<PAGE>
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. 23 (File No. 33-30770) [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY (ACT OF 1940) [X]
Amendment No. 27 (File No. 811-5897)
AXP MARKET ADVANTAGE SERIES, INC.
(formerly IDS Market Advantage Series, Inc.)
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 Marquette Avenue South, 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)
[ ] on (date) 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)
[X] on Oct. 18, 1999 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.
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AXP(SM) S&P 500 Index Fund
AXP(SM) Mid Cap Index Fund
AXP(SM) Total Stock Market Index Fund
AXP(SM) International Equity Index Fund
AXP(SM) Nasdaq 100 Index(R) Fund
Prospectus
Oct. 18, 1999
Please note that each Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
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Table of Contents
TAKE A CLOSER LOOK AT:
The Funds 3p
Goals 3p
Investment Strategies 3p
Risks 6p
Performance 8p
Fees and Expenses 9p
Management 12p
Buying and Selling Shares 13p
Valuing Fund Shares 13p
Investment Options 13p
Purchasing Shares 14p
Exchanging/Selling Shares 17p
Distributions and Taxes 20p
Investment Adviser 22p
Quick Telephone Reference 23p
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The Funds
GOALS
AXP S&P 500 Index Fund, AXP Mid Cap Index Fund, AXP Total Stock Market Index
Fund, AXP International Equity Index Fund and AXP Nasdaq 100 Index Fund seek to
provide shareholders with long-term capital appreciation. Because any investment
involves risk, achieving these goals cannot be assured.
INVESTMENT STRATEGIES
Each Fund invests primarily in securities that are expected to provide
investment results that correspond to the performance of a specified index. An
index is an unmanaged group of securities whose overall performance is used as a
standard to measure investment performance. The Funds are not managed according
to traditional methods of "active" investment management. Instead, they follow a
passive or indexing investment approach in an attempt to mirror the performance
of an index. Keep in mind that an index fund has operating expenses and
transaction costs, while an index does not. This means that, while an index fund
may track its index closely, it is typically unable to match the performance of
the index exactly. While there is no guarantee, the investment manager expects
the correlation between a Fund and its respective index to be at least .95. A
correlation of 1.00 means the return of the Fund can be completely explained by
the return of the index.
This prospectus includes five index funds. The following chart shows the types
of investments for each of the Funds.
Fund Principal types of investments
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AXP S&P 500 Index Fund Large-cap stocks
AXP Mid Cap Index Fund Mid-cap stocks
AXP Total Stock Market Index Fund Large-, mid- and small-cap stocks
AXP International Equity Index Fund Foreign stocks
AXP Nasdaq 100 Index Fund Over-the-counter stocks
AXP S&P500 Index Fund seeks to provide investment results that correspond to the
total return (the combination of appreciation and income) of
large-capitalization stocks of U.S. companies. The Fund invests in common stocks
included in the Standard & Poor's 500 Composite Stock Price Index (S&P 500). The
S&P 500 is made up of primarily large-capitalization companies that represent a
broad spectrum of the U.S. economy.
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The Fund normally will invest in all stocks in the S&P500 in roughly the same
proportions as their weightings in the index. For example, if 5% of the S&P500
is made up of a stock of a particular company, the Fund will normally invest
approximately 5%of its assets in that company. This strategy is known as "full
replication." Although the Fund attempts to replicate the S&P500, there may be
times when the Fund and the index do not match exactly. The investment manager
may purchase stocks not included in the S&P500 when it believes it would be a
cost efficient way of approximating the S&P500's performance to do so, for
example, in anticipation of a stock being added to the index.
AXP Mid Cap Index Fund seeks to provide investment results that correspond to
the total return of mid-capitalization stocks of U.S. companies. The Fund
invests in common stocks included in the Standard & Poor's MidCap 400 Index (S&P
MidCap 400). The S&P MidCap 400 consists of a group of medium-sized U.S.
companies.
The Fund normally will invest in all stocks in the S&PMidCap 400 in roughly the
same proportions as their weightings in the index. For example, if 5% of the
S&PMidCap 400 is made up of a stock of a particular company, the Fund will
normally invest approximately 5% of its assets in that company. This strategy is
known as "full replication." Although the Fund attempts to replicate the
S&PMidCap 400, there may be times when the Fund and the index do not match
exactly. The investment manager may purchase stocks not included in the
S&PMidCap 400 when it believes it would be a cost efficient way of approximating
the S&P MidCap 400's performance to do so, for example, in anticipation of a
stock being added to the index.
AXP Total Stock Market Index Fund seeks to provide investment results that
correspond to the total return of the overall U.S. stock market. The Fund
invests in common stocks included in the Wilshire 5000 Equity Index (the
Wilshire 5000). The Wilshire 5000 consists of U.S. common stocks regularly
traded on the New York and American Stock Exchanges and the Nasdaq
over-the-counter market.
The investment manager may use sampling techniques in an attempt to replicate
the returns of the index using a smaller number of securities. Sampling
techniques attempt to match the investment characteristics of the index and the
Fund by taking into account such factors as capitalization, industry exposure,
dividend yield, price/earnings ratio, price/book ratio and earnings growth.
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AXP International Equity Index Fund seeks to provide investment results that
correspond to the total return of foreign stock markets. The Fund invests in
common stocks included in the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index. The EAFE Index currently includes stocks of
companies from various industrial sectors whose primary trading markets are
located outside the U.S. Companies included in the EAFE Index are selected from
among the larger capitalization companies in those markets.
The investment manager may use optimization or sampling techniques in an attempt
to replicate the returns of the index using a smaller number of securities.
Optimization and sampling techniques attempt to match the investment
characteristics of the index and the Fund by taking into account such factors as
capitalization, industry exposures, dividend yield, price/earnings ratio,
price/book ratio, earnings growth, country weightings, and the effect of foreign
taxes.
AXP Nasdaq 100 Index Fund seeks to provide investment results that correspond to
the total return of the over-the-counter market. The Fund invests in common
stocks included in the Nasdaq 100 Index. The Nasdaq 100 includes the largest and
most active non-financial domestic and international companies listed on the
Nasdaq Stock Market.
The Fund normally will invest in all stocks in the Nasdaq 100 in roughly the
same proportions as their weightings in the index. For example, if 5% of the
Nasdaq 100 is made up of a stock of a particular company, the Fund will normally
invest approximately 5% of its assets in that company. This strategy is known as
"full replication." Although the Fund attempts to replicate the Nasdaq 100,
there may be times when the Fund and the index do not match exactly. The
investment manager may purchase stocks not included in the Nasdaq 100 when it
believes it would be a cost efficient way of approximating the Nasdaq 100's
performance to do so, for example, in anticipation of a stock being added to the
index.
Indexing Strategies
The investment manager may use various techniques, such as buying and selling
options and futures contracts, to gain full exposure to the market. Each Fund
normally will invest at least 80% of its total assets in securities that are
contained in the applicable index. The investment manager will monitor the
performance of each Fund against its index and will adjust the Fund's holdings,
as necessary, to minimize tracking error. In the event a correlation of .95 or
better is not achieved, the Fund's board will consider alternative arrangements.
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A Fund may change its target index for a different index if the current index is
discontinued or if the Fund's board believes a different index would better
enable the Fund to match the performance of the market segment represented by
the current index. The substitute index will measure the same general segment of
the market as the current index.
The Fund may hold cash or its equivalent or invest in investment grade
short-term fixed income securities. Although index funds, by their nature, tend
to be tax-efficient investments, the Funds generally are managed without regard
to tax efficiency.
For each of the Funds, in evaluating whether to sell a security, the investment
manager considers, among other factors, whether:
o The security continues to be included in the index,
o Corporate actions have affected the company's security (such as
corporate reorganizations, mergers or acquisitions),
o A company's market weighting otherwise changes with respect to the index, and
o Timing of cash flows in and out of the Fund require the investment manager to
sell a security.
For more information on investment strategies and the indexes, please refer to
the Statement of Additional Information (SAI). "Standard &Poor's(R)", "S&P(R)",
"S&P500(R)", "Standard & Poor's 500(R)", "S&P MidCap 400 Index(R)", and
"Standard &Poor's MidCap 400 Index(R)" are trademarks of The McGraw-Hill
Companies, Inc. "Wilshire 5000" is a trademark and "Wilshire" is a service mark
of Wilshire Associates Incorporated. The Nasdaq-100(R) , Nasdaq-100 Index(R),
and Nasdaq(R) are trade or service marks of The Nasdaq Stock Market, Inc. (which
with its affiliates are the "Corporations"). The MSCIEAFEIndex is the exclusive
property of MSCI. Morgan Stanley Capital International is a service mark of
MSCI. These trademarks and service marks have been licensed for use by American
Express Financial Advisors Inc. The Funds are not sponsored, endorsed, sold or
promoted by Standard &Poor's, Wilshire, the Corporations, MSCIor any of their
subsidiaries or affiliates (the "Licensors") and the Licensors make no
representation regarding the advisability of investing in the Funds.
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
Tracking Error Risk
Sector/Concentration Risk
Small Company Risk
Foreign Risk
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Market Risk (all funds)
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.
Tracking Error Risk (all funds)
A Fund may not track the index perfectly because differences between the index
and the Fund's portfolio can cause differences in performance. The investment
manager purchases securities and other instruments in an attempt to replicate
the performance of the index. However, the tools that the investment manager
utilizes to replicate the index are not perfect and the Fund's performance is
affected by factors such as the size of the Fund's portfolio, transaction costs,
management fees and expenses, brokerage commissions and fees, the extent and
timing of cash flows in and out of the Fund and changes in the index.
In addition, the returns from a specific type of security (for example, mid-cap
stocks) may trail returns from other asset classes or the overall market. Each
type of security will go through cycles of doing better -- or worse -- than
stocks or bonds in general. These periods may last for several years.
Sector/Concentration Risk (all funds)
Each Fund is non-diversified. A non-diversified fund may invest more of its
assets in fewer companies than if it were a diversified fund. Because each
investment has a greater effect on the Fund's performance, it may be more
susceptible to a single economic, political or regulatory occurrence than a
diversified fund. In addition, in tracking an index, the Fund may have a
considerable portion of its assets invested in one or more sectors of the
market. This may lead to a greater market fluctuation than would occur with a
fund invested in a wider spectrum of industries. A Fund will invest more than
25% of its total assets in a particular industry only if necessary to track its
respective index.
Small Company Risk (Mid Cap Index Fund, Total Stock Market Index Fund,
Nasdaq 100 Index Fund)
Investment 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.
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Foreign Risk (International Equity Index Fund)
The following are all components of foreign 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.
PERFORMANCE
Each Fund is new as of the date of this prospectus and therefore performance
information is not available.
The following chart shows the performance of the indexes for the ten years
ending in December 1998. How the indexes performed in the past does not indicate
how they will perform in the future. The past performance of the indexes should
not be viewed as representative of the Fund's future performance.
<TABLE>
<CAPTION>
Index S&P 500 S&P MidCap 400 Wilshire 5000 EAFE Nasdaq 100
<S> <C> <C> <C> <C> <C>
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1998 +28.58% +19.11% +21.71% +20.33% +85.31%
1997 +33.36 +32.25 +29.17 +2.06 +20.63
1996 +22.96 +19.20 +18.84 +6.36 +42.54
1995 +37.58 +30.95 +33.40 +11.55 +42.54
1994 +1.32 -3.58 -2.52 +8.06 +1.50
1993 +10.08 +13.95 +8.58 +32.94 +10.58
1992 +7.62 +11.91 +6.15 -11.85 +8.86
1991 +30.47 +50.10 +30.30 +12.50 +64.99
1990 -3.10 -5.12 -9.31 -23.20 -10.41
1989 +31.69 +35.55 +24.88 +10.80 +26.17
</TABLE>
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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 Funds.
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Shareholder Feesa (fees paid directly from your investment)
Class D Class E
Maximum sales charge (load) on purchasesb
(as a percentage of offering price) 0% 0%
Annual index account fee
(for accounts under $10,000) $10 $10
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Annual Fund operating expenses (expenses that are deducted from Fund assets)
As a percentage of average daily net assets: Class D Class E
S&P500 Index Fund
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Management fees 0.24% 0.24%
Distribution (12b-1) feesc 0.25% 0.00%
Other expensesd 1.22% 1.22%
Totale 1.71% 1.46%
Fee waiver/expense reimbursement 1.07% 1.07%
Net expenses 0.64% 0.39%
Mid Cap Index Fund
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Management fees 0.26% 0.26%
Distribution (12b-1) feesc 0.25% 0.00%
Other expensesd 1.05% 1.05%
Totale 1.56% 1.31%
Fee waiver/expense reimbursement 0.86% 0.86%
Net expenses 0.70% 0.45%
Total Stock Market Index Fund
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Management fees 0.30% 0.30%
Distribution (12b-1) feesc 0.25% 0.00%
Other expensesd 0.72% 0.72%
Totale 1.27% 1.02%
Fee waiver/expense reimbursement 0.53% 0.53%
Net expenses 0.74% 0.49%
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International Equity Index Fund Class D Class E
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Management fees 0.50% 0.50%
Distribution (12b-1) feesc 0.25% 0.00%
Other expensesd 0.79% 0.79%
Totale 1.54% 1.29%
Fee waiver/expense reimbursement 0.65% 0.65%
Net expenses 0.89% 0.64%
Nasdaq 100 Index Fund
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Management fees 0.38% 0.38%
Distribution (12b-1) feesc 0.25% 0.00%
Other expensesd 1.01% 1.01%
Totale 1.64% 1.39%
Fee waiver/expense reimbursement 0.85% 0.85%
Net expenses 0.79% 0.54%
a A wire transfer charge, currently $15, is deducted from your brokerage account
for wire transfers made at your request.
b There are no sales loads; however, for S&P500 Index Fund, Mid Cap Index
Fund, Total Stock Market Index Fund and Nasdaq 100 Index Fund, the Fund
charges a redemption fee of 0.50% on shares redeemed within 180 days of
purchase. For International Equity Index Fund, the Fund charges a redemption
fee of 0.75% on shares redeemed within 180 days of purchase.
c 12b-1 fees are paid out of the Fund's assets on an ongoing basis. Over time
these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
d Other expenses include an administrative services fee, a transfer agency
fee and other nonadvisory expenses.
e Expenses are based on estimated amounts for the current fiscal year. The
Advisor and the Transfer Agent have contractually obligated themselves to waive
certain fees and to absorb certain other Fund expenses until Jan. 31, 2001.
Under this agreement, total expenses for Class D will not exceed 0.64% for
S&P500 Index Fund, 0.70% for Mid Cap Index Fund, 0.74% for Total Stock Market
Index Fund, 0.89% for International Equity Index Fund, and 0.79% for Nasdaq 100
Index Fund. Total expenses for Class E will not exceed 0.39%for S&P500 Index
Fund, 0.45% for Mid Cap Index Fund, 0.49% for Total Stock Market Index Fund,
0.64% for International Equity Index Fund, and 0.54% for Nasdaq 100 Index Fund.
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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 sell your shares at the end of the
years shown, your costs would be:
1 year 3 years
S&P500 Index Fund
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Class D $174 $539
Class E 149 462
Mid Cap Index Fund
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Class D $159 $493
Class E 133 415
Total Stock Market Index Fund
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Class D $129 $403
Class E 104 325
International Equity Index Fund
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Class D $157 $487
Class E 131 409
Nasdaq 100 Index Fund
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Class D $167 $518
Class E 142 440
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
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MANAGEMENT
S&P500 Index Fund, Mid Cap Index Fund, Total Stock Market
Index Fund, Nasdaq 100 Index Fund
James Johnson, portfolio manager, joined AEFCin 1994 as an equity quantitative
analyst. He began managing portfolios for American Express Asset Management
Group in 1996. He became portfolio manager of these Funds in 1999. He also
manages AXPBlue Chip Advantage Fund, AXP Small Company Index Fund, Aggressive
Growth Portfolio and is a member of the portfolio management team for Total
Return Portfolio.
International Equity Index Fund
A team consisting of Adele Kohler and Lynn Blake manage the Fund's portfolio.
Adele Kohler, lead portfolio manager, is a Principal and Portfolio Manager in
the Global Structured Products Group of State Street Global Advisors. She joined
State Street Global Advisors in 1994 and has been a member of the Global
Structured Products team since 1996. In addition to portfolio management, Adele
is responsible for new product development and research. Lynn Blake is a
Principal, Unit Head and Portfolio Manager in the Global Structured Products
Group. Lynn joined State Street Global Advisors in 1987. In addition to
portfolio management, Lynn is responsible for new product development and
research.
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Buying and Selling Shares
VALUING FUND SHARES
The public offering price for a single Fund share is the net asset value (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 NAVnext computed after receipt by the
organization or its agent. The organization may charge a fee for its services.
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 D shares are sold without a sales charge through wrap fee programs or
other investment products sponsored by American Express Financial Advisors or an
authorized broker-dealer, investment adviser, bank or other investment
professional. Shareholders pay a 12b-1 fee of 0.25% for distribution services,
including the services provided by investment professionals.
2. Class E shares are sold without a sales charge or 12b-1 fee through American
Express brokerage accounts and qualifying institutional accounts.
Institutional investors should refer to the SAI to determine eligibility to
invest in Class E.
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PURCHASING SHARES
If you do not have a mutual fund account, you will need to establish one.
Contact your financial advisor or visit our website to establish an account.
You may purchase shares of the Fund in a wrap fee product, a brokerage account
(including online brokerage) or a qualifying institutional account. If you are
investing through a wrap fee program or a third-party provider, some of the
instructions, minimums, policies and cut off times for investments may be
different. You should contact your provider for more details.
The information contained on the following pages outlines how you may purchase
shares of the Fund through an account maintained with American Express Financial
Advisors (the Distributor).
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide the correct TIN, you could be subject to backup
withholding of 31% of taxable distributions and proceeds from certain sales and
exchanges. You also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN,
o a civil penalty of $500 for a false statement that results in no backup
withholding, and
o criminal penalties for falsifying information.
You also could be subject to backup withholding for failure to report interest
or dividends on your tax return. For details on TIN requirements and to obtain a
copy of federal Form W-9, "Request for Taxpayer Identification Number and
Certification" call 800-967-4377 for Wrap accounts, 800-872-4377 for Brokerage
accounts, or 800-658-4677 for Online brokerage accounts. You also may obtain the
form on the IRS Internet site at (http://www.irs.ustreas.gov/prod/forms_pubs/).
The Fund and the Distributor reserve the right to refuse any purchase, including
those that appear to be associated with short-term trading activities.
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Methods of purchasing shares
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1 By mail:
o Regular Mail
Mail checks (along with any applications) to:
Wrap Business Brokerage Accounts
American Express Financial Advisors American Express Financial Advisors
Attn: SPS P.O. Box 9446
P.O. Box 534 Minneapolis, MN 55440
Minneapolis, MN 55440
Online Brokerage Accounts
American Express Financial Advisors
P.O. Box 59196
Minneapolis, MN 55440
o Express Mail
Mail checks (along with any applications) to:
American Express Financial Advisors
733 Marquette Ave.
Minneapolis, MN 55402
These requests should include:
o your account number (if an existing account), and
o the name of the Fund and the dollar amount of shares you would like to
purchase.
Your check should be made payable to American Express Financial Advisors.
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2 By internet:
Complete a brokerage account application online
(www.americanexpress.com/trade) and mail the application to
American Express Financial Advisors, P.O. Box 59196, Minneapolis, MN 55440.
Corporations and other organizations should contact the Distributor at
800-658-4677 to determine what additional forms may be necessary to open a
brokerage account.
<PAGE>
3 By telephone:
You may use money in your American Express Financial Advisors
brokerage account to make initial and subsequent purchases.
To place your order, call:
800-967-4377 for Wrap accounts,
800-872-4377 for Brokerage accounts, or
800-658-4677 for Online brokerage accounts.
You must have money available in your brokerage account in order to purchase
Fund shares.
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4 By wire:
Once your account is established, you may wire money into your
brokerage account:
Norwest Bank Minneapolis
ABA# 091000019
FBO American Enterprise
Account # 000-106-5930
FBO Client's brokerage account number
For instructions on how to wire money for wrap accounts, call 800-967-4377.
Minimum wire amount: $1,000
Minimum Fund investment requirements
Your initial investment in the Fund may be as low as $2,000 ($500 for custodial
accounts, Individual Retirement Accounts (IRAs) and certain other retirement
plans). The minimum subsequent investment is $100 ($50 for custodial accounts,
IRAs and certain other retirement plans).
Minimum balance account requirements and annual account fee
The Fund reserves the right to sell your shares if, as a result of sales, the
aggregate value of your holdings in the Fund drops below $1,000 ($500 in the
case of custodial accounts, IRAs and other retirement plans). You will be
notified in writing 30 days before the Fund takes such action to allow you to
increase your holdings to the minimum level. If you close your brokerage
account, the Fund will automatically sell your shares and mail the proceeds to
you.
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An annual account fee of $10 will be assessed on accounts whose balances are
below $10,000 (for any reason, including market fluctuation). The fee may be
deducted from either your year-end dividend distribution or through a redemption
of shares. If your distribution is less than the fee, fractional shares will be
redeemed to cover the difference. If the fee is deducted from your dividend
distribution, you will still be taxed on the full amount of the dividend. This
fee will not apply to certain qualifying institutional investors.
When and at what price shares will be purchased
Once your request is received and accepted by the Fund, your order will be
priced at the next calculated NAV. See "Valuing Fund Shares."
EXCHANGING/SELLING SHARES
There are no sales loads; however, each Fund charges a redemption fee on shares
sold or exchanged within 180 days of purchase. This fee does not apply to
qualifying institutional investors.
Exchanging Shares
You may make up to four exchanges (two round trips) per calendar year. You can
exchange your shares of the Fund for shares of the same class of other funds
described in this prospectus at any time. Your exchange will be priced at the
next NAV calculated after it is accepted by that fund. When exchanging into
another fund you must meet that fund's minimum investment requirements.
The Distributor and the Fund reserve the right to reject any exchange, limit the
number or 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 a Fund's investment
strategies or increase its costs.
These Funds do not permit market-timing. Do not invest in these Funds if you are
a market timer.
Selling Shares
You may sell your shares at any time. Your sale price will be the next NAV
calculated after receipt by the Distributor of proper sale instructions, as
follows.
<PAGE>
Normally, payment for shares sold will be credited directly to your brokerage
account on the next business day. However, the Fund may delay payment, but no
later than seven days after the Distributor receives your selling instructions
in proper form. Sale proceeds will be held in your brokerage account or mailed
to you according to your account instructions.
If you recently purchased shares by check, your sale proceeds may be held in
your brokerage account until your check clears (which may take up to 10 days
from the purchase date) before a check is mailed to you.
The Fund reserves the right to redeem in kind.
Four ways to request an exchange or sale of shares
- --------------------------------------------------------------------------------
1 By mail:
o Regular Mail
You may request an exchange or sale by writing to:
Wrap Business Brokerage Accounts
American Express Financial Advisors American Express Financial Advisors
Attn: SPS P.O. Box 9446
P.O. Box 534 Minneapolis, MN 55440
Minneapolis, MN 55440
Online Brokerage Accounts
American Express Financial Advisors
P.O. Box 59196
Minneapolis, MN 55440
o Express Mail
You may request an exchange or sale by writing to:
American Express Financial Advisors
733 Marquette Ave.
Minneapolis, MN 55402
- --------------------------------------------------------------------------------
2 By internet:
If you have a brokerage account you may exchange or sell shares from
our website at (www.americanexpress.com/trade).
<PAGE>
- --------------------------------------------------------------------------------
3 By telephone:
You may exchange or sell your shares by calling:
800-967-4377 for Wrap accounts,
800-872-4377 for Brokerage accounts, or
800-658-4677 for Online brokerage accounts.
- --------------------------------------------------------------------------------
4 By wire:
Money can be wired from your account to your bank account. Call
the Distributor at the above numbers for additional information on
wire transfers. A $15 service fee may be charged against your brokerage
account for each wire sent.
To properly process your exchange or sale request we will need the following
information:
o your account number(s) and your name (for exchanges, both funds
must be registered in the same ownership),
o the name of the fund(s) from which you wish to exchange or sell shares,
o the dollar amount or number of shares you want to exchange or sell, and
o if a written request, a signature of at least one of the brokerage account
holders in the exact form specified on the account.
Once an exchange or sale request is made it is irrevocable and cannot be
modified or canceled.
Telephone exchange or sale requests received and accepted by the Fund, once the
caller's identity and account ownership have been verified by the Distributor,
will be processed at the next calculated NAV. See "Valuing Fund Shares."
Telephone Transactions
The privilege to initiate transactions by telephone is automatically available
through your brokerage account. The Fund will honor any telephone transaction
believed to be authentic and will use reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Fund may modify or
discontinue telephone privileges at any time.
<PAGE>
Electronic Transactions
The ability to initiate transactions via the internet may be unavailable or
delayed (for example, during periods of unusual market activity) at certain
times. The Fund and the Distributor are not responsible for any losses
associated with unexecuted transactions. In addition, the Fund and the
Distributor are not responsible for any losses resulting from unauthorized
transactions if reasonable security measures are followed to validate the
investor's identity. The Fund may modify or discontinue electronic privileges at
any time.
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 time for investments. The Fund and the
Distributor are not responsible for the failure of one of these organizations to
carry out its obligations to its customers. Some organizations may receive
compensation from the Distributor or its affiliates for shareholder
recordkeeping and similar services. When authorized by the Fund, some
organizations may designate agents to accept purchase or sale orders on the
Fund's behalf.
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 either long-term or short-term
depending on the length of time the Fund held the security. Realized capital
gains or 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.
<PAGE>
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund unless you request distributions in cash. We
reinvest the distributions for you at the next calculated NAV after the
distribution is paid. If you choose cash distributions, you will receive cash
only for distributions declared after your request has been processed.
TAXES
Distributions are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.
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).
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 the Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
<PAGE>
Investment Adviser
ABOUT AMERICAN EXPRESS FINANCIAL CORPORATION
American Express Financial Corporation (AEFC), the Fund's investment manager,
has been a provider of financial services since 1894, and as of Aug. 31, 1999
manages more than $228 billion in assets.
Each Fund pays AEFC a fee for managing its assets. Under the Investment
Management Services Agreement, the fee will be as follows: S&P 500 Index Fund --
0.24% on the first $250 million gradually reducing to 0.21% as assets increase;
Mid Cap Index Fund -- 0.26% on the first $250 million gradually reducing to
0.23% as assets increase; Total Stock Market Index Fund -- 0.30% on the first
$250 million gradually reducing to 0.26% as assets increase; International
Equity Index Fund -- 0.50%on the first $250 million gradually reducing to 0.46%
as assets increase; Nasdaq 100 Index Fund -- 0.38% on the first $250 million
gradually reducing to 0.34% as assets increase. Under the Agreement, each Fund
also pays taxes, brokerage commissions and nonadvisory expenses.
AEFC, located at IDS Tower 10, Minneapolis, MN 55440-0010, 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.
State Street Global Advisors (Sub-Adviser), Two International Place, Boston,
Massachusetts 02110, is the subadviser for International Equity Index Fund.
Sub-Adviser has been providing investment advisory services since 1978, and as
of Aug. 31, 1999 manages more than $575 billion in assets. Sub-Adviser is a
division of State Street Bank and Trust Company, a wholly-owned subsidiary of
State Street Corporation.
YEAR 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000. While Year 2000-related
computer problems could have a negative effect on the Fund, AEFC is working to
avoid such problems and to obtain assurances from service providers that they
are taking similar steps.
The companies, governments or international markets in which each Fund invests
also may be adversely affected by Year 2000 issues. To the extent a portfolio
holding is adversely affected by a Year 2000 processing issue, the Fund's return
could be adversely affected.
<PAGE>
Quick Telephone Reference
AMERICAN EXPRESS FINANCIAL ADVISORS
TELEPHONE TRANSACTION SERVICE
Sales and exchanges, dividend payments, reinvestments and automatic payment
arrangements or account inquiries:
800-967-4377 for Wrap accounts
800-872-4377 for Brokerage accounts
800-658-4677 for Online brokerage accounts
AMERICAN EXPRESS FINANCIAL ADVISORS
Automated account information (TouchTone(R) telephones only), including current
Fund prices and performance, account values and recent account
transactions: 800-862-7919
TTY SERVICE
For the hearing impaired: 800-846-4852
<PAGE>
The Funds are distributed by American Express Financial Advisors Inc.
Additional information about the Fund and its investments is available in the
Fund's Statement of Additional Information (SAI). The SAI is incorporated by
reference in this prospectus. For a free copy of the SAI, or to make inquiries
about the Fund contact American Express Financial Advisors at 800-862-7919.
Web site address:
http://www.americanexpress.com
You may review and copy information about the Fund, including its SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C.
20549-6009.
Investment Company Act File #811-5897
S-6434-99 A (10/99)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
AXPSM MARKET ADVANTAGE SERIES, INC.
AXP(SM) S&P 500 INDEX FUND
AXP(SM) MID CAP INDEX FUND
AXP(SM) TOTAL STOCK MARKET INDEX FUND
AXP(SM( INTERNATIONAL EQUITY INDEX FUND
AXP(SM) NASDAQ 100 INDEX FUND
(singularly and collectively, where the context requires,
referred to as the "Fund")
Oct. 18, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus that may be obtained by calling American
Express Financial Direct, 800-AXP-SERV (TTY: 800-710-5260) or by writing to P.O.
Box 59196, Minneapolis, MN 55459-0196. 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.6
Information Regarding Risks and Investment Strategies.....................p.8
Security Transactions.....................................................p.30
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation....................................p.31
Performance Information...................................................p.31
Valuing Fund Shares.......................................................p.32
Investing in the Fund.....................................................p.33
Selling Shares............................................................p.34
Taxes.....................................................................p.34
Agreements................................................................p.36
Organizational Information................................................p.39
Board Members and Officers................................................p.39
Independent Auditors......................................................p.42
Appendix A: Description of Ratings........................................p.43
Appendix B: Additional Information about the Indexes......................p.48
<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|
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.
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
- --------------------------------------------------------------------------------
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.
These are investment policies in addition to those presented in the prospectus.
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:
(All Funds)
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.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o Concentrate in any one industry, unless that industry represents more than
25% of the index tracked by the Fund. For all other industries, in
accordance with the current interpretation by the Securities and Exchange
Commission (SEC), 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 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.
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 hedge against certain types of
risk, these practices are left to the investment manager's sole discretion.
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------
Investment strategies & types of Allowable for
investments: the Fund
- ------------------------------------------- -------------------------------------------------------------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AXP Total AXP
AXP S&P Stock International AXP Nasdaq
500 Index AXP Mid Cap Market Equity 100 Index
Fund Index Fund Index Fund Index Fund Fund
- ------------------------------------------- ----------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Agency and Government Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Borrowing yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Cash/Money Market Instruments yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Collateralized Bond Obligations yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Commercial Paper yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Common Stock yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Convertible Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Corporate Bonds yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Debt Obligations yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Depositary Receipts yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Derivative Instruments yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Foreign Currency Transactions yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Foreign Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
High-Yield (High-Risk) Securities (Junk no no no no no
Bonds)
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Illiquid and Restricted Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Indexed Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Inverse Floaters no no no no no
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Investment Companies yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Lending of Portfolio Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Loan Participations yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Mortgage- and Asset-Backed Securities no no no no no
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Mortgage Dollar Rolls no no no no no
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Municipal Obligations yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Preferred Stock yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Real Estate Investment Trusts yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Repurchase Agreements yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Reverse Repurchase Agreements yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Short Sales yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Sovereign Debt yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Structured Products yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Variable- or Floating-Rate Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Warrants yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
When-Issued Securities yes yes yes yes yes
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes yes yes
Securities
- ------------------------------------------- ----------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
The following are guidelines that may be changed by the board at any time:
(All Funds)
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 will not buy on margin, except the Fund may make margin payments
in connection with transactions in futures contracts.
For additional information about the Indexes, see Appendix B.
<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. They have greater price fluctuations and are more
likely to experience a default.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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.)
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 rating 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 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 an
investor 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.
Such an election may result in the Fund being required to defer recognizing
losses incurred on futures contracts and on underlying securities identified as
hedged positions.
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.
Derivatives are risky investments.
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
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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 and Domestic Companies with Foreign Operations
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
<PAGE>
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).
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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-
<PAGE>
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). The interest on these
obligations is generally exempt from federal income tax. Municipal obligations
are generally classified as either "general obligations" or "revenue
obligations."
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.)
<PAGE>
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.
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.)
<PAGE>
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 on the replacement date. 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 prior to the scheduled
delivery date, the investor loses the opportunity to participate in the gain.
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.
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.
<PAGE>
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.
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's losing the opportunity to obtain a price and yield
considered to be advantageous.
<PAGE>
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.
AEFC has 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 it
uses and the overall reasonableness of their commissions. The review evaluates
execution, operational efficiency, and research services.
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.
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 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)
<PAGE>
Aggregate total return
The Fund may calculate aggregate total return 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, 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.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
In determining net assets before shareholder transactions, the Fund's securities
are valued as of the close of business of the New York Stock Exchange (the
Exchange). In determining net assets before shareholder transactions, the
securities held by 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
Portfolio. 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
- --------------------------------------------------------------------------------
Class E shares are offered to certain institutional investors. Class E shares
are sold without a sales charge and are not subject to a distribution fee. The
following investors are eligible to purchase Class E shares:
o Qualified employee benefit plans* if the plan:
-uses a daily transfer recordkeeping service offering participants daily
access to American Express 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 the American Express Funds or
-500 or more participants.
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 invested in American
Express Funds.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit described above.
o Eligibility must be determined in advance by American Express Financial
Advisors Inc.
<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 net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Funds
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 members 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 reserves the right to redeem, involuntarily, the shares of any
shareholder whose account has a value of less than a minimum amount but only
where the value of such account has been reduced by voluntary redemption of
shares. Until further notice, it is the policy of the Fund not to exercise this
right with respect to any shareholder whose account has a value of $1,000 or
more ($500 in the case of Custodial accounts, IRAs and other retirement plans).
In any event, before the Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares in the
account is less than the minimum amount and allow the shareholder 30 days to
make an additional investment in an amount which will increase the value of the
accounts to at least $1,000.
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 that Fund at the beginning of such period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make payments in whole or in part in securities or other assets in case of an
emergency, or if the payment of such redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In such
circumstances, the securities distributed would be valued as set forth in the
Prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
Rejection of Business
The Fund reserves the right to reject any business, in its sole discretion.
TAXES
- --------------------------------------------------------------------------------
You may be able to defer taxes on current income from a Fund by investing
through an IRA 401(k) plan account or other qualified retirement account. If you
move all or part of a non-qualified investment in a Fund to a qualified account,
this type of exchange is considered a redemption of shares. You pay no sales
charge, but the exchange may result in a gain or loss for tax purposes, or
excess contributions under IRA or qualified plan regulations.
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.
<PAGE>
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 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.
<TABLE>
<CAPTION>
AXP S&P 500 Index Fund AXP Mid Cap Index Fund
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
<S> <C> <C> <C> <C> <C>
(billions)
First $0.25 0.24% First $0.25 0.26%
Next 0.25 0.24 Next 0.25 0.26
Next 0.25 0.24 Next 0.25 0.26
Next 0.25 0.24 Next 0.25 0.26
Next 1.00 0.23 Next 1.00 0.25
Next 3.00 0.22 Next 3.00 0.24
Over 5.00 0.21 Over 5.00 0.23
AXP Total Stock Market Index Fund AXP International Equity Index Fund
Assets Annual rate at Assets Annual rate at each
(billions) each asset level (billions) asset level
First $0.25 0.30% First $0.25 0.50%
Next 0.25 0.30 Next 0.25 0.50
Next 0.25 0.29 Next 0.25 0.49
Next 0.25 0.29 Next 0.25 0.49
Next 1.00 0.28 Next 1.00 0.48
Next 3.00 0.27 Next 3.00 0.47
Over 5.00 0.26 Over 5.00 0.46
AXP Nasdaq 100 Index Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.38%
Next 0.25 0.38
Next 0.25 0.37
Next 0.25 0.37
Next 1.00 0.36
Next 3.00 0.35
Over 5.00 0.34
</TABLE>
Under the Agreement, each 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;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities; and expenses properly payable by the Funds, approved by
the board.
The fee is calculated for each calendar day on the basis of net assets at the
close of business two days prior to the day for which the calculation is made.
The management fee is paid monthly. AEFC has agreed to certain fee waivers and
expense reimbursements as discussed in the Fund's prospectus.
<PAGE>
Sub-Investment Adviser:
State Street Global Advisors (Sub-Adviser) manages the assets of AXP
International Equity Index Fund. 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.
Sub-Adviser is a division of State Street Bank and Trust Company, a wholly-owned
subsidiary of State Street Corporation. State Street Corporation services
financial assets, including custody, pricing and asset management, for retail
and institutional clients.
ADMINISTRATIVE SERVICES AGREEMENT
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, each Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
<TABLE>
<CAPTION>
AXP S&P 500 Index Fund AXP Mid Cap Index Fund
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
<S> <C> <C> <C> <C> <C>
First $0.25 0.080% First $0.25 0.080%
Next 0.25 0.080 Next 0.25 0.080
Next 0.25 0.080 Next 0.25 0.080
Next 0.25 0.080 Next 0.25 0.080
Next 1.00 0.075 Next 1.00 0.075
Next 3.00 0.070 Next 3.00 0.070
Over 5.00 0.065 Over 5.00 0.065
AXP Total Stock Market Index Fund AXP International Equity Index Fund
Assets Annual rate at Assets Annual rate at each
(billions) each asset level (billions) asset level
First $0.25 0.110% First $0.25 0.100%
Next 0.25 0.110 Next 0.25 0.100
Next 0.25 0.105 Next 0.25 0.095
Next 0.25 0.105 Next 0.25 0.095
Next 1.00 0.100 Next 1.00 0.090
Next 3.00 0.095 Next 3.00 0.085
Over 5.00 0.090 Over 5.00 0.080
AXP Nasdaq 100 Index Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.060%
Next 0.25 0.060
Next 0.25 0.055
Next 0.25 0.055
Next 1.00 0.050
Next 3.00 0.045
Over 5.00 0.040
</TABLE>
Under the agreement, each Fund also pays taxes; audit and certain legal fees;
registration fees for shares; office expenses; consultant's fees; compensation
of board members, officers and employees; corporate filing fees; organizational
expenses; and expenses properly payable by each Fund approved by the board.
<PAGE>
TRANSFER AGENCY AGREEMENT
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs the 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. The fee is
determined by multiplying the number of shareholder accounts at the end of the
day by a rate of $19 per year and dividing by the number of days in the year.
The fees paid to AECSC may be changed by the board without shareholder approval.
DISTRIBUTION AGREEMENT
American Express Financial Advisors Inc. (Distributor) is the Fund's principal
underwriter. The Fund's shares are offered on a continuous basis.
PLAN AND AGREEMENT OF DISTRIBUTION
For Class D shares, to help AEFA defray the cost of distribution and servicing,
the Fund and AEFA entered into a Plan and Agreement of Distribution (Plan)
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, AEFA is paid a fee
for expenses incurred at an annual rate of up to 0.25% of the Fund's average
daily net assets attributable to Class D shares.
Expenses covered under this Plan include sales commissions, business, employee
and financial advisor expenses charged to distribution of Class D shares; and
overhead appropriately allocated to the sale of Class D 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 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 AEFA. 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. 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.
<PAGE>
The custodian has entered into a sub-custodian agreement with Bank of New York,
90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United Stated 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.
ORGANIZATIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company. The Fund headquarters are
at P.O. Box 59196, Minneapolis, MN 55459-0196.
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.
Fund History Table
<TABLE>
<CAPTION>
Date of Form of Inception State of Fiscal Diversified
Organization Organization Date Organization Year End
- --------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AXP Market Advantage Series, Inc. 8/25/89 Corporation MN
AXP S&P 500 Index Fund 10/18/99 1/31 No
AXP Mid Cap Index Fund 10/18/99 1/31 No
AXP Total Stock Market Index Fund 10/18/99 1/31 No
AXP International Equity Index Fund 10/18/99 1/31 No
AXP Nasdaq 100 Index Fund 10/18/99 1/31 No
</TABLE>
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 53 American Express funds.
<PAGE>
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. and Darden Restaurants, 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, and Union
Pacific Resources.
William H. Dudley'**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
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).
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), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
<PAGE>
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, Board Services Corporation.
Alan K. Simpson+
Born in 1931
1201 Sunshine Ave.
Cody, WY
Director of The Institute of Politics, Harvard University. Former three-term
United States Senator for Wyoming. Former Assistant Republican Leader, U.S.
Senate. Director, PacifiCorp (electric power) and Biogen (bio-pharmaceuticals).
John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
C. Angus Wurtele+'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and retired 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, and Mr. Thomas, who is president, the Fund's other
officers are:
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.
<PAGE>
Officers who also are officers and employees of AEFC:
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN
Vice president - investment accounting of AEFC. Treasurer for the Fund.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report will be 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 A
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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>
Appendix B
Additional Information about the Indexes
AXP S&P 500 Index Fund and AXP Mid Cap Index Fund (S&P 500 Index Fund and Mid
Cap Index Fund) are not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the shareholders of S&P
500 Index Fund or Mid Cap Index Fund or any member of the public regarding the
advisability of investing in securities generally or in S&P 500 Index Fund or
Mid Cap Index Fund particularly or the ability of the S&P Indexes to track
general stock market performance. S&P's only relationship to S&P 500 Index Fund
and Mid Cap Index Fund is the licensing of certain trademarks and trade names of
S&P and of the S&P Indexes, which are determined, composed and calculated by S&P
without regard to S&P 500 Index Fund and Mid Cap Index Fund. S&P has no
obligation to take the needs of S&P 500 Index Fund and Mid Cap Index Fund or
their shareholders into consideration in determining, composing or calculating
the S&P Indexes. S&P is not responsible for and has not participated in the
determination of the prices and amount of S&P 500 Index Fund and Mid Cap Index
Fund or the timing of the issuance or sale of the funds or in the determination
or calculation of the equation by which the funds' shares are to be converted
into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of S&P 500 Index Fund and Mid Cap Index
Fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN (THE S&P INDEXES) AND
S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN.
S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
FUNDS, THEIR SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
INDEXES OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEXES OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
AXP Total Stock Market Index Fund (Total Stock Market Index Fund) is not
sponsored, endorsed, sold or promoted by Wilshire Associates Incorporated
(Wilshire). Wilshire makes no representation or warranty, express or implied, to
the shareholders of Total Stock Market Index Fund or any member of the public
regarding the advisability of investing in securities generally or in Total
Stock Market Index Fund particularly or the ability of the Wilshire 5000 Index
to track general stock market performance. Wilshire's only relationship to Total
Stock Market Index Fund is the licensing of certain trademarks and trade names
of Wilshire. The Wilshire 5000 Index is composed and calculated without regard
to Total Stock Market Index Fund. Wilshire has no obligation to take the needs
of Total Stock Market Index Fund or its shareholders into consideration in
determining, composing or calculating the Wilshire 5000 Index. Wilshire does not
guarantee the accuracy or the completeness of the Wilshire 5000 Index or any
data included therein and Wilshire shall have no liability for any errors,
omissions or interruptions therein. Wilshire makes no warranty, express or
implied, as to results to be obtained by the fund, its shareholders or any other
person or entity from the use of the Wilshire 5000 Index or any data included
therein. Wilshire makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Wilshire 5000 Index or any data included therein.
Without limiting any of the foregoing, in no event shall Wilshire have any
liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such damages.
<PAGE>
AXP International Equity Index Fund (International Equity Index Fund) is not
sponsored, endorsed, sold or promoted by MSCI or any affiliate of MSCI. Neither
MSCI nor any other party makes any representation or warranty, express or
implied, to the owners of shares of International Equity Index Fund or any
member of the public regarding the advisability of investing in funds generally
or in International Equity Index Fund particularly or the ability of the MSCI
EAFE Index to track general stock market performance. MSCI is the licensor of
certain trademarks, service marks and trade names of MSCI and of the MSCI EAFE
Index which is determined, composed and calculated by MSCI without regard to
International Equity Fund. MSCI has no obligation to take the needs of
International Equity Index Fund or the owners of shares of International Equity
Index Fund into consideration in determining, composing or calculating the MSCI
EAFE Index. MSCI is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of shares of
International Equity Index Fund to be issued or in the determination or
calculation of the equation by which the shares of International Equity Index
Fund are redeemable for cash. Neither MSCI nor any other party has any
obligation or liability to owners of shares of International Equity Index Fund
in connection with the administration, marketing or trading of the fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE
CALCULATION OF THE MSCI EAFE INDEX FROM SOURCES WHICH MSCI CONSIDERS RELIABLE,
NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY
MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF SHARES OF
INTERNATIONAL EQUITY INDEX FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE MSCI EAFE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY OTHER PARTY MAKES
ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY
DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
AXP Nasdaq 100 Index Fund (Nasdaq 100 Index Fund) is not sponsored, endorsed,
sold or promoted by The Nasdaq Stock Market, Inc. (including its affiliates)
(Nasdaq, with its affiliates, are referred to as the Corporations). The
Corporations have not passed on the legality or suitability of, or the accuracy
or adequacy of descriptions and disclosures relating to Nasdaq 100 Index Fund.
The Corporations make no representation or warranty, express or implied, to the
owners of shares of Nasdaq 100 Index Fund or any member of the public regarding
the advisability of investing in securities generally or in Nasdaq 100 Index
Fund particularly or the ability of the Nasdaq-100 Index(R) to track general
stock market performance. The Corporations' only relationship to AEFA (Licensee)
is the licensing of the Nasdaq-100(R), Nasdaq-100 Index(R), or Nasdaq(R)
trademarks or service marks, and certain trade names of the Corporations and the
use of the Nasdaq-100 Index(R) which is determined, composed and calculated by
Nasdaq without regard to the Licensee or Nasdaq 100 Index Fund. Nasdaq has no
obligation to take the needs of the Licensee or the shareholders of Nasdaq 100
Index Fund into consideration in determining, composing or calculating the
Nasdaq-100 Index(R). The Corporations are not responsible for and have not
participated in the determination of the timing of, prices at, or quantities of
shares of Nasdaq 100 Index Fund to be issued or in the determination or
calculation of the equation by which the shares of Nasdaq 100 Index Fund are
redeemable for cash. The Corporations have no liability in connection with the
administration, marketing or trading of Nasdaq 100 Index Fund.
<PAGE>
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION
OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY LICENSEE,
SHAREHOLDERS OF NASDAQ 100 INDEX FUND, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS
MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation as amended on Jan. 16, 1990, filed as Exhibit 1
to Registration Statement No. 33-30770 are incorporated by reference.
(b) By-laws filed as Exhibit 2 to Pre-Effective Amendment No. 3 to Registration
Statement No. 33-30770 are incorporated by reference.
(c) Instruments Defining Rights of Security Holders: Not Applicable.
(d)(1) Investment Management Services Agreement between Registrant, on behalf of
AXP Blue Chip Advantage Fund, and American Express Financial Corporation,
dated July 1, 1999, to be filed by amendment.
(d)(2) Investment Management Services Agreement between Registrant, on behalf of
AXP Small Company Index Fund, and American Express Financial Corporation,
dated July 1, 1999, to be filed by amendment.
(d)(3) Investment Management Services Agreement between Registrant, on behalf of
AXP International Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100
Index Fund, AXP S&P 500 Index Fund and AXP Total Stock Market Index Fund,
and American Express Financial Corporation, dated September 9, 1999, is
filed electronically herewith.
(d)(4) Investment Sub-advisory Agreement for AXP International Equity Index
Fund, between American Express Financial Corporation and State Street
Global Advisors, dated October 18, 1999, is filed electronically herewith.
(e)(1) 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.
(e)(2) Distribution Agreement between Registrant, on behalf of AXP International
Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP
S&P 500 Index Fund and AXP Total Stock Market Index Fund, and American
Express Financial Advisors Inc., dated September 9, 1999, is filed
electronically herewith.
(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, on behalf of IDS Blue Chip
Advantage Fund, and American Express Trust Company, dated March 20, 1995,
filed electronically as Exhibit 8 to Post-Effective Amendment No. 13 to
Registration Statement No. 33-30770 is incorporated by reference.
(g)(2) Custodian Agreement between Registrant, on behalf of IDS Small Company
Index Fund, and American Express Trust Company, dated August 19, 1996,
filed electronically as Exhibit 8(a) to Post-Effective Amendment No. 16 to
Registration Statement No. 33-30770 is incorporated by reference.
<PAGE>
(g)(3) Custodian Agreement between Registrant, on behalf of AXP International
Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP
S&P 500 Index Fund and AXP Total Stock Market Index Fund, and American
Express Trust Company, dated September 9, 1999, is filed electronically
herewith.
(g)(4) 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.
(g)(5) 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 for AXP Blue Chip Advantage Fund and AXP Small Company
Index Fund differs from the one incorporated by reference only by the fact
that Registrant is one executing party.
(h)(1) Administrative Services Agreement between Registrant, on behalf of IDS
Blue Chip Advantage Fund, and American Express Financial Corporation, dated
March 20, 1995, filed electronically as Exhibit 9(c) to Registrant's
Post-Effective Amendment No. 13 to Registration Statement No. 33-30770 is
incorporated by reference.
(h)(2) Administrative Services Agreement between Registrant, on behalf of IDS
Small Company Index Fund, and American Express Financial Corporation, dated
August 19, 1996, filed electronically as Exhibit 9(d) to Registrant's
Post-Effective Amendment No. 17 to Registration Statement No. 33-30770 is
incorporated by reference.
(h)(3) Administrative Services Agreement between Registrant, on behalf of AXP
International Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100
Index Fund, AXP S&P 500 Index Fund and AXP Total Stock Market Index Fund,
and American Express Financial Corporation, dated September 9, 1999, is
filed electronically herewith.
(h)(4) License Agreement between Registrant, on behalf of IDS Small Company
Index Fund, and American Express Financial Corporation, dated August 19,
1996, filed electronically as Exhibit 9(c) to Post-Effective Amendment No.
16 to Registration Statement No. 33-30770, is incorporated by reference.
(h)(5) 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 by reference.
(h)(6) Class Y Shareholder Service Agreement between IDS Precious Metals Fund,
Inc. and American Express Financial Advisors Inc., dated May 9, 1997, filed
electronically on or about May 27, 1997 as Exhibit 9(e) to IDS Precious
Metals Fund, Inc.'s Post-Effective Amendment No. 30 to Registration
Statement No. 2-93745, is incorporated by reference. Registrant's Class Y
Shareholder Service Agreement for AXP Blue Chip Advantage Fund and AXP
Small Company Index Fund differs from the one incorporated by reference
only by the fact that Registrant is one executing party.
<PAGE>
(h)(7) Transfer Agency Agreement, dated Feb. 1, 1999, between Registrant, on
behalf of AXP Blue Chip Advantage Fund and AXP Small Company Index Fund,
and American Express Client Service Corporation is incorporated by
reference to Exhibit (h)(7) to Registrant's Post-Effective Amendment No. 21
filed on or about March 19, 1999.
(h)(8) Transfer Agency Agreement, between Registrant, on behalf of AXP
International Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100
Index Fund, AXP S&P 500 Index Fund and AXP Total Stock Market Index Fund,
and American Express Client Service Corporation, dated September 9, 1999,
is filed electronically herewith.
(i) Opinion and consent of counsel as to the legality of the securities being
registered is filed electronically herewith.
(j) Independent Auditor's Consent: Not Applicable.
(k) Omitted Financial Statements: None.
(l) Agreement made in consideration for providing initial capital between
Registrant and IDS Financial Corporation filed as Exhibit 13 on March 1,
1990 to Pre-Effective Amendment No. 4 to Registration Statement No.
33-30770 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 for AXP Blue Chip Advantage Fund and AXP Small Company Index
Fund differs from the one incorporated by reference only by the fact that
the Registrant is one executing party.
(m)(2) Plan and Agreement of Distribution between Registrant, on behalf of AXP
International Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100
Index Fund, AXP S&P 500 Index Fund and AXP Total Stock Market Index Fund,
and American Express Financial Advisors Inc., dated September 9, 1999, is
filed electronically herewith.
(n) Financial Data Schedules: Not Applicable.
(o)(1) Rule 18f-3 Plan for AXP Blue Chip Advantage Fund and AXP Small Company
Index Fund, dated April 1999, is incorporated by reference to Exhibit (o)
to IDS Precious Metals Fund, Inc., Post-Effective Amendment No. 33, File
No. 2-93745 filed on or about May 24, 1999.
(o)(2) Rule 18f-3 Plan for AXP International Equity Index Fund, AXP Mid Cap
Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index Fund and AXP Total
Stock Market Index Fund, dated September 1999, is filed electronically
herewith.
(p)(1) Directors' Power of Attorney to sign amendments to this Registration
Statement, dated Jan. 14, 1999 is incorporated by reference to Exhibit
(p)(1) to Registrants Post-Effective Amendment No. 20 to Registration
Statement No. 33-30770.
(p)(2) Officers' Power of Attorney to sign amendments to this Registration
Statement, dated March 1, 1999, is incorporated by reference to Exhibit
(p)(2) to Registrant's Post-Effective Amendment No. 21 to Registration
Statement No. 33-30770.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
<PAGE>
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.
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.
<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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
Vice President Advisors Inc. Minneapolis, MN 55440
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Martin G. Hurwitz, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
G. Michael Kennedy, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan D. Kinder, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
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.
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 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
President
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 Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William P. Miller, Advisory Capital IDS Tower 10 Vice President
Vice President and Senior Strategies Group Inc. Minneapolis, MN 55440
Portfolio Manager
American Express Asset Senior Vice President and
Management Group Inc. Chief Investment Officer
American Express Financial Vice President and Senior
Advisors Inc. Portfolio Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Vice President
Company
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 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
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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 President
Vice President Advisors Inc. Minneapolis, MN 55440
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 and Project
Vice President and Project Advisors Inc. Minneapolis, MN 55440 Manager
Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
F. Dale Simmons, 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
American Express Financial Vice President
Advisors Inc.
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Chairman of the Board and
Inc. President
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lawrence J. Welte, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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>
<TABLE>
<CAPTION>
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
Fund, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International
Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Retirement Fund,
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 Fund, Inc.;
AXP Tax-Exempt Bond Fund, 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 and IDS Certificate
Company.
(b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
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-Advisor Staffing, None
IDS Tower 10 Training and Support
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
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Group Vice President-Northern New None
Suites 6&7 England
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 Group Vice President-North Texas None
Suite 150
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
Martin G. Hurwitz Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Debra A. Hutchinson Vice President - Relationship None
IDS Tower 10 Leader
Minneapolis, MN 55440
James M. Jensen Vice President-Insurance Product None
IDS Tower 10 Development and Management
Minneapolis, MN 55440
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
G. Michael Kennedy Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Susan D. Kinder Senior Vice None
IDS Tower 10 President-Distribution Services
Minneapolis, MN 55440
Richard W. Kling Senior Vice President-Products None
IDS Tower 10
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-Field Management and
Minneapolis, MN 55440 Business Systems
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
Fred A. Mandell Vice President-Field Marketing None
IDS Tower 10 Readiness
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
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
Shashank B. Modak Vice President - Technology Leader None
IDS Tower 10
Minneapolis, MN 55440
Pamela J. Moret Vice President-Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President-Central None
Suite 200 California/Western Nevada
3500 Market Street
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Mature Market None
IDS Tower 10 Segment
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 and None
IDS Tower 10 Field Administration
Minneapolis, MN 55440
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 and Project None
IDS Tower 10 Manager-Platform I Value Enhanced
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
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
Lawrence J. Welte Vice President-Investment None
IDS Tower 10 Administration
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
</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 Market Advantage Series, Inc., 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 14th day of October, 1999.
AXP MARKET ADVANTAGE SERIES, INC.
by /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer
by /s/John M. Knight
John M. Knight
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities indicated on
the 14th day of October, 1999.
Signatures Capacity
/s/ Arne H. Carlson* Chairman of the board
Arne H. Carlson
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
<PAGE>
Signatures Capacity
/s/ William R. Pearce* Director
William R. Pearce
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ John R. Thomas* Director
John R. Thomas
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated January 14, 1999, filed
as Exhibit (p)(1) to Registrant's Post-Effective Amendment No. 20, by:
/s/Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney, dated March 1, 1999, filed as
Exhibit (p)(2) to Registrant's Post-Effective Amendment No. 21, by:
/s/Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 23
TO REGISTRATION STATEMENT NO. 33-30770
This post-effective amendment comprises the following papers and documents:
The facing sheet.
Part A.
Prospectus for:
AXP S&P 500 Index Fund
AXP Mid Cap Index Fund
AXP Total Stock Market Index Fund
AXP International Equity Index Fund
AXP Nasdaq 100 Index Fund
Part B.
Statement of Additional Information for:
AXP S&P 500 Index Fund
AXP Mid Cap Index Fund
AXP Total Stock Market Index Fund
AXP International Equity Index Fund
AXP Nasdaq 100 Index Fund
Part C.
Other information.
The signatures.
IDS Market Advantage Series, Inc.
File No. 33-30770/811-5897
EXHIBIT INDEX
Exhibit (d)(3): Investment Management Services Agreement
Exhibit (d)(4): Investment Sub-advisory Agreement
Exhibit (e)(2): Distribution Agreement
Exhibit (g)(3): Custodian Agreement
Exhibit (h)(3): Administrative Services Agreement
Exhibit (h)(8): Transfer Agency Agreement
Exhibit (i): Opinion and consent of counsel
Exhibit (m)(2): Plan and Agreement of Distribution
Exhibit (o)(2): Rule 18f-3 Plan
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the 9th day of September, 1999, by and between AXP
Market Advantage Series, Inc., a Minnesota corporation (the "Corporation"), on
behalf of its underlying series funds, AXP International Equity Index Fund, AXP
Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index Fund and AXP
Total Stock Market Index Fund (each individually a "Fund"), and American Express
Financial Corporation, a Delaware corporation (the "Advisor").
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Fund hereby retains the Advisor, and the Advisor hereby agrees,
for the period of this Agreement and under the terms and conditions
hereinafter set forth, to furnish the Fund continuously with suggested
investment planning; to determine, consistent with the Fund's investment
objectives and policies, which securities in the Advisor's discretion
shall be purchased, held or sold and to execute or cause the execution
of purchase or sell orders; to prepare and make available to the Fund
all necessary research and statistical data in connection therewith; to
furnish services of whatever nature required in connection with the
management of the Fund as provided under this Agreement; and to pay such
expenses as may be provided for in Part Three; subject always to the
direction and control of the Board of Directors (the "Board"), the
Executive Committee of the Board and the authorized officers of the
Fund. The Advisor agrees to maintain an adequate organization of
competent persons to provide the services and to perform the functions
herein mentioned. The Advisor agrees to meet with any persons at such
times as the Board deems appropriate for the purpose of reviewing the
Advisor's performance under this Agreement.
(2) The Advisor agrees that the investment planning and investment
decisions will be in accordance with general investment policies of the
Fund as disclosed to the Advisor from time to time by the Fund and as
set forth in its prospectuses and registration statements filed with the
Securities and Exchange Commission (the "SEC").
(3) The Advisor agrees that it will maintain all required records,
memoranda, instructions or authorizations relating to the acquisition or
disposition of securities for the Fund.
(4) The Fund agrees that it will furnish to the Advisor any information
that the latter may reasonably request with respect to the services
performed or to be performed by the Advisor under this Agreement.
(5) The Advisor is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and
is directed to use its best efforts to obtain the best available price
and most favorable execution, except as prescribed herein. Subject to
prior authorization by the Fund's Board of appropriate policies and
procedures, and subject to termination at any time by the Board, the
Advisor may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if the Advisor
determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided
by such broker or dealer, viewed in terms of either that particular
transaction or the Advisor's overall responsibilities with respect to
the Fund and other funds for which it acts as investment advisor.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither the Advisor, nor any officer,
director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except
willful misfeasance, bad faith, or gross negligence in the performance
of its duties, or reckless disregard of its obligations and duties under
the terms of this Agreement. It is further understood and agreed that
the Advisor may rely upon information furnished to it reasonably
believed to be accurate and reliable.
<PAGE>
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Fund agrees to pay to the Advisor, and the Advisor covenants and agrees
to accept from the Fund in full payment for the services furnished, a fee for
each calendar day of each year equal to the total of 1/365th (1/366th in each
leap year) of the amount computed as shown below. In the case of the suspension
of the computation of net asset value, the asset charge for each day during such
suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. Net assets as of the close
of a full business day shall include all transactions in shares of the Fund
recorded on the books of the Fund for that day.
The asset charge shall be based on the net assets of
the Fund as set forth in the following table.
AXP International Equity Index Fund AXP Mid Cap Index Fund
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $0.25 0.50% First $0.25 0.26%
Next 0.25 0.50 Next 0.25 0.26
Next 0.25 0.49 Next 0.25 0.26
Next 0.25 0.49 Next 0.25 0.26
Next 1.00 0.48 Next 1.00 0.25
Next 3.00 0.47 Next 3.00 0.24
Over 5.00 0.46 Over 5.00 0.23
AXP Nasdaq 100 Index Fund AXP S&P 500 Index Fund
------------------------- ----------------------
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $0.25 0.38% First $0.25 0.24%
Next 0.25 0.38 Next 0.25 0.24
Next 0.25 0.37 Next 0.25 0.24
Next 0.25 0.37 Next 0.25 0.24
Next 1.00 0.36 Next 1.00 0.23
Next 3.00 0.35 Next 3.00 0.22
Over 5.00 0.34 Over 5.00 0.21
AXP Total Stock Market Index Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.30%
Next 0.25 0.30
Next 0.25 0.29
Next 0.25 0.29
Next 1.00 0.28
Next 3.00 0.27
Over 5.00 0.26
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be pro-rated on the
basis of the number of days that this Agreement is in effect during the
month with respect to which such payment is made.
<PAGE>
(3) The fee provided for hereunder shall be paid in cash by the Fund to
the Advisor within five business days after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Fees payable to American Express Financial
Corporation for its services under the terms of this
Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection
with the purchase and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified
public accountants for service the Fund requests.
(f) Premium on the bond required by Rule 17g-1 under
the Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in
matters not involving the assertion of a claim by a
third party against the Fund, its directors and
officers, (ii) it employs in conjunction with a claim
asserted by the Board against American Express
Financial Corporation, except that American Express
Financial Corporation shall reimburse the Fund for
such fees and expenses if it is ultimately determined
by a court of competent jurisdiction, or American
Express Financial Corporation agrees, that it is
liable in whole or in part to the Fund, and (iii) it
employs to assert a claim against a third party.
(h) Fees paid for the qualification and registration for
public sale of the securities of the Fund under the
laws of the United States and of the several states
in which such securities shall be offered for sale.
(i) Fees of consultants employed by the Fund.
(j) Directors, officers and employees expenses which
shall include fees, salaries, memberships, dues,
travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors,
officers and employees, directors and officers
liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other
expenses applicable to the directors, officers and
employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee
of American Express Financial Corporation or its
affiliates.
(k) Filing fees and charges incurred by the Fund in
connection with filing any amendment to its articles
of incorporation, or incurred in filing any other
document with the State of Minnesota or its political
subdivisions.
(l) Organizational expenses of the Fund.
(m) Expenses incurred in connection with lending
portfolio securities of the Fund.
(n) Expenses properly payable by the Fund, approved by
the Board.
<PAGE>
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this
Agreement. Further, American Express Financial Corporation agrees that
if, at the end of any month, the expenses of the Fund under this
Agreement and any other agreement between the Fund and American Express
Financial Corporation, but excluding those expenses set forth in (1)(b)
and (1)(c) of this Part Three, exceed the most restrictive applicable
state expenses limitation, the Fund shall not pay those expenses set
forth in (1)(a) and (d) through (n) of this Part Three to the extent
necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Corporation will assume
all unpaid expenses and bill the Fund for them in subsequent months but
in no event can the accumulation of unpaid expenses or billing be
carried past the end of the Fund's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized
in this Agreement, shall have no authority to act for or represent the
Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now
renders and may continue to render investment advice and other services
to other investment companies and persons which may or may not have
investment policies and investments similar to those of the Fund and
that American Express Financial Corporation manages its own investments
and/or those of its subsidiaries. American Express Financial Corporation
shall be free to render such investment advice and other services and
the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall
be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of the Fund are or may be
interested in American Express Financial Corporation or any successor or
assignee thereof, as directors, officers, stockholders or otherwise;
that directors, officers, stockholders or agents of American Express
Financial Corporation are or may be interested in the Fund as directors,
officers, shareholders, or otherwise; or that American Express Financial
Corporation or any successor or assignee, is or may be interested in the
Fund as shareholder or otherwise, provided, however, that neither
American Express Financial Corporation, nor any officer, director or
employee thereof or of the Fund, shall sell to or buy from the Fund any
property or security other than shares issued by the Fund, except in
accordance with applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this
Agreement entitled to receive such, at such party's principal place of
business in Minneapolis, Minnesota, or to such other address as either
party may designate in writing mailed to the other.
(6) American Express Financial Corporation agrees that no officer,
director or employee of American Express Financial Corporation will deal
for or on behalf of the Fund with himself as principal or agent, or with
any corporation or partnership in which he may have a financial
interest, except that this shall not prohibit:
(a) Officers, directors or employees of American Express
Financial Corporation from having a financial interest in the
Fund or in American Express Financial Corporation.
<PAGE>
(b) The purchase of securities for the Fund, or the sale of
securities owned by the Fund, through a security broker or
dealer, one or more of whose partners, officers, directors or
employees is an officer, director or employee of American
Express Financial Corporation, provided such transactions are
handled in the capacity of broker only and provided
commissions charged do not exceed customary brokerage charges
for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of
American Express Financial Corporation as may be allowed by
rule or order of the SEC, and if made pursuant to procedures
adopted by the Fund's Board.
(7) American Express Financial Corporation agrees that, except as
herein otherwise expressly provided or as may be permitted consistent
with the use of a broker-dealer affiliate of American Express Financial
Corporation under applicable provisions of the federal securities laws,
neither it nor any of its officers, directors or employees shall at any
time during the period of this Agreement, make, accept or receive,
directly or indirectly, any fees, profits or emoluments of any
character in connection with the purchase or sale of securities (except
shares issued by the Fund) or other assets by or for the Fund.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until Sept. 9, 2001, or
until a new agreement is approved by a vote of the majority of the
outstanding shares of the Fund and by vote of the Fund's Board,
including the vote required by (b) of this paragraph, and if no new
agreement is so approved, this Agreement shall continue from year to
year thereafter unless and until terminated by either party as
hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board of the Fund or
by a vote of the majority of the outstanding shares of the Fund and (b)
by the vote of a majority of the directors who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. As used in
this paragraph, the term "interested person" shall have the same
meaning as set forth in the Investment Company Act of 1940, as amended
(the "1940 Act").
(2) This Agreement may be terminated by either the Fund or American
Express Financial Corporation at any time by giving the other party 60
days' written notice of such intention to terminate, provided that any
termination shall be made without the payment of any penalty, and
provided further that termination may be effected either by the Board
of the Fund or by a vote of the majority of the outstanding voting
shares of the Fund. The vote of the majority of the outstanding voting
shares of the Fund for the purpose of this Part Five shall be the vote
at a shareholders' regular meeting, or a special meeting duly called
for the purpose, of 67% or more of the Fund's shares present at such
meeting if the holders of more than 50% of the outstanding voting
shares are present or represented by proxy, or more than 50% of the
outstanding voting shares of the Fund, whichever is less.
<PAGE>
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth
in the 1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.
AXP MARKET ADVANTAGE SERIES, INC.
AXP International Equity Index Fund
AXP Mid Cap Index Fund
AXP Nasdaq 100 Index Fund
AXP S&P 500 Index Fund
AXP Total Stock Market Index Fund
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/Pamela J. Moret
Pamela J. Moret
Vice President
INVESTMENT SUBADVISORY AGREEMENT
This Agreement is effective as of the 18th day of October, 1999, by and between
American Express Financial Corporation ("AEFC"), a Delaware corporation and
State Street Global Advisors ( "Sub-Adviser"), a division of State Street Bank
and Trust Company ("State Street"), a Massachusetts trust company.
Each of the Funds listed in Exhibit A (individually a "Fund" and collectively
the "Funds"), is registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"); and
Each Fund has entered into an Investment Management Services Agreement with
AEFC, an investment adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act"), under which AEFC provides investment advisory services to
the Fund; and
Sub-Adviser is in the business of providing, among other things, investment
advisory services and has a staff of experienced investment personnel and
facilities for the kind of investment portfolio contemplated for the Funds.
Therefore, it is mutually agreed with respect to each Fund:
Part One: Investment Management Services
(1) AEFC retains Sub-Adviser, and Sub-Adviser agrees, with respect to the
Fund's assets allocated to Sub-Adviser by AEFC, to furnish the Fund continuously
with suggested investment planning; to determine, consistent with the Fund's
investment objectives and policies, which investments in Sub-Adviser's
discretion, shall be purchased, held or sold and to execute or cause the
execution of purchase or sell orders; to furnish all services of whatever nature
required in connection with the management of the Fund's assets as provided
under this Agreement; subject always to the direction and control of the Board
of Directors of the Fund (the "Board"), the officers of the Fund and AEFC.
Sub-Adviser agrees to maintain an adequate organization of competent persons to
provide the services and to perform the functions described in this Agreement.
(2) Sub-Adviser represents and warrants that it is and will remain registered as
an investment adviser under the Advisers Act, unless exempt from registration.
(3) All transactions will be executed in accordance with the procedures and
standards set forth in, or established in accordance with, the Investment
Management Services Agreement between AEFC and the Fund. AEFC will provide
Sub-Adviser with information concerning those procedures and standards, and
Sub-Adviser will maintain records to assure that transactions have been executed
in accordance with those procedures and standards.
(4) Books and Records.
(a) Sub-Adviser agrees to maintain all required books and records,
including accounts, records, memoranda, instructions or authorizations relating
to the acquisition or disposition of investments for the Fund and to provide
copies of such documents to AEFC or the Fund upon request.
(b) Upon reasonable advance notice, Sub-Adviser agrees to provide
accounting or other data concerning the Fund's investment activities to the Fund
or its custodian or administrator to assist the Fund in preparing and filing all
periodic financial reports or other documents required to be filed with the SEC
and any other regulatory entity and to assist in calculating, each business day,
the net asset value of the shares of the Fund in accordance with applicable law.
<PAGE>
(c) Sub-Adviser agrees that all books and records it maintains for the
Fund are the property of the Fund and to surrender them promptly upon the Fund's
request. In the event of termination of this Agreement, all books, records or
other information shall be returned to the Fund free from any claim or assertion
of rights by Sub-Adviser.
(5) On occasions when Sub-Adviser deems the purchase or sale of a security to be
in the best interest of the Fund as well as other clients of Sub-Adviser,
Sub-Adviser may, to the extent permitted by applicable laws and regulations, but
will not be obligated to, aggregate the securities to be purchased or sold for
other clients in order to obtain favorable execution and lower brokerage
commissions or prices. In that event, allocation of the securities purchased or
sold, as well as the expenses incurred in the transaction, will be made by
Sub-Adviser in accordance with any written procedures maintained by Sub-Adviser,
or if there are no such written procedures, in the manner Sub-Adviser considers
to be the most equitable and consistent with its fiduciary obligations to the
Fund and to its other clients.
(6) Unless the Fund or AEFC gives written instructions to the contrary, the Fund
shall vote all proxies solicited by or with respect to the issuers of securities
in which assets of the Fund may be invested.
(7) Sub-Adviser agrees that the investment planning and investment decisions
will be in accordance with investment policies and strategies of the Fund as
disclosed to Sub-Adviser from time to time by the Fund and as set forth in the
current prospectus and statement of additional information filed with the
Securities and Exchange Commission (the "SEC").
(8) AEFC agrees that it will furnish to Sub-Adviser any information that the
latter may reasonably request with respect to the services performed or to be
performed by Sub-Adviser under this Agreement.
(9) Sub-Adviser agrees to provide the Board and AEFC with information and
reports regarding its activities as may reasonably be requested by AEFC or the
Board and to meet with any persons at the request of the AEFC or the Board for
the purpose of reviewing Sub-Adviser's performance under this Agreement at
reasonable times and upon five days advance written notice.
(10) It is understood and agreed that in furnishing the Fund with advisory
services, neither Sub-Adviser, nor any of its officers, directors or agents will
be held liable to AEFC, the Fund or its creditors or shareholders for errors of
judgment or for anything except willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or reckless disregard of its
obligations and duties under the terms of this Agreement. It is further
understood and agreed that Sub-Adviser may rely upon information furnished to it
reasonably believed to be accurate and reliable and that, except as provided
above, Sub-Adviser will not be accountable for any loss suffered by AEFC or the
Fund by reason of the latter's action or nonaction on the basis of any advice or
recommendation of Sub-Adviser, its officers, directors or agents.
Part Two: Compensation and Allocation of Expenses.
(1) As compensation for Sub-Adviser's services, AEFC will pay Sub-Adviser a fee
as described in Exhibit A. AEFC will pay this fee to Sub-Adviser on a monthly
basis in cash within 15 business days after the last day of each month. In the
event of the termination of this Agreement, the fee accrued will be prorated on
the basis of the number of days that this Agreement is in effect during the
month.
(2) Sub-Adviser will pay all of its own expenses incurred by it in connection
with its activities under this Agreement.
<PAGE>
Part Three: Miscellaneous
(1) Sub-Adviser will be deemed to be an independent contractor and, unless
expressly authorized, will have no authority to act for or represent the Fund.
(2) AEFC and the Funds agree that Sub-Adviser may render investment advice and
other services to other persons that may or may not have investment policies and
investments similar to those of the Fund, provided that these activities do not
impair Sub-Adviser's ability to render services under this Agreement.
(3) Neither this Agreement nor any transaction under this Agreement will be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in Sub-Adviser or any
successor or assignee, as directors, officers, stockholders or otherwise; that
directors, officers, stockholders or agents of Sub-Adviser are or may be
interested in the Fund as directors, officers, shareholders, or otherwise; or
that Sub-Adviser or any successor or assignee, is or may be interested in the
Fund as shareholder or otherwise, provided, however, that neither Sub-Adviser,
nor any officer, director or employee thereof, shall sell to or buy from the
Fund any property or security other than shares issued by the Fund, except in
accordance with applicable regulations or orders of the SEC.
(4) Any notice under this Agreement must be given in writing as provided below
or to another address as either party may designate in writing to the other.
All notices to be given to State Street shall be mailed to:
Compliance Officer
State Street Global Advisors
One International Place, 28th Floor
Boston, MA 02110
All notices to be given to AEFC shall be mailed to:
Vice President, Investment Administration
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
(5) Sub-Adviser agrees that no officer, director or employee of Sub-Adviser will
deal for or on behalf of the Fund with himself or herself as principal or agent,
or with any corporation or partnership in which he or she may have a financial
interest, except that this shall not prohibit:
(a) Officers, directors or employees of Sub-Adviser from having a
financial interest in the Fund or in Sub-Adviser.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of Sub-Adviser, provided such transactions are handled in the capacity of broker
only and provided commissions charged do not exceed customary brokerage charges
for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of
Sub-Adviser as may be allowed by rule or order of the SEC, and if made pursuant
to procedures adopted by the Fund's Board.
<PAGE>
(6) Sub-Adviser agrees that, except as herein otherwise expressly provided or as
may be permitted consistent with the use of a broker-dealer affiliate of
Sub-Adviser under applicable provisions of the federal securities laws, neither
it nor any of its officers, directors or employees shall at any time during the
period of this Agreement, make, accept or receive, directly or indirectly, any
fees, profits or emoluments of any character in connection with the purchase or
sale of securities (except shares issued by the Fund) or other assets by or for
the Fund.
(7) Sub-Adviser and AEFC each agree to protect the confidentiality of any
non-public information provided to it by the other party or by the Fund.
(8) This Agreement shall be governed by the laws of the state of Minnesota.
(9) Sub-Adviser will take reasonable steps to ensure that its products (and
those of third-party suppliers) are Year 2000 compliant, including, but not
limited to, century recognition of dates, calculations that correctly compute
same century and multi century formulas and date values, and interface values
that reflect the date issues arising between now and the next one-hundred years,
and, if any changes are required, Sub-Adviser will make the changes to its
products at no cost to AEFC or the Fund and in a commercially reasonable time
frame and will require third-party suppliers to do likewise.
Part Four: Renewal And Termination
(1) This Agreement, unless terminated under paragraph 2,3, or 4 below, will
continue in effect from year to year, provided its continued applicability is
specifically approved at least annually (i) by the Board or by a vote of the
holders of a majority of the outstanding votes of the Fund and (ii) by vote of a
majority of the Board members who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. As used in this paragraph, the term
"interested person" has the same meaning as set forth in the 1940 Act, as
amended.
(2) This Agreement may be terminated at any time, without penalty, by the Board
or by vote of the holders of a majority of the Fund's outstanding shares, on 60
days' written notice to AEFC or to Sub-Adviser.
(3) AEFC or Sub-Adviser may terminate this Agreement by giving 60 days' written
notice to the other party.
(4) This Agreement will terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning set forth in the 1940 Act,
as amended. Sub-Adviser agrees to notify AEFC and the Fund as soon as possible
of any change in ownership or control of State Street that could cause an
assignment of this Agreement. In the case of a voluntary assignment, notice will
be provided at least 90 days prior to the voluntary assignment.
<PAGE>
In witness thereof, the parties have executed this Agreement as of the day and
year first above written.
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/Peter J. Anderson
Peter J. Anderson
Senior Vice President -
Investment Operations
STATE STREET GLOBAL ADVISORS,
A division of State Street Bank and Trust Company
By: /s/Timothy B. Harbert
Timothy B. Harbert
Executive Vice President
<PAGE>
EXHIBIT A
With respect to the Fund's assets allocated to Sub-Adviser, AEFC will pay
Sub-Adviser a fee equal on an annual basis as follows:
<TABLE>
<CAPTION>
<S> <C>
Fund Fee (as a percent of average daily net assets)
AXP International Equity Index Fund 1st $50 million 0.150%
Next $50 million 0.075
Over $100 million 0.050
</TABLE>
AEFC agrees to pay Sub-Adviser a minimum of $100,000 per year for managing the
fund. This minimum will be reduced to $75,000 for the first 12 months of this
Agreement.
DISTRIBUTION AGREEMENT
Agreement made as of the 9th day of September, 1999, by and between AXP Market
Advantage Series, Inc. (the "Corporation"), a Minnesota corporation, for and on
behalf of each class of its underlying series funds, AXP International Equity
Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index
Fund and AXP Total Stock Market Index Fund (each individually a "Fund" and
collectively the "Funds"); and American Express Financial Advisors Inc.
("AEFA"), a Delaware corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Corporation covenants and agrees that, during the term of this agreement
and any renewal or extension, AEFA shall have the exclusive right to act as
principal underwriter for each Fund and to offer for sale and to distribute any
and all shares of each class of capital stock issued or to be issued by the
Funds.
The exclusive right to act as principal underwriter will not apply to
transactions by the Fund at net asset value as permitted by the currently
effective prospectus and statement of additional information (the "prospectus")
or to transactions by the Fund that do not involve sales to the general public,
including transactions between the Fund and its shareholders only, transactions
involving the reorganization of the Fund and transactions involving the merger,
consolidation or acquisition of assets with another corporation or trust.
(2) AEFA hereby covenants and agrees to act as the principal underwriter of each
class of capital shares issued and to be issued by the Funds during the period
of this agreement and agrees to offer for sale such shares as long as such
shares remain available for sale, unless AEFA is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason. AEFA agrees to devote reasonable time and effort to effect
sales of shares of the Fund but is not obligated to sell any specific number of
shares.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Funds, it is mutually understood and agreed that such shares are
to be sold on the following terms:
(a) AEFA has the right, as principal, to buy from the Fund the shares
needed to fill unconditional orders placed with AEFA by investors or
selling dealers (as defined below). The price AEFA will pay to the Fund
is the net asset value, determined as set forth in the currently
effective prospectus.
(b) The shares will be resold by AEFA to investors at the public
offering price, determined as set forth in the currently effective
prospectus, or to selling dealers having agreements with AEFA upon the
terms and conditions set forth in section 3(f). Shares may be sold to
certain groups or in certain transactions without a sales charge or at
a reduced sales charge, as described in the currently effective
prospectus.
(c) AEFA also has the right, as agent for the Fund, to sell shares at
the public offering price or at net asset value to certain persons and
upon certain conditions as the Fund may from time to time determine.
(d) The Fund or its transfer agent shall be promptly advised of all
orders received.
(e) The net asset value of the shares will be determined by the Fund or
any agent of the Fund in accordance with the method set forth in the
currently effective prospectus. In the event of a period of emergency,
the computation of the net asset value for the purpose of determining
the number of shares or fractional shares to be acquired may be
deferred until the close of business on the first full business day
following the termination of the period of emergency. A period of
emergency shall have the definition given thereto in the Investment
Company Act of 1940.
<PAGE>
(f) AEFA is authorized to enter into agreements with broker-dealers
that are lawfully registered under federal law and any applicable state
law or with other institutions lawfully able to distribute securities
(selling dealers) providing for the selling dealers to obtain
unconditional orders for purchases of the Fund's shares from investors,
provided however, that AEFA may in its discretion refuse to accept
orders for shares from any particular applicant and may provide similar
discretion to selling dealers. AEFA will determine the portion of the
sales charge that may be allocated to the selling dealers. Shares sold
to selling dealers are for resale only at the public offering price
determined as set forth in the currently effective prospectus.
(4) The Corporation agrees to make prompt and reasonable effort to do any and
all things necessary, in the opinion of AEFA to have and to keep the Funds and
the shares properly registered or qualified in all appropriate jurisdictions
and, as to shares, in such amounts as AEFA may from time to time designate in
order that the Funds shares may be offered or sold in such jurisdictions.
(5) The Corporation agrees that it will furnish AEFA with information with
respect to the affairs and accounts of the Funds, and in such form as AEFA may
from time to time reasonably require and further agrees that AEFA, at all
reasonable times, shall be permitted to inspect the books and records of the
Funds.
(6) AEFA agrees to indemnify and hold harmless the Fund and each person who has
been, is, or may hereafter be a director of the Fund against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact, or out of any alleged misrepresentation or omission to state a
material fact, on the part of AEFA or any agent or employee of AEFA or any other
person for whose acts AEFA is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon information
furnished by the Fund. AEFA also agrees likewise to indemnify and hold harmless
the Fund and each such person in connection with any claim or in connection with
any action, suit or proceeding which arises out of or is alleged to arise out of
AEFA's (or an affiliate of AEFA's) failure to exercise reasonable care and
diligence with respect to its services rendered. The term "expenses" includes
amounts paid in satisfaction of judgments or in settlements which are made with
AEFA's consent. The foregoing rights of indemnification shall be in addition to
any other rights to which the Fund or a director may be entitled as a matter of
law.
(7) AEFA agrees to cause to be delivered to each purchaser a prospectus or
circular to be furnished by the Fund in the form required by the applicable
federal laws or by the acts or statutes of any applicable state, province or
country.
(8) In connection with the repurchase of shares, AEFA will act as agent of the
Fund. Any outstanding shares may be tendered for redemption at any time and the
Fund agrees to repurchase or redeem the shares in accordance with the terms and
conditions of the currently effective prospectus. The Fund will pay the amount
of the redemption price to shareholders on or before the seventh business day
after receiving the notice of redemption in proper form. Any applicable
contingent deferred sales charge will be paid to AEFA and the balance will be
paid to or for the account of the shareholder.
(9) AEFA and the Fund agree to use their best efforts to conform with all
applicable state and federal laws and regulations relating to any rights or
obligations under the terms of this agreement.
Part Two: ALLOCATION OF EXPENSES AND COMPENSATION
(1) Except as provided by the Plan and Agreement of Distribution any other
agreement between the parties, AEFA covenants and agrees that during the period
of this agreement it will pay or cause to be paid all expenses incurred by AEFA
in the offering for sale or sale of each class of the Funds' shares.
(2) AEFA's compensation as principal underwriter shall be (a) that part of the
sales charge retained by AEFA and (b) amounts payable as contingent deferred
sales charges on certain redemptions of shares.
<PAGE>
Part Three: MISCELLANEOUS
(1) AEFA shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this agreement, shall have no authority to
act for or represent the Corporation.
(2) AEFA shall be free to render to others services similar to those rendered
under this agreement.
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Funds are or may be interested in AEFA as directors,
officers, shareholders or otherwise; that directors, officers, shareholders or
agents of AEFA are or may be interested in the Funds as directors, officers,
shareholders or otherwise; or that AEFA is or may be interested in the Funds as
shareholder or otherwise, provided however, that neither AEFA nor any officer or
director of AEFA or any officers or directors of the Funds shall sell to or buy
from the Funds any property or security other than a security issued by the
Funds, except in accordance with a rule, regulation or order of the Securities
and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Corporation.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) AEFA agrees that no officer, director or employee of AEFA will deal for or
on behalf of the Funds with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors and employees of AEFA from having
a financial interest in the Funds or in AEFA.
(b) The purchase of securities for the Funds, or the sale of
securities owned by the Funds, through a security broker or
dealer, one or more of whose partners, officers, directors or
employees is an officer, director or employee of AEFA,
provided such transactions are handled in the capacity of
broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
(c) Transactions with the Funds by a broker-dealer affiliate
of AEFA if allowed by rule or order of the SEC and if made
pursuant to procedures adopted by the Board of Directors.
(7) AEFA agrees that, except as otherwise provided in this agreement or in the
Plan and Agreement of Distribution, or may be permitted consistent with the use
of a broker-dealer affiliate of AEFA under applicable provisions of the federal
securities laws, neither it nor any of its officers, directors or employees
shall at any time during the period of this agreement make, accept or receive,
directly or indirectly, any fees, profits or emoluments of any character in
connection with the purchase or sale of securities (except securities issued by
the Funds) or other assets by or for the Funds.
(8) This agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
(9) This agreement is governed by the laws of the state of Minnesota.
<PAGE>
Part Four: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by AEFA or a Fund, except that such continuance shall be specifically approved
at least annually by a vote of a majority of the Board of Directors who are not
parties to this agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and by a
majority of the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund. As used in this paragraph, the term "interested
person" shall have the meaning as set forth in the 1940 Act.
(2) This agreement may be terminated by AEFA or a Fund at any time by giving the
other party sixty (60) days written notice of such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the 1940
Act.
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
AXP MARKET ADVANTAGE SERIES, INC.
AXP International Equity Index Fund
AXP Mid Cap Index Fund
AXP Nasdaq 100 Index Fund
AXP S&P 500 Index Fund
AXP Total Stock Market Index Fund
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By: /s/Pamela J. Moret
Pamela J. Moret
Vice President
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated September 9, 1999, is between AXP Market
Advantage Series, Inc., a Minnesota corporation (the "Corporation"), on behalf
of its underlying series funds, AXP International Equity Index Fund, AXP Mid Cap
Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index Fund and AXP Total
Stock Market Index Fund (each individually a "Fund") and American Express Trust
Company, a corporation organized under the laws of the State of Minnesota with
its principal place of business at Minneapolis, Minnesota (the "Custodian").
WHEREAS, the Fund desires that its securities and cash be hereafter held and
administered by Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund
and the Custodian agree as follows:
Section 1. Definitions
The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Fund, notes, bonds, debentures, evidences of indebtedness, options to buy or
sell stocks or stock indexes, certificates of interest or participation in any
profit-sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts, voting
trust certificates, certificates of deposit for a security, fractional or
undivided interests in oil, gas or other mineral rights, or any certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security. In addition, for the purpose of this Custodian
Agreement, the word "securities" also shall include other instruments in which
the Fund may invest including currency forward contracts and commodities such as
interest rate or index futures contracts, margin deposits on such contracts or
options on such contracts.
The words "custodian order" shall mean a request for direction, including a
computer printout, directed to the Custodian and signed in the name of the Fund
by any two individuals designated in the current certified list referred to in
Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Fund will certify to the Custodian the names and signatures of its present
officers and other designated persons authorized on behalf of the Fund to direct
the Custodian by custodian order as herein before defined. The Fund agrees that
whenever any change occurs in this list it will file with the Custodian a copy
of a resolution certified by the Secretary or an Assistant Secretary of the Fund
as having been duly adopted by the Corporation's Board of Directors (the
"Board") or the Executive Committee of the Board designating those persons
currently authorized on behalf of the Fund to direct the Custodian by custodian
order, as herein before defined, and upon such filing (to be accompanied by the
filing of specimen signatures of the designated persons) the persons so
designated in said resolution shall constitute the current certified list. The
Custodian is authorized to rely and act upon the names and signatures of the
individuals as they appear in the most recent certified list from the Fund which
has been delivered to the Custodian as herein above provided.
<PAGE>
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with banks having not
less than two million dollars aggregate capital, surplus and undivided profits
for the custody of securities. Any such bank selected by the Custodian to act as
subcustodian shall be deemed to be the agent of the Custodian.
The Custodian also may enter into arrangements for the custody of securities
entrusted to its care through foreign branches of U.S. banks; through foreign
banks, banking institutions or trust companies; through foreign subsidiaries of
U.S. banks or bank holding companies, or through foreign securities depositories
or clearing agencies (hereinafter also called, collectively, the "Foreign
Subcustodian") or indirectly through an agent, established under the first
paragraph of this section, if and to the extent permitted by Section 17(f) of
the Investment Company Act of 1940 (the "1940 Act") and the rules promulgated by
the Securities and Exchange Commission ("SEC") thereunder, or any "no-action"
letter received from the staff of the SEC. To the extent the existing provisions
of the Custodian Agreement are consistent with the requirements of such Section,
rules, order or no-action letter, they shall apply to all such foreign
custodianships. To the extent such provisions are inconsistent with or
additional requirements are established by such Section, rules, order or
no-action letter, the requirements of such Section, rules, order or no-action
letter will prevail and the parties will adhere to such requirements; provided,
however, in the absence of notification from the Fund of any changes or
additions to such requirements, the Custodian shall have no duty or
responsibility to inquire as to any such changes or additions.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or accounts in
the name of the Fund or cause its agent to open and maintain such
account or accounts subject only to checks, drafts or directives by the
Custodian pursuant to the terms of this Agreement. The Custodian or its
agent shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund.
The Custodian or its agent shall make payments of cash to or for the
account of the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund
upon the receipt of such securities by the Custodian or its
agent unless otherwise instructed on behalf of the Fund;
(b) for the purchase or redemption of shares of capital stock of
the Fund;
(c) for the payment of interest, dividends, taxes, management
fees, or operating expenses (including, without limitation
thereto, fees for legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or redemption
fees, if any;
(e) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund
held by or to be delivered to the Custodian;
(f) for payments in connection with the return of securities
loaned by the Fund upon receipt of such securities or the
reduction of collateral upon receipt of proper notice;
(g) for payments for other proper corporate purposes;
(h) or upon the termination of this Agreement.
<PAGE>
Before making any such payment for the purposes permitted under these
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this
section, the Custodian shall receive and may rely upon a custodian
order directing such payment and stating that the payment is for such a
purpose permitted under these items (a), (b), (c) (d), (e), (f) or (g)
and that in respect to item (g), a copy of a resolution of the Board or
of the Executive Committee of the Board of directors signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose to be a proper corporate purpose, and naming the person or
persons to whom such payment is made. Notwithstanding the above, for
the purposes permitted under items (a) or (f) of paragraph (1) of this
section, the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the Fund to
endorse and collect all checks, drafts or other orders for the payment
of money received by the Custodian for the account of the Fund and
drawn on or to the order of the Fund and to deposit same to the account
of the Fund pursuant to this Agreement.
Section 5. Receipt of securities
Except as permitted by the second paragraph of this section, the Custodian or
its agent shall hold in a separate account or accounts, and physically
segregated at all times from those of any other persons, firms or corporations,
pursuant to the provisions hereof, all securities received by it for the account
of the Fund. The Custodian shall record and maintain a record of all certificate
numbers. Securities so received shall be held in the name of the Fund, in the
name of an exclusive nominee duly appointed by the Custodian or in bearer form,
as appropriate.
Subject to such rules, regulations or guidelines as the SEC may adopt, the
Custodian may deposit all or any part of the securities owned by the Fund in a
"securities depository" which includes any system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the SEC under the securities Exchange Act
of 1934, or such other person as may be permitted by the Commission, pursuant to
which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.
All securities are to be held or disposed of by the Custodian for, and subject
at all times to the instructions of, the Fund pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities, except pursuant
to the directive of the Fund and only for the account of the Fund as set forth
in Section 6 of this Agreement.
Section 6. Transfer, Exchange, Delivery, etc. of securities
The Custodian shall have sole power to release or deliver any securities of the
Fund held by it pursuant to this Agreement. The Custodian agrees to transfer,
exchange or deliver securities held by it or its agent hereunder only:
(a) for sales of such securities for the account of the Fund, upon
receipt of payment therefor;
(b) when such securities are called, redeemed, retired or
otherwise become payable;
(c) for examination upon the sale of any such securities in
accordance with "street delivery" custom which would include
delivery against interim receipts or other proper delivery
receipts;
(d) in exchange for or upon conversion into other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
<PAGE>
(e) for the purpose of exchanging interim receipts or temporary
certificates for permanent certificates;
(f) upon conversion of such securities pursuant to their terms
into other securities;
(g) upon exercise of subscription, purchase or other similar
rights represented by such securities; for loans of such
securities by the Fund upon receipt of collateral; or
(h) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f) and (g), securities or cash received in exchange therefore shall be
delivered to the Custodian, its agent, or to a securities depository. Before
making any such transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Fund requesting such transfer, exchange
or delivery and stating that it is for a purpose permitted under Section 6
(whenever a facsimile is utilized, the Fund will also deliver an original signed
custodian order) and, in respect to item (h), a copy of a resolution of the
Board or of the Executive Committee of the Board of directors signed by an
officer of the Fund and certified by its Secretary or an Assistant Secretary,
specifying the securities, setting forth the purpose for which such payment,
transfer, exchange or delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom such
transfer, exchange or delivery of such securities shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order from the
Fund, the Custodian shall or shall cause its agent to:
(a) present for payment all coupons and other income items held by
the Custodian or its agent for the account of the Fund which
call for payment upon presentation and hold all cash received
by it upon such payment for the account of the Fund;
(b) present for payment all securities held by it or its agent
which mature or when called, redeemed, retired or otherwise
become payable;
(c) ascertain all stock dividends, rights and similar securities
to be issued with respect to any securities held by the
Custodian or its agent hereunder, and to collect and hold for
the account of the Fund all such securities; and
(d) ascertain all interest and cash dividends to be paid to
security holders with respect to any securities held by the
Custodian or its agent, and to collect and hold such interest
and cash dividends for the account of the Fund.
Section 8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any of the
securities held hereunder by or for the account of the Fund. The Custodian shall
promptly deliver to the Fund all notices, proxies and proxy soliciting materials
with relation to such securities, such proxies to be executed by the registered
holder of such securities (if registered otherwise than in the name of the
Corporation) but without indicating the manner in which such proxies are to be
voted.
Custodian shall transmit promptly to the Fund all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Custodian
from issuers of the securities being held for the Fund. With respect to tender
or exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer.
<PAGE>
Section 9. Transfer Taxes
The Fund shall pay or reimburse the Custodian for any transfer taxes payable
upon transfers of securities made hereunder, including transfers resulting from
the termination of this Agreement. The Custodian shall execute such certificates
in connection with securities delivered to it under this Agreement as may be
required, under any applicable law or regulation, to exempt from taxation any
transfers and/or deliveries of any such securities which may be entitled to such
exemption.
Section 10. Custodian's Reports
The Custodian shall furnish the Fund as of the close of business each day a
statement showing all transactions and entries for the account of the Fund. The
books and records of the Custodian pertaining to its actions as Custodian under
this Agreement and securities held hereunder by the Custodian shall be open to
inspection and audit by officers of the Fund, internal auditors employed by the
Fund's investment adviser, and independent auditors employed by the Fund. The
Custodian shall furnish the Fund in such form as may reasonably be requested by
the Fund a report, including a list of the securities held by it in custody for
the account of the Fund, identification of any subcustodian, and identification
of such securities held by such subcustodian, as of the close of business of the
last business day of each month, which shall be certified by a duly authorized
officer of the Custodian. It is further understood that additional reports may
from time to time be requested by the Fund. Should any report ever be filed with
any governmental authority pertaining to lost or stolen securities, the
Custodian will concurrently provide the Fund with a copy of that report.
The Custodian also shall furnish such reports on its systems of internal
accounting control as the Fund may reasonably request from time to time.
Section 11. Concerning Custodian
For its services hereunder the Custodian shall be paid such compensation at such
times as may from time to time be agreed on in writing by the parties hereto in
a Custodian Fee Agreement.
The Custodian shall not be liable for any action taken in good faith upon any
custodian order or facsimile herein described or certified copy of any
resolution of the Board or of the Executive Committee of the Board, and may rely
on the genuineness of any such document which it may in good faith believe to
have been validly executed.
The Fund agrees to indemnify and hold harmless Custodian and its nominee from
all taxes, charges, expenses, assessments, claims and liabilities (including
counsel fees) incurred or assessed against it or its nominee in connection with
the performance of this Agreement, except such as may arise from the Custodian's
or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Fund for such
items. In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Fund, or in the event that
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefor.
The Custodian shall maintain a standard of care equivalent to that which would
be required of a bailee for hire and shall not be liable for any loss or damage
to the Fund resulting from participation in a securities depository unless such
loss or damage arises by reason of any negligence, misfeasance, or willful
misconduct of officers or employees of the Custodian, or from its failure to
enforce effectively such rights as it may have against any securities depository
or from use of an agent, unless such loss or damage arises by reason of any
negligence, misfeasance, or willful misconduct of officers or employees of the
Custodian, or from its failure to enforce effectively such rights as it may have
against any agent.
<PAGE>
Section 12. Termination and Amendment of Agreement
The Fund and the Custodian mutually may agree from time to time in writing to
amend, to add to, or to delete from, any provision of this Agreement.
The Custodian may terminate this Agreement by giving the Fund ninety days'
written notice of such termination by registered mail addressed to the Fund at
its principal place of business.
The Fund may terminate this Agreement at any time by written notice thereof
delivered, together with a copy of the resolution of the Board authorizing such
termination and certified by the Secretary of the Fund, by registered mail to
the Custodian.
Upon such termination of this Agreement, assets of the Fund held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Fund, upon receipt by the Custodian of a copy of the
resolution of the Board certified by the Secretary, showing appointment of the
successor custodian, and provided that such successor custodian is a bank or
trust company, organized under the laws of the United States or of any State of
the United States, having not less than two million dollars aggregate capital,
surplus and undivided profits. Upon the termination of this Agreement as a part
of the transfer of assets, either to a successor custodian or otherwise, the
Custodian will deliver securities held by it hereunder, when so authorized and
directed by resolution of the Board, to a duly appointed agent of the successor
custodian or to the appropriate transfer agents for transfer of registration and
delivery as directed. Delivery of assets on termination of this Agreement shall
be effected in a reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the successor custodian,
the Custodian shall continue to act as such under this Agreement as to assets in
its possession or control. Termination as to each security shall become
effective upon delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor custodian, and
such delivery shall constitute effective delivery by the Custodian to the
successor under this Agreement.
In addition to the means of termination herein before authorized, this Agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Fund and after written notice of such action to the Custodian.
Section 13. General
Nothing expressed or mentioned in or to be implied from any provision of this
Agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
<PAGE>
This Agreement shall be governed by the laws of the State of Minnesota.
This Agreement supersedes all prior agreements between the parties.
AXP MARKET ADVANTAGE SERIES, INC.
AXP International Equity Index Fund
AXP Mid Cap Index Fund
AXP Nasdaq 100 Index Fund
AXP S&P 500 Index Fund
AXP Total Stock Market Index Fund
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS TRUST COMPANY
By: /s/Chandrakant A. Patel
Chandrakant A. Patel
Vice President
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT dated September 9, 1999, is between AXP Market Advantage Series,
Inc., a Minnesota corporation (the "Corporation"), on behalf of its underlying
series funds, AXP International Equity Index Fund, AXP Mid Cap Index Fund, AXP
Nasdaq 100 Index Fund, AXP S&P 500 Index Fund and AXP Total Stock Market Index
Fund ( each individually a "Fund") and American Express Financial Corporation
(the "Administrator"), a Delaware corporation.
Part One: SERVICES
(1) The Fund hereby retains the Administrator, and the Administrator hereby
agrees, for the period of this Agreement and under the terms and
conditions hereinafter set forth, to furnish the Fund continuously with
all administrative, accounting, clerical, statistical, correspondence,
corporate and all other services of whatever nature required in
connection with the administration of the Fund as provided under this
Agreement; and to pay such expenses as may be provided for in Part
Three hereof; subject always to the direction and control of the Board
of Directors (the "Board"), the Executive Committee and the authorized
officers of the Fund. The Administrator agrees to maintain an adequate
organization of competent persons to provide the services and to
perform the functions herein mentioned. The Administrator agrees to
meet with any persons at such times as the Board deems appropriate for
the purpose of reviewing the Administrator's performance under this
Agreement.
(2) The Fund agrees that it will furnish to the Administrator any
information that the latter may reasonably request with respect to the
services performed or to be performed by the Administrator under this
Agreement.
(3) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither the Administrator, nor any
officer, director or agent thereof shall be held liable to the Fund or
its creditors or shareholders for errors of judgment or for anything
except willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or reckless disregard of its obligations and
duties under the terms of this Agreement. It is further understood and
agreed that the Administrator may rely upon information furnished to it
reasonably believed to be accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Fund agrees to pay to the Administrator, and the Administrator
covenants and agrees to accept from the Fund in full payment for the
services furnished, based on the net assets of the Fund as set forth in
the following table:
AXP International Equity Index Fund AXP Mid Cap Index Fund
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $0.25 0.100% First $0.25 0.080%
Next 0.25 0.100 Next 0.25 0.080
Next 0.25 0.095 Next 0.25 0.080
Next 0.25 0.095 Next 0.25 0.080
Next 1.00 0.090 Next 1.00 0.075
Next 3.00 0.085 Next 3.00 0.070
Over 5.00 0.080 Over 5.00 0.065
<PAGE>
AXP Nasdaq 100 Index Fund AXP S&P 500 Index Fund
------------------------- ----------------------
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $0.25 0.060% First $0.25 0.080%
Next 0.25 0.060 Next 0.25 0.080
Next 0.25 0.055 Next 0.25 0.080
Next 0.25 0.055 Next 0.25 0.080
Next 1.00 0.050 Next 1.00 0.075
Next 3.00 0.045 Next 3.00 0.070
Over 5.00 0.040 Over 5.00 0.065
AXP Total Stock Market Index Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.110%
Next 0.25 0.110
Next 0.25 0.105
Next 0.25 0.105
Next 1.00 0.100
Next 3.00 0.095
Over 5.00 0.090
The administrative fee for each calendar day of each year shall be
equal to 1/365th (1/366th in each leap year) of the total amount
computed. In the case of the suspension of the computation of net asset
value, the administrative fee for each day during such suspension shall
be computed as of the close of business on the last full business day
on which the net assets were computed. As used herein, "net assets" as
of the close of a full business day shall include all transactions in
shares of the Fund recorded on the books of the Fund for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the
event of the termination of this Agreement, the administrative fee
accrued shall be prorated on the basis of the number of days that this
Agreement is in effect during the month with respect to which such
payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by
the Fund to the Administrator within five (5) business days after the
last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Administrative fees payable to the Administrator for its
services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public
accountants for services the Fund requests.
<PAGE>
(d) Fees and expenses of attorneys: (i) it employs in matters not
involving the assertion of a claim by a third party against
the Corporation, its Directors and officers, (ii) it employs
in conjunction with a claim asserted by the Board of Directors
against the Administrator, except that the Administrator shall
reimburse the Corporation for such fees and expenses if it is
ultimately determined by a court of competent jurisdiction, or
the Administrator agrees, that it is liable in whole or in
part to the Corporation, and (iii) it employs to assert a
claim against a third party.
(e) Fees paid for the qualification and registration for public
sale of the securities of the Fund under the laws of the
United States and of the several states in which such
securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy,
insurance on the premises, furniture and equipment, telephone,
telegraph, electronic information services, books,
periodicals, published services, and office supplies used by
the Fund, equal to the cost of such incurred by the
Administrator.
(g) Fees of consultants employed by the Fund.
(h) Directors', officers' and employees' expenses which shall
include fees, salaries, memberships, dues, travel, seminars,
pension, profit sharing, and all other benefits paid to or
provided for directors, officers and employees, directors and
officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses
applicable to the directors, officers and employees, except
the Fund will not pay any fees or expenses of any person who
is an officer or employee of the Administrator or its
affiliates.
(i) Filing fees and charges incurred by the Corporation in
connection with filing any amendment to its articles of
incorporation, or incurred in filing any other document with
the State of Minnesota or its political subdivisions on behalf
of the Fund.
(j) Organizational expenses of the Fund.
(k) One-half of the Investment Company Institute membership dues
charged jointly to the American Express Funds and the
Administrator.
(l) Expenses properly payable by the Fund, approved by the Board.
(2) The Administrator agrees to pay all expenses associated with the
services it provides under the terms of this Agreement. Further, the
Administrator agrees that if, at the end of any month, the expenses of
the Fund under this Agreement and any other agreement between the Fund
and the Administrator, but excluding those expenses set forth in (1)(b)
of this Part Three, exceed the most restrictive applicable state
expenses limitation, the Fund shall not pay those expenses set forth in
(1)(a) and (c) through (l) of this Part Three to the extent necessary
to keep the Fund's expenses from exceeding the limitation, it being
understood that the Administrator will assume all unpaid expenses and
bill the Fund for them in subsequent months but in no event can the
accumulation of unpaid expenses or billing be carried past the end of
the Fund's fiscal year.
<PAGE>
Part Four: MISCELLANEOUS
(1) The Administrator shall be deemed to be an independent contractor and,
except as expressly provided or authorized in this Agreement, shall
have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the Corporation's By-laws.
(3) The Fund recognizes that the Administrator now renders and may continue
to render investment advice and other services to other investment
companies and persons which may or may not have investment policies and
investments similar to those of the Fund and that the Administrator
manages its own investments and/or those of its subsidiaries. The
Administrator shall be free to render such investment advice and other
services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers,
agents and/or shareholders of the Fund are or may be interested in the
Administrator or any successor or assignee thereof, as directors,
officers, stockholders or otherwise; that directors, officers,
stockholders or agents of the Administrator are or may be interested in
the Fund as directors, officers, shareholders, or otherwise; or that
the Administrator or any successor or assignee, is or may be interested
in the Fund as shareholder or otherwise, provided, however, that
neither the Administrator, nor any officer, director or employee
thereof or of the Fund, shall sell to or buy from the Fund any property
or security other than shares issued by the Fund, except in accordance
with applicable regulations or orders of the U.S. Securities and
Exchange Commission.
(5) Any notice under this Agreement shall be given in writing, addressed,
and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business
in Minneapolis, Minnesota, or to such other address as either party may
designate in writing mailed to the other.
(6) The Administrator agrees that no officer, director or employee of the
Administrator will deal for or on behalf of the Fund with himself as
principal or agent, or with any corporation or partnership in which he
may have a financial interest, except that this shall not prohibit
officers, directors or employees of the Administrator from having a
financial interest in the Fund or in the Administrator.
(7) The Fund agrees that the Administrator may subcontract for certain of
the services described under this Agreement with the understanding that
there shall be no diminution in the quality or level of the services
and that the Administrator remains fully responsible for the services.
(8) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent
of the other party. This Agreement shall be governed by the laws of the
State of Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above
(the "Effective Date") and shall continue in effect from year to year
thereafter as the parties may mutually agree; provided that either
party may terminate this Agreement by giving the other party notice in
writing specifying the date of such termination, which shall be not
less than 60 days after the date of receipt of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
<PAGE>
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
AXP MARKET ADVANTAGE SERIES, INC.
AXP International Equity Index Fund
AXP Mid Cap Index Fund
AXP Nasdaq 100 Index Fund
AXP S&P 500 Index Fund
AXP Total Stock Market Index Fund
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/Pamela J. Moret
Pamela J. Moret
Vice President
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of September 9, 1999, between AXP Market Advantage Series,
Inc. (the "Company"), a Minnesota corporation, on behalf of its underlying
series funds, AXP International Equity Index Fund, AXP Mid Cap Index Fund, AXP
Nasdaq 100 Index Fund, AXP S&P 500 Index Fund and AXP Total Stock Market Index
Fund (each individually a "Fund" and collectively the "Funds"), and American
Express Client Service Corporation (the "Transfer Agent"), a Minnesota
corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.
3. Documents. The Company will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to be
appropriate or necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's Articles
of Incorporation and its By-laws, such shares shall be validly
issued, fully paid and non-assessable by the Company.
(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:
(a) Sale of Fund Shares.
<PAGE>
(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the respective Fund's prospectus.
All shares shall be held in book entry form and no
certificate shall be issued unless the Fund is
permitted to do so by its prospectus and the
purchaser so requests.
(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to redeem shares in
accordance with the terms of the Fund's prospectus, the Transfer Agent will
record the redemption of shares of the Fund, prepare and present the
necessary report to the Custodian and pay the proceeds of the redemption to
the shareholder, an authorized agent or legal representative upon the
receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt of
instructions or forms acceptable to the Transfer Agent to transfer the
shares to the name of a new owner, change the name or address of the
present owner or take other legal action, the Transfer Agent will take such
action as is requested.
(d) Exchange of Fund Shares. On receipt of instructions to exchange the shares
of the Fund for the shares of another American Express fund or other
American Express Financial Corporation product in accordance with the terms
of the prospectus, the Transfer Agent will process the exchange in the same
manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer,
exchange or redeem shares of a Fund or take any action requested by a
shareholder until it is satisfied that the requested transaction or action
is legally authorized or until it is satisfied there is no basis for any
claims adverse to the transaction or action. It may rely on the provisions
of the Uniform Act for the Simplification of Fiduciary Security Transfers
or the Uniform Commercial Code. The Company shall indemnify the Transfer
Agent for any act done or omitted to be done in reliance on such laws or
for refusing to transfer, exchange or redeem shares or taking any requested
action if it acts on a good faith belief that the transaction or action is
illegal or unauthorized.
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.
<PAGE>
(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the Funds or as directed by instructions
or forms acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm
each transaction either at the time of the transaction or
through periodic reports as may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or
stolen checks issued to shareholders upon receipt of proper
notification and will maintain any stop payment orders against
the lost or stolen checks as it is economically desirable to
do.
(j) Reports to Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties
to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees that
all records prepared or maintained by it relating to the services to be
performed by it under the terms of this Agreement are the property of the
Company and may be inspected by the Company or any person retained by the
Company at reasonable times. The Company and Transfer Agent agree to
protect the confidentiality of those records.
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the Company
with the services as herein provided, neither the Transfer Agent, nor any
officer, director or agent thereof shall be held liable for any loss
arising out of or in connection with their actions under this Agreement so
long as they act in good faith and with due diligence, and are not
negligent or guilty of any willful misconduct. It is further understood and
agreed that the Transfer Agent may rely upon information furnished to it
reasonably believed to be accurate and reliable. In the event the Transfer
Agent is unable to perform its obligations under the terms of this
Agreement because of an act of God, strike or equipment or transmission
failure reasonably beyond its control, the Transfer Agent shall not be
liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date
first set forth above (the "Effective Date") and shall continue in effect
from year to year thereafter as the parties may mutually agree; provided
that either party may terminate this Agreement by giving the other party
notice in writing specifying the date of such termination, which shall be
not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Company, it shall be accompanied by a
vote of the Board, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent or transfer agents.
Upon such termination and at the expense of the Company, the Transfer Agent
will deliver to such successor a certified list of shareholders of the
Funds (with name, address and taxpayer identification or Social Security
number), a historical record of the account of each shareholder and the
status thereof, and all other
<PAGE>
relevant books, records, correspondence, and other data established or
maintained by the Transfer Agent under this Agreement in the form
reasonably acceptable to the Company, and will cooperate in the transfer of
such duties and responsibilities, including provisions for assistance from
the Transfer Agent's personnel in the establishment of books, records and
other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Company agrees that the Transfer Agent may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of
the services and that the Transfer Agent remains fully responsible for the
services. Except for out-of-pocket expenses identified in Schedule B, the
Transfer Agent shall bear the cost of subcontracting such services, unless
otherwise agreed by the parties.
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the
State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
AXP MARKET ADVANTAGE SERIES, INC.
AXP International Equity Index Fund
AXP Mid Cap Index Fund
AXP Nasdaq 100 Index Fund
AXP S&P 500 Index Fund
AXP Total Stock Market Index Fund
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
By: /s/Barry J. Murphy
Barry J. Murphy
President
<PAGE>
Schedule A
IDS MARKET ADVANTAGE SERIES, INC.
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Fund Fee
AXP International Equity Index Fund $19
AXP Mid Cap Index Fund $19
AXP Nasdaq 100 Index Fund $19
AXP S&P 500 Index Fund $19
AXP Total Stock Market Index Fund $19
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage for
proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange confirmations
and exchange prospectuses, redemption confirmations, redemption checks,
confirmations on changes of address and any other communication required to
be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information and
other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the Company
October 13, 1999
AXP Market Advantage Series, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of AXP Market
Advantage Series, Inc. (the Company) and all necessary certificates, permits,
minute books, documents and records of the Company, and the applicable statutes
of the State of Minnesota, and it is my opinion that the shares sold in
accordance with applicable federal and state securities laws will be legally
issued, fully paid, and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 Marquette Ave. S., Suite 2810
Minneapolis, Minnesota 55402-3268
Plan and Agreement of Distribution
Class D
This plan and agreement, effective as of September 9, 1999, is between AXP
Market Advantage Series, Inc., on behalf of AXP International Equity Index Fund,
AXP Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index Fund and
AXP Total Stock Market Index Fund (each individually a "Fund") and American
Express Financial Advisors Inc. ("AEFA"), the principal underwriter of the Fund,
for distribution services to the Fund.
The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Fund will reimburse AEFA for expenses incurred in connection with the
distribution of the Fund's shares and providing personal service to
shareholders. These expenses include sales commissions; business, employee and
financial advisor expenses charged to distribution of Class D shares; and
overhead appropriately allocated to the sale of Class D shares.
2. A portion of the fee under the agreement will be used to compensate AEFA,
financial advisors and other servicing agents for personal service to
shareholders. Fees paid will be used to help shareholders thoughtfully consider
their investment goals and objectively monitor how well the goals are being
achieved.
3. AEFA agrees to monitor the services it provides, to measure the level and
quality of services, and to provide training and support to financial advisors
and servicing agents. AEFA will use its best efforts to assure that other
distributors provide comparable services to shareholders.
4. The fee under this agreement will be equal on an annual basis to 0.25% of the
average daily net assets of the Fund attributable to Class D. The amount so
determined shall be paid to AEFA in cash within five (5) business days after the
last day of each month.
5. AEFA agrees to provide at least quarterly an analysis of expenses under this
agreement and to meet with representatives of the Fund as reasonably requested
to provide additional information.
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.
7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of a least a majority of the
outstanding shares. Any other amendment must be approved in the manner in which
the plan and agreement was initially approved.
<PAGE>
8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Fund and have no financial interest in the operation of the plan
and agreement, or by vote of a majority of the outstanding shares of the
relevant class, or by AEFA. The plan and agreement will terminate automatically
in the event of its assignment as that term is defined in the Investment Company
Act of 1940.
AXP MARKET ADVANTAGE SERIES, INC.
AXP International Equity Index Fund
AXP Mid Cap Index Fund
AXP Nasdaq 100 Index Fund
AXP S&P 500 Index Fund
AXP Total Stock Market Index Fund
/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/Pamela J. Moret
Pamela J. Moret
Vice President
[For AXP International Equity Index Fund, AXP Mid Cap Index Fund, AXP Nasdaq 100
Index Fund , AXP S&P 500 Index Fund and AXP Total Stock Market Index Fund]
Plan under Section 18f-3(d)
September 1999
Filed pursuant to Item 23(o) of Form N-1A
Separate Arrangements
Each class of shares will represent interests in the same portfolio of
investments of the Fund and be identical except for those differences that
relate to (a) the impact of the payments made under a Rule 12b-1 plan; (b) the
differences in expenses determined by the Board of Directors (the "Board") to be
class expenses; and (d) the difference in voting rights on the 12b-1 plan,
exchange privileges and class designations. The current classes of shares are as
follows:
Class D shares
Class E shares
Expense Allocation Procedures
The Fund's administrator, on a daily basis, shall allocate the income, expenses,
and realized and unrealized gains and losses of the Fund on the basis of the
relative percentage of net assets of each class of shares, except class specific
expenses for 12b-1 fees, and any other class specific fees, which shall be paid
directly by each class as follows:
12b-1 fee:
Class D: 25 basis points
Should at any time an expense of a class be waived or reimbursed, the Fund's
administrator first shall determine that such waiver or reimbursement would not
result in another class subsidizing the class, is fair and equitable to all
classes and does not operate to the detriment of another class and then shall
monitor the implementation and operation to assure the waiver or reimbursement
operates consistent with the determination. The Board shall monitor the actions
of the Fund's administrator.
Exchange Privileges
Shares of a class may be exchanged for shares of the same class of another fund
in the American Express Funds.
