03 15.75 5,000,000(b,c,g) 500
Charter Communications Holdings/Charter Capital
Sr Nts
01-15-10 10.25 1,250,000(d) 1,209,375
CSC Holdings
Sr Sub Debs
05-15-16 10.50 3,000,000 3,330,000
Getty Images
03-15-07 5.00 1,100,000(d) 888,250
Lenfest Communications
Sr Nts
02-15-08 7.63 1,500,000 1,477,140
News America Holdings
10-15-12 10.13 2,175,000 2,340,323
Telewest Communications
(British Pound) Cv
02-19-07 5.25 592,000(c,d) 1,486,831
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 11.54 1,250,000(c,d,g) 715,625
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 2,734,889(c,i,j) 4,102,333
Total 15,686,271
Metals (0.1%)
EnviroSource
Sr Nts
06-15-03 9.75 530,000 333,900
Sr Nts Series B
06-15-03 9.75 1,300,000 819,000
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 2,115,569(c,d) 2,073,258
Total 3,226,158
Miscellaneous (0.7%)
Delphes 2
(U.S. Dollar)
05-05-09 7.75 2,700,000(c,d) 2,573,451
FCB/NC Capital
Company Guaranty
03-01-28 8.05 4,625,000 3,959,929
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 2,500,000(c) 2,237,500
Guangdong Enterprises
(U.S. Dollar) Sr Nts
05-22-07 8.88 2,200,000(b,c,d) 913,000
Network Associates
Zero Coupon Cv Sub Deb
02-13-18 5.43 4,740,000(f) 1,801,200
NSM Steel
Company Guaranty
02-01-06 12.00 2,060,396(b,d) 103,020
02-01-08 12.25 4,300,000(b,d) 86,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 1,075,000 947,344
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 4,400,000(c) 1,276,000
XM Satellite Radio
03-15-10 14.00 1,700,000(d) 1,615,000
Total 15,512,444
Multi-industry conglomerates (0.3%)
Jordan Inds
Sr Nts Series D
08-01-07 10.38 1,000,000 950,000
Metromedia Intl Group
Sr Disc Nts Series B
09-30-07 10.50 4,369,500 2,141,055
Prime Succession
Sr Sub Nts
08-15-04 10.75 980,000(b) 196,000
USI American Holdings
Sr Nts Series B
12-01-06 7.25 3,000,000 2,842,521
Total 6,129,576
Paper & packaging (0.5%)
APP China Group
(U.S. Dollar)
03-15-10 14.00 3,400,000(c,d) 2,941,000
Crown Paper
Sr Sub Nts
09-01-05 11.00 705,000 211,500
Doman Inds
(U.S. Dollar)
03-15-04 8.75 1,300,000(c) 1,059,500
Gaylord Container
Sr Nts
06-15-07 9.75 1,300,000 1,205,750
Owens-Illinois
Sr Nts
05-15-04 7.85 2,000,000 1,932,676
Repap New Brunswick
(U.S. Dollar) Sr Nts
06-01-04 9.00 1,000,000(c) 952,500
Silgan Holdings
06-01-09 9.00 2,050,000 1,980,813
Total 10,283,739
Restaurants & lodging (0.5%)
Domino's
Company Guaranty Series B
01-15-09 10.38 1,000,000 915,000
MGM Grand
02-06-08 6.88 10,000,000 9,013,694
Total 9,928,694
Retail (1.1%)
Costco Companies
Zero Coupon Cv Sub Nts
08-19-17 3.50 598,000(f) 711,620
Great Atlantic & Pacific Tea
04-15-07 7.75 10,000,000 9,218,859
Kroger
Sr Nts
07-15-06 8.15 5,000,000 5,126,861
Target
12-01-22 8.50 2,500,000 2,549,718
Wal-Mart CRAVE Trust
07-17-06 7.00 7,297,849(d) 7,067,237
Total 24,674,295
Transportation (0.6%)
Enterprise Rent-A-Car USA Finance
02-15-08 6.80 10,000,000(d) 9,255,500
Company Guaranty Medium-term Nts
01-15-06 6.95 3,000,000 2,852,394
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 580,000(c) 191,400
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 2,070,000(c,d) 703,800
Total 13,003,094
Utilities -- electric (0.8%)
Cleveland Electric Illuminating
07-01-00 7.19 3,000,000 2,998,941
CMS Energy
Sr Nts
05-15-02 8.13 2,900,000 2,877,313
El Paso Electric
1st Mtge Series B
05-01-01 7.75 5,000,000 5,003,591
Public Service Electric & Gas
1st & Ref Mtge (AMBAC Insured)
01-01-16 6.75 7,365,000(l) 6,897,160
Total 17,777,005
Utilities -- gas (0.2%)
Columbia Gas System
Series E
11-28-10 7.32 5,043,000 4,734,436
Utilities -- telephone (1.9%)
AT&T Canada
(U.S. Dollar) Zero Coupon Sr Disc Nts
06-15-03 9.95 3,800,000(c,g) 3,002,000
Bell Atlantic Financial Services
Cv
09-15-05 4.25 870,000(d) 1,235,391
BellSouth Capital Funding
02-15-30 7.88 4,000,000 4,050,528
COLT Telecom Group
(European Monetary Unit)
03-29-06 2.00 395,000(c,d) 893,154
Covad Comm Group
Sr Nts
02-15-10 12.00 500,000(d) 455,000
France Telecom
(European Monetary Unit) Cv
11-29-04 4.13 1,225,000(c) 1,389,350
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 2,485,000(b) 3,106
Global Crossing Holdings
(U.S. Dollar) Sr Nts
11-15-09 9.50 850,000(c,d) 820,250
Intermedia Communications
Sr Nts Series B
06-01-08 8.60 5,000,000 4,350,000
03-01-09 9.50 1,500,000 1,387,500
Level 3 Communications
03-15-08 11.00 750,000(d) 716,250
03-15-10 6.00 990,000 971,438
McLeod USA
Sr Nts
03-15-08 8.38 500,000 450,000
Nextel Communications
11-15-09 9.38 1,000,000 920,000
Cv Sr Nts
01-15-10 5.25 987,000(d) 1,175,764
Omnipoint Communications
Sr Nts
08-15-06 11.63 1,000,000 1,068,750
Primus Telecomm Group
02-15-07 5.75 1,579,000(d) 1,665,845
Qwest Communications Intl
Sr Nts Series B
11-01-08 7.25 450,000 431,174
11-01-08 7.50 4,550,000 4,473,743
Rhythms NetConnections
Sr Nts
02-15-10 14.00 500,000(d) 442,500
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 500,000(c) 497,500
Sprint Capital
Company Guaranty
05-01-09 6.38 3,000,000 2,766,390
U S WEST Capital Funding
Company Guaranty
07-15-28 6.88 9,250,000 8,144,984
United Pan-Europe Communications
(U.S. Dollar) Sr Nts
02-01-10 11.25 925,000(c,d) 888,000
02-01-10 11.50 550,000(c,d) 528,000
Total 42,726,617
Municipal bond (0.1%)
New Jersey Economic Development
Authority State Pension Funding
Revenue Bond (MBIA Insured)
02-15-29 7.43 3,000,000(l) 2,980,590
Total bonds
(Cost: $600,719,766) $559,761,198
Short-term securities (1.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.5%)
Federal Home Loan Bank Disc Nts
04-14-00 5.70% $800,000 $798,230
06-02-00 6.03 6,900,000 6,827,912
Federal Home Loan Mtge Corp Disc Nt
04-04-00 5.72 1,300,000 1,299,174
Federal Natl Mtge Assn Disc Nt
06-22-00 6.11 2,700,000 2,661,280
Total 11,586,596
Commercial paper (0.6%)
Colgate-Palmolive
04-25-00 6.03 900,000(e) 896,250
Clorox
04-06-00 5.83 3,900,000 3,896,217
Corporate Receivables
04-11-00 5.89 2,000,000(e) 1,996,382
Intl Lease Finance
04-05-00 5.80 3,400,000 3,397,195
Windmill Funding
04-05-00 5.86 3,400,000(e) 3,397,195
Total 13,583,239
Total short-term securities
(Cost: $25,175,346) $25,169,835
Total investments in securities
(Cost: $1,990,014,840)(p) $2,182,218,406
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of March 31,
2000, the value of foreign securities represented 8.80% 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) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(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) Security is partially or fully on loan. See Note 5 to the financial
statements.
(i) 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.
(j) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at March 31, 2000, is as follows:
Security Acquisition Cost
dates
Alpharma 3.00% Cv Sr Sub Nts 2006* 02-24-00 $694,109
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 03-15-00 2,604,656
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(k) Partially pledged as initial margin deposit on the following open stock
index futures (see Note 6 to the financial statements):
Type of security Contracts
Sales contracts
Russell Index, June 2000 400
S&P 500 Index, June 2000 190
(l) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
MBIA -- Municipal Bond Investors Assurance
(m) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 6 to the financial statements):
Type of security Notional amount
Sale contracts
U.S. Treasury Note, June 2000, 5-year $15,000,000
U.S. Treasury Note, June 2000, 10-year 8,000,000
(n) ACES (Automatically Convertible Equity Securities) are structured as
convertible preferred securities. Investors receive an enhanced yield but based
upon a specific formula, potential appreciation is limited. ACES pay dividends,
have voting rights, are noncallable for at least three years and upon maturity,
convert into shares of common stock.
(o) PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are
structured as convertible preferred securities. Investors receive an enhanced
yield but based upon a specific formula, potential appreciation is limited.
PRIDES pay dividends, have voting rights, are noncallable for three years and
upon maturity, convert into shares of common stock.
(p) At March 31, 2000, the cost of securities for federal income tax purposes
was approximately $1,990,015,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $331,289,000
Unrealized depreciation (139,086,000)
------------
Net unrealized appreciation $192,203,000
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation, as amended December 13, 1988, filed
electronically as Exhibit 1 to Registrant's Post-Effective Amendment
No. 9 to Registration Statement No. 2-93801, are incorporated by
reference.
(b) By-laws, as amended January 10, 1996, filed electronically, as Exhibit
2 to Registrant's Post-Effective Amendment No. 25 to Registration
Statement No. 2-93801, are incorporated by reference.
(c) Stock Certificate for common stock, filed as Exhibit No. 4 to
Registration Statement No. 2-93801, is incorporated by reference.
(d)(1) Investment Management Services Agreement, dated July 1, 1999 between
Growth and Income Trust and American Express Financial Corporation,
was filed electronically as Exhibit (d) to Growth and Income Trust
Post-Effective Amendment No. 6 to Registration Statement No. 811-7393
on or about Nov. 29, 1999.
(d)(2) Addendum to the Investment Sub-Advisory Agreement, dated July 1, 1999
between American Express Financial Corporation and Kenwood Capital
Management LLC, was filed as Exhibit (d)(2) to Growth and Income Trust
Post-Effective Amendment No. 6 to Registration Statement No. 811-7393
on or about Nov. 29, 1999.
(e) Distribution Agreement, dated July 8, 1999, between AXP Utilities
Income Fund, Inc. and American Express Financial Advisors Inc. is
incorporated by reference to Exhibit (e) to AXP Utilities Income Fund,
Inc. Post-Effective Amendment No. 22, to Registration Statement File
No. 33-20872 filed on or about August 27, 1999. Registrant's
Distribution Agreement differs from the one incorporated by reference
only by the fact that Registrant is one executing party.
(f) All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
(g)(1) Custodian Agreement between Registrant and American Express Trust
Company, dated March 20, 1995, filed electronically as Exhibit 8(a) to
Registrant's Post-Effective Amendment No. 26 to Registration Statement
No. 2-93801, is incorporated by reference.
(g)(2) Addendum to the Custodian Agreement between IDS Managed Retirement
Fund, Inc., American Express Trust Company and American Express
Financial Corporation dated May 13, 1996, filed electronically as
Exhibit 8(b) to Registrant's Post-Effective Amendment No. 26 to
Registration Statement No. 2-93801, is incorporated by reference.
(g)(3) Custodian Agreement, dated May 13, 1999, between American Express
Trust Company and The Bank of New York is incorporated by reference to
Exhibit (g)(3) to IDS Precious Metals Fund, Inc. Post-Effective
Amendment No. 33 to Registration Statement File No. 2-93745 filed on
or about May 24, 1999.
<PAGE>
(g)(4) Custodian Agreement Amendment between IDS International Fund, Inc. and
American Express Trust Company, dated October 9, 1997, filed
electronically on or about December 23, 1997 as Exhibit 8(c) to IDS
International Fund, Inc.'s Post-Effective Amendment No. 26 to
Registration Statement No. 2-92309, is incorporated herein by
reference. Registrant's Custodian Agreement Amendment differed from
the one incorporated by reference only by the fact that Registrant is
on executing party.
(h)(1) Transfer Agency Agreement, dated March 9, 2000, between Registrant and
American Express Client Service Corporation is filed electronically
herewith.
(h)(2) Administrative Services Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(c) to Registrant's Post-Effective
Amendment No. 26 to Registration Statement No. 2-93801, is
incorporated by reference.
(h)(3) Agreement and Declaration of Unitholders between IDS Managed
Retirement Fund, Inc. and Strategist Growth and Income Fund, Inc.
dated May 13, 1996, filed electronically as Exhibit 9(d) to
Registrant's Post-Effective Amendment No. 26 to Registration Statement
No. 2-93801, is incorporated herein by reference.
(h)(4) License Agreement between Registrant and IDS Financial Corporation
Dated January 25, 1988, is incorporated by reference to Exhibit 9(h)
to Registrant's Post-effective Amendment No. 28 filed on or about Nov.
27, 1998.
(h)(5) Class Y Shareholder Service Agreement between IDS Managed Retirement
Fund, Inc. and American Express Financial Advisors Inc., dated May 9,
1997, filed as Exhibit 9(g) to Registrant's Post-Effective Amendment
No. 27 to Registration Statement No. 2-93801, is incorporated by
reference.
(h)(6) License Agreement, dated June 17, 1999, between the American Express
Funds and American Express Company, filed electronically on or about
September 23, 1999 as Exhibit (h)(4) to AXP Stock Fund, Inc.'s
Post-Effective Amendment No. 98 to Registration Statement No. 2-11358,
is incorporated herein by reference.
(i) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
(j) Consent of Independent Auditors is filed electronically herewith.
(k) Omitted Financial Statements: None.
(l) Letter of IDS/American Express Inc. as sole shareholder, filed as
Exhibit 13 to Pre-Effective Amendment No. 1 to Registration Statement
No. 2-93801, is incorporated by reference.
(m)(1) Plan and Agreement of Distribution dated July 1, 1999 between AXP
Discovery 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.
(m)(2) Plan and Agreement of Distribution for Class C Shares dated March 9,
2000 between AXP Bond Fund, Inc. and American Express Financial
Advisors Inc. is incorporated by reference to Exhibit (m)(2) to AXP
Bond Fund, Inc.'s Post-Effective Amendment No. 51 to Registration
Statement File No. 2-51586 filed on or about June 26, 2000.
Registrant's Plan and Agreement of Distribution for Class C Shares
differs from the one incorporated by reference only by the fact that
Registrant is one executing party.
<PAGE>
(n) Rule 18f-3 Plan, dated March 2000, is incorporated by reference to
Exhibit (n) to AXP Bond Fund Inc.'s Post-Effective Amendment No. 51 to
Registration Statement File No. 2-51586 filed on or about June 26,
2000.
(o) Reserved.
(p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed
electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP
Market Advantage Series, Inc.'s Post-Effective Amendment No 24 to
Registration Statement No. 33-30770 is incorporated by reference.
(p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment
advisor and principal underwriter filed electronically on or about
March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series,
Inc.'s Post-Effective Amendment No. 24 to Registration Statement No.
33-30770 is incorporated by reference.
(q)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 13, 2000 is filed electronically herewith as
Exhibit (q)(1).
(q)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 13, 2000 is filed electronically herewith as
Exhibit (q)(2).
(q)(3) Trustees' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 13, 2000 is filed electronically herewith as
Exhibit (q)(3).
(q)(4) Officers' Power of Attorney to sign amendments to this Registration
Statement dated Jan. 13, 2000 is filed electronically herewith as
Exhibit (q)(4).
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
Item 25. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
<PAGE>
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Item 26. Business and Other Connections of Investment Adviser (American Express Financial Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more
other companies:
<S> <C> <C> <C>
Name and Title Other company(s) Address Title within other
company(s)
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and Vice President
Company
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Peter J. Anderson, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
IDS Life Series Fund, Inc. Director
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Futures Corporation Director and President
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Karl J. Breyer, American Express Financial IDS Tower 10 Senior Vice President
Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440
Vice President
American Express Financial Director
Advisors Japan Inc.
American Express Minnesota Director
Foundation
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
President and Chief Marketing
Officer
IDS Life Insurance Company Executive Vice President
Kenneth I. Chenaut American Express Company American Express Tower President and Chief
Director World Financial Center Operating Officer
New York, NY 10285
James E. Choat, American Centurion Life IDS Tower 10 Executive Vice President
Director and Senior Vice Assurance Company Minneapolis, MN 55440
President
American Enterprise Life Director, President and
Insurance Company Chief Executive Officer
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Executive Vice President
of New York Albany, NY 12205
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President - Retail
Vice President - Retail Advisors Inc. Minneapolis, MN 55440 Distribution Services
Distribution Services
Colleen Curran, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Service Vice President and Chief
Corporation Legal Counsel
Luz Maria Davis American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Douglas K. Dunning, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President,
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief
President, General Counsel Compliance Officer
and Chief Compliance Officer
American Express Financial Vice President and Chief
Advisors Japan Inc. Compliance Officer
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Alabama Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Massachusetts Inc.
IDS Insurance Agency of Director and Vice President
New Mexico Inc.
IDS Insurance Agency of Director and Vice President
North Carolina Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Insurance Agency of Director and Vice President
Wyoming Inc.
IDS Real Estate Services, Vice President
Inc.
Investors Syndicate Director
Development Corp.
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
Gordon M. Fines, American Express Asset IDS Tower 10 Senior Vice President and
Vice President Management Group Inc. Minneapolis, MN 55440 Chief Investment Officer
American Express Financial Vice President
Advisors Inc.
Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
American Express Financial Director, President and
Advisors Japan Inc. Chief Executive Officer
Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Corporate Insurance Company Minneapolis, MN 55440 Controller
Controller
American Express Financial Vice President and
Advisors Inc. Corporate Controller
Peter A. Gallus American Express Financial IDS Tower 10 Vice President-Investment
Vice President-Investment Advisors Inc. Minneapolis, MN 55440 Administration
Administration
Harvey Golub, American Express Company American Express Tower Chairman and Chief
Director World Financial Center Executive Officer
New York, NY 10285
American Express Travel Chairman and Chief
Related Services Company, Executive Officer
Inc.
David A. Hammer, American Express Financial IDS Tower 10 Vice President and
Vice President and Marketing Advisors Inc. Minneapolis, MN 55440 Marketing Controller
Controller
IDS Plan Services of Director and Vice President
California, Inc.
Teresa A. Hanratty American Express Financial IDS Tower 10 Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President-Field Management
President-Field Management
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
Scott A. Hawkinson, American Express Financial IDS Tower 10 Vice President and
Vice President and Controller Advisors Inc. Minneapolis, MN 55440 Controller
Janis K. Heaney, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Brian M. Heath American Express Financial IDS Tower 10 Senior Vice President and
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Sales Manager
President and General Sales
Manager
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
American Express Asset Vice President
Management International
Inc.
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President and Corporate Minneapolis, MN 55440 and Assistant Secretary
Treasurer
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Financial Vice President and
Advisors Japan Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Partners Life Vice President and
Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
Public Employee Payment Vice President and
Company Treasurer
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director, President and Chief Minneapolis, MN 55440
Executive Officer
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Debra A. Hutchinson American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
James M. Jensen, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Controller-Advice and
Controller-Advice and Retail Retail Distribution Group
Distribution Group
IDS Life Insurance Company Vice President
Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Nancy E. Jones, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
Ora J. Kaine, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Linda B. Keene, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President - Insurance Products
American Centurion Life Director and Chairman of
Assurance Company the Board
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Director and President
Corporation
American Express Financial Senior Vice President -
Advisors Inc. Insurance Products
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of Director and President
New Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director, Chief Executive
Officer and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director and Chairman of
of New York Albany, NY 12205 the Board
John M. Knight American Express Financial IDS Tower 10 Vice President
Advisors Minneapolis, MN 55440
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President-Direct and
President-Direct and Interactive Group
Interactive Group
Kurt A Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief U.S. Advisors Inc. Minneapolis, MN 55440 U.S. Economist
Economist
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President -
Vice President - Distribution Advisors Inc. Minneapolis, MN 55440 Distribution Channel
Channel Marketing Marketing
Timothy J. Masek American Express Financial IDS Tower 10 Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Global Research
of Global Research
Sarah A. Mealey, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Director
Corporation
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
Investors Syndicate Director, Chairman of the
Development Corporation Board and President
Shashank B. Modak American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Pamela J. Moret, American Express Financial IDS Tower 10 Senior Vice President -
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 Investment Products
President - Investment
Products
American Express Trust Vice President
Company
IDS Certificate Company Director
IDS Life Insurance Company Executive Vice President
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Senior Vice Service Corporation Minneapolis, MN 55440
President
American Enterprise Director
Investment Services, Inc.
American Express Financial Senior Vice President
Advisors Inc.
IDS Life Insurance Company Director and Executive
Vice President
Mary Owens Neal, American Express Financial IDS Tower 10 Vice President-Consumer
Vice President-Consumer Advisors Inc. Minneapolis, MN 55440 Marketing
Marketing
Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
Carla P. Pavone, American Express Financial IDS Tower 10 Vice
Vice President-Compensation Advisors Inc. Minneapolis, MN 55440 President-Compensation
Services and ARD Product Services and ARD Product
Distribution Distribution
Public Employee Payment Director and President
Company
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
James M. Punch, American Express Financial IDS Tower 10 Vice President - Branded
Vice President - Branded Advisors Inc. Minneapolis, MN 55440 Platform Project
Platform Project
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Senior Vice President and
Director and Senior Vice Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager
President
American Express Financial Senior Vice President
Advisors Inc.
Rollyn C. Renstrom, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Rebecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
Stephen W. Roszell, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
American Express Trust Director
Company
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
Theresa M. Sapp American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Director, Senior Vice Minneapolis, MN 55440
President and Chief Financial
Officer
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and President
Company
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Assistant Insurance Company Minneapolis, MN 55440 General Counsel and
General Counsel Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
James J. Strauss, American Express Financial IDS Tower 10 Vice President
Vice President and General Advisors Inc. Minneapolis, MN 55440
Auditor
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Keith N. Tufte American Express Financial IDS Tower 10 Vice President and
Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Equity Research
of Equity Research
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
Jeffry F. Welter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Financial Vice President and Chief
Advisors Japan Inc. Legal Officer
Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440 and Senior Portfolio
Manager
American Express Financial Vice President
Advisors Inc.
Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
</TABLE>
Item 27. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for
the following investment companies:
AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery
Fund, Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.;
AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth
Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International
Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP
Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP New
Dimensions Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive
Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series
Trust; AXP Stock Fund, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt
Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund,
Inc., Growth Trust; Growth and Income Trust; Income Trust; Tax-Free
Income Trust; World Trust; IDS Certificate Company; Strategist Income
Fund, Inc.; Strategist Growth Fund, Inc.; Strategist Growth and Income
Fund, Inc.; Strategist World Fund, Inc. and Strategist Tax-Free Income
Fund, Inc.
(b) As to each director, officer or partner of the principal underwriter:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President-Investment Vice President-Investments
IDS Tower 10 Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American Express None
IDS Tower 10 Retirement Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President - Mutual Fund None
IDS Tower 10 Equities
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice President-Ohio/Indiana None
Suite 100
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President-Los Angeles None
Suite 900, E. Westside Twr Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Nonproprietary None
IDS Tower 10 Products
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President - San None
1333 N. California Blvd., Suite 200 Francisco Area
Walnut Creek, CA 94596
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Corporate Senior Vice President None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice President - Third None
IDS Tower 10 Party Distribution
Minneapolis, MN 55440
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President-Retail - Retail None
IDS Tower 10 Distribution Services
Minneapolis, MN 55440
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas/ None
Suite 200 Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
Colleen Curran Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Arthur E. Delorenzo Group Vice President - Upstate None
4 Atrium Drive, #100 New York
Albany, NY 12205
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Douglas K. Dunning Vice President-Assured Assets None
IDS Tower 10 Product Development and Management
Minneapolis, MN 55440
James P. Egge Group Vice President-Western None
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Phillip W. Evans Group Vice President-Rocky None
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President-Mutual Fund Equity None
IDS Tower 10 Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President - International None
IDS Tower 10
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Gateway None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
Peter A. Gallus Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Senior Vice President-Field None
Suites 6&7 Management
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston Metro None
Two Constitution Plaza
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
Brian M. Heath Senior Vice President and General None
Suite 150 Sales Manager
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President-Incentive None
IDS Tower 10 Management
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Tennessee None
30 Burton Hills Blvd. Valley
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Debra A. Hutchinson Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
James M. Jensen Vice President and None
IDS Tower 10 Controller-Advice and Retail
Minneapolis, MN 55440 Distribution Group
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President-Business None
IDS Tower 10 Development
Minneapolis, MN 55440
Ora J. Kaine Vice President-Financial Advisory None
IDS Tower 10 Services
Minneapolis, MN 55440
Linda B. Keene Vice President-Market Development None
IDS Tower 10
Minneapolis, MN 55440
Raymond G. Kelly Group Vice President-North Texas None
Suite 250
801 East Campbell Road
Richardson, TX 75081
Richard W. Kling Senior Vice President-Insurance None
IDS Tower 10 Products
Minneapolis, MN 55440
John M. Knight Vice President-Investment Treasurer
IDS Tower 10 Accounting
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Direct and Interactive
Minneapolis, MN 55440 Group
Mitre Kutanovski Group Vice President-Chicago Metro None
Suite 680
8585 Broadway
Merrillville, IN 48410
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President-Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
<PAGE>
Fred A. Mandell Vice President-Distribution None
IDS Tower 10 Channel Marketing
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Timothy J. Masek Vice President and Director of None
IDS Tower 10 Global Research
Minnapolis, MN 55440
Sarah A. Mealey Vice President-Mutual Funds None
IDS Tower 10
Minneapolis, MN 55440
Paula R. Meyer Vice President-Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
Shashank B. Modak Vice President - Technology Leader None
IDS Tower 10
Minneapolis, MN 55440
Pamela J. Moret Senior Vice President-Investment None
IDS Tower 10 Products and Vice
Minneapolis, MN 55440 President-Variable Assets
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Consumer Marketing None
IDS Tower 10
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President-Advisory Business None
IDS Tower 10 Systems
Minneapolis, MN 55440
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Marc A. Parker Group Vice None
10200 SW Greenburg Road President-Portland/Eugene
Suite 110
Portland, OR 97223
Carla P. Pavone Vice President-Compensation None
IDS Tower 10 Services and ARD Product
Minneapolis, MN 55440 Distribution
Thomas P. Perrine Senior Vice President-Group None
IDS Tower 10 Relationship Leader/American
Minneapolis, MN 55440 Express Technologies Financial
Services
Susan B. Plimpton Vice President-Marketing Services None
IDS Tower 10
Minneapolis, MN 55440
Larry M. Post Group Vice President-Philadelphia None
One Tower Bridge Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Diana R. Prost Group Vice None
3030 N.W. Expressway President-Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
James M. Punch Vice President Branded Platform None
IDS Tower 10 Project
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President-Fixed Income Vice President - Fixed Income
IDS Tower 10 Investments
Minneapolis, MN 55440
Rollyn C. Renstrom Vice President-Corporate Planning None
IDS Tower 10 and Analysis
Minneapolis, MN 55440
R. Daniel Richardson III Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial Advisory
Minneapolis, MN 55440 Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
Diane M. Ruebling Group Vice President-Central None
Suite 200, Bldg. B California/Western Nevada
2200 Douglas Blvd.
Roseville, CA 95661
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Theresa M. Sapp Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President-Arizona/Las None
Suite 205 Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief None
IDS Tower 10 Financial Officer
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President-Quality and None
IDS Tower 10 Service Support
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern Iowa None
466 Westdale Mall Area
Cedar RapIDS, IA 52404
Bridget Sperl Vice President-Geographic Service None
IDS Tower 10 Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - Marketing Offer None
IDS Tower 10 Development
Minneapolis, MN 55440
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President and General Auditor None
IDS Tower 10
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President-Channel Development None
IDS Tower 10
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President Board Member
IDS Tower 10
Minneapolis, MN 55440
Keith N. Tufte Vice President and Director of None
IDS Tower 10 Equity Research
Minneapolis, MN 55440
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President-Detroit Metro None
8115 East Jefferson Avenue
Detroit, MI 48214
Donald F. Weaver Group Vice President-Greater None
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President - Alliance None
1010 Main St. Suite 2B Group
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
Rande L. Zellers Group Vice President-Gulf States None
1 Galleria Blvd., Suite 1900
Metairie, LA 70001
</TABLE>
Item 27 (c). Not Applicable
Item 28. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant, AXP Managed Series, Inc., certifies that it meets all of
the requirements for effectiveness of this registration statement under Rule
485(b) under the Securities Act and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Minneapolis and State of Minnesota on the 13th day of
June, 2000.
AXP MANAGED SERIES, INC.
By /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer
By /s/ John M. Knight
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to its
Registration Statement has been signed below by the following persons in the
capacities indicated on the 13th day of June, 2000.
Signature Capacity
________________________
Peter J. Anderson Director
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson* Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ William R. Pearce* Director
William R. Pearce
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ John R. Thomas* Director
John R. Thomas
<PAGE>
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated Jan. 13, 2000, filed
electronically herewith as Exhibit (q)(1), by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney, dated Jan. 13, 2000, filed
electronically herewith as Exhibit (q)(2), by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, GROWTH AND INCOME TRUST consents to the filing of this Amendment to the
Registration Statement of AXP Managed Series, Inc. signed on its behalf by the
undersigned, duly authorized, in the City of Minneapolis and State of Minnesota
on the 13th day of June, 2000.
GROWTH AND INCOME TRUST
By /s/ Arne H. Carlson****
Arne H. Carlson
Chief Executive Officer
By /s/ John M. Knight
John M. Knight
Treasurer
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities indicated on the 13th day of June, 2000.
Signature Capacity
____________________________
Peter J. Anderson Trustee
/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
/s/ Anne P. Jones*** Trustee
Anne P. Jones
/s/ William R. Pearce*** Trustee
William R. Pearce
/s/ Alan K. Simpson*** Trustee
Alan K. Simpson
<PAGE>
/s/ John R. Thomas*** Trustee
John R. Thomas
/s/ C. Angus Wurtele*** Trustee
C. Angus Wurtele
***Signed pursuant to Trustees' Power of Attorney dated Jan. 13, 2000, filed
electronically herewith as Exhibit (q)(3), by:
/s/ Leslie L. Ogg
Leslie L. Ogg
****Signed pursuant to Officers' Power of Attorney dated Jan. 13, 2000, filed
electronically herewith as Exhibit (q)(4), by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 31 TO REGISTRATION STATEMENT NO.
2-93801
This Post-Effective Amendment comprises the following papers and documents:
The facing sheet.
Part A.
The prospectus for AXP Managed Allocation Fund.
Part B.
Statement of Additional Information for AXP Managed Allocation Fund.
Financial Statements.
Part C.
Other information.
Exhibits.
The signatures.
