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AXP(SM)
Emerging
Markets Fund
1999 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
(picture of) compass
AXP Emerging Markets Fund seeks to provide shareholders with long-term capital
growth.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN
EXPRESS(R)(logo)
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Expanding Your Opportunities
As free enterprise expands around the world, so do investment opportunities.
Some of the most exciting ones can be found in the so-called "emerging markets"
- -- smaller economies located largely in Asia, Latin America and Eastern Europe.
Attracted by their rapid growth potential, many aggressive investors have made
these markets, which have a higher-than-average risk level, an integral part of
their portfolios.
AXP EMERGING MARKETS FUND (This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report (Fund) 10
Financial Statements (Fund) 11
Notes to Financial Statements (Fund) 14
Independent Auditors' Report (Portfolio) 19
Financial Statements (Portfolio) 20
Notes to Financial Statements (Portfolio) 23
Investments in Securities 28
Federal Income Tax Information 36
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 4p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Transactions through Third Parties 14p
Sales Charges 14p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Master/Feeder Structure 25p
Financial Highlights 27p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
American Express(R) Funds held shareholder meetings in June 1999. Shareholders
approved all of the proposals advanced by management. Among the proposals were:
o The election of Board members and the selection of KPMG LLP as independent
auditors.
o Change in the Fund name from "IDS" to "AXP."
o A new shareholder service and distribution plan.
o A change in the investment management services agreement.
o Changes with respect to fundamental investment policies.
No other business was presented at the meeting, which was concluded by a report
to shareholders from the Investment Department of American Express Financial
Corporation.
Thanks to all of you for your effort in reviewing the proxy material and voting
your proxies.
Arne H. Carlson
(picture of) Ian King
Ian King
Portfolio manager
From the Portfolio Manager
Rebounds in the stock markets of several smaller countries set the stage for an
exceptionally strong period for AXP Emerging Markets Fund. During the past
fiscal year -- November 1998 through October 1999 -- the Fund's Class A shares
(before sales charge) generated a gain of 45.13%.
The period began with the emerging markets trying to recover from the
devastation of a second bout of the so-called "Asian flu," the financial plague
that resurfaced in the summer and early fall of 1998 and sent many foreign stock
markets into a virtual free-fall. But, thanks in large part to three reductions
in short-term interest rates by the Federal Reserve in the U.S., enough optimism
returned to the emerging markets that the Fund was able to enjoy a substantial
advance in November.
AXP EMERGING MARKETS FUND (This annual report is not part of the prospectus.)
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Following a lackluster winter, the markets re-gained their positive momentum.
Taking support from a rebound in commodity prices, particularly oil, as well as
surging stock markets in the U.S. and, to a lesser degree, Europe, the advance
quickly turned into a spectacular rally that produced double-digit returns in
both March and April.
From that point, gains were tougher to come by, as rising interest rates and
fear of potentially higher inflation in the U.S. kept the markets off balance
much of the time. Still, thanks to sharp advances in June and October, the Fund
managed to gain some ground over the final six months of the period.
A VARIETY OF WINNERS
Among the biggest contributions to performance during the year were Turkey,
Mexico, South Korea, Thailand and Greece, each of which was well-represented in
the Fund's portfolio. Investments in other markets made positive contributions
as well, including Brazil, South Africa and Taiwan. The great majority of the
assets was invested in emerging markets, with the modest remainder in cash and
U.S. stocks.
As for changes to the portfolio, I substantially reduced the cash reserves at
the outset of the fiscal year and put the extra funds to work in stocks. This
strategy worked to the Fund's advantage over the ensuing months, when many
emerging markets rallied. Late in the period, I began shifting more money into
Taiwan and Brazil, where I expect stocks will benefit from healthier investment
environments.
I also expect emerging markets as a whole to continue to experience considerable
volatility in the new fiscal year. But underlying the ups and downs will be, I
think, a positive undercurrent of economic improvement. Add to that the
potential for a weaker dollar (which would enhance returns from investments in
foreign markets), and I would say investors have reason to hold to an optimistic
view.
Ian King
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Oct. 31, 1999 $4.99
Oct. 31, 1998 $3.44
Increase $1.55
Distributions -- Nov. 1, 1998 - Oct. 31, 1999
From income $0.01
From capital gains $ --
Total distributions $0.01
Total return* +45.13%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Oct. 31, 1999 $4.88
Oct. 31, 1998 $3.39
Increase $1.49
Distributions -- Nov. 1, 1998 - Oct. 31, 1999
From income $ --
From capital gains $ --
Total distributions $ --
Total return* +43.87%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Oct. 31, 1999 $4.99
Oct. 31, 1998 $3.45
Increase $1.54
Distributions -- Nov. 1, 1998 - Oct. 31, 1999
From income $0.01
From capital gains $ --
Total distributions $0.01
Total return* +45.29%**
* The prospectus discusses the effect of sales charges, if any, on the various
classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
AXP EMERGING MARKETS FUND (This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Oct. 31, 1999)
Grupo Financiero Banamex Accival (Mexico) 3.31% $12,628,986
Korea Telecom (South Korea) 3.05 11,639,099
Taiwan Semiconductor Mfg (Taiwan) 2.90 11,087,258
Samsung Electronics GDR (South Korea) 2.84 10,857,900
Uniao de Bancos Brasileiros GDR (Brazil) 2.45 9,365,625
Petroleo Brasileiro ADR (Brazil) 2.45 9,342,438
Thai Farmers Bank (Thailand) 2.35 8,966,697
Yapi Kredit Finance (Turkey) 2.31 8,809,531
Telesp Participacoes (Brazil) 2.25 8,608,222
Compania de Telecomunicaciones
de Chile ADR (Chile) 2.24 8,564,426
Note: Certain foreign investment risks include: changes in currency exchange
rates, adverse political or economic order, and lack of similar regulatory
requirements followed by U.S. companies.
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here make up 26.15% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
AXP EMERGING MARKETS FUND (This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How $10,000 has grown in AXP Emerging Markets Fund
$20,000
X $9,679
AXP Emerging Markets Fund
Class A
$10,000
X MSCI Emerging
Markets Free Index
X Lipper Emerging
Markets Fund Index
$9,500
12/1/96 10/97 10/98 10/99
Average annual total return (as of Oct. 31, 1999)
1 year Since inception*
Class A +37.88% -0.81%
Class B +39.87% -0.88%
Class Y +45.29% +1.00%
*Inception date was Nov. 13, 1996.
Assumes: Holding period from 12/1/96 to 10/31/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $24. Also see "Past Performance" in
the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the MSCI Emerging Markets Free Index and the
Lipper Emerging Markets Fund Index. In comparing AXP Emerging Markets Fund
(Class A) to the two indexes, you should take into account the fact that the
Fund's performance reflects the maximum sales charge of 5%, while such charges
are not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge, up to a maximum of
5%. This was a period of widely fluctuating security prices. Past performance is
no guarantee of future results.
Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is an
unmanaged market capitalization-weighted index compiled from a composite of
securities markets of 26 emerging market countries. The index reflects
reinvestment of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.
Lipper Emerging Markets Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 31 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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The financial statements contained in Post-Effective Amendment #32 to
Registration Statement No. 33-25824 filed on or about December 27, 1999, are
incorporated herein by reference.
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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.
AXP Emerging Markets Fund
Fiscal year ended Oct. 31, 1999
Class A
Income distribution taxable as dividend income, none qualifying for deduction by
corporations.
Payable date Per share
Dec. 23, 1998 $0.00554
Class Y
Income distribution taxable as dividend income, none qualifying for deduction by
corporations.
Payable date Per share
Dec. 23, 1998 $0.01221
AXP EMERGING MARKETS FUND (This annual report is not part of the prospectus.)
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AMERICAN
EXPRESS(R)
FUNDS
AXP Emerging Markets Fund
IDS Tower 10
Minneapolis, MN 55440-0010
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and is
not a broker-dealer.
AMERICAN
EXPRESS(R) (logo)
S-6354 E (12/99)
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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) There are pictures, icons 2) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
