-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdtGVI6jU8nBlPO/OvLsD5C/wl25JoqFlQHZUvPezjXccGqNuothi7L8EXFsNJFV 65FL9YvbVqKVlB8e9j1JYg== /in/edgar/work/0000820027-00-000828/0000820027-00-000828.txt : 20001030 0000820027-00-000828.hdr.sgml : 20001030 ACCESSION NUMBER: 0000820027-00-000828 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20001027 EFFECTIVENESS DATE: 20001027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP VARIABLE PORTFOLIO INVESTMENT SERIES INC CENTRAL INDEX KEY: 0000353968 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 411409539 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-73115 FILM NUMBER: 747620 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03218 FILM NUMBER: 747621 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126718626 MAIL ADDRESS: STREET 1: IDS FINANCIAL SERVICES INC STREET 2: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 FORMER COMPANY: FORMER CONFORMED NAME: IDS LIFE INVESTMENT SERIES INC DATE OF NAME CHANGE: 19981102 FORMER COMPANY: FORMER CONFORMED NAME: IDS LIFE CAPITAL RESOURCE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IDS LIFE CAPITAL RESOURCE FUND II INC DATE OF NAME CHANGE: 19851104 485BPOS 1 0001.txt AXP VARIABLE PORTFOLIO-INVESTMENT SERIES, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 43 (File No. 2-73115) [X] --- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 45 (File No. 811-3218) [X] --- AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. 200 AXP Financial Center Minneapolis, Minnesota 55474 Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268 (612) 330-9283 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on October 30, 2000 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485 If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. American Express (R) Variable Portfolio Funds PROSPECTUS/OCT. 30, 2000 AXP(SM) Variable Portfolio - Blue Chip Advantage Fund AXP(SM) Variable Portfolio - Bond Fund AXP(SM) Variable Portfolio - Capital Resource Fund AXP(SM) Variable Portfolio - Cash Management Fund AXP(SM) Variable Portfolio - Diversified Equity Income Fund AXP(SM) Variable Portfolio - Emerging Markets Fund AXP(SM) Variable Portfolio - Extra Income Fund AXP(SM) Variable Portfolio - Federal Income Fund AXP(SM) Variable Portfolio - Global Bond Fund AXP(SM) Variable Portfolio - Growth Fund AXP(SM) Variable Portfolio - International Fund AXP(SM) Variable Portfolio - Managed Fund AXP(SM) Variable Portfolio - New Dimensions Fund (R) AXP(SM) Variable Portfolio - S&P 500 Index Fund AXP(SM) Variable Portfolio - Small Cap Advantage Fund AXP(SM) Variable Portfolio - Strategy Aggressive Fund 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 or accuracy of this prospectus. Any representation to the contrary is a criminal offense. This prospectus may contain information on Funds not available under your variable annuity or variable life insurance contract. Please refer to your variable annuity or variable life insurance prospectus for information regarding the investment options available to you. Managed by IDS Life Insurance Company Table of Contents TAKE A CLOSER LOOK AT: THE FUNDS 4p AXP VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND 4p Goal 4p Investment Strategy 4p Risks 5p Past Performance 5p Management 5p AXP VARIABLE PORTFOLIO - BOND FUND 6p Goal 6p Investment Strategy 6p Risks 7p Past Performance 8p Management 8p AXP VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND 9p Goal 9p Investment Strategy 9p Risks 10p Past Performance 10p Management 11p AXP VARIABLE PORTFOLIO - CASH MANAGEMENT FUND 11p Goal 11p Investment Strategy 11p Risks 12p Past Performance 13p Management 13p AXP VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND 14p Goal 14p Investment Strategy 14p Risks 14p Past Performance 15p Management 15p AXP VARIABLE PORTFOLIO - EMERGING MARKETS FUND 15p Goal 15p Investment Strategy 15p Risks 16p Past Performance 16p Management 16p AXP VARIABLE PORTFOLIO - EXTRA INCOME FUND 17p Goal 17p Investment Strategy 17p Risks 18p Past Performance 19p Management 20p AXP VARIABLE PORTFOLIO - FEDERAL INCOME FUND 20p Goal 20p Investment Strategy 20p Risks 21p Past Performance 21p Management 21p AXP VARIABLE PORTFOLIO - GLOBAL BOND FUND 21p Goal 21p Investment Strategy 21p Risks 22p Past Performance 23p Management 24p AXP VARIABLE PORTFOLIO - GROWTH FUND 24p Goal 24p Investment Strategy 24p Risks 25p Past Performance 25p Management 25p AXP VARIABLE PORTFOLIO - INTERNATIONAL FUND 25p Goal 25p Investment Strategy 25p Risks 26p Past Performance 27p Management 28p AXP VARIABLE PORTFOLIO - MANAGED FUND 28p Goal 28p Investment Strategy 28p Risks 29p Past Performance 30p Management 31p AXP VARIABLE PORTFOLIO - NEW DIMENSIONS FUND 31p Goal 31p Investment Strategy 31p Risks 31p Past Performance 32p Management 33p AXP VARIABLE PORTFOLIO - S&P 500 INDEX FUND 33p Goal 33p Investment Strategy 33p Risks 34p Past Performance 34p Index Performance 35p Management 35p AXP VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND 35p Goal 35p Investment Strategy 35p Risks 36p Past Performance 36p Management 36p AXP VARIABLE PORTFOLIO - STRATEGY AGGRESSIVE FUND 37p Goal 37p Investment Strategy 37p Risks 37p Past Performance 38p Management 39p FEES AND EXPENSES 40p Shareholder Fees 40p Annual Fund Operating Expenses 40p BUYING AND SELLING SHARES 41p Valuing Fund Shares 41p Purchasing Shares 41p Transferring/Selling Shares 41p DISTRIBUTIONS AND TAXES 42p OTHER INFORMATION 42p FINANCIAL HIGHLIGHTS 43p The Funds References to "Fund" throughout this prospectus refer to AXP Variable Portfolio - - Blue Chip Advantage Fund, AXP Variable Portfolio Bond Fund, AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Cash Management Fund, AXP Variable Portfolio Diversified Equity Income Fund, AXP Variable Portfolio - Emerging Markets Fund, AXP Variable Portfolio - Extra Income Fund, AXP Variable Portfolio - Federal Income Fund, AXP Variable Portfolio - Global Bond Fund, AXP Variable Portfolio - Growth Fund, AXP Variable Portfolio - International Fund, AXP Variable Portfolio - Managed Fund, AXP Variable Portfolio - New Dimensions Fund, AXP Variable Portfolio - S&P 500 Index Fund, AXP Variable Portfolio - Small Cap Advantage Fund and AXP Variable Portfolio - Strategy Aggressive Fund, singularly or collectively as the context requires. Please remember that you may not buy (nor will you own) shares of the Fund directly. You invest by buying a variable annuity or variable life insurance contract (the contracts) and allocating your purchase payments to the variable subaccount or variable account (the subaccounts) that invests in the Fund. AXP Variable Portfolio - Blue Chip Advantage Fund GOAL The Fund seeks to provide shareholders with a long-term total return exceeding that of the U.S. stock market. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund invests primarily in securities of companies included in the Standard & Poor's 500 Composite Price Index (S&P 500 Index). The S&P 500 Index is an unmanaged market index used to measure total return of the U.S. stock market (the Fund may change this market index from time to time). To the extent practicable, the Fund's total assets are fully invested in stocks with 65% of those being blue chip stocks. Blue chip stocks are issued by companies with a market capitalization of at least $1 billion, an established management, a history of consistent earnings and a leading position within their respective industries. Although the Fund invests primarily in common stocks that comprise the S&P 500 Index, it is not an index fund, it may own companies not included in the index, and its results will likely differ from the index. The selection of common stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, American Express Financial Corporation (AEFC), the Fund's investment advisor, chooses equity investments by: o Identifying companies with: -- effective management, -- financial strength, -- strong, sustainable earnings growth, and -- competitive market position. o Focusing on those companies that AEFC considers to be "blue chips." o Establishing one or more industry classifications for each company (AEFC will classify each company into one of at least 25 industries -- the classifications may or may not be the same as the ones assigned by others). o Assigning ratings to each company based on that company's merits and on its industry grouping(s). o Buying a diversified portfolio of securities. AEFC will weight certain industry classifications based on AEFC's expectations for growth and for expected market trends. o Buying equity securities not included in the S&P 500 Index if those securities meet the standards described above. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued relative to alternative investments, -- the security has reached AEFC's price objective, -- the company has met AEFC's earnings and/or growth expectations, -- political, economic, or other events could affect the company's performance, -- AEFC wishes to minimize potential losses (i.e., in a market down-turn), -- AEFC wishes to lock-in profits, -- AEFC identifies a more attractive opportunity, and -- the company or the security continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments, such as money market securities and derivatives (such as futures, options and forward contracts). During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's Statement of Additional Information (SAI) and the annual/semiannual reports. RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Style Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Style Risk The objective of the Fund is to provide shareholders with a long-term return exceeding that of the U.S. stock market. Currently, the S&P 500 is the market index used to measure total return of the U.S. stock market. However, unlike the unmanaged index, 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, stock selection, sector weightings, and other such factors. As a result, once these factors are accounted for, the Fund may under-perform the market index. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until September 1999. MANAGEMENT Keith Tufte and James M. Johnson, Jr. are primarily responsible for the day-to-day operations of AXP Variable Portfolio - Blue Chip Advantage Fund. Keith Tufte joined AEFC in 1990. He became portfolio manager of AXP Variable Portfolio - Diversified Equity Income Fund in May 2000 and he has managed AXP Blue Chip Advantage Fund, and Aggressive Growth Portfolio since November 1998. He also became director of research-equities in 1998. He serves as portfolio manager of AXP Equity Value Fund and Equity Income Portfolio. James M. Johnson, Jr. joined AEFC in 1994 as an equity quantitative analyst. He began managing portfolios for American Express Asset Management in 1996. He is portfolio manager of Total Return Portfolio, AXP Small Company Index Fund, AXP S&P 500 Index Fund, AXP Mid Cap Index Fund, AXP Total Stock Market Index Fund, AXP Nasdaq 100 Index Fund, and AXP Variable Portfolio - S&P 500 Index Fund. He is co-portfolio manager of Aggressive Growth Portfolio and AXP Blue Chip Advantage Fund. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Bond Fund GOAL The Fund seeks to provide shareholders with a high level of current income while attempting to conserve the value of the investment and to continue a high level of income for the longest period of time. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in bonds and other debt obligations. Under normal market conditions, at least 65% of the Fund's total assets are invested in bonds. Additionally, at least 50% of the Fund's investments will be invested in (1) investment-grade corporate bonds, (2) unrated corporate bonds that are believed to be of investment-grade quality, and (3) government bonds (including mortgage-backed securities). Although the Fund emphasizes high- and medium-quality debt securities, it will assume some credit risk to achieve higher dividends and/or capital appreciation by buying lower-quality (junk) bonds. As a result, junk bonds may comprise a large percentage of the Fund's investments. The Fund may invest up to 25% of its total assets in foreign investments (which may include investments in emerging markets). The selection of debt obligations is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Considering opportunities and risks by reviewing interest rate and economic forecasts. o Investing more heavily in certain market sectors (for example, corporate bonds and government bonds) based on AEFC's expectations for interest rates. o Identifying investment-grade U.S. and foreign bonds. o Identifying below investment-grade U.S. and foreign bonds (junk bonds). o Identifying securities that are expected to outperform other securities. In this analysis, AEFC will take risk factors into account (for example, whether money has been set aside to cover the cost of principal and interest payments). o Identifying investments that contribute to the portfolio diversification of the Fund, including both the number of issuers and the types of securities held in the portfolio. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the interest rate or economic outlook changes, -- the security is overvalued relative to alternative investments, -- the issuer's credit rating declines or AEFC expects a decline (the Fund may continue to own securities that are down-graded until AEFC believes it is advantageous to sell), -- the security has reached AEFC's price objective, -- AEFC identifies a more attractive opportunity, and -- the issuer or the security continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities, common stocks, preferred stocks, derivatives (such as futures, options and forward contracts), and convertible securities. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Call/Prepayment Risk Credit Risk Event Risk Foreign/Emerging Markets Risk Interest Rate Risk Liquidity Risk Market Risk Call/Prepayment Risk The risk that a bond or other security might be called (or otherwise converted, prepaid, or redeemed) before maturity. This type of risk is closely related to reinvestment risk, which is the risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation (such as payments due on a bond or a note). The price of junk bonds may react more to the ability of the issuing company to pay interest and principal when due than to changes in interest rates. Junk bonds have greater price fluctuations and are more likely to experience a default than investment-grade bonds. Event Risk Occasionally, the value of a security may be seriously and unexpectedly changed by a natural or industrial accident or occurrence. Foreign/Emerging Markets Risk The following are all components of foreign/emerging markets risk: Country risk includes the political, economic and other conditions of a country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing and financial reporting standards), the possibility of government-imposed restrictions and even the nationalization of assets. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social and political) in these 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. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a debt obligation the higher its yield and the greater the sensitivity to changes in interest rates. 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. 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to recognized indexes. How the Fund performed in the past does not indicate how the Fund will perform in the future. AXP VP - Bond Fund Performance (based on calendar years) In the printed prospectus a bar chart is shown in this space. +4.32% +17.54% +9.32% +15.85% -3.92% +22.30% +5.70% +8.83% +1.51% +1.70% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +8.65% (quarter ending June 1995) and the lowest return for a calendar quarter was -3.30% (quarter ending March 1990). The Fund's year to date return as of Sept. 30, 2000 was +2.77%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year 5 years 10 years AXP VP - Bond Fund +1.70% +7.75% +8.04% Lehman Brothers Aggregate Bond Index -0.82% +7.73% +7.70% Lipper Corporate Debt - BBB rated Index -1.12% +7.68% +7.72% This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the securities used to create the index may not be representative of the bonds held in the Fund. Lipper Corporate Debt - BBB rated Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. MANAGEMENT Fred Quirsfeld and Ray Goodner are primarily responsible for the day-to-day operation of AXP Variable Portfolio - Bond Fund. Fred Quirsfeld, senior vice president and senior portfolio manager, joined AEFC in 1985. He became co-portfolio manger of this fund in January 2000. He also is co-portfolio manager of AXP Bond Fund and has managed that fund since 1985. He also serves as vice president - fixed income investments for the American Express mutual funds. Ray Goodner, vice president and senior portfolio manager, joined AEFC in 1977. He became co-portfolio manager of this fund in May 2000. He also serves as portfolio manager of other American Express mutual funds including Quality Income Portfolio, World Income Portfolio, and AXP Variable Portfolio - Global Bond Fund. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Capital Resource Fund GOAL The Fund seeks capital appreciation. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in U.S. common stocks and other securities convertible into common stock. Additionally, the Fund may invest up to 25% of its total assets in foreign investments. The selection of U.S. common stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Identifying larger companies with: -- effective management, -- financial strength, -- competitive market or product position, and -- earnings growth potential. o Identifying securities that AEFC believes have good capital appreciation potential. o Considering opportunities and risks by reviewing interest rates and economic forecasts. o Buying a diversified portfolio of securities. AEFC will weight certain sectors more heavily based on AEFC's expectations for growth and for expected market trends. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the interest rate or economic outlook changes, -- the security is overvalued relative to other potential investments, -- the security has reached AEFC's price objective, -- AEFC wishes to lock-in profits, -- AEFC identifies a more attractive opportunity, and -- the issuer or the security continues to meet the other standards described ABOVE Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities and debt obligations (of any rating). Additionally the Fund may utilize derivative instruments (such as futures, options and forward contracts) to produce incremental earnings, to hedge existing positions and to increase flexibility. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund will invest in these securities primarily to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the SAI and the annual/semiannual reports. RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Style Risk Foreign Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Style Risk The Fund purchases stocks based on the expectation that the companies will have strong growth in earnings. The price paid often reflects an expected rate of growth. If that growth fails to occur, the price of the stock may decline significantly and quickly. Foreign Risk 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to a recognized index. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus a bar chart is shown in this space. +0.67% +46.78% +4.09% +3.42% +1.17% +27.86% +7.71% +24.14% +24.12% +23.75% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +26.20% (quarter ending December 1998) and the lowest return for a calendar quarter was -15.33% (quarter ending September 1998). The Fund's year to date return as of Sept. 30, 2000 was -6.02%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year 5 years 10 years AXP VP - Capital Resource Fund +23.75% +21.30% +15.50% S&P 500 Index +21.04% +28.56% +18.21% This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. The S&P 500 Index, an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 Index companies may be generally larger than those in which the Fund invests. The securities included in the index may not be the same as those held by the Fund. MANAGEMENT Betty Tebault, senior portfolio manager, manages the day-to-day operations of AXP Variable Portfolio - Capital Resource Fund. She joined AEFC in 1985 as an analyst and became an associate portfolio manager in 1991, helping to manage Wealth Management Portfolios and AXP Stock Fund. She began managing this Fund in February 2000. AXP Variable Portfolio - Cash Management Fund GOAL The Fund seeks to provide shareholders with maximum current income consistent with liquidity and stability of principal. Because any investment involves risk, the Fund cannot guarantee this goal. INVESTMENT STRATEGY The Fund's assets primarily are invested in money market instruments, such as marketable debt obligations issued by the U.S. government or its agencies, bank certificates of deposit, bankers' acceptances, letters of credit, and commercial paper. The Fund may invest more than 25% of its total assets in U.S. banks, U.S. branches of foreign banks and U.S. government securities. Additionally, the Fund may invest up to 25% of its total assets in U.S. dollar denominated foreign investments. Because the Fund seeks to maintain a constant net asset value of $1.00 per share, capital appreciation is not expected to play a role in the Fund's return. The Fund's yield will vary from day-to-day. The selection of short-term debt obligations is the primary decision in building the investment portfolio. The Fund restricts its investments to instruments that meet certain maturity and quality standards required by the SEC for money market funds. For example, the Fund: o limits its average portfolio maturity to ninety days or less; o buys obligations with remaining maturities of 397 days or less; and o buys only obligations that are denominated in U.S. dollars and present minimal credit risk. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Considering opportunities and risks given current interest rates and anticipated interest rates. o Purchasing securities based on the timing of cash flows in and out of the Fund. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the issuer's credit rating declines or AEFC expects a decline (the Fund, in certain cases, may continue to own securities that are down-graded until AEFC believes it is advantageous to sell), -- political, economic, or other events could affect the issuer's performance, -- AEFC identifies a more attractive opportunity, and -- the issuer or the security continues to meet the other standards described above. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS Please remember that with any mutual fund investment you may lose money. Although the Fund's share price has remained constant in the past, THE FUND CANNOT GUARANTEE THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Principal risks associated with an investment in the Fund include: Credit Risk Foreign Risk Interest Rate Risk Market Risk Sector/Concentration Risk 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). Foreign Risk 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. 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. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. 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. Sector/Concentration Risk Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price (the more you diversify, the more you spread risk). For example, if the Fund concentrates its investments in banks, the value of these investments may be adversely affected by economic or regulatory developments in the banking industry. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus a bar chart appears in this space. +7.98% 5.82% +3.27% +2.70% +3.80 +5.45% +4.23% +5.16% +5.14% +4.73 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +1.95% (quarter ending December 1990) and the lowest return for a calendar quarter was +0.47% (quarter ending March 1996). The Fund's year to date return as of Sept. 30, 2000 was +4.30%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year 5 years 10 years AXP VP - Cash Management Fund +4.73% +4.94% +4.82% This table shows total returns from hypothetical investments in shares of the Fund. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. Yield Information For current 7-day yield information, call 1-800-862-7919 option 3. MANAGEMENT Terry Fettig manages the day-to-day operations of AXP Variable Portfolio - Cash Management Fund. He joined AEFC in 1986 and currently serves as senior portfolio manager. He also serves as portfolio manager for AXP Cash Management Fund, AXP Intermediate Tax-Exempt Fund, IDS Life Series Fund - Money Market Portfolio and AXP Tax-Free Money Fund. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Diversified Equity Income Fund GOAL The Fund seeks to provide shareholders with a high level of current income and, as a secondary goal, steady growth of capital. Because any investment involves risk, achieving these goals cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in equity securities. Under normal market conditions, the Fund will invest at least 65% of its net assets in dividend-paying common and preferred stocks. The selection of dividend-paying stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses equity investments by: o Identifying companies with moderate growth potential based on: -- effective management (considering overall performance), and -- financial strength. o Determining specific industry weightings within the following sectors: -- Consumer cyclical -- Energy -- Consumer stable -- Technology -- Financial -- Industrial o Identifying stocks that are selling at low prices in relation to: -- current and projected earnings, -- current and projected dividends, and -- historic price levels. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued relative to alternative investments, -- the security has reached AEFC's price objective, -- the company has met AEFC's earnings and/or growth expectations, and -- the company or the security continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments such as foreign securities, convertible securities, real estate investment trusts, debt obligations (including bonds and commercial paper of any rating) and money market securities. Additionally, the Fund may utilize derivative instruments (such as futures, options and forward contracts) to produce incremental earnings, to hedge existing positions and to increase flexibility. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. 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 Sector/Concentration Risk Inflation Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Sector/Concentration Risk Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price (the more you diversify, the more you spread risk). 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. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until September 1999. MANAGEMENT Keith Tufte manages the day-to-day operations of AXP Variable Portfolio - Diversified Equity Income Fund. He joined AEFC in 1990, became portfolio manager of this Fund in May 2000, and has managed AXP Blue Chip Advantage Fund and Aggressive Growth Portfolio since November 1998. He is also co-manager of AXP Variable Portfolio - Blue Chip Advantage Fund. He became director of research-equities in 1998. He also serves as portfolio manager of AXP Equity Value Fund and Equity Income Portfolio. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Emerging Markets Fund GOAL The Fund seeks to provide shareholders with long-term capital growth. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in equity securities of companies in emerging market countries. Emerging markets are countries characterized as developing or emerging by either the World Bank or the United Nations. Under normal market conditions, at least 65% of the Fund's total assets will be invested in companies located in at least three different emerging market countries. Included within this 65% are the securities of companies that earn 50% or more of their total revenues from goods or services produced in emerging market countries or from sales made in emerging market countries. The selection of geographic regions is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment adviser, chooses investments by: o Considering opportunities and risks within emerging market countries. o Determining the percentage of assets to invest in a particular country based upon its economic outlook, political environment, and growth rate (the Fund may invest a significant portion of its assets in a particular country or region). o Identifying companies with: -- effective management, -- financial strength, -- prospects for growth and development, and -- high demand for their products or services. o Identifying securities with sufficient liquidity in trading volume (however, AEFC may invest up to 10% of the Fund's net assets in illiquid securities). o Buying securities of those companies AEFC considers to be industry market leaders offering the best opportunity for long-term growth. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued relative to alternative investments, and -- the company or the security continues to meet the standards described above. Because the economies of emerging markets can change much more rapidly than that of the U.S., AEFC will focus on the risks associated with potential currency devaluations or sharp changes in monetary policy. If AEFC believes economic or political developments may result in lower share prices, it will attempt to reduce the investments in that country. AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From time to time, AEFC may purchase derivative instruments to hedge against currency fluctuations. Additionally, the Fund may utilize derivative instruments to produce incremental earnings and to increase flexibility. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities and debt securities. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for long-term investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Foreign/Emerging Markets Risk Liquidity Risk Style Risk Sector/Concentration Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Foreign/Emerging Markets Risk The following are all components of foreign/emerging markets risk: Country risk includes the political, economic, and other conditions of a country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging Markets risk includes the dramatic pace of change (economic, social, and political) in these 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. 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. Style Risk AEFC purchases growth stocks based on the expectation that the companies will have strong growth in earnings. The price paid often reflects an expected rate of growth. If that growth fails to occur, the price of the stock may decline quickly. Sector/Concentration Risk Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price (the more you diversify, the more you spread risk). PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until May 2000. MANAGEMENT Julian Thompson manages the day-to-day operations of AXP Variable Portfolio - Emerging Markets Fund. He joined AEFC in 1999. Besides managing this Fund, he has co-managed the assets of Emerging Markets Portfolio since December 1999. Prior to joining AEFC, from 1993-1999, he was an Investment Manager - Emerging Markets for Stewart Ivory, a Scottish investment company. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Extra Income Fund GOAL The Fund seeks to provide shareholders with high current income as its primary goal and, as its secondary goal, capital growth. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund invests primarily, and may invest all of its assets, in high-yielding, high risk corporate bonds (junk bonds). These bonds may be issued by U.S. and foreign companies and governments. The Fund may invest up to 25% of its total assets in foreign investments. The selection of debt obligations is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Considering opportunities and risks by reviewing interest rate and economic forecasts. o Identifying securities and /or companies that: -- have medium and low quality ratings, -- have similar qualities, in AEFC's opinion, even though they are not rated or have been given a different rating by a rating agency, -- have growth potential, -- have the potential for capital appreciation through credit upgrades. o Buying securities that are expected to outperform other securities on a risk-adjusted basis (i.e., after considering coupon, sinking fund provision, call protection, and quality). AEFC believes that credit selection is a primary concern and aggressively manages the Fund to earn a high total return. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the interest rate or economic outlook changes, -- a sector or industry is experiencing change, -- a security's rating is changed, -- the security is overvalued, -- the company does not meet AEFC's performance expectations, -- AEFC wishes to lock-in profits, -- AEFC identifies a more attractive opportunity, and -- the issuer or the security continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities, convertible securities, preferred stocks and common stocks. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for long-term investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Interest Rate Risk Credit Risk Foreign Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation (such as payments due on a bond or a note). The price of junk bonds may react more to the ability of the issuing company to pay interest and principal when due than to changes in interest rates. Junk bonds have greater price fluctuations and are more likely to experience a default than investment-grade bonds. Foreign Risk 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to other recognized indexes. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus you will find a bar chart in this space. +13.37% -4.41% +6.24% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +5.87% (quarter ending September 1997) and the lowest return for a calendar quarter was -9.38% (quarter ending September 1998). The Fund's year to date return as of Sept. 30, 2000 was -3.22%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year Since inception AXP VP - Extra Income Fund +6.24% +5.51%(a) Merrill Lynch High Yield Bond Index +1.57% +7.41%(b) Lipper High Yield Funds Index +4.78% +7.30%(b) Lehman Brothers Aggregate Bond Index -0.82% +6.37%(b) (a) Inception date was May 1, 1996 (b) Measurement period started May 1, 1996. This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. Merrill Lynch High Yield Bond Index provides a broad-based measure of performance of the non-investment grade U.S. domestic bond market. The index currently captures close to $200 billion of the outstanding debt of domestic market issuers rated below investment grade but not in default. The index is "rule-based," which means there is a defined list of criteria that a bond must meet in order to qualify for inclusion in the index. Lipper High Yield Funds Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the securities used to create the index may not be representative of the bonds held in the Fund. The securities included in the indexes may not be the same as those held by the Fund. MANAGEMENT Jack Utter and Scott Schroepfer are primarily responsible for the day-to-day operations of AXP Variable Portfolio - Extra Income Fund. Jack Utter, vice president and senior portfolio manager, joined AEFC in 1962. Besides serving as co-manager of this Fund, he also has managed the assets of High Yield Portfolio since 1985. Scott Schroepfer, senior portfolio manager, joined AEFC in 1990. He became co-manager of this Fund and AXP Extra Income Fund in March 1999. He also served as an associate manager since 1994. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Federal Income Fund GOAL The Fund seeks to provide shareholders with a high level of current income and safety of principal consistent with an investment in U.S. government and government agency securities. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in debt obligations. Under normal market conditions, at least 65% of the Fund's total assets are invested in securities issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. Although the Fund may invest in any U.S. government securities, it is anticipated that U.S. government securities representing part ownership in pools of mortgage loans (mortgage-backed securities) will comprise a large percentage of the Fund's investments. The Fund will utilize forward sale commitments for hedging purposes. Additionally, the Fund will aggressively utilize derivative instruments and when-issued securities to produce incremental earnings, to hedge existing positions, and to increase flexibility. The Fund's potential losses from the use of these instruments could extend beyond its initial investment. The selection of debt obligations is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Reviewing credit characteristics and the interest rate outlook. o Identifying and buying securities that: -- are high quality or have similar qualities, in AEFC's opinion, even though they are not rated or have been given a lower rating by a rating agency, and -- have short or intermediate-term maturities. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the interest rate or economic outlook changes, -- the security is overvalued relative to alternative investments, -- AEFC wishes to lock-in profits, -- AEFC identifies a more attractive opportunity, and -- the issuer or the security continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities, investment-grade non-governmental debt obligations, and derivatives (such as futures, options and forward contracts). During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. Additionally, the Fund's portfolio turnover may be affected by short-term investment strategies. High portfolio turnover could result in increases in transaction costs and may result in realized capital gains that would be taxable distributions to shareholders. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. 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 Correlation Risk Interest Rate Risk Call/Prepayment Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. 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. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Call/Prepayment Risk The risk that a bond or other security might be called (or otherwise converted, prepaid, or redeemed) before maturity. This type of risk is closely related to reinvestment risk, which is the risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until September 1999. MANAGEMENT James W. Snyder manages the day-to-day operations of AXP Variable Portfolio - Federal Income Fund. Jim joined AEFC in 1989 and currently serves as vice president and senior portfolio manager. Besides managing this Fund, he also manages the assets of Government Income Portfolio. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Global Bond Fund GOAL The Fund seeks to provide shareholders with high total return through income and growth of capital. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund is a non-diversified mutual fund that invests primarily in debt obligations of U.S. and foreign issuers. Under normal market conditions, at least 80% of the Fund's net assets will be invested in investment-grade corporate or government debt obligations including money market instruments of issuers located in at least three different countries. Although the Fund emphasizes high- and medium-quality debt securities, it will assume some credit risk to achieve higher dividends and /or capital appreciation (by buying junk bonds). The selection of investment-grade government and corporate debt obligations is the primary decision in building the portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Considering opportunities and risks by credit rating and currency. o Identifying investment-grade U.S. and foreign bonds. o Identifying below investment-grade U.S. and foreign bonds (junk bonds). o Identifying bonds that can take advantage of currency movements and interest rate differences among nations. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued, and -- the security continues to meet the standards described above. AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From time to time, AEFC may purchase derivative instruments (such as options and forward contracts) to hedge against currency fluctuations, and also to produce incremental earnings and to increase flexibility. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities, preferred stocks, and convertible securities. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund will invest in these securities primarily to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS Please remember that with any mutual fund investment you may lose money. In addition, since the Fund is a non-diversified mutual fund, it may concentrate its investments in securities of fewer issuers than would a diversified fund. Accordingly, the Fund may have more risk than mutual funds that have broader diversification. Principal risks associated with an investment in the Fund include: Credit Risk Foreign/Emerging Markets Risk Interest Rate Risk Liquidity Risk Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation (such as payments due on a bond or a note). The price of junk bonds may react more to the ability of the issuing company to pay interest and principal when due than to changes in interest rates. Junk bonds have greater price fluctuations and are more likely to experience a default than investment-grade bonds. Foreign/Emerging Markets Risk The following are all components of foreign/emerging markets risk: Country risk includes the political, economic and other conditions of a country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing and financial reporting standards), the possibility of government-imposed restrictions and even the nationalization of assets. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. 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. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to other recognized indexes. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus a bar chart appears in this area. +3.83% +8.05% -4.40% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +4.10% (quarter ending December 1996) and the lowest return for a calendar quarter was -2.94% (quarter ending March 1997). The Fund's year to date return as of Sept. 30, 2000 was -1.84%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year Since inception AXP VP - Global Bond Fund -4.40% +4.07%(a) Salomon Smith Barney World Government Bond Index -4.27% +4.45%(b) Lipper Global Income Funds Index -2.74% +4.50%(b) (a) Inception date was May 1, 1996 (b) Measurement period started May 1, 1996. This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. Salomon Smith Barney World Government Bond Index, an unmanaged market capitalization weighted benchmark, tracks the performance of the 17 government bond markets around the world. It is widely recognized by investors as a measurement index for portfolios of government bond securities. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. Lipper Global Income Funds Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. The securities included in the indexes may not be the same as those held by the Fund. MANAGEMENT Ray Goodner and Nic Pifer are primarily responsible for the day-to-day operation of AXP Variable Portfolio - Global Bond Fund. Ray Goodner, vice president and senior portfolio manger, joined AEFC in 1977. He became co-portfolio manager of this fund in May 2000. He also serves as portfolio manager of other American Express mutual funds including Quality Income Portfolio, World Income Portfolio, and AXP Variable Portfolio - Bond Fund. Nic Pifer, co-manager of the Fund, joined AEFC in 2000. From 1997 to 2000, Nic worked at Investment Advisers, Inc. where he served as vice president and fixed income portfolio manager. Prior to that he was a trader analyst and manager of the foreign exchange trading desk at the Federal Reserve Bank of New York. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Growth Fund GOAL The Fund seeks to provide shareholders with long-term capital growth. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund primarily invests in common stocks and securities convertible into common stocks that appear to offer growth opportunities. These growth opportunities could result from new management, market developments, or technological superiority. The Fund may invest up to 25% of its total assets in foreign investments. The selection of common stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Identifying companies that AEFC believes have above-average long-term growth potential based on: -- effective management, -- financial strength, -- competitive market or product position, and -- technological advantage relative to other companies. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the company has met AEFC's earnings and/or growth expectations, -- political, economic, or other events could affect the company's performance, -- AEFC identifies a more attractive opportunity, and -- the company continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments, such as money market securities, preferred stock, investment-grade debt obligations, and convertible securities. Additionally, the Fund may utilize derivative instruments (such as futures, options, and forward contracts) to produce incremental earnings, to hedge existing positions and to increase flexibility. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Style Risk Foreign Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Style Risk AEFC purchases growth stocks based on the expectation that the companies will have strong growth in earnings. The price paid often reflects an expected rate of growth. If that growth fails to occur, the price of the stock may decline significantly and quickly. Foreign Risk 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. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until September 1999. MANAGEMENT Lisa Costa, senior portfolio manager is responsible for the day-to-day operations of AXP Variable Portfolio - Growth Fund. She joined AEFC in January 2000. From 1985-1999 she was vice president and portfolio manager for Franklin Advisors at Franklin Templeton Group of Funds. She also serves as portfolio manager of AXP Growth Fund. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - International Fund GOAL The Fund seeks to provide shareholders with capital appreciation. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in equity securities of foreign issuers that offer strong growth potential. Under normal market conditions, at least 65% of the Fund's total assets are invested in common stocks or convertible securities of companies located in at least three foreign countries. The Fund may invest in developed and in emerging markets. The selection of geographic regions is the primary decision in building the investment portfolio. The percentage of the Fund's total assets invested in particular countries or regions will change according to their political stability and economic condition. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Considering opportunities and risks within regions or countries. o Identifying sectors or companies with strong growth potential. o Selecting stocks of large companies that AEFC believes have the following fundamental strengths: -- financial strength, -- high demand for their products or services, and -- effective management. o Identifying securities with sufficient liquidity in trading volume (however, AEFC may invest up to 10% of the Fund's net assets in illiquid securities). AEFC decides how much to invest in various countries and local currencies, and then buys securities that offer the best opportunity for long-term growth. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued, -- the security has reached AEFC's price objective, -- the company or the security continues to meet the standards described above, and -- the region or country is undergoing political, economic, or other change. AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From time to time, AEFC may purchase derivative instruments to hedge against currency fluctuations. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities and debt securities (of any rating). During weak or declining markets or when growth opportunities are unavailable, the Fund may invest more of its assets in money market securities. Investments in U.S. issuers generally will constitute less than 20% of the Fund's total assets. If, however, investments in foreign securities appear to be relatively unattractive in AEFC's judgment, as a temporary defensive strategy, the Fund may invest any portion of its assets in securities of U.S. issuers appearing to offer opportunities for superior growth. Although the Fund will invest in these securities primarily to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for long-term investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Foreign/Emerging Markets Risk Liquidity Risk Style Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Foreign/Emerging Markets Risk The following are all components of foreign/emerging markets risk: Country risk includes the political, economic and other conditions of a country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. 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. 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. Style Risk AEFC purchases growth stocks based on the expectation that the companies will have strong growth in earnings. The price paid often reflects an expected rate of growth. If that growth fails to occur, the price of the stock may decline significantly and quickly. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to other recognized indexes. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus there is a bar chart in this space. +32.79% -1.66% +11.33% +9.03% +2.73% +15.82% +45.63% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +31.82% (quarter ending December 1999) and the lowest return for a calendar quarter was -19.83% (quarter ending September 1998). The Fund's year to date return as of Sept. 30, 2000 was -17.33%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year 5 years Since inception AXP VP - International Fund +45.63% +16.03% +13.34%(a) MSCI EAFE Index +25.27% +11.14% +9.64%(b) Lipper International Funds Index +37.83% +15.96% +13.59%(b) (a) Inception date was Jan. 13, 1992. (b) Measurement period started Feb. 1, 1992. This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. Morgan Stanley Capital International EAFE Index (MSCI EAFE Index), an unmanaged index, is compiled from a composite of securities markets of Europe, Australia and the Far East. The index is widely recognized by investors in foreign markets as the measurement index for portfolios of non-North American securities. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. Lipper International Funds Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. The securities included in the indexes may not be the same as those held by the Fund. MANAGEMENT Mark Fawcett, Richard Leadem, and Gavin Corr are primarily responsible for the day-to-day operations of AXP Variable Portfolio International Fund. Mark Fawcett, co-manager of the Fund since September 2000, joined AEFC in 1999. He is chief investment officer of American Express Asset Management International Inc. (AEAMI), the London-based subsidiary of AEFC. He also manages AXP International Fund, IDS Life Series Fund - International Equity Portfolio, the international portion of AXP Managed Allocation Fund and the equity portion of AXP Global Balanced Fund. Prior to joining AEFC, Mark was with Gartmore Investment Management plc, a pension fund and mutual fund management company in the U.K. from 1991 to 1999. Richard Leadem, co-manager of the Fund since September 2000, joined AEFC in 1997 as chief investment director - North American Equities for AEAMI. He also manages World Growth Portfolio and AXP Global Growth Fund. He also co-manages IDS Life Series Fund International Equity Portfolio. Prior to joining AEFC, he was a senior portfolio manager at Mercury Asset management from 1994 to 1997. Gavin Corr, co-manager of the Fund since September 2000, joined AEFC in 1995 as a portfolio manager on the European equity team. He also co-manages AXP European Equity Fund and IDS Life Series Fund - International Equity Portfolio. Prior to joining AEFC, he was with a London investment bank. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Managed Fund GOAL The Fund seeks maximum total investment return through a combination of capital growth and current income. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in a combination of equity and debt securities. It will invest in a combination of common and preferred stocks, convertible securities, bonds and other debt securities. Under normal market conditions, at least 50% of the Fund's total assets are invested in common stocks. Although the Fund emphasizes high- and medium-quality securities for the debt portion of its portfolio, it will assume some credit risk to achieve higher dividends and/or capital appreciation (by buying lower-quality bonds). The Fund may invest up to 25% of its total assets in foreign investments. The selection of common stocks and debt obligations are the primary decisions in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses equity investments by: o Identifying companies with: -- effective management, -- financial strength, -- competitive market position, and -- growth potential. o Considering opportunities and risks given overall market conditions and industry outlook. AEFC chooses debt obligations by: o Considering opportunities and risks by reviewing interest rate and economic forecasts. o Identifying U.S. and foreign bonds that: -- are investment-grade, -- are below investment-grade (lower-quality bonds), and -- are expected to outperform comparable investments on a risk-adjusted basis (i.e., after considering coupon, sinking fund provision, call protection, and quality). o Identifying investments that contribute to portfolio diversification. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the interest rate or economic outlook changes, -- the security is overvalued, -- the issuer's credit quality declines or AEFC expects a decline (the Fund may continue to own securities that are down-graded until AEFC believes it is advantageous to sell), -- the security has reached AEFC's price objective, and -- AEFC identifies a more attractive opportunity. Although not a primary investment strategy, the Fund also may invest other instruments such as money market securities. Additionally, the Fund may utilize derivative instruments (such as futures, options, and forward contracts) to produce incremental earnings, to hedge existing positions and to increase flexibility. During weak or declining markets, the Fund may invest more of its assets in money market securities. Investments other than common stock will constitute 50% or less of the Fund's total assets. However, under unusual market conditions, the Fund may invest any portion of its assets in securities other than common stocks. Although the Fund will invest in these securities primarily to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the SAI and the annual/semiannual reports. RISKS Please remember that with any investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Interest Rate Risk Credit Risk Foreign Risk Liquidity Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation (such as payments due on a bond or a note). The price of junk bonds may react more to the ability of the issuing company to pay interest and principal when due than to changes in interest rates. They have greater price fluctuations and are more likely to experience a default. Foreign Risk 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. 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to a recognized index. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus a bar chart appears in this space. +3.29 +29.63% +7.53% +12.33% -4.52% +24.21 +16.20% +19.50% +15.80% +14.84% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +15.66% (quarter ending December 1998) and the lowest return for a calendar quarter was -9.94% (quarter ending September 1998). The Fund's year to date return as of Sept. 30, 2000 was +2.61%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year 5 years 10 years AXP VP - Managed Fund +14.84% +18.06% +13.48% S&P 500 Index +21.04% +28.56% +18.21% Lipper Flexible Portfolio Index +9.82% +16.37% +12.23% This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. The S&P 500 Index, an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 Index companies may be generally larger than those in which the Fund invests. Lipper Flexible Portfolio Index, an unmanaged index published by Lipper Inc., includes 30 funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. The securities included in the index may not be the same as those held by the Fund. MANAGEMENT Alfred Henderson and David Kuplic are primarily responsible for the day-to-day operations of AXP Variable Portfolio - Managed Fund. Alfred Henderson joined AEFC in 1996 and serves as senior portfolio manager. He has managed the equity portfolio of this Fund since 1996. From 1995-1996 he was a portfolio manager at Montgomery Asset Management. From 1992-1995 he was a senior portfolio manager as Husic Capital Management. David Kuplic, vice president and senior portfolio manager, joined AEFC in 1990 as a fixed income analyst. He began managing the fixed income portfolio of this Fund in September 1999. AXP Variable Portfolio - New Dimensions Fund GOAL The Fund seeks to provide shareholders with long-term growth of capital. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund primarily invests in common stocks showing potential for significant growth. These companies often operate in areas where dynamic economic and technological changes are occurring. The Fund may invest up to 30% of its total assets in foreign investments. The selection of common stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses investments by: o Identifying companies that AEFC believes have above-average long-term growth potential based on: -- effective management, -- financial strength, and -- competitive market position. o Considering opportunities and risks by reviewing interest rate and economic forecasts both domestically and abroad. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued relative to alternative investments, -- the company has met AEFC's earnings and/or growth expectations, -- political, economic, or other events could affect the company's performance, -- AEFC wishes to minimize potential losses (i.e., in a market down-turn), and -- AEFC identifies a more attractive opportunity. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities, preferred stock, debt obligations (of any rating), and convertible securities. Additionally, the Fund may utilize derivative instruments (such as futures, options and forward contracts) to produce incremental earnings, to hedge existing positions and to increase flexibility. During weak or declining markets or when growth opportunities are not available, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Style Risk Foreign Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Style Risk AEFC purchases growth stocks based on the expectation that the companies will have strong growth in earnings. The price paid often reflects an expected rate of growth. If that growth fails to occur, the price of the stock may decline quickly. Foreign Risk 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to other recognized indexes. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus a bar chart is in this space. +24.37% +28.64 +32.00% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +24.72% (quarter ending December 1998) and the lowest return for a calendar quarter was -11.79% (quarter ending September 1998). The Fund's year to date return as of Sept. 30, 2000 was +1.50%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year Since inception AXP VP - New Dimensions Fund +32.00% +26.35%(a) S&P 500 Index +21.04% +26.78%(b) Russell 1000 (R) Growth Index +33.16% +31.69%(b) Lipper Large-Cap Growth Index +34.82% +30.11%(b) (a) Inception date was May 1, 1996 (b) Measurement period started May 1, 1996. This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. The S&P 500 Index, an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 Index companies may be generally larger than those in which the Fund invests. Russell 1000 (R) Growth Index measures the performance of the 1000 companies in Russell 3000 Index, which represents 92% of the total market capitalization of the Russell 3000 Index. These companies have higher price-to-book ratios and higher forecasted growth values. Lipper Large-Cap Growth Index, an unmanaged index published by Lipper Inc., includes 30 funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. The securities included in the indexes may not be the same as those held by the Fund. MANAGEMENT Gordon M. Fines manages the day-to-day operations of AXP Variable Portfolio - New Dimensions Fund. He joined AEFC in 1981 and currently serves as vice president and senior portfolio manager. He also serves as portfolio manager of Growth Trends Portfolio and leads the growth team for AEFC. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - S&P 500 Index Fund GOAL The Fund seeks to provide shareholders with long-term capital appreciation. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The 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. In pursuit of this objective, the Fund invests primarily in securities that are expected to provide investment results that correspond to the performance of the Standard & Poor's 500 Composite Price Index* (S&P 500 Index). The S&P 500 Index is made up primarily of large-capitalization companies that represent a broad spectrum of the U.S. economy. The S&P 500 Index is an unmanaged group of securities whose overall performance is frequently used as a standard to measure investment performance. The Fund is not managed according to traditional methods of "active" investment management. Instead, it follows a passive or indexing investment approach in an attempt to mirror the performance of the S&P 500 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 adviser expects the correlation between the 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. The Fund normally will invest in all stocks in the S&P 500 Index in roughly the same proportions as their weightings in the index. For example, if 5% of the S&P 500 Index is made up of a stock of a particular company, the Fund normally will invest approximately 5% of its assets in that company. This strategy is known as "full replication." Although the Fund attempts to replicate the S&P 500 Index, there may be times when the Fund and the index do not match exactly. AEFC, the Fund's investment adviser, may purchase stocks not included in the S&P 500 Index when it believes it would be a cost efficient way of approximating the S&P 500 Index's performance to do so, for example, in anticipation of a stock being added to the index. AEFC may use various techniques, such as buying and selling options and futures contracts, to increase or decrease the Fund's exposure to changing security prices or other factors that affect security values. The Fund normally will invest at least 80% of its total assets in securities that are contained in the S&P 500 Index. AEFC will monitor the performance of the Fund against the 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. The 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 Fund generally is managed without regard to tax efficiency. In evaluating whether to sell a security, AEFC considers, among other factors, whether: o The security continues to be included in the S&P 500 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 S&P 500 Index, and o Timing of cash flows in and out of the Fund require AEFC to sell a security. For more information on investment strategies, holdings and the S&P 500 Index, please refer to the SAI and the annual/semiannual reports. * "Standard & Poor's (R)", "S&P (R)", "S&P 500 (R)", and "Standard & Poor's 500" are trademarks of The McGraw-Hill Companies, Inc. These trademarks have been licensed for use by American Express Financial Corporation. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's or any of its subsidiaries or affiliates (the "Licensors") and the Licensors make no representation regarding the advisability of investing in the Fund. 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 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. Tracking Error Risk The Fund may not track the S&P 500 Index perfectly because differences between the S&P 500 Index and the Fund's portfolio can cause differences in performance. The investment adviser purchases securities and other instruments in an attempt to replicate the performance of the S&P 500 Index. However, the tools that the investment adviser uses to replicate the S&P 500 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 S&P 500 Index. In addition, the returns from a specific type of security (for example, large-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 The 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 the S&P 500 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. The Fund will invest more than 25% of its total assets in a particular industry only if necessary to track the S&P 500 Index. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until May 2000. INDEX PERFORMANCE The following chart shows the performance of the S&P 500 Index for the ten years ended in December 1999. How the S&P 500 Index performed in the past does not indicate how it will perform in the future. The past performance of the index should not be viewed as representative of the Fund's future performance. In the printed prospectus a bar chart appears in this space - -3.10% +30.47% +7.62% +10.08% +1.32% +37.58% +22.96% +33.36% +28.56% +21.04% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 MANAGEMENT James M. Johnson, Jr. manages the day-to-day operations of AXP Variable Portfolio - S&P 500 Index Fund. He joined AEFC in 1994 as an equity quantitative analyst. He began managing portfolios for American Express Asset Management Group in 1996. He became portfolio manager of the Fund in 2000. He also manages or co-manages AXP Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index Fund, AXP Small Company Index Fund, AXP Total Stock Market Index Fund, Total Return Portfolio, AXP Blue Chip Advantage Fund, Aggressive Growth Portfolio and AXP Variable Portfolio - Blue Chip Advantage Fund. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Small Cap Advantage Fund GOAL The Fund seeks to provide shareholders with long-term capital growth. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund's assets primarily are invested in equity securities. Under normal market conditions, at least 80% of the Fund's net assets are invested in equity securities of small companies. These companies will often be those included in the S&P SmallCap 600 Index or the Russell 2000 Index. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, employs an active investment strategy that focuses on individual stock selection. AEFC manages the Fund to provide diversified exposure to the small cap segment of the U.S. stock market. Under normal market conditions, it is expected that the Fund will be fully invested in common stocks, and will typically hold between 175 and 225 issues, across a wide range of industries. AEFC buys stocks based on an analysis of valuation and earnings. This selection discipline favors companies that exhibit: o Attractive valuations, based on measures such as the ratio of stock price to company earnings, free cash flow or book value; and o Improving earnings, based on an analysis of trends in earnings forecasts and prior period earnings that were better than expected, as well as a qualitative assessment of the company's competitive market position. AEFC will normally sell a stock holding if: -- the stock's price moves above a reasonable valuation target; or -- the company's financial performance fails to meet expectations. Although not a primary investment strategy, the Fund also may invest in other instruments such as money market securities, debt securities (of any rating), and derivatives (such as futures, options and forward contracts). During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund would invest in these securities primarily to reduce risk, this type of investment also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Small Company Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. 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. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund did not begin operations until September 1999. MANAGEMENT Jake Hurwitz and Kent Kelly are primarily responsible for the day-to-day management of AXP Variable Portfolio - Small Cap Advantage Fund. They are both principals and senior portfolio managers at Kenwood Capital Management LLC (Kenwood), an indirect subsidiary of AEFC. Besides managing the assets of this Fund, they have managed AXP Small Cap Advantage Fund since May 1999. From 1992 until the establishment of Kenwood in 1998, Jake Hurwitz served as senior vice president and equity portfolio manager at Travelers Investment Management Company (TIMCO) where he had primary responsibility for stock selection and portfolio management for TIMCO's small and mid-cap portfolios. Prior to the establishment of Kenwood in 1998, Kent Kelley was chief executive officer at TIMCO. From 1993 to 1995, Mr. Kelley served as TIMCO's president and chief executive officer. As chief executive officer, he was responsible for all portfolio management, research and trading operations. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. AXP Variable Portfolio - Strategy Aggressive Fund GOAL The Fund seeks to provide shareholders with capital appreciation. Because any investment involves risk, achieving this goal cannot be guaranteed. INVESTMENT STRATEGY The Fund primarily invests in securities of growth companies. The selection of common stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, AEFC, the Fund's investment advisor, chooses equity investments by: o Considering opportunities and risks within growing industries and new technologies. o Selecting companies that AEFC believes have aggressive growth prospects. o Identifying small and medium companies with: -- effective management, -- financial strength, and -- competitive market position. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued relative to alternative investments, -- the security has reached AEFC's price objective, -- the company's characteristics change, -- the company has met AEFC's earnings and/or growth expectations, -- political, economic, or other events could affect the company's performance, -- AEFC wishes to minimize potential losses (i.e., in a market down-turn), -- AEFC wishes to lock-in profits, -- AEFC identifies a more attractive opportunity, and -- the company or the security continues to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments, such as foreign securities, money market securities, debt obligations (of any rating), derivatives (such as options, futures and forward contracts), and convertible securities. During weak or declining markets or when growth opportunities are unavailable, the Fund may invest more of its assets in money market securities or debt obligations. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. Additionally, the Fund's portfolio turnover rate may be affected by short-term investment strategies. High portfolio turnover could result in increases in transaction costs and may result in realized capital gains that would be taxable distributions to shareholders. For more information on strategies and holdings, see the Fund's SAI and the annual/semiannual reports. RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: Market Risk Style Risk Small Company Risk Issuer Risk Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Style Risk AEFC purchases growth stocks based on the expectation that the companies will have strong growth in earnings. The price paid often reflects an expected rate of growth. If that growth fails to occur, the price of the stock may decline quickly. 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. 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. PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: o how the Fund's performance varied for each full calendar year shown on the chart below, and o how the Fund's average annual total returns compare to other recognized indexes. How the Fund performed in the past does not indicate how the Fund will perform in the future. In the printed prospectus a bar chart appears in this area. +13.07 -6.32% +31.76% +15.98% +12.64% +2.62% +71.03% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 During the period shown in the bar chart, the highest return for a calendar quarter was +56.47% (quarter ending December 1999) and the lowest return for a calendar quarter was -22.74% (quarter ending September 1998). The Fund's year to date return as of Sept. 30, 2000 was +11.67%. Average Annual Total Returns (as of Dec. 31, 1999) 1 year 5 years Since inception AXP VP - Strategy Aggressive Fund +71.03% +24.75% +17.02%(a) S&P MidCap 400 Index +14.72% +23.05% +16.75%(b) Russell MidCap (R) Growth Index +51.29% +28.02% +19.26%(b) Lipper Mid-Cap Growth Index +73.72% +28.07% +19.53%(b) S&P 500 Index +21.04% +28.56% +20.21%(b) (a) Inception date was Jan. 13, 1992. (b) Measurement period started Feb. 1, 1992. This table shows total returns from a hypothetical investment in the Fund. Comparison index returns are for the same periods. The results do not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would reduce total return for all periods shown. For purposes of this calculation, information about the Fund assumes the deduction of applicable fund expenses and makes no adjustments for taxes that may have been paid on the reinvested income and capital gains. Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index), an unmanaged market-weighted index, consists of 400 domestic stocks chosen for market size, liquidity and industry group representation. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. The Fund may invest in stocks that may not be listed in the Index. Russell MidCap (R) Growth Index measures the performance of those Russell MidCap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 (R) Growth Index. Lipper Mid-Cap Growth Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. The S&P 500 Index, an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 Index companies may be generally larger than those in which the Fund invest. The securities included in the indexes may not be the same as those held by the Fund. MANAGEMENT Louis Giglio, senior portfolio manager, began managing the day-to-day operations of AXP Variable Portfolio - Strategy Aggressive Fund in April 1998. He joined AEFC in January 1994 as a senior equity analyst. He also serves as portfolio manager for AXP Strategy Aggressive Fund, IDS Life Series Fund - Equity Portfolio and the AXP Innovations Fund (World Technologies Portfolio). Prior to joining AEFC, he had eight years of experience as a financial analyst with Bear, Stearns & Co. Inc. covering the microcomputer software and computer services industries. The Fund may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a different retail mutual fund. The Fund, however, will have its own unique portfolio holdings, fees and operating expenses. Consequently, the Fund will have its own unique operating results, and those results may differ significantly from the different retail mutual fund. Fees and Expenses Fund investors pay various expenses. The summary below describes the fees and expenses that you would pay if you buy a variable annuity or variable life insurance contract and allocate your purchase payments to the subaccount that invests in the Fund. SHAREHOLDER FEES (fees paid directly from your investment) Because the Fund is the underlying investment vehicle for a variable annuity or variable life insurance contract, there is no sales charge for the purchase or sale of Fund shares. However, there may be charges associated with your variable annuity or variable life insurance contract, including those that may be associated with surrender or withdrawal. Any charges that apply to the subaccount and your contract are described in the variable annuity or variable life insurance prospectus. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) o Management Fees The Fund pays IDS Life Insurance Company (IDS Life) a fee for managing its assets. In turn, IDS Life pays AEFC a fee for investment advisory services. Under the Investment Management Services agreement, the following fees were paid as a percentage of average daily net assets for the most recent fiscal year: Fund Fee AXP Variable Portfolio - Blue Chip Advantage Fund 0.56% AXP Variable Portfolio - Bond Fund 0.60% AXP Variable Portfolio - Capital Resource Fund 0.60% AXP Variable Portfolio - Cash Management Fund 0.51% AXP Variable Portfolio - Diversified Equity Income Fund 0.56% AXP Variable Portfolio - Emerging Markets Fund* 1.13% AXP Variable Portfolio - Extra Income Fund 0.62% AXP Variable Portfolio - Federal Income Fund 0.61% AXP Variable Portfolio - Global Bond Fund 0.84% AXP Variable Portfolio - Growth Fund 0.64% AXP Variable Portfolio - International Fund* 0.82% AXP Variable Portfolio - Managed Fund 0.59% AXP Variable Portfolio - New Dimensions Fund 0.60% AXP Variable Portfolio - S&P 500 Index Fund 0.28% AXP Variable Portfolio - Small Cap Advantage Fund** 0.75% AXP Variable Portfolio - Strategy Aggressive Fund 0.59% * AEFC pays American Express Asset Management International Inc. (AEAMI) a fee for sub-investment advisory services. AEAMI (50192 AXP Financial Center, Minneapolis, MN 55474) is a wholly-owned subsidiary of AEFC. ** AEFC pays Kenwood Capital Management LLC (KCM LLC) a fee for sub-investment advisory services. KCM LLC (Metropolitan Center, Suite 2300, 333 South Seventh Street, Minneapolis, MN 55402) is an indirect subsidiary of AEFC. o Distribution (12b-1) Fees The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940. The Fund pays IDS Life an annual fee of up to 0.125% of average daily net assets as payment for distributing its shares and providing shareholder services. Because this fee is paid out of the Fund's assets on an on-going basis, over time this fee will increase the cost of your investment and may cost you more than paying other types of sales charges. o Other Expenses The Fund pays taxes, brokerage commissions and other nonadvisory expenses including administrative and accounting services. o Expense Limitation Through April 30, 2001, IDS Life and AEFC have agreed to waive certain fees and reimburse expenses to the extent that total expenses exceed the following percentage of Fund average daily net assets: AXP Variable Portfolio - Emerging Markets Fund 1.75% AXP Variable Portfolio - S&P 500 Index Fund 0.495 Through Aug. 31, 2001, IDS Life and AEFC have agreed to waive certain fees and reimburse expenses to the extent that total expenses exceed the following percentage of Fund average daily net assets: AXP Variable Portfolio - Blue Chip Advantage Fund 0.950% AXP Variable Portfolio - Diversified Equity Income Fund 0.950 AXP Variable Portfolio - Federal Income Fund 0.875 AXP Variable Portfolio - Growth Fund 0.950 AXP Variable Portfolio - Small Cap Advantage Fund 1.225 Buying and Selling Shares VALUING FUND SHARES The net asset value (NAV) is the value of a single Fund share. The NAV usually changes daily, and is calculated at the close of business of the New York Stock Exchange, normally 3 p.m. Central Standard Time (CST), each business day (any day the New York Stock Exchange is open). AXP Variable Portfolio - Cash Management Fund's securities are valued at amortized cost. In valuing assets of all other Funds, 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. PURCHASING SHARES You may not buy (nor will you own) shares of the Fund directly. You invest by buying a variable annuity or variable life insurance contract and allocating your purchase payments to the subaccount that invests in the Fund. Your purchase price will be the next NAV calculated after your request is received by the Fund or an authorized insurance company. For further information concerning minimum and maximum payments and submission and acceptance of your application, see your annuity or life insurance policy prospectus. TRANSFERRING/SELLING SHARES There is no sales charge for the sale of Fund shares, but there may be charges associated with the surrender or withdrawal of your variable annuity or variable life insurance contract. Any charges that apply to the subaccount and your contract are described in your variable annuity or variable life insurance prospectus. You may transfer all or part of your value in a subaccount investing in shares of the Fund to one or more of the other subaccounts investing in shares of other funds with different investment objectives. You may provide instructions to sell any shares you have allocated to the subaccounts. IDS Life or an authorized agent will mail your payment within seven days after accepting your surrender or withdrawal request. The amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received by the Fund or an authorized insurance company. Please refer to your variable annuity or variable life insurance prospectus for more information about transfers among subaccounts as well as surrenders and withdrawals. Distributions and Taxes The Fund distributes to shareholders (the variable accounts or variable subaccounts) 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 the shareholders (the variable accounts or variable subaccounts) 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. REINVESTMENT Since the distributions are automatically reinvested in additional Fund shares, the total value of your holdings will not change. The reinvestment price is the next calculated NAV after the distribution is paid. TAXES The Fund intends to comply with the regulations relating to the diversification requirements under section 817(h) of the Internal Revenue Code. 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. Federal income taxation of subaccounts, life insurance companies and variable annuities or variable life insurance is discussed in your variable annuity or variable life insurance prospectus. Other Information ABOUT IDS LIFE AND AEFC IDS Life is a stock life insurance company organized in 1957 under the laws of the State of Minnesota and located at 70100 AXP Financial Center, Minneapolis, MN 55474. IDS Life conducts a conventional life insurance business in the District of Columbia and all states except New York. IDS Life is a wholly-owned subsidiary of AEFC located at 200 AXP Financial Center, Minneapolis, MN 55474. The AEFC family of companies offers not only insurance and annuities, but also mutual funds, investment certificates and a broad range of financial management services. AEFC has been a provider of financial services since 1894 and as of the end of the most recent fiscal year owned and managed more than $263.6 billion in assets. AEFC is a wholly-owned subsidiary of American Express Company, a financial services company with headquarters at American Express Tower, World Financial Center, New York, NY 10285. Financial Highlights AXP VP - Blue Chip Advantage Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $9.78 Income from investment operations: Net investment income (loss) .02 Net gains (losses) (both realized and unrealized) 1.85 Total from investment operations 1.87 Less distributions: Dividends from net investment income (.03) Net asset value, end of period $11.62 Ratios/supplemental data Net assets, end of period (in millions) $71 Ratio of expenses to average daily net assets(c) .95%(d,e) Ratio of net investment income (loss) to average daily net assets .34%(d) Portfolio turnover rate (excluding short-term securities) 226% Total return(f) 19.13% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.96% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Bond Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996 Net asset value, beginning of period $10.56 $11.08 $11.99 $11.54 $11.58 Income from investment operations: Net investment income (loss) .75 .79 .88 .85 .88 Net gains (losses) (both realized and unrealized) (.27) (.52) (.68) .52 (.07) Total from investment operations .48 .27 .20 1.37 .81 Less distributions: Dividends from net investment income (.75) (.77) (.85) (.84) (.85) Distributions from realized gains -- (.02) (.26) (.07) -- Excess distributions from realized gains -- -- -- (.01) -- Total distributions (.75) (.79) (1.11) (.92) (.85) Net asset value, end of period $10.29 $10.56 $11.08 $11.99 $11.54 Ratios/supplemental data Net assets, end of period (in millions) $1,468 $1,750 $1,852 $1,923 $1,912 Ratio of expenses to average daily net assets(b) .79% .68% .67% .68% .68% Ratio of net investment income (loss) to average daily net assets 7.30% 7.22% 7.39% 7.18% 7.47% Portfolio turnover rate (excluding short-term securities) 70% 68% 48% 73% 56% Total return(c) 4.69% 2.40% 1.54% 12.24% 5.82% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Capital Resource Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996 Net asset value, beginning of period $34.62 $26.80 $27.97 $25.57 $24.42 Income from investment operations: Net investment income (loss) .01 .06 .11 .16 .30 Net gains (losses) (both realized and unrealized) 6.20 10.28 (.54) 6.45 1.22 Total from investment operations 6.21 10.34 (.43) 6.61 1.52 Less distributions: Dividends from net investment income (.01) (.06) (.11) (.15) (.29) Distributions from realized gains (3.61) (2.46) (.63) (4.05) (.07) Excess distributions from realized gains -- -- -- (.01) (.01) Total distributions (3.62) (2.52) (.74) (4.21) (.37) Net asset value, end of period $37.21 $34.62 $26.80 $27.97 $25.57 Ratios/supplemental data Net assets, end of period (in millions) $5,920 $5,621 $4,453 $4,867 $4,372 Ratio of expenses to average daily net assets(b) .77% .66% .66% .67% .68% Ratio of net investment income (loss) to average daily net assets (.02%) .17% .34% .61% 1.15% Portfolio turnover rate (excluding short-term securities) 52% 56% 68% 110% 131% Total return(c) 19.26% 40.12% (1.67%) 28.47% 6.15% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Cash Management Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 Income from investment operations: Net investment income (loss) .05 .05 .05 .05 .05 Less distributions: Dividends from net investment income (.05) (.05) (.05) (.05) (.05) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 Ratios/supplemental data Net assets, end of period (in millions) $783 $690 $428 $421 $288 Ratio of expenses to average daily net assets(b) .68% .56% .57% .57% .56% Ratio of net investment income (loss) to average daily net assets 5.38% 4.60% 5.13% 4.97% 5.02% Total return(c) 5.52% 4.72% 5.25% 5.05% 5.15% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Diversified Equity Income Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $9.76 Income from investment operations: Net investment income (loss) .10 Net gains (losses) (both realized and unrealized) .30 Total from investment operations .40 Less distributions: Dividends from net investment income (.11) Net asset value, end of period $10.05 Ratios/supplemental data Net assets, end of period (in millions) $23 Ratio of expenses to average daily net assets(c) .95%(d,e) Ratio of net investment income (loss) to average daily net assets 1.42%(d) Portfolio turnover rate (excluding short-term securities) 53% Total return(f) 4.21% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.49% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Emerging Markets Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $10.23 Income from investment operations: Net investment income (loss) (.01) Net gains (losses) (both realized and unrealized) (.60) Total from investment operations (.61) Less distributions: Tax return of capital (.01) Net asset value, end of period $9.61 Ratios/supplemental data Net assets, end of period (in millions) $6 Ratio of expenses to average daily net assets(c) 1.69%(d,e) Ratio of net investment income (loss) to average daily net assets (.36%)(d) Portfolio turnover rate (excluding short-term securities) 37% Total return(f) (6.03%) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 2.42% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Extra Income Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996(b) Net asset value, beginning of period $8.75 $9.54 $10.39 $9.77 $10.00 Income from investment operations: Net investment income (loss) .85 .92 .95 .88 .18 Net gains (losses) (both realized and unrealized) (.99) (.69) (.80) .62 (.23) Total from investment operations (.14) .23 .15 1.50 (.05) Less distributions: Dividends from net investment income (.85) (.92) (.95) (.88) (.18) Distributions from realized gains -- (.10) (.05) -- -- Total distributions (.85) (1.02) (1.00) (.88) (.18) Net asset value, end of period $7.76 $8.75 $9.54 $10.39 $9.77 Ratios/supplemental data Net assets, end of period (in millions) $595 $638 $564 $320 $49 Ratio of expenses to average daily net assets(c) .82% .70% .69% .69% 1.53%(d) Ratio of net investment income (loss) to average daily net assets 10.35% 10.17% 9.21% 8.88% 8.14%(d) Portfolio turnover rate (excluding short-term securities) 63% 50% 66% 104% 22% Total return(e) (1.59%) 2.61% 1.03% 16.80% (.50%) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was May 1, 1996. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Federal Income Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $10.02 Income from investment operations: Net investment income (loss) .51 Net gains (losses) (both realized and unrealized) (.06) Total from investment operations .45 Less distributions: Dividends from net investment income (.52) Net asset value, end of period $9.95 Ratios/supplemental data Net assets, end of period (in millions) $37 Ratio of expenses to average daily net assets(c) .87%(d,e) Ratio of net investment income (loss) to average daily net assets 5.49%(d) Portfolio turnover rate (excluding short-term securities) 67% Total return(f) 4.64% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.89% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Global Bond Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996(b) Net asset value, beginning of period $9.84 $10.09 $10.32 $10.08 $10.00 Income from investment operations: Net investment income (loss) .32 .55 .60 .51 .12 Net gains (losses) (both realized and unrealized) (.51) (.29) (.21) .14 .07 Total from investment operations (.19) .26 .39 .65 .19 Less distributions: Dividends from net investment income (.31) (.51) (.58) (.41) (.11) Distributions from realized gains -- -- (.04) -- -- Total distributions (.31) (.51) (.62) (.41) (.11) Net asset value, end of period $9.34 $9.84 $10.09 $10.32 $10.08 Ratios/supplemental data Net assets, end of period (in millions) $177 $197 $183 $119 $21 Ratio of expenses to average daily net assets(c) 1.07% .96% .95% .97% 1.77%(d) Ratio of net investment income (loss) to average daily net assets 4.81% 5.36% 5.81% 5.66% 4.96%(d) Portfolio turnover rate (excluding short-term securities) 50% 56% 14% 36% 4% Total return(e) (1.90%) 2.50% 3.82% 6.47% 2.00% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was May 1, 1996. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Growth Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $9.72 Income from investment operations: Net investment income (loss) -- Net gains (losses) (both realized and unrealized) 3.75 Total from investment operations 3.75 Less distributions: Tax return of capital (.01) Net asset value, end of period $13.46 Ratios/supplemental data Net assets, end of period (in millions) $195 Ratio of expenses to average daily net assets(c) .95%(d,e) Ratio of net investment income (loss) to average daily net assets (.09%)(d) Portfolio turnover rate (excluding short-term securities) 17% Total return(f) 38.59% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC Reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.97% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - International Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996 Net asset value, beginning of period $17.26 $14.25 $14.09 $13.30 $12.55 Income from investment operations: Net investment income (loss) .06 .12 .14 .18 .20 Net gains (losses) (both realized and unrealized) 2.50 3.04 .42 1.06 1.01 Total from investment operations 2.56 3.16 .56 1.24 1.21 Less distributions: Dividends from net investment income (.01) (.07) (.15) (.17) (.44) Distributions from realized gains (2.83) (.08) (.19) (.28) (.02) Excess distributions from realized gains -- -- (.06) -- -- Total distributions (2.84) (.15) (.40) (.45) (.46) Net asset value, end of period $16.98 $17.26 $14.25 $14.09 $13.30 Ratios/supplemental data Net assets, end of period (in millions) $2,389 $2,221 $2,023 $2,105 $1,874 Ratio of expenses to average daily net assets(b) 1.02% .94% .94% .97% .96% Ratio of net investment income (loss) to average daily net assets .27% .70% .94% 1.30% 1.28% Portfolio turnover rate (excluding short-term securities) 118% 102% 86% 91% 58% Total return(c) 14.74% 22.18% 4.09% 9.34% 9.64% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Managed Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996 Net asset value, beginning of period $18.84 $17.25 $18.87 $16.00 $14.85 Income from investment operations: Net investment income (loss) .47 .50 .49 .46 .46 Net gains (losses) (both realized and unrealized) 2.85 3.29 (.12) 3.93 1.15 Total from investment operations 3.32 3.79 .37 4.39 1.61 Less distributions: Dividends from net investment income (.48) (.49) (.48) (.45) (.46) Distributions from realized gains (.87) (1.71) (1.50) (1.06) -- Excess distributions from net investment income -- -- (.01) (.01) -- Total distributions (1.35) (2.20) (1.99) (1.52) (.46) Net asset value, end of period $20.81 $18.84 $17.25 $18.87 $16.00 Ratios/supplemental data Net assets, end of period (in millions) $5,223 $5,046 $4,413 $4,445 $3,482 Ratio of expenses to average daily net assets(b) .75% .63% .64% .64% .65% Ratio of net investment income (loss) to average daily net assets 2.37% 2.62% 2.56% 2.65% 2.94% Portfolio turnover rate (excluding short-term securities) 49% 44% 50% 72% 85% Total return(c) 18.42% 22.98% 1.74% 27.50% 11.01% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - New Dimensions Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996(b) Net asset value, beginning of period $18.87 $13.29 $12.95 $9.94 $10.00 Income from investment operations: Net investment income (loss) .03 .06 .08 .10 .03 Net gains (losses) (both realized and unrealized) 6.34 5.60 .34 3.01 (.06) Total from investment operations 6.37 5.66 .42 3.11 (.03) Less distributions: Dividends from net investment income (.04) (.06) (.08) (.10) (.03) Distributions from realized gains (.17) (.02) -- -- -- Total distributions (.21) (.08) (.08) (.10) (.03) Net asset value, end of period $25.03 $18.87 $13.29 $12.95 $9.94 Ratios/supplemental data Net assets, end of period (in millions) $5,564 $3,538 $1,960 $1,307 $171 Ratio of expenses to average daily net assets(c) .78% .68% .69% .72% 1.04%(d) Ratio of net investment income (loss) to average daily net assets .15% .34% .59% 1.04% 1.69%(d) Portfolio turnover rate (excluding short-term securities) 28% 27% 34% 29% 4% Total return(e) 34.01% 42.61% 3.19% 31.40% (.22%) (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date was May 1, 1996. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credit on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - S&P 500 Index Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $10.06 Income from investment operations: Net investment income (loss) .02 Net gains (losses) (both realized and unrealized) .33 Total from investment operations .35 Less distributions: Dividends from net investment income (.03) Net asset value, end of period $10.38 Ratios/supplemental data Net assets, end of period (in millions) $21 Ratio of expenses to average daily net assets(c) .48%(d,e) Ratio of net investment income (loss) to average daily net assets .72%(d) Portfolio turnover rate (excluding short-term securities) 44% Total return(f) 3.49% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.57% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Small Cap Advantage Fund Fiscal period ended Aug. 31, Per share income and capital changes(a) 2000(b) Net asset value, beginning of period $9.90 Income from investment operations: Net investment income (loss) (.02) Net gains (losses) (both realized and unrealized) 2.78 Total from investment operations 2.76 Less distributions: Distributions from realized gains (.08) Net asset value, end of period $12.58 Ratios/supplemental data Net assets, end of period (in millions) $31 Ratio of expenses to average daily net assets(c) 1.19%(d,e) Ratio of net investment income (loss) to average daily net assets (.24%)(d) Portfolio turnover rate (excluding short-term securities) 169% Total return(f) 28.19% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.43% for the period ended Aug. 31, 2000. (f) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Strategy Aggressive Fund Fiscal period ended Aug. 31, Per share income and capital changes(a)
2000 1999 1998 1997 1996 Net asset value, beginning of period $16.46 $13.10 $17.17 $16.04 $14.44 Income from investment operations: Net investment income (loss) .01 .05 .01 .08 .10 Net gains (losses) (both realized and unrealized) 13.17 4.36 (2.57) 2.84 1.60 Total from investment operations 13.18 4.41 (2.56) 2.92 1.70 Less distributions: Dividends from net investment income -- (.05) (.01) (.08) (.10) Distributions from realized gains (1.82) (1.00) (1.49) (1.71) -- Excess distributions from realized gains -- -- (.01) -- -- Total distributions (1.82) (1.05) (1.51) (1.79) (.10) Net asset value, end of period $27.82 $16.46 $13.10 $17.17 $16.04 Ratios/supplemental data Net assets, end of period (in millions) $4,197 $2,327 $1,976 $2,427 $1,941 Ratio of expenses to average daily net assets(b) .77% .67% .66% .68% .69% Ratio of net investment income (loss) to average daily net assets .04% .31% .08% .47% .65% Portfolio turnover rate (excluding short-term securities) 143% 207% 176% 218% 189% Total return(c) 84.97% 35.27% (16.40%) 18.60% 11.82% (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
The information in these tables has been audited by KPMG LLP, independent auditors. The independent auditors' report and additional information about the performance of the Fund are contained in the Fund's annual report which, if not included with this prospectus, may be obtained without charge. Additional information about the Fund and its investments is available in the Fund's SAI, annual and semiannual reports to shareholders. In the Fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the Fund during the last fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report or the semiannual report, or to make inquiries about the Fund, contact American Express Variable Portfolio Funds. American Express Variable Portfolio Funds 70100 AXP Financial Center Minneapolis, MN 55474 800-862-7919 TTY: 800-846-4852 You may review and copy information about the Fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202-942-8090). Reports and other information about the Fund are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, Washington, D.C. 20549-0102. Investment Company Act File #s: AXP Variable Portfolio - Blue Chip Advantage Fund 811-3218 AXP Variable Portfolio - Bond Fund 811-3219 AXP Variable Portfolio - Capital Resource Fund 811-3218 AXP Variable Portfolio - Cash Management Fund 811-3190 AXP Variable Portfolio - Diversified Equity Income Fund 811-4252 AXP Variable Portfolio - Emerging Markets Fund 811-3218 AXP Variable Portfolio - Extra Income Fund 811-3219 AXP Variable Portfolio - Federal Income Fund 811-3219 AXP Variable Portfolio - Global Bond Fund 811-3219 AXP Variable Portfolio - Growth Fund 811-3218 AXP Variable Portfolio - International Fund 811-3218 AXP Variable Portfolio - Managed Fund 811-4252 AXP Variable Portfolio - New Dimensions Fund 811-3218 AXP Variable Portfolio - S&P 500 Index Fund 811-3218 AXP Variable Portfolio - Small Cap Advantage Fund 811-3218 AXP Variable Portfolio - Strategy Aggressive Fund 811-3218 S-6466-99 T (10/00) STATEMENT OF ADDITIONAL INFORMATION FOR AXPSM Variable Portfolio - Income Series, Inc. AXPSM Variable Portfolio - Bond Fund AXPSM Variable Portfolio - Extra Income Fund AXPSM Variable Portfolio - Emerging Markets Fund AXPSM Variable Portfolio - Federal Income Fund AXPSM Variable Portfolio - Global Bond Fund AXPSM Variable Portfolio - S&P 500 Index Fund AXPSM Variable Portfolio - Investment Series, Inc. AXPSM Variable Portfolio - Blue Chip Advantage Fund AXPSM Variable Portfolio - Capital Resource Fund AXPSM Variable Portfolio - Growth Fund AXPSM Variable Portfolio - International Fund AXPSM Variable Portfolio - New Dimensions Fund(R) AXPSM Variable Portfolio - Small Cap Advantage Fund AXPSM Variable Portfolio - Strategy Aggressive Fund AXPSM Variable Portfolio - Managed Series, Inc. AXPSM Variable Portfolio - Diversified Equity Income Fund AXPSM Variable Portfolio - Managed Fund AXPSM Variable Portfolio - Money Market Series, Inc. AXPSM Variable Portfolio - Cash Management Fund (singularly and collectively, where the context requires, referred to as the Fund) Oct. 30, 2000 This Statement of Additional Information (SAI) is not a prospectus. It should be read together with the prospectus and the Financial Statements contained in the most recent Annual Report to Shareholders (Annual Report) that may be obtained from your financial advisor or by writing to American Express(R) Variable Portfolio Funds, 70100 AXP Financial Center, Minneapolis, MN 55474 or by calling 800-862-7919. The Independent Auditors' Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities, contained in the Annual Report are incorporated in this SAI by reference. No other portion of the Annual Report, however, is incorporated by reference. The prospectus for the Fund, dated the same date as this SAI, also is incorporated in this SAI by reference. TABLE OF CONTENTS Fundamental Investment Policies...........................................p. 3 Investment Strategies and Types of Investments............................p. 15 Information Regarding Risks and Investment Strategies.....................p. 25 Security Transactions.....................................................p. 48 Brokerage Commissions Paid to Brokers Affiliated with IDS Life............p. 52 Performance Information...................................................p. 53 Valuing Fund Shares.......................................................p. 56 Selling Shares............................................................p. 58 Capital Loss Carryover....................................................p. 58 Taxes.....................................................................p. 59 Agreements................................................................p. 59 Organizational Information................................................p. 72 Board Members and Officers................................................p. 74 Compensation for Board Members............................................p. 77 Independent Auditors......................................................p. 80 Appendix A: Description of Money Market Securities.......................p. 81 Appendix B: Description of Ratings.......................................p. 83 Appendix C: Additional Information About the Index.......................p. 88 FUNDAMENTAL INVESTMENT POLICIES - ------------------------------------------------------------------------------- Throughout this SAI, the funds are referred to as follows: AXP Variable Portfolio - Blue Chip Advantage Fund (Blue Chip Advantage) AXP Variable Portfolio - Bond Fund (Bond) AXP Variable Portfolio - Capital Resource Fund (Capital Resource) AXP Variable Portfolio - Cash Management Fund (Cash Management) AXP Variable Portfolio - Diversified Equity Income Fund (Diversified Equity Income) AXP Variable Portfolio - Emerging Markets Fund (Emerging Markets) AXP Variable Portfolio - Extra Income Fund (Extra Income) AXP Variable Portfolio - Federal Income Fund (Federal Income) AXP Variable Portfolio - Global Bond Fund (Global Bond) AXP Variable Portfolio - Growth Fund (Growth) AXP Variable Portfolio - International Fund (International) AXP Variable Portfolio - Managed Fund (Managed) AXP Variable Portfolio - New Dimensions Fund (New Dimensions) AXP Variable Portfolio - S&P 500 Index Fund (S&P 500 Index Fund) AXP Variable Portfolio - Small Cap Advantage Fund (Small Cap Advantage) AXP Variable Portfolio - Strategy Aggressive Fund (Strategy Aggressive) Fundamental investment policies adopted by the Fund cannot be changed without the approval of a majority of the outstanding voting securities of the Fund as defined in the Investment Company Act of 1940, as amended (the 1940 Act). Notwithstanding any of the Fund's other investment policies, the Fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the Fund for the purpose of having those assets managed as part of a combined pool. The policies below are fundamental policies that apply to the Fund and may be changed only with shareholder approval. Unless holders of a majority of the outstanding voting securities agree to make the change, the Fund will not: Blue Chip Advantage 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. According to the present interpretation by the Securities and Exchange Commission (SEC), this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Issue senior securities, except as permitted under the 1940 Act. o Lend Fund securities in excess of 30% of its net assets. 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. Bond o Invest more than 5% of its total assets, at market value, in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. Up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. 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 the Fund's total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Fund will not purchase additional securities at any time borrowing for temporary purposes exceeds 5%. o Lend Fund securities in excess of 30% of the Fund's net assets, at market value. 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Concentrate in any one industry. According to the present interpretation by the SEC, this means no more than 25% of a Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o 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 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. o Make cash loans if the total commitment amount exceeds 5% of the Fund's total assets. Capital Resource o Invest more than 5% of its total assets, at market value, in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. Up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. 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 the Fund's total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Fund will not purchase additional securities at any time borrowing for temporary purposes exceeds 5%. o Lend Fund securities in excess of 30% of the Fund's net assets, at market value. 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Concentrate in any one industry. According to the present interpretation by the SEC, this means no more than 25% of a Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o 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 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. o Make cash loans if the total commitment amount exceeds 5% of the Fund's total assets. Cash Management o Invest more than 5% of its total assets, at market value, in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. o Buy on margin or sell short. 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 the fund's total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Fund will not purchase additional securities at any time borrowing for temporary purposes exceeds 5%. o Issue senior securities, except as permitted under the 1940 Act. o Lend Fund securities in excess of 30% of the Fund's net assets, at market value. 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds or debentures, state bonds, municipal bonds, or industrial revenue bonds. o Make cash loans. However, the Fund does make short-term investments which it may have an agreement with the seller to reacquire o Buy or sell real estate, commodities or commodity contracts. o Intentionally invest more than 25% of the Fund's assets taken at market value in any particular industry, except with respect to investing in U.S. government or agency securities and bank obligations. Investments are varied according to what is judged advantageous under different economic conditions. Diversified Equity Income 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. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Issue senior securities, except as permitted under the 1940 Act. o Lend Fund securities in excess of 30% of its net assets. Emerging Markets 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. According to the present interpretation by the Securities and Exchange Commission (SEC), this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Make a loan of any part of its assets to American Express Financial Corporation (AEFC), to the board members and officers of AEFC or to its own board members and officers. o Lend Fund securities in excess of 30% of its net assets. o Issue senior securities, except as permitted under the 1940 Act. Extra Income 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. It may be considered an underwriter under securities laws when it sells restricted securities. 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 Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Lend Fund securities in excess of 30% of its net assets. o Issue senior securities, except as permitted under the Investment Company Act of 1940. o Concentrate in any one industry. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at the time of purchase, can be invested in any one industry. Federal Income 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. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Issue senior securities, except as permitted under the 1940 Act. o Lend Fund securities in excess of 30% of its net assets. 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. Global Bond 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Make cash loans if the total commitment amount exceeds 5% of the Fund's total assets. 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 Concentrate in any one industry. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o 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 AEFC, to the directors and officers of AEFC or to its own directors and officers. o Lend Fund securities in excess of 30% of its net assets. o Issue senior securities, except as permitted under the Investment Company Act of 1940. Growth 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. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Issue senior securities, except as permitted under the 1940 Act. o Lend Fund securities in excess of 30% of its net assets. 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. International o Invest more than 5% of its total assets, at market value, in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. Up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. 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 the Fund's total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Fund will not purchase additional securities at any time borrowing for temporary purposes exceeds 5%. o Lend Fund securities in excess of 30% of the Fund's net assets, at market value. 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Concentrate in any one industry. According to the present interpretation by the SEC, this means no more than 25% of a Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o 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 cash loans if the total commitment amount exceeds 5% of the Fund's total assets. 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. o Make a loan of any part of its assets to AEFC, to its directors and officers or to its own directors and officers. o Issue senior securities, except as permitted under the Investment Company Act of 1940. Managed o Invest more than 5% of its total assets, at market value, in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. Up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. 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 the Fund's total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Fund will not purchase additional securities at any time borrowing for temporary purposes exceeds 5%. o Lend Fund securities in excess of 30% of the Fund's net assets, at market value. 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Concentrate in any one industry. According to the present interpretation by the SEC, this means no more than 25% of a Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o 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 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. o Make cash loans if the total commitment amount exceeds 5% of the Fund's total assets. o Make a loan of any part of its assets to AEFC, to its directors and officers or to its own directors and officers. o Issue senior securities, except as permitted under the Investment Company Act of 1940. New Dimensions 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. It may be considered an underwriter under securities laws when it sells restricted securities. 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. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Make a loan of any part of its assets to AEFC, to the directors and officers of AEFC or to its own directors and officers. o Lend Fund securities in excess of 30% of its net assets. S&P 500 Index Fund 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 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 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. Small Cap Advantage 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. According to the present interpretation by the SEC, this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Issue senior securities, except as permitted under the 1940 Act. o Lend Fund securities in excess of 30% of its net assets. Strategy Aggressive o Invest more than 5% of its total assets, at market value, in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. Up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. 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 the Fund's total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Fund will not purchase additional securities at any time borrowing for temporary purposes exceeds 5%. o Lend Fund securities in excess of 30% of the Fund's net assets, at market value. 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. It may be considered an underwriter under securities laws when it sells restricted securities. o Concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means no more than 25% of a Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o 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 cash loans if the total commitment amount exceeds 5% of the Fund's total assets. 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. o Make a loan of any part of its assets to AEFC, to its directors and officers or to its own directors and officers. 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. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS - ------------------------------------------------------------------------------- This table shows various investment strategies and investments that many funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager may make on behalf of the Fund. For a description of principal risks, please see the prospectus. Notwithstanding the Fund's ability to utilize these strategies and techniques, the investment manager is not obligated to use them at any particular time. For example, even though the investment manager is authorized to adopt temporary defensive positions and is authorized to attempt to hedge against certain types of risk, these practices are left to the investment manager's sole discretion.
- ----------------------------------------------- ---------------------------------------------------------------------- Investment strategies & types of investments: Allowable for --------------------------------------------------------------------- the Fund? - ----------------------------------------------- ---------------------------------------------------------------------- Diversified Blue Chip Capital Cash Equity Advantage Bond Fund Resource Management Income - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- 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 no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Commercial Paper yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Common Stock yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Convertible Securities yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Corporate Bonds yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Debt Obligations yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Depositary Receipts yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Derivative Instruments yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Foreign Currency Transactions yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Foreign Securities yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- High-Yield (High-Risk) Securities (Junk Bonds) no yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Illiquid and Restricted Securities yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Indexed Securities yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Inverse Floaters no yes no no no - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Investment Companies yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Lending of Portfolio Securities yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Loan Participations yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Mortgage- and Asset-Backed Securities no yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Mortgage Dollar Rolls no yes no no no - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Municipal Obligations yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Preferred Stock yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Real Estate Investment Trusts yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Repurchase Agreements yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Reverse Repurchase Agreements yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Short Sales no no no no no - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Sovereign Debt yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Structured Products yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Variable- or Floating-Rate Securities yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Warrants yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- When-Issued Securities yes yes yes no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes no yes Securities - ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
- ----------------------------------------------- ------------------------------------------------------------------------- Investment strategies & types of investments: Allowable for the Fund? - ----------------------------------------------- ------------------------------------------------------------------------- Emerging Extra Federal Global Growth International Markets Income Income Bond - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Agency and Government Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Borrowing yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Cash/Money Market Instruments yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Collateralized Bond Obligations yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Commercial Paper yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Common Stock yes yes no yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Convertible Securities yes yes no yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Corporate Bonds yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Debt Obligations yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Depositary Receipts yes yes no yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Derivative Instruments yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Foreign Currency Transactions yes yes no yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Foreign Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- High-Yield (High-Risk) Securities (Junk Bonds) yes yes no yes no no - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Illiquid and Restricted Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Indexed Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Inverse Floaters no yes yes yes no no - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Investment Companies yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Lending of Portfolio Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Loan Participations yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Mortgage- and Asset-Backed Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Mortgage Dollar Rolls no yes yes yes no no - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Municipal Obligations yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Preferred Stock yes yes no yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Real Estate Investment Trusts yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Repurchase Agreements yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Reverse Repurchase Agreements yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Short Sales no no yes no no no - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Sovereign Debt yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Structured Products yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Variable- or Floating-Rate Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Warrants yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- When-Issued Securities yes yes yes yes yes yes - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- -------------- Zero-Coupon, Step-Coupon, and Pay-in-Kind yes yes yes yes yes yes Securities - ----------------------------------------------- ----------- ---------- ------------ ----------- ---------- --------------
- ----------------------------------------------- ---------------------------------------------------------------------- Investment strategies & types of investments: Allowable for the Fund? - ----------------------------------------------- ---------------------------------------------------------------------- New S&P 500 Small Cap Strategy Managed Dimensions Index Fund Advantage Aggressive - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- 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 no 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 Bonds) yes yes no no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Illiquid and Restricted Securities yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Indexed Securities yes yes yes yes yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Inverse Floaters yes 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 no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Mortgage- and Asset-Backed Securities yes yes no no yes - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Mortgage Dollar Rolls yes 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 no no yes no no - ----------------------------------------------- ------------- ------------- -------------- ------------- ------------- Sovereign Debt yes yes yes no 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 - ----------------------------------------------- ------------- ------------- -------------- ------------- -------------
The following are guidelines that may be changed by the board at any time: Blue Chip Advantage o The Fund may invest up to 20% of its total assets in foreign investments included in the market index. 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 or sell short, except the Fund may make margin payments in connection with transactions in stock index futures contracts. o The Fund will not invest in a company to control or manage it. o The Fund will not invest more than 10% of its total assets in securities of investment companies. Bond Fund o Under normal market conditions, at least 65% of the Fund's total assets will be invested in bonds. o At least 50% of the Fund's net assets will be invested in bonds rated investment - grade, unrated corporate bonds that are believed to be of investment grade quality, and government bonds. o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may enter into interest rate futures contracts. o The Fund will not invest more than 10% of its total assets in securities of investment companies. Capital Resource o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may enter into stock index futures contracts. o The Fund will not invest in a company to control or manage it. o The Fund will not invest more than 10% of its total assets in securities of investment companies. Cash Management o The Fund may invest up to 25% of its total assets in foreign investments. o The Fund will not invest in securities that are not readily marketable. o The Fund may invest in commercial paper rated in the highest rating category by at least two nationally recognized statistical rating organizations (or by one, if only one rating is assigned) and in unrated paper determined by the board of directors to be of comparable quality. The Fund also may invest up to 5% of its assets in commercial paper receiving the second highest rating or in unrated paper determined to be of comparable quality. o The Fund will not invest more than 10% of its total assets in securities of investment companies. Diversified Equity Income o Under normal market conditions, the Fund will invest at least 65% of its net assets in dividend-paying common and preferred stocks. o No more than 20% of the Fund's net assets may be invested in bonds below investment grade unless the bonds are convertible securities. o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may make margin payments in connection with transactions in futures contracts. o The Fund will not invest in a company to control or manage it. o The Fund will not invest more than 10% of its total assets in securities of investment companies. Emerging Markets o Under normal market conditions, at least 65% of the Fund's total assets will be invested in emerging market equity securities of at least three different countries. o The Fund may invest up to 20% of its net assets in bonds. o The Fund may invest up to 10% of its net assets in bonds rated below investment grade, including Brady bonds. 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 Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may make margin payments in connection with transactions in derivative instruments. o The Fund will not invest more than 10% of its total assets in securities of investment companies. o The Fund will not invest in a company to control or manage it. Extra Income o The Fund may invest up to 10% of its total assets in common stocks, preferred stocks that do not pay dividends and warrants to purchase common stocks. o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not invest more than 10% of its total assets in securities of investment companies. o The Fund will not invest in a company to control or manage it. o The Fund will not buy on margin or sell short, except the Fund may enter into interest rate future contracts. Federal Income o Under normal market conditions, at least 65% of the Fund's total assets will be invested in securities issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. 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 Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin, but it may make margin payments in connection with interest rate futures contracts. o The Fund will not invest more than 10% of its total assets in securities of investment companies. o The Fund will not invest in a company to control or manage it. Global Bond o Under normal market conditions, at least 80% of the Fund's net assets will be investment - grade corporate or government debt securities, including money market instruments, of issuers located in at least three different countries. o The Fund may not purchase debt securities rated lower than B by Moody's Investors Service Inc. or the equivalent. 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 Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, but the Fund may make margin payments in connection with transactions in futures contracts. o The Fund will not invest more than 10% of its total assets in securities of investment companies. o The Fund will not invest in a company to control or manage it. Growth o The Fund will not invest in bonds rated below investment grade. o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may make margin payments in connection with transactions in stock index futures contracts. o The Fund will not invest more than 10% of its total assets in securities of investment companies. o The Fund will not invest in a company to control or manage it. International o Under normal market conditions, at least 65% of the Fund's total assets will be invested in common stocks or securities convertible into common stocks of issuers invested in at least three foreign countries. o Normally, investments in U.S. issuers generally will constitute less than 20% of the Fund's portfolio. 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 Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may enter into stock index futures contracts. o The Fund will not invest in a company to control or manage it. o The Fund will not invest in securities of investment companies except by purchase in the open market where the dealer's or sponsor's profit is the regular commission. If any such investment is ever made, not more than 10% of the Fund's net assets, at market, will be so invested. Managed o Under normal market conditions, the Fund invests at least 50% of its total assets in common stocks. o The Fund may invest up to 25% of its total assets in foreign investment. 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 Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except it may enter into stock index futures and interest rate futures contracts. o The Fund will not invest in a company to control or manage it. o The Fund will not invest more than 10% of its total assets in securities of investment companies. New Dimensions o The Fund may invest up to 30% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, but the Fund may make margin payments in connection with transactions in stock index futures contracts. o The Fund will not invest more than 10% of its assets in securities of investment companies. o The Fund will not invest in a company to control or manage it. S&P 500 Index Fund 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 Index, see Appendix C. Small Cap Advantage 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 Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may make margin payments in connection with transactions in derivative instruments. o The Fund will not invest more than 10% of its total assets in securities of investment companies. Strategy Aggressive o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not buy on margin or sell short, except the Fund may enter into stock index futures contracts. o The Fund will not invest in a company to control or manage it. o The Fund will not invest more than 10% of its total assets in securities of investment companies. 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. 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. 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. 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 money market securities and securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk, Inflation Risk, and Management Risk. Collateralized Bond Obligations Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of junk bonds. CBOs are similar in concept to collateralized mortgage obligations (CMOs), but differ in that CBOs represent different degrees of credit quality rather than different maturities. (See also Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and diversified pool of high-risk, high-yield junk bonds, which is then separated into "tiers." Typically, the first tier represents the higher quality collateral and pays the lowest interest rate; the second tier is backed by riskier bonds and pays a higher rate; the third tier represents the lowest credit quality and instead of receiving a fixed interest rate receives the residual interest payments--money that is left over after the higher tiers have been paid. CBOs, like CMOs, are substantially overcollateralized and this, plus the diversification of the pool backing them, earns them investment-grade bond ratings. Holders of third-tier CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield (High-Risk) Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, and Management Risk. Commercial Paper Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk, Liquidity Risk, and Management Risk. Common Stock Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Management Risk, Market Risk, and Small Company Risk. Convertible Securities Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common stock of the same or a different issuer within a particular period of time at a specified price. Some convertible securities, such as preferred equity-redemption cumulative stock (PERCs), have mandatory conversion features. Others are voluntary. A convertible security entitles the holder to receive interest normally paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted, or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Call/Prepayment Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and Reinvestment Risk. Corporate Bonds Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield (High-Risk) Securities.) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See the appendix for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment Risk. Debt Obligations Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a specified rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High-Yield (High-Risk) Securities.) All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating organization or their rating systems, the Fund will attempt to use comparable ratings as standards for selecting investments. See the appendix for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment Risk. Depositary Receipts Some foreign securities are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally, depositary receipts in registered form are designed for use in the U.S. and depositary receipts in bearer form are designed for use in securities markets outside the U.S. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary receipts involve the risks of other investments in foreign securities. In addition, ADR holders may not have all the legal rights of shareholders and may experience difficulty in receiving shareholder communications. (See also Common Stock and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, Management Risk, and Market Risk. Derivative Instruments Derivative instruments are commonly defined to include securities or contracts whose values depend on, in whole or in part, (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. Options. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees for the length of the contract to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option during the length of the contract, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash or securities of equivalent value (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition to the premium, the buyer generally pays a broker a commission. The writer receives a premium, less another commission, at the time the option is written. The premium received by the writer is retained whether or not the option is exercised. A writer of a call option may have to sell the security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions. One of the risks an investor assumes when it buys an option is the loss of the premium. To be beneficial to the investor, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then, the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Options on many securities are listed on options exchanges. If the Fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices. Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised. Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges. Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by an investor taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market. Future contracts may be based on various securities, securities indices (such as the S&P 500 Index), foreign currencies and other financial instruments and indices. 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. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Leverage Risk, Liquidity Risk, and Management Risk. Foreign Currency Transactions Since investments in foreign countries usually involve currencies of foreign countries, the value of the Fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, the Fund may incur costs in connection with conversions between various currencies. Currency exchange rates may fluctuate significantly over short periods of time causing the Fund's NAV to fluctuate. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets, actual or anticipated changes in interest rates, and other complex factors. Currency exchange rates also can be affected by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments. Spot Rates and Derivative Instruments. The Fund conducts its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts) as a hedge against fluctuations in future foreign exchange rates. (See also Derivative Instruments). These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, the Fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots. The Fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment in dollars. By entering into a forward contract, the Fund will be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. The Fund also may enter into forward contracts when management of the Fund believes the currency of a particular foreign country may change in relationship to another currency. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. The Fund will not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund's securities or other assets denominated in that currency. The Fund will designate cash or securities in an amount equal to the value of the Fund's total assets committed to consummating forward contracts entered into under the second circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the Fund's commitments on such contracts. At maturity of a forward contract, the Fund may either sell the security and make delivery of the foreign currency or retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract with the same currency trader obligating it to buy, on the same maturity date, the same amount of foreign currency. If the Fund retains the security and engages in an offsetting transaction, the Fund will incur a gain or loss (as described below) to the extent there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline between the date the Fund enters into a forward contract for selling foreign currency and the date it enters into an offsetting contract for purchasing the foreign currency, the Fund will realize a gain to the extent that the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to buy. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to buy exceeds the price of the currency it has agreed to sell. It is impossible to forecast what the market value of securities will be at the expiration of a contract. Accordingly, it may be necessary for the Fund to buy additional foreign currency on the spot market (and bear the expense of that purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received on the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. The Fund's dealing in forward contracts will be limited to the transactions described above. This method of protecting the value of the Fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. Although the Fund values its assets each business day in terms of U.S. dollars, it does not intend to convert its foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. 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 options, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised and the diminution in value of securities will be fully or partially offset by the amount of the premium received. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if the Fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting the Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. The Fund may enter into currency futures contracts to sell currencies. It also may buy put options and write covered call options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. The Fund may use currency futures for the same purposes as currency forward contracts, subject to Commodity Futures Trading Commission (CFTC) limitations. Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the Fund's investments. A currency hedge, for example, should protect a Yen-denominated bond against a decline in the Yen, but will not protect the Fund against price decline if the issuer's creditworthiness deteriorates. Because the value of the Fund's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of the Fund's investments denominated in that currency over time. The Fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The Fund will not enter into an option or futures position that exposes the Fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Correlation Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk. Foreign Securities Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. The introduction of a single currency, the euro, on January 1, 1999 for participating European nations in the Economic and Monetary Union ("EU") presents unique uncertainties, including whether the payment and operational systems of banks and other financial institutions will be ready by the scheduled launch date; the creation of suitable clearing and settlement payment systems for the new currency; the legal treatment of certain outstanding financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other EU countries such as the United Kingdom, Denmark, and Greece into the euro and the admission of other non-EU countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk, Issuer Risk, and Management Risk. High-Yield (High-Risk) Securities (Junk Bonds) High yield (high-risk) securities are sometimes referred to as "junk bonds." They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. See the appendix for a discussion of securities ratings. (See also Debt Obligations.) The lower-quality and comparable unrated security market is relatively new and its growth has paralleled a long economic expansion. As a result, it is not clear how this market may withstand a prolonged recession or economic downturn. Such conditions could severely disrupt the market for and adversely affect the value of such securities. All interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecast, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality. An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher-rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers. Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield (high-risk) securities include: Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and Management Risk. Illiquid and Restricted Securities The Fund may invest in illiquid securities (i.e., securities that are not readily marketable). These securities may include, but are not limited to, certain securities that are subject to legal or contractual restrictions on resale, certain repurchase agreements, and derivative instruments. To the extent the Fund invests in illiquid or restricted securities, it may encounter difficulty in determining a market value for such securities. Disposing of illiquid or restricted securities may involve time-consuming negotiations and legal expense, and it may be difficult - or impossible for the Fund to sell such an investment promptly and at an acceptable price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with illiquid and restricted securities include: Liquidity Risk and Management Risk. Indexed Securities The value of indexed securities is linked to currencies, interest rates, commodities, indexes, or other financial indicators. Most indexed securities are short- to intermediate-term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk, Management Risk, and Market Risk. Inverse Floaters Inverse floaters are created by underwriters using the interest payment on securities. A portion of the interest received is paid to holders of instruments based on current interest rates for short-term securities. The remainder, minus a servicing fee, is paid to holders of inverse floaters. As interest rates go down, the holders of the inverse floaters receive more income and an increase in the price for the inverse floaters. As interest rates go up, the holders of the inverse floaters receive less income and a decrease in the price for the inverse floaters. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with inverse floaters include: Interest Rate Risk and Management Risk. Investment Companies The Fund may invest in securities issued by registered and unregistered investment companies. These investments may involve the duplication of advisory fees and certain other expenses. Although one or more of the other risks described in this SAI may apply, the largest risk associated with the securities of other investment companies includes: Management Risk and Market Risk. Lending of Portfolio Securities The Fund may lend certain of its portfolio securities to broker-dealers. The current policy of the Fund's board is to make these loans, either long- or short-term, to broker-dealers. In making loans, the Fund receives the market price in cash, U.S. government securities, letters of credit, or such other collateral as may be permitted by regulatory agencies and approved by the board. If the market price of the loaned securities goes up, the Fund will get additional collateral on a daily basis. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the Fund receives cash payments equivalent to all interest or other distributions paid on the loaned securities. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The Fund will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest, or other distributions on the securities loaned. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the lending of portfolio securities include: Credit Risk and Management Risk. Loan Participations Loans, loan participations, and interests in securitized loan pools are interests in amounts owed by a corporate, governmental, or other borrower to a lender or consortium of lenders (typically banks, insurance companies, investment banks, government agencies, or international agencies). Loans involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to an investor in the event of fraud or misrepresentation. Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk and Management Risk. Mortgage- and Asset-Backed Securities Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations (CMOs). These securities may be issued or guaranteed by U.S. government agencies or instrumentalities (see also Agency and Government Securities), or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage-backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset-backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage- and asset-backed securities include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and Management Risk. Mortgage Dollar Rolls Mortgage dollar rolls are investments whereby an investor would sell mortgage-backed securities for delivery in the current month and simultaneously contract to purchase substantially similar securities on a specified future date. While an investor would forego principal and interest paid on the mortgage-backed securities during the roll period, the investor would be compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The investor also could be compensated through the receipt of fee income equivalent to a lower forward price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk, Interest Rate Risk, and Management Risk. Municipal Obligations Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States (including the District of Columbia). 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.) 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.) 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. 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. 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. SECURITY TRANSACTIONS - ------------------------------------------------------------------------------- Subject to policies set by the board, IDS Life Insurance Company (IDS Life) 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, IDS Life 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. IDS Life intends to direct American Express Financial Corporation (AEFC) to execute trades and negotiate commissions on its behalf. 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. These services are covered by the Investment Advisory Agreement between IDS Life and AEFC. When AEFC acts on IDS Life's behalf, for the Fund, it follows the guidelines stated below. The Fund, AEFC and IDS Life each have a strict Code of Ethics that prohibits its affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for the Fund. 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 IDS Life to do so to the extent authorized by law, if IDS Life 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 IDS Life's or AEFC's overall responsibilities with respect to the Fund and the other funds for which they act as investment managers. 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, IDS Life must follow procedures authorized by the board. To date, three procedures have been authorized. One procedure permits IDS Life 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 IDS Life, 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 IDS Life, 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. IDS Life 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 IDS Life believes it may obtain better overall execution. IDS Life 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. 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 IDS Life and AEFC in providing advice to all the funds and accounts advised by IDS Life and AEFC 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 IDS Life, AEFC or any of its subsidiaries. When the Fund buys or sells the same security as another portfolio, fund, or account, AEFC carries out the purchase or sale in a way the Fund agrees in advance is fair. Although sharing in large transactions may adversely affect the price or volume purchased or sold by the Fund, the Fund hopes to gain an overall advantage in execution. On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions. The review evaluates execution, operational efficiency, and research services. For fiscal periods noted below, each Fund paid the following total brokerage commissions. Substantially all firms through whom transactions were executed provide research services.
Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 1998 ------------- ------------- ------------- Blue Chip Advantage(a) $ 89,774 $ -0- $ -0- Bond 47,482 63,860 85,301 Capital Resource 5,671,309 6,309,750 7,319,583 Cash Management -0- -0- -0- Diversified Equity Income(a) 25,904 -0- -0- Emerging Markets(b) 15,512 -0- -0- Extra Income 8,078 1,293 4,211 Federal Income(a) 1,160 -0- -0- Global Bond -0- -0- -0- Growtha 70,141 -0- -0- International 10,996,932 8,124,560 6,012,897 Managed 2,320,496 2,953,255 2,698,065 New Dimensions 2,155,713 1,277,847 1,172,182 S&P 500 Index(b) 5,307 -0- -0- Small Cap Advantage(a) 45,677 -0- -0- Strategy Aggressive 3,542,181 5,889,467 6,553,128 a For the period from Sept. 15, 1999 (date the Fund became available ) to Aug. 31, 2000 b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000
In fiscal period 2000, the following transactions and commissions were specifically directed to firms in exchange for research services: Transactions Commissions Blue Chip Advantage $ - $ - Bond - - Capital Resource 325,000 20,500 Cash Management - - Diversified Equity Income 3,050 156 Emerging Markets - - Extra Income - - Federal Income - - Global Bond - - Growth - - International - - Managed 1,765,000 98,150 New Dimensions - - S&P 500 Index - - Small Cap Advantage 300 18 Strategy Aggressive 1,935,640 105,955 - ------------------------------------------------------------------------------- As of the end of the most recent fiscal period, Emerging Markets, Federal Income and International held no securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities. As of the end of the most recent fiscal period, each Fund held securities of its regular brokers or dealers of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below:
Value of Securities Fund Name of Issuer Owned at End of Fiscal Period - --------------------- -------------- ----------------------------- Blue Chip Advantage Bank of America $15,775 FleetBoston 633,312 Lehman Brothers 733,700 Merrill Lynch 145,000 Morgan Stanley 1,018,402 Bond Fleet Financial Group 5,102,000 LaBranche 4,200,000 Capital Resource Bank of America 42,850,000 Chase Manhattan 22,908,750 Merrill Lynch 39,150,000 Morgan Stanley 86,050,000 Cash Management Bank of America 35,975,444 Bear Sterns 25,998,041 Fleet 4,980,983 Goldman Sachs Group 33,537,349 Merrill Lynch 14,548,601 Morgan Guaranty 1,000,000 Salomon Smith Barney 36,986,257 Diversified Equity Income Bank of America $625,171 FleetBoston Financial 541,655 Lehman Brothers 280,071 Morgan Stanley 575,947 Extra Income LaBranche 3,360,000 Salomon Smith Barney 592,652 Global Bond Morgan (JP) 861,550 Growth FleetBoston Financial 3,181,542 Merrill Lynch 4,704,960 Managed Bank of America 7,191,016 Donaldson, Lufkin & Jenrette 21,417,000 LaBranche 1,312,500 Merrill Lynch 23,414,374 Morgan (JP) 4,307,750 Morgan Stanley 151,580,059 Travelers 3,883,640 New Dimensions Morgan Stanley 156,196,535 S&P 500 Index American Express 124,104 Bank of America 139,477 Bear Stearns 11,602 Chase Manhattan 114,377 FleetBoston Financial 60,446 Lehman Brothers 27,550 Merrill Lynch 88,450 Morgan (JP) 42,800 Morgan Stanley 191,247 Paine Webber Group 16,302 PNC Financial Services Group 26,935 Schwab (Charles) 81,722 Small Cap Advantage Jefferies Group 94,356 LaBranche 138,575 Raymond James Financial 76,950 Strategy Aggressive Fleet Funding 5,756,403 Morgan Stanley 9,080,313
The Fund's portfolio turnover rate indicates changes in its portfolio of securities and will vary from year to year. The Fund may experience relatively higher portfolio turnover than normal during a period of rapid asset growth if smaller positions acquired in connection with portfolio diversification requirements are replaced by larger positions. Relatively greater portfolio turnover often occurs in the early years of a fund's operation since it is more difficult for new funds to establish meaningful portfolio position as quickly and efficiently as a more seasoned fund. The portfolio turnover rates for the two most recent fiscal periods were as follows: Aug. 31, 2000 Aug. 31, 1999 ------------- ------------- Blue Chip Advantage(a) 226% 0% Bond 70 68 Capital Resource 52 56 Diversified Equity Income(a) 53 0 Emerging Markets(b) 37 0 Extra Income 63 50 Federal Income(a) 67 0 Global Bond 50 56 Growth(a) 17 0 International 118 102 Managed 49 44 New Dimensions 28 27 S&P 500 Index(b) 44 0 Small Cap Advantage(a) 169 0 Strategy Aggressive 143 207 a For the period from Sept. 15, 1999 (date the Fund became available ) to Aug. 31, 2000 b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000 BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE - ------------------------------------------------------------------------------ Affiliates of American Express Company (of which IDS Life is a wholly-owned indirect 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. IDS Life will use an American Express affiliate only if (i) IDS Life 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. No brokerage commissions were paid by Bond, Extra Income, Federal Income, Global Bond and International to brokers affiliated with the Advisor for the three most recent fiscal years. Information about brokerage commissions paid by the Funds for the last three fiscal periods to brokers affiliated with the Advisor is contained in the following table:
As of the end of Fiscal Period, 2000 1999 1998 ---------------------------------------------- ------------ ------------ Percent of Dollar Amount Aggregate of Aggregate Aggregate Dollar Percent of Transactions Dollar Dollar amount of Aggregate Involving Amount of Amount of Fund Nature of Commissions Brokerage Payment of Commissions Commissions - ------------- Broker Affiliation Paid to Commissions Commissions Paid to Paid to ------------ ------------ Broker ----------- ----------- Broker Broker ------------ ---------- --------- Blue Chip American Wholly-owned Advantage(a) Enterprise subsidiary $183 0.20% 0.15% $0 $0 Investment of the 800,594 14.12 28.78 582,267 630,669 Capital Resource Services Inc. Advisor Diversified Equity 87 0.34 0.98 0 0 Income(a) 132 0.19 0.15 0 0 Growth(a) 172,988 7.45 17.02 215,973 123,736 Managed 68,268 3.17 6.46 165,340 129,771 New Dimensions Small Cap 1,188 2.60 3.91 0 0 Advantage(a) 198,000 5.59 8.08 203,181 414,129 Strategy Aggressive a For the period from Sept. 15, 1999 (date the Fund became available ) to Aug. 31, 2000
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) Aggregate total return The Fund may calculate aggregate total return for certain periods representing the cumulative change in the value of an investment in a 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) The total return of the S&P 500 is calculated by several sources. Blue Chip Advantage will use the total return as calculated by Standard & Poor's Corporation (S&P) to measure the U.S. stock market. The total return is calculated by adding dividend income to price appreciation. Total return on the S&P 500 is determined by reinvesting cash dividends paid on stocks on the ex-dividend date - that is, the date on or after which a sale of stock does not carry with it the right to a dividend already declared. S&P also makes adjustments for special dividends, such as stock dividends. The percentage changes for the indexes other than the S&P 500 reflect reinvestment of all distributions on a quarterly basis and changes in market prices. The percentage changes for all the indexes exclude brokerage commissions or other fees. By comparison, the Fund will incur such fees and other expenses. Annualized yield Bond, Diversified Equity Income, Extra Income, Federal Income and Global Bond may calculate an annualized yield by dividing the net investment income per share deemed earned during a 30-day period by the net asset value per share on the last day of the period and annualizing the results. Yield is calculated according to the following formula: Yield = 2[(a-b + 1)6 - 1] cd where: a = dividends and interest earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends d = the maximum offering price per share on the last day of the period Bond's annualized yield was 6.86%, Diversified Equity Income's was 3.29%, Extra Income's was 11.54%, Federal Income's was 5.66%, and Global Bond's was 4.12% for the 30-day period ended Aug. 31, 2000. The Fund 's yield, calculated as described above according to the formula prescribed by the SEC, is a hypothetical return based on market value yield to maturity for the Fund's securities. It is not necessarily indicative of the amount which was or may be paid to the Fund's shareholders. Actual amounts paid to Fund shareholders are reflected in the distribution yield. DISTRIBUTION YIELD Distribution yield is calculated according to the following formula: D x F = DY ------- ---- NAV 30 where: D = sum of dividends for 30 day period NAV = beginning of period net asset value F = annualizing factor DY = distribution yield Bond's distribution yield was 6.90%, Diversified Equity Income's was 3.33%, Extra Income's was 11.40%, Federal Income's was 5.70%, and Global Bond's was 4.09% for the 30-day period ended Aug. 31, 2000. Cash Management Fund calculates annualized simple and compound yields based on a seven-day period. The simple yield is calculated by determining the net change in the value of a hypothetical account having a balance of one share at the beginning of the seven-day period, dividing the net change in account value by the value of the account at the beginning of the period to obtain the return for the period, and multiplying that return by 365/7 to obtain an annualized figure. The value of the hypothetical account includes the amount of any declared dividends, the value of any shares purchased with any dividend paid during the period and any dividends declared for such shares. The Fund's yield does not include any realized or unrealized gains or losses. The Fund calculates its compound yield according to the following formula: Compound Yield = (return for seven day period + 1) x (365/7) - 1 Cash Management's simple annualized yield was 6.36% and its compound yield was 6.38% for the seven days ended Aug. 31, 2000, the last business day of the Fund's fiscal year. Yield, or rate of return, on Cash Management shares may fluctuate daily and does not provide a basis for determining future yields. However, it may be used as one element in assessing how the Fund is meeting its goal. When comparing an investment in the Fund with savings accounts and similar investment alternatives, you must consider that such alternatives often provide an agreed to or guaranteed fixed yield for a stated period of time, whereas the Fund's yield fluctuates. In comparing the yield of one money market fund to another, you should consider the Fund's investment policies, including the types of investments permitted. 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. Ibbotson Associates provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations of various capital markets. The performance of these capital markets is based on the returns of different indexes. The Fund may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. The Fund may quote various measures of volatility in advertising. Measures of volatility seek to compare a fund's historical share price fluctuations or returns to those of a benchmark. The Distributor may provide information designed to help individuals understand their investment goals and explore various financial strategies. Materials may include discussions of asset allocation, retirement investing, brokerage products and services, model portfolios, saving for college or other goals, and charitable giving. VALUING FUND SHARES - ------------------------------------------------------------------------------ The value of an individual share is determined by using the net asset value (NAV) before shareholder transactions for the day. As of the end of the most recent fiscal period, the computation looked like this:
Shares outstanding at the end of Net asset value Fund Net assets divided by previous day Equals of one share - ---- ---------- ---------- ------------ ------ ------------ Blue Chip Advantage $71,312,447 6,135,874 $11.62 Bond 1,467,596,238 142,640,055 10.29 Capital Resource 5,919,840,831 159,093,094 37.21 Diversified Equity Income 22,781,967 2,265,882 10.05 Emerging Markets 583,605 9.61 5,607,492 Extra Income 76,654,201 7.76 594,567,627 Federal Income 3,724,826 9.95 37,080,339 Global Bond 177,318,234 18,985,219 9.34 Growth 194,762,760 14,473,073 13.46 International 2,388,754,491 140,699,238 16.98 Managed 5,222,919,985 250,956,171 20.81 New Dimensions 5,564,222,410 222,269,788 25.03 S&P 500 Index 21,008,667 2,024,382 10.38 Small Cap Advantage 31,101,148 2,471,535 12.58 Strategy Aggressive 4,196,894,262 150,886,656 27.82 - ----------------------------------------------------------------------------------------------------------
In determining net assets before shareholder transactions, the Fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): o Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. o Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and if none exists, 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. o Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars at the current rate of exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange that will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, these securities will be valued at their fair value according to procedures decided upon in good faith by the board. o Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. o Securities without a readily available market price, and other assets are valued at fair value as determined in good faith by the board. The board is responsible for selecting methods it believes provide fair value. When possible, bonds are valued by a pricing service independent from the Fund. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. Cash Management Fund intends to use its best efforts to maintain a constant net asset value of $1 per share although there is no assurance it will be able to do so. Accordingly, the Fund uses the amortized cost method in valuing its portfolio. o Short-term securities maturing in 60 days or less 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. It does not take into consideration unrealized capital gains or losses. All of the securities in the Fund's portfolio will be valued at their amortized cost. In addition, Cash Management Fund must abide by certain conditions. It must only invest in securities of high quality which present minimal credit risks as determined by the board of directors. This means that the rated commercial paper in the Fund's portfolio will be issues that have been rated in the highest rating category by at least two nationally recognized statistical rating organizations (or by one if only one rating is assigned) and in unrated paper determined by the Fund's board of directors to be comparable. The Fund must also purchase securities with original or remaining maturities of 13 months or less, and maintain a dollar-weighted average portfolio maturity of 90 days or less. In addition, the board of directors must establish procedures designed to stabilize the Fund's price per share for purposes of sales and redemptions at $1 to the extent that it is reasonably possible to do so. These procedures include review of the Fund's securities by the Board, at intervals deemed appropriate by it, to determine whether the Fund's net asset value per share computed by using the available market quotations deviates from a share value of $1 as computed using the amortized cost method. The board must consider any deviation that appears, and if it exceeds 0.5%, it must determine what action, if any, needs to be taken. If the board determines that a deviation exists that may result in a material dilution of the holdings of the variable accounts or investors, or in other unfair consequences for such people, it must undertake remedial action that it deems necessary and appropriate. Such action may include withholding dividends, calculating net asset value per share for purposes of sales and redemptions in kind, and selling securities before maturity in order to realize capital gain or loss or to shorten average portfolio maturity. In other words, while the amortized cost method provides certainty and consistency in portfolio valuation, it may, from time to time, result in valuations of securities that are either somewhat higher or lower than the prices at which the securities could be sold. This means that during times of declining interest rates, the yield on Cash Management Fund's shares may be higher than if valuations of portfolio securities were made based on actual market prices and estimates of market prices. Accordingly, if use of the amortized cost method were to result in a lower portfolio value at a given time, a prospective investor in the Fund would be able to obtain a somewhat higher yield than if portfolio valuation were based on actual market values. The variable accounts, on the other hand, would receive a somewhat lower yield than they would otherwise receive. The opposite would happen during a period of rising interest rates. SELLING SHARES - ------------------------------------------------------------------------------- The Fund will sell any shares presented by the shareholders (variable accounts or subaccounts) for sale. The policies on when or whether to buy or sell Fund shares are described in your annuity or life insurance policy 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 Fund to redeem shares for more than seven days. Such emergency situations would occur if: o The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or o Disposal of the Fund's securities is not reasonably practicable or it is not reasonably practicable for the Fund to determine the fair value of its net assets, or o The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should the Fund stop selling shares, the board may make a deduction from the value of the assets held by the Fund to cover the cost of future liquidations of the assets so as to distribute fairly these costs among all contract owners. REJECTION OF BUSINESS The Fund reserves the right to reject any business, in its sole discretion. CAPITAL LOSS CARRYOVER - ------------------------------------------------------------------------------- For federal income tax purposes, the following Funds had total capital loss carryovers of $182,591,604 at the end of the most recent fiscal period, that if not offset by subsequent capital gains will expire as follows: Fund 2007 2008 2009 - ---- --------------- ---------------- ----------- Blue Chip Advantage $0 $21,038 $683,800 Bond 14,566,694 52,158,845 43,059,646 Diversified Equity Income 0 21,681 224,596 Emerging Markets 0 31,298 0 Extra Income 6,538,287 30,163,085 27,163,088 Federal Income 0 0 40,242 Global Bond 938,847 3,742,801 1,202,665 Growth 0 5,782 2,015,518 Small Cap Advantage 0 0 13,691 It is unlikely that the board will authorize a distribution of any net realized capital gains until the available capital loss carryover has been offset or has expired except as required by Internal Revenue Service rules. TAXES - ------------------------------------------------------------------------------- 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. AGREEMENTS - ------------------------------------------------------------------------------- INVESTMENT MANAGEMENT SERVICES AGREEMENT IDS Life, a wholly-owned subsidiary of AEFC, is the investment manager for the Fund. Under the Investment Management Services Agreement, IDS Life, subject to the policies set by the board, provides investment management services. For its services, IDS Life is paid a fee monthly based on the following schedule. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Blue Chip Advantage Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.50 0.560% Next 0.50 0.545 Next 1.00 0.530 Next 1.00 0.515 Next 3.00 0.500 Over 6.00 0.470 Bond Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.610% Next 1 0.595 Next 1 0.580 Next 3 0.565 Next 3 0.550 Over 9 0.535 Capital Resource Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.630% Next 1 0.615 Next 1 0.600 Next 3 0.585 Over 6 0.570 Cash Management Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.0 0.510% Next 0.5 0.493 Next 0.5 0.475 Next 0.5 0.458 Over 2.5 0.440 Diversified Equity Income Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.50 0.560% Next 0.50 0.545 Next 1.00 0.530 Next 1.00 0.515 Next 3.00 0.500 Over 6.00 0.470 Emerging Markets Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 1.170% Next 0.25 1.155 Next 0.25 1.140 Next 0.25 1.125 Next 1.00 1.110 Over 2.00 1.095 Extra Income Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.620% Next 1 0.605 Next 1 0.590 Next 3 0.575 Next 3 0.560 Over 9 0.545 Federal Income Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.610% Next 1.00 0.595 Next 1.00 0.580 Next 3.00 0.565 Next 3.00 0.550 Over 9.00 0.535 Global Bond Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.840% Next 0.25 0.825 Next 0.25 0.810 Next 0.25 0.795 Over 1.00 0.780 Growth Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.630% Next 1.00 0.615 Next 1.00 0.600 Next 3.00 0.585 Over 6.00 0.570 International Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.870% Next 0.25 0.855 Next 0.25 0.840 Next 0.25 0.825 Next 1.00 0.810 Over 2.00 0.795 Managed Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.5 0.630% Next 0.5 0.615 Next 1.0 0.600 Next 1.0 0.585 Next 3.0 0.570 Over 6.0 0.550 New Dimensions Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.630% Next 1 0.615 Next 1 0.600 Next 3 0.585 Over 6 0.570 S&P 500 Index Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.29% Next 1.00 0.28 Next 3.00 0.27 Over 5.00 0.26 Small Cap Advantage Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.790% Next 0.25 0.770 Next 0.25 0.750 Next 0.25 0.730 Next 1.00 0.710 Over 2.00 0.650 Strategy Aggressive Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.650% Next 0.25 0.635 Next 0.25 0.620 Next 0.25 0.605 Next 1.00 0.590 Over 2.00 0.575 For Blue Chip Advantage, Diversified Equity Income, Emerging Markets, Growth and Small Cap Advantage, before the fee based on the asset charge is paid, it is adjusted for investment performance. The adjustment, determined monthly, will be calculated using the percentage point difference between the change in the net asset value of one share of the Fund and the change in the (i) Lipper Large-Cap Core Index for Blue Chip Advantage, (ii) Lipper Equity Income Fund Index for Diversified Equity Income, (iii) Lipper Emerging Markets Fund Index for Emerging Markets, (iv) Lipper Large-Cap Growth Index for Growth, and (v) the Lipper Small Cap Core Funds Index for Small Cap Advantage. The performance of one share of the Fund is measured by computing the percentage difference between the opening and closing net asset value of one share of the Fund, as of the last business day of the period selected for comparison, adjusted for dividend or capital gain distributions which are treated as reinvested at the end of the month during which the distribution was made. The performance of the Index for the same period is established by measuring the percentage difference between the beginning and ending Index for the comparison period. The performance is adjusted for dividend or capital gain distributions (on the securities which comprise the Index), which are treated as reinvested at the end of the month during which the distribution was made. One percentage point will be subtracted from the calculation to help assure that incentive adjustments are attributable to AEFC's management abilities rather than random fluctuations and the result multiplied by 0.01%. That number will be multiplied times the Fund's average net assets for the comparison period and then divided by the number of months in the comparison period to determine the monthly adjustment. Where the Fund's share performance exceeds that of the Index, the base fee will be increased. Where the performance of the Index exceeds the performance of the Fund's shares, the base fee will be decreased. For Blue Chip Advantage and Diversified Equity Income, the maximum monthly increase or decrease will be 0.08% of each Fund's average net assets on an annual basis. For Small Cap Advantage and Growth, the maximum monthly increase or decrease will be 0.12% of the Fund's average net assets on an annual basis. The 12 month comparison period will roll over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. On the last day of the most recent fiscal period, the daily rate applied to the Fund's assets (on an annual basis) was 0.560% for Blue Chip Advantage, 0.605% for Bond, 0.600%, for Capital Resource, 0.510% for Cash Management, 0.560% for Diversified Equity Income, 1.170% for Emerging Markets, 0.620% for Extra Income, 0.610% for Federal Income, 0.840% for Global Bond, 0.630% for Growth, 0.823% for International, 0.589% for Managed, 0.601% for New Dimensions, 0.290% for S&P 500 Index, 0.790% for Small Cap Advantage, and 0.591%, for Strategy Aggressive. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. The management fee is paid monthly. Under the agreement, advisory expenses paid for the following fiscal periods were as follows: Fund 2000 1999 1998 - ------ ------ ------- ------ Blue Chip Advantage(a) $ 175,456 $ -0- $ -0- Bond 9,660,825 11,191,880 11,816,239 Capital Resource 35,047,411 33,169,737 31,852,411 Cash Management 3,873,812 2,828,782 2,041,502 Diversified Equity Income(a) 63,161 -0- -0- Emerging Markets(b) 20,657 -0- -0- Extra Income 3,823,199 3,725,928 2,988,028 Federal Income(a) 156,447 -0- -0- Global Bond 1,574,254 1,689,945 1,338,718 Growth(a) 479,607 -0- -0- International 20,495,043 17,609,972 18,268,846 Managed 30,552,651 29,584,681 28,641,618 New Dimensions 28,032,830 17,935,431 11,769,360 S&P 500 Index(b) 13,965 -0- -0- Small Cap Advantage(a) 102,222 -0- -0- Strategy Aggressive 20,341,387 13,697,732 15,625,616 - ------------------------------------------------------------------------------- a For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000 b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000 Under the Agreement, the Fund also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees and expenses, audit expenses, cost of items sent to contract owners, postage, fees and expenses paid to board members who are not officers or employees of IDS Life or AEFC, fees and expenses of attorneys, costs of fidelity and surety bonds, SEC registration fees, expenses of preparing prospectuses and of printing and distributing prospectuses to existing contract owners, losses due to theft or other wrong doing or due to liabilities not covered by bond or agreement, expenses incurred in connection with lending securities and expenses properly payable by the Fund, approved by the board. All other expenses are borne by IDS Life. Under the agreement, nonadvisory expenses paid for the following fiscal periods were as follows: Fund 2000 1999 1998 - ----- ------ ------- ------ Blue Chip Advantage(a) $ 71,864 $ -0- $ -0- Bond 285,887 451,601 306,961 Capital Resource 702,447 711,962 691,029 Cash Management 155,263 116,861 90,399 Diversified Equity Income(a) 25,649 -0- -0- Emerging Markets(b) 6,300 -0- -0- Extra Income 140,312 160,872 82,924 Federal Income(a) 23,478 -0- -0- Global Bond 91,267 112,238 73,014 Growth(a) 97,730 -0- -0- International 901,977 1,431,821 1,494,878 Managed 766,039 657,770 694,841 New Dimensions 730,550 627,887 379,620 S&P 500 Index(b) -0- -0- -0- Small Cap Advantage(a) 34,223 -0- -0- Strategy Aggressive 633,245 499,525 389,523 - ------------------------------------------------------------------------------- a For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000 b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000 INVESTMENT ADVISORY AGREEMENT IDS Life and AEFC have an Investment Advisory Agreement under which AEFC executes purchases and sales and negotiates brokerage as directed by IDS Life. For its services, IDS Life pays AEFC an annual fee of 0.25% of each Fund's average daily net assets except for International and the S&P 500 Index Fund whose fees are 0.35%. Under the Agreement, the Advisor paid AEFC for the following fiscal periods as follows: Fund 2000 1999 1998 - ----- ------- ------- --------- Blue Chip Advantage(a) $ 79,177 $ -0- $ -0- Bond 4,003,119 4,639,445 4,869,052 Capital Resource 14,622,003 13,791,067 13,148,180 Cash Management 1,902,340 1,386,766 995,844 Diversified Equity Income(a) 28,404 -0- -0- Emerging Markets(b) 4,563 -0- -0- Extra Income 1,544,400 1,502,390 1,190,430 Federal Income(a) 65,295 -0- -0- Global Bond 469,362 502,960 395,622 Growth(a) 186,362 -0- -0- International 8,741,822 7,456,590 7,744,185 Managed 12,982,916 12,548,106 12,132,138 New Dimensions 11,617,712 7,296,923 4,691,961 S&P 500 Index(b) 17,284 -0- -0- Small Cap Advantage(a) 34,118 -0- -0- Strategy Aggressive 8,603,549 5,662,457 6,496,353 - ------------------------------------------------------------------------------- a For the period from Sept. 15, 1999 (date the Fund became available ) to Aug. 31, 2000 b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000 Sub-Investment Advisor: American Express Asset Management International Inc. (AEAMI), a wholly-owned subsidiary of AEFC located at 50192 AXP Financial Center, Minneapolis, MN 55474 sub-advises the assets in the Emerging Markets and International Funds. AEAMI, 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. Under the agreement, AEAMI receives an annual fee of 0.35% of daily net assets. Under the agreement, the total amount paid for International Fund was $8,741,822 for fiscal year 2000, $7,456,590 for fiscal year 1999, and $7,744,185 for fiscal year 1998. Emerging Markets did not begin operations until May 2000. As a result, fees totaling $4,563 were paid in fiscal period 2000. No fees were paid in fiscal year 1999 and 1998. Kenwood Capital Management LLC (KCM LLC) an indirect subsidiary of AEFC located at Metropolitan Centre, Suite 2300, 333 South Seventh Street, Minneapolis, MN 55442, sub-advises the assets of Small Cap Advantage Fund. KCM LLC, 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. Under the agreement, the KCM LLC receives an annual fee of 0.35% of average daily net assets. Small Cap Advantage did not begin operations until September 1999. As a result, fees totaling $34,118 were paid in fiscal period 2000. No fees were paid in fiscal year 1999 and 1998. ADMINISTRATIVE SERVICES AGREEMENT The Fund has an Administrative Services Agreement with AEFC. Under this agreement, the Fund pays AEFC a fee for providing administration and accounting services. The fee, based on the following schedule, is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Blue Chip Advantage Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.50 0.040% Next 0.50 0.035 Next 1.00 0.030 Next 1.00 0.025 Next 3.00 0.020 Over 6.00 0.020 Bond Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.050% Next 1 0.045 Next 1 0.040 Next 3 0.035 Next 3 0.030 Over 9 0.025 Capital Resource Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.050% Next 1 0.045 Next 1 0.040 Next 3 0.035 Over 6 0.030 Cash Management Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.0 0.030% Next 0.5 0.027 Next 0.5 0.025 Next 0.5 0.022 Over 2.5 0.020 Diversified Equity Income Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.50 0.040% Next 0.50 0.035 Next 1.00 0.030 Next 1.00 0.025 Next 3.00 0.020 Over 6.00 0.020 Emerging Markets Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.10% Next 0.25 0.09 Next 0.25 0.08 Next 0.25 0.07 Next 1.00 0.06 Over 2.00 0.05 Extra Income Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.050% Next 1 0.045 Next 1 0.040 Next 3 0.035 Next 3 0.030 Over 9 0.025 Federal Income Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.050% Next 1.00 0.045 Next 1.00 0.040 Next 3.00 0.035 Next 3.00 0.030 Over 9.00 0.025 Global Bond Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.060% Next 0.25 0.055 Next 0.25 0.050 Next 0.25 0.045 Over 1.00 0.040 Growth Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.050% Next 1.00 0.045 Next 1.00 0.040 Next 3.00 0.035 Over 6.00 0.030 International Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.060% Next 0.25 0.055 Next 0.25 0.050 Next 0.25 0.045 Next 1.0 0.040 Over 2.0 0.035 Managed Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.5 0.040% Next 0.5 0.035 Next 1.0 0.030 Next 1.0 0.025 Next 3.0 0.020 Over 6.0 0.020 New Dimensions Assets Annual rate at (billions) each asset level ---------- ---------------- First $1 0.050% Next 1 0.045 Next 1 0.040 Next 3 0.035 Over 6 0.030 S&P 500 Index Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.080% Next 1.00 0.075 Next 3.00 0.070 Over 5.00 0.065 Small Cap Advantage Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.060% Next 0.25 0.055 Next 0.25 0.050 Next 0.25 0.045 Next 1.00 0.040 Over 2.00 0.035 Strategy Aggressive Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.060% Next 0.25 0.055 Next 0.25 0.050 Next 0.25 0.045 Next 1.00 0.040 Over 2.00 0.035 On the last day of the most recent fiscal period, the daily rates applied to the Funds' net assets on an annual basis were: Fund Daily Rates Fees Paid During Prior Fiscal Year - ---- ----------- ---------------------------------- Blue Chip Advantage 0.040% $ 12,604 Bond 0.048 859,265 Capital Resource 0.040 2,403,552 Cash Management 0.030 234,322 Diversified Equity Income 0.040 4,502 Emerging Markets 0.100 1,766 Extra Income 0.050 350,383 Federal Income 0.050 12,824 Global Bond 0.060 113,263 Growth 0.050 37,134 International 0.044 1,122,452 Managed 0.026 1,441,406 New Dimensions 0.040 1,961,986 S&P 500 Index 0.080 3,852 Small Cap Advantage 0.060 8,095 Strategy Aggressive 0.040 1,430,593 PLAN AND AGREEMENT OF DISTRIBUTION To help defray the cost of distribution and servicing, the Fund and IDS Life entered into a Plan and Agreement of Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, IDS Life is paid a fee up to actual expenses incurred at an annual rate of up to 0.125% of the Fund's average daily net assets. Expenses covered under this Plan include sales commissions; business, employee and financial advisor expenses charged to distribution of shares; and overhead appropriately allocated to the sale of shares. These expenses also include costs of providing personal service to contract owners. A substantial portion of the costs are not specifically identified to any one of the American Express Variable Portfolio 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 Fund or by IDS Life. 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 Plan was not effective during the fiscal year. As a result, no fees were paid. The fee is not allocated to any one service (such as advertising, payments to underwriters or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. CUSTODIAN AGREEMENT The Fund's securities and cash are held by American Express Trust Company, 1200 Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the Fund pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. The custodian has entered into a sub-custodian agreement with 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 70100 AXP Financial Center, Minneapolis, MN 55474. SHARES The Fund is owned by the subaccounts, its shareholders. 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 For a discussion of the rights of contract owners concerning the voting of shares held by the subaccounts, please see your annuity or life insurance policy prospectus. All shares have voting rights over the Fund's management and fundamental policies. Each share is entitled to one vote for each share owned. 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 shareholders have as many votes as the number of shares owned, 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 FOR FUNDS MANAGED BY IDS LIFE Date of Form of State of Fiscal Diversified Organization Organization Organization Year End - ----------------------------------- ------------- ------------ ------------- ------------- ------------- IDS Life Series Fund, Inc. 5/8/85 Corporation MN 4/30 Equity Portfolio Yes Equity Income Portfolio Yes Government Securities Yes Portfolio Income Portfolio Yes International Equity Portfolio Yes Managed Portfolio Yes Money Market Portfolio Yes - ----------------------------------- ------------- ------------ ------------- ------------- ------------- AXP Variable Portfolio - Income 4/27/81, Corporation NV/MN 8/31 Series, Inc. 6/13/86* AXP Variable Portfolio - Bond Yes Fund AXP Variable Portfolio - Extra Yes Income Fund AXP Variable Portfolio - Yes Federal Income Fund AXP Variable Portfolio - No Global Bond Fund - ----------------------------------- ------------- ------------ ------------- ------------- ------------- AXP Variable Portfolio - 4/27/81, Corporation NV/MN 8/31 Investment Series, Inc. 6/13/86* AXP Variable Portfolio - Blue Yes Chip Advantage Fund AXP Variable Portfolio - Yes Capital Resource Fund AXP Variable Portfolio - Yes Emerging Markets Fund AXP Variable Portfolio - Yes Growth Fund AXP Variable Portfolio Yes -International Fund AXP Variable Portfolio - New Yes Dimensions Fund AXP Variable Portfolio - S&P Yes 500 Index Fund AXP Variable Portfolio - Small Yes Cap Advantage Fund AXP Variable Portfolio - Yes Strategy Aggressive Fund - ----------------------------------- ------------- ------------ ------------- ------------- ------------- AXP Variable Portfolio - Managed 3/5/85 Corporation MN 8/31 Series, Inc. AXP Variable Portfolio - Yes Diversified Equity Income Fund AXP Variable Portfolio - Yes Managed Fund - ----------------------------------- ------------- ------------ ------------- ------------- ------------- AXP Variable Portfolio - Money 4/27/81, Corporation NV/MN 8/31 Market Series, Inc. 6/13/86* AXP Variable Portfolio - Cash Yes Management Fund - ----------------------------------- ------------- ------------ ------------- ------------- -------------
* Date merged into a Minnesota corporation. 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 63 American Express funds. Peter J. Anderson** Born in 1942 251 AXP Financial Center Minneapolis, MN Senior vice president - investments and director of AEFC. Vice president - investments of the Fund. H. Brewster Atwater, Jr.' Born in 1931 4900 IDS Tower Minneapolis, MN Retired chairman and chief executive officer, General Mills, Inc. (consumer foods and restaurants) Director, Merck & Co., Inc. (pharmaceuticals). 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 EXIDE Corporation (auto parts and batteries). David R. Hubers** Born in 1943 25 AXP Financial Center 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) and Amnex, Inc. (communications). William R. Pearce+' Born in 1927 2050 One Financial Plaza Minneapolis, MN RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management committee. Retired vice chairman of the board, Cargill, Incorporated (commodity merchants and processors). Former chairman, American Express Funds. Alan K. Simpson Born in 1931 1201 Sunshine Ave. Cody, WY Visiting lecturer and Director of The Institute of Politics, Harvard University. Former three-term United States Senator for Wyoming. Former Assistant Republican Leader, U.S. Senate. Director, Biogen (bio-pharmaceuticals). John R. Thomas+'** Born in 1937 25 AXP Financial Center Minneapolis, MN Senior vice president of AEFC. President of the Fund. C. Angus Wurtele' Born in 1934 Valspar Corporation Suite 1700 Foshay Tower Minneapolis, MN Retired chairman of the board and chief executive officer, The Valspar Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and General Mills, Inc. (consumer foods and restaurants). + 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. Officers who also are officers and employees of AEFC: Frederick C. Quirsfeld Born in 1947 53609 AXP Financial Center Minneapolis, MN Vice president - taxable mutual fund investments of AEFC. Vice president - fixed income investments for the Fund. John M. Knight Born in 1952 105 AXP Financial Center Minneapolis, MN Vice President - investment accounting of AEFC. Treasurer for the Fund. COMPENSATION FOR BOARD MEMBERS - ------------------------------------------------------------------------------- During the most recent fiscal year, the independent members of the Fund board, for attending up to 27 meetings, received the following compensation: Compensation Table for AXP VP - Blue Chip Advantage Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $888 $131,867 Lynne V. Cheney 858 121,033 Heinz F. Hutter 838 123,792 Anne P. Jones 838 120,867 William R. Pearce 617 111,792 Alan K. Simpson 667 112,067 C. Angus Wurtele 738 120,142
Compensation Table for AXP VP - Bond Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $1,955 $131,867 Lynne V. Cheney 1,809 121,033 Heinz F. Hutter 1,830 123,792 Anne P. Jones 1,781 120,867 William R. Pearce 1,658 111,792 Alan K. Simpson 1,659 112,067 C. Angus Wurtele 1,780 120,142
Compensation Table for AXP VP - Capital Resource Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $3,713 $131,867 Lynne V. Cheney 3,477 121,033 Heinz F. Hutter 3,588 123,792 Anne P. Jones 3,590 120,867 William R. Pearce 3,417 111,792 Alan K. Simpson 3,469 112,067 C. Angus Wurtele 3,538 120,142
Compensation Table for AXP VP - Cash Management Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $1,546 $131,867 Lynne V. Cheney 1,409 121,033 Heinz F. Hutter 1,421 123,792 Anne P. Jones 1,355 120,867 William R. Pearce 1,250 111,792 Alan K. Simpson 1,234 112,067 C. Angus Wurtele 1,371 120,142
Compensation Table for AXP VP - Extra Income Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $1,505 $131,867 Lynne V. Cheney 1,376 121,033 Heinz F. Hutter 1,380 123,792 Anne P. Jones 1,314 120,867 William R. Pearce 1,208 111,792 Alan K. Simpson 1,192 112,067 C. Angus Wurtele 1,330 120,142
Compensation Table for AXP VP - Federal Income Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $888 $131,867 Lynne V. Cheney 858 121,033 Heinz F. Hutter 838 123,792 Anne P. Jones 838 120,867 William R. Pearce 617 111,792 Alan K. Simpson 667 112,067 C. Angus Wurtele 738 120,142
Compensation Table for AXP VP - Global Bond Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $1,346 $131,867 Lynne V. Cheney 1,220 121,033 Heinz F. Hutter 1,221 123,792 Anne P. Jones 1,149 120,867 William R. Pearce 1,050 111,792 Alan K. Simpson 1,028 112,067 C. Angus Wurtele 1,171 120,142
Compensation Table for AXP VP - Growth Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $888 $131,867 Lynne V. Cheney 858 121,033 Heinz F. Hutter 838 123,792 Anne P. Jones 838 120,867 William R. Pearce 617 111,792 Alan K. Simpson 667 112,067 C. Angus Wurtele 738 120,142
Compensation Table for AXP VP - International Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $2,271 $131,867 Lynne V. Cheney 2,097 121,033 Heinz F. Hutter 2,146 123,792 Anne P. Jones 2,101 120,867 William R. Pearce 1,975 111,792 Alan K. Simpson 1,980 112,067 C. Angus Wurtele 2,096 120,142
Compensation Table for AXP VP - Managed Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $3,446 $131,867 Lynne V. Cheney 3,220 121,033 Heinz F. Hutter 3,321 123,792 Anne P. Jones 3,316 120,867 William R. Pearce 3,150 111,792 Alan K. Simpson 3,195 112,067 C. Angus Wurtele 3,271 120,142
Compensation Table for AXP VP - New Dimensions Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $2,955 $131,867 Lynne V. Cheney 2,709 121,033 Heinz F. Hutter 2,830 123,792 Anne P. Jones 2,797 120,867 William R. Pearce 2,658 111,792 Alan K. Simpson 2,675 112,067 C. Angus Wurtele 2,780 120,142
Compensation Table for AXP VP - Strategy Aggressive Fund
Total cash compensation from the Aggregate American Express Funds and Board member compensation from the Fund Preferred Master Trust Group - --------------------------------- --------------------------------- ------------------------------ H. Brewster Atwater, Jr. $2,455 $131,867 Lynne V. Cheney 2,256 121,033 Heinz F. Hutter 2,330 123,792 Anne P. Jones 2,286 120,867 William R. Pearce 2,158 111,792 Alan K. Simpson 2,164 112,067 C. Angus Wurtele 2,280 120,142
As of 30 days prior to the date of this SAI, the Fund's board members and officers as a group owned less than 1% of the outstanding shares of any class. No board compensation was paid for Diversified Equity Income, Emerging Markets, S&P 500 Index or Small Cap Advantage Funds. INDEPENDENT AUDITORS - ------------------------------------------------------------------------------- The financial statements contained in the Annual Report were audited by independent auditors, KPMG LLP, 4200 Wells Fargo Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The independent auditors also provide other accounting and tax-related services as requested by the Funds. APPENDIX A DESCRIPTION OF MONEY MARKET SECURITIES The types of instruments that form the major part of the Fund's investments are described below. Certificates of Deposit -- A certificate of deposit is a negotiable receipt issued by a bank or savings and loan association in exchange for the deposit of funds. The issuer agrees to pay the amount deposited, plus interest, on the date specified on the certificate. Time Deposit -- A time deposit is a non-negotiable deposit in a bank for a fixed period of time. Bankers' Acceptances -- A bankers' acceptance arises from a short-term credit arrangement designed to enable businesses to obtain funds to finance commercial transactions. It is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. Commercial Paper -- Commercial paper is generally defined as unsecured short-term notes issued in bearer form by large well-known corporations and finance companies. Maturities on commercial paper range from one day to nine months. Commercial paper rated A by Standard & Poor's Corporation has the following characteristics: Liquidity ratios are better than the industry average. Long-term senior debt rating is "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowances made for unusual circumstances. Typically, the issuer's industry is well established, the issuer has a strong position within its industry and the reliability and quality of management is unquestioned. Issuers rated A are further rated by use of numbers 1, 2 and 3 to denote relative strength within this highest classification. A Prime rating is the highest commercial paper rating assigned by Moody's Investors Services Inc. Issuers rated Prime are further rated by use of numbers 1, 2 and 3 to denote relative strength within this highest classification. Among the factors considered by Moody's in assigning ratings for an issuer are the following: (1) management; (2) economic evaluation of the industry and an appraisal of speculative type risks which may be inherent in certain areas; (3) competition and customer acceptance of products; (4) liquidity; (5) amount and quality of long-term debt; (6) ten year earnings trends; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Letters of Credit -- A letter of credit is a short-term note issued in bearer form with a bank letter of credit which provides that the bank pay to the bearer the amount of the note upon presentation. U.S. Treasury Bills -- Treasury bills are issued with maturities of any period up to one year. Three-month and six-month bills are currently offered by the Treasury on 13-week and 26-week cycles respectively and are auctioned each week by the Treasury. Treasury bills are issued in book entry form and are sold only on a discount basis, i.e., the difference between the purchase price and the maturity value constitutes interest income for the investor. If they are sold before maturity, a portion of the income received may be a short-term capital gain. U.S. Government Agency Securities -- Federal agency securities are debt obligations which principally result from lending programs of the U.S. government. Housing and agriculture have traditionally been the principal beneficiaries of Federal credit programs, and agencies involved in providing credit to agriculture and housing account for the bulk of the outstanding agency securities. Repurchase Agreements -- A repurchase agreement involves the acquisition of securities by the Fund, with the concurrent agreement by a bank (or securities dealer if permitted by law or regulation), to reacquire the securities at the Fund's cost, plus interest, within a specified time. The Fund thereby receives a fixed rate of return on this investment, one that is insulated from market and rate fluctuations during the holding period. In these transactions, the securities acquired by the Fund have a total value equal to or in excess of the value of the repurchase agreement and are held by the Fund's custodian until required. Floating rate instruments -- These instruments pay interest at a rate tied to an external interest rate. The rate changes whenever there is a change in the external interest rate. If AEFC becomes aware that a security owned by the Fund is downgraded below the second highest rating, AEFC will either sell the security or recommend to the Fund's board why it should not be sold. APPENDIX B 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. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainies or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category also is used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. Debt rated CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. Debt rated C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Moody's Long-Term Debt Ratings Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements--their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. SHORT-TERM RATINGS Standard & Poor's Commercial Paper Ratings A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. Standard & Poor's Note Ratings An S&P note rating reflects the liquidity factors and market-access risks unique to notes. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Moody's Short-Term Ratings Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-l (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-l repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Moody's & S&P's Short-Term Muni Bonds and Notes Short-term municipal bonds and notes are rated by Moody's and by S&P. The ratings reflect the liquidity concerns and market access risks unique to notes. Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group. Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest. Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest. APPENDIX C ADDITIONAL INFORMATION ABOUT THE INDEX AXP Variable Portfolio - S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of AXP Variable Portfolio - S&P 500 Index Fund or any member of the public regarding the advisability of investing in securities generally or in AXP Variable Portfolio - S&P 500 Index Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to AXP Variable Portfolio - S&P 500 Index Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which are determined, composed and calculated by S&P without regard to AXP Variable Portfolio - S&P 500 Index Fund. S&P has no obligation to take the needs of AXP Variable Portfolio - S&P 500 Index Fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of AXP Variable Portfolio - S&P 500 Index Fund or the timing of the issuance or sale of the fund or in the determination or calculation of the equation by which the fund's shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of AXP Variable Portfolio - S&P 500 Index Fund shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN 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 FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX 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 500 INDEX 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. Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXPSM VARIABLE PORTFOLIO - INCOME SERIES, INC. AXPSM VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXPSM VARIABLE PORTFOLIO - MANAGED SERIES, INC. AXPSM VARIABLE PORTFOLIO - MONEY MARKET SERIES, INC. We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of AXP VP - Bond Fund, AXP VP - Extra Income Fund, AXP VP - Federal Income Fund and AXP VP - Global Bond Fund (funds within AXP Variable Portfolio - Income Series, Inc.), AXP VP - Blue Chip Advantage Fund, AXP VP - Capital Resource Fund, AXP VP - Emerging Markets Fund, AXP VP - Growth Fund, AXP VP - International Fund, AXP VP - New Dimensions Fund, AXP VP - S&P 500 Index Fund, AXP VP - Small Cap Advantage Fund and AXP VP - Strategy Aggressive Fund (funds within AXP Variable Portfolio - Investment Series, Inc.), AXP VP Diversified Equity Income Fund and AXP VP - Managed Fund (funds within AXP Variable Portfolio - Managed Series, Inc.) and AXP VP Cash Management Fund, (fund within AXP Variable Portfolio - Money Market Series, Inc.), as of August 31, 2000, and the related statements of operations, statements of changes in net assets and the financial highlights for the periods presented. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP VP - - Bond Fund, AXP VP - Extra Income Fund, AXP VP - Federal Income Fund, AXP VP - Global Bond Fund, AXP VP - Blue Chip Advantage Fund, AXP VP - Capital Resource Fund, AXP VP - Emerging Markets Fund, AXP VP - Growth Fund, AXP VP International Fund, AXP VP - New Dimensions Fund, AXP VP - S&P 500 Index Fund, AXP VP - Small Cap Advantage Fund, AXP VP - Strategy Aggressive Fund, AXP VP - Diversified Equity Income Fund, AXP VP - Managed Fund and AXP VP - Cash Management Fund as of August 31, 2000 and the results of their operations, the changes in their net assets, and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota October 6, 2000
Financial Statements Statements of assets and liabilities American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Blue Chip Bond Capital Advantage Fund Resource Aug. 31, 2000 Fund Fund Assets Investments in securities, at value (Note 1): Investments in securities of unaffiliated issuers (identified cost $64,205,146, $1,530,585,949 and $3,874,711,243) $70,545,572 $1,465,175,569 $5,955,814,512 Investments in securities of affiliated issuers for AXP VP - Bond Fund (identified cost $7,812,117) -- 206,720 -- Total investments in securities (identified cost $64,205,146, $1,538,398,066 and $3,874,711,243) 70,545,572 1,465,382,289 5,955,814,512 Cash in bank on demand deposit 357,524 -- -- Receivable for investment securities sold 478,678 33,236,890 62,225,412 Dividends and accrued interest receivable 62,286 23,811,414 3,021,106 U.S. government securities held as collateral (Note 5) -- 50,255,840 -- ------------ ---------- -------------- Total assets 71,444,060 1,572,686,433 6,021,061,030 Liabilities Disbursements in excess of cash on demand deposit -- 989,396 4,336,480 Dividends payable to shareholders (Note 1) 61,541 8,609,833 -- Payable for investment securities purchased -- 28,030,842 36,049,162 Accrued investment management services fee 31,347 756,165 2,921,844 Accrued distribution fee 6,997 156,189 608,037 Accrued administrative services fee 2,239 60,463 195,660 Payable upon return of securities loaned (Note 5) -- 66,324,590 56,700,000 Other accrued expenses 29,489 162,717 409,016 ------ ------- ------- Total liabilities 131,613 105,090,195 101,220,199 ------- ----------- ----------- Net assets applicable to outstanding capital stock $71,312,447 $1,467,596,238 $5,919,840,831 =========== ============== ============== Represented by Capital stock-- $.01 par value (Note 1) $ 61,359 $ 1,426,401 $ 1,590,931 Additional paid-in capital 66,066,189 1,651,565,193 3,318,904,050 Undistributed (excess of distributions over) net investment income 586 1,473,664 1 Accumulated net realized gain (loss) (Note 9) (1,225,015) (113,821,903) 518,242,580 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) 6,409,328 (73,047,117) 2,081,103,269 --------- ----------- ------------- Total-- representing net assets applicable to outstanding capital stock $71,312,447 $1,467,596,238 $5,919,840,831 =========== ============== ============== Shares outstanding 6,135,874 142,640,055 159,093,094 --------- ----------- ----------- Net asset value per share of outstanding capital stock $ 11.62 $ 10.29 $ 37.21 ----------- -------------- -------------- See accompanying notes to financial statements.
Statements of assets and liabilities (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Cash Diversified Emerging Management Equity Income Markets Aug. 31, 2000 Fund Fund Fund Assets Investments in securities, at value (Note 1): (identified cost $783,386,853, $21,995,728 and $5,779,247) $783,386,853 $22,891,932 $5,627,003 Cash in bank on demand deposit 3,185,690 471,713 10,939 Receivable for investment securities sold -- -- 40,216 Unrealized appreciation on foreign currency contracts (Notes 1 and 4) -- -- 23 Dividends and accrued interest receivable 341,038 48,565 349 ------- ------ --- Total assets 786,913,581 23,412,210 5,678,530 ----------- ---------- --------- Liabilities Dividends payable to shareholders (Note 1) 3,920,385 60,235 -- Payable for investment securities purchased -- 549,421 59,641 Accrued investment management services fee 335,045 10,343 5,505 Accrued distribution fee 82,119 2,309 588 Accrued administrative services fee 19,709 739 470 Other accrued expenses 67,739 7,196 4,834 ------ ----- ----- Total liabilities 4,424,997 630,243 71,038 --------- ------- ------ Net assets applicable to outstanding capital stock $782,488,584 $22,781,967 $5,607,492 ============ =========== ========== Represented by Capital stock-- $.01 par value (Note 1) $ 7,828,288 $ 22,659 $ 5,836 Additional paid-in capital 774,708,095 22,152,661 5,801,504 Undistributed (excess of distributions over) net investment income (38,290) 470 -- Accumulated net realized gain (loss) (Note 9) (9,509) (290,026) (47,507) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 4) -- -- 896,203 ------------- ---------- ----------- (152,341) Total-- representing net assets applicable to outstanding capital stock $782,488,584 $22,781,967 $5,607,492 ============ =========== ========== Shares outstanding 782,828,827 2,265,882 583,605 ----------- --------- ------- Net asset value per share of outstanding capital stock $ 1.00 $ 10.05 $ 9.61 ------------ ----------- ---------- See accompanying notes to financial statements.
Statements of assets and liabilities (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Extra Federal Global Income Income Bond Aug. 31, 2000 Fund Fund Fund Assets Investments in securities, at value (Note 1): (identified cost $686,249,729, $36,467,925 and $188,158,836) $585,288,887 $36,642,815 $174,517,396 Cash in bank on demand deposit -- 414,269 80,875 Receivable for investment securities sold 2,632,740 -- 32,134 Dividends and accrued interest receivable 15,517,484 241,680 3,482,596 Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 4) -- -- 24,754 ---------- ---------- ----------- Total assets 603,439,111 37,298,764 178,137,755 ----------- ---------- ----------- Liabilities Disbursements in excess of cash on demand deposit 168,885 -- -- Dividends payable to shareholders (Note 1) 5,747,336 178,301 605,734 Payable for investment securities purchased 2,500,000 5,625 -- Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 4) -- -- 26,317 Accrued investment management services fee 312,342 19,061 127,500 Accrued distribution fee 62,972 3,906 18,973 Accrued administrative services fee 25,189 1,562 9,107 Other accrued expenses 54,760 9,970 31,890 ------ ----- ------ Total liabilities 8,871,484 218,425 819,521 --------- ------- ------- Net assets applicable to outstanding capital stock $594,567,627 $37,080,339 $177,318,234 ============ =========== ============ Represented by Capital stock-- $.01 par value (Note 1) $ 766,542 $ 37,248 $ 189,852 Additional paid-in capital 760,456,995 36,971,323 196,878,910 Undistributed (excess of distributions over) net investment income (953,626) 2,307 (69,768) Accumulated net realized gain (loss) (Note 9) (64,741,442) (81,013) (5,922,719) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Notes 4 and 7) (100,960,842) 150,474 (13,758,041) ------------ ------- ----------- Total-- representing net assets applicable to outstanding capital stock $594,567,627 $37,080,339 $177,318,234 ============ =========== ============ Shares outstanding 76,654,201 3,724,826 18,985,219 ---------- --------- ---------- Net asset value per share of outstanding capital stock $ 7.76 $ 9.95 $ 9.34 ------------ ----------- ------------ See accompanying notes to financial statements.
Statements of assets and liabilities (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Growth International Managed Aug. 31, 2000 Fund Fund Fund Assets Investments in securities, at value (Note 1): (identified cost $174,146,335, $2,116,151,016 and $3,781,283,397) $197,137,954 $2,388,148,873 $5,342,800,244 Cash in bank on demand deposit (including foreign currency holdings of $28,739,848 for AXP VP - International Fund) 44,668 28,739,848 -- Receivable for investment securities sold -- 67,438,771 36,456,254 Dividends and accrued interest receivable 46,664 5,327,198 27,113,326 Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 4) -- 1,468 -- U.S. government securities held as collateral (Note 5) -- -- 119,075,048 ----------- ------------- ----------- Total assets 197,229,286 2,489,656,158 5,525,444,872 ----------- ------------- ------------- Liabilities Disbursements in excess of cash on demand deposit -- 564,792 1,971,316 Dividends payable to shareholders (Note 1) -- -- 31,811,295 Payable for investment securities purchased 2,314,122 19,371,398 74,247,516 Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 4) -- 19,311 -- Accrued investment management services fee 92,181 1,659,913 2,569,316 Accrued distribution fee 18,290 252,003 545,336 Accrued administrative services fee 7,316 89,618 114,781 Payable upon return of securities loaned (Note 5) -- 78,572,200 186,405,648 Other accrued expenses 34,617 372,432 315,386 Option contracts written at value (premium received, $4,489,434 for AXP VP - Managed Fund) (Note 8) -- -- 4,544,293 ---------- ----------- ----------- Total liabilities 2,466,526 100,901,667 302,524,887 --------- ----------- ----------- Net assets applicable to outstanding capital stock $194,762,760 $2,388,754,491 $5,222,919,985 ============ ============== ============== Represented by Capital stock -- $.01 par value ($.001 for AXP VP - Managed Fund) (Note 1) $ 144,731 $ 1,406,992 $ 250,956 Additional paid-in capital 173,693,767 1,707,684,351 3,372,077,276 Undistributed (excess of distributions over) net investment income -- 18,120 (8,517,689) Accumulated net realized gain (loss) (Note 9) (2,067,357) 408,041,324 297,669,778 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 4) 22,991,619 271,603,704 1,561,439,664 ---------- ----------- ------------- Total-- representing net assets applicable to outstanding capital stock $194,762,760 $2,388,754,491 $5,222,919,985 ============ ============== ============== Shares outstanding 14,473,073 140,699,238 250,956,171 ---------- ----------- ----------- Net asset value per share of outstanding capital stock $ 13.46 $ 16.98 $ 20.81 ------------ -------------- -------------- See accompanying notes to financial statements.
Statements of assets and liabilities (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - New S&P 500 Small Cap Dimensions Index Advantage Aug. 31, 2000 Fund Fund Fund Assets Investments in securities, at value (Note 1): (identified cost $3,643,183,595, $20,905,752 and $28,266,784) $5,578,248,104 $21,611,940 $30,600,069 Cash in bank on demand deposit 2,798,942 64,907 353,310 Receivable for investment securities sold -- 1,844,600 593,122 Dividends and accrued interest receivable 3,422,303 22,988 11,964 --------- ------ ------ Total assets 5,584,469,349 23,544,435 31,558,465 ------------- ---------- ---------- Liabilities Dividends payable to shareholders (Note 1) 1,506,933 26,001 -- Payable for investment securities purchased 15,013,435 2,501,976 422,473 Accrued investment management and services fee 2,723,630 4,565 18,600 Accrued distribution fee 565,684 1,967 2,943 Accrued administrative services fee 183,801 1,259 1,413 Other accrued expenses 253,456 -- 11,888 ------- -------- ------ Total liabilities 20,246,939 2,535,768 457,317 ---------- --------- ------- Net assets applicable to outstanding capital stock $5,564,222,410 $21,008,667 $31,101,148 ============== =========== =========== Represented by Capital stock-- $.01 par value $ 2,222,698 $ 20,244 $ 24,715 Additional paid-in capital 3,284,915,860 20,223,305 27,812,488 Undistributed (excess of distributions over) net investment income (182,317) 3,799 906 Accumulated net realized gain (loss) (Note 9) 342,201,660 55,131 897,213 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) 1,935,064,509 706,188 2,365,826 ------------- ------- --------- Total-- representing net assets applicable to outstanding capital stock $5,564,222,410 $21,008,667 $31,101,148 ============== =========== =========== Shares outstanding 222,269,788 2,024,382 2,471,535 ----------- --------- --------- Net asset value per share of outstanding capital stock $ 25.03 $ 10.38 $ 12.58 -------------- ----------- ----------- See accompanying notes to financial statements.
Statements of assets and liabilities (continued) American Express Variable Portfolio Funds AXP VP - Strategy Aggressive Aug. 31, 2000 Fund Assets Investments in securities, at value (Note 1): (identified cost $3,238,420,718) $4,494,185,632 Cash in bank on demand deposit -- Receivable for investment securities sold 36,394,643 Dividends and accrued interest receivable 1,406,324 U.S. government securities held as collateral (Note 5) 54,796,603 ---------- Total assets 4,586,783,202 ------------- Liabilities Disbursements in excess of cash on demand deposit 2,066,919 Dividends payable to shareholders (Note 1) 6,259 Payable for investment securities purchased 158,021,794 Accrued investment management and services fee 1,881,608 Accrued distribution fee 398,732 Accrued administrative services fee 127,458 Payable upon return of securities loaned (Note 5) 225,237,403 Other accrued expenses 239,499 Option contracts written at value (premium received, $2,699,886 for AXP VP - Strategy Aggressive Fund) (Note 8) 1,909,268 --------- Total liabilities 389,888,940 ----------- Net assets applicable to outstanding capital stock $4,196,894,262 ============== Represented by Capital stock-- $.01 par value $ 1,508,867 Additional paid-in capital 1,968,348,271 Undistributed net investment income 1,122,817 Accumulated net realized gain (loss) (Note 9) 959,379,043 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) 1,266,535,264 ------------- Total-- representing net assets applicable to outstanding capital stock $4,196,894,262 ============== Shares outstanding 150,886,656 ----------- Net asset value per share of outstanding capital stock $ 27.82 -------------- See accompanying notes to financial statements.
Statements of operations American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Blue Chip Bond Capital Advantage Fund Resource Year ended Aug. 31, 2000 Fund* Fund Investment income Income: Dividends $ 295,069 $ 2,377,401 $ 36,984,995 Interest 111,381 127,189,762 6,775,560 Less foreign taxes witheld (86) -- (30,539) --- ----------- ------- Total income 406,364 129,567,163 43,730,016 ------- ----------- ---------- Expenses (Note 2): Investment management services fee 175,456 9,660,825 35,047,411 Distribution fee 39,353 1,878,652 6,909,209 Administrative services fees and expenses 12,604 859,265 2,403,552 Custodian fees 55,233 129,815 229,238 Compensation of board members 5,444 12,472 24,792 Printing and postage 3,662 104,456 421,214 Audit fees 13,000 23,750 23,000 Other -- 15,454 5,005 -------- ------ ------- Total expenses 304,752 12,684,689 45,063,421 Less expenses reimbursed by AEFC (Note 2) (5,467) -- -- ------ ---------- ---------- 299,285 12,684,689 45,063,421 Earnings credits on cash balances (Note 2) (8) (60) (772) -- --- ---- Total net expenses 299,277 12,684,629 45,062,649 ------- ---------- ---------- Investment income (loss)-- net 107,087 116,882,534 (1,332,633) ------- ----------- ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (1,390,382) (54,661,929) 521,098,266 Futures contracts 165,482 765,307 -- Foreign currency transactions -- 47,942 -- Options contracts written (Note 8) -- -- 334,814 ---------- ----------- ------- Net realized gain (loss) on investments (1,224,900) (53,848,680) 521,433,080 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,455,361 9,693,956 506,731,364 --------- --------- ----------- Net gain (loss) on investments and foreign currencies 5,230,461 (44,154,724) 1,028,164,444 --------- ----------- ------------- Net increase (decrease) in net assets resulting from operations $ 5,337,548 $ 72,727,810 $1,026,831,811 =========== ============ ============== * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. See accompanying notes to financial statements.
Statements of operations (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Cash Diversified Emerging Management Equity Income Markets Year ended Aug. 31, 2000 Fund Fund* Fund** Investment income Income: Dividends $ -- $ 215,590 $ 15,121 Interest 46,141,419 52,425 10,053 Less foreign taxes withheld -- (17) (811) ---------- --- ---- Total income 46,141,419 267,998 24,363 ---------- ------- ------ Expenses (Note 2): Investment management services fee 3,873,812 63,161 20,657 Distribution fee 901,836 14,034 2,207 Administrative services fees and expenses 234,322 4,502 1,766 Custodian fees 66,602 72,028 2,895 Compensation of board members 9,588 -- -- Printing and postage 53,119 1,831 3,200 Audit fees 17,750 13,000 13,500 Other 8,222 -- -- ----- ------- ------- Total expenses 5,165,251 168,556 44,225 Less expenses reimbursed by AEFC (Note 2) -- (61,020) (13,295) --------- ------- ------- 5,165,251 107,536 30,930 Earnings credits on cash balances (Note 2) (18) (190) -- --- ---- ------ Total net expenses 5,165,233 107,346 30,930 --------- ------- ------ Investment income (loss)-- net 40,976,186 160,652 (6,567) ---------- ------- ------ Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (298) (290,026) (47,507) Futures contracts -- -- 391 Foreign currency transactions -- 466 -- ------- ----- ------- Net realized gain (loss) on investments (298) (289,560) (47,116) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies -- 945,865 (265,835) -------- ------- -------- Net gain (loss) on investments and foreign currencies (298) 656,305 (312,951) ---- ------- -------- Net increase (decrease) in net assets resulting from operations $40,975,888 $ 816,957 $(319,518) =========== ========= ========= * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. See accompanying notes to financial statements.
Statements of operations (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Extra Federal Global Income Income Bond Year ended Aug. 31, 2000 Fund Fund* Fund Investment income Income: Dividends $ 5,779,786 $ -- $ -- Interest 63,225,368 1,639,781 11,022,386 ========== ========= ========== Total income 69,005,154 1,639,781 11,022,386 ---------- --------- ---------- Expenses (Note 2): Investment management services fee 3,823,199 156,447 1,574,254 Distribution fee 727,332 31,887 220,760 Administrative services fees and expenses 350,383 12,824 113,263 Custodian fees 62,435 6,364 49,448 Compensation of board members 9,305 5,444 8,186 Printing and postage 42,149 1,831 14,648 Audit fees 19,000 13,500 17,000 Other 7,474 -- 2,639 ----- ------- ----- Total expenses 5,041,277 228,297 2,000,198 Less expenses reimbursed by AEFC (Note 2) -- (3,459) -- --------- ------ --------- 5,041,277 224,838 2,000,198 Earnings credits on cash balances (Note 2) (51) (202) (654) --- ---- ---- Total net expenses 5,041,226 224,636 1,999,544 --------- ------- --------- Investment income (loss)-- net 63,963,928 1,415,145 9,022,842 ---------- --------- --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (36,041,910) (37,143) (4,141,686) Futures contracts -- (43,870) -- Foreign currency transactions 474 -- 270,508 --- ------- ------- Net realized gain (loss) on investments (36,041,436) (81,013) (3,871,178) on investments and on translation of assets and liabilities in foreign currencies (37,938,667) 138,567 (8,771,892) ----------- ------- ---------- Net gain (loss) on investments and foreign currencies (73,980,103) 57,554 (12,643,070) ----------- ------ ----------- Net increase (decrease) in net assets resulting from operations $(10,016,175) $1,472,699 $ (3,620,228) ============ ========== ============= * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. See accompanying notes to financial statements.
Statements of operations (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - Growth International Managed Year ended Aug. 31, 2000 Fund* Fund Fund Investment income Income: Dividends $ 266,617 $ 26,261,504 $ 24,811,063 Interest 372,638 8,937,643 137,174,452 Less foreign taxes withheld (156) (2,894,560) (59,682) ---- ---------- ------- Total income 639,099 32,304,587 161,925,833 ------- ---------- ----------- Expenses (Note 2): Investment management services fee 479,607 20,495,043 30,522,651 Distribution fee 92,803 2,962,550 6,131,578 Administrative services fees and expenses 37,134 1,122,452 1,441,406 Custodian fees 92,307 690,257 337,155 Compensation of board members -- 14,668 22,921 Printing and postage 5,850 173,986 369,945 Audit fees 13,500 20,750 21,500 Other -- 4,306 14,557 ------ ----- ------ Total expenses 721,201 25,484,012 38,861,713 Less expenses reimbursed by AEFC (Note 2) (13,659) -- -- ------- ---------- ---------- 707,542 25,484,012 38,861,713 Earnings credits on cash balances (Note 2) (268) (1,990) (39) ---- ------ --- Total net expenses 707,274 25,482,022 38,861,674 ------- ---------- ---------- Investment income (loss)-- net (68,175) 6,822,565 123,064,159 ------- --------- ----------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (2,067,357) 416,788,233 306,580,263 Foreign currency transactions -- (9,612,055) (17,784) Futures contracts -- (5,166,145) -- Options contracts written (Note 8) -- -- 2,551,472 ---------- ----------- --------- Net realized gain (loss) on investments (2,067,357) 402,010,033 309,113,951 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 23,048,568 (80,050,249) 444,957,506 ---------- ----------- ----------- Net gain (loss) on investments and foreign currencies 20,981,211 321,959,784 754,071,457 ---------- ----------- ----------- Net increase (decrease) in net assets resulting from operations $20,913,036 $328,782,349 $877,135,616 =========== ============ ============ * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. See accompanying notes to financial statements.
Statements of operations (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - AXP VP - New S&P 500 Small Cap Dimensions Index Advantage Year ended Aug. 31, 2000 Fund Fund** Fund* Investment income Income: Dividends $ 26,192,635 $ 58,900 $ 72,829 Interest 17,181,138 1,305 55,450 Less foreign taxes withheld (7,267) (576) -- ------ ---- Total income 43,366,506 59,629 128,279 ---------- ------ ------- Expenses (Note 2): Investment management services fee 28,032,830 13,965 102,222 Distribution fee 5,550,496 6,019 16,815 Administrative services fees and expenses 1,961,986 3,852 8,095 Custodian fees 311,881 37,705 51,213 Compensation of board members 19,403 -- -- Printing and postage 367,993 3,200 1,831 Audit fees 22,750 13,000 13,000 Other 8,619 -- -- ----- ------ ------- Total expenses 36,275,958 77,741 193,176 Less expenses reimbursed by AEFC (Note 2) -- (53,905) (31,689) ---------- ------- ------- 36,275,958 23,836 161,487 Earnings credits on cash balances (Note 2) (96) -- (132) --- ------ ---- Total net expenses 36,275,862 23,836 161,355 ---------- ------ ------- Investment income (loss)-- net 7,090,644 35,793 (33,076) --------- ------ ------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 343,690,031 55,131 1,036,011 Futures contracts -- -- (56,082) Foreign currency transactions (66,198) -- -- Options contracts written (Note 8) 77,500 -- -- ------ ------- -------- Net realized gain (loss) on investments 343,701,333 55,131 979,929 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 951,943,591 656,987 2,398,169 ----------- ------- --------- Net gain (loss) on investments and foreign currencies 1,295,644,924 712,118 3,378,098 ------------- ------- --------- Net increase (decrease) in net assets resulting from operations $1,302,735,568 $747,911 $3,345,022 ============== ======== ========== * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. See accompanying notes to financial statements.
Statements of operations (continued) American Express Variable Portfolio Funds AXP VP - Strategy Aggressive Year ended Aug. 31, 2000 Fund Investment income Income: Dividends $ 4,182,299 Interest 23,706,853 Less foreign taxes withheld (29,796) ------- Total income 27,859,356 ---------- Expenses (Note 2): Investment management services fee 20,341,387 Distribution fee 4,129,613 Administrative services fees and expenses 1,430,593 Custodian fees 328,642 Compensation of board members 15,929 Printing and postage 263,434 Audit fees 17,750 Other 8,135 ----- Total expenses 26,535,483 Less expenses reimbursed by AEFC (Note 2) -- ----------- 26,535,483 Earnings credits on cash balances (Note 2) (645) ---- Total net expenses 26,534,838 ---------- Investment income (loss) -- net 1,324,518 --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 963,715,937 Futures contracts (4,662,421) Foreign currency transactions (168,342) Options contracts written (Note 8) 6,339,024 --------- Net realized gain (loss) on investments 965,224,198 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 971,335,686 ----------- Net gain (loss) on investments and foreign currencies 1,936,559,884 ------------- Net increase (decrease) in net assets resulting from operations $1,937,884,402 -------------- See accompanying notes to financial statements.
Statements of changes in net assets American Express Variable Portfolio Funds AXP VP - Blue Chip Advantage Fund AXP VP - Bond Fund Aug. 31, 2000 Aug. 31, 2000 Aug. 31, 1999 Period ended * Year ended Year ended Operations and distributions Investment income (loss)-- net $ 107,087 $ 116,882,534 $ 133,946,467 Net realized gain (loss) on investments (1,224,900) (53,848,680) (59,672,912) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 6,455,361 9,693,956 (28,854,381) --------- --------- ----------- Net increase (decrease) in net assets resulting from operations 5,337,548 72,727,810 45,419,174 --------- ---------- ---------- Distributions to shareholders from: Net investment income (108,611) (115,516,198) (129,854,610) Net realized gain -- -- (4,108,552) --------- ------------ ---------- Total distributions (108,611) (115,516,198) (133,963,162) -------- ------------ ------------ Capital share transactions (Note 6) Proceeds from sales 67,771,142 114,752,390 106,635,029 Reinvestment of distributions at net asset value 47,070 106,906,365 133,963,162 Payments for redemptions (3,690,078) (461,561,788) (254,262,401) ---------- ------------ ------------ Increase (decrease) in net assets from capital share transactions 64,128,134 (239,903,033) (13,664,210) ---------- ------------ ----------- Total increase (decrease) in net assets 69,357,071 (282,691,421) (102,208,198) Net assets at beginning of year 1,955,376** 1,750,287,659 1,852,495,857 --------- ------------- ------------- Net assets at end of year $ 71,312,447 $1,467,596,238 $1,750,287,659 ============= ============== ============== Undistributed net investment income $ 586 $ 1,473,664 $ 1,473,065 ------------- -------------- -------------- * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** Initial capital of $2,000,000 was contributed on Sept. 10, 1999. The Fund had a decrease in net assets resulting from operations of $44,624 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available). AXP VP - Capital Resource Fund AXP VP - Cash Management Fund Year ended Aug. 31, 2000 1999 2000 1999 Operations and distributions Investment income (loss)-- net $ (1,332,633) $ 9,103,562 $ 40,976,186 $ 25,541,730 Net realized gain (loss) on investments 521,433,080 572,334,253 (298) (6,680) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 506,731,364 1,167,038,381 -- -- ----------- ------------- ----------- ---------- Net increase (decrease) in net assets resulting from operations 1,026,83,811 1,748,476,196 40,975,888 25,535,050 ------------ ------------- ---------- ---------- Distributions to shareholders from: Net investment income -- (9,103,562) (41,014,556) (25,541,732) Net realized gain (573,191,093) (401,677,258) -- -- ------------ ------------ Total distributions (573,191,093) (410,780,820) (41,014,556) (25,541,732) ------------ ------------ ----------- ----------- Capital share transactions (Note 6) Proceeds from sales 161,522,332 84,199,124 1,024,273,156 603,358,465 Reinvestment of distributions at net asset value 573,191,093 410,780,820 37,095,171 25,541,732 Payments for redemptions (889,079,855) (665,014,906) (968,460,693) (367,134,897) ------------ ------------ ------------ ------------ Increase (decrease) in net assets from capital share transactions (154,366,430) (170,034,962) 92,907,634 261,765,300 ------------ ------------ ---------- ----------- Total increase (decrease) in net assets 299,274,288 1,167,660,414 92,868,966 261,758,618 Net assets at beginning of year 5,620,566,543 4,452,906,129 689,619,618 427,861,000 ------------- ------------- ----------- ----------- Net assets at end of year $5,919,840,831 $5,620,566,543 $ 782,488,584 $ 689,619,618 ============== ============== =============== ============== Undistributed (excess of distributions over) net investment income $ 1 $ (61,479) $ (38,290) $ 80 -------------- -------------- --------------- -------------- See accompanying notes to financial statements.
Statements of changes in net assets (continued) American Express Variable Portfolio Funds AXP VP - AXP VP - Diversified Equity Emerging Income Fund Markets Fund Aug. 31 2000 Aug. 31, 2000 Period ended* Period ended** Operations and distributions Investment income (loss)-- net $ 160,652 $ (6,567) Net realized gain (loss) on investments (289,560) (47,116) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 945,865 (265,835) ------- -------- Net increase (decrease) in net assets resulting from operations 816,957 (319,518) ------- -------- Distributions to shareholders from: Net investment income (162,618) -- Tax return of capital -- (4,272) ------- ------ Total distributions (162,618) (4,272) Capital share transactions (Note 6) Proceeds from sales 23,715,662 3,356,229 Reinvestment of distributions at net asset value 102,383 4,272 Payments for redemptions (3,642,255) (2,546,345) ---------- ---------- Increase (decrease) in net assets from capital share transactions 20,175,790 814,156 ---------- ------- Total increase (decrease) in net assets 20,830,129 490,366 Net assets at beginning of year 1,951,838*** 5,117,126**** --------- --------- Net assets at end of year $22,781,967 $ 5,607,492 =========== ============ Undistributed net investment income $ 470 $ -- ----------- ---------- * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. *** Initial capital of $2,000,000 was contributed on Sept. 10, 1999. The Fund had a decrease in net assets resulting from operations of $48,162 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available). **** Initial capital of $5,000,000 was contributed on April 26, 2000. The Fund had an increase in net assets resulting from operations of $117,126 during the period from April 26, 2000 to May 1, 2000 (date the Fund became available). AXP VP - Extra AXP VP - Federal Income Fund Income Fund Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000 Year ended Year ended Period ended* Operations and distributions Investment income (loss) -- net $ 63,963,928 $ 61,117,522 $ 1,415,145 Net realized gain (loss) on investments (36,041,436) (29,699,969) (81,013) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (37,938,667) (14,674,862) 138,567 ----------- ----------- ------- Net increase (decrease) in net assets resulting from operations (10,016,175) 16,742,691 1,472,699 ----------- ---------- --------- Distributions to shareholders from: Net investment income (63,640,261) (61,060,060) (1,420,833) Net realized gain -- (6,531,786) -- ----------- ---------- ---------- Total distributions (63,640,261) (67,591,846) (1,420,833) ----------- ----------- ---------- Capital share transactions (Note 6) Proceeds from sales 111,860,734 88,193,720 51,592,615 Reinvestment of distributions at net asset value 57,892,926 67,591,846 1,249,119 Payments for redemptions (139,567,473) (31,179,532) (25,830,856) ------------ ----------- ----------- Increase (decrease) in net assets from capital share transactions 30,186,187 124,606,034 27,010,878 ---------- ----------- ---------- Total increase (decrease) in net assets (43,470,249) 73,756,879 27,062,744 Net assets at beginning of year 638,037,876 564,280,997 10,017,595** ----------- ----------- ---------- Net assets at end of year $ 594,567,627 $638,037,876 $ 37,080,339 ============= ============ =============== Undistributed (excess of distributions over) net investment income $ (953,626) $ (674,915) $ 2,307 ------------- ------------ --------------- * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** Initial capital of $10,000,000 was contributed on Sept 10, 1999. The fund has a increase in net assets resulting from operations of $17,595 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available). See accompanying notes to financial statements.
Statements of changes in net assets (continued) American Express Variable Portfolio Funds AXP VP - Global AXP VP - Bond Fund Growth Fund Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000 Year ended Year ended Period ended * Operations and distributions Investment income (loss)-- net $ 9,022,842 $ 10,780,290 $ (68,175) Net realized gain (loss) on investments (3,871,178) (5,258,630) (2,067,357) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (8,771,892) (1,292,387) 23,048,568 ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations (3,620,228) 4,229,273 20,913,036 ---------- --------- ---------- Distributions to shareholders from: Net investment income (6,087,281) (10,036,136) -- Net realized gain -- (60,153) -- Tax return of capital -- -- (21,500) ---------- ---------- ------- Total distributions (6,087,281) (10,096,289) (21,500) ---------- ----------- ------- Capital share transactions (Note 6) Proceeds from sales 27,391,610 26,082,577 176,740,005 Reinvestment of distributions at net asset value 5,481,547 10,096,289 21,500 Payments for redemptions (43,273,645) (16,223,051) (4,834,742) ----------- ----------- ---------- Increase (decrease) in net assets from capital share transactions (10,400,488) 19,955,815 171,926,763 ----------- ---------- ----------- Total increase (decrease) in net assets (20,107,997) 14,088,799 192,818,299 Net assets at beginning of year 197,426,231 183,337,432 1,944,461** ----------- ----------- --------- Net assets at end of year $177,318,234 $197,426,231 $194,762,760 ============ ============ ============ Undistributed (excess of distributions over) net investment income $ (69,768) $ (366,177) $ -- ------------ ------------ ---------- * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** Initial capital of $2,000,000 was contributed on Sept. 10, 1999. The fund had a decrease in net assets resulting from operations of $55,539 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available). AXP VP - International Fund AXP VP - Managed Fund Year ended Aug. 31, 2000 1999 2000 1999 Operations and distributions Investment income (loss)-- net $ 6,822,565 $ 14,983,400 $ 123,064,159 $ 131,674,116 Net realized gain (loss) on investments 402,010,033 350,164,528 309,113,951 212,352,905 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (80,050,249) 64,235,687 444,957,506 655,721,269 ----------- ---------- ----------- ----------- Net increase (decrease) in net assets resulting from operations 328,782,349 429,383,615 877,135,616 999,748,290 ----------- ----------- ----------- ----------- Distributions to shareholders from: Net investment income -- (8,959,567) (123,017,644) (131,267,722) Net realized gain (358,133,126) (10,584,503) (227,051,206) (431,748,610) ------------ ----------- ------------ ------------ Total distributions (358,133,126) (19,544,070) (350,068,850) (563,016,332) ------------ ----------- ------------ ------------ Capital share transactions (Note 6) Proceeds from sales 320,452,991 189,648,648 187,325,532 130,228,291 Reinvestment of distributions at net asset value 358,133,126 19,544,070 318,257,555 563,016,332 Payments for redemptions (481,511,642) (420,734,802) (855,460,704) (497,199,202) ------------ ------------ ------------ ------------ Increase (decrease) in net assets from capital share transactions 197,074,475 (211,542,084) (349,877,617) 196,045,421 ----------- ------------ ------------ ----------- Total increase (decrease) in net assets 167,723,698 198,297,461 177,189,149 632,777,379 Net assets at beginning of year 2,221,030,793 2,022,733,332 5,045,730,836 4,412,953,457 ------------- ------------- ------------- ------------- Net assets at end of year $2,388,754,491 $2,221,030,793 $5,222,919,985 $5,045,730,836 ============== ============== ============== ============== Undistributed (excess of distributions over) net investment income $ 18,120 $ 214,311 $ (8,517,689) $ (8,256,690) -------------- -------------- -------------- -------------- See accompanying notes to financial statements.
Statements of changes in net assets (continued) American Express Variable Portfolio Funds AXP VP - New Dimensions Fund AXP VP - S&P 500 Index Fund Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000 Year ended Year ended Period ended* Operations and distributions Investment income (loss)-- net $ 7,090,644 $ 9,929,837 $ 35,793 Net realized gain (loss) on investments 343,701,333 32,818,556 55,131 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 951,943,591 838,085,236 656,987 ----------- ----------- ------- Net increase (decrease) in net assets resulting from operations 1,302,735,568 880,833,629 747,911 ------------- ----------- ------- Distributions to shareholders from: Net investment income (7,206,757) (9,929,837) (45,004) Net realized gain (34,324,740) (2,459,211) -- ----------- ---------- --------- Total distributions (41,531,497) (12,389,048) (45,004) ----------- ----------- ------- Capital share transactions (Note 6) Proceeds from sales 855,882,656 744,395,091 10,618,952 Reinvestment of distributions at net asset value 40,024,565 12,389,048 19,003 Payments for redemptions (131,113,528) (46,528,713) (390,158) ------------ ----------- -------- Increase (decrease) in net assets from capital share transactions 764,793,693 710,255,426 10,247,797 ----------- ----------- ---------- Total increase (decrease) in net assets 2,025,997,764 1,578,700,007 10,950,704 Net assets at beginning of year 3,538,224,646 1,959,524,639 10,057,963** ------------- ------------- ---------- Net assets at end of year $5,564,222,410 $3,538,224,646 $21,008,667 ============== ============== =========== Undistributed (excess of distributions over) net investment income $ (182,317) $ (7) $ 3,799 -------------- -------------- ----------- * For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. ** Initial capital of $10,000,000 was contributed on April 26, 2000. The Fund had an increase in net assets resulting from operations of $57,963 during the period from April 26, 2000 to May 1, 2000 (date the Fund became available).
AXP VP - Small Cap Advantage Fund AXP VP - Strategy Aggressive Fund Aug. 31, 2000 Aug. 31, 2000 Aug. 31, 1999 Period ended* Year ended Year ended Operations and distributions Investment income (loss)-- net $ (33,076) $ 1,324,518 $ 7,129,382 Net realized gain (loss) on investments 979,929 965,224,198 260,100,632 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 2,398,169 971,335,686 400,514,769 --------- ----------- ----------- Net increase (decrease) in net assets resulting from operations 3,345,022 1,937,884,402 667,744,783 --------- ------------- ----------- Distributions to shareholders from: Net investment income -- (6,259) (7,142,316) Net realized gain (51,500) (252,883,137) (148,760,451) ------- ------------ ------------ Total distributions (51,500) (252,889,396) (155,902,767) ------- ------------ ------------ Capital share transactions (Note 6) Proceeds from sales 31,835,984 355,616,461 69,869,156 Reinvestment of distributions at net asset value 51,500 254,972,408 155,902,767 Payments for redemptions (7,049,658) (426,011,593) (385,883,333) ---------- ------------ ------------ Increase (decrease) in net assets from capital share transactions 24,837,826 184,577,276 (160,111,410) ---------- ----------- ------------ Total increase (decrease) in net assets 28,131,348 1,869,572,282 351,730,606 Net assets at beginning of year 2,969,800** 2,327,321,980 1,975,591,374 --------- ------------- ------------- Net assets at end of year $ 31,101,148 $4,196,894,262 $2,327,321,980 ============ ============== ============== Undistributed (excess of distributions over) net investment income $ 906 $ 1,122,817 $ (27,100) ------------ -------------- -------------- * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** Initial capital of $3,000,000 was contributed on Sept. 10, 1999. The Fund had a decrease in net assets resulting from operations of $30,200 during the period from Sept. 10, 1999 to Sept. 15, 1999 (date the Fund became available). See accompanying notes to financial statements.
Notes to Financial Statements American Express Variable Portfolio Funds 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Each Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, (non-diversified for AXP VP - Global Bond Fund) open-end management investment company. Each Fund has 10 billion authorized shares of capital stock. The following Funds became available Sept. 15, 1999. Prior to this date, American Express Financial Corporation (AEFC) purchased the following shares of capital stock, which represented the initial capital in each Fund at $10.00 per share: Fund Number of shares AXP VP - Blue Chip Advantage Fund 200,000 AXP VP - Diversified Equity Income Fund 200,000 AXP VP - Federal Income Fund 1,000,000 AXP VP - Growth Fund 200,000 AXP VP - Small Cap Advantage Fund 300,000 The following Funds became available on May 1, 2000. Prior to this date, American Express Financial Corporation (AEFC) purchased the following shares of capital stock, which represented the initial capital in each Fund at $10.00 per share: Fund Number of shares AXP VP - Emerging Markets Fund 500,000 AXP VP - S&P 500 Index Fund 1,000,000 The primary investments of each Fund are as follows: AXP VP - Blue Chip Advantage Fund invests primarily in common stocks of companies that are included in the S&P 500; AXP VP - Bond Fund invests primarily in bonds and other debt obligations; AXP VP - Capital Resource Fund invests primarily in U.S. common stocks and other securities convertible into common stock; AXP VP - Cash Management Fund invests primarily in money market securities; AXP VP - Diversified Equity Income Fund invests primarily in equity securities; AXP VP - Emerging Markets Fund invest primarily in equity securities of companies in emerging market countries; AXP VP - Extra Income Fund invests primarily in high-yielding, high risk corporate bonds (junk bonds) issued by U.S. and foreign companies and governments; AXP VP - Federal Income Fund invests primarily in debt obligations; AXP VP - Global Bond Fund invests primarily in debt securities of U.S. and foreign issuers; AXP VP - Growth Fund invest primarily in common stocks and securities convertible into common stocks that appear to offer growth opportunities; AXP VP - International Fund invests primarily in equity securities of foreign issuers that offer strong growth potential; AXP VP - Managed Fund invests primarily in a combination of common and preferred stocks, convertible securities, bonds and other debt securities; AXP VP - New Dimensions Fund invests primarily in common stocks showing potential for significant growth; AXP VP - S&P 500 Index Fund invests primarily in securities that are expected to provide investment results that correspond to the performance of the Standard & Poor's 500 Composite Price Index (S&P 500); AXP VP - Small Cap Advantage Fund invests primarily in equity securities; AXP VP - Strategy Aggressive Fund invests primarily in securities of growth companies. Shares of each Fund are sold through the purchase of a variable annuity contract or life insurance policy. The Fund's significant accounting policies are summarized as follows: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities in all Funds, except AXP VP - Cash Management Fund, maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on the current interest rates; those maturing in 60 days or less are valued at amortized cost. Pursuant to Rule 2a-7 of the 1940 Act, all securities in AXP VP - Cash Management Fund are valued at amortized cost which approximates market value in order to maintain a constant net asset value of $1 per share. Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Funds, except AXP VP - Cash Management Fund, may buy and sell put and call options and write covered call options on portfolio securities and write cash-secured puts. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Funds may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Funds, except AXP VP - Cash Management Fund, may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Funds also may buy or write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Funds, except AXP VP - Cash Management Fund, may enter into forward foreign currency exchange contracts for operational purposes. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Funds and the resulting unrealized appreciation and/or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Funds are subject to the credit risk that the other party will not complete its contract obligations. Illiquid securities As of Aug. 31, 2000, investments in securities for AXP VP - Bond Fund, AXP VP - Extra Income Fund, AXP VP - Global Bond Fund and AXP VP - Strategy Aggressive Fund included issues that are illiquid which these Funds currently limit to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities as of Aug. 31, 2000, was $10,772,854, $15,906,765, $951,147 and $122,410,159 representing 0.73%, 2.68%, 0.54% and 2.92% of net assets for AXP VP - - Bond Fund, AXP VP - Extra Income Fund, AXP VP - Global Bond Fund and AXP VP - Strategy Aggressive Fund, respectively. According to the board guidelines certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Securities purchased on a when-issued basis Delivery and payment for securities that have been purchased by AXP VP - Bond Fund and AXP VP - Managed Fund on a forward-commitment or when-issued basis can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations and they may affect the Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its commitment. As of Aug. 31, 2000, AXP VP - Bond Fund, and AXP VP - Managed Fund had entered into outstanding when-issued or forward commitments of $14,956,250, and $47,945,486, respectively. Federal taxes Each Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to the Variable Accounts. No provision for income or excise taxes is thus required. Each Fund is treated as a separate entity for federal income tax purposes. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, the timing and amount of market discount recognized as ordinary income, foreign tax credits and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. The effect on dividend distributions of certain book-to-tax differences is presented as "excess distributions" in the statement of changes in net assets. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) are recorded by the Funds. On the statements of assets and liabilities, as a result of permanent book-to-tax differences, accumulated net realized gain (loss) and undistributed net investment income have been increased (decreased), resulting in net reclassification adjustments to additional paid-in-capital by the following: AXP VP - AXP VP - AXP VP - Blue Chip Bond Capital Advantage Fund Resources Fund Fund Accumulated net realized gain (loss) $-- $(1,365,737) $(61,480) Undistributed net investment income 586 (1,365,737) 1,394,113 --- ---------- --------- Additional paid-in capital reduction (increase) $586 $-- $1,332,633 ---- ---------- ---------- AXP VP - AXP VP - AXP VP - Cash Diversified Emerging Management Equity Markets Fund Fund Fund Accumulated net realized gain (loss $-- $466 $391 Undistributed net investment income -- 936 6,979 ---- --- ----- Additional paid-in capital reduction (increase) $-- $470 $6,588 ---- ---- ------ AXP VP - AXP VP - AXP VP Extra Income Federal Global Bond Fund Income Fund Fund Accumulated net realized gain (loss) $(602,378) $-- $(2,639,152) Undistributed net investment income 602,378 2,307 (2,639,152) ------- ----- ---------- Additional paid-in capital reduction (increase) $-- $2,307 $-- ------- ------ --------- AXP VP - AXP VP - AXP VP - Growth International Managed Fund Fund Fund Accumulated net realized gain (loss) $-- $7,976,055 $307,514 Undistributed net investment income 88,265 (7,841,892) 307,514 ------ ---------- ------- Additional paid-in capital reduction (increase) $88,265 $134,163 $-- ------- -------- ------- AXP VP - AXP VP - AXP VP - New S&P 500 Small Cap Dimensions Index Advantage Fund Fund Fund Accumulated net realized gain (loss $66,197 $-- $(31,216) Undistributed net investment income 66,197 3,799 31,839 ------ ----- ------ Additional paid-in capital reduction (increase) $-- $3,799 $623 ------ ----- ---- AXP VP - Strategy Aggressive Fund Accumulated net realized gain (loss) $168,342 Undistributed net investment income (168,342) -------- Additional paid-in capital reduction (increase) $-- -------- Dividends As of Aug. 31, 2000, dividends declared for each Fund payable Sept. 1, 2000 are as follows: Fund Amount per share AXP VP - Blue Chip Advantage Fund $0.010 AXP VP - Bond Fund 0.060 AXP VP - Capital Resource Fund 0.000 AXP VP - Cash Management Fund 0.005 AXP VP - Diversified Equity Income Fund 0.027 AXP VP - Emerging Markets Fund 0.000 AXP VP - Extra Income Fund 0.075 AXP VP - Federal Income Fund 0.048 AXP VP - Global Bond Fund 0.032 AXP VP - Growth Fund 0.000 AXP VP - International Fund 0.000 AXP VP - Managed Fund 0.127 AXP VP - New Dimensions Fund 0.007 AXP VP - S&P 500 Index Fund 0.013 AXP VP - Small Cap Advantage Fund 0.000 AXP VP - Strategy Aggressive Fund 0.000 Distributions to the Variable Accounts are recorded as of the close of business on the record date and are payable on the first business day following the record date. Dividends from net investment income are declared daily and distributed monthly for AXP VP Bond, AXP VP - Cash Management, AXP VP - Extra Income, AXP VP - Federal Income and AXP VP - Global Bond Funds and declared and distributed quarterly, when available, for AXP VP - Blue Chip Advantage, AXP VP - - Capital Resource, AXP VP - Diversified Equity Income, AXP VP - Emerging Markets, AXP VP - Growth, AXP VP - International, AXP VP - Managed, AXP VP - New Dimensions, AXP VP - S&P 500 Index, AXP VP - Small Cap Advantage and AXP VP - Strategy Aggressive Funds. Capital gain distributions, when available, will be made annually. However, an additional capital gain distribution may be made during the fiscal year in order to comply with the Internal Revenue Code, as applicable to regulated investment companies. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including level-yield amortization of premium and discount, is accrued daily. 2. EXPENSES The Funds have an Investment Management Agreement with IDS Life for managing investments, record keeping and other services that are based solely on the assets of each Fund. The management fee is a percentage of each Fund's average daily net assets in reducing percentages annually as follows: Fund Percentage Range AXP VP - Blue Chip Advantage Fund 0.560% to 0.470% AXP VP - Bond Fund 0.610% to 0.535% AXP VP - Capital Resource Fund 0.630% to 0.570% AXP VP - Cash Management Fund 0.510% to 0.440% AXP VP - Diversified Equity Income Fund 0.560% to 0.470% AXP VP - Emerging Markets Fund 1.170% to 1.095% AXP VP - Extra Income Fund 0.620% to 0.545% AXP VP - Federal Income Fund 0.610% to 0.535% AXP VP - Global Bond Fund 0.840% to 0.780% AXP VP - Growth Fund 0.630% to 0.570% AXP VP - International Fund 0.870% to 0.795% AXP VP - Managed Fund 0.630% to 0.550% AXP VP - New Dimensions Fund 0.630% to 0.570% AXP VP - S&P 500 Index Fund 0.29% to 0.26% AXP VP - Small Cap Advantage Fund 0.790% to 0.650% AXP VP - Strategy Aggressive Fund 0.650% to 0.575% For AXP VP - Blue Chip Advantage Fund, AXP VP - Diversified Equity Income Fund, AXP VP - Growth Fund and AXP VP - Small Cap Advantage Fund beginning February 2000 the fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of the Fund to the Lipper Large-Cap Core Index for AXP VP - Blue Chip Advantage Fund, the Lipper Equity Income Funds Index for AXP VP - Diversified Equity Income Fund, the Lipper Large-Cap Growth Index for AXP VP - Growth Fund and the Lipper Small-Cap Core Funds Index for AXP VP - Small Cap Advantage Fund. The maximum adjustment is 0.08% for AXP VP - Blue Chip Advantage Fund and AXP VP - Diversified Equity Income Fund and 0.12% for AXP VP - Growth Fund and AXP VP - Small Cap Advantage Fund of the Fund's average daily net assets after deducting 1% from the performance difference. If the performance difference is less than 1%, the adjustment will be zero. The adjustment decreased the fee by $997 and $4,367 for AXP VP - Blue Chip Advantage Fund and AXP VP - Small Cap Advantage Fund, respectively, for the year ended Aug. 31, 2000. The adjustment increased the fee by $139 and $11,713 for AXP VP - Diversified Equity Income Fund and AXP VP - Growth Fund, respectively, for the year ended Aug. 31, 2000. For AXP VP - Emerging Markets Fund the fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of the Fund to the Lipper Emerging Markets Fund Index. The maximum adjustment is 0.12% of the Fund's average daily net assets after deducting 1% from the performance difference. If the performance difference is less than 1%, the adjustment will be zero. The first adjustment will be made in Dec. 1, 2000. IDS Life, in turn, pays to AEFC a fee based on a percentage of each Fund's average daily net assets for the year. This fee is equal to 0.35% for AXP VP - International Fund and AXP VP - S&P 500 Index Fund and 0.25% for each remaining Fund. In addition to paying its own management fee, brokerage commissions, taxes and costs of certain legal services, each Fund will reimburse IDS Life an amountequal to the cost of certain expenses incurred and paid by IDS Life in connection with each Fund's operations. The Funds also pay custodian fees to American Express Trust Company, an affiliate of IDS Life. The reimbursement paid by AXP VP - Cash Management Fund will be limited to 0.25% of the Fund's average daily net assets. AEFC has Sub-investment Advisory Agreements with American Express Asset Management International Inc. (International), a wholly-owned subsidiary of AEFC and Kenwood Capital Management LLC, an indirect subsidiary of AEFC. The Funds have an Administrative Services Agreement with AEFC. Under this agreement, each Fund pays AEFC a fee for administration and accounting services at a percentage of each Fund's average daily net assets in reducing percentages annually as follows: Fund Percentage Range AXP VP - Blue Chip Advantage Fund 0.040% to 0.020% AXP VP - Bond Fund 0.050% to 0.025% AXP VP - Capital Resource Fund 0.050% to 0.030% AXP VP - Cash Management Fund 0.030% to 0.020% AXP VP - Diversified Equity Income Fund 0.040% to 0.020% AXP VP - Emerging Markets Fund 0.10% to 0.05% AXP VP - Extra Income Fund 0.050% to 0.025% AXP VP - Federal Income Fund 0.050% to 0.025% AXP VP - Global Bond Fund 0.060% to 0.040% AXP VP - Growth Fund 0.050% to 0.030% AXP VP - International Fund 0.060% to 0.035% AXP VP - Managed Fund 0.040% to 0.020% AXP VP - New Dimensions Fund 0.050% to 0.030% AXP VP - S&P 500 Index Fund 0.080% to 0.065% AXP VP - Small Cap Advantage Fund 0.060% to 0.035% AXP VP - Strategy Aggressive Fund 0.060% to 0.035% A minor portion of additional administrative service expenses paid by the Funds are consultants' fees and fund office expenses. Under this agreement, the Funds also pay taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Funds and approved by the board. Effective Sept. 21, 1999, the Funds have an agreement with IDS Life for distribution services. Under a Plan and Agreement of Distribution, each Fund pays a distribution fee at an annual rate up to 0.125% of each Fund's average daily net assets. Through April 30, 2001, IDS Life and AEFC have agreed to waive certain fees and reimburse expenses to the extent that total expenses exceed the following percentage of the Fund's average daily net assets: Fund Percentage AXP VP - Emerging Markets Fund 1.750% AXP VP - S&P 500 Index Fund 0.495% Through Aug. 31, 2001, IDS Life and AEFC have agreed to waive certain fees and reimburse expenses to the extent that total expenses exceed the following percentage of the Fund's average daily net assets as follows: Fund Percentage AXP VP - Blue Chip Advantage Fund 0.950% AXP VP - Diversified Equity Income Fund 0.950% AXP VP - Federal Income Fund 0.875% AXP VP - Growth Fund 0.950% AXP VP - Small Cap Advantage Fund 1.225% During the year ended Aug. 31, 2000, the Funds' custodian fees were reduced as a result of earnings credits from overnight cash balances as follows: Fund Reduction AXP VP - Blue Chip Advantage Fund* $8 AXP VP - Bond Fund 60 AXP VP - Capital Resource Fund 772 AXP VP - Cash Management Fund 18 AXP VP - Diversified Equity Income Fund* 190 AXP VP - Emerging Markets Fund** -- AXP VP - Extra Income Fund 51 AXP VP - Federal Income Fund* 202 AXP VP - Global Bond Fund 654 AXP VP - Growth Fund* 268 AXP VP - International Fund 1,990 AXP VP - Managed Fund 39 AXP VP - New Dimensions Fund 96 AXP VP - S&P 500 Index Fund** -- AXP VP - Small Cap Advantage Fund* 132 AXP VP - Strategy Aggressive Fund 645 * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. 3. SECURITIES TRANSACTIONS For the year ended Aug. 31, 2000, cost of purchases and proceeds from sales of securities aggregated, respectively, $4,685,972,967 and $4,592,147,756 for AXP VP - Cash Management Fund. Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated for each Fund are as follows: Fund Purchases Proceeds AXP VP - Blue Chip Advantage Fund* $133,250,828 $74,128,292 AXP VP - Bond Fund 1,072,925,862 1,262,841,597 AXP VP - Capital Resource Fund 2,963,682,227 3,633,243,567 AXP VP - Diversified Equity Income Fund* 25,816,616 5,970,370 AXP VP - Emerging Markets Fund** 3,494,687 1,741,991 AXP VP - Extra Income Fund 376,211,143 353,594,044 AXP VP - Federal Income Fund* 40,101,938 13,824,319 AXP VP - Global Bond Fund 87,724,371 102,010,605 AXP VP - Growth Fund* 173,826,109 12,962,761 AXP VP - International Fund 2,754,304,190 2,837,706,294 AXP VP - Managed Fund 2,448,060,601 2,863,753,065 AXP VP - New Dimensions Fund 2,020,506,337 1,220,907,436 AXP VP - S&P 500 Index Fund** 16,581,123 6,899,374 AXP VP - Small Cap Advantage* 45,625,686 23,312,490 AXP VP - Strategy Aggressive Fund 4,540,747,671 4,479,238,361 Net realized gains and losses on investment sales are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with IDS Life for the year ended Aug. 31, 2000 are as follows: Fund Amount paid AXP VP - Blue Chip Advantage Fund* $183 AXP VP - Capital Resource Fund 800,594 AXP VP - Diversified Equity Income Fund* 87 AXP VP - Growth Fund* 132 AXP VP - Managed Fund 172,988 AXP VP - New Dimensions Fund 68,268 AXP VP - Small Cap Advantage Fund* 1,188 AXP VP - Strategy Aggressive Fund 198,000 * For the period from Sept. 15, 1999 (date the Fund became available) through Aug. 31, 2000. ** For the period from May 1, 2000 (date the Fund became available) through Aug. 31, 2000. 4. FOREIGN CURRENCY CONTRACTS As of Aug. 31, 2000, AXP VP - Emerging Markets Fund, AXP VP - Global Bond Fund and AXP VP - International Fund had entered into foreign currency exchange contracts that obligate the Funds to deliver currencies at specified future dates. The unrealized appreciation and/or depreciation on these contracts is included in the accompanying financial statements. See "Summary of significant accounting policies." The terms of the open contracts are as follows: AXP VP - Emerging Markets Fund Exchange date Currency to Currency to Unrealized Unrealized be delivered be received appreciation depreciation Sept. 1, 2000 1,686,525,000 2,577 $1 $-- Turkish Lira U.S. Dollar Sept. 5, 2000 50,453 7,250 14 -- South African Rand U.S. Dollar Sept. 5, 2000 40,489 5,815 8 -- South African Rand U.S. Dollar ---- ---- $23 $-- ---- ---- AXP VP - Global Bond Fund Exchange date Currency to Currency to Unrealized Unrealized be delivered be received appreciation depreciation Sept. 11, 2000 190,000,000 1,758,608 $-- $24,925 Japanese Yen U.S. Dollar Sept. 18, 2000 2,020,000 1,368,805 -- 1,392 Canadian Dollar U.S. Dollar Sept. 25, 2000 2,716,000 1,590,625 21,067 -- Australian Dollar U.S. Dollar Oct. 11, 2000 110,000,000 1,041,647 3,687 -- Japanese Yen U.S. Dollar ------- ------- $24,754 $26,317 ------- ------- AXP VP - International Fund Exchange date Currency to Currency to Unrealized Unrealized be delivered be received appreciation depreciation Sept. 1, 2000 460,326,879,600 703,326 $279 $-- Turkish Lira U.S. Dollar Sept. 1, 2000 1,737,840 1,181,120 -- 19,311 U.S. Dollar British Pound Sept. 5, 2000 909,479 625,889 1,189 -- U.S. Dollar British Pound ------ ------- $1,468 $19,311 ------ ------- 5. LENDING OF PORTFOLIO SECURITIES Presented below is information regarding securities on loan as of Aug.31, 2000. AXP VP - AXP VP - AXP VP - Bond Capital International Fund Resource Fund Fund Value of securities on loan to brokers $65,253,000 $54,992,700 $76,973,325 ----------- ----------- ----------- Collateral received for securities loaned: Cash $16,068,750 $56,700,000 $78,572,200 U.S. government securities, at value 50,255,840 -- -- ---------- ---------- ---------- Total collateral received for securities loaned $66,324,590 $56,700,000 $78,572,200 ----------- ----------- ----------- AXP VP - AXP VP - Managed Strategy Fund Aggressive Fund Value of securities on loan to brokers $181,326,703 $228,418,633 Collateral received for securities loaned: Cash $67,330,600 $170,440,800 U.S. government securities, at value 119,075,048 54,796,603 Total collateral received for securities loaned $186,405,648 $225,237,403 As of Aug. 31, 2000, due to fluctuating market conditions, AXP VP - Strategy Aggressive requested additional collateral which was received on Sept. 1, 2000. Income from securities lending amounted to $63,656, $324,442, $51, $803,563, $583,941, $27,747 and $1,580,894 for AXP VP - Bond Fund, AXP VP - Capital Resource Fund, AXP VP - Global Bond Fund, AXP VP - International Fund, AXP VP Managed Fund, AXP VP - New Dimensions Fund and AXP VP - Strategy Aggressive Fund, respectively, for the year ended Aug. 31, 2000. The risks to each Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows: Year ended Aug. 31, 2000 AXP VP - AXP VP - AXP VP - Blue Chip Bond Capital Advantage Fund Resource Fund* Fund Sold 6,275,074 11,026,927 4,592,964 Issued for reinvested distributions 4,449 10,298,958 17,347,021 Redeemed (343,649)(44,391,780) (25,202,471) -------- ----------- ----------- Net increase (decrease) 5,935,874 (23,065,895) (3,262,486) --------- ----------- ---------- Year ended Aug. 31, 2000 AXP VP - AXP VP - AXP VP - Cash Diversified Emerging Management Equity Markets** Fund Income* Fund Fund Sold 1,024,333,621 2,417,294 340,753 Issued for reinvested distributions 37,096,618 10,531 447 Redeemed (968,288,266) (361,943) (257,573) ------------ -------- -------- Net increase (decrease) 93,141,973 2,065,882 83,627 ------------ -------- -------- Year ended Aug. 31, 2000 AXP VP - AXP VP - AXP VP - Extra Federal Global Income Income Bond Fund Fund* Fund Sold 13,576,569 5,203,078 2,860,750 Issued for reinvested distributions 7,037,448 126,391 572,040 Redeemed (16,917,745)(2,604,643)(4,516,817) ----------- ---------- ---------- Net increase (decrease) 3,696,272 2,724,826 (1,084,027) ----------- ---------- ---------- Year ended Aug. 31, 2000 AXP VP - AXP VP - AXP VP - Growth International Managed Fund* Fund Fund Sold 14,684,400 18,042,152 9,538,432 Issued for reinvested distributions 2,031 20,912,028 16,977,247 Redeemed (413,358)(26,969,794) (43,382,143) -------- ----------- ----------- Net increase (decrease) 14,273,073 11,984,386 (16,866,464) ---------- ---------- ----------- Year ended Aug. 31, 2000 AXP VP - AXP VP - AXP VP - New S&P 500 Small Cap Dimensions Index** Advantage* Fund Fund Fund Sold 38,564,707 1,060,656 2,832,461 Issued for reinvested distributions 1,934,546 1,955 5,023 Redeemed (5,751,240) (38,184) (665,949) ---------- ------- -------- Net increase (decrease) 34,748,013 1,024,427 2,171,535 ---------- --------- --------- Year ended Aug. 31, 2000 AXP VP - Strategy Aggressive Fund Sold 14,937,839 Issued for reinvested distributions 13,299,832 Redeemed (18,755,998) ----------- Net increase (decrease) 9,481,673 --------- Year ended Aug. 31, 1999 AXP VP - AXP VP - AXP VP - Bond Capital Cash Fund Resource Management Fund Fund Sold 9,705,292 2,571,389 603,415,090 Issued for reinvested distributions 12,224,882 14,021,994 25,544,144 Redeemed (23,348,532)(20,385,941)(367,169,580) ----------- ----------- ------------ Net increase (decrease) (1,418,358) (3,792,558) 261,789,654 ---------- ---------- ----------- Year ended Aug. 31, 1999 AXP VP - AXP VP - AXP VP - Extra Global International Income Bond Fund Fund Fund Sold 9,758,757 2,510,601 12,212,960 Issued for reinvested distributions 7,511,830 981,534 1,096,574 Redeemed (3,462,581)(1,593,306) (26,524,212) ---------- ---------- ----------- Net increase (decrease) 13,808,006 1,898,829 (13,214,678) ---------- --------- ----------- Year ended Aug. 31, 1999 AXP VP - AXP VP - AXP VP - Managed New Strategy Fund Dimensions Aggressive Fund Fund Sold 6,954,626 42,053,242 4,611,926 Issued for reinvested distributions 31,767,507 669,065 11,423,262 Redeemed (26,684,346) (2,661,999)(25,418,985) ----------- ---------- ----------- Net increase (decrease) 12,037,787 40,060,308 (9,383,797) ---------- ---------- ---------- * For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. ** For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. 7. FUTURES CONTRACTS As of Aug. 31, 2000, AXP VP - Blue Chip Advantage Fund's investments in securities included securities valued at $531,727 that were pledged as collateral to cover initial margin deposits on 67 open purchase stock index contracts. The market value of the open purchase contracts as of Aug. 31, 2000 was $5,101,745 with a net unrealized gain of $68,902. See "Summary of significant accounting policies." As of Aug. 31, 2000, AXP VP - Federal Income Fund's investments in securities included securities valued at $52,055 that were pledged as collateral to cover initial margin deposits on 10 open sale interest rate contracts. The market value of the open sale contracts as of Aug. 31, 2000 was $1,001,563 with a net unrealized loss of $24,416. See "Summary of significant accounting policies." As of Aug. 31, 2000, AXP VP - Small Cap Advantage Fund's investments in securities included securities valued at $194,675 that were pledged as collateral to cover initial margin deposits on 2 open purchase stock index contracts. The market value of the open purchase contracts as of Aug. 31, 2000 was $537,050 with a net unrealized gain of $32,541. See "Summary of significant accounting policies." As of Aug. 31, 2000, AXP VP - Strategy Aggressive Fund's investments in securities included securities valued at $23,730,125 that were pledged as collateral to cover initial margin deposits on 457 open purchase stock index contracts. The market value of the open purchases contracts as of Aug. 31, 2000 was $187,973,300 with a net unrealized gain of $9,979,732. See "Summary of significant accounting policies." 8. OPTIONS CONTRACTS WRITTEN Contracts and premium amounts associated with options contracts written by AXP VP - Capital Resource Fund during the year ended Aug. 31, 2000 are as follows: Calls Contracts Premium Balance Aug. 31, 1999 -- $-- Opened 1,375 1,064,277 Closed or expired (1,100) (334,814) Exercised (275) (729,463) ---- -------- Balance Aug. 31, 2000 -- $-- ---- -------- See "Summary of significant accounting policies." Contracts and premium amounts associated with options contracts written by AXP VP - Managed Fund during the year ended Aug. 31, 2000 are as follows: Calls Puts Contracts Premium Contracts Premium Balance Aug. 31, 1999 -- $-- 2,500 $1,198,710 Opened 43,000 10,028,696 -- -- Closed or expired (11,450) (1,655,305) (2,500) (1,198,710) Exercised (13,850) (3,883,957) -- -- ------- ---------- --------- ---------- Balance Aug. 31, 2000 17,700 $4,489,434 -- $-- ------ ---------- --------- ---------- See "Summary of significant accounting policies." Contracts and premium amounts associated with options contracts written by AXP VP - New Dimensions Fund during the year ended Aug. 31, 2000 are as follows: Puts Contracts Premium Balance Aug. 31, 1999 -- $-- Opened 775 135,625 Closed or expired (775) (135,625) Exercised -- -- -------- -------- Balance Aug. 31, 2000 -- $-- -------- -------- See "Summary of significant accounting policies." Contracts and premium amounts associated with options contracts written by AXP VP - Strategy Aggressive Fund during the year ended Aug. 31, 2000 are as follows: Calls Puts Contracts Premium Contracts Premium Balance Aug. 31, 1999 -- $-- 4,450 $1,299,571 Opened 24,590 9,890,102 24,635 16,550,796 Closed or expired (16,350) (5,437,684) (23,344) (13,765,240) Exercised (7,640) (4,349,222) (3,091) (1,488,437) ------ ---------- ------ ---------- Balance Aug. 31, 2000 600 $103,196 2,650 $2,596,690 ------ -------- ----- ---------- See "Summary of significant accounting policies." 9. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs were as follows as of Aug. 31, 2000: Fund Carry-over Expiration Date AXP VP - Blue Chip Advantage Fund $704,838 2008-2009 AXP VP - Bond Fund 109,785,185 2007-2009 AXP VP - Diversified Equity Income Fund 246,277 2008-2009 AXP VP - Emerging Markets Fund 31,298 2008 AXP VP - Extra Income Fund 63,864,460 2007-2009 AXP VP - Federal Income Fund 40,242 2009 AXP VP - Global Bond Fund 5,884,313 2007-2009 AXP VP - Growth Fund 2,021,300 2008-2009 AXP VP - Small Cap Advantage Fund 13,691 2009 It is unlikely the board will authorize a distribution of any net realized gain for a Fund until its capital loss carry-over has been offset or expires. 10. Financial Highlights The tables below show certain important financial information for evaluating each Fund's results. AXP VP - Blue Chip Advantage Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $9.78 ----- Income from investment operations: Net investment income (loss) .02 Net gains (losses) (both realized and unrealized) 1.85 ---- Total from investment operations 1.87 ---- Less distributions: Dividends from net investment income (.03) ---- Net asset value, end of period $11.62 ------ Ratios/supplemental data Net assets, end of period (in millions) $71 --- Ratio of expenses to average daily net assetsc .95%d,e --- Ratio of net investment income (loss) to average daily net assets .34%d --- Portfolio turnover rate (excluding short-term securities) 226% --- Total returnf 19.13% ----- a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.96% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Bond Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996 Net asset value, beginning of period $10.56 $11.08 $11.99 $11.54 $11.58 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .75 .79 .88 .85 .88 Net gains (losses) (both realized and unrealized) (.27) (.52) (.68) .52 (.07) ---- ---- ---- --- ---- Total from investment operations .48 .27 .20 1.37 .81 --- --- --- ---- --- Less distributions: Dividends from net investment income (.75) (.77) (.85) (.84) (.85) Distributions from realized gains -- (.02) (.26) (.07) -- Excess distributions from realized gains -- -- -- (.01) -- ---- ---- ---- ---- ---- Total distributions (.75) (.79) (1.11) (.92) (.85) ---- ---- ----- ---- ---- Net asset value, end of period $10.29 $10.56 $11.08 $11.99 $11.54 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $1,468 $1,750 $1,852 $1,923 $1,912 ------ ------ ------ ------ ------ Ratio of expenses to average daily net assetsb .79% .68% .67% .68% .68% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 7.30% 7.22% 7.39% 7.18% 7.47% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 70% 68% 48% 73% 56% -- -- -- -- -- Total returnc 4.69% 2.40% 1.54% 12.24% 5.82% ---- ---- ---- ----- ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. c Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Capital Resource Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996 Net asset value, beginning of period $34.62 $26.80 $27.97 $25.57 $24.42 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .01 .06 .11 .16 .30 Net gains (losses) (both realized and unrealized) 6.20 10.28 (.54) 6.45 1.22 ---- ----- ---- ---- ---- Total from investment operations 6.21 10.34 (.43) 6.61 1.52 ---- ----- ---- ---- ---- Less distributions: Dividends from net investment income (.01) (.06) (.11) (.15) (.29) Distributions from realized gains (3.61) (2.46) (.63) (4.05) (.07) Excess distributions from realized gains -- -- -- (.01) (.01) ---- ---- ---- ---- ---- Total distributions (3.62) (2.52) (.74) (4.21) (.37) ----- ----- ---- ----- ---- Net asset value, end of period $37.21 $34.62 $26.80 $27.97 $25.57 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $5,920 $5,621 $4,453 $4,867 $4,372 ------ ------ ------ ------ ------ Ratio of expenses to average daily net assetsb .77% .66% .66% .67% .68% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets (.02%) .17% .34% .61% 1.15% ---- --- --- --- ---- Portfolio turnover rate (excluding short-term securities) 52% 56% 68% 110% 131% -- -- -- --- --- Total returnc 19.26% 40.12% (1.67%) 28.47% 6.15% ----- ----- ----- ----- ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. c Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Cash Management Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .05 .05 .05 .05 .05 --- --- --- --- --- Less distributions: Dividends from net investment income (.05) (.05) (.05) (.05) (.05) ---- ---- ---- ---- ---- Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $783 $690 $428 $421 $288 ---- ---- ---- ---- ---- Ratio of expenses to average daily net assetsb .68% .56% .57% .57% .56% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 5.38% 4.60% 5.13% 4.97% 5.02% ---- ---- ---- ---- ---- Total returnc 5.52% 4.72% 5.25% 5.05% 5.15% ---- ---- ---- ---- ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. c Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Diversified Equity Income Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $9.76 ----- Income from investment operations: Net investment income (loss) .10 Net gains (losses) (both realized and unrealized) .30 --- Total from investment operations .40 --- Less distributions: Dividends from net investment income (.11) ---- Net asset value, end of period $10.05 ------ Ratios/supplemental data Net assets, end of period (in millions) $23 --- Ratio of expenses to average daily net assetsc .95%d,e --- Ratio of net investment income (loss) to average daily net assets 1.42%d ---- Portfolio turnover rate (excluding short-term securities) 53% --- Total returnf 4.21% ----- a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.49% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Emerging Markets Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $10.23 ------ Income from investment operations: Net investment income (loss) (.01) Net gains (losses) (both realized and unrealized) (.60) ---- Total from investment operations (.61) ---- Less distributions: Tax return of capital (.01) ---- Net asset value, end of period $9.61 ----- Ratios/supplemental data Net assets, end of period (in millions) $6 -- Ratio of expenses to average daily net assetsc 1.69%d,e ----- Ratio of net investment income (loss) to average daily net assets (.36%)d ----- Portfolio turnover rate (excluding short-term securities) 37% -- Total returnf (6.03%) ------ a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 2.42% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Extra Income Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996b Net asset value, beginning of period $8.75 $9.54 $10.39 $9.77 $10.00 ----- ----- ------ ----- ------ Income from investment operations: Net investment income (loss) .85 .92 .95 .88 .18 Net gains (losses) (both realized and unrealized) (.99) (.69) (.80) .62 (.23) ---- ---- ---- --- ---- Total from investment operations (.14) .23 .15 1.50 (.05) ---- --- --- ---- ---- Less distributions: Dividends from net investment income (.85) (.92) (.95) (.88) (.18) Distributions from realized gains -- (.10) (.05) -- -- ---- ---- ---- ---- ---- Total distributions (.85) (1.02) (1.00) (.88) (.18) ---- ----- ----- ---- ---- Net asset value, end of period $7.76 $8.75 $9.54 $10.39 $9.77 ----- ----- ----- ------ ----- Ratios/supplemental data Net assets, end of period (in millions) $595 $638 $564 $320 $49 ---- ---- ---- ---- --- Ratio of expenses to average daily net assetsc .82% .70% .69% .69% 1.53%d --- --- --- --- ---- Ratio of net investment income (loss) to average daily net assets 10.35% 10.17% 9.21% 8.88% 8.14%d ----- ----- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 63% 50% 66% 104% 22% -- -- -- --- -- Total returne (1.59%) 2.61% 1.03% 16.80% (.50%) ----- ---- ---- ----- ----
a For a share outstanding throughout the period. Rounded to the nearest cent. b Inception date was May 1, 1996. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Federal Income Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $10.02 ------ Income from investment operations: Net investment income (loss) .51 Net gains (losses) (both realized and unrealized) (.06) ---- Total from investment operations .45 --- Less distributions: Dividends from net investment income (.52) ---- Net asset value, end of period $9.95 ----- Ratios/supplemental data Net assets, end of period (in millions) $37 --- Ratio of expenses to average daily net assetsc .87%d,e --- Ratio of net investment income (loss) to average daily net assets 5.49%d ---- Portfolio turnover rate (excluding short-term securities) 67% -- Total returnf 4.64% ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.89% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Global Bond Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996b Net asset value, beginning of period $9.84 $10.09 $10.32 $10.08 $10.00 ----- ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .32 .55 .60 .51 .12 Net gains (losses) (both realized and unrealized) (.51) (.29) (.21) .14 .07 ---- ---- ---- --- --- Total from investment operations (.19) .26 .39 .65 .19 ---- --- --- --- --- Less distributions: Dividends from net investment income (.31) (.51) (.58) (.41) (.11) Distributions from realized gains -- -- (.04) -- -- ---- ---- ---- ---- ---- Total distributions (.31) (.51) (.62) (.41) (.11) ---- ---- ---- ---- ---- Net asset value, end of period $9.34 $9.84 $10.09 $10.32 $10.08 ----- ----- ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $177 $197 $183 $119 $21 ---- ---- ---- ---- --- Ratio of expenses to average daily net assetsc 1.07% .96% .95% .97% 1.77%d ---- --- --- --- ---- Ratio of net investment income (loss to average daily net assets 4.81% 5.36% 5.81% 5.66% 4.96%d ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 50% 56% 14% 36% 4% -- -- -- -- - Total returne (1.90%) 2.50% 3.82% 6.47% 2.00% ----- ---- ---- ---- ----
a For a share outstanding throughout the period. Rounded to the nearest cent. b Inception date was May 1, 1996. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - Growth Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $9.72 ----- Income from investment operations: Net investment income (loss) -- Net gains (losses) (both realized and unrealized) 3.75 ---- Total from investment operations 3.75 ---- Less distributions: Tax return of capital (.01) ---- Net asset value, end of period $13.46 ------ Ratios/supplemental data Net assets, end of period (in millions) $195 ---- Ratio of expenses to average daily net assetsc .95%d,e ---- Ratio of net investment income (loss) to average daily net assets (.09%)d ---- Portfolio turnover rate (excluding short-term securities) 17% -- Total returnf 38.59% ----- a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC Reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.97% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - International Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996 Net asset value, beginning of period $17.26 $14.25 $14.09 $13.30 $12.55 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .06 .12 .14 .18 .20 Net gains (losses) (both realized and unrealized) 2.50 3.04 .42 1.06 1.01 ---- ---- --- ---- ---- Total from investment operations 2.56 3.16 .56 1.24 1.21 ---- ---- --- ---- ---- Less distributions: Dividends from net investment income (.01) (.07) (.15) (.17) (.44) Distributions from realized gains (2.83) (.08) (.19) (.28) (.02) Excess distributions from realized gains -- -- (.06) -- -- ---- ---- ---- ---- ---- Total distributions (2.84) (.15) (.40) (.45) (.46) ----- ---- ---- ---- ---- Net asset value, end of period $16.98 $17.26 $14.25 $14.09 $13.30 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $2,389 $2,221 $2,023 $2,105 $1,874 ------ ------ ------ ------ ------ Ratio of expenses to average daily net assetsb 1.02% .94% .94% .97% .96% ---- --- --- --- --- Ratio of net investment income (loss) to average daily net assets .27% .70% .94% 1.30% 1.28% --- --- --- ---- ---- Portfolio turnover rate (excluding short-term securities) 118% 102% 86% 91% 58% --- --- -- -- -- Total returnc 14.74% 22.18% 4.09% 9.34% 9.64% ----- ----- ---- ---- ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. c Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Managed Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996 Net asset value, beginning of period $18.84 $17.25 $18.87 $16.00 $14.85 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .47 .50 .49 .46 .46 Net gains (losses) (both realized and unrealized) 2.85 3.29 (.12) 3.93 1.15 ---- ---- ---- ---- ---- Total from investment operations 3.32 3.79 .37 4.39 1.61 ---- ---- --- ---- ---- Less distributions: Dividends from net investment income (.48) (.49) (.48) (.45) (.46) Distributions from realized gains (.87) (1.71) (1.50) (1.06) -- Excess distributions from net investment income -- -- (.01) (.01) -- ---- ---- ---- ---- ---- Total distributions (1.35) (2.20) (1.99) (1.52) (.46) ----- ----- ----- ----- ---- Net asset value, end of period $20.81 $18.84 $17.25 $18.87 $16.00 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $5,223 $5,046 $4,413 $4,445 $3,482 ------ ------ ------ ------ ------ Ratio of expenses to average daily net assetsb .75% .63% .64% .64% .65% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 2.37% 2.62% 2.56% 2.65% 2.94% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 49% 44% 50% 72% 85% -- -- -- -- -- Total returnc 18.42% 22.98% 1.74% 27.50% 11.01% ----- ----- ---- ----- ----- a For a share outstanding throughout the period. Rounded to the nearest cent. b Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. c Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - New Dimensions Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996b Net asset value, beginning of period $18.87 $13.29 $12.95 $9.94 $10.00 ------ ------ ------ ----- ------ Income from investment operations: Net investment income (loss) .03 .06 .08 .10 .03 Net gains (losses) (both realized and unrealized) 6.34 5.60 .34 3.01 (.06) ---- ---- --- ---- ---- Total from investment operations 6.37 5.66 .42 3.11 (.03) ---- ---- --- ---- ---- Less distributions: Dividends from net investment income (.04) (.06) (.08) (.10) (.03) Distributions from realized gains (.17) (.02) -- -- -- ---- ---- ---- ---- ---- Total distributions (.21) (.08) (.08) (.10) (.03) ---- ---- ---- ---- ---- Net asset value, end of period $25.03 $18.87 $13.29 $12.95 $9.94 ------ ------ ------ ------ ----- Ratios/supplemental data Net assets, end of period (in millions) $5,564 $3,538 $1,960 $1,307 $171 ------ ------ ------ ------ ---- Ratio of expenses to average daily net assetsc .78% .68% .69% .72% 1.04%d --- --- --- --- ---- Ratio of net investment income (loss) to average daily net assets .15% .34% .59% 1.04% 1.69%d --- --- --- ---- ---- Portfolio turnover rate (excluding short-term securities) 28% 27% 34% 29% 4% -- -- -- -- - Total returne 34.01% 42.61% 3.19% 31.40% (.22%) ----- ----- ---- ----- ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b Inception date was May 1, 1996. c Expense ratio is based on total expenses of the Fund before reduction of earnings credit on cash balances. d Adjusted to an annual basis. e Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AXP VP - S&P 500 Index Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $10.06 ------ Income from investment operations: Net investment income (loss) .02 Net gains (losses) (both realized and unrealized) .33 --- Total from investment operations .35 --- Less distributions: Dividends from net investment income (.03) ---- Net asset value, end of period $10.38 ------ Ratios/supplemental data Net assets, end of period (in millions) $21 --- Ratio of expenses to average daily net assetsc .48%d,e --- Ratio of net investment income (loss) to average daily net assets .72%d --- Portfolio turnover rate (excluding short-term securities) 44% -- Total returnf 3.49% ---- a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from May 1, 2000 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.57% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Small Cap Advantage Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000b Net asset value, beginning of period $9.90 ----- Income from investment operations: Net investment income (loss) (.02) Net gains (losses) (both realized and unrealized) 2.78 ---- Total from investment operations 2.76 ---- Less distributions: Distributions from realized gains (.08) ---- Net asset value, end of period $12.58 ------ Ratios/supplemental data Net assets, end of period (in millions) $31 --- Ratio of expenses to average daily net assetsc 1.19%d,e ---- Ratio of net investment income (loss) to average daily net assets (.24%)d ---- Portfolio turnover rate (excluding short-term securities) 169% --- Total returnf 28.19% ----- a For a share outstanding throughout the period. Rounded to the nearest cent. b For the period from Sept. 15, 1999 (date the Fund became available) to Aug. 31, 2000. c Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.43% for the period ended Aug. 31, 2000. f Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
AXP VP - Strategy Aggressive Fund Fiscal period ended Aug. 31, Per share income and capital changesa 2000 1999 1998 1997 1996 Net asset value, beginning of period $16.46 $13.10 $17.17 $16.04 $14.44 ------ ------ ------ ------ ------ Income from investment operations: Net investment income (loss) .01 .05 .01 .08 .10 Net gains (losses) (both realized and unrealized) 13.17 4.36 (2.57) 2.84 1.60 ----- ---- ----- ---- ---- Total from investment operations 13.18 4.41 (2.56) 2.92 1.70 ----- ---- ----- ---- ---- Less distributions: Dividends from net investment income -- (.05) (.01) (.08) (.10) Distributions from realized gains (1.82) (1.00) (1.49) (1.71) -- Excess distributions from realized gains -- -- (.01) -- -- ---- ---- ---- ---- ---- Total distributions (1.82) (1.05) (1.51) (1.79) (.10) ----- ----- ----- ----- ---- Net asset value, end of period $27.82 $16.46 $13.10 $17.17 $16.04 ------ ------ ------ ------ ------ Ratios/supplemental data Net assets, end of period (in millions) $4,197 $2,327 $1,976 $2,427 $1,941 ------ ------ ------ ------ ------ Ratio of expenses to average daily net assetsb .77% .67% .66% .68% .69% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets .04% .31% .08% .47% .65% --- --- --- --- --- Portfolio turnover rate (excluding short-term securities) 143% 207% 176% 218% 189% --- --- --- --- --- Total returnc 84.97% 35.27% (16.40%) 18.60% 11.82% ----- ----- ------ ----- ----- a For a share outstanding throughout the period. Rounded to the nearest cent. b Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. c Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges.
Investments in Securities AXP VP - Blue Chip Advantage Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (92.6%) Issuer Shares Value(a) Aerospace & defense (0.5%) United Technologies 6,100(d) $380,869 Airlines (0.5%) Southwest Airlines 16,235 367,317 Automotive & related (0.8%) Ford Motor 23,853(d) 576,944 Banks and savings & loans (4.6%) Bank of America 15,775 844,948 Bank of New York 12,955 679,328 FleetBoston Financial 14,836 633,312 Mellon Financial 9,700 438,925 Wells Fargo 15,890 686,249 Total 3,282,762 Chemicals (0.4%) Du Pont (EI) de Nemours 6,900 309,638 Communications equipment & services (6.8%) Corning 2,580 846,079 JDS Uniphase 7,300(b) 909,763 Lucent Technologies 22,575 943,917 Motorola 21,355 770,115 Nortel Networks 12,830(c) 1,046,446 Sycamore Networks 2,300(b) 315,100 Total 4,831,420 Computer software & services (4.6%) Microsoft 24,640(b) 1,720,180 Oracle 17,515(b) 1,592,770 Total 3,312,950 Computers & office equipment (18.4%) Cisco Systems 38,810(b) 2,658,486 Compaq Computer 26,150 890,734 Computer Sciences 6,340(b) 501,256 Dell Computer 21,575(b) 941,209 EMC 13,860(b) 1,358,280 First Data 10,785 514,310 Hewlett-Packard 8,250 996,188 Intl Business Machines 10,750 1,419,000 Mercury Interactive 4,500(b) 549,844 Sanmina 4,800(b) 566,400 Solectron 9,730(b) 440,891 Sun Microsystems 6,956(b) 882,977 Veritas Software 6,210(b) 748,693 Yahoo! 5,176(b) 628,884 Total 13,097,152 Electronics (5.0%) Broadcom Cl A 2,850(b) 712,500 Intel 30,260 2,265,717 Linear Technology 8,600 618,663 Total 3,596,880 Energy (4.9%) Apache 4,000 252,000 Chevron 8,440 713,180 Exxon Mobil 20,749 1,693,637 Kerr-McGee 6,500 410,719 Tosco 14,460(d) 441,030 Total 3,510,566 Energy equipment & services (0.9%) Halliburton 12,380 656,140 Financial services (6.9%) Citigroup 21,013 1,226,653 Fannie Mae 12,600 677,250 Lehman Brothers Holdings 5,060 733,700 MBNA 16,010 565,353 Merrill Lynch 1,000 145,000 Morgan Stanley, Dean Witter, Discover & Co 9,468 1,018,402 Providian Financial 4,535 521,242 Total 4,887,600 Health care (12.8%) Allergan 7,700 563,063 ALZA 7,500(b) 567,188 American Home Products 5,630 305,076 Amgen 10,742(b) 814,377 Baxter Intl 7,443 619,630 Biogen 3,600(b) 248,850 Biomet 9,255 312,935 Genentech 1,200(b) 228,600 Guidant 9,300(b) 626,006 Johnson & Johnson 1,430 131,471 Lilly (Eli) 1,700(d) 124,100 MedImmune 6,400(b) 538,400 Medtronic 11,620 595,525 Merck & Co 2,900 202,638 Pfizer 37,315 1,613,873 Pharmacia 13,088 766,465 Schering-Plough 10,185 408,673 Watson Pharmaceuticals 7,100(b) 437,981 Total 9,104,851 Health care services (1.1%) Cardinal Health 5,250 429,516 HCA-The Healthcare Co 10,600 365,700 Total 795,216 Household products (0.9%) Colgate-Palmolive 6,375 324,726 Kimberly-Clark 4,895 286,358 Total 611,084 Insurance (2.1%) American Intl Group 10,187 907,916 Marsh & McLennan 5,040 598,500 Total 1,506,416 Leisure time & entertainment (0.7%) Viacom Cl B 7,238(b) 487,208 Media (0.6%) Comcast Special Cl A 11,545(b) 430,051 Metals (1.1%) Alcoa 18,860 627,095 Nucor 3,560(d) 130,830 Total 757,925 Miscellaneous (1.0%) Convergys 7,600(b) 297,350 Stilwell Financial 8,800(b) 425,700 Total 723,050 Multi-industry conglomerates (5.1%) Danaher 6,450 362,409 General Electric 37,520 2,201,955 Minnesota Mining & Mfg 2,600 241,800 Tyco Intl 14,920(c) 850,440 Total 3,656,604 Restaurants & lodging (0.2%) Wendy's Intl 7,565 142,789 Retail (4.4%) CVS 13,790 511,954 Home Depot 3,447(d) 165,671 Kroger 25,705(b) 583,182 Lowe's Companies 13,170 590,181 Safeway 12,485(b) 615,667 Wal-Mart Stores 9,650 457,772 Walgreen 7,000 230,125 Total 3,154,552 Utilities -- electric (1.5%) AES 6,400(b) 408,000 Duke Energy 8,640 646,380 Total 1,054,380 Utilities-- gas (2.2%) Coastal 7,300 502,788 Enron 9,040 767,269 Williams Companies 6,600 304,013 Total 1,574,070 Utilities -- telephone (4.6%) AT&T 5,778 182,007 BellSouth 11,680 435,810 Global Crossing 10,670(b,c) 320,767 Nextel Communications Cl A 6,600(b) 365,888 Qwest Communications Int l16,531(b) 853,413 SBC Communications 16,415 685,326 Sprint (PCS Group) 8,390(b) 421,073 Total 3,264,284 Total common stocks (Cost: $59,731,471) $66,072,718 Short-term securities (6.3%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (3.8%) Federal Home Loan Bank Disc Nt 09-06-00 6.46% $500,000 $499,448 Federal Home Loan Mtge Corp Disc Nt 10-17-00 6.47 1,200,000 1,189,942 Federal Natl Mtge Assn Disc Nt 09-29-00 6.48 1,000,000 994,804 Total 2,684,194 Commercial paper (2.5%) Verizon Communications 10-05-00 6.52 1,800,000 1,788,660 Total short-term securities (Cost: $4,473,675) $4,472,854 Total investments in securities (Cost: $64,205,146)(e) $70,545,572 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 3.11% of net assets. (d)Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 7 to the financial statements): Type of security Contracts Purchase contracts S & P 500, Sept. 2000 62 S & P 500, Dec. 2000 5 (e)Aug. 31, 2000, the cost of securities for federal income tax purposes was $64,656,421 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $7,730,151 Unrealized depreciation (1,841,000) ---------- Net unrealized appreciation $5,889,151 Investments in Securities AXP VP - Bond Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Bonds (95.0%) Issuer Coupon Principal Value(a) rate amount Government obligations (17.0%) Federal Republic of Germany (European Monetary Unit) 11-11-04 7.50% 15,000,000(c) $14,394,243 Govt of Canada (U.S. Dollar) 11-05-08 5.25 15,000,000(c) 13,580,265 Govt of Russia (Russian Ruble) 06-16-99 (original maturity date) -- 1,639,000(b,c) 59,010 12-15-01 -- 7,793,000(b,c) 219,831 02-06-02 -- 2,273,000(b,c) 79,627 05-22-02 -- 2,273,000(b,c) 77,622 06-05-02 -- 2,273,000(b,c) 77,646 09-18-02 -- 2,273,000(b,c) 76,762 10-09-02 -- 2,273,000(b,c) 75,134 01-22-03 -- 2,273,000(b,c) 73,563 02-05-03 -- 2,273,000(b,c) 73,653 05-21-03 -- 2,273,000(b,c) 72,073 06-04-03 -- 2,273,000(b,c) 71,885 09-17-03 -- 2,273,000(b,c) 70,502 10-08-03 -- 2,273,000(b,c) 68,783 01-21-04 -- 2,273,000(b,c) 67,646 Republic of Colombia (U.S. Dollar) 08-13-05 12.83 10,000,000(c,h) 9,600,000 U.S. Treasury 11-15-00 5.75 5,000,000 4,992,200 05-15-02 7.50 6,170,000 6,294,387 06-30-02 6.25 17,000,000 17,002,719 03-31-03 5.50 7,500,000 7,388,700 05-15-04 5.25 10,000,000 9,734,400 05-15-04 7.25 11,000,000 11,417,670 08-15-04 7.25 8,200,000 8,536,938 11-15-05 5.88 5,475,000 5,443,355 08-15-07 6.13 5,000,000 5,039,850 05-15-08 5.63 59,250,000(e) 58,083,367 11-15-16 7.50 31,275,000 36,249,601 08-15-27 6.38 38,500,000 41,062,559 Total 249,983,991 Mortgage-backed securities (30.3%) Federal Home Loan Mtge Corp 05-01-07 9.00 2,098,217 2,145,619 03-01-13 5.50 3,875,311 3,640,847 04-01-15 7.50 19,279,224 19,362,419 08-01-24 8.00 2,410,595 2,441,475 01-01-25 9.00 588,372 606,576 07-01-28 6.00 8,891,090 8,293,697 09-01-28 6.00 27,306,858 25,405,354 10-01-29 7.00 24,250,066 23,651,332 12-01-29 7.00 48,908,186 47,752,899 Collateralized Mtge Obligation 03-15-22 7.00 10,455,000 10,144,962 07-15-22 7.00 12,940,000 12,630,475 Federal Natl Mtge Assn 09-01-07 8.50 2,841,658 2,893,387 06-15-09 6.38 10,000,000 9,649,900 09-15-09 6.63 15,000,000 14,756,280 12-01-13 5.50 13,317,850 12,483,604 02-01-14 5.50 21,710,957 20,335,648 04-01-14 5.50 190,649 178,707 12-01-14 6.00 28,261,642 27,027,810 11-01-21 8.00 249,009 252,707 04-01-22 8.00 1,640,935 1,663,498 04-01-23 8.50 3,230,040 3,305,839 06-01-24 9.00 3,134,054 3,244,805 02-01-27 7.50 7,405,193 7,377,423 09-01-28 6.50 13,130,318 12,551,797 10-01-28 6.00 18,480,422 17,179,266 11-01-28 6.00 8,487,760 7,888,354 11-01-28 6.50 18,190,341 17,390,292 12-01-28 6.00 3,751,864 3,489,470 12-01-28 6.50 22,828,460 21,801,179 01-01-29 6.50 18,005,650 17,195,396 02-01-29 6.00 9,480,967 8,817,896 03-01-29 6.50 23,219,942 22,189,618 06-01-29 6.00 5,441,083 5,057,081 07-01-29 7.50 15,000,000(i) 14,892,188 09-01-29 6.00 5,433,164 5,049,721 09-01-29 7.00 19,119,216 18,647,145 Collateralized Mtge Obligation 05-18-26 5.00 10,000,000 8,718,439 Govt Natl Mtge Assn 06-20-24 7.38 2,774,259(j) 2,798,525 Total 442,911,630 Aerospace & defense (0.1%) L-3 Communications Sr Sub Nts Series B 05-01-07 10.38 1,710,000 1,744,200 Airlines (0.8 %) AMR 05-15-01 9.50 4,500,000 4,540,230 Delta Air Lines 12-15-09 7.90 7,500,000 7,295,575 Total 11,835,805 Automotive & related (1.6%) Ford Motor Credit 03-15-05 7.50 7,850,000 7,849,686 Hayes Lemmerz Intl Company Guaranty Series B 07-15-07 9.13 2,500,000 2,287,500 Lear Company Guaranty Series B 05-15-09 8.11 7,500,000 7,131,525 MSX Intl Company Guaranty 01-15-08 11.38 3,450,000 3,312,000 Venture Holdings Trust Sr Nts Series B 07-01-05 9.50 4,100,000 3,280,000 Total 23,860,711 Banks and savings & loans (1.6%) Cullen/Frost Capital Series A 02-01-27 8.42 5,000,000 4,460,250 Fleet Financial Group Sr Nts 12-01-01 9.00 5,000,000 5,102,000 Provident Trust Company Guaranty 04-15-28 8.29 5,500,000 4,628,773 Union Planters Bank Sub Nts 03-15-08 6.50 5,000,000 4,418,725 Washington Mutual Capital Company Guaranty 06-01-27 8.38 5,000,000 4,505,700 Total 23,115,448 Building materials & construction (0.3%) Masco 10-01-01 9.00 5,000,000 5,065,200 Chemicals (0.4%) Allied Waste North America Company Guaranty Series B 01-01-09 7.88 5,950,000 5,362,438 Communications equipment & services (2.1%) Aether Systems Cv 03-22-05 6.00 1,041,000 905,670 Aspect Communications Zero Coupon Cv Sub Deb 08-10-18 6.87 1,630,000(l) 493,385 Caprock Communications Sr Nts 05-01-09 11.50 3,000,000 1,860,000 Celcaribe Sr Nts 03-15-04 13.50 3,150,000 2,551,500 DLJ Secured Loan Trust Sr Secured Ctfs 07-09-07 11.00 2,500,000(d) 2,500,000 Dobson/Sygnet Communications Sr Nts 12-15-08 12.25 2,775,000 2,830,500 EchoStar DBS Sr Nts 02-01-09 9.38 4,050,000 4,014,563 Equinix Sr Nts 12-01-07 13.00 1,345,000 1,076,000 Fairpoint Communications Sr Sub Nts 05-01-10 12.50 1,350,000(d) 1,336,500 KMC Telecom Holdings Sr Nts 05-15-09 13.50 1,250,000 1,000,000 NTL Cv Sub Nts 12-15-09 5.75 860,000(d) 574,747 Zero Coupon Sr Nts Series B 02-01-01 11.48 5,000,000(m) 4,706,249 Price Communications Wireless Company Guaranty Series B 12-15-06 9.13 3,000,000 3,030,000 Telehub Communications Zero Coupon Company Guaranty 07-31-01 13.88 2,500,000(m) 500,000 Versatel Telecom (European Monetary Unit) 03-30-05 4.00 1,083,000(c,d) 808,244 (U.S. Dollar) Sr Nts 07-15-09 11.88 900,000(c) 823,500 Voicestream Wireless Sr Nts 11-15-09 10.38 2,250,000 2,430,000 Total 31,440,858 Computers & office equipment (1.0%) Affiliated Computer Services Cv 03-15-05 4.00 870,000 1,059,747 Akamai Technologies Cv 07-01-07 5.50 390,000(d) 338,731 Exodus Communications Sr Nts 07-15-10 11.63 1,500,000(d) 1,522,500 Globix Sr Nts 02-01-10 12.50 3,925,000 2,983,000 Hewlett-Packard Zero Coupon Sub Nts 10-14-17 2.42 1,360,000(l) 1,251,785 Hyperion Solutions Cv 03-15-05 4.50 1,075,000 938,583 Juniper Networks 03-15-07 4.75 1,700,000 2,428,076 Mercury Interactive Cv 07-01-07 4.75 1,160,000(d) 1,456,751 Sanmina Cv 05-01-04 4.25 301,000 774,870 Solectron Zero Coupon Cv 05-08-20 3.37 2,356,000(l) 1,558,565 Veritas Software Cv 08-13-06 1.86 130,000 440,863 Total 14,753,471 Electronics (1.3%) Celestica (U.S. Dollar) Zero Coupon Cv 08-01-20 3.41 1,360,000(c,l) 724,200 Conexant Systems Cv 02-01-07 4.00 1,527,000 1,116,619 Cv Sub Nts 02-01-07 4.00 640,000(d) 462,739 Flextronics Intl (U.S. Dollar) Sr Sub Nts 07-01-10 9.88 1,100,000(c,d) 1,141,250 Hyundai Semiconductor (U.S. Dollar) Sr Nts 05-15-07 8.63 8,500,000(c,d) 7,346,193 LSI Logic Cv 02-15-05 4.00 1,100,000 952,875 SCI Systems 03-15-07 3.00 1,700,000 2,162,536 Semtech Cv 02-01-07 4.50 500,000(d) 756,505 Thomas & Betts 01-15-06 6.50 4,500,000 4,340,093 Vitesse Semiconductor Cv 03-15-05 4.00 670,000(d) 687,902 Total 19,690,912 Energy (3.0%) Ashland Medium-term Nts Series J 08-15-05 7.83 5,000,000 4,967,875 Devon Energy Cv Deb 08-15-08 4.90 816,000 775,200 Kerr-McGee 04-01-01 10.00 5,000,000 5,064,800 Lodestar Holdings Company Guaranty 05-15-05 11.50 1,500,000 225,000 PDV America Sr Nts 08-01-03 7.88 7,500,000 7,150,665 Petroliam Nasional Berhd (U.S. Dollar) 08-15-15 7.75 10,000,000(c,d) 9,455,900 Phillips Petroleum 05-25-10 8.75 5,000,000 5,516,543 Pioneer Natl Resources Sr Nts 08-15-07 8.25 4,000,000 3,830,000 Roil (U.S. Dollar) 12-05-02 12.78 1,387,200(c,d) 1,328,244 USX 03-01-08 6.85 6,500,000 6,265,415 Total 44,579,642 Financial services (1.7%) American Tower Cv 02-15-10 5.00 145,000 137,025 CSC Holdings Sr Sub Deb 04-01-23 9.88 5,000,000 5,100,000 Indah Kiat Finance Mauritius (U.S. Dollar) Company Guaranty 07-01-07 10.00 2,530,000(c) 1,467,400 LaBranche Sr Sub Nts 03-01-07 12.00 4,000,000 4,200,000 Ohio Savings Capital Company Guaranty 06-03-27 9.50 5,000,000(d) 4,725,100 Osprey Trust/Osprey 1 01-15-03 8.31 8,100,000(d) 8,158,239 Providian Financial Cv Sr Nts 08-15-05 3.25 1,060,000 1,124,702 Total 24,912,466 Health care (0.2%) Inhale Therapeutic Systems Cv Sub Nts 02-08-07 5.00 850,000(d) 1,212,313 Roche Holdings Zero Coupon Cv 01-19-15 1.34 1,747,000(d,l) 1,669,992 Total 2,882,305 Health care services (1.1%) HCA-The Healthcare 09-01-10 8.75 3,710,000 3,700,577 Paracelsus Healthcare Sr Sub Nts 08-15-06 10.00 5,275,000(b) 1,635,250 Sunrise Assisted Living Cv Sub Nts 06-15-02 5.50 1,700,000 1,496,000 Tenet Healthcare Sr Sub Nts Series B 12-01-08 8.13 10,500,000 9,975,000 Total 16,806,827 Industrial equipment & services (0.5%) Clark Equipment 03-01-01 9.75 5,000,000 5,054,650 Laidlaw (U.S. Dollar) 05-15-06 7.65 10,000,000(b,c) 2,800,000 Total 7,854,650 Insurance (2.3%) Americo Life Sr Sub Nts 06-01-05 9.25 4,500,000 4,207,500 Executive Risk Capital Company Guaranty Series B 02-01-27 8.68 3,500,000 3,390,583 Nationwide CSN Trust 02-15-25 9.88 10,500,000(d) 10,936,999 New England Mutual 02-15-24 7.88 5,000,000(d) 4,887,900 SAFECO Capital Trust Company Guaranty 07-15-37 8.07 5,780,000 5,008,243 Zurich Capital Trust (U.S. Dollar) Company Guaranty 06-01-37 8.38 5,000,000(d) 4,871,860 Total 33,303,085 Leisure time & entertainment (1.8%) Cinemark USA Sr Sub Nts Series B 08-01-08 9.63 5,005,000 1,801,800 Time Warner 08-15-04 7.98 1,500,000 1,534,905 08-15-06 8.11 3,000,000 3,095,520 08-15-07 8.18 3,000,000 3,107,340 02-01-24 7.57 10,000,000 9,559,200 Sr Nts 01-15-28 6.95 5,000,000 4,419,750 United Artists Theatres Series 1995A 07-01-15 9.30 4,552,458 2,749,776 Total 26,268,291 Media (3.6%) Australis Media (U.S. Dollar) 11-01-00 14.00 292,984(b,c,q) 287,394 (U.S. Dollar) Zero Coupon 05-15-03 15.75 10,081,770(b,c,l,q) 1,718 Charter Communications Holdings/Charter Capital Sr Nts 01-15-10 10.25 5,000,000 4,975,000 Cox Communications Cv 04-19-20 .43 1,789,000 843,907 CSC Holdings Sr Sub Debs 05-15-16 10.50 10,000,000 10,749,999 Infinity Broadcasting Company Guaranty 06-15-07 8.88 3,245,000 3,318,013 Lamar Media Company Guaranty 09-15-07 8.63 3,000,000 2,947,500 News America Holdings 10-15-12 10.13 10,000,000 10,537,300 Paxson Communications Sr Sub Nts 10-01-02 11.63 5,000,000 5,118,750 TeleWest Communications (U.S. Dollar) Zero Coupon Sr Disc Nts 04-15-04 9.25 4,275,000(c,m) 2,372,625 TeleWest Finance (U.S. Dollar) Cv Company Guaranty 07-07-05 6.00 830,000(c,d) 707,575 Veninfotel (U.S. Dollar) Cv Pay-in-kind 03-01-02 10.00 6,989,161(c,p,q) 10,483,742 Total 52,343,523 Metals (1.5%) Alcan Aluminum (U.S. Dollar) 01-15-22 8.88 6,750,000(c) 7,001,775 Imexsa Export Trust (U.S. Dollar) 05-31-03 10.13 3,293,516(c,d) 3,194,710 Inco (U.S. Dollar) Cv 03-15-16 7.75 3,010,000(c) 2,648,800 WMC Finance USA (U.S. Dollar) 11-15-13 7.25 10,000,000(c) 9,521,030 Total 22,366,315 Miscellaneous (1.9%) Bistro Trust 12-31-02 9.50 10,000,000(d) 9,510,001 Colonial Capital Company Guaranty Series A 01-15-27 8.92 3,000,000 2,570,127 Continucare Cv Sr Sub Nts 10-31-02 8.00 243,902(d) 48,476 FCB/NC Capital Company Guaranty 03-01-28 8.05 4,625,000 3,921,329 ISG Resources 04-15-08 10.00 4,150,000 3,527,500 Network Associates Zero Coupon Cv Sub Deb 02-13-18 5.81 4,080,000(l) 1,596,830 Normandy Yandal Operations (U.S. Dollar) Sr Nts 04-01-08 8.88 5,250,000(c) 4,620,000 NSM Steel Company Guaranty 02-01-06 12.00 1,577,781(b,d) 63,111 02-01-08 12.25 5,300,000(b,d) 106,000 Outsourcing Solutions Sr Sub Nts Series B 11-01-06 11.00 1,775,000 1,508,750 Total 27,472,124 Multi-industry conglomerates (1.8%) CBS 06-01-01 8.88 5,000,000 5,045,200 Interim Services Cv Sub Nts 06-01-05 4.50 1,080,000 758,603 Jordan Inds Sr Nts Series D 08-01-07 10.38 3,500,000 3,272,500 Metromedia Intl Group Sr Disc Nts Series B 09-30-07 10.50 7,282,500 3,277,125 US Inds/USI America Holding Company Guaranty 10-15-03 7.13 10,000,000 9,845,500 Sr Nts Series B 12-01-06 7.25 5,000,000 4,792,775 Total 26,991,703 Paper & packaging (2.1%) Chesapeake 05-01-03 9.88 5,000,000 5,113,000 Crown Cork & Seal 04-15-23 8.00 5,000,000 4,002,250 Crown Paper Sr Sub Nts 09-01-05 11.00 3,450,000(b) 931,500 Doman Inds (U.S. Dollar) 03-15-04 8.75 3,000,000(c) 2,407,500 Owens-Illinois Sr Nts 05-15-04 7.85 5,000,000 4,727,950 Packaging Corp of America Company Guaranty 04-01-09 9.63 3,220,000 3,300,500 Pactiv 06-15-17 8.13 6,000,000 5,311,020 Repap New Brunswick (U.S. Dollar) Sr Nts 06-01-04 9.00 4,500,000(c) 4,545,000 Total 30,338,720 Restaurants & lodging (0.1%) MGM Mirage 02-06-08 6.88 2,000,000 1,838,380 Retail (1.7%) Eye Care Centers of America Company Guaranty 05-01-08 9.13 2,000,000 740,000 Kroger Sr Nts 07-15-06 8.15 3,000,000 3,018,150 09-15-29 8.00 9,000,000 8,719,650 Target 12-01-22 8.50 3,000,000 3,053,355 Wal-Mart CRAVE Trust 07-17-06 7.00 10,267,374(d) 10,042,108 Total 25,573,263 Textiles & apparel (0.3%) VF Corp 05-01-01 9.50 5,000,000 5,056,550 Transportation (0.2%) Greater Beijing First Expressways (U.S. Dollar) Sr Nts 06-15-07 9.50 2,290,000(b,c) 687,000 Hermes Europe RailTel (U.S. Dollar) Sr Nts 01-15-09 10.38 2,200,000(c) 1,408,000 Zhuhai Highway (U.S. Dollar) Sub Nts 07-01-08 11.50 4,140,000(b,c,d) 828,000 Total 2,923,000 Utilities -- electric (5.5%) Calpine Sr Nts 04-15-06 7.63 9,400,000 9,051,636 Cleveland Electric Illuminating 1st Mtge Series B 05-15-05 9.50 11,000,000 11,145,310 1st Mtge Series E 07-01-23 9.00 4,000,000 4,119,400 CMS Energy Sr Nts 05-15-02 8.13 5,000,000 4,956,300 Connecticut Light & Power 1st Mtge Series C 06-01-02 7.75 5,000,000 5,035,350 Edison Mission Energy Sr Nts 06-15-09 7.73 8,600,000 8,360,421 Hydro-Quebec (U.S. Dollar) Local Govt Guaranty Series 1989HH 12-01-29 8.50 10,000,000(c) 11,153,400 Midland Funding I Series 1991-C 07-23-02 10.33 786,580 803,430 Series 1994-C 07-23-02 10.33 677,581 692,096 Midland Funding II Series A 07-23-05 11.75 5,000,000 5,546,300 NRG Northeast Generating 12-15-04 8.06 2,000,000(d) 2,009,520 06-15-15 8.84 4,000,000(d) 4,141,560 Sithe Independence Funding Series A 12-30-13 9.00 7,500,000 7,611,750 Texas Utilities Electric Medium-term Nts 1st Mtge Series B 03-01-02 9.70 6,000,000 6,221,040 Total 80,847,513 Utilities -- gas (0.9%) El Paso Energy Sr Nts 05-15-09 6.75 5,500,000 5,216,090 Sr Nts Series B 07-15-01 6.63 8,675,000 8,593,195 Total 13,809,285 Utilities -- telephone (7.6%) AT&T Canada (U.S. Dollar) Sr Nts 11-01-08 10.63 4,000,000(c) 4,404,680 (U.S. Dollar) Zero Coupon Sr Disc Nts 06-15-03 9.95 3,800,000(c,m) 3,145,032 Bell Telephone of Pennsylvania 03-15-33 7.38 10,000,000 9,079,699 BellSouth Capital Funding 02-15-30 7.88 12,000,000 11,959,103 COLT Telecom Group (European Monetary Unit) Cv 04-03-07 2.00 2,000,000(c,d) 1,498,133 Geotek Communications Cv Sr Sub Nts 02-15-01 12.00 4,135,000(b) 5,169 Level 3 Communications Cv 03-15-10 6.00 850,000 764,677 McLeod USA Sr Nts 02-15-09 8.13 1,250,000 1,118,750 Metromedia Fiber Network Sr Nts 12-15-09 10.00 1,875,000 1,846,875 New Eng Tel & Tel 08-01-31 9.00 7,500,000 7,522,725 Nextel Communications Cv 11-15-09 9.38 1,200,000 1,176,000 01-15-10 5.25 150,000 147,188 Cv Sr Nts 01-15-10 5.25 700,000(d) 684,306 Primus Telecomm Group Cv 02-15-07 5.75 1,360,000(d) 700,917 02-15-07 5.75 1,350,000 703,688 Sr Nts 01-15-09 11.25 2,000,000 1,260,000 PSINet Sr Nts 12-01-06 10.50 1,100,000 948,750 Qwest Capital Funding Company Guaranty 07-15-28 6.88 9,250,000 8,006,708 Qwest Communications Intl Sr Nts Series B 11-01-08 7.25 1,750,000 1,690,523 11-01-08 7.50 6,250,000 6,190,313 Zero Coupon Sr Disc Nts Series B 02-01-03 8.90 7,000,000(m) 5,725,720 RSL Communications (U.S. Dollar) Company Guaranty 11-15-06 12.25 3,900,000(c) 1,365,000 Sprint Capital Company Guaranty 11-15-08 6.13 10,000,000 8,975,499 05-01-09 6.38 7,000,000 6,362,930 TeleCorp PCS Sr Sub Nts 07-15-10 10.63 910,000(d) 946,400 U S WEST Communications 11-10-26 7.20 10,000,000 8,794,300 United Pan-Europe Communications (U.S. Dollar) Sr Nts Series B 02-01-10 11.25 3,225,000(c) 2,817,844 02-01-10 11.50 1,925,000(c) 1,684,375 Vodafone AirTouch (U.S. Dollar) 02-15-10 7.75 5,900,000(c,d) 5,926,432 Williams Communications Group Sr Nts 08-01-10 11.88 1,100,000(d) 1,100,000 WorldCom 05-15-10 8.25 4,600,000 4,774,602 Total 111,326,338 Municipal bonds (0.5%) New Jersey Economic Development Authority State Pension Funding Revenue Bond (MBIA Insured) 02-15-29 7.43 7,000,000(f) 7,043,540 Total bonds (Cost: $1,456,156,920) $1,394,302,184 Common stocks (0.5%) Issuer Shares Value(a) BayCorp Holdings 28(b) $245 Celcaribe 512,190(b,d) 768,285 Continucare 378,049 189,025 Globix 76,173(b) 2,042,389 Intermedia Communications 2,691(b) 55,838 PhoneTel Technologies 646,000(b,g) 206,720 Price Communications1 48,076(b) 3,035,557 Specialty Foods 15,000(b) 3,750 Wilshire Financial Services Group 617,590(b) 1,003,584 Total common stocks (Cost: $15,752,152) $7,305,393 Preferred stocks & other (1.2%) Issuer Shares Value(a) APP China Group (U.S. Dollar) 5,100(c,d) $2,907,000 Bar Technologies Warrants 4,500 45 Coastal 6.63% Cv PRIDES 38,610(o) 1,479,246 CVS 6.00% Cv 12,650 841,225 Dairy Mart Warrants 10,000 3,500 Dobson Communications 13.00% Pay-in-kind --(p) 377 Equinix Warrants 2,000 440,000 Georgia-Pacific Group 7.50% Cm Cv 32,700 1,060,706 Global Crossing 6.38% Cv 7,600(c,d) 643,150 Ingersoll-Rand 6.75% Cv PRIDES 33,100(o) 750,956 Intermedia Communications 7.00% Cm Cv Series F 18,700(b,d) 299,200 7.00% Cm Cv Series F 20,865 333,840 13.50% Pay-in-kind Series B 3,206(p) 2,180,020 KMC Telecom Holdings Warrants 3,000 6,000 Lincoln Natl 7.75% Cm Cv 33,500 837,500 Metlife Capital 8.00% Cm Cv 18,200 1,446,900 Monsanto 6.50% Cv ACES 18,840(n) 945,533 Nakornthai Strip Mill Warrants 3,355,391 3 Nextel Communications 13.00% Pay-in-kind Series D 1,698(p) 1,816,860 Paxson Communications 12.50% Pay-in-kind Exchangable --(b,p) 124 PLD Telekom Warrants 10,000 300 Sovereign Capital Trust 7.50% Cv 17,900 952,056 Telehub Communications Warrants 2,500 25 Unifi Communications Warrants 7,000 70 Wendys Financing 5.00% Cm Cv Series A2 7,200 1,292,000 Total preferred stocks & other (Cost: $20,940,050) $18,236,636 Short-term securities (3.1%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (2.0%) Federal Home Loan Bank Disc Nts 09-27-00 6.48% $9,000,000 $8,956,463 10-13-00 6.46 3,600,000 3,572,437 10-18-00 6.46 7,300,000 7,237,657 Federal Natl Mtge Assn Disc Nts 09-18-00 6.41 8,800,000 8,770,916 10-12-00 6.47 1,300,000 1,289,826 Total 29,827,299 Commercial paper (1.1%) Alcoa 09-22-00 6.50 3,100,000 3,087,743 Barton Capital 09-07-00 6.54 1,200,000(k) 1,198,476 BellSouth Telecommunications 10-02-00 6.51 4,000,000 3,976,995 Delaware Funding 09-08-00 6.53 1,800,000(k) 1,797,392 Gillette 10-18-00 6.54 1,100,000(k) 1,090,349 Heinz (HJ) 10-04-00 6.55 1,300,000 1,291,872 Motorola 10-26-00 6.56 2,400,000 2,374,994 Variable Funding Capital 10-12-00 6.56 900,000(k) 892,956 Total 15,710,777 Total short-term securities (Cost: $45,548,944) $45,538,076 Total investments in securities (Cost: $1,538,398,066)(r) $1,465,382,289 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c)Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. As of Aug. 31, 2000, the value of foreign securities represented 10.28% of net assets. (d)Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e)Security is partially or fully on loan. See Note 5 to the financial statements. (f)The following abbreviation is used in portfolio descriptions to identify the insurer of the issue: MBIA -- Municipal Bond Investors Assurance
(g)Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with companies that are or were affiliates during the year ended Aug. 31, 2000 are as follows: Issuer Beginning Purchase Sales Ending Dividend Value(a) cost cost cost cost income PhoneTel Technologies* $-- $7,812,117 $-- $7,812,117 $-- $206,720 * Issuer was not an affiliate for the entire year ended Aug. 31, 2000. (h)Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2000. (i)At Aug. 31, 2000, the cost of securities purchased, including interest purchased, on a when-issued basis was $14,956,250. (j)Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2000. (k)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (l)For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (m)For those zero coupon bonds that become coupon paying at a future date, the rate disclosed represents the annualized effective yield from the date of acquisition to interest reset date disclosed. (n)ACES (Automatically Convertible Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. ACES pay dividends, have voting rights, are noncallable for at least three years and upon maturity, convert into shares of common stock. (o)PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. PRIDES pay dividends, have voting rights, are noncallable for three years and upon maturity, convert into shares of common stock. (p)Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (q)Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Aug. 31, 2000, is as follows: Security Acquisition Cost dates Australis Media (U.S. Dollar) 14.00% 2000 12-18-97 thru 02-02-98 $200,991 (U.S. Dollar) 15.75% Zero Coupon 2003 07-03-97 thru 10-29-97 7,422,192 Veninfotel (U.S. Dollar) Cv Pay-in-kind 2002 03-05-97 thru 03-01-99 6,339,375 (r)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $1,536,225,437 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $36,345,154 Unrealized depreciation (107,188,302) ------------ Net unrealized depreciation $(70,843,148)
Investments in Securities AXP VP - Capital Resource Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (99.4%) Issuer Shares Value(a) Banks and savings & loans (4.5%) Bank of America 800,000 $42,850,000 Chase Manhattan 410,000 22,908,750 Firstar 2,300,000 54,912,500 Mellon Financial 1,500,000 67,875,000 State Street 660,000 77,715,000 Total 266,261,250 Beverages & tobacco (1.0%) Coca-Cola 1,100,000 57,887,500 Communications equipment & services (7.5%) Corning 893,863 293,131,198 JDS Uniphase 850,000(b) 105,931,250 Nokia ADR Cl A 946,000(c) 42,510,875 Total 441,573,323 Computer software & services (2.2%) Microsoft 1,900,000(b) 132,643,750 Computers & office equipment (17.2%) Akamai Technologies 155,000(b) 11,712,188 America Online 700,000(b) 41,037,500 Apple Computer 312,400(b) 19,036,875 Cisco Systems 2,800,000(b) 191,799,999 Compaq Computer 810,000 27,590,625 Computer Sciences 800,000(b) 63,250,000 Dell Computer 900,000(b) 39,262,500 EMC 950,000(b) 93,100,000 Exodus Communications 400,000(b) 27,375,000 First Data 1,900,000 90,606,250 Gateway 465,000(b) 31,666,500 Hewlett-Packard 730,000 88,147,500 Intl Business Machines 683,800 90,274,890 Mercury Interactive 241,500(b) 29,508,281 Solectron 2,750,000(b) 124,609,375 Yahoo! 400,000(b) 48,600,000 Total 1,017,577,483 Electronics (9.1%) Intel 3,200,000 239,600,000 Jabil Circuit 2,140,000(b) 136,558,750 KLA-Tencor 300,000(b) 19,687,500 Teradyne 800,000(b) 51,850,000 Texas Instruments 1,400,000 93,712,500 Total 541,408,750 Energy (4.5%) Anadarko Petroleum 1,100,000 72,347,000 Chevron 650,000 54,925,000 Exxon Mobil 900,000 73,462,500 Texaco 1,250,000 64,375,000 Total 265,109,500 Energy equipment & services (2.6%) Halliburton 1,465,000 77,645,000 Schlumberger 905,000 77,207,813 Total 154,852,813 Financial services (5.1%) Citigroup 3,000,000 175,125,000 Merrill Lynch 270,000 39,150,000 Morgan Stanley, Dean Witter, Discover & Co 800,000 86,050,000 Total 300,325,000 Health care (10.1%) American Home Products 850,000 46,059,375 Genentech 170,000(b) 32,385,000 Guidant 1,000,000(b) 67,312,500 Immunex 1,035,000(b) 52,008,750 MedImmune 450,000(b) 37,856,250 Medtronic 1,500,000 76,875,000 Pfizer 3,962,500 171,378,124 Schering-Plough 970,000 38,921,250 Teva Pharmaceutical Inds ADR 1,280,000(c) 77,600,000 Total 600,396,249 Household products (2.6%) Colgate-Palmolive 1,750,000 89,140,625 Kimberly-Clark 1,137,000 66,514,500 Total 155,655,125 Industrial equipment & services (1.0%) Illinois Tool Works 1,078,000 60,435,375 Insurance (2.5%) American Intl Group 1,685,000 150,175,625 Leisure time & entertainment (3.3%) Disney (Walt) 2,545,000 99,095,938 Viacom Cl B 1,472,500(b) 99,117,656 Total 198,213,594 Media (6.2%) Adelphia Communications Cl A 310,000(b) 10,385,000 Clear Channel Communications 1,000,000(b) 72,375,000 Comcast Special Cl A 2,250,000(b) 83,812,500 Infinity Broadcasting Cl A 2,850,000(b) 107,943,750 Univision Communications Cl A 430,000(b) 18,973,750 USA Networks 2,965,000(b) 71,345,313 Total 364,835,313 Miscellaneous (1.8%) Stilwell Financial 1,580,000(b) 76,432,500 TyCom 759,800(b,c) 31,626,675 Total 108,059,175 Multi-industry conglomerates (8.0%) General Electric 4,460,000 261,746,250 Tyco Intl 3,700,000(c) 210,900,000 Total 472,646,250 Retail (5.7%) Circuit City Stores- Circuit City Group 800,000 20,750,000 Costco Wholesale 275,000(b) 9,470,312 CVS 1,750,000 64,968,750 Home Depot 850,000 40,853,125 Kohl's 1,400,000(b) 78,400,000 Safeway 1,300,000(b) 64,106,250 Wal-Mart Stores 1,300,000 61,668,750 Total 340,217,187 Utilities -- gas (2.9%) Enron 2,000,000 169,750,000 Utilities -- telephone (1.5%) Allegiance Telecom 450,000(b) 22,415,625 AT&T Wireless Group 2,512,600(b,e) 65,798,713 Total 88,214,338 Total common stocks (Cost: $3,805,111,184) $5,886,237,600 Short-term securities (1.2%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (0.8%) Federal Home Loan Bank Disc Nts 09-15-00 6.40% $2,100,000 $2,094,234 09-27-00 6.42 10,900,000 10,845,962 09-29-00 6.44 6,500,000 6,465,335 10-06-00 6.44 2,100,000 2,086,119 10-13-00 6.46 4,500,000 4,465,546 Federal Home Loan Mtge Corp Disc Nts 09-05-00 6.40 2,400,000 2,397,870 09-14-00 6.44 1,100,000 1,097,122 Federal Natl Mtge Assn Disc Nts 09-21-00 6.43 600,000 597,645 09-25-00 6.43 3,400,000 3,384,889 10-26-00 6.51 10,000,000 9,895,808 Total 43,330,530 Commercial paper (0.4%) Alcoa 09-22-00 6.50 9,500,000 9,462,438 Gannett 10-06-00 6.56 5,400,000(d) 5,363,079 Heinz (HJ) 10-04-00 6.55 2,000,000 1,987,496 May Department Stores 10-11-00 6.56 1,300,000 1,290,228 SBC Communications 10-17-00 6.58 2,800,000(d) 2,775,910 Xcel Energy 10-03-00 6.56 5,400,000 5,367,231 Total 26,246,382 Total short-term securities (Cost: $69,600,059) $69,576,912 Total investments in securities (Cost: $3,874,711,243)(f) $5,955,814,512 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 6.13% of net assets. (d)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Actof 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (e)Security is partially or fully on loan. See Note 5 to the financial statements. (f)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $3,878,232,331 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,190,914,987 Unrealized depreciation (113,332,806) ------------ Net unrealized appreciation $2,077,582,181 Investments in Securities AXP VP - Cash Management Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Certificates of deposit (2.7%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity Canadian Imperial Bank of Commerce 09-19-00 6.60% $5,000,000 $5,000,000 10-12-00 6.61 5,000,000 5,000,000 10-13-00 6.61 5,000,000 5,000,000 11-01-00 6.66 5,000,000 5,000,000 Morgan Guaranty Trust 04-16-01 6.80 1,000,000 1,000,000 Total certificates of deposit (Cost: $21,000,000) $21,000,000 Commercial paper (95.9%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity Automotive & related (4.1%) DaimlerChrysler North America 10-30-00 6.60% $5,000,000 $4,946,489 10-31-00 6.56 4,000,000 3,956,733 11-13-00 6.58 4,800,000 4,736,831 11-21-00 6.58 3,000,000 2,956,260 11-21-00 6.59 5,000,000 4,926,988 Ford Motor Credit 10-06-00 6.54 3,400,000 3,378,514 10-06-00 6.56 2,500,000 2,484,153 Toyota Motor Credit 09-18-00 6.50 4,400,000(b) 4,386,536 Total 31,772,504 Banks and savings & loans (15.4%) Bank One Canada 10-04-00 6.57 5,000,000 4,970,071 10-10-00 6.54 2,000,000 1,985,938 10-13-00 6.58 5,000,000 4,961,938 10-24-00 6.55 3,000,000 2,971,336 10-25-00 6.55 2,000,000 1,980,530 11-02-00 6.62 4,000,000 3,954,878 11-20-00 6.61 2,000,000 1,971,067 BankAmerica/Nations Bank 10-04-00 6.55 5,000,000 5,000,000 10-19-00 6.63 5,000,000 5,000,000 11-01-00 6.58 4,000,000 4,000,000 11-03-00 6.60 5,000,000 5,000,000 11-06-00 6.58 5,000,000 5,000,000 11-14-00 6.59 5,000,000 5,000,000 11-15-00 6.59 5,000,000 5,000,000 BBV Finance (Delaware) 10-17-00 6.55 6,800,000 6,743,522 11-22-00 6.58 7,000,000 6,896,680 Commerzbank U.S. Finance 09-19-00 6.53 10,000,000 9,967,450 Deutsche Bank Financial 10-23-00 6.58 5,000,000 4,952,911 10-26-00 6.60 5,000,000 4,950,118 11-02-00 6.56 5,000,000 4,944,114 11-22-00 6.58 3,000,000 2,955,720 Societe Generale North America 09-20-00 6.54 5,000,000 4,982,794 09-21-00 6.53 7,000,000 6,974,683 09-25-00 6.54 10,000,000 9,956,600 Total 120,120,350 Broker dealers (14.2%) Bear Stearns 09-05-00 6.64 2,000,000 1,998,524 09-07-00 6.52 4,100,000 4,095,552 09-13-00 6.53 2,000,000 1,995,653 09-14-00 6.54 4,000,000 3,990,582 09-20-00 6.54 4,000,000 3,986,236 11-16-00 6.58 5,000,000 4,931,494 02-26-01 6.70 5,000,000(c) 5,000,000 Goldman Sachs Group 09-18-00 6.56 1,300,000 1,295,985 09-21-00 6.54 3,000,000 2,989,133 10-16-00 6.60 5,000,000 4,959,063 10-20-00 6.59 5,000,000 4,955,560 10-27-00 6.61 3,000,000 2,969,480 11-15-00 6.58 4,400,000 4,340,508 11-16-00 6.59 5,000,000 4,931,389 11-20-00 6.57 3,200,000 3,153,920 11-20-00 6.58 4,000,000 3,942,311 Merrill Lynch 09-05-00 6.52 10,000,000 9,992,756 10-24-00 6.58 4,600,000 4,555,845 Salomon Smith Barney 09-08-00 6.52 2,100,000 2,097,342 09-25-00 6.55 5,000,000 4,978,267 10-02-00 6.56 5,000,000 4,971,928 10-03-00 6.56 5,000,000 4,971,022 10-24-00 6.59 5,000,000 4,951,932 10-30-00 6.57 5,000,000 4,946,736 11-08-00 6.57 2,200,000 2,173,030 11-09-00 6.58 4,000,000 3,950,167 11-15-00 6.59 4,000,000 3,945,833 Total 111,070,248 Chemicals (2.1%) Bayer 09-01-00 6.65 3,900,000(b) 3,900,000 09-26-00 6.53 7,300,000(b) 7,267,049 10-17-00 6.56 5,000,000(b) 4,958,408 Total 16,125,457 Commercial finance (2.2%) CAFCO 09-22-00 6.57 5,000,000(b) 4,980,925 10-18-00 6.59 1,000,000(b) 991,475 Ciesco LP 09-22-00 6.53 2,100,000 2,092,025 10-06-00 6.56 5,000,000 4,968,306 Exxon Mobil Australia 09-29-00 6.51 4,000,000(b) 3,979,840 Total 17,012,571 Communications equipment & services (5.5%) Alcatel 09-13-00 6.53 5,000,000(b) 4,989,133 BellSouth Telecommunications 09-12-00 6.52 3,000,000 2,994,033 10-02-00 6.52 5,300,000(b) 5,270,426 Lucent Technologies 09-01-00 6.49 8,300,000 8,300,000 Motorola 10-20-00 6.55 5,000,000 4,955,832 10-26-00 6.55 6,600,000 6,534,559 11-22-00 6.58 2,000,000 1,970,480 Verizon Communications 10-05-00 6.52 5,000,000 4,969,400 10-05-00 6.54 3,000,000 2,981,583 Total 42,965,446 Energy (0.8%) Chevron Transport 10-19-00 6.57 6,400,000(b) 6,344,448 Financial services (17.1%) Amsterdam Funding 09-15-00 6.54 3,500,000(b) 3,491,126 10-04-00 6.57 2,500,000(b) 2,485,035 Associates Corp North America 10-23-00 6.55 5,000,000 4,953,128 Associates First Capital 09-11-00 6.52 5,000,000 4,990,958 09-14-00 6.53 7,300,000 7,282,839 CIT Group Holdings 10-05-00 6.57 5,000,000 4,969,164 10-16-00 6.54 3,500,000 3,471,606 10-30-00 6.56 5,000,000 4,946,818 10-31-00 6.56 4,000,000 3,956,733 11-07-00 6.57 5,000,000 4,939,607 Corporate Receivables 10-11-00 6.57 5,000,000(b) 4,963,778 10-17-00 6.55 1,000,000(b) 991,694 Delaware Funding 10-10-00 6.55 3,800,000(b) 3,773,242 10-24-00 6.56 3,000,000(b) 2,971,292 Enterprise Funding 10-27-00 6.60 2,500,000(b) 2,474,606 Falcon Asset 09-07-00 6.53 1,000,000(b) 998,913 10-17-00 6.57 5,000,000(b) 4,958,344 Fleet Funding 09-22-00 6.54 5,000,000(b) 4,980,983 Household Finance 09-18-00 6.54 2,100,000 2,093,534 09-19-00 6.54 4,000,000 3,986,960 10-25-00 6.59 5,000,000 4,951,025 Intl Lease Finance 11-07-00 6.59 4,700,000 4,643,056 Paccar Financial 11-02-00 6.59 3,900,000 3,856,207 11-10-00 6.57 3,500,000 3,455,832 11-20-00 6.57 3,900,000 3,843,840 Preferred Receivables 09-11-00 6.53 6,000,000(b) 5,989,133 09-14-00 6.54 1,000,000(b) 997,646 Receivables Capital 09-12-00 6.52 3,800,000(b) 3,792,441 09-20-00 6.54 3,500,000(b) 3,487,956 09-22-00 6.57 2,000,000(b) 1,992,370 Sheffield Receivables 09-15-00 6.55 3,000,000(b) 2,992,382 10-02-00 6.57 3,000,000(b) 2,983,131 Three Rivers Funding 09-01-00 6.65 5,000,000 5,000,000 Variable Funding Capital 09-08-00 6.56 5,000,000(b) 4,993,632 10-10-00 6.57 1,000,000(b) 992,937 Windmill Funding 09-12-00 6.53 2,000,000(b) 1,996,016 09-14-00 6.54 1,000,000(b) 997,646 Total 134,645,610 Food (2.4%) Cargill Asia Pacific 09-01-00 6.66 5,000,000(b) 5,000,000 Heinz (HJ) 10-18-00 6.54 5,000,000 4,957,700 10-20-00 6.55 9,100,000 9,019,614 Total 18,977,314 Health care (2.4%) Glaxo Wellcome 09-07-00 6.54 9,800,000(b) 9,789,334 09-13-00 6.52 2,900,000(b) 2,893,707 11-09-00 6.56 3,000,000(b) 2,962,740 11-17-00 6.57 3,000,000(b) 2,958,420 Total 18,604,201 Insurance (1.8%) American General 09-18-00 6.54 2,500,000 2,492,303 10-12-00 6.55 4,900,000 4,863,726 American General Finance 10-23-00 6.55 3,000,000 2,971,877 11-06-00 6.56 3,900,000 3,853,668 Total 14,181,574 Media (5.9%) Gannett 10-05-00 6.54 5,000,000(b) 4,969,306 10-25-00 6.55 5,000,000(b) 4,951,325 11-21-00 6.59 7,000,000(b) 6,897,783 11-21-00 6.60 7,000,000(b) 6,897,625 Reed Elsevier 09-08-00 6.52 5,000,000(b) 4,993,671 10-11-00 6.53 9,500,000(b) 9,431,599 10-19-00 6.56 3,000,000 2,974,000 10-26-00 6.57 5,000,000(b) 4,950,347 Total 46,065,656 Metals (3.1%) Alcoa 09-06-00 6.53 10,000,000 9,990,944 10-10-00 6.56 3,400,000 3,376,022 10-12-00 6.53 5,000,000 4,963,100 10-16-00 6.53 3,400,000 3,372,460 11-17-00 6.56 2,700,000 2,662,636 Total 24,365,162 Miscellaneous (1.5%) Barton Capital 10-05-00 6.54 6,000,000(b) 5,963,166 CXC 09-25-00 6.56 1,000,000(b) 995,647 10-10-00 6.59 5,000,000(b) 4,964,575 Total 11,923,388 Multi-industry conglomerates (4.6%) GE Capital Intl Funding 09-01-00 6.53 4,000,000(b) 4,000,000 09-08-00 6.52 5,000,000(b) 4,993,671 09-21-00 6.54 3,000,000(b) 2,989,133 10-25-00 6.58 2,000,000(b) 1,980,440 10-31-00 6.59 4,000,000(b) 3,956,533 11-07-00 6.58 2,000,000 1,975,806 11-08-00 6.58 5,000,000(b) 4,938,611 11-13-00 6.58 4,000,000(b) 3,947,359 General Electric Capital 09-01-00 6.67 5,000,000 5,000,000 11-08-00 6.58 2,000,000 1,975,444 Total 35,756,997 Retail (4.6%) May Department Stores 10-27-00 6.58 6,800,000 6,731,139 11-13-00 6.60 7,000,000 6,907,595 11-14-00 6.60 4,700,000 4,637,106 Wal-Mart Stores 09-26-00 6.53 5,800,000(b) 5,773,819 10-03-00 6.52 6,600,000(b) 6,561,984 10-03-00 6.54 5,500,000(b) 5,468,222 Total 36,079,865 Utilities -- electric (4.5%) Natl Rural Utilities 09-21-00 6.52 7,300,000 7,273,639 10-23-00 6.53 4,700,000 4,656,076 11-14-00 6.56 5,000,000 4,933,503 11-14-00 6.57 3,000,000 2,960,040 11-16-00 6.57 3,000,000 2,958,960 Xcel Energy 10-03-00 6.56 8,700,000 8,649,579 10-30-00 6.60 3,900,000 3,858,262 Total 35,290,059 Utilities -- telephone (3.7%) AT&T 09-18-00 6.53 2,200,000 2,193,237 10-02-00 6.53 3,000,000 2,983,234 Bell Atlantic Finance Services 09-29-00 6.54 5,000,000 4,974,684 10-05-00 6.55 5,000,000 4,969,259 10-12-00 6.58 1,100,000 1,091,819 10-13-00 6.56 2,600,000 2,580,253 SBC Communications 09-25-00 6.53 3,300,000(b) 3,285,700 09-26-00 6.53 2,200,000(b) 2,190,069 10-26-00 6.55 4,900,000(b) 4,851,415 Total 29,119,670 Total commercial paper (Cost: $750,420,520) $750,420,520 Letters of credit (1.5%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity Bank of America-AES Shady Point 11-08-00 6.58% $2,000,000 $1,975,444 Toronto Dominion Bank-Presbyterian Healthcare Services 09-06-00 6.57 10,000,000 9,990,889 Total letters of credit (Cost: $11,966,333) $11,966,333 Total investments in securities (Cost: $783,386,853)(d) $783,386,853 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (c)Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate n Aug. 31, 2000. (d)Also represents the cost of securities for federal income tax purposes at Aug. 31, 2000. Investments in Securities AXP VP - Diversified Equity Income Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (97.4%) Issuer Shares Value(a) Aerospace & defense (1.8%) Boeing 4,901 $262,682 Goodrich (BF) 3,568 145,553 Total 408,235 Automotive & related (1.1%) Ford Motor 10,036 243,026 Visteon 737 11,562 Total 254,588 Banks and savings & loans (11.7%) Bank of America 11,686 625,171 Bank of New York 7,312 383,192 First Union 5,966 172,641 FleetBoston Financial 12,704 541,655 Mellon Financial 10,514 475,477 Wells Fargo 11,035 476,658 Total 2,674,794 Beverages & tobacco (3.0%) Anheuser-Busch 4,027 317,378 Philip Morris 12,700 376,237 Total 693,615 Building materials & construction (0.5%) Martin Marietta Materials 2,772 110,833 Chemicals (1.1%) Dow Chemical 2,919 76,437 Du Pont (EI) de Nemours 4,063 182,373 Total 258,810 Communications equipment & services (1.4%) Motorola 8,916 321,402 Computers & office equipment (5.2%) Compaq Computer 5,394 183,627 Electronic Data Systems 2,196 109,409 Equant ADR 1,714(b,c) 65,846 First Data 3,125 149,039 Hewlett-Packard 1,120 135,204 Intl Business Machines 1,981 261,487 Solectron 6,229(b) 282,235 Total 1,186,847 Electronics (0.9%) Natl Semiconductor 2,181(b) 96,962 Texas Instruments 1,735 116,095 Total 213,057 Energy (9.3%) Chevron 7,635 645,158 Conoco Cl A 12,720 320,472 Conoco Cl B 3,569 93,240 Exxon Mobil 9,854 804,379 Kerr-McGee 4,163 263,071 Total 2,126,320 Energy equipment & services (0.9%) Halliburton 3,710 196,630 Financial services (15.7%) Alliance Capital Management Holding LP 9,869(d) 511,030 Citigroup 18,401 1,074,177 Fannie Mae 4,510 242,434 Lehman Brothers Holdings 1,933 280,071 MBNA 10,159 358,740 Morgan Stanley, Dean Witter, Discover & Co 5,357 575,947 Providian Financial 4,617 530,526 Total 3,572,925 Food (2.2%) General Mills 9,511 305,497 SUPERVALU 13,235 197,763 Total 503,260 Health care (6.8%) American Home Products 5,508 298,465 Baxter Intl 4,328 360,305 Pfizer 7,263 314,031 Pharmacia 5,753 336,910 Watson Pharmaceuticals 4,018(b) 247,726 Total 1,557,437 Household products (2.7%) Colgate-Palmolive 6,002 305,727 Kimberly-Clark 5,418 316,953 Total 622,680 Industrial equipment & services (2.1%) Illinois Tool Works 4,379 245,519 Parker-Hannifin 6,382 222,158 Total 467,677 Insurance (5.3%) American Intl Group 8,932 796,065 Marsh & McLennan 3,380 401,353 Total 1,197,418 Leisure time & entertainment (1.8%) Viacom Cl B 6,202(b) 417,472 Media (1.4%) Adelphia Communications Cl A 1,712(b) 57,343 USA Networks 10,576(b) 254,653 Total 311,996 Metals (0.9%) Alcoa 6,145 204,252 Miscellaneous (1.7%) Stilwell Financial 8,098(b) 391,741 Paper & packaging (0.9%) Intl Paper 6,643 211,711 Retail (5.2%) Circuit City Stores-Circuit City Group 10,864 282,038 CVS 9,972 370,613 Gap 8,509 190,664 Target 15,136 351,924 Total 1,195,239 Utilities -- electric (2.9%) Dominion Resources 3,569 188,991 Duke Energy 4,886 365,406 PPL 3,171 106,194 Total 660,591 Utilities-- gas (1.8%) Coastal 2,893 199,288 El Paso Energy 1,678 97,744 Williams Companies 2,549 117,374 Total 414,406 Utilities -- telephone (8.9%) ALLTEL 991 50,125 AT&T 13,508 425,502 AT&T Wireless Group 6,244(b) 163,471 BellSouth 7,412 276,266 Intermedia Communications 56(b) 1,162 SBC Communications 4,457 186,120 Sprint (PCS Group) 1,943(b) 97,519 Telefonica de Espana ADR 812(b,c) 46,541 Telefonos de Mexico ADR Cl L 913(c) 49,659 Verizon 10,113 441,180 WorldCom 7,846(b) 286,429 Total 2,023,974 Total common stocks (Cost: $21,301,581) $22,197,910 Short-term security (3.0%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency Federal Home Loan Bank Disc Nt 10-18-00 6.46% $700,000 $694,022 Total short-term security (Cost: $694,147) $694,022 Total investments in securities (Cost: $21,995,728)(e) $22,891,932 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 0.71% of net assets. (d)The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $22,039,477 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,294,446 Unrealized depreciation (1,441,991) ---------- Net unrealized appreciation $852,455 AXP VP - Emerging Markets Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (91.8%)(c) Issuer Shares Value(a) Brazil (13.5%) Banks and savings & loans (1.1%) Uniao de Bancos Brasileiros GDR 1,800 $61,200 Communications equipment & services (2.3%) Brasil Telecom Participacoes ADR 1,800 126,788 Energy (3.9%) Petroleo Brasileiro ADR 3,587 111,457 Petroleo Brasileiro ADR 3,330(b) 105,936 Total 217,393 Miscellaneous (1.0%) Tele Centro Oeste Celular Participacoes ADR 4,500 57,375 Utilities -- electric (2.0%) Companhia Paranaense de Energia ADR 11,700 113,344 Utilities -- telephone (3.2%) Tele Norte Leste Participacoes ADR 7,100 181,050 Chile (3.6%) Retail (0.9%) Distribucion y Servicio D&S ADR 1,900 32,775 Utilities -- electric (0.7%) Enersis ADR 2,200(b) 37,950 Utilities -- telephone (2.0%) Compania de Telecomunicaciones de Chile ADR 6,500(b) 114,563 China (1.0%) Energy Shanghai Petrochemical Series H 360,000 59,082 Greece (3.0%) Banks and savings & loans (2.1%) Alpha Bank 2,277 69,097 Natl Bank of Greece 1,386 47,314 Total 116,411 Utilities -- telephone (0.9%) Hellenic Telecommunications Organization 2,836 52,943 Hong Kong (6.4%) Communications equipment & services (3.5%) China Mobile 18,000(b) $138,473 China Unicom 22,000(b) 51,056 Total 189,529 Computers & office equipment (1.5%) Legend Holdings 80,000 85,136 Financial services (1.4%) Hong Kong Exchanges & Clearing 38,000(b) 78,687 Hungary (2.0%) Banks and savings & loans OTP Bank GDR 2,050 110,188 India (6.6%) Beverages & tobacco (1.7%) ITC GDR 5,000 95,626 Building materials & construction (0.7%) Gujarat Ambuja Cements GDR 9,000(b,d) 41,625 Computer software & services (0.5%) SSI GDR 3,700(b,d) 27,473 Computers & office equipment (2.2%) Infosys Technologies ADR 800 124,812 Miscellaneous (0.7%) Videsh Sanchar Nigam GDR 3,700(d) 40,423 Textiles & apparel (0.8%) Reliance Inds GDR 2,850(d) 46,811 Israel (5.1%) Banks and savings & loans (1.2%) Bank Hapoalim 21,000 66,916 Communications equipment & services (1.1%) NICE-Systems ADR 800(b) 64,000 Electronics (2.0%) Orbotech 1,170(b) 113,271 Miscellaneous (0.8%) Partner Communications ADR 4,500(b) 42,750 Malaysia (2.8%) Electronics (0.8%) Malaysian Pacific Inds 5,000 43,421 Leisure time & entertainment (0.9%) Tanjong Public 23,000 49,934 Utilities -- electric (1.1%) Tenaga Nasional 19,000 63,500 Mexico (11.3%) Banks and savings & loans (2.9%) Grupo Financiero Banamex Accival Cl O 11,100(b) 56,672 Grupo Financiero BBVA Bancomer Cl O 215,400(b) 108,455 Total 165,127 Beverages & tobacco (2.1%) Fomento Economico Mexicano ADR 1,300 59,231 Grupo Modelo Cl C 24,500 61,080 Total 120,311 Building materials & construction (1.0%) Cemex ADR 2,300 53,906 Media (1.0%) Grupo Televisa GDR 900(b) 58,275 Multi-industry conglomerates (1.0%) Alfa Cl A 20,000 55,076 Retail (1.0%) Organizacion Soriana Cl B 13,400 57,789 Utilities -- telephone (2.2%) Telefonos de Mexico ADR Cl L 2,250 122,484 Russia (6.2%) Communications equipment & services (1.9%) Mobile Telesystems ADR 3,680(b) 107,180 Energy (3.2%) Lukoil Holding ADR 2,800 179,200 Miscellaneous (1.1%) Surgutneftegaz ADR 3,181 62,029 South Africa (3.9%) Banks and savings & loans (0.8%) African Bank Investments 39,400(b) 42,098 Metals (1.2%) Anglo American Platinum 1,700 66,464 Multi-industry conglomerates (1.1%) Johnnic Holdings 4,500 62,280 Retail (0.8%) Profurn 65,000(b) 43,349 South Korea (8.7%) Communications equipment & services (1.3%) SK Telecom ADR 2,800 71,750 Electronics (3.6%) Samsung Electronics GDR 1,600 201,600 Utilities -- electric (2.3%) Korea Electric Power ADR 7,550 127,406 Utilities -- telephone (1.5%) Korea Telecom ADR 2,200 83,325 Taiwan (12.3%) Computers & office equipment (1.4%) Synnex Technology Intl GDR 5,005 79,517 Electronics (10.3%) Hon Hai Precision Inds GDR 7,540(d) 133,647 Macronix Intl ADR 1,800 39,375 Siliconware Precision Inds ADR 8,000(b) 58,000 Taiwan Semiconductor Mfg ADR 6,297(b) 220,394 Winbond Electronics GDR 5,070(d) 126,623 Total 578,039 Industrial equipment & services (0.6%) Advanced Semicondutor Engineering GDR 3,945 36,393 Thailand (0.9%) Media BEC World Public 8,000 48,529 Turkey (3.2%) Banks and savings & loans (1.6%) Turkiye Garanti Bankasi 1,802,000(b) 18,439 Yapi ve Kredi Bankasi 8,559,000 71,896 Total 90,335 Furniture & appliances (0.8%) Arcelik 1,425,000 45,160 Media (0.8%) Hurriyet Gazetecilik ve Matbaacilik 4,250,000 46,735 United Kingdom (1.3%) Metals Billiton ADR 18,000 70,975 Total common stocks (Cost: $5,282,358) $5,130,308 Short-term security (8.8%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agency Federal Home Loan Bank Disc Nt 10-06-00 6.44% $500,000 $496,695 Total short-term security (Cost: $496,889) $496,695 Total investments in securities (Cost: $5,779,247)(e) $5,627,003 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. (d)Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $5,795,456 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $349,412 Unrealized depreciation (517,865) -------- Net unrealized depreciation $(168,453) Investments in Securities AXP VP - Extra Income Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Bonds (78.4%) Issuer Coupon Principal Value(a) rate amount Aerospace & defense (1.8%) BE Aerospace Sr Sub Nts Series B 03-01-08 8.00% $1,800,000 $1,588,500 Compass Aerospace Company Guaranty Series B 04-15-05 10.13 2,220,000 327,450 Fairchild Company Guaranty 04-15-09 10.75 4,950,000 3,910,500 Sequa Sr Nts 08-01-09 9.00 5,000,000 4,987,500 Total 10,813,950 Automotive & related (3.5%) EV Intl Company Guaranty Series A 03-15-07 11.00 2,500,000 1,737,500 French (JL) Auto Casting Company Guaranty Series B 06-01-09 11.50 4,125,000 3,444,375 Hayes Lemmerz Intl Company Guaranty Series B 07-15-07 9.13 3,200,000 2,928,000 Lear Company Guaranty Series B 05-15-09 8.11 5,000,000 4,754,350 MSX Intl Company Guaranty 01-15-08 11.38 2,725,000 2,616,000 Oxford Automotive Company Guaranty Series D 06-15-07 10.13 2,675,000 2,434,250 Venture Holdings Trust Sr Nts Series B 07-01-05 9.50 3,750,000 3,000,000 Total 20,914,475 Beverages & tobacco (0.4%) Canandaigua Brands Company Guaranty 03-01-09 8.50 2,500,000 2,400,000 Chemicals (2.4%) Allied Waste North America Company Guaranty Series B 01-01-09 7.88 3,650,000 3,289,563 08-01-09 10.00 4,775,000 4,261,687 Lyondell Chemical Series B 05-01-07 9.88 3,800,000 3,861,754 Sovereign Specialty Chemical 03-15-10 11.88 1,500,000 1,537,500 Sterling Chemicals Company Guaranty Series B 07-15-06 12.38 1,000,000 1,032,500 Total 13,983,004 Commercial finance (0.1%) Advance Holding Zero Coupon Series B 04-15-03 12.88 1,900,000(g) 760,000 Communications equipment & services (12.4%) 360networks (U.S. Dollar) Sr Nts 05-01-08 13.00 2,060,000(c,d) 1,987,900 08-01-09 12.00 400,000(c) 360,000 Birch Telecom Sr Nts 06-15-08 14.00 3,000,000 1,796,250 Cable Satisfaction Intl 03-01-10 12.75 1,155,000 1,027,950 Caprock Communications Sr Nts Series B 07-15-08 12.00 3,250,000 2,080,000 Covad Communications Group Sr Nts 02-15-09 12.50 2,000,000 1,570,000 DLJ Secured Loan Trust Sr Secured Ctfs 07-07-07 10.13 2,000,000(d) 2,086,800 07-09-07 11.00 2,500,000(d) 2,500,000 Dobson/Sygnet Communications Sr Nts 12-15-08 12.25 3,400,000 3,468,000 EchoStar DBS Sr Nts 02-01-09 9.38 4,200,000 4,163,250 Equinix Sr Nts 12-01-07 13.00 1,680,000 1,344,000 Esprit Telecom Group (U.S. Dollar) Sr Nts 12-15-07 11.50 3,850,000(c) 2,233,000 06-15-08 10.88 3,000,000(c) 1,650,000 GST Telecommunications Sr Sub Nts 11-15-07 12.75 750,000(b) 135,000 GT Group Telecom (U.S. Dollar) Zero Coupon 02-01-05 13.25 4,110,000(c,d,g) 2,116,650 IPCS Zero Coupon 07-15-05 14.00 3,155(d,g) 1,877,225 KMC Telecom Holdings Sr Nts 05-15-09 13.50 3,000,000 2,400,000 Zero Coupon Sr Disc Nts 02-15-03 12.68 1,500,000(g) 570,000 MJD Communications Sr Sub Nts Series B 05-01-08 9.50 1,100,000 968,000 Nextel Partners Sr Nts 03-15-10 11.00 1,100,000(d) 1,100,000 NTL Sr Nts Series B 02-15-07 10.00 3,000,000 2,910,000 Zero Coupon Sr Nts Series B 02-01-01 11.40 5,000,000(g) 4,706,250 NTL Communications Zero Coupon Sr Nts Series B 10-01-03 12.38 1,500,000(g) 975,000 Orius Capital Sr Sub Nts 02-01-10 12.75 1,100,000(d) 1,133,000 Price Communications Wireless Company Guaranty Series B 12-15-06 9.13 8,550,000 8,635,501 Rhythms NetConnections Sr Nts 04-15-09 12.75 1,750,000 1,102,500 02-15-10 14.00 2,250,000 1,462,500 Spectrasite Holdings Zero Coupon Sr Disc Nts 04-15-04 11.25 4,225,000(g) 2,577,250 Tele1 Europe (U.S. Dollar) Sr Nts 05-15-09 13.00 2,000,000(c) 1,990,000 Telehub Communications Zero Coupon Company Guaranty 07-31-01 13.88 3,000,000(g) 600,000 UbiquiTel Zero Coupon Company Guaranty 04-15-05 14.00 4,900,000(g) 2,548,000 Versatel Telecom (U.S. Dollar) Sr Nts 05-15-08 13.25 2,800,000(c) 2,632,000 Vialog Company Guaranty 11-15-01 12.75 3,720,000 3,124,800 Voicestream Wireless Sr Nts 11-15-09 10.38 4,193,748 4,529,248 Total 74,360,074 Computers & office equipment (1.8%) Concentric Network Sr Nts 12-15-07 12.75 1,600,000 1,608,000 Cooperative Computing Sr Sub Nts 02-01-08 9.00 2,840,000 1,136,000 Exodus Communications Sr Nts 07-15-10 11.63 2,675,000(d) 2,715,125 Globix Sr Nts 02-01-10 12.50 6,925,000 5,263,000 Verio Sr Nts 04-01-05 10.38 250,000 275,135 Total 10,997,260 Electronics (0.3%) Flextronics Intl (U.S. Dollar) Sr Sub Nts 07-01-10 9.88 1,460,000(c,d) 1,514,750 Energy (2.0%) AES Drax Energy 08-30-10 11.50 1,600,000(d) 1,672,000 Energy Corp of America Sr Sub Nts Series A 05-15-07 9.50 3,050,000 2,135,000 Hurricane Hydrocarbons (U.S. Dollar) Sr Nts 11-01-04 16.00 1,313,384(b,c,d) 1,313,384 Lodestar Holdings Company Guaranty 05-15-05 11.50 5,565,000 834,750 Ocean Energy Company Guaranty Series B 07-01-08 8.38 2,750,000 2,743,125 Rayovac Sr Sub Nts Series B 11-01-06 10.25 2,412,000 2,484,360 Roil (U.S. Dollar) 12-05-02 12.78 693,600(c,d) 664,122 Total 11,846,741 Energy equipment & services (0.1%) Seven Seas Petroleum Sr Nts Series B 05-15-05 12.50 2,000,000 500,000 Financial services (2.0%) AOA Holdings LLC Sr Nts 06-01-06 10.38 2,500,000 2,400,000 Gemini Inds 12-23-01 13.50 1,507,500(b,i) 150,750 Indah Kiat Finance Mauritius (U.S. Dollar) Company Guaranty 07-01-07 10.00 1,955,000(c) 1,133,900 LaBranche Sr Sub Nts 03-01-07 12.00 3,200,000 3,360,000 RBF Finance Company Guaranty 03-15-09 11.38 4,060,000 4,689,300 Total 11,733,950 Food (1.0%) Aurora Foods Sr Sub Nts Series B 02-15-07 9.88 705,000 549,900 Sr Sub Nts Series D 02-15-07 9.88 4,375,000 3,412,500 RAB Enterprises Company Guaranty 05-01-05 10.50 2,400,000 1,704,000 Total 5,666,400 Health care (0.2%) Alaris Medical Systems Company Guaranty 12-01-06 9.75 1,475,000 1,069,375 Health care services (2.8%) Fountain View Company Guaranty Series B 04-15-08 11.25 1,450,000 217,500 Genesis Health Ventures Sr Sub Nts 10-01-06 9.25 1,700,000(b) 153,000 HCA-The Healthcare 09-01-10 8.75 1,375,000 1,371,508 Magellan Health Services Sr Sub Nts 02-15-08 9.00 4,100,000 2,357,500 Oxford Health Plans Sr Nts 05-15-05 11.00 4,575,000 4,803,749 Paracelsus Healthcare Sr Sub Nts 08-15-06 10.00 4,385,000(b) 1,359,350 Physician Sales & Service Company Guaranty 10-01-07 8.50 1,400,000 1,344,000 Tenet Healthcare Sr Nts 09-01-10 9.25 2,225,000(d) 2,308,438 Sr Sub Nts Series B 12-01-08 8.13 2,950,000 2,802,500 Total 16,717,545 Industrial equipment & services (2.1%) Blount Company Guaranty 06-15-05 7.00 2,175,000 1,870,500 Fairfield Mfg Sr Sub Nts 10-15-08 9.63 3,300,000 2,805,000 Grove Holdings/Capital LLC Zero Coupon 05-01-03 11.63 1,000,000(b,g) 10,000 Grove Inds LLC 05-01-10 14.50 930,165 32,556 Motor & Gears Sr Nts Series D 11-15-06 10.75 5,250,000 5,105,625 Thermadyne Holdings Zero Coupon 06-01-03 12.50 3,000,000(g) 1,083,750 Thermadyne Mfg Company Guaranty 06-01-08 9.88 2,000,000 1,540,000 Total 12,447,431 Insurance (0.4%) Americo Life Sr Sub Nts 06-01-05 9.25 2,700,000 2,524,500 Leisure time & entertainment (5.7%) Alliance Atlantis Communications (U.S. Dollar) Sr Sub Nts 12-15-09 13.00 1,750,000(c) 1,793,750 Cinemark USA Sr Sub Nts Series B 08-01-08 9.63 3,050,000 1,098,000 Coast Hotels & Casino Company Guaranty 04-01-09 9.50 2,805,000 2,762,925 Hammons (JQ) Hotels 1st Mtge 02-15-04 8.88 2,500,000 2,312,500 Hollywood Casino Shreveport 1st Mtge 08-01-06 13.00 1,500,000 1,608,750 Horseshoe Gaming Holdings Company Guaranty 06-15-07 9.38 1,380,000 1,373,100 05-15-09 8.63 1,620,000 1,579,500 Icon Health & Fitness Company Guaranty 09-27-05 12.00 444,000(d) 288,600 Isle of Capri Casinos/Capital 1st Mtge Series B 08-31-04 13.00 2,750,000 2,997,500 Lodgenet Entertainment Sr Nts 12-15-06 10.25 2,000,000 2,000,000 Mandalay Resort Group Sr Nts 08-01-08 9.50 800,000(d) 820,000 Premier Cruises Sr Nts 03-15-08 11.00 2,000,000(b,d,h,i) -- Premier Parks Sr Nts 04-01-06 9.25 2,100,000 1,963,500 06-15-07 9.75 2,550,000 2,428,875 Regal Cinemas Sr Sub Nts 06-01-08 9.50 1,260,000 113,400 12-15-10 8.88 1,250,000 112,500 Station Casinos Sr Sub Nts 07-01-10 9.88 605,000 601,975 Trump Atlantic City Assn/Funding 1st Mtge Company Guaranty 05-01-06 11.25 11,400,000 7,695,000 Trump Holdings & Funding Sr Nts 06-15-05 15.50 700,000 420,000 United Artists Theatres Series 1995A 07-01-15 9.30 2,685,957 1,622,372 Sr Sub Nts Series B 04-15-08 9.75 4,505,000(b) 90,100 Total 33,682,347 Media (8.9%) Adelphia Communications Zero Coupon Sr Nts Pay-in-kind Series B 02-15-04 9.50 60,991(e,j) 58,551 AMFM Zero Coupon Sr Disc Nts 02-01-02 7.49 1,000,000(g) 940,000 AMFM Operating Pay-in-kind 10-31-06 12.63 1,060,700(j) 1,211,850 Australis Holdings (U.S. Dollar) Zero Coupon Sr Disc Nts 11-01-00 13.35 2,260,000(b,c,g,i) 11,300 Australis Media (U.S. Dollar) 11-01-00 14.00 197,041(c,i) 193,282 05-15-03 15.75 4,547,958(b,c,i) 885 Benedek Communications Zero Coupon Sr Disc Nts 05-15-01 13.89 2,750,000(g) 2,282,500 Big City Radio Zero Coupon Company Guaranty 03-15-01 11.25 2,000,000(g) 1,180,000 Capstar Broadcasting Sub Deb Pay-in-kind 07-01-09 12.00 1,123,600(j) 1,280,904 Charter Communications Holdings LLC/Capital Sr Nts 04-01-09 8.63 2,000,000 1,830,000 Charter Communications Holdings/Charter Capital Sr Nts 04-01-09 10.00 2,400,000 2,400,000 01-15-10 10.25 2,250,000 2,238,750 Charter Communications LLC/Capital Zero Coupon Sr Disc Nts 04-01-04 14.16 4,350,000(g) 2,610,000 Coaxial Communications/Phoenix Company Guaranty 08-15-06 10.00 2,215,000 2,181,775 Golden Sky Systems Company Guaranty Series B 08-01-06 12.38 1,500,000 1,650,000 MDC Communications (U.S. Dollar) Sr Sub Nts 12-01-06 10.50 3,250,000(c) 3,120,000 Paxson Communications Sr Sub Nts 10-01-02 11.63 4,350,000 4,453,313 Pegasus Media & Communications Series B 07-01-05 12.50 1,500,000 1,575,000 Sr Nts Series B 10-15-05 9.63 5,180,000 5,154,099 Radio Unica Zero Coupon Company Guaranty 08-01-02 11.74 2,500,000(g) 1,725,000 Regional Independent Medical (U.S. Dollar) Sr Nts 07-01-08 10.50 2,600,000(c) 2,704,000 Sinclair Broadcasting Group Company Guaranty 07-15-07 9.00 2,950,000 2,743,500 Telemundo Holdings Zero Coupon Sr Disc Nts Series B 08-15-03 11.50 4,000,000(g) 2,780,000 TeleWest Communications (U.S. Dollar) Sr Nts 11-01-08 11.25 2,000,000(c) 1,980,000 (U.S. Dollar) Zero Coupon Sr Disc Nts 04-15-04 8.96 4,100,000(c,g) 2,275,500 Veninfotel (U.S. Dollar) Cv Pay-in-kind 03-01-02 10.00 1,215,506(c,i,j) 1,823,259 WRC Media/Weekly Read/Compass Sr Sub Nts 11-15-09 12.75 2,500,000 2,275,000 Total 52,678,468 Metals (2.5%) AK Steel Company Guaranty 02-15-09 7.88 3,000,000 2,797,500 EnviroSource Sr Nts 06-15-03 9.75 2,000,000 620,000 Great Lakes Acquisition Zero Coupon Series B 05-15-03 21.06 2,635,000(g) 1,133,050 Great Lakes Carbon Company Guaranty Pay-in-kind Series B 05-15-08 10.25 1,060,000(j) 837,400 Imexsa Export Trust (U.S. Dollar) 05-31-03 10.13 659,636(c,d) 639,847 Maxxam Group Holdings Sr Nts Series B 08-01-03 12.00 2,000,000 1,840,000 Natl Steel 1st Mtge Series D 03-01-09 9.88 2,300,000 2,018,250 Ormet Company Guaranty 08-15-08 11.00 1,600,000(d) 1,456,000 Pen Holdings Company Guaranty Series B 06-15-08 9.88 1,570,000 1,208,900 Renco Steel Holdings Sr Nts Series B 02-01-05 10.88 1,500,000 1,290,000 Sheffield Steel 1st Mtge Series B 12-01-05 11.50 2,000,000 1,200,000 Total 15,040,947 Miscellaneous (7.7%) Actuant Company Guaranty 05-01-09 13.00 2,200,000(d) 2,244,000 Adams Outdoor Advertising Sr Nts 03-15-06 10.75 3,000,000 3,090,000 Advanced Glassfiber Yarn Sr Sub Nts 01-15-09 9.88 3,620,000 3,217,275 Argo-Tech Company Guaranty Series D 10-01-07 8.63 3,000,000 2,400,000 Bistro Trust 12-31-02 9.50 1,000,000(d) 951,000 Booth Creek Ski Holdings Sr Nts Series B 03-15-07 12.50 500,000 376,250 Centaur Mining & Exploration (U.S. Dollar) Company Guaranty 12-01-07 11.00 2,500,000(c) 1,425,000 Comforce Operating Sr Nts Series B 12-01-07 12.00 750,000 376,875 Consolidated Container/ Consolidated Container Capital 07-15-09 10.13 2,750,000 2,736,250 Cybernet Internet Service Sr Nts 07-01-09 14.00 2,000,000 865,000 Dura Operating Company Guaranty Series B 05-01-09 9.00 2,050,000 1,873,188 Falcon Products Company Guaranty Series B 06-15-09 11.38 2,750,000 2,612,500 ISG Resources 04-15-08 10.00 3,605,000 3,064,250 Nationwide Credit Sr Nts Series A 01-15-08 10.25 835,000 555,275 Norcal Waste Systems Company Guaranty Series B 11-15-05 13.50 2,475,000 2,580,188 Normandy Yandal Operations (U.S. Dollar) Sr Nts 04-01-08 8.88 2,000,000(c) 1,760,000 NSM Steel Company Guaranty 02-01-06 12.00 779,610(b,d) 31,184 02-01-08 12.25 1,200,000(b,d) 24,000 Omega Cabinets Sr Sub Nts 06-15-07 10.50 1,460,000 1,343,200 Outsourcing Solutions Sr Sub Nts Series B 11-01-06 11.00 7,190,000 6,111,499 Park-Ohio Inds Sr Sub Nts 12-01-07 9.25 3,695,000 3,380,925 Poland Telecom Finance (U.S. Dollar) Company Guaranty Series B 12-01-07 14.00 1,775,000(c) 239,625 SC Intl 09-01-07 9.25 3,700,000 3,589,000 Stellex Inds Sr Sub Nts Series B 11-01-07 9.50 1,250,000(b) 175,000 Talton Holdings Company Guaranty Sr Nts Series B 06-30-07 11.00 570,000 473,100 Total 45,494,584 Multi-industry conglomerates (1.2%) Communications & Power Inds Sr Sub Nts Series B 08-01-05 12.00 2,000,000 1,360,000 Jordan Inds Sr Nts Series D 08-01-07 10.38 4,240,000 3,964,399 Zero Coupon Sr Sub Debs Series B 04-01-02 11.75 1,608,386(g) 1,045,451 Metromedia Intl Group Sr Disc Nts Series B 09-30-07 10.50 145,650 65,543 Prime Succession Sr Sub Nts 08-15-04 10.75 2,710,000(b) 406,500 Total 6,841,893 Paper & packaging (6.0%) Berry Plastics Company Guaranty Series C 04-15-04 12.25 750,000 716,250 Sr Sub Nts Series B 07-15-07 11.00 2,500,000 2,250,000 BPC Holding Pay-in-kind Sr Nts Series B 06-15-06 12.50 1,817,956(j) 1,490,724 Crown Paper Sr Sub Nts 09-01-05 11.00 4,785,000(b) 1,291,950 Doman Inds (U.S. Dollar) 03-15-04 8.75 1,000,000(c) 802,500 (U.S. Dollar) Company Guaranty 07-01-04 12.00 1,750,000(c) 1,785,000 (U.S. Dollar) Sr Nts Series B 11-15-07 9.25 2,175,000(c) 1,609,500 Gaylord Container Sr Nts 06-15-07 9.75 3,428,000 2,742,400 02-15-08 9.88 175,000 98,000 Graham Packaging/GPC Capital Zero Coupon Sr Disc Nts Series B 01-15-03 11.57 2,100,000(g) 1,260,000 Packaging Corp of America Company Guaranty 04-01-09 9.63 1,985,000 2,034,625 Repap New Brunswick (U.S. Dollar) Sr Nts 06-01-04 9.00 6,575,000(c) 6,640,750 Riverwood Intl Company Guaranty 04-01-08 10.88 1,450,000 1,370,250 Company Guaranty Sr Nts 04-01-06 10.25 1,300,000 1,313,000 Silgan Holdings 06-01-09 9.00 4,245,000 3,862,950 Stone Container Sr Nts 08-01-16 12.58 2,000,000 2,080,000 Warren (SD) Pay-in-kind 12-15-06 14.00 4,032,449(j) 4,425,613 Total 35,773,512 Restaurants & lodging (2.5%) Domino's Company Guaranty Series B 01-15-09 10.38 2,825,000 2,697,875 Florida Panthers Holdings Company Guaranty 04-15-09 9.88 2,150,000 2,064,000 MGM Grand Sr Sub Nts 06-01-07 9.75 6,000,000 6,285,000 Prime Hospitality Sr Sub Nts Series B 04-01-07 9.75 3,750,000 3,731,250 Total 14,778,125 Retail (0.7%) Dairy Mart Convenience Stores Sr Sub Nts 03-15-04 10.25 3,850,000 2,752,750 Eye Care Centers of America Company Guaranty 05-01-08 9.13 1,725,000 638,250 Flooring America Company Guaranty 10-15-07 9.25 1,109,000 654,310 Total 4,045,310 Textiles & apparel (0.5%) Anvil Knitwear Sr Nts Series B 03-15-07 10.88 635,000 555,625 Galey & Lord Company Guaranty 03-01-08 9.13 3,600,000 1,872,000 GFSI Holdings Zero Coupon Sr Disc Nts Series B 09-15-04 10.77 2,700,000(g) 405,000 Steel Heddle Group Zero Coupon Series B 06-01-03 13.74 1,600,000(g) 112,000 Total 2,944,625 Transportation (0.5%) American Architectural Company Guaranty 12-01-07 11.75 1,600,000(b) 274,000 Global Ocean Carriers Sr Nts 07-15-07 10.25 2,500,000(b) 1,125,000 Greater Beijing First Expressways (U.S. Dollar) Sr Nts 06-15-04 9.25 350,000(c) 112,000 06-15-07 9.50 500,000(c) 150,000 Hermes Europe RailTel (U.S. Dollar) Sr Nts 01-15-09 10.38 2,100,000(c) 1,344,000 Total 3,005,000 Utilities -- telephone (9.0%) Allegiance Telecom Zero Coupon Sr Disc Nts Series B 02-15-03 11.99 5,950,000(g) 4,254,250 COLT Telecom Group (U.S. Dollar) Zero Coupon Sr Disc Nts 12-15-01 12.00 2,000,000(c,g) 1,802,500 Dobson Communications Sr Nts 07-01-10 10.88 2,500,000(d) 2,484,375 Energis (U.S. Dollar) 06-15-09 9.75 1,700,000(c) 1,691,500 Geotek Communications Cv Sr Sub Nts 02-15-01 12.00 500,000(b) 625 Intermedia Communications Sr Nts Series B 06-01-08 8.60 2,000,000 1,640,000 Zero Coupon Sr Disc Nts Series B 07-15-02 10.65 3,860,000(g) 2,624,800 ITC Deltacom Sr Nts 03-01-08 8.88 1,960,000 1,568,000 11-15-08 9.75 1,500,000 1,230,000 Level 3 Communications 03-15-08 11.00 2,000,000 1,980,000 McLeod USA Sr Nts 03-15-08 8.38 370,000 340,400 02-15-09 8.13 2,250,000 2,013,750 Metromedia Fiber Network Sr Nts Series B 11-15-08 10.00 750,000 738,750 Sr Nts 12-15-09 10.00 3,500,000 3,447,500 Nextel Communications Cv 11-15-09 9.38 5,000,000 4,900,000 Zero Coupon Sr Nts 02-15-03 9.95 3,845,000(g) 2,922,200 Primus Telecomm Group Sr Nts 08-01-04 11.75 1,175,000 763,750 01-15-09 11.25 1,750,000 1,102,500 Sr Nts Series B 05-15-08 9.88 2,500,000 1,500,000 PSINet Sr Nts 12-01-06 10.50 3,650,000 3,148,125 RSL Communications (U.S. Dollar) Company Guaranty 11-15-06 12.25 5,775,000(c) 2,021,250 TeleCorp PCS Sr Sub Nts 07-15-10 10.63 2,425,000(d) 2,522,000 United Pan-Europe Communications (U.S. Dollar) Sr Nts Series B 08-01-09 10.88 2,300,000(c) 1,955,000 11-01-09 11.25 1,500,000(c) 1,301,250 02-01-10 11.25 1,600,000(c) 1,398,000 02-01-10 11.50 975,000(c) 853,125 Williams Communications Group Sr Nts 08-01-10 11.88 3,280,000(d) 3,280,000 Total 53,483,650 Total bonds (Cost: $551,504,162) $466,017,916 Common stocks (1.1%) Issuer Shares Value(a) Global TeleSystems 21,800(b) $188,025 Globix 33,088(b) 887,172 Intermedia Communications 51,526(b) 1,069,165 Intermedia Communications 1,733(b) 35,960 Nextel Communications Cl A 8,646(b) 479,313 OpTel 2,250(b,d) 23 PhoneTel Technologies 161,880(b) 51,802 Premier Holdings 148,117(i) 407,322 Price Communications 57,000(b) 1,168,500 VIALOG 37,529(i) 295,541 Western Wireless Cl A 30,000(b) 1,533,749 Wilshire Financial Services Group 286,815(b) 466,074 Wilshire Real Estate Investment Trust 30,000(b) 82,500 WRC Media 3,382(d) 3,382 Total common stocks (Cost: $12,471,295) $6,668,528 Preferred stocks & other (10.3%) Issuer Shares Value(a) AirGate PCS Warrants 3,300 $481,800 Allegiance Telecom Warrants 4,950 539,550 American Restaurant Group 12.00% Pay-in-kind Series B 627(j) 188,100 Warrants 500 5 Australis Holdings Warrants 1,760(c) 18 Benedek Communications 11.50% Pay-in-kind 1,000(b,j) 520,000 Bestel Warrants 1,000 120,000 Birch Telecom Warrants 2,000 109,500 Cable Satisfaction Warrants 1,155(c) 11,550 Century Maintenance 13.25% Pay-in-kind Series C 25,786(j) 1,933,964 Clark Materials Handling 13.00% 1,816(b,d) 18 COLT Telecom Group Warrants 1,000 100,000 Communications & Power Inds 14.00% Pay-in-kind Series B 37,777(j) 2,493,264 CSC Holdings 11.13% Pay-in-kind Series M 106,882(j) 11,436,373 Cybernet Internet Warrants 2,000 10,000 Dobson Communications 13.00% Pay-in-kind 1,185(j) 1,164,360 Fairfield Mfg 11.25% Pay-in-kind 600(b,j) 495,000 HF Holdings Warrants 4,250 4,250 Intermedia Communications 7.00% Cm Cv Series F 60,000(b) 960,000 13.50% Pay-in-kind Series B 4,541(j) 3,088,142 Iridium World Communications Warrants 1,700 17 Jitney-Jungle Stores of America Cl A 15.00% 20,000(b) 40,000 KMC Telecom Holdings Warrants 1,500 3,000 Knology Holdings Warrants 1,500 3,000 Nakornthai Strip Mill Warrants 759,711 1 Nextel Communications 11.13% Pay-in-kind Series E 2,500(j) 2,412,500 13.00% Pay-in-kind Series D 2,931(j) 3,136,170 Nextlink Communications 13.00% Pay-in-kind 3,248(j) 2,663,228 NTL 13.00% Pay-in-kind Series B 4,372(j) 4,109,219 Paxson Communications 12.50% Pay-in-kind Exchangeable 3,291(b,j) 3,430,783 Pegasus Communications 12.75% Pay-in-kind 7,450(b,j) 908,900 12.75% Pay-in-kind Series A 378(b,j) 398,919 PLD Telekom Warrants 200 6 Poland Telecom Warrants 1,775(c) 222 Primus Telecommunications Warrants 1,175 17,038 RSL Communications Warrants 1,250 19,844 Rural Cellular 12.25% 4,219(b) 3,712,720 SGW Holding 12.50% Cm Pay-in-kind Series B 13,972(b,i,j) 139,720 Cv Series A 9,677(b,i) 48,385 Warrants 250(i) 250 Sinclair Capital 11.63% 20,000(b) 1,805,000 Telehub Communications Warrants 3,000 30 UbiquiTel Warrants 4,900 343,000 Unifi Communications Warrants 1,000 10 Varde Fund V LP 5,000,000(b,i,k) 5,201,354 Wayland Investment Fund LLC 6,000,000(b,i,k) 7,634,717 XM Satellite Radio 14.00% Cv 1,900(d) 1,729,000 Total preferred stocks & other (Cost: $71,068,729) $61,412,927 Short-term securities (8.6%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (5.1%) Federal Home Loan Bank Disc Nts 09-13-00 6.40% $500,000 $498,805 09-27-00 6.42 2,700,000 2,686,614 09-27-00 6.48 4,000,000 3,980,650 09-29-00 6.44 3,000,000 2,984,509 10-27-00 6.46 5,800,000 5,739,394 Federal Natl Mtge Disc Nts 09-18-00 6.41 7,100,000 7,076,534 09-21-00 6.43 7,200,000 7,171,740 Total 30,138,246 Commercial paper (3.5%) Bell Atlantic Finance Services 10-16-00 6.58 1,800,000 1,784,843 Duke Energy 09-07-00 6.50 1,600,000 1,597,981 Emerson Electric 09-13-00 6.53 3,100,000(f) 3,092,712 General Motors Acceptance 10-05-00 6.55 1,600,000 1,589,534 Intl Lease Finance 09-22-00 6.52 500,000 498,017 10-16-00 6.52 1,300,000 1,289,053 Reed Elsevier 09-15-00 6.52 900,000(f) 897,436 Salomon Smith Barney 11-06-00 6.57 600,000 592,652 SBC Communications 10-17-00 6.58 2,500,000(f) 2,478,491 11-02-00 6.56 5,500,000(f) 5,436,667 Wal-Mart Stores 09-19-00 6.51 900,000(f) 896,860 Xcel Energy 09-18-00 6.52 900,000 897,025 Total 21,051,271 Total short-term securities (Cost: $51,205,543) $51,189,517 Total investments in securities (Cost: $686,249,729)(l) $585,288,887
Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c)Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. As of Aug. 31, 2000, the value of foreign securities represented 9.93% of net assets. (d)Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e)For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (g)For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized effective yield from the date of acquisition to interest reset date disclosed. (h)Negligible market value. (i)Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Aug. 31, 2000, is as follows: Security Acquisition Cost dates Australis Holdings (U.S. Dollar) 13.35% Zero Coupon Sr Disc Nts 2000 10-29-96 thru 10-03-97 $1,374,281 Australis Media (U.S. Dollar) 14.00% 2000 12-18-97 thru 02-02-98 135,166 (U.S. Dollar) 15.75% 2003 10-14-96 thru 07-03-97 3,124,438 Gemini Inds 13.50% 2001 12-23-96 thru 10-22-99 1,506,000 Premier Cruises 11.00% Sr Nts 2008 03-06-98 thru 03-13-98 -- Premier Holdings 03-06-98 thru 03-13-98 1,286,500 SGW Holding 12.50% Pay-in-kind Series B 08-12-97 thru 06-01-00 211,563 Cv Series A 08-12-97 100,002 Warrants 08-12-97 78,900 Varde Fund V LP 04-27-00 5,000,000 Veninfotel (U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 03-01-99 1,102,500 VIALOG 11-06-97 thru 06-18-98 199,844 Wayland Investment Fund LLC 05-17-00 6,671,880 * Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. (j)Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (k)The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (l)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $686,199,110 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $11,068,872 Unrealized depreciation (111,979,095) ------------ Net unrealized depreciation $(100,910,223)
Investments in Securities AXP VP - Federal Income Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Bonds (92.4%) Issuer Coupon Principal Value(a) rate amount Mortgage-backed securities (50.9%) Federal Home Loan Mtge Corp 06-01-14 6.50% $905,888 $883,319 06-01-29 6.50 950,129 908,643 07-01-29 6.00 958,605 891,206 Federal Natl Mtge Assn 04-15-03 5.75 1,000,000 977,041 08-15-04 6.50 2,000,000 1,980,118 03-01-14 5.50 823,259 771,108 04-01-14 5.50 889,247 833,544 05-01-14 6.00 914,085 874,179 06-01-14 6.50 173,791 169,475 07-01-14 6.00 933,464 892,712 03-01-15 7.00 957,595 947,559 01-01-29 6.00 495,874 462,248 02-01-29 6.00 923,997 858,744 03-01-29 6.00 71,651 66,591 08-01-29 7.00 1,349,041 1,315,315 10-01-29 6.50 1,352,252 1,291,401 07-01-30 8.00 2,971,612 2,999,919 Govt Natl Mtge Assn 04-15-13 7.00 1,754,467 1,750,784 Total 18,873,906 U.S. government obligations (41.5%) U.S. Treasury 07-31-01 5.50% $1,500,000 $1,488,510 11-30-01 5.88 1,000,000 994,530 04-30-02 6.63 2,000,000 2,011,240 11-30-02 5.75 3,000,000 2,972,820 02-28-03 5.50 5,000,000 4,928,100 02-15-04 4.75 2,800,000 2,686,236 05-15-06 6.88 100,000(b) 104,109 05-15-09 5.50 200,000 194,438 Total 15,379,983 Total bonds (Cost: $34,078,410) $34,253,889 Short-term securities (6.4%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies Federal Home Loan Bank Disc Nts 09-15-00 6.40% $600,000 $598,405 09-27-00 6.41 600,000 597,026 Federal Home Loan Mtge Corp Disc Nt 10-05-00 6.47 200,000 198,692 Federal Natl Mtge Assn Disc Nt 09-29-00 6.48 1,000,000 994,803 Total short-term securities (Cost: $2,389,515) $2,388,926 Total investments in securities (Cost: $36,467,925)(c) $36,642,815 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 7 to the financial statements): Type of security Notional amount Sale contract U.S. Treasury Bonds, Sept. 2000, 10-year $1,000,000 (c)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $36,467,925 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $250,233 Unrealized depreciation (75,343) ------- Net unrealized appreciation $174,890 Investments in Securities AXP VP - Global Bond Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Bonds (93.1%)(c) Issuer Coupon Principal Value(a) rate amount Australia (1.8%) Australian Government (Australian Dollar) 08-15-03 9.50% 2,500,000 $1,563,196 New South Wales Treasury (Australian Dollar) 03-01-08 8.00 2,700,000(d) 1,687,008 Total 3,250,204 Austria (2.2%) Republic of Austria (Japanese Yen) 01-22-01 5.00 400,000,000 3,817,472 Belgium (1.3%) Belgium Kingdom (European Monetary Unit) Series 14 04-29-04 7.25 2,500,000 2,345,772 Canada (3.8%) Abitibi-Consolidated Finance (U.S. Dollar) Company Guaranty 08-01-09 7.88 1,600,000 1,553,792 Govt of Canada (U.S. Dollar) 11-05-08 5.25 3,000,000 2,716,053 Laidlaw (U.S. Dollar) 05-15-06 7.65 1,400,000(b) 392,000 Province of Manitoba (U.S. Dollar) Series CK 12-15-00 9.00 625,000 628,619 Rogers Communication (Canadian Dollar) Sr Nts 07-15-07 8.75 2,000,000 1,362,989 Total 6,653,453 Cayman Islands (0.3%) Roil (U.S. Dollar) 12-05-02 12.78 578,000(d) 553,435 China (0.1%) Zhuhai Highway (U.S. Dollar) Sub Nts 07-01-08 11.50 500,000(b,d) 100,000 Colombia (0.9%) Republic of Colombia (U.S. Dollar) 04-23-09 9.75 2,000,000 1,655,000 Denmark (0.9%) Govt of Denmark (Danish Krone) 05-15-03 8.00 13,000,000 1,629,371 France (1.4%) Govt of France (European Monetary Unit) 04-25-05 7.50 400,000 387,525 04-25-11 6.50 2,200,000 2,121,503 Total 2,509,028 Germany (20.5%) Allgemeine Hypo Bank (European Monetary Unit) 09-02-09 5.00 6,510,000 5,430,911 Bayerische Landesbank (U.S. Dollar) Sub Nts 12-01-08 5.88 800,000 732,712 Depfa Deutsche Pfandbriefbank (European Monetary Unit) 02-03-05 5.00 3,000,000 2,599,676 Federal Republic of Germany (European Monetary Unit) 07-22-02 8.00 5,180,000 4,826,147 07-15-03 6.50 2,200,000 2,015,385 11-11-04 7.50 11,675,000 11,203,518 06-20-16 6.00 2,914,364 2,778,698 07-04-27 6.50 3,820,000 3,843,887 Treuhandanstalt (European Monetary Unit) 01-29-03 7.13 3,200,000 2,957,974 Total 36,388,908 Indonesia (0.5%) Tjiwi Kimia Finance Mauritius (U.S. Dollar) Company Guaranty 08-01-04 10.00 1,300,000 832,000 Israel (0.5%) Israel Electric (U.S. Dollar) Sr Nts 12-15-26 7.88 1,000,000(d) 930,110 Italy (7.4%) Govt of Italy (European Monetary Unit) 09-15-01 7.75 1,265,317 1,151,986 01-01-04 8.50 6,757,875 6,537,997 11-01-26 7.25 1,575,191 1,664,901 Republic of Italy (Japanese Yen) 06-20-01 3.50 395,000,000 3,797,160 Total 13,152,044 Japan (2.3%) Development Bank of Japan (Japanese Yen) 09-20-01 6.50 412,000,000 4,099,837 Mexico (0.6%) United Mexican States (British Pound) Medium-term Nts Series E 05-30-02 8.75 750,000 1,100,056 Netherlands (0.4%) KPNQwest (European Monetary Unit) Sr Nts 06-01-09 7.13 925,000 728,990 Norway (3.9%) Govt of Norway (Norwegian Krone) 05-31-01 7.00 47,270,000 5,191,694 05-15-09 5.50 16,040,000 1,672,159 Total 6,863,853 Supra-National (1.1%) Inter-American Development Bank (Japanese Yen) 07-08-09 1.90 205,000,000 1,911,383 Sweden (0.5%) Paulson Enterprenad (Swedish Krona) 12-15-00 4.75 9,000,000(f) 951,147 United Kingdom (2.9%) COLT Telecom Group (European Monetary Unit) 07-31-08 7.63 1,500,000 614,312 United Kingdom Treasury (British Pound) 06-07-02 7.00 1,000,000 1,477,407 06-10-03 8.00 1,950,000 2,980,575 Total 5,072,294 United States (39.8%) American Standard (European Monetary Unit) Company Guaranty 06-01-06 7.13 1,700,000 1,493,831 Citicorp (European Monetary Unit) 09-19-09 6.25 3,000,000 1,333,867 DTE Burns Harbor LLC (U.S. Dollar) Sr Nts 01-30-03 6.57 736,060(d) 725,034 Federal Natl Mtge Assn (U.S. Dollar) 08-15-04 6.50 1,500,000 1,485,089 02-15-08 5.75 2,000,000 1,872,964 07-01-13 6.00 1,695,827 1,622,881 05-01-14 6.50 1,377,394 1,342,588 02-01-27 7.50 425,272 423,677 03-01-27 7.50 906,471 903,072 03-01-29 6.50 1,853,769 1,770,349 Ford Motor Credit (Japanese Yen) 02-07-05 1.20 300,000,000 2,769,278 (U.S. Dollar) 09-10-02 6.55 3,000,000 2,963,340 IBM (Japanese Yen) 04-14-03 .90 190,000,000 1,777,083 Intl Paper (European Monetary Unit) 08-11-06 5.38 1,800,000 1,501,138 MGM Grand (U.S. Dollar) 02-01-05 6.95 1,500,000 1,413,840 Morgan (JP) (U.S.Dollar) Sr Sub Medium-term Nts Series A 02-15-12 4.00 1,000,000 861,550 Nationwide CSN Trust (U.S. Dollar) 02-15-25 9.88 1,500,000(d) 1,562,429 New York Life Insurance (U.S. Dollar) 12-15-23 7.50 1,000,000(d) 913,000 PDVSA Finance (U.S. Dollar) Sr Nts 02-15-10 9.75 1,500,000 1,502,295 Railcar Leasing (U.S. Dollar) 01-15-13 7.13 3,000,000(d) 2,991,600 Texas Utilities Electric (U.S. Dollar) 08-01-07 7.17 2,000,000 1,964,840 U.S. Treasury (U.S. Dollar) 11-15-00 5.75 1,500,000 1,497,660 11-30-00 4.63 1,000,000 995,620 11-15-01 7.50 1,650,000 1,671,401 02-15-05 7.50 5,600,000 5,915,000 11-15-16 7.50 15,500,000 17,965,429 TIPS 01-15-07 3.38 3,000,000(e) 3,144,195 United Air Lines (U.S. Dollar) 07-01-10 7.73 1,100,000 1,124,002 USX (U.S. Dollar) 03-01-08 6.85 2,000,000 1,927,820 Viacom (U.S. Dollar) Company Guaranty 07-30-10 7.70 1,000,000 1,013,610 Watson Pharmaceuticals (U.S. Dollar) Sr Nts 05-15-08 7.13 1,200,000 1,107,684 Zurich Capital Trust (U.S. Dollar) Company Guaranty 06-01-37 8.38 1,000,000(d) 974,372 Total 70,530,538 Total bonds (Cost: $178,714,003) $165,074,895 Short-term securities (5.3%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies Federal Home Loan Mtge Corp Disc Nts 09-14-00 6.44% $900,000 $897,645 10-03-00 6.43 2,500,000 2,485,356 10-03-00 6.44 2,000,000 1,988,267 10-12-00 6.48 1,000,000 992,174 10-17-00 6.46 1,400,000 1,388,284 Federal Natl Mtge Assn Disc Nts 09-21-00 6.43 1,100,000 1,095,682 10-16-00 6.45 600,000 595,093 Total short-term securities (Cost: $9,444,833) $9,442,501 Total investments in securities (Cost: $188,158,836)(g) $174,517,396 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c)Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. (d)Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e)U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (f)Identifies issue considered to be illiquid as to its marketability (see Note 1 to the financial statements). Information concerning such security holdings at Aug. 31, 2000, is as follows: Security Acquisition Cost date Paulson Enterprenad 4.75% (Swedish Krona) 2000 07-08-97 $8,151,026 (g)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $187,511,034 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $995,523 Unrealized depreciation (13,989,161) ----------- Net unrealized depreciat $(12,993,638) Investments in Securities AXP VP - Growth Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (94.2%) Issuer Shares Value(a) Airlines (0.8%) Southwest Airlines 72,934 $1,650,132 Banks and savings & loans (2.8%) FleetBoston Financial 74,531 3,181,542 Zions Bancorp 51,536 2,306,236 Total 5,487,778 Communications equipment & services (7.0%) Corvis 9,772(b) 1,014,456 JDS Uniphase 24,290(b) 3,027,141 MasTec 46,449(b) 1,672,164 Nokia ADR Cl A 92,114(c) 4,139,373 Sycamore Networks 8,149(b) 1,116,413 Tellabs 46,860(b) 2,632,946 Total 13,602,493 Computer software & services (3.8%) Microsoft 85,051(b) 5,937,623 Veritas Software 12,158(b) 1,465,799 Total 7,403,422 Computers & office equipment (24.6%) Akamai Technologies 37,409(b) 2,826,718 America Online 48,406(b) 2,837,802 Avici Systems 3,235(b) 484,643 Cisco Systems 173,376(b) 11,876,255 Commerce One 40,570(b) 2,536,893 EMC 119,926(b) 11,752,747 Extreme Networks 16,192(b) 1,506,868 Hewlett-Packard 24,289 2,932,897 Intl Business Machines 28,558 3,769,656 Solectron 46,227(b) 2,094,661 VeriSign 5,151(b) 1,024,405 Yahoo! 35,644(b) 4,330,746 Total 47,974,291 Electronics (22.6%) Applied Materials 89,106(b) 7,690,961 Broadcom Cl A 19,480(b) 4,870,000 Foundry Networks 16,196(b) 1,507,240 Intel 80,992 6,064,276 Maxim Integrated Products 77,828(b) 6,824,543 PMC-Sierra 13,827(b) 3,263,172 STMicroelectronics 48,580(c) 2,996,779 Symbol Technologies 45,350 1,876,356 Texas Instruments 131,304 8,789,161 Total 43,882,488 Energy (1.6%) Anadarko Petroleum 48,640 3,199,053 Energy equipment & services (3.1%) Halliburton 61,594 3,264,482 Schlumberger 32,413 2,765,234 Total 6,029,716 Financial services (7.1%) Citigroup 119,931 7,000,952 Merrill Lynch 32,448 4,704,960 Providian Financial 18,629 2,141,171 Total 13,847,083 Furniture & appliances (0.4%) Ethan Allen Interiors 31,061 836,706 Health care (10.5%) ALZA 10,202(b) 771,526 Amgen 32,432(b) 2,458,751 Genentech 23,482(b) 4,473,321 MedImmune 3,875(b) 325,984 Medtronic 44,132 2,261,765 Pfizer 178,052 7,700,749 Schering-Plough 41,332 1,658,447 Serono ADR 23,500(b,c) 672,688 Total 20,323,231 Insurance (0.5%) Marsh & McLennan 8,111 963,181 Leisure time & entertainment (1.2%) Harley-Davidson 48,551 2,418,447 Media (0.1%) Sony ADR 1,900(c) 212,145 Multi-industry conglomerates (1.9%) Tyco Intl 64,840(c) 3,695,880 Restaurants & lodging (1.0%) Marriott Intl Cl A 48,611 1,920,135 Retail (2.7%) Home Depot 71,288 3,426,280 RadioShack 32,456 1,914,904 Total 5,341,184 Utilities -- telephone (2.5%) AT&T Wireless Group 55,100(b) 1,442,931 WorldCom 94,883(b) 3,463,230 Total 4,906,161 Total common stocks (Cost: $160,699,418) $183,693,526 Short-term securities (6.9%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (3.8%) Federal Home Loan Mtge Corp Disc Nts 10-03-00 6.45% $4,000,000 $3,976,497 10-24-00 6.49 2,500,000 2,475,887 Federal Natl Mtge Assn Disc Nt 09-07-00 6.50 1,000,000 998,692 Total 7,451,076 Commercial paper (3.1%) Exxon Mobil Australia 09-29-00 6.51 1,100,000(d) 1,094,258 Household Finance 09-01-00 6.65 4,900,000 4,899,094 Total 5,993,352 Total short-term securities (Cost: $13,446,917) $13,444,428 Total investments in securities (Cost: $174,146,335)(e) $197,137,954 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 6.02% of net assets. (d)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other"accredited investors." This security has been determined to be liquid under guidelines established by the board. (e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $174,192,392 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $28,805,647 Unrealized depreciation (5,860,085) ---------- Net unrealized appreciation $22,945,562 Investments in Securities AXP VP - International Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (95.3%)(c) Issuer Shares Value(a) Australia (2.1%) Banks and savings & loans (1.0%) Commonwealth Bank of Australia 1,540,000 $24,632,661 Insurance (1.1%) AMP 2,476,000 25,493,872 Brazil (1.1%) Energy Petroleo Brasileiro ADR 838,450(b) 26,673,191 Canada (4.7%) Communications equipment & services (2.8%) Nortel Networks 821,800 67,028,063 Energy (1.0%) Petro-Canada 1,136,502 24,083,331 Multi-industry conglomerates (0.9%) Bombardier Cl B 1,294,172 21,325,273 Finland (2.5%) Communications equipment & services (1.5%) Nokia 859,255 37,716,880 Miscellaneous (1.0%) Vivendi 279,926 22,897,160 France (12.8%) Banks and savings & loans (1.2%) BNP Paribas 320,383 29,482,233 Communications equipment & services (2.6%) Alcatel Alsthom 765,421 62,643,315 Computers & office equipment (2.8%) Cap Gemini 323,669(e) 67,626,908 Energy (4.0%) Total Fina Elf 630,319 93,645,606 Household products (1.8%) Aventis ADR 585,190 43,964,705 Industrial equipment & services (0.4%) Castorama Dubois 42,517 9,223,654 Germany (4.6%) Banks and savings & loans (2.4%) Deutsche Bank 650,446 56,790,187 Utilities -- electric (2.2%) E.on 1,086,364 52,302,734 Hong Kong (1.0%) Communications equipment & services China Mobile (Hong Kong) 3,116,000(b) 23,971,382 Italy (3.1%) Banks and savings & loans (2.5%) San Paolo - IMI 867,219 15,405,464 Utilities -- telephone (0.6%) Telecom Italia Mobile 5,840,651(b,e) 50,682,921 Japan (21.3%) Automotive & related (0.8%) Toyota Motor 466,000 20,276,069 Chemicals (0.9%) Asahi Chemical Inds 3,612,000 22,591,935 Computers & office equipment (3.8%) Canon 552,000 24,690,923 Fujitsu 1,386,000 40,160,728 Hitachi Software Engineering 237,000 27,624,812 Total 92,476,463 Electronics (3.7%) Hitachi 1,901,000 22,514,657 Nintendo 84,300 14,577,007 Pioneer 581,000 24,517,067 Rohm 94,500 26,894,926 Total 88,503,657 Furniture & appliances (1.4%) Matsushita Electric Industrial 1,235,000 33,816,579 Industrial equipment & services (1.3%) Amada 3,667,000 31,463,850 Media (2.1%) Sony 442,000 49,322,956 Miscellaneous (1.2%) Lawson 112,100 5,813,138 Oriental Land 238,700 21,980,814 Total 27,793,952 Retail (1.5%) FamilyMart 660,200 19,687,134 Ryohin Keikaku 165,700 16,004,407 Total 35,691,541 Textiles & apparel (0.7%) Kuraray 1,971,000 17,207,436 Utilities -- telephone (3.9%) Nippon Telegraph & Telephone 5,580 66,453,488 Nippon Television Network 1,601 915,801 NTT DoCoMo 931(b) 24,619,467 Total 91,988,756 Korea (0.4%) Metals Pohang Iron & Steel ADR 492,782 10,471,618 Mexico (0.5%) Utilities -- telephone Telefonos de Mexico ADR Cl L 198,813 10,822,883 Netherlands (6.7%) Energy (1.5%) Royal Dutch Petroleum 571,227(b) 34,789,634 Insurance (5.2%) Fortis 2,096,986 64,639,789 ING Groep 887,370(b) 59,487,628 Total 124,127,417 Singapore (1.3%) Banks and savings & loans (0.7%) Overseas Union Bank 3,272,599 16,540,761 Building materials & construction (0.6%) Singapore Technologies Engineering 10,008,000 13,488,968 South Korea (1.0%) Electronics Samsung Electronics 92,600 22,842,029 Spain (1.6%) Energy Repsol-YPF 1,935,806 38,381,086 Sweden (4.1%) Communications equipment & services Ericsson (LM) Cl B 4,869,886 98,311,162 Turkey (0.4%) Banks and savings & loans Turkiye Garanti Bankasi 492,251,421(b) 5,037,089 Yapi Kredit Finance 488,457,820 4,103,058 Total 9,140,147 United Kingdom (24.7%) Aerospace & defense (0.8%) BAE Systems 2,962,003 18,488,681 Communications equipment & services (4.0%) Marconi 5,383,068 95,711,518 Health care (4.2%) Glaxo Wellcome ADR 1,896,231 54,656,126 SmithKline Beecham 3,494,435 45,632,531 Total 100,288,657 Industrial equipment & services (0.9%) Hays PLC 3,862,638 22,649,165 Insurance (1.5%) Prudential 2,692,173 35,332,359 Leisure time & entertainment (2.4%) EMI Group ADR 6,202,939 57,671,534 Retail (3.3%) Next 1,948,544 17,634,524 Tesco 19,644,619 61,953,501 Total 79,588,025 Utilities -- gas (2.8%) BG Group 10,616,917 66,270,287 Utilities -- telephone (4.8%) COLT Telecom Group 350,728(b) 11,839,178 Vodafone AirTouch 26,102,317 105,676,244 Total 117,515,422 United States (1.6%) Computers & office equipment (0.6%) Computer Sciences 169,936(b) 13,435,565 Health care (1.0%) Schering-Plough 577,500 23,172,188 Total common stocks (Cost: $2,003,729,033) $2,275,761,840 Short-term securities (4.7%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (3.2%) Federal Home Loan Bank Disc Nts 09-15-00 6.40% $9,300,000 $9,274,466 09-29-00 6.44 21,700,000 21,584,272 10-11-00 6.43 19,500,000 19,353,424 Federal Home Loan Mtge Corp Disc Nts 09-05-00 6.42 7,300,000 7,293,501 09-12-00 6.43 4,600,000 4,590,156 Federal Natl Mtge Assn Disc Nts 09-18-00 6.41 12,200,000 12,159,678 10-05-00 6.46 2,300,000 2,284,954 Total 76,540,451 Commercial paper (1.5%) Alcoa 10-11-00 6.53 12,400,000 12,306,793 Cargill Global Funding 10-18-00 6.53 500,000(d) 495,687 Ford Motor Credit 09-01-00 6.51 1,000,000 999,819 Gillette 10-18-00 6.54 9,700,000(d) 9,614,898 Preferred Receivables 10-06-00 6.54 1,100,000(d) 1,092,850 Variable Funding Capital 10-12-00 6.56 1,800,000(d) 1,786,329 Wal-Mart Stores 09-26-00 6.53 6,200,000(d) 6,170,402 10-03-00 6.52 3,400,000(d) 3,379,804 Total 35,846,582 Total short-term securities (Cost: $112,421,983) $112,387,033 Total investments in securities (Cost: $2,116,151,016)(f) $2,388,148,873 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. (d)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (e)Security is partially or fully on loan. See Note 5 to the financial statements. (f)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $2,117,108,315 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $369,264,858 Unrealized depreciation (98,224,300) ----------- Net unrealized appreciation $271,040,558 Investments in Securities AXP VP - Managed Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (64.9%) Issuer Shares Value(a) Aerospace & defense (1.0%) Boeing 220,000 $11,797,500 Goodrich (BF) 370,300 15,112,869 Honeywell Intl 328,300 12,660,069 United Technologies 180,000 11,238,750 Total 50,809,188 Airlines (1.2%) Southwest Airlines 2,791,300(m) 63,153,163 Automotive & related (0.4%) Tower Automotive 1,706,700(b) 19,413,713 Banks and savings & loans (1.6%) Bank One 300,000 10,575,000 U.S. Bancorp 600,000 13,050,000 Washington Mutual 1,056,000 36,960,000 Wells Fargo 570,000 24,616,875 Wilshire Financial Services Group 154,397(b) 250,895 Total 85,452,770 Beverages & tobacco (0.5%) Coca-Cola 450,400 23,702,300 Building materials & construction (0.2%) Martin Marietta Materials 250,000 10,000,000 Communications equipment & services (4.0%) 360networks 750,000 13,359,375 Celcaribe 235,770(b,d) 353,655 Corning 66,100 21,676,669 JDS Uniphase 130,000(b) 16,201,250 Nokia ADR Cl A 2,758,400(c,m) 123,955,600 Nortel Networks 324,192(c) 26,441,910 PhoneTel Technologies 228,000(b) 72,960 VoiceStream Wireless 80,000(b) 9,005,000 Total 211,066,419 Computer software & services (2.3%) Microsoft 1,550,000(b,m) 108,209,375 Oracle 150,000(b) 13,640,625 Total 121,850,000 Computers & office equipment (10.5%) Cisco Systems 3,450,000(b,m) 236,324,999 CMGI 98,000(b) 4,385,500 Dell Computer 850,000(b) 37,081,250 EMC 928,400(b) 90,983,200 Equant 220,000(b,c,j) 8,456,250 Globix 70,400(b) 1,887,600 Hewlett-Packard 175,000 21,131,250 Sanmina 105,000(b) 12,390,000 Solectron 2,094,200(b) 94,893,437 Sun Microsystems 275,000(b) 34,907,813 Yahoo! 100,000(b) 12,150,000 Total 554,591,299 Electronics (6.6%) American Power Conversion 2,733,700(b) 65,096,231 Axcelis Technologies 207,500(b) 3,747,969 Excalibur Technologies 350,000(b) 16,625,000 Intel 1,800,000 134,774,999 Maxim Integrated Products 706,400(b) 61,942,450 Texas Instruments 910,000(m) 60,913,125 Total 343,099,774 Energy (1.8%) Anadarko Petroleum 474,000 31,174,980 Exxon Mobil 385,100 31,433,788 Royal Dutch Petroleum 521,600(c,j) 31,915,400 Total 94,524,168 Financial services (7.8%) Citigroup 2,284,133(m) 133,336,283 Donaldson, Lufkin & Jenrette - DLJ 242,000(m) 21,417,000 Fannie Mae 520,000 27,950,000 MBNA 1,896,800 66,980,750 Merrill Lynch 108,100(m) 15,674,500 Morgan Stanley, Dean Witter, Discover & Co 1,327,000 142,735,437 Total 408,093,970 Food (0.3%) Keebler Foods 325,000 14,889,063 Furniture & appliances (0.4%) Leggett & Platt 1,182,000 20,906,625 Health care (7.5%) American Home Products 525,000 28,448,438 Amgen 1,067,600(b) 80,937,424 Bristol-Myers Squibb 275,000 14,575,000 Elan ADR 1,036,500(b,c,j,m) 60,440,906 Merck & Co 654,400 45,726,200 Pfizer 1,867,050 80,749,912 Pharmacia & Upjohn 717,791 42,035,635 Schering-Plough 976,900 39,198,113 Total 392,111,628 Health care services (0.6%) Continucare 378,049(b) 189,025 McKesson HBOC 1,153,500 28,765,406 Total 28,954,431 Household products (0.5%) Procter & Gamble 398,400 24,626,100 Industrial equipment & services (0.6%) Illinois Tool Works 520,000(m) 29,152,500 Insurance (1.8%) American General 155,000 11,285,938 American Intl Group 577,650(m) 51,483,055 MetLife 998,000(b) 24,263,875 Progressive Corp 125,000 9,476,563 Total 96,509,431 Leisure time & entertainment (1.1%) Disney (Walt) 393,000 15,302,438 Time Warner 464,500 39,714,750 Total 55,017,188 Media (1.1%) Clear Channel Communications 188,000(b) 13,606,500 Comcast Special Cl A 368,000(b) 13,708,000 Infinity Broadcasting Cl A 147,500(b) 5,586,563 TELEWEST 50,000(j) 1,218,750 TeleWest Communications 3,840,000(b,c) 9,609,987 USA Networks 614,000(b,m) 14,774,375 Total 58,504,175 Miscellaneous (0.3%) Internap Network Services 200,000(b) 7,200,000 TyCom 154,400(b,c) 6,426,900 Total 13,626,900 Multi-industry conglomerates (4.6%) Cendant 1,532,000(b,m) 20,203,250 Century Business Services 800,000(b) 1,400,000 General Electric 2,533,600 148,690,650 Tyco Intl 1,201,500(c) 68,485,500 Total 238,779,400 Paper & packaging (0.2%) Intl Paper 300,000 9,562,500 Restaurants & lodging (0.7%) Boca Resorts Cl A 513,800(b) 5,716,025 Extended Stay America 2,200,000(b) 32,587,500 Total 38,303,525 Retail (3.9%) Dollar General 652,000 13,406,750 Gap 217,000 4,868,938 Gerald Stevens 400,000(b) 362,500 Home Depot 2,141,400 102,921,037 Safeway 506,400(b) 24,971,850 Wal-Mart Stores 1,244,800 59,050,200 Total 205,581,275 Utilities -- electric (0.4%) Calpine 100,000(b) 9,900,000 Duke Energy 167,000 12,493,688 Total 22,393,688 Utilities -- telephone (3.0%) Allegiance Telecom 105,000(b) 5,230,313 AT&T - Liberty Media Group Cl A 800,000(b) 17,100,000 Intermedia Communications 2,167(b) 44,965 Qwest Communications Intl 821,427(b,m) 42,406,169 Vodafone AirTouch ADR 880,000(c,j) 36,025,000 WorldCom 1,506,900(b,m) 55,001,850 Total 155,808,297 Total common stocks (Cost: $1,777,251,615) $3,390,483,490 Preferred stocks & other Issuer Shares Value(a) Allegiance Telecom Warrants 2,450 $267,050 APP China Group (U.S. Dollar) 1,300(c,d) 741,000 Coastal 6.63% Cv PRIDES 44,240(p) 1,694,945 CSC Holdings 11.75% Pay-in-kind Series H 34,539(k) 3,747,481 CVS 6.00% Cv ACES 14,460(i) 961,590 Georgia-Pacific Group 7.50% Cm Cv 37,500 1,216,406 Global Crossing 6.38% Cv 8,620(c,d) 729,468 Ingersoll-Rand 6.75% Cv PRIDES 37,900(p) 859,856 Intermedia Communications 7.00% Cm Cv Series F 43,575(d) 697,200 KMC Telecom Holdings Warrants 2,800 5,600 Lincoln Natl 7.75% Cm Cv 38,400 960,000 Metlife Capital 8.00% Cm Cv 20,730 1,648,035 Mexico Value Rights 1,000(c,o) -- Monsanto 6.50% Cv ACES 21,730(i) 1,090,574 Nextel Communications 13.00% Pay-in-kind Series D 929(k) 994,030 Nextlink Communications 13.00% Pay-in-kind 1,298(k) 1,064,710 Paxson Communications 12.50% Pay-in-kind Exchangeable 1,750(b,k) 1,824,375 13.25% Pay-in-kind 7(k) 6,526 Pegasus Communications 12.75% Pay-in-kind Series A 1,915(b,k) 2,020,061 Primus Telecommunications Warrants 2,300 33,350 Sovereign Capital Trust 7.50% Cv 20,440 1,087,153 Sinclair Capital 11.63% 30,000(b) 2,707,500 Unifi Communications Warrants 2,000 20 Wendys Financing 5.00% Cm Cv Series A 31,090 1,476,775 Total preferred stocks & other (Cost: $26,360,459) $25,833,705 Bonds (33.5%) Issuer Coupon Principal Value(a) rate amount Government obligations (5.3%) Govt Trust Certs Israel 11-15-01 9.25% $891,794 $907,276 People's Republic of China (U.S. Dollar) 01-15-96 9.00 2,500,000(c) 2,323,863 Republic of Brazil (U.S. Dollar) 04-15-14 8.00 7,388,460(c) 5,712,240 Resolution Funding Corp Zero Coupon 07-15-20 6.56 5,000,000(e) 1,463,250 Russian Federation (U.S. Dollar) 03-31-10 8.25 646,004(c,d) 460,278 03-31-30 2.25 4,250,000(c,d) 1,848,750 U.S. Treasury 08-15-03 5.75 33,300,000 32,987,646 02-15-04 5.88 12,500,000 12,425,750 02-15-06 5.63 20,000,000 19,640,600 10-15-06 6.50 21,000,000 21,511,770 05-15-08 5.63 50,000,000(j) 49,015,499 11-15-16 7.50 62,000,000(j) 71,861,719 02-15-20 8.50 25,000,000 32,261,750 11-15-24 7.50 25,000,000 30,070,250 Zero Coupon 05-15-05 6.46 18,000,000(e) 13,624,020 11-15-21 6.26 35,000,000(e) 10,210,900 United Mexican States (U.S. Dollar) 03-12-08 8.63 4,250,000(c) 4,250,000 (U.S. Dollar) Series A 12-31-19 6.25 4,000,000(c) 3,577,520 Total 314,153,081 Mortgage-backed securities (11.8%) Federal Home Loan Mtge Corp 07-01-14 6.50 24,501,603 23,891,169 04-01-15 7.50 24,099,029 24,203,022 08-01-24 8.00 2,063,232 2,090,961 11-01-25 6.50 5,802,498 5,584,904 10-01-29 7.00 38,798,163 37,840,236 Federal Natl Mtge Assn 02-13-04 5.13 11,625,000 11,044,122 05-14-04 5.63 60,000,000 57,748,981 01-01-09 5.50 15,034,472 14,327,237 06-15-09 6.38 20,000,000 19,299,800 06-01-10 6.50 4,817,698 4,740,519 08-01-11 8.50 3,102,674 3,175,440 04-01-13 6.00 12,992,580 12,446,954 05-01-13 6.00 9,346,998 8,944,934 09-01-13 6.00 3,851,918 3,686,226 04-01-14 5.50 26,019,406 24,371,172 11-01-14 7.00 11,399,705 11,280,235 12-01-14 7.00 6,803,354 6,732,055 03-01-15 7.00 5,899,099 5,837,276 05-01-15 6.00 24,406,039 23,340,533 06-01-15 7.00 9,626,949 9,578,151 04-01-22 8.00 1,779,997 1,804,472 04-01-23 8.50 2,153,434 2,203,969 05-01-23 6.50 1,582,360 1,525,490 05-01-24 6.00 4,443,937 4,191,166 06-01-24 9.00 1,213,523 1,256,406 02-01-25 8.50 901,890 922,462 05-01-25 8.50 1,010,464 1,032,573 09-01-25 6.50 3,579,022 3,443,699 11-01-25 7.50 3,530,659 3,522,927 02-01-26 7.00 5,081,178 4,977,979 07-01-26 7.50 3,323,876 3,312,442 02-01-27 7.50 3,665,570 3,651,824 03-01-28 6.00 12,929,037 12,052,319 04-01-28 6.00 16,844,287 15,666,247 10-01-28 6.00 17,242,552 16,024,883 10-01-28 7.00 17,158,562 16,743,120 11-01-28 6.00 24,820,122 23,067,325 03-01-29 6.50 32,092,225 30,676,792 05-01-29 6.50 18,893,981 18,043,752 07-01-29 6.50 50,000,000(n) 47,734,375 08-01-29 6.50 19,227,418 18,362,184 08-01-29 7.50 4,949,725 4,920,431 10-01-29 7.50 9,911,788 9,853,127 11-01-29 6.50 19,535,014 18,668,199 12-01-29 7.00 6,951,822 6,780,175 01-01-30 7.00 17,711,289 17,273,982 02-01-30 7.50 34,431,753 34,201,318 03-01-30 7.50 24,713,000 24,551,353 06-01-30 7.50 24,959,206 24,795,948 09-01-30 7.00 25,000,000 24,297,001 Collateralized Mtge Obligation Trust Series Z 02-25-24 6.00 8,853,277(q) 7,580,796 Govt Natl Mtge Assn 12-01-08 7.00 8,327,079 8,324,498 05-15-24 7.00 14,639,055 14,391,947 Merrill Lynch Mtge Investors 06-15-21 7.77 752,318(g) 707,649 Series 1996-C2 Cl D 12-21-28 6.96 7,500,000 7,032,225 Total 743,758,982 Aerospace & defense (0.3%) BE Aerospace Sr Sub Nts Series B 02-01-06 9.88 2,500,000 2,468,750 Compass Aerospace Company Guaranty Series B 04-15-05 10.13 1,210,000 178,475 Fairchild Company Guaranty 04-15-09 10.75 1,300,000 1,027,000 L-3 Communications Sr Sub Nts Series B 05-01-07 10.38 2,690,000 2,743,800 Northrop-Grumman 03-01-06 7.00 3,750,000 3,617,550 Roller Bearing Company Guaranty Series B 06-15-07 9.63 1,600,000 1,464,000 Sequa Sr Nts 08-01-09 9.00 1,600,000 1,596,000 Transdigm Company Guaranty 12-01-08 10.38 1,000,000(d) 900,000 Total 13,995,575 Airlines (0.2%) Continental Airlines Series 1974B 01-02-17 6.90 4,898,005 4,546,083 Series 1996A 10-15-13 6.94 4,524,819 4,242,651 Total 8,788,734 Automotive & related (0.4%) Aftermarket Technology Sr Sub Nts Series D 08-01-04 12.00 1,125,000 1,110,938 Daimler Chrysler 05-27-03 7.75 4,000,000 4,046,912 Delco Remy Intl Company Guaranty 08-01-06 10.63 1,000,000 995,000 Sr Nts 12-15-07 8.63 500,000 462,500 Ford Motor Credit 10-28-09 7.38 5,000,000 4,849,100 06-15-10 7.88 2,000,000 2,004,180 French (JL) Auto Casting Company Guaranty Series B 06-01-09 11.50 1,000,000 835,000 Hayes Lemmerz Intl Company Guaranty 07-15-06 11.00 1,350,000 1,346,625 Lear Sub Nts 07-15-06 9.50 1,700,000 1,708,500 Oxford Automotive Company Guaranty Series D 06-15-07 10.13 960,000 873,600 Venture Holdings Trust Sr Nts Series B 07-01-05 9.50 650,000 520,000 Total 18,752,355 Banks and savings & loans (1.5%) Bank of America 05-16-05 7.88 7,000,000 7,191,016 Capital One Bank 05-15-08 6.70 5,300,000 4,835,932 Sr Nts 06-15-05 8.25 7,000,000 7,067,130 Corp Andina de Fomento (U.S. Dollar) 02-01-03 7.10 5,200,000(c) 5,108,688 Cullen/Frost Capital Series A 02-01-27 8.42 3,200,000 2,854,560 Deutsche Telekom Intl Finance (U.S. Dollar) 06-15-10 8.00 12,250,000(c) 12,396,632 Morgan (JP) Sr Sub Medium-term Nts Series A 02-15-12 4.00 5,000,000(g) 4,307,750 Provident Trust Company Guaranty 04-15-28 8.29 5,500,000 4,628,773 Union Planters Bank Sub Nts 03-15-08 6.50 10,000,000 8,837,450 Union Planters Capital Company Guaranty 12-15-26 8.20 2,600,000 2,109,458 Wachovia Sr Nts 07-15-05 7.45 4,000,000 4,034,880 Washington Mutual Capital Company Guaranty 06-01-27 8.38 2,900,000 2,613,306 Sr Nts 06-15-05 8.25 4,500,000 4,603,455 Wells Fargo Sr Medium-term Nts Series G 09-15-02 6.38 5,800,000 5,715,204 Total 76,304,234 Building materials & construction (0.2%) Foster Wheeler 11-15-05 6.75 5,375,000 4,551,319 Nortek Sr Sub Nts 03-01-04 9.88 1,500,000(j) 1,455,000 Pulte Company Guaranty 04-01-03 9.50 5,000,000 5,040,740 Total 11,047,059 Chemicals (0.4%) Allied Waste North America Company Guaranty Series B 01-01-09 7.88 1,850,000 1,667,313 08-01-09 10.00 2,900,000(j) 2,588,250 Dow Chemical 11-01-29 7.38 2,200,000 2,145,770 Lyondell Chemical Series A 05-01-07 9.63 1,100,000 1,117,875 Rohm & Haas 07-15-29 7.85 6,000,000 6,055,086 Sovereign Specialty Chemical 03-15-10 11.88 1,600,000(d) 1,640,000 Waste Management Sr Nts 10-01-07 7.13 4,500,000 4,212,180 Total 19,426,474 Communications equipment & services (0.7%) 360networks (U.S. Dollar) Sr Nts 05-01-08 13.00 500,000(c,d,j) 482,500 Aether Systems Cv 03-22-05 6.00 1,190,000 1,035,300 Aspect Communications Zero Coupon Cv Sub Deb 08-10-18 6.00 1,880,000(e) 569,057 Celcaribe Sr Nts 03-15-04 13.50 1,450,000 1,174,500 DLJ Secured Loan Trust Sr Secured Ctfs 07-07-07 10.13 2,500,000(d) 2,608,500 07-09-07 11.00 500,000(d) 500,000 Dobson/Sygnet Communications Sr Nts 12-15-08 12.25 2,750,000 2,805,000 Equinix Sr Nts 12-01-07 13.00 1,345,000 1,076,000 FLAG Sr Nts 01-30-08 8.25 2,525,000 2,297,750 GT Group Telecom (U.S. Dollar) Zero Coupon 02-01-05 13.25 750,000(c,d,f )386,250 IPCS Zero Coupon 07-15-05 14.00 735(d,f) 437,325 KMC Telecom Holdings Sr Nts 05-15-09 13.50 250,000 200,000 Zero Coupon Sr Disc Nts 02-15-03 12.68 1,875,000(f) 712,500 KPNQwest (U.S. Dollar) Sr Nts 06-01-09 8.13 3,000,000(c) 2,760,000 MJD Communications Sr Sub Nts Series B 05-01-08 9.50 1,000,000 880,000 NTL Cv Sub Nts 12-15-09 5.75 980,000(d) 654,944 Sr Nts Series B 10-01-08 11.50 1,000,000 1,020,000 Zero Coupon Sr Nts Series B 04-01-03 9.78 3,825,000(f) 2,448,000 Price Communications Wireless Company Guaranty Series B 12-15-06 9.13 3,450,000 3,484,500 Rhythms NetConnections Sr Nts 02-15-10 14.00 900,000 585,000 Rural Cellular Sr Sub Nts Series B 05-15-08 9.63 1,750,000 1,675,625 Spectrasite Holdings Zero Coupon Sr Disc Nts 04-15-04 11.25 2,000,000(f) 1,220,000 Versatel Telecom (European Monetary Unit) 03-30-05 4.00 1,241,000(c,d) 926,159 (U.S. Dollar) Sr Nts 05-15-08 13.25 700,000(c) 658,000 Vialog Company Guaranty 11-15-01 12.75 5,000,000 4,200,001 Voicestream Wireless Sr Nts 11-15-09 10.38 1,149,180 1,241,114 Total 36,038,025 Computers & office equipment (0.3%) Affiliated Computer Services Cv 03-15-05 4.00 1,000,000 1,218,100 Akamai Technologies Cv 07-01-07 5.50 450,000(d) 390,843 Cooperative Computing Sr Sub Nts 02-01-08 9.00 1,770,000 708,000 Exodus Communications Sr Nts 07-15-10 11.63 700,000(d) 710,500 Globix Sr Nts 02-01-10 12.50 2,000,000 1,520,000 Hewlett-Packard Zero Coupon Sub Nts 10-14-17 3.13 1,555,000(e) 1,431,269 Hyperion Solutions Cv 03-15-05 4.50 1,234,000 1,077,405 Juniper Networks 03-15-07 4.75 1,950,000 2,785,145 Mercury Interactive Cv 07-01-07 4.75 1,330,000(d) 1,670,241 PSINet Sr Nts 11-01-08 11.50 1,125,000 984,375 Sanmina Cv 05-01-04 4.25 340,000 875,269 Solectron Zero Coupon Cv 05-08-20 2.75 2,700,000(e) 1,786,131 Veritas Software Cv 08-13-06 1.86 150,000 508,688 Total 15,665,966 Electronics (0.2%) Celestica (U.S. Dollar) Zero Coupon Cv 08-01-20 6.23 1,570,000(c,e) 836,025 Conexant Systems Cv 02-01-07 4.00 1,950,000 1,425,937 Cv Sub Nts 02-01-07 4.00 535,000(d) 386,821 LSI Logic Cv 02-15-05 4.00 1,270,000 1,100,138 SCI Systems 03-15-07 3.00 1,950,000 2,480,555 Semtech Cv 02-01-07 4.50 570,000(d) 862,416 Vitesse Semiconductor Cv 03-15-05 4.00 780,000(d) 800,842 Total 7,892,734 Energy (0.6%) AES Drax Energy 08-30-10 11.50 845,000(d) 883,025 Devon Energy Cv Deb 08-15-08 4.90 928,000 881,600 Honam Oil Refinery (U.S. Dollar) 10-15-05 7.13 5,750,000(c,d) 5,461,868 Lodestar Holdings Company Guaranty 05-15-05 11.50 3,000,000 450,000 Phillips Petroleum 05-25-05 8.50 4,000,000 4,186,632 05-25-10 8.75 5,000,000 5,392,680 Roil (U.S. Dollar) 12-05-02 12.78 2,196,400(c,d) 2,103,053 USX 03-01-08 6.85 12,000,000 11,566,920 Total 30,925,778 Energy equipment & services (0.1%) Global Marine 09-01-07 7.13 4,500,000 4,366,530 Financial services (0.9%) Associates Corp of North America Sr Nts 10-15-02 6.38 10,000,000 9,826,000 Countrywide Home Loan Company Guaranty 06-15-04 6.85 8,000,000 7,765,840 Duke Capital Sr Nts 10-01-09 7.50 4,500,000 4,464,360 Heller Financial 05-15-03 7.88 5,000,000 5,050,825 Indah Kiat Finance Mauritius (U.S. Dollar) Company Guaranty 07-01-07 10.00 535,000(c) 310,300 LaBranche Sr Sub Nts 03-01-07 12.00 1,250,000 1,312,500 Morgan Stanley, Dean Witter, Discover & Co 06-15-05 7.75 7,000,000 7,150,241 Providian Financial Cv 08-15-05 3.25 1,230,000 1,305,079 Standard Credit Card Trust Series A 10-07-04 5.95 3,000,000 2,919,390 Travelers Group Sr Nts 01-15-06 6.75 4,000,000 3,883,640 Wilmington Trust 05-01-08 6.63 3,200,000 2,936,768 Total 46,924,943 Food (0.2%) Aurora Foods Sr Sub Nts Series B 02-15-07 9.88 1,345,000 1,049,100 Earthgrains 08-01-03 8.38 7,000,000 7,012,040 RAB Enterprises Company Guaranty 05-01-05 10.50 855,000 607,050 Total 8,668,190 Health care (0.1%) Inhale Therapeutic Systems Cv Sub Nts 02-08-07 5.00 961,000(d) 1,370,626 Roche Holdings Zero Coupon Cv 01-19-15 1.47 2,000,000(d,e) 1,911,840 Watson Pharmaceuticals Sr Nts 05-15-08 7.13 2,550,000 2,353,829 Total 5,636,295 Health care services (0.2%) Fountain View Company Guaranty Series B 04-15-08 11.25 2,150,000 322,500 HCA- The Healthcare 09-01-10 8.75 1,030,000 1,027,384 Magellan Health Services Sr Sub Nts 02-15-08 9.00 220,000 126,500 Paracelsus Healthcare Sr Sub Nts 08-15-06 10.00 2,000,000(b) 620,000 Sunrise Assisted Living Cv Sub Nts 06-15-02 5.50 1,946,000 1,712,480 Tenet Healthcare Sr Nts 12-01-03 8.63 2,500,000 2,499,999 09-01-10 9.25 1,575,000(d) 1,634,063 Sr Sub Nts Series B 12-01-08 8.13 800,000 760,000 Total 8,702,926 Industrial equipment & services (0.1%) Motor & Gears Sr Nts Series D 11-15-06 10.75 1,500,000 1,458,750 Terex Company Guaranty Series D 04-01-08 8.88 1,425,000 1,339,500 Total 2,798,250 Insurance (0.8%) American General Institute Capital Company Guaranty Series A 12-01-45 7.57 10,000,000(d) 9,124,590 Americo Life Sr Sub Nts 06-01-05 9.25 1,600,000 1,496,000 Executive Risk Capital Company Guaranty Series B 02-01-27 8.68 3,000,000 2,906,214 Nationwide CSN Trust 02-15-25 9.88 9,000,000(d) 9,374,571 New England Mutual 02-15-24 7.88 2,000,000(d) 1,955,160 Principal Mutual 03-01-44 8.00 2,500,000(d) 2,183,898 SAFECO Capital Trust Company Guaranty 07-15-37 8.07 5,000,000 4,332,390 SunAmerica 08-30-05 7.34 5,000,000 5,043,850 Zurich Capital Trust (U.S. Dollar) Company Guaranty 06-01-37 8.38 3,750,000(c,d) 3,653,895 Total 40,070,568 Leisure time & entertainment (0.4%) Argosy Gaming Company Guaranty 06-01-09 10.75 1,875,000 1,975,781 Cinemark USA Sr Sub Nts Series B 08-01-08 9.63 2,710,000 975,600 Coast Hotels & Casino Company Guaranty 04-01-09 9.50 2,000,000 1,970,000 Horseshoe Gaming Holdings Company Guaranty 05-15-09 8.63 2,500,000 2,437,500 Pinnacle Entertainment Company Guaranty Series B 02-15-07 9.25 1,875,000 1,921,875 Premier Parks Sr Nts 04-01-06 9.25 1,250,000 1,168,750 Riviera Holdings Company Guaranty 08-15-04 10.00 1,150,000 1,058,000 Station Casinos Sr Sub Nts 04-15-07 9.75 2,000,000 1,980,000 Time Warner 02-01-24 7.57 2,900,000 2,772,168 Trump Atlantic City Assn/Funding 1st Mtge Company Guaranty 05-01-06 11.25 1,025,000 691,875 United Artists Theatres Series 1995A 07-01-15 9.30 1,820,983 1,099,910 Viacom Company Guaranty 07-30-10 7.70 3,200,000 3,243,553 Total 21,295,012 Media (1.1%) Charter Communications Holdings/Charter Capital Sr Nts 01-15-10 10.25 1,500,000 1,492,500 Comcast Cable Communications 11-15-08 6.20 6,100,000 5,630,361 Cox Communications 11-15-15 7.25 5,000,000 4,783,400 06-15-25 7.63 5,000,000 4,764,850 Cv 04-19-20 .43 2,045,000 964,667 Cox Enterprises 06-15-09 7.38 10,000,000(d) 9,657,400 CSC Holdings Sr Sub Nts 11-01-05 9.25 2,000,000 2,020,000 Golden Sky Systems Company Guaranty Series B 08-01-06 12.38 2,350,000 2,585,000 Lamar Media Company Guaranty 12-01-06 9.63 2,180,000 2,229,050 MDC Communications (U.S. Dollar) Sr Sub Nts 12-01-06 10.50 1,350,000(c) 1,296,000 Outdoor Systems Company Guaranty 10-15-06 9.38 2,500,000 2,612,300 Paxson Communications Sr Sub Nts 10-01-02 11.63 2,000,000 2,047,500 Price Communications Wireless Sr Sub Nts 07-15-07 11.75 1,500,000 1,616,250 Radio Unica Zero Coupon Company Guaranty 08-01-02 11.75 1,950,000(f) 1,345,500 Telemundo Holdings Zero Coupon Sr Disc Nts Series B 08-15-03 11.50 1,965,000(f) 1,365,675 TeleWest Communications (U.S. Dollar) Cv 07-07-05 6.00 952,000(c,d) 811,580 (U.S. Dollar) Zero Coupon Sr Disc Nts 04-15-04 9.25 1,600,000(c,f) 888,000 Time Warner Entertainment Sr Nts 07-15-33 8.38 10,000,000 10,350,500 Total 56,460,533 Metals (0.1%) EnviroSource Sr Nts Series B 06-15-03 9.75 1,500,000 465,000 Imexsa Export Trust (U.S. Dollar) 05-31-03 10.13 1,976,109(c,d) 1,916,826 Ormet Company Guaranty 08-15-08 11.00 1,235,000(d) 1,123,850 Pen Holdings Company Guaranty Series B 06-15-08 9.88 2,515,000 1,936,550 U.S. Can Company Guaranty 10-15-06 10.13 2,000,000 2,160,000 Total 7,602,226 Miscellaneous (0.8%) Actuant Company Guaranty 05-01-09 13.00 1,135,000(d) 1,157,700 Adams Outdoor Advertising Sr Nts 03-15-06 10.75 3,460,000 3,563,800 Argo-Tech Company Guaranty 10-01-07 8.63 1,150,000 920,000 Bistro Trust 12-31-02 9.50 12,000,000(d) 11,412,000 Continucare Cv Sr Sub Nts 10-31-02 8.00 243,902(b,d) 48,476 Delphes 2 (U.S. Dollar) 05-05-09 7.75 3,000,000(c,d) 2,923,140 Falcon Products Company Guaranty Series B 06-15-09 11.38 2,000,000 1,900,000 ISG Resources 04-15-08 10.00 2,760,000 2,346,000 Jasmine Submarine Telecom (U.S. Dollar) Sr Nts 05-30-11 8.48 806,323(c,d) 748,880 Nationwide Credit Sr Nts Series A 01-15-08 10.25 2,500,000 1,662,500 Network Associates Zero Coupon Cv Sub Deb 02-13-18 3.24 4,664,000(e) 1,825,396 Norcal Waste Systems Company Guaranty Series B 11-15-05 13.50 2,000,000 2,085,000 NSM Steel Company Guaranty 02-01-06 12.00 1,522,095(b,d) 60,884 Omega Cabinets Sr Sub Nts 06-15-07 10.50 1,980,000 1,821,600 Outsourcing Solutions Sr Sub Nts Series B 11-01-06 11.00 1,125,000 956,250 PSA 08-01-05 7.13 7,000,000(d) 7,028,161 SC Intl 09-01-07 9.25 1,950,000 1,891,500 Stellex Inds Sr Sub Nts Series B 11-01-07 9.50 1,350,000(b) 189,000 Vesta Capital 01-15-27 8.52 5,000,000(d) 1,837,755 Total 44,378,042 Multi-industry conglomerates (0.5%) CBS 06-01-01 8.88 9,750,000 9,838,140 Goodrich (BF) Company Guaranty 04-15-08 7.50 5,000,000 4,834,450 Interim Services Cv Sub Nts 06-01-05 4.50 1,244,000 873,798 Jordan Inds Sr Nts Series D 08-01-07 10.38 4,080,000 3,814,800 Prime Succession Sr Sub Nts 08-15-04 10.75 980,000(b) 147,000 US Inds/USI America Holding Company Guaranty 10-15-03 7.13 5,000,000 4,922,750 USI American Holdings Sr Nts Series B 12-01-06 7.25 3,350,000 3,211,159 Total 27,642,097 Paper & packaging (0.5%) Abitibi-Consolidated (U.S. Dollar) 08-01-05 8.30 8,000,000(c) 8,135,920 Ball Company Guaranty 08-01-08 8.25 1,750,000 1,680,000 Crown Paper Sr Sub Nts 09-01-05 11.00 1,000,000(b) 270,000 Gaylord Container Sr Nts 06-15-07 9.75 1,250,000 1,000,000 Intl Paper 07-08-05 8.13 6,000,000(d) 6,136,620 Packaging Corp of America Company Guaranty 04-01-09 9.63 2,495,000 2,557,375 Quno (U.S. Dollar) Sr Nts 05-15-05 9.13 2,500,000(c) 2,566,715 Repap New Brunswick (U.S. Dollar) Sr Nts 06-01-04 9.00 2,200,000(c) 2,222,000 Silgan Holdings 06-01-09 9.00 2,650,000 2,411,500 Total 26,980,130 Restaurants & lodging (0.2%) MGM Grand Sr Sub Nts 06-01-07 9.75 3,000,000 3,142,500 MGM Mirage 02-06-08 6.88 7,380,000 6,783,622 Total 9,926,122 Retail (0.2%) Eye Care Centers of America Company Guaranty 05-01-08 9.13 500,000 185,000 Flooring America Company Guaranty 10-15-07 9.25 1,849,000 1,090,910 Kroger Company Guaranty 03-01-08 7.45 6,075,000 5,876,530 Target 08-15-10 7.50 2,500,000 2,514,383 Wal-Mart CRAVE Trust 07-17-06 7.00 3,422,458(d) 3,347,369 Total 13,014,192 Textiles & apparel (--%) Galey & Lord Company Guaranty 03-01-08 9.13 1,750,000 910,000 Transportation (0.1%) Greater Beijing First Expressways (U.S. Dollar) Sr Nts 06-15-04 9.25 5,120,000(b,c) 1,638,400 Hermes Europe RailTel (U.S. Dollar) Sr Nts 01-15-09 10.38 3,300,000(c) 2,112,000 Zhuhai Highway (U.S. Dollar) Sub Nts 07-01-08 11.50 5,000,000(b,c,d)1,000,000 Total 4,750,400 Utilities -- electric (0.7%) Alabama Power 1st Mtge 12-01-24 9.00 2,038,080 2,126,686 Arizona Public Service 1st Mtge Sale Lease-backed Obligation 12-30-15 8.00 1,800,000 1,747,656 Cleveland Electric Illuminating 1st Mtge Series B 05-15-05 9.50 9,000,000 9,118,889 Connecticut Light & Power 1st Mtge Series C 06-01-02 7.75 5,000,000 5,035,350 Jersey Central Power & Light 1st Mtge 11-01-25 6.75 7,200,000 6,345,007 Public Service Electric & Gas 1st & Ref Mtge (AMBAC Insured) 01-01-1 6 6.75 2,600,000(h) 2,349,854 Salton Sea Funding Series C 05-30-10 7.84 1,325,000 1,339,284 Sithe Independence Funding Series A 12-30-13 9.00 1,500,000 1,522,350 Texas Utilities Electric 08-01-07 7.17 5,000,000 4,912,100 Western Massachusetts Electric 1st Mtge Series B 07-01-01 7.38 2,750,000 2,739,138 Total 37,236,314 Utilities -- gas (0.4%) Columbia Energy Group Series E 11-28-10 7.32 7,000,000 6,587,350 El Paso Energy Sr Nts 05-15-09 6.75 1,900,000 1,801,922 Sr Nts Series B 07-15-01 6.63 8,675,000 8,593,195 Enron 06-15-03 7.88 3,000,000 3,052,770 Total 20,035,237 Utilities -- telephone (1.3%) 360 Communications 04-01-09 7.60 3,000,000 2,937,360 Allegiance Telecom Zero Coupon Sr Disc Nts Series B 02-15-03 11.94 950,000(f) 679,250 AT&T Canada (U.S. Dollar) Sr Nts 11-01-08 10.63 1,200,000(c) 1,321,404 (U.S. Dollar) Zero Coupon Sr Disc Nts 06-15-03 9.95 2,300,000(c,f) 1,903,572 COLT Telecom Group (European Monetary Unit) Cv 04-03-07 2.00 2,290,000(c,d) 1,715,363 Geotek Communications Cv Sr Sub Nts 02-15-01 12.00 1,655,000(b) 2,069 Global Crossing Holdings (U.S. Dollar) Sr Nts 11-15-09 9.50 625,000(c) 626,563 Hyperion Telecommunications Sr Nts Series B 09-01-04 12.25 1,500,000 1,440,000 Intermedia Communications Sr Nts Series B 06-01-08 8.60 1,900,000 1,558,000 Zero Coupon Sr Disc Nts Series B 07-15-02 11.25 2,695,000(f) 1,832,600 Level 3 Communications Cv 03-15-10 6.00 970,000 872,631 McLeod USA Sr Nts 02-15-09 8.13 1,000,000 895,000 Nextel Communications Cv 11-15-09 9.38 2,500,000 2,450,000 Cv Sr Nts 01-15-10 5.25 970,000(d) 948,253 Primus Telecomm Group Cv 02-15-07 5.75 3,115,000(d) 1,614,566 Sr Nts 08-01-04 11.75 2,300,000 1,495,000 Qwest Communications Intl Sr Nts Series B 11-01-08 7.50 6,950,000 6,883,628 RSL Communications (U.S. Dollar) Company Guaranty 11-15-06 12.25 3,000,000(c) 1,050,000 Sprint Capital Company Guaranty 05-01-09 6.38 5,000,000 4,544,950 TeleCorp PCS Sr Sub Nts 07-15-10 10.63 1,060,000(d) 1,102,400 U S WEST Capital Funding Company Guaranty 08-15-01 6.88 10,000,000 9,964,099 U S WEST Communications 11-10-26 7.20 5,000,000 4,397,150 United Pan-Europe Communications (U.S. Dollar) Sr Nts Series B 02-01-10 11.25 925,000(c) 808,219 02-01-10 11.50 1,300,000(c) 1,137,500 Vodafone AirTouch (U.S. Dollar) 02-15-10 7.75 5,000,000(c,d) 5,022,400 Company Guaranty 05-01-08 6.65 10,000,000 9,384,999 Williams Communications Group Sr Nts 08-01-10 11.88 500,000(d) 500,000 Total 67,086,976 Total bonds (Cost: $1,802,367,084) $1,751,233,980 Short-term securities (3.4%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (2.0%) Federal Home Loan Bank Disc Nts 10-06-00 6.46 38,900,000 38,634,035 10-13-00 6.46 30,200,000 29,968,774 Federal Home Loan Mtge Corp Disc Nts 09-12-00 6.43 1,800,000 1,796,148 10-24-00 6.50 7,000,000 6,932,380 Federal Natl Mtge Assn Disc Nts 09-21-00 6.43 25,200,000 25,101,088 09-28-00 6.44 800,000 795,820 Total 103,228,245 Commercial paper (1.4%) Alcoa 09-22-00 6.50 2,600,000 2,589,720 11-16-00 6.57 8,100,000 7,986,001 AT&T 09-06-00 6.50 18,000,000 17,980,530 Delaware Funding 09-25-00 6.55 4,400,000(l) 4,379,894 Gillette 10-12-00 6.53 9,500,000(l) 9,428,180 10-17-00 6.55 6,600,000(l) 6,544,077 May Department Stores 10-11-00 6.56 3,400,000 3,374,443 Morgan Stanley, Dean Witter, Discover & Co 09-18-00 6.52 1,700,000 1,694,381 Nestle Capital 09-01-00 6.40 900,000 899,840 Pfizer 09-15-00 6.47 8,700,000 8,676,618 Preferred Receivables 10-06-00 6.54 1,600,000(l) 1,589,600 Reed Elsevier 09-18-00 6.53 6,900,000(l) 6,877,540 Total 72,020,824 Total short-term securities (Cost: $175,304,239) $175,249,069 Total investments in securities (Cost: $3,781,283,397)(r) $5,342,800,244 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c)Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. As of Aug. 31, 2000, the value of foreign securities represented 8.93% of net assets. (d)Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e)For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f)For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized effective yield from the date of acquisition to interest reset date disclosed. (g)Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2000. (h)The following abbreviation is used in portfolio descriptions to identify the insurer of the issue: AMBAC -- American Municipal Bond Association Corporation (i)ACES (Automatically Convertible Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. ACES pay dividends, have voting rights, are noncallable for at least three years and upon maturity, convert into shares of common stock. (j)Security is partially or fully on loan. See Note 5 to the financial statements. (k)Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (l)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board.
(m)At Aug. 31, 2000, securities valued at $203,469,375 were held to cover open call options written as follows: Issuer Contracts Exercise Expiration Value(a) price date American Intl Group 300 $90 Nov. 2000 $142,500 American Intl Group 300 95 Nov. 2000 80,625 Cendant 3,500 15 Nov. 2000 262,500 Cisco Systems 500 70 Oct. 2000 181,250 Citigroup 500 56 Sept. 2000 189,109 Donaldson, Lufkin & Jenrette - DLJ 500 70 Oct. 2000 956,250 Elan ADR 2,200 55 Sept. 2000 907,500 Elan ADR 500 60 Oct. 2000 178,125 Illinois Tool Works 1,200 60 Sept. 2000 30,000 Merrill Lynch 200 140 Oct. 2000 237,500 Microsoft 750 70 Oct. 2000 305,496 Nokia ADR Cl A 250 45 Sept. 2000 39,062 Qwest Communications Intl 500 50 Sept. 2000 143,750 Qwest Communications Intl 500 55 Oct. 2000 134,375 Southwest Airlines 1,000 25 Sept. 2000 15,626 Texas Instruments 500 70 Sept. 2000 76,562 Texas Instruments 500 75 Sept. 2000 23,438 Texas Instruments 500 70 Oct. 2000 215,625 Texas Instruments 500 75 Oct. 2000 134,375 USA Networks 1,000 25 Oct. 2000 137,500 WorldCom 1,000 40 Sept. 2000 28,125 WorldCom 1,000 45 Dec. 2000 125,000 Total $4,544,293
(n)At Aug. 31, 2000, the cost of securities purchased, including interest purchased, on a when-issued basis was $47,945,486. (o)Negligible market value. (p)PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. PRIDES pay dividends, have voting rights, are noncallable for three years and upon maturity, convert into shares of common stock. (q)This security is a collateralized mortgage obligation that pays no interest or principal during its initial accrual period until previous series within the trust have been paid off. Interest is accrued at an effective yield; similar to a zero coupon bond. (r)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $3,786,500,633 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,739,036,533 Unrealized depreciation (182,736,922) ------------ Net unrealized appreciation $1,556,299,611 Investments in Securities AXP VP - New Dimensions Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (95.9%) Issuer Shares Value(a) Aerospace & defense (0.3%) United Technologies 236,000 $14,735,250 Airlines (0.9%) Southwest Airlines 2,139,350 48,402,794 Banks and savings & loans (2.6%) State Street 479,700 56,484,675 Wells Fargo 2,054,500 88,728,719 Total 145,213,394 Beverages & tobacco (0.4%) Anheuser-Busch 86,100 6,785,756 Coca-Cola 344,000 18,103,000 Total 24,888,756 Chemicals (0.2%) Air Products & Chemicals 283,600 10,298,225 Communications equipment & services (10.6%) Corning 515,800 169,150,163 JDS Uniphase 1,375,500(b) 171,421,687 Lucent Technologies 1,118,000 46,746,375 Motorola 1,671,900 60,292,894 Nokia ADR Cl A 1,113,600(c) 50,042,400 Nortel Networks 1,145,900(c) 93,462,469 Total 591,115,988 Computer software & services (3.6%) Microsoft 1,719,900(b) 120,070,519 Oracle 889,900(b) 80,925,281 Total 200,995,800 Computers & office equipment (17.8%) America Online 1,116,300(b) 65,443,088 Automatic Data Processing 1,111,600 66,279,150 Cisco Systems 3,385,600(b) 231,913,599 Dell Computer 856,600(b) 37,369,175 EMC 1,862,000(b) 182,476,000 Hewlett-Packard 513,200 61,968,900 Intl Business Machines 855,100 112,873,200 Sanmina 154,200(b) 18,195,600 Solectron 2,476,400(b) 112,211,875 Sun Microsystems 343,900(b) 43,653,806 Veritas Software 256,800(b) 30,960,450 Yahoo! 240,700(b) 29,245,050 Total 992,589,893 Electronics (8.6%) Applied Materials 687,600(b) 59,348,475 Applied Micro Circuits 22,400(b) 4,545,800 Broadcom Cl A 54,700(b) 13,675,000 Intel 2,407,200 180,239,099 Maxim Integrated Products 393,400(b) 34,496,263 PMC-Sierra 71,800(b) 16,944,800 Teradyne 361,500(b) 23,429,719 Texas Instruments 2,204,800 147,583,800 Total 480,262,956 Energy (4.5%) Chevron 803,800 67,921,100 Exxon Mobil 2,223,898 181,525,674 Total 249,446,774 Energy equipment & services (1.0%) Halliburton 1,095,500 58,061,500 Financial services (7.5%) Citigroup 3,420,833 199,691,146 MBNA 1,718,650 60,689,828 Morgan Stanley, Dean Witter, Discover & Co 1,452,180 156,196,535 Total 416,577,509 Health care (6.3%) ALZA 393,300(b) 29,743,313 Amgen 393,300(b) 29,817,056 Bristol-Myers Squibb 1,410,300 74,745,900 Guidant 222,500(b) 14,977,031 Medtronic 1,238,500 63,473,125 Pfizer 2,530,950 109,463,587 Schering-Plough 667,900 26,799,488 Total 349,019,500 Health care services (1.4%) Cardinal Health 922,550 75,476,122 Household products (1.1%) Colgate-Palmolive 957,800 48,787,938 Kimberly-Clark 223,000 13,045,500 Total 61,833,438 Industrial equipment & services (0.5%) Illinois Tool Works 481,600 26,999,700 Insurance (1.9%) American Intl Group 1,197,960 106,768,185 Leisure time & entertainment (3.6%) Time Warner 732,400 62,620,200 Viacom Cl B 2,054,217(b) 138,274,482 Total 200,894,682 Media (1.1%) Comcast Special Cl A 205,500(b) 7,654,875 Gannett 861,786 48,798,632 Sony ADR 52,700 5,869,681 Total 62,323,188 Metals (0.3%) Alcoa 420,000 13,965,000 Miscellaneous (0.6%) Stilwell Financial 721,200(b) 34,888,050 Multi-industry conglomerates (6.5%) General Electric 3,728,000 218,787,000 Minnesota Mining & Mfg 650,500 60,496,500 Tyco Intl 1,478,344(c) 84,265,608 Total 363,549,108 Restaurants & lodging (0.7%) Marriott Intl Cl A 962,700 38,026,650 Retail (7.3%) Best Buy 187,700(b) 11,590,475 Costco Wholesale 1,582,500(b) 54,497,344 Home Depot 1,087,450 52,265,566 Safeway 2,396,000(b) 118,152,750 Target 1,795,400 41,743,050 Wal-Mart Stores 2,745,900 130,258,631 Total 408,507,816 Utilities -- electric (0.3%) Calpine 151,100(b) 14,958,900 Utilities -- gas (3.6%) El Paso Energy 1,539,500 89,675,875 Enron 1,300,000 110,337,500 Total 200,013,375 Utilities -- telephone (2.6%) AT&T - Liberty Media Group Cl A 1,370,400(b) 29,292,300 Level 3 Communications 171,300(b) 14,943,248 Qwest Communications Intl 879,186(b) 45,387,977 WorldCom 1,515,700(b) 55,323,051 Total 144,946,576 Total common stocks (Cost: $3,399,631,607) $5,334,759,129 Short-term securities (4.4%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (2.1%) Federal Home Loan Bank Disc Nt 09-13-00 6.41% $21,500,000 $21,448,603 Federal Home Loan Mtge Corp Disc Nt 10-03-00 6.43 47,800,000 47,520,011 Federal Natl Mtge Assn Disc Nts 09-20-00 6.41 41,500,000 41,347,370 10-26-00 6.51 4,600,000 4,552,072 Total 114,868,056 Commercial paper (2.3%) Alcoa 10-16-00 6.53 3,000,000 2,975,160 Barton Capital 10-03-00 6.55 5,300,000(d) 5,268,372 Bell Atlantic Finance Services 09-05-00 6.56 8,700,000 8,691,964 Commerzbank U.S. Finance 09-27-00 6.53 2,400,000 2,388,102 Duke Energy 09-14-00 6.52 18,700,000 18,651,067 Gannett 09-08-00 6.50 8,500,000(d) 8,487,741 09-26-00 6.53 13,000,000(d) 12,937,939 Gillette 10-13-00 6.52 9,200,000(d) 9,125,095 GMAC 10-05-00 6.55 1,900,000 1,887,571 Household Finance 09-01-00 6.65 1,900,000 1,899,649 Pfizer 09-28-00 6.50 18,600,000(d) 18,506,400 Reed Elsevier 09-18-00 6.53 4,800,000(d) 4,784,375 Wal-Mart Stores 09-19-00 6.52 3,200,000(d) 3,188,836 09-26-00 6.53 18,200,000(d) 18,113,115 10-17-00 6.54 8,200,000(d) 8,129,450 Windmill Funding 09-21-00 6.55 3,600,000(d) 3,586,083 Total 128,620,919 Total short-term securities (Cost: $243,551,988) $243,488,975 Total investments in securities (Cost: $3,643,183,595)(e) $5,578,248,104 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 4.09% of net assets. (d)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $3,643,183,595 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,000,761,763 Unrealized depreciation (65,697,254) ----------- Net unrealized appreciation $1,935,064,509 Investments in Securities AXP VP - S&P 500 Index Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (100.0%) Issuer Shares Value(a) Aerospace & defense (1.2%) Boeing 1,426 $76,471 General Dynamics 315 19,825 Goodrich (BF) 159 6,489 Honeywell Intl 1,254 48,358 Lockheed Martin 672 19,068 Northrop Grumman 109 8,482 Raytheon Cl B 533 14,824 Rockwell Intl 295 11,929 United Technologies 740 46,204 Total 251,650 Airlines (0.2%) AMR 235(b) 7,711 Delta Air Lines 192 9,504 Southwest Airlines 779 17,625 US Airways Group 104(b) 3,536 Total 38,376 Automotive & related (1.0%) Cooper Tire & Rubber 115 1,387 Cummins Engine 65 2,308 Dana 239 5,900 Delphi Automotive Systems 884 14,531 Eaton 114 7,567 Ford Motor 2,945 71,232 General Motors 841 60,710 Genuine Parts 277 5,696 Goodyear Tire & Rubber 245 5,727 Johnson Controls 134 7,161 Navistar Intl 97(b) 3,638 PACCAR 120 5,093 Snap-On 92 2,835 TRW 193 8,818 Visteon 204 3,200 Total 205,803 Banks and savings & loans (5.1%) AmSouth Bancorporation 617 11,261 Bank of America 2,604 139,477 Bank of New York 1,159 60,776 Bank One 1,802 63,521 BB&T 615 16,644 Charter One Financial 329 7,814 Chase Manhattan 2,047 114,377 Comerica 245 13,797 Fifth Third Bancorp 730 33,717 First Union 1,541 44,593 Firstar 1,524 36,386 FleetBoston Financial 1,416 60,446 Golden West Financial 248 11,811 Huntington Bancshares 383 6,463 KeyCorp 682 13,768 Mellon Financial 772 34,933 Morgan (JP) 256 42,800 Natl City 952 19,933 Northern Trust 350 29,509 Old Kent Financial 215 6,302 PNC Financial Services Group 457 26,935 Regions Financial 346 7,526 Southtrust 264 7,442 State Street 253 29,791 Summit Bancorp 276 7,642 SunTrust Banks 476 23,503 Synovus Financial 443 8,722 U.S. Bancorp 1,182 25,709 Union Planters 212 6,426 USA Education 246 9,640 Wachovia 318 18,226 Washington Mutual 861 30,135 Wells Fargo 2,531 109,309 Total 1,079,334 Beverages & tobacco (2.4%) Anheuser-Busch 710 55,957 Brown-Forman Cl B 107 5,671 Coca-Cola 3,889 204,661 Coca-Cola Enterprises 660 12,293 Coors (Adolph) Cl B 57 3,395 Fortune Brands 248 6,324 PepsiCo 2,264 96,504 Philip Morris 3,593 106,444 UST 254 5,493 Total 496,742 Building materials & construction (0.3%) Armstrong Holdings 63 1,004 Centex 93 2,685 Fluor 119 3,563 Georgia-Pacific Group 267 7,142 Kaufman & Broad Home 75 1,861 Louisiana-Pacific 163 1,722 Masco 704 13,729 Owens-Corning 87 451 Potlatch 45 1,513 Pulte 64 2,108 Sherwin-Williams 257 5,911 Temple-Inland 82 3,480 Vulcan Materials 158 7,001 Weyerhaeuser 365 16,905 Total 69,075 Chemicals (1.0%) Air Products & Chemicals 360 13,073 Allied Waste Inds 296(b) 2,720 Dow Chemical 1,062 27,812 Du Pont (EI) de Nemours 1,646 73,865 Eastman Chemical 120 5,175 Ecolab 203 7,904 Engelhard 200 3,750 FMC 47(b) 3,187 Grace (WR) 106(b) 841 Great Lakes Chemical 85 2,869 Hercules 168 2,226 Millipore 72 4,383 Pall 194 4,147 PPG Inds 273 11,057 Praxair 247 10,930 Rohm & Haas 341 9,868 Sigma-Aldrich 133 3,870 Union Carbide 211 8,453 Waste Management 975 18,464 Total 214,594 Communications equipment & services (5.8%) ADC Telecommunications 1,061(b) 43,435 Andrew Corp 126(b) 3,733 Corning 462 151,507 JDS Uniphase 1,464(b) 182,451 Lucent Technologies 5,116 213,915 Motorola 3,381 121,929 Nortel Networks 4,654(c) 379,594 QUALCOMM 1,165(b) 69,754 Scientific-Atlanta 250 19,484 Tellabs 644(b) 36,185 Total 1,221,987 Computer software & services (5.5%) Adobe Systems 189 24,570 BMC Software 383(b) 10,341 Citrix Systems 290(b) 6,380 Computer Associates Intl 925 29,369 Compuware 566(b) 5,979 Microsoft 8,267(b) 577,140 Novell 517(b) 6,333 Oracle 4,459(b) 405,490 Parametric Technology 433(b) 5,792 PeopleSoft 433(b) 13,964 Siebel Systems 314(b) 61,880 Total 1,147,238 Computers & office equipment (15.0%) Adaptec 163(b) 3,994 America Online 3,609(b) 211,579 Apple Computer 512(b) 31,200 Autodesk 91 2,559 Automatic Data Processing 986 58,791 Cabletron Systems 286(b) 10,707 Ceridian 227(b) 5,491 Cisco Systems 10,928(b) 748,688 Compaq Computer 2,668 90,880 Computer Sciences 262(b) 20,714 Comverse Technology 240(b) 22,065 Dell Computer 4,045(b) 176,463 Electronic Data Systems 732 36,463 EMC 3,409(b) 334,083 Equifax 221 5,622 First Data 648 30,902 Gateway 506(b) 34,459 Hewlett-Packard 1,572 189,820 Intl Business Machines 2,785 367,621 Lexmark Intl Group Cl A 203(b) 13,766 Mercury Interactive 124(b) 15,151 NCR 149(b) 6,016 Network Appliance 479(b) 56,043 Palm 887(b) 39,028 Pitney Bowes 404 14,771 SABRE Holdings Cl A 202 5,631 Sanmina 233(b) 27,492 Sapient 184(b) 9,660 Seagate Technology 356(b) 21,138 Solectron 937(b) 42,458 Sun Microsystems 2,493(b) 316,455 Unisys 489(b) 6,357 Veritas Software 615(b) 74,146 Yahoo! 854(b) 103,761 Total 3,133,974 Electronics (7.9%) Advanced Micro Devices 481(b) 18,098 Agilent Technologies 711(b) 42,883 Altera 626(b) 40,573 American Power Conversion 304(b) 7,239 Analog Devices 556(b) 55,878 Applied Materials 1,269(b) 109,531 Broadcom Cl A 339(b) 84,750 Conexant Systems 341(b) 12,681 Intel 10,522 787,835 KLA-Tencor 292(b) 19,163 Linear Technology 489 35,178 LSI Logic 482(b) 17,322 Maxim Integrated Products 445(b) 39,021 Micron Technology 872(b) 71,286 Molex 308 16,266 Natl Semiconductor 277(b) 12,327 Novellus Systems 205(b) 12,620 PerkinElmer 77 6,925 Tektronix 75 5,714 Teradyne 272(b) 17,629 Texas Instruments 2,709 181,335 Thomas & Betts 91 1,706 Xilinx 505(b) 44,882 Total 1,640,842 Energy (4.7%) Amerada Hess 142 9,718 Anadarko Petroleum 382 25,124 Apache 191 12,033 Ashland 110 3,878 Burlington Resources 338 13,288 Chevron 1,025 86,613 Conoco Cl B 981 25,629 Devon Energy 198 11,595 Exxon Mobil 5,469 446,410 FirstEnergy 362 8,960 Kerr-McGee 147 9,289 Occidental Petroleum 579 12,521 Phillips Petroleum 399 24,688 Royal Dutch Petroleum 3,369(c) 206,142 Sunoco 139 3,779 Texaco 868 44,702 Tosco 227 6,924 Unocal 381 12,716 USX-Marathon Group 489 13,417 Total 977,426 Energy equipment & services (0.7%) Baker Hughes 518 18,940 Halliburton 698 36,994 McDermott Intl 94 723 Rowan Companies 147(b) 4,557 Schlumberger 894 76,269 Transocean Sedco Forex 330 19,718 Total 157,201 Financial services (6.4%) American Express 2,099 124,104 Associates First Capital Cl A 1,145 32,204 Bear Stearns Companies 173 11,602 Capital One Financial 307 18,516 CIT Group Cl A 413 7,228 Citigroup 7,069 412,676 Countrywide Credit Inds 178 6,742 Fannie Mae 1,583 85,087 Franklin Resources 382 14,516 Freddie Mac 1,093 46,043 H&R Block 154 5,525 Household Intl 744 35,712 Lehman Brothers Holdings 190 27,550 MBNA 1,339 47,284 Merrill Lynch 610 88,450 MGIC Investment 166 9,763 Morgan Stanley, Dean Witter, Discover & Co 1,778 191,247 Paine Webber Group 228 16,302 Paychex 584 26,061 Providian Financial 224 25,746 Schwab (Charles) 2,140 81,722 T.Rowe Price Associates 189 8,552 Total 1,322,632 Food (1.1%) Archer-Daniels-Midland 993 8,753 Bestfoods 432 30,510 Campbell Soup 663 16,824 ConAgra 837 15,328 General Mills 457 14,681 Heinz (HJ) 554 21,122 Hershey Foods 215 9,178 Kellogg 637 14,771 Nabisco Group Holdings 512 14,368 Quaker Oats 205 13,927 Ralston-Ralston Purina Group 481 10,883 Sara Lee 1,366 25,442 SUPERVALU 206 3,077 Sysco 524 22,172 Wrigley (Wm) Jr 179 13,257 Total 234,293 Furniture & appliances (0.1%) Black & Decker 133 5,328 Briggs & Stratton 35 1,514 Leggett & Platt 308 5,448 Maytag 123 4,689 Stanley Works 137 3,665 Whirlpool 114 4,332 Total 24,976 Health care (9.9%) Abbott Laboratories 2,434 106,489 Allergan 203 14,844 ALZA 181(b) 13,688 American Home Products 2,049 111,031 Amgen 1,613(b) 122,286 Bard (CR) 79 3,856 Bausch & Lomb 83 2,967 Baxter Intl 456 37,962 Becton, Dickinson & Co 396 11,930 Biogen 233(b) 16,106 Biomet 278 9,400 Boston Scientific 640(b) 12,120 Bristol-Myers Squibb 3,099 164,248 Guidant 482(b) 32,445 Johnson & Johnson 2,185 200,885 Lilly (Eli) 1,775 129,576 Mallinckrodt 105 4,732 MedImmune 328(b) 27,593 Medtronic 1,881 96,402 Merck & Co 3,613 252,461 PE Corp-PE Biosystems Group 328 32,267 Pfizer 9,888 427,661 Pharmacia 1,994 116,774 Schering-Plough 2,300 92,289 St. Jude Medical 131(b) 5,191 Watson Pharmaceuticals 159(b) 9,808 Total 2,055,011 Health care services (0.7%) Aetna 221 12,362 Cardinal Health 433 35,426 HCA-The Healthcare 876 30,222 HEALTHSOUTH 605(b) 3,706 Humana 263(b) 2,252 IMS Health 466 8,796 Manor Care 160(b) 2,140 McKesson HBOC 442 11,023 Quintiles Transnational 180(b) 2,509 Tenet Healthcare 491(b) 15,221 UnitedHealth Group 256 24,192 Wellpoint Health Networks 97(b) 8,372 Total 156,221 Household products (1.7%) Alberto-Culver Cl B 87 2,463 Avon Products 372 14,578 Clorox 368 13,317 Colgate-Palmolive 906 46,150 Gillette 1,640 49,201 Intl Flavors/Fragrances 161 4,146 Kimberly-Clark 873 51,071 Newell Rubbermaid 418 10,842 Procter & Gamble 2,055 127,025 Tupperware 90 1,817 Unilever 898(c) 42,431 Total 363,041 Industrial equipment & services (0.4%) Caterpillar 547 20,102 Cooper Inds 146 5,156 Deere & Co 367 12,088 Illinois Tool Works 474 26,574 Ingersoll-Rand 254 11,573 Parker-Hannifin 175 6,092 Thermo Electron 271(b) 6,301 Timken 95 1,550 Total 89,436 Insurance (3.1%) AFLAC 417 22,518 Allstate 1,170 34,004 American General 391 28,470 American Intl Group 3,632 323,705 Aon 401 14,962 Chubb 274 20,978 CIGNA 256 24,896 Cincinnati Financial 252 9,797 Conseco 510 4,303 Hartford Financial Services Group 338 22,519 Jefferson-Pilot 161 10,656 Lincoln Natl 301 16,254 Loews 154 12,464 Marsh & McLennan 424 50,350 MBIA 154 10,126 Progressive Corp 114 8,643 SAFECO 200 5,263 St. Paul Companies 333 15,859 Torchmark 201 5,641 UnumProvident 377 8,176 Total 649,584 Leisure time & entertainment (2.7%) Brunswick 138 2,588 Carnival Cl A 949 18,921 Disney (Walt) 3,264 127,093 Harley-Davidson 477 23,761 Harrah's Entertainment 191(b) 5,420 Hasbro 270 3,325 Mattel 668 6,597 Seagram 686(c) 41,289 Time Warner 2,067 176,728 Viacom Cl B 2,396(b) 161,282 Total 567,004 Media (1.3%) American Greetings Cl A 101 1,881 Clear Channel Communications 914(b) 66,153 Comcast Special Cl A 1,411(b) 52,560 Deluxe 113 2,486 Donnelley (RR) & Sons 191 4,918 Dow Jones 139 8,696 Dun & Bradstreet 254 8,382 Gannett 419 23,726 Harcourt General 112 6,643 Interpublic Group of Companies 473 18,092 Knight-Ridder 122 6,664 McGraw-Hill Companies 305 18,891 Meredith 79 2,158 New York Times Cl A 266 10,424 Omnicom Group 280 23,363 Tribune 484 17,273 Young & Rubicam 113 6,611 Total 278,921 Metals (0.5%) Alcan Aluminium 343(c) 11,255 Alcoa 1,358 45,153 Allegheny Technologies 130 2,828 Avery Dennison 176 9,515 Barrick Gold 621(c) 9,897 Bethlehem Steel 207(b) 725 Freeport-McMoRan Copper & Gold Cl B 251(b) 2,463 Homestake Mining 409 2,275 Inco 285(b,c) 5,095 Newmont Mining 263 4,882 Nucor 133 4,888 Phelps Dodge 123 5,474 Placer Dome 514(c) 4,562 USX-U.S. Steel Group 138 2,398 Worthington Inds 135 1,409 Total 112,819 Miscellaneous (0.6%) Convergys 240(b) 9,390 Standard & Poor's Depositary Receipts 692 104,003 Stilwell Financial 350(b) 16,931 Total 130,324 Multi-industry conglomerates (6.1%) Cendant 1,132(b) 14,929 Crane 95 2,387 Danaher 222 12,474 Dover 318 15,542 Eastman Kodak 487 30,316 Emerson Electric 671 44,412 General Electric 15,542 912,127 Grainger (WW) 147 4,245 ITT Inds 138 4,640 Minnesota Mining & Mfg 622 57,846 Natl Service Inds 63 1,256 Polaroid 70 1,190 Textron 226 12,670 Tyco Intl 2,652(c) 151,165 Xerox 1,046 16,802 Total 1,282,001 Paper & packaging (0.3%) Ball 46 1,593 Bemis 83 2,781 Boise Cascade 89 2,659 Crown Cork & Seal 201 2,601 Fort James 323 10,215 Intl Paper 759 24,192 Mead 161 4,317 Owens-Illinois 230(b) 3,004 Pactiv 265(b) 2,915 Sealed Air 131(b) 6,722 Westvaco 157 4,298 Willamette Inds 173 5,277 Total 70,574 Restaurants & lodging (0.5%) Darden Restaurants 194 3,431 Hilton Hotels 578 5,780 Marriott Intl Cl A 376 14,852 McDonald's 2,100 62,739 Starbucks 288(b) 10,548 Tricorn Global Restaurants 231(b) 6,728 Wendy's Intl 178 3,360 Total 107,438 Retail (4.7%) Albertson's 665 14,298 AutoZone 210(b) 4,725 Bed Bath & Beyond 440(b) 7,728 Best Buy 322(b) 19,884 Circuit City Stores- Circuit City Group 319 8,274 Consolidated Stores 174(b) 2,371 Costco Wholesale 702(b) 24,175 CVS 613 22,758 Dillard's Cl A 147 1,884 Dollar General 516 10,610 Federated Dept Stores 336(b) 9,282 Gap 1,337 30,000 Home Depot 3,635 174,709 K mart 755(b) 5,285 Kohl's 513(b) 28,728 Kroger 1,312(b) 29,767 Limited 674 13,480 Longs Drug Stores 61 1,151 Lowe's Companies 601 26,933 May Department Stores 522 11,974 Nordstrom 211 3,640 Office Depot 496(b) 3,627 Penney (JC) 409 5,726 RadioShack 293 17,287 Safeway 780(b) 38,464 Sears, Roebuck 553 17,247 Staples 760(b) 11,685 Target 1,433 33,318 Tiffany 227 9,449 TJX Companies 471 8,861 Toys "R" Us 339(b) 6,166 Wal-Mart Stores 7,002 332,159 Walgreen 1,584 52,075 Winn-Dixie Stores 226 3,150 Total 990,870 Textiles & apparel (0.1%) Liz Claiborne 85 3,735 Nike Cl B 429 16,972 Reebok Intl 89(b) 1,708 Russell 51 972 Springs Inds Cl A 28 837 VF 179 4,094 Total 28,318 Transportation (0.3%) Burlington Northern Santa Fe 672 15,036 CSX 343 8,189 FedEx 455(b) 18,360 Norfolk Southern 601 9,654 Ryder System 93 1,784 Union Pacific 389 15,463 Total 68,486 Utilities -- electric (1.8%) AES 718(b) 45,774 Ameren 215 8,694 American Electric Power 505 17,801 Cinergy 249 7,314 CMS Energy 172 4,494 Consolidated Edison 332 10,396 Constellation Energy Group 235 8,989 CP&L Energy 250 9,250 Dominion Resources 373 19,769 DTE Energy 224 7,784 Duke Energy 578 43,242 Edison Intl 521 10,778 Entergy 361 10,988 Florida Progress 154 7,989 FPL Group 279 14,892 GPU 190 5,819 Niagara Mohawk Holdings 270(b) 3,476 PECO Energy 266 12,818 PG&E 605 17,507 Pinnacle West Capital 133 5,478 PPL 226 7,571 Public Service Enterprise Group 339 12,289 Reliant Energy 464 17,226 Sempra Energy 320 6,240 Southern Co 1,019 30,507 TXU 414 14,464 Unicom 279 12,747 Xcel Energy 531 13,305 Total 387,601 Utilities-- gas (0.9%) Coastal 337 23,211 Columbia Energy Group 126 8,844 Eastern Enterprises 42 2,657 El Paso Energy 364 21,203 Enron 1,150 97,606 KeySpan 210 7,232 NICOR 72 2,655 ONEOK 45 1,437 Peoples Energy 55 1,788 Williams Companies 694 31,968 Total 198,601 Utilities-- telephone (6.0%) ALLTEL 496 25,079 AT&T 5,895 185,695 BellSouth 2,956 110,297 CenturyTel 220 6,339 Global Crossing 1,386(b,c) 41,667 Nextel Communications Cl A 1,192(b) 66,082 Qwest Communications Int l2,565(b) 132,419 SBC Communications 5,344 223,114 Sprint (FON Group) 1,378 46,164 Sprint (PCS Group) 1,438(b) 72,170 Verizon 4,274 186,455 WorldCom 4,498(b) 164,177 Total 1,259,658 Total common stocks (Cost: $20,305,752) $21,012,051 Short-term security (2.9%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity Commercial paper Bayer 09-01-00 6.65% $600,000(d) $599,889 Total short-term security (Cost: $600,000) $599,889 Total investments in securities (Cost: $20,905,752)(e) $21,611,940 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 4.25% of net assets. (d)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $20,909,230 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,568,797 Unrealized depreciation (866,087) -------- Net unrealized appreciation $702,710 Investments in Securities AXP VP - Small Cap Advantage Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (92.0%) Issuer Shares Value(a) Aerospace & defense (0.6%) Aeroflex 2,187(b) $80,372 Precision Castparts 1,500 114,000 Total 194,372 Airlines (0.3%) SkyWest 1,652 82,084 Automotive & related (1.4%) DollarThrifty Automotive Group 6,500(b) 147,062 Gentex 4,650(b) 120,319 Lear 1,600(b) 34,500 Snap-On 3,900 120,169 Total 422,050 Banks and savings & loans (6.7%) American Capital Strategies 3,100 74,013 Astoria Finance 2,000 70,250 Bank United Cl A 2,600 117,000 City Natl 3,200 125,000 Commerce Bancshares 2,600 93,600 Cullen/Frost Bankers 5,512 170,872 Dime Community Bancshares 3,700 74,463 Downey Financial 3,200 107,200 East West Bancorp 6,900 117,731 First Midwest Bancorp 4,969 128,262 FirstFed Financial 3,500(b) 63,000 Fulton Financial 4,600 96,600 Hudson United Bancorp 3,212 80,902 Imperial Bancor 4,300(b) 93,525 Investors Financial Services 2,800 172,375 MAF Bancorp 4,900 105,350 Queens County Bancorp 2,300 60,663 Silicon Valley Bancshares 3,367(b) 194,022 Southwest Bancorp of Texas 2,600(b) 75,563 Webster Financial 2,800 69,038 Total 2,089,429 Beverages & tobacco (0.8%) Canandaigua Wine Cl A 3,015(b) 162,433 Coors (Adolph) Cl B 1,400 83,388 Total 245,821 Building materials & construction (2.6%) Carlisle Companies 3,800 174,180 Dycom Inds 3,468(b) 183,803 Florida Rock Inds 2,409 92,596 Horton (DR) 7,363 144,499 Lennar 2,100 58,013 NCI Building Systems 3,300(b) 58,163 Pulte 3,100 102,106 URS 2,000(b) 26,375 Total 839,735 Chemicals (1.9%) Albemarle 4,800 119,100 Cytec Inds 3,800(b) 126,825 Geon 3,600 62,775 Lubrizol 4,700 101,931 OM Group 3,700 175,288 Total 585,919 Communications equipment & services (4.7%) Adaptive Broadband 1,750(b) 54,688 Adtran 1,100(b) 58,919 Allied Riser Communications 3,700(b) 30,063 Celeritek 2,700(b) 121,163 Commonwealth Telephone Enterprises 1,300(b) 50,213 Corsair Communications 3,400(b) 37,400 DMC Stratex Networks 4,244(b) 108,487 Excel Techology 2,300(b) 84,974 Glenayre Technologies 8,050(b) 87,544 LCC Intl Cl A 3,000(b) 65,813 Leap Wireless Intl 1,310(b) 103,981 Media 100 750(b) 13,219 Natural Microsystems 1,200(b) 89,475 Netro 1,600(b) 132,199 Peco II 350(b) 13,650 Plantronics 900(b) 44,944 Proxim 2,270(b) 136,341 REMEC 4,825(b) 137,512 Tollgrade Communications 300(b) 33,356 WJ Communications 1,300(b) 76,619 Total 1,480,560 Computers & office equipment (9.1%) ADAC Laboratories 5,750(b) 128,656 Advent Software 900(b) 55,463 Allaire 2,100(b) 71,269 ASK Jeeves 2,150(b) 64,573 Aspen Technology 2,600(b) 119,438 Avocent 1,553(b) 75,515 Clarent 2,300(b) 109,825 Clarus 1,600(b) 96,800 FactSet Research Systems 2,400 82,050 go2net 1,000(b) 69,000 Henry (Jack) & Associates 2,099 93,143 HNC Software 1,870(b) 101,740 InFocus 2,800(b) 135,449 Informatica 500(b) 50,000 Insight Enterprises 1,700(b) 85,425 Interwoven 1,000(b) 96,000 IntraNet Solutions 3,444(b) 156,055 Keynote Systems 900(b) 27,225 Manhattan Associates 1,100(b) 51,013 McAfee.com 1,900(b) 49,994 McDATA Cl B 400(b) 43,025 Natl Instruments 1,500(b) 64,781 Netegrity 1,200(b) 105,600 Netopia 950(b) 34,794 OTG Software 2,200(b) 49,225 Puma Technology 3,000(b) 72,938 Rare Medium Group 3,300(b) 33,000 RSA Security 2,169(b) 128,107 SERENA Software 6,000(b) 263,999 SonicWALL 800(b) 60,900 Varian 3,000(b) 146,249 Verity 2,300(b) 105,225 Total 2,826,476 Electronics (13.5%) ACT Mfg 700(b) 35,656 Actel 3,700(b) 162,799 Alpha Inds 4,340(b) 218,898 Amphenol Cl A 1,200(b) 76,800 Anixter Intl 1,100(b) 38,500 Audiovox Cl A 1,900(b) 34,438 Belden 3,800 99,275 Brooks Automation 1,300(b) 71,906 C&D Technologies 3,700 204,424 C-Cube Microsystems 3,600(b) 83,700 CTS 2,300 118,019 Cymer 1,200(b) 55,125 DSP Group 1,700(b) 78,625 Elantec Semiconductor 1,450(b) 128,325 Electro Scientific Inds 2,380(b) 98,026 Exar 1,300(b) 156,813 Harman Intl Inds 1,669 128,096 Helix Technology 1,900 71,963 Integrated Circuit Systems 2,550(b) 70,125 Intl Rectifier 2,550(b) 160,491 KEMET 5,024(b) 150,720 Kulicke & Soffa Inds 3,638(b) 66,166 Littelfuse 1,800(b) 65,363 LTX 1,600(b) 40,900 Methode Electronics Cl A 2,400 144,300 MRV Communications 1,000(b) 77,063 Nanometrics 1,600(b) 79,600 Oak Technology 3,600(b) 104,850 Pericom Semiconductor 800(b) 59,200 PerkinElmer 800 71,950 Photon Dynamics 1,200(b) 56,325 Plexus 600(b) 92,850 PLX Technolog 1,600(b) 50,100 Power Integrations 2,900(b) 49,300 Sensormatic Electronics 5,700(b) 94,763 Technitrol 1,515 193,162 Therma-Wave 2,900(b) 78,663 Three-Five Systems 3,191(b) 106,101 Trimble Navigation 3,459(b) 143,765 Varian Medical Systems 3,254(b) 149,481 Varian Semiconductor Equipment Associates 1,600(b) 91,400 Viasystems Group 4,400(b) 72,600 Zoran 900(b) 55,631 Total 4,186,257 Energy (1.1%) HS Resources 3,424(b) 108,498 Swift Energy 3,100(b) 89,706 Valero Energy 2,500 75,313 Vintage Petroleum 3,500 73,500 Total 347,017 Energy equipment & services (1.8%) Lone Star Technologies 1,800(b) 90,450 Louis Dreyfus Natural Gas 3,000(b) 104,250 Patterson Energy 2,900(b) 90,988 Pride Intl 5,499(b) 135,412 UTI Energy 1,600(b) 59,600 Varco Intl 4,200(b) 84,788 Total 565,488 Financial services (4.4%) Affiliated Managers Grou 1,500(b) 83,625 AmeriCredit 8,400(b) 232,049 Catellus Development 5,200(b) 92,950 Delphi Financial Group Cl A 1,714(b) 70,917 Eaton Vance 1,400 67,813 Financial Federal 2,746(b) 58,353 Jefferies Group 3,100 94,356 LaBranche 4,600(b) 138,575 Metris Companies 5,000 179,688 Radian Group 3,300 205,012 Raymond James Financial 2,700 76,950 SEI Investments 1,139 72,327 Total 1,372,615 Food (2.2%) Dean Foods 3,000 93,750 Delta & Pine Land 3,200 78,200 Earthgrains 5,200 91,650 Performance Food Group 2,925(b) 108,591 Smithfield Foods 4,779(b) 126,942 Suiza Foods 3,400(b) 170,000 Total 669,133 Furniture & appliances (0.5%) Ethan Allen Interiors 3,300 88,893 Salton 2,100(b) 79,013 Total 167,906 Health care (6.4%) Alkermes 1,460(b) 67,525 Alpharma Cl A 2,000(d) 113,250 ArthoCare 1,500(b) 66,750 Cephalon 1,200(b) 60,375 Coherent 2,161(b) 173,960 COR Therapeutics 2,370(b) 133,313 Emisphere Technologies 1,500(b) 49,500 Enzo Biochem 1,233(b) 73,980 Enzon 1,570(b) 95,574 Inhale Therapeutic Systems 1,800(b) 90,900 Jones Pharma 3,216 114,972 Laboratory Corp America Holdings 1,180(b) 139,609 Medicis Pharmaceutical Cl A 1,200(b) 77,325 Myriad Genetics 300(b) 41,963 Noven Pharmaceuticals 1,100(b) 46,200 Priority Healthcare Cl B 1,300(b) 75,075 Protein Design Labs 1,620(b) 123,120 Regeneron Pharmaceuticals 2,900(b) 102,769 Techne 1,132(b) 108,106 Vertex Pharmaceuticals 1,200(b) 102,000 Wesley Jessen VisionCare 1,900(b) 71,488 Zoll Medical 1,100(b) 48,125 Total 1,975,879 Health care services (3.3%) Apria Healthcare Group 5,100(b) 75,863 Aurora Biosciences 400(b) 27,350 Cerner 2,050(b) 78,028 Cytyc 1,355(b) 63,177 Foundation Health Systems Cl A 6,400(b) 112,400 Genzyme Transgenics 2,800(b) 104,125 LifePoint Hospitals 4,550(b) 137,069 Mid Atlantic Medical Services 5,600(b) 90,300 PRAECIS Pharmaceuticals 1,700(b) 74,481 Triad Hospitals 4,600(b) 132,643 Universal Health Services Cl B 1,938(b) 137,113 Total 1,032,549 Household products (0.1%) Valence Technology 2,300(b) 38,956 Industrial equipment & services (1.9%) AGCO 6,400 67,200 Asyst Technologies 2,100(b) 54,994 Graco 2,600 92,138 IDEX 1,600 48,600 Kennametal 4,200 107,625 Minerals Technologies 2,800 145,249 Nordson 1,400 90,650 Total 606,456 Insurance (2.6%) Fidelity Natl Financial 3,950 78,753 First American 3,600 59,400 Gallagher (Arthur J) 3,780 185,220 MONY Group 1,900 71,844 Old Republic Intl 5,700 136,444 Reinsurance Group of America 2,100 59,850 RenaissanceRe Holdings 1,600(c) 76,600 StanCorp Financial Group 3,500 140,000 Total 808,111 Leisure time & entertainment (1.1%) Anchor Gaming 1,300(b) 95,225 Aztar 8,764(b) 127,626 Concord Camera 5,500(b) 121,000 Total 343,851 Media (3.3%) ADVO 2,100(b) 85,969 Emmis Communications Cl A 2,440(b) 80,063 Houghton Mifflin 800 39,350 McClatchy Cl A 2,200 78,788 Penton Media 3,300 103,331 Price Communications 4,100(b) 84,050 Radio One Cl A 2,850(b) 60,028 Scholastic 2,152(b) 138,131 True North Communications 3,500(c,d) 162,312 Valassis Communications 2,400 69,300 Zomax 6,850(b) 132,984 Total 1,034,306 Metals (1.2%) Mueller Inds 4,949(b) 156,202 Shaw Group 1,800(b) 100,238 Stillwater Mining 3,100(b) 105,400 Total 361,840 Miscellaneous (2.6%) AremisSoft 2,300(b) 62,675 Beasley Broadcast Group Cl A 4,250(b) 52,328 California Amplifier 1,300(b) 54,275 Cell Genesys 2,400(b) 73,950 Cobalt Networks 1,100(b) 54,588 DigitalThink 800(b) 26,893 Dobson Communications Cl A 2,600(b) 56,063 Genome Therapeutics 2,300(b) 57,788 Learning Tree Intl 1,900(b) 130,030 PolyMedica 1,600(b) 56,800 Rural Celluar Cl A 1,500(b) 113,999 Texas Biotechnology 1,300(b) 22,913 UCBH Holdings 1,600 48,400 Total 810,702 Multi-industry conglomerates (2.0%) Agribrands Intl 900(b) 35,775 Argosy Gaming 4,000(b) 64,000 Brady Cl A 3,189 92,282 Hall, Kinion & Associates 1,800(b) 59,400 Meade Instruments 3,300(b) 79,200 Mettler-Toledo Intl 3,200(b) 151,400 StarTek 1,625(b) 63,680 Stewart & Stevenson Services 4,250 68,531 Total 614,268 Paper & packaging (1.6%) AptarGroup 4,100 95,581 Ball 2,600 90,025 Bowater 1,800 92,475 Buckeye Technologies 4,100(b) 102,244 Pope & Talbot 5,569 110,684 Total 491,009 Real estate investment trust (2.8%) Arden Realty 3,800 96,899 BRE Properties Cl A 2,700 78,806 Camden Property Trust 2,900 86,819 Developers Diversified Realty 3,400 49,300 Essex Property Trust 1,200 59,025 Gables Residential Trust 3,000 83,250 Liberty Property Trust 1,900 49,638 Pan Pacific Retail Properties 2,700 51,469 Prentiss Properties Trust 1,200 29,175 Reckson Associates Realty 2,300 55,919 SL Green Realty 3,000 80,438 Smith (Charles E) Residential Realty 2,200 90,475 United Dominion Realty Trust 4,900 52,981 Total 864,194 Restaurants & lodging (0.9%) CEC Entertainment 2,600(b) 75,075 Cheesecake Factory (The) 2,382(b) 85,901 RARE Hospitality Intl 2,600(b) 73,125 Ryan's Family Steak Houses 5,200(b) 42,250 Total 276,351 Retail (2.8%) AnnTaylor Stores 3,100(b) 111,600 Barnes & Noble 3,300(b) 57,131 Footstar 3,200(b) 95,200 Fossil 4,400(b) 76,725 NBTY 9,930(b) 70,131 PurchasePro.com 900(b) 52,003 United Stationers 4,133(b) 134,064 Whole Foods Market 3,000(b) 151,500 Zale 3,235(b) 119,493 Total 867,847 Textiles & apparel (1.4%) Abercrombie & Fitch 2,400(b) 54,204 Brown Shoe 5,698 61,253 Hot Topic 2,400(b) 67,950 Kellwood 1,700 27,200 Kenneth Cole Productions Cl A 1,400(b) 61,688 Skechers U.S.A. Cl A 4,900(b) 87,280 Timberland Cl A 1,800(b) 73,350 Total 432,925 Transportation (1.9%) Atlas Air 1,800(b) 77,850 EGL 3,300(b) 118,594 Expeditors Intl of Washington 2,200 107,800 Forward Air 2,000(b) 91,750 Landstar System 1,591(b) 81,141 Offshore Logistics 350(b) 6,081 USFreightways 3,100 96,681 Total 579,897 Utilities-- electric (2.5%) Cleco 2,400 100,200 El Paso Electric 10,065(b) 135,248 Kansas City Power & Light 1,900 51,063 Minnesota Power 3,500 77,656 OGE Energy 3,200 68,400 Public Service Co of New Mexico 5,000 106,875 UIL Holdings 2,576 129,605 Western Resources 4,900 98,000 Total 767,047 Utilities -- gas (1.5%) Equitable Resources 1,699 95,674 New Jersey Resources 2,000 80,000 ONEOK 2,700 86,231 Piedmont Natural Gas 2,500 69,219 UGI 3,400 77,563 Western Gas Resources 2,600 57,038 Total 465,725 Utilities -- telephone (0.5%) Illuminet Holdings 1,600(b) 63,600 Intermedia Communications 2,700(b) 56,025 Mpower Communications 2,250(b) 41,484 Total 161,109 Total common stocks (Cost: $26,276,486) $28,607,884 Other (--%) Issuer Shares Value(a) Elan Rights 2,700 $2,531 Total other (Cost: $--) $2,531 Short-term securities (6.4%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies Federal Home Loan Mtge Corp Disc Nts 09-14-00 6.44% $300,000 $299,215 10-17-00 6.46 400,000 396,653 Federal Natl Mtge Assn Disc Nts 09-20-00 6.41 800,000 797,057 10-05-00 6.46 500,000 496,729 Total short-term securities (Cost: $1,990,298) $1,989,654 Total investments in securities (Cost: $28,266,784)(e) $30,600,069 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 0.77% of net assets. (d)Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 7 to the financial statements): Type of security Contracts Purchase contracts Russell 2000, Sept. 2000 2 (e)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $28,405,928 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,453,869 Unrealized depreciation (1,259,728) ---------- Net unrealized appreciation $2,194,141 Investments in Securities AXP VP - Strategy Aggressive Fund Aug. 31, 2000 (Percentages represent value of investments compared to net assets) Common stocks (90.7%) Issuer Shares Value(a) Airlines (0.3%) Northwest Airlines Cl A 350,000(b) $10,959,375 Banks and savings & loans (1.1%) Silicon Valley Bancshares 95,100(b) 5,487,666 Sovereign Bancorp 3,375,000 28,687,501 TCF Financial 199,000 6,532,424 Zions Bancorp 115,000 5,146,250 Total 45,853,841 Communications equipment & services (15.0%) CIENA 240,000(b) 53,204,999 Copper Mountain Networks 631,400(b) 37,844,538 Corvis 116,200(b) 12,063,013 Covad Communicati Group 1,725,000(b) 28,139,063 Ditech Communications 158,000(b) 9,322,000 DMC Stratex Networks 1,235,000(b) 31,569,688 Equinix 1,017,000(b,d) 16,432,564 Fairchild Semiconductor Intl Cl A 680,000(b) 27,030,000 Finisar 2,289,800(b) 106,165,514 Focal Communications 360,000(b) 11,137,500 Healtheon/WebMD 429,000(b) 7,574,657 Netro 582,000(b) 48,087,750 New Focus 287,800(b) 39,728,679 ONI Systems 37,050(b) 3,516,422 Powerwave Technologies 115,800(b) 5,462,093 SDL 452,000(b,d)179,585,249 Sonus Networks 48,000(b,d) 7,986,000 WJ Communications 65,000(b,i) 3,830,938 Total 628,680,667 Computer software & services (3.0%) Edwards (JD) & Co 1,150,000(b) 28,534,375 i2 Technologies 202,000(b) 34,175,875 PeopleSoft 819,900(b) 26,288,806 SunGard Data Systems 1,062,000(b) 38,232,000 Total 127,231,056 Computers & office equipment (20.3%) Akamai Technologies 450,000(b,d) 34,003,125 Avici Systems 100,800(b,d) 15,101,100 Digital Lightwave 1,798(b) 157,775 Embarcadero Technologies 250,000(b,i) 10,500,000 Emulex 250,500(b) 26,224,219 Extreme Networks 1,373,000(b) 127,643,037 Fiserv 975,000(b) 52,832,813 Genuity 1,800,000(b) 15,525,000 InfoSpace 679,000(b) 26,481,000 Juniper Networks 466,000(b) 99,607,499 Liberate Technologies 580,000(b) 17,835,000 McDATA Cl B 492,200(b) 52,929,622 Mercury Interactive 1,205,500(b) 147,297,030 NetIQ 625,000(b) 35,312,500 Portal Software 789,500(b) 43,619,875 Predictive Systems 520,000(b) 10,335,000 Sanmina 345,000(b) 40,710,000 Software.com 95,000(b) 13,828,438 Trintech Group ADR 303,500(b,c) 8,194,500 Tumbleweed Communications 441,000(b) 27,617,625 VeriSign 240,000(b) 47,730,000 Total 853,485,158 Electronics (19.1%) Advanced Energy Inds 675,000(b) 38,559,375 Applied Micro Circuits 150,000(b) 30,440,625 Avanex 254,500(b,d) 38,505,469 Celestica 1,145,000(b,c) 89,453,124 Flextronics Intl 452,000(b,c) 37,657,250 GlobeSpan 355,000(b) 42,755,313 Integrated Device Technology 420,000(b) 36,855,000 Jabil Circuit 1,280,400(b) 81,592,934 Newport 225,000 35,775,000 Novellus Systems 912,600(b) 56,181,938 Pericom Semiconductor 252,100(b) 18,655,400 PMC-Sierra 445,000(b) 105,019,999 SCI Systems 480,000(b) 29,640,000 Semtech 325,000(b) 38,492,188 TriQuint Semiconductor 128,600(b) 7,044,094 Vitesse Semiconductor 660,000(b) 58,616,250 Waters 728,000(b) 57,921,500 Total 803,165,459 Energy (3.6%) Apache 450,000 28,350,000 Kerr-McGee 770,000 48,654,375 Murphy Oil 240,000 16,020,000 Newfield Exploration 240,000(b,g,i)10,383,606 Suncor Energy 800,000 18,037,567 Tosco 1,000,000(i) 30,500,000 Total 151,945,548 Energy equipment & services (1.4%) Cooper Cameron 500,000(b) 38,906,250 Diamond Offshore Drilling 425,000 19,045,313 Total 57,951,563 Financial services (0.7%) Metris Companies 276,600 9,902,937 Radian Group 260,000 16,152,499 Total 26,055,436 Health care (8.9%) Alkermes 1,357,000(b) 62,761,250 ALZA 1,200,000(b) 90,750,000 Diversa 320,000(b) 9,120,000 Forest Laboratories 515,000(b) 50,405,625 Gilead Sciences 225,000(b) 24,300,000 IDEC Pharmaceuticals 409,300(b) 57,148,513 Invitrogen 244,250(b) 15,418,281 MiniMed 280,600(b) 20,146,203 Teva Pharmaceutical Inds ADR 700,000(c) 42,437,500 Total 372,487,372 Health care services (1.8%) Abgenix 620,000(b) 46,606,563 McKesson HBOC 1,100,000 27,431,250 Total 74,037,813 Insurance (1.0%) XL Capital Cl A 585,000(c) 40,328,438 Media (1.6%) TMP Worldwide 560,000(b) 38,745,000 Univision Communications Cl A 680,000(b) 30,005,000 Total 68,750,000 Metals (0.4%) Nucor 450,000 16,537,500 Miscellaneous (4.3%) Biotech Holdings Trust Depositary Receipts 210,000(b) 42,406,875 Convergys 420,000(b) 16,432,500 Digex 904,000(b,d) 76,557,501 FirePond 526,000(b) 10,980,250 Internap Network Services 645,000(b) 23,220,000 Semiconductor Holdings Trust Depositary Receipts 147,400(b) 14,453,056 Total 184,050,182 Multi-industry conglomerates (0.6%) Robert Half Intl 790,000(b) 25,131,875 Retail (2.4%) Bed Bath & Beyond 2,472,000(b) 43,414,500 Best Buy 330,000(b) 20,471,440 Dollar Tree Stores 938,200(b) 38,055,738 Total 101,941,678 Utilities -- electric (2.7%) Calpine 1,130,800(b) 111,949,200 Utilities -- telephone (2.5%) Allegiance Telecom 1,297,600(b) 64,636,700 Intermedia Communications 5,288(b) 109,726 Western Wireless Cl A 340,000(b) 17,382,500 WinStar Communications 860,000(b) 23,112,500 Total 105,241,426 Total common stocks (Cost: $2,588,278,744) $3,805,783,587 Preferred stocks & other (1.4%)(f) Issuer Shares Value(a) Aurgin Systems 2.46% 2,440,000 $6,002,400 Bluestream Ventures LP 9,500,000(e) 9,500,000 Covia Technologies Cv 1,596,148 3,999,947 Dia Dexus Cv Series C 1,113,979(b) 8,633,337 Equinix Cv 265,252 3,435,013 Warrants 13,800 3,036,000 Fibrogen Cv Series E 1,559,020 7,000,000 FREEI.Net 8.05% 434,744(b) 7,000,031 Mars Cv Series D 2,619,048 5,500,001 MarsMusic.com Cv 7,000,000 7,000,000 Protein Delivery 2.50% 2,800,000 7,000,000 Signalsoft Cv Series E 1,182,432 46,883,429 YOUpowered Cv Series B 425,258 3,300,002 Vcommerce Cv Series C 884,120 4,119,999 Total preferred stocks & other (Cost: $81,369,982) $122,410,159 Bond (0.5%) Issuer Coupon Principal Value(a) rate amount Equinix Sr Nts 12-01-07 13.00% $13,800,000 $11,040,000 Total bond (Cost: $13,792,939) $11,040,000 Option purchased (0.1%) Issuer Shares Exercise Expiration Value(a) price date Call Zions Bancorp 115,000 $45 Jan. 2001 $481,563 Total option purchased (Cost: $356,138) $481,563 Short-term securities (13.2%)(g) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (6.7%) Federal Home Loan Bank Disc Nts 09-01-00 6.40% $50,000,000 $49,991,110 10-06-00 6.44 29,800,000 29,603,023 10-13-00 6.46 30,300,000 30,068,008 Federal Home Loan Mtge Corp Disc Nts 09-14-00 6.44 7,900,000 7,879,328 10-10-00 6.45 26,000,000 25,814,964 10-24-00 6.50 24,700,000 24,461,398 Federal Natl Mtge Assn Disc Nts 09-11-00 6.39 36,500,000 36,426,167 09-21-00 6.43 34,600,000 34,464,191 10-16-00 6.45 28,300,000 28,068,566 10-19-00 6.49 12,500,000 12,386,213 10-26-00 6.51 1,500,000 1,484,371 Total 280,647,339 Commercial paper (6.5%) Abbey Natl North America 11-13-00 6.56 2,700,000 2,663,481 Alcoa 10-11-00 6.53 2,300,000 2,282,712 AT&T 11-10-00 6.57 6,300,000 6,218,244 Barton Capital 09-12-00 6.54 13,000,000(h) 12,971,703 Bayer 09-12-00 6.53 6,700,000(h) 6,685,215 09-19-00 6.52 16,300,000(h) 16,243,135 Bell Atlantic Finance Services 09-05-00 6.56 5,500,000 5,494,920 CXC 11-16-00 6.60 9,000,000(h) 8,873,335 Dresdner US Finance 09-11-00 6.50 4,600,000 4,590,695 Duke Energy 09-14-00 6.52 8,000,000 7,979,066 Enterprise Funding 11-13-00 6.59 11,000,000(h) 10,851,219 Fleet Funding 10-11-00 6.55 5,800,000(h) 5,756,403 Ford Motor Credit 09-01-00 6.51 21,500,000 21,496,112 Gillette 10-13-00 6.52 20,900,000(h) 20,729,835 11-08-00 6.56 14,900,000(h) 14,712,086 Intl Lease Finance 10-16-00 6.52 25,000,000(h) 24,789,484 Kimberly-Clark 10-23-00 6.53 13,100,000(h) 12,973,096 Morgan Stanley, Dean Witter, Discover & Co 09-12-00 6.50 9,100,000 9,080,313 Natl Rural Utilities 09-11-00 6.52 9,400,000 9,380,986 09-22-00 6.53 7,100,000 7,070,334 10-18-00 6.55 9,000,000 8,921,039 Pfizer 09-28-00 6.50 14,000,000(h) 13,929,549 SBC Communications 11-02-00 6.56 5,000,000(h) 4,942,425 Toyota Motor Credit 09-07-00 6.56 1,900,000(h) 1,897,580 Wal-Mart Stores 09-12-00 6.51 5,100,000(h) 5,088,746 09-19-00 6.51 6,600,000(h) 6,576,975 09-19-00 6.52 21,700,000(h) 21,624,296 Total 273,822,984 Total short-term securities (Cost: $554,622,915) $554,470,323 Total investments in securities (Cost: $3,238,420,718)(j) $4,494,185,632 Notes to investments in securities (a)Securities are valued by procedures described in Note 1 to the financial statements. (b)Non-income producing. (c)Foreign security values are stated in U.S. dollars. As of Aug. 31, 2000, the value of foreign securities represented 5.20% of net assets. (d)Security is partially or fully on loan. See Note 5 to the financial statements. (e)The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (f)Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Aug. 31, 2000, is as follows: Security Acquisition Cost dates Aurgin Systems 2.46% 12-16-99 $6,002,400 Bluestream Ventures LP 06-28-00 9,500,000 Covia Technologies Cv 08-16-00 3,999,947 Dia Dexus Cv Series C 04-03-00 8,633,337 Equinix Cv 05-19-00 4,000,000 Warrants 12-01-99 1,314,284 Fibrogen Cv Series E 05-17-00 7,000,000 FREEI.Net 8.05% 11-04-99 7,000,013 Mars Cv Series D 06-16-00 5,500,001 MarsMusic.com Cl A Cv 12-01-99 7,000,000 Protein Delivery 2.50% 05-04-99 7,000,000 Signalsoft Cv Series E 12-15-99 6,999,997 Vcommerce Cv 07-21-00 4,119,999 YOUpowered Cv Series B 06-01-00 3,300,002 (g)At Aug. 31, 2000 cash or short-term securities were designated to cover open put options written as follows: Issuer Shares Exercise Expiration Value(a) price date Best Buy 45,000 $60 Oct. 2000 $195,518 eBay 140,000 68 Oct. 2000 1,330,000 Forest Labs 20,000 70 Nov. 2000 10,000 MiniMed 20,000 55 Nov. 2000 35,000 MiniMed 40,000 65 Nov. 2000 192,500 Total $1,763,018 At Aug. 31, 2000, securities valued at $2,595,902 were held to cover open call options written as follows: Issuer Shares Exercise Expiration Value(a) price date Newfield Exploration 60,000 $50 Dec. 2000 $146,250 (h)Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (i)Partially pledged as initial margin deposit on the following open stock index futures contracts (see Note 7 to the financial statements): Type of security Contracts Purchase contracts Nasdaq 100, Sept. 2000 322 Nasdaq 100, Dec. 2000 135 (j)At Aug. 31, 2000, the cost of securities for federal income tax purposes was $3,246,493,120 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,374,309,922 Unrealized depreciation (126,617,410) ------------ Net unrealized appreciation $1,247,692,512 See accompanying notes to investments in securities. PART C. OTHER INFORMATION Item 23. Exhibits (a) Articles of Incorporation as amended Nov. 10, 1994, filed electronically as Exhibit 1 to Registrant's Post-Effective Amendment No. 34 to Registration Statement No. 2-73115, are incorporated by reference. (b) By-Laws as amended Jan. 12, 1989, filed electronically as Exhibit No. 2 to Registrant's Post-Effective Amendment No. 25 to Registration Statement No. 2-73115, are incorporated by reference. (c) Stock certificate for common shares, is on file at the Registrant's headquarters. (d)(1) Investment Management Services Agreement between Registrant, on behalf of IDS Life Aggressive Growth Fund, IDS Life Capital Resource Fund and IDS Life International Equity Fund, and IDS Life Insurance Company dated March 20, 1995, filed electronically as Exhibit No. 5(a) to Registrant's Post-Effective Amendment No. 30, is incorporated by reference. (d)(2) Investment Management Services Agreement between Registrant, on behalf of IDS Life Growth Dimensions Fund and IDS Life Insurance Company dated April 11, 1996, filed electronically as Exhibit 5(b) to Registrant's Post-Effective Amendment No. 33, is incorporated by reference. (d)(3) Investment Management Services Agreement dated Sept. 13, 1999, between Registrant, on behalf of AXP Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio - Small Cap Advantage Fund and IDS Life Insurance Company, filed electronically as Exhibit (d)(3) to Registrant's Post-Effective Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by reference. (d)(4) Investment Management Services Agreement dated May 1, 2000, between Registrant, on behalf of AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund, and IDS Life Insurance Company, filed electronically herewith. (d)(5) Investment Advisory Agreement between IDS Life Insurance Company and American Express Financial Corporation dated Oct. 14, 1998, filed electronically as Exhibit 5(c) to Registrant's Post-Effective Amendment No. 36 filed on or about Oct. 30, 1998, is incorporated by reference. (d)(6) Addendum to Investment Advisory Agreement dated May 1, 2000 between IDS Life Insurance Company and American Express Financial Company, filed electronically herewith. (d)(7) Investment Advisory Agreement between American Express Financial Corporation and American Express Asset Management International Inc. for AXPSM Variable Portfolio - International Equity Fund (formerly IDS Life International Equity Fund) dated February 11, 1999, filed electronically as Exhibit (d)(6) to Registrant's Post-Effective Amendment No. 37 filed on or about May 28, 1999, is incorporated by reference. (d)(8) Addendum to Investment Advisory Agreement dated May 1, 2000, between American Express Financial Corporation and American Express Asset Management International Inc. for AXP Variable Portfolio - Emerging Markets Fund, filed electronically herewith. (d)(9) Investment Subadvisory Agreement between American Express Financial Corporation and American Express Asset Management Group Inc. on behalf of AXP Variable Portfolio-Strategy Aggressive Fund dated July 9, 1999, filed electronically as Exhibit (d)(8) to Registrant's Post-Effective Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by reference. (d)(10) Subadvisory Agreement between American Express Financial Corporation and Kenwood Capital Management LLC on behalf of AXP Variable Portfolio - Small Cap Advantage Fund dated Sept. 13, 1999, filed electronically as Exhibit (d)(9) to Registrant's Post-Effective Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by reference. (d)(11) Administrative Services Agreement, dated March 20, 1995, between IDS Life Investment Series, Inc., on behalf of IDS Life Aggressive Growth Fund, IDS Life Capital Resource Fund and IDS Life International Equity Fund, and American Express Financial Corporation, filed electronically as Exhibit No. 5(d) to Registrant's Post-Effective Amendment No. 30, is incorporated by reference. (d)(12) Administrative Services Agreement, dated April 11, 1996, between IDS Life Investment Series, Inc. on behalf of IDS Life Growth Dimensions Fund and American Express Financial Corporation, filed electronically as Exhibit 5(f) to Registrant's Post-Effective Amendment No. 34, is incorporated by reference. (d)(13) Administrative Services Agreement dated Sept. 13, 1999, between AXP Variable Portfolio Investment Series, Inc. on behalf of AXP Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio - Small Cap Advantage Fund and American Express Financial Corporation filed electronically as Exhibit (d)(12) to Registrant's Post-Effective Amendment No. 40 filed on or about May 28, 1999, is incorporated by reference. (d)(14) Form of Administrative Services Agreement dated May 1, 2000, between Registrant, on behalf of AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund, and American Express Financial Corporation, filed electronically herewith. (e) Underwriting contracts: Not Applicable. (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 dated March 20, 1995, between IDS Life Investment Series, Inc., on behalf of IDS Life Aggressive Growth Fund, IDS Life Capital Resource Fund and IDS Life International Equity Fund, and American Express Trust Company, filed electronically as Exhibit No. 8(a) to Registrant's Post-Effective Amendment No. 30, is incorporated by reference. (g)(2) Custodian Agreement dated April 11, 1996, between IDS Life Investment Series, Inc. on behalf of IDS Life Growth Dimensions Fund and American Express Trust Company, filed electronically as Exhibit 8(b) to Registrant's Post-Effective Amendment No. 34, is incorporated by reference. (g)(3) Custodian Agreement dated Sept. 13, 1999, between AXP Variable Portfolio - Investment Series, Inc. on behalf of AXP Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio - Small Cap Advantage Fund and American Express Trust Company filed electronically as Exhibit (g)(3) to Registrant's Post-Effective Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by reference. (g)(4) Custodian Agreement dated May 1, 2000, between Registrant, on behalf of AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund, and American Express Trust Company, filed electronically herewith. (g)(5) Custodian Agreement dated May 13, 1999 between American Express Trust Company and The Bank of New York filed electronically as Exhibit (g)(3) to IDS Precious Metal Fund, Inc. Post-Effective Amendment No. 33 to Registration Statement No. 2-93745 filed on or about May 24, 1999, is incorporated by reference. (h)(1) Plan and Agreement of Merger between IDS Life Capital Resource Minnesota, Inc. and IDS Life Capital Resource Fund, Inc. dated April 10, 1986, filed electronically as Exhibit No. 9(a) to Registrant's Post-Effective Amendment No. 25 to Registration Statement No. 2-73115, is incorporated by reference. (h)(2) License Agreement between Registrant and IDS Financial Corporation, dated Jan. 25, 1988, filed electronically as Exhibit No. 9(b) to Registrant's Post-Effective Amendment No. 25 to Registration Statement No. 2-73115, is incorporated by reference. (h)(3) License Agreement dated June 17, 1999 between the American Express Funds and American Express Company, filed electronically on or about Sept. 23, 1999 as Exhibit (h)(4) to AXP Stock Fund, Inc. Post-Effective Amendment No. 98 to Registration Statement No. 2-11358, is incorporated by reference. (i) Opinion and consent of counsel as to the legality of the securities being registered, filed electronically herewith. (j) Independent Auditors' Consent: filed electronically herewith. (k) Omitted Financial Statements: Not Applicable. (l) Investment Letter of IDS Life Insurance Company dated Oct. 13, 1981, filed electronically as Exhibit 13 to Registrant's Post-Effective Amendment No. 25, is incorporated by reference. (m)(1) Plan and Agreement of Distribution dated Sept. 13, 1999, between Registrant on behalf of AXP Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio - Small Cap Advantage Fund and IDS Life Insurance Company, filed electronically as Exhibit (m) to Registrant's Post-Effective Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by reference (m)(2) Plan and Agreement of Distribution dated Sept. 20, 1999, between Registrant (on behalf of AXPSM Variable Portfolio - Capital Resource Fund, AXPSM Variable Portfolio - International Fund, AXPSM Variable Portfolio - New Dimensions Fund and AXPSM Variable Portfolio - Strategy Aggressive Fund) and IDS Life Insurance Company, filed electronically herewith. (m)(3) Plan and Agreement of Distribution dated May 1, 2000, between Registrant, on behalf of AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund, and IDS Life Insurance Company, filed electronically herewith. (n) Rule 18f-3 Plan: Not Applicable. (o) Reserved (p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to Registration Statement No. 33-30770, is incorporated by reference. (p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment advisor and principal underwriter filed electronically on or about March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to Registration Statement No. 33-30770, is incorporated by reference. (q)(1) Directors' Power of Attorney to sign Amendments to this Registration Statement dated Jan. 13, 2000 filed electronically as Exhibit (p)(1) to Registrant's Post-Effective Amendment No. 41 filed on or about Feb. 11, 2000, is incorporated by reference. (q)(2) Officers' Power of Attorney to sign Amendments to this Registration Statement, dated Jan. 13, 2000 filed electronically as Exhibit (p)(2) to Registrant's Post-Effective Amendment No. 41 filed on or about Feb. 11, 2000, is incorporated by reference. Item 24. Persons Controlled by or under Common Control with Registrant ------------------------------------------------------------- IDS Life and its subsidiaries are the record holders of all outstanding shares of AXP Variable Portfolio - Investment Series, Inc., AXP Variable Portfolio - Income Series, Inc., AXP Variable Portfolio - Money Market Series, Inc. and AXP Variable Portfolio - Managed Series, Inc. All of such shares were purchased and are held by IDS Life and its subsidiaries pursuant to instructions from owners of variable annuity contracts issued by IDS Life and its subsidiaries. Accordingly, IDS Life disclaims beneficial ownership of all shares of each fund. 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.
Item 26. Business and Other Connections of Investment Advisor (IDS Life Insurance Company). Directors and officers of IDS Life Insurance Company who are directors and/or officers of one or more other companies: - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Name and Title Other company(s) Address Title within other company(s) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Timothy V. Bechtold, American Centurion Life 200 AXP Financial Center Director and President Executive Vice President Assurance Company Minneapolis, MN 55474 American Express Financial Vice President Advisors Inc. American Express Financial Vice President Corporation IDS Life Insurance Company P.O. Box 5144 Director and President of New York Albany, NY 12205 IDS Life Series Fund, Inc. Director - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Mark W. Carter, American Express Financial 200 AXP Financial Center Senior Vice President and Executive Vice President Advisors Inc. Minneapolis, MN 55474 Chief Marketing Officer American Express Financial Director, Senior Vice Corporation President and Chief Marketing Officer - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Robert M. Elconin, American Express Financial 200 AXP Financial Center Vice President Vice President Advisors Inc. Minneapolis, MN 55474 American Express Financial Vice President Corporation - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Lorraine R. Hart, AMEX Assurance Company 200 AXP Financial Center Vice President Vice President Minneapolis, MN 55474 American Centurion Life Vice President Assurance Company American Enterprise Life Vice President Insurance Company American Express Financial Vice President Advisors Inc. American Express Financial Vice President Corporation American Partners Life Director and Vice Insurance Company President IDS Certificate 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 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Jeffrey S. Horton, AMEX Assurance Company 200 AXP Financial Center Vice President, Treasurer Vice President Minneapolis, MN 55474 and Assistant Secretary 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 Corporation Corporate 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 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 American Express Financial Vice President and Advisors Japan Inc. 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 200 AXP Financial Center Director Director Minneapolis, MN 55474 American Express Financial Chairman, President and Advisors Inc. Chief Executive Officer American Express Financial Director, President and Corporation Chief Executive Officer American Express Service Director and President Corporation IDS Certificate Company Director IDS Plan Services of Director and President California, Inc. IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- James M. Jensen, American Express Financial 200 AXP Financial Center Vice President Vice President Advisors Inc. Minneapolis, MN 55474 American Express Financial Vice President Corporation IDS Life Series Fund, Inc. Director - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Richard W. Kling, AMEX Assurance Company 200 AXP Financial Center Director Director, Chief Executive Minneapolis, MN 55474 Officer and 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 Financial Director and Senior Vice Corporation President-Insurance Products American Express Insurance Director and President Agency of Arizona Inc. American Express Insurance Director and President Agency of Idaho Inc. American Express Insurance Director and President Agency of Nevada Inc. American Express Insurance Director and President Agency of Oregon Inc. American Express Property Director and President Casualty Insurance Agency of Kentucky Inc. American Express Property Director and President Casualty Insurance Agency of Maryland Inc. American Express Property Director and President Casualty Insurance Agency of Pennsylvania Inc. American Express Service Vice President Corporation American Partners Life Director and Chairman of Insurance Company the Board IDS Certificate Company Director and Chairman of the Board IDS Insurance Agency of Director and President Alabama Inc. IDS Insurance Agency of Director and President Arkansas Inc. IDS Insurance Agency of Director and President Massachusetts Inc. IDS Insurance Agency of Director and President New Mexico Inc. IDS Insurance Agency of Director and President North Carolina Inc. IDS Insurance Agency of Director and President Ohio Inc. IDS Insurance Agency of Director and President Wyoming Inc. IDS Life 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 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Paul F. Kolkman, American Express Financial 200 AXP Financial Center Vice President Director and Executive Vice Advisors Inc. Minneapolis, MN 55474 President American Express Financial Vice President Corporation IDS Life Series Fund, Inc. Vice President and Chief Actuary IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Paula R. Meyer, American Enterprise Life 200 AXP Financial Center Vice President Director and Executive Vice Insurance Company Minneapolis, MN 55474 President 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 American Express Financial Vice President Corporation Investors Syndicate Director, Chairman of the Development Corporation Board and President - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Pamela J. Moret, American Express Financial 200 AXP Financial Center Director and Senior Vice Director and Executive Vice Advisors Inc. Minneapolis, MN 55474 President-Investment President Products American Express Financial Vice President Corporation American Express Trust Vice President Company - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Barry J. Murphy, American Enterprise Director Director and Executive Vice Investment Services Inc. President American Express Client 200 AXP Financial Center Director and President Service Corporation Minneapolis, MN 55474 American Express Financial Senior Vice President Advisors Inc. American Express Financial Director and Senior Vice Corporation President - ------------------------------- ---------------------------- ---------------------------- ---------------------------- James R. Palmer, American Express Financial 200 AXP Financial Center Vice President Vice President Advisors Inc. Minneapolis, MN 55474 American Express Financial Vice President Corporation - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Stuart A. Sedlacek, AMEX Assurance Company 200 AXP Financial Center Director Director and Executive Vice Minneapolis, MN 55474 President American Enterprise Life Executive Vice President Insurance Company American Express Financial Senior Vice President and Advisors Inc. Chief Financial Officer American Express Financial Senior Vice President and Corporation Chief Financial Officer American Express Trust Director Company American Partners Life Director and Vice President Insurance Agency IDS Certificate Company Director and President IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- William A. Stoltzmann, American Enterprise Life 200 AXP Financial Center Director, Vice President, Vice President, General Insurance Company Minneapolis, MN 55474 General Counsel and Counsel and Secretary Secretary American Express Director, Vice President Corporation and Secretary American Express Financial Vice President and Advisors Inc. Assistant General Counsel American Express Financial Vice President and Corporation 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 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Philip C. Wentzel, American Centurion Life 200 AXP Financial Center Vice President and Vice President and Controller Assurance Company Minneapolis, MN 55474 Controller, Risk Management American Enterprise Life Vice President and Insurance Company Controller IDS Life Insurance Company P.O. Box 5144 Vice President and of New York Albany, NY 12205 Controller, Risk Management
Item 27. Principal Underwriters The Fund has no principal underwriter. Item 28. Location of Accounts and Records American Express Financial Corporation 200 AXP Financial Center Minneapolis, MN 55474 Item 29. Management Services Not Applicable. Item 30. Undertakings Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant, AXP Variable Portfolio - Investment Series, Inc, certifies that it meets the requirements for the effectiveness of this amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933, and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Minneapolis and State of Minnesota on the 26th day of October, 2000. AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. By /s/ Arne H. Carlson** _____________________________________________ Arne H. Carlson, Chief Executive Officer By /s/ John M. Knight John M. Knight, Treasurer Pursuant to the requirements of the Securities Act, this Amendment to its Registration Statement has been signed below by the following persons in the capacities indicated on the 26th day of October, 2000. Signature Capacity /s/ H. Brewster Atwater, Jr.* Director - ------------------------------------ H. Brewster Atwater, Jr. /s/ Arne H. Carlson* Chairman of the Board - ------------------------------------ Arne H. Carlson /s/ Lynne V. Cheney* Director - ------------------------------------ Lynne V. Cheney /s/ David R. Hubers* Director - ------------------------------------ David R. Hubers /s/ Heinz F. Hutter* Director - ------------------------------------ Heinz F. Hutter /s/ Anne P. Jones* Director - ------------------------------------ Anne P. Jones /s/ William R. Pearce* Director - ------------------------------------ William R. Pearce /s/ Alan K. Simpson* Director - ------------------------------------ Alan K. Simpson /s/ John R. Thomas* Director - ------------------------------------ John R. Thomas /s/ C. Angus Wurtele* Director - ------------------------------------ C. Angus Wurtele *Signed pursuant to Directors' Power of Attorney dated Jan. 13, 2000, filed electronically as Exhibit (p)(1) to Registrant's Post-Effective Amendment No. 41, by: /s/ Leslie L. Ogg Leslie L. Ogg **Signed pursuant to Officers' Power of Attorney dated Jan. 13, 2000, filed electronically as Exhibit (p)(2) to Registrant's Post-Effective Amendment No. 41, by: /s/ Leslie L. Ogg Leslie L. Ogg CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 43 TO REGISTRATION STATEMENT NO. 2-73115 This post-effective amendment contains the following papers and documents: The facing sheet. Part A. The prospectus. Part B. Statement of Additional Information. Part C. Other information. The signatures. Exhibits. EX-99 2 0002.txt EXHIBIT INDEX Exhibit Index AXP Variable Portfolio - Investment Series, Inc. File No. 2-73115/811-3218 (d)(4) Investment Management Services Agreement, dated May 1, 2000. (d)(6) Addendum to IA Agreement (w/AEFC), dated May 1, 2000. (d)(8) Addendum to IA Agreement (w/AEAMI), dated May 1, 2000. (d)(14) Form of Administrative Services Agreement, dated May 1, 2000. (g)(4) Custodian Agreement, dated May 1, 2000. (i) Opinion and consent of counsel, dated October 26, 2000. (j) Auditors Consent, dated October 26, 2000. (m)(2) Plan and Agreement of Distribution, dated Sept. 20, 1999. (m)(3) Plan and Agreement of Distibution, dated May 1, 2000. (p)(1) Directors Power of Attorney. (p)(2) Officers Power of Attorney. EX-99.(D)(4) 3 0003.txt INVESTMENT MANAGEMENT SERVICES AGREEMENT INVESTMENT MANAGEMENT SERVICES AGREEMENT AGREEMENT made the 1st day of May, 2000, by and between AXP Variable Portfolio - Investment Series, Inc. (the "Corporation"), a Minnesota corporation, on behalf of its underlying series funds: AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund (individually a "Fund" and collectively the "Funds"), and IDS Life Insurance Company ("IDS Life") a Minnesota corporation. Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES (1) The Corporation hereby retains IDS Life, and IDS Life hereby agrees, for the period of this Agreement and under the terms and conditions hereinafter set forth, to furnish the Corporation continuously with suggested investment planning; to determine, consistent with the Funds' investment objectives and policies, which securities in IDS Life'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 Funds all necessary research and statistical data in connection therewith; to furnish all services of whatever nature required in connection with the management of the Fund including transfer agent and dividend- disbursing agent services; to furnish or pay for all supplies, printed material, office equipment, furniture and office space as the Funds may require; and to pay or reimburse such expenses of the Fund 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 and the authorized officers of the Corporation and its underlying Fund. IDS Life agrees to maintain (directly or through the contract described in paragraph (7) of this Part One) an adequate organization of competent persons to provide the services and to perform the functions herein mentioned. IDS Life agrees to meet with any persons at such times as the Board deems appropriate for the purpose of reviewing IDS Life's performance under this Agreement. (2) IDS Life agrees that the investment planning and investment decisions will be in accordance with general investment policies of the Fund as disclosed to IDS Life from time to time by the Funds and as set forth in its prospectuses and registration statements filed with the United States Securities and Exchange Commission (the "SEC"). (3) IDS Life agrees that it will maintain all required records, memoranda, instructions or authorizations relating to the acquisition or disposition of securities for the Funds. (4) The Fund agrees that it will furnish to IDS Life any information that the latter may reasonably request with respect to the services performed or to be performed by IDS Life under this Agreement. (5) IDS Life 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 Board of appropriate policies and procedures, and subject to termination at any time by the Board, IDS Life 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 IDS Life 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 American Express Financial Corporation's ("AEFC") or IDS Life's overall responsibilities with respect to the Funds and other funds for which they act as investment adviser. (6) It is understood and agreed that in furnishing the Funds with the services as herein provided, neither IDS Life, nor any officer, director or agent thereof shall be held liable to a Funds 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 IDS Life may rely upon information furnished to it reasonably believed to be accurate and reliable. (7) The existence of an investment advisory agreement between IDS Life and AEFC is specifically acknowledged and approved. Part Two: COMPENSATION TO INVESTMENT MANAGER (1) The Corporation agrees to pay to IDS Life, and IDS Life covenants and agrees to accept from the Corporation in full payment for the services furnished, a fee composed of an asset charge for AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund and a performance incentive adjustment for AXP Variable Portfolio - Emerging Markets Fund. (a) The asset charge (i) The asset charge for each calendar day of each year shall be equal to the total of 1/365th (1/366th in each leap year) of the amount computed in accordance with paragraph (ii) below. The computation shall be made for each day on the basis of net assets as of the close of business of the full business day two (2) business days prior to the day for which the computation is being made. 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 Funds recorded on the books of the Funds for that day. (ii) The asset charge shall be based on the net assets of each Fund as set forth in the following table. - ------------------------------------- ----------------------------------- AXP Variable Portfolio - AXP Variable Portfolio - Emerging Markets Fund AXP S&P 500 --------------------- ----------- Assets Annual rate at Assets Annual rate at (billions) each asset level (billions) each asset level ---------- ---------------- ---------- ---------------- First $0.25 1.170% First $1.00 0.29% Next 0.25 1.155 Next 1.00 0.28 Next 0.25 1.140 Next 3.00 0.27 Next 0.25 1.125 Over 5.00 0.26 Next 1.00 1.110 Over 2.00 1.095 - ------------------- ----------------- ----------------- ----------------- (b) The performance incentive adjustment for AXP Variable Portfolio - Emerging Markets Fund. (i) The performance incentive adjustment, determined monthly, shall be computed by measuring the percentage point difference between the performance of one share of the Fund and the performance of an Index (the "Index"). The Index for AXP Variable Portfolio - Emerging Markets Fund is the Lipper Emerging Markets Fund Index. The performance of one share of the Fund shall be measured by computing the percentage difference, carried to two decimal places, between the opening net asset value of one share of the Fund and the closing net asset value of such share as of the last business day of the period selected for comparison, adjusted for dividends or capital gain distributions treated as reinvested at the end of the month during which the distribution was made but without adjustment for expenses related to a particular class of shares. The performance of the Index will then be established by measuring the percentage difference, carried to two decimal places, between the beginning and ending Index for the comparison period, with dividends or capital gain distributions on the securities which comprise the Index being treated as reinvested at the end of the month during which the distribution was made. (ii) In computing the adjustment, one percentage point shall be deducted from the difference, as determined in (b)(i) above. The result shall be converted to a decimal value (e.g., 2.38% to 0.0238), multiplied by .01 and then multiplied by the Fund's average net assets for the comparison period. This product next shall be divided by 12 to put the adjustment on a monthly basis. Where the performance of the Fund exceeds the Index, the amount so determined shall be an increase in fees as computed under paragraph (a). Where Fund performance is exceeded by the Index, the amount so determined shall be a decrease in such fees. The percentage point difference between the performance of the Fund and that of the Index, as determined above, is limited to a maximum of 0.0012 per year. (iii)The 12 month comparison period will roll over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. (iv) If the Index ceases to be published for a period of more than 90 days, changes in any material respect or otherwise becomes impracticable to use for purposes of the adjustment, no adjustment will be made under this paragraph (b) until such time as the Board approves a substitute index. (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 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 fee provided for hereunder shall be paid in cash by the Funds to IDS Life within five business days after the last day of each month. Part Three: ALLOCATION OF EXPENSES (1) The Corporation agrees to pay: (a) Fees payable to IDS Life for the latter's services under the terms of this Agreement. (b) All fees, costs, expenses and allowances payable to any person, firm or corporation for services under any agreement entered into by the Fund covering the offering for sale, sale and distribution of the Fund's shares. (c) All taxes of any kind payable by the Funds other than federal original issuance taxes on shares issued by the Fund. (d) All brokerage commissions and charges in the purchase and sale of assets. (2) The Corporation agrees to reimburse IDS Life or its affiliates for the aggregate cost of the services listed below incurred by IDS Life in its operation of the Fund. (a) All custodian or trustee fees, costs and expenses. (b) Costs and expenses in connection with the auditing and certification of the records and accounts of the Fund by independent certified public accountants. (c) Costs of obtaining and printing of dividend checks, reports to shareholders, notices, proxies, proxy statements and tax notices to shareholders, and also the cost of envelopes in which such are to be mailed. (d) Postage on all communications, notices and statements to brokers, dealers, and the Fund's shareholders. (e) All fees and expenses paid to directors of the Funds; however, IDS Life will pay fees to directors who are officers or employees of IDS Life or its affiliated companies. (f) Costs of fidelity and surety bonds covering officers, directors and employees of the Fund. (g) All fees and expenses of attorneys who are not officers or employees of IDS Life or any of its affiliates. (h) All fees paid for the qualification and registration for public sales of the securities of the Fund under the laws of the United States and of the several states of the United States in which the securities of the Fund shall be offered for sale. (i) Cost of printing prospectuses, statements of additional information and application forms for existing shareholders, and any supplements thereto. (j) Any losses due to theft and defalcation of the assets of the Funds, or due to judgments or adjustments not covered by surety or fidelity bonds, and not covered by agreement or obligation. (k) Expenses incurred in connection with lending portfolio securities of the Funds. (l) Expenses properly payable by the Funds, approved by the Board. Part Four: MISCELLANEOUS (1) IDS Life 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) Each Fund recognizes that AEFC and IDS Life now render 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 Funds and that AEFC and IDS Life manage their own investments and/or those of their subsidiaries. AEFC and IDS Life shall be free to render such investment advice and other services and each 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 Funds are or may be interested in AEFC or IDS Life or any successor or assignee thereof, as directors, officers, stockholders or otherwise; that directors, officers, stockholders or agents of AEFC or IDS Life are or may be interested in the Funds as directors, officers, shareholders, or otherwise; or that AEFC or IDS Life or any successor or assignee, is or may be interested in the Funds as shareholder or otherwise, provided, however, that neither AEFC or IDS Life, nor any officer, director or employee thereof or of the Funds, shall sell to or buy from the Funds any property or security other than shares issued by the Funds, 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) IDS Life agrees that no officer, director or employee of IDS Life 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 or employees of IDS Life from having a financial interest in the Funds or in IDS Life. (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 IDS Life, 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 IDS Life as may be allowed by rule or order of the SEC, and if made pursuant to procedures adopted by the Board. (7) IDS Life agrees that, except as herein otherwise expressly provided or as may be permitted consistent with the use of a broker-dealer affiliate of IDS Life 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 Funds) or other assets by or for the Funds. Part Five: RENEWAL AND TERMINATION (1) This Agreement shall continue in effect for two years from the date of this Agreement, or until a new agreement is approved by a vote of the majority of the outstanding shares of each Fund and by vote of the 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 or by a vote of the majority of the outstanding shares of the Funds 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 a Fund or IDS Life 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 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. (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 VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXP Variable Portfolio - Emerging Markets Fund AXP Variable Portfolio - S&P 500 Index Fund By /s/ Leslie L. Ogg Leslie L. Ogg Vice President IDS LIFE INSURANCE COMPANY By /s/ Pamela J. Moret Pamela J. Moret Executive Vice President, Variable Assets EX-99.(D)(6) 4 0004.txt ADDENDUM TO INVESTMENT ADVISORY AGREEMENT ADDENDUM TO INVESTMENT ADVISORY AGREEMENT Schedule A of the Investment Advisory Agreement between IDS Life Insurance Company (IDS Life) and American Express Financial Corporation (AEFC) dated October, 14, 1998 is hereby amended to add 2 new investment portfolios, AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund. All other provisions of the Investment Advisory Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Addendum as on the 1st day of May, 2000. IDS LIFE INSURANCE COMPANY ATTEST: By: /s/ Pamela J. Moret By: /s/ Chris A. Ingvalson Name: Pamela J. Moret Name: Chris A. Ingvalson Title: Executive Vice President - Variable Assets Title: Assistant Secretary AMERICAN EXPRESS FINANCIAL CORPORATION ATTEST: By: /s/ Peter J. Anderson By: /s/ Chris A. Ingvalson Name: Peter J. Anderson Name: Chris A. Ingvalson Title: Senior Vice President - Investment Operations Title: Assistant Secretary SCHEDULE A - ------------------------------------------------------------------------- ----- FUND PERCENTAGE OF NET ASSETS - ------------------------------------------------------------------------------- AXP Variable Portfolio - Income Series, Inc. o AXP Variable Portfolio - Bond Fund 0.25% o AXP Variable Portfolio - Extra Income Fund 0.25% o AXP Variable Portfolio - Federal Income Fund 0.25% o AXP Variable Portfolio - Global Bond Fund 0.25% - ------------------------------------------------------------------------------- AXP Variable Portfolio - Investment Series, Inc. o AXP Variable Portfolio - Blue Chip Advantage 0.25% o AXP Variable Portfolio - Capital Resource Fund 0.25% o AXP Variable Portfolio - Emerging Markets Fund 0.35% o AXP Variable Portfolio - Growth Fund 0.25% o AXP Variable Portfolio - International Fund 0.35% o AXP Variable Portfolio - New Dimensions Fund 0.25% o AXP Variable Portfolio - S&P 500 Index Fund 0.25% o AXP Variable Portfolio - Small Cap Advantage Fund 0.25% o AXP Variable Portfolio - Strategy Aggressive Fund 0.25% - ------------------------------------------------------------------------------- AXP Variable Portfolio - Managed Series, Inc. o AXP Variable Portfolio - Diversified Equity Income Fund 0.25% o AXP Variable Portfolio - Managed Fund 0.25% - ------------------------------------------------------------------------------- AXP Variable Portfolio - Money Market Series, Inc. o AXP Variable Portfolio - Cash Management Fund 0.25% - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- IDS Life Series Fund, Inc. o Equity Portfolio 0.25% o Equity Income Portfolio 0.25% o Income Portfolio 0.25% o Money Market Portfolio 0.25% o Managed Portfolio 0.25% o Government Securities Portfolio 0.25% o International Equity Portfolio 0.35% - ------------------------------------------------------------------------------- EX-99.(D)(8) 5 0005.txt ADDENDUM TO INVESTMENT ADVISORY AGREEMENT (AEAMI) ADDENDUM TO INVESTMENT ADVISORY AGREEMENT Exhibit A of the Investment Advisory Agreement between American Express Financial Corporation (AEFC) and American Express Asset Management International Inc. (International) dated February 11, 1999 is hereby amended to add 1 new investment portfolio, AXP Variable Portfolio - Emerging Markets Fund. All other provisions of the Investment Advisory Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Addendum as on the 1st day of May, 2000. AMERICAN EXPRESS FINANCIAL CORPORATION Attest: /s/ Timothy S. Meehan BY: /s/ Peter J. Anderson Secretary Peter J. Anderson Senior Vice President - Investment Operations AMERICAN EXPRESS ASSET MANAGEMENT INTERNATIONAL INC. Attest: /s/ Timothy S. Meehan BY: /s/ Peter J. Anderson Secretary Peter J. Anderson Chairman of the Board and Executive Vice President EXHIBIT A American Express Financial Corporation shall pay American Express Asset Management International Inc. a fee equal on an annual basis as follows: Fund Fee Emerging Markets Portfolio 0.50% of daily net assets World Growth Portfolio 0.35% of daily net assets AXP Global Balanced Fund 0.35% of daily net assets AXP International Fund 0.35% of daily net assets AXP Variable Portfolio - Emerging Markets Fund 0.35% of daily net assets AXP Variable Portfolio - International Fund 0.35% of daily net assets American Express Financial Corporation shall pay this compensation to American Express Asset Management International Inc. in arrears on a monthly basis. To: American Express Asset Management International Inc. (International) On behalf of the Funds listed below, I hereby acknowledge receipt of the Attachment (drafted to comply with the United Kingdom's Investment Management Regulatory Organisation) to the Investment Advisory Agreement presently effective between International and American Express Financial Corporation. o Emerging Markets Portfolio o World Growth Portfolio o AXP Global Balanced Fund o AXP International Fund o AXP Variable Portfolio - Emerging Markets Fund o AXP Variable Portfolio - International Fund Signed: /s/ Leslie L. Ogg Leslie L. Ogg Title: Vice President Date: May 1, 2000 EX-99.(D)(14) 6 0006.txt ADMINISTRATIVE SERVICES AGREEMENT ADMINISTRATIVE SERVICES AGREEMENT AGREEMENT made the 1st day of May, 2000, by and between AXP Variable Portfolio - Investment Series, Inc. (the "Corporation"), a Minnesota corporation, on behalf of its underlying series funds: AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund (individually a "Fund" and collectively the "Funds"), and American Express Financial Corporation, a Delaware corporation. Part One: SERVICES (1) The Corporation hereby retains American Express Financial Corporation, and American Express Financial Corporation hereby agrees, for the period of this Agreement and under the terms and conditions hereinafter set forth, to furnish the Corporation continuously with all administrative, accounting, clerical, statistical, correspondence, corporate and all other services of whatever nature required in connection with the administration of the Corporation 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 Executive Committee and the authorized officers of the Corporation. American Express Financial Corporation agrees to maintain an adequate organization of competent persons to provide the services and to perform the functions herein mentioned. American Express Financial Corporation agrees to meet with any persons at such times as the Board of Directors deems appropriate for the purpose of reviewing American Express Financial Corporation's performance under this Agreement. (2) The Corporation agrees that it will furnish to American Express Financial Corporation any information that the latter may reasonably request with respect to the services performed or to be performed by American Express Financial Corporation under this Agreement. (3) It is understood and agreed that in furnishing the Corporation with the services as herein provided, neither American Express Financial Corporation, nor any officer, director or agent thereof shall be held liable to the Corporation 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 American Express Financial Corporation may rely upon information furnished to it reasonably believed to be accurate and reliable. Part Two: COMPENSATION FOR SERVICES (1) The Corporation agrees to pay to American Express Financial Corporation, and American Express Financial Corporation covenants and agrees to accept from the Corporation in full payment for the services furnished, based on the net assets of the Corporation as set forth in the following table: - ------------------------------------- AXP Variable Portfolio - Emerging Markets Fund Assets Annual rate at (billions) each asset level ---------- ---------------- First $0.25 0.10% Next 0.25 0.09 Next 0.25 0.08 Next 0.25 0.07 Next 1.00 0.06 Over 2.00 0.05 - ------------------- ----------------- - ------------------------------------- AXP Variable Portfolio - S&P 500 Index Fund Assets Annual rate at (billions) each asset level ---------- ---------------- First $1.00 0.080% Next 1.00 0.075 Next 3.00 0.070 Over 5.00 0.065 - ------------------- ----------------- 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. The computation shall be made for each such day on the basis of net assets as of the close of business of the full business day two (2) business days prior to the day for which the computation is being made. 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 Corporation recorded on the books of the Corporation 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 Corporation to American Express Financial Corporation within five (5) business days after the last day of each month. Part Three: ALLOCATION OF EXPENSES (1) The Corporation agrees to pay: (a) Administrative fees payable to American Express Financial Corporation for its services under the terms of this Agreement. (b) Taxes. (c) Fees and charges of its independent certified public accountants for services the Corporation requests. (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 American Express Financial Corporation, except that American Express Financial Corporation shall reimburse the Corporation 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 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 Corporation 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 Corporation, equal to the cost of such incurred by American Express Financial Corporation. (g) Fees of consultants employed by the Corporation. (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 Corporation will not pay any fees or expenses of any person who is an officer or employee of American Express Financial Corporation 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. (j) Organizational expenses of the Corporation. (k) One-half of the Investment Company Institute membership dues charged jointly to the American Express(R)Funds and American Express Financial Corporation. (l) Expenses properly payable by the Corporation, approved by the Board of Directors. (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 Corporation under this Agreement and any other agreement between the Corporation and American Express Financial Corporation, but excluding those expenses set forth in (1)(b) of this Part Three, exceed the most restrictive applicable state expenses limitation, the Corporation shall not pay those expenses set forth in (1)(a) and (c) through (m) of this Part Three to the extent necessary to keep the Corporation's expenses from exceeding the limitation, it being understood that American Express Financial Corporation will assume all unpaid expenses and bill the Corporation for them in subsequent months but in no event can the accumulation of unpaid expenses or billing be carried past the end of the Corporation'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 Corporation. (2) A "full business day" shall be as defined in the By-laws. (3) The Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation as directors, officers, shareholders, or otherwise; or that American Express Financial Corporation or any successor or assignee, is or may be interested in the Corporation as shareholder or otherwise, provided, however, that neither American Express Financial Corporation, nor any officer, director or employee thereof or of the Corporation, shall sell to or buy from the Corporation any property or security other than shares issued by the Corporation, except in accordance with applicable regulations or orders of the United States 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) American Express Financial Corporation agrees that no officer, director or employee of American Express Financial Corporation will deal for or on behalf of the Corporation 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 American Express Financial Corporation from having a financial interest in the Corporation or in American Express Financial Corporation. (7) The Corporation agrees that American Express Financial Corporation 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 American Express Financial Corporation 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. IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written. AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXP Variable Portfolio - Emerging Markets Fund AXP Variable Portfolio - S&P 500 Index Fund By:/s/ Leslie L. Ogg Leslie L. Ogg Vice President AMERICAN EXPRESS FINANCIAL CORPORATION By: /s/ Pamela J. Moret Pamela J. Moret Senior Vice President - Investment Products EX-99.(G)(4) 7 0007.txt CUSTODIAN AGREEMENT CUSTODIAN AGREEMENT THIS CUSTODIAN AGREEMENT dated May 1, 2000, between AXP Variable Portfolio - Investment Series, Inc., a Minnesota corporation, (the "Corporation"), on behalf of its underlying series funds: AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index 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 Corporation 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 Corporation 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 Corporation, 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 Corporation 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 or direction, including a computer printout, directed to the Custodian and signed in the name of the Corporation 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 Corporation will certify to the Custodian the names and signatures of its present officers and other designated persons authorized on behalf of the Corporation to direct the Custodian by custodian order as herein before defined. The Corporation 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 Corporation as having been duly adopted by the Board of Directors or the Executive Committee of the Board of Directors of the Corporation designating those persons currently authorized on behalf of the Corporation 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 Corporation which has been delivered to the Custodian as herein above provided. Section 3. Use of Subcustodians The Custodian may make arrangements, where appropriate, with other 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 United States banks; through foreign banks, banking institutions or trust companies; through foreign subsidiaries of United States 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 and the rules promulgated by the Securities and Exchange Commission thereunder, any order issued by the Securities and Exchange Commission, or any "no-action" letter received from the staff of the Securities and Exchange Commission. 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 Corporation 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 Corporation 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 Corporation. The Custodian or its agent shall make payments of cash to or for the account of the Corporation from such cash only: (a) for the purchase of securities for the portfolio of the Corporation upon the receipt of such securities by the Custodian or its agent unless otherwise instructed on behalf of the Corporation; (b) for the purchase or redemption of shares of capital stock of the Corporation; (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 Corporation held by or to be delivered to the Custodian; (f) for payments in connection with the return of securities loaned by the Corporation 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. Before making any such payment for the purposes permitted under the terms of 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) or, where appropriate, a trade affirmation report, and that in respect to item (g), a copy of a resolution of the Board of Directors or of the Executive Committee of the Board of Directors of the Corporation signed by an officer of the Corporation 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 Corporation to endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Corporation and drawn on or to the order of the Corporation and to deposit same to the account of the Corporation 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 Corporation. The Custodian shall record and maintain a record of all certificate numbers. Securities so received shall be held in the name of the Corporation, 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 Securities and Exchange Commission may adopt, the Custodian may deposit all or any part of the securities owned by the Corporation 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 Securities and Exchange Commission 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 Corporation 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 Corporation and only for the account of the Corporation 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 Corporation 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 Corporation, 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 (e) merger, consolidation, reorganization, recapitalization or readjustment, or otherwise; (f) for the purpose of exchanging interim receipts or temporary certificates for permanent certificates; (g) upon conversion of such securities pursuant to their terms into other securities; (h) upon exercise of subscription, purchase or other similar rights represented by such securities; for loans of such securities by the Corporation upon receipt of collateral; or (i) for other proper corporate purposes. As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d), (e), (f), (g) and (h), 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 Corporation requesting such transfer, exchange or delivery and stating that it is for a purpose permitted under Section 6 or, where appropriate, a trade affirmation report, (whenever a facsimile is utilized, the Corporation will also deliver an original signed custodian order) and, in respect to item (i), a copy of a resolution of the Board of Directors or of the Executive Committee of the Board of Directors of the Corporation signed by an officer of the Corporation 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 Corporation, 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 Corporation which call for payment upon presentation and hold all cash received by it upon such payment for the account of the Corporation; (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 Corporation 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 Corporation. 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 Corporation. The Custodian shall promptly deliver to the Corporation 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 Corporation 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 Corporation. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Corporation 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. Section 9. Transfer Taxes The Corporation 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 Corporation as of the close of business each day a statement showing all transactions and entries for the account of the Corporation. 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 Corporation, internal auditors employed by the Corporation's investment adviser, and independent auditors employed by the Corporation. The Custodian shall furnish the Corporation in such form as may reasonably be requested by the Corporation a report, including a list of the securities held by it in custody for the account of the Corporation, 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 Corporation. Should any report ever be filed with any governmental authority pertaining to lost or stolen securities, the Custodian will concurrently provide the Corporation with a copy of that report. The Custodian also shall furnish such reports on its systems of internal accounting control as the Corporation 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, trade affirmation report, or certified copy of any resolution of the Board of Directors or of the Executive Committee of the Board of Directors of the Corporation, and may rely on the genuineness of any such document which it may in good faith believe to have been validly prepared or executed. The Corporation 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 Corporation for such items. In the event of any advance of cash for any purpose made by Custodian resulting from orders or instructions of the Corporation, 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 Corporation 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 Corporation 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. Section 12. Termination and Amendment of Agreement The Corporation 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 Corporation ninety days' written notice of such termination by registered mail addressed to the Corporation at its principal place of business. The Corporation may terminate this Agreement at any time by written notice thereof delivered, together with a copy of the resolution of the Board of Directors authorizing such termination and certified by the Secretary of the Corporation, by registered mail to the Custodian. Upon such termination of this Agreement, assets of the Corporation held by the Custodian shall be delivered by the Custodian to a successor custodian, if one has been appointed by the Corporation, upon receipt by the Custodian of a copy of the resolution of the Board of Directors of the Corporation 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 of Directors of the Corporation, 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 Corporation 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. This Agreement shall be governed by the laws of the State of Minnesota. AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXP Variable Portfolio - Emerging Markets Fund AXP Variable Portfolio - S&P 500 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 EX-99.(I) 8 0008.txt OPINION AND CONSENT OF COUNSEL October 26, 2000 AXP Variable Portfolio - Investment Series, Inc. 200 AXP Financial Center Minneapolis, Minnesota 55474 Gentlemen: I have examined the Articles of Incorporation and the By-Laws of AXP Variable Portfolio - Investment 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 S. Marquette Ave., Suite 2810 Minneapolis, Minnesota 55402-3268 EX-99.(J) 9 0009.txt AUDITORS CONSENT Independent auditors' consent The board and shareholders AXP Variable Portfolio Income Series, Inc. AXP Variable Portfolio -- Bond Fund AXP Variable Portfolio -- Extra Income Fund AXP Variable Portfolio -- Federal Income Fund AXP Variable Portfolio -- Global Bond Fund AXP Variable Portfolio Investment Series, Inc. AXP Variable Portfolio -- Blue Chip Advantage Fund AXP Variable Portfolio -- Capital Resource Fund AXP Variable Portfolio -- Emerging Markets Fund AXP Variable Portfolio -- Growth Fund AXP Variable Portfolio -- International Fund AXP Variable Portfolio -- New Dimensions Fund AXP Variable Portfolio -- S&P 500 Index Fund AXP Variable Portfolio -- Small Cap Advantage Fund AXP Variable Portfolio -- Strategy Aggressive Fund AXP Variable Portfolio Managed Series, Inc. AXP Variable Portfolio -- Diversified Equity Income Fund AXP Variable Portfolio -- Managed Fund AXP Variable Portfolio Money Market Series, Inc. AXP Variable Portfolio -- Cash Management Fund: We consent to the use of our reports included or incorporated herein by reference, and to the references to our Firm under the headings "Financial highlights" in Part A and "INDEPENDENT AUDITORS" in Part B of the Registration Statement. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota October 26, 2000 EX-99.(M)(2) 10 0010.txt PLAN AND AGREEMENT OF DISTRIBUTION PLAN AND AGREEMENT OF DISTRIBUTION This Plan and Agreement of Distribution ("Plan") is between AXP Variable Portfolio - Investment Series, Inc. on behalf of its series of capital stock, AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - International Fund, AXP Variable Portfolio - New Dimensions Fund, and AXP Variable Portfolio - Strategy Aggressive Fund, a registered management investment company, ("the Portfolio") and IDS Life Insurance Company ("IDS Life"). It is effective September 20, 1999. This Plan provides that: 1. IDS Life will purchase the Portfolio's shares on behalf of its separate accounts and the separate accounts of its affiliated life insurance companies established for the purpose of funding variable life insurance, annuity contracts or both (collectively referred to as "Variable Contracts"). Additionally, IDS Life may offer the Portfolio's shares to one or more unaffiliated life insurance companies ("Unaffiliated Life Companies") for purchase on behalf on certain of their separate accounts established for the purpose of funding Variable Contracts. 2. The Portfolio will reimburse IDS Life up to 0.125% of its daily net assets for various costs paid and accrued in connection with the distribution of the Portfolio's shares and for services provided to existing and prospective Variable Contract owners. Payments made under the Plan are based on budgeted expenses and shall be made within five (5) business days after each month. At the end of each calendar year, IDS Life shall furnish a declaration setting out the actual expenses it has paid and accrued. Any money that has been paid in excess of the amount of these expenses shall be returned to the Portfolio. 3. IDS Life represents that the money paid by the Portfolio will benefit the variable Contract owners and not the separate accounts that legally own the shares and be for the following: (a) printing and mailing prospectuses, Statements of Additional Information, supplements, and reports to existing and prospective Variable Contract owners; (b) preparation and distribution of advertisement, sales literature, brokers' materials and promotional materials relating to the Portfolio; (c) presentation of seminars and sales meetings describing or relating to the Portfolio; (d) training sales personnel regarding the Portfolio; (e) compensation of sales personnel for sale of the Portfolio's shares; (f) compensation of sales personnel for assisting Variable Contract owners with respect to the Portfolio shares; (g) overhead of IDS Life and its affiliates appropriately allocated to the promotion of sale of the Portfolio's shares; and (h) any activity primarily intended to result in the sale of the Portfolio's shares, including payments to Unaffiliated Life Companies. 4. IDS Life shall provide all information relevant and necessary for the Board to make informed determinations about whether the Plan should be continued and shall: (a) submit quarterly a report that sets out the expenses paid or accrued by it, the names of the Unaffiliated Life Companies to whom the Portfolio's shares are sold, and the payments made to each Unaffiliated Life Company that has been reimbursed; (b) monitor the level and quality of services provided by it and all affiliated companies and will use its best efforts to assure that in each case legitimate services are rendered in return for the reimbursement pursuant to the Plan; and (c) meet with the Portfolio's representatives, as reasonably requested, to provide additional information. 5. IDS Life represents that it and all affiliated insurance company sponsors will provide full disclosure of the Portfolio's 12b-1 Plan in the prospectus for any separate account investing in the Portfolio and will clearly communicate the combined effect of all fees and costs, including the reimbursement under the 12b-1 Plan, imposed by the separate account and the Portfolio in accordance with applicable laws. 6. All payments by IDS Life to Unaffiliated Life Companies shall be made pursuant to a written agreement (Related Agreement). All such written agreements will be in a form approved by a majority of the Portfolio's independent members of the board and the board as a whole before it shall be used. The Related Agreement shall: (a) require full disclosure of the combined effect of all fees and charges in accordance with applicable laws; (b) provide for the termination at any time without penalty as required by Rule 12b-1; and (c) continue so long as its continuance is done in accordance with the requirements of Rule 12b-1. 7. The Portfolio represents that the Plan has been approved as required by Rule 12b-1 and may continue for more than one year so long as it is continued as required by Rule 12b-1 and shall terminate automatically in the event of an assignment. 8. The Plan may not be amended to materially increase the amount of the payments without the approval of the outstanding voting securities. AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXP Variable Portfolio - Capital Resource Fund AXP Variable Portfolio - International Fund AXP Variable Portfolio - New Dimensions Fund AXP Variable Portfolio - Strategy Aggressive Fund /s/ Leslie L. Ogg Leslie L. Ogg Vice President IDS LIFE INSURANCE COMPANY /s/ Pamela J. Moret Pamela J. Moret Executive Vice President, Variable Assets EX-99.(M)(3) 11 0011.txt PLAN AND AGREEMENT OF DISTRIBUTION PLAN AND AGREEMENT OF DISTRIBUTION This Plan and Agreement of Distribution ("Plan") is between AXP Variable Portfolio - Investment Series, Inc. on behalf of its series of capital stock, AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund, a registered management investment company, ("the Portfolio") and IDS Life Insurance Company ("IDS Life"). It is effective May 1, 2000. This Plan provides that: 1. IDS Life will purchase the Portfolio's shares on behalf of its separate accounts and the separate accounts of its affiliated life insurance companies established for the purpose of funding variable life insurance, annuity contracts or both (collectively referred to as "Variable Contracts"). Additionally, IDS Life may offer the Portfolio's shares to one or more unaffiliated life insurance companies ("Unaffiliated Life Companies") for purchase on behalf on certain of their separate accounts established for the purpose of funding Variable Contracts. 2. The Portfolio will reimburse IDS Life up to 0.125% of its daily net assets for various costs paid and accrued in connection with the distribution of the Portfolio's shares and for services provided to existing and prospective Variable Contract owners. Payments made under the Plan are based on budgeted expenses and shall be made within five (5) business days after each month. At the end of each calendar year, IDS Life shall furnish a declaration setting out the actual expenses it has paid and accrued. Any money that has been paid in excess of the amount of these expenses shall be returned to the Portfolio. 3. IDS Life represents that the money paid by the Portfolio will benefit the variable Contract owners and not the separate accounts that legally own the shares and be for the following: (a) printing and mailing prospectuses, Statements of Additional Information, supplements, and reports to existing and prospective Variable Contract owners; (b) preparation and distribution of advertisement, sales literature, brokers' materials and promotional materials relating to the Portfolio; (c) presentation of seminars and sales meetings describing or relating to the Portfolio; (d) training sales personnel regarding the Portfolio; (e) compensation of sales personnel for sale of the Portfolio's shares; (f) compensation of sales personnel for assisting Variable Contract owners with respect to the Portfolio shares; (g) overhead of IDS Life and its affiliates appropriately allocated to the promotion of sale of the Portfolio's shares; and (h) any activity primarily intended to result in the sale of the Portfolio's shares, including payments to Unaffiliated Life Companies. 4. IDS Life shall provide all information relevant and necessary for the Board to make informed determinations about whether the Plan should be continued and shall: (a) submit quarterly a report that sets out the expenses paid or accrued by it, the names of the Unaffiliated Life Companies to whom the Portfolio's shares are sold, and the payments made to each Unaffiliated Life Company that has been reimbursed; (b) monitor the level and quality of services provided by it and all affiliated companies and will use its best efforts to assure that in each case legitimate services are rendered in return for the reimbursement pursuant to the Plan ;and (c) meet with the Portfolio's representatives, as reasonably requested, to provide additional information. 5. IDS Life represents that it and all affiliated insurance company sponsors will provide full disclosure of the Portfolio's 12b-1 Plan in the prospectus for any separate account investing in the Portfolio and will clearly communicate the combined effect of all fees and costs, including the reimbursement under the 12b-1 Plan, imposed by the separate account and the Portfolio in accordance with applicable laws. 6. All payments by IDS Life to Unaffiliated Life Companies shall be made pursuant to a written agreement (Related Agreement). All such written agreements will be in a form approved by a majority of the Portfolio's independent members of the board and the board as a whole before it shall be used. The Related Agreement shall: (a) require full disclosure of the combined effect of all fees and charges in accordance with applicable laws; (b) provide for the termination at any time without penalty as required by Rule 12b-1; and (c) continue so long as its continuance is done in accordance with the requirements of Rule 12b-1. 7. The Portfolio represents that the Plan has been approved as required by Rule 12b-1 and may continue for more than one year so long as it is continued as required by Rule 12b-1 and shall terminate automatically in the event of an assignment. 8. The Plan may not be amended to materially increase the amount of the payments without the approval of the outstanding voting securities. AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXP Variable Portfolio - Emerging Markets Fund AXP Variable Portfolio - S&P 500 Index Fund /s/ Leslie L. Ogg Leslie L. Ogg Vice President IDS LIFE INSURANCE COMPANY /s/ Pamela J. Moret Pamela J. Moret Executive Vice President, Variable Assets -----END PRIVACY-ENHANCED MESSAGE-----