<PAGE>
Privileged Assets Select Annuity
Retirement Annuity
Mutual Funds
1997 Annual Report
IDS Life Capital Resource Fund
IDS Life Special Income Fund
IDS Life Managed Fund
IDS Life Moneyshare Fund
IDS Life International Equity Fund
IDS Life Aggressive Growth Fund
part of
IDS Mutual Fund Group
<PAGE>
Contents
(icon of) One open book inside of another.
The purpose of this annual report is to tell investors how the Funds performed.
The prospectus, which is bound into the middle of this annual report,
describes the Funds in detail.
1997 annual report
From the chairman of the board 4
Capital Resource Fund 5
From the portfolio manager 5
The Fund's ten largest holdings 6
The Fund's long-term performance 7
Special Income Fund 8
From the portfolio manager 8
The Fund's ten largest holdings 9
The Fund's long-term performance 10
Managed Fund 11
From the portfolio manager 11
The Fund's ten largest holdings 12
The Fund's long-term performance 13
Moneyshare Fund 14
From the portfolio manager 14
International Equity Fund 15
From the portfolio manager 15
The Fund's ten largest holdings 16
The Fund's long-term performance 17
Aggressive Growth Fund 18
From the portfolio manager 18
The Fund's ten largest holdings 19
The Fund's long-term performance 20
All Funds 21
Independent auditors' report 21
Financial statements 22
Notes to financial statements 30
Investments in securities 45
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
From the chairman of the board
The past fiscal year was largely a productive period for financial assets,
especially U.S. stocks. As a result, all of the IDS Life Retirement
Annuity Mutual Funds experienced positive results for the period --
September 1996 through August 1997.
While the stock and bond markets can be volatile on a short-term basis,
they historically have provided attractive returns over the long term. A
focus on long-term financial objectives and a balanced investment program
are good guidelines for investing in today's economic environment.
The IDS Life Retirement Annuity Mutual Funds allow you to take advantage
of long-term opportunities through a variety of investment avenues. Your
American Express financial advisor can tell you about the role each fund
can play in meeting your long-term financial objectives.
Your advisor also can help make sure your investment and protection
strategies continue to fit your financial situation. As your objectives
and time horizons change, talk to your advisor about the broad range of
American Express products and services designed to help you meet a variety
of investment and protection needs.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
(This annual report is not part of the prospectus.)
<PAGE>
From the portfolio manager
Capital Resource Fund's value rose sharply during the final months of the
fiscal year, as it took good advantage of a surging stock market. For the
period -- September 1996 through August 1997 -- the Fund's gain was
28.47%. (This figure does not reflect expenses that apply to the variable
accounts, subaccounts, or the annuity contract.)
Buoyed by low long-term interest rates and ongoing reports of solid
economic growth, tame inflation and healthy corporate profits, the stock
market started moving higher almost in concert with the beginning of the
fiscal year. From that point through period-end, stocks experienced only
two stumbles worth noting -- one early last spring and another this past
August, both resulting from a run-up in long-term interest rates. The rest
of the time, the market hardly took time to catch its breath as it raced
into ever-higher record territory.
As has been true in recent years, stocks of large companies ("large-caps")
generally performed far better than stocks of small companies
("small-caps"). When I became manager of the Fund in early 1997, I added
many more rapidly growing large-caps -- including stalwarts such as
General Electric, Microsoft, Intel, Procter & Gamble and Coca-Cola -- to
take advantage of that trend, which, to the Fund's benefit, continued
through most of the fiscal year. Moreover, I added or expanded investments
in several mid-cap growth stocks such as
Ace Insurance, Carnival Cruise, USA Waste, Rite Aid and Kohl's, which also
proved to be productive.
Also working to the Fund's advantage was a paring back of the number of
holdings, from 121 to 91 at period-end. This reduction allowed the Fund to
take more substantial positions in those stocks that appeared to hold the
greatest promise. Concurrently, I avoided investments in utilities, a
group that turned out to be a laggard performer. Finally, I maintained a
low level of cash reserves, a strategy that paid off given the meager
return provided by cash-equivalent investments compared with that
generated by well-performing stocks.
As a new fiscal year begins, the investment environment is little changed
from 12 months ago. Inflation remains well-behaved, interest rates are at
a comfortable level, the economy continues to chug along and corporate
profits still look good. As for the stock market, I think the best rewards
may come from so-called `cyclical stocks' _ those of companies whose
fortunes closely follow the ebb and flow of the economy. Therefore, to
complement the growth stocks that form the core of the portfolio, I have
begun shifting some investments toward companies in the auto, retailing,
energy, aerospace and paper industries, which should benefit more than
most if the economy keeps growing.
Joseph M. Barsky
(picture of) Joseph M. Barsky
Joseph M. Barsky
Portfolio manager
(This annual report is not part of the prospectus.)
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The Fund's ten largest holdings
Capital Resource Fund
(icon of) pie chart
The ten holdings listed here make up 18.62% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of Aug. 31, 1997)
ACE 2.22% $108,062,500
Compaq Computer 2.02 98,250,000
Tyco Intl 1.93 94,125,000
General Electric 1.93 93,750,000
USA Waste Service 1.81 88,200,000
Carnival Cl A 1.80 87,625,000
Microsoft 1.76 85,921,875
Deere & Co 1.73 84,000,000
Solectron 1.72 83,750,000
State Street 1.70 82,712,700
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Capital Resource Fund
How $10,000 has grown in Capital Resource Fund
Capital Resource Fund
$31,962
S&P 500
$10,000
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
Average annual total returns
(as of August 31, 1997)
1 year 5 years 10 years
+28.47% +13.36% +12.32%
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, Standard & Poor's 500 Stock Index (S&P
500).
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance. However, the S&P 500 companies
are generally larger than those in which the Fund invests.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Special Income Fund
From the portfolio manager
Led by investments in foreign markets and high-yield U.S. corporate bonds,
Special Income Fund had a productive fiscal year. For the period --
September 1996 through August 1997 -- the Fund's value appreciated 12.24%.
(This figure does not reflect expenses that apply to the variable
accounts, subaccounts or the annuity contract.)
Thanks to reports of moderate economic growth and benign inflation, the
mood of the U.S. bond market began improving about the time the period
began. Investors' confidence increased through last fall, driving
long-term interest rates lower and bond prices higher. The rally stalled
out over the winter, though, and ultimately turned into a retreat, as
concern about a strengthening economy leading to higher inflation spawned
a rising-rate trend that took a toll on the market. The period ended on an
encouraging note, though, when the bond market, reassured by ongoing
reports of low inflation, recovered nicely from May through July as
long-term interest rates came back down.
During the 12 months, the best-performing U.S. fixed-income investments
proved to be high-yield corporate bonds, which tend to thrive during
periods of economic growth and well-behaved inflation. As has been true
for some time, I kept between 15% and 20% of assets invested in such
securities, which not only provided a substantial yield but some price
appreciation as well. Complementing those holdings were investments in
so-called "emerging" foreign markets such as Russia, Mexico, Africa and
Argentina. They comprised between 8% and 15% of assets and were among the
best-performing sectors of the worldwide bond market.
As for the rest of the portfolio, I kept the assets diversified among
investment-grade U.S. corporate bonds, mortgage-backed bonds and U.S.
Treasury bonds. Investments in those high-quality sectors, which comprised
between 50% and 70% of assets, provided positive results, though less
impressive than those of the emerging-market and high-yield U.S. corporate
bonds described previously.
The most consequential change to the portfolio came late last winter, when
I shortened its duration in anticipation of a rising-interest-rate trend
-- a negative for bond values. (Duration, a function of the average
maturity of the portfolio's investments, determines how sensitive a
portfolio's value is to changes in interest rates. The longer the
duration, the greater the sensitivity.) While rates did rise, the trend
soon reversed direction, causing the portfolio's performance to lag
somewhat. As the period progressed, I brought the duration back to a
neutral level, which I will likely maintain unless inflation and interest
rates appear to be headed substantially higher.
Steven C. Merrell
(picture of Steven C. Merrell
Steven C. Merrell
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's ten largest holdings
Special Income Fund
(icon of) pie chart
The ten holdings listed here make up 8.28% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of Aug. 31, 1997)
Hydro Quebec 1.16 $22,387,800
8.50% 2029
General Motors Acceptance 1.04 20,089,800
7.85% 1997
Time Warner Entertainment 1.01 19,415,020
9.15% 2023
United Kingdom Treasury .84 16,051,266
8.00% 2003
Univision Network .76 14,677,800
15.18% 2002
Govt of Canada .74 14,290,527
7.64% 2001
Wal-Mart Stores .74 14,155,978
7.00% 2006
Morgan (JP) .68 12,991,300
4.00% 2012
Tenet Healthcare .67 12,950,500
10.125% 2005
Ministry Finance Russia .64 12,402,500
9.25% 2001
Excludes U.S. Treasury and government agency holdings.
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Special Income Fund
How $10,000 has grown in Special Income Fund
Special Income Fund
$24,987
Lehman Aggregate
Bond Index
$10,000
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
Average annual total returns
(as of August 31, 1997)
1 year 5 years 10 years
+12.24% +9.28% +9.59%
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Lehman Aggregate Bond Index.
The Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities and
mortgage-backed securities. The index is frequently used as a general
measure of bond market performance. However, the securities used to create
the index may not be representative of the bonds held in Special Income
Fund.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Managed Fund
From the portfolio managers
Supported by an overall strong stock market and periodic rallies in the
bond market, Managed Fund's value appreciated 28.54% during the fiscal
year -- September 1996 through August 1997. (This figure does not reflect
expenses that apply to the variable accounts, subaccounts, or the annuity
contract.)
The beginning of the period coincided with the outset of a powerful
advance by the stock market. Thanks to tame inflation, solid economic
growth, generally good corporate profits and relatively low long-term
interest rates, stocks gained ground through the fall and winter, before
stalling out in mid-March. By that time, increased concern about a
potential rise in inflation had driven up long-term interest rates, which
in turn drove the market down over the ensuing weeks. But by summer,
stocks had righted themselves and were on their way to record-high levels.
The Fund was well-prepared for the rally, with about two-thirds of the
portfolio's assets invested in stocks. Prior to the start of the fiscal
year, we repositioned the stock holdings with an emphasis on companies
with above-average earnings growth in the following sectors: technology
(the portfolio's largest investment), financial services, health care and
consumer products. To the portfolio's benefit, these sectors were among
the best performers over the past 12 months. In addition, we also reduced
the number of stock holdings from 125 to about 90, which we believe
provides ample diversification while allowing the potential for the Fund
to benefit from more concentrated investments in fewer stocks.
Bonds roughly tracked stocks' pattern during the period, as they advanced
smartly last fall, gave back much of their gain over the winter and early
spring, then rebounded in the summer. The swings basically followed
investors' outlooks for economic growth and inflation. Last fall, most
were expecting weaker growth and low inflation -- a view that flip-flopped
a few months later, then resurfaced in the summer.
Given our expectation of a rather volatile market, we maintained an
essentially "neutral" structure in the bond portion of the portfolio. That
strategy kept the value of our holdings from experiencing excessive
swings. To help maintain the income level of the bond investments, we also
added some higher-yielding securities.
As for the new fiscal year, given stocks' spectacular gain in the previous
period, it's difficult to imagine a repeat performance. Still, the
investment environment continues to be reasonably good for both stocks and
bonds, so, at this time (mid-September) we see no reason to substantially
change the investment mix.
Alfred Henderson
(picture of) Alfred Henderson
Alfred Henderson
Portfolio manager
Deborah L. Pederson
(picture of) Deborah L. Pederson
Deborah L. Pederson
Porfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
Managed Fund
(icon of) pie chart
The ten holdings listed here make up 16.19% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of Aug. 31, 1997)
<S> <C> <C>
Intel 2.57% $114,235,000
Compaq Computer 2.51 111,677,500
General Electric 1.69 75,000,000
Merck 1.65 73,450,000
Travelers Group 1.46 65,087,500
Morgan Stanley, Dean Witter & Discover 1.41 62,562,500
Boeing 1.39 61,786,562
Northern Telecom 1.25 55,510,000
Washington Mutual 1.14 50,893,750
Microsoft 1.12 49,570,313
Excludes U.S. Treasury and government agency holdings.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
The Fund's long-term performance
Managed Fund
How $10,000 has grown in Managed Fund
Managed Fund
$30,861
S&P 500
$10,000
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
Average annual total returns
(as of August 31, 1997)
1 year 5 years 10 years
+28.54 +13.51% +11.93%
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, Standard & Poor's 500 Stock Index (S&P
500).
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance. However, the S&P 500 companies
are generally larger than those in which the Fund invests.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Moneyshare Fund
From the portfolio manager
Moneyshare Fund's yield was little changed during the past fiscal year
(September 1996 through August 1997), reflecting largely stable short-term
interest rates over the period.
For the seven-day period ended August 31, 1997, the Fund's compound
annualized yield was 5.24%, and the simple annualized yield was 5.11%. In
keeping with its objective, the Fund maintained a $1 per share price
throughout the 12 months. (Although the Fund seeks to maintain a stable $1
per share price, there is no assurance that it will be able to do so. An
investment in the fund is neither insured nor guaranteed by the U.S.
government.)
With inflation remaining subdued and the economy showing no signs of
either overheating or falling into recession, the Federal Reserve Board
(the Fed) elected to leave short-term interest rates unchanged through
last fall and winter.
By late March, though, the Fed evidently believed that inflationary
pressures had reached the point that a rate increase was necessary, so it
raised the federal funds rate -- the interest rate banks pay on overnight
loans -- by a quarter percent. The increase marked the first rate
adjustment by the Fed since 1994 and, as it turned out, the only one in
the past 12 months.
Because I was expecting the Fed to raise rates, I kept the average
maturity of the Fund's investments somewhat shorter than normal -- mostly
between 35 and 40 days. This strategy is based on the fact that the longer
the Fund's average maturity, the longer it takes the Fund's yield to
respond to a change in interest rates. Therefore, when rates rise, a
shorter maturity allows me to more quickly add new, higher-yielding
investments, which modestly increases the income paid to shareholders. On
the other hand, should rates decline, a shorter maturity results in
slightly less income. As always, the entire portfolio remained invested in
first-rated commercial paper, bank letters of credit and certificates of
deposit.
Looking to the current fiscal year, I think the odds continue to favor
somewhat higher interest rates. At this writing (mid-September), the
economy is still showing positive momentum, and, with unemployment at an
uncommonly low level, I think it's likely that upward pressure on wages
will ultimately push inflation up a bit. If that forecast is reasonably
accurate, the Fed will probably deem it necessary to raise short-term
rates again, in which case the Fund's yield would rise as well.
Terry Fettig
(picture of) Terry Fettig
Terry Fettig
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
International Equity Fund
From the portfolio manager
Foreign stock markets experienced highly mixed results during the past 12
months. Nevertheless, the Fund's value did increase by 9.34% over the
fiscal year -- September 1996 through August 1997. (This figure does not
reflect expenses that apply to the variable accounts, subaccounts, or the
annuity contract.)
The major foreign stock markets trailed the striking advance of the U.S.
market during the period. Japan, the Fund's largest area of investment,
showed occasional signs of a comeback, but returns there were penalized by
currency weakness, as the yen continued to lose value versus the U.S.
dollar. As the period progressed, I scaled back the Fund's exposure to
Japan from about 30% to as low as 15% at times. At this point, the
Japanese market has a two-tier structure -- companies that are competitive
on a worldwide basis and those that are not. Stocks in the former group
recently have been the best performers, and that is where I have been
concentrating the Fund's Japanese investments.
In the well-established markets of Europe, the United Kingdom provided
positive results, thanks in part to a favorable currency situation -- that
is, the pound strengthening versus the dollar. The Fund's U.K. exposure
ranged between 10% and 20% during the 12 months. In continental Europe,
including France, Germany, Italy and the Netherlands each of which
comprised up to 10% of assets, stocks gained ground. But like Japan,
returns to U.S. investors were, in most cases, eroded by the dollar's rise
in value versus the local currencies.
Still, there were some notable exceptions to that trend, particularly the
so-called "emerging" markets in Latin America, including Argentina, Chile,
Mexico and Brazil. While the Fund's investments there were not
substantial, their generous returns enhanced Fund performance. On the
other hand, the markets of Southeast Asia, including Malaysia and
Singapore, experienced huge declines last summer. While the Fund had only
small holdings in those markets, the severity of the decline culminated in
a marked effect on performance during August.
My outlook for foreign markets remains largely positive, especially for
several of the emerging markets. As for the larger, more-established
markets, including Germany, the U.K. and Japan, I think the bulk of the
currency weakness is behind them. If so, that would be a plus for U.S.
investors, including this Fund. Assuming their economies show faster
growth, which I anticipate, those markets should respond positively.
Peter Lamaison
(picture of) Peter Lamaison
Peter Lamaison
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
The Fund's ten largest holdings
International Equity Fund
(icon of) pie chart
The ten holdings listed here make up 24.31% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of Aug. 31, 1997)
<S> <C> <C>
Philips Electronics (Netherlands) 4.61% $97,054,882
Ente Nazionale Idrocarburi (Italy) 2.87 60,474,350
Ericsson (LM) B Free (Sweden) 2.37 49,802,502
Roche Holding (Switzerland) 2.34 49,174,856
Novartis (Switzerland) 2.33 49,037,746
HSBC Holdings (Hong Kong) 2.22 46,679,243
Telecom Italia Risp (Italy) 1.97 41,505,333
Banque Nationale de Paris (France) 1.94 40,834,635
BG (United Kingdom) 1.84 38,807,569
Cheung Kong Holdings (Hong Kong) 1.82 38,346,729
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
The Fund's long-term performance
International Equity Fund
How $10,000 has grown in International Equity Fund
International
Equity Fund
$16,323
Morgan Stanley Capital
International World Index
$10,000
1/13/92 '92 '93 '94 '95 '96 '97
Average annual total returns
(as of August 31, 1997)
Since
1 year 5 years inception*
+9.34% +10.22% +9.12%
*Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the Morgan Stanley Capital International
World Index (World Index).
The World Index, compiled from a composite of securities listed on the
markets of North America, Europe, Australasia and the Far East is widely
recognized by investors as the measurement index for portfolios that
invest in the major markets of the world
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
To our contract owners
Aggressive Growth Fund
From the portfolio manager
Stocks continued to enjoy a favorable environment during the past 12
months, enabling the Fund to record positive results. For the fiscal year
-- September 1996 through August 1997 -- the Fund's value appreciated
18.60%. (This figure does not reflect expenses that apply to the variable
accounts, subaccounts, or the annuity contract.)
Almost on cue with the beginning of the fiscal year, the stock market
began moving forward last fall. Buoyed by ongoing reports of modest
economic growth, well-behaved inflation, healthy corporate profits and a
subsequent decline in interest rates, stocks soon mounted a powerful rally
that, aside from a few, brief setbacks, continued through February. At
that point, concern about potentially higher inflation sent the market
into a several-week slide. Stocks rebounded strongly over much of the
summer, however, to more than make up for the decline.
As has been the case in recent years, stocks of large companies generally
performed better than those of smaller companies for nearly the entire
fiscal year. Because Aggressive Growth's investment focus is on the latter
group of stocks, this trend worked to the disadvantage of the Fund. Still,
smaller stocks did participate in the rally, and the Fund produced a gain
in 11 of the 12 months.
I kept the Fund's investments well-diversified during the period, with
stocks of technology, health care, energy and financial services companies
comprising the areas of greatest emphasis. Although all groups contributed
to the Fund's positive performance, thanks to rising oil prices,
energy-related stocks were especially rewarding. Technology stocks, the
Fund's largest exposure, were quite volatile but, overall, provided
positive results.
To cushion the Fund against potential market volatility, I maintained a
higher-than-normal level of cash reserves. As the fiscal year progressed
and the market regained positive momentum, however, I lowered that level
by putting more money to work in stocks. In other portfolio changes, I
established a new, modest position among selected transportation stocks
and added to investments in certain specialty retailers. Lastly, I shifted
the emphasis in technology toward semiconductor equipment providers that
appear likely to benefit from a major change in the semiconductor
manufacturing process.
As for the year ahead, it's encouraging to note that small-company stocks
showed renewed strength late in the past period, outperforming their
bigger brethren. If they are able to maintain their momentum for a
sustained period, this Fund should benefit accordingly.
Martin G. Hurwitz
(picture of) Martin G. Hurwitz
Martin G. Hurwitz
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's ten largest holdings
Aggressive Growth Fund
(icon of) pie chart
The ten holdings listed here make up 11.60% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of Aug. 31, 1997)
HBO & Co 2.15% $52,214,625
Tyco Intl 1.62 39,218,750
KLA-Tencor 1.46 35,437,500
Outdoor Systems .98 23,793,750
Westinghouse Electric .95 23,175,000
Kohl's .92 22,404,687
Costco Cos .89 21,637,500
Cooper Cameron .88 21,408,750
Family Dollar Stores .88 21,250,000
USA Waste Service .87 21,000,000
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Aggressive Growth Fund
How $10,000 has grown in Aggressive Growth Fund
Aggressive
Growth Fund
$19,375
S&P 500
$10,000
1/13/92 '92 '93 '94 '95 '96 '97
Average annual total returns
(as of August 31, 1997)
Since
1 year 5 years inception*
+18.60% +16.51% +12.45%
*Inception date was Jan. 13, 1992.
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, Standard & Poor's 500 Stock Index (S&P
500).
The S&P 500, an unmanaged list of common stocks, is frequently used as a
general measure of the market performance. However, the S&P 500 companies
are generally larger than those in which the Fund invests.
Your investment and return values fluctuate so that your accumulation
units, when redeemed, may be worth more or less than their original cost.
This was a period of widely fluctuating security prices. Past performance
is no guarantee of future results. The above graph does not reflect
expenses that apply to the variable accounts or the annuity contracts.
(This annual report is not part of the prospectus.)
<PAGE>
The financial statements contained in Post-Effective Amendment #22 to
Registration Statement No. 2-96367 filed on or about October 30, 1997 are
incorporated herein by reference.
<PAGE>
Privileged Assets Select Annuity Investment Portfolios
P.O. Box 59197
Minneapolis, MN 55459-9798
AMERICAN
EXPRESS
Financial
Direct
<PAGE>
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a black
strip at the top
of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described to
annual report. the left of the text.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
